week ending Nov 17

Fed balance sheet expands in latest week (Reuters) - The Federal Reserve's balance sheet expanded in the latest week with increased holdings of federal government debt and mortgage-backed securities, Fed data released on Thursday showed. The Fed's balance sheet stood at $2.859 trillion on November 14, up from $2.813 trillion on November 7. The Fed's holdings of Treasuries totaled $1.657 trillion as of Wednesday from $1.651 trillion the previous week. The Fed's ownership of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and the Government National Mortgage Association (Ginnie Mae) totaled $889.02 billion compared with $852.06 billion the previous week. The jump in agency MBS stemmed from the settlement on the central bank's latest purchases earlier this week tied to its third round of quantitative easing, known as QE3, analysts said. The Fed's open-ended purchases of MBS are intended to help housing market with the goal to foster U.S. economic growth. The Fed's holdings of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Bank system was unchanged on the week at $81.90 billion. The Fed's overnight direct loans to credit-worthy banks via its discount window averaged $13 million a day during the week from a $9 million a day average rate the prior week.

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

US Fed looks at further easing - FT.com: A “number” of US Federal Reserve officials are pushing for more quantitative easing next year in a sign that the central bank may try to stimulate the economy further. “A number of participants indicated that additional asset purchases would likely be appropriate next year . . . in order to achieve a substantial improvement in the labour market,” said the minutes of the rate committee’s October meeting. The minutes suggest that when the Fed’s Operation Twist programme expires at the end of the year, it may be replaced with new quantitative easing, in order to keep its total asset purchases at $85bn a month. Support from a number of participants suggests that the committee is leaning toward more QE but has not taken a final decision. An expansion of QE to replace Operation Twist would mark a further easing of monetary policy. Under the Operation Twist programme, the Fed sells short-dated and buys longer-dated assets in an effort to drive down longer-term interest rates, but it is running out of shorter-dated assets to sell. The Federal Open Market Committee minutes also suggest that the Fed is close to adopting a “threshold” strategy to replace its current forecast of low interest rates until mid-2015, although the central bank is still working on the technical details. Such a change could stimulate the economy further by tying low Fed rates more closely to success in bringing down unemployment. As part of that, the Fed is considering whether it should offer guidance on the future path of interest rates after the first rise, which could let it influence the yield curve even beyond its existing guidance of mid-2015 Under a threshold strategy, the Fed would forecast low interest rates until it had met a condition on the economy, such as an unemployment rate of 7 per cent. When the threshold was hit, it would choose whether to raise rates.

Fed Minutes Suggest Expansion of Bond Buying, Economists Say - The latest set of the Federal Reserve‘s meeting minutes affirmed for many economists that the central bank will continue to press forward with its bond-buying campaign well into next year. The minutes, released Wednesday, covered the deliberation of the central-bank gathering held on Oct. 23-24. That meeting produced a status quo outcome, with the central bank pressing forward with its open-ended mortgage-bond-buying program, while retaining its conditional commitment to keep rates very low until the middle of 2015. The meeting minutes revealed a more animated meeting than the official Federal Open Market Committee statement suggested, amid an active discussion about the possibility of adopting economic triggers that would drive the conduct of monetary policy.

Some Fed officials favoured more bond buying in 2013: minutes - A number of Federal Reserve officials in October felt the U.S. central bank would need to step up asset purchases in 2013 to fill the gap when Operation Twist expires, according to minutes released on Wednesday that hardened expectations the Fed will take such a decision next month. The minutes of the U.S. central bank’s policy meeting last month also showed that officials looked favou rably on the idea of adopting unemployment and inflation “thresholds” to guide expectations about when they would eventually raise interest rates, but felt this needed more work.Under the program dubbed Operation Twist, the Fed has been selling short-term securities to buy $45-billion (U.S.) in longer-term debt every month to push down long-term borrowing costs. The program is slated to expire at year end. “A number of participants indicated that additional asset purchases would likely be appropriate next year after the conclusion of the maturity extension program in order to achieve a substantial improvement in the labor market,” the Fed said in the minutes of the Oct. 23-24 policy meeting. Wall Street traders had already expected the central bank to replace Operation Twist in 2013, and analysts said the minutes simply provided another reason to expect a decision to do so at the Fed’s next meeting, on Dec. 11-12.

Fed’s Williams: Expect QE3 to Continue Well Into 2013 - A key Federal Reserve official said the central bank will continue bond buying well into 2013 even as the economic outlook improves, as employment growth continues to sputter. Because it will be “some time” before unemployment falls substantially from its current “high” levels, “I anticipate that we will need to continue our purchases of mortgage-backed securities and longer-term Treasury securities past the end of this year and likely well into the second half of next year in order to best achieve our mandated goals,” Federal Reserve Bank of San Francisco President John Williams said during an appearance at the University of San Francisco.

Williams Says Fed May Buy $85 Billion in Bonds Per Month - Federal Reserve Bank of San Francisco President John Williams said the central bank will probably buy about $85 billion in bonds per month starting in early 2013 and continue purchasing securities well into the second half of the year. “I expect it will be some time until the job market makes substantial progress towards our congressionally mandated maximum employment goal,” Williams said yesterday in a speech in San Francisco. “I anticipate that we will need to continue our purchases of mortgage-backed securities and longer-term Treasury securities past the end of this year and likely well into the second half of next year.” A number of Fed officials said the central bank may need to expand its monthly bond purchases after the expiration in December of a program known as Operation Twist that swaps $45 billion of short-term Treasuries on its balance sheet each month for longer-term debt, minutes of the Federal Open Market Committee’s Oct. 23-24 meeting showed yesterday. The FOMC in October voted to keep buying $40 billion in mortgage bonds per month to spur the job market.

FOMC Minutes: "Participants generally favored" Thresholds - It seems very likely that the Fed will adopt a threshold rule for the Feds Fund Rate based on inflation and unemployment, and remove the forward guidance sentence from the statement at the December 11th and 12th meeting.  Note: The forward guidance includes the sentence: "currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015". From the Fed: Minutes of the Federal Open Market Committee, October 23–24, 2012. Excerpt: A staff presentation focused on the potential effects of using specific threshold values of inflation and the unemployment rate to provide forward guidance regarding the timing of the initial increase in the federal funds rate. The presentation reviewed simulations from a staff macroeconomic model to illustrate the implications for policy and the economy of announcing various threshold values that would need to be attained before the Federal Open Market Committee (FOMC) would consider increasing its target for the federal funds rate. Meeting participants discussed whether such thresholds might usefully replace or perhaps augment the date-based guidance that had been provided in the policy statements since August 2011. Participants generally favored the use of economic variables, in place of or in conjunction with a calendar date, in the Committee's forward guidance, but they offered different views on whether quantitative or qualitative thresholds would be most effective. Many participants were of the view that adopting quantitative thresholds could, under the right conditions, help the Committee more clearly communicate its thinking about how the likely timing of an eventual increase in the federal funds rate would shift in response to unanticipated changes in economic conditions and the outlook.

 Fed vice-chair backs rates ‘threshold’ -  Janet Yellen has become the most senior US Federal Reserve official to endorse a “threshold strategy” for low interest rates, suggesting that the idea is moving closer to adoption. Under a threshold strategy, the Fed would scrap its current forecast of low rates “at least through mid-2015” and tie rates to an economic condition such as unemployment falling below 7 per cent. Ms Yellen is vice chair of the Fed and leads its working group on communications, so her support means the policy could be put in place as early as the central bank’s December meeting. “I support this approach because it would enable the public to immediately adjust its expectations concerning the timing of [interest rate] lift off in response to new information affecting the economic outlook,” “This market response would serve as a kind of automatic stabiliser for the economy: information suggesting a weaker outlook would automatically induce market participants to push out the anticipated date of tightening and vice versa.” Ms Yellen did not indicate what specific conditions on inflation and unemployment she might support. One of the most dovish Fed officials, Ms Yellen argued that the best trade off between the Fed’s twin goals of stable inflation and minimum unemployment would mean keeping interest rates close to zero until early 2016.

Fed Watch: Yellen Supports Explicit Guideposts --  Today Federal Reserve Vice Chair Janet Yellen discussed the evolution of policy communications. As might be expected from Yellen, there was a dovish tone to the speech. She provides a very nice overview of the Fed's changing communication strategy before shifting to her preferred path for the future. Along the way, she reiterates her estimated optimal path for monetary policy: The notable feature of the optimal path is that inflation glides to its long-run target from above while unemployment does the opposite. These path are achieved by holding down interest rates longer than the level implied by a Taylor-type rule. Yellen explains that it is challenging to communicate such a rule, particularly in the current circumstances: The fact that simple rules aren't as useful in current circumstances as they would be for the FOMC at other times poses a significant challenge for FOMC communications, especially since private-sector Fed watchers have frequently relied on such rules to understand and predict the Committee's decisions on the federal funds rate... ...Now, however, the federal funds rate may well diverge for a number of years from the prescriptions of simple rules. Moreover, the FOMC announced an open-ended asset purchase program in September, and there is no historical record for the public to use in forming expectations on how the FOMC is likely to use this tool. Thus, the current situation makes it very important that the FOMC provide private-sector forecasters with the information they need to predict how the likely path of policy will change in response to changes in the outlook...

Monetary policy: The end of one big stagnation -- JANET YELLEN is the vice chairman of the Federal Reserve and, I think it's fair to say, the presumptive heir to Ben Bernanke. In a new speech, Ms Yellen provides a nice discussion of the state of monetary policy and explicitly endorses the communications framework advanced by Chicago Fed president Charles Evans and Minneapolis Fed president Narayana Kocherlakota, in which thresholds for key data points like unemployment and inflation are used to provide guidance about the future path of interest rates rather than calendar dates. While Ms Yellen declined to name precise numbers for the thresholds, this is another sign that the Federal Open Market Committee is progressing toward actual adoption of such a framework. As Tim Duy notes, that's an encouraging sign: Whether the rest of the FOMC follows suit with this approach is another question, but the winds are definitely blowing in that direction. On average then, this is relatively dovish. The Fed is heading toward a policy direction that would explicitly allow for inflation somewhat above target and unemployment below target as long as inflation expectations remained anchored. One would think this should put upward pressure on near term inflation. One would think, but one would appear to be wrong, as I mentioned yesterday. Mr Duy considers this and grows pessimistic:Yellen's speech did not even generate a knee-jerk response in the stock market today. I remember a time not long ago when any hint of dovishness was good for a 1% rally. Which...leaves me wondering if open-ended QE is the last of the Fed's monetary tools. We now know the Fed will continuously exchange cash for Treasury or mortgage bonds until the Fed's economic objectives are met. Uncertainty about the course of monetary policy has been largely eliminated.

Janet Yellen’s Game-Changing Speech - On monetary policy, however, things have suddenly become a bit more promising. Janet Yellen, the Vice-Chair of the Federal Reserve, delivered a speech yesterday that strongly endorsed the idea of “forward guidance” in the economy, tying monetary policy actions to a specific employment target. The idea was first brooched by Charles Evans, the President of the Chicago Federal Reserve, who because of the rotation of regional Fed Presidents on the Federal Open Market Committee, will actually get a policymaking slot in 2013. Here’s the key part of what Yellen said:The idea is to define a zone of combinations of the unemployment rate and inflation within which the FOMC would continue to hold the federal funds rate in its current, near-zero range. For example, Charles Evans, president of the Chicago Fed, suggests that the FOMC should commit to hold the federal funds rate in its current low range at least until unemployment has declined below 7 percent, provided that inflation over the medium term remains below 3 percent. Narayana Kocherlakota, president of the Minneapolis Fed, suggests thresholds of 5.5 percent for unemployment and 2.25 percent for the medium-term inflation outlook. Under such an approach, liftoff would not be automatic once a threshold is reached; that decision would require further Committee deliberation and judgment. Here’s some commentary on this from Matt Yglesias, Joe Weisenthal and Tim Duy. So the idea here is that the Fed does not set a date for the expiration of monetary stimulus, but a target unemployment rate. Therefore, the market knows that the loose policy will continue until the economy recovers, and particularly until the jobless rate recovers.

Distinguishing Between a Fed Threshold and Trigger - We are likely to be hearing a lot about the word threshold, and how it is different from the word trigger. That will be the case if the Federal Reserve goes ahead and publicly provides the levels of inflation and unemployment that would prompt it to reconsider its monetary policy. It’s unlikely everyone they try to convince of the difference in terms will be convinced. This isn’t to discourage greater transparency from the U.S. central bank. Transparency’s a good thing. It’s just that when hard numerical goals are involved–a threshold level for employment and inflation to let the interested public know more about the Fed’s aims–those numbers likely will be equated by some market participants with immediate changes in Fed monetary policy.

What’s the Fed’s speed limit? Today’s news will give clues - A Tuesday speech from a top Federal Reserve official and the minutes from the last policy meeting to be released Wednesday afternoon offer lots of clues about where the central bank is heading on  monetary policy. But to understand what is really going on at the Federal Reserve, it helps to start with a metaphor.Dr. Bernanke is going for a Sunday drive, and his car is the U.S. economy. He’s tried to push on the accelerator every way he knows how (such as the “QE2” program of bond buying in 2010, or “Operation Twist,” extending the duration of bonds in its portfolio in 2011 and 2012). But whenever the car seems to be going a bit faster, Dr. Bernanke has taken his foot off the pedal, letting those programs expire. Because for Dr. Bernanke and his backseat drivers on the Federal Open Market Committee, breaking the speed limit (allowing inflation much above 2 percent) is intolerable. Plenty of people, in and outside the Fed, aren’t sure that Dr. Bernanke putting his foot on the gas pedal will do anything to accelerate the car at all. Instead, they want him to fix the engine (make more structural changes in how the U.S. economy works). And the longer he keeps his foot on the gas, the more likely Dr. Bernanke could go past cruising speed and end up exceeding the speed limit. But in taking his foot off the gas so quickly, Dr. Bernanke allows the car to move too slowly — three years after the recession ended, the U.S. unemployment rate is still 7.9 percent. And in September, Dr. Bernanke and the other passengers in the car who are on the Fed’s policy committee essentially said: “Enough. Let’s keep our foot on the pedal until we get up to cruising speed. We’ll try to pull our foot off the gas just as we’re hitting the speed limit, but we’re not going to panic if we go over just a little bit.”

NY Fed Survey Finds Dealers Expected QE Through First-Quarter 2014 - Surveyed ahead of the October Federal Reserve meeting, Wall Street’s biggest banks expected the central bank to continue its bond buying efforts for at least one more year. The survey was released Thursday by the Federal Reserve Bank of New York. It queried the banks known as primary dealers on a wide array of factors pertaining to the monetary policy and economic outlook. The 21 banks that carry the primary dealer title do business directly with the central bank, and underwrite Treasury debt auctions. In the survey done ahead of the Oct. 23 and 24 Federal Open Market Committee meeting, participants hadn’t expected to see much change from the Fed after the central bank launched an open ended mortgage bond buying program in September, and conditionally committed to keep interest rates steady until the middle of 2015.

The Federal Reserve’s Unconventional Policies - After the federal funds rate target was lowered to near zero in 2008, the Federal Reserve has used two types of unconventional monetary policies to stimulate the U.S. economy: forward policy guidance and large-scale asset purchases. These tools have been effective in pushing down longer-term Treasury yields and boosting other asset prices, thereby lifting spending and the economy. The following is adapted from a presentation by the president and CEO of the Federal Reserve Bank of San Francisco at the University of California, Irvine, on November 5, 2012.

Negative Nominal Interest Rates? - A number of economists and economics writers have considered the possibility of allowing the Federal Reserve to drop interest rates below zero in order to make holding onto money costlier and encouraging individuals and firms to spend, spend, spend. This unwillingness to hold currency is supposed to stimulate the economy by encouraging productive economic activity and investment. But is that necessarily true? No — it will just drive people away from using the currency as a store of purchasing power. It will drive economic activity underground and banking would be turned upside down. Japan has spent almost twenty years at the zero bound, in spite of multiple rounds of quantitative easing and stimulus. Yet Japan remains mired in depression. A return to growth for a depressionary post-bubble economy requires a substantial chunk of the debt load (and thus future debt service costs) being either liquidated, forgiven or (very difficult and slow) paid down.

Quantitative Easing and Bank Lending - When the Fed buys assets, it purchases them by crediting banks with reserves. So the result of QE is that the Fed’s balance sheet grows rapidly—to, literally, trillions of dollars. At the same time, banks exchange the assets they are selling (the Treasuries and MBSs that the Fed is buying) for credits to their reserves held at the Fed. Normally, banks try to minimize reserve holdings—to what they need to cover payments clearing (banks clear accounts with one another using reserves) as well as Fed-imposed required reserve ratios. With QE, the banks have ended up with humongous quantities of excess reserves. As we said, normally banks would not hold excess reserves voluntarily—reserves used to earn zero, so banks would try to lend them out in the fed funds market (to other banks). But in the ZIRP environment, they can’t get any return on lending reserves. So the banks are holding the excess reserves and the Fed credits them with a bit of interest. They aren’t thrilled with that but there’s nothing they can do: the Fed offers them a price they cannot refuse on the Treasuries and MBSs it wants to buy, and they get stuck with the reserves. A lot of people—including policy makers—exhort the banks to “lend out the reserves” on the notion that this would “get the economy going.” There are two problems with that. First, banks can lend reserves only to other banks—and all the other banks have exactly the same problem: too many reserves. A bank cannot lend reserves to your household or firm. You do not have an account at the Fed, so there is no operational maneuver that would allow you to borrow the reserves. Unless you are a bank, you cannot borrow them. The second problem is that banks don’t need reserves in order to lend. What they need is good, willing, and credit-worthy borrowers. That is what is sadly lacking. Those who are credit-worthy are not willing; those who are willing are mostly not credit-worthy.

Monetary policy: Is there a problem? | The Economist -  THROUGHOUT the recovery, I have used movements in inflation expectations as a gauge for the strength of the economy. And so I have become a little worried about America's economy. Inflation expectations sank in late spring, stabilised and ticked upward over the summer as Europeans acted to prevent a euro-zone meltdown, then rose rapidly in September when the Federal Reserve unveiled a new policy framework which included ongoing asset purchases. I anticipated that this rise would eventually translate into better economic data, and I have not been disappointed. Hiring has firmed and strengthened. Manufacturing activity has held steady despite a global industrial slowdown. And the housing market recovery is gathering momentum. But since mid-October, there has been an unmistakable reversal in the inflation-expectations trend. Based on 5-year breakevens, all of the September spurt has been erased. And 2-year breakevens are back at July levels. Given my optimism over the Fed's September moves and the apparent strength of underlying fundamentals in the economy, I would like to disregard this trend, but one should be very reluctant to abandon guideposts that have served one well just because they've moved in an inconvenient way.

Key Measures show low inflation in October - The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning: According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.3% annualized rate) in October. The 16% trimmed-mean Consumer Price Index increased 0.1% (1.7% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report. Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.1% (1.8% annualized rate) in October. The CPI less food and energy increased 0.2% (2.2% annualized rate) on a seasonally adjusted basis.Note: The Cleveland Fed has the median CPI details for October here. This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.2%, the trimmed-mean CPI rose 1.9%, the CPI rose 2.2%, and the CPI less food and energy rose 2.0%. Core PCE is for September and increased 1.7% year-over-year. On a monthly basis, two of these measure were above the Fed's target; median CPI was at 2.3% annualized, core CPI increased 2.2% annualized. However trimmed-mean CPI was at 1.7% annualized, and core PCE for September increased 1.4% annualized. These measures suggest inflation is close to the Fed's target of 2% on a year-over-year basis.

Economists cut U.S. Q4 growth forecasts - Economists expect the economy to grow at an annual rate of 1.8 percent in the current quarter, down from the previous estimate of 2.2 percent growth, according to the Philadelphia Federal Reserve's fourth-quarter survey of 39 forecasters. While that left estimates for gross domestic product for the year unchanged at 2.2 percent, growth in 2013 looked modestly weaker with economists forecasting 2 percent, down from 2.1 percent. Over the next three quarters, growth was seen averaging 2.1 percent, down from earlier expectations of 2.2 percent. The unemployment rate was forecast to come in lower than expected, averaging 7.9 percent in the fourth quarter from the previous estimate of 8.1 percent. The monthly unemployment rate released by the government was 7.9 percent in October. Still, unemployment was seen stuck at 7.9 percent in the first quarter of next year, and holding at 7.8 percent in the second and third quarters. Economists raised their forecasts for inflation this quarter with the headline consumer price index seen averaging 2.3 percent, up from earlier estimates for 2.0 percent. For the year, CPI was expected to average 1.9 percent, up from 1.8 percent.

Services Sector Contributes More to GDP Than Manufacturing -- After playing a major role in leading the U.S. out of recession, America’s manufacturing sector took a back seat to professional and business services as a driver of growth last year. Businesses in the service sector, including things like accounting, legal services and payroll management, accounted for 12.2% of the U.S. economy last year, adjusting for inflation, according to new figures from the Commerce Department released Tuesday. By contrast, manufacturing fueled just 11.9% of the nation’s gross domestic product.

CBO Diagnoses What’s Holding Back Recovery - The current economic recovery is among the worst of the post-World War II era largely due to slower growth of potential GDP and a severe shortfall in demand, a report from the Congressional Budget Office said. In the first three years since the economy turned around in mid-2009, the cumulative rate of gross domestic product growth has been nine percentage points below the average recovery since 1945, the CBO report released Wednesday said. One of the main factors holding back the recovery is slower growth in the economy’s potential output. That is in part of reflection of demographic trends that have slowed the growth of the working-age population.

CBO: "What Accounts for the Slow Growth of the Economy After the Recession?" - "CBO estimates that about two-thirds of the difference between the growth in real GDP in the current recovery and the average for other recoveries can be attributed to sluggish growth in potential GDP." From the newly released CBO report: In the current recovery, both potential GDP, a measure of the underlying productive capacity of the economy, and the ratio of real GDP to potential GDP have grown unusually slowly. Because potential GDP is an estimate of the amount of real GDP that corresponds to a high rate of use of labor and capital resources, it is not typically affected very much by the up-and-down cycles of the economy; in contrast, because the ratio of real GDP to potential GDP depends on the degree of the economy’s use of resources, it captures cyclical variations in real GDP around its potential level. In the first 12 quarters after the last recession, both potential GDP and the ratio of real GDP to potential GDP grew at less than half the rate that occurred, on average, in the aftermath of other recessions since World War II. Disaggregating the unusually slow growth in output since the end of the last recession, CBO’s analysis shows that that pace is mostly owing to slow growth in the underlying productive capacity of the economy and to a lesser extent, to slow growth in real output relative to that productive capacity.

Raising U.S. Exports - Here's the monthly trade picture of imports and exports over the last couple of years. But what I want to focus on here is the possibility of raising U.S. exports as part of helping to regenerate economic growth.  The U.S. GDP was $14.6 trillion in 2010. And looking ahead, the annual economic growth rates of China, India, and some other emerging market economies are likely to be a multiple of U.S. growth rates. In much of the last few decades, the U.S. consumer has been driving the world economy with buying and borrowing. But in the next few decades, the emerging economies like China, India, and others will be the drivers of world economic growth. So how well-prepared is the U.S. economy to find its niche in the global supply chains that are of increasing importance in the world economy? The World Economic Forum offers an answer in "The Global Enabling Trade Report 2012," published last spring. Chapter 1 of the report is called "Reducing Supply Chain Barriers: The Enabling Trade Index 2012,"  They sum up the growing importance of global supply chains in this way:   "Traded commodities are increasingly composed of intermediate products. Reductions in transportation and communication costs and innovations in policies and management have allowed firms to operate global supply chains that benefit from differences in comparative advantage among nations, both through international intra-firm trade and through networks that link teams of producers located in different countries. Trade and foreign investment have become increasingly complementary activities. ... Increasingly, countries specialize in tasks rather than products. Value is now added in many countries before particular goods and services reach their final destination, and the traditional notion of trade as production in one country and consumption in another is increasingly inaccurate." Their "enabling trade" index ranks countries in how their institutions and infrastructure support global trade, along a number of categories. Here's the list of the top 25 countries in their ranking: the U.S. economy ranked 19th in 2010, and dropped to 23rd in the 2012 rankings.

The Big Four Economic Indicators: Real Retail Sales and Industrial Production - This commentary has been revised to include today's release of the Industrial Production data and Wednesday's Retail Sales data, adjusted with the Consumer Price Index, released yesterday. Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method. There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are:

• Industrial Production
• Real Income  (excluding transfer payments)
• Employment
• Real Retail Sales

The weight of these four in the decision process is sufficient rationale for the St. Louis FRED repository to feature a chart four-pack of these indicators along with the statement that "the charts plot four main economic indicators tracked by the NBER dating committee." Here are the four as identified in the Federal Reserve Economic Data repository. See the data specifics in the linked PDF file with details on the calculation of two of the indicators.  Since my last update, there have been two data releases for October:

Retail Sales (the green line in the chart below).

Industrial Production (the purple line in the chart below).

At this point, with three of the four indicators for October on the books, the average of the Big Four (the gray line in the chart above) shows us that economic expansion since the last recession has been hovering around a flat line for the past seven months. The data, of course, are subject to revision, so we must view these numbers accordingly. When ECRI's Lakshman Achuthan made his controversial July assertion that these indicators were rolling over and that the economy was already in recession, the data didn't appear to support the claim. But the near-term impact of Sandy on the economy and the economic drag created by congress's inability to deal with the "Fiscal Cliff" issues certainly increase the possibility that the NBER will at some point declare that a recession started in the third or fourth quarter of 2012.

The Halt and the Lame - Krugman - Ryan Avent reminds us just how poor economic performance has been since the crisis, all across the advanced world: As John Quiggin has been emphasizing, this across-the-board poor performance puts the lie to claims that it’s all because of that scary Obama person; in fact, the US has done better than the rest, although still quite badly — this is indeed a race between the halt and the lame. (You want to be careful about the Japan comparison, by the way: given Japan’s special demography, with the working-age population actually shrinking at a fairly rapid pace, it’s not really doing any worse than the euro area and in fact is arguably doing better). What accounts for the differences? The most obvious culprit is austerity, which has been much more marked in Europe and the UK than in the US. Here’s the IMF’s estimate of the cyclically-adjusted primary balance — what the budget balance excluding interest payments would be if the economy were operating at full employment. Europe and the UK have fully reversed any stimulus introduced during the crisis; America has not:

Paul Volker on Where American Economic Policy Needs to Go  - This piece by Volker is worth reading: Americans have long been eager consumers and home owners. But there is no doubt we collectively overdid it during the years leading up to the financial and economic crisis of 2008. The personal savings rate dropped close to zero. Mortgage indebtedness grew to new (and ultimately unsustainable) heights. All that occurred as real income for average American households rose little if at all. That’s not supposed to happen in a growing, productive economy. High consumption maintained at the expense of saving and increasing indebtedness simply could not be sustained in the face of the stalled income of the “99 percent.”With little or no private savings, by mid-decade we were relying on borrowing from abroad to finance both public and private expenditures. China, Japan, and other emerging nations were perfectly happy to supply our consumers with the goods they wanted and to take dollars in payment. They kept it up, even as dollar interest rates descended toward zero. Our dependence on external financing reached levels of $500–600 billion a year, 5 percent or more of our GDP, which was well beyond any historical patterns. Happily, as a nation, and as a government, we have been able to continue to borrow abroad right through the recession. But can we count on doing that indefinitely?

Obama has four years to fix the economy - The US election was fought on first principles: should government be strengthened or dismantled? The answer was resounding. The public wants better government, not less government. Much of the economic debate in the US has been over short-term stimulus but the election turned on long-term structural issues. The problem for Mr Obama in the second term is that he does not yet have an economic strategy commensurate with his vision of a proactive government. Low tax revenues continue to leave the US vulnerable. The US government collected only 32 per cent of gross domestic product in revenues last year, compared with 38 per cent in Canada, 45 per cent in Germany and 49 per cent in Sweden. The latter countries can overcome budget deficits, poverty and outdated infrastructure. The US cannot. It will need a tax ratio like Canada’s by later this decade to get the job done. Yet revenues are not enough. The entire Keynesian apparatus that dominates Democratic party circles is also outdated and outmoded. It is a cyclical theory trying to fit a secular (that is, long-term) structural challenge. The US needs massive overhauls of its key economic sectors, almost all of which have public and private sector components that are deeply intertwined. Aggregate demand management cannot fix excessive healthcare and college costs, broken infrastructure, or an economy based on fossil fuel that needs to be decarbonised.

US Budget Deficit Soars In October As Government Spends Over $300 Billion In One Month - Moments ago the MTS released the final October budget report. It was not pretty, although those who read our report on how much debt was added - $195 billion to be precise - in the first month of the 2013 Fiscal Year will know where this is going. The US budget deficit was expected to soar after the September surplus of $75 billion, driven entirely by calendar shifts and pre-election propaganda, to -$113 billion. That was optimistic: the total amount of overspending in October was $120 billion. What is distressing is that this was well above the $98.5 billion deficit from a year ago, and confirms that the long-term trendline of ever greater spending continues. This was also the fourth largest October deficit in history. And looking merely at the spending side of the ledger, the US government's outlays in October alone were $304 billion. This is the third biggest October monthly spend for the government ever, and just why of the all time high $320.4 billion record in October 2008, when everything imploded after Lehman failure and Hank Paulson was literally dousing the monetary flames with brand new Benjamins.

Life After Debt - The CBO’s post-election report released a couple of days ago (apparently in support of advancing the prospects for a Grand Bargain, aka the Great Betrayal) is grounded in relatively pessimistic projections with regard to federal deficit and debt growth.  (See this powerful critique of CBO’s methodology by Follette and Sheiner)  In assessing just how much credibility these projections deserve to be accorded in our policy debate, it might also instructive to remember how wildly optimistic the CBO projections were not so very long ago with regard to complete elimination of the federal debt. Regular readers of this blog may already be familiar with a Planet Money report by David Kestenbaum (October 20, 2011) about “a secret government study outlining what once looked like a potential crisis:  the possibility that the U.S. government might pay off its entire debt.”   The study is titled “Life After Debt,” and was obtained through the Freedom of Information Act.  You can read the Planet Money blog post and download the original “Life After Debt” pdf document they obtained from the government here.  Kastenbaum describes it as having a “strange, science-fictiony” quality. The essence of the issue, of course, is that when you start thinking seriously about the elimination of U.S. Treasury debt instruments, you must then confront the potential loss of the extraordinary instrumental value they represent in the world financial system.  This leads immediately to a more theoretically (or perhaps philosophically) informed consideration of the “value” of the U.S. debt, as opposed to the disutility with which it is conventionally regarded. For your edification, I have taken the liberty of parsing and annotating the “Life After Debt” document posted by Planet Money.  The full document (14 pages in length) is followed by three pages of a second document, containing edits of the first one.  Be sure not to miss the highlighted comments on those last three pages.  They might be the best part of the whole thing.

The Americans, Baby - In 2011, the unseemly wrangling over the debt ceiling and the downgrade of the US’s credit rating focused attention on the issue of American debt. It has also focused attention on the role of the US dollar in global finance and the problem of large and persistent global imbalances, which remain unresolved. Non-American observers viewed the debt ceiling debate with morbid fascination and increasing concern. Germany’s largest daily newspaper Bild Zeitung observed: “… America is currently exhibiting is the worst kind of absurd theatrics. And the whole world is being held hostage….Irrespective of what the correct fiscal and economic policy should be for the most powerful country on earth, it’s simply not possible to stop taking on new debt overnight. …  the Republicans have turned a dispute over a technicality into a religious war, which no longer has any relation to a reasonable dispute between the elected government and the opposition….The political climate in the US has been poisoned to a degree that is hard for us (Germans) to imagine. But we should all fear the consequences.”  The inability of many European countries to access markets is an immediate danger that threatens financial markets and the global economy. But the US debt problems remain an equally serious problem.

Hawks and Hypocrites, by Paul Krugman - Back in 2010, self-styled deficit hawks ... took over much of our political discourse. At a time of mass unemployment and record-low borrowing costs, a time when economic theory said we needed more, not less, deficit spending, the scolds convinced most of our political class that deficits rather than jobs should be our top economic priority. And now that the election is over, they’re trying to pick up where they left off.  They should be told to go away.  It’s not just the fact that the deficit scolds have been wrong about everything so far. Recent events have also demonstrated clearly what was already apparent to careful observers: the deficit-scold movement was never really about the deficit. Instead, it was about using deficit fears to shred the social safety net. And letting that happen wouldn’t just be bad policy; it would be a betrayal of the Americans who just re-elected a health-reformer president and voted in some of the most progressive senators ever. Contrary to the way it’s often portrayed, the looming prospect of spending cuts and tax increases isn’t a fiscal crisis. It is, instead, a political crisis brought on by the G.O.P.’s attempt to take the economy hostage. And just to be clear, the danger for next year is not that the deficit will be too large but that it will be too small, and hence plunge America back into recession. 

More on Invisible Bond Vigilantes - Paul Krugman -- I argued yesterday that even if the heretofore invisible bond vigilantes materialize one of these days, their attack won’t have the effects the deficit hawks imagine. Because America has its own currency and a floating exchange rate, a loss of confidence would lead not to a contractionary rise in interest rates but to an expansionary fall in the dollar. Here’s a case in point of people getting this wrong: the letter by 15 financial CEOs (pdf) urging a quick resolution of the fiscal cliff. The letter is actually kind of amazing in a bad way even before we get to that issue: the CEOs apparently can’t or won’t get their heads around the fact that the fiscal cliff issue is all about doing too much, not too little, to reduce the deficit. Somehow, by the fourth paragraph concerns about a rise in taxes and a fall in spending depressing demand have turned into bond-vigilante fearmongering, with a warning that Moody’s might downgrade US bonds and send interest rates up. Guys, that’s not what we’re talking about here. But even if we accept the bait-and-switch, from fiscal cliffery to fear of what will happen if we don’t have a Grand Bargain now now now; and even if we ignore the likely market reaction to a Moody’s downgrade, which would probably be a collective yawn (remember that absolutely nothing happened when S&P weighed in); the logic is still wrong. Even if Moody’s succeeded in scaring people, this would mean a weaker dollar rather than soaring rates — and this would be good, not bad, for the US economy.

Bond Vigilantes To the Rescue -- Paul Krugman claims that should the much-dreaded bond vigilantes show up, they actually would be good for the economy.  He notes that unlike Greece, the United States has its debt denominated in its own floating currency.  Consequently, the appearance of bond vigilantes would lead to an expansionary decline in the value of the dollar, not a contractionary rise in interest rates.  Tyler Cowen is not buying this story, but Nick Rowe sees some merit in it.  I do too, but from a slightly different perspective.   Currently, investors around the world have their portfolios inordinately weighted toward safe, liquid assets.  This is because of the ongoing economic uncertainty caused by the Eurozone crisis, fiscal cliff, China slowdown, etc.  They also have a seemingly insatiable demand for these safe assets as evidenced by the ongoing decline in their yields across the globe (see below).  These developments, however, mean that investors are avoiding higher yielding, riskier assets more so than normal. Consequently, these unbalanced portfolios are suppressing asset prices, keeping household balance sheets weak, and ultimately are holding back robust aggregate nominal spending.  Another way of saying this is that risk premiums are currently too high relative to fundamentals.  The appearance of bond vigilantes would indicate their economic outlook has changed and are in the process are rebalancing their portfolios.  This rebalancing, whether it was driven by higher expected inflation or higher expected growth, would catalyze more aggregate nominal expenditures and given the significant economic slack, more real economic growth. 

Paul Krugman does believe that an attack of the bond vigilantes would be expansionary - You can read him here.  Keep in mind we are talking about a sudden leap upward in interest rates, a sharp rise in the risk premium, and a sudden fall in bond prices.  In response, I suggest a multi-step program:

• 1. Read Gary Gorton on how much the decline in the value of mortgage securities — if only as collateral — damaged the global economy during 2008 by causing a credit collapse, including in but not limited to the shadow banking system.
• 2. Estimate size of said effect for a serious price decline for U.S. Treasury securities, a much larger and more central and otherwise more secure market.  Do not leave out margin call effects or negative effects on the eurozone.
• 3. Compare said effect to short-run benefits from exchange rate depreciation, taking into account lags and J-curve effects and the relatively closed nature of the American economy and the slowdowns in other countries around the globe.
• 4. Run a Chicago Booth questionnaire study to see how much of the profession will agree with you.
• 5. Flee in panic.

Bond Vigilantes and the Risk Premium - Some folks seem to be having a hard time with my previous post, bond vigilantes to the rescue.  They assume that there could be an actual default by the U.S. Treasury Department that would be reflected in a rising risk premium. While this is certainly possible, I find it highly unlikely since the U.S. government could always  print dollars to buy up its debt.  It could gradually "monetize the debt" and allow slightly higher inflation to slowly erode the burden of the national debt as it did after World War II.  This is, in my view, the most likely worst-case scenario, not an outright default.  The real risk for treasury holders then is a higher inflation risk premium, not a higher risk premium.   But even this outcome seems unlikely in the near term.  The most likely development treasury holders face over the next year or so is a temporary bout of higher-than-expected inflation associated with Fed easing or more rapid economic growth.  This was the premise of my post, not an outright default.  Given my view that a robust recovery has not taken hold because the demand for safe assets remains elevated (i.e. portfolios remain overly weighted to low yielding, liquid assets), a temporary rise in inflation would cause the much needed treasury sell off that would start a recovery.  That is, treasury holders would sell their treasuries and other safe assets and move into riskier, higher yielding assets. We already see this in the relationship between expected inflation (using 10-year treasury breakeven) and stock prices.  The treasury sell off, therefore, would catalyze the rebalancing needed for a strong recovery. 

Treasuries See U.S. Falling Over Cliff as Yields Converge - The biggest Treasury rally in five months is underlining market concern that President Barack Obama and House Republicans will fail to avert $607 billion in mandated spending cuts and tax increases starting Jan. 1. Yields on 10-year Treasuries dropped the most in one day since May to 1.62 percent after Obama’s re-election Nov. 6. A figure below 1.7 percent indicates that investors expect gross domestic product to shrink by 0.3 percent next year as the so- called fiscal cliff takes effect, according to JPMorgan Chase & Co. Rates on longer-term Treasuries have converged with those of non-U.S. government bonds globally, after remaining about 1 percentage point above them in 2011. While the economy is creating jobs, housing prices are recovering and consumer confidence is the highest in five years, bond investors are seeking safety from a possible downturn next year. Yields dropped to a two-month low on the prospect of a divided Congress stalling any budget deal and impeding the recovery from the worst recession since the Great Depression. “The fiscal cliff is being priced in because it’s the biggest risk facing the market right now,” . “Without the cliff we would grow 2 to 2.25 percent.”

Treasury Yields/Mortgage Rate Update: Historic Low 30-year Fixed - I've updated the charts below through today's close.  The 10-year note closed today at 1.58, which is 30 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. But the big news today is Freddie Mac's Weekly Primary Mortgage Market Survey. The 30-year fixed has set an all-time low of 3.34 percent. Are yields heading lower? 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. 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.

The Trojan Horse in the Debt Debate - It's budget showdown time in Washington. With various tax increases and spending cuts set to kick in at the end of the year, the pressure is on for Republicans and Democrats to make a deal. A major player in this hot debate is a new corporate coalition called "Fix the Debt." They've recruited more than 80 CEOs of America's most powerful corporations and raised $60 million for a big media and lobbying blitz. Their ads call for what appears to be a moderate agenda of balancing spending cuts with some tax increases in order to bring down the deficit and ensure a bright future for the United States. But a closer look suggests the Fix the Debt campaign is a Trojan Horse. Behind their moderate slogans is an extreme agenda focused on further reducing corporate taxes and shifting the burden onto the poor and elderly. Take a look, for example, at a slideshow presentation the campaign has prepared as a "CEO tool" for wooing supporters. You can check it out right on their web site. It says flat out that the so-called "fiscal cliff" is an opportunity to push for "considerably less" spending on Medicare and Medicaid. It also calls for a shift to a "territorial tax system," which would permanently exempt U.S. corporations' foreign income from U.S. taxes.

Fed’s Lacker: Consumers, Businesses Under Cloud of Uncertainty Until Congress Fixes Budget - Federal Reserve Bank of Richmond President Jeffrey Lacker on Thursday said uncertainty over U.S. fiscal policy is holding back business investment and hiring, though he expects “meaningful progress” on budget issues now that the election is over. “It will not be enough to simply sidestep the fiscal cliff,” Mr. Lacker said in remarks prepared for an economic outlook conference. “To meaningfully reduce the uncertainty about tax and spending policy that is discouraging private sector commitments, we will have to see convincing progress toward a sustainable long-run trajectory for federal policy.” The so-called fiscal cliff is a mix of large tax increases and across-the-board spending cuts that begin in January unless lawmakers intervene.

Triple warning: Major rating agencies consider cutting US rating - The Unites States could see it sovereign triple-A rating downgraded next year if it fails to address its upcoming fiscal problems and reduce the $1 trillion deficit, Fitch, Moody’s and the S&P, the three US major rating agencies warn. ­As the US is going to reach the federal debt limit of $16.39 trillion by the end of 2012, experts are concerned the authorities haven’t provided a sustainable strategy to reduce borrowing. "The rating is in the hands of policymakers," said John Chambers, Chairman of Standard & Poor's, the agency that was first to downgrade the US in August 2011. The agencies said they will closely watch debt ceiling talks next year, as the raising of the debt limit is likely to result in a downgrade. The so-called ‘fiscal cliff’ looming in early 2013 is another major threat for the US financial stability and therefore its rating. The ‘fiscal cliff’ of conjoined tax raises and spending cuts, which come into force in January, is expected to result in a 5% GDP tightening and a probable slow down of the economy. "If no budget deal is reached in the early part of next year and the debt trajectory just continues to rise … then we'd be looking at a downgrade of a notch to Aa1,"

Will US Leaders Become Cliff Divers?: Like nature, the media abhor a vacuum. There is so much time, and so little valuable content! That is the best explanation I can offer for the latest media frenzy: The Fiscal Cliff. It was the big theme on financial television, but also caught the attention of the mainstream news shows as well. This week's Barron's has the recessionary implications of "the cliff" on the cover. CNBC has continued its images of crashing vehicles and also introduced promotional messages and little buttons that all of their anchors wear. Anyone paying attention has been following this issue for months, understanding that the tense election climate prevented any real progress. The day after the election the stories started, mostly reflecting unrealistic expectations about how quickly Congress goes back to work! There was also an instant verdict by some, suggesting that since the partisan alignment is about the same, there is no chance for progress. This chart (via Joe Weisenthal) shows how crazy this has gotten. Check out Joe's article for his helpful take on this subject.

Fiscal Cliff Would Only Dent The Deficit - Virtually everyone agrees that allowing the nation to fall off the fiscal cliff would be a bad thing. Government programs would be cut, taxes would rise significantly on a majority of Americans, and according to the Congressional Budget Office the economy would fall back into recession. But get this: Even if all of those things happen, there would still be a budget deficit. When it comes to describing the fiscal cliff -- that combination of tax increases and spending cuts that would automatically begin in January unless Congress and the president step in -- federal budget guru Stan Collender turns to superlatives. Expiration of tax cuts that were started under President George W. Bush "would clearly constitute one of the biggest tax increases ever imposed on taxpayers in American history," says Collender, who works at Qorvis Communications. According to one analysis, ending the Bush-era tax cuts would cost the average household $3,500 a year.

The “Fiscal Cliff” Validates MMT - The fiscal cliff of increased taxes and reduced federal spending resulted from the hasty wedding of Congress and the Administration a few months back when the debt ceiling became a shotgun.  Now, all parties want something different.  Republicans say that tax increases, which are scheduled to begin in January, will take money from the economy, increase joblessness, and lead the economy back into recession.  Democrats say that the legislated spending cuts will kill jobs and lead toward recession by reducing the flow of new dollars into the economy that it needs. On November 8, the nonpartisan Congressional Budget Office said that both right! Putting all three together shows that we should neither take money out of the economy by increasing taxes nor stop putting it in by cutting government spending.  Instead of trying to balance the budget, if we want to add jobs and avoid another recession, we must run deficits. The fiscal cliff was not designed to teach a lesson, but that is exactly what it is doing by showing that we must choose between a reduced deficits or a healthy economy—we can’t have both.  So which should we pick? Some keep playing the Johnny-One-Note theme that a balanced budget is most important.  This view of fiscal responsibility says, in effect, that people don’t count, only dollars do. But those who have analyzed how America’s money system works today explain that true fiscal responsibility requires creating money as it is needed to keep the economy healthy, create jobs with adequate pay and benefits for those who want them, educate the young, allow older people to age with dignity, expand healthcare, and provide the facilities and services that a modern society must have.  In their view, the first requirements of a civilized country are to meet its security, human, physical, and environmental needs.  Money is a means toward those ends.

So What's the Deal With the Fiscal Cliff? -  So what is this ominous-sounding metaphorical cliff, anyway? (Surprisingly enough, it's not the thing that Republicans seem to want to throw themselves off of rather than raise taxes on rich people.) Some highlights:

• The overall idea is that there are a number of fiscal policies (read, policies having to do with government spending and taxation) that are scheduled to automatically expire or take effect at the end of the year.
• On the tax front, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 will expire at the end of 2012. One of the main provisions of this law is a two-year extension of the "Bush Tax Cuts," i.e. the combination of the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003.
• Because the Economic Growth and Tax Relief Reconciliation Act of 2001 lowered income tax rates on pretty much everyone, letting the provisions of the act expire would raise taxes on lower and middle-class households in addition to high-income households.
• There are also provisions in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 concerning capital gains taxes, tax credits, and so on that affect a large number of households throughout the income spectrum. If these expire, affected households will see their taxes increase further.
• Remember the debt-ceiling debate from last year? Basically what happened was that legislators achieved a compromise whereby the debt ceiling was raised but plans for reigning spending were put into action. That compromise culminated in the Budget Control Act of 2011, and one of its provisions includes automatically triggered spending cuts that will happen unless they are preempted by other legislation. These spending cuts will take effect in January 2013, and they are what are known as "across the board" spending cuts, meaning that they will touch virtually every category of government program.

If you're still looking for more fun with fiscal cliffs, here is video produced by the Wall Street Journal and recommended by Greg Mankiw. I can't help but hear the part at the beginning about how Obama built a fiscal cliff and want to insert a "you didn't build that" joke.

Anatomy of the US fiscal cliff - The “cliff” consists of a series of tax and expenditure measures that have already been legislated to take effect on January 1 2013, and which taken together, would tighten fiscal policy by $502bn in 2013, and $682bn in 2014 (3.9 per cent of GDP). Legislation has to be amended if this is not going to take place, which is why both parties have the ability to block progress. Unless the House Republicans agree on a compromise with the Senate Democrats and the president, this fiscal package will be automatically triggered. Furthermore, the federal debt ceiling needs to be increased in the next couple of months, which also gives the House Republicans the kind of blocking power they used in July 2011. There are five main elements in the composition of the cliff. To simplify information that has recently been published by the Congressional Budget Office, they are the following: Focusing on the 2014 figures, cuts in defence (item 1), medicare and other government spending (item 2) amount to $112bn, or 16 per cent of the overall tightening. The ending of the Bush tax cuts on lower- and middle-income groups (item 3) accounts for $382billion, or 56 per cent of the total. The Bush tax cuts for upper income groups, which is by far the most politically contentious area, amounts to only $38bn, or 6 per cent of the total. That leaves $150bn (22 per cent of the total) coming from the ending of the payroll tax cuts, and the emergency unemployment benefits agreed in 2010.The CBO has also estimated the economic impact of each of the separate components of the cliff. This is what the results look like:

US plays chicken on edge of fiscal cliff - Chicken is not a complicated game. Only one thing can improve your chances of winning: sending a credible signal that you will not be the person to swerve from the collision. Election over, the Republicans and Democrats are now revving up for the fiscal cliff, and the game is chicken. If there is no deal then everybody loses....  If one side swerves then the other wins; and if both swerve – extending all current policy – then we come back next year and do it all again. In order to show that they will not swerve, politicians on both sides are publicly flirting with the idea of going over the cliff, at least temporarily. If everybody knows how much damage this would do then the credibility of these threats is easy to assess. The danger comes, however, if people have different views of the cost, making their actions less predictable – and so far economists have not helped by sending out a mixed message.The Congressional Budget Office puts the full cost of going over the cliff at almost 3 percentage points of output and 3.4m jobs by the end of 2013. That would mean a recession. This is the scary message.Those figures, however, describe the cost of going over the fiscal cliff and staying there for a whole year. If Congress did a deal early in 2013 then only part of the effect would be felt – for example, the Treasury might be able to keep withholding tax from pay cheques at the 2012 rate.

Squirming Hawks - Krugman - The fiscal cliff poses an interesting problem for self-styled deficit hawks. They’ve been going on and on about how the deficit is a terrible thing; now they’re confronted with the possibility of a large reduction in the deficit, and have to find a way to say that this is a bad thing. And so what you see, in reports like this one from the Committee for a Responsible Federal Budget — is a lot of squirming. Now, there’s a straightforward argument for why the fiscal cliff is bad but long-term deficit reduction is good — namely, that you really don’t want to cut deficits when the economy is depressed and you’re in a liquidity trap, so that monetary expansion can’t offset fiscal contraction. As Keynes said, the boom, not the slump, is the time for austerity. But the deficit hawks can’t make that argument, because they have in fact been arguing for austerity now now now. So they’re left making a mostly incoherent case: it’s too abrupt (why?), it’s the wrong kind of deficit reduction (???), and then this: a better approach would be to focus spending cuts on low-priority spending and on changes which can help to encourage growth and generate new revenue through comprehensive tax reform which broadens the base – ideally by enough to also lower tax rates. Low-priority spending? I think that means spending on poor people and the middle class. And isn’t it amazing how people who claim to be horrified, horrified about deficits can’t stop talking about cutting tax rates?

On the “fiscal cliff” - First, I don’t like calling it the fiscal cliff; it is not a cliff and in any case, as with “austerity,” why not disaggregate the issues?  James Hamilton provides some useful numbers on the components. Today I wish to raise two questions:

• 1. If we don’t take “tough fiscal action” this time around, how much more will those special fiscal privileges (I’m not sure there is a single appropriate neutral term for the whole of them) become entrenched and difficult to dislodge, even when later macroeconomic conditions call for such?
• 2. What is the underlying rate of growth in the U.S. economy today, and how much higher (lower?) is that rate likely to rise (fall) over the next ten or so years?  In other words, how much better (worse) an environment will we have for fiscal consolidation in the medium-term future?  And at higher rates of growth, if we get them, how much harder is it to dislodge special fiscal privileges?

I submit that no one has very good or very certain answers to these questions, given the current states of public choice theory and the macroeconomics of growth.  And if analysts do not have very good answers to these questions, dogmatic positions about the “fiscal cliff” are to be avoided.

The Grand Confusion: The “Fiscal Cliff” is an Austerity Program - Paul Krugman explains the problem for all of the deficit scolds trying to use the fiscal it’s-not-a-cliff cliff as a forcing mechanism to cut the social safety net. The fiscal cliff poses an interesting problem for self-styled deficit hawks. They’ve been going on and on about how the deficit is a terrible thing; now they’re confronted with the possibility of a large reduction in the deficit, and have to find a way to say that this is a bad thing. Precisely. Cutting the deficit has been discussed in terms of a moral imperative for the past two-plus years. But now we’ve arrived at a situation where the deficit would get cut a significant amount, and budget analysts make the obvious, inconvenient case that this would throw the economy back into recession. All the alternative explanations from the deficit scolds – a lack of confidence, the threat of higher interest rates – have nothing to do with the fiscal slope. It’s just that it would pull back on federal spending and raise taxes to such a degree that the economy would suffer. I think the way elites plan to handle this is to not handle this, and merely say a bunch of contradictory things all at once, in the hopes nobody but maybe Krugman will notice. And he can be easily ignored, especially if the rest of the media plays along, hyping the “fiscal cliff” as a dread scenario for which a deficit reduction deal is the only prescription, even though the “fiscal cliff” is, in fact, a deficit reduction deal.

World cannot afford second Fiscal Cliff after Europe’s failed attempt - The story is by now well-known. Unless there is a deal in Congress by the end of the year, the Bush-era tax cuts and the payroll cuts will reverse automatically; extended jobless benefits for the long-term unemployed will be cut off; defence spending will be cut; so on. Everybody’s sacred cow is sacrificed. The combined austerity would be around $700bn over 2013, or 4.5pc of GDP.  The youth jobless rate is 58pc in Greece, 54.2pc in Spain, 35.1pc in Italy, and 25.7pc in France. Labour economist and Nobel laureate Peter Diamond says the life trajectory of these young people will be damaged. There is almost nothing worse you can do to the productive potential of an economy - and therefore to debt ratios - than locking a great chunk of the future workforce out of the system during their formative years. “They have a debt problem and an unemployment crisis, but they think it is the other way round,” he said. The tragedy is that Europe is wasting its last chance to train a workforce for the 21st Century before its demographic crunch hits later this decade. EMU leaders - like the donkey generals of the trenches - are fighting the wrong war. They are crippling a generation. Budget deficits are coming down - though far less than assumed - but the skills deficit of the jobless army is going through the roof.

Don’t fear fiscal cliff, says Democrat - A leading Democratic senator has said her party should be willing to go off the fiscal cliff in order to secure tax rises on the wealthy, raising the stakes in year-end budget negotiations. “If the Republicans will not agree with that, we will reach a point at the end of this year where all the tax cuts expire and we’ll start over next year,” said Patty Murray, who was co-chair of last year’s deficit supercommittee, on ABC’s This Week. “And whatever we do will be a tax cut for whatever package we put together. That may be the way to get past this.” The Washington senator is one of the most senior figures from either party to suggest that temporarily going off the fiscal cliff could be an acceptable way to break the impasse over fiscal policy. Her hard line could strengthen the negotiating position of Democrats but frighten markets.

If Entitlement Programs Are Your Top Priority, the Fiscal Cliff Is Your Friend -- There is a lot of low-grade confusion in reporting on the fiscal cliff, primarily because most articles discuss two distinct problems: (a) the contractionary impact of automatic tax increases and spending cuts that go into effect on January 1 and (b) the large and growing national debt—often without clearly distinguishing between them. In fact, (a) and (b) go in opposite directions. Any deal that solves (a) will only make (b) worse; if you really only care about (b), you should be happy about (a). (Instead, Republicans who claim to care only about (b) are squawking about (a) because they want to preserve the Bush tax cuts.) Most reporters understand this and don’t make the obvious mistake of equating the fiscal cliff to the debt problem, but the two are juxtaposed so often they risk blurring into each other. So, for example, the Washington Post published an article titled “Liberal groups mobilize for ‘fiscal cliff’ fight over Social Security, Medicare.” The facts in the article are fine, but you still could get the impression that the fiscal cliff poses a threat to Social Security and Medicare. Just the opposite is true. If your top priority is the preservation of Social Security, Medicare, and Medicaid for the long term, then the fiscal cliff is the best thing that ever happened.

If the Dems got a backbone - Yesterday I urged the Democrats to develop some backbone in response to the continuing right-wing extortion demands for military spending increases, tax cuts and entitlement program changes. How should that backbone be used?  Not an easy question to answer and likely my answer will upset many economists and tax professionals.  So I propose that we consider going over the fiscal cliff.  What do readers think, and why? Here's the argument I think can be made.  Given that the "fiscal cliff" deal doesn't require cuts to social welfare programs, it might be advisable to let the fiscal cliff occur.  Let the spending cuts go through and let the Bush tax cuts expire.  The result will be that we will have taken a much needed first stab at cutting back on the exorbitant military spending that provides rentier profits to the military-industrial complex.  And we will have moved the game back to "start" regarding the appropriate kinds of tax cuts to enact.   But there are spending cuts that may not make sense (cuts to public employee pensions) and definitely some tax cuts (and programmatic stimulus) is needed to deal with the continuing slow economic growth.  What if the President and Democrats in Congress provided a clear and transparent plan for dealing with those issues by announcing--at the same time that they refuse to go along with the GOP extortion demands, that they will press for passage of a reinvigorated tax code and modified spending reduction plan.

Fiscal Slope: 2 Million to Lose Emergency Unemployment Benefits - As I noted last week, the "fiscal cliff" includes expiring Bush tax cuts for high, middle and low income earners, the expiring 2% payroll tax cut, expiring Alternative Minimum Tax (AMT) relief, expiring emergency unemployment benefits, and scheduled defense spending cuts (aka "sequestration"). Here is an article on the emergency unemployment benefits from Michael Fletcher at the WaPo: 2 million could lose unemployment benefits unless Congress extends program More than 2 million Americans stand to lose their jobless benefits unless Congress reauthorizes federal emergency unemployment help before the end of the year. These workers have exhausted their state unemployment insurance, leaving them reliant on the federal program. In addition to those at risk of abruptly losing their benefits in December, 1 million people would have their checks curtailed by April if the program is not renewed ... This graph shows the number of workers unemployed for 27 weeks or more.  According to the BLS, in October there were 5.00 million workers who had been unemployed for more than 26 weeks and still want a job. This is generally trending down, but is still very high. As the WaPo article notes, many of these people are surviving on their unemployment benefits.

Another Civics Lesson… The Hard Way There's always another recession out there somewhere, although the catalysts keep changing. Here's a new one: feckless politicians who provide the raw material for the next downswing in the business cycle by driving us over the fiscal cliff. Your tax dollars at work...Not! If this diaster hits (and there's no reason it should), it would be the first time that Washington knowingly, willingly, without any illusions, delivers the macro equivalent of suicide. Political dysfunction at its worst.  Yes, I think we can call this a new low if we don't pull back from the brink before the year is out. The only mystery: Why isn't the public mad as hell and unwilling to take it anymore? Maybe it's because we just went through a tiring election that was overloaded with all the usual rhetorical twaddle and then some. And our prize for enduring this nonsense, er, election campaign? The growing threat that the White House and Congress will passively, by inaction, permit a dramatic sharp rise in automatic tax hikes and deep spending cuts, which will unleash a projected 0.5% drop in GDP next year and a rise in unemployment to 9.1% from the current 7.9% jobless rate, according to the CBO. Yes, anyone who spends five minutes with the details will be angry. No one wants a recession, much less one packaged and delivered to your doorstep by your representatives in Washington—no extra charge. Weeks from now, if this fiscal version of the denouement in "Thelma and Louise" (sans the kissing) is still barreling toward us, one might expect that there will be protests in the streets, dissent from coast to coast, and a general recognition that our government has become incompetent in the extreme. We might call it the Occupy The-Political-Insanity-In-Washington Movement. Sign me up!

Business Leaders Dive into the Fiscal-Cliff Debate - If you’re already tired of talk of the “fiscal cliff,” brace yourself:  Several  business-friendly, deficit-unfriendly groups have launched well-funded campaigns hoping to bring even more attention to the issue. One involves a giant walking, talking can. “Congress Can No Longer Ignore that the U.S. Economy is Headed Over a Cliff,” the Business Roundtable warns in its ads, launching today. “It’s Time to Act.” In several of the group’s ads, Honeywell Chair and CEO David Cote takes it a bit further. “If the last debt ceiling was playing with fire,” he asserts, “this time they’re playing with nitroglycerin.” The Campaign to Fix the Debt, meanwhile, solemnly warns that “Inaction is not an Option,” while yet another group, aimed at young “millennials,” warns that politicians can’t solve the problem by simply “kicking the can down the road,” as the current favorite political cliché has it. The group, “the Millennial-outreach partner” of the Campaign, calls itself “The Can Kicks Back.”

The Fiscal Cliff Explained - While many welcome spending cuts that will begin to deal with our dangerously high national deficit, the speed and immediacy of these cuts—coming at a time when the economy remains in a precarious position made all the more complicated by the scheduled rise in the tax obligations discussed above—could have a very negative impact on the economy. Bear in mind that Congress passed the sequester never really intending it to go into effect. The idea had been to create legislation that would produce spending cuts so distasteful to both sides of the aisle that its mere existence would force everyone involved to come up with a more acceptable deal in order to allow the debt ceiling to rise. As you will remember, that deal was never achievable, leaving us to face these draconian reductions that hit in January. When you add up the increased payment of taxes and the cuts in government spending, we are looking at taking somewhere around $800 billion out of the U.S. economy next year—producing the potential for devastating consequences. So, are we all just toast or is there something that can be done? Certainly, the fiscal cliff can be avoided.It simply involves Congress and the White House coming to terms on a deal that will extend the Bush tax cuts for some or for all—along with the possibility of also extending some additional items of tax relief such as the 2 percent payroll tax cuts—for an additional period of time so as to avoid an economic catastrophe resulting from Americans having less money to spend.

Viewpoint: Why We Should Go Over the Fiscal Cliff - The fiscal cliff is a powerful metaphor. It sounds like an impending disaster, but in reality, we’ll wake up on the morning of Jan. 3 and life will be unchanged. Sure, tax rates will nominally be higher, some tax breaks will have been canceled, and the government will be expected to implement major cuts in military and domestic spending. If that continues for several months, it will have an adverse effect on the economy. But letting the law take effect will also have some real benefits. For one thing, on the other side of the cliff, we’ll be a big step closer to the kind of fundamental reform of the tax code that both Democrats and Republicans say they want. Two provisions that limit the deductions and personal exemptions the wealthy can take — similar to the cap on deductions proposed by Mitt Romney — will come back into effect. Capital-gains rates will rise from 15% to 20%, and dividends will be taxed at normal rates, reducing the incentives for tricks like the notorious carried-interest loophole. And instead of a tax system that produces less revenue as a percentage of GDP than at any time since 1950, we’ll move toward one that is adequate to the needs of a modern, dynamic economy. The fiscal cliff is, all by itself, a budget deal and a step toward tax reform. A flawed and dangerous one, to be sure, but a far better starting point for a real budget agreement than the temporary rules of 2012.

Stephanie Kelton’s C-SPAN presentation on the Fiscal Cliff - A C-SPAN video clip of  Stephanie Kelton’s presentation on the Fiscal Cliff with New America Foundation / Economic Growth Program / Economists for Peace and Security. Click here or the image to view the clip at C-SPAN

Obama must kill the debt limit - Everyone assumes the president has the leverage this time because if he does nothing the Bush tax cuts expire and he can propose fresh ones for 98 percent of the country. But everyone’s forgetting one thing: the debt limit. Amazingly, no one asked about how it would affect the coming fiscal talks at the president’s press conference Wednesday. But we’re slated to hit the debt ceiling early next year, meaning it will be a central part of the kabuki dance that begins Friday at the White House. So the only way President Obama really has leverage is if he decisively removes the debt ceiling as a source of power for the Republicans. For Obama’s own sake — and for the sake of stable governance for future presidents of either party — the president can’t let the GOP hold the country hostage via the debt ceiling again. The so-called 14th Amendment option — which Bill Clinton suggested pursuing — was discussed in the Oval Office in July 2011 as the crisis peaked. The amendment reads in part that “the validity of the public debt of the United States, authorized by law . . . shall not be questioned.” Could this let Treasury issue debt beyond the statutory limit? Woodward reports that everyone in the meeting, Obama included, “agreed it would not work. There would be lawsuits. The new bonds would be immediately downgraded. It would be a mess.”

Budget Showdown Offers an Opportunity for Progress - Christina Romer  - ON Jan. 1, more than $500 billion of tax increases and spending cuts are scheduled to happen automatically. Thanks to the voters, dealing with this so-called fiscal cliff — and with our budget problems generally — is President’s Obama’s responsibility for four more years. Let me offer some thoughts about the situation, and about how the president and Congress could make progress. Though our long-run budget problems are enormous, a permanent dive over the cliff isn’t the answer.  Cold-turkey deficit reduction would cause a significant recession. A recent analysis by the Congressional Budget Office estimated that going headlong over the cliff would cause our gross domestic product, which has been growing at an annual rate of around 2 percent, to fall at a rate of 2.9 percent in the first half of 2013. I suspect that this estimate is, if anything, too optimistic. Many private-sector analysts predict a longer, deeper recession if we take the plunge. But even the C.B.O. number suggests that the resulting recession would be worse than those in 1990 and 2001.  Going over the cliff would also be a poor way to deal with our long-run deficit problem. Too much of the deficit reduction comes from tax increases — particularly on middle-class families whose incomes have stagnated for the past decade. And the spending cuts are haphazard and do nothing to deal with the fundamental driver of our long-run budget problems: rising government health care spending.  Just as going permanently over the cliff isn’t the answer, neither is wimping out. Pre-emptively extending all of the Bush tax cuts for another year and postponing the spending cuts would be a mistake. The cliff is a unique opportunity to forge a genuinely bipartisan solution to our budget problems. Republicans have strong views about how they want to reduce the deficit. The threat of automatic tax increases and military spending cuts gives Democrats a fair shot at negotiating for their priorities as well.

Deluding Ourselves Over the Fiscal Cliff - Robert Rubin - NOW that the election is over, Washington’s attention is consumed by the looming combination of automatic spending cuts and tax increases known as “the fiscal cliff.” That combination poses risks, including economic contraction and erosion of confidence in government. But it also offers a chance to address our unsustainable and dangerous fiscal trajectory. Much of the current energy around establishing sound fiscal conditions is focused on plans that theoretically would both contribute revenue to deficit reduction and significantly reduce individual income tax rates. Though hugely appealing, that’s a tall order. These plans rely on reducing or eliminating many tax deductions, exclusions and the like, known collectively as tax expenditures. Reducing tax expenditures to pay for both lower personal income tax rates and deficit reduction may seem like a politically attractive alternative to raising tax rates or cutting entitlements or other spending. However, many of these tax expenditures are important and popular policy programs on which people now rely. They include the deductibility of mortgage interest, charitable contributions and the exclusion from income of employer-provided health insurance. Some tax expenditures should be cut back and reformed. But when the substantive effects and political realities of large-scale reductions are examined, it becomes clear that there would not be sufficient savings to reduce tax rates and also cut the deficit.

Video: Rivlin Says ‘Extremely Stupid’ to Go Over Fiscal Cliff - In an interview with WSJ’s Jerry Seib, the founder of the Congressional Budget Office, Alice Rivlin, says a temporary deal to raise taxes on those earning $250,000 or more could lay the groundwork for an overhaul of the U.S. tax code.

The President sends mixed signals on the fiscal cliff - President Obama is sending mixed signals on the fiscal cliff.  Here is how I interpreted the President’s statement last Friday (emphasis added today).… The one important exception is that today the president did not insist on raising tax rates on the rich, only that they “pay more in taxes.”  I assume this was intentional.  It allows for at least a portion of the deal like that suggested by the Speaker’s comments:  scale back tax preferences for the rich without raising their marginal rates.  Of course, that’s only part of what the Speaker said was necessary, but it’s a critical part. My interpretation was far from unique.  Several other observers drew similar conclusions from the President’s apparent constructive ambiguity. But later that same day the President’s press secretary Jay Carney reiterated the President’s prior veto threat:  The President would veto, as he has said and I and others have said for quite some time, any bill that extends the Bush-era tax cuts for the top 2 percent of wage earners in this country, of earners in this country.  I think that means the President would veto a bill unless the top rates go up.  He is not requiring that they increase to pre-Bush levels (i.e., not requiring that the top rate increase from 35% to 39.6%), but he is requiring that the 35% number increase, since otherwise the bill would be “extend[ing] the Bush-era tax cuts.” My interpretation of the President’s apparent implicit flexibility is inconsistent with Mr. Carney’s explicit statement.

The Austerity Bomb - Paul Krugman  - Brian Beutler of Talking Points Memo seems to have been the first to use the phrase “austerity bomb” for what’s scheduled to happen at the end of the year. It’s a much better term than “fiscal cliff”. The cliff stuff makes people imagine that it’s a problem of excessive deficits when it’s actually about the risk that the deficit will be too small; also and relatedly, the fiscal cliff stuff enables a bait and switch in which people say “so, this means that we need to enact Bowles-Simpson and raise the retirement age!” which have nothing at all to do with it. And it can’t be emphasized enough that everyone who shrieks about the dangers of the austerity bomb is in effect acknowledging that the Keynesians were right all along, that slashing spending and raising taxes on ordinary workers is destructive in a depressed economy, and that we should actually be doing the opposite.

Austerity Bomb? Don’t Panic. Keep Your Eyes on the Prize - “Austerity bomb” is the metaphor of the day. First introduced by Brian Beutler, it has now been endorsed by Paul Krugman as a replacement for “fiscal cliff.” Both are bad metaphors. They invite us to think that the most important thing on the national agenda is to avoid the cliff or defuse the bomb before disaster strikes. Instead, we need to stay calm keep our eyes on the prize, that is, on real reform of our muddled fiscal policy. Unless we are willing to look beyond what happens at the end of the year, we risk being panicked into a deal that will leave us in an even worse fiscal mess than we are in now. Here are the three long-term considerations that should be at the center of budget negotiations: The first question we should be asking is how large federal government we want. As the chart shows, over the past 50 years total federal government expenditures have averaged about 21.5 percent of GDP. During the recent presidential campaign, GOP candidate Mitt Romney proposed holding them at 20 percent. In an earlier budget plan, his vice-presidential running mate Paul Ryan had proposed an even lower target. Here are two good reasons to think that 20 percent is not enough. One is that federal spending at 20 percent of GDP today would not provide the same level of services that U.S. citizens received in the 1960s and 1970s, when spending was last at that level for an extended period. In 1960, the elderly dependency ratio—the number of people 65 and older per 100 people of working age—was 15. Today it is 22. In in ten years it will be 29. It is simple arithmetic to see that government spending of 20 percent of GDP today will either provide a much lower level of support to senior citizens than in the past, or a much lower level of spending on courts, education, infrastructure, military and the rest of the budget. The second reason is that there is little evidence that a majority of voters of either party are willing to accept a federal government capped at 20 percent of GDP.

The Fiscal “Cliff” and the Real Problem -- Like many others, I’m not worried about the so-called fiscal “cliff,” and the ravages to the economy that are likely to occur if Congress doesn’t do something about it before the end of the year. That’s because a lot of the impact can be cushioned in the short run by Executive Branch manipulations while negotiations continue to go on. But if measures aren’t taken to reverse the contractionary effect of the sequestration-induced changes, we’re looking at deficit cuts of $487 Billion over 9 months of the fiscal year. By comparison, the American Recovery and Reinvestment (ARRA) of 2009 produced only $350 B in stimulus during its first year. And, if the full sequestration were allowed to proceed unmodified, then it would result in a “claw-back” of about 60% of the total ARRA stimulus. Fortunately, if we do go over the “cliff” heavy pressure will then be on both parties to reintroduce the middle class tax cuts, and make them retroactive, and to restore some of the other cuts as well, so it may be possible to mitigate much, if not most, of the damage, if the Democrats are aggressive enough in pushing the negotiation advantages they appear to have now. So, the real danger of the manufactured “fiscal cliff” is more long-term. That danger is the constant bleating from both deficit hawks and “progressives” that we have to do something long-term about the deficit/debt problem. So,  they put up these long-term plans to delay deficit cutting for a year or two and then want to cut even more down the road to ‘stabilize’ the debt-to-GDP ratio. This is a non-existent problem, and any plan providing for deliberate polices to force deficit reduction by constraining Government spending to some arbitrary level is bound to damage the economy seriously when the prescribed spending cuts and increased taxes for lowering deficits take effect.

Chris Matthews Embraces Self-Parody by Calling for Obama to Ignore Krugman -By William K. Black -- Chris Matthews considers it urgent and essential that President Obama and House Speaker Boehner reach what they call a “Grand Bargain” that would impose an austerity budget and begin to unravel the safety net.  Why is it essential?  Matthews provided no analysis or discussion.  It was simply obvious that austerity and beginning to unravel the safety net were essential because otherwise we would face budget austerity via the so-called “fiscal cliff.”  The form of austerity imposed by the fiscal cliff would throw us into recession, increase unemployment, increase the budget deficit and the debt, cut social programs (and military spending), but not unravel the safety net.  If you think that adopting even greater austerity plus far more severe cuts to social programs and the safety net (i.e., what I term the “Great Betrayal”) in order to avoid “fiscal cliff” austerity is logically insane – then you might be rational.  Matthews, however, thinks that ability to use logic makes you a problem. On Friday, November 9, 2012, Matthews advised his viewers that it was essential to ignore Paul Krugman’s objections to the economic impact of the Grand Bargain because he was on “the far left.”   At no time did any of the MSNBC hosts ask anyone with economics expertise whether austerity and beginning to unravel the safety net would be harmful or helpful to the nation.   Matthews did not explain why Krugman opposed the Grand Bargain. Matthews claimed that it was essential for Congress and the public to ignore a Nobel Laureate in Economics’ warnings that what was being proposed was a bad plan that would harm our economy.  Matthews said that Obama (a lawyer and politician) must tell Krugman that he was going to ignore Krugman’s economics warnings because “I’m President, you’re a columnist.”

(Fiscal) Cliff Notes - Atlanta Fed's macroblog -- Since it is indisputably the policy question of the moment, here are a few of my own observations regarding the "fiscal cliff." Throughout, I will rely on the analysis of the Congressional Budget Office (CBO), as reported in the CBO reports titled An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022 and Economic Effects of Policies Contributing to Fiscal Tightening in 2013.  Since the CBO analysis and definitions of the fiscal cliff are familiar to many, I will forgo a rehash of the details. However, in case you haven't been following the conversation closely or are in the mood for a refresher, you can go here first for a quick summary. This "appendix" also includes a description of the CBO's alternative scenario, which amounts to renewing most expiring tax provisions and rescinding the automatic budget cuts to be implemented under the provisions of last year's debt-ceiling extension. On, then, to a few facts about the fiscal cliff scenario that have caught my attention.

The CBO’s Latest Con Job: Disappearing Data to Deter Analysis of its Deficit Scaremongering -  Yves Smith - The CBO is resorting to such extreme measures to impede independent analysis of its scaremongering about the fiscal deficits that it’s hard not to conclude that it has something to hide.  Here’s one simple and egregious example. If you look at the CBO forecasts, they show the US getting to a 89.7% federal debt to GDP ratio by 2022 if no changes in policy occur. For economists and financial markets types, as well as the policymakers they lead by the nose, that 90% number is treated as a seriously bad outcome for very dubious reasons. It has the same stature as edge of the earth in maps from the days when people thought the world was flat, that if you go over it, all sorts of terrible things happen. That number comes from the work of Carmen Reinhart and Kenneth Rogoff in which they found that countries that had 90% debt to GDP ratio had lower growth levels.  The wee problem is that using that correlation as a guide is bunk. First, it mingles gold standard countries (which do have to do through all sorts of insane growth-damaging contortions to run sustained deficits)n with fiat currency issuers. Second, in the overwhelming majority of cases, the increase in debt to over 90% and low growth were the result of a large financial crisis. Thus there is no evidence that dorking with the debt levels would ameliorate the post crisis sluggish growth; the evidence from Europe (and the IMF has ‘fessed up to this) is that trying to cut deficits in the wake of a crisis produces an economic contraction, making debt to GDP ratios worse than they were before. Third, there are some striking exceptions to what among the policy classes is being treated as an inviolate rule, most importantly, Great Britain in its greatest growth period, from 1735 to 1875, had a debt to GDP ratio of over 100%.  But since everyone takes this phony danger level as real, let’s indulge it for a minute. Despite the CBO’s blatant deficit hawkery, if you run the data correctly, you don’t reach that scary level. The CBO has done the equivalent of cooking the data to produce its desired outcome. It omits financial assets held by the government from its calculation.

A Time for Clear-Headed Thinking about the "Fiscal Cliff": I have been reading that thinking for some time now about the vaunted "Fiscal Cliff" confronting our Congress. It is the time when the Bush Tax changes expire and the rates return to Clinton rates, and, at the same time, certain cuts in spending, pursuant to the negotiations, which led to pushing the problem down the road, resulted in an interim agreement to a "sequestration" of certain budget cuts to kick in at the time of the tax cut expiry. At this point, there is nothing but endless posturing on the parts of the leaders of the House and Senate, and also the White House, in an effort to control where the new negotiations will take us. This is all a show. It's sad, because this is the Neoconservative game which has drawn in the progressives to a fight that is ridiculous. The entire premise of having to reduce and/or eliminate the Federal Debt and Deficit is based upon the amazingly fallacious idea that the government must run its budget as a household would, or will ultimately default and find it difficult or impossible to borrow the necessary funds to operate by selling its bonds. Even the credit ratings agencies have chipped into the battle, stating that if the government fails and/or refuses to take the appropriate steps, they will necessarily have to reduce America's credit rating, which would result in it having to pay more interest on the bonds in order to sell them, and thus increase its debt profile.The fifty states in America must all balance their budgets or fail to pay their obligations.   The Federal government does not have to.   As we all know, the current deficit is in excess of $16.2 trillion, and growing. 

The Fiscal Ski Jump -- If, as seems very possible, there ends up not being a deal, will cliff-jumping prove fatal to the economy? In fact, maybe not. Everyone quotes the Congressional Budget Office’s estimate that leaping into the abyss could push the U.S. back into recession. Instead of 1.7% growth for 2013 its forecast becomes minus 0.5%. With China stalling and Europe still teetering on the edge of its own precipice, the last thing the world economy needs right now is a U.S. slowdown.  But wait a second. The out-years of the forecast, which you can see at www.cbo.gov/publication/43544, suggest cliff-jumping may be, not just survivable, but actually pretty good for the jumper’s long-term health. Ten years past the cliff, federal debt is just 58% of GDP, which is a whole lot better than the 90% the CBO forecasts if the deficit stays where it is. Ninety per cent is iconic for debt. Economists Carmen Reinhart and Kenneth Rogoff argue that throughout history, government debt that high has done permanent damage to an economy’s growth rate.  Maybe a cliff is the wrong analogy. Maybe we’re all standing at the top of a very steep ski jump. No doubt the ride down would be terrifying and fraught with peril. .But once, with skill and luck, the descent was safely navigated, maybe the U.S. economy would launch itself back to higher growth and employment. A future debt ratio of 58% would certainly be much more conducive to private investment than visions of 90% or higher.

There is Another Solution to the Fiscal Cliff - Have the Federal Reserve work to offset every dollar drop in federal spending with a dollar increase in private sector spending.  The Fed would incentivize the private sector to do this by raising expected future nominal income growth via aggressive open market operations or by helicopter drops.  Rapidly raising the public's expectations of future nominal income growth would cause household and firms to increase current spending and offset the decline in federal spending.  Aggressive open market operations could look like this and helicopters drops like this. The point is, the Fed is capable of keeping total current dollar spending stable if really wanted to do so.  In fact, this stabilizing of nominal spending by the Fed has a name: nominal GDP level targeting.  With a credible version of this target, the Fiscal Cliff should not be a big a deal.  The only question is whether the Fed will act. Come on Fed, you can do this.  Save us from the Fiscal Cliff.

Our Long-Term Fiscal Future Is Better Than It Looks -- Despite Republican propaganda to the contrary, the long-term fiscal problem of the United States is principally that revenues are too low. If fixing this problem required a legislated tax increase, the nation would be in serious trouble, because Republicans will forever block it as long as they have the ability. Fortunately, they handed Barack Obama the power to permanently fix our fiscal problem if he has the courage and skill to use it. The core problem, from the Republicans’ point of view, is that they stupidly enacted temporary tax cuts during the George W. Bush administration. Their expiration creates a bludgeon that could eventually beat sense into them on the tax issue. At the time the tax cuts were enacted, I recall arguing with my longtime friend Grover Norquist that temporary tax cuts were a really bad idea. Supply-side theory has always held that permanent tax changes are vastly more powerful than temporary changes, I told him. He didn’t disagree, but said the Bush tax cuts were de facto permanent because Democrats would never have the guts to permit them to expire; they would be renewed forever. People and businesses will know that, Mr. Norquist said. That was a foolish position for political and economic reasons. People and businesses don’t make the sorts of changes in their behavior that would give the economy a supply-side boost unless they have confidence that today’s tax regime will be in place when the payoff from increased work, saving or investment is realized.

Fiscal Cliff Is More Hype Than Hazard - This isn't the financial media's finest hour. We refer, of course, about the so-called fiscal cliff. Washington lawmakers have created a self-imposed deadline of Jan. 1 to make a deal on debt reduction. It is an imminent threat. Either the automatic cuts or the grand bargain that emerges likely will have a halting effect on the economy. That's one view. Another view: The cliff is really just a trumped-up annual budget discussion. Politicians have created this event to pressure one another into a deal. It is theater. The most likely outcome is a combination of tax increases, spending cuts and kicking the can down the road. It is going to be imperfect, but it is going to be OK. Investors looking for reassurance or perspective must be disappointed. The overwhelming majority of media coverage has been anything but balanced and reasoned, even by the industry's low standards. At its worst, the coverage is panic-inducing, falling somewhere between that given to an approaching hurricane and an alien invasion. Even more troubling is that the hyperbole seems to have fueled a selloff on Wall Street.

Guess What They Are Not Cutting In The Fiscal Cliff...In his farewell address to Congress yesterday, Ron Paul blasted the dangers of what he called 'Economic Ignorance'. He's dead right. Around the world, economic ignorance abounds. And perhaps nowhere is this more obvious today than in the senseless prattling over the US 'Fiscal Cliff'. US government spending falls into three categories: Discretionary, Mandatory, and Interest on Debt. The only thing Congress has a say over is Discretionary Spending. But here's the problem - the US fiscal situation is so untenable that the government fails to collect enough tax revenue to cover mandatory spending and debt interest alone. This means that they could cut the ENTIRE discretionary budget and still be in the hole by $251 billion. This is why the Fiscal Cliff is irrelevant. Increasing taxes won't increase their total tax revenue. Politicians have tried this for decades. It doesn't work. Bottom line-- the Fiscal Cliff doesn't matter. The US passed the point of no return a long time ago.

How the Tea Party, Gang of Six, and Senate Liberals Saved Obama and the Nation - By William K. Black - In July 2011 President Obama and Speaker of the House John Boehner were on the verge of agreeing to the “Grand Bargain.”  The Grand Bargain was not finalized, but its key terms were agreed to.  It involved massive cuts in social programs and the safety net, modest increases in tax revenues, and an increase in the debt limit.  It was a massive austerity program of the kind that was hurling the Eurozone back into a gratuitous recession.  U.S. unemployment was 9.1% in July 2011 and the austerity package and resultant recession would have caused unemployment (and the deficit) to grow.  Unemployment would have been over 10% and rising in the run up to the 2012 election.  Obama would have further enraged Americans by cutting many popular programs and betraying the Democratic Party’s crown jewels – the safety net – in return for far smaller in revenues from the wealthy.  Instead of solving the supposed deficit and debt crises the austerity-induced recession would have likely caused the deficit and the national debt to grow.  The political results of the entering into what could more accurately be termed the Great Betrayal through such a self-destructive budget austerity deal were predictable.   Obama and the nation were saved from these catastrophic results by good luck, not good sense.  The Senate “Gang of Six” (moderate conservative Republicans and conservative “blue dog” Democrats) was negotiating in parallel their own budget austerity deal.  I drew primarily on the Washington Post’s description of the parallel negotiations because its coverage is so sympathetic to Obama and Boehner and their joint effort to impose austerity and begin to unravel the safety net.  The Post explains that the Gang of Six’s negotiations posed a severe problem for Obama because the Republican members of the Gang had agreed to a budget deal that was far better than the deal Obama had negotiated with Boehner.  When the Gang briefed the Senate on their deal most Senators praised the deal, including some prominent Republicans.

The Grand Bargain Under the Fiscal Cliff - The main stream media has finally caught on that Congress will cause a major recession through economic blackmail in addressing the Fiscal cliff. Now there are calls for compromise. Ever notice when we hear the call for compromise there are few specifics? That's our problem with D.C. generally, policies based on facts, statistics and their effects not only are ignored, we hear plain lies on what these agendas actually do. In 2011 there was a tentative deal to cut social security benefits and Medicare. The blueprint for a deal to avoid a fiscal nightmare early next year may be found in the failed debt negotiations between President Barack Obama and House Speaker John Boehner in mid-2011. Part of their talks on a $4 trillion deficit-cutting plan included a gradual increase in the Medicare eligibility age to 67 and an alternative yardstick for calculating inflation that would reduce annual Social Security cost-of-living adjustments.  Right after the election, which in part was about protecting social security and Medicare from being gutted, we have the threat of that actually happening under the guise of the Fiscal cliff. We mentioned this was the real perfect economic storm earlier. Economist Bill Black discusses this grand bargain below and points out this great betrayal would actually throw the U.S. into a recession just as much as the fiscal cliff would. The grand bargain is austerity.

A Grand Bargain: 8 Factors That Could Drive A Surprise On The Deficit -The conventional wisdom is that the re-election of President Barack Obama presages four more years of legislative deadlock on fiscal matters. At best, consensus opinion is bracing for more feckless "can kicking" and an indefinite extension of America's deficit and debt crisis; at worse, it is feared that the US could fall off of a "fiscal cliff" in the short term. The rationale for this pessimism is not difficult to comprehend: The US has reelected the same president, and essentially the same personnel in the House of Representative and Senate that produced the sovereign debt crisis in mid 2011. Given this almost identical political configuration, why should the outcome be any different than it was in mid 2011? In the context of the very understandable pessimism regarding the US's long-term fiscal health, I believe that the real possibilities of a "Grand Bargain" being achieved in the next few weeks / months are perhaps being overlooked. In this regard, it is important to remember that in July of 2011, a Grand Bargain that would have done a great deal to rectify the US's deficit and debt situation was almost reached. I believe that today, while the players may be the same, the historical circumstances are different - and in my view more favorable for achieving a Grand Bargain than they were in July of 2011.

The President's Opening Bid on a Grand Bargain: Aim High - Robert Reich - Assuming the goal is $4 trillion of deficit reduction over the next decade (that’s the consensus of the Simpson-Bowles commission, the Congressional Budget Office, and most independent analysts), here’s what the President should propose: First, raise taxes on the rich – and by more than the highest marginal rate under Bill Clinton or even a 30 percent (so-called Buffett Rule) minimum rate on millionaires. Remember: America’s top earners are now wealthier than they’ve ever been, and they’re taking home a larger share of total income and wealth than top earners have received in over 80 years. Why not go back sixty years when Americans earning over $1 million in today’s dollars paid 55.2 percent of it in income taxes, after taking all deductions and credits? If they were taxed at that rate now, they’d pay at least $80 billion more annually — which would reduce the budget deficit by about $1 trillion over the next decade. That’s a quarter of the $4 trillion in deficit reduction right there. A 2% surtax on the wealth of the richest one-half of 1 percent would bring in another $750 billion over the decade. A one-half of 1 percent tax on financial transactions would bring in an additional $250 billion. Add this up and we get $2 trillion over ten years — half of the deficit-reduction goal. Raise the capital gains rate to match the rate on ordinary income and cap the mortgage interest deduction at $12,000 a year, and that’s another $1 trillion over ten years. So now we’re up to $3 trillion in additional revenue. Eliminate special tax preferences for oil and gas, price supports for big agriculture, tax breaks and research subsidies for Big Pharma, unnecessary weapons systems for military contractors, and indirect subsidies to the biggest banks on Wall Street, and we’re nearly there. End the Bush tax cuts on incomes between $250,000 and $1 million, and — bingo — we made it: $4 trillion over 10 years.

The President's Opening Bid on a Grand Bargain (II) - Robert Reich - When he meets with Congressional leaders this Friday to begin discussions about avoiding the upcoming “fiscal cliff,” the President should make crystal clear that America faces two big economic challenges ahead: getting the economy back on track, and getting the budget deficit under control. But the two require opposite strategies. We get the economy back on track by boosting demand through low taxes on the middle class and more government spending. We get the budget deficit under control by raising taxes and reducing government spending. (Taxes can be raised on the wealthy in the short term without harming the economy because the wealthy already spend as much as they want — that’s what it means to be rich.) It all boils down to timing and sequencing: First, get the economy back on track. Then tackle the budget deficit. If we do too much deficit reduction too soon, we’re in trouble. That’s why the fiscal cliff is so dangerous. The Congressional Budget Office and most independent economists say it will suck so much demand out of the economy that it will push us back into recession. That’s the austerity trap of low growth, high unemployment, and falling government revenues Europe finds itself in. We don’t want to go there

Ron Paul: "0% Chance Of 'Grand Bargain' Over Fiscal Cliff"-  Shining a little reality light on the otherwise pollyanna-like dearth of pragmatism that is the mainstream media's guest-list, Ron Paul provided Bloomberg TV's Trish Regan a little more than we suspect she bargained for when asked if he had any hope that we avoid the fiscal cliff. The constant "delaying-of-the-inevitable" enables our politicians to avoid facing up to the serious consequences of our reality and as Representative Paul notes the chances of a grand bargain are "probably zero... that's why I think we're over the cliff [already]." Just like the handling of the debt ceiling debacle, Paul notes they will "pretend they are going to do it" until we get a total crash of the dollar and the entire financial system (which he notes is what will occur if we continue the status quo). "We are at a point of no return" unless certain things change, since "we are not the productive nation we used to be."

White House Grand Bargain offer to Speaker Boehner Obtained by Bob Woodward - Below are documents obtained by the Washington Post’s Bob Woodward that show a grand bargain proposal the White House was prepared to make in order to reach agreement with the House Republicans last year. This is how Woodward described the documents on Meet the Press this morning: "This is a confidential document, last offer the president -- the White House made last year to Speaker Boehner to try to reach this $4 trillion grand bargain.  And it's long and it's tedious and it's got budget jargon in it.  But what it shows is a willingness to cut all kinds of things, like TRICARE, which is the sacred health insurance program for the military, for military retirees; to cut Social Security; to cut Medicare. And there are some lines in there about, "We want to get tax rates down, not only for individuals but for businesses."  So Obama and the White House were willing to go quite far."

Leaked Woodward Memo Offers Road Map on Grand Bargain - Bob Woodward leaked the deal memo from the proposed 2011 grand bargain, which didn’t happen for a number of reasons, none of them being Barack Obama’s reticence to cut a deal. In addition to cuts to things like TRICARE and Pell grants and veteran retirement, the “sequester” — the punishment for Congress not reaching a deficit resolution — would have directly cut Medicare and Medicaid by $425 billion (including $150 billion in raising Medicare premiums) and a permanent 20% reduction in tax rates on the top bracket (from 35% to 28%), with four total tax rates (10%, 15%, 25% and 28%). Increases in the Medicare eligibility age were in the plan, as well as the chained-CPI change to Social Security cost of living adjustments, a net benefit cut. This was what the President signed off on, before the Gang of Six embarrassed him by calling for more revenue. He was perfectly willing to not only endorse this deal, but force the Democratic leadership to swallow it as well. And this is why Ryan Grim can be so sure that the next set of talks will include reductions in benefits to the elderly, the poor and the middle class. That’s what happened before, after all.

Leaked deal memo for last year’s Grand Bargain: “Obama willing to go quite far” - Is it too early to bitch about the Grand Bargain Trainwreck Obama has planned for us? Hope not. Here’s the ultimate Beltway insider, Bob Woodward, on Meet The Press with David Gregory. It seems that someone leaked Obama’s 2011 Grand Bargain memo to House Speaker John Boehner. First, Woodward’s on-air comment (my emphasis): “This is a confidential document, last offer the president — the White House made last year to Speaker Boehner to try to reach this $4 trillion grand bargain.  And it’s long and it’s tedious and it’s got budget jargon in it.  But what it shows is a willingness to cut all kinds of things, like TRICARE, which is the sacred health insurance program for the military, for military retirees; to cut Social Security; to cut Medicare. And there are some lines in there about, “We want to get tax rates down, not only for individuals but for businesses.”  So Obama and the White House were willing to go quite far.” Yes, “quite far” indeed. Now from the memo, here’s a couple of tastes (view the whole memo here). The colored markup is mine. The penciled markup is presumably Woodward’s or his staff’s. On that suite of cuts, including cuts to military benefits:

Boehner Tells House G.O.P. to Fall in Line  — On a conference call with House Republicans a day after the party’s electoral battering last week, Speaker John A. Boehner dished out some bitter medicine, and for the first time in the 112th Congress, most members took their dose. Their party lost, badly, Mr. Boehner said, and while Republicans would still control the House and would continue to staunchly oppose tax rate increases as Congress grapples with the impending fiscal battle, they had to avoid the nasty showdowns that marked so much of the last two years. Members on the call, subdued and dark, murmured words of support — even a few who had been a thorn in the speaker’s side for much of this Congress. It was a striking contrast to a similar call last year, when Mr. Boehner tried to persuade members to compromise with Democrats on a deal to extend a temporary cut in payroll taxes, only to have them loudly revolt. With President Obama re-elected and Democrats cementing control of the Senate, Mr. Boehner will need to capitalize on the chastened faction of the House G.O.P. that wants to cut a deal to avert sudden tax increases and across-the-board spending cuts in January that could send the economy back into recession. After spending two years marooned between the will of his loud and fractious members and the Democratic Senate majority, the speaker is trying to assert control, and many members seem to be offering support. “To have a voice at the bargaining table, John Boehner has to be strong,”

Liberal Groups Fighting Grand Bargain – For Now - As we try to soak in what the President just had to say, keep in mind that there’s a growing citizen-led movement, backed by labor and progressive groups, to push Democrats away from anything approaching a grand bargain that would cut Medicare, Medicaid or Social Security (they should also be protective of regular discretionary spending, but that’s besides the point at the moment). Scenes like this are playing out all over the country. “We Take Care of Our Own” blared as local labor leaders and a top Democrat rallied against possible federal cuts to Social Security, Medicare or Medicaid and tax breaks for the rich. “Do not mess with our Social Security, don’t mess with Medicare, do not mess with Medicaid,” Rep. Bob Brady, the city Democratic leader, told a crowd of union members and community supporters. “I’ve just got to talk to my mother to put some fire in me, to make sure they don’t touch her Social Security,” Brady said. He said bills are rising for the elderly, but Social Security isn’t covering their expenses.This is in the days after the election, when the public is supposed to be burned out on campaigning and rhetoric and looking ahead to an era of working together. But these activists are out in force expressing their principles in the upcoming fight

Harry Shearer’s Grand Bargain Barn! - from Yves Smith - Bill Black will insist this needs to be rebranded as the Great Betrayal Barn….but I am sure you will enjoy it nevertheless! A must listen!

Grand bargain is the wrong solution -  Americans have just voted to reelect the president with clear priorities. They want Washington to get to work creating jobs and economic growth. They expect the president to raise taxes on the richest two percent in order to invest in areas vital to our future, as he pledged repeatedly across the country. They didn’t hear much about the so-called “fiscal cliff” in the election campaign, but their opinions on what is acceptable in any grand bargain are very clear.In the election eve poll done by the Democracy Corps for the Campaign for America’s Future (disclosure: I serve on the board of the Campaign’s sister institution, the Institute for America’s Future), voters were asked what would be unacceptable in a large deal to reduce deficits. Seventy-nine percent found cuts to Medicare benefits unacceptable; 62 percent found cuts to Social Security unacceptable. And a stunning three in four found across the board domestic cuts that didn’t protect programs for “infants, poor children, schools and college aid” unacceptable. It’s hard for voters’ common sense to get a hearing inside Washington’s beltway. Instead, the multi-million dollar campaign funded by Wall Street billionaire Pete Peterson to “Fix the Debt” has enlisted CEOs and the noisome former co-chairs of the president’s deficit commission, Alan Simpson and Erskine Bowles, to raise hysteria about deficits and debt. Republicans are arguing yet again for cutting Social Security and Medicare in exchange for lowering tax rates on the wealthy, while promising that closing loopholes would raise more revenue. Voters just rejected Mitt Romney when he tried to peddle a version of this junk arithmetic.

Dear Mr. Obama, the “Grand Bargain” is neither Grand…nor a Bargain - Barack, you seem over the past several years to have taken as an ultimate political goal for yourself the fashioning of a “Grand Bargain” between you and the Democratic Party on one side and the Republicans on the other.  This goal has the insistent quality of an idée fixe in your biography and it may very well have some interesting psychological roots about which you may write at some point in your post-Presidency.  The pursuit of this idea or plan, however takes you away from your duties as President, as the head of the executive branch of the US government. While the political power you have achieved enables you to, within limits, impose your individual psychology or its effects on the American people, the intricacies of your individual make-up are of secondary importance to the service you are supposed to provide, and have claimed you want to provide, for the American people.  Your drive to put “bipartisanship” above other values has, to date, created for the American people problems which ironically bipartisanship is supposed to avoid. For starters, let me quickly review what the Grand Bargain is supposed to entail:  We are according to you and your current set of close advisors in a major crisis in terms of the size of the public debt and yearly federal budget deficits.  After an era of low taxes, tax breaks and rising federal budget deficits, tax rates are supposed to go up, in particular on wealthier individuals.  In “exchange” for raising taxes, supposedly a goal of Democrats, the Republicans will “get” three times the amount of cuts in social spending as the increase in taxation, in particular Medicare and Social Security as well as other government spending programs.  The idea is that government must balance its budget by taking in “revenue” via taxes (this is not actually how the federal government finances itself in our era as you may or may not know) and cutting spending.  The idea is that “shared sacrifice” is required to solve what is viewed to be the problem of the public debt and budget deficits.

Marshall Auerback appears on BNN discussing the Grand Bargain and other issues

Grand Bargain Gambit Also Seeks to Make Others Pay for the Sins of Elites - The President’s meeting with CEOs played out just as expected, as they offered support for any kind of a deal that averted the fiscal slope and a flood of austerity in 2013. Obviously they have a very particular perspective, grounded in cuts to their own corporate tax rates while the elderly and poor bear the costs of debt reduction. Meanwhile, the White House is already playing a game of inches with the Bush-era tax rates: Obama flatly rejected Republican calls to let the top rate remain at 35 percent, where it has stood for more than a decade under legislation adopted during the George W. Bush administration. And he shot down a GOP proposal to cap deductions for mortgage interest, charitable giving and other expenses in return for extending the Bush-era tax rates for the wealthy. But in a break with the position he took on the campaign trail, Obama said he would not insist on drawing “red lines” around 39.6 percent, the rate in effect for top earners during the Clinton administration. Democrats familiar with White House thinking said Obama is willing to set the top rate somewhat lower — around 37 percent or 38 percent — as long as the overall burden grows for families earning more than $250,000 a year. This actually looks to me a lot like the way banks paid off substantial chunks of the foreclosure fraud settlement with other people’s money. In this case, the wealthy and big corporations got tax cuts for a decade. Now they’ve decided that the bill has come due – it hasn’t, but that’s another story – and they want the middle class, the poor, the elderly and the sick to pay up.

Whose Sacrifice Is It Anyway? The So-Called ‘Grand Bargain’ Would Fleece the Middle Class - So now that the election is done at last, we can get down to the hard work of striking a “grand bargain” on the budget by cutting spending and raising taxes, and thus avoid the looming “fiscal cliff.” Any bargain will be a bad bargain, of course. Not so long ago, any moderately bright schoolchild could have told you that you never slash spending or raise taxes when the economy is still slowly emerging from a steep recession. As if the object lesson of the 1930s isn’t enough, we have the ongoing suicide of the European Union to confirm that “austerity” is just one more misguided attempt to apply the same rules that might work for a middle-class household to the course of nations. It’s not working there, and it won’t work here. But until Europe collapses completely, China’s slowing economy grinds to a complete halt, and all the “fiscal cliff” metaphors are inevitably replaced by unremitting references to “a perfect economic storm,” our nation’s leaders are bound and determined to continue with this madness. Since the campaign is finally over and our leaders are now reverting to habit—completely ignoring what the rest of us want—all we can offer is this feeble challenge: The next media pundit who calls for shared sacrifice must describe in detail just what he or she is prepared to give up.

Boogiemen and Clubs - The small evil group who runs the world and to whom no one we know belongs seems determined to take away our social insurance benefits that we pre-paid.  I was on my way home from Philly last night listening to All Things Considered and let me tell you, there is a reason why I gave up NPR news programs back in the mid Naughties.  Last night, they interviewed some asshole from a casino corporation who is advising the president on the “fiscal cliff” from the business perspective.  I don’t remember his name (and for some reason, I can’t find the clip) but I was so infuriated after his little spiel that I could barely drive.  Here’s a summary of what he said:

• He recognizes that the current economic environment is bad.
• He thinks we need to cut back on “entitlements”.
• He thinks that the American people need stability and something they can count on beyond the next quarter.
• He thinks that social security can be replaced with something that works better.
• He is convinced that if taxes are raised on the wealthy, they won’t have enough money to spend in casinos, leading to job loss.
• Here’s what he really meant:

More on the Threat to Social Security and Medicare from the so-called "Fiscal Cliff" - Linda Beale - In several posts recently I have discussed the harmful demands the right is engaging in related to the so-called "fiscal cliff" created by the original Bush tax cuts (set to sunset en masse), the artificial debt ceiling (used by the GOP to exact promises of spending cuts during a recession along with extension of unneeded tax cuts for the rich), and the ill-conceived notion that the U.S. military should continue to be funded at dangerously high levels that (i) ensure that the military-industrial complex will find a war or quasi-war in which to engage their newest toys while (ii) sucking resources from public infrastructure projects and education that are vitally needed to sustain our economy.  See, e.g., The GOP's extortion demands: cut Social Security or we'll shoot; If the Dems got backbone; Is it a fiscal cliff or merely a bump in the road; We face an 'austerity crisis' not a 'fiscal cliff.  At least the national media and a slew of bloggers are beginning to provide some background information to ordinary Americans on just what is driving the national discussion of "fiscal cliffs" and "austerity" demands.  See, e.g., Richard Rubin & Heidi Przybyla, Tax Pledges Confound Math as Obama Seeks Deal with Republicans, Bloomberg. (noting that "The $607 billion fiscal cliff is the combination of tax increases and spending cuts that will take effect in January if Congress doesn’t act" and characterizing the positions of the parties as follows: "Republicans want to extend expiring tax cuts for all income levels and are demanding an overhaul in 2013 of entitlement programs and the tax code" while "Obama wants $1.6 trillion in higher taxes for top earners over the next decade, achieved through a combination of limits on breaks and higher tax rates on ordinary income, capital gains, dividends and estates"); Jackie Calmes, Demystifying the Fiscal Impasse that is Vexing Washington,

Elite Democrats Act Like Losers - Voters handed democrats yet another overwhelming victory, so naturally the Democrats are going to screw their voters and enact stupid Republican policies. Despite the hundreds of millions spent to elect the plutocrat Romney and his clown posse of tax-hating, women-bashing, austerity loving, war everywhere candidates, voters rejected the Republican party. Democrats even won the culture wars, with gay marriage and cannabis. They won the rising demographics, and lost only in the losing demographics, old white guys and people with incomes above the median.  So what, say the Democratic Elites. The Republicans were right: we have to cut Social Security and Medicare, and we can’t really raise taxes on the rich. We got another piece of evidence today. The New York Times resurrected the execrable Robert Rubin, author of deregulation, to tell the elites to support the plutocrat position: deficits must be cut, so they must cut benefits to tens of millions of Obama supporters. Next he’ll tell the Democrats to repeal Obamacare and Dodd-Frank, and to destroy Planned Parenthood. Those policies were directly and powerfully rejected by their voters, but that doesn’t matter to the Elites. Elections don’t matter, they say loud and clear by their actions.

Life, Death and Deficits, by Paul Krugman - America’s political landscape is infested with many zombie ideas — beliefs about policy that have been repeatedly refuted with evidence and analysis but refuse to die.  And right now the most dangerous zombie is probably the claim that rising life expectancy justifies a rise in both the Social Security retirement age and the age of eligibility for Medicare. Even some Democrats — including, according to reports, the president — have seemed susceptible to this argument. But we shouldn’t let it eat our brains.  First of all, you need to understand that while life expectancy at birth has gone up a lot, that’s not relevant to this issue; what matters is life expectancy for those at or near retirement age.  Even in 1940, Americans who made it to age 65 generally had many years left.  Now, life expectancy at age 65 has risen, too. But the rise has been very uneven since the 1970s, with only the relatively affluent and well-educated seeing large gains. Bear in mind, too, that the full retirement age has already gone up to 66 and is scheduled to rise to 67 under current law.  This means that any further rise in the retirement age would be a harsh blow to Americans in the bottom half of the income distribution, who aren’t living much longer, and who, in many cases, have jobs requiring physical effort that’s difficult even for healthy seniors. And these are precisely the people who depend most on Social Security.

Lobbyists Feign Budget 'Fix': Trojan Horse Filled with Corporate Tax Breaks - As boisterous threats of the 'fiscal cliff' persist and progressive voices urge President Barack Obama to avoid falling for shortsighted solutions to illusory ultimatums, a group of corporate lobbyists and CEO's going by the name of "The Campaign to Fix the Debt" are set to unleash an onslaught of campaign ads which propose bipartisan 'compromises' to the problem, but in reality would act as a "Trojan horse concealing massive corporate tax breaks that would make our debt situation much worse,” according to a new report by the Institute for Policy Studies. The Fix the Debt campaign, made up of more than 80 CEOs of "America’s most powerful corporations," has raised $60 million to lobby for a debt deal that "would reduce corporate taxes and shift costs onto the poor and elderly," including large cuts to social programs such as Medicare and Social security, the report finds. With ‘Fix the Debt’ CEOs are trying to "pass themselves off as noble leaders who are willing to compromise in order the save America from financial ruin,” but are actually "leveraging the 'Fiscal Cliff'" in order to push age old attempts to avoid paying taxes at the expense of those in need, says report co-authors Scott Klinger and Sarah Anderson. The campaign’s ads are already appearing in places such as The Washington Post’s website but are are expected to "fill our airwaves."

Applebee’s Obamacare Rant Reveals the Lies of the Deficit Hysteria - William K. Black - Zane Tankel, a wealthy owner of over 40 Applebee franchises has attracted media attention by denouncing Obamacare and claiming that it will impose such burdensome expenses on him that he will need to fire workers, limit the hours of existing workers so that they are part-time and do not qualify for health insurance coverage, and cancel plans to open new restaurants.  The media reaction has understandably focused on the public rage at such a wealthy man throwing his workers under the bus.  I write to make a different point.  Tankel illustrates some of the reasons why the Congressional Budget Office’s (CBO) projections of a purported U.S. financial crisis arising from the safety net are baseless. Tankel’s complaint is Obamacare’s “employer mandate.”  Small businesses are exempt, but businesses like those Tankel owns are required to provide health insurance for their full-time workers. “Somebody has to pay,” said Apple-Metro Chairman Zane Tankel on Fox Business Network. The Applebee’s chief added that it is unclear what Obamacare taxes, costs and fines will total, but said his restaurants will do whatever is necessary to stay in business. Businesses criticizing Obamacare have made two contradictory arguments about the impact of the employer mandate.  The CEO of Papa John’s has become infamous by arguing that the price of the pizzas he sells will go up by 14 cents.

Obama Meets C.E.O.’s as Fiscal Reckoning Nears — President Obama extended an olive branch to business leaders Wednesday, seeking their support as he prepared to negotiate with Congressional Republicans over the fiscal impasse in Washington. If Congress and the president cannot reach a deal to reduce the deficit by January, more than $600 billion in tax increases and spending cuts will go into effect immediately — a prospect many chief executives and others warn could tip the economy back into recession. Even so, Mr. Obama has some fence-mending to do before he can count on any serious backing from the business community. “The president brought up that he hadn’t always had the best relationship with business, and he didn’t think he deserved that, but he understood that’s where things were and wanted it to be better,” said David M. Cote, chief executive of Honeywell. He was one of a dozen corporate leaders invited to meet Mr. Obama at the White House for 90 minutes Wednesday afternoon, after the president’s first news conference since the election. While Mr. Obama did not present a detailed plan at Wednesday’s meeting or reveal what he would propose in terms of new corporate taxes, he strongly reiterated that he would not allow tax cuts for the middle class to expire. The president, according to attendees and aides, said he was committed to a balanced approach of reductions in entitlements and other government spending and increases in revenue. With time running out, many people expect the president and Republican leaders in Congress to come up with a short-term compromise that prevents the full slate of tax increases and spending cuts from hitting in January. That would give both sides more time to come up with a far-reaching deal on entitlement spending, even as they work on a broad tax overhaul later next year.

Moody’s Analytics Expects Fiscal Cliff Deal - Moody’s Analytics believes the Obama administration and House Republicans will come to an agreement over taxes and spending, but may extend negotiations into next year. Moody’s Analytics believes extending discussions into 2013 will raise uncertainty and all but stall growth in the first quarter. But once an agreement is reached, real GDP is expected to grow while unemployment falls. Adding to uncertainty is the approaching Treasury debt ceiling. Based on recent government spending, the Treasury will approach its limit late this year, Moody’s Analytics said.

White House in talks to replace sequester: WSJ -  The White House is an advanced internal discussions on a plan to replace the sequester with a smaller package of spending cuts and tax increases, The Wall Street Journal reported, citing people familiar with the planning. The idea would be to push larger deficit-reduction talks into the middle of 2013. House Republicans so far have discussed a similar model, albeit without replacing the non-defense domestic cuts and without tax increases. White House talks with Congressional Democrats and Republicans are due to start Friday.

The Upcoming Mini-Deal on the "Fiscal Cliff" - Robert Reich  - Want to know what’s going to happen to January’s fiscal cliff? Just remember: Political deals move the same way water goes down hill — following the path of least resistance. Here, the path of least resistance is for congressional Republicans and the President to agree to kick the can down the road – keeping everything as it is (current spending, the Bush tax cut) until a date in the not-too-distant future — say, March 15. As a sweetener, Republicans will have to agree to lift the debt ceiling again when a vote is needed to do so, probably in late January. This mini-deal will give the new Congress and the White House time to craft a “grand bargain” on deficit reduction without going over the fiscal cliff. It also enables the White House and Democrats to retain their trump card: The Bush tax cuts will automatically expire at the end of the negotiation period (in my example, March 15) unless an agreement is reached. So the top marginal tax rate automatically rises to 39 percent. The downside of the mini-deal: Financial markets will remain uncertain about the ultimate deal. That means another several months of Wall Street gyrations. And certain industries – military contractors, drug companies, and other sectors dependent on government spending – may delay expansion or hiring until a grand bargain is struck

Underinvesting in Resilience: The Role of Automatic Stabilizers - A Romney win would have provided fertile ground for econ blogging -- there were so many polices that I passionately disagree with. But even though it makes the job here a little tougher, and not quite as fun, I'll take the outcome we got. There will still be plenty to complain about in a second Obama administration, and the top priority for me is protecting social insurance programs from the cuts that the Republicans and misguided, centrist, grand bargain types on the left would like to make. The other thing I would like to push even though it is pretty much hopeless to expect much change is our approach to fiscal policy. In deep recessions, we need it to buttress our monetary policy efforts with fiscal policy, but as it stands discretionary fiscal policy is largely dysfunctional due to the inability of Congress to agree on how to proceed (that would be easier to understand if it was simply an honest disagreement over the underlying economics, but politics -- winning the next election -- gets in the way and obstructs the ability of fiscal policymakers to respond to economic downturns). But while discretionary policy is generally difficult to implement, and usually suboptimal when it is, another type of policy, what are known as automatic stabilizers, did much better (much of the increase in spending during the recessions was due to social programs expanding as conditions worsened). To the extent that we can shift policy from discretionary to automatic -- spending and tax cuts that kick in automatically when economic conditions deteriorate, and reverse themselves when things improve -- we would be better off.

Is it a fiscal cliff or merely a bump in the road? - Sixty percent of American voters in exit polls indicated that they supported higher taxes for the wealthy, see here.  Even some arch conservatives are acknowledging that some tax increases won't do terrible harm.   Even Conservative Weekly Standard Editor Bill Kristol counseled Republican leadership to get real. You know what? It won't kill the country if Republicans raise taxes a littlbe bit on millionaires.  It really won't, I don't think.  ...  Really? The Republican party is gonna fall on its sword to defend a bunch of millionaires, half of whom voted Democratic, and half of whom live in Hollywood and are hostile to Republicans?  ( Weekly Standard Editor Bill Kristol: Raising Millionaires' Taxes 'Won't Kill the Country'). Nonetheless, the House and Senate Republican leadership (Rep. Boehner and Sen. McConnell) are insisting that they will not allow tax rates to rise.   McConnell told Breitbart.com the following: One issue I’ve never been conflicted about is taxes. I wasn’t sent to Washington to raise anybody’s taxes to pay for more wasteful spending and this election doesn’t change my principles. This election was a disappointment, without doubt, but let’s be clear about something: the House is still run by Republicans, and Republicans still maintain a robust minority in the Senate. I know some people out there think Tuesday’s results mean Republicans in Washington are now going to roll over and agree to Democrat demands that we hike tax rates before the end of the year. I’m here to tell them there is no truth to that notion whatsoever. 

Fiscal Slope: Alternative Minimum Tax (AMT) - Here is another part of the fiscal slope from the WSJ: IRS Warns: AMT Poised to Bite 33 Million Taxpayers If Congress doesn’t act to extend relief from the alternative minimum tax by the end of 2012 – an important element of the fiscal cliff – the IRS said Tuesday that it would have to enforce the AMT against about 33 million households ... "If there is no AMT patch enacted by the end of the year, the IRS would be forced to operate the 2013 tax filing season based on the expiration of the AMT patch,” the acting IRS commissioner, Steven Miller, wrote in a letter to GOP Sen. Orrin Hatch of Utah on Tuesday. “There would be serious repercussions for taxpayers.” The AMT was created in the 1960s to make sure that very wealthy people who accumulate a lot of deductions still paid some tax. Over the years, it has begun to hit many middle-class households, at least on paper, in part because it’s not indexed for inflation.  AMT relief is renewed every year. Maybe someday they'll just index it for inflation.

McConnell Not Willing to Raise Taxes to Avoid Fiscal Cliff - Senate Minority Leader Mitch McConnell insists that he will not agree to higher taxes to avoid the fiscal cliff. WSJ: “Let me put it very clearly,” says the five-term Republican senator from Kentucky. “I am not willing to raise taxes to turn off the sequester. Period.” On Jan. 1, Washington faces both a huge tax increase and an automatic spending cut known as the “sequester,” which could tip the economy back into recession. A newly emboldened President Obama is likely to take his soak-the-rich case straight to the people, I remind the senator. The political pressure to capitulate could become intense. “Look, he may think it would be helpful to his presidency to continue to divide and demonize us,” says Mr. McConnell. “But my answer will still be short and firm: No. We won’t agree to any tax increases that will hurt the economy.” This isn’t to say that next week, when the lame-duck congressional session begins to negotiate some kind of budget solution, taxes are off the table. Mr. McConnell is a realist. Republicans are willing to be “flexible” on raising revenues but, he hastens to add, only “in the context of broad-based, comprehensive tax reform.” He’s open to prying more out of the rich by closing tax loopholes. But he and his caucus of 45 Republicans want lower, not higher, rates. Two years ago, Mr. McConnell notes, Mr. Obama agreed to extend all the Bush-era tax cuts for two years. The president’s explanation for doing so was that raising taxes would harm the economy. “That logic still stands,” the senator says. “The economy’s actually growing slower now than it was then.

Payroll tax holiday: The most important part of the fiscal cliff must be saved. - The most important element of the “fiscal cliff” is the one politicians seem least interested in doing anything about: the expiration of a payroll tax holiday that’s given a nice lift to the economy at no cost to anyone. A sensible Congress would be coming together on extending and even expanding the payroll tax holiday, even while continuing to argue about the other unrelated elements of the cliff. Instead, the ongoing controversy over high-end Bush tax cuts is crowding the agenda and may end up blocking what should be a no-brainer policy initiative. It’s helpful to start by recognizing that the whole idea of a fiscal cliff is somewhat confusing. At the end of calendar year 2012, various fiscal initiatives are set to expire or to begin. One element is a series of corporate tax subsidies that Congress almost invariably extends but doesn’t like to make permanent. Nonpermanence both masks the cost when the Congressional Budget Office does the scoring and ensures that there’ll be a new round of lobbying as firms need to come back and argue for extensions. The dreaded “budget sequester” that resolved the great debt-ceiling crisis of 2011 is scheduled to start in 2013: “automatic” spending cuts, half to the military and half to the civilian side of government, that are supposed to motivate Democrats and Republicans to agree to some alternative framework. The Bush tax cuts are a third major element of the cliff and the most controversial. Obama’s proposal is to extend most of the Bush tax cuts but rescind the rate cuts for the top 2 to 3 percent of the population. That would raise ample funds to stop the sequester. Republicans want to extend all the Bush tax cuts and replace the defense sequester with cuts in programs for poor people.

The US Senate wonders about tax policy for the American Dream: here is the homework they gave me -On a hot evening in July I flew back home to Ottawa from Washington DC after having testified before The United States Senate Committee on Finance. But that was not the end of it. A few days later an email arrived with a list of questions. The Senators gave me homework!  Tax policy is currently at the center of public policy discussions in Washington, much of this dealing with deficit reduction: the extent to which cuts in government spending or increases in taxes should be used to narrow the gap between revenues and expenditures, and who should pay any increase in taxes. Indeed, a prominent Harvard economist, Larry Summers, who has played important roles in both the Clinton and Obama administrations, recently spoke about these discussions in a speech given in Ottawa on November 8th that you can listen to on the web site of Canada 2020, a Canadian think tank. Summers looks at this issue from the macro-economic perspective suggesting that if fiscal policy—the government’s taxing and spending decisions—is severely tightened, the US could fall back into recession.

The US Senate wonders about tax policy for the American Dream: Senator Hatch asks about the validity of the statistics - Senator Orrin Hatch has a sharp eye. In response to my July 10th testimony to the Senate Committee on Finance hearing on “Helping Young People Achieve the American Dream” I received some homework, a series of questions asking me for a good deal more detail. Senator Hatch, who is a US Senator for Utah, asks a thoughtful question about measurement issues. I will offer my answers to all the questions in a series of blog posts over the coming days. You can review the questions at my November 11th post. But I would like to begin with the first question Senator Hatch asks because it gives us the opportunity to clarify what the statistics mean. This is a good place to start. The Senator asks the following. When looking at intergenerational mobility, we look at comparisons between outcomes of parents and children. Yet the environments facing parents were often far different from those facing their children.  In looking at income measures in the U.S. over time, some studies, including ones by Pew, measure income exclusive of non-wage benefits and certain government benefits like food stamps.  Yet, over time, Americans have increasingly taken compensation growth in the form of non-wage benefits. Excluding them seems, to me, to exclude a lot of what has been happening in labor markets over the past few decades. How can we extrapolate from historical evidence on parents versus children when people are raised in far different economic environments and possibly receive income in far different forms over time, to craft federal mobility policies for today and the near future?

Tax Shares Paid by the Rich: Does the U.S. Have the Most Progressive Tax--Not Tax and Transfer, But Tax--System in the OECD?   - We know that the U.S. has one of the least progressive tax-and-transfer systems in the OECD. Suppose we don't like that answer, and seek the answer to a different--and less interesting, and less relevant--question: suppose we ignore transfers, and just look at taxes? Could Veronique de Rugy be right in her extremely narrow question, and the U.S. have the most (or one of the most) progressive tax systems in the OECD? Note that the thumb is heavily on the scale in this formulation of the question. U.S. data on the share of taxes paid by the top 10% does not mean what it means for other countries. As a result of historical accident--the fact that Sen. Russell Long (D-LA) was on the Finance Committee--the Earned Income Tax Credit and the Child Tax Credit parts of our welfare system are run through the Treasury and the IRS rather than through HHS. These large "negative taxes" reduce the denominator of total net taxes collected, and so inflate measurements of the share of taxes paid by the top 10% of Americans.

Congress Can’t Avoid Tax Rate Cuts By Closing “Loopholes” - If you listened to President Obama and House Speaker John Boehner’s radio addresses last Saturday, you got an earful of weasel words, ranging from the merely misleading to the truly Orwellian. Here are just a few:

• Closing tax loopholes: This is a favorite of both parties, but these days it is being used mostly by Republicans who are looking for an alternative to raising tax rates on high-income households. The phrase appears regularly in Boehner’s presentations.
• Entitlements: When politicians use the word entitlement, they really mean Medicare, Medicaid, and Social Security. At least two of those programs, Medicare and Social Security, are enormously popular. So nobody talks about slowing the growth of these senior health care and pension programs.  “Entitlement” carries with it a sense of privilege and greed. So much easier to cut en entitlement than to trim promised Social Security benefits.   
• Shoring up entitlement programs.  This is another Boehnerism.  It is not enough, it seems, to say entitlement instead of Medicare and Social Security.  Now, pols insist they are “shoring up” these programs when they really mean they want to trim promised benefits. For programs that are funded through trust funds, such as Social Security and Medicare Part A, “shoring up” has some meaning (assuming you believe in the trust fund concept at all). But for the rest of Medicare and all of Medicaid, there is nothing to shore up.
• Making people like me pay a little more: This was an Obama favorite in the campaign. And it never seems to go away. The Tax Policy Center estimates the top one percent of households (who make an average of about $1.7 million) would end up paying almost $94,000 more in taxes under Obama’s 2013 budget, or about 6 percent of their income. I know these folks make a lot of money, and probably can manage this higher tax bill, but a nearly six-figure tax hike is a tad higher than “a little more.”

Want Less Inequality? Tax It - Does the extreme degree of inequality in America today really create, as Pigou would put it, negative externalities? Does the fact that hedge-fund manager Mr. Jones rakes in 100 or 1,000 times what office manager Mrs. Smith earns impose costs on everybody else? Plenty of Americans think not. Defenders of our skewed income distribution point out that a free-enterprise system requires some inequality. Unequal rewards give people an incentive to work hard and acquire new skills. They encourage inventors to invent, entrepreneurs to start companies, investors to take risks. It’s fine in this view that some people get astronomically rich. As Mitt Romney likes to say, “I’m not going to apologize for being successful.” On the other side, many of us have a gut feeling that inequality has gone too far. Our times are reminiscent of the Gilded Age’s worst excesses. Hence the popularity of the Occupy Wall Street movement’s slogan, “We are the 99 percent.” But the conventional strategy for fighting inequality—far higher taxes on the rich—usually rests on a foundation of fairness, and the question of what’s fair and what’s unfair turns out to cut different ways, depending on your point of view. You may find it unfair that the very rich take in so much more than others. But somebody else might wonder why the rich should be taxed so heavily. Don’t they already pay disproportionately more than everyone else? These arguments quickly hit a dead end. That may be why befuddled Democrats and Republicans in Congress wrangle fruitlessly over top tax rates—39 percent, 35 percent, or even lower—that have already demonstrated negligible effects in reducing inequality.

Geithner Says Higher Income Tax Rates Can’t Be Avoided - Treasury Secretary Timothy F. Geithner said it will be necessary to raise personal income tax rates on the wealthiest Americans to reduce long-term budget deficits, because capping deductions won’t raise enough revenue. President Barack Obama is “not prepared to extend the upper-income tax cuts,” Geithner said today at the Wall Street Journal’s CEO Council meeting in Washington. “There’s obviously universal support for the middle-class tax cuts. Doing that would remove the greatest source of anxiety and much of the greatest risk in the fiscal cliff.” Obama has invited leaders in Congress for talks on a deal to reduce budget deficits that would avert the $607 billion in automatic spending cuts and tax increases slated to take effect Jan. 1. The Congressional Budget Office has forecast that the fiscal cliff would push the economy into a recession next year. Obama, who plans to reduce the shortfalls by increasing taxes for top earners, is holding meetings with labor and business leaders in the White House this week. The talks are intended to shore up the support for his plan before Nov. 16 discussions with Republican House Speaker John Boehner, Senate Minority Leader Mitch McConnell, Democrat House Minority Leader Nancy Pelosi and Senate Majority Leader Harry Reid.

Obama demands tax rises for rich over fiscal cliff: Newly re-elected President Barack Obama has said the wealthy must pay more taxes under any political settlement to avert a looming budget crisis. He said Congress must act against the so-called fiscal cliff, a package of tax rises and spending cuts due early next year. But in a duelling news conference, Republican House Speaker John Boehner said tax rises would not be acceptable. Budget analysts warn the US will tip into recession unless a deal is struck. Mr Obama has repeatedly called for the affluent to pay more, but such a plan is anathema to Republicans. The fiscal cliff would see the expiry of George W Bush-era tax cuts at the end of 2012, combined with automatic, across-the-board reductions to military and domestic spending. , Mr Obama said: "We can't just cut our way to prosperity. If we're serious about reducing the deficit, we have to combine spending cuts with revenue. And that means asking the wealthiest Americans to pay a little more in taxes."

Gene Sperling: Tax Deal Needs ‘Well Over $1 Trillion’ - Top White House economic adviser Gene Sperling said Thursday that any significant package of changes to reduce the deficit must have “well over $1 trillion in revenues.” Mr. Sperling, director of the White House National Economic Council, also went into further detail about the types of compromises the Obama administration would consider as part of negotiations with Republicans. His comments come as the Obama administration begins negotiations with Congress to reach a deficit-reduction plan that could avert $500 billion in tax increases and spending cuts set to begin in January. Mr. Sperling played down the idea that a cap on tax deductions could raise enough revenue to satisfy White House officials. His comments came during a segment at the Washington Ideas Forum, held by the Atlantic, the Newseum, and Aspen Institute

Obama to seek $1.6 tln in new tax revenue: reports -  President Barack Obama plans to open talks over the tax component of the so-called "fiscal cliff" by calling for $1.6 trillion in new tax revenue over the coming decade, according to reports late Tuesday. The Wall Street Journal and Washington Post reported separately that Obama's figure for additional taxes is likely to meet with strong Republican opposition, as it is double the amount proposed during failed closed-door talks with GOP leaders during debt negotiations in mid-2011. Rather, the $1.6 trillion is based on Obama's most recent budget proposal, the reports said. The Washington Post also quoted Republican Senate Minority Leader Mitch McConnell as saying Obama shouldn't overplay his hand, as the budget proposal in question failed to gain any votes in Congress when it was issued this spring. Reuters quoted McConnell as saying Republicans were "not about to further weaken the economy by raising tax rates and hurting jobs."

Obama To Demand $1.6 Trillion In Tax Hikes Over Ten Years, Double Previously Expected - If the Fiscal Cliff negotiations are supposed to result in a bipartisan compromise, it is safe that the initial shots fired so far are about as extreme as can possibly be. As per our previous assessment of the status quo, with the GOP firmly against any tax hike, many were expecting the first olive branch to come from the generous victor - Barack Obama. Yet on the contrary, the WSJ reports, Obama's gambit will be to ask for double what the preliminary negotiations from the "debt deficit" summer of 2011 indicated would be the Democrats demand for tax revenue increase. To wit: "President Barack Obama will begin budget negotiations with congressional leaders Friday by calling for $1.6 trillion in additional tax revenue over the next decade, far more than Republicans are likely to accept and double the $800 billion discussed in talks with GOP leaders during the summer of 2011. Mr. Obama, in a meeting Tuesday with union leaders and other liberal activists, also pledged to hang tough in seeking tax increases on wealthy Americans." Granted, there was a tiny conciliation loophole still open, after he made no specific commitment to leave unscathed domestic programs such as Medicare, yet this is one program that the GOP will likely not find much solace in cutting. In other words, all the preliminary talk of one party being open to this or that, was, naturally, just that, with a whole lot of theatrics, politics and teleprompting thrown into the mix. The one hope is that the initial demands are so ludicrous on both sides, that some leeway may be seen as a victory by a given party's constituents. Yet that is unlikely: as we have noted on many occasions in the past, any compromise will result in swift condemnation in a congress that has never been as more polarized in history

Wonkbook: Obama’s $1.6 trillion opening bid - Wonkbook’s Number of the Day: $1.6 trillion. That’s President Obama’s opening bid for the amount he wants to raise more in tax revenues on corporations and the wealthy over the next decade, according to a story by Zachary A. Goldfarb and Lori Montgomery in The Washington Post. It’s twice what Boehner offered him in their private negotiations in 2011. You’ll find much more on the topic in Wonkbook’s special austerity crisis section today.

Understanding President Obama’s Revenue Targets - President Obama and administration officials have offered two different revenue targets for the fiscal cliff debate: $1 trillion and $1.6 trillion (sometimes reported as $1.5 trillion). You might be wondering (I was) where those numbers come from. President Obama wants to extend the majority of the Bush-era individual income tax cuts—enacted in 2001 and 2003 and extended in 2010—except for those that affect only households with incomes more than $200,000 (single) or $250,000 (joint). In addition, he wants to return the estate tax to its 2009 structure, rather than the one that applies today. Together, those changes would increase revenue by $968 billion over the next decade, according to Treasury estimates, relative to a current policy baseline (i.e., a baseline that has income and estate taxes in their 2012 form). That $968 billion, which rounds to $1 trillion, has the following components, all applying only to taxpayers with incomes above the president’s thresholds:  In his budget last February, President Obama proposed $1.56 trillion in tax increases. In round numbers: $1.6 trillion, sometimes misreported as $1.5 trillion. That figure includes the $968 billion noted above plus another $593 billion in tax increases. The largest of those, by far, is the president’s proposal to limit the value of itemized deductions and certain exclusions for upper-income taxpayers. Under that proposal, upper-income taxpayers would benefit only 28 cents on the dollar for their charitable deductions, mortgage interest, employer-provided health insurance, etc., even if they are in the 36% or 39.6% tax brackets. That provision would raise $584 billion. The rest of his tax provisions, including both cuts and increases, then net out to just $9 billion.

Can Congress Raise Taxes on the Rich without Raising Their Rates? Maybe - At his press conference yesterday, President Obama said it is nearly impossible to raise taxes on the wealthy (a key piece of his fiscal strategy) without increasing their tax rates. It is, Obama said, a matter of simple arithmetic.   But a look at some very rough numbers suggests that if the president and congressional Republicans want to compromise, there is a middle-ground. It may not be great tax policy and the politics is by no means easy, but the math may work. To see how, first think about the two problems policymakers face–getting beyond the next few months and designing a long-term deficit reduction plan that includes both new taxes and significant reductions in planned spending. Most of the current focus is on avoiding the fiscal cliff. Obama insists on extending most of the 2001-2003 tax cuts except for those that benefit the rich. Most Republicans want to extend those tax cuts for everyone, including the wealthy, which would add about another $1 trillion to the deficit. Their argument is what to do about the difference. In Obama’s words, “It’s very difficult to see how you make up that trillion dollars…just by closing loopholes and deductions.” Actually, it isn’t.

I’m Betting on Grover - In the wake of their overwhelming defeat last week (at least relative to expectations a few months ago), Republicans are wondering how to improve their position in the next election. John Boehner has apparently told his caucus to “get in line” and support negotiations with the president over the “fiscal cliff” and the national debt. More shockingly, The Hill reported rumblings that Grover Norquist’s stranglehold over tax policy may be weakening, with one Democratic aide even saying, “As far as [Norquist’s] ability to sway votes, it’s gone.” Norquist’s Taxpayer Protection Pledge forbids lawmakers from voting for legislation that would either raise tax rates or increase tax revenues; if Republicans are questioning the pledge, that might pave the way for a bipartisan compromise to increase taxes. Norquist’s response: “Nobody’s actually broken the pledge. That doesn’t keep me up at night.” He’s right not to worry. He has history on his side. Let’s take a brief look at American political history since the 1970s, courtesy of the incomparable xkcd:

Passing the “Middle-Class” Tax Cuts Benefits the Wealthy, Too - President Obama today clarified an important, and often misunderstood, point:  the so-called “middle-class Bush tax cuts” also benefit high-income people.  So, if the House were to approve the Senate-passed bill to extend the middle-class tax cuts (as the President favors), “that would prevent any tax hike whatsoever on the first $250,000 of everybody’s income,” he said at his press conference. That’s because the middle-class tax cuts do not just apply to people making less than $250,000 but to incomes — for everybody — up to $250,000 ($200,000 for singles).  In fact, as this chart based on Urban-Brookings Tax Policy Center data shows, extending the “middle-class” tax cuts would be worth about $12,000 next year to people making between $200,000 and $500,000.

Most Americans To Face Higher Taxes After Fiscal Cliff - If the nation is allowed to "go over the Cliff," the Tax Policy Center estimates the average household faces a tax increase of $3,500. The Center estimates that overall taxes could get hiked by more than $500 billion next year. Nearly 90 percent of Americans would pay more in taxes, mainly because of the expiration of a cut in Social Security taxes and many of the Bush era tax cuts going away. Low-income households would pay more due to expiration of tax credits in the 2009 stimulus. High-income households would be hit hard by higher tax rates on ordinary income, capital gains, and dividends and by the new health reform taxes. Americans don't have a lot of faith that Congress will get the job done. A new poll shows many Americans think lawmakers are too far apart. Half told Pew Research they think the lame-duck Congress won't reach a deal.

The Many Ways Your Taxes Could Go Up in 2013 (Even If You’re Not Rich) - President Bush and Congress enacted tax cuts in both 2001 and 2003. The 2001 cuts were in response to the budget surpluses (remember those?) that the U.S. Treasury had been accruing since the late 1990s. Additional cuts were enacted in 2003 to stimulate the economy from the 2002-2003 recession.  But they are set to expire once again in 2013. Everyone in Washington is in agreement that the tax cuts for those outside the top tax bracket should be extended, but absent a deal, every working American will be hit with a marginal tax rate increase of 5% on average, according to the Tax Policy Center. The Alternative Minimum Tax sets a tax-liability floor of 28% for high-income earners. The problem is that the AMT is not indexed to inflation, so each year it ensnares more and more middle-income Americans. If the law isn’t “patched” by increasing the level of income at which taxpayers must pay the AMT, then tens of millions of taxpayers will owe much more to the government than they are used to owing, and they’ll owe that money retroactively for 2012. As part of the 2009 stimulus package, President Obama and Democrats gave working Americans a “Making Work Pay” tax credit of $400 for working individuals or $800 for working families. But Republicans refused to extend that in 2010, so the president and Democrats replaced it with a temporary payroll tax cut, which lowered the rate workers pay in Social Security taxes from 6.2% to 4.2%.  If something isn’t done, however, your taxes will go up by 2% of your gross annual income up to a maximum of $2,202 for those who make $110,100 and up. Single workers making $50,000 will take home $83 less each month.

Most in US won't be able to escape 'fiscal cliff' - Everyone who pays income tax — and some who don't —will feel it. So will doctors who accept Medicare, people who get unemployment aid, defense contractors, air traffic controllers, national park rangers and companies that do research and development. The package of tax increases and spending cuts known as the "fiscal cliff" takes effect in January unless Congress passes a budget deal by then. The economy would be hit so hard that it would likely sink into recession in the first half of 2013, economists say. And no matter who you are, it will be all but impossible to avoid the pain. Middle income families would have to pay an average of about $2,000 more next year, the nonpartisan Tax Policy Center has calculated. Up to 3.4 million jobs would be lost, the Congressional Budget Office estimates. The unemployment rate would reach 9.1 percent from the current 7.9 percent. Stocks could plunge. The nonpartisan CBO estimates the total cost of the cliff in 2013 at $671 billion. Collectively, the tax increases would be the steepest to hit Americans in 60 years when measured as a percentage of the economy. "There would be a huge shock effect to the U.S. economy,"

What the Fiscal Cliff Means for the Middle Class - The biggest chunk is $426 billion from the final expiration of the Bush tax cuts, according to a Bloomberg analysis in July. Of this, $358 billion is for the first $250,000 of all taxpayers' earnings, and the remaining $68 billion is for the tax cuts for income above $250,000 ($200,000 for a single person) that President Obama wants to get rid of. Both Republicans and Democrats want to retain the tax break for 98% of households, but Republicans will try to hold it hostage to the cuts for the other 2%. Since the Bush tax cuts expire if nothing gets done (because they were originally passed through the Senate's reconciliation procedure, which gave them a 10-year lifespan; then renewed for 2 years in 2010), on January 1 the Republicans will have no more leverage on this. Thus, I expect that the middle class tax cuts will be made permanent and, by early January at the latest, the $68 billion will be all that will have expired. Since the wealthy spend less of their income than do the middle class or poor, this tax increase will have little contractionary effect on the economy. Another set of tax provision affecting couples with over $250,000 and individuals over $200,000 is contained in the Affordable Care Act. These folks will have to pay an extra 0.9% tax on earnings over the thresholds for Medicare, and an extra 3.8% on investment income, starting in 2013. According to an Associated Press estimate, this will raise $318 billion over 10 years, so we'll call it $30 billion for 2013. Since this is part of the funding for Obamacare, the President is highly unlikely to budge on this. Again, as a tax hike on the top 2%, it will have relatively little contractionary effect. There are $110 billion in automatic spending cuts scheduled in 2013 due to the so-called "sequester." These were triggered last year when no deal was made on long-term deficit reduction. With unemployment still at 7.9%, government spending cuts are definitely harmful to the middle class.

The Poor Will Be the First Over the Fiscal Cliff - The fiscal cliff may not be a real cliff, but jumping off it could be a catastrophe for the poor. Absent action from Congress and President Obama, come January 1, 2013, the Bush tax cuts, Obama’s payroll tax cut and extended unemployment insurance expire just as spending cuts from the sequester kick in. (To recap, in order to get Congress to lift the debt ceiling last year, President Obama formed a Congressional committee that was supposed to recommend ways to cut $1.5 trillion from the deficit. If it failed, “sequestration” would kick in—$1 trillion in automatic spending cuts split evenly between defense and non-defense spending, with Social Security, Medicaid and Medicare mostly protected, coinciding perfectly with the other expirations on January 1. The committee never came through, so now we’re facing down the cuts.) It’s not a pretty picture, although some have found silver linings. My Roosevelt Institute colleague Mark Schmitt is hopeful that real tax reform waits on the other side of the big leap. Jonathan Chait argues that the impact will be gradual enough that Obama can delay or cancel out most of it. Some Democrats, including Representative Peter Welch of Vermont and Howard Dean, think it’s worth going over the cliff in order to force Congress’s hand in getting the budgetary house in order. These are all potential upsides of going over the fiscal cliff, but the downside for the country’s poorest would likely be very harsh. First, the budget cuts from sequestration will hit the poor incredibly hard—even if they will not represent a majority of the revenue raised. The term “non-defense discretionary spending” will warm few cockles of the heart. But it’s an incredibly important portion of the budget. Ethan Pollack of the Economic Policy Institute broke it down in the graph below:

Chart Of The Day: The Fiscal Cliff For The Rest Of Us - We have discussed the fiscal cliff from many angles: timeline, the potential impact, the scenarios, whether its impact is priced in, why a bounce on success is unlikely, the endgame 'solution', and the long-term fiscal probity of the USA. As it appears everyone is becoming more aware of this pending reality, we note USA Today's great one-stop-shop infographic which simplifies the fiscal cliff impact for the rest of us: A raft of tax and spending changes scheduled to take effect in January will sharply reduce the federal budget deficit, but will also send the economy back into recession if they all happen at once.

Grover Norquist: Pairing A Carbon Tax With Income-Tax Cut Wouldn't Violate GOP No-Tax-Hike Pledge Has Hell (And High-Water) frozen over? The National Journal reports today: In a step that may help crack open the partisan impasse on climate change, Grover Norquist, the influential lobbyist who has bound hundreds of Republicans to a pledge never to raise taxes, told National Journal that a proposed “carbon tax swap”—taxing carbon pollution in exchange for cutting the income tax—would not violate his pledge. Norquist’s assessment matters a lot, and could help pave the way for at least a handful of Republicans to support the policy. Over the past six months, a growing number of conservative voices, including former Republican officials and renowned economists, have amped up pressure on their party to finally address climate change. Lots of folks have been jumping on the carbon tax band-wagon (see “Bipartisan Support Grows for Carbon Price as Part of Debt Deal“). The Washington Post editorial board boarded this weekend.Even a modest carbon tax can deliver serious revenue (see “20 Dollar Per Ton CO2 Tax Could Reduce Deficit By $1.2 Trillion In 10 Years“). The two key questions are:

1. Is a tax politically feasible?
2. Is the politically feasible tax environmentally meaningful?

Carbon Taxes and the National Debt -- I am hearing a lot lately about using a carbon tax to fill the budget gap. I'm all for a carbon tax, internalizing externalities so that these markets work better is a good idea if we can somehow get through the political barriers, but we shouldn't be overly optimistic about how much revenue such a tax will bring. In order to get support for such a tax and to implement it equitably, some groups will need to be compensated for the higher energy costs they will face. For example, these proposals often come with a proposal to return some of the tax as a lump-sum payment to lower income households (the microeconomics of a tax on carbon combined with lump-sum payments can be found here). Presumably, the higher the threshold for "low income," the easier it will be to get support for a carbon tax proposal, so there will be pressure for the compensation to extend, perhaps on a sliding scale, to middle class households. And, at least in the initial years, there are other groups that will likely need to be compensated (okay, bought off) in order to garner the necessary political support. Overall, the point is a simple one: don't overestimate the revenue from a carbon tax.

Economics of Carbon Taxes - Brookings - The idea of enacting a carbon tax to address climate change and fiscal woes may be as plausible as relying on new leadership to steer the Chicago Cubs to their first world championship in over a century.  But now that another baseball season has come and gone with no changes on the North Side of Chicago, national fiscal season emerges with yet another return to the question of imposing some form of tax on some forms of fossil fuel. In this case, could such a tax be part of a fiscal cliff deal?  The carbon tax idea has been around for a long time, backed by an extensive and ideologically diverse set of economists. This includes prominent economic advisors going back to every presidential administration since that of Richard Nixon, though their public embrace of the idea tends to increase markedly after departure from public office. Even diverse think tanks are getting back into the act, reflected in yesterday’s “economics of carbon taxes” summit at the American Enterprise Institute. Indeed, that illustrates the main rap against carbon taxes: Good economics, awful politics, public policy non-starter. Why take a risk on the best available policy option when the political costs are likely to be severe? And why not revert to third- or fourth-best policy options that obscure the costs and thereby curry greater favor? The avalanche of state and local climate initiatives over the past decade largely reflect this pattern, with carbon tax aficionados most likely to note much earlier experience from the Nordic countries as their models.

Offsetting Costs of a Carbon Tax on Low-Income Households - CBO - Imposing a tax on carbon dioxide emissions would reduce the damage from climate change but would also impose a larger burden, relative to income, on low-income households than on high-income households. This paper evaluates two broad groupings of options for reducing the regressive effects of a carbon tax; one group of options would affect large segments of the economy, for example by reducing payroll taxes, and the other group of options would be targeted at low-income households, for example by providing an additional payment to households currently receiving electronic transfer benefits. Each option is evaluated based on the percent of low-income households that it would affect, whether it would provide comparatively larger benefits for lower-income households, its administrative costs, and its implications for economic efficiency, specifically whether it would increase incentives to work and invest and whether it would preserve the incentives to reduce emissions that the carbon tax would create. The broad based options could potentially provide support for a relatively large share of low-income households, but some of those options would provide relatively small benefits to those households. Options specifically targeting low-income households could be most effective in reaching households that do not file income taxes or that do not have earnings. Three of the seven options considered would increase the incentive to work or invest and all but one of the options would preserve the incentive to reduce emissions of carbon dioxide.

Counterparties: When climate change gets fiscal - Neither candidate paid much attention to climate change during the presidential election: it wasn’t so much as mentioned in any of the three debates. Then came Superstorm Sandy, Mayor Bloomberg’s climate-motivated endorsement of President Obama, and Businesweek’s mince-no-words cover. There’s also the fiscal cliff (or austerity bomb, if you prefer). What better time to start taxing carbon? The logic is simple: a carbon tax could raise $1.25 trillion over a decade, and according to Treasury officials, the President could be on board. Even anti-tax crusader Grover Norquist, famous for his pledge to never raise taxes, was open to the idea of a “carbon tax swap” — until the denialist Koch brothers intervened and Norquist hastily reversed his position. In his first press conference since the election, the President put secondary importance on climate change. Now Brookings’ Barry Rabe says that “enacting a carbon tax to address climate change and fiscal woes may be as plausible as relying on new leadership to steer the Chicago Cubs to their first world championship in over a century”. Ouch. As Dylan Matthews points out, a carbon tax was never really a fiscal panacea to begin with; according to an MIT study, for instance, it wouldn’t allow income tax rates to come down much. As Mark Thoma writes: Attempts to insulate various groups from the consequences of the tax…will eat into potential revenue, and the fact that the response to the tax will be greater as more time passes — for example as people switch to more efficient cars and appliances — will also reduce revenue. Even so, there are reasons to believe a carbon tax could be coming. California now has a functioning cap-and-trade system; it’s never been less profitable to run coal-fired power plants; and climate legislation is still supported by companies from Alcoa to Weyerhaeuser.

 Republicans shift stance on taxing wealthy - The US Congress should agree to higher taxes on the wealthy to avoid the fiscal cliff, a top Republican economist has conceded in a sign of the rapidly shifting political climate in Washington before negotiations to avert the looming budget crisis. Writing for the Financial Times, Glenn Hubbard, who advised Barack Obama’s rival Mitt Romney on his losing presidential bid, is the latest prominent conservative to suggest Republicans should change tack and accept the president’s structure for impending budget talks. “The first step is to raise average (not marginal) tax rates on upper-income taxpayers,” he wrote. “Revenues should come first from these individuals.” The growing debate among Republicans over how to generate more revenue highlights the change in the political mood since Mr Obama’s victory...

On America's Generous "Patriotic Millionaires" Who Just Can't Wait To Pay Down The US Debt - Several months ago, an ad hoc consortium of self-proclaimed millionaires, sent a letter to Obama, Reid and Boehner, demanding that "For the fiscal health of our nation and the well-being of our fellow citizens, we ask that you increase taxes on incomes over $1,000,000." This grass roots initiative sprung up into existence in the aftermath of Warren Buffett's, since defunct, proposal to impose a "millionaire tax" rule. Luckily, as all these very much informed millionaires know quite well, the US Treasury has a dedicated section, named simply pay.gov, which allows anyone: billionaires (here's looking at you Mr. Buffett), millionaire, or even thousandaire, to make a donation which is used directly to pay down the US debt. Because in the absence of the government mandating rich people pay their "fair share" (as determined by a subcommittee of course) for now at least, there is always that other alternative: voluntary action, as per the auspices of something called free will.And not only that, but the US Treasury also provides the general public with a running tally of just how much "Patriotic Millionaire" initiatives have given so far to paying down said debt. As in talk is cheap, signing petitions even cheaper, but putting money where your mouth is actually does go to the bottom line. The bottom line so far in 2012? $7.7 Million - this is how much has been volunteered in total gifts to pay down the US debt. The $16.3 trillion in US debt

Cutting Corporate Rates May Cost Billions - Via Taxprof blog: What Uncle Sam has given to the earnings of companies like Citigroup, AIG, and Ford he soon might take away.  President Barack Obama has said, most recently during last month's presidential debates, that the 35% U.S. corporate tax rate should be cut. That would mean lower tax bills for many companies. But it also could prompt large write-downs by Citigroup, AIG, Ford and other companies that hold piles of "deferred tax assets," or DTAs. After posting big losses, these companies have tax credits and deductions they can use to defray future tax bills, thus providing a boost to earnings. But a tax-rate reduction means some of those credits and deductions, counted as assets on the balance sheet, would be worth less, since lower tax bills would mean fewer opportunities to use them before they expire. That would force the companies to write down their value, resulting in charges against earnings. ...the company believes tax change should "include transition measures that mitigate impacts and avoid negative unintended results" for companies that based their planning on the current tax system.

Another Lame Duck Session Horrorshow, the “First, Let’s Kill All The Regulators” Bill - Yves Smith - No matter how bad things seem to be, there are always ways for them to become worse. While the campaign against Medicare and Social Security is being couched in the sort of faux inevitability that has become familiar via European austerity measures, other pernicious lame duck session measures are moving forward in the hope no one will notice.  Dave Dayen wrote up a remarkably ugly one last Friday. Here we have just been through a wreck-the-economy level global crisis which was in large measure due to deregulation. The measure underway would not only weaken already pathetic regulators like the SEC but for good measure would hobble other ones like the Nuclear Regulatory Commission. From Dayen: The Senate Homeland Security and Governmental Affairs Committee, under the direction of outgoing chair Joe Lieberman, plans to pass the Independent Agency Regulatory Analysis Act, S.3468, out of committee and into a fast track process. The bill would, according to AFR, strip away independence from various regulatory agencies, including the Securities and Exchange Commission, Commodity Futures Trading Commission, OSHA, the Nuclear Regulatory Commission, the FCC and the Consumer Financial Protection Bureau. These and more agencies would have to submit additional cost-benefit analyses to the executive branch, as well as submitting their rules and regulations for executive branch review. The immediate effect of this would be to slow implementation of things like Dodd-Frank. Review processes take time, and adding an executive branch layer gives Wall Street and other corporate interests another point of attack against various regulations. Heads of all the major regulatory agencies have already complained in a joint letter that the bill would give the executive branch far too much ability to influence their policy decisions.

Q2 Total Gross Notional Derivatives Outstanding: $639 Trillion - Earlier today, the BIS, which has been doing everything in its power today to defend the 1.27 support in the EURUSD since the market open this morning, released its H1 OTC derivatives presentation update. There was little of material note: total OTC derivatives were virtually unchanged at $639 trillion gross, representing $25 trillion in net outstanding (market value), and $3.7 trillion in gross credit exposure. Here the PhD theorists will say gross is irrelevant because Finance 101 said so, while the market practitioners will point to Lehman, counterparty risk, and less than infinite collateral to fund sudden implosions of weakest links in counterparty chains, and say that it is gross (which until a recent revision of BIS data had been documented at over $1 quadrillion) that mattered, gross which matters, and gross which will always matter until finally everything inevitably collapses in a house of missing deliverable cards. Because not even the most generous sovereigns and central banks can halt the Tsunami once there is a failure of a major OTC Interest Rate swap counterparty. And whereas Basel III had some hopes it would be able to bring down the total notional in derivative notionals slowly over the next few years with a gradual deleveraging across all financial firms, the bankers fought, and the bankers won, because the last thing the current batch of TBTFs can afford it admit there is any hope they can ever slim down. The will... but never voluntarily.

Chicago Fed Letter: "Detecting early signs of financial instability" - Here is another possible tool for predicting financial stress. From Scott Brave, senior business economist, and R. Andrew Butters, graduate student, Kellogg School of Management, Northwestern University: Detecting early signs of financial instability. A few excerpts: Following the financial crisis, policymakers and researchers have sought to identify new indicators that may be useful in gauging the relationship between the financial and nonfinancial sectors of the economy in the hope of detecting early signs of financial instability. The ratio of private credit to gross domestic product (GDP) has received a lot of attention in this regard.1 This leverage ratio serves as an early warning indicator of financial instability, insofar as it captures instances where the nonfinancial sector’s financial obligations form an outsized share of the broader economy’s resources.In this Chicago Fed Letter, we propose an alternative early warning indicator to the private-credit-to-GDP ratio. Our measure is constructed as a subindex made up of two nonfinancial leverage measures used in the Chicago Fed’s National Financial Conditions Index (NFCI). We show that this subindex has performed well as a leading indicator for historical periods of financial stress and their accompanying recessions in the United States; we also demonstrate that it has been more accurate than the private-credit-to-GDP ratio in predicting both at longer forecast horizons.

Testing the case for bottom-heavy banks -- BANKS used to be harder to topple than they are now. As the chart in this week’s Free exchange print article—Strength in numbers—shows they used to hold much more equity, a financial shock absorber that sits at the bottom of their balance sheets. When banks were bottom-heavy, they were safer. But shock-absorbing equity comes with costs too. This is why some banks and commentators are worried about new plans to raise equity ratios. The concern is that with higher ratios loans to households and firms would be in short supply or too costly. Are new regulations going to put the world into a sustained credit crunch?  On a long view the evidence suggests not. To see why, start with the demands of the new rules. Basel 3 requires a 7% common equity ratio. Because the assets in this ratio are risk-weighted, it must be converted into a simple (un-weighted) ratio to make it historically comparable. A simple ratio of about 3.5% is about right. (Average risk weights were often around 50% in the old Basel system, they will rise a bit with Basel 3, but tend to fall over time.) This seems pretty modest. But there are higher capital scenarios too, since some regulators have ambition to turn the clock back further. In a recent speech, Tom Hoenig head of the FDIC noted that capital levels of 13-16%, today thought excessive, could be an option.

Bankers Descend on Bernanke - The Federal Reserve is getting an earful as U.S. regulators work on a slew of upcoming guidelines poised to impact an industry that isn’t shy about offering its opinion. The central bank has received more than 2,000 comment letters weighing in on how the U.S. version of new international bank-capital rules should be structured, Fed governor Elizabeth Duke said in a speech Friday. The Fed is getting advice another way: through a flurry of meetings going all the way to the top of the central bank. Fed Chairman Ben Bernanke doesn’t meet with bankers often, but his calendar in September showed an unusual spike in sit-downs with representatives of the full spectrum of the financial industry, from small community banks to the head of J.P. Morgan Chase & Co. The meetings come as the Fed slogs through a number of significant regulatory issues, including the implementation of an international bank-capital accord reached in Basel, Switzerland, known as Basel III, and provisions of the Dodd-Frank financial overhaul, including a measure that aims to curb risky trading by banks that have a government safety net.

Basel III implementation delayed in the US; called "the same complicated system for judging risk that failed in Basel II but with more complexity"  - As discussed before (see post) Basel III implementation carries significant costs. In the US the implementation has its unique problems (discussed here). The approach hits securitization particularly hard, making ABS (short maturity credit card and auto loan paper) tougher for banks to hold - yet encourages banks to hold more sovereign debt (less capital required to hold Italian bonds than a pool of auto loans for example). Also small businesses that are not rated will have a tougher time obtaining loans because such loans will require more capital. In fact a portion of small business lending will shift to non-bank entities such as mezz funds who will charge higher rates. To add to the fiscal cliff worries, US bank regulators were going to impose Basel III rules at the start of 2013. Luckily that deadline has been pushed back, as concerns grow about this new set of rules. WSJ: - While taxpayers wonder if Washington is going to throw them off a cliff of scheduled tax hikes, another potential economic calamity has been postponed. On Friday, bank regulators announced that they will not impose complicated new rules on New Year's Day. Let's hope they don't impose them on any other days.  The Federal Reserve, Federal Deposit Insurance Corporation and Comptroller of the Currency issued a joint release saying they will no longer require U.S. banks to follow the so-called Basel III capital rules by January 1. Created by a college of global bureaucrats who enjoy meeting in Switzerland, the new rules are brought to you by the same people who encouraged banks to load up on mortgage risk before the panic of 2008.

Basel III, Fiscal Cliffs and Economic Mysticism - Last week US regulators finally capitulated and announced a delay in the implementation of the Basel III bank capital rules. We hear that a serious reassement is underway. The reasons for the delay are many, but more than practical concerns about how to implement the complex rules is the realization that higher capital rules and other regulatory initiatives will likely put the western economies into a prolonged recession. For several decades now the US and other industrial nations have been engaged in a collective delusion. The fantasy says that public and private debt can be employed to maintain nominal economic growth without any downside effects such inflation or falling real incomes. The corollary to this democratically agreed escape from reality is that global financial institutions can be managed in a safe and sound manner even as the governments which regulate (and sponsor) them behave more and more recklessly when it comes to fiscal policy. The conflict between the policies of the G-20 central banks and the Basel III capital rules is striking and, to us at least, an obvious example of how the scientific is instead mystical. Nobody ever asks, for instance, whether implementing Basel III will not work against the purposes of QE3 and the other anti-deflation policies being pursued by the US central bank. Even as the G-20 governments pursue fiscal and monetary policies that can only undermine the soundness of banks and other entities, we try to comfort ourselves by talking tough about bank capital.

Banks will always blow themselves up, regulator warns - Policymakers will simply have to learn how to deal with banks that blow themselves up because it may be impossible to stop them, a top regulator has warned. Michael Cohrs, a former Goldman Sachs banker who now sits on the Financial Policy Committee, said regulators may be trying too hard to “re-fight the last war” and that “allowing financial companies to blow themselves up, and then try and deal with the fall-out, may be – whether we like it or not – the reality of where we end up”. Speaking at the University of the West of England, he also warned the authorities against forcing banks to increase lending, saying it was “no silver bullet” for the current economic malaise. Higher lending risked weakening the banks as most households and businesses were trying to pay off their debts and those wanting more debt were the least creditworthy. “If we push too hard on the lending theme, we will simply raise default levels, as more of the borrowers will not be creditworthy,” he said. “There is no silver bullet to quickly fix the current economic situation.” Drawing attention to the wide variety of financial crises over the past 200 years, Mr Cohrs said: “We shouldn’t pretend we can eliminate financial crises completely. Nor that the next crises will necessarily be a carbon copy of the last one.”

Banks Need Long-Term Rainy Day Funds - Volcker and Ludwig -- Governments around the world are taking bold steps to minimize the likelihood of another catastrophic financial crisis. Regulators and financial institutions already have their hands full, so the bar for adding anything to the agenda should be high. However, one relatively simple but critically important item should move to the top of the list: reforming the accounting rules that inexplicably prevent banks from establishing reasonable loan-loss reserves. If reserve rules had been written correctly before 2008, banks could have absorbed bad loans more easily, and the financial crisis probably would have been less severe. It is now time, before the next crisis, to recognize that reality. Loan-loss reserves get far less attention than capital or liquidity requirements, which are subject to specific government regulations. Nevertheless, the "Allowance for Loan and Lease Losses" should be an essential part of assessing the safety and soundness of any bank. The ALLL—not Tier 1 capital or even cash-on-hand—is the most direct way a bank recognizes that lending, including necessary and constructive lending, entails risk. Those risks should be recognized in both accounting and tax practices as a reasonable cost of the banking business. However, banks are now only allowed to build their loan-loss reserves according to strict accounting conventions, enforced by the Securities and Exchange Commission. Reserves have to be based on losses that are strictly "incurred," in effect shortly before a bad loan is written off. Bankers have been prohibited from establishing reserves based on their own expectations of future losses. The practical result is that in good times real earnings are overrated. Conversely, the full impact of loan losses on earnings and capital is concentrated in times of cyclical strain.

Fed’s George Worries Current Regulatory Reform Is Falling Short --The regulatory response to the financial crisis has fallen short of what is needed, leaving the banking system more wounded than it needed to be, a Federal Reserve official said Friday. “The slow nature of this recovery, the limited amount of new lending after more than four years and the continuation of banking issues in some countries may suggest that the actions we took left unresolved problems,” Federal Reserve Bank of Kansas City President Esther George said. As regulators overhaul how they watch over financial firms, “we must consider whether what we are doing is sustainable in the long run or whether it only increases the chance of future crises,” the official said.

Fed’s Dudley: Premature to Bust Up Too-Big-To-Fail Banks - Breaking up banks that are considered too big to fail is not the right way to go, and current reform efforts should be allowed to continue forward, a top U.S. central bank official said. “We cannot tolerate a financial system in which some firms are too big to fail–at least not ones that operate in any form other than that of a very tightly regulated utility,” Federal Reserve Bank of New York President William Dudley said  Thursday in a speech given before a gathering held by banking group the Clearing House. Current efforts to reduce the risk created by these mega financial firms include “reducing the incentives for firms to operate with a large systemic footprint, reducing the likelihood of them failing, and lowering the cost to society when they do fail,” Mr. Dudley said. But some think the better way to fix this pressing issue would be to “simply break up the most systemically important firms into smaller or simpler pieces in the hope that what emerges is no longer systemic and too big to fail,” he said.

Quelle Surprise! New York Fed Chair Dudley Confirms that TBTF Lives, Big Firms Still Can’t Be Resolved - Yves Smith - The New York Fed’s William Dudley gave a surprisingly candid, meaning not positive, assessment of the state of the Too Big to Fail problem in a speech yesterday at the Clearing House’s Second Annual Business Meeting and Conference. From the text of his speech: Because no plausible level of capital and liquidity standards will be sufficient to reduce the probability of failure to zero, it also makes sense to work on the other major margin—to reduce the cost of the failure of a large, complex financial firm. We can do this by making changes so that such failures are less likely to impair the functioning of the broader financial system. In this area, although many initiatives are in train, I would conclude that we are still very far from where we need to be. Dudley then tells the audience that there are some constraints in Dodd Frank on the ability of systemically important firms to get bigger (but he’s clearly hoping, rather than certain, that these measures will be effective). He also says the Fed is in the process of mapping interconnectedness. This is a really important measure. I had asked why this wasn’t made a top priority as soon as Bear was rescued, because the reason for preventing a collapse was no one had the foggiest idea of how bad the collateral damage would be (pun intended). I suppose four years late is better than never.

Changing the Conventional Wisdom on Wall Street - There are two fundamentally different views regarding modern Wall Street. The first is that the financial sector has been terribly and unjustly put upon in recent years – regulated into the ground and treated with repeated disrespect, including by the White House. There was, for example, an impressive amount of whining this week when no one from a big bank was invited to a high-profile meeting with the president on fiscal issues. As the people holding strongly to this view run large financial institutions and have effective public relations teams, this has become an important part of the conventional or establishment wisdom, repeated without question in some parts of the media. The second view is that the powerful people who run global megabanks have lost all sense of perspective, including failing to realize that they have more access to people at the top of our political power structures than any other sector has ever had. Anyone who doubts this view, or wonders exactly how the revolving door among politics, lobbying and banking works, should read Jeff Connaughton’s account, “The Payoff: Why Wall Street Always Wins” (which I have written about in more detail before). Mr. Connaughton is most gripping when he describes the failure of law enforcement around securities issues, including issues with both the Department of Justice and the Securities and Exchange Commission. Which of these views is correct? We will soon know, because there is a simple and direct test that is fast approaching: Whom will President Obama nominate as the new chair of the S.E.C.? (Mary Schapiro, the current chairwoman, is widely reported to be stepping down soon.)

Shadow Banking From the Top-Down or Bottom-Up? - I just returned from speaking at a panel at the Clearing House’s Annual Meeting in New York that focused on the regulation of shadow banking. Our first bone of contention was whether shadow banking is actually a useful concept for financial regulation. I think it is, as I have written elsewhere.   Shadow banking describes how a series of financial instruments, markets, and institutions came to perform the same economic functions as banks:

• credit intermediation/credit risk transfer,
• maturity transformation, and  
• liquidity transformation (i.e. creating money-like instruments that have theoretically high liquidity and low credit risk) (see Morgan Ricks).

We discussed several of these instruments and institutions at the panel including: securitization, money market funds, repos, and prime brokerage. These markets not only performed similar economic functions as banks, in the Panic of 2007-08, they also suffered runs and solvency crises just like banks.  In response, the federal government refashioned some of the same conceptual tools historically used to address banking crisis to staunch a shadow banking crisis. What, after all, was TARP and the alphabet soup of Federal Reserve liquidity facilities other than the government:  

JPMorgan Power-Trading Authority Suspended by U.S. Regulator -  The U.S. Federal Energy Regulatory Commission yesterday suspended a JPMorgan Chase unit’s electrical-trading authority, saying it had filed false information to regulators. The action, part of a more aggressive effort by the commission to monitor U.S. power markets, prohibits J.P. Morgan Ventures Energy Corp. from selling electricity at market-based rates for six months starting April 1, 2013. The FERC said the company made “factual misrepresentations” and omitted material information in communications with the California Independent System Operator, or Caiso, and in filings to the commission. Caiso operates the state’s power grid. “This is very significant in the history of that agency,” “FERC has really been stepping up its investigations into power manipulation.” In its order released late yesterday, FERC said the JPMorgan unit will essentially be allowed to participate as a bystander in wholesale power markets, granting it the ability to offer electricity into the market without a price attached. This will ensure that utilities have the ability to obtain enough power to serve the demand from customers. JPMorgan would still be able to trade derivatives under the order.

JPMorgan punished for California power-trade violation - In a stunning move, a Wall Street investment bank was suspended from trading electricity for profit in California on Wednesday for submitting false information to federal investigators. JPMorgan Chase & Co.'s energy-trading division was suspended from California's wholesale market for six months starting April 1. The suspension was imposed by the Federal Energy Regulatory Commission. The decision could cost JPMorgan millions of dollars. The suspension includes other wholesale electricity markets around the country. It was a move almost without precedent.

Federal regulators urge SEC to act on money funds -  A council of federal regulators charged with identifying risks to the financial system on Tuesday voted unanimously to introduce a proposal urging the Securities and Exchange Commission to impose new regulations on the $2.7 trillion money-market fund industry. The group, the Financial Stability Oversight Council, took the action after SEC Chairman Mary Schapiro acknowledged in August that she didn't have the votes at the five-member agency to move forward with a plan of her own to impose further regulation of the industry. The council proposed a recommendation that the SEC consider three options including two that Schapiro has advocated for in the past. One option would have the SEC approve rules that would impose capital restrictions on the funds combined with limitations or fees on redemptions by consumers. The council's proposal also offered the option to have the industry abandon what's known as a stable Net-Asset-Value for money-market funds and permit a floating NAV instead. A third option would require money funds to maintain a capital buffer of 3% to absorb losses that could be reduced if the fund has limited risk

The Most Dangerous Choice for SEC Chairman - Yves Smith - In a new column in the New York Times, Simon Johnson points out that Obama is likely to be appointing a new SEC chairman soon. He describes two alternatives: choosing a friend of the industry versus someone who might actually be willing and able to regulate it. Johnson believes that a tough-minded chairman should not only enforce the rules but “actively seek to change the conventional wisdom around finance.” While I like Johnson’s recommendations (former Delaware senator Ted Kauffman, Neil Barofsky, and Dennis Kelleher of Better Markets), I’m not sure I agree with his emphasis on changing the discourse. When I worked on Wall Street, the SEC was feared, and it was feared because it had an effective enforcement department, the legacy of the legendary Stanley Sporkin. A reader provided some corroborating detail in comments on a post over the summer: I was an SEC enforcement attrorney during the generally-regarded halcyon days of the Sporkin era, and I can tell you, we kicked ass and took names. I myself was involved in many cases involving some of the biggest names on Wall Street, and was instrumental in several cases that eventually resulted in the enactment of the Foreign Corrupt Practices Act. We had a trial unit back then that was quite busy actually trying, and, more often than not, winning cases. We referred many cases for criminal prosecution (including for perjury), not having prosecutorial authority ourselves. But of course, Johnson’s recommendations to Obama will never go anywhere. Even though Wall Street shifted its campaign dollars away from Obama to Romney, the President has other reasons not to ruffle their feathers. Obama’s likely post-presidential life is likely to look something like Clinton’s: give highly paid speeches, write yet another biography, maybe set up a foundation. Most of the interesting things he could do depend on not unduly annoying the top 0.1%. So no matter how badly Wall Street has treated him recently, the odds that Obama would appoint anyone who would endanger his end game are awfully low.

Ring the Register: Another $15.4 Million for Disgraced ex-Citi CEO Vikram Pandit - If anyone deserves a $6.7 million bonus, it’s the CEO who squandered 88% of his company’s stock value:  Vikram Pandit isn’t getting a golden parachute, but he’s still not doing too badly. Citigroup said Friday that the former CEO, who resigned last month in a management shakeup, will receive an “incentive award” of $6.7 million for his work at the bank this year. Former president and chief operating officer John Havens, who stepped down along with Pandit, is getting $6.8 million, according to a filing with the Securities and Exchange Commission. The two men will also continue collecting deferred cash and stock compensation from last year, awards valued at $8.8 million for Pandit and $8.7 million for Havens. They will not receive severance pay, and will forfeit all compensation “to which they are not legally entitled,” including portions of the multi-million dollar retention packages they got last year, Citi said in the filing. So that totals $15.4 million for Pandit, one of the objectively worst CEOs ever to grace Wall Street. But they take care of their own over there

Congressional report blames Corzine in MF Global collapse - A Congressional subcommittee investigating the collapse of brokerage MF Global said Wednesday that former CEO Jon Corzine's reckless tactics doomed the firm and ultimately led to a shortfall of $1.6 billion in customer funds. In a summary of a report due for release on Thursday morning, Rep. Randy Neugebauer of the House Financial Services Subcommittee on Oversight and Investigations said Corzine "dramatically changed MF Global's business model without fully understanding the risks associated with such a radical transformation."The Republican-led subcommittee didn't directly address whether laws were broken at MF Global, but provided sharp criticism of Corzine's management. Mike Capuano, the subcommittee's ranking Democrat, said that while he agreed with a number of the report's observations, he was not signing onto it because of insufficient time for review. He and other Democrats will instead submit an addendum to the majority's findings.

House Republicans Find Corzine Guilty Of MF Global Collapse, Missing Funds; Democrats Refuse To Endorse Findings - It appears that these days not even the Corzining of client money can happen without it being split across furiously polarized party lines. As it turns out hours ago, the Committee on House Financial Services released an advance glimpse into a report to be released in its entirety tomorrow, which puts the blame for the collapse of not only MF Global, but also the disappearance of millions in client money, right where it belongs: the firm's then CEO Jon Corzine. Yet that Corzine corzined millions, leaving clients scrambling in bankruptcy court in an attempt to recover what should have been segregated money from the very beginning, and also just happened to blow up one of the 21 Fed-anointed Primary Dealers, is not surprising: this has been long known by everyone. Those who need a refresher are urged to recall the Honorable's testimony before the House... or maybe not: after all it is not as if Corzine himself could recall a whole lot. Where it gets interesting is that the former Democratic governor, and senator, not to mention primary bundler for president Obama, is, in the eyes of the members of the committee, innocent: All the democrats on the Investigations Subcommittee refused to sign off on the findings, meaning that to them, Corzine is completely innocent.

Gap In U.S. Bank Prosecutions Seen - The banks run by executives now in prison for crimes related to the financial crisis had a combined $30 billion in assets. That is just one-tenth the size of the largest bank failure in U.S. history, the 2008 seizure of Washington Mutual Inc.'s WMIH -2.13%banking operations. The gap is a sign of prosecutorial ineffectiveness to critics such as William Black, a regulator during the savings-and-loan crisis who now teaches economics and law at the University of Missouri-Kansas City. "We have now the greatest epidemic of elite white-collar crime in the history of the world, and we have absolutely not a single individual who was actually elite and large in causing this crisis in prison or even credibly threatened with imprisonment," said Mr. Black. U.S. officials say convictions tell only part of the story. The Federal Deposit Insurance Corp. has 244 open criminal investigations of financial-institution fraud, according to Fred Gibson, the agency's deputy inspector general. Of the continuing probes, 139 involve a bank officer or director. Here are some prosecutions of former bank executives that resulted in prison time:

No, Obama Isn’t About to Crack Down on Wall Street - ProPublica: In President Obama's second term, financial regulation would finally appear to have the leverage. Wall Street spent zillions on Mitt Romney, who had promised to roll back financial reform, and lost. Elizabeth Warren now sits in the world's greatest deliberative body. With the election behind us, regulators are likely to be less intimidated by the specter of being hauled in front of Congress and yelled at, especially by House Republicans.Already, the Obama administration has been moving to install tougher regulators than it had in the early part of its tenure. The early first-term financial regulatory heads were either conciliators or place holders. Mary L. Schapiro had to reinvigorate a Securities and Exchange Commission that was demoralized from its failures to catch Bernard L. Madoff and to foresee the financial crisis. Treasury Secretary Timothy F. Geithner had to deal with the 2008 crisis and its aftermath, and sidelined banking accountability. Others — like John G. Walsh, who was the acting comptroller of the currency, and Edward DeMarco, who is the acting director of the Federal Housing Finance Agency — have been perceived by reformers as active roadblocks. The second-generation appointees, like the Consumer Financial Protection Bureau's Richard Cordray and the new comptroller of the currency, Thomas J. Curry, actually evince a desire to regulate.

High yield debt issuance in 2012 hits an all-time record - High yield bond issuance hit an all-time record in 2012, with $306 billion worth of new HY bonds coming to market by the end of October. In fact September was an all-time record month for new issue - on the back of the Fed's latest action.Leverage finance space as a whole also hit a new record. Adding  new issue HY bonds and institutional loans (see discussion) puts 2012 ahead of 2007, the previous record. Demand for yield remains strong, pushing non-investment grade yields to record lows.One of the reasons for this optimism has to do with new issue market pushing out the leveraged finance maturity wall, as companies refinance into longer maturities. Back in 2009 the wall looked quite scary (see this post from 2009), with the largest concentrations of maturities in 2013 and 2014. But the markets have been chipping away at those two years. This reduced the risk of near-term liquidity problems in case the HY new issue market suddenly dries up, lowering expected default rates in the near term.

Total equity offerings in the US hit an all-time record - In spite of poor performance of a number of high profile IPOs this year (won't name any names here), the demand for new issue equity in the US seems to be quite resilient. In fact the total IPO volume this year is the highest since the burst of the tech bubble. Furthermore, if one includes the secondary stock issuance (vs. just the initial offerings), the amount of new paper hitting the market is at an all-time record this year.Who is buying all these shares? Except for a couple of high profile cases, individual investors don't seem to be involved on a large scale. In fact on a net basis it certainly doesn't seem to be coming from mutual funds, as investors continue to pull record amounts.

On the Decline and (Maybe) Fall of Venture Capital - Yves Smith - Roughly eight years ago, I had lunch with an ex-McKinsey colleague who had started a venture capital firm. His partners were raising a second fund. He was leaving. I wish I had taken notes, but his message was that the industry did not work. He went through the deals done in the previous decade (remember, this was 2004), the returns were concentrated in a small handful of firms. And if you looked at those firms, their returns came from a remarkably small number of deals. I’m pretty sure I’m not exaggerating that his analysis said that if you took the top ten deals out, the industry returns would be subpar. And once you got further in the decade, the returns of these deals would roll off and would no longer be included in the pension fund consultants’ analyses, and thus would lead the industry to be deemed (correctly) to be less attractive and would have less in the way of funds allocated to it. This is critical because if you are in the fund management business, the saying goes that 75% of the work is raising the money. Confirming the soon-to-be-ex VC’s grim forecast, earlier this year, the Kauffman Foundation, a major investor in venture capital funds, released an extremely critical analysis of both industry performance and the willingness of VC limited partners to accept lousy deal terms and limited (as in unreasonably limited) due diligence on the funds. Kauffman VC Enemy is Us Report

Is Finance Too Competitive? - Competition is like a treadmill. If you stand still, you get swept off. But when you run, you can never really get ahead of the treadmill and cover new terrain – so you never run faster than the speed that is set. So which industrial structure is better for encouraging you to run? Perhaps one can have the best of both worlds if one starts on a treadmill, but can jump off if one runs particularly fast – the system is competitive, but those who are particularly innovative secure some monopoly rents for a while. This is what a strong system of patent protection does. But patents are ineffective in some industries, like finance. The overwhelming evidence, though, is that financial competition promotes innovation. Much of the innovation in finance in the US and Europe came after it was deregulated in the 1980’s – that is, after it stopped being boring. The critics of finance, however, believe that innovation has been the problem. Instead of Schumpeter’s “creative destruction,” bankers have engaged in destructive creation in order to gouge customers at every opportunity while shielding themselves behind a veil of complexity from the prying eyes of regulators (and even top management). Former US Federal Reserve Board Chairman Paul Volcker has argued, somewhat tongue-in-cheek, that the only useful financial innovation in recent years has been the ATM. Hence, the critics are calling for limits on competition to discourage innovation.

Occupy gets into the debt market - This time last year, Occupy Wall Street participants were regularly storming through Lower Manhattan, snaking around the financial district and beyond in boisterous marches and defending their Zuccotti Park home base in tense street battles with the NYPD. Twelve months later, Occupy is pouring energy into buying up debt bonds. It’s not incongruent. The Rolling Jubilee — borne of Occupy offshoot group Strike Debt — is best considered one among many Occupy tactics that aim to challenge or disrupt our current socio-political economic conditions. And as far as tactics go, this one is pretty clever. The idea is this: Occupy plans to buy up distressed debt — debt which is in default — and then forgive it (or, “abolish” it, as the ever-dramatic Occupy parlance puts it). Banks sell on distressed debts at pennies on the dollar (since the debts are in default, they’re not making money off them and prefer to get rid of them). There are a number of websites where anyone can go and then buy this discharged, cheap debt. So, you or I or Occupy could buy $16,000 worth of debt for just $500 and then either make a profit by recovering the difference or just cancel it. Occupy and Strike Debt plan to do the latter on a large scale. The Rolling Jubilee campaign, also dubbed “The People’s Bailout,” kicks off with a good, old-fashioned fundraiser telethon in New York on Nov. 15 with big-name musicians such as Jeff Mangum performing. Occupy has already started taking donations for the project, and Strike Debt announced Friday via Facebook that the effort has already erased $100,000 worth of medical debt. The hope, then, is to get it “rolling” — to create snowballing networks of debtors using what money they can to buy off and cancel more and more debt. Ideally, a pay-it-forward attitude would compel individuals who have their debt forgiven to help buy up and cancel more debt.

OWS’ Rolling Jubilee Seeks to Buy and Forgive Debt - The Occupy Wall Street movement has sustained many offshoots, including the high-level wonkery of Occupy the SEC and the direct-action foreclosure defense of Occupy Our Homes. Now another offshoot will attempt an innovative solution to the private debt crisis, which has been welling up in America for decades.  This campaign began back in September with Strike Debt, which started with activists handing out 5,000 copies of what they called the “Debt Resistor’s Operations Manual,” a guide for debtors on how to navigate the often-sleazy world of debt collection and credit reports and bankruptcy processes. Providing this knowledge gave power to those drowning in debt on how to resist. The next wave of this is a program called the Rolling Jubilee. Here’s how they explain it at their site: We buy debt for pennies on the dollar, but instead of collecting it, we abolish it. We cannot buy specific individuals’ debt – instead, we help liberate debtors at random through a campaign of mutual support, good will, and collective refusal. The Jubilee begins November 15 with “The People’s Bailout,” a variety show and telethon in NYC. All proceeds will go directly to buying people’s debt and cancelling it. Let’s just explain technically how this works. Most debt is not held by the lender, but securitized, as we see with mortgages. When that debt goes bad, whether it’s student debt or housing debt or credit card debt or medical debt, the purchasers of the security want to get whatever they can for it. So they sell the “distressed debt,” often to debt recovery specialists who then hassle and harass the debtors in an effort to try and make money on the debt they purchased. Distressed debt gets purchased for pennies on the dollar. So the plan here is to basically buy up this debt, and instead of trying to collect it, the Rolling Jubilee will just cancel it.

Occupy Wall Street Activists Buy up Debt to Abolish It - Strike Debt, a movement formed by a coalition of Occupy Wall Street groups looking to build a popular resistance to debt, plans to hold a telethon and variety show November 15 in support of the Rolling Jubilee, a system to buy debt for pennies on the dollar, and abolish it. The telethon, which has already sold out, will feature artists including Jeff Mangum of Neutral Milk Hotel, Lee Renaldo of Sonic Youth, Guy Picciotto of Fugazi, Tunde Adebimpe of TV on the Radio, plus other surprise guests. Strike Debt hopes to raise $50,000, which the group claims can then be used to purchase, and eliminate, around $1 million in debt.

The People’s Bailout: Occupy Wall Street Wants to Forgive Your Debt - During the height of the financial crisis, the federal government pulled out all the stops to ensure the survival of the nation’s largest financial institutions. Along the way, shareholders and creditors of big Wall Street firms were bailed out as well, saved from losses they deserved for making poor investment decisions. Since that time, much of America has been clamoring for the same attention to be paid to the over-indebted citizens of the country as well. While total household debt has come down since the recession, the poor economy has left many Americans in a position where they are unable to repay their loans. So an offshoot group of Occupy Wall Street called Strike Debt has begun raising money to buy defaulted and distressed debt from brokers, so that they can forgive the loans outright. Because this debt has been in default for so long, it can be bought for very cheap, sometimes for as little as a few pennies on the dollar. According to a statement, the group has already “spent $466 and successfully bought and abolished $14,000 of medical debt.” The group will be holding a fundraiser in New York City on November 15 featuring celebrities like comedian Janeane Garofalo to raise further funds for the project, with the goal of raising $50,000 to abolish $1,000,000 worth of debt.

Occupy Offshoot Aims to Erase People’s Debts - - The group says it has already raised $129,000 through online donations — enough to buy $2.5 million worth of defaulted loans, thanks to their steep markdowns. The people who incurred the debt in the first place will get a certified letter informing them they are off the hook.  The fund-raising effort has its own name, Rolling Jubilee, a reference to the biblical tradition of a jubilee year, in which all debts are forgiven and all indentured servants are given their freedom. Its more recent origin is the Occupy encampment in Zuccotti Park, where a group of protesters started talking seriously about the problem of burdensome student debt. That conversation eventually broadened to a consideration of the role of debt in American society, and Strike Debt was born.  Since then, some of the group’s projects have been rebellious, like producing the “Debt Resistors’ Operations Manual,” an explanation of the credit industry and how to outmaneuver it, including advice on how to fight, or even ignore, creditors. Rolling Jubilee, by contrast, works within the financial markets.  Since then, the Rolling Jubilee has even won praise from Forbes, the business magazine, which said it was “Finally, an Occupy Wall Street Idea We Can All Get Behind.”

Live at Boston Review with a Forum on Debt Relief -- Mike Konczal - I'm live with a forum on debt relief at Boston Review. Here's my lead essay, along with responses from Jacob S. Hacker and Nathaniel Loewentheil, Dean Baker, Tamara Draut, Robert Hockett, Barbara Fried, Mark Calabria and more. My piece summarizes much of the work done at this blog over the past several years, especially focused on balance-sheet recessions, bankruptcy, implications of "you didn't build that," and the battle between debtors and creditors. The respones afterwards were very informative. (Plus, Fried is the author of one of my favorite books, so I was really psyched to see her participate.) I hope you check it out!

Strike Debt and Rolling Jubilee: The Debate - Strike Debt arose from a coalition of Occupy groups at the beginning of the summer—Occupy University, Occupy Student Debt Campaign (OSDC), and Occupy Theory. We called some assemblies on debt and education in Washington Square Park, and they grew into weekly Debtor Assemblies in the parks of Manhattan, Queens, and Brooklyn. All assemblies included a public forum for debtors to speak openly about their own debts, which became an emotionally intense rite of passage into the debt resistance movement that we were hoping to build. This process of “coming out” about personal debt had been going on since the early days of the Occupy encampments. In the OSDC, in which I had been active since November, we had decided that these public confessions were indicative of a politically ripe moment. By the early summer, the OSDC folks felt it was time to link student debt to other kinds of debt—they are all interconnected through household economies—and so Strike Debt was born, aimed at four types of debt primarily—medical, housing, education, and credit card debt. We adopted the red square from the Quebec student movement to symbolize the four corners of indebtedness, and joined with All in the Red student protesters on New York City’s summer casserole marches. By S17, the weekly Strike Debt assembly had emerged as one of the strongest Occupy tendencies, with aspirations and a sense of momentum that did not rest on, or simply look back to, the achievements of the Zuccotti Park phase.

Why Occupy's Plan To Cancel Consumer Debts Is Brilliant - A new initiative is re-energising the Occupy movement. Called the Rolling Jubilee, it is a plan to use money from donations to buy distressed consumer debt from lenders at a marked down price, just as debt collection agencies normally would. But instead of hounding debtors for payments, it will simply cancel the debts. The hope is that the liberated debtors will themselves contribute to the fund, "rolling" the jubilee forward.  The Rolling Jubilee is a genius move for several reasons. First, debt relief is a transpartisan message that eludes conventional political categorisation. As such, it returns Occupy to its origins as an advocate for the wellbeing of ordinary people, neither leftwing nor rightwing. But despite its non-threatening appearance, the Rolling Jubilee has significant transformative potential. Two pillars uphold the present debt regime: the moral legitimacy of debt in society's eyes, ie, the idea that a person "should" pay back what he owes; and the coercive mechanisms that enforce repayment, such as harassment, seizure of assets, garnishment of wages, denial of employment or housing, and even imprisonment. The Rolling Jubilee erodes both. It destigmatises debt by saying, "we're all in this together, we believe your situation is unfair, not shameful, so we're going to help you out". And it lessens the severity of the consequences of default.  So here is a third reason why the idea is so brilliant: if the lenders block debt cancellation even when it comes at no cost to themselves (as they would have sold it at the same price to a collection agency), they appear as a bunch of greedy, vindictive Scrooges.

The deliciousness of Rolling Jubilee - What to make of Rolling Jubilee, the latest bright idea from Occupy? The idea is simple: Banks sell debt for pennies on the dollar on a shadowy speculative market of debt buyers who then turn around and try to collect the full amount from debtors. The Rolling Jubilee intervenes by buying debt, keeping it out of the hands of collectors, and then abolishing it. Rolling Jubilee has already raised $115,000 — which they say is enough money to buy and cancel more than $2.3 million of debt. After Thursday’s variety show and telethon, both sums will surely rise substantially.The reaction from the financial press has been mixed. Tim Worstall somehow contrives to admire the idea while bashing everything else associated with Occupy at the same time; Nick Summers, on the other hand, thinks it’s fundamentally misguided. Summers didn’t speak to anybody at Strike Debt, which is organizing this jubilee, but he could at least have scrolled down to the Rolling Jubilee FAQ: Will the Rolling Jubilee have to file a 1099-C Cancellation of Debt form with the IRS? No. The Rolling Jubilee will earn no income from the lending of money and is therefore exempt from filing a Form 1099-C under the Internal Revenue Code Section 6050P. In other words, there will not be any tax consequences to what Strike Debt is doing, on the perfectly legal grounds, as Worstall has found in the tax code, that “you do not have income from canceled debt if the cancellation or forgiveness of the debt is a gift”.

Major Retailers Start Selling Financial Products - While Ms. Neubauer, 27, said she was surprised to find the warehouse club selling financial products, she and her husband saved about $200 a month by refinancing there this year. She also bought home insurance from Costco, she said, again because it was cheaper there.  “It opened us up to the fact that Costco is more than toilet paper,” said Ms. Neubauer,  As the nation’s largest banks stay stingy with credit and a growing portion of the population has no bank at all, major retailers are stepping into the void. Customers can now withdraw cash at an A.T.M. with a prepaid card from Walmart, take out a loan at Home Depot for a kitchen renovation or kick-start a new venture with a small-business loan from Sam’s Club. This year, Walmart even started to test selling a life insurance policy.  Consumer advocates are torn about the growth of this shadow banking industry. Financial products are making it into the hands of people who otherwise might not qualify for them, but these products are not always subject to the same regulations as bank products are. And to turn a profit, retailers generally have to charge more to people with poor credit or none at all.

Unofficial Problem Bank list declines to 860 Institutions - CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The number of unofficial problem banks grew steadily and peaked at 1,002 institutions on June 10, 2011. The list has been declining recently. This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Nov 9, 2012. (table is sortable by assets, state, etc.)  Changes and comments from surferdude808:  Only one action termination this week for the Unofficial Problem Bank List. The Federal Reserve terminated the Written Agreement against Community First Bank, Boscobel, WI ($217 million). After the change, the list holds 860 institutions with assets of $328.2 billion. A year ago, the list held 981 institutions with assets of $405.9 billion.

Michael Olenick: Schadenfreude Alert –  Banks Paying Extortionate Fees for Foreclosure Reviews - Every time it appears that the OCC foreclosure reviews have hit bottom they sink further into the morass. Our latest example comes from a petition GMAC/ResCap filed as part of their bankruptcy. This example shows how banks are spending simply staggering, implausible amounts of money on foreclosure “reviews”, and how keen they are to enrich anyone other than wronged borrowers. Given that some of these foreclosure reviewers are also in the business of “scrubbing” loan files and creating (as in fabricating) allonges, you have to wonder whether the amount of money being spent is not on review but also “remediation” and is being bundled in with the review costs. Think of the twofer: you get to call your chicanery something else, and blame the cost on the banks’ favorite scapegoat, those big meanie regulators.  This information comes from a petition GMAC/ResCap filed as part of their bankruptcy and exposes the multiple and pricey roles being played by PriceWaterhouseCoopers. As has already been noted in a multi-part investigative series by Jeff Horwitz and Kate Berry of American Banker these reviews are expensive; so expensive they are projected to pay $4 to reviewers for every $1 paid to homeowners. GMAC alone projects they may spend $250 million on reviews by PriceWaterhouseCoopers (PWC). In the 90 days beginning January 12, 2012, GMAC spent $51,658,206.

You Fight With Bank Of America Over Bad Mortgages, Bank Of America Fights Back - Was there mortgage-related misbehavior at Bank of America and its various after-acquired subsidiaries? I wasn’t there, but on public information, I mean, sure, why not. Some days it looks like there was mortgage fraud everywhere. But whereas everyone else is all “sorry about the mortgage fraud” and “here is a large settlement,” BofA is not into that. When you accuse them of mortgage fraud, they take the fight to you. They did that with Fannie Mae, refusing to sell it any new mortgages just because Fannie thinks BofA should be buying back some of the old mortgages it mmmmaybe fraudulently sold Fannie. And they’re doing it with MBIA, suing the bejesus out of them just because MBIA is suing the bejesus out of BofA over mortgage fraud.  But that’s old news; the new news is this Bloomberg article about how BofA is opening another front in the MBIA battle. You should read it because it is amazing. Here is the story so far, from BofA’s offer today:

• Bank of America¹ bought $6.15 billion notional of insurance/CDS contracts against (surprisingly?) commercial mortgages from MBIA. ere’s a deductible, and BofA hasn’t yet eaten through it, so these policies are all outstanding and untouched though dicey-looking.
• Bank of America² also bought a lot of insurance against home loans that it packaged, also from MBIA Corp.; those loans were terrible, MBIA Corp. has paid off some of the insurance, and now it’s suing to get it back because fraud fraud fraud fraudy fraud fraud.

BofA v. MBIA and the Future of Private Label Securitization - There's a fascinating and absolutely cut-throat fight going on between BofA and MBIA. There's been some good media coverage of how a litigation fight over MBS fraud has spilled over into a really nasty corporate finance battle. I think it shows yet another danger of too-big-to-fail firms:  they can adopt litigation tactics that others simply can't in order to avoid liability.  Put another way, the lesson I take from this fight is that if you get into bed with a too-big-to-fail firm on a business deal, don't expect the law to protect you if things go badly. Even if the law and the facts are on your side, that doesn't mean you can beat a too-big-to-fail firm in court. Contracting with a too-big-to-fail firm is not like contracting with a regular firm. It's more like contracting with a sovereign. If you put your head into the Leviathan's jaws, well, ask Siegfried & Roy how well that worked out...   The rather long post below gives an overview of the litigation and corporate finance machinations, before a trio of bigger picture observations about inter-creditor duties, empty-creditors, and the private-label securitization market's denial of its lemons problem. 

Yes, Banks Are Paying “Penalties” in Foreclosure Fraud Settlement With Other People’s Money -  I cannot tell you how much grief I got from “official sources” over the clear reality that banks would be able to pay off their penalties in the foreclosure fraud settlement with investor money. HUD Secretary Shaun Donovan flat-out said it, and then had to backtrack and obfuscate. But it was clearly set up by the terms of the settlement. Banks would get credit under the settlement for modifying loans in private label mortgage backed securities, which means the investors take the hit. This became more clear in Bank of America’s side deal, where they would reduce their penalty through modifying loans they don’t own: The expanded program could allow Bank of America to avoid paying $350 million in penalties tied to the foreclosure settlement and half of a separate $1 billion penalty related to a settlement of false claims filed on loans backed by the Federal Housing Administration, if the bank meets certain targets. Many of the write-downs will be made on loans originated by Countrywide Financial Corp., which Bank of America acquired in 2008, and then packaged into securities. BofA will also reduce balances on loans it owns [...] Some fund managers feel it is unfair for banks, which serviced mortgages on behalf of investors, to use those same loans to meet their obligations under the settlement. “The fact that a servicer has done a poor job has already impacted borrowers and our investors,” said BlackRock Managing Director Randy Robertson, who declined to speak specifically about the Bank of America agreement. “To ask investors to pay for banks’ fines in any form seems inappropriate and incorrect—we have very serious issues with that.” BofA made a settlement deal with its own investors for $8.5 billion (one that’s still tied up in court), that they claim makes those loans eligible for write-downs without even having to get investor consent on a case-by-case basis.  BofA started this process back in May by mailing letters to people with loans that they “owned or serviced.” In other words, they would reduce balances on loans they didn’t own, and get credit under the settlement. Sure enough, as American Banker reports today, writing about BofA’s compliance with the settlement: In a surprising revelation, the Charlotte, N.C., lender also said that more than half of the nearly $5 billion in principal reductions will be paid for by investors, not the bank itself.

2012 FHA Actuarial Review Released: Negative $13.5 Billion economic value - From HUD: Actuarial Review of the Mutual Mortgage Insurance Fund. Excerpts:  Based on our stochastic simulation analysis, we estimate that the economic value of the Fund as of the end of FY 2012 is negative $13.48 billion. This represents a $14.67 billion drop from the $1.19 billion estimated economic value as of the end of FY 2011. ...We project that there is approximately a 5 percent chance that the Fund’s capital resources could turn negative during the next 7 years. We also estimate that under the most pessimistic economic scenario, the economic value could stay negative until at least FY 2019. Update: A few comments from Tom Lawler: The latest review concluded that the “economic value” of the FHA MMIF (ex HECMs) – defined as the sum of the MMIFs existing capital resources plus the present value of the current books of business, was NEGATIVE $13.478 billion at the end of FY 2012. Stated another way, the present value of expected future cash flows on outstanding business – a sizable negative $39.052 billion – outstrips the MMIF’s current capital resources (of $25.574 billion) by $13.478 billion. The FY actuarial review of FHA’s HECM business concluded that the “economic value” of the current FHA HECM book was NEGATIVE $2.799 billion at the end of FY 2012. In last year’s actuarial review the “economic value” of the FHA MMIF (ex HECMs) at the end of FY 2011 was +$1.193 billion, and the projected economic value of the MMIF at the end of FY 2012 (under the “base case) scenario) was a POSITIVE $9.351 billion. In recent years, however, these “projections,” based on “reasonable” benign projections, have been ridiculously optimistic.

Quelle Surprise! HUD and Obama Whoppers About Mortgage Settlement, FHA Finances, Housing Market RemediesComing Home to Roost - Yves Smith - We took a very dim view of some of the Administration’s less-than-credible claims about its much-touted backdoor bank bailout, which was more popularly known as the mortgage settlement. And a rash of news reports tonight have caught the Administration out in its deceptions. From a March post, Memo to Shaun Donovan: Your Nose is Getting So Long You Need to Get a Hacksaw: Fast forward to today, where Shahien Nasiripour of the Financial Times tells us: Investors in US mortgage securities have been forced to absorb large writedowns in response to a deal between leading financial groups and government agencies over the “robosigning” scandal….The banks – JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Ally Financial – agreed to forgive billions of dollars worth of distressed borrowers’ mortgage principal in exchange for waivers from potential liability.On Wednesday, BofA said that 60 per cent of the $4.75bn in first-lien mortgage principal it has thus far agreed to forgive would come from non-government guaranteed loans that were packaged into bonds and sold to investors.Of JPMorgan’s $3bn in forgiven mortgage debt, slightly less than half has come from investors’ holdings, a person familiar with the matter said. The other three banks either declined to provide numbers or did not respond to requests for comment.Earlier this year, some US senators worried that pension funds would have to absorb losses on their mortgage bond holdings as a result of a settlement meant to punish banks and aid troubled borrowers.Obama administration officials tried to quell those concerns, first arguing that bond investors would not be forced to shoulder writedowns, then claiming that the “vast majority” of writedowns would occur on bank-owned loans.

2012 FHA Actuarial Review Press Release and Report - Note: Apparently the web release yesterday was accidental. Oops! Here is the press release: FHA ISSUES ANNUAL FINANCIAL STATUS REPORT TO CONGRESS: The U.S. Department of Housing and Urban Development (HUD) today released its annual report to Congress on the financial condition of the Federal Housing Administration (FHA) Mutual Mortgage Insurance (MMI) Fund. In reporting on findings of the independent actuarial study, HUD indicates that while FHA continues to be impacted by losses from mortgages originated prior to 2009, this report does not directly affect the adequacy of capital balances in the MMI Fund.The independent study found that as the housing market continues to recover, the capital reserve ratio of the MMI Fund used to support FHA’s single family mortgage and reverse mortgage insurance programs fell below zero to -1.44 percent. This represents a negative economic value of $16.3 billion. This does not mean FHA has insufficient cash to pay insurance claims, a current operating deficit, or will need to immediately draw funds from the Treasury. The need to draw on Treasury funds is determined not by the economic assumptions of this actuarial review but those used in the President’s FY 2014 budget proposal to be released in February, with a final determination on a potential draw made in September. Also, the actuary’s estimate of the Fund’s economic value excludes $11 billion in expected capital accumulation through the end of FY 2013. Finally, HUD’s report includes additional actions designed to contribute billions of dollars in added value to the MMI Fund over the next several years.

WSJ: FHA Close to Exhausting Reserves - As we discussed last week, the FHA Fiscal Year 2012 Actuarial Review is due this week. Nick Timiraos at the WSJ has a preview: Housing Agency Close to Exhausting Reserves The Federal Housing Administration is expected to report later this week that it could exhaust its reserves because of rising mortgage delinquencies ... That could result in the agency needing to draw on taxpayer funding for the first time in its 78-year history.... The New Deal-era agency, which doesn't actually make loans but instead insures lenders against losses, has played a critical role stabilizing the housing market by backing mortgages of borrowers who make down payments of as little as 3.5%—loans that most private lenders won't originate without a government guarantee. ... Overall, the FHA insured nearly 739,000 loans that were 90 days or more past due or in foreclosure at the end of September, an increase of more than 100,000 loans from one year ago. That represents around 9.6% of its $1.08 trillion in mortgages guarantees.The FHA's annual audit estimates how much money the agency would need to pay off all claims on projected losses, against how much it has in reserves. Last year, that buffer stood at $1.2 billion ... The decision over whether the FHA will need money from Treasury won't be made until next February, when the White House typically releases its annual budget. Because the FHA has what is known as "permanent and indefinite" budget authority, it wouldn't need to ask Congress for funds; it would automatically receive money from the U.S. Treasury.

REPORT: The Federal Housing Agency Is Running Out Of Money And May Need A Bailout - The Federal Housing Administration (FHA) is said to report later this week that it has exhausted its reserves and might have to resort to taxpayer funds for the first time in 78 years, according to The Wall Street Journal's Nick Timiraos. The FHA insures lenders against losses but is said to have been hit by rising mortgage delinquencies.  The WSJ reports that the FHA guarantees fewer mortgages than Fannie Mae or Freddie Mac but now has "more seriously delinquent loans" than both.    From the WSJ: "Overall, the FHA insured nearly 739,000 loans that were 90 days or more past due or in foreclosure at the end of September, an increase of more than 100,000 loans from one year ago. That represents around 9.6% of its $1.08 trillion in mortgages guarantees.  The FHA's annual audit estimates how much money the agency would need to pay off all claims on projected losses, against how much it has in reserves. Last year, that buffer stood at $1.2 billion, representing around 0.12% of its loan guarantees. Federal law requires the agency to stay above a 2% level, which it breached three years ago.

F.H.A., Short Billions, May Need Rescue by Taxpayers - — The Federal Housing Administration, a government agency that insures mortgages, is on the verge of requiring taxpayer financing for the first time in its eight-decade history. An independent audit to be released on Friday projects that the administration will not have the cash reserves to pay all of its obligations, with the total shortfall amounting to about $16.3 billion. “This does not mean F.H.A. has insufficient cash to pay insurance claims, a current operating deficit or will need to immediately draw funds from the Treasury,” the report stressed. But it does make a taxpayer bailout likely. Reserves at the administration, which insures more than $1 trillion in mortgages, fell to below $3 billion last year. And the report cites a number of weaknesses on the agency’s books. “We will continue to take aggressive steps to protect F.H.A.’s financial health while ensuring that F.H.A. continues to perform its historic role of providing access to homeownership for underserved communities and supporting the housing market during tough economic times,” said Carol J. Galante, its acting commissioner, in a statement. The F.H.A. “has weathered the storm of the recent economic and housing crisis by taking the most aggressive and sweeping actions in its history to reform risk management, credit policy, lender enforcement and consumer protections,” Shaun Donovan, the secretary of housing and urban development, said in a statement.

The FHA Is Blowing Up: Bad News For The Housing Market - The FHA has been the key element to the phony “housing recovery” the government has been trying to create.  In the wake of the collapse of 2008, Fannie Mae and Freddie Mac blew up and what was left to pick up the pieces was the FHA.  No private player would issue loans with down payments of 3%, but this was no problem for the FHA! Well - yes! "The Federal Housing Administration is expected to report this week it could exhaust its reserves because of rising mortgage delinquencies" This is a big deal.  The FHA is already in trouble despite a miraculous “housing recovery” and we haven’t even hit a severe cyclical economic slowdown yet, which is almost certain to occur in 2013.  What shambles do you think the housing market will be in once that happens and the last backstop to housing is broke?

Refinancing Worries Overshadow Fed Influence in Mortgage-Bond Markets - The slump in mortgage-backed securities since the re-election of President Barack Obama is starting to pose a threat to the Federal Reserve‘s mammoth efforts to maintain low interest rates. Some mortgage bonds have tumbled to their lowest levels since March after Election Day reports indicated that home-loan refinancings under a flagship Obama administration program are gaining traction. Also, talk has swirled about the administration’s ability to install a new housing-finance regulator likely to advocate other efforts to boost refinancing, such as cutting borrowers’ loan principal. Both factors have wreaked havoc on older mortgage bonds because the higher interest loans they contain are targeted by the administration’s Home Affordable Refinance Program. HARP primarily targets consumers who are locked into high-interest loans because of their lack of equity or weak credit.

Administration Housing Policy in a Second Term - Of all the thumbsuckers about the second-term Obama agenda I’ve read, the ones that reflect the least contact with reality concern Administration housing policy. It’s beyond clear that the first-term policy framework sought to protect banks and allocate losses from the collapse of the housing bubble elsewhere. That was the point behind HAMP, designed to “foam the runway” for the banks, allowing them to squeeze out a few extra payments from borrowers and absorb foreclosures more slowly. That was the point behind the foreclosure fraud settlement, reacting to the largest consumer fraud in the history of the world by immunizing the conduct in exchange for a pittance of a fine. That was the point behind a financial fraud task force that turned up precious little financial fraud and sought criminal prosecutions of no individual. So the second-term agenda described by these reports elide this reality, and focus on things like Fannie Mae and Freddie Mac’s prominence in the marketplace. In the third quarter, various government entities backstopped 92 percent of all new residential mortgages, according to Inside Mortgage Finance, a publication that focuses on the home loan industry. Mr. Obama’s economic team has consistently said it wants the housing market to work without significant government support. But it has taken few actual steps to advance that idea [...]

Lawler: Preliminary Table of Short Sales and Foreclosures for Selected Cities in October - Economist Tom Lawler sent me the following preliminary table today of short sales and foreclosures for a few selected cities in October. Over the weekend I posted some data from Sacramento showing a sharp increase in conventional sales, and that distressed sales have fallen to the lowest level since the Sacramento Association started tracking the data. There has been a shift from foreclosures to short sales. Foreclosures are down and short sales are up in all of these cities. In most areas, short sales far out number foreclosures, although Minneapolis is an exception with more foreclosures than short sales. The overall percent of distressed sales (combined foreclosures and short sales) are down year-over-year almost everywhere. In the cities listed below, distressed sales are down about 25% 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.

MBA: Mortgage Delinquencies decreased in Q3 - The MBA reported that 11.47 percent of mortgage loans were either one payment delinquent or in the foreclosure process in Q3 2012 (delinquencies seasonally adjusted). This is down from 11.85 percent in Q2 2012. From the MBA: Mortgage Delinquency and Foreclosure Rates Decreased During Third Quarter The delinquency rate for mortgage loans on one-to-four-unit residential properties fell to a seasonally adjusted rate of 7.40 percent of all loans outstanding as of the end of the third quarter of 2012, a decrease of 18 basis points from the second quarter of 2012, and a decrease of 59 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. ... The percentage of loans in the foreclosure process at the end of the third quarter was 4.07 percent, down 20 basis points from the second quarter and 36 basis points lower than one year ago. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 7.03 percent, a decrease of 28 basis points from last quarter, and a decrease of 86 basis points from the third quarter of last year.

Q3 MBA National Delinquency Survey Graph and Comments - A few comments from Mike Fratantoni, MBA’s Vice President of Research and Economics, on the Q3 MBA National Delinquency Survey conference call.
• Significant drop in "shadow inventory" with the declines in the 90+ day delinquency and in foreclosure categories.
• This was the largest decline in foreclosure inventory ever recorded.
• Significant difference between judicial and non-judicial states. The judicial foreclosure inventory was at 6.61%, and the non-judicial inventory was at 2.42%. Both are now declining.
• There has been "dramatic" improvement in California and Arizona. Overall there is continued improvement, "perhaps more quickly than expected".
• There has been some improvement in FHA delinquencies because of the strong credit quality of recent originations. Most of the delinquent loans are from the 2008 and 2009 vintages.
This graph is from the MBA and shows the percent of loans in the foreclosure process by state. The top states are Florida (13.04% in foreclosure down from 13.70% in Q2), New Jersey (8.87% up from 7.65%), Illinois (6.83% down from 7.11%), New York (6.46% down from 6.47%) and Nevada (the only non-judicial state in the top 13 at 5.93% down from 6.09%). As Fratantoni noted, California (2.63% down from 3.07%) and Arizona (2.51% down from 3.24%) are now well below the national average.  The second graph shows the percent of loans delinquent by days past due. Loans 30 days delinquent increased to 3.25% from 3.18% in Q2. This is just above 2007 levels and around the long term average.

Mortgage Delinquencies by Loan Type in Q3 - The following graphs show the percent of loans delinquent by loan type based on the MBA National Delinquency Survey: Prime, Subprime, FHA and VA. First a table comparing the number of loans in Q2 2007 and Q3 2012 so readers can understand the shift in loan types. Both the number of prime and subprime loans have declined over the last five years; the number of subprime loans is down by about 32%. Meanwhile the number of FHA loans has more than doubled and VA loans have increased sharply. Note: There are about 41.8 million first-lien loans in the survey, and the MBA survey is about 88% of the total. In the MBA universe, there are under 600 thousand seriously delinquent FHA loans. However, in the entire market, according to the FHA, there are over 700 thousand seriously delinquent FHA loans. For Prime and Subprime, a majority of the seriously delinquent loans were originated in the 2005 to 2007 period - and these loans are still in the process of being resolved through foreclosure or short sales. However, for the FHA, about 45% of the seriously delinquent loans were originated in 2008 and 2009. That is the period when private capital disappeared, and the FHA share of the market increased sharply.

Zillow: 1.3 million fewer U.S. homeowners were in negative equity in Q3 - From Zillow: Negative Equity Recedes in Third Quarter; Fewer than 30% of Homeowners with Mortgages Now Underwater Negative equity fell in the third quarter, with 28.2 percent of all homeowners with mortgages underwater, down from 30.9 percent in the second quarter, according to the third quarter Zillow® Negative Equity Report. ...Slightly more than 14 million U.S. homeowners with a mortgage were in negative equity, or underwater, in the quarter, owing more on their mortgages than their homes are worth. That was down from 15.3 million in the second quarter.Much of the decline in negative equity can be attributed to U.S. home values rising 1.3 percent in the third quarter compared to the second quarter ...According to Zillow, 1.7 homeowners have moved out of negative equity over the least two quarters. Zillow provided this chart of Zillow's estimate of the Loan-to-Value (LTV) for homeowners with a mortgage. The homeowners with a little negative equity are probably at low risk of foreclosure, but at the far right - like the 3.9% who owe more than double what their homes are worth - are clearly at risk. Here is an interactive map of Zillow's negative equity data.

Zillow: Fiscal cliff may derail negative equity decline - First the first time since 2011, negative equity declined 30%, which is also the largest quarter-over-quarter drop, according to the Zillow ($23.49 0%) third quarter Negative Equity Report. About 28% of homeowners have mortgages underwater, which is down 30.9% from the previous quarter. The decline in negative equity is a result of home values rising 1.3% during the quarter compared to the last quarter, with a median value of $153,800. The fall in negative equity rates will provide homeowners with additional options such refinancing or selling their home. The Obama Administration said in its October Housing Scorecard report rising home prices lifted more than 1.3 million underwater homeowners above water. “But while we’re moving in the right direction, a substantial number of homes are still locked up in negative equity, unable to enter the existing re-sale market despite the desires of their owner,” said chief economist Stan Humphries of Zillow. The housing market has found real momentum of its own, but is not immune from shocks to the broader economy. He added, “If negotiations centered on resolving the fiscal cliff don’t inspire confidence in investors and consumers alike, recent home value gains — and, as a result, falling negative equity rates — could stall.”

Lower Mortgage Payments Cut Default Risk - New research from the Federal Reserve Bank of New York finds cheaper monthly mortgage payments significantly reduce mortgage default risk even when the principal value of the home stays the same. The report based its findings on the performance of what are called Alt A adjustable-rate mortgages, between 2008 and 2011. This class of mortgage was able to take advantage of the massive rate-cutting campaigns and other efforts to lower long-term borrowing costs conducted by the Fed. “Interest rate changes dramatically affect repayment behavior,” the report said. “Our estimates imply that cutting a borrower’s payment in half reduces his hazard of becoming delinquent by about two-thirds,” the authors found. “Government or lender programs that allow underwater borrowers to refinance at a lower rate, or loan modifications that lower the interest rate, have the potential to significantly reduce delinquencies, and the view that principal reduction is the only way to meaningfully reduce defaults is incorrect,” the report said. The researchers noted their findings go “against the intuition held by some commentators that once a borrower’s mortgage is sufficiently far underwater, it is always optimal for him to default.” What the researchers found is valuable for monetary policy makers. A cornerstone of Fed policy for some time has been to use asset buying and commitments to keep rates low for well into the future as part of a program to lower long-term interest rates.

Mortgage rates hit new all-time low - Mortgage rates continued to decline last week with the 30-year, fixed-rate mortgage hitting a new all-time low of 3.34%. That is down from 3.40% a week earlier and a drop from 4% last year, according to the latest Freddie Mac Primary Mortgage Market Survey. Rates fell again to record lows as consumer confidence picked up and wholesale prices declined, the government-sponsored enterprise said. The 15-year, FRM hit 2.65%, down from 2.69% a week earlier and a decline from 3.31% last year. The 5-year Treasury-indexed hybrid adjustable-rate mortgage went the opposite direction, edging up a bit to 2.74% from 2.73% a week earlier. The one-year Treasury-indexed ARM averaged 2.55%, which is down from 2.59% a week earlier and is much lower than 2.98% last year. "Fixed mortgage rates eased this week to record lows on indicators of higher consumer confidence and lower wholesale prices," said Frank Nothaft, vice president and chief economist for Freddie Mac. "Consumer sentiment rose in November to the highest reading since July 2007 according to the University of Michigan. Meanwhile, the core producer price index fell 0.2 percent in October." Data from Bankrate also shows mortgages falling.

Report: Housing Inventory declines 17% year-over-year in October - From Realtor.com: October 2012 Real Estate Data - The total US for-sale inventory of single family homes, condos, townhomes and co-ops remained at historic lows, with 1.76 million units for sale in October 2012, down -17.00% compared to a year ago. The median age of inventory was down -11.81% compared to one year ago.  For sale inventories declined on a year-over-year basis in 141 of the 146 markets tracked by Realtor.com. Forty four cities saw year-over-year declines greater than 20%. On a month-over-month basis, inventory declined in 127 of 146 markets. Going forward, I expect to see smaller year-over-year declines simply because inventory is already very low. The NAR is scheduled to report October existing home sales and inventory next week on Monday, November 19th. The key number in the NAR report will be inventory, and inventory will be down sharply again year-over-year in October.

FNC: Residential Property Values increased 2.3% year-over-year in September -  FNC released their September index data today. FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values were unchanged in September from August (Composite 100 index, not seasonally adjusted). The other RPIs (10-MSA, 20-MSA, 30-MSA) increased between 0.2% and 0.4% in September. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales). Since these indexes are NSA, the month-to-month changes will probably turn negative in October. The key is to watch the year-over-year change and also to compare the month-to-month change to previous years. The year-over-year trends continued to show improvement in September, with the 100-MSA composite up 2.3% compared to September 2011. The FNC index turned positive on a year-over-year basis in July - that was the first year-over-year increase in the FNC index since year-over-year prices started declining in early 2007 (over five years ago).This graph is based on the FNC index (four composites) through September 2012. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.

Merrill Lynch Revises up 2012 House Price Forecast to 5% increase - From Merrill Lynch: Another upward revision to home prices: Back in March, we called the bottom in national home prices. It appears that while we are correct on the timing, we understated the magnitude of the turn. We revised up our forecast in August, but did not go far enough and hence are revising our trajectory again. We now look for S&P Case Shiller prices to be up 5.0% YoY this year (Q4/Q4), compared to our prior forecast of 2.0%. ... Taking a longer perspective, we look for average home price appreciation of 3.3% over the next ten years or a cumulative gain of about 36%. This will modestly outpace the rate of inflation. Our forecast still assumes some slowing in home prices into the end of the year. We forecast S&P Case Shiller national prices to be up 5.6% q/q saar in Q3, following a 9.3% gain in Q2. We look for essentially flat prices in Q4 and a decline of 1.6% in Q1 before prices resume their upward trend. It is important to remember that the housing market is subject to volatility in the best of times; in this distorted market, we cannot expect a smooth pattern. The key factor driving the increase in home prices is a better alignment of housing supply and demand. Inventory of homes for sale has declined markedly. On an absolute level, listed inventory is at the lowest since 1Q05. And even after accounting for the slow pace of sales, it only takes 5.9 months to clear inventory. Supply is even lower for new construction homes ...

MBA: Mortgage Applications rebound after Hurricane Sandy, Mortgage Rates fall to Record Low - From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey - The Refinance Index increased 13 percent from the previous week, ending a five-week decline. The seasonally adjusted Purchase Index increased 11 percent from one week earlier.  “Following the decrease in applications two weeks ago due to the effects of superstorm Sandy, mortgage applications in many East Coast states rebounded strongly this week,”. “Application volume in New Jersey more than doubled over the week, while volume in Connecticut and New York increased more than 60 percent. In addition to the rebound in the states impacted by the storm, the 30 year fixed mortgage rate reached a new record low in the survey.”The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.52 percent from 3.61 percent, with points decreasing to 0.41 from 0.45 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. This record low rate for 30 year fixed mortgages beats the previous survey low of 3.53 percent for the week ending September 28, 2012. This graph shows the MBA mortgage purchase index. The purchase index has been mostly moving sideways over the last two years.

Bernanke suggests Mortgage Lending Standards are "Overly Tight", "Pendulum has swung too far" - From Fed Chairman Ben Bernanke: Challenges in Housing and Mortgage Markets. Excerpt:  When lenders were asked why they have originated fewer mortgages, they cited a variety of concerns, starting with worries about the economy, the outlook for house prices, and their existing real estate loan exposures. They also mention increases in servicing costs and the risk of being required by government-sponsored enterprises (GSEs) to repurchase delinquent loans (so-called putback risk). Other concerns include the reduced availability of private mortgage insurance for conventional loans and some program-specific issues for FHA loans as reasons for tighter standards. Importantly, however, restrictive mortgage lending conditions do not seem to be linked to any insufficiency of bank capital or to a general unwillingness to lend. Certainly, some tightening of credit standards was an appropriate response to the lax lending conditions that prevailed in the years leading up to the peak in house prices. Mortgage loans that were poorly underwritten or inappropriate for the borrower's circumstances ultimately had devastating consequences for many families and communities, as well as for the financial institutions themselves and the broader economy. However, it seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery.

Bernanke Laments Lack Of Housing Bubble, Demands More From Tapped Out Households - Moments ago Ben Bernanke released a speech titled "Challenges in Housing and Mortgage Markets" in which he said that while the US housing revival faces significant obstacles, the Fed will do everything it can to back the "housing recovery" (supposedly on top of the $40 billion in MBS it monetizes each month, and/or QEternity+1?). He then goes on to say that tight lenders may be thwarting the recovery, and is concerned about high unemployment, things that should be prevented as housing is a "powerful headwind to the recovery." In other words - the same canned gibberish he has been showering upon those stupid and naive enough to listen and/or believe him, because once the current downtrend in the market is confirmed to be a long-term decline, the 4th dead cat bounce in housing will end. But perhaps what is most amusing is that the Fed is now accusing none other than the US household for not doing their patriotic duty to reflate the peak bubble. To wit: "The Federal Reserve will continue to do what we can to support the housing recovery, both through our monetary policy and our regulatory and supervisory actions. But, as I have discussed, not all of the responsibility lies with the government; households, the financial services industry, and those in the nonprofit sector must play their part as well."

Falling homeownership rate and the housing market - Some readers have been asking how one can reconcile positive signs in the housing market with declining rates of homeownership. Indeed, homeownership is falling at an even faster pace than during the 08-10 period (chart below). The explanation is that so far a great deal of net demand growth in housing has been in rental units. Households are putting a premium on mobility. This demand for rentals is in fact one of the factors supporting the housing market - for every renter there is a landlord who buys a home. JPMorgan: - There is no contradiction between increased demand for housing and reduced homeownership rates. Demand for housing is mainly dependent on the increase in the number of households, whether these households choose to own or to rent the housing units they live in. Growth of household formation had been stifled during the expansion to date by high unemployment and subdued job growth. Young people have had an especially tough time in the labor market, and many who could not find jobs or could not find good jobs are living with their parents or are doubling or tripling up in apartments with friends.  But labor markets are gradually improving, and the period of maximum weakness in household formation is behind us. And the increase in the number of households has accelerated over the past year, to growth of 1.01% or 1.15 million, the largest annual increase since 2Q06 if still somewhat below the norms prior to the recession. The decline in homeownership rates implies that virtually all the increase in demand for housing units associated with increased household formation consists of increased demand for rental units.  With household formation on the rise (see discussion) and mortgage to rent ratio at 0.63 (record low), the homeownership rate should stabilize in the near future. It is unlikely however that the rate will ever return to levels we saw in the early part of the last decade. . This adjustment is vital in order to address the rapidly changing labor demand (see discussion). And high levels of homeownership tend to hinder labor mobility, particularly when house price appreciation rates stay subdued.

Bundled Households - As I wrote on Friday, lots of young Americans are finally moving out of their parents’ basements and forming their own households now that the economy is picking up. But the bundled-household phenomenon remains large, and Mark Zandi, chief economist at Moody’s Analytics, has just shared some interesting data showing its extent. Based on demographics and previous trends in household formation, it looks as if the country still has about 1.8 million fewer households today than it would have in a more “normal” economy, and most of that total household deficit is accounted for by the lower numbers of households formed by those in the 15-34 age group. Demographics suggest that there should be about 1.1 million more households headed by younger Americans today than there actually are. As a result, we’re still see an unusually high number of people living with parents, other relatives or friends. This chart shows the total number of additional adults living with a home’s official householder, broken down by the relationship to the householder: nonrelative, child or other relative.

Some thoughts on household formation = An interesting article was published in the NY Times today entitled "Bundled Households". It discusses the fact that the younger generations live with their parents/relatives in larger numbers than in the past. Here are a few comments on the topic of household formation.
1. This trend is by no means new - see discussion.
2. The article points out that household formation has been slower than in a more "normal economy".   NYTimes: - Based on demographics and previous trends in household formation, it looks as if the country still has about 1.8 million fewer households today than it would have in a more “normal” economy, and most of that total household deficit is accounted for by the lower numbers of households formed by those in the 15-34 age group. Demographics suggest that there should be about 1.1 million more households headed by younger Americans today than there actually are. What came before the the financial crisis (the "previous trends in household formation") was not particularly "normal", and making comparisons to that period is not always meaningful. The NY Times chart below is quite informative, but the blue and yellow component is likely the "new normal". Even as household formation improves, the increased number of young people living with their parents

AAR: Rail Traffic "mixed" in October - From the Association of American Railroads (AAR): AAR Reports Mixed Rail Traffic for October - The Association of American Railroads (AAR) today reports U.S. rail traffic continues to show mixed results in monthly rail data, and that impacts from Hurricane Sandy can be seen in decreased traffic for week 44.  “The fundamentals of U.S. rail traffic remained roughly the same in October as in recent months: weakness in coal, remarkable growth in petroleum and petroleum products, a slight slowing of growth in intermodal and autos, and mixed results for everything else,”Intermodal traffic in October saw an increase for the 35th straight month, totaling 1,233,475 containers and trailers, up 1.5 percent (18,710 units) compared with October of 2011. Carloads originated in October totaled 1,422,654 carloads, down 6.1 percent (92,601 carloads) compared with the same month last year. Carloads excluding coal were up 1.9 percent for the month, or 15,609 carloads, compared with the same month last year. This graph shows U.S. average weekly rail carloads (NSA).  Total U.S. rail carload traffic fell 6.1% (92,601 carloads) to 1,422,654 in October 2012 from October 2011 on a non-seasonally adjusted basis (see charts below). That’s the largest year-over-year carload percentage decline since November 2009. As was the case last month too, coal alone more than accounted for the total carload decline in October. Coal carloads were down 16.0% (108,210 carloads) in October 2012 from October 2011. The second graph is for intermodal traffic (using intermodal or shipping containers): U.S. rail intermodal traffic rose 1.5% (18,710 containers and trailers) in October 2012 over October 2011 to 1,233,475 units. That’s the 35th straight year-over-year monthly increase, though it was the smallest percentage gain in 14 months.

NFIB: Small Business Optimism Index increases slightly in October - From the National Federation of Independent Business (NFIB): Small Business Optimism Ticks Up Slightly The National Federation of Independent Business (NFIB) Small Business Optimism Index rose 0.3 in October to 93.1; the slight uptick in the reading did not seem to indicate a dramatic shift in owner sentiment over the course of the month.  One indicator that rose slightly in October is the frequency of reported capital outlays in the past six months, increasing 3 points to 54 percent. ... Weak sales is still the reported No. 1 business problem for 22 percent of owners surveyed. ... October was another weak job creation month, though better than September due primarily to a reduction in terminations which will raise the net jobs number. According to the October survey, owners stopped releasing workers; the average change in employment per firm rose to just 0.02 workers—essentially zero. This graph shows the small business optimism index since 1986. The index increased to 93.1 in October from 92.8 in September.

Small-Business Optimism Stays Steady - Economic conditions faced by small business owners were little changed in October, amid continued anxiety about the future, fueled largely by political uncertainties. On Tuesday, the National Federation of Independent Business reported its monthly index tipped a touch higher to 93.1, from 92.8 the month before. There was little change in any of the components making up the index, with the report saying the overall index remained “in a small, narrow ‘recession’ level range.” The October NFIB survey was compiled before elections that saw President Barack Obama hold his office, amid continued Democratic control of the Senate, and Republican control of the House of Representatives. The uncertainty at the heart of the NFIB survey arises largely from the inability of lawmakers to tackle what’s called the fiscal cliff.

Business Confidence Continues Its Stunning Collapse - Morgan Stanley just published its November read on its proprietary Business Conditions Index, and it dropped 6 points to 35%. This follows last month's stunning 14 point plunge. "Rising fiscal policy uncertainty is having an increasingly negative impact on business activity as the fiscal cliff looms, write the economists led by Vincent Reinhart. "After the status quo election results, the ideological divide that blew up the “Grand Bargain” in 2011 still exists. Risks are significant that a fiscal cliff deal won’t be reached by January 1, potentially a major blow to an economy that appears to be moving into year end with little momentum." This only reinforces the idea the U.S. consumers and the U.S. businesses are experiencing the economy very differently. Specifically, the consumer has been feeling more confident thanks to emerging bullish trends like the rebound in home prices. Meanwhile, businesses are becoming increasingly cautious as the fiscal cliff looms. Here's a long term look at the measure:

Business Inventories, Sales Grow - U.S. business inventories and sales both accelerated in September, suggesting companies have confidence that consumers will continue to spend even as worries over tax increases and government budget cuts loom. Inventories increased by 0.7% to a seasonally adjusted $1.613 trillion, the Commerce Department said Wednesday. Businesses often keep extra goods on hand if they expect demand to rise. Economists surveyed by Dow Jones Newswires predicted a 0.6% gain. September sales rose 1.4% to a seasonally adjusted $1.264 trillion, the best gain since March 2011.

Producer Price Index: Headline and Core Lower Than Forecast - Today's release of the September Producer Price Index (PPI) for finished goods shows a month-over-month decline of 0.2%, seasonally adjusted, in both Headline and Core inflation. Briefing.com had posted a MoM consensus forecast of 0.1% for both Headline and Core PPI. Year-over-year Headline PPI is up 2.3% and Core PPI is up 2.1%. Here is a snippet from the news release: In October, the decrease in the finished goods index is attributable to prices for finished energy goods and the index for finished goods less foods and energy, which declined 0.5 percent and 0.2 percent, respectively. By contrast, prices for finished consumer foods advanced 0.4 percent.  Finished energy: The index for finished energy goods moved down 0.5 percent in October after increasing 4.7 percent a month earlier. A 2.2-percent drop in gasoline prices accounted for most of this decrease. Declines in the indexes for home heating oil and liquefied petroleum gas also contributed to lower finished energy goods prices. (See table 2.)  Finished core: The index for finished goods less foods and energy moved down 0.2 percent in October, the first decline since a 0.1-percent decrease in November 2010. Lower prices for light motor trucks and passenger cars led the October decline, falling 1.5 percent and 1.6 percent, respectively.     More... Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. As we can see, the YoY trend in Core PPI declined significantly during 2009 and increased modestly in 2010 and more rapidly in 2011. This year the YoY Core PPI trend had been one of gradual decline.

Upbeat Consumers to Sustain U.S. as Companies Hesitate  - Consumers in the U.S. are stepping in where companies fear to tread.  Americans are more upbeat while business sentiment stagnates, a sign their spending will provide a bridge for the economic expansion until the so-called fiscal cliff is resolved and entices companies to resume investment.  “In the tug-of-war between more confident consumers and more cautious businesses, it looks like the consumer is winning,” With consumer spending rising at even a moderate pace, the expansion will carry on.”  The re-election of President Barack Obama yesterday helps remove one element of uncertainty about the nation’s direction as the focus shifts to how lawmakers approach the fiscal cliff - - $607 billion in federal tax increases and spending cuts slated for next year. For consumers, rising home prices, an improving job market and healthier finances are trumping those concerns, making it more likely household demand will be sustained. Household optimism is the highest in more than four years, reports from the Conference Board and Thomson Reuters/University of Michigan show, while a Bloomberg gauge of confidence in the economy is the strongest since early 2008. Corporate sentiment has stalled, according to Institute for Supply Management measures that underscore a cautionary tone from company officials on earnings calls.

Economic Optimism Plunges In Post-Vote IBD/TIPP Poll - If newly re-elected President Obama was hoping to float into his second term on a cloud of renewed national optimism and bipartisan goodwill, he's likely to be disappointed. The latest IBD/TIPP Poll shows that, at least as far as economic optimism is concerned, America very much remains a house divided. The bellwether Economic Optimism Index for November plunged 10%, from 54 in October to 48.6 in November, as a major part of the electorate took stock of the vote's outcome and didn't like what it saw for the economy. The partisan breakdown for optimism is telling. Not surprisingly, sentiment among Democrats improved — 4.2%, from 70.8 in October to 73.8 in November. But Republican poll respondents, who for months were below the break-even level of 50 for optimism , expressed an even gloomier outlook over the economy's future. The optimism index for this group plunged 41.1%, from an already-low 42.1 in October to 24.8 in November — the lowest reading ever for Republicans.

Weekly Gasoline Update: Prices Fall Again - Here is my weekly gasoline chart update from the Energy Information Administration (EIA) data. Gasoline prices at the pump fell for the fifth consecutive week. Rounded to the penny, the average for Regular dropped 5 cents and Premium 4 cents. Regular is up 22 and Premium 26 cents from their interim weekly lows in the December 19, 2011 EIA report. As I write this, GasBuddy.com shows only one state, Hawaii, with the average price of gasoline above $4, down from two states last week. Alaska and New York are the only two states with prices above $3.90.

Gas Prices Are Finally as ‘Cheap’ as a Year Ago - We’ve come a long way. For much of 2012, drivers have been paying 10¢, sometimes 25¢ more per gallon than the same time in 2011—which was the priciest year ever for gasoline. At long last, when drivers pull into gas stations this week, they can at least take some comfort in the fact that they’re not paying more than they were at this time last year. According to AAA’s Fuel Gauge Report, as of Monday we’ve finally reached the point where the national average is the same as it was one year prior: $3.43. It’s been quite a wild ride to get here. Even after experiencing one of the biggest ever declines in gas prices toward the end of October, prices around the nation remained quite high—roughly 20¢ per gallon pricier than the same period 12 months before. That differential was better than in mid-September, when prices were 28¢ more than the same time in 2011, and much better than in mid-October, when drivers were paying 34¢ more per gallon than the year before.

Vital Signs Chart: Falling Gas Prices - Gasoline prices are falling in the weeks after superstorm Sandy. The average retail price of a gallon of regular gas stood at $3.45 on Nov. 12, a four-month low. That is down four cents from a week earlier and below the $3.88 seen in mid-September. Storms can prompt gas shortages, but they also muffle demand for energy if economic activity slows, pushing down prices.

Annualized Headline Inflation Rises Slightly, Core Unchanged The Bureau of Labor Statistics released the CPI data for September this morning. Year-over-year unadjusted Headline CPI came in at 2.16%, which the BLS rounds to 2.2%, up from 1.99% last month (2.0% in the BLS record). Year-over year-Core CPI (ex Food and Energy) came in at 2.00%, essentially unchanged from last month's 1.98% (rounded to 2.0%). Here is the introduction from the BLS summary, which leads with the seasonally adjusted data: The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in October on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.2 percent before seasonal adjustment.  The shelter index increased 0.3 percent, its largest increase since March 2008, and accounted for over half of the seasonally adjusted all items increase. The index for all items less food and energy rose 0.2 percent, as the rise in the shelter index and increases in the indexes for apparel and airline fare more than offset declines in the indexes for used cars and trucks, new vehicles, and recreation.  The food index increased 0.2 percent in October with the index for food at home rising 0.3 percent, its largest increase since September 2011. The energy index, which had risen sharply in August and September, declined slightly in October. Major energy component indexes were mixed, with declines in the indexes for gasoline and natural gas more than offsetting increases in the indexes for electricity and fuel oil.  The 12-month change in the index for all items was 2.2 percent in October, an increase from the September figure of 2.0 percent. The 12- month change in the index for all items less food and energy remained at 2.0 percent. The food index rose 1.7 percent over the last 12 months, and the energy index increased 4.0 percent.  More... The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000.

Consumer Prices in US Rose at a Slower Pace in October - The cost of living rose in October at the slowest pace in three months, a sign U.S. inflation is in check.  The 0.1 percent increase in the consumer-price index followed a 0.6 percent gain the prior month, the Labor Department reported today in Washington. The median estimate of 83 economists surveyed by Bloomberg called for a 0.1 percent rise. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.2 percent, more than projected, reflected rising rents and clothing costs.   The inflation outlook is in sync with the Federal Reserve’s view and gives policy makers room to concentrate on boosting growth.  “Inflation in the U.S. is very subdued,” “This is allowing the Fed to strive toward supporting job growth and reducing unemployment.”

CPI Increases 0.1% for October 2012 - Increasing Rent Drives Consumer Price Index - The October Consumer Price Index increased 0.1% from September. CPI measures inflation, or price increases. This month the culprit isn't gas prices, the gasoline index declined by -0.6% after July through September's meteoric 16.6% rise. The problem is the cost to rent a place to live increased 0.4% and had the highest monthly jump since June 2008. The shelter index overall went up by 0.3% and was over 50% of the cause for CPI's October 0.1% monthly increase. Below are CPI's monthly percentage changes. CPI is up 2.2% from a year ago and the highest increase since April 2012, as shown in the below graph.  Core inflation, or CPI minus food and energy items, increased 0.2% for October, after 0.1% increases for the previous three months. Core inflation has risen 2.0% for the last year. Core CPI is one of the Federal Reserve inflation watch numbers. These low figures probably helped justify more quantitative easing, which increases commodity prices.  Core CPI's monthly percentage change is graphed below.  Shelter increased 0.3% and is up 2.3% for the year. The shelter index is comprised of rent, the equivalent cost of owning a home, hotels and motels. Rent increased 0.4% and the cost of renting has increased 2.8% for the last 12 months. This is the highest month rent increase since June 2008. Airfares rose 2.4%, a reflection of increasing fuel costs, but are still down -0.5% from a year ago. Used cars & trucks declined -0.9%, while new autos decreased -0.1% for October. Used cars & trucks prices have declined -2.1% from a year ago. Hotels & Motel's' increased 0.5%. College tuition, another soaring cost, increased 0.7% and is up 4.4% for the year. Graphed below is the percentage change from a year ago of rent, the largest monthly household expense for people who can least afford increases as those with less money disproportionately rent vs. own.

Inflation: A Five-Month X-Ray View: New Update - Here is a table showing the annualized change in Headline and Core CPI, not seasonally adjusted, for each of the past five months. I've also included each of the eight components of Headline CPI and a separate entry for Energy, which is a collection of sub-indexes in Housing and Transportation. We can make some inferences about how inflation is impacting our personal expenses depending on our relative exposure to the individual components. Some of us have higher transportation costs, others medical costs, etc. The most conspicuous trend in the table, data through October, had been the volatility of energy, essentially the fluctuation in gasoline prices, which is also reflected in Transportation. Here is the same table with month-over-month numbers (not seasonally adjusted). The jump in energy costs are clearly illustrated, reflecting here too in transportation. We also see strong seasonality in apparel costs, which rise at the end of summer. The chart below shows Headline and Core CPI for urban consumers since 2007. Core CPI excludes the two most volatile components, food and energy.

Vital Signs Chart: Easing Inflation Pressure - Inflation pressures eased last month. Consumer prices rose as gasoline did in August and September, taking cash from Americans’ wallets. Recently, gas prices have dropped, restraining overall inflation, which rose only 0.1% in October. Gas has since fallen more, which could help consumers. Excluding volatile food and energy prices, prices rose 0.2%, driven by higher rent costs.

Advertising and consumer prices - Advertising is expensive and thus raises the cost of goods, but it may encourage competition that keeps prices down. This column addresses the old question with data from a natural experiment brought about by tax harmonisation in Austria. It argues that on average advertising decreases consumer prices and estimates that if the 5% tax were abolished, consumer prices would decrease by about 0.25 percentage points.

Retail Sales declined 0.3% in October - On a monthly basis, retail sales declined 0.3% from September to October (seasonally adjusted), and sales were up 3.8% from October 2011. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for October, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $411.6 billion, a decrease of 0.3 percent from the previous month, but 3.8 percent above October 2011. ... The August to September 2012 percent change was revised from 1.1 percent to 1.3 percent.Sales for September were revised up to a 1.3% increase (from 1.1% increase).  This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales are up 24.2% from the bottom, and now 8.6% above the pre-recession peak (not inflation adjusted) The second graph shows the same data, but just since 2006 (to show the recent changes). Most of the decline in October was due to fewer auto sales - a direct impact of Hurricane Sandy. Retail sales ex-autos were unchanged in October. Excluding gasoline, retail sales are up 20.2% from the bottom, and now 8.0% above the pre-recession peak (not inflation adjusted). The third graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.Retail sales ex-gasoline increased by 3.5% on a YoY basis (3.8% for all retail sales).

Retail Sales Decline -0.3% for October 2012 - October 2012 Retail Sales decreased, by -0.3%, Autos & Parts alone dropped -1.5% while auto dealers, part of autos & parts sales, declined by -1.6%. Minus autos & parts, retail sales had no change from last month. September's monthly percentage change was revised upward, from 1.1% to 1.3%. Retail sales are reported by dollars, not by volume, so dropping prices often reports as a decline in sales. For the three month moving average, from August to October in comparison to May to July, retail sales have increased 2.0%. In comparison to a year ago, retail sales are up 3.8%.  Total retail sales are $411.6 billion for October. Below are the retail sales categories monthly percentage changes. These numbers are seasonally adjusted. General Merchandise includes super centers, Costco and so on. We see retail sales increased only on goods primarily driven by higher prices such as groceries and gasoline. The other declines across the board are really not good news for consumer spending.  Retail trade sales are retail sales minus food and beverage services. Retail trade sales includes gas, and is down -0.3% for the month, up 3.8% from last year. Gasoline station sales have increased 7.7% from one year ago and on-line retailers are clearly expanding, their sales have increased 7.2% from last year.  Below are the October retail sales categories by dollar amounts. As we can see, cars are king when it comes to retail sales. We also see that electronics is much smaller by total dollars. We have no idea how Apple manages to get their product launches reported as front paged news and leading stories. Realty shows cell phones as a market doesn't compare to autos & parts.

US Retail Sales Drop 0.3 Percent in October - Americans cut back on spending at retail businesses in October, an indication that some remain cautious about the economic outlook. Superstorm Sandy also depressed car sales and slowed business in the Northeast at the end of the month. The Commerce Department said Wednesday that sales dropped 0.3 percent after three months of gains. Auto sales fell 1.5 percent, the most in more than a year. Excluding the volatile categories of autos, gas and building materials, sales fell 0.1 percent. That followed a 0.9 percent gain in September for that category. Online and catalog purchases fell 1.8 percent, the most in a year. Electronics and clothing stores also posted lower sales. The government said Sandy “had both positive and negative effects” on sales. Some stores and restaurants closed and lost business. Others reported sales increases ahead of the storm as people bought supplies. Most economists said they thought the storm overall held back sales. Still, they noted that consumers showed signs of cutting back on spending before the weather disrupted business.

Retail Sales: First Decline in Four Months - The Advance Retail Sales Report released this morning shows that sales in October came in at -0.3% month-over-month with an upward revision to 1.3% for September (previously 1.1%) but a downward revision to 1.0% for August (previously 1.2%). Today's number is below the Briefing.com consensus forecast of -0.2%. The year-over-year change is 3.8%. The latest report is the first decline in four months.Now let's dig a bit deeper into the "real" data, adjusted for inflation and against the backdrop of our growing population.The first chart shows the complete series from 1992, when the U.S. Census Bureau began tracking the data. I've highlighted recessions and the approximate range of two major economic episodes.Here is the same chart with two trendlines added. These are linear regressions computed with the Excel Growth functionThe green trendline is a regression through the entire data series. The latest sales figure is 5.4% below the green line end point.The blue line is a regression through the end of 2007 and extrapolated to the present. Thus, the blue line excludes the impact of the Financial Crisis. The latest sales figure is 17.2% below the blue line end point. The next chart gives us a perspective on the extent to which this indicator is skewed by inflation and population growth. The nominal sales number shows a cumulative growth of 150.8% since the beginning of this series. Adjust for population growth and the cumulative number drops to 103.3%. And when we adjust for both population growth and inflation, retail sales are up only 21.5% over the past two decades.

Did Superstorm Sandy Sandbag October's Retail Sales? - Retail sales took a modest dive last month, but the prevailing explanation places the blame on Hurricane Sandy. That’s a plausible excuse for October's consumption retreat, although it'll take time to confirm, which means that it's not immediately obvious that we can dismiss today's news as a one-off event.  For now, the only thing we know for sure is that retail sales slumped 0.3% in October, the first monthly drop in four months. Quite a bit of the fall is due to weak auto sales, which sank 1.5%. Retail sales ex-autos were flat last month. “There’s probably some hurricane impact, but when consumers are cautious they tend to spend more on staples than discretionary items, and that’s exactly what happened this month,” “The broad story is that consumers remain cautious.” The October fade put a dent in the year-over-year trend too. The annual pace of retail sales remains in the black, rising 3.8% for the 12 months through October. But that's slowest rate of increase since June. Of course, the holiday shopping season is upon us and so the notion of a revival in spending seems like a reasonable view.

Worries That Retail Weakness Extends Beyond Sandy - Sandy played a big role in the drop in October retail sales, but some worry the economy may not get as big a lift from this year’s holiday-shopping season as hoped. Americans cut spending for the first time in four months in October, according to new government data Wednesday. Retail sales dropped 0.3%, after rising 1.3% in September and 1% in August. (September’s figures were revised up.) Disruptions from superstorm Sandy likely were a factor. Sandy, which lashed the Northeast in the last days of October, prompted Americans to stock up on groceries and gas. But it also shuttered businesses and trapped consumers indoors, hurting retail sales, especially for cars, which sank 1.5%. Car dealers sell the most in a month’s final week. Beyond cars, sales in New York, New Jersey and Connecticut — three states hard-hit by Sandy that fuel 15% of overall U.S. retail sales — were 80%, 60% and 80% of their normal levels between October 28 and November 3, respectively, according to MasterCard’s SpendingPulse. Meaning: We could get a corresponding snapback in sales in November. Consumers have been feeling better lately, another reason to overlook October’s report. The improving job market has made it easier for Americans to spend. Households are whittling down their debt, and housing prices and the stock market have been rising, making consumers feel wealthier. Consumer confidence is around the highest levels since 2007, fueling hopes that Americans’ spending, the biggest chunk of the economy, might soon turbo-charge the tepid recovery.

Big Miss In Retail Sales Paints Grim Picture For Holiday Shopping - Here we go with the "but, but, Sandy" excuses. The just announced October retail sales tumbled, with their worst miss of expectations since May 2010, and the first sequential decline since June: printing at -0.3% for both the headline and the 'ex autos and gas', on expectations of a -0.2% and +0.4% rise. Ignoring for a second that the Commerce Department said that Hurricane Sandy had both positive (remember those massive lines in various stores ahead of Sandy) and negative impacts on retail sales, it would be truly inconceivable for the sellside Wall Street consensus of diploma'ed PhDs, which knew about Sandy's impact on retail sales well in advance, and thus could adjust its numbers, to actually, you know, adjust its numbers. Either way there is no way to spin the longer term major store sales trend (last chart), which shows that the US consumer, out of money, out of credit, and out of savings is entering the holiday season with little to zero disposable spending power.

Vital Signs Chart: Sandy Weighs on Retail Sales - Americans are spending less. Retail sales fell 0.3% in October from September, the first drop in four months. Superstorm Sandy likely kept some consumers away from stores, which could mean a snapback in November. The holiday-shopping season also has yet to begin. Still, the broad-based pullback hit everything from electronics and restaurants to online sales, suggests weak income growth could restrain spending.

Retail Sales - You Can't Blame It All On Sandy - The release of the retail sales report for October missed estimates coming in at -0.3% versus last month's upwardly revised 1.3% bump. Immediately, the media went to blaming Hurricane Sandy for the impact. There are two problems with this excuse. First, Hurricane Sandy didn't hit the East Coast until October 29th after the majority of retail sales data was already collected; and secondly, it is more likely that Sandy actually boosted retail sales in the Northeast as individuals stocked up on supplies, and made preparations, prior to impact. The real impact from Sandy will come in November. However, even if we go with "Sandy impacted retail sales" argument - the Hurricane excuse doesn't really justify that the gross gain in retail sales nationwide over the last year was only $20.42 billion (not seasonally adjusted). Of the $20.42 billion in sales the major category percentage contribution is shown in the ajacent table. Importantly, over the past year the bulk of retail sales have come from Motor Vehicle sales as sub-prime auto loans have made a vast resurgence and nearly as much simply went into the gas tank. Non-store retailers also comprised a large chunk of consumer dollars as more shoppers gravitated toward the internet leaving companies like Best Buy (BBY) gasping for air.However, while consumers did spend money over the past 12 months, it has been a slowing rate of growth since June of 2011. This decline in the annual growth rate of sales is troubling.

Number of the Week: 13 Cents of Every Retail Dollar Spent at Gas Stations - 13%: The share of total retail sales spent at gasoline stations in October. Thirteen cents of every retail dollar is spent at gas stations, but that level has stagnated in recent years amid weaker demand. Americans spent some $47.85 billion at gas stations in October, according to Commerce Department figures released this week. That represents 13% of the $367.56 billion spent at all retail locations in the month. That share has increased a bit in recent months, but overall it’s little changed over the past two years. In the third quarter it was 12.5%, the same level as the first quarter of 2011. Gas sales have been subdued amid continued weak demand in the U.S. Gasoline use posted its weakest October since 2000 last month. A modest economic recovery and continued high unemployment, as well as higher fuel-economy standards, have reduced demand. But another piece of the retail puzzle also is likely cutting into the need for gas. In the third quarter, e-commerce sales continued to surge, according to the Commerce Department. More than five cents of every dollar spent at retailers in the July-to-September period was spent online. That share has basically quintupled in the past decade, and while growth slowed slightly during the recession, it has continued to steadily march upward. The more goods people can get online, the less time they need to spend in the car traveling to brick-and-mortar retailers.

Just Released: November Empire State Manufacturing Survey Points to Storm’s Effects - The results of this morning’s November Empire State Manufacturing Survey point to a slight decline in business conditions in New York’s manufacturing sector in the wake of “superstorm” Sandy. The headline general business conditions index was little changed from last month and, at a level of -5.2, suggests that overall, business activity was modestly lower than in our previous survey. Employment levels were noticeably down, as the employment index fell 14 points to -14.6, its lowest level since mid 2009. On the upside, however, the new orders index climbed into positive territory and the shipments index shot up 21 points to 14.6, its highest level since May.  The headline index might have been expected to look worse. The November survey was in the field after the storm—from November 5 to November 13—and many of the respondents were affected. In fact, supplemental questions in the report asked firms whether their businesses were disrupted by the storm. Impacts were widespread and substantial for downstate respondents, while the effects on upstate firms tended to be less prevalent. All of the firms from the New York City area were disrupted—in most cases, severely—with 70 percent of downstate businesses stating that losses of power and communications were major factors in reducing business activity. In upstate New York, just 21 percent of firms reported that business activity was interrupted for a day or more, mostly due to disruptions to their supply chains and problems from their customers who were also affected by the storm. Manufacturers often make up for lost time by increasing output when they resume operations, so disruptions may not have resulted in any loss in business for those able to compensate. However, some affected businesses surely experienced damage and output losses that they will not be able to make up. We expect to have some information about the nature of these losses in December from supplemental questions that will be asked next month.

Nov. Empire State index contracts for fourth month - The Empire State manufacturing index contracted for the fourth month in a row, the New York Federal Reserve Bank said Thursday. The index rose to negative 5.2 in November from negative 6.2 in October. Economists polled by MarketWatch expected the index to weaken to negative 6.7. Details were mixed. The key new orders sub-index rose above zero for the first time since June and shipments shot up to its highest level since May. However, employment conditions weakened. Only 21% of manufacturers reported a loss of activity due to Hurricane Sandy but all firms reported some reduction in activity.

Hurricane Sandy Depresses Mid-Atlantic Manufacturing - Business conditions deteriorated for mid-Atlantic manufacturers this month due to “disruptive effects” of Hurricane Sandy on the region, according to a report released Thursday by the Federal Reserve Bank of Philadelphia. The Philadelphia Fed said its index of general business activity within the factory sector fell to -10.7, erasing October’s 5.7, which was the first positive read in six months. Economists surveyed by Dow Jones Newswires expected the latest index to stall to zero. Readings under zero denote contraction and above-zero readings denote expansion.

Philly Fed Business Outlook: Contraction Returns, Courtesy of Sandy - The Philly Fed's Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. Today's report shows a sharply negative reading, which is a return to five-month series of negative months prior to last month's positive reading. Since this is a diffusion index, negative readings indicate contraction, positive indicate expansion. Here is the introduction from the Business Outlook Survey released today: Firms responding to the November Business Outlook Survey reported declines in business activity this month following the disruptive effects of Hurricane Sandy on the region. The survey’s indicators for general activity, which had shown improvement in October, fell back into negative territory this month. Firms reported slight declines in shipments, employment, and hours worked. Indicators for the firms' expectations over the next six months were near their levels in the previous month, but expectations for future employment and capital spending have weakened in the last two months. (Full PDF Report)  The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the two 21st century recessions. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average, which is more useful as an indicator of coincident economic activity.

Weak Regional Manufacturing Surveys: Philly Fed, NY Fed, Dallas Fed; Don't Blame Hurricane Sandy - Let's take a look at the latest Fed regional economic surveys to catch a glimpse at business conditions. The November 2012 Philadelphia Business Outlook Survey is back in negative territory.  The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased 16 points, to a reading of ‑10.7. The fallback of the general activity index followed a single positive reading in October that was preceded by five negative monthly readings. Nearly 32 percent of firms reported declines in activity this month, while 21 percent reported increases. The demand for manufactured goods, as measured by the current new orders index, declined 4 points from last month and remains in negative territory. Shipments also fell this month: The current shipments index fell 7 points, to ‑6.7. Declines in inventories were also more widespread this month; 31 percent of firms reported declines compared with 21 percent in October.The Federal Reserve Bank of New York Empire State Manufacturing Survey shows manufacturing declines at modest pace.  The November 2012 Empire State Manufacturing Survey indicates that conditions for New York manufacturers declined at a modest pace. The general business conditions index was negative for a fourth consecutive month, but was little changed at -5.2. The new orders index rose above zero for the first time since June, although it was only slightly positive at 3.1. Labor market conditions were noticeably weaker. The index for number of employees fell fourteen points to -14.6, a sharp drop to its lowest level since 2009, and the average workweek index drifted down to -7.9.

US industrial production drops 0.4 percent - U.S. factory production of machinery and equipment fell sharply last month, held back by temporary disruptions caused by Superstorm Sandy and companies' fears that a federal budget crisis could trigger a recession next year. The Federal Reserve said Friday that factory output, the most important component of industrial production, fell 0.9 percent in October from September. It would have been unchanged without the storm, the Fed said. Overall industrial production fell 0.4 percent last month. Utility output dipped 0.1 percent, while mining, which includes oil and gas production, rose 1.5 percent. "Even excluding the impact of Sandy, manufacturing output was no better than stagnant, so there is nothing to be encouraged about in this report," Manufacturing has weakened since spring, in part because companies have scaled back purchases of long-lasting goods that signal investment plans. That trend continued in October: Machinery production fell 1.9 percent, while production of electrical equipment, appliances and components declined 1.4 percent. Many businesses are worried about tax increases and federal spending cuts — known as the "fiscal cliff" — that will take effect in January unless Congress reaches a budget deal before then. Most economists predict the economy will suffer a recession in the first half of 2013 if lawmakers and President Barack Obama can't avoid the fiscal cliff.

Industrial Production decreased 0.4% in October due to Hurricane Sandy, Capacity Utilization decreased - From the Fed: Industrial production and Capacity Utilization Industrial production declined 0.4 percent in October after having increased 0.2 percent in September. Hurricane Sandy, which held down production in the Northeast region at the end of October, is estimated to have reduced the rate of change in total output by nearly 1 percentage point. The largest estimated storm-related effects included reductions in the output of utilities, of chemicals, of food, of transportation equipment, and of computers and electronic products. In October, the index for manufacturing decreased 0.9 percent; excluding storm-related effects, factory output was roughly unchanged from September. The output of utilities edged down 0.1 percent in October, and production at mines advanced 1.5 percent. At 96.6 percent of its 2007 average, total industrial production in October was 1.7 percent above its year-earlier level. Capacity utilization for total industry decreased 0.4 percentage point to 77.8 percent, a rate 2.5 percentage points below its long-run (1972--2011) average. This graph shows Capacity Utilization. This series is up 10.9 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 77.8% is still 2.5 percentage points below its average from 1972 to 2010 and below the pre-recession level of 80.6% in December 2007..  The second graph shows industrial production since 1967. Industrial production decreased in October to 96.6. This is 15% above the recession low, but still 4.1% below the pre-recession peak.

Tumbling October Industrial Production And Capacity Utilization Blamed Solely On Hurricane Sandy - Because not one Wall Street analyst could have possibly factored in the impact of Sandy into their expectations of the month's Industrial Production, which in October declined by -0.4% to 96.6 from 97.0 in the Fed's index, well below consensus expectations of a 0.2% rise, and down from last month's 0.4% increase, it is only logical to blame it all on Sandy. Sure enough, this is what the Fed just did: "Hurricane Sandy, which held down production in the Northeast region at the end of October, is estimated to have reduced the rate of change in total output by nearly 1 percentage point." So let's get this straight: Sandy - which hit on October 29, or with about 94% of the month of October done and impacted New York and New Jersey, not the entire US, is responsible for 250% of the entire October 0.4% drop?  Can we please get back to the "It's all Bush's fault" excuses already. At least those were idiotic and funny. Blaming everything on Sandy is just the former. And yes, capacity utilization for the entire USA which came at 77.8%, the lowest since November 2011, and well below expectations of 78.3%, was obviously crushed by a tropical storm that impacted New York and New Jersey for 3 days in the month. Brilliant.

Is Industrial Production's October Slide Another Storm-Related Victim? - Industrial production slumped last month, and the official blame again points to Hurricane Sandy. That's the third time this week that weak economic data has reportedly been assaulted by the recent storm that tore through the Northeast U.S. Earlier in the week we were told that retail sales were victimized by the big blow, and the same was said of yesterday's awful news on initial jobless claims. Is the hurricane narrative just a convenient excuse to minimize a weakening economy? Maybe, but it's hard to say for sure until we see more data that's free and clear of any weather-related mischief. Meanwhile, today's industrial production report for October is clearly discouraging, regardless of the reason. Output dropped 0.4% last month, and September's initially reported 0.4% increase was revised down by half to 0.2%. The cyclically sensitive manufacturing sector led the slide last month, dropping 0.9% in October. “Manufacturing is still not the source of economic energy that it was earlier in the year,” The recent weakness is taking a toll on the year-over-year percentage change in industrial production. The annual pace is still positive, but it retreated to a 1.7% gain in October vs. 12 months ago. That's down sharply from September's 2.8% pace. Industrial production is growing at the slowest rate in more than two years. The margin for comfort is now dangerously thin. If blaming Sandy turns out to be a head fake, there'll be hell to pay.

Analysis: Sandy Hits Output Now, but Rebuilding Will Boost It Later - Joel Naroff, president of Naroff Economic Advisors, talks with Jim Chesko about this morning’s report showing that U.S. industrial output fell 0.4% in October, as the superstorm that wreaked havoc on the Eastern Seaboard.

Fetish for making things ignores real work - FT.com: You – or your government or insurer – will pay a pound or two for a pill and many times that for a specialist drug, such as a modern cancer treatment. Generally, the ingredients will cost a few pence at most. You might pay up to £10m for an aircraft engine, which would fit in a box the size of a small sofa. You are not paying for the materials. The rear cover of the iPhone tells you it is designed in California and assembled in China. The phone sells, in the absence of carrier subsidy, for about $700. Purchased components – clever pieces of design such as the tiny flash drive and the small but high-performing camera – may account for as much as $200 of this. The largest supplier of parts is Samsung, Apple’s principal rival in the smartphone market. “Assembled in China” costs about $20. The balance represents the return to “designed in California”, which is why Apple is such a profitable company. Manufacturing fetishism – the idea that manufacturing is the central economic activity and everything else is somehow subordinate – is deeply ingrained in human thinking. The perception that only tangible objects represent real wealth and only physical labour real work was probably formed in the days when economic activity was the constant search for food, fuel and shelter. A particularly silly expression of manufacturing fetishism can be heard from the many business people who equate wealth creation with private sector production. They applaud the activities of making the pills you pop and processing the popcorn you eat in the interval. The doctors who prescribe the pills, the scientists who establish that the pills work, the actors who draw you to the performance and the writers whose works they bring to life; these are all somehow parasitic on the pill grinders and corn poppers.

JD Power study: Electric vehicle economics don’t pencil out - Sales of electric vehicles won’t take off until automakers lower prices and demonstrate the economic benefits to consumers, according to a J.D. Power and Associates study of electric vehicle ownership. Almost two years after automakers started selling battery-powered rechargeable cars in the U.S., the segment is an almost immeasurable portion of auto sales. Nissan has sold fewer than 6,800 Leaf electric cars this year through October, and that’s down 16 percent from the same period last year. Honda has leased just 48 of the electric version of the Fit this year. Mitsubishi has sold fewer than 500 of its MiEV mini-car. Startup electric car company Coda Automotive has refused to disclose how many cars it has sold. Tesla Motors, which launched production of its high-end Model S electric hatchback, has delivered fewer than about 300, and expects to sell about 3,000 this year, depending on how quickly it can ramp up production at its factory in Fremont, Calif. Meanwhile, led by Toyota’s family of hybrid vehicles, the industry will sell about 500,000 gas-electric vehicles this year, accounting for about 3.5 percent of U.S. auto sales.

Hurricane Sandy and the Disaster-Preparedness Economy - This Milwaukee suburb, once known for its curative spring waters and, more recently, for being a Republican stronghold in a state that President Obama won on Election Day, happens to be the home of one of the largest makers of residential generators in the country. So when the lights go out in New York — or on the storm-savaged Jersey Shore or in tornado-hit Missouri or wherever — the orders come pouring in like a tidal surge. It’s all part of what you might call the Mad Max Economy, a multibillion-dollar-a-year collection of industries that thrive when things get really, really bad. Weather radios, kerosene heaters, D batteries, candles, industrial fans for drying soggy homes — all are scarce and coveted in the gloomy aftermath of Hurricane Sandy and her ilk.Driven of late by freakish storms, this industry is growing fast, well beyond the fringe groups that first embraced it. And by some measures, it’s bigger than ever. Businesses like Generac Power Systems, one of three companies in Wisconsin turning out generators, are just the start. The market for gasoline cans, for example, was flat for years. No longer. “Demand for gas cans is phenomenal, to the point where we can’t keep up with demand,” says Phil Monckton, vice president for sales and marketing at Scepter, a manufacturer based in Scarborough, Ontario. “There was inventory built up, but it is long gone.” Even now, nearly two weeks after the superstorm made landfall in New Jersey, batteries are a hot commodity in the New York area. Win Sakdinan, a spokesman for Duracell, says that when the company gave away D batteries in the Rockaways, a particularly hard-hit area, people “held them in their hands like they were gold.”

How is "work" socially constituted? - How does "work" take shape in an advanced manufacturing and service economy? Is the division of labor a natural outcome of technology, or is it the result of a concrete set of social processes involving the strategies and interests of several groups? What kinds of social processes determine the bundle of skills, knowledge, and training that go together to represent a job classification? How is the suite of tasks and activities assigned to a given job arrived at? Here is a brief description from the Bureau of Labor Statistics of one specific skilled job function within a factory environment, the millwright (link): Millwrights install, dismantle, repair, reassemble, and move machinery in factories, power plants, and construction sites. Millwrights typically go through a formal apprenticeship program that lasts about 4 years. ..Here is a description of a low-skill job function, the hand laborer and material mover (link): Hand laborers and material movers transport objects without using machines. Some workers move freight, stock, or other materials around storage facilities; others clean vehicles; some pick up unwanted household goods; and still others pack materials for moving. Generally, hand laborers and material movers need no work experience or minimum level of education. And here is a highly skilled industrial job, the mechanical engineer (link): . Mechanical engineers design, develop, build, and test mechanical devices, including tools, engines, and machines. Mechanical engineers need a bachelor’s degree. A graduate degree is typically needed for promotion into managerial positions. Mechanical engineers who sell services publicly must be licensed in all states and the District of Columbia.  So how is it determined which tasks are assigned to which classifications? And what social processes determine which individuals receive the right kind of training to qualify for any of these jobs?

The Sucking Sound of (At Least Some) Skilled Workers Leaving the US - Yves Smith - Defenders of the Obama Administration’s indifference to high levels of unemployment often claim the problem isn’t readily remedied because the US suffers from “structural unemployment”. That’s really wonkese for blaming the victim. No sirreebob, the problem isn’t that there aren’t enough jobs, but that the workers are no damned good, as in they don’t have the right skills for our new super duper information based economy! In mainstream media outlets, claims like this are usually followed by a business owner saying there clearly aren’t enough skilled employees, he can’t hire any good machinists for $13 an hour. Generally speaking, Mr. Complaining Boss is offering below the going rate, but why let pesky details spoil a good narrative? You don’t have to look hard to find evidence against this argument. Unemployment is high among new college grads, normally one of the most sought after types of job candidates. Unemployment is also high across pretty much all job categories; you’d expect to see pockets of strength if there was a skills mismatch. Revealingly, you’ll hear Obama administration types say we need more engineers, when engineers will tell you the pay is too low relative to the cost of getting educated these days. Both the Economic Policy Institute and CEPR have published more rigorous debunkings.  Earlier this year, Australia started looking to hire skilled workers from the US. From Newsmax:Australia has made a plea for American plumbers, electricians and builders to move downunder to fill chronic shortages of skilled workers as the economy struggles to keep up with a resources boom fuelled by demand from China. Industry projections from Australia’s employment department show Australia will need 1.3 million extra workers over the next five years, including almost 200,000 more workers for the construction sector.

Jobs Now: Make Obama’s Priority Reality and Expose the Lie of Lazy Laborers -  William K. Black - President Obama gave a major speech today on his legislative agenda.  He said that the overriding national priority had to be jobs.  We agree. David Brooks published an op ed today calling on the Republican Party to become “The Party of Work.”  He put his primary message in his final paragraph for emphasis.  . Let Democrats be the party of security, defending the 20th-century welfare state. Be the party that celebrates work and inflames enterprise. Use any tool, public or private, to help people transform their lives.” Other than the gratuitous and inaccurate slap at the Democratic Party, we agree.  The problem is that Republicans and Democrats are pushing a “Grand Bargain” that would reduce jobs.  (The so-called Grand Bargain would also produce a “Great Betrayal” that would begin the process of shredding the safety net.  I have written separately about the betrayal and will be producing additional articles opposing that action.  This article focuses on the austerity component of the proposed Grand Bargain.) The Republican and Democrats are incoherent about austerity.  The immediate context for the budgetary discussion is the Congressional Budget Office (CBO) report on the “fiscal cliff.”  The fiscal cliff is a misnomer because it is not a cliff.  It is a product of the deal made on the debt limit.  It would produce (gradual) decreases in spending and tax increases that would begin to take effect in January 2013.  The gradual nature of the decreases in spending and the near certainty that any tax reductions Congress make in 2013 will be made retroactive to the beginning of the year combine to mean that the fiscal cliff is a gradual decline into a self-destructive policy of austerity.   We have months to prevent the self-destruction.

Why Is Labor Force Participation Shrinking? - We noted earlier that the recent drop in labor force participation — the percentage of people 16 or older who are working or looking for work — reflects not only the economic downturn and lack of job opportunities, but also the fact that more baby boomers are hitting retirement age. To measure the effect of demographics on labor force participation, we’ve updated a data series that the Labor Department published a decade ago that controls for the shifting age mix of the population (that is, what share of the population is in each age group).  We found that — if today’s age mix were the same as in 2000 — the labor force participation rate would be higher than today’s 64 percent and would’ve fallen less sharply in recent years (see graph).Although the “headline” rate includes everybody age 16 or older, labor force participation peaks at ages 25 through 54.  Many teens and young adults choose school over work, while many people 55 or older leave the workforce when they retire or become disabled.  Crucially, the baby boom generation — the huge cohort of Americans born between 1946 and 1964 — is swiftly moving into that older group.  And that’s putting downward pressure on labor force participation. Our findings support the conclusions of the Congressional Budget Office (CBO) and analysts at the Federal Reserve banks of Chicago and Kansas City, who find that an aging population accounts for an important piece of the recent drop in labor force participation.  Those experts generally conclude that about half of the drop in labor force participation since 2007 (the start of the economic downturn), and about a third of the drop since 2000 (when the rate hit its all-time high), stems from an aging population. That’s only part of the story, of course; CBO notes that “the economic downturn [and] weak growth in output during the recovery” have also dampened participation.  In other words, the downturn and lack of job opportunities have driven many people from the labor force and reduced the important employment-to-population ratio.

Weekly Initial Unemployment Claims increased sharply to 439,000 - The DOL reports: In the week ending November 10, the advance figure for seasonally adjusted initial claims was 439,000, an increase of 78,000 from the previous week's revised figure of 361,000. The 4-week moving average was 383,750, an increase of 11,750 from the previous week's revised average of 372,000.  The previous week was revised up from 355,000. 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 383,750.This sharp increase is due to Hurricane Sandy as claims increased significantly in the impacted areas. Note the spike in 2005 related to hurricane Katrina - we are seeing a similar impact, although on a smaller scale.Weekly claims were higher than the consensus forecast.  And here is a long term graph of weekly claims:  Mostly moving sideways this year ...

Initial Claims Soar To 439K, Non-Seasonally Adjusted Surge By Whopping 104,548 In One Week - Get ready for the "it's all Sandy's fault" barrage, because the post-reelection status quo sure will desperately need it today. The latest initial claims data posted a multi-year high 104,548 surge in weekly NSA claims from 361,800 to 466,348, and even the Seasonally adjusted number soaring from 361K to 439K on expectations of a 375K print. In other words, a complete disaster for any economic data bulls. What is truly amusing is that the same Wall Street "experts" who set expectations were unable to foresee the Sandy effect that every "macrotourist" on Twitter apparently is so very aware of. Also, it is apparently also "Sandy's fault" (now that the Bush excuse is back in retirement) that the prior week's claims were revised from 355K to 361K. Basically, just as we said 3 weeks ago, ignore every negative data point: it is Sandy's fault. However, for the snapback, when there actually is good news to be had, well, "four more years." Finally, to all the Sandy apologists: is the logic here that: if Hurricane, then Fire everyone? Because that is what is implied. To summarize: a hurricane is good for GDP (lots of broken windows), but any actually negative news (surge in firings) is perfectly expected.

Stormy Statistical Subterfuge & Jobless Claims - It looks like a macro disaster, but it's not. It's still unnerving to see last week's jobless claims soar, but the aftershock of Hurricane Sandy is probably the cause. That implies that new filings for jobless benefits will drop sharply in the weeks ahead and return to levels associated with the slow-growth trend that was interrupted by the weather earlier this month. Meantime, claims exploded skyward by 78,000 last week to a seasonally adjusted 439,000. If this was a genuine signal of shifting economic conditions, well, we'd be cooked. But there's no confirming data elsewhere to suggest that the economy fell off a cliff earlier this month. The source for the statistical mischief, in other words, strongly points to Sandy. Indeed, last week's unadjusted year-over-year claims total suddenly roared higher with a nearly 30% surge vs. its year-earlier level. The bears may think that they've been handed an early Christmas present, but it's an empty box. The notion that the trend just went from recent history's modest progress of 10% annual declines for new claims to a collapsing labor market is too far-fetched, even by the standards of an overbaked Hollywood script. Recall that it was just two weeks ago that we were told that private-sector employed had its best month of growth last month since February. There's still plenty to worry about, but this isn't September 2008 all over again, at least not yet.

Weekly Unemployment Claims at 439K: The 'Hurricane Sandy' Effect - The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 439,000 new claims number was a 78,000 decrease from the previous week, with Hurricane Sandy . The less volatile and closely watched four-week moving average, which is usually a better indicator of the recent trend, rose to 383,750. Given the impact of Hurricane Sandy, the four-week MA will be less reliable for the next few weeks. Here is the official statement from the Department of Labor:  In the week ending November 10, the advance figure for seasonally adjusted initial claims was 439,000, an increase of 78,000 from the previous week's revised figure of 361,000. The 4-week moving average was 383,750, an increase of 11,750 from the previous week's revised average of 372,000.  The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending November 3, an increase of 0.1 percentage point from the prior week's revised rate. The advance number for seasonally adjusted insured unemployment during the week ending November 3 was 3,334,000, an increase of 171,000 from the preceding week's revised level of 3,163,000. The 4-week moving average was 3,254,500, an increase of 17,750 from the preceding week's revised average of 3,236,750.  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. In the callout, note the red dots for the past four weeks. These clearly illustrate the data anomaly referenced above.

Companies Eye Cliff Layoffs, Aetna Chief Says - Aetna Inc. Chief Executive Mark Bertolini, who is among a dozen chief executives meeting with U.S. President Barack Obama later this week, on Monday warned that companies are preparing backup plans that include layoffs if the White House and congressional leaders are unable to reach a deal to avoid the combination of tax increases and spending cuts known as the “fiscal cliff.” “The American people are going to suffer because we’ll lay them off–because we know how to respond to these kinds of situations,” Mr. Bertolini warned at a Wall Street Journal CEO Council event.

Twinkies maker Hostess is going out of business, putting almost 18,500 out of work - Irving, Texas-based Hostess has 565 distribution centers and 570 bakery outlet stores, as well as the 33 bakeries. Its brands include Wonder, Nature’s Pride, Dolly Madison, Drake’s, Butternut, Home Pride and Merita, but it is probably best known for Twinkies — basically a cream-filled sponge cake.

U.S. Postal Service on ‘Tightrope’ Loses $15.9 Billion - The U.S. Postal Service said its net loss last year widened to $15.9 billion, more than the $15 billion it had projected, as mail volume continued to drop, falling 5 percent. Without action by Congress, the service will run out of cash on Oct. 15, 2013, after it makes a required workers compensation payment to the U.S. Labor Department and before revenue typically jumps with holiday-season mailing, Chief Financial Officer Joe Corbett said today. The service, whose fiscal year ends Sept. 30, lost $5.1 billion a year earlier. It announced the 2012 net loss at a meeting at its Washington headquarters. “We are walking a financial tightrope,” Postmaster General Patrick Donahoe said at the meeting. “Will we ever stop delivering the mail? It will never happen. We are simply too important to the economy and the flow of commerce.” The Postal Service uses about $250 million a day to operate and will have less than four days of cash on hand by the end of the fiscal year, Corbett said. The service is asking Congress to enact legislation before it adjourns this year that would allow the Postal Service to spread future retirees’ health-benefit payments over more years, stop Saturday mail delivery, and more easily close post offices and processing plants.

Post Office Reports Record Loss of $15.9B - Earlier this year I spotted a fascinating study at "The Economist" of the cost of snail mail in Europe, North America and Australia. Of the eighteen countries documented in the article, the US has the cheapest first class stamp. So it came as no surprise when I saw this morning's news item that the US Post Office reported a record loss $15.9B for their fiscal year, which ended on September 30th. The Associated Press news release, courtesy of Google, is available here. The news reminded me of a chart I created, but ultimately didn't use, at the Retirement Income Industry Association Spring Conference in March. The subject of my conference presentation was demographics and the economy, with a special focus on the aging Boomer cohort. Here is my unused snapshot across time of first class postage in the US. For the first 32 years of the 20th century, the rate for the first ounce of a first class letter was two cents. The price rose to three cents (a 50% increase) for about 20 months during the US participation in the First World War. In July of 1932 the price again rose to three cents and remained at that price until August of 1958 — a 26 year stretch that included the infancy and childhood of about two-thirds of the Baby Boomers. The price of a first-class letter then began climbing an irregular staircase to today's 45 cents.

US Postal Service, Costing $250 Million Daily, Posts Record $15.9 Billion Loss, May Run Out Of Cash Soon -- That the biggest government source of employment just posted a record $15.9 billion loss (bigger than the $15 billion expected previously), is no surprise to anyone: after all most are openly expecting the USPS to fold, the only outstanding question is whether it will transform into a company that is actually competitive with the private sector (unlikely), or liquidate (also unlikely in an era where government jobs are becoming the only form of employment available). Sadly, keeping this zombie alive costs all other taxpayers $250 million each day: money that could be used much more effectively in other areas of the economy, but won't. Because there are USPS votes that have to be purchased at cost. Perhaps the biggest surprise is that while the USPS had a total of 607,400 employees in October, this was the lowest number of total employees for the non-profit (but certainly loss-driven) government run organization since the 1960s! Perhaps most shocking is that the USPS peaked at over 900K employees in 1999 when it was still if not profitable (as it doesn't need to be by its charter) then certainly breakeven. Sadly those days are now gone, and the next thing to go will be all the promised benefits for the 600K or so employees.

How the Post Office Is Being Destroyed By a Phony Budget Crisis - The massive Post Office deficit that is driving its management to commit institutional suicide by ending 6-day mail delivery, closing half of the nations’ 30,000 or so post offices and half it’s 500 mail processing centers, and laying off over 200,000 workers, is make believe. Here’s why. In 1969 the federal government changed the way it did accounting. It began to use what was and is called a unified budget that includes trust funds like social security previously considered off budget because they were self-sustaining through dedicated revenue. In 2006 Congress passed a new law. The Postal Service was allowed to tap into escrow money and pension obligations for military service were shifted back to the US Treasury. But again a quid pro quo was required that negated any financial benefits that would result. To achieve unified budget neutrality the USPS was required to make 10 annual payments of between $5.4 billion and $5.8 billion each to the newly created Postal Service Retiree Health Benefits Fund. The fund could not be tapped to pay actual retiree health benefits during those 10 years. The level of the annual payments was not based on any actuarial determination. The numbers were produced by CBO as the amounts necessary to offset the loss of the escrow payments. Remember, this all began because the post office discovered it had surplus funds. Unified budget accounting made sure it could never tap into this surplus unless at the same time it assumed new liabilities of an equal magnitude.

Health-Care Law Spurs a Shift to Part-Time Workers - Some low-wage employers are moving toward hiring part-time workers instead of full-time ones to mitigate the health-care overhaul's requirement that large companies provide health insurance for full-time workers or pay a fee.  Several restaurants, hotels and retailers have started or are preparing to limit schedules of hourly workers to below 30 hours a week. That is the threshold at which large employers in 2014 would have to offer workers a minimum level of insurance or pay a penalty starting at $2,000 for each worker. The shift is one of the first significant steps by employers to avoid requirements under the health-care law, and whether the trend continues hinges on Tuesday's election results. Republican presidential nominee Mitt Romney has pledged to overturn the Affordable Care Act, although he would face obstacles doing so. President Barack Obama is set to push ahead with implementing the 2010 law if he is re-elected. Pillar Hotels & Resorts this summer began to focus more on hiring part-time workers among its 5,500 employees, after the Supreme Court upheld the health-care overhaul, said Chief Executive Chris Russell. The company has 210 franchise hotels, under the Sheraton, Fairfield Inns, Hampton Inns and Holiday Inns brands.

Papa John's CEO John Schnatter Says Company Will Reduce Workers' Hours In Response To Obamacare - Papa John’s CEO John Schnatter said he plans on passing the costs of health care reform to his business onto his workers. Schnatter said he will likely reduce workers’ hours, as a result of President Obama's reelection, the Naples News reports. Schnatter made headlines over the summer when he told shareholders that the cost of a Papa John’s pizza will increase by between 11 and 14 cents due to Obamacare. "I got in a bunch of trouble for this," he said, referring to the comments he made in August, according to Naples News. "That's what you do, is you pass on costs. Unfortunately, I don't think people know what they're going to pay for this." Schnatter went on to say he's neither in support of, nor against the Affordable Care Act, even admitting that "the good news is 100 percent of the population is going to have health insurance.” But he’s not the only one in the chain restaurant industry to admit that workers hours may be reduced, since Obamacare mandates that only employees that work more than 30 hours per week are covered under their employers health insurance plan. For example, Darden restaurants, the parent company of Olive Garden and Red Lobster, has already experimented with reducing workers hours in anticipation of the legislation.

Judge certifies class-action lawsuit against Papa John’s for alleged text spam — A U.S. district judge has approved a request for class action in a lawsuit against pizza maker Papa John's International for allegedly sending hundreds of thousands of text spam messages.Seattle law firm Heyrich Kalish McGuigan, representing three Papa John's customers, alleged that the pizza delivery service has sent 500,000 unwanted text messages to customers. If the court finds that Papa John's violated the U.S. Telephone Consumer Protection Act, the pizza maker could have to pay damages of $500 per text message, or US$250 million, one of the largest damage awards under the 1991 law, the law firm said."Many customers complained to Papa John's that they wanted the text messages to stop, and yet thousands of spam text messages were sent week after week," Donald Heyrich, attorney for the plaintiffs said in a statement. "This should be a wake-up call to advertisers. Consumers do not want spam on their cell phones."Judge John Coughenour of U.S. District Court for the Western District of Washington certified the lawsuit as a class-action case last Friday. Customer Maria Agne originally filed the lawsuit in Seattle in May 2010. A representative of Papa John's didn't immediately return an email seeking comment on the lawsuit. However, in an August 2010 motion to dismiss the case, Papa John's International denied sending unsolicited text messages.

Alleging a New Wave of Retaliation, Walmart Warehouse Workers Will Strike a Day Early | The Nation: Thursday, Walmart warehouse workers are headed back to the picket line. At 8 am PST, twenty-some workers in Mira Loma, California, plan to launch a one-day walkout that could spread to more workers, including retail employees in Walmart stores. Thursday’s strike will be the latest in an unprecedented wave of work stoppages throughout the retail giant’s US supply chain. It follows strikes by seafood workers in June, by warehouse workers in September, and by 160 retail workers in twelve states last month. It comes a week before Black Friday, the post-Thanksgiving shopping extravaganza that workers have pledged—barring concessions from the company—will bring their biggest disruptions yet.According to Castillo, workers started organizing because of unsafe and unsanitary conditions: crooked ramps caused serious injuries; workers’ drinking water came from a hose. The organizing brought retaliation, which inspired a strike, which drew more punishment. “Since we’ve all been retaliated against,” said Castillo, “it was a pretty easy decision for all of us to go back on strike.”

Black Friday slips to ‘Grey Thursday’ -Jackie Goebel has worked for Walmart for 24 years, but this year, for the first time, she will spend the Thanksgiving holiday working at the retail giant. Like many of her colleagues, she is not happy. "Walmart has become a company so obsessed by the bottom line and greed that it no longer values the importance of the people and families that work for it," she said. For decades, Thanksgiving has been sacrosanct for Americans – a non-denominational national celebration, and a guaranteed family holiday for most big companies. For retailers, it's also the day before Black Friday, the shopping bacchanal that marks the start of the holiday season. Now Black Friday is slipping into "Grey Thursday" and taking retail workers with it. Walmart will open its doors at 8pm on Thanksgiving Day. Others, including Sears, Toys R Us and Kmart, will also open at 8pm on Thanksgiving. Target opens at 9pm. Gap is planning to open 1,100 of its stores. Retail experts predict that if this year proves a hit, stores will open earlier next year. Goebel, 61, lost her daughter to cancer in 2007. This year Goebel was planning to spend the holiday with her husband and her granddaughter. "An experience like that makes you realise what's important,"

Wal-Mart Workers’ Black Friday Strike - America’s biggest retailer may be in for an unexpectedly painful holiday season. Protesting low wages, spiking health care premiums, and alleged retaliation from management, Wal-Mart Stores (WMT) workers have started to walk off the job this week. First, on Wednesday, about a dozen workers in Wal-Mart’s distribution warehouses in Southern California walked out, followed the next day by 30 more from six stores in the Seattle area. The workers, who are part of a union-backed employee coalition called Making Change at Wal-Mart, say this is the beginning of a wave of protests and strikes leading up to next week’s Black Friday. A thousand store protests are planned in Chicago, Dallas, Miami, Oklahoma, Louisiana, Milwaukee, Los Angeles, Minnesota, and Washington, D.C., the group says. In a conference call with reporters on Thursday, workers who were either planning to strike or already striking explained their situation. “We have to borrow money from each other just to make it to work,” said Colby Harris, who earns $8.90 an hour after having worked at a Wal-Mart in Lancaster, Tex., for three years. “I’m on my lunch break right now, and I have two dollars in my pocket. I’m deciding whether to use it to buy lunch or to hold on to it for next week.” He said the deduction from his bimonthly pay check for health-care costs is scheduled to triple in January. In 2013, Wal-Mart plans to scale back its contributions to workers’ health-care premiums, which are expected to rise between 8 percent and 36 percent. Many employees will forgo coverage, Reuters reports.

Wal-Mart files U.S. labor charge against union (Reuters) - Wal-Mart Stores Inc is taking its first legal step to stop months of protests and rallies outside Walmart stores, targeting the union that it says is behind such actions. Wal-Mart filed an unfair labor practice charge against the United Food and Commercial Workers International Union, or UFCW, asking the National Labor Relations Board to halt what the retailer says are unlawful attempts to disrupt its business. The move comes just a week before what is expected to be the largest organized action against the world's largest retailer, as a small group of Walmart workers prepare to strike on Black Friday, typically the busiest shopping day of the year. "We are taking this action now because we cannot allow the UFCW to continue to intentionally seek to create an environment that could directly and adversely impact our customers and associates,"

Ikea regrets using prison labour - FT.com: Ikea used forced labour from political prisoners in the former East Germany for three decades in the latest damaging developments to hit the furniture retailer. The Swedish group said it deeply regretted the use of political and other prisoners to produce furniture from 1960 to 1990, which was detailed in an investigation by Ernst & Young, the auditors. The investigation was commissioned by Ikea after media reports in Sweden and Germany.

Vital Signs Chart: Fewer Unemployed Per Job Opening - Competition for jobs is easing. There were 3.39 job- seekers per opening in September compared with 3.43 in August and 4.07 in November 2011. Employers are hiring more, after holding off between April and June. Yet improvements in the labor market remain very gradual. Before the recession began in late 2007, there were just 1.65 job-seekers per opening.

What Job Openings Tell Us - A high ratio of unemployed to job openings means that the unemployed are competing a lot for jobs, many news reports say, when in fact it could indicate the opposite. It’s true that a reduction in labor demand — from, say, a new tax on employers — would motivate employers to get by with fewer employees. As they do, employers would reduce job openings and lay off workers. One result would be fewer job openings and more unemployed people, and thereby more unemployed people per job opening. But a reduction in labor supply in the form of additional subsidies for unemployed people would have similar effects. Unemployed people would be choosier about the jobs they accept, especially the low-wage ones. With more help for people after layoffs, employers and employees in struggling industries would do less to avoid layoffs, especially layoffs from low-paying positions. Either way the result would be more unemployed people. Subsidies for unemployed people also make labor more expensive as low-wage jobs are more likely to end by layoff and unemployed people can be choosier about the jobs they take. When labor is more expensive, employers have an incentive to get by with fewer employees and for that reason may well reduce the number of job openings they have.

Undercounting Very Discouraged Workers - The official unemployment rate of 7.9% is about the same as it was in January 2009, and a broader measure of joblessness that also includes recent labor force drop-outs has only risen from 8.8% to 9.3%.  These figures give the appearance that the number of jobless workers today is about the same as it was 46 months ago.  To understand the problem, first consider how the BLS defines unemployment and underutilization. The BLS official definition of unemployment requires jobless workers to be currently looking for work to be counted as unemployed.  This means that once jobless workers give up their job search, they are not considered unemployed or counted as labor force participants.  In its measures of labor underutilization, the BLS only attempts to count labor force drop-outs who stopped looking for work within the past year.  The problem is that because of the severity of the economic downturn and the relative weakness of the recovery, many jobless workers are not considered unemployed or underutilized because they gave up looking for work more than one year ago.  Although many frustrated jobless workers gave up their job search and dropped out of the labor force prior to October 2011, none are included in official labor underutilization statistics for October 2012.

Undercounting very discouraged workers - Here is a guest post from Stephen Bronars.  Excerpt: I estimate that there are over four million fewer labor force participants than what would have occurred if age-adjusted participation rates maintained their pre-recession trend.  In this recovery, the official BLS count of “marginally attached” workers underestimates, by 40%, the number of people who left the labor force because they stopped looking for work.  Although BLS figures suggest that marginally attached workers are a minority of the 5.6 million adults who left the labor force, a more plausible estimate is that 72% of these non-participants stopped searching for work in the past few years. If official underutilization measures included jobless workers who gave up searching for work within the past 36 months the labor force underutilization rates reported by the BLS would be higher by about 0.9%.  For example, the underutilization measure that includes unemployed and marginally attached workers would have been 10.2% (rather than 9.3%) last month.

Economists: US Wages Stagnant for Over a Decade -As wages remain stagnant since 2002, the past ten years have been effectively been a "lost decade for workers," Despite adequate coverage of the rise and fall of employment rates, little has been said about the actual rate of earnings, which—after adjusting for inflation—have reportedly declined across most industries and sectors since the Great Recession. "Equally troubling," Hall writes in the McClatchy report, is that "real wages are now about the same level as they were in December 2005." According to researchers at the Brookings Institute's Hamilton Project, the median working-age man with a job earns about 4 percent less, when adjusted for inflation, than he did in 1970. “A key thing is that from the 1970s up to 2000, middle income . . . families didn’t get their fair share, but they still saw some growth. Since 2000, nothing,” said Heidi Shierholz, a labor economist at the Economic Policy Institute. "This idea of a ‘lost decade,’ it’s already happened. We’re well into our next lost decade

The Distribution of Economic Pain From the Financial Crisis in One Chart - No wonder the wealthiest ten percent feel so clever, and even perhaps triumphant. The collapse caused by the widespread banking fraud has barely affected them, whereas it wiped out most of the last ten years of growth in the middle class and the poor. In my considered opinion this is largely the result of policy and tax decisions that have been made by the government over the past twenty or more years, in which they fostered a financially predatory economy. Financial bubbles are often wealth transfer mechanisms, and in this case it appears that you can also keep what you kill.  From Amir Sufi, Professor of Finance at the University of Chicago. Net Wealth Shock in US, by Net Worth Percentile

How Economists Got Income Inequality Wrong - Since the financial crisis, economists such as Joseph Stiglitz of Columbia, Raghuram Rajan of the University of Chicago, and even staffers at the International Monetary Fund have begun to argue that income inequality causes economic damage. Not only does extreme inequality such as now seen in the U.S. threaten social comity, they argue, but also, by tending to fuel crises and other busts, it undermines a nation's capacity to sustain growth. This new focus on inequality merits a cheer — but not three. Economists close to the mainstream have not dared to challenge a crucial yet unrealistic theory about income — inserted into first-year texts, carried through graduate courses, and employed in journal articles — that points just the opposite way. It says that markets determine wages, and any social or political tampering just creates inefficiency. As a result, we have come to rely on progressive taxes and social programs to soften income inequality. Opponents have taken aim at these policies, too, arguing that inequality is entirely market-determined, and even fighting it in roundabout ways causes inefficiencies. But President Barack Obama and other politicians who wish to soften inequality should take heart. Markets do not determine income inequality. It is fundamentally a social decision.

Mandate for Obama’s second term: Reduce inequality to get growth going! | Oxfam America - Economic growth—the kind America enjoyed during its longest decades of prosperity (from the mid-1940s through the 1970s); where workers earn a fair wage and unemployment is low—does not happen in countries with chronic income inequality.Among developed countries, the United States has the highest levels of inequality. This is an unsettling trend that has worsened over the past three decades. As we know, chronic inequality is bad for growth and threatens macroeconomic stability. Societies with high income inequality also suffer from greater health and social ills (including crime, sickness, violence, shorter life spans, & stress) than more equal ones. Throughout America’s greatest period of prosperity and growth, inequality steadily declined. Part of the reason why was top earners carried a high tax burden, helping to create a society of real equal opportunities. From the end of World War II until the mid-1960s, the top marginal individual tax rate was 90%, falling to 70% in 1964. When the proponents of trickle-down economics came into power during the early 1980s, that rate fell to 50%, then 28% in 1988, turning higher to 35% (where it is now). The trickle-down theory, also called supply side economics, claims that privileging the super-rich somehow makes the poor and middle classes better off.

A Charter for the 99 Percent - Let the Republican bloodletting begin, even as half of America’s voters sulk, skulk, and scheme to yank re-elected President Barack Obama off the fiscal cliff with them.Now, the next phase of a 99 percent movement needs to get—and keep—busy. Why do I say “next phase”? Because the Occupy movement that came about in 2011 has accomplished just about as much of its mission as possible. In effect, whatever its even-handed contempt for conventional politics, Occupy did great good work for Obama. Not least, the movement had the effect of encouraging him to run a head-on campaign against a vulture capitalist. Whether he follows through depends not only on his resolve and acumen but on the wind at his back. Now the initiative passes to the outer movement, that much larger penumbra of Occupy’s supporters in unions and membership organizations who turned out for the large demonstrations and, in fits and starts, jolted much of the country to its senses. Even though the Occupy core took it as a point of principle to disdain specific demands, they actually didn’t need demands in 2011 to arouse the sluggish public mind to pay attention to vicious inequalities and a botched political system. And demandlessness paid an unintended dividend: Occupy saved itself some bitter fights over what any hypothetical slate of demands should look like. The movement, at its best, was inclusive enough to become a center of energy, and to change what we are pleased to call the national conversation. Now what?

Americans Want to Raise the Minimum Wage - Voters didn’t just send President Obama back to the White House on Election Day. They also voted to raise the minimum wage in three different cities. Albuquerque, NM raised its minimum wage from $7.50 to $8.50 per hour, and it will automatically adjust to keep pace with the cost of living in future years. San Jose, California, raised its minimum wage from $8 per hour to $10, and it will also adjust automatically. Long Beach, California, went even further, not only giving hotel workers a living wage adjustment to $13 an hour, but also guaranteeing them five paid sick days per year. The first two raises alone will impact an estimated 109,000 workers. Yet action to raise the minimum wage of $7.25 an hour is completely stalled at the federal level. It’s been stuck for over three years and it still isn’t indexed to inflation. That wage adds up to a pitiful $14,500 a year, not enough to make rent in any state. It’s over $3,000 below the poverty line for a parent with two kids. Its purchasing power is 13 percent lower than in 1979. Yet the average minimum-wage worker earns about half of his or her family income. Voters’ decision to up the pay for minimum wage workers couldn’t have come at a better time. A report released today from the Center on Budget and Policy Priorities shows income inequality has spread like a rash across all fifty states, with the average income of the top 5 percent of households now 13.3 times the income at the bottom fifth. The biggest cause of this gulf identified in the report is the growth in wage inequality. “Wages at the bottom and middle of the wage scale have been stagnant or have grown only modestly for much of the last three decades,” the report notes. “The wages of the very highest-paid employees, in contrast, have grown.” This phenomenon is thanks to a variety of causes, but a big one is a failure to raise the minimum wage. The report’s first recommendation for fixing this mess? Raising and indexing the minimum wage.

One million veterans would benefit from raising the minimum wage to $9.80 - After serving our country, many of our nation’s veterans come home to low-wage jobs. In fact, of the more than 9 million veterans in the workforce today, over a million would see their wages go up if Congress were to pass the Fair Minimum Wage Act of 2012. The bill, introduced by Iowa Sen. Tom Harkin in the Senate and Calif. Rep. George Miller in the House, would raise the federal minimum wage from $7.25 per hour to $9.80 per hour in three increases of 85 cents, and then index it to inflation.A few months ago, we released an analysis of the Harkin/Miller bill that showed that more than 28 million workers nationwide would see a wage increase as a result of the legislation (including the parents of more than 21 million children). Of these 28 million affected workers, roughly 1.1 million are veterans (655,000 directly-affected; 417,000 indirectly-affected)¹. Here’s a full demographic profile of affected veterans.

Two million jobless Americans face their own fiscal cliff if unemployment benefits expire - In the zillion words written about the tax-and-spending changes that make up what's being called the "fiscal cliff," one that has gotten little attention is the end of federally funded emergency extensions to unemployment insurance coverage. If nothing changes between now and Dec. 29, the Democrats on the House Ways and Means Committee estimate that some two million Americans will be up jobless creek without the paddle provided by these emergency extensions.  Instantly these jobless Americans would be added to the millions who have already exhausted their benefits or were never eligible for them in the first place. The effect on them and the economy would be exceedingly painful. Recession-level painful.  Household income would plunge to zero in many cases and force into poverty hundreds of thousands of others where one or more family members are lucky enough to have a job. It's estimated by the Congressional Research Service that unemployment compensation reduced the poverty rate for families receiving them in 2011 by 40 percent. As for the economy as a whole: Mark Zandi from Moody’s Economy.com projects that allowing [emergency] benefits to end this year will reduce economic growth next year by $58 billion. Zandi testified earlier this year that “Emergency UI provides an especially large economic boost, as financially stressed unemployed workers spend any benefits they receive quickly.” The Congressional Budget Office (CBO) similarly concluded in a report this year that assistance for the unemployed has one of the “largest effects on employment per dollar of budgetary cost.”

United States: Two Million Jobless People will not be Getting Unemployment Benefits - If the deadline to file for extended benefits does not get extended by the Congress then it is feared that more than two million American jobless citizens will lose their federal unemployment insurance during the holidays. According to an advocacy group, the National Employment Law Project, besides these jobless, another one million people whose state benefits will be exhausted will not be eligible for the federal program in the first quarter of 2013. Now after the presidential elections, the biggest issue facing the analysts is the economy and in that fiscal cliff remains the biggest challenge. Among the benefits which are expiring include the federal jobless benefits of up to 47 weeks, which the Americans are eligible to receive after their state payments of six months expire. Now it is to be decided by the lawmakers that whether they want to extend the deadline of filing for the tenth time since the beginning of the Great Recession, five years ago. In June 2008, the federal benefits package was enacted for the first time. In November 2009, President Obama extended it to 99 weeks. In February, Congress extended the deadline to file for benefits; however at that time the lawmakers also structured the program.73 weeks was the maximum time period for which the jobless people can receive the unemployment state benefits. Except New York, the jobless people in all the states are not eligible anymore for a separate federal extended benefits program that could have been extended to another 20 weeks. The currently unemployed people account to 12.3 million, and out of these 40.6% have been unemployed for more than six months. NELP’s federal advocacy coordinator, Judy Conti, since 2007, more than 6 million unemployed Americans have exhausted their benefits.

Alternative Measure Sees More People Living in Poverty - There were 46.2 million people living in poverty in America last year. Unless there were 49.7 million. Earlier this fall, the Census Bureau released its annual look at poverty in the U.S. According to that report, there were 46.2 million people in 2011 living below the poverty line of about $23,000 for a family of four. The official poverty rate was 15.0%. But on Wednesday, the Census put out another report showing that the official figures leave out some 3.5 million people whom many experts argue should properly be counted as “poor.” If those people were included, the poverty rate would be 16.1%. The difference comes down to definitions. The government’s official definition of poverty dates back to the 1960s, when economist Mollie Orshansky drew the poverty line at three times the cost of a minimal diet. That figure, updated for inflation, has remained more or less unchanged ever since. Economists have argued for years that the official definition of poverty manages to be both too broad and too narrow. Because it looks only at pretax income, the official rate ignores all sorts of government programs — including food stamps, Social Security, subsidized housing and various tax credits — that help keep families out of poverty. But it also fails to account for taxes, transportation costs, child and health-care bills and other expenses that eat into disposable income. And because the poverty line is the same across the country, it fails to account for huge regional differences in the cost of living, especially when it comes to housing.

The new poverty measure is out, and it’s grim  - In recent years the Census Bureau has begun developing a “supplemental poverty measure”... Today, it released the supplemental figure for 2011. Overall, it’s higher than the official measure, at 16.1 percent, but for some groups, such as children under 18 and blacks, it’s actually lower. By contrast, it’s much higher for the elderly (15.1 percent in the supplemental measure, 8.7 percent in the official one) Perhaps the most interesting part of the report is the Census’ measurement of how much various government programs and categories of expenses reduce or increase the supplemental poverty rate, which unlike the official rate, the supplemental measure takes into account. Medical expenses are the main expense contributor to poverty, followed by expenses related to work (such as transportation, supplies, etc.), while Social Security is far and away the most important program for reducing poverty, followed by tax credits like the Earned Income Tax Credit (EITC) or the child tax credit (CTC):...the Social Security number is especially notable given how much higher the supplemental measure is than the official one for the elderly. It suggests that even with that substantial safety net, the poverty problem among the elderly is much bigger than we thought

Census: New gauge shows 49.7 million poor in U.S. - The ranks of America's poor edged up last year to a high of 49.7 million, based on a new census measure that takes into account medical costs and work-related expenses. The numbers released Wednesday by the Census Bureau are part of a newly developed supplemental poverty measure. Devised a year ago, this measure provides a fuller picture of poverty that the government believes can be used to assess safety-net programs by factoring in living expenses and taxpayer-provided benefits that the official formula leaves out. Based on the revised formula, the number of poor people exceeded the 49 million, or 16 percent of the population, who were living below the poverty line in 2010. That came as more people in the slowly improving economy picked up low-wage jobs last year but still struggled to pay living expenses. The revised poverty rate of 16.1 percent also is higher than the record 46.2 million, or 15 percent, that the government's official estimate reported in September. Due to medical expenses, higher living costs and limited immigrant access to government programs, people 65 or older, Hispanics and urbanites were more likely to be struggling economically under the alternative formula. Also spiking higher in 2011 was poverty among full-time and part-time workers.

New Census poverty data shows what is at stake in the fiscal debate - Today, the Census Bureau released new data from the Research Supplemental Poverty Measure (SPM) that showed that more Americans are likely in poverty than is reflected by the official federal poverty line. The SPM estimates for 2011 show a poverty rate of 16.1 percent, or roughly 49.7 million people, which is higher than the official poverty rate of 15.1 percent, or 46.6 million people. First introduced last year, the SPM attempts to make a more holistic appraisal of household well-being by incorporating greater detail on real household expenses and additional resources available to households through government programs. The SPM also takes into account individuals’ residence type (renters, homeowners, homeowners with a mortgage), and regional differences in consumer prices. With this inclusion of more detailed data on government assistance, the SPM allows for some interesting back-of-the-envelope calculations on the poverty-fighting effects of these programs. Figure 1 shows what the poverty rate would be under the SPM in the absence of various government programs. These hypothetical poverty rates hold all other variables constant and assume no behavioral change from the absence of each program.

Social Security Is Keeping 27 Million Americans Out Of Poverty: The Census released a comprehensive look today at their Supplemental Poverty Measure, and there's an interesting table inside. The SPM takes into account the effects of governmental assistance on poverty rates, as well as the effect of taxes paid to pay for such programs. Using that new measure, the Census found approximately 50 million Americans living in poverty in 2011 — 16.1 percent of the country. But by removing various forms of government assistance and revenue, we can get a clearer picture of how government assistance helps — and hurts — that figure. Here are the results, compiled by Census researcher Kathleen Short:

New Poverty Statistics Show Need for Bigger, Not Smaller, Social Security Benefits - New Census Bureau statistics on poverty show a shocking increase in the number of seniors below the poverty line, suggesting that this would be the worst time to add on benefit cuts to critical social insurance programs like Social Security and Medicare. Focusing on adequacy of those programs would make much more sense. The Census release concerned its “supplemental poverty measure,” seen as a more specific and realistic measure of the actual number of people in poverty. Under that standard, the poverty rate is 16.1%, or close to 1 out of every 6 Americans. But the big news here is that the poverty rate for the elderly, seen as 8.7% under the old standard, ballooned to 15.1% in the supplemental figures.  This is true despite the fact that Social Security is seen as the most critical program – by a wide margin – to reducing the overall supplemental poverty rate. Social Security reduces poverty by over 8% of the population – the next closest program, refundable tax credits like the Earned Income Tax Credit, doesn’t even reach 4%. In addition, the single biggest category of expenses that increases the supplemental poverty rate are medical expenses, which directly impacts things like Medicare and Medicaid. As Dylan Matthews writes, the fact that Social Security is such a major contributor to poverty reduction, even while poverty among the elderly exploded in the supplemental statistics “suggests that even with that substantial safety net, the poverty problem among the elderly is much bigger than we thought.” That would make this the absolute worst time to contemplate reducing Social Security benefits. It would clearly create far more elderly poverty, and even the current rate of Social Security benefits aren’t adequate enough to protect seniors from moving into the ranks of the poor.

The Wide Poverty Gap Between Women and Men - When I was United States Ambassador to the Organisation for Economic Co-operation and Development, I asked for the highlights of their cross-country data on women's economic conditions. Inspired by that provocative data, the other members of the OECD and its Secretary General decided to launch a new gender initiative. Over the next few weeks, I'll be sharing data from the gender initiative and other related OECD reports. To the extent that "having it all" means women having the same economic security as men, this OECD chart on relative poverty shows it's still an elusive goal.  The data show that across the OECD's 34 developed nations, on average more women were poor than men at every age in 2008, with an even wider average gap in the U.S. The one exception to this trend was in the 41 to 50 age bracket—but that exception only existed for the OECD average. In the United States, the gap still existed for that age range.  The greatest gap was in the oldest age groups, especially in the U.S. This means that women born in the Depression are over 50 percent more likely to be in poverty than men of their same age. And even women in their early twenties face a greater risk of poverty than men.  The gap results from a host of factors including the fact that women earn less than men—resulting from fewer years in the workplace, industry and occupational segregation, wage discrimination, the glass ceiling, and the mommy track—as well as lower earned pensions and Social Security and longer lives.

The poor in America: In need of help | The Economist - Ms Hamilton worked as a loader at a factory in Sumter, a modest city of 40,000 in east-central South Carolina. In July 2008, however, after seven years on the factory floor, she mangled her hand between two heavy rollers. The accident was to leave her unable to work. She lost her house three years later, in April 2011. She, her 20-year-old son and her dog moved into her teal Chevy van, where they have been living ever since, collecting metal cans during the day and sleeping in a grocery-store car park at night. When a pain in Ms Hamilton’s leg grew too severe to ignore, an employee at the shelter where she and her son occasionally stay directed her to the Excelsior Medical Clinic in downtown Sumter. The assistant who checked her in was named Patricia Dunham. She works at the Excelsior for 37.5 hours each week. At night she works behind the counter at a fast-food restaurant. The first job pays $12.50 an hour, the second $7.25, the federal minimum wage. If she could rely on 24 hours a week at the restaurant—which is what she would like—she would earn $32,137.50 for working 61.5 hours a week, 50 weeks a year, before tax witholdings. Ms Dunham has three school-age children and a husband who is unable to work. Mr Dunham has a prison record, and since 2010 he has had periodic seizures that leave him bedridden for days afterwards. Ms Dunham has no health insurance at her jobs. She pays for her husband’s anti-seizure medicine and her seven-year-old’s attention-deficit medicine out of her own pocket.

Yes, Virginia, There are Poorhouses, and Scrooge Would be Proud of Them -  Yves Smith - Societies have a funny way of walling off undesirables. Lepers were secluded in lepers’ colonies. Japan is particularly uncomfortable with people who don’t fit cultural norms, such as the mentally ill and the destitute. In America, which still is deeply invested in the myth that anyone who isn’t rich and successful just didn’t work hard enough, being unemployed is particularly stigmatized. This protracted recession has produced a new underclass that isn’t discussed much: the long term unemployed. It’s revealing that Gawker is now up to volume 15 of its weekly series of “Unemployment Stories” and we see nary a peep from the MSM along these line. When I was a kid, I recall how a documentary about poverty in Appalachia galvanized opinion that Something Needed to be Done. And my childhood reaction appears to have had some foundation; that show influenced President Johnson’s War on Poverty. So keeping unemployment an official but depersonalized problem takes the urgency out of addressing it. And if you have a long enough run of unemployment and can’t afford to pay for shelter any more, and don’t have family or friends who will take you in, your choices are terrible. There are reasons most homeless in New York City live on the streets rather than go to shelters at night. One of Lambert’s readers recounts her experiences when she felt she had no choice other than go to a homeless shelter. And this wasn’t in New York; Lambert doesn’t know her story, but his impression is that she is from the South, say North Carolina, and worked in publishing or academia.  Hoisted from comments at Corrente, “There are poorhouses today. They’re called homeless shelters.”

Food Stamp Usage Reaches Record High with 15% of America on Food Stamps - Food stamp usage has soared to a new record high of 47,102,780. As of August 2012, 1 in 6.7 people are on food stamps in the United States. That's 15.0% of people living in America are on food assistance. The United States population in middle of August 2012 was 314,484,000 and this figure includes everyone, including Americans overseas. Food stamp usage increased 2.9% from August 2011 and 0.9% from July 2012.  Since October 2007, food stamp usage has increased 74.4%. Population has increased 3.9% during the same time period. That is how badly America is hurting. This is the largest monthly increase in food stamp usage in a year, graphed below.  Below is the percent change from one year ago in food stamp usage by individuals and we can see even though the recession was declared over in July 2009, food stamp usage is still rising. We expect sharp increase during a recession, but food stamp usage is not decreasing, in spite of a declining unemployment rate.  Below is the yearly percent change in food stamp usage per state. As we can see with the recession claimed to be over in July 2009, we still are seeing more people going on food stamps. Population increased only 1.4% from August 2011 to August 2012.

Will States Tumble Over the Fiscal Cliff Too? - As Congress and President Obama continue to spar over how to avoid the looming fiscal cliff, most public attention has been focused on what tumbling over the edge would mean for the federal budget and the national economy. But the tremendous uncertainty over the threat of tax increases and cuts in federal spending could cause big problems for state budgets as well. Two new studies, one by The Pew Center on the States and another by the Tax Policy Center, show what falling over the cliff would mean for states. There is a sliver of good news: If all of the last decade’s tax cuts are allowed to expire, states might see a short-term boost in revenues. They might, that is, if the economy isn’t thrown back into recession. The Pew report, The Impact of the Fiscal Cliff on the States, takes a comprehensive look at how the states will be affected by gridlock. State revenue is dependent on the feds, with $1 in every $3 coming from federal grants in 2010. While Medicaid, one big source of federal dollars, is exempt from the automatic across-the-board spending reduction due to take effect in January, eighteen percent of federal grants to states will be subject to those cuts in FY 2013. On the tax side, the picture is murkier. Because many states link their tax codes to the federal law, if all of the tax cuts expire and revert to pre-2001 law, states could benefit when some elements are restored. For instance, the old limitation on itemized deductions for high-income taxpayers would increase taxable income and some states could enjoy new income tax revenue.

America's Mid-20th-Century Infrastructure - Europeans visiting the Northeastern United States – and many parts of the East Coast — can show their children what Europe’s infrastructure looked like during the 1960s. In New York, they can take taxis bumping over streets marked by potholes. European children might find it funny. They can descend into a dingy and grimy underground world to ride New York City’s quaint and screeching subway system, if they can figure out where trains go.  They can take the children for a ride with Amtrak from New York to the nation’s capital, giggling as the train slowly heaves and rolls, often in fits and starts, along the rickety tracks. Passengers can be heard joking that the Navy trains its sailors on this railway system, because anyone who can make it through two or three cars without bumping into seated passengers or spilling food on them is fit to go to sea. If they departed from Pennsylvania Station in New York, they would not have known until 5 to 10 minutes before departure from which track the train would leave. And it might not leave on time. In their home country, the children would have learned that the track from which a train departs is printed in the train schedule. It is the same every day. At Pennsylvania Station, hundreds of passengers wait in suspense for the announcement of the track and dash to it in a mad rush, running along the train in a frantic search for a seat. In Europe, one would have booked a seat in a rail car that stops at a spot shown on a poster on the track.

Superstorm Sandy - A People's Shock? - 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 Forbes.com, 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. And the preemptive scapegoating didn’t stop there. 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.” That means roads, bridges and tunnels being rebuilt by private companies, which, for instance, could install tolls and keep the profits.  Rapoport is convinced that the combination of broke governments and needy people will provide just the catalyst needed to break the deadlock. “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.”

Sandy: Pre- and Post-Storm Photo Comparisons - New Jersey - Hurricane Sandy's landfall affected the coastlines over a broad swath of mid-Atlantic and North-eastern states, including New York, New Jersey, Delaware, Maryland, Virginia, and North Carolina. Breaching, overwash and erosion took place on many barrier islands, including some that are heavily populated and developed. The pre- and post-storm photos below were taken over a 200 km (125 miles) stretch of New Jersey shore. These locations represent a broad range of coastal configurations and their response to the storm. Pre-storm photos were acquired during a baseline survey May 21, 2009 and post-storm photos were acquired November 4-6, 2012.

No Heat Till Christmas? - We drove farther east to Far Rockaway, a much poorer area. There were long lines at various churches that were serving as distribution centers. Although there were police officers everywhere, the hard work of getting Far Rockaway residents help had, once again, fallen to volunteers. At the Church of the Nazarene in Far Rockaway, however, I did see a FEMA presence; I was told that FEMA had arrived on Thursday. You would think that FEMA, with all its expertise, would be coordinating the relief effort. But you would be wrong. When I asked one FEMA official what his workers were doing, he said they were mainly trying to make sure that residents applied for assistance. That is not insignificant, of course, but it’s not exactly leading the charge. In a nearby building, the office of the local city councilman, James Sanders Jr., had been transformed into a mini-disaster-relief headquarters. Sanders sounded deeply frustrated. “It is getting cold out here,” he said. He had just come from a meeting with the Long Island Power Authority, where he had been informed that no one would get power until an electrician had inspected the homes. “I told them that was impossible,” he said. “People aren’t going to have heat until Christmas.”

The problem with the Red Cross - If you thought the official New York marathon statement about being cancelled was tone-deaf, just wait until you hear this — on video, no less: Gail McGovern, chief executive officer and president of the Red Cross, told NBC News’ Lisa Myers late last week that the response has been timely and well-organized: “I think that we are near flawless so far in this operation.” This is chutzpah of the highest order: at least in the first dreadful days after Hurricane Sandy hit, the best adjective to describe the Red Cross was “invisible”, rather than “flawless”. It’s incredibly sad, because the Red Cross is the default charity that everybody gives to whenever there’s a tragedy. Even I did so, not that I’m any great fan of the organization: I bought the Sandy benefit print from 20×200, and the proceeds from that are going to the Red Cross. But at least in the early days, and even now, it’s hard to find a Sandy-relief drive which isn’t giving its money to the Red Cross: whether you’re donating money at Chase ATMs, or donating your Starwood points, or whether you’re giving in response to a telethon, the Red Cross always ends up being the beneficiary. And in the case of Sandy, the amount raised is truly enormous $117 million and counting. The Red Cross loves to talk about its massive efforts, with what it claims is a group of 5,700 volunteers — but frankly I don’t trust the Red Cross’s numbers, given the many reports where the Red Cross higher-ups have sworn that they’re in a certain location and helping, even as no one who’s actually there has seen any evidence of them. And in any case, the Red Cross doesn’t seem particularly capable of actually putting those 5,700 volunteers to good use. The real heroes of Sandy have been the much smaller-scale organizations, often built on an ad hoc basis. Occupy Sandy is the main one, and it’s been doing an amazing job, as Glynnis MacNicol recounts in a fantastic dispatch for Capital New York:

The problem with the Red Cross, cont. - The problem is only partially that there were mixed signals, and that the Pennsylvania officials thought the resources were for them rather than for New York. It’s also that no one at the Red Cross wants to even admit that there was a mistake. Instead, they seem to blame mythical traffic jams which were so bad as to hold up traffic for three days: The Red Cross said traffic delayed by three days its efforts to serve Staten Island, the Rockaways, Coney Island and other hard-hit communities in and around New York City. That was despite all main bridges to those communities being open the day after Sandy. The Red Cross is the charity which people give to reflexively whenever there’s a disaster — but look at where the Red Cross’s money actually goes: in 2010-11, for instance, it spent $271 million on domestic relief, $340 million on international relief, and a whopping $2.21 billion on blood and plasma services. It’s basically a blood bank with a disaster-relief agency attached, and a constrained one at that: the Red Cross says that its primary mission in a disaster is to supply food and run shelters, not to provide transportation, arrange cleanup operations or coordinate last-minute volunteers. And boy do they stick to that mission: when one woman asked the Red Cross for help moving a 90-year-old bed bound woman from the Rockaways, she was told that there was nothing they could do, that wasn’t a service they provided. That reveals a level of bureaucracy and rule-following which is never appropriate in a disaster situation, where experienced operatives learn to respond to needs rather than to directives.

Sandy inspires first Doctors Without Borders U.S. relief effort (Reuters) - In the wake of Superstorm Sandy, Doctors Without Borders has set up its first-ever medical clinic in the United States, and Doyle finds herself on the front line of disaster just miles from her day job. "A lot of us have said it feels a lot like being in the field in a foreign country," said Doyle, who specializes in internal medicine at New York's Bellevue Hospital, now closed by Sandy's damage. A week after Sandy swept through New York City, knocking out power and public transportation for days, Doctors Without Borders established temporary emergency clinics in the Rockaways - a remote part of Queens that faces the Atlantic Ocean - to tend to residents of high-rises that still lacked power and heat and had been left isolated by the storm. "I don't think any of us expected to see this level of lacking access to healthcare," said Doyle. Sandy's death toll in the United States and Canada reached 121 after New York authorities on Wednesday reported another storm-related death, this one in the Rockaways. Tens of thousands are thought to be displaced in New York City.

Mayor Bloomberg Owes OWS an Apology - We Got This (Occupy Sandy) from Alex Mallis on Vimeo. Mayor Mike has a lot of egg on his face, so does Ray Kelly. Despite being derided, kettled, pepper sprayed, and generally treated like subhumans by the NYC government, Occupy Wall Street continues to rise above the pettiness that  characterizes the behavior and assumptions of “various serious people.” Continuing to think outside the box, OWS has two new initiatives: Occupy Sandy and Rolling Debt Jubilee. Occupy Sandy I live on the North Shore of Long Island, walking distance from the beach, in an area full of very old tall trees and very old overhead wires. Oh, and spotty cellphone coverage. I have been virtually incommunicado for the past couple weeks. No electricity, no internet, no landline phones, no TV, no voice over cellphone and very limited texting over cellphone. What little information I had access to, came from the car radio, and it told a tale of stranded victims on Staten Island and the Long Island South Shore and Brooklyn, left unaided by the City. No police doing door-to-door searches for the trapped and stranded elderly or infirm, no social service agencies coming to their homes to make sure they had a meal, nadda. So, OWS called upon its stupendous logistical skills and filled the void left by Ray Kelly and Michael Bloomberg.  Bloomberg holds daily press conferences, but for people with no access to mass communication, he was  a tree falling in the forest with no one to hear. Did it really take him 2 weeks to figure out that squad cars have speaker systems on them and could be deployed like sound trucks? In another episode of thinking outside the box, OWS has discovered that an industry exists to buy distressed debt at pennies on the dollar. The companies that buy this debt then try to collect it and when successful, make their money on the spread.  OWS has set up a fund to create capital to buy the debt, but intends to forgive it rather than collect it. There is going to be a telethon on Novemeber 15^th at 8 PM.

Pockets of Misery Persist 2 Weeks After Hurricane Sandy - In Coney Island, a 67-year-old man sleeps with plastic bottles from the bodega, filled with hot water, tucked in his armpits. Toilets unflushed by modern means for a fortnight have created a stench in the Rockaways that is so bad that one man keeps incense burning in his apartment day and night. On Staten Island, people sit in “warming buses,” cozy and, like time itself these days, going nowhere. In a town in New Jersey where wells do not pump because the power is out, residents collect rainwater in empty jars. In Long Beach, on Long Island, a couple bicycles through the autumn chill to the charging station at City Hall to keep their cellphones powered. Two weeks. Monday was the 14th day since Hurricane Sandy upended lives on the Eastern Seaboard, the longest two weeks of many people’s lives. Plastic bottles. Warming buses. Charging stations. These are just a few of the signposts in a changed world. Help is coming, the people are told, but some have lost the desire to trust. Power companies in New York and New Jersey worked on Monday to free these remaining communities from the stubborn blackout. There was progress, with housing projects in Coney Island and the Rockaways flickering to life on Saturday and Sunday. There was light, if not heat. Families that had warmed their apartments with stovetop burners could now use the electric oven, with its door wide open.

Sandy: Lessons From The Wake Of The Storm - Superstorm Sandy has been a devastating experience for many, and will continue to be so for a long time to come. Much of the damage will take weeks or months to repair, and some may take years. A myriad long battles with insurance companies are a given, as the available funds are unlikely to match the damage and there will be many arguments as to what is covered. The impacts are widespread, but unevenly distributed, as the repairs will be. Like Katrina before it, Sandy will be a defining event in the lives of many people. Sandy illustrates a number of important points - how fundamentally dependent modern society is on centralized life-support networks, how interconnected different dependencies are, how crucial the role of energy really is, how disruption in one system can cascade into impacts in many others, and how unprepared people typically are to withstand even relatively short disruptions of essential services. Sandy provides a very useful case study in what we can do to prepare for challenging times, whether those occur due to hurricanes, ice-storms, earthquakes, financial collapse or other possible eventualities.

Naomi Klein on Bill Moyers: Hurricanes, Capitalism & Democracy - Naomi Klein joins Bill Moyers to discusses the links between capitalism and climate change. Moyers & Company Show 145: Hurricanes, Capitalism and Democracy from BillMoyers.com on Vimeo. This is actually a two-part episode, but Klein ends at 33:30. (The second part is an interview with Trevor Potter on money in politics.) Here is one exchange with Moyers that caught my attention: NAOMI KLEIN: So one of the things that you find out in a disaster is you really do need a public sector. It really important. And coming back to what we were talking about earlier, why is climate change so threatening to people on the conservative end of the political spectrum? One of the things it makes an argument for is the public sphere. You need public transit to prevent climate change. But you also need a public health care system to respond to it. It can’t just be ad hoc. It can’t just be charity and goodwill.

Jodi Dean | Full Stop (an interview) - In the wake of Hurricane Sandy, some of the most effective networks of aid came from the remnants of Occupy Wall Street. According to Jodi Dean, this is one of many examples that the radical Left should embrace as evidence of a new kind of politics. In The Communist Horizon, a handsome little addition to Verso’s Pocket Communism series, Dean works out what this might look like in reference to the history and living practice of Communism. In addition to teaching political theory at Hobart & William Smith College, Dean has been a consistently insightful voice on the Left in influential books such as Blog Theory and Democracy and Other Neoliberal Fantasies, as well as on her blog I Cite. I spoke with Jodi Dean on Election Day in New Haven, Connecticut, where she was delivering a lecture on communicative capitalism. We discussed the function communism still plays in our political discourse, the importance of moving past remnants of Cold War ideology, and recent attempts to overcome “Left Melancholia.”

Harry Shearer: Preventing Another “Sandy”: The Lessons New Orleans can Teach New Jersey -  Yves Smith - Within hours of the landfall of Sandy, New Jersey Governor Chris Christie was telling his homeboy anchor Brian Williams that he was going to get on the phone to the President and request the Army Corps of Engineers to come up with a plan for protecting the Jersey shore. If he hasn’t yet placed that call, he might want to give it a second think. And a first read. For starters, he might look up two forensic engineering investigations into the New Orleans flooding disaster of 2005, known popularly as “Katrina”. The final reports of those probes, the ILIT report from UC Berkeley and the Team Louisiana report from LSU, are here and here. Conducted simultaneously but independently, the investigations agree on the major culpability for the disaster resting on four-plus decades of engineering mistakes, miscalculations and misjudgments made by the US Army Corps of Engineers, in designing and constructing a “hurricane protection system” mandated by Congress after the devastation of an earlier storm. In the words of one of the co-authors of the Berkeley report, the New Orleans flood was “the greatest man-made engineering catastrophe since Chernobyl.”The Corps’ own chief official at the time, Lt. Gen. Carl Strock, actually took responsibility for the failure, in a press conference in late May, 2006. A second piece of recommended reading for the Governor would be the voluminous opinion by federal judge Stanwood Duval in Robinson et al v. United States, the first case to come to trial involving the flooding. In that opinion–first upheld by a three-judge appellate panel, then more recently reversed by the same panel (?) –Judge Duval reviewed exhaustively detailed expert testimony and concluded that the Corps exhibited negligence in its failure to heed warnings from within its own engineering staff that the Mississippi River-Gulf Outlet it had constructed would, if no serious ameliorative steps were taken, continue to erode and widen its banks, leading to what actually did happen–the catastrophic funneling of storm surge from the Gulf of Mexico straight into the Lower Ninth Ward, New Orleans East, and suburban St. Bernard Parish.

Desperate for shelters, New York considers turning jail cells into homes - With nowhere else to go, New Yorkers displaced by Hurricane Sandy may have no choice but to sleep in jails. As hundreds of thousands remain without power, a Staten Island prison may serve as a temporary home for storm victims. ­About 100,000 homes and businesses will remain without power for the next several months, New York Governor Andrew Cuomo said Friday in a news conference. About 434,140 homes are currently still without power in the region that was in Hurricane Sandy’s path – mostly in New York and New Jersey. The second storm, a nor’easter that hit the region last week, brought snow and frigid temperatures to a city already devastated by the effects of the first storm. With the Federal Emergency Management Agency (FEMA) having only provided housing to two dozen of 5,200 applicants, thousands remain without a home as the winter months approach. As many as 40,000 New Yorkers are in need of shelter from extreme weather and rapidly decreasing temperatures, the city estimates. The city is in desperate need for shelter – so desperate that even a desolate jail is being considered a possibility, the New York Post reports. The Arthur Kill Correction Facility on Staten Island may serve as a temporary home for up to 900 displaced victims of the storm. The medium-security prison was closed last December and with some fixing up, it could once again be fully functional.

U.S. Asks New York Landlords for Vacant Apartments to House Displaced Families - City, state and federal officials are trying to assemble a pool of vacant apartments in New York City that could supplement the city’s shelter system in housing hundreds if not thousands of families displaced by storm damage and power outages. Although many people have clung to their homes despite having neither heat nor hot water, particularly in city housing projects in Coney Island and the Rockaways, officials are worried that another wave of people will seek shelter as temperatures fall and they can no longer bear the cold. “There’s a huge fear that folks are going to be displaced for the medium and long term,” said Mathew M. Wambua, the city’s housing commissioner. “We feel a real imperative to have something in place when the second surge comes.” Officials have discussed a variety of ways to accelerate rebuilding, including using modular housing. But meetings in New York last week involving city and state officials focused on creating a clearinghouse that would match displaced families with vacant apartments. At a meeting in Manhattan on Wednesday evening, Shaun Donovan, the federal Secretary of Housing and Urban Development, told real estate executives, “You really need to help out,” according to one executive who was present

New York officials to request $30bn in federal aid for Sandy recovery -  New York officials are set to ask for more than $30bn in federal disaster aid to help recover from superstorm Sandy as power firms prepare to hook up the last remaining homes still without electricity. The state-owned Long Island Power Authority (Lipa) said it expected to restore power to most of the remaining 75,000 homes and businesses by the end of Tuesday – two weeks after the hurricane battered the region. Other utility firms in the region – ConEd in New York and units of Public Service Enterprise Group Inc and FirstEnergy Corp in New Jersey – restored service to almost all customers over the weekend. In all, Sandy left some 8.5 million electric customers without service in 21 states. The storm hit Lipa harder than any other power company, knocking out more than 1 million of its 1.1 million customers. Adding to its woes, a nor'easter last week knocked out power to 123,000 more customers, many of whom had had only just had their power restored after Sandy.

Electricity restored to many in the Northeast but outages persist - Hurricane Sandy caused a massive power outage in the Northeast. According to the Department of Energy's Office of Electricity Reliability and Delivery, about 8.5 million customers (residential, commercial, and industrial) were without power at some point during or after the storm, mostly in parts of the Mid-Atlantic, Northeast, and the Ohio Valley. On 10/30/12, the day after Hurricane Sandy made landfall, 8.2 million customers were without power. For New Jersey, it was the largest power outage in the history of the state. The recovery efforts have been slowed by flood damage and recent snowfall.  As of 11/08/12, power has been restored to around 90% of the customers who experienced an outage, but it is unclear how long it will take to fully restore service. In many areas, structures will need to be repaired or rebuilt before service is restored. High snowfall in recent days has also slowed the recovery efforts in many Northeastern states. Disruptions from Hurricane Sandy exceeded both in magnitude and duration those from Hurricane Irene, which affected millions of Northeastern customers in late August and early September 2011.The customer outage counts provided by utilities and charted above count the number of meters without service, and not the number of people affected. One meter might represent a single-family home with 4 people, a small apartment building with 150 people, or a commercial building like a gas station, where a power outage could affect many people.

US energy infrastructure is vulnerable - - When people think about climate change and energy, they naturally are drawn to thinking about clean technology, carbon capture, or emissions. We're thinking about mitigation, in other words. However, as Sandy showed, our energy infrastructure is at high risk to the effects of climate change as well. There is a need to adapt to the effects of a changed climate.A Climate Central report from earlier this year highlighted the amount of energy infrastructure around the country that is close to sea level. Louisiana, of course, comes across as the clearest example of energy infrastructure at risk to rising seas, with 163 major energy facilities at five feet above sea level or less. Surprisingly, New Jersey and New York are ranked 5th and 6th in the country, respectively, for the amount of infrastructure that is within 5 feet of sea level. This proved to be a severe vulnerability when Sandy's storm surge - at 13 feet in New York Harbor - pushed in. The results were predictable, and disastrous. In Manhattan, a ConEd substation exploded, leaving lower Manhattan without power. About 70% of the region's refineries are shuttered. About 20 nuclear reactors were in the path of Sandy. Two shut down because of high water. Importantly, however - America's nuclear power plants are designed to withstand hurricanes and they performed as expected, with no danger. Other energy assets, like power plants (coal, natural gas, hydro) as well as transmission lines - were at risk as well.

Chronic flaws hobble utility in storm's path -- The Times' examination shows that the authority has repeatedly failed to plan for extreme weather, despite extensive warnings by government investigators and outside monitors. In fact, before Hurricane Sandy, the authority was significantly behind on perhaps the most basic step to prepare for storms — trimming trees that can bring down power lines. Customers have been exasperated not only by a lack of power but also by the authority's inability to communicate basic information. Long Islanders have recounted tales of phones unanswered at authority offices, of wildly inaccurate service maps and of broken promises to dispatch repair crews. Of course, the storm was highly unusual, and utilities across the Northeast have come under criticism for delays in restoring power. The authority said it had done its best to restore power.  Still, the recovery has been slowest on Long Island, where roughly 90 percent of the authority's 1.1 million customers lost power.

Why Cell Phones Went Dead After Hurricane Sandy - Bloomberg: After Hurricane Sandy, survivors needed, in addition to safety and power, the ability to communicate. Yet in parts of New York City, mobile communications services were knocked out for days. The problem? The companies that provide them had successfully resisted Federal Communications Commission calls to make emergency preparations, leaving New Yorkers to rely on the carriers’ voluntary efforts. We have so far heard few details about why the companies made the particular business choices they did on backup power and what the consequences of those choices were, because the FCC has been blocked from asking -- even though about a third of people rely on mobile service as their only voice-communications connection. Americans might assume that the U.S. government exercises enough authority over communications networks to ensure that they are responsibly run, reliable and available to all at reasonable rates. In reality, after a decade of steady deregulation, during which communications companies asserted that new wires required new rules, the companies are in charge of themselves. What’s more, those that sell network connections in the U.S. are trying to claim a constitutional right to operate without any federal oversight.

Human Waste Continues to Pour into NY Harbor After Sandy - Human waste has been pouring into New York Harbor from the fifth largest sewage treatment plant in the nation since it was hit by Sandy, and the operator of the plant cannot predict when it will stop. A 12-foot surge of water swamped the Newark plant that serves some three million people when Sandy struck on Oct. 29. The plant has pumped more than three billion gallons of untreated or partially treated wastewater into local waterways since then. Mike DeFrancisci, executive director of the Passaic Valley Sewerage Commission, would only say "ASAP" when asked when repairs to the sprawling facility could be made. Until then, the main outfall will continue dumping millions of gallons of partially treated human waste a day at a point close to the Statue of Liberty across from Manhattan. "We've never had the facility flood like this," he said. Pathogens in partially treated waste are a health hazard and public safety threat, officials said. Fishing, crabbing and shellfishing bans in the New Jersey waters of the harbor will remain in effect, said Larry Ragonese, a Department of Environmental Protection spokesman

Ideas on protecting New York from future storms float to surface - The killer storm that hit the East Coast last month and left the nation's largest city with a crippled transit system, widespread power outages and severe flooding has resurfaced the debate about how best to protect a city like New York against rising storm surges. At a news conference the day after superstorm Sandy made landfall, New York Gov. Andrew Cuomo said the city must plan and prepare for the reality of extreme weather patterns in the future. "There has been a series of extreme weather incidents," Cuomo said Oct. 30. "That is not a political statement. That is a factual statement. Anyone who says there's not a dramatic change in weather patterns, I think is denying reality."Before the storm, Mayor Michael Bloomberg's administration had said it was working to analyze natural risks and the effectiveness of various coast-protection techniques, including storm-surge barriers. In a 2011 report called "Vision 2020: New York City Comprehensive Waterfront Plan," NYC's Department of City Planning listed restoring degraded natural waterfront areas, protecting wetlands and building seawalls as some of the strategies to increase the city’s resilience to climate change and sea level rise. "Hurricane Sandy is a wake-up call to all of us in this city and on Long Island,"

Uprooted Students Endure Trek to Class -It was only 7:30 a.m. by the time the students arrived on Tuesday at their school, the Rockaway Park High School for Environmental Sustainability. Their first class was still a one-hour bus ride and half a borough away. Life for the students of Rockaway Park — among the 33 schools that remain severely damaged as a result of Hurricane Sandy — has been upended. Many have been scattered across New York City, with relatives or in shelters. “We’re concerned,” said Jennifer Izzo, the guidance counselor. “We still can’t find some of them.” The city’s Education Department has reassigned 15,000 displaced students to other schools; the students and teachers of Rockaway Park are being sent to the Maspeth High School campus in Queens. Parents were upset, since their new school, like their old neighborhood, is not easily reached by public transportation. So the city agreed to send coach buses to Rockaway Park to take the students to and from their temporary school.

U.S. School Districts, Eyeing Fiscal Crisis, Brace for More Cutbacks -  During the campaign, both President Obama and Mitt Romney repeatedly extolled the value of schools and teachers. Mr. Romney, in their first debate last month, even vowed, “I’m not going to cut education funding.” But if his fellow Republicans in Congress and Mr. Obama cannot agree on a resolution for the country’s looming debt crisis, the automatic budget cuts and tax increases that will kick in next year could spawn another round of belt-tightening at public schools already battered by the recession and its aftermath. If the government is unable to come to a resolution, federal education programs for elementary and high schools would lose a little over $2 billion — or close to 8 percent of the current budget — starting next fall, according to the Office of Management and Budget and the Education Department. School districts around the country are bracing for cutbacks. In Boston, programs for English language learners and students at risk of failing a grade would be curtailed. In Cleveland, where the district has already lopped 50 minutes off the school day and limited art and music, officials fear they would have to curtail a literary program for struggling fourth and fifth graders, and lay off more classroom teachers. Miami-Dade, which has so far avoided pink slips for teachers, would probably start issuing them. While federal funding generally represents about 10 percent of public school budgets, schools have already lost millions of dollars in state money. According to an analysis by the Center on Budget and Policy Priorities, a liberal-leaning research and advocacy group, 26 states cut funding this school year, and two-thirds of states are providing less money for public education than they did five years ago. It may be several years before state coffers recover enough to restore funding to previous levels. At the same time, schools have been hobbled as another important source of financing — property tax collections — has plunged after the housing crisis.

School districts slash employee benefits, study says - Local schools reduced employee benefits by $8.5 million in the wake of controversial education budget cuts pushed by Gov. Scott Walker, according to a new study released Monday. The report by the Wisconsin Taxpayers Alliance shows school districts across Wisconsin collectively cut spending on health, pension and other benefits by about $366 million in the 2011-12 academic year as the result of cuts to public worker benefits and limits on collective bargaining. Total school spending dropped $584 million. The study takes an in-depth look at school district spending after the passage of Act 10 and the 2011-13 state budget. Local educators and district administrators say the employee benefit reductions meant that districts avoided whole-scale budgetary disaster while keeping property taxes relatively stable. But they warn that the erosion into salary and benefit packages could weaken their ability to attract and retain the highest quality teachers. “I think that the kids that are being educated to be teachers now may search for jobs elsewhere. ... Wisconsin starting salaries are at about $34,000. If other states like Texas and Arizona start their teachers at $45,000, why teach in Wisconsin?”

Why Online Education Works - My essay at Cato Unbound, Why Online Education Works, goes beyond much of the recent discussion to give specific examples of how online teaching increases the productivity and quality of education. Here is one bit: Dale Carnegie’s advice to “tell the audience what you’re going to say, say it; then tell them what you’ve said” makes sense for a live audience. If 20% of your students aren’t following the lecture, it’s natural to repeat some of the material so that you keep the whole audience involved and following your flow. But if you repeat whenever 20% of the audience doesn’t understand something, that means that 80% of the audience hear something twice that they only needed to hear once. Highly inefficient. Carnegie’s advice is dead wrong for an online audience. Different medium, different messaging. In an online lecture it pays to be concise. Online, the student is in control and can choose when and what to repeat. The result is a big time-savings as students proceed as fast as their capabilities can take them, repeating only what they need to further their individual understanding. More at the link including a discussion of how most of my teaching career happened in 15 minutes.

What is good teaching? - Two posts came out in the last day on online education. One is by Clay Shirky and the other is by Alex Tabarrok. Both are worth reading. Both make a similar point although in very different ways. They argue that critiques of massively online open courses (MOOCs) are misplaced because they are comparing them to a very small set of college experiences; that of the top 50 institutions. The vast majority of higher education is taught outside of this mix and, as Tabarrok notes, there is a significant amount of it delivered online to non-17-21 year old single people. That means that the institutions that are really in line to be disrupted are not in the top 50 that the smartest people go into and come out of still smart. It is the institutions that actually may have always been doing more to actually mean something for educational productivity. The reason for all this comes from scale. Here is Tabarrok: The best way to increase the quality of teaching is to increase the number of students taught by the best teachers. Online education leverages the power of the best teachers, allowing them to teach many more students. That all sounds sensible until we reflect upon what “best teachers” means. If I reflect, I know who the teachers who were best for me were and if I think harder I know that I disagreed for the most part with my classmates over that. And the reason why we have disagreements is that each individual student learns in different ways. This, by the way, is something those with a rosy forecast for MOOCs realise. They argue that individualisation will be possible in learning (a la the Khan Academy) but at the same time argue the best teachers can be leveraged.

Need 3 Quick Credits to Play Ball? Call Western Oklahoma - You've probably never heard of Western Oklahoma State College. But call almost any major athletics department, and staff there know it well. Its name comes up whenever athletes get themselves in a jam: They've failed a class. They've dropped another. Maybe they're just short on credits. But they still want to play. Western Oklahoma gives them a chance, offering three credits in two weeks—and for less than $400. Almost as appealing: The community college mails out transcripts the day after classes end, allowing players to get back on the field with minimal disruption.

The US Senate wonders about tax policy for the American Dream: why are schools failing to promote social mobility? - The American education system is of relatively more advantage to the relatively advantaged. As a result it does less than it could to promote opportunity. In response to my July 10th testimony to the Senate Committee on Finance hearing on “Helping Young People Achieve the American Dream” I received some homework, a series of questions asking me for a good deal more detail. You can review all of the questions on my November 11th post, but a couple of questions posed by the Committee Chairman, Senator Max Baucus of Montana, speak to probably the most important driver of social mobility, and raise particularly important issues for public policies. Senator Baucus asks the following:Education is one of the most important factors in providing every American with the opportunity to succeed. Our education system is one of the reasons that we have one of the most productive labor forces in the world, but not everyone seems to be benefiting. Why is our education system failing to achieve the same level of mobility that we see in other countries? How could the education system here in America do a better job of promoting mobility and opportunity?At almost $15,000 per student, America spends more on the schooling of its children than almost all other rich countries. However, what matters for mobility is not just the amount of spending, but how the funds are allocated.

Trebling of tuition fees triggers surprise rise in inflation - The introduction of £9,000 annual tuition fees has helped cause a surprise rise in inflation, figures showed today. Students starting at university this September were faced with a trebling in the maximum fee and the change was reflected in a rise of a fifth in education costs recorded by the Office for National Statistics. Coupled with the rising food costs faced by households, it contributed towards an increase in the Consumer Prices Index from 2.2% to 2.7% between September and October - the largest amount in more than a year. The ONS said that the lifting of the tuition fees cap from £3,375 a year to £9,000 a year was the main factor in the larger-than-expected rise in the cost of living. It is the first time it has gone up since July. The increase in education costs of 19.1% was the largest since records began. The Treasury said today's inflation figures were "disappointing". They were also partially affected by food inflation, after record wet weather this year left the UK with its worst potato and carrot harvest in living memory.

Cal State targets 'super seniors' with hefty fees -- They're called super seniors, and they can be found on nearly every college campus in America. These veteran undergraduates have amassed many more units - and taken many more classes - than they need to earn a degree, with college careers that can stretch well beyond the traditional four years. At California State University, the nation's largest four-year college system, school administrators say enough is enough. They say the 23-campus system can no longer afford to let students linger so long without collecting their diplomas.Cal State officials want to start charging hefty fees that could almost triple the cost for students who have completed five years of full-time undergraduate work. The CSU Board of Trustees is expected to vote on the "graduation incentive fee" when it meets in Long Beach on Tuesday. The board tabled the proposal in September after students complained and trustees raised questions. The proposed fee - like those adopted in several other states- is aimed at encouraging students to finish their degrees faster and make room for new undergrads in an era of scarce resources. Deep budget cuts over the past four years have forced CSU to sharply raise tuition, cut academic programs and turn away tens of thousands of qualified students.

Counterparties: The lessons of tuition inflation - Why have college costs risen 12 fold in 30 years? In a terrific story today, John Hechinger points to “administrative bloat” at public universities like Purdue, which has made a habit of doling out six-figure salaries to armies of administrators: Purdue has a $313,000-a-year acting provost and six vice and associate vice provosts, including a $198,000 chief diversity officer. It employs 16 deans and 11 vice presidents, among them a $253,000 marketing officer and a $433,000 business school chief. The rise in tuition could be exacting a toll on enrollments: Richard Vedder thinks that with tuition increasing at twice the rate of consumer prices, “colleges may in some cases be pricing themselves out of the market”. The gap between disposable income and college costs, Sober Look writes, “has widened to historical highs”. For a data deep-dive, the College Board has a comprehensive study of the trends in tuition and student aid. Megan McArdle argues that surging costs are as much a consequence as they are a cause of unprecedented levels of student debt, spurred on by government subsidies. But Mike Konczal flags a Department of Education study that shows that the government earns $1.14 back for every dollar it loans to students and asks, “What’s a good word for the opposite of a subsidy? Whatever it is, student loans are that”. Whatever the cause of rising costs, getting a BA isn’t necessarily a guarantee of high-paying work: the US now has “more than 100,000 janitors with college degrees and 16,000 degree-holding parking lot attendants”. If you look for it, there’s plenty of bad news about post-collegiate life. The employment prospects of new grads are dim and their wages aren’t likely to pop back after a recession as quickly as their non-college educated peers.

Today's tuition discussion - From Counterparties: Megan McArdle argues that surging costs are as much a consequence as they are a cause of unprecedented levels of student debt, spurred on by government subsidies. But Mike Konczal flags a Department of Education study that shows that the government earns $1.14 back for every dollar it loans to students and asks, “What’s a good word for the opposite of a subsidy? Whatever it is, student loans are that”. This really seems to be a major problem with the modern discourse on education.  We are all convinced that there has to be some sort of amazing (clever, counter-intuitive) theory about why tuition is going up.  Bad policy, on the other hand, seems to be completely ignored.  But if the government is making a net profit off of student loans, that seems to be rather concerning.  Not because I object to profit, but because the loans are so high.

The Nearly-Free University - The key to understanding higher education in the U.S. is to grasp that it is at heart just another debt-dependent neofeudal cartel. In other words, it is just like sickcare and the national defense complex. The most implacable enemy of innovation is monopoly. If you're protected from real competition, then you have no incentive or need to innovate. That is the essence of cartel-capitalism and the neofeudal model. In the case of the higher education cartel, the Federal funding is both cash grants and loans issued to newly minted debt-serfs. Student loans cannot be discharged in bankruptcy like other debt; these loans have ballooned to about $1 trillion. This is the essence of the neofeudal model: a protected Elite parasitically extracts wealth from the debt-serfs below. Should the debt-serfs resist, the State steps in to coerce compliance. The problem with protected cartels (neofeudal fiefdoms) is that they are unsustainable.

University of Hard Knocks - With two positive jobs reports in a row, it seems clear that the economy is slowly and steadily recovering, which should come as welcome news to students shielded from the effects of the recession behind university walls. But for those who had the misfortune to graduate and enter the workforce at the height of the downturn, the effects of the Great Recession will likely stay with them for the rest of their working lives. At first glance, it seems clear that those with a college degree have a leg up in a recession. Young people with only a high-school diploma have an unemployment rate of 22 percent, compared with 9 percent with a college degree. But the average college graduate will have the most permanent impact on their earnings because they’ll have missed the first steps in building their career. Picture three people: one person who doesn’t go to college, someone who graduates with average grades from a non-elite college, and a third who graduates from the top of her class at an elite university. Having the bad luck to graduate into a recession has a long-term impact on the earnings of all young people who graduate into a recession. All three will suffer a wage penalty, and the person without the college degree will suffer the worst one upfront. However, for non-college-grads, wages bounce back the quickest once the economy recovers, with less of a long-term negative impact. One reason for the quick rebound is that the earnings of these workers are tied to how many hours they can work in the market.

Degrees For Dollars: Students Petition Uncle Sam To Refund Student Loans For Worthless Diplomas - Student debt has seemingly been the transmission channel of choice for pumping credit into the US economy for the last few years as the government addition of $1 trillion has done nothing but leave those under-55 with fewer and fewer jobs (especially above-minimum-wage jobs) while saddled with non-extinguishable debt. Of course, this 'pump' of credit has had the usual unintended 'inflationary' consequence of raising tuition prices (which as we noted this morning was the main driver of inflation in the UK overnight). So what would be fair? Cue: A Petition to "Provide University graduates the ability to trade their Diplomas back for 100% tuition refunds" The hope-driven (or hopelessness) push into higher education (and implicitly higher debt), in a nation where the marginal benefit of Calculus 101 over a strong right 'burger-flipping / coffee-machine-pressing' wrist is falling by the day, seems to warrant further societal protection. All that's needed is 25,000 signatures to move this forward.

The Uncertain Future for Universities - Ernst and Young has produced an interesting report called: "University of the Future: A thousand year old industry on the cusp of profound change."   Although the report is aimed specifically at Australian universities, many of the insights apply all around the world. The tone of the report is summed up right at the start:  "Our primary hypothesis is that the dominant university model in Australia — a broad-based teaching and research institution, supported by a large asset base and a large, predominantly in-house back office — will prove unviable in all but a few cases over the next 10-15 years. At a minimum, incumbent universities will need to significantly streamline their operations and asset base, at the same time as incorporating new teaching and learning delivery mechanisms, a diffusion of channels to market, and stakeholder expectations for increased impact. At its extreme, private universities and possibly some incumbent public universities will create new products and markets that merge parts of the education sector with other sectors, such as media, technology, innovation, and venture capital." Tertiary education is on the rise all around the world. This figure shows participation rates for 18-22 year-olds in tertiary education around the world. Just from 2000 to 2010, the percentage has tripled in China, and more-or-less doubled in India, East Asia and the Pacific, and Latin America.

Baby Boomers Blunt Fed Easing While Saving for Retirement - Federal Reserve officials say they’re concerned that retirees like the Rodwicks are blunting the impact of record easing aimed at creating jobs. The reason: Older people are more likely to forgo purchases of houses, cars and other big-ticket items that the Fed is trying to encourage with near-zero interest rates. And their numbers are growing, making the Fed’s task ever harder. “Spending decisions of the older age cohorts are less likely to be easily stimulated by monetary policy,” William C. Dudley, president of the Federal Reserve Bank of New York, said in a speech on Oct. 15, helping to explain why the economic recovery has been weaker than expected. Each day, some 10,000 of the 78 million Americans born between 1946 and 1964 -- the so-called baby boomers -- turn 65. The share of the population in that age group will swell to 18 percent by 2030 from 13 percent last year, according to the Pew Research Center in Washington. Impact Magnified People usually save more as they near retirement. Now, the effect is magnified because Americans’ wealth has been depleted by the financial crisis, which decimated home values and retirement accounts invested in stocks

Group says state pension problem is beyond repair - A powerful business group has reached a grim conclusion about Illinois' pension crisis. The Civic Committee of the Commercial Club of Chicago said the state's pension problems cannot be fixed and collecting money for future pensions amounts to fraud. In an effort to light some fire under lawmakers as they prepare to take up pension reform in January, the Civic Committee said if drastic measures are not taken soon the money teachers or firefighters put in today will not be there when they retire. It is about time for some political courage in Springfield, the group said. State employees make up five percent of Illinois' population. Yet funding pensions for public workers is something that affects everyone, considering the pension system is under funded by millions of dollars. "What about the rest of the people on the state?" Civic Committee President and former Illinois Attorney General Ty Fahner said. "They are suffering all because this whole pension business has been mismanaged from the start."

PA: Pension costs to wreck balanced budget in coming years -- Pennsylvania can expect modest economic growth over the next five years, but it will be surpassed by a surge in state pension costs that begin this year. An annual economic and budgetary projection from the state’s Independent Fiscal Office, a state equivalent of the Congressional Budget Office, forecasts 0.8 percent revenue growth this year and 3 percent annual growth for the state’s revenue in the coming five years. Pension costs are projected to climb by 46 percent in this year’s budget and 42 percent in next year’s budget. “The increase in pension contributions is estimated to be about $500 million per year for the next several years,” said Mark Ryan, deputy director of the IFO. Those costs will consume 9.6 percent of the state budget by 2017 – up from 4.2 percent of the budget this yer, the report says.. In comparison to the skyrocketing pension costs, non-pension budgetary expenses are anticipated to climb by only 2.5 percent over the next five years – meaning they would be sustained by the expected 3 percent annual growth in tax revenue if pension costs were not a factor.

Public pension funds face vast shortfall - If you are among the more than 27 million current or former state or local government workers in this country, it might be time to contemplate how to generate some extra income or cut costs to meet your living expenses. That’s because a small but growing number of the nearly 3,418 state and local pension plan systems are starting to make big changes to address a $1.4 trillion shortfall. Some, for instance, are restructuring, reducing or capping pension benefits; some are raising retirement ages for new workers; some are asking employees to contribute more to their retirement plan; some are renegotiating contracts, or laying off employees; and some are asking new employees to participate only in a defined contribution plan instead of the defined benefit plan as part of an effort to deal with unfunded pension obligations. And if you are among the millions of taxpayers in this country, it’s might also be time to contemplate how the massive public pension shortfall—plans are only 75% funded according to one report—could adversely affect you as well, likely in terms of reduced municipal services—closing hospitals and school cuts, for instance,—or an increase in taxes, or both.“The path forward is very clear: they will have to make tough decisions to distribute pain among current retirees, current employees, future employees, and future taxpayers,”

Drums Beating to Privatize Social Security from naked capitalism - This Real News Network interview with Bill Black provides an overview of why Wall Street and the Administration are so keen to gut well loved and socially valuable safety nets for the elderly, in particular, Social Security. This talk is a good introduction for people who may not understand how high the stakes in the budget fight are and why the economic arguments used to justify it are bogus.  Paul Jay peculiarly brings up Elizabeth Warren as a potential opponent to this initiative. Given the fact that her Senate run was a Democratic party idea, and that she was remarkably tongue tied in her first press conference, I would not expect her to take any bold moves soon.

Life Expectancy of the Living Dead - Krugman - Regular readers know that a lot of this blog’s time is spent on intellectual zombies — beliefs and concepts that have been killed by evidence but that keep shambling forward nonetheless, trying to eat our brains. And now that talk has turned once again to Grand Bargains and all that, I see that we’re once again seeing the Social Security/life expectancy zombie: we live longer, so shouldn’t retirement wait? What you need to know:

• 1. The relevant life expectancy is life expectancy at or near retirement age. Falling infant mortality doesn’t make a case for delaying Social Security — and that’s important, because gains have been much less striking at age 65 than at birth.
• 2. Gains in life expectancy have been very strongly correlated with income and class; those with lower incomes and lower status — the very people who depend most on Social Security — have seen very small gains in life expectancy:
• 3. The retirement age has already been increased: the Greenspan Commission of the early 80s set it in motion, so that it’s now 66 and scheduled to rise to 67, essentially consuming all of the life expectancy gains of the bottom 50 percent.
• 4. The alleged wise men of DC don’t know any of this. When Ryan Grim tried to ask Alan Simpson about it, Simpson replied by denying the facts, attacking the interviewer, and insulting the AARP.

Zombie life expectancy arguments - Paul Krugman wrote a nice piece yesterday on life expectancy, specifically on how it hasn’t been going up like “everyone” says. It’s a zombie idea; it won’t die. I thought I’d add to his post by bringing back some of my favorite charts on the subject.

• 1) Life expectancy at 65 has not gone up nearly as much as life expectancy at birth. That’s what matters. That’s what determines how many years of Medicare or social security you might get:
• 2) Life expectancy at 65 has not gone up for blacks as much as it has for whites.
• 3) Life expectancy at 65 has gone up much more for people in the top half of earners than in the bottom half
• 4) While the richest 25% of Americans compare favorably to any other country, those in the bottom 50% of earners don’t. They will live fewer years after age 65 than the average person in most OECD countries. I don’t dispute that disparities might exist in other countries, but they definitely exist here. We’re not all living longer equally:
• 5) Speaking of which, there are a number of places in the country where life expectancy is dropping:

Wall Street uses the Third Way to lead its assault on Social Security - William K. Black - Third Way, lobbyists for and from Wall Street who are leading the effort to enrich Wall Street by privatizing Social Security, was created by Wall Street to fool some of the people all of the time.  I have written previously to expose their fictional claims to be a moderate or liberal Democratic group. I showed that Third Way makes itself useful by providing a faux “liberal” or “moderate” “Democratic” quote machine that can be used to discredit Democrats and Democratic policies such as the safety net.  I gave examples of how Third Way gave aid and comfort to the effort to defeat Elizabeth Warren and the effort to unravel the safety net.  Third Way continues to prove that you can fool some of the people all of the time. The National Journal ran an article on November 8, 2012 entitled “Left Divided over ‘Grand Bargain.’” The AFL-CIO organized a day of action on Thursday–part of a broader post-election campaign to protect entitlements–with dozens of events scheduled nationwide to urge lawmakers to avoid such a deal. A ‘grand bargain’ to prevent the year-end onset of tax hikes and spending cuts ‘could cut Social Security, Medicare and Medicaid benefits, all to give tax cuts to the wealthiest Americans,’ the labor group argued on its organizing site. But the union campaign is being met with resistance from others on the left.

Could You Live On Social Security? - $1,130.33 is the average monthly social security benefit. Assuming you worked 40 hours a week, every week, that's the hourly equivalent of $6.40. Where can you live? Will savings save you?

Obama Plans to Hit Road With Oh-So-Popular Message of Cutting Social Security and Medicare - President Obama plans to meet with business, labor and civic leaders early this week about the fiscal slope, according to Reuters. Congressional leaders will huddle with Obama at the end of the week. Labor has immediately and vocally rejected the concept of a grand bargain, at least for now, so judging their behavior after this meeting will be critical. The presence of corporate executives who have pull on Republicans probably matters more than the presence of labor, to whom I assume there will be an attempt to dictate terms. After this inside game and as the negotiations continue, the President plans to hit the road in support of a deal, which sounds to me like a terrible idea for him. As he prepares to meet with Congressional leaders at the White House on Friday, aides say, Mr. Obama will not simply hunker down there for weeks of closed-door negotiations as he did in mid-2011, when partisan brinkmanship over raising the nation’s debt limit damaged the economy and his political standing. He will travel beyond the Beltway at times to rally public support for a deficit-cutting accord that mixes tax increases on the wealthy with spending cuts [...] And with the election campaign over, the campaign for the Obama legacy begins: Mr. Obama will keep his grass-roots organization in place to “have the president’s back,” as its members like to say, on the budget negotiations and other issues in the second term.

How to sort out Social Security’s finances while making it more generous - Social Security is not in danger of becoming insolvent any time soon. According to the program’s actuaries, without any changes, Social Security will be able to pay out full benefits until 2033. And there’s reason to doubt that problems will arise even 21 years from now. As Jared Bernstein noted when the latest projections came out, the expected date when the Social Security trust fund will be exhausted has varied wildly over the past few decades. Yet despite its medium-run sustainability, many deficit reduction plans target the program for cuts. For example, Bowles-Simpson introduces means-testing and raises payroll taxes for high earners, but also cuts benefits across the board by adopting a less generous inflation measure, known as “chained CPI,” and raises both the minimum age where retirees can claim benefits and the age when they can claim full benefits. As Nobel laureate Peter Diamond has explained, the latter change is hugely regressive, primarily targeting poor workers in physically demanding occupations. Domenici-Rivlin includes the inflation measure cut, means-testing and payroll tax increase, but leaves out the regressive retirement age increase. But if one wants to make the program solvent indefinitely without endangering vulnerable seniors, there are options. A new bill from Sen. Mark Begich (D-Alaska), the Protecting and Preserving Social Security Act, provides one method. The Begich bill would lift the current payroll tax cap, which exempts wages in excess of a certain amount ($110,100 this year) from the tax. In turn, it would give high earners, who would pay more, additional benefits upon retirement, just as benefits increase as wages do for workers below the cap.

Walmart Raises Employee Healthcare Premiums by up to 36%: As Walmart executives publicized an employee healthcare change that showcased no-cost spine and heart surgeries at select hospitals, managers delivered a different message to retail associates at their stores: your healthcare costs are going up, again. Premiums are set to increase by up to 36% next year, employees were told, adding to steep hikes they faced last year. In comparison, projections for large employer-sponsored health plans are expected to increase by only 5.5 percent, according to PricewaterhouseCoopers. This time last year, Walmart substantially rolled back coverage for part-time workers and significantly raised premiums as reported in the New York Times. Already working for poverty paychecks as a result of low-wages and insufficient hours, many of the company’s 1.4 million employees and their families are already uninsured and rely on costly public healthcare programs. The costly new changes are pushing many more hard-working Walmart Associates to drop coverage – a concern that members of OUR Walmart, the nationwide organization of Associates calling for change at the company, have been speaking out about.

Let's Arrest Health Care Officials and Other Cool Ideas from Wisconsin's Right Wing - The (relatively) good guys may have won the election, but be warned: There's still plenty of crazy abroad in the land. Thus we have nine Tea Party legislators in Wisconsin who want to arrest any federal officials who come to their state and try to implement Obamacare - you know, that law passed by Congress, upheld by the Supreme Court and declared the "law of the land” by mainstream conservatives. That one. “Just because Obama was re-elected does not mean he's above the Constitution," argue members of The  Campaign for Liberty. No, and just because you're above ground and talking doesn't mean any of us should have to listen to you. The group wants to do a bunch of other things too - no unions! no gun permits! arrest TSA! more raw milk! - under their slogan, "Reclaim the Republic," but they don't specify for whom and in what century. Under the terms of the health care law, Gov. Walker must decide this week if the state will create a health care exchange on its own or leave those duties to the Obama administration. Scott Walker, sorta moderate: who would have thought? There's that relativity theory again.

Health Care Thoughts: Health Exchange Delay - The Obama administration has delayed the decision point on state health exchanges until December 14th. Much of the discussion on this issue has centered on politics. My focus is on more practical issues. The Obama administration has a track record of being unable to develop administrative regulations on time and for writing complicated and incoherent regulations. We still do not know for certain what "essential benefits" might be and how the administration will balance intense lobbying on this issue versus affordability. From a management and financial viewpoint it may make perfect sense to have the feds install their "plug-and-play" model exchange and to let the feds do the heavy lifting, politics aside. Maybe the Democrat governors are wrong on this one?

Real Danger Of “Obamacare”: Insurance Company Takeover Of Health Care - Now that The Show is over, we are left with the equivalent of a Sunday morning hangover following a binge of promises and lies. After the Supreme Court upheld the PPACA, a spate of mergers rippled through the managed health care realm, to ostensibly cope with smaller profit margins and  ‘compliance costs.’  But really, it’s because each firm wants to corner as much as possible of the market, in as many states as it can, to garner more premiums and control more disbursements and prices at the upcoming insurance ‘exchanges.’ Meanwhile the more hospitals are viewed as profit centers, the more their Chairmen will cut costs to maximize returns, and not care quality. They will seeks ways to sell underperforming assets, programs or services and reduce the number of nonessential employees, burdening those that remain. And if insurance companies can manage doctors directly, they can control not just costs, but treatment – our treatment. It’s not an imaginary government takeover anyone should fear; but a very real, here-and-now insurance company takeover, to which no one in Washington is paying attention.

End-of-Life Care Should Be Universally Provided and Need-Based - Dr. Ezekiel Emanuel, oncologist and chair of the Department of Bioethics at the National Institutes of Health (and, entirely incidentally, brother to Rahm and Ari Emanuel) has long been a champion of end-of-life care. He spoke today with Corby Kummer at The Atlantic's Washington Ideas Forum, where he made succinct points about strategies for systematic improvements in our approach to caring for those nearest to death. First, all doctors and nurses should be formally trained in end-of-life care and discussions. Walking into a room with a patient and their family to discuss a terminal diagnosis or prognosis is -- especially at first -- overwhelming, and impossible to just know how to do. Emanuel admits that facing those situations remains "scary," even as a veteran clinician. He and most of his generation of physicians never received formal training in how to best discuss terminal illness with patients and offer palliative options, and some in training today still do not. Considering the large number of people who eventually face death, it is unreasonable that not all doctors and nurses are thoroughly prepared to help them as they do.

Marine ‘treasure trove’ could bring revolution in medicine and industry - Scientists have pinpointed a new treasure trove in our oceans: micro-organisms that contain millions of previously unknown genes and thousands of new families of proteins. These tiny marine wonders offer a chance to exploit a vast pool of material that could be used to create innovative medicines, industrial solvents, chemical treatments and other processes, scientists say. Researchers have already created new enzymes for treating sewage and chemicals for making soaps from material they have found in ocean organisms. "The potential for marine biotechnology is almost infinite," said Curtis Suttle, professor of earth, ocean and atmospheric sciences at the University of British Columbia. "It has become clear that most of the biological and genetic diversity on Earth is – by far – tied up in marine ecosystems, and in particular in their microbial components. By weight, more than 95% of all living organisms found in the oceans are microbial. This is an incredible resource." However, the discovery of the ocean's biological riches, including hundreds of thousands of new sponges, bacteria and viruses, also raises worries about the damage that could ensue from the new science of marine biotechnology. In particular, scientists worry that precious sources, including hydrothermal vents where bacteria and simple plants thrive in water above boiling point, could be damaged or destroyed in a free-for-all rush to exploit these wonders.

From nutrition scientists "on behalf of Corn Refiners Association" - Here is a newsletter I received today from an email account labeled oddly: "ASN on behalf of Corn Refiners Association."  Follow the link for the full web version of the email.  The ASN is of course the American Society of Nutrition.  "Experimental Biology 2012" is the most important annual meeting for nutrition scientists. The tiny footer to the email's web page says: This email is a paid advertisement sent by ASN on behalf of Corn Refiners Association. ASN occasionally promotes to its members the efforts of other organizations promoting products, services or events that advance ASN's mission: excellence in nutrition research and practice. ASN never releases members' email addresses to any third party.  While this footer to the email discloses the advertisement, the newsletter's .pdf file from the link does not mention that it is an advertisement.  Clearly, the whole package is designed to look like a newsletter from a scientific association.  In the gentlest way, the newsletter defends fructose and corn sweeteners from criticism.

We Are Losing Our Intellectual And Emotional Abilities - We are losing intellectual emotional capabilities, because we no longer need intelligence to survive, according to a new study published in the Cell Press journal Trends in Genetics. This provocative hypothesis suggests that it happens because the intricate web of genes endowing us with our brain power is particularly susceptible to mutations and that these mutations are not being selected against in our modern society. Human intelligence and behavior require optimal functioning of a large number of genes, which requires enormous evolutionary pressures to maintain. "The development of our intellectual abilities and the optimization of thousands of intelligence genes probably occurred in relatively non-verbal, dispersed groups of peoples before our ancestors emerged from Africa," says the papers' author, Dr. Gerald Crabtree, of Stanford University. In this environment, intelligence was critical for survival, and there was likely to be immense selective pressure acting on the genes required for intellectual development, leading to a peak in human intelligence.

Concern over 'souped up' human race: A race of humans who can work without tiring and recall every conversation they've ever had may sound like science fiction, but experts say the research field of human enhancement is moving so fast that such concepts are a tangible reality that we must prepare for. People already have access to potent drugs, originally made for dementia patients and hyperactive children, that boost mental performance and wakefulness. Within 15 years, experts predict that we will have small devices capable of recording our entire life experience as a continuous video feed - a life log that we can reference when our own memory fails. Advances in bionics and engineering will mean we could all boast enhanced night vision allowing us to see clearly in the dark. While it may be easy to count the potential gains, experts are warning that these advances will come at a significant cost - and one which is not just financial.

Saving a Malaria Program That Saves Lives -EVERY year, some 30 million children in Africa survive the first few perilous weeks of life, but within five years 2.5 million of them die. More than a half million of these deaths are a result of an easily curable disease: malaria. In recent years, some progress has been made against malaria, which is caused by a parasite, Plasmodium falciparum, that is transmitted to humans by mosquitoes. The world spends roughly a billion dollars a year trying to contain the disease — mostly through insecticide-treated bed nets — and treating it at government-run clinics.  But just as nets are vulnerable to holes and wily mosquitoes, so, too, have our efforts to treat malaria been plagued by gaps, failures and the extraordinary cleverness of the pathogen itself. In the past, for example, the disease was cured by a decades-old drug called chloroquine that was largely sold over the counter. The falciparum parasites, though, grew resistant to it.  Then, 10 years ago, the World Health Organization recommended abandoning chloroquine in favor of a very effective combination therapy based on artemisinin (A.C.T.). But that regimen has been far too expensive for most malaria sufferers, many of whom end up buying the cheaper, ineffective chloroquine from local shops. The answer we arrived at was remarkably straightforward: to subsidize the therapy and sell it as cheaply as chloroquine in Africa’s private pharmacies and shops, where half of all patients first seek treatment for malaria-like fevers.

The United Nations must cure Haiti of the cholera epidemic it caused - Before Hurricane Sandy slammed into the east coast of the United States, it killed 54 people in Haiti and left tens of thousands more homeless. Haiti is especially vulnerable because of its poor infrastructure and environmental destruction, so people die there – as they did during the earthquake in January 2010 – in greater numbers than they would in other countries subject to the same natural disasters. But there is one disaster that was brought to Haiti directly by people, not by nature. It was not caused by shifting tectonic plates or extreme weather (or climate change). That disaster is the cholera epidemic that struck Haiti two years ago. Most people I talk to don't even know that United Nations troops brought this deadly disease to Haiti in October of 2010. There hadn't been any cholera in Haiti for at least 100 years, if ever, until some UN troops from South Asia dumped human waste into a tributary of the country's main water supply. Since then, more than 7,600 Haitians have died and over 600,000 have gotten sick. If Haiti were any other country in this hemisphere, a human-created disaster of this proportion would be a big international scandal and everyone would know about it. Not to mention the institution responsible for inflicting this damage – in this case, the UN – would be held accountable. At the very least, they would have to get rid of the epidemic.

Why Delhi has again become a gas chamber - For the past week, I have been driving to work through a "pea-souper" - thick fog which has hung menacingly over Delhi and its neighbourhood. The city has looked like a smoggy dystopia. Residents are mourning the death of the sun. Although the sun made a welcome appearance on Friday, some media reports say the smog is far from defeated and may return during the weekend. My eyes hurt when I step out, and I spent days nursing a nagging headache. At work, many of my colleagues are wheezing, sniffing and coughing. The papers are full of stories of clinics overrun by patients suffering from respiratory ailments. Winter smogs are not uncommon in Delhi, but this year has been rather extreme, sending air pollution levels way above permissible limits. The government has blamed farmers who burn straw in neighbouring states. Independent environment groups insist that rising pollution is to blame. Researchers belonging to the watchdog Centre for Science and Environment (CSE) say Delhi's air quality has deteriorated sharply - particulate matter in the air has risen by 47% between 2000 and 2011, while nitrogen dioxide levels has leapt by 57%. Delhi, they say, is a gas chamber: its air contains a lethal cocktail of poisonous gases like nitrogen dioxide, carbon monoxide, ozone, and benzene. Farm fires have merely exacerbated what is an already bad situation.

China Strains to Satisfy Growing Demand for Meat - China's growing appetite for meat and dairy is driving big changes in everything from farming to food safety, reports Mary Kay Magistad, correspondent for Public Radio International's "The World" in the next installment of the "Food for 9 Billion" series airing on Tuesday's PBS NewsHour. The growing demand for meat has put a strain on China's land and water resources. Agriculture runoff, mostly manure from large-scale farms, is causing water pollution within the country. Because of water shortages, China imports 70 percent of its soybeans and increasing amounts of its corn from the United States, Brazil and Argentina to feed its cows and pigs, Magistad reports.

China Heading Towards an Unavoidable Water Crisis - China is a huge producer and consumer of commodities. Not only is it the largest global producer of key crops and meat, it has the largest appetite for goods that cover the gamut from rice to rubber, from cotton to copper. But one of its largest addictions has become one of its biggest problems, as it has an unquenchable thirst……for water. Let’s zoom out here for a second. Only 2.5% of the earth’s water is freshwater. And 70% of that is locked up in glaciers, ice caps, and permafrost. A mere 0.4% of the world’s freshwater is in the form of lakes and wetlands (76%), in the soil (13%), and in the atmosphere (9.5%). Although China is home to 7% of the world’s freshwater reserves…it is also home to 20% of the world’s population. To put this in perspective, China has over four times the population of the US, but only about a fifth of the water availability. Water usage in China has quintupled since 1949. One key driver has been The Communist Party, which has always encouraged grain self-sufficiency. This has meant that rural areas have persisted in growing highly-water intensive crops, rather than focusing on agriculture which is better suited to its environment.

November 2012 Update on Global Food Stocks-to-Use Ratios - The above chart has been updated using the latest released stocks-to-use estimated percentages from the Food and Agriculture Organization of the United Nations. In good news from the FAO, lower international prices and freight rates, together with lower cereal purchases, have pushed down the world food import bill in 2012 to an estimated $ 1.14 trillion for 2012, 10 percent lower than last year’s record level of $ 1.27 trillion. Maize, wheat, and soybean supplies are tight, while rice and cassava production is strong.  All eyes are on wheat, since production fell by 5.5 percent from last year’s record due to droughts in eastern Europe and central Asia. The biggest production declines happened in the large wheat producers of Kazakhstan, the Russian Federation and Ukraine. While the largest wheat exporting nations have lower stocks, some of the largest importing nations now have higher supplies. If the wheat stocks-to-use ratio does reach 24.0 percent this marketing year, it would compare to the 22.0 percent low experienced in the 2007/08 food crisis year which had low wheat and rice supplies. Because of higher prices, however, the FAO expects wheat production to rebound in 2013.

Midwest drought continues; winter wheat in trouble - Agricultural commodities are in the news once again. While corn and soy prices have stabilized, wheat continues to rally.For those of us on the East coast of the US, the drought of 2012 seems like a distant memory, given the recent weather conditions (see post). So what's driving these prices higher? Sadly as the East Coast got hit by Hurricane Sandy and the nor'easter that followed, the Midwest has been in the middle of an ongoing drought. Here is the latest drought monitor map from the University of Nebraska. The focus now is on winter wheat. This is the wheat that is planted after the fall harvest. It sprouts before temperatures drop to freezing levels and stays dormant through the winter until the soil warms in early spring. Winter wheat is then ready to be harvested by early summer. The current drought is damaging wheat across Oklahoma and Kansas. Once again we look to the latest USDA report on crop conditions (see post), which shows the percentage of wheat in good/excellent conditions below 40%.  The Republic: - ... dry conditions intensified in Kansas, the top U.S. producer of winter wheat. Thursday's update, put out by the National Drought Mitigation Center at the University of Nebraska in Lincoln, showed that the expanse of that state in extreme or exceptional drought climbed roughly 6 percentage points, to 83.8 percent.  Three-quarters of hard-hit Oklahoma — another key winter wheat state — is mired in the two highest forms of drought, up 8 percentage points from the previous week..  Thirty percent of Oklahoma's fledgling winter wheat crop was found to be in poor to very poor shape, a decline of 18 percentage points from the previous week, as topsoil moisture in the state continues to grow increasingly parched

Forecast: Drought And More Drought - David Miskus of NOAA’s Climate Prediction Center explains why this drought persists:… a persistent ridge of high pressure located over the central Rockies kept the Southwest, Great Basin, and southern halves of the Rockies and Plains unseasonably mild and dry. The weakened Pacific storm systems were diverted northeastward into south-central Canada by the ridge, then southeastward by the eastern trough into the northern Plains, lower Missouri Valley, the Delta, and across the Southeast. No doubt this persistent high-pressure system and the prolonged drought are just more coincidental weather events in this year of record low Arctic sea ice and coincidental uber-extreme events. The three-month drought outlook from NOAA’s Climate Prediction Center isn’t pretty:

Export grain prices soar as US shippers fear Mississippi closure (Reuters) - The possible closure of the Mississippi River to navigation because of low water has sent prices soaring for grain destined for export from the Gulf of Mexico, grain traders said. Water levels on the busy stretch of the river from St. Louis to Cairo, Illinois, are forecast to drop to 9 feet or less by early December as drought conservation measures have reduced the flow of water from the Missouri River and its reservoir system into the Mississippi River. The threat that river shipments could be halted or slowed had exporters this week raising bids for grain to quickly get it to Gulf export points. "There's a lot of concern right now about the river and logistics in general," a U.S. corn exporter said. "If you're trying to run a river program and you have commitments to deliver corn in January and it looks like you're going to have river issues, you're going to expedite that sooner rather than later. Today was one of those days," he said. Spot corn basis bids in the Gulf barge market surged to a 90-cent-per-bushel premium to Chicago Board of Trade futures, the highest spot bid in four months. Basis bids for soybeans jumped to $1.01 over the respective CBOT futures, a 2-1/2 month high.

Drought Forces Midwest Firm to Ponder Drier Future - At the height of this year's drought, decision-makers at the agribusiness giant Archers Daniels Midland kept an uneasy eye on the reservoir down the hill from their headquarters. At one point, the water level fell to within 2 inches of the point where the company was in danger of being told for the first time ever that it couldn't draw as much as it wanted. The company uses millions of gallons of water a day to turn corn and soybeans into everything from ethanol and cattle feed to cocoa and a sweetener used in soft drinks and many other foods. Rain eventually lifted Lake Decatur's level again. But the close call left ADM convinced that, like many Midwestern companies and the towns where they operate, it could no longer take an unrestricted water supply for granted, especially if drought becomes a more regular occurrence due to climate change or competition ramps up among water users. While companies in the Great Lakes region and other parts of middle America long counted on water being cheap and plentiful, they now realize they must conserve because finding new water sources is difficult and expensive — if it can be done at all.

America's water mirage - Americans operate under an illusion of water abundance. That fiction makes the reality of water scarcity a particularly hard concept to get across. From California to Florida, freshwater aquifers are being pumped so much faster than they recharge that many parts of the country can no longer rely on groundwater to supply future populations. But we can't see dried-out aquifers the way we could see black Dust Bowl storms in the 1930s or water pollution in the early 1970s. So we still pump with abandon to do things like soak the turf grass that covers 63,240 square miles of the nation. We flush toilets with this same fresh, potable water, after treating it at great expense to meet government standards for drinking. We fill the fridge with beef, the shopping bags with cotton T's, the gas tank with corn-made ethanol — all with little inkling of how we're draining to extinction the Ogallala aquifer that irrigates a quarter of the nation's agricultural harvest. Water authority members who oversee the Ogallala and farmers who pump it have a chilling term for its use: "managed depletion." Your guess is as good as theirs where the staples will come from when the depletion is done.

Despite a cool October, U.S. on track for its warmest year on record, beating out 1998 - For the first time in sixteen months, the contiguous U.S. has had a month with below-average temperatures, with October 2012 ranking as the 44th coldest (73rd warmest) October since record keeping began in 1895, said NOAA's National Climatic Data Center (NCDC) in their latest State of the Climate report. Temperature extremes were scarce in October, as no states had a top-ten warmest or coldest October. Despite the cool October temperatures, the year-to-date period of January-October was the warmest such period on record for the contiguous U.S. -- a remarkable 1.1 °F above the previous record. Even if the remainder of 2012 ranks historically in the coldest one-third of November-Decembers ever seen, 2012 will beat out 1998 for warmest year. The first ten days of November have been warmer than average, and the next two weeks are predicted to also average out on the warm side, so it appears likely that we will have to have our coldest December on record in order to keep 2012 from setting the new mark. The November 2011-October 2012 period was the warmest such 12-month period on record for the contiguous U.S., and the seven warmest 12-month periods since record keeping began in 1895 have all ended during 2012.  Texas had their 9th driest October on record last month, and Washington, Michigan, Ohio, Maine, and Maryland had top-10 wettest Octobers; Delaware had their wettest October on record, thanks to rains from Hurricane Sandy. The area of the U.S. experiencing moderate-to-exceptional drought shrank from 65% at the beginning of October to 59% by November 6, with drought conditions improving across parts of the Midwest and Northeast, but worsening across portions of the Northern Rockies.

October Ties for 5th Warmest; Winter Forecast Uncertain - With the year-to-date running as the eight-warmest on record, October 2012 tied with 2005 for the globe’s fifth-warmest such month since recordkeeping began in 1880, according to the National Oceanic and Atmospheric Administration (NOAA). This was the 36th straight October with global average surface temperatures above the 20th-century average. The last below-average month of any month occurred in February of 1985, the year the Space Shuttle Discovery completed its first mission. For the year-to-date, the combined global land and ocean average surface temperature was 1.04°F above the 20th-century average, which ranks the year as the eighth-warmest on record so far, NOAA said in a report released on Thursday. Map showing surface temperature departures from average during October 2012. Click to enlarge image. Credit: NOAA. Much of Europe, western and far eastern Asia, northeastern and southwestern North America, and most of Australia, among other areas, saw above-average temperatures during October. Much of northwestern and central North America, central Asia, parts of western and northern Europe, and southern Africa were “notably below average,” NOAA said.

Why America Has Fallen Behind the World in Storm Forecasting - Americans should take great pride in the fact that computer weather modeling was invented here, along with weather satellites and other scientific and technological marvels. Sadly, the skill of our computer models fell substantially behind that of other nations some decades ago, and by many measures we are in third or even fourth place today. The overall star performer is a computer model operated by a consortium of European nations; that model accurately predicted Sandy’s track and evolution well before U.S. models caught up later last week. Why have we fallen so far behind? While there are many nuances to this answer, the basic reason is a failure of political will. The Europeans spend somewhat more on numerical weather prediction and run their models on larger and faster computers; they have also been more effective that we have in involving academic researchers in the development and improvement of their models. They appear to recognize that the monetary savings of skillful weather forecasts far outstrip what governments spend on the weather enterprise.

32-Foot-Plus Waves From Hurricane Sandy Topple Records - Hurricane Sandy has already broken dozens of records, from the lowest air pressure reading ever recorded in the Northeast to the highest storm surge on record in Lower Manhattan. After reviewing wave height data, the National Weather Service office in Philadelphia has determined that the wave heights recorded at two buoys — including one monster 32.5-foot significant wave height at a buoy near the entrance to New York Harbor — set records for the largest waves seen in this region since such records began in 1975. One of the buoys is located near the entrance to New York Harbor, about 15 nautical miles southeast of Breezy Point, N.Y., which sustained heavy damage from a merciless combination of coastal flooding and a fire that spread out of control. The harbor entrance buoy recorded a significant wave height of 32.5 feet at 8:50 pm on Oct. 29, beating the previous record set during Hurricane Irene by 6.5 feet! Records at that buoy extend only to 2008, which minimizes the historical significance of the record somewhat. Significant wave height measures the average of the top third of the highest waves, which means that individual waves were actually higher than the 32.5-foot measurement. 

Flood Insurance, Already Fragile, Faces New Stress - The federal government’s flood insurance program, which fell $18 billion into debt after Hurricane Katrina, is once again at risk of running out of money as the daunting reconstruction from Hurricane Sandy gets under way. Early estimates suggest that Hurricane Sandy will rank as the nation’s second-worst storm for claims paid out by the National Flood Insurance Program. With 115,000 new claims submitted and thousands more being filed each day, the cost could reach $7 billion at a time when the program is allowed, by law, to add only an additional $3 billion to its onerous debt. Congress, just this summer, overhauled the flawed program by allowing large increases in premiums paid by vacation home owners and those repeatedly hit by floods. But critics say taxpayer money should not be used to bail it out again — essentially subsidizing the rebuilding of homes in risky areas — without Congress’ mandating even more radical changes. “We are now just throwing money to support something that is going to end up creating more victims and costing more money in the future,” Representative Earl Blumenauer said of the program, which insures 5.7 million homes nationwide near coasts or flood-prone rivers.

Climate Change Report Outlines Perils for U.S. Military - Climate change is accelerating, and it will place unparalleled strains on American military and intelligence agencies in coming years by causing ever more disruptive events around the globe, the nation’s top scientific research group said in a report issued Friday.The group, the National Research Council, says in a study commissioned by the C.I.A. and other intelligence agencies that clusters of apparently unrelated events exacerbated by a warming climate will create more frequent but unpredictable crises in water supplies, food markets, energy supply chains and public health systems. Hurricane Sandy provided a foretaste of what can be expected more often in the near future, the report’s lead author, John D. Steinbruner, said in an interview. “This is the sort of thing we were talking about,” said Mr. Steinbruner, a longtime authority on national security. “You can debate the specific contribution of global warming to that storm. But we’re saying climate extremes are going to be more frequent, and this was an example of what they could mean. We’re also saying it could get a whole lot worse than that.”

Business warned to prepare for catastrophic impacts - PricewaterhouseCoopers, the world's largest professional services firm, is not known for scaremongering. So it is worth paying particular attention to its latest annual low carbon economy index. Behind the understated language, it points to a catastrophic future unless radical action is taken now to combat climate change. "Business leaders have been asking for clarity in political ambition on climate change," says partner Leo Johnson. "Now one thing is clear: businesses, governments and communities across the world need to plan for a warming world – not just 2C, but 4C or even 6C." The trigger for its dire warning comes from the failure of the global community to reduce carbon emissions by anywhere near the amount needed to restrict temperature rises. PwC's latest report shows the required improvement in global carbon intensity to meet a 2C warming target has risen to 5.1% every year from now to 2050. The improvement in 2011 was just 0.7% despite the global economic slowdown, and since the turn of the century the rate of decarbonisation has averaged 0.8%. PwC, the largest of the big four accounting firms, points out that even if the 5.1% improvement might be achievable in the longer term, it is unrealistic to expect that decarbonisation could be stepped up immediately – which means that the reduction required in future years is likely to be far greater.

If We Ignore Climate Change, We're All on a Sinking Ship -  Obama’s track record of planetary healing hasn’t been all that great. But it was Romney’s sneering dismissiveness of the very thought that revisited me as Hurricane Sandy howled into New York City. I’ve had the same shudder of alarm during every hurricane over the last decade, regardless of who’s in charge, for the political absurdity feels as huge as the tragedies themselves: George W. Bush’s consulting with oil executives to develop climate change policy. Enduring indifference to American infrastructure. Sarah Palin’s anthem of “Drill, baby, drill!” The United States’ failure to sign on to even the weakest of climate change conventions, like the Kyoto Protocol. Meanwhile, the last two decades have seen a pattern of planetary fever and chills. Studies establish that human activity is causally related to the melting of the Arctic ice, the collapse of fish stocks and the rapid rates of extinction within all classes of life forms. It’s not a question; it is fact.

Climate change, not the national debt, is the legacy we should care about - 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.

Naomi Klein: Sandy’s Devastation Opens Space for Action on Climate Change and Progressive Reform: interview - At a speaking event in New York City this week, award-winning journalist and author Naomi Klein discussed why the reconstruction from Superstorm Sandy is actually a great place to usher in progressive change. Klein's latest article for The Nation magazine is called, "Superstorm Sandy — a People's Shock?" She is the author of the best-selling book, "The Shock Doctrine: The Rise of Disaster Capitalism," and is now working on a book about climate change.

Hurricane Sandy, Fiscal Cliff Spark New Discussion of Carbon Tax - With the fiscal cliff looming and parts of the U.S. still digging out from the aftermath of Hurricane Sandy, calls for the U.S. to adopt a carbon tax are gathering steam–even though there’s little sign of interest from Congress or the White House. Today the conservative American Enterprise Institute is holding an all-day, on-the-record discussion of the idea. And the Brookings Institution is unveiling a slate of new measures meant to make the government more effective, including a carbon tax that could raise $1.5 trillion over ten years. All that follows a cascade of carbon-tax advocacy in recent days from the chattering classes and a slate of academic work over the summer (not to mention our own two cents).The idea of a carbon tax is simple: Put a price tag on the harmful emissions from fossil fuels, such as oil and coal, and use the revenues to fund clean-energy development, pay down the deficit or slash taxes. Proponents often describe it as a win-win-win policy, because carbon taxes would penalize things that are bad (pollution) and lower taxes on things that are good (labor and capital). “The time seems ripe for this discussion. The president is committed both to raising tax revenue and to dealing with climate change. A carbon tax kills two birds with one stone,” said Gregory Mankiw, a Harvard economist who advised the Romney campaign and has long pushed for more efficient taxation, including a carbon tax.

On Climate Change, U.S. Doing Better Than Europe - Since world leaders met in Kyoto, Japan, in 1997 and agreed to reduce the carbon dioxide emissions of industrialized countries by about 5 percent below 1990 levels by 2012, virtually nothing has been done to slow the buildup of greenhouse gases in the atmosphere. In 1990, carbon emissions were rising at less than 2 parts per million per year. Now they are rising at nearly 3 p.p.m. per year. How could so little have been achieved, despite all the already considerable economic costs of climate change? Europe, in particular, has put great effort into being a “world leader” on climate change and has spent lots of money on wind farms and rooftop solar panels. Sadly, this has had almost no global effect. The main reason emissions have been going up is the rise of coal — in China, in particular. Coal is now the source of 30 percent of the world’s energy, up from about 25 percent in the mid-1990s. Europe’s initiatives have had no effect on China’s policies or the global coal burn. Indeed, the initiatives have probably made the situation worse. As the price of energy has increased using current renewables, energy-intensive industries are being driven offshore, only for their products to be imported back into the European Union. By the standards of the Kyoto accord, Europe looks good. But those standards measure each country’s production — not consumption — of carbon. This has created counterproductive incentives. If steel plants are closed in Britain and replaced by steel imports from China, Britain counts that as a success. Between 1990 and 2005, Britain’s carbon production fell by about 15 percent — but its carbon consumption rose by 19 percent, when imports were counted. The rest of Europe has been deindustrializing too, and this has also encouraged energy-intensive production to move overseas.

Climate change ‘likely to be more severe than some models predict’ - Climate change is likely to be more severe than some models have implied, according to a new study which ratchets up the possible temperature rises and subsequent climatic impacts. The analysis by the US National Centre for Atmospheric Research (NCAR) found that climate model projections showing a greater rise in global temperature were likely to be more accurate than those showing a smaller rise. This means not only a higher level of warming, but also that the resulting problems – including floods, droughts, sea level rise and fiercer storms and other extreme weather – would be correspondingly more severe and would come sooner than expected. Scientists at the NCAR published their study on Thursday in the leading peer-reviewed journal Science. It is based on an analysis of how well computer models estimating the future climate reproduce the humidity in the tropics and subtropics that has been observed in recent years. They found that the most accurate models were most likely to best reproduce cloud cover, which is a major influence on warming. These models were also those that showed the highest global temperature rises, in future if emissions of greenhouse gases continue to increase.

Study: Climate change fulfilling most dire predictions - A NASA-funded climate study released Thursday said climate models that more accurately project relative humidity and cloud cover are more reliable in predicting the overall rate of change — a revelation that, disturbingly, means the planet’s changing climate is fulfilling scientists’ most dire predictions. In the study, published in the latest edition of the journal Science, the National Center for Atmospheric Research said when compared to data provided by cutting-edge NASA satellites, the top 16 climate models worldwide were most accurate when they tracked relative humidity instead of cloud cover, both of which have a profound impact on how climate fluctuates. Unfortunately, the study said that models tracking relative humidity show climate change is following the most dangerous track in current projections. “There is a striking relationship between how well climate models simulate relative humidity in key areas and how much warming they show in response to increasing carbon dioxide,” scientist John Fasullo said in an advisory. “Given how fundamental these processes are to clouds and the overall global climate, our findings indicate that warming is likely to be on the high side of current projections.”

Poles apart: satellites reveal why Antarctic sea ice grows as Arctic melts - The mystery of the expansion of sea ice around Antarctica, at the same time as global warming is melting swaths of Arctic sea ice, has been solved using data from US military satellites. Two decades of measurements show that changing wind patterns around Antarctica have caused a small increase in sea ice, the result of cold winds off the continent blowing ice away from the coastline. "Until now these changes in ice drift were only speculated upon using computer models," said Paul Holland at the British Antarctic Survey. "Our study of direct satellite observations shows the complexity of climate change. "The Arctic is losing sea ice five times faster than the Antarctic is gaining it, so, on average, the Earth is losing sea ice very quickly. There is no inconsistency between our results and global warming." The extent of sea ice is of global importance because the bright ice reflects sunlight far more than the ocean that melting uncovers, meaning temperature rises still further.

"The Arctic Death Spiral': Geoengineering May Be Our Best Chance to Save Sea Ice - Once ice yields to open water, the albedo—the fraction of solar radiation reflected back into space—drops from 0.6 to 0.1, which will accelerate warming of the Arctic. According to my calculations, the loss of the remaining summer ice will have the same warming effect on the earth as the past 25 years of carbon dioxide emissions. Because a third of the Arctic Ocean is composed of shallow shelf seas, surface warming will extend to the seabed, melt offshore permafrost and trigger the release of methane, which has a much greater greenhouse warming effect than CO2. A Russian-U.S. expedition led by Igor Semiletov has recently observed more than 200 sites off the coast of Siberia where methane is welling up from the seabed. Atmospheric measurements also show that methane levels are rising, most likely largely from Arctic emissions. To avoid the consequences of a collapse of summer ice, we need to bring back the ice we have lost. That will require more than merely slowing the pace of warming—we need to reverse it. Reducing carbon emissions and replacing fossil fuels with renewables, including nuclear power, are the most sensible long-term solutions, of course. But these measures are not going to save the Arctic ice. After decades of our trying, CO2 levels in the global atmosphere continue to rise at a more than exponential rate. It is time to consider a radical course: geoengineering. By this I mean techniques to artificially lower surface temperatures by blocking the sun. One proposal entails “whitening” low-level clouds by injecting fine sprays of water into them; another involves releasing solid sulfates into the atmosphere from balloons, causing radiation-reflecting aerosols to form. A simpler step would be to paint roofs and pavements white. Such measures are sticking-plaster solutions. They would have to be continuously applied, given that any cessation would bring warming back at an accelerated rate. Nor do they counter direct CO2 effects such as ocean acidification. But they might buy us time.

'Groundwater Inundation' Doubles Previous Predictions of Flooding With Future Sea Level Rise - Scientists from the University of Hawaii at Manoa (UHM) published a study today in Nature Climate Change showing that besides marine inundation (flooding), low-lying coastal areas may also be vulnerable to "groundwater inundation," a factor largely unrecognized in earlier predictions on the effects of sea level rise (SLR). Previous research has predicted that by the end of the century, sea level may rise 1 meter. Kolja Rotzoll, Postdoctoral Researcher at the UHM Water Resources Research Center and Charles Fletcher, UHM Associate Dean, found that the flooded area in urban Honolulu, Hawaii, including groundwater inundation, is more than twice the area of marine inundation alone. Specifically, a 1-meter rise in sea level would inundate 10% of a 1-km wide heavily urbanized area along the shoreline of southern Oahu and 58% of the total flooded area is due to groundwater inundation. "With groundwater tables near the ground surface, excluding groundwater inundation may underestimate the true threat to coastal communities," Adapting to marine inundation may require a very different set of options and alternatives than adapting to groundwater inundation," Groundwater inundation is localized coastal-plain flooding due to a simultaneous rise of the groundwater table with sea level. Groundwater inundation is an additional risk faced by coastal communities and environments before marine flooding occurs because the groundwater table in unconfined aquifers typically moves with the ocean surface and lies above mean sea level at some distance from the shoreline.

Climate change greater threat to EM financial centres to storm-hit New York - If you thought ‘superstorm’ Sandy was bad, here’s a sobering thought: New York isn’t even a high-risk city when it comes to climate change. For that, head to Asia. According to a report by Maplecroft, the risk consultancy, several big Asian financial and manufacturing centres are in the danger zone.In terms of financial markets, the impact of Sandy is hard to quantify. Markets often rebound after initial shock closures, but there is certainly an increase in volatility, as well as uncertainty. Individual stocks may also bear the brunt – insurance companies in particular. There is also the wider economic disruption that big storms and climate change can bring. In its Climate Change Vulnerability Index, Maplecroft warns that “long-term changes in temperature and rainfall patterns could have devastating effects on ecosystems, human health, industrial processes, supply chains and infrastructure.” So which are the cities most at risk? In the “extreme” category are: Dhaka, Manila, Bangkok, Yangon, Jakarta, Ho Chi Minh City, and Kolkata. While none of these cities are crucial financial centres on the scale of New York, or even Singapore, Indonesia and Thailand and the Philippines have important roles in Asian trade and manufacturing. However, it is the next level down, the “high risk” category, where several important financial centres and other key emerging market cities appear.

Global Carbon Dioxide Emissions Rose 2.5 Percent In 2011: (Reuters) - Global carbon dioxide (CO2) emissions in 2011 rose 2.5 percent to 34 billion tonnes, a new record, Germany's renewable energy institute said on Tuesday. The IWR, which advises German ministries, cited recovered industrial activity after the end of the global economic crisis of recent years. "If the current trend is sustained, worldwide CO2 emissions will go up by another 20 percent to over 40 billion tonnes by 2020," IWR director Norbert Allnoch said. China led the table of emitters in 2011 with 8.9 billion tonnes, up from 8.3 billion a year earlier. Its CO2 output was 50 percent more than the 6 billion tonnes in the United States. India was third, ahead of Russia, Japan and Germany.

Energy group: Global carbon dioxide emissions hit new record - Global carbon dioxide emissions hit a new record last year at 34 billion tonnes, with China still topping the list of greenhouse gas producers, a German-based private institute said Tuesday. The Renewable Energy Industry Institute (IWR) said that the total amounted to 800 million tonnes more than in 2010, with China accounting for 8.9 billion tonnes — far more than the US tally of 6.0 billion tonnes. The study found that after a brief dip in 2009 due to the global economic crisis, the upward trajectory had resumed. “If the current trend continues then global CO2 emissions will rise another 20 percent by the year 2020 to reach 40 billion tonnes of CO2,” IWR director Norbert Allnoch said in a statement. In 1990, the figure was 22.7 billion tonnes.

World 2011 CO2 emissions up 2.5%: report - Global carbon dioxide (CO2) emissions in 2011 rose 2.5% to 34 billion tonnes, a new record, Germany’s renewable energy institute said on Tuesday. The IWR, which advises German ministries, cited recovered industrial activity after the end of the global economic crisis of recent years. “If the current trend is sustained, worldwide CO2 emissions will go up by another 20 percent to over 40 billion tonnes by 2020,” IWR director Norbert Allnoch said. China led the table of emitters in 2011 with 8.9 billion tonnes, up from 8.3 billion a year earlier. Its CO2 output was 50% more than the 6 billion tonnes in the United States. India was third, ahead of Russia, Japan and Germany.

California to Hold Auction of Greenhouse Gas Emissions - California’s fledging market-based system for reducing greenhouse gas emissions makes its formal debut on Wednesday with its auction of state-issued pollution allowances.More than six years in the making, the state’s so-called cap-and-trade program sets limits on carbon dioxide emissions for virtually all sectors of California’s economy, the ninth-largest in the world. Emissions allowances are allotted to polluters, and companies whose emissions exceed their allocations must either obtain extra allowances or buy credits from projects that cut greenhouse gas emissions. Almost all of the 23.1 million allowances that California has given out to utilities and industry for complying with the program in 2013 have been free; the auction will measure how they are actually valued by the market. Some 39.5 million allowances covering emissions in 2015 will also be on sale Wednesday.

Carbon tax drama: part 1 - The setup:  A senior Treasury Department official said Tuesday that the Obama administration could back carbon taxes as part of a wider fiscal reform deal, but with a big caveat: Republicans would have to show that they want to play ball. “If this is going to be an issue that is part of discussions, there will have to be some interest shown by Republicans if we are going to make any progress,” Gilbert E. Metcalf, the Treasury Department’s deputy assistant secretary for environment and energy, told reporters. “The administration has not proposed a carbon tax nor is it planning to, but if there is, as part of fiscal reform discussions, there are a lot of pieces on the table, and if Republicans see this as a viable piece, then it could be part of the mix,” he said. A White House official said last week that the administration is not going to propose a carbon tax. Metcalf spoke to reporters after remarks at a forum on carbon taxes hosted by the conservative American Enterprise Institute and co-sponsored with the Brookings Institution, International Monetary Fund and Resources for the Future. He made similar remarks to the entire conference.

Carbon tax drama: part 2 = The confrontation:  Conservatives including anti-tax activist Grover Norquist are trying to ensure that a carbon tax doesn’t gain any political momentum. Norquist, the president of Americans for Tax Reform (ATR), said a carbon tax or a consumption tax would violate the ATR pledge against tax increases that a majority of Republicans have signed. “There is no conceivable way to add an energy or [value-added tax] to the burdens American taxpayers face that would not violate the pledge over time,” he said in a statement Tuesday. Norquist appeared to be backing off comments he made to National Journal in a story published Nov. 12. He told the publication that he opposes a carbon tax, but said that coupled with income tax cuts it could be structured in a way that didn’t violate the pledge.But Norquist, who has a seen a drop in the number of lawmakers who have signed the ATR pledge, on Tuesday said that a carbon tax with offsetting reductions would, over time, inevitably lead to overall tax increases.

Carbon tax drama: act 3 - House Energy and Commerce Committee Chairman Fred Upton (R-Mich.) threw cold water Tuesday on supporting a carbon tax, hours after a Treasury Department official said the administration could consider the idea if Republicans lead the effort. A tax on greenhouse gas emissions has won increased attentoin in recent weeks as a way to combat climate change and simultaneously raise revenues.  But Upton (R-Mich.) said Tuesday he is “not a carbon tax guy.”  The administration said last week it would not propose a carbon tax. But Gilbert E. Metcalf, Treasury’s deputy assistant secretary for energy and environment, reiterated that position Tuesday, opened the door to discussing carbon taxes in fiscal talks if Republicans initiated the push.  Upton comments Tuesday underscore how unlikely that scenario is as talks about avoiding the "fiscal cliff" unfold. Asked if he would accept a carbon tax along with a tax cut elsewhere, Upton said, "I don’t like the idea."

Obama spokesman: “We would never propose a carbon tax” - Directly taxing emission of carbon dioxide to thwart its effect on climate has been much talked about post-election, but an spokesman for the president said it's off the table. By implementing a tax on carbon dioxide emissions, many believed significant reductions of greenhouse gas emissions could be achieved absent the complicated system of cap-and-trade that failed Congressional muster in 2010. The coal industry likely stands to suffer the most from any sort of tax on carbon dioxide emissions. At a press conference Wednesday, President Barack Obama emphasized a need to address climate change, but White House Press Secretary Jay Carney said that something would not be a "carbon tax." "We would never propose a carbon tax and have no intention of proposing one," Carney said in a press briefing. "The point the president was making is that our focus right now is the same as the American people's focus, which is on the need to extend economic growth, expand job creation."

EU backs down on airline carbon tax - Washington Times: The European Union backed down Monday from a plan to levy carbon emission surcharges on international flights entering or exiting the Continent. Monday’s move came in the face of strong protests from the Obama administration, India, China and other nations that have protested the Emissions Trading System, or ETS, calling the tax an attack on sovereignty. The EU instituted the unilateral plan in hopes of forcing a trade agreement. But Monday’s surprise announcement from the European Commission for Climate Action appeared to be aimed at averting a global trade war. Commissioner Connie Hedegaard said the EU is hopeful an international agreement can be hammered out. “I’ve just recommended in a telephone conference with the 27 member states that the EU ‘stops the clock,’” Ms. Hedegaard said. Her proposal still awaits approval from parliaments and ministers. She warned that unless the International Civil Aviation Organization, an agency of the United Nations, approves a plan to limit greenhouse gas emissions from aircraft by next year, the tax will be reinstated.

Doha conference: carbon cuts talks must wait, says key negotiator -The debate on whether the world needs stronger greenhouse gas cuts to keep the planet from warming by 2C should be deferred until next year, according to Brazil's lead negotiator at the upcoming talks in Doha. Ambassador Luiz Alberto Figueiredo says delegates at Qatar – the most important climate negotiations of the year – should prioritise an extension of the Kyoto protocol and the rules for a longer-term agreement rather than be distracted by the crucial but contentious issue of emissions reductions. Environmental groups, however, are calling for greater urgency from Brazil, a country that has won plaudits at previous gatherings for leading the search for common ground between wealthy and developing nations. With the Kyoto protocol set to expire at the end of the year, Figueiredo told the Guardian there is an urgent need to ensure the continuation of a process that has been the foundation of international discussions for more than a decade, despite its shrinking support among the initial signatories. "We need a strong second commitment period and we need to decide duration," said Figueiredo, who says Brazil would like the new phase of Kyoto to last until 2020, when a new "internationally binding protocol" is supposed to come into effect.

Governments failing to avert catastrophic climate change, IEA warns - Governments are falling badly behind on low-carbon energy, putting carbon reduction targets out of reach and pushing the world to the brink of catastrophic climate change, the world's leading independent energy authority will warn on Wednesday. The stark judgment is being given at a key meeting of energy ministers from the world's biggest economies and emitters taking place in London on Wednesday – a meeting already overshadowed by David Cameron's last-minute withdrawal from a keynote speech planned for Thursday. "The world's energy system is being pushed to breaking point," Maria van der Hoeven, executive director of the International Energy Agency, writes in today's Guardian. "Our addiction to fossil fuels grows stronger each year. Many clean energy technologies are available but they are not being deployed quickly enough to avert potentially disastrous consequences." On current form, she warns, the world is on track for warming of 6C by the end of the century – a level that would create catastrophe, wiping out agriculture in many areas and rendering swathes of the globe uninhabitable, as well as raising sea levels and causing mass migration, according to scientists. Van der Hoeven, whose deputy will present the IEA's findings to the Third Clean Energy Ministerial, put the blame squarely on policymakers, and challenged ministers to step up.

The economics of global climate leadership - THE International Energy Agency has released its latest World Energy Outlook. The most sobering piece of information in it is a recurring highlight: the estimated time at which the world is "locked in" to a rise in global temperatures of at least 2 degrees Celsius. By 2017, existing energy infrastructure will be sufficient to generate such a scenario; for the world to halt warming at that 2-degree level, it would need to ensure that all additional energy infrastructure was zero carbon or begin retiring existing infrastructure before the end of its useful economic life. Both strategies are difficult to contemplate, and 2017 is not very far away at all. But the big story in the 2012 outlook is the change in the demand for and supply of energy. Unsurprisingly, emerging markets, and Asia especially, account for ever more of the world's energy demand. Somewhat surprisingly, new exploration and technology—mostly the technique for obtaining unconventional oil and gas known as hydraulic fracturing, or "fracking"—will make America a net exporter of energy within a few decades. Patterns of energy trade will shift significantly as a result. Take a look at this chart:

Save The Earth, Drive Your Car? - "Mass transit can be an incredible boon for the environment," says Eric Morris, a regular contributor to Freakonomics and a professor of urban planning at Clemson University. He told Freakonomics' Stephen Dubner: "It can also not help the environment or maybe even hurt the environment." Wait. What? “Obviously, the energy expenditure in moving around a transit vehicle per passenger mile depends on the number of passengers," Morris continues. "Whether you have one passenger in a bus or 40 passengers in a bus, you're going to be expending almost the same amount of energy. So it all depends on the ridership and the occupancy that transit vehicles and, for that matter, autos carry." So here comes the rub. The average American car carries 1.6 people -- not many, of course, when you're comparing it to mass transit. On the other hand, the average bus carries only 10 people. And a bus burns a lot more fuel than a car. Not exactly what mass-transit advocates would have us believe.

Icelandic volcanoes could heat British homes - Telegraph: Volcanic heat from Iceland could generate electricity to power British homes within a decade, according to experts.The geothermal energy would be piped to Britain through the world's longest seabed power cable but would be no more expensive than the next generation of nuclear energy. The man overseeing the project, Hörður Arnarson, the head of Iceland's state-owned power producer Landsvirkjun, said that it could be completed by 2020. He told the Times: "This is a technically challenging project, there's no doubt, but there is no doubt in our mind that it is doable." "Both the length and the depth [of the cable needed] has been tested." He added: "All our energy production is renewable, with hydro and geothermal production. On top of that, we are producing by far the most electricity per capita- we are producing five times more electricity than a country with this population usually needs."

German Law Gave Ordinary Citizens a Stake in Switch to Clean Energy - Staring hard, it was barely possible to make out the turbines on the horizon. Ten miles from shore, the Baltic 1 Wind Farm seemed as small and insubstantial as the scruffy grass along the coast. But, in fact, each of the nearly two dozen turbines is as tall as a 27-story building and has fiberglass epoxy blades nearly 150 feet long. Work has already begun on wind farms with even larger turbines that will generate twice the power of those at Baltic 1, enough to supply 250,000 households with electricity. Wind turbines produce 10 times more electricity in Germany today than they did in 1999. What's even more remarkable is that this expansion is modest compared to the growth of solar power. In 1999, Germany had an installed solar capacity of 32 megawatts. In 2012, that figure was 30,000 megawatts—a nearly 1,000-fold increase in a nation that gets roughly as much sunlight as Alaska. On a sunny day that's as much electricity as 13 nuclear power plants would produce.How did wind and solar power take off so fast and so dramatically in one of the world's largest industrialized economies? How did renewable energies of all kinds come to account for more than 25 percent of the power fed into Germany's grid—compared to just 6 percent in the United States?

How Germany Is Getting to 100 Percent Renewable Energy - There is no debate on climate change in Germany. The temperature for the past 10 months has been 3 degrees above average and we’re again on course for the warmest year on record. There’s no dispute among Germans as to whether this change is man-made, or that we contribute to it and need to stop accelerating the process. Since 2000, Germany has converted 25 percent of its power grid to renewable energy sources such as solar, wind and biomass. The architects of the clean energy movement Energiewende, which translates to “energy transformation,” estimate that from 80 percent to 100 percent of Germany’s electricity will come from renewable sources by 2050. Germans are baffled that the United States has not taken the same path. Not only is the U.S. the wealthiest nation in the world, but it’s also credited with jump-starting Germany’s green movement 40 years ago. “This is a very American idea,” Arne Jungjohann, a director at the Heinrich Boll Stiftung Foundation (HBSF), said at a news conference Tuesday morning in Washington, D.C. “We got this from Jimmy Carter.” Germany adopted and continued Carter’s push for energy conservation while the U.S. abandoned further efforts. The death of an American Energiewende solidified when President Ronald Reagan ripped down the solar panels atop the White House that Carter had installed.Energy, Production and Entropy - This is the presentation I gave at the UN ESCAP meeting on the quality of growth today in Bangkok. The key theme is the need to make energy the basis of the model of production, as argued by Bob Ayres and colleagues.

John Michael Greer: If the Four Horsemen arrive, offer beer - Chris Martensonn - Today I am very happy to welcome John Michael Greer to the program. John is the proprietor of the website, The Archdruid Report, in which – if you haven’t read it, you really should check it out – he writes about environmental depletion of social descent from a very nontraditional but noteworthy perspective. He’s also a man of varied and complex interests. From Wikipedia, I read that John is an American author, of course; independent scholar, historian of ideas, cultural critic, neo-Druid leader, hermeticist, environmentalist/conservationist, blogger/novelist, and occultist/esotericist who currently resides in Cumberland, Maryland after living in Ashland, Oregon for a number of years. Now, I’ve invited John on to discuss the belief systems that are likely going to lead us to empire failure such as widespread and blind faith in technology that will just swoop in and solve our growing energy and environmental imbalances. Maybe it will; maybe it won’t. So here to discuss that – John, you and I have met a couple of times, and it’s great to have you on the show. Thank you for joining us.

Could NDAA be the Death of Biofuels in America? - The US military is one of the most important developers of new technologies leading them to a point where they can be released onto the market for public and private use. Currently the Department of Defense, led by the Navy, is attempting to reduce its dependence on oil by as much as 50% by 2020, by producing US-made biofuels. According to a report by Environmental Entrepreneurs (E2), plans to use biofuels in ships, planes, and other military vehicles is predicted to generate about $10 billion for the economy, and create 14,000 jobs. Another added benefit of the DoD’s push for biofuels is that it would accelerate the adoption of biofuels by commercial airlines, vehicles fleets, and general public consumption. Now however, due to a new act that Congress is expected to pass in the next few weeks, all of those benefits may be wasted, and never reach fruition. The National Defense Authorisation Act (NDAA) would forbid the military from expanding tis use of biofuels. Nicole Lederer, the co-founder of E2, despaired that, “the military often leads major economic transitions in our country. Yet right now in Washington, some shortsighted lawmakers are poised to block a potentially major transformation of our national energy supply - and also hold back the significant economic growth and job gains that would come with it.” Russ Teal, founder of the biorefinery builder Biodico, warned that, “the military is the biggest driver of the biofuels industry right now. If Congress stops the military from doing what the military knows is best, Congress also could threaten the growth of the Made-in-America biofuels industry.”

IEA: Renewables to Become the Second Largest Energy Source in the World by 2015 - The International Energy Agency (IEA) has just launched its 2012 edition of its World Energy Outlook, in which it has stated that energy around the globe is changing “in a dramatic fashion.” The US’s drive to increase oil and natural gas production is the main topic of the report, but the IEA also wrote that renewable energy will become the second largest source of power generation in the world by 2015, and that by 2035 it could overtake coal to become the primary source. They noted that these estimates will only be achieved if current subsidies continue. According to the IEA, a total of $4.8 trillion must be provided as subsidies for renewable projects. Whilst this amount may seem to be vast, over half has already been committed to existing projects, or needs to be invested in order to meet the targets already set for 2020.

Renewable Energy to Rival Coal for Power Generation in 2035 -- Renewable energy is set to rival coal as the main generator of the world's electricity by 2035 as the costs of technology fall and subsidies rise, the International Energy Agency said. Wind farms, solar parks and hydroelectric dams are forecast to become the second biggest power generator in 2015 and rise to almost a third of all generation in 2035, a level approaching that of coal, the Paris-based agency that advises 28 nations on energy policy said today in its annual outlook. “A steady increase in hydropower and the rapid expansion of wind and solar power has cemented the position of renewables as an indispensable part of the global energy mix,” the IEA said. “The rapid increase in renewable energy is underpinned by falling technology costs, rising fossil-fuel prices and carbon pricing, but mainly by continued subsidies.” Renewable energy industry groups predict wind power installations will double over the five years through 2016, with solar photovoltaic panels tripling even as solar and wind equipment manufacturers from Denmark’s Vestas Wind Systems A/S (VWS) to China’s Suntech Power Holdings Co. (STP) struggle with declining margins and industrywide overcapacity. The IEA projected global renewable energy subsidies to rise to $240 billion in 2035 from $88 billion in 2011. That compares with $523 billion in support paid to fossil fuels last year.

Big Coal in big trouble as coal production costs rise - What is driving the decline of the U.S. coal industry? Most of the blame has gone either to Obama’s “war on coal” (EPA regulations) or to cheap natural gas. But there’s a third factor at work, which has gotten much less press:Coal is getting more expensive to produce.Why? First, the easiest-to-reach coal has been mined, which means coal companies have to dig deeper and go after thinner seams and smaller deposits. That costs more, in both energy and money. And second, transportation costs, mainly the cost of the diesel fuel that runs the trains that carry the coal, are rising.It has gotten the point where, in some areas, profit margins have flipped: coal is now selling for less than it costs to produce. In other areas, that flip appears to be perilously close. Never mind EPA or natural gas or Obama or anything else: If it isn’t profitable to mine coal, it won’t be mined, not for long.Stephen Mufson of The Washington Post wrote a broad overview of this subject last week. Let’s dig a little deeper and look at a few data points.

Why Hundreds More Dirty, Aging Coal Plants In The U.S. Are 'Ripe For Retirement' | ThinkProgress: America’s older coal generators are dirtier, less efficient and less utilized than the rest of the country’s coal fleet. And a report from the Union of Concerned Scientists has found they’re not economically viable either. The report’s authors looked at each coal generator in the U.S. and determined whether its operating costs would be higher than those of a natural gas generator when updated with any of the pollution controls for sulfur dioxide, nitrogen dioxide, mercury or soot that it lacked. It found that up to 353 coal-fired generators in 31 states are “ripe for retirement” – meaning adding upgrades important to the health of communities and the planet was more costly than retiring the coal plant or using natural gas and renewable energy. The 353 generators, which account for about six percent of the nation’s power supply, are in addition to the UCS’s estimated 288 units that have already been scheduled for retirement in the U.S.

Europe and Asia are the leading destinations for U.S. coal exports in 2012 - About 75% of U.S. coal exports were shipped to Europe and Asia in 2012, continuing the growth of the past few years with exports this year expected to reach an all-time high. Despite growing demand in Asia, the United States exports slightly more coal to Europe than it sends the rest of the world combined. U.S. coal exports to Europe are primarily serviced out of the East Coast via Norfolk, Virginia (the largest coal export facility in the United States) and Baltimore, Maryland (the third largest). Exports to Asia originate mostly from the East Coast as well, primarily out of Baltimore. Somewhat counterintuitively, most coal out of Baltimore—almost double the port's European volume—is destined for Asia, the world's largest coal consuming region. One reason eastern seaports are the primary origin of U.S. coal exports to Asia is their proximity to U.S. metallurgical (met) coal mines, concentrated in the eastern United States. While U.S. exports to Europe are closely split between met and steam coal (used to generate electricity), Asia primarily imports met coal, which is used in steelmaking. The unavailability of significant capacity limits exports from the western United States, the country's largest coal producing region, although the Seattle customs district has seen rapid growth over the past several years exporting steam coal via rail to Canada, where it is then shipped to Asia.

OPEC sees coal use increasing in coming decades - - OPEC says that fossil fuels will remain the main energy source in the coming decades with coal's share growing and oil's falling. In its annual World Oil Outlook, the Organization of the Petroleum Exporting Countries also projects that a barrel of benchmark crude will cost $155 by 2035, compared with under $100 now. The report, published Thursday, says the use of fossil fuels as a percentage of world energy use will decrease only marginally from 87 percent now to 82 percent by 2035. It says that by then, "coal use reaches similar levels as that of oil, with oil's share having fallen from 35 percent in 2010 to 27 percent by 2035." The report notes there are more coal reserves - mostly in the U.S. - than oil and gas.

 With China and India Ravenous for Energy, Coal’s Future Seems Assured - Last summer, nearly half of India’s sweltering population suddenly found the electricity shut off. Air-conditioners whirred to a stop. Refrigerators ceased cooling. The culprits were outmoded power generation stations and a creaky electricity transmission grid.But another problem stood out. India relies on coal for 55 percent of its electric power and struggles to keep enough on hand. Coal remains a critical component of the world’s energy supply despite its bad image. In China, demand for coal in 2010 resulted in a traffic jam 75 miles long caused by more than 10,000 trucks carrying supplies from Inner Mongolia. India is increasing coal imports. So is Europe, as it takes advantage of lower coal prices in the United States. Higher-priced natural gas on the Continent is creating demand for more coal imports from the United States, where coal is taking a drubbing from less expensive natural gas. Coal may seem an odd contender in a world where promising renewable energy sources like solar, wind and hydroelectric power are attracting attention. Anathema to environmentalists because it creates so much pollution, coal still has the undeniable advantages of being widely available and easy to ship and burn. The biggest attraction, however, is low cost. By many estimates, including that of Li Junfeng, longtime director general of the National Development and Reform Commission of China, burning coal still costs about one-third as much as using renewable energy like wind or solar.

Japan's Last Remaining Nuclear Power Plant May Be Built On An Active Fault Line -  Following the disaster at the nuclear power plant in Fukushima last year, nearly all of Japan’s reactors have been shut down. The only power plant to remain operational today is the Oi nuclear plant in western Japan. A geologist working as part of team looking at the power plant, its location, and the geological history of the area, has now stated that the power plant is built on top of a fault line that can be described as ‘active’, and advises that it be shut down immediately. Watanabe fears that any seismic activity on this fault line could cause a catastrophe similar to the one at Fukushima; although his colleagues on the advisory panel disagree.

Thousands protest against nuclear power in central Tokyo－ Thousands of people staged a demonstration near the Diet Building on the rainy evening of Nov. 11 to call for an end to nuclear power. According to figures released by demonstration organizer Metropolitan Coalition Against Nukes, roughly 100,000 people took part in the protest. Police put the figure at about 7,000. "We don't need nuclear power!" chanted people who had gathered simultaneously at nine locations in the government quarter, including in front of the prime minister's office. The crowd began assembling at the main meeting point in front of the Diet at just after 5 p.m. and soon the pavement was packed with people. At one point, there were so many protesters packed into one place they disrupted use of the local crosswalks. "The number of people at the weekly Friday protests has been going down with the temperature," said Haruomi Hanada, a 47-year-old Tokyo man with his 10-year-old daughter in tow. "I was worried people were starting to care less about the issue, but I'm relieved to see so many people here today."

India's thorium-based nuclear dream inches closer - Last week, the Nuclear Power Corporation of India (NPCIL) put out statements to the Indian press touting the safety of its new Advanced Heavy Water Reactor (AHWR), which could break ground near one of the country's conventional reactors next year. Once operational, they claim it will fulfil the vision of India's 60-year-old blueprint for thorium-based nuclear energy production, generating 300 megawatts of power from thorium more safely than nuclear energy has ever done. NPCIL's technical director, Shiv Abhilash Bhardwaj, told the press that such reactors will be so safe they can be built right inside major cities like Mumbai. The rhetoric is familiar: for decades, thorium has been repeatedly held up as a cheap, clean way forward for nuclear power. Compared with the uranium-based fuel cycles, thorium produces far smaller amounts of radioactive waste elements - including plutonium, which remains dangerous for tens of thousands of years. But the reality is that there's nothing new about the AHWR, says Craig Smith, a nuclear engineer at the US Naval Postgraduate School in Monterey, California. Smith says Bhardwaj's claims that the reactor will be safe enough to build in urban areas simply do not stand up. The reactor will convert thorium to uranium-233, which then splits to produce heat and other elements with short half-lives. If an accident were to occur, this dangerous mix of chemicals could be released into the environment.

U.S. Shale Goes Boom, Rest Of World Goes Bust -  OPEC, in its World Oil Report, said there's an overall sense that developing shale oil and natural gas could start to redefine the global energy mix. In the United States, the cartel said shale natural gas production alone grew by more than 60 percent from 2010 to 2012.  For shale oil, supplies in the United States have already passed the 1 million barrel-per-day mark. Though shale reserves may ultimately be a game changer, said OPEC, outside the United States, the sector is in its infancy.

How Google Is Helping the Gas Lobby Support Fracking - For more than 17 months, Robert Howarth, an ecology professor at Cornell, has had a Google problem. Howarth is the chief author of an important paper on the environmental impact of hydraulic fracturing, or fracking, a controversial method of obtaining natural gas. The paper concludes that the practice is not a clean way to extract domestic energy, as many allege, and has an even greater carbon footprint than coal. The paper's conclusions poke holes in some of the most common talking points used by supporters of fracking and made major headlines, including a large and prominently placed article in The New York Times in April 2011. The paper also got the attention of the gas lobby. Most notably, America's Natural Gas Alliance (ANGA). Soon after the paper was released, Howarth and others noticed a disturbing phenomenon on Google. Every time Professor Howarth's name was placed into a Google search engine, the first thing that appeared was an ad from ANGA, devoted strictly to hampering the credibility of Howarth's research. The page was listed as an ad but at a quick glance, it simply looked like the top search result. As of the time of this writing, late October, the ad still displayed that way.The ad, and the ability of industry to use Google ads for these purposes, raises important questions about the role that Google and other prominent search engines will have on important political and scientific discourse. This method naturally empowers wealthy industries to dominate Google search results given their massive resources and vested financial interests in the way in which science is discussed in the public sphere. Given this reality, what can we expect from Google and other corporate giants of the Internet world when it comes to providing valuable information that serves the public?

Colorado Oil And Gas Well Rules To Be Considered By State Commission: Colorado officials considering changes to rules on how far oil and natural gas wells should be from houses, schools and other buildings will have to balance concerns of not just environmentalists and residents but also industry groups, farmers and ranchers and real estate agents. The Colorado Oil and Gas Conservation Commission is set to hold a hearing Wednesday on proposed new rules on "setbacks," or how far oil and natural gas wells should be from houses, schools and other buildings. The discussion could continue into January, if needed. Any changes would have to ultimately be approved by the Legislature. Also on the agenda are proposed rules for sampling and monitoring of groundwater near proposed new wells, which could help show whether water has or hasn't been contaminated by drilling. Conservation groups are already saying the proposed rules could be stronger. Conservation Colorado, a coalition of about 100 environmental groups, argues the water sampling proposal is weak and wants the state to require testing of more than two water samples.

Oil Lobby Chief Warns 'You Fundamentally Can't Regulate' Fracking At All -The oil and gas industry has enjoyed relative freedom in hydraulic fracturing without much accountability for its climate pollution and chemical use. Earlier this year, the Obama administration issued the first-ever national standards for air pollutants related to fracking on federal lands. The American Petroleum Institute, the oil and gas lobbying arm, was even satisfied with the new rules, which still allowed companies to frack first and disclose later. And that’s the way the industry wants it to be. At an event this week, API President Jack Gerard argued that there is no case for regulating the controversial drilling technique, suggesting companies should get free reign: “You can’t be for the potential energy development in the United States and be against hydraulic fracturing,” Gerard said. “You fundamentally can’t regulate the very technology that has created the potential and deny the ability to use that in places where we can see job creation, revenue creation.” There is strong evidence for the need to scrutinize the fracking industry. Hydrofracking poses a great risk for the future of the climate, since studies point to high levels of methane leakage, a greenhouse pollutant more potent than carbon. And thanks to exemptions from the Clean Water and Air Acts, as well as weak state-level rules, companies can avoid disclosure of chemicals that are injected near water wells.

Senate Lawmakers See Opportunity To Revamp Energy Policy: (Reuters) - The United States needs to update its energy policy to reflect the boom in natural gas and oil production that has boosted manufacturing jobs, said the top Democrat on the Senate energy committee on Thursday. Ron Wyden, who is in line to take over the panel's gavel in January, said he sees the opportunity for "transformative energy policy" to both spur jobs created by the newfound wealth of energy while also protecting air and water from pollution. But Wyden and Lisa Murkowski, the top Republican on the committee, who spoke at an event held by CQ Roll Call, provided few details on the shape new energy legislation would take. But they stressed they wanted to work together on legislation that would strike a balance between economic development and job creation, and environmental protection. "We feel really strongly about checking the gridlock at the door, working together on, in particular modernizing our energy policy," said Wyden, who represents Oregon and has a long history of working with Republicans on thorny issues including taxation and health care. Congress has not had a comprehensive energy bill since 2007, well before the widespread use of hydraulic fracturing or "fracking" technology to blast free natural gas and oil trapped in shale rock.

Shale Gas Will be the Next Bubble to Pop – Yves Smith - In a May post, Shale Gas Hype: Subprime 2.0?, we wrote about the questionable economics of shale gas. This interview with geological consultant and energy expert Arthur Berman gives a skeptical view of its potential, as well as how ready advanced economies are to move away from existing energy sources. Naked Capitalism regulars will take exception to Berman’s take on Obama as a “green” president. Cross posted from OilPrice. The “shale revolution” has been grabbing a great deal of headlines for some time now. A favourite topic of investors, sector commentators and analysts – many of whom claim we are about to enter a new energy era with cheap and abundant shale gas leading the charge. But on closer examination the incredible claims and figures behind many of the plays just don’t add up. To help us to look past the hype and take a critical look at whether shale really is the golden goose many believe it to be or just another over-hyped bubble that is about to pop, we were fortunate to speak with energy expert Arthur Berman.

Shale Gas Will be the Next Bubble to Pop - An Interview with Arthur Berman: The “shale revolution” has been grabbing a great deal of headlines for some time now. A favourite topic of investors, sector commentators and analysts – many of whom claim we are about to enter a new energy era with cheap and abundant shale gas leading the charge. But on closer examination the incredible claims and figures behind many of the plays just don’t add up. To help us to look past the hype and take a critical look at whether shale really is the golden goose many believe it to be or just another over-hyped bubble that is about to pop, we were fortunate to speak with energy expert Arthur Berman. Arthur is a geological consultant with thirty-four years of experience in petroleum exploration and production. He is currently consulting for several E&P companies and capital groups in the energy sector. He frequently gives keynote addresses for investment conferences and is interviewed about energy topics on television, radio, and national print and web publications including CNBC, CNN, Platt’s Energy Week, BNN, Bloomberg, Platt’s, Financial Times, and New York Times. You can find out more about Arthur by visiting his website: http://petroleumtruthreport.blogspot.com

Shale Gas Bubble Bursting: Report Debunks “100 Years” Claim for Domestic Unconventional Oil and Gas - Food and Water Watch (FWW) released a report today titled “U.S. Energy Security: Why Fracking for Oil and Natural Gas Is a False Solution.” It shows, contrary to industry claims, there aren’t 100 years of unconventional oil and gas sitting below our feet, even if President Barack Obama said so in his 2012 State of the Union Address. Far from it, in fact.The report begs the disconcerting question: is the shale gas bubble on its way to bursting?FWW crunched the numbers, estimating that there are, at most, half of the industry line, some 50 years of natural gas and much less of shale gas. This assumes the industry will be allowed to perform fracking in every desired crevice of the country. These are the same basins that advocates of hydraulic fracturing (“fracking”) claim would make the U.S. the “next Saudi Arabia.” “The popular claim of a 100-year supply of natural gas is based on the oil and gas industry’s dream of unrestricted access to drill and frack, and it presumes that highly uncertain resource estimates prove accurate,” wrote FWW. “Further, the claim of a century’s worth of natural gas ignores plans to export large amounts of it overseas and plans for more domestic use of natural gas to fuel transportation and generate electricity.”

Hard Facts about US Energy that Obama and Romney Avoided: The latest presidential campaign may be remembered more for what wasn’t said than for what was, especially when it comes to the pivotal issue of energy. We heard assertions that America has a century’s worth of cheap natural gas, that domestic drilling will soon free us of the need to import oil, and that the president of the United States is responsible for high gasoline prices – all exaggerations at best. We didn’t hear the hard truth about our nation’s energy conundrum. Here’s an inconvenient fact: The recent glut of US oil and natural gas production was driven not by new discoveries or technologies, but by high prices. In the years 2005-08, as conventional oil and gas supplies dwindled, prices for these fuels soared. High prices then provided an incentive for the industry to use expensive, risky technology to drill problematic reservoirs. Companies bought up mineral rights and drilled thousands of wells. High per-well decline rates and high production costs were hidden behind a torrent of new gas, new oil, and old-fashioned hype.Facts have consequences. It’s thrilling to trumpet robust oil and gas production numbers, but not so cheery to look honestly at our current energy system. There was no straight talk this election year about what growing reliance on unconventional fossil fuels really means: the need for enormous amounts of water for fracking, the high climate impacts from fugitive methane, the threats to groundwater from bad well casings or leaking containment ponds, and the inevitable social disruption to communities in the oil patch, roiled by boom-and-bust economic cycles. Low-quality shale reservoirs require not only fast and furious rates of drilling, but also creative financing – which Wall Street has been happy to supply, in the process inflating yet another bubble.

Alaska-bound rail project could solve Canada’s oil sands problems - A group of Canadian businessmen has obtained the blessing of Alaskan tribes and Canadian First Nations to build a railroad through their lands that could carry up to five million barrels per day from the oil sands to the super tanker port in Valdez, Alaska. This is truly a nation-building project that must be seriously evaluated by all governments and the oil industry. Preliminary feelers have been placed and it’s clear that the concept is the most viable and pragmatic solution for Canada’s logistical problems. The proposed 2,400-kilometre railway would link Fort McMurray, Alta., with the Alaska oil pipeline system then on to the Valdez for export.

BP to Pay U.S. Billions for Gulf Spill; Manslaughter Charges Pending for 2 Employees - Oil giant BP says it has agreed to pay $4.5 billion in a wide-ranging settlement with the U.S. government over the 2010 oil spill in the Gulf of Mexico. The London based multinational also said in a statement Thursday it agreed to plead guilty to charges including 11 felony counts of misconduct related to the deaths of 11 men in the rig explosion that triggered the oil spill. It also pleaded guilty to a felony count of obstruction of Congress.

BP to Admit Crimes and Pay $4.5 Billion in Gulf Settlement… BP, the British oil company, said Thursday it would pay $4.5 billion in fines and other payments to the United States government and plead guilty to 14 criminal charges in connection with the giant oil spill in the Gulf of Mexico two years ago. The explosion on the Deepwater Horizon drilling rig in the Gulf of Mexico that was connected to a well owned by BP killed 11 workers and spilled millions of barrels of oil.  The payments include a $4 billion fine to be paid over five years, with much of it to go to government environmental agencies, BP said in a statement.  As part of the settlement, BP pleaded guilty to 11 felony misconduct or neglect charges related to the deaths of 11 people in the Deepwater Horizon accident in 2010, which unleashed millions of barrels of oil into the gulf.  A law enforcement official familiar with the case also said that two BP employees would be charged with manslaughter in the case. The United States attorney general, Eric H. Holder Jr., was scheduled to hold a news conference in New Orleans later Thursday. ... Even with a settlement on the criminal claims, BP would still be subject to other claims, including federal civil claims and claims for damages to natural resources.

BP, Justice Department Close to Settlement in Deepwater Horizon Case; BP to Plead Guilty of Criminal Misconduct - Well, I think we’ve figured out how an elite corporation can receive criminal charges in 21st-century America. All you have to do is spill 205.8 million gallons of oil into a US waterway. Then, you’re just going to have to cop a criminal misconduct plea, as long as the Justice Department gives you immunity from future suits and wraps up all your negligence in one case. BP Plc is expected to pay a record U.S. criminal penalty and plead guilty to criminal misconduct in the 2010 Deepwater Horizon disaster through a plea deal reached with the Department of Justice that may be announced as soon as Thursday, according to sources familiar with discussions. Three sources, who spoke to Reuters on condition of anonymity, said BP would plead guilty in exchange for a waiver of future prosecution on the charges. BP confirmed it was in “advanced discussions” with the Department of Justice (DoJ) and the Securities & Exchange Commission (SEC). The talks were about “proposed resolutions of all U.S. federal government criminal and SEC claims against BP in connection with the Deepwater Horizon incident,” it said in a statement on Thursday, but added that no final agreements had been reached

BP agrees record $4.5bn settlement over Gulf spill - BP has pleaded guilty to manslaughter over the deaths of 11 men in the Gulf of Mexico disaster and will pay $4.5bn (£2.8bn) in a record settlement with US authorities.BP has pleaded guilty to manslaughter over the deaths of 11 men in the Gulf of Mexico disaster and will pay $4.5bn (£2.8bn) in a record settlement with US authorities. The explosion on the Deepwater Horizon rig in April 2010 caused the worst offshore oil spill in US history, brought the company to its knees and, after Thursday’s settlement, is likely to cost it at least $42bn. The total bill could yet rise significantly if BP is found to have committed gross negligence – a charge it has always denied – in a civil case that remains unresolved. BP is to pay $4bn in criminal fines and penalties to resolve all criminal claims with the Department of Justice (DoJ) – the largest criminal settlement in US history. It will plead guilty to 11 felony charges of manslaughter over the deaths of the men.

Why BP Isn't a Criminal - Robert Reich - Justice Department just entered into the largest criminal settlement in U.S. history with the giant oil company BP. BP plead guilty to 14 criminal counts, including manslaughter, and agreed to pay $4 billion over the next five years. This is loony. Mind you, I’m appalled by the carelessness and indifference of the BP executives responsible for the disaster in the Gulf of Mexico that killed eleven people on April 20, 2010, and unleashed the worst oil spill in American history. But it defies logic to make BP itself the criminal. Corporations aren’t people. They can’t know right from wrong. They’re incapable of criminal intent. They have no brains. They’re legal fictions — pieces of paper filed away in a vault in some bank. Holding corporations criminally liable reinforces the same fallacy that gave us Citizen’s United v. the Federal Election Commission, in which five justices decided corporations are people under the First Amendment and therefore can spend unlimited amounts on an election. Even if 49 percent of their shareholders are foreign citizens, corporations now have a constitutional right to affect the outcome of American elections.

Oil industry tax breaks face the ‘fiscal cliff’ - The oil industry’s long record of success in defending its tax breaks faces new tests as lawmakers and the White House negotiate to avoid the “fiscal cliff.” House Speaker John Boehner (R-Ohio) won’t rule out targeting oil-industry deductions in a broad deal to avoid the higher income tax rates and deep automatic spending cuts set to take effect in 2013. “The details will have to be negotiated. Not going to speculate on what a final package may look like,” Boehner spokesman Kevin Smith told The Hill. The Speaker is seeking a deal with the White House that would include new tax revenues without raising rates, a stance that has shifted the focus to the deductions and loopholes in the IRS code. The American Petroleum Institute (API), the industry’s biggest lobbying group, is bracing for fresh attacks against incentives that oil companies say are nourishing the nation’s oil-and-gas production boom. The group is announcing a TV and print ad campaign Tuesday aimed at shoring up support for the billions of dollars in deductions that companies receive on drilling costs, income from domestic projects and other areas.

Is Bakken set to rival Ghawar? (Reuters) - Could oil production from the Bakken formation in North Dakota and Montana rival output from Saudi Arabia's supergiant Ghawar oilfield, the greatest oil-bearing structure the world has ever known? Until recently, comparisons between the shale fields of the Bakken and Ghawar, which produces 5 million barrels per day, would have been dismissed as fanciful. But Bakken's exponential growth and enormous reserves put it on course to produce more than 1 million barrels per day by the middle of next year, which will earn it a place in the small pantheon of truly elite oil fields. Ghawar accounts for nearly half of Saudi Arabia's total declared capacity of 12.5 million barrels per day and has produced more than 65 billion barrels of oil since 1951. Ghawar is one of only six super-giant oil fields that have produced more than 1 million barrels per day at their peak. Others are Burgan (Kuwait), Cantarell (Mexico), Daqing (China) and in the 1970s and 1980s Samotlor (Russia) and Kirkuk (Iraq). Discovered in 1948, and just 174 miles long by no more than 31 miles wide, Ghawar is an extraordinary structure. "It is unlikely that any new oilfield will ever rival the bounteous production Ghawar has delivered to Saudi Arabia and the international petroleum markets," energy expert Matthew Simmons explained in "Twilight in the Desert", his controversial 2005 book about Saudi Arabia's diminishing oil reserves. But now Bakken has burst onto the scene. Output hit 631,000 barrels per day in August 2012, according to North Dakota's Department of Mineral Resources, up from 256,000 barrels per day in August 2010 and just 83,000 barrels per day in August 2008. Growth has been exponential (in the true sense of the word). Output has been increasing at a steady rate of about 65 percent a year since late 2009 and shows no sign of slowing (). If growth continues at this pace for the next 12 months, and there is no reason to think it won't, production will top 1 million barrels a day by August 2013.

BARCLAYS: North Dakota's Shale Boom Is At A Tipping Point - Thanks to its shale boom, North Dakota has treated many Americans very well. But Barclays' Paul Horsnell (via Reuters' John Kemp) says the state's oil and gas development now finds itself at a tipping point. While the boom is "far from over," he notes the number of rigs in the state has begun to wane. Data from drilling firm Smith Bits shows a year-over-year decline of four rigs in August, which doesn't sound like much. But Horsnell says "there are lags, as well as efficiency and productivity effects, that slow and complicate the mapping between rig counts and output." Here's the full rig count data:

Canada looks to lure energy workers from the U.S. - With a daughter to feed, no job and $200 in the bank, Detroit pipe fitter Scott Zarembski boarded a plane on a one-way ticket to this industrial capital city. He'd heard there was work in western Canada. Turns out he'd heard right. Within days he was wearing a hard hat at a Shell oil refinery 15 miles away in Fort Saskatchewan. Within six months he had earned almost $50,000. That was 2009. And he's still there. "If you want to work, you can work," said Zarembski, 45. "And it's just getting started." U.S. workers, Canada wants you. Here in the western province of Alberta, energy companies are racing to tap the region's vast deposits of oil sands. Canada is looking to double production by the end of the decade. To do so it will have to lure more workers — tens of thousands of them — to this cold and sparsely populated place. The weak U.S. recovery is giving them a big assist. Canadian employers are swarming U.S. job fairs, advertising on radio and YouTube and using headhunters to lure out-of-work Americans north. California, with its 10.2% unemployment rate, has become a prime target. Canadian recruiters are headed to a job fair in the Coachella Valley next month to woo construction workers idled by the housing meltdown. The Great White North might seem a tough sell with winter coming on. But the Canadians have honed their sales pitch: free universal healthcare, good pay, quality schools, retention bonuses and steady work.

IEA Cuts 2013 Oil Demand Forecast on Weak Economy -  : A combination of persistently high prices and a weak economic backdrop will keep a lid on oil consumption this year, the International Energy Agency (IEA) said on Friday, while a slightly stronger macroeconomic outlook in 2013 will likely be offset by the resumption of nuclear capacity in Japan reducing the need for oil.The IEA raised its estimate of global oil demand growth for this year to 900,000 barrels per day (bpd) from around 800,000 forecast last month and said demand would increase by around 800,000 bpd in 2013, down from the 1 million bpd it forecast in July. “A relatively subdued global oil demand forecast persists for both 2012 and 2013, resulting from the weak economic backdrop,” the report said, with global demand for oil rising just 1 percent with estimated output for 2012 averaging 89.6 million barrels per day (mb/d) and rising to a meager 90.5 mb/d average in 2013. The agency expects global economic growth of around 3.3 percent for 2012, rising to 3.6 percent in 2013 — down marginally from last month’s report (3.8 percent) as the economic backdrop has worsened.

IEA: US To Be World's Largest Oil Producer - The IEA has released it's 2012 World Energy Outlook.  The big headline is that they've bought into the idea that the US energy future is too bright to stare hard at: Energy developments in the United States are profound and their effect will be felt well beyond North America – and the energy sector. The recent rebound in US oil and gas production, driven by upstream technologies that are unlocking light tight oil and shale gas resources, is spurring economic activity – with less expensive gas and electricity prices giving industry a competitive edge – and steadily changing the role of North America in global energy trade. By around 2020, the United States is projected to become the largest global oil producer (overtaking Saudi Arabia until the mid-2020s) and starts to see the impact of new fuel-efficiency measures in transport. The result is a continued fall in US oil imports, to the extent that North America becomes a net oil exporter around 2030. I am less persuaded myself that using a thousand oil rigs to generate an extra one million barrels per day of oil is necessarily a sign of a large and long-term sustainable increase in US oil production (as opposed to, say, frenzied scraping of the bottom of the barrel).  But, still, I'm not certain beyond a reasonable doubt just how deep this particular barrel can be scraped.

IEA - WEO-2012: The 2012 edition of the World Energy Outlook was released on 12 November and presents authoritative projections of energy trends through to 2035 and insights into what they mean for energy security, environmental sustainability and economic development. Oil, coal, natural gas, renewables and nuclear power are all covered, together with an update on climate change issues. Global energy demand, production, trade, investment and carbon dioxide emissions are broken down by region or country, by fuel and by sector. WEO-2012 presents in-depth analysis of several topical issues, such as: the benefits that could be achieved if known best technologies and practices to improve energy efficiency were systematically adopted; the dependence of energy on water, including the particular vulnerabilities faced by the energy sector in a more water-constrained future; how the surge in unconventional oil and gas production in the United States is set to have implications well beyond North America; and a detailed country focus on Iraq, examining both its importance in satisfying the country’s own needs and its crucial role in meeting global oil and gas demand. Furthermore, it analyses the implications of energy trends on climate change, quantifies the cost of subsidies to fossil fuels and renewables, which are both coming under closer scrutiny in this age of austerity, and presents measures of progress towards providing universal access to modern energy services. Table of Contents (pdf)

2012 World Energy Outlook from the International Energy Agency - On Monday the IEA released its World Energy Outlook 2012. This includes an optimistic assessment of the situation in the United States: The United States is projected to become the largest global oil producer before 2020, exceeding Saudi Arabia until the mid-2020s. At the same time, new fuel-efficiency measures in transport begin to curb US oil demand. The result is a continued fall in US oil imports, to the extent that North America becomes a net oil exporter around 2030.  Stuart Staniford makes an interesting observation on the above reported numbers. The graph suggests that the U.S. will be producing a little over 10 mb/d in 2020. If that's enough to overtake Saudi Arabia, it means that Saudi production is never going to get anywhere near the 15.4 mb/d that the kingdom had been predicted to reach in 2020 according to the IEA's World Energy Outlook 2005 released seven years ago. The pink or red regions in the above graph appear to be reporting the sum of field production, lease condensate, and natural gas liquids. The latter by 2011 had come to account for 28% of the total, and you can't drive your car on ngl. It's also interesting to note that according to the graph, U.S. production is expected in 2020 to get back to the level previously seen in 1985-- or about 800,000 b/d below the all-time U.S. peak in 1970-- before beginning to decline again after 2020. And all of the gain between now and 2020 comes from unconventional production, presumably largely oil and ngl from tight formations. Again quoting Stuart: I am less persuaded myself that using a thousand oil rigs to generate an extra one million barrels per day of oil is necessarily a sign of a large and long-term sustainable increase in US oil production

U.S. Expected to Become World’s Top Oil Producer by 2020 - The United States will become the world’s largest oil producer by around 2020, temporarily overtaking Saudi Arabia, as new exploration technologies help find more resources, the International Energy Agency forecast on Monday.  In its World Energy Outlook, the energy watchdog also predicted that greater oil and natural gas production — thanks partly to a boom in shale gas output — as well as more efficient use of energy will allow the U.S., which now imports around 20 percent of its energy needs, to become nearly self-sufficient around 2035. That is “a dramatic reversal of the trend seen in most other energy-importing countries,” the Paris-based IEA said in its report. “Energy developments in the United States are profound and their effect will be felt well beyond North America — and the energy sector.” Rebounding U.S. oil and gas production is “steadily changing the role of North America in global energy trade,” the IEA said.

U.S. to overtake Saudi as top oil producer: IEA (Reuters) - The United States will overtake Saudi Arabia and Russia as the world's top oil producer by 2017, the West's energy agency said on Monday, predicting Washington will come very close to achieving a previously unthinkable energy self-sufficiency. The International Energy Agency (IEA) said it saw a continued fall in U.S. oil imports with North America becoming a net oil exporter by around 2030 and the United States becoming almost self-sufficient in energy by 2035. "The United States, which currently imports around 20 percent of its total energy needs, becomes all but self-sufficient in net terms - a dramatic reversal of the trend seen in most other energy importing countries," it said. The forecasts by the IEA, which advises large industrialized nations on energy policy, were in sharp contrast to its previous reports, which saw Saudi Arabia remaining the top producer until 2035.

U.S. Oil Output to Overtake Saudi Arabia’s by 2020 - U.S. oil output is poised to surpass Saudi Arabia’s in the next decade, making the world’s biggest fuel consumer almost self-reliant and putting it on track to become a net exporter, the International Energy Agency said. Growing supplies of crude extracted through new technology including hydraulic fracturing of underground rock formations will transform the U.S. into the largest producer for about five years starting about 2020, the Paris-based adviser to 28 nations said today in its annual World Energy Outlook. The U.S. met 83 percent of its energy needs in the first six months of this year, according to the Energy Department in Washington. “The IEA outlook feeds into the idea of a shift in the center of influence in the world oil market,” said Gareth Lewis-Davies, an analyst at BNP Paribas SA in London. “Given Saudi Arabia is willing to shift production up and down it will retain a large degree of influence, and remain important as a price-influencer.” The U.S., whose crude imports have fallen 11 percent this year, is on track to produce the most oil since 1991, according to Energy Department data. In a year when Iran has threatened to halt Persian Gulf oil shipments, the growing output, coupled with a gas-production boom, may help insulate the nation from supply disruptions. President Barack Obama cited “freeing ourselves from foreign oil” as a policy goal in his election victory speech last week, echoing his predecessor, George W. Bush, who in 2006 urged the U.S. to break its “addiction” to imported crude.

Hook, Line And Sinker - On October 25 I wrote a post called The United States Is The New Saudi Arabia!  Now, only a few weeks after that sarcastic headline, the International Energy Agency (IEA) has said ... wait for it ... the United States is the new Saudi Arabia! Here's the Reuters version, called U.S. to overtake Saudi as top oil producer - IEA. Some reports on the IEA's pronouncement, those coming from outside the United States, took a more sober approach. This text is from the Financial Times' US set to become biggest oil producer. However, those projections are based on an extrapolation of the dramatic growth in shale oil production in recent years, which some analysts see as implausible, or at least uncertain. The key to the new US oil boom is the widespread use of techniques such as hydraulic fracturing, or fracking, and horizontal drilling that have tapped huge hydrocarbon resources previously thought unrecoverable. The boom started in natural gas, but has in recent years switched to oil, produced in ever larger quantities in places such as North Dakota’s Bakken Shale and Eagle Ford in South Texas. The decline rate of shale oil wells is very steep, however. A year after coming on stream, production has dropped to about 20-40 per cent of its original level, according to analysts at Barclays Capital.  That means producers have to keep drilling to sustain output, and there is still uncertainty about how much new wells will produce. The best prospects will have been developed first, meaning that subsequent drilling will take place in less favourable geology. It will take years to show how serious that deterioration is. [My note: Subsequent to my reading it, the Financial Times rewrote its story and removed this text. Luckily, I had saved a copy.]

Stock Market Yawns at Stunning Report: U.S. To Overtake Saudi Arabia As Number One Oil Producer - Pam Martens -  Yesterday the International Energy Agency (IEA) delivered a stunning research study showing that a shale-oil bonanza in the United States would assist it in overtaking Saudi Arabia as the world’s largest oil producer by 2020.  In two decades, the U.S. would become largely self-sufficient as an energy producer. That was startling news but even more surprising was the stock market’s reaction – it didn’t budge.  The Dow Jones Industrial Average closed unchanged on the day. ConocoPhillips, for example, closed down 3 cents at $55.64 on the day.  To put it bluntly, there are only two ways to interpret the big yawn from the stock market over this blockbuster news: (1) the market thinks the report is bogus; (2) the market doesn’t like the inference that should the U.S. no longer need OPEC, it might not continue to spend its military budget protecting U.S. corporate interests in the Middle East.  Those corporate interests are not just the interests of oil companies.  Many companies that trade on U.S. stock markets also have an economic interest in what happens in the Middle East – particularly military armaments manufacturers.

Energy Independence in the United States? Don’t Pop the Cork Yet - EVER since the Arab oil embargoes in the 1960s and 1970s, American presidents have pledged to end the country’s dependence on foreign oil by drilling more at home and increasing energy efficiency. But “energy independence” was little more than a dreamy campaign slogan.  Now, suddenly, the dream looks to be in reach. The International Energy Agency reported this week that the United States was poised to become the world’s biggest oil producer thanks to new drilling technologies in shale fields across the country. With oil production going up each month, not only are imports from the Organization of the Petroleum Exporting Countries going to drop, the energy agency predicted, but the United States will also become a net oil exporter by 2030.  Even if the United States were no longer dependent on oil from the tumultuous Middle East and North Africa, vital American trading partners like China, India, Japan and Europe would continue to import increasing amounts of oil from the region. Future price shocks at the pump would still be likely as long as the world depended on unsteady producing nations like Venezuela, Nigeria, Iraq, Libya and Iran, where politics often mixes inharmoniously with crude. “This isn’t the end of history,” . “If we are going to be a consumer of oil, it’s better that it be our oil rather than from the Middle East. But the oil market is still global, and the North American oil market will still be greatly impacted by developments in the Middle East.”

Despite oil boost, U.S. not in clear yet - One paragraph above the prediction about the U.S. and Saudi, the IEA lays out a far more disturbing scenario, highlighted in boldface type: “The world is still failing to put the global energy system onto a more sustainable path.” It goes on to outline a future in which consumer demand continues to rise faster than production as nations fight for ever bigger pieces of the same pie. Even its projection of U.S. oil dominance has an important qualifier. The IEA estimates the switch would happen “around 2020” but noted that the U.S. would remain the biggest oil producer only “until the mid-2020s.” Our reign as the world's oil king, if it ever happens, probably won't last more than five years. Some energy company executives already are questioning the forecast. David Roberts, the chief executive of Marathon Oil, which has extensive domestic drilling operations, told investors on a webcast Tuesday that IEA's findings might be too optimistic.  “I don't see it, in terms of this country matching Saudi Arabia,” he said. What's more, being the biggest producer would mean little to U.S. consumers. We won't be paying less at the pump because, as the IEA notes, “no country is an energy ‘island' and prices for all fuel sources are increasingly global.”

Newfound U.S. Oil Wealth Won't Lower Gas Prices - Technology for extracting previously inaccessible oil and gas resources in the United States, along with increases in biofuels production and improved vehicle efficiency, could lead to a situation where the United States produces as much energy as it uses by 2035, according to the recently released World Energy Outlook 2012 from the International Energy Agency (see “Natural Gas Changes the Energy Map”). By 2020, the U.S. will surpass Saudi Arabia as the world’s largest oil producer, although Saudi Arabia is expected to catch up within a few years. The report echoes several in recent months that have pointed to the possibilitly of North American energy independence.  Yet although the report says the U.S. will be “all but self-sufficient” by 2035, that doesn’t necessarily mean prices for will go down. Because oil is easy to ship around the world, the price for oil is set by global demand, and demand in places such as India and China is expected to keep growing. That’s in part because of subsidies for fossil fuels, which rose 30 percent between 2010 and 2011 to reach $523 billion, the report says. (Many governments around the world are likely to reduce fossil fuel subsidies as they become increasingly expensive.)  The IEA says subsidies to renewable energy came to $88 billion in 2011. It expects those subsidies to increase to about $240 billion per year by 2035 and for electricity generation from renewable sources to triple by then. Added renewable energy will increase electricity prices by 15 percent electricity in the European Union because of renewable subsidies. Increased costs of fossil fuels is also expected to increase electricity prices.

Don’t Expect Lower Oil Prices Even as U.S. Output Surges - The U.S. is set to overtake Saudi Arabia as the world’s largest oil producer. But don’t expect that to translate into lower prices at the pump. The International Energy Agency on Monday said the U.S. is on track to become the world’s biggest oil producer by 2020. By 2035, the agency said in its annual World Energy Outlook, the U.S. could get close to the elusive goal of energy independence, at least when it comes to oil. But oil prices, the IEA said, will continue to rise, hitting $125 per barrel in inflation-adjusted terms — more than $215 per barrel in nominal terms — by 2035. U.S. consumers, the agency makes clear, won’t be shielded from those price increases, even if the country doesn’t import a drop of foreign oil. Why doesn’t more production mean lower prices? Two reasons: supply and demand. Oil is a global commodity. What matters for prices is total supply and total demand — not where the oil is produced or consumed. That means that even if the U.S. relied only on domestically produced oil, prices would still be dictated by global market forces. In terms of supply, politicians tend to distinguish between foreign and domestic oil. But for prices, a different distinction is more important: OPEC and non-OPEC.

U.S. Oil Demand at Lowest October Level in 17 Years - U.S. oil demand fell 2.3% in October from a year earlier, to 18.4 million barrels a day, the American Petroleum Institute said Friday. Demand was the weakest in October in 17 years, the trade group said, and was up 1.3% from September. Demand in the first 10 months of the year was 2.1% below the same period in 2011 at 18.562 million barrels a day. John Felmy, API chief economist, said the October data shows a continuation of a long-running weak-demand trend. “For many months, we’ve seen variations on the same theme: weak demand versus a year ago and some of the weaker demand numbers over the past decade,” he said. “The simple fact is that unemployment remains high and economic growth has been extremely modest. Petroleum demand is reflecting that.”

OPEC: Crude may hit $ 155 by 2035 - OPEC says that fossil fuels will remain the main energy source in the coming decades with coal's share growing and oil's falling. In its annual World Oil Outlook, the Organization of the Petroleum Exporting Countries also projects that a barrel of benchmark crude will cost $ 155 by 2035, compared with under $ 100 now. It says the use of fossil fuels as a percentage of world energy use will decrease only marginally from 87 percent now to 82 percent by 2035. It says that by then, "coal use reaches similar levels as that of oil, with oil's share having fallen from 35 percent in 2010 to 27 percent by 2035." The report notes there are more coal reserves -- mostly in the US -- than oil and gas.

IEA sees OPEC output rising by more than 10 million b/d by 2035 - Oil | Platts News Article & Story: The International Energy Agency sees OPEC oil production growing significantly in the long term, boosted by the large reserves held by its member countries. In its latest annual World Oil Outlook, released Monday, the IEA said it saw OPEC output rising by more than 10 million b/d from current levels until 2035. "Oil production in OPEC countries as a group is poised to grow significantly over the longer term reflecting their large resource base and relatively low finding and development costs, though short-term market management policies will probably continue to constrain the rate of expansion of supply," the IEA said. "The bulk of the increases in OPEC production comes from the Middle East, predominantly Iraq, though all OPEC countries in this region see an increase in output over the projection period," it said.

IEA report reminds us peak oil idea has gone up in flames - Given the bubbling cauldron of violence that the middle East so frequently and regrettably is, the prospect of the US outstripping Saudi Arabia as the world's biggest oil producer in the next decade is deeply striking. The redrawing of the geopolitical map may cool some tensions and perhaps spark others. But the truly global implications of the International Energy Agency's flagship report for 2012 lie elsewhere, in the quietly devastating statement that no more than one-third of already proven reserves of fossil fuels can be burned by 2050 if the world is to prevent global warming exceeding the danger point of 2C. This means nothing less than leaving most of the world's coal, oil and gas in the ground or facing a destabilised climate, with its supercharged heatwaves, floods and storms. What follows from this is that the idea of peak oil has gone up in flames. We do not have too little fossil fuel, we have far too much. It also follows directly that the world's stock markets are sitting on toxic levels of subprime coal and gas, a giant carbon bubble ready to explode. How has it come to this? The simple answer is because the cost of the damage caused by carbon emissions is still not paid by the polluter. But the IEA's World Energy Outlook 2012 also highlights another huge problem which is throwing fuel on the fire: titanic subsidies for fossil fuels. The IEA estimates that $523bn was burned in cutting fossil fuel prices in 2011.

Oil Supply Continues Flat in 2012 - The future might be too bright to stare at, but back here in 2012, oil supply continues to look flat.  There's been no significant upward trend since January.  This is starting to feel a bit like the 2005-2007 plateau:

Crude oil risk premium returns - The recent Israeli strike against numerous Hamas targets reminded us of the Middle East risks premium that may not be fully priced into the markets. The Middle East situation may indeed represent one of those "tail risks" (discussed here). The rising uncertainty sent crude oil prices sharply higher, reversing earlier declines.In recent weeks, the energy markets have been focused on increased OPEC output, as the organization is now exceeding its crude oil production quota (30mm b/d). The markets have also been responding to rising crude supplies in the US (chart below). The fundamental backdrop for crude oil has definitely been weak recently. But now there is a possibility that Israel may expand its operations against Hamas, possibly with a highly unpredictable outcome. What makes the situation particularly volatile is that Hamas and other organizations and even governments in the region may no longer have the ability to control their supporters and citizens.

Does the IMF believe we have a peak oil problem? = Does the International Monetary Fund (IMF) believe we have a peak oil problem? The precise answer is that the IMF is currently studying how constraints in world oil supplies might affect economies around the world in two so-called working papers, "The Future of Oil: Geology versus Technology" and "Oil and the World Economy: Some Possible Futures." We are admonished by the IMF that opinions expressed in working papers are "those of the author(s) and do not necessarily represent those of the IMF or IMF policy." But the fact that the organization has produced two papers on the subject this year gives some indication of how seriously it is taking the issue. One of the co-authors for both papers, Michael Kumhof, a senior researcher and deputy division chief for the fund, hasn't been keeping his concerns secret. In a presentation, he outlined his reasoning for why the price of oil would have to nearly double in real terms in order for oil production to increase the measly 0.9 percent per year projected by the U.S. Energy Information Administration between now and 2020.Part of the problem is that we have already extracted the easy-to-get oil. Now comes the hard stuff: deepwater drilling, tar sands, arctic oil, and tight oil (often referred to erroneously as shale oil) which is produced by expensive hydraulic fracturing or fracking, something that typically costs millions to perform on a single well.

The Cost Of Making The Earth Move - We are the planet's greatest diggers and miners. For tens of thousands of years humans have chipped away beneath the soils of this vast rocky planet, plundering its hard surface for tools, building materials and sparkling jewels. The question is what’s driven our hunger to churn up more and more of our planet's rocks and sediments and spread it around the surface, and does it matter? We’re not the only species to recognise the value in strong, inert materials – chimps use stone tools and Neanderthals mined flint in Europe – but we’re the only creatures to have delved further to reach the metals and other minerals within. Whole civilizations have been based on this – some metals became so important that they defined cultural periods, the Iron Age and the Bronze Age, for example. Empires extended across the seas in search of precious metals, gems and fuels. The Romans invaded Britain for its metals, using hydraulic mining to harvest gold from deep within the rocks. Spain’s wealth 400 years ago is largely attributable to silver scraped from the hills of Potosi in Bolivia. Some of this unearthed treasure, such as iron, was created billions of years ago inside a star; others, such as coal, were more recently formed from living forests that were buried in bogs and compressed by sediments some 300 million years ago. Some of these mined materials, like iron, are common in the Earth’s crust, some are rare, but none of these are replaceable or renewable within a thousands-of-years timeframe.

Chinese Rare Earth Mining Monopoly Threatens US Defense Technology -- nology that drives the Pentagon’s weapons program, the US auto industry and renewable energy ambitions is threatened by a lack of heavy rare earths for which China enjoys the global mining monopoly. Heavy rare earths are a class of 17 elements of a similar chemistry that are used in the production of everything from unnamed military drones, radar and navigation systems to high-performance magnets used in commercial vehicles, wind turbine technology and a host of consumer electronics. The Pentagon was caught napping in 2010, when the reality of China’s global monopoly on heavy rare earths mining hit home with Beijing’s decision to reduce exports. The resultant scramble for these precious chemical elements has led the Pentagon to team up with Toyota Motor Corp and two Canadian companies--Ucore Rare Metals Inc. (UCU) and Matamec Explorations Inc. (MAT)--to develop North American mines. Rumor has it that the Pentagon has entered into an exploratory partnership with Ucore. It has also struck deals with two North American magnet makers to study rare earths applications.  As for the auto industry, the situation is rather urgent. Car makers build rare earth metals into hybrid vehicles, and also into conventional cars for catalytic converters.

Chinese sovereign wealth fund eyes Vancouver Island timberlands investment - China Investment Corp., one of the world’s largest sovereign wealth funds, is close to closing a $100-million deal to purchase a stake in Vancouver Island forest company Island Timberlands, according to the Wall Street Journal. The reported move by China into B.C. timber comes at a time when the federal government is reviewing its policies on foreign investment by state-owned funds and less than three weeks after Ottawa rejected a $5.7-billion natural gas purchase by Malaysian state-owned oil giant Petronas. Further, Ottawa is expected to rule by Dec. 10 on state-owned China National Offshore Oil Corporation’s $15.1-billion purchase of Calgary oil company Nexen.  I don’t think people should be too sensitive about this, thinking ‘Hey, they are taking away our stuff.’ They always take a business approach, they are always looking at what will make a good investment for them,” said Chan.

Pettis: Chinese want less commodities, more houses - I don’t think all commodity imports should be treated equally. Commodities that are imported for use or for working inventory should certainly show up in the current account, as they do. Commodities that are imported for speculative purposes or for stockpiles, however, should be included in the capital account, since they really are a form of external investment more than a form of domestic consumption. This is how they would recorded, for example, if rather than import physical commodity for storage a local speculator purchased a commodity-linked note from abroad. There is no real economic distinction between the two transactions, but the former would be treated as a current account import while the latter would be treated, correctly, as a capital account export. This matters because the numbers can be significant, and so heavily distort the balance of payments numbers. Here, on the subject of cotton, for example, is an article from Bloomberg: Cotton stockpiles in China, the world’s biggest importer, are set to climb to about 9 million metric tons this season, enough to cover the country’s deficit for the next six years, according to Allenberg Cotton Co. Inventories are rising as the government boosts purchases to support domestic prices and lift farmer incomes, Joe Nicosia, chief executive officer of world’s largest cotton trader, said at a conference in Hong Kong today. The country may buy 5 million tons for reserves this year, up from 3.2 million tons a year earlier, he said. “As long as China maintains this regime to subsidize cotton farmers, the world will be prone to overproduction,” he said. “Can you imagine a world without China importing any cotton for six years? They hold all the cards.”

China’s Loans Unexpectedly Fall as Money Supply Misses Forecasts - China’s new yuan loans unexpectedly fell in October from a year earlier and money supply rose less than forecast, damping signs the world’s second-biggest economy is recovering after a seven-quarter slowdown. Banks extended 505.2 billion yuan ($81.1 billion) of local- currency loans, down 14 percent from a year earlier, data from the Beijing-based People’s Bank of China showed today. The median estimate was 590 billion yuan in a Bloomberg News survey. M2, the broadest measure of money supply, increased 14.1 percent, compared with a median forecast of 14.5 percent. Today’s reports show weaker-than-forecast credit expansion may limit a rebound in economic growth as the ruling Communist Party holds a congress in Beijing to anoint new leaders. Central bank Governor Zhou Xiaochuan said yesterday the nation is still dealing with the effects of five years of financial crisis abroad, adding to official cautions on the outlook even after gains in exports and industrial output.

China’s new lending falls sharply in October - The People’s Bank of China has published aggregate financing figures for October. Net new aggregate financing for the month of October amounted to RMB1.29 trillion, down from RMB1.65 trillion in September. Most components of aggregate financing fell in October compared with September with the exception of corporate bond issuance, which increased from RMB227.8 billion in September to RMB299.2 billion. Of particular interest, net new loans amounted to RMB505.2 billion, down from RMB623.2 billion, and much lower than consensus estimate of about RMB600 billion. M2 money supply rose 14.1% compared with a year ago, down from 14.8% yoy in September, and below market estimates. Net new lending to households for the month amounted to RMB145.6 billion, while net new lending to non-financial corporations amounted to RMB358.6 billion. Of RMB358.6 billion net new lending to non-financial corporations, RMB249.7 billion was short-term loans, RMB168.5 billion was medium and long-term loans, while bill financing fell for the second consecutive month by RMB73.2 billion. Meanwhile, Chinese yuan total deposits fell RMB279.9 billion in October. The monetary statistics for October came in weaker than expected. Even taking the aggregate financing report together, the only component which looks positive appears to be corporate bond issuance.

Yuan loans hit low for year in October - New yuan lending dropped to its lowest monthly point in a year in October, contracting by 14 percent year-on-year. The decline has exacerbated worries that the current economic rebound will not receive enough financial support to be sustained. Lenders extended 505.2 billion yuan ($80 billion) worth of new loans last month, falling below the 590 billion yuan the market had expected. The amount was also down from the 623 billion yuan extended in September, according to data released by the People's Bank of China, the country's central bank, on Monday. "The decline was understandable as deposits decreased at the beginning of the quarter, and as a rise in financing through corporate bonds lessened the demand for bank loans," said E Yongjian, a financial analyst at Bank of Communications Ltd. The central bank's figures showed yuan-denominated deposits held by lenders decreased by nearly 280 billion yuan in October. E added the decline helps explain why banks were more hesitant to extend loans, noting that those institutions must abide by loan-to-deposit ratio requirements, which are set at 75 percent for most lenders.

China’s Banking Leaders Seek to Calm Concerns Over Lending - — China’s top banking regulators and the chairmen of the four largest banks tried to allay concerns on Sunday that the country was allowing its banking system to grow at a reckless pace as a way to sustain short-term economic growth.The regulators and bank chairmen said during a rare joint news conference that they were managing the industry prudently and that effective measures had been taken to limit risk even as lending expands briskly. “The risks are within control,” Shang Fulin, the chairman of the China Banking Regulatory Commission, said on two separate occasions. Loans have been climbing steeply as a share of the economy for four years, prompting foreign bank analysts to question the sustainability of an economic model based on ever more debt invested in a wide range of industries that are already facing overcapacity. Chinese households and businesses have also begun shunning the very low, regulated interest rates offered by the giant state banks in favor of more speculative financial products. The central bank has been helping commercial banks sustain extremely heavy lending this autumn by pumping record sums of money into the financial system.

What is China’s new investment surge building? - Throughout the past many months, the perceived policy error of government stimulus have led parts of the government to think that it is inappropriate to stimulate like it did in 2008/09, fearing that it will fuel the real estate market, inflation, etc. As a result, despite the 20 trillion yuan in announcements of plans by many local governments, I have been very clear that the actual amount will not come anywhere near close to that. In fact, it probably will not even come close to RMB4 trillion market as it 2008/09. But stimulus, such as it is, is flowing. Infrastructure investment growth picked up from negative territory early this year to positive. The chart below shows the 3-month moving average of year-on-year fixed asset investment growth in three major sectors, which collectively account for roughly 80% of all fixed asset investments:One very obvious observation, of course, is the rapid pick-up in infrastructure investments growth since late 2008 and early 2009, which reflected the 2008/09 stimulus. We can also see the slump and subsequent pick-up in growth in real estate related investment around the same time, as well as the pick-up in investment growth in manufacturing, which is the biggest single sector in fixed asset investment.

The Gini Is Out Of The Bottle: Did China "Outcapitalism" The US, Or Did America "Outcommunism" China? - The patriotic thing preoccupying the lucky successor to Chinese President Hu Juntao will be a simple one: how to promote the well-being, and equality among the people. After all, caring about the people is the primary preoccupation of any good communist country. As such, key concern for the new leader and his government will be the income distribution inequalities and corruption among the Chinese population, something outgoing leader Hu himself stressed. Indeed, as the most recent Chinese Gini coefficient (the measurement of inequality of income in a given society) reading shows, in China this has risen from 0.42 in 2007 to 0.48 in 2009. It is this reason why the Chinese society will have to engage in far more effective wealth redistribution because the last thing the country with no real social safety net can afford is social unrest and upheaval in a time of declining economic growth. So far so good. Where there does arise some confusion, is when juxtaposing Chinese social inequality with that of the US. Recall that China is a de facto communist country, whose society is, at least on paper, equal. One wonders, then, how it happened that US society now has a Gini coefficient that is lower than that of China: did communist China "outcapitalism" the US, or has the US simply, and quite successfully, "outcommunism" China?

Pettis: Chinese want less commodities, more houses - I don’t think all commodity imports should be treated equally. Commodities that are imported for use or for working inventory should certainly show up in the current account, as they do. Commodities that are imported for speculative purposes or for stockpiles, however, should be included in the capital account, since they really are a form of external investment more than a form of domestic consumption. This is how they would recorded, for example, if rather than import physical commodity for storage a local speculator purchased a commodity-linked note from abroad. There is no real economic distinction between the two transactions, but the former would be treated as a current account import while the latter would be treated, correctly, as a capital account export. This matters because the numbers can be significant, and so heavily distort the balance of payments numbers. Here, on the subject of cotton, for example, is an article from Bloomberg: Cotton stockpiles in China, the world’s biggest importer, are set to climb to about 9 million metric tons this season, enough to cover the country’s deficit for the next six years, according to Allenberg Cotton Co. Inventories are rising as the government boosts purchases to support domestic prices and lift farmer incomes, Joe Nicosia, chief executive officer of world’s largest cotton trader, said at a conference in Hong Kong today. The country may buy 5 million tons for reserves this year, up from 3.2 million tons a year earlier, he said. “As long as China maintains this regime to subsidize cotton farmers, the world will be prone to overproduction,” he said. “Can you imagine a world without China importing any cotton for six years? They hold all the cards.”

Impressive retail sales numbers from China, but 2015 target seems aggressive - The chart below from Trading Economics shows China's total retail sales of consumer goods %YoY. The October number came in at 14.5% a bit ahead of expectations - definitely a strong result.When looking at the year-over-year numbers, it is difficult to appreciate the notional increases in retail sales. The absolute growth in RMB terms is quite spectacular. A very rough estimate puts the retail sales at RMB 20 trillion for 2012. Beijing wants that number higher, as it tries to transition to a more consumer driven economy. Apparently the target is to get to RMB 32 trillion by 2015 - a 60% increase from current levels (17% growth per year). That's a fairly aggressive target, given that most of this year growth was under 15%.For now export growth, particularly to the US (see discussion), will be the key driver of China's GDP. And with the US consumer confidence hitting new highs (see chart) as the holiday season approaches, China may be in luck

Counterparties: Should we envy China? - If you’ve been paying attention to the US spending cuts which are scheduled to take place automatically on January 1, the Chinese Ministry of Railways has a glimpse of a utopian parallel universe: $32 billion in spending in November and December alone. Even for an organization with an annual budget of approximately $100 billion, that’s a huge spike. As Quartz’s Naomi Rovnick puts it, it’s the latest example of the “money-go-round that is China’s state-owned economy”. The spending isn’t limited to trains: There’s also the $157 billion in broad infrastructure investment that was approved last month. From the perspective of a deadlocked DC, it’s easy to envy China’s vast infrastructure budget. But while Chinese policymakers are good at building trains that run between cities, in urban areas they are repeating many of our car-centric mistakes and all the construction is arguably making its cities even less livable.  As Michael Schuman argues in Time, the myth of an efficient, far-sighted China is believed largely by those inside its business-class cocoon. “Live here for a while”, he says, and economics, politics, and daily life look much more messy and complex.

China’s economy to overtake US in next four years, says OECD - China will overtake the US in the next four years to become the largest economy in the world, says a leading international think-tank. The Paris-based Organisation for Economic Co-operation and Development (OECD) said China's economy will be larger than the combined economies of the eurozone countries by the end of this year, and will overtake the US by the end of 2016. Global GDP will grow by 3% a year over the next 50 years, it says, but there will be large variations between countries and regions. By 2025, it says the combined GDP of China and India will be bigger than that of France, Germany, Italy, Japan, UK, US and Canada put together. Asa Johansson, senior economist at the OECD, said: "It is quite a shift in the balance of economic power we are going to see in the future." Inequalities will persist, even though people in the poorest countries will see their income more than quadruple by 2060, with those in China and India seeing a more than a seven-fold increase. By 2060, the OECD says living standards in the emerging countries will still only be 25%-60% of the level enjoyed by those in the US. Global imbalances, which created the conditions for the crash of 2007, will continue to widen and reach pre-crisis levels by 2030, it said. In the short term, this is largely a cyclical effect of the financial crisis. So the US, which had a large budget deficit before the crisis, experienced a sharper downturn than China, which had a budget surplus.

US-China Trade: Flatlining Year Over Year Growth - Some time ago, we discovered that we could diagnose the relative health of national economies by measuring the growth rate of trade between nations. Now that the data is available through September 2012, we're updating our analysis of the relative health of the economies of both China and the United States.  Our first chart shows where things stand with respect to the year over year growth rate of what each nation exports to the other:  What this chart tells us is that the value of trade between the two nations are continuing at near-zero levels of growth. For the U.S., that indicates a near-recessionary condition, while for China, this result indicates that nation is continuing in recession, now nearing its one year mark.  Next, let's look at our doubling rate charts, which illustrate the amount of time it has taken for the goods and services traded between the two nations to sustainably double in value. Our first doubling rate chart considers the value of the goods and services that the U.S. imports from China:  Here, we see that the growth of China's exports to the United States is continuing its trend of slow growth, while following its typical seasonal pattern. Typically, China's exports to the U.S. peak each year in the period from August to October, in advance of the U.S.' holiday shopping season.  In reality, because the value of the U.S. dollar has been falling with respect to the value of China's currency since early 2010, the value of trade shown in the chart above represents a lower quantity of actual goods and services traded today than what similar values in 2010 would indicate.

Xi Jinping appointed new Chinese leader - FT.com: Xi Jinping was anointed as the new leader of the Communist Party of China and named chairman of the party’s military commission on Thursday, handing him a strong mandate to rule the world’s most populous country for the next decade. Mr Xi marched on to the stage at the Great Hall of the People in Beijing just before noon at the head of a leadership team that has been reduced from nine to seven people in an effort to make collective decision-making less contentious and more efficient. More videoThe decision by outgoing Chinese President Hu Jintao to relinquish control over the military will allow Mr Xi to consolidate control over the party and the country at a time of slowing growth and rising social, political and economic challenges. In a brief speech to assembled journalists on Thursday in which he mentioned the word “socialism” only once, Mr Xi dispensed with the slogan-laced, ponderous language of his predecessor and promised to “improve the lives of the people”.

Insolvencies for quarter near record high - CORPORATE insolvencies hit their second-highest peak on record in the last quarter, as the aftershocks of the global financial crisis continued to flow through the market, The Weekend Australian's Anthony Klan reports. According to the Australian Securities & Investments Commission, there were 2552 insolvencies in the three months to September, which was up 10 per cent on the previous quarter. In last year's September quarter, total insolvencies reached a peak after 2961 companies hit the wall. "All states and territories except the Australian Capital Territory experienced a rise in insolvency appointments compared to the previous quarter," ASIC executive leader of insolvency practitioners Adrian Brown said.According to ASIC, all types of insolvency were up on the previous quarter, led by voluntary administrations (up 17.2 per cent) and receiverships (up 13 per cent).

Xie vs Swan on Australia as Spain - The Australia/Spain analogy seems to have caught the imagination of global media. Another debate has emerged between Wayne Swan and Andy Xie on CNBC:Australia’s Deputy Prime Minister and Treasurer Wayne Swan has denied that Australia’s economy is at risk of a Spain-like economic crisis, calling the thesis put forth by the former chief Asia-Pacific economist for Morgan Stanley, Andy Xie “absurd”.“It’s absurd – the Australian economy and its economic fundamentals are very strong. On a yearly basis we are growing at 4 percent – we are going to grow faster than any other developed economy this year and next…Let’s go through the fundamentals – bringing our budget back to surplus in 2012-2013, low unemployment, strong job creation over time, a record investment pipeline in resources – half a trillion (dollars). What planet does he live on?” he added.Xie, an independent economist with sometimes controversial views, argues that Australia is at danger of becoming the next Spain due to its reliance on foreign demand, especially from its biggest trading partner China, which he believes is decelerating faster than headline growth numbers suggest. Australia’s economy is heavily reliant on the mining sector, which accounts for 7 percent of gross domestic product (GDP) and half of the country’s total export earnings. “In Spain it was government bonds that attracted foreign money. Foreigners flooded Spanish bonds because they had high interest rates and were very attractive. That foreign money pumped up a property bubble,” Xie told CNBC Asia’s “Cash Flow“.

Japan economy contracts as global slowdown hits exports - Japan's economy contracted in the July to September quarter, as a global economic slowdown and anti-Japan protests in China hurt its exports, while domestic consumption remained subdued. Gross domestic product (GDP) contracted 3.5% from a year earlier. Compared with the previous three months, the economy contracted 0.9%. The weak data is likely to put pressure on the government to boost stimulus measures to spur growth. "There are risks from both domestic and external factors," said Tatsushi Shikano, senior economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. "As such, the Bank of Japan (BOJ) will stand ready to ease monetary policy again, and it would not surprise me if the BOJ eased again by the end of this year."

Japan's economy shrinks 0.9% in July-September-- Japan's economy shrank sharply in the third quarter, the first such contraction of the year, the Cabinet Officer reported early Monday. Gross domestic product fell 0.9% during the July-September period, or 3.5% on an annualized basis, with weakness for exports -- particularly for cars and computer chips -- reportedly helping drive the drop. A Reuters survey of economists had tipped a 0.9% drop during the quarter, while Dow Jones Newswires reported expectations for a 1% fall, after GDP rose 0.2% in the April-June period. On an annualized basis, Reuters had projected a 3.4% fall, while Dow Jones Newswires had expected a 3.9% decrease. Singapore-traded futures for Japan's Nikkei Stock Average added to their losses following the data, extending a 0.3% drop to a 0.7% deficit. The yen saw less reaction, with the dollar holding around the ¥79.47 level.

Japan’s economy shrinks annualized 3.5% - Japan’s economy shrank an annualised 3.5 per cent between July and September, the steepest decline since the earthquake-hit first quarter of 2011, as exporters suffered big falls in shipments to key markets such as China and Europe. Prime Minister Yoshihiko Noda described the gross domestic product figures as “severe”, while Seiji Maehara, economy minister, said Japan had possibly entered a “recessionary phase”.  In a speech on Monday, Masaaki Shirakawa, Bank of Japan governor, said there was “no question that the [central bank] should exert every effort to enhance its easing effects as much as possible”. He said domestic demand was “unlikely to increase at a pace that will outperform the weakness in exports”. The Japanese government’s monthly survey of “economy watchers” – which includes barbers, hoteliers, car dealers and others who deal with consumers – has recorded six falls in a row since April. Last month the index stood at a level little better than that of April 2011, in the immediate aftermath of the quake. Japanese manufacturers from Nissan to Shiseido have reported steep falls in sales of their products in China, following a wave of demonstrations against Tokyo’s nationalisation of some of the islands in mid-September.

Japan faces prospect of fifth recession in 15 years - If five recessions in 15 years isn’t a record for a country, it has to be close, and that prospect is now facing Japan. The world’s third-largest economy on Monday reported that its gross domestic product contracted 3.5% in the third quarter on an annual basis. Another contraction in the current quarter, which analysts widely expect will happen, would meet the technical definition of a recession. While Japan may seem recession-prone, this one is different. Japan recorded a current account deficit in September for the first time since records started being kept in 1985. And the country’s monthly trade balance, which has been in a surplus for years, also recorded a deficit. That has worrying implications for Japan’s massive debt load. “Japan’s economic growth has become dependent on export growth, and without stronger economic growth, the country will not contain its rising government debt burden,” Moody’s Investors Service warned in a report.

Noda seizes on TPP as way to steer forthcoming election - Apparently hoping to delay calling an election--and to influence its outcome--Prime Minister Yoshihiko Noda has raised the question of Japan joining talks over the Trans-Pacific Partnership free trade arrangement, something that the main opposition party is fiercely against. Opposition groups the Liberal Democratic Party and New Komeito already feel they have made concessions to try to secure an early election: fulfilling three conditions which Noda demanded as the price of calling an election. He now appears intent on using a TPP-talks announcement as the trigger, despite opposition even within his own Democratic Party of Japan over joining the free-trade agreement. There is, therefore, a risk that an announcement by Noda could lead to his party fragmenting before the next election.

India's worst on record trade deficit of $20 billion may prompt government measures: Credit Suisse The country's worst on record trade deficit of $21 billion may prompt the government to impose measures in order to curb it, said investment bank Credit Suisse on Monday. The bank feels that a further increase in import duties of gold is likely. Although seasonal factors typically narrow the trade deficit in November and December, Credit Suisse expects a gap of at least $15 billion in the last month of the year. RBI is "unlikely to take too kindly to the record trade deficit," the bank added. India's exports fell for the sixth month running, dropping 1.6% in October 2012 due to persistent economic turmoil in the Western markets. Imports increased during the month as oil purchases shot up widening the trade deficit. Exports during October 2012 were at $ 23.24 billion which was 1.63% lower than exports in October 2011, according to figures released by the commerce department on Monday. Imports during the month were at $44.20 billion posting an increase of 7.37% over imports in the same month of the previous year increasing the trade deficit to $ 20.96 billion during the month.

US Conference Board fears Brics miracle over as world faces decade-long slump - Telegraph: The catch-up boom in China, India, Brazil is largely over and will be followed by a drastic slowdown over the next decade, according to a grim report by America’s top forecasting body.Europe's prognosis is even worse, with France trapped in depression with near zero growth as far as 2025 and Britain struggling to raise its speed limit to 1pc over the next three Parliaments. The US Conference Board’s global economic outlook calls into question the "BRICs" miracle (Brazil, Russia, India, China), arguing that the low-hanging fruit from cheap labour and imported technology has already been picked. China’s double-digit expansion rates will soon be a romantic memory. Growth will fall to 6.9pc next year, then to 5.5pc from 2014-2018, and 3.7pc from 2019-2025 as the aging crisis hits and investment returns go into "rapid decline". Growth in India - where the reform agenda has been "largely derailed" - will fall to 4.7pc to 2018, and then to 3.9pc. Brazil will slip to 3pc and then 2.7pc. Such growth rates will leave these countries stuck in the "middle income trap", dashing hopes for a quick jump into the affluent league. "As China, India, Brazil, and others mature from rapid, investment-intensive ‘catch-up’ growth, the structural ‘speed limits’ of their economies are likely to decline," said the Board.

Egyptian groups reject $4.8 billion IMF loan — Seventeen Cairo-based groups sent a letter Monday to the head of the International Monetary Fund and Egypt's prime minister opposing a proposed $4.8 billion loan, as technical experts were in Cairo to discuss the details. The groups complained that the negotiations over the agreement lack transparency, taking place in the absence of an elected parliament and giving the new president legislative authority without oversight — and emerging economic steps target the poor, not the rich. The groups opposed to the loan include two Islamist-leaning parties, a number of well-known local civil society groups and the April 6th Movement, credited with playing a key role in Egypt's uprising last year, Egypt has applied for the loan to counter budget shortfalls after longtime ruler Hosni Mubarak's ouster last year and an economic downturn that followed. The country's reserves are dangerously low, at just under $15.5 billion. Gulf countries have helped cushion the reserve, with Qatar depositing hundreds of millions of dollars from a promised $2 billion dollar aid package.

Bono Warns Fiscal Cliff Cuts Will Hurt World’s Poor -- Even Bono is worried about the fiscal cliff. The lead singer of Irish band U2 says spending cuts that hit in January would devastate programs to help the world’s poor, leading to more than 60,000 deaths. “There’s real jeopardy,” Bono said Wednesday at a discussion at the World Bank with bank President Jim Yong Kim. “I’m still terrified of people wrestling the wheel of this mad lorry that they’re driving off the cliff.” Sequestration — a package of automatic spending cuts set in motion last year — would slash funding for U.S. programs grouped in the federal budget as “international affairs” by 8.2%, or $4.7 billion, in the current fiscal year. Bono said that includes about $2 billion from anti-poverty programs, such as treatment for HIV/AIDS, on which he focuses at his anti-poverty advocacy group, ONE. “We know there’s going to be cuts,” he said. “We understand that. But not cuts that cost lives.” Bono spent Tuesday making the rounds in Washington to press leaders in both parties to avoid going over the fiscal cliff and protect antipoverty programs. He met with Vice President Joe Biden and other White House officials, House Minority Leader Nancy Pelosi, House Majority Leader Eric Cantor, Sen. Marco Rubio (R., Fla.), Sen. Lindsey Graham (R., S.C.) and numerous other senior lawmakers.

Will the Global Economy Tumble Off America’s Fiscal Cliff? - Forget all of the talk about the rise of China and the shift of economic power from West to East. The U.S. economy remains the largest and most important in the world, and what happens in America still determines what happens to the global economy.  If re-elected President Barack Obama can’t reach a new deal with Republican Party Congressmen in the House of Representatives on closing the country’s trillion-dollar budget deficit, a slate of deep spending cuts and tax hikes will automatically come into effect next year that will in all likelihood derail the slow-moving U.S. recovery from the 2008 financial crisis. That would without doubt do some serious damage to growth globally. Rating agency Fitch proclaimed that “the U.S. fiscal cliff represents the single biggest near-term threat to a global economic recovery.” A U.S. plunge off the fiscal cliff would hit the global economy at an especially fragile moment. The news just about everywhere has already been bad. Fears that Japan might slip into (yet another) recession rose on Monday when the world’s third-largest economy reported its GDP shrank by an annualized 3.5% in the quarter ending September. The euro zone is expected to contract in 2012 as well. On November 7, Mario Draghi, president of the European Central Bank, warned  that even powerhouse Germany is starting to suffer the ill effects of the debt crisis. “Germany has so far been largely insulated from some of the difficulties elsewhere in the euro area,” Draghi said. “But the latest data suggest that these developments are now starting to affect the German economy.”

Global business confidence lowest since 2009 - In spite of positive economic news recently from the US and China, global business sentiment remains subdued. In fact according to Markit, business confidence is at the lowest level since the financial crisis. Markit: - Worldwide business confidence has fallen to its lowest since the global economy pulled out of the recession of 2008-09. The Markit Global Business Outlook Survey of 11,000 companies worldwide shows that optimism dropped in October to its lowest since global data were first available in October 2009.  ...Chris Williamson, Chief Economist at Markit: - “The mood among businesses around the world has sunk to the darkest since the global economy pulled out of the 2008-09 recession. “Confidence is down in the US, Japan, China and India, although the gloomiest picture is again seen in the crisis-struck eurozone, with a loss of optimism in Germany and France meaning malaise has spread across the region. The only exception seems to be Ireland, where businesses remained particularly buoyant.  This data makes it even more critical that we see further growth improvements in China. Today's news of a possible slowdown in China's lending activity is certainly a cause for concern.

IMF’s Lipton’s Offers 2,000-Word Recipe for Restoring Global Growth - David Lipton, No. 2 at the International Monetary Fund, is in London today, casting an eye across the British Channel at the Continent and warning that too much deleveraging too fast in too many countries at the same time is a really bad idea. But putting off decisions about “fiscal consolidation,” as the IMF puts it, in the advanced economies of U.S., Europe and Japan is a bad idea, too, he said. That’s not exactly how Mr. Lipton, a former Clinton and Obama administration official, put it in his speech to the Royal Institute of International Affairs at Chatham House. But the message came through in what amounts to a 2,000-word recipe for restoring global growth, one-stop shopping for those who are looking for some way out of today’s global economic morass. The leaders of the world economy agreed in the spring of 2009 to aim at two objectives: end the financial crisis and make sure it doesn’t happen again. The first calls for strong enough demand to get rid of unemployment. The second requires deleveraging, the paying down of debt, which, he said, “will dampen demand, particularly if it happens simultaneously in many sectors in many countries.”

Vital Signs Chart: Renewed Worries Weigh on Euro - The euro has been falling against the dollar. One euro buys $1.27, a two-month low. The euro dropped 0.3% on Friday amid weakening growth prospects in the euro zone, even in Germany, the area’s strongest economy. Investors also are worried anew about Greek debt and whether Spain needs more aid. The euro zone’s common currency has dropped about 6% from a year ago.

From measures of inflation to the failure of European governance - To some it all seems very strange. The Eurozone is in recession, and no one is doing anything about it. The ECB are keeping interest rates at 0.75%, and there are no plans for Quantitative Easing. It is possible to speculate on possible factors here, but there is one obvious answer. Consumer price inflation is expected to be pretty close to 2% this year and next in the Eurozone as a whole. So with inflation on target, what is there to do?  Now I think there are strong grounds, familiar to anyone who has studied economics, for saying that monetary policy is not just about current inflation, but should be about closing the output gap as well. The OECD in June estimated that the Euro area output gap will be between -3.5% and -4% in 2012 and 2013. However monetary policy makers in the UK as well as the Euro area (and, until recently, the US) appear to be just looking at inflation. Textbooks will have to be rewritten.  

Golden Dawn members blocked by Facebook: Greece’s neofascist Golden Dawn party on Monday slammed a decision by Facebook to block the accounts of several of its members and deputies, lashing out at what it said was an “act of censorship” and a “relentless attack against nationalist users.” The California-based networking website allegedly blocked the profiles after deeming that they violated terms of use on violence and racism. It also deleted the web pages of Golden Dawn members and others who had posted Nazi symbols. The party, which has 18 seats in Parliament, has reportedly filed a complaint with Greece’s electronic crimes unit.

Special Report: Greece's far-right party goes on the offensive (Reuters) - Arm raised in a Nazi-style salute, the leader of Greece's fastest-rising political party surveyed hundreds of young men in black T-shirts as they exploded into cheers. Their battle cry reverberated through the night: Blood! Honour! Golden Dawn! "We may sometimes raise our hand this way, but these hands are clean, not dirty. They haven't stolen," shouted Nikolaos Mihaloliakos as he stood, floodlit, in front of about 2,000 diehard party followers filling an open-air amphitheatre at Goudi park, a former military camp near Athens. "We were dozens, then a few hundred. Now we're thousands and it's only the beginning," cried the leader of Golden Dawn, a far-right party that is seeing its support soar amid Greece's economic collapse. Last month's rally revealed the party, which describes itself as nationalist and pledges to expel all illegal foreigners, has a new-found sense of triumph, even a swagger, that some find menacing. Riding a wave of public anger at corrupt politicians, austerity and illegal immigration, Golden Dawn has seen its popularity double in a few months. A survey by VPRC, an independent polling company, put the party's support at 14 percent in October, compared with the seven percent it won in June's election. Political analysts see no immediate halt to its meteoric ascent. They warn that Golden Dawn, which denies being neo-Nazi despite openly adopting similar ideology and symbols, may lure as many as one in three Greek voters.

Hanging in quiet desperation is (becoming) the Greek way - The man had been missing since August. His last sighting was at the Social Security Offices (IKA) in a small town called Siatista, where he was told that his small monthly disability allowance of 280 euros was suspended, as a result of the latest austerity measures. Eyewitnesses said, according  to Athens daily ‘Ta Nea’, that they saw him leave upset and speechless. Soon after he placed a call to his family telling them that “he feels useless” and adding that he “has nothing to offer them anymore”. Naturally, they were alarmed, and soon after called the police. It was only the other day that the Police located his hanging body in a remote wooded area, suspended by the neck from the cliff which was to be his last resort. This was, of course, not the first suicide to have come out of the Great Greek Depression of our times. But the fact that it was not meant as a political gesture (unlike the very public suicide of the pharmacist that shook the world), does not make it less poignant. Quiet desperation has a power, a tender despondency, that can pierce the denials of even the most callous of austerians. There is no guarantee of course. At the very least, however, it is incumbent upon us to ensure that they are not shielded from it.

Spain Evictions Create an Austerity Homeless Crisis -  The number of Spanish families facing eviction continues to mount at a dizzying pace — hundreds a day, housing advocates say. The problem has become so acute that Prime Minister Mariano Rajoy has promised to announce emergency measures on Monday, though what they may be remains unclear.  While some are able to move in with family members, a growing number, like the Rodríguezes, have no such option. Their relatives are in no better shape than they are, and Spain has virtually no emergency shelter system for families. For some, the pressure has been too much to bear. In recent weeks, a 53-year-old man in Granada hanged himself just hours before he was to be evicted, and a 53-year-old woman in Bilbao jumped to her death as court officials arrived at her door.  Yet at the same time, the country is dotted with empty housing of all kinds, perhaps as many as two million units, by some estimates. Experts say more and more of the evicted — who face a lifetime of debt and a system of blacklisting that makes it virtually impossible for them to rent — are increasingly taking over vacant properties or moving back into their old homes after they have been seized.

Spain Declares 2-Year Moratorium on Evictions Following Suicides; Policy Will Blow Up Spectacularly - El Pais (via Google translate) reports Government will give a two-year moratorium to end evictions.  Social pressure, political and, above all, the shock of facts so overwhelming as two suicides in recent weeks, the second on Friday, has led the government and the PSOE to move faster. Both contacts for accelerated progress towards an agreement to halt evictions more extreme than in any case, will not materialize until next week. That agreement, however, will not be retroactive and would apply to mortgages signed, but not those that are in foreclosure. It would not serve to cases like Egaña Amaya, the woman who committed suicide in Barakaldo. The Prime Minister, Mariano Rajoy, solemnized the idea during an election rally in Lleida: "These days we see terrible things, inhuman situations, a person committed suicide when she would be evicted. It is a difficult subject, you have to take it with all seriousness and humanity. The government is talking to many people, we talked this morning with the PSOE. I hope we can talk on Monday of the temporary cessation of evictions affecting the most vulnerable families. And the threshold of exclusion, to better implement the code of good practice, so you can renegotiate the debt and remain in housing." The problem with an eviction moratorium should be obvious. People will have no incentive to pay their mortgages for the next two years. Many people will take that option and it will further stress the Spanish banking sector already deep in trouble.

Cash-strapped Spaniards ditch their mobile phones (Reuters) - A quarter of a million Spaniards ditched their mobile phones in September, with Telefonica (TEF.MC) and Vodafone (VOD.L) bearing the brunt of cancellations by recession-hit consumers. Spain's telecoms watchdog said on Thursday mobile phone connections fell 242,000 in the month, the eighth consecutive decline in a country at the forefront of the euro zone debt crisis and where one in four of the workforce is unemployed. The decline is bigger than the 226,000 connections cancelled in August, though below April's record of 380,000. Since September, both Telefonica and Vodafone have announced cheaper tariffs in an escalating price war between Spanish operators. Many cash-strapped consumers have been switching from big players like Telefonica's Movistar to smaller firms offering cheaper deals like Teliasonera's (TLSN.ST) Yoigo. "In line with previous months, the declines registered by Movistar and Vodafone were not outweighed by the increases at other mobile operators," the regulator CMT said in a statement. Customers cut off 254,000 Movistar connections, while Vodafone noted a decline of 178,000. Yoigo gained 40,000 new customers, while France Telecom's (FTE.PA) Orange attracted 25,000 new mobile clients. Telefonica and Vodafone had used Spain as a testing ground for scrapping smartphone subsidies and stopped offering customers cut-price or free phones earlier this year.

Spain Makes Progress on Repossessions Deal Amid Talks -- Spain’s government and the opposition plan to meet for a third time today, after they made progress toward a deal to stem home repossessions while Prime Minister Mariano Rajoy prepared to face a general strike. Talks between government and Socialist Party officials that began Nov. 12 will reconvene at 6:30 p.m. as the two sides work on “urgent measures” to limit evictions in cases of mortgage default, said a government spokesman, who asked not to be named in line with government policy. The government plans to pass a decree enforcing the measures at a cabinet meeting tomorrow, the spokesman said. Rajoy, who faces a general strike today amid mounting social disquiet at spending cuts and Spain’s economic crisis, pledged measures to stem evictions on Nov. 9 after a woman committed suicide as officials tried to seize her home. Rajoy is trying to respond to outrage over foreclosures amid a taxpayer- funded bank bailout without inflicting further losses on a financial system crippled by the collapse of a debt-fueled housing boom. “No family in good faith should end up homeless as a result of the crisis,”

Spanish economy minister calls for slack on deficit targets - Spanish Economy Minister Luis de Guindos told the European Parliament in Brussels on Monday that fiscal consolidation should be imposed gradually in order not to further damage the economy. “We have to reduce the fiscal deficit at a sensible pace,” De Guindos said. “In the medium term we need sound public finances, but it has to be a sensible pace that doesn't create future problems, and everyone in the Eurogroup is on the same page in that regard." De Guindos insisted that given the fact that Europe is in recession, deficit targets set should be viewed in structural as opposed to nominal terms. He defended the government’s forecast of a contraction in the economy of only 0.5 percent next year, compared with the European Commission’s estimate of a fall of 1.4 percent, insisting that there are already some “positive signs” that point to a recovery in activity as a result of the reforms introduced by the administration of Prime Minister Mariano Rajoy. “We are conscious that international forecasts for Spain are lower than our own forecasts,” he said. “But those forecasts are not written in stone. We are working on our economic program to meet our forecasts, which we consider to be realistic.”

Greek MPs vote for budget cuts: The Greek parliament has adopted a budget for 2013 that involves 9.4bn euros ($11.9bn; £7.5bn) of cuts in spending. The vote paves the ways for Greece's international creditors to unlock a 31.5bn euro tranche of bailout funds. The government has said that without the next instalment of its loans it will run out of cash on Friday when 5bn euros of treasury bills mature. The budget predicted the economy would shrink 6.5% this year and 4.5% in 2013. The Greek parliament passed the budget early on Monday morning by 167 votes to 128. However, when eurozone finance ministers meet in Brussels on Monday they are unlikely to see the latest report on Greece's economic revival by inspectors from what is known as the troika - the European Central Bank, European Union and International Monetary Fund - according to German finance minister Wolfgang Schaeuble.

Greece on the brink of default despite approved austerity - Greece’s default clock is ticking louder than ever as the country struggles to raise funds for a €5bn debt repayment by the end of this week. Meanwhile international lenders are failing to agree on how to reduce Athens’ debt. ­On Friday the country must repay 5bln euro of maturing short-term bonds held by the European Central Bank, but without its next 31bln euro tranche it's not clear how this issue will be fixed. The government has already said it will run out of cash on Friday, if it doesn’t get the bailout money. Initially Greece’s debt management office planed to raise the 5bln euro through a Treasury bill auction on Tuesday. But Greek banks expected to buy the issue can only provide as much as 3.5bln euro of collateral acceptable to the ECB, while Brussels refuses to give Greek banks permission to buy more debt. To avoid insolvency, the country would have to raise the remaining 1.5 billion from a 3bln euro reserve for bank recapitalization held by Greece’s Hellenic Financial Stability Fund. This institution has been established to maintain the stability of the Greek banking system However, the possibility to get desperately needed aid becomes slimmer as the eurozone’s finance ministers, who are meeting in Brussels, are still divided on a number of issues. While the IMF insists Greek debt levels need to be reduced to 120% of GDP by 2020, the European Commission is urging it to be cut to 125% by 2022. Officials also argue about a cut in interest rates on Greece’s bailout loans, with Germany, the Netherlands and Finland opposing the step.

EU budget talks collapse following rows over funding increase - Talks to agree the European Union's budget for next year broke down amid rows involving among member states including Britain – sparking a new funding crisis. Eight hours of negotiations in Brussels ended in walkouts after MEPs refused to drop demands for an extra £13.8 billion in European Union spending for this year and 2013. The failure of the talks casts a fresh doubt on whether a major summit to agree to the EU's future funding from 2014 to 2020, scheduled for later this month, can go ahead. There had already been speculation that the summit would be cancelled because David Cameron was refusing to drop his threat of using Britain's veto to block any future increase above the level of inflation. Friday night's deadlock was over demands by the European Commission for a £7.3 billion spending increase by the end of this year to meet a funding shortfall, figures that are disputed by Britain and other governments. At the same time, the European Parliament wants to reinstate over £6.5 billion in funding that had been cut by governments from next year's budget to reflect national austerity programmes.

EU-IMF feud erupts over Greek debt -- Eurozone finance ministers last night postponed agreement on Greece's long-delayed €31.3bn aid payment for yet another week as divisions between the International Monetary Fund and EU creditors over how fast Athens must reduce its burgeoning debt levels burst into the open. Christine Lagarde, the IMF chief, and Jean-Claude Juncker, chair of the eurogroup of finance ministers, publicly sparred over whether Greece must reduce its debt levels to 120 per cent of economic output by 2020, long viewed the target to get Athens back to a sustainable debt level. An agreement between the IMF and eurozone governments is essential to releasing the bailout tranche since both creditors disburse financial assistance concurrently. In a rare breach, Mr Juncker told a post-meeting press conference the target would be moved to 2022, prompting Ms Lagarde to insist the IMF was sticking to the original timeline. When Mr Juncker again insisted it would be moved -- "I'm not joking," he said -- Ms Lagarde appeared exasperated, rolling her eyes and shaking her head. "In our view, the appropriate timetable is 120 per cent by 2020," Ms Lagarde said. "We clearly have different views." Officials will meet again November 20 in an effort to reach agreement, Mr Juncker said. Despite the delay, officials insisted Greece would not default on Thursday, when Athens must make a debt payment of about €5bn without the benefit of international aid.

Greece to get more time but no immediate aid - Euro zone governments will not agree to disburse more money to debt-ravaged Greece on Monday, despite the country approving a tough 2013 budget, because there is not yet a consensus on how to make its debts sustainable into the next decade. Finance ministers gathered in Brussels should, however, give Athens two more years to make the budget deficit cuts demanded of it, a concession that will require funding of around 32 billion euros, according to a draft document prepared for the meeting. The Greek parliament passed an austerity budget for 2013 late on Sunday and a structural reform package last Wednesday, meeting the conditions for the release of the next tranche of 31.5 billion euros of emergency loans from the euro zone. But officials said the money would not be released since ministers are waiting for the European Commission, the IMF and the European Central Bank, together known as the troika, to present their 'debt sustainability analysis'. A compliance report by the troika calculated that if ministers agree to give Greece two more years to meet its targets, extra funding of around 15 billion euros would be needed up to 2014 and another 17.6 billion for 2015/16 -- amounting to a 32.6 billion euros funding hole to be filled.

Greeks Get Time but Not Money - So here we go again. Greece needs even more money, and once again the EU needs to decide what to do about it. Eurozone governments will not agree to disburse more money to debt-ravaged Greece on Monday, despite the country approving a tough 2013 budget, because there is not yet a consensus on how to make its debts sustainable into the next decade. Finance ministers gathered in Brussels should, however, give Athens two more years to make the budget deficit cuts demanded of it, a concession that will require funding of around 32 billion euros, according to a draft document prepared for the meeting. Yes, I know it’s not a surprise, but it does present immediate problems because the European commission is stalling until the release of the final report , the Bundestag, amongst others, is yet to vote on the next tranche and Greece has a €5 billion bond redemption on Friday. The latest news from the Eurogroup meeting is: .. [the] Eurogroup ended with eurozone finance ministers agreeing to extend Greece’s fiscal adjustment period by two years but deciding to put off until next week final decisions on the disbursement of the next Greek bailout tranche and the method to make the country’s debt sustainable.The ministers are due to meet again on Tuesday, November 20 to wrap up the loose ends regarding the Greek program.

Europe Gives Greece 2 More Years to Reach Deficit Targets - Euro finance chiefs left unanswered how they’ll fill a fresh hole in Greece’s balance sheet without tapping their own bailout-weary taxpayers for money after giving the country two extra years to trim its budget deficit. In the latest compromise in three years of crisis fighting, creditors led by Germany opted late yesterday to keep money flowing to Greece instead of risking a default that could lead to the nation’s exit from the euro and stir more turmoil for the countries that remain in the single-currency bloc. Greece has made “far-reaching decisions that go in the right direction,” German Finance Minister Wolfgang Schaeuble told reporters in Brussels today. He said Greece’s aid program can be re-engineered to plug a financing gap of as much as 32.6 billion euros ($41 billion) without costing creditors a cent. Prospects of a funding deal at a hastily scheduled Nov. 20 meeting were clouded by objections from the International Monetary Fund, which took issue with the ministers’ decision to postpone the goal of getting Greece’s debt down to a “sustainable” level of 120 percent of gross domestic product by two years to 2022.

Counterparties: Why Germany’s lightening up on Greece - In its fifth year of recession, Greece this week approved another round of massive budget cuts that would allow it to receive more aid and stay solvent. Nevertheless, on the eve of yet another general strike, Greece’s aid is caught once again in the complex game that is European politics. In “an unusually public airing of disagreement”, IMF chief Christine Lagarde had a mini-spat with the Euro Group’s Jean-Claude Juncker. The IMF wants Greece to get its debt to a “sustainable” 120% of GDP by 2020; the Euro Group and Germany think 2022 is more realistic. Until a deal is reached, Greece won’t get an aid package worth some €31 billion. Angela Merkel, Reuters reports, wants more time for Greece because she “is determined to avoid losses for German taxpayers before a general election in September 2013″.  This is something of a change of heart. Germany’s bad-cop act involved openly campaigning for Greece to implement crippling cutbacks; now it’s the good cop, openly campaigning for Greece to have more time to cut its debt.Paul Murphy flags two bank research notes that help explain this. The only way for Greece to realistically meet its debt targets is by European nations taking a loss on Greek debt (this is euphemistically referred to as “official sector involvement”). Karl Whelan points to a leaked EU report on Greece’s debt that supports this view, and argues that the European saga has “turned into a full-scale farce”:

Portugal shut out of OMT in order to keep Greece out - In late August JPMorgan argued that the ECB's OMT (Outright Monetary Transactions) program should start with Portugal (see discussion). The prediction was wrong - the ECB disqualified Portugal from participating. But why? After all Portugal has complied with multiple troika reviews and the monetary transmission mechanism in Portugal has clearly been broken. The chart below shows that Portugal's private sector has not benefited from the ECB's liquidity injections (LTRO) and the lower overnight rate (prime example of broken monetary transmission).What's particularly strange is that the whole justification for the ECB launching this sovereign bond buying program to begin with had to do with problems of monetary transmission (see discussion) in the Eurozone. Draghi's explanation for keeping Portugal out of OMT is that the nation lacks "complete market access" - meaning that it can't sell bonds in the market. And only the nations that have such access qualify for the program.

Greece sinks deeper into depression in third quarter - Greece's economic slump deepened in the third quarter, with output shrinking 7.2 percent on an annual basis as the debt-laden country heads into its sixth year of depression and struggles to meet its bailout targets.The contraction was deeper than the second quarter's 6.3 percent drop and follows the passage of a tough 2013 budget by Prime Minister Antonis Samaras's government that is expected to continue to smother growth for most of next year.Since 2009, the Mediterranean state's economic decline - which Samaras has dubbed Greece's "Great Depression" - has wiped a fifth off economic output and sent unemployment to a record high, putting one in four Greeks out of work.The reading could point to an even grimmer outlook, analysts said, because it was offset by better-than-expected returns from the country's vital tourism sector, which accounts for a fifth of Greece's 215 billion euro economy. Spain is also in recession, and fellow austerity-hit Portugal's contraction deepened in the third quarter, with export growth slowing and domestic demand hit by an austerity programme imposed under the country's international bailout. Portugal's economy shrank 3.4 percent year on year, National Statistics Institute INE said on Wednesday, accelerating from the previous quarter's revised 3.2 percent drop.

Greece's economy shrinks by 7.2 per cent, as recession worsens - Greece remains in a deep recession as new figures Wednesday showed the economy shrank by 7.2 per cent of gross domestic product in the third quarter, according the Hellenic Statistical Authority (ELSTAT). The 7.2 per cent shrinkage was measured against the third quarter of 2011. The figure represents the deepest contraction so far this year, as the economy shrank by 6.7 per cent in the first quarter and 6.3 per cent in the second. Greece is entering its sixth year of recession as it continues to pass harsh austerity measures in exchange for bailout loans demanded by its international lenders, the European Commission, the European Central Bank and the International Monetary Fund (IMF). In a speech in Athens on Wednesday, Charles Dallara, managing director of the Institute of International Finance, said Athens should be given more lenient targets to reduce its budget deficit so that its economy can return to growth more quickly. He said the Greek government had proven "willingness to bear short-term pain for long-term gain" in passing a new package of austerity measures worth 13.5 billion euros (17.1 billion dollars).

Looking Ahead, Spain Worse Than Greece; Only One Realistic Solution - Both Greece and Spain are in the midst of huge depressions. The unemployment rate in Spain is 25.8%, in Greece it's 24.4%. Youth unemployment is over 50% in both countries. Greece is in its 6th year of depression and GDP is down another 7.2%. Expect Spain to follow.  Matthew Dalton, writing for the Wall Street Journal explains Where Spain Is Worse Than Greece: By most measures, Greece’s economy is in worse shape than Spain’s. Greece has been largely shut off from financial markets for more than two years; yields on its bonds are still sky high. Gross domestic product has fallen nearly 20% over the previous three years. Spain can still borrow from private investors, and its GDP has fallen around 5% during the crisis. But if you take forecasts from the European Commission seriously, Greece enjoys one formidable advantage over Spain: Its economy is running well below capacity, while the Spanish economy, despite an unemployment rate around 25%, is operating relatively close to full steam.Why is that an advantage? According to the commission, it means that the Greek unemployment rate should fall sharply if the economy starts to recover again, without causing inflation. Spain faces a much more difficult situation. If the structure of its labor market doesn’t change, the commission’s analysis suggests that a nascent economic recovery in Spain could be hampered by labor shortages that would spark wage inflation.

Euro-Zone Industrial Production Declines Steeply - Industrial production in the 17 countries that use the euro fell sharply in September as weak output across both the core and peripheral economies added to expectations for a poor third quarter gross domestic product print Thursday. Data from the European Union's statistical agency Eurostat showed industrial production fell 2.5% on the month in September, That was the largest fall since January 2009 and compares with August's 0.9% increase. On the year, output dropped 2.3% after a 1.3% decline in August. The data were weaker than expected as economists surveyed by Dow Jones Newswires last week had expected a 2.0% monthly fall and a 2.1% decline in annual terms. Energy output fell 1.8% in September compared with August, the biggest fall since an 8.4% drop in March of this year, while a 2.8% month-on-month decline in production of non-durable consumer goods was the steepest since January 2000. And, Eurostat said that a drop in car production across France and Germany saw both countries post monthly output falls of 2.7% and 2.1%, respectively. The fall in French output was the steepest since January 2009, while the drop in German production was the biggest since November last year. Industrial production in Portugal fell 12.0% on the month in September, the biggest fall since records began in 2000 and was due primarily to strike action that month. And, Ireland's 12.6% monthly drop in output was mainly driven by a drop in activity in the pharmaceutical sector, Eurostat said.

That Is An Ugly Industrial Production Number From Europe - From Eurostat: In September 2012 compared with August 2012, seasonally adjusted industrial production fell by 2.5% in the euro area (EA17) and by 2.3% in the EU27, according to estimates released by Eurostat, the statistical office of the European Union. In August production increased by 0.9% and 0.5% respectively. In September 2012 compared with September 2011, industrial production dropped by 2.3% in the euro area and by 2.7% in the EU27.

Italian public debt rises to record high in September — The Italian public debt reached a record high despite recent efforts to ease the overstretched finances, showed a central bank report released Tuesday. In September, the national debt stood at 1,995 billion euros (2,536 billion U.S. dollars), 19.5 billion euros higher than in August, according to the report. The debt rose despite a series of tax hikes and welfare cuts introduced by Prime Minister Mario Monti’s emergency government of technocrats, which contributed to tax revenues rising by 2.6 percent in the first three quarters of 2012 compared to the same period last year. On Tuesday, the government announced that its central departments are set to cut 4,028 non-management jobs. Other staff reductions for the justice ministry and the national insurance agency will follow as part of a package passed earlier this year aimed at saving 26 billion euros over the next three years, it added. The eurozone economic crisis has caused Italy’s borrowing costs to rise thus made it more expensive to service the country’s debt, which is around 126 percent to its gross domestic product (GDP).

Italy seeks trials over credit downgrades - Italian prosecutors have requested that five employees of Standard & Poor’s and two from Fitch be put on trial for alleged market manipulation connected to their downgrades of Italy’s credit rating. The prosecutors contend the accused violated EU rules by releasing the downgrades when European markets were open and by not alerting the Italian government 12 hours before the decisions, dating back to earlier this year and last year, were made public. A judge must now decide whether to order a trial, a decision that could come in a few months. “These claims are entirely baseless and without any merit as our role is to publish independent opinions about creditworthiness according to our public and transparent methodologies, which we apply consistently around the world,” S&P said. “We will continue to perform our role without fear or favour of any investor, debt issuer or other external party and to defend our actions, our reputation and that of our people.”

Europe Faces a Multi-National General Strike Against Austerity -  Austerity has spawned general strikes in individual countries across the troubled European Union. But this week may see something to add to the union’s tensions: a coordinated, multi-national mega-strike. Organized labor plans a general strike against the E.U.’s austerity policies, borderless and spanning the south of the continent. With more than 25 million people out of work, Europe’s biggest unions have vowed to lead marches and demonstrations on Nov. 14 that unite opposition parties, activist movements like Spain’s M15 and a growing sea of unemployed to challenge their national governments, banking leaders, the IMF and EU policymakers to abandon austerity cuts ahead of a high-stakes budgetmeeting in Brussels later this month. What makes Wednesday’s strike even more threatening to Europe’s managerial elite is the strong support it is receiving from traditional labor groups that rarely send their members into the streets—foremost, among them, the European Trade Union Confederation, representing 85 labor organizations from 36 countries, and totaling some 60 million members. “We have never seen an international strike with unions across borders fighting for the same thing—it’s not just Spain, not just Portugal, it’s many countries demanding that we change our structure,” says Alberto Garzón, a Spanish congressman with the United Left party which holds 7% of seats in the Spanish Congress. “It’s important to understand this is a new form of protest.”

EU workers in austerity protests - Workers across the European Union are staging a series of protests and strikes against rising unemployment and austerity measures. General strikes in Spain and Portugal halted transport, businesses and schools and led to clashes between police and protesters in Madrid. Smaller strikes were reported in Greece, Italy and Belgium, and rallies were planned in other countries. Hundreds of flights have been cancelled in Spain and Portugal. Airlines are recommending passengers check the schedules before setting out to airports. The European Trade Union Confederation has co-ordinated the Europe-wide action. The confederation's Judith Kirton-Darling told the BBC that austerity was not working. "It's increasing inequalities, it's increasing the social instability in society and it's not resolving the economic crisis," she said. Some 40 groups from 23 countries are involved in Wednesday's demonstrations.

Italy police clash with jobless youth protesters - Italian riot police wielding batons yesteray clashed with several hundred demonstrators who were protesting in Naples over youth unemployment during a visit by the labour minister. Protesters wearing masks of Labour Minister Elsa Fornero and holding aloft banners calling for Premier Mario Monti to step down threw stones at police, who returned fire with tear gas in a skirmish which left 23 people injured. Italy’s youth have been hit hard by the economic crisis. Unemployment among 15 to 24-year-olds was at 35.1 per cent in September, up 4.7 per cent on a year, and government measures to tackle the issue appear to have made little headway. Fornero infuriated many young Italians last month when she told them not to be “choosy” when looking for work. Unemployment has shot up in Italy since the heavily debt-laden country entered into recession at the end of last year, and anger has been exasperated by reports of corruption and funds misuse among members of the political class.

Over 140 people arrested, dozens injured in Spain as mass protests sweep across Europe — RT: Over 140 people have been arrested and 74 injured, including 18 police officers, as Spanish police react swiftly to reports of property damage and disorderly behavior while mass protests that began in Spain continue to roll out across the EU. ­A wave of anti-austerity anger is sweeping across Europe. Spain and Portugal are undergoing general strikes, whereas Greece and Italy are seeing many walkouts.In Spain – the fourth-biggest eurozone economy, yet with one in four workers unemployed – activists and unions have staged an evening rally outside the parliament in the capital, Madrid. Police have reportedly fired rubber bullets to disperse protesters in Barcelona and Madrid.

European Workers Strike Over Austerity Measures - — Workers across Europe mounted coordinated protests on Wednesday against government austerity policies in a time of economic malaise.In Spain and Portugal, workers staged general strikes. Unions in Greece, Italy, France and Belgium joined in protests and work stoppages to show solidarity with striking workers elsewhere. The breadth of the demonstrations, which affected scores of cities, reflected widespread unhappiness with high unemployment, slowing growth and worsening economic prospects in Europe, and the resistance that European governments confront as they push plans for more belt tightening. Occasional clashes with the police were reported in some cities. Among those striking on Wednesday were railroad workers in Belgium; airline workers, autoworkers and teachers in Spain; civil servants in Italy; and transit workers in Portugal. Union leaders called the coordinated actions historic.

Anti-austerity strikes sweep Europe (Reuters) - Police and protesters clashed in Spain on Wednesday as millions of workers went on strike across Europe to protest spending cuts they say have made the economic crisis worse. Hundreds of flights were cancelled, car factories and ports were at a standstill and trains barely ran in Spain and Portugal where unions held their first ever coordinated general strike. Riot police arrested at least two protesters in Madrid and hit others with batons, witnesses said, and in Rome students pelted police with rocks in a protest over money-saving plans for the school system. International rail services were disrupted by strikes in Belgium and workers in Greece, Italy and France planned work stoppages or demonstrations as part of a "European Day of Action and Solidarity". "We're on strike to stop these suicidal policies," said Candido Mendez, head of Spain's second-biggest labor federation, the General Workers' Union, or UGT. More than 60 people were arrested in Spain and 34 injured, 18 of them security officials after scuffles at picket lines and damage to storefronts. Protesters jammed cash machines with glue and coins and plastered anti-government stickers on shop windows. Power consumption dropped 16 percent with factories idled.

Across Continent, Millions of Europeans Rise Up Against Austerity - Powerful, but previously isolated, national labor unions and anti-austerity campaigners across Europe have come together Wednesday in coordinated strikes and demonstrations across the continent, bringing millions of people into the streets and bringing many countries—including Greece, Spain, Italy, and Portugal—to a virtual halt. Various media outlets report transportation hubs at a standstill across southern Europe—where the pain of austerity has been most acutely felt—but also report actions of solidarity in northern, less-affected cities like Brussels and Paris. Clashes between protesters and police were reported in Spain and Italy but demonstrations remained largely peaceful in most places. Reuters reports "millions of workers" joined the strike and called it "organized labor's biggest Europe-wide challenge to austerity" since the financial crisis took hold in 2009. "Hundreds of flights were cancelled, schools were shut, factories were at a standstill and trains barely ran in Spain and Portugal."

Anti-Austerity Protests Spark Violence  - Millions of Europeans joined together in general strikes and demonstrations on Wednesday to protest the strict austerity measures undertaken by their countries. In Portugal and Spain, hard hit by the debt crisis, locals conducted a 24-hour general strike that largely paralyzed public infrastructure, suspending train service and grounding hundreds of flights, in addition to shutting down factories.
Spain: Only one-fifth of long-distance trains ran on Wednesday, and more than two-thirds of commuter train services were cancelled. The strikes also paralyzed airlines, with national carrier Iberia and low-cost company Vueling forced to cancel numerous flights.
Portugal: In Lisbon, subway service ceased. Bus and train service was suspended all across the country. Workers at post offices and schools also went on strike. At hospitals, up to 90 percent of workers walked out for the day.
Italy: The country's biggest union, CGIL, called a four-hour general strike and organized around 100 rallies. In Rome, police clashed with students who threw stones and unsuccessfully tried to rush the government palace. In Turin, protesters threw eggs and smoke bombs at the offices of the local tax authorities. Meanwhile, in Milan, rioting students smashed in windows of banks and the energy company Enel.
Greece: Unions had prepared a protest that ended outside the parliament building. The protests began in the city center on Wednesday morning, with police expecting a relatively modest turnout, after a two-day general strike against the latest austerity measures passed by parliament already took place last week.
Belgium: Rail traffic was affected by workers' strikes, with trains traveling to Brussels hardest hit. German national railway Deutsche Bahn provided a replacement bus service for its high-speed services between Brussels and Cologne. Meanwhile, Thalys, which offers high-speed trains between Paris, Brussels and Cologne, suspended service on the route for the day. "

Austerity protests stall several European nations- Hundreds of thousands of Europe's beleaguered citizens went on strike or snarled the streets of several capitals today, at times clashing with riot police, as they demanded that governments stop cutting benefits and create more jobs. Workers with jobs and without spoke of a "social emergency" crippling the world's largest economic bloc, a union of 27 nations and half a billion people. The protests were met with tear gas in Italy and Spain, but were largely limited to the countries hardest hit by the austerity measures designed to bring government spending into line with revenues. Wealthier nations like Germany, the Netherlands and Denmark saw only small, sedate demonstrations. Governments backing the line of stringent austerity were not impressed by the show of force. "We must nevertheless do what is necessary: break open encrusted labor markets, give more people a chance to work, become more flexible in many areas," German Chancellor Angela Merkel said. "We will of course make this clear, again and again, in talks with the unions."

Modern Money & Public Purpose: Yanis Varoufakis and Marshall Auerback on the Eurozone Crisis - from Yves Smith - One of the reasons the public knows little about economics is that most economists are lousy speakers. Part of that is their reliance on jargon, which is often shamanistic, designed to obscure rather than communicate. But the other reason is that a lot of economists don’t bother to try to be engaging.  The remarks by Yanis Varoufakis and Marshall Auerback are informative and lively, if ultimately pretty grim. The comments at YouTube are extremely positive. The video includes a Q&A section, so don’t be put off by the 2 hours taping time. The talk proper is a bit more than an hour.

Oh, We See Disaster - Krugman -- I got my first heads-up of the extent to which austerity fever had taken over the minds of Very Serious People when the OECD, which is conventional wisdom central, went all in for austerity now now now. The report making that case, the 2010 OECD Economic Outlook, made economic projections out through the last quarter of 2011. For a project I’m working on, I have compared those projections with what actually happened to selected countries; here’s what it looks like: The harsh-austerity countries did much worse than the OECD was expecting. This is similar to the IMF’s exercise, which convinced its staff that fiscal multipliers are not just positive — contractionary policy is contractionary — but bigger than they thought. So the OECD was terribly, terribly wrong and gave awful advice. I wonder if they have learned anything from the experience.

Gridlock in Europe - The latest twists and turns in the saga of the Greek debt crisis are signs that the brief honeymoon the Fund enjoyed in the wake of the “Great Recession” has ended. The wide-spread approval the IMF received for its “first wave” of lending in 2008-09 has been followed by debates over the size and effectiveness of its lending in the more recent “second wave.” The Greek government won narrow legislative approval for a new round of spending cuts and tax hikes, but its debt/GDP level is projected to rise to 190% by 2014, far ahead of the IMF’s recent predictions. The publication by the IMF of a range of fiscal policy multipliers higher than those used in past projections of the impact of fiscal consolidation in Europe displeased advocates of those policies while providing support to those who believe that the fiscal conditions attached to these programs were too strict. The IMF’s initial lending followed a period when the demand for its assistance had dwindled. During the early 2000s, there was a decline in the incidence of bank, currency and sovereign debt crises, and as a result the need for the IMF’s resources fell. In 2007, when there were ten new concessionary programs for low-income countries funded by the Poverty Reduction and Growth Trust (PRGT), only two new non-concessionary programs for middle- and upper-income nations financed through the IMF’s General Resources Account (GRA) were approved (see Figure 1).

Greece: continuing the disastrous ‘squeeze and hope’ strategy - That a disagreement between the IMF and the other members of the Troika negotiating with Greece should have become public may seem surprising. That it appears to be about whether Greek government debt to GDP should fall to 120% by 2020 or instead by 2022 seems stranger still. Most observers probably think either is wishful thinking. However one interpretation of this disagreement is that it signals the IMF is beginning to accept that the Troika’s previous strategy of ‘squeeze and hope’ has not worked, but European governments and institutions are still refusing to recognise that reality.  At the outset it is essential to acknowledge that Greek governments in the years before the recession behaved very badly in both economic and political terms. As a result, when the recession hit, the Greek government’s finances became untenable, and partial default eventually occurred in 2012. However, as part of the crisis that began in 2010 as well as this default, the ownership of claims on the Greek government gradually transferred from the private sector to other European governments, the ECB and the IMF: collectively the Troika.    This transfer is generally portrayed in the media as other governments ‘bailing out’ Greece. However at no point has any institution given away anything. New loans to Greece have been at various interest rates: from 5% from the ECB, around 3.7% from the IMF, and from the ESFS/ESM at starter rates of 2% rising to 3.5%. (For these and other details, see a comprehensive new paper by Zsolt Darvas from Bruegel.) Nevertheless these loans enabled Greece avoid the even sharper contraction in fiscal policy and output that would have occurred if there had been complete default.  

Top euro policymakers at odds over Greek debt fix (Reuters) - The European Union's top economic official sought to rule out any write-off of Greece's debt to governments on Thursday after a European Central Bank policymaker said for the first time that a "haircut" on part of it was probable. A row between euro zone governments and the International Monetary Fund over how to make Greece's giant debt mountain manageable is holding up the release of 31 billion euros ($39.5 billion) in emergency loans needed to keep Athens afloat. IMF officials have argued that some write-down for euro zone governments is necessary to make Greece solvent but Germany, the biggest contributor to the bloc's bailout funds, has repeatedly rejected the idea of taking a loss on holdings of Greek debt, saying it would be illegal. German Chancellor Angela Merkel said after talks with French Prime Minister Jean-Marc Ayrault that they had not discussed a Greek debt write-off and Berlin's position had not changed. They both called for an early solution.

‘Horrible Citizens’: The Life of Greece’s One Percent - Der Speigel - Economou's little slice of heaven is well-protected. There are a number of guards, and those entering his art gallery must first pass through a security gate complete with a fingerprint scanner. Sitting in a Mercedes luxury sedan with the air conditioning on high after the private viewing, Economou's daughter Alexandra says that her country is not as safe as it used to be and that she now only takes a taxi in a pinch out of fear of being abducted. Yes, even the rich in Greece have worries. Last week, Greece's parliament agreed to a new package of austerity measuresthat are supposed to reduce expenditures by €13.5 billion between now and 2015, primarily through salary and pension cuts. The measures will lower the average monthly salary in the country to some €950. Families making more than €18,000 a year will no longer receive child allowances. And, this month, Greece is once again trembling in fear over whether it will receive the next €31.5 billion tranche of loans from the European Union. If it doesn't arrive by the end of November, the country will become insolvent. The Greek economy has been tanking for years now as the country struggles to balance its budget by imposing deep austerity measures. But the country's richest residents haven't noticed. Many aren't taxed at all, and some of those that are prefer to dodge their obligation to the state instead.

Hellenic Postbank to be split into good and bad side - The sale of Hellenic Postbank (TT) will go ahead only once the the recapitalization of the Greek credit sector has reached an advanced stage and the state-owned lender is split into a “good” and “bad” bank, the government has decided. The project of the privatization of TT will follow the pattern set by the sale of ATEbank to Piraeus Bank, with the “good” part of the lender, which includes deposits and the portfolio of performing loans going to the buyer, and the “bad” being put through a clearance process and dissolved. TT will therefore be delivered to its buyer clean, with its considerable deposits – among the largest in the country – shifting the balance between deposits and loans for the banking group that will acquire the listed lender. This is the main reason why all three major groups in the domestic credit sector are set to enter a bid for TT. The group of National and Eurobank, the Alpha group and the Piraeus group will fight for this bone of contention in a battle that has no favorites or outsiders. Even though National and Eurobank – which are about to merge – control 12 percent of TT between them it only concerns TT as it is now and once it splits into a good and bad bank, the advantage will be lost. Even if it had existed, however, it would not have mattered that much anyway: “Stock valuations are so low, that the advantage for the new National [after the merger with Eurobank] would not have exceeded 4 to 5 million euros. Consequently, that would matter little in the bidding,” a senior official from another lender told Kathimerini.

Spain's Unpleasant Choice: Accept Lower Wages and Still Higher Unemployment, Leave the Euro and Default - On the near 100% probability that Germany will not voluntarily give money to Spain, nor will Germany voluntarily modify its trade policies, the choices facing Spain are quite bleak.Michael Pettis, writing for Carnegie Europe describes Spain's unpleasant choices in Spain Will be Forced to Choose.  In the great debate over the economy we sometimes forget the simple arithmetic of economic rebalancing. This arithmetic, like it or not, severely limits the options open to Spain. Because once they joined the euro the rest of Europe had no control over the value of their currencies and the level of their interest rates. It was inevitable that European countries that had joined the euro with a higher-than-average level of inflation would be forced to respond to German trade surpluses either by forcing up unemployment or by running the large trade deficits that corresponded to Germany’s trade surplus. No other choice was possible.These deficits, as a matter of economic necessity, had to be financed with loans from Germany, leaving Spain with an enormous debt burden. Just as Spain could not run a trade deficit without borrowing from abroad, Spain can only repay its debt if it runs a trade surplus. What is more, since rich Spaniards are taking enormous amounts of money out of the country in order to protect themselves from the debt crisis they know is coming, the Spanish trade surplus must be large enough to accommodate both flight capital and debt repayments. In practice there are only three ways Spain can achieve a sufficiently large trade surplus. The first way requires that Berlin reverse those policies that forced a German trade surplus at the expense of its European neighbors. Berlin must cut taxes and increase spending so much that Germany runs a trade deficit large enough to allow Spain to run the opposite surplus, which it must do if it hopes to repay the debt.

A "pat on the back" from the EC is an invitation for Spain to ask for OMT; Rajoy unlikely to budge - The EC today announced that Spain has met its economic and fiscal requirements put in place by the EU. MNI: - The European Commission said Wednesday that Spain had fulfilled its economic and fiscal obligations under EU rules for this year and next but warned that it could need to take more action to hit targets in 2014 if the economy performs worse than the Spanish government expects. "We have concluded that for 2012 and 2013 Spain has taken effective action to restore the sustainability of its public finances," EU Economic and Monetary Affairs Commissioner Olli Rehn told a press conference here.  Structural reforms to improve the flexibility of the Spanish labour market and open up closed professions "go a long way" towards meeting objectives set out for Spain by the Commission and EU governments, Rehn said. This is quite surprising. After all, Spain is widely expected to overshoot its deficit target. Barclays: - The outlook for the Spanish economy remains very subdued and we have revised our GDP growth forecast for 2013 down accordingly from -1.4% to -1.8%, below consensus, and broadly unchanged with respect to our current growth forecast for this year. We think that given some delay in the implementation of consolidation measures in the first half of this year and a weaker economic environment, the general government deficit will once again overshoot the target (Barclays: 7.0% of GDP this year and 5.0% of GDP in 2013 vs. Government: 6.3% of GDP this year, 4.5% of GDP in 2013).

Rajoy’s Path to Bailout Clears as EU Endorses Austerity - European Union budget enforcer Olli Rehn removed an obstacle blocking Spanish Prime Minister Mariano Rajoy’s path to a sovereign bailout, endorsing his deficit- reduction efforts as the recession deepened. The spending cuts and tax increases Rajoy has introduced for this year and next are enough to satisfy the EU, Rehn said yesterday in Brussels. Those policies are also smothering the economy. It contracted 1.6 percent in the third quarter, more than the 1.3 percent in the previous three months, the nation’s statistics institute said today, confirming its estimate. “Spain has taken effective action in restoring the sustainability of public finances,” said Rehn, the economic and monetary affairs commissioner. “The box is ticked, as long as the implementation is solid and convincing.” The announcement follows concessions to Greece, Portugal and earlier leniency granted to Spain itself, in a further shift away from the fiscal retrenchment that critics say has spread recession across southern Europe and exacerbated the fiscal crisis. Millions of workers across Europe logged off yesterday to protest against austerity as European officials pressed for Rajoy to ease the financial pressure on Spanish companies and consumers by asking for aid.

France rejects EU budget compromise - Jean-Marc Ayrault, the French prime minister, objected to deep cuts to agriculture spending included in the proposal, but also expressed displeasure with reductions in the development money, known as cohesion funds, that benefit poorer regions. The biggest object of displeasure appeared to be Mr Van Rompuy’s move to trim €25bn from the common agricultural policy – traditionally France’s biggest priority – compared with a proposal from the European Commission, the EU’s executive arm. Those cuts include a €12bn reduction in direct subsidies to farmers. Some analysts argue the cull was even more dramatic because agriculture was starting from a low base – historically speaking – in the commission proposal. Agriculture is not France’s only concern. Cuts to the cohesion budget look set to fall disproportionately on its own regions, which tend to be bastions of support for François Hollande, the socialist president. Paris may also have been stung by Mr Van Rompuy’s decision to endorse the UK rebate, the burden of which falls disproportionately on French and Italian taxpayers. Under the proposal, the rebate would be modified so that the UK and Germany – currently exempted – would have to pay a share of the British rebate.

Millions Join Largest European Strike Ever - video - Europe’s Mediterranean rim trembled on Wednesday as violent clashes broke out following the largest coordinated multinational strike in Europe ever. In the hope to stave off decades of austerity, precarity and unemployment, European labor unions united for the first time since the start of the European debt crisis to organize strikes and protests in a total of 23 EU member states, with millions of workers walking off their jobs and marching on parliament buildings across the continent. Bloody street battles ensued across Spain, Portugal and Italy.

The Time-Bomb At The Heart Of Europe - THE threat of the euro’s collapse has abated for the moment, but putting the single currency right will involve years of pain. The pressure for reform and budget cuts is fiercest in Greece, Portugal, Spain and Italy, which all saw mass strikes and clashes with police this week (see article). But ahead looms a bigger problem that could dwarf any of these: France. The country has always been at the heart of the euro, as of the European Union. President François Mitterrand argued for the single currency because he hoped to bolster French influence in an EU that would otherwise fall under the sway of a unified Germany. France has gained from the euro: it is borrowing at record low rates and has avoided the troubles of the Mediterranean. Yet even before May, when François Hollande became the country’s first Socialist president since Mitterrand, France had ceded leadership in the euro crisis to Germany. And now its economy looks increasingly vulnerable as well. As our special report in this issue explains, France still has many strengths, but its weaknesses have been laid bare by the euro crisis. For years it has been losing competitiveness to Germany and the trend has accelerated as the Germans have cut costs and pushed through big reforms. Without the option of currency devaluation, France has resorted to public spending and debt. Even as other EU countries have curbed the reach of the state, it has grown in France to consume almost 57% of GDP, the highest share in the euro zone. Because of the failure to balance a single budget since 1981, public debt has risen from 22% of GDP then to over 90% now.

Eurozone Back in Recession in Q3 — The 17-country eurozone has bowed to the inevitable and fallen back into recession for the first time in three years as a sprawling debt crisis took its toll on the region’s stronger economies. And with surveys pointing to increasingly depressed conditions across the eurozone at a time of high unemployment in many countries, there are fears that the recession will deepen, and make the debt crisis even more difficult to handle. Official figures Thursday showed that the eurozone contracted by 0.1 percent in the July to September period from the quarter before as economies including Germany and the Netherlands suffer from falling demand. The decline reported by Eurostat, the EU’s statistics office, was in line with market expectations and follows on from the 0.2 percent fall recorded in the second quarter. As a result, the eurozone is officially in recession, commonly defined as two straight quarters of falling output. “We can dispense with the euphemisms and equivocation, and openly proclaim that the euro area economy is indeed in technical recession,”

EU Back in Recession - One of the remarkable features of the current economic distress that began in late 2007/early 2008 is the extent to which the initial collapse was common across economies (including the U.S.) in both timing and severity.  What is not common is the path of recovery as the following analysis shows. The U.S. now looks to be in good shape compared  to many of the E.U. economies…most of which have slipped back into negative growth. For the E.U. as a whole it is the second consecutive quarter of decline in aggregate real output. The business cycle dating committee of the Center for Economic Policy Research - CEPR- has declared that the Eurozone Economy slipped back into recession beginning in the 3rd quarter of 2011.  Oue analysis focuses on the largest European economies including the U.K. Many of the economies in the EU continue a decline in GDP  that started in late 2011. These economies reached a nadir about 6 quarters after the recession began in 2008, then grew for about 6 quarters, stagnated, and have been  in various rates of decline for 6 quarters or so. Moreover, none of the countries in the EU in the graph shown below has come back to its 2008 peak, except Germany. Indeed, the only positive signs are the Germany continues to grow and the U.K. has turned up a bit.  It is far too early to suggest a U.K. turnaround given that they remain well below their previous peak.

Euro zone double dips back into recession — Europe’s long-running debt crisis dragged the 17-nation euro zone back into recession in the third quarter, data showed Thursday, offering a negative counterpoint to growing optimism among U.S. and global investors over prospects for the global economy. Third-quarter euro-zone gross domestic product shrank 0.1% compared to the second quarter, the European Union statistics agency Eurostat said. That’s equal to an annualized contraction of around 0.4%. That follows a 0.2% quarterly contraction in the previous three months. A recession is widely defined as two consecutive quarters of shrinking GDP. The figures “didn’t tell us anything we didn’t already know. However, they did confirm that things are as bad as we thought. And when sentiment in the markets is already at such lows, it doesn’t take much of a push to send stocks lower,”

Euro Area Enters Recession for Second Time in Four Years - The euro-area economy succumbed to a recession for the second time in four years as governments imposed tougher budget cuts and leaders struggled to contain the debt crisis that broke out in October 2009. Gross domestic product in the 17-nation bloc slipped 0.1 percent in the third quarter after a 0.2 percent decline in the previous three months, the European Union’s statistics office in Luxembourg said today. The result matched the median forecast in a Bloomberg News survey of 44 economists, as unexpected strength in Germany and France was outweighed by contractions elsewhere. Europe’s economic malaise is deepening as governments across the region impose budget cuts to narrow their fiscal deficits. Spain and Cyprus this year joined the list of countries seeking external aid, following Greece, Portugal and Ireland. Unions across the region have held protests against austerity measures. “Overall I think it’s remarkable that we haven’t seen so far in the last year a stronger decrease in economic activity considering the strength of the euro-zone debt crisis,”

’1930s medicine pushes Europe into double-dip The eurozone has relapsed into double-dip recession as the austerity shock in the Mediterranean region spreads to the core countries of the north. The Dutch economy shrank by 1.1pc in the third quarter amid a deep housing slump, and even Austria has begun to succumb. Finland’s economy has shrunk by 1pc over the last year. “Recession comes as no surprise and it is going to get worse next year,” said Desmond Supple from Nomura. “Europe has imposed dusted-off policies from the 1930s and they are driving peripheral countries towards depression,” he said. “We are seeing a mix of pro-cyclical fiscal austerity, overly-tight monetary policy, and regulatory overkill under the Basel III bank rules that are forcing lenders to tighten credit. Europe is stuck in a bad equilibrium and it is not going to end until there is a change of course.” Prof Paul de Grauwe from the London School of Economics (LSE) said austerity measures imposed on the Club Med with no offsetting stimulus by the creditors was creating a contractionary bias to the whole system and and leading to a “very dangerous situation”.

New Studies: Austerity Is Crushing, Not Saving, Europe -The austerity programmes being rolled out in virtually every member state of the European Union (EU) – particularly in Greece, Portugal, Spain and Italy – have failed to reach their stated objective of consolidating public finances in order to solve sovereign debt crises. Instead, these programmes – which entail massive public spending cuts in sectors such as education, health and governance – are “leading to collective folly” and even to “a social breakdown” across the continent, according to numerous economic experts. Far from solving the debt crisis, as promised, the current fiscal consolidation plans will result in higher debt-GDP ratios in the EU in 2013, according to recent research. Several reports have now confirmed what economists and activists warned months and even years ago: that the economic crisis, triggered by the financial collapse of 2007-2008 and the subsequent state-sponsored bailout of banks and investment funds, has resulted in higher unemployment and poverty rates in every country. According to figures published by the official European statistics office, Eurostat, youth unemployment in Greece, Ireland, Italy, Portugal and Spain is presently above 30 percent.

Euro-Area Exports Fell in September as Economy Contracted -- Euro-area exports fell in September as the region’s economy slipped into a recession for the second time in four years. Exports from the 17-nation bloc declined a seasonally adjusted 1.1 percent from August, when they gained 3.3 percent, the European Union’s statistics office in Luxembourg said today. Imports dropped 2.7 percent. The trade surplus widened to 11.3 billion euros ($14.4 billion) from a revised 8.9 billion euros in the previous month. The sovereign debt crisis in the euro area is taking its toll on demand as governments impose budget cuts to narrow their fiscal deficits. Gross domestic product in the monetary union fell 0.1 percent in the third quarter after a 0.2 percent decline in the previous three months. Greece’s economy has contracted for 17 straight quarters and the Portuguese economy completed its second year of quarterly contractions. “The situation is getting worse in many European countries,”

Exports as a factor behind the poor performance of the UK economy - This is from Gavyn Davies and Juan Antolin-Diaz: We conclude that fiscal policy is responsible for a little less than half of the UK’s under-performance compared with the US, with much of the rest being due to the sluggish growth of UK export markets in recent years. The decline in UK oil production, and the possible under-recording of UK GDP in the official statistics, should also be taken into account. Therefore, while there is certainly some truth in the fiscal story, it is far from the whole truth. So why the big difference with the U.S. performance? We find that a large amount of the difference is explained by the fact that US export markets have grown much more strongly than UK markets over the past 5 years. This has been for two reasons. First, the UK’s greater exposure to the recession-hit markets of the eurozone has been very damaging, especially in the past two years. Second, and actually much more important, the UK’s lack of exposure to the rapidly growing markets in the emerging economies has been a major structural problem in recent years. The US, in contrast, has greatly increased its exposure to the emerging markets, notably in Latin America. The summary blog post is here, and underlying research is here.

Britain could lose £66 bn on bank bailouts: lawmakers - Britain could lose the £66 billion ($105 billion, 82 billion euros) it spent on rescuing Royal Bank of Scotland and Lloyds Banking Group and made key errors over failed lender Northern Rock, lawmakers said on Friday. The Public Accounts Committee -- a panel of British lawmakers -- issued the gloomy verdict in a eagerly-awaited report into the government's handling of Northern Rock, which has since been taken over by Richard Branson's Virgin Group. At the height of the credit crunch in 2008, Britain's then-Labour government was forced to nationalise Northern Rock and pump billions of taxpayers' cash into Royal Bank of Scotland (RBS) and Lloyds Banking Group (LBG). "The £66 billion cash spent purchasing shares in RBS and Lloyds may never be recovered, and the Treasury must also ensure it is prepared to deal with any future crisis, whatever form it may take, when it emerges," the committee warned on Friday. Taxpayers still own 81 percent of RBS and 39.6 percent of LBG following the enormously expensive bailouts.