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

Saturday, February 23, 2013

week ending Feb 23

US Fed balance sheet grows for third straight week (Reuters) - The U.S. Federal Reserve's balance sheet expanded for a third straight week to another record size in the latest week, due to its purchases of Treasuries and mortgage-backed securities, Fed data released on Thursday showed. The Fed's balance sheet, a broad gauge of its lending to the financial system, stood at $3.077 trillion on Feb. 20, compared with $3.056 trillion on Feb. 13. The Fed's ownership of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and the Government National Mortgage Association (Ginnie Mae) totaled $1.033 trillion compared with $1.010 trillion the previous week. The Fed's holdings of Treasuries totaled $1.736 trillion as of Wednesday versus $1.728 trillion the previous week. The Fed's holdings of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Bank system was $74.61 billion, unchanged from the previous week. The Fed's overnight direct loans to credit-worthy banks via its discount window averaged $8 million a day from an average of $7 million per day the prior week

FRB: H.4.1 Release--Factors Affecting Reserve Balances--February 21, 2013: Federal Reserve statistical release Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

FOMC Minutes: "Several participants" support varying QE asset purchases - My read is the FOMC is modestly more optimistic on the economic outlook, and are prepared to vary the amount of QE asset purchases based on incoming data.From the Fed: Minutes of the Federal Open Market Committee, January 29-30, 2013. On the outlook:  In their discussion of the economic situation, meeting participants indicated that they viewed the information received during the intermeeting period as suggesting that, apart from some temporary factors that had led to a pause in overall output growth in recent months, the economy remained on a moderate growth path. In particular, participants saw the economic outlook as little changed or modestly improved relative to the December meeting. Most participants judged that there had been some reduction in downside risks facing the economy: Strains in global financial markets had eased somewhat, and U.S. fiscal policymakers had come to a partial resolution of the so-called fiscal cliff.  Nearly all participants anticipated that inflation over the medium-term would run at or below the Committee's 2 percent objective. On varying asset purchases:  Several participants emphasized that the Committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved.

Several Officials Say Fed Should Be Ready to Vary Pace of Asset Purchases - Federal Reserve officials expressed growing unease with the central bank’s easy-money policies at its latest policy meeting and some suggested the Fed might need to pull them back before the job market is fully back to normal. Minutes released Wednesday of the Fed’s Jan. 29-30 policy meeting showed that officials worried the central bank’s easy-money policies could lead to instability in financial markets and might be hard to pull back in the future. The Fed plans to evaluate how the programs are doing at its next meeting March 19 and 20. Several officials said that the Fed should be prepared to vary the pace of its asset purchases, depending on how the economy performs and its analysis of the costs and benefits of the program, according to the minutes. Some Fed officials suggested the Fed may need to alter its stated course to continue the bond-buying programs until the job market improves “substantially,” a threshold it hasn’t defined. “A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred,” the minutes stated. The minutes don’t identify participants by name, or specify how many officials expressed a particular view beyond terms such as “a few” or “several.”

Fed minutes show concerns about bond purchases - Several Federal Reserve policymakers suggested last month that the Fed might have to scale back its efforts to keep borrowing costs low for the foreseeable future. Minutes of the Fed's Jan. 29-30 policy meeting released Wednesday showed that some officials worried about the Fed's plan to keep buying $85 billion in bonds each month until the job market has improved substantially. They expressed concern that the continued purchases could eventually escalate inflation, unsettle financial markets or cause the Fed to absorb losses once it begins selling its investments. According to the minutes, some Fed officials thought an ongoing review of the bond purchases might lead the policy committee to slow or end its purchases "before it judged that a substantial improvement in the outlook for the labor market has occurred." In the end, the Fed voted 11-1 last month to keep its bond-buying program open-ended and at the same size. It said in a statement that the purchases would continue until the job market improved substantially. The bond purchases are intended to keep interest rates down to encourage borrowing and spending. Still, the January minutes suggested that the discussion over the risks from the bond buying was more extensive than at the Fed's December meeting.  The debate within the Fed has fed speculation that the bond purchases might be scaled back or ended altogether this year.

Fed may halt QE3 before job market heals - Newly released minutes from the Fed’s Jan. 29-30 policy meeting show that officials are beginning to question the costs of the quantitative easing program, dubbed QE3, in which the central bank is buying $85-billion a month worth of assets to prop up the U.S. economy. Last December, the Fed made clear it would continue its asset buying program until the U.S. unemployment rate, currently at 7.8%, dropped to 6.5%. But at the committee’s next two-day meeting, set for March 19-20, the discussion could shift to scaling back stimulus before that target is achieved. They’re changing the debate toward when to scale it down rather than debating the point where it suddenly ends .“A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred,” the Fed revealed in its minutes.

FOMC minutes: message muddied - Here’s the passage from the January FOMC minutes which is getting most attention:Several participants emphasized that the Committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved. A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred. Several others argued that the potential costs of reducing or ending asset purchases too soon were also significant, or that asset purchases should continue until a substantial improvement in the labor market outlook had occurred.  A few participants noted examples of past instances in which policymakers had prematurely removed accommodation, with adverse effects on economic growth, employment, and price stability; they also stressed the importance of communicating the Committee’s commitment to maintaining a highly accommodative stance of policy as long as warranted by economic conditions.

Fed Watch: Fed's Commitment In Question - The Fed's commitment to open-ended quantitative easing is more fragile than believed. That is my first takeaway from the minutes of the January FOMC meeting. My second takeaway follows from the first: If the Fed is already wavering on the pace of quantitative easing, can it be long before they waver on their commitment to low rates as well? Step back to the statement from the January meeting. A central part of that statement was this sentence: If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. What exactly is "substantially"? We don't really know, but I would be hard-pressed to claim that the labor market has improved substantially. Improved, yes. Substantially, no. And the Fed seemed to agree. From the minutes:  participants viewed the decline in the unemployment rate from the third quarter to the fourth and the continued moderate gains in payroll employment as consistent with a gradually improving job market. However, the unemployment rate remained well above estimates of its longer-run normal level, and other indicators suggested that the recovery in the labor market was far from complete. And I don't think the subsequently released employment report would have altered this view substantially (there's that word again!), so there should be no reason to worry about changing the pace of asset purchases. But maybe instead we should focus on the next line in the FOMC statement: In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases. One would have thought the cost/benefit analysis had been completed when the Fed adopted open-ended QE and then followed by converting Operation Twist into additional QE. But apparently not. The cost/benefit line is the Fed's get-out-of-jail-free card; it allows them to unwind QE regardless of the progress in the labor market.

How the Fed just tightened monetary policy  --- As the US economy deteriorated back in 2008, hawkish statements from FOMC members “effectively tightened monetary policy … by pushing up the expected path of the federal funds rate,” explains Richmond Fed economist Robert Hetzel  in The Great Recession: Market Failure or Policy Failure. The same type of thing may have just happened with the release of the minutes from the Fed’s January policy meeting. As Reuters explains, “A number of Federal Reserve officials think the central bank may have to slow or stop buying bonds before seeing the pickup in hiring the bold program is designed to deliver.”To Paul Edelstein, director of financial economics at IHS Global Insight, those opinions may have “inadvertently” produced a tighter monetary policy by altering expectations: We don’t expect the Fed to curtail or reign in QE3 next month. There are too many voting members who favor continuing bond buying until the labor market outlook improves. And it won’t improve by March. But the fact that Fed hawks were able to force a debate on the issue makes monetary policy less effective. This is because markets and the public will question the Fed’s commitment to keeping policy in place until it achieves its goals for unemployment and inflation. If markets do not expect the Fed to stay the course, then expectations for economic growth and inflation will stay depressed and demand for safe assets (cash and government securities) will remain high. Counter intuitively, this means lower long-term interest rates, not higher.

S.F. Fed’s Williams: Fed Should Continue Aggressive Efforts to Help Economy - The Federal Reserve should continue aggressive efforts to aid the economy and keep in place its bond-buying program for much of the rest of the year, a top U.S. central bank official said Thursday. “Both the employment and the inflation signals are flashing the same message, and that is that strong monetary stimulus is essential,” Federal Reserve Bank of San Francisco President John Williams said.

SF Fed’s Williams: Concerns About Future Shouldn’t Stop Fed From Aggressive Action Now - Fears of potentially losing money at some point in the future should not stop the Federal Reserve from providing aggressive support to the economy now, a top Federal Reserve official said.  In an interview, Federal Reserve Bank of San Francisco President John Williams sought to counter the rising anxiety about the longer-run implications of the Federal Reserve’s massive and growing balance sheet. The “primary” consideration for the Fed right now should be what helps the economy, rather than avoiding some theoretical risk of losing money down the road, Mr. Williams said.

Fed's Bullard: Fed Policy to Stay 'Easy' for 'Long Time': The Federal Reserve's "very aggressive" easy money policy is going to stay that way for a "long time," St. Louis Fed President James Bullard told CNBC on Friday. "This is a monetary policy that packs a punch," said Bullard, who's a voting member on the Federal Open Market Committee (FOMC). Uncertainty about the future of the central bank's bond-buying program has weighed on the stock market in recent days. But the St. Louis Fed president said in Friday's "Squawk Box" interview, "I think policy is much easier than it was last year because the outright purchases are more potent tool than the 'Twist' program was … I don't think markets have fully absorbed that switch." Bullard added, "Fed policy is very easy and it's going stay easy for a long time." On Wednesday, the FOMC released minutes of its January meeting, which said "many participants" expressed concerns about "potential costs and risks arising from further asset purchases." "It's true that the committee is thinking about how are we going to handle this later this year," Bullard admitted. "But that's a natural thing for the committee to be talking about."

Fed Watch: Don't Dismiss the Communications Value of QE The minutes of the last FOMC meeting indicated that one group of policymakers was getting anxious about the size and pace of QE: Several participants emphasized that the Committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved....A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred. Another group saw a different side of the coin: Several others argued that the potential costs of reducing or ending asset purchases too soon were also significant, or that asset purchases should continue until a substantial improvement in the labor market outlook had occurred.  Unsurprisingly, San Francisco Fed President John Williams falls in the latter group. In a speech today, Williams reiterates the labor market objective in setting asset purchase policy: Critically, we indicated we will continue these purchases until the outlook for the job market improves substantially, in the context of stable prices. I anticipate that purchases of mortgage-backed securities and longer-term Treasury securities will be needed well into the second half of this year. For now, our default should be that Federal Reserve Chairman Ben Bernanke shares the view that the real benefits of QE outweigh the imaginary costs. As long is that is true, then Williams will be correct - expect asset purchases to continue at the current pace deep into this year. What we are looking for, then, are signs that Bernanke's commitment is wavering as much as that of some of his colleagues.

Boston Fed’s Rosengren: Benefits of Fed Bond-Buying Outweigh Potential Risks -  Bond buying by the Federal Reserve has created benefits for the economy that substantially outweigh any of the potential risks of the program, a top Federal Reserve official said Friday. In a speech in New York, Federal Reserve Bank of Boston President Eric Rosengren, a voting member of the interest rate-setting Federal Open Market Committee, pushed back against a paper that argues excessive government borrowing and an expanding Fed balance sheet could eventually create significant trouble. The paper, to be presented at a conference held by the University of Chicago Booth School of Business, was authored by a panel of top-tier economists, including former Fed governor Frederic Mishkin, now at Columbia University.

Fed unlikely to curtail stimulus despite rising doubts (Reuters) - U.S. Federal Reserve officials are likely to press on with their bond-buying stimulus program even though some harbor growing concerns the purchases could fuel an asset bubble or inflation if pushed too far. A full-throated debate among U.S. central bankers over the wisdom of ongoing quantitative easing, or QE, sent U.S. stock prices down sharply when minutes of the meeting were released on Wednesday. Investors were right to assume the Fed is treading more carefully as it weighs the risks of its effort to spur a faster economic recovery, but that does not mean policymakers will conclude the costs outweigh the benefits. Indeed, the officials who have voiced the greatest angst over the central bank's course do not currently have a vote on the policy-setting panel and the Fed's two most influential officials - Chairman Ben Bernanke and Vice Chairman Janet Yellen - are seen as committed to the bond-buying plan.

Bernanke Said to Minimize Asset-Bubble Concern at Meeting - Federal Reserve Chairman Ben S. Bernanke minimized concerns that the central bank’s easy monetary policy has spawned economically-risky asset bubbles in comments at a meeting with dealers and investors this month, according to three people with knowledge of the discussions.The people, who asked not to be identified because the talks were private, said Bernanke made the remarks at a meeting in early February with the Treasury Borrowing Advisory Committee. Fed spokeswoman Michelle Smith declined to comment. The Fed chairman brushed off the risks of asset bubbles in response to a presentation on the subject from the group, one person said. Among the concerns raised, according to this person, were rising farmland prices and the growth of mortgage real estate investment trusts. Falling yields on speculative- grade bonds also were mentioned as a potential concern, two people said.

Fed Watch: Bernanke Not Afraid of Bubbles - Yesterday I wrote: For now, our default should be that Federal Reserve Chairman Ben Bernanke shares the view that the real benefits of QE outweigh the imaginary costs. As long is that is true, then Williams will be correct - expect asset purchases to continue at the current pace deep into this year. What we are looking for, then, are signs that Bernanke's commitment is wavering as much as that of some of his colleagues. Today it was leaked (via Bloomberg): Federal Reserve Chairman Ben S. Bernanke minimized concerns that the central bank’s easy monetary policy has spawned economically-risky asset bubbles in comments at a meeting with dealers and investors this month, according to three people with knowledge of the discussions. The Fed chairman brushed off the risks of asset bubbles in response to a presentation on the subject from the group, one person said. Among the concerns raised, according to this person, were rising farmland prices and the growth of mortgage real estate investment trusts. Falling yields on speculative- grade bonds also were mentioned as a potential concern, two people said. So, for now at least, it appears that Bernanke dismisses one of the oft-discussed risks of the current stance of monetary policy, that of investors "reaching for yield."

Fears at Fed of rate payouts to banks - US Federal Reserve officials fear a backlash from paying billions of dollars to commercial banks when the time comes to raise interest rates. The growth of the Fed’s balance sheet means it could pay $50bn-$75bn a year in interest on bank reserves at the same time as it makes losses and has to stop sending money to the Treasury.  Officials at the US central bank fear it could create a public-relations nightmare after the Fed was lambasted for rescuing banks during the financial crisis. It is one factor prompting some inside the Fed to reconsider the eventual “exit strategy” from easy monetary policy. In an interview with the Financial Times, James Bullard, president of the St Louis Fed, said: “If you think of the profitability of the biggest banks, if you’re going to talk about paying them something of the order of $50bn – well that’s more than the entire profits of the largest banks.” Mr Bullard said that neither interest paid to banks nor possible losses on exit made any difference to the substance of monetary policy. “I think it’s more just a question of the optics, and how you’re going to play the optics,” he added, referring to the perception of losses by the central bank. “And since it shouldn’t matter in a monetary policy sense you might as well play the optics in a better way than the one we’ve got planned.”

Fed Officials Want to Tackle "Reaching for Yield" - Cleveland Fed President Sandra Pianalto gave a speech on February 15 called "Providing Balance while Managing Uncertainty." She says that the Federal Reserve "has been aggressive and creative in its response to a very challenging economic environment, and our actions have been beneficial for the economy." Nonetheless, her outlook is not among the most optimistic. She predicts that the unemployment rate will be 7.5% at the end of this year, and around 7% at the end of 2014. According to the Fed's threshold rule, the Fed won't raise the funds rate until unemployment falls below 6.5% or inflation rises above 2.5%. By Pianalto's estimation, that won't be happening until 2015 at the earliest. Pianalto's counterpart at the St. Louis Fed, James Bullard, expounded upon the threshold rule in a speech the day prior to Pianalto's speech. Both Bullard and Pianalto address the Fed's balance sheet policy, QE3.  While Bullard describes the asset purchase program as "potent," Pianalto fears that it will have both "diminishing benefits" and increasing costs

How Fed’s QE exit could be PR nightmare - Add potential public relations nightmare to the list of things making Federal Reserve officials jumpy about the central bank’s eventual exit from its quantitative easing program. Specifically, the prospect of paying between $50 billion to $75 billion a year in interest on bank reserves while simultaneously posting losses as it sells securities it acquired through its bond-buying program is causing heartburn for at least one Fed official. In an interview in the Financial Times, St. Louis Federal Reserve Bank President James Bullard lamented the unfortunate “optics” such a situation would provide. “If you think of the profitability of the biggest banks, if you’re going to talk about paying them something of the order of $50 billion — well that’s more than the entire profits of the largest banks,” said Bullard, a 2013 voting The Fed has expanded its balance sheet to more than $3 trillion through asset purchases aimed at driving down long-term interest rates. The assets are paid for by electronically creating bank reserves, which total more than $1.6 trillion and could expand by another $1 trillion if the Fed sticks to its asset-buying strategy for another year, the newspaper recounts. As the FT notes, the Fed at present pays interest of just 0.25% on those reserves. But if it sticks to its exit plan, it will raise interest rates before it begins selling assets and shrinking its balance sheet. Interest at 2% on $2.5 trillion of reserves would amount to $50 billion annually, the newspaper noted.

Helicopters can be dangerous - The FT recently called for a serious debate on the idea that budget deficits should be permanently monetised by the central banks. So far the most prominent response from an active policy maker has come from Lord Adair Turner, the outgoing Chairman of the UK Financial Services Authority, and a former candidate to become Governor of the Bank of England [1].  Lord Turner is under no illusion that his discussion of this policy option will open him to ridicule or worse in some quarters. He expects to be called a “dangerous man”, which is a strange description for this typically cerebral product of McKinsey. Yet he considers this risk worthwhile because he believes there should be a rational comparison between OMF or overt monetary finance (a less inflammatory term than the usual “helicopter money”) and the quantitative easing favoured by today’s central bankers.  In public, central bankers like Ben Bernanke, Mark Carney and of course the entire ECB remain firmly opposed to this idea. But it is probably being implemented in Japan, and I have been surprised (and worried) at the willingness of mainstream central bankers in the US and the UK to contemplate the option in private. This blog serves as a reminder of the serious dangers involved.

Fed Officials Reject Fears Over Bond Buying - WSJ - Federal Reserve officials are pushing back at critics who worry the central bank's bond-buying programs risk creating large losses that could complicate the Fed's conduct of monetary policy. The central bankers say those who fear that the Fed's currently large profits could turn into big losses should understand that the goal of the bond-buying programs is to strengthen economic growth, not generate profits. The Fed officials are responding to a growing sense of unease about the bank's large and growing holdings of Treasury and mortgage bonds, as well as cash placed on the Fed's book by banks. The portfolio is now at $3 trillion and will almost certainly expand as the Fed continues its bond-buying campaign, which is aimed at lowering interest rates to help spur hiring, spending and investment. Under law, the Fed turns over all its profits to the Treasury, with the central bank handing over a record $89 billion last year. The Fed makes big profits now because the interest earned on its bonds far exceeds its expenses, including the very low interest rate it pays banks to park their excess cash at the central bank. But some day in the future—after the Fed has stopped buying bonds and when the economy is growing at a healthy pace—it will start raising interest rates and shrink its bond portfolio to tighten credit and prevent inflation from rising too high. That would cause its income to decline and its own interest payments to rise, shrinking profits and possibly causing it to lose money.

Ben Bernanke QE Documents Requested by House Committee - In a potential new line of attack on Federal Reserve Chairman Ben Bernanke and the Fed’s easy money policies, a House oversight subcommittee is demanding the central bank turn over documents and studies relating to the eventual sales of debt securities in its record $3 trillion portfolio. FOX Business Network’s (FBN) Peter Barnes reports a House Oversight and Government Reform Committee is demanding Ben Bernanke turn over documents and studies relating to the eventual sales of debt securities in its record $3 trillion portfolio. Barnes goes on to report that the subcommittee’s Republican chairman, Rep. Jim Jordan (R-OD), is planning to release a letter to Federal Reserve Chairman Ben Bernanke later this afternoon stating his concerns over “significant problems” such sales could cause for the economy and any possible losses on them for the Fed and set a deadline for the documents of March 5th.

House Subcommittee on Economic Growth demands answers on Bernanke's exit strategy.  - Rep. Jim Jordan (R-Ohio) is demanding that Federal Reserve Chairman Ben Bernanke explain exactly how he plans to wind down the Fed's massive portfolio once its run of bond buying comes to an end. In a letter sent to Bernanke on Wednesday, Jordan asked for any research the Fed has done on unwinding its burgeoning portfolio, which recently topped $3 trillion — three times its size in 2008, the lawmaker noted. Minutes of the Fed's January meeting, released Wednesday, showed Fed officials were struggling with when exactly they should stop the bond buying. Several members of the Fed's policy-setting committee warned that the central bank may have to begin varying the amount of bond purchases in response to economic conditions, while some warned that the Fed might have to halt the purchases before the labor market is back to the desired strength. Jordan asked Bernanke to provide all "public and non-public" research done on possible approaches to unwinding. The Fed must provide answers by March 5.

Equipping the Fed for a Future Crisis - The federal government has generally responded to the financial crisis by expanding the power of regulators, most of all the Federal Reserve. But in an interesting speech this month, William C. Dudley, president of the Federal Reserve Bank of New York, argued that Congress has not gone far enough.Mr. Dudley’s concern is about a little-noticed piece of the 2010 Dodd-Frank Act that actually reduced the central bank’s authority in one crucial area: its ability to provide emergency funding to strapped financial firms. The Fed arrested the 2008 financial crisis by using this authority to create a series of unprecedented programs that offered emergency financing not just to American banks – its traditional flock – but also to foreign banks, and not just to banks but to other kinds of financial companies as well, and indeed to other kinds of companies entirely. Congress responded to this performance by making it difficult to repeat. Dodd-Frank imposed new restrictions on the Fed’s ability to make emergency loans, or to keep money flowing, outside the banking industry.

Power Grab at the Fed - The head of the New York Fed wants Congress to grant the Central Bank extraordinary new powers to deal with future financial system emergencies like the bank run that followed Lehman Brothers collapse in September 2008. Here’s the story from the New York Times: “[William] Dudley’s concern is about a little-noticed piece of the 2010 Dodd-Frank Act that actually reduced the central bank’s authority in one crucial area: its ability to provide emergency funding to strapped financial firms. The Fed arrested the 2008 financial crisis by using this authority to create a series of unprecedented programs that offered emergency financing not just to American banks – its traditional flock – but also to foreign banks, and not just to banks but to other kinds of financial companies as well, and indeed to other kinds of companies entirely.” (“Equipping the Fed for a Future Crisis”, New York Times) It’s true, congress did clip the Fed’s wings after the last great debacle by putting limits on the Fed’s authority to hose down the entire system, regulated or not, with trillions of dollars of taxpayer-funded bailouts. And congress should be applauded for that action, after all, why should the US government underwrite the high-risk trading activities of financial institutions which operate on mere slivers of capital? That’s crazy! If they go bust, tough luck.

Lacker and Bernanke -  Jeff Lacker (President, Richmond Fed) has a very interesting speech posted on the the role of economic theory in structuring our view of the financial crisis. Lacker gives a nice review of what we know about the theory of information, banking, and financial intermediation more generally. The ideas are nicely summarized by Lacker as relating to two alternative theories of financial instability. If we observe a financial system that exhibits recurring crises, or even if we observe one crisis or panic, we might think that such a financial system is inherently unstable.  Banks are about maturity transformation. That's socially useful, but leaves the banking system vulnerable to runs. The run problem, according to this view, can be eliminated or mitigated through interventions such as deposit insurance. We will need other regulations as well, for example capital requirements, to correct the moral hazard problem that is induced by deposit insurance. Alternatively, we might think that financial instability arises from induced fragility. In this view, there are several dimensions to moral hazard. Deposit insurance induces excessive risk-taking by banks, too-big-to-fail induces excessive risk-taking by all large financial institutions, and the behavior of the Fed can also give rise to moral hazard.

The 'cello approach to monetary policy - I've mentioned in a previous post the idea of using fiscal tools to support monetary policy. In this post I want to explain what I mean. The prevailing view of fiscal policy is that it concerns the financing of government and the behaviour of the population. It has nothing to do with monetary policy and indeed can be antagonistic to it. In this era of monetary dominance, emphasis has been on the effect of fiscal policy over the long run, and in particular the use of "automatic stabilisers" to dampen the effects of the business cycle. We can say that from the monetary dominance perspective, the best fiscal policy is one that is set up to act as a counter-cyclical buffer and then left alone. And yet.....I have been discussing in recent posts the use of government debt as a money substitute in financial markets. That implies that fiscal policy must have a monetary effect, since government debt issuance is a key part of fiscal policy. The other key part of fiscal policy is taxation - and this too can have a monetary effect. The mistakes of the past that led to fiscal and monetary policy being in opposition to each other were due to the fact that fiscal policy was NOT seen as having a monetary effect.

Via Government’s Fiscal Policy and Regulatory Oversight, Ethical Values Shape Monetary Value - There is no unified theory in our popular understanding of value: there are the market values of goods and then there are our “values” which we consider to be some of the most personal and even sacred aspects of ourselves. Once people emerge from the realm of necessity or being driven by what seems to them to be compulsions of various kinds, they may feel that they are then making decisions which draw to some degree on their ethical or personal values. People often have the impression that most of their financial dealings have little to do with their personal ethics; the realm of market interaction is viewed for the most part as an area of life controlled by forces outside the self or motivated by our insistent drives for self-preservation and pleasure. There are exceptions: people of often modest means give money to religious organizations, as a way to express something of their ethical values or at least the ethical values that are expected of them by their religious community of reference. And wealthy people will tend to use some of their substantial discretionary income to make an ethical statement directed by some combination of personal commitments and the desire to make a public statement about themselves. Alternatively, if someone controls a business or a portion of a business, they may express personal values by the way they conduct themselves in that business or by strategic decisions they may make, with the important proviso that the business must maintain its solvency.

Key Measures show low inflation in January - 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% (2.6% annualized rate) in January. The 16% trimmed-mean Consumer Price Index rose 0.2% (2.2% 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. Effective with this release, the median CPI and 16% trimmed-mean CPI have been updated to reflect the annual recalculation of seasonal factors in the monthly CPI report from the BLS.  Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers was virtually flat 0.0% (0.3% annualized rate) in January. The CPI less food and energy increased 0.3% (3.1% annualized rate) on a seasonally adjusted basis.  Note: The Cleveland Fed has the median CPI details for January 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 2.1%, the trimmed-mean CPI rose 1.9%, and the CPI less food and energy rose 1.9%. Core PCE is for December and increased 1.4% year-over-year.On a monthly basis, median CPI was at 2.6% annualized, trimmed-mean CPI was at 2.2% annualized, and core CPI increased 3.1% annualized. Also core PCE for December increased 0.2% annualized.

Cleveland Federal Reserve Bank’s updated estimate of 10-year expected inflation: only 1.53% - The Cleveland Federal Reserve Bank reported today its “latest estimate of 10-year expected inflation is 1.53%. In other words, the public currently expects the inflation rate to be less than 2% on average over the next decade (see chart above).” “The Cleveland Fed’s estimate of inflation expectations is based on a model that combines information from a number of sources to address the shortcomings of other, commonly used measures, such as the “break-even” rate derived from Treasury inflation protected  securities (TIPS) or survey-based estimates.” For more details go here. This measure of 10-year expected inflation has been below 2% for almost two years, and has been around 1.5% for the last year. Despite three rounds of “quantitative easing” over the last five years, there’s still no sign at all of any pending inflationary pressures according to this measure of 10-year expectations.  And in fact, expected inflation has been falling, and is close to an all-time low for the 30-year history of the Cleveland Fed’s estimate.

Floors and ceilings - It's about the relationship between reserves and safe assets. I think it is  time I brought the two together and created a unified explanation of the behaviour of safe assets in the presence of excess reserves which earn a positive rate of interest. The "interest on excess reserves" (IOER) debate and the safe assets issue are two sides of the same coin. On one side we have the central bank and the system of regulated banks: on the other side we have the government and non-banks. Together, all of these make up the financial system. Yet we seem to have created competition and even conflict between them.  The central bank creates excess reserves through buying assets held by the private sector (QE), mostly (but not exclusively) consisting of various forms of government debt. The central bank pays interest on those excess reserves, thus creating an interest-bearing safe asset for banks (but not non-banks). Banks won't lend when the Fed Funds rate is below the IOER rate, obviously, because they can earn more by depositing funds with the central bank. The Fed Funds rate therefore rises - which is the reason for paying interest on excess reserves, as Scott Fullwiler points out. But it can't break the IOER rate. It remains stuck between the IOER rate and the zero lower bound:

Everything You Wanted to Know About the Safe Asset Debate - Can be found here. Update: one overlooked contributor in the above link is Steve H. Hanke. He has noted several times how Basel III is adversely affecting the supply of safe assets.

The safe asset shortage - What’s at stake: Safe debts – or what is often called information insensitive assets, as they do not suffer from the types of financial frictions that are characteristic to other financial assets – play a major role in facilitating transactions for institutional investors. And, as we have learned in the recent years, they also play a major role in triggering financial crises when they loose their safety status and turn into information sensitive assets. As central bankers start backpedalling on their commitments to increase the supply of safe assets and start worrying about the negative effects of the “search for yield”, there has been a renewed discussion in the blogosphere about the role of safe assets and whether they remain in short supply.

Are rates mispriced or are investors missing something? - Priya Misra, rates strategist at Bank of America Merrill Lynch, makes a very interesting point on Friday: There is a growing belief among investors that the Treasury market has not adequately repriced the reduction in tail risks and has failed to play catch up to the outperformance in risky assets. Although the 10y Treasury rate has risen since December 2012, most of the repricing happened in early January (10y rose to 1.9%). Since then, rates have hovered around 2% for the last six weeks, despite a 5% gain in the S&P 500 (See Chart of the day). Increasingly, investors are becoming convinced that the next step is a move to higher rates. This is evident from: (1) Growing short duration positioning as indicated by investors’ surveys (the SMR survey of money managers was the most short since 3Q12). (2) The richness of the payer skew (investors seeking higher rate protection using the options market, as seen in Chart 1). Are rates mispriced or are investors missing something? In short, the disconnect we’ve noticed between commodity fundamentals and forward rates is popping up in other asset classes as well. Here’s the chart that tells the story, according to Misra:

Budget Cuts May Stall Economic Growth - The fresh round of federal spending cuts scheduled to begin next week would slow economic growth in the next year, though not nearly as much as going over the so-called fiscal cliff might have, economists said.The cuts — a result of a policy known as sequestration — most likely would reduce growth by about one-half of a percentage point in 2013, according to a range of government and private forecasters. That could be enough to again slow the arrival of a recovery, producing instead another year of sluggish growth and high unemployment. Such economic forecasts are even cloudier than normal because of uncertainty about the cumulative impact of the rounds of federal spending cuts and tax increases in the last few years. Whether the government’s repeated flirtation with fiscal turmoil is causing businesses to postpone or reduce planned investment is also unclear. Some evidence suggests that companies, particularly in the military industry, cut investment last year in anticipation of sequestration, which was originally scheduled to begin Jan. 1. 

Update: Recovery Measures - By request, here is an update to four key indicators used by the NBER for business cycle dating: GDP, Employment, Industrial production and real personal income less transfer payments.  Note: The following graphs are all constructed as a percent of the peak in each indicator. This shows when the indicator has bottomed - and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%. These graphs show that some major indicators are still significantly below the pre-recession peaks.This graph is for real GDP through Q4 2012. At the worst point - in Q2 2009 - real GDP was off 4.7% from the 2007 peak.This graph shows real personal income less transfer payments as a percent of the previous peak through the December report.The third graph is for industrial production through January 2013. Industrial production was off over 17% at the trough in June 2009, and has been one of the stronger performing sectors during the recovery. However industrial production is still 2.1% below the pre-recession peak.  This indicator will probably return to the pre-recession peak in 2013.The final graph is for employment and is through January 2013.  This is similar to the graph I post every month comparing percent payroll jobs lost in several recessions. Payroll employment is still 2.3% below the pre-recession peak.

Leading economic index points to steady economic growth - The Conference Board reported today that its Leading Economic Index (LEI), a 10-variable composite index measure that forecasts the future direction of the US economy, increased to 94.1 in January, the highest level for the index since June 2008 (see chart).  The 0.2% increase in January followed increases of 0.2% in December, 0.2% in October and 0.5% in September (the index was unchanged in November). Conference Board economist Ataman Ozyildirim commented: “The U.S. LEI rose again in January, pointing to a slow but continued expansion in economic activity in the near term. Despite continued weakness in manufacturers’ new orders and consumer expectations, improvements in housing permits and financial components helped boost the LEI in January.”Conference Board economist Ken Goldstein commented: “The indicators point to an underlying economy that remains relatively sound but sluggish. Credit use has picked up, driven in part by relatively strong demand for auto loans. The biggest positive factor is housing. The housing market is now at twice the level reached during its recessionary lows, and will likely continue to improve through the spring, delivering some growth momentum to the labor market and the overall economy. The biggest risk, however, is the adverse impact of cuts in federal spending.”

Conference Board Leading Economic Index: 'Slow But Continued Expansion' - The Conference Board Leading Economic Index (LEI) for January was released this morning. The index increased 0.2 to 94.1 (2004 = 100), following 0.5 in December, and a no change in November. The consensus had forecast a 0.3 increase. Today's press release highlights the sound, if sluggish, growth in the economy.  Here is the overview of today's release from the LEI technical notes:  The Conference Board LEI for the U.S. increased again in January. Positive contributions from the financial indicators, initial claims for unemployment insurance (inverted) and building permits offset the negative contributions from consumer expectations for business conditions and the average workweek in manufacturing. In the six-month period ending January 2013, the leading economic index increased by 1.1 percent (about a 2.2 percent annual rate), up slightly from 1.0 percent (about a 2.0 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators have remained widespread.  [Full notes in PDF format]  Here is a chart of the LEI series with documented recessions as identified by the NBER.

Forecasters keep thinking there’s a recovery just around the corner. They’re always wrong.: Throughout the halting economic recovery that began in 2009, the formal economic projections released by the Congressional Budget Office, White House Council of Economic Advisers, and Federal Reserve have displayed quite a consistent pattern: This year may be one of sluggish growth, they acknowledge. But stronger growth, of perhaps 3.5 percent, is just around the corner, and will arrive next year.Consider, for example, the Fed’s projections in November of 2009. Sure, growth would be slow in 2010, they held. But 2011 growth, they expected, would be 3.4 to 4.5 percent, and 2012 would 3.5 to 4.8 percent growth. The actual levels of growth were 2 percent in 2011 and 1.5 percent in 2012.What’s amazing is that the Fed’s newest projections, released in December of 2012, look like they could have been copy and pasted from 2009, just with the years changed: They forecast sluggish growth in 2013, 2.3 to 3 percent, followed by a pickup to 3 to 3.5 percent in 2014 and 3 to 3.7 percent in 2015.

Nature Abhors an Output Gap - Atlanta Fed's macroblog - In The Washington Post, Neil Irwin highlights a shortcoming that I know all too well: Throughout the halting economic recovery that began in 2009, the formal economic projections released by the Congressional Budget Office, White House Council of Economic Advisers, and Federal Reserve have displayed quite a consistent pattern: This year may be one of sluggish growth, they acknowledge. But stronger growth, of perhaps 3.5 percent, is just around the corner, and will arrive next year. Consider, for example, the Fed's projections in November of 2009. Sure, growth would be slow in 2010, they held. But 2011 growth, they expected, would be 3.4 to 4.5 percent, and 2012 would 3.5 to 4.8 percent growth. The actual levels of growth were 2 percent in 2011 and 1.5 percent in 2012. What's amazing is that the Fed's newest projections, released in December of 2012, look like they could have been copy and pasted from 2009, just with the years changed: They forecast sluggish growth in 2013, 2.3 to 3 percent, followed by a pickup to 3 to 3.5 percent in 2014 and 3 to 3.7 percent in 2015. I, for one, am guilty as charged, and feel pretty fortunate that the offense is not a hanging one. In fact I don't think Irwin's indictment is overly harsh, and he is on the right track when he offers up this explanation for the last several years' persistently overly rosy projections:

Caterpillar Sales Latest Cratering Confirm Global Growth Slowdown - While CAT's CEO puts on a brave face, the results from his company are clearly indicative of the slowing global growth that everyone (apart from nominal equity indices) knows is occurring. For months, talking heads have used CAT's results as a proxy for growth and as they are rising confirming their inherent BTFD biases; however, this month's terrible results - with Asia/Pac down 12% on a 3-month rolling basis and North America down 11% - appears to confirm what has been evident in the lagging global GDP data for over a year - things are not picking up. CAT Results...

Study: Is a US debt crisis calling from inside the house? - Something to keep in mind as Washington debates the sequester: US publicly held debt is roughly 74% of GDP. Gross debt, including money owed to other parts of the government such as Social Security trust funds, is 105% of GDP. Does either number suggest a tipping point is at hand, that the US debt situation is nearing crisis? One well known study puts the red line at 90%. Now another study concludes even lower levels of debt are risky: We analyze the recent experience of advanced economies using both econometric methods and case studies and conclude that countries with debt above 80% of GDP and persistent current-account deficits are vulnerable to a rapid fiscal deterioration as a result of these tipping-point dynamics. Such feedback is left out of current long-term U.S. budget projections and could make it much more difficult for the U.S. to maintain a sustainable budget course. The study, just presented at a monetary policy conference in Manhattan, has already drawn a couple of critiques. Federal Reserve Governor Jerome Powell isn’t so alarmed, pointing out that unlike many nations that ran into debt troubles, the US borrows in its own currency. “There is almost certainly a level of debt at which the United States would be at risk of an interest rate spike. However, we should expect that level to be substantially above one identified based on the experience of smaller euro-zone nations.”

Predicting a Crisis, Repeatedly - Economists are not very good at predicting crises, but the problem is generally an absence of warnings. It’s not easy to anticipate which low-probability catastrophe will end up happening. That clearly won’t be the problem if the United States has a debt crisis. Here we have the opposite phenomenon: a possible crisis that economists love to predict. The chart below, from a paper presented Friday morning at the U.S. Monetary Policy Forum in New York, shows one such warning. The green line, labeled CBO Projections, shows the relatively sanguine expectation of the Congressional Budget Office about the average interest rate that investors will demand on federal debt as the debt rises in coming decades. The purple, upwardly mobile line shows the average interest rate that the authors project that investors will demand. Suffice it to say that such an outcome is unsustainable.

Is there a tipping point for government debt? And is the United States about to hit it?: How much debt can America handle? The question is one of the most fundamental the nation faces, and the answer should determine how the United States handles the delicate task of reducing budget deficits without walloping economic growth. A new paper argues that the number that should make us nervous is 80. That is, that 80 percent public debt to GDP ratio is the point at which a nation becomes vulnerable to tipping points on debt. The idea is that once a nation has debt above that level, it becomes vulnerable to the kind of self-reinforcing vicious cycles that have put nations into a bad position in the past. High debt levels lead investors to view the country’s bonds as less desirable, so they demand higher interest rates. Higher interest rates make the country’s debt burden more onerous, and so investors sell off bonds all the more. When that cycle takes hold in a truly vicious way, the only endings are high inflation or a default.

Joe Scarborough v. Paul Krugman on the Dollar Decline - Paul Krugman and Matt O’Brien are having some fun mocking Joe Scarborough and some senior economist at RAND. The line Paul seized upon was this:  From the beginning of 2002, when U.S. government debt was at its most recent minimum as a share of GDP, to the end of 2012, the dollar lost 25 percent of its value, in price-adjusted terms, against a basket of the currencies of major trading partners. Paul notes that while the dollar did devalue – in particular during the 2002 to 2008 period, he questions whether or not Scarborough and this RAND economist have the right causation for the devaluation: the decline in the dollar under Bush probably had more to do with what was going on in our trading partners than with what was going on here. And in any case, again, it was not a problem for America. One commenter at Paul’s place, however, argued that the trade deficit continued to increase even as the dollar fell. I checked the NIPA statistics as reported by BEA for how real net exports (2005$) behaved and sure enough, they rose to -$722.7 billion or 5.7% of real GDP by 2005 and were up to -$729.4 billion or 5.6% of GDP by 2006. But then the economy was expanding back in those days. Today, however, real exports are running at -$405.6 billion or 3% of real GDP per 2012. Cynics might say recessions do tend to lower imports and we’d hope that real GDP does eventually take off. A weak dollar, however, is not necessarily a bad thing especially when addressing a weak economy if it makes our goods more competitive in world markets.

The Great Dollar Decline - Paul Krugman - But this particular episode jogged me into doing something I’ve been meaning to do for a while: talk about the causes of the big decline in the dollar during the Bush years. As O’Brien says, it’s ludicrous to blame this pre-crisis decline on deficits that only ballooned after the crisis struck; it’s also bizarre to think of the dollar’s decline as a tragedy, when it actually took place in the context of mostly low inflation and a growing economy. Still, what was actually going on? First, we need some perspective. Here’s the 40-year history of the real dollar: What you see right away is that the dollar fluctuates a lot, so impressions of big decline depend a lot on your starting point. Think of it this way: maybe the question isn’t why the dollar fell so much during the Bush years, but rather why it was so strong during the late Clinton years. (The tech boom/bubble is an obvious answer). It’s also interesting to ask who the dollar declined against. And the main answer is Canada and Europe, which together account for more than a third of the overall dollar index. Here’s the exchange rate against the euro and the exchange rate against the loonie; both are nominal, not real rates, but since Canadian and European inflation rates are low and close to ours, that’s not a problem:

Scarborough and Friends Trying to Make ‘Debt Deniers’ Happen - The deficit scold cause has suffered significant intellectual erosion... In the short run, the interest rate spike they keep insisting will happen keeps not happening. In the long run, the health-care-cost inflation that is at the root of the long-term fiscal predicament is growing markedly less dire. The case for prudent fiscal adjustment remains strong, but the case for bug-eyed, table-pounding terror is growing increasingly ridiculous. But bug-eyed, table-pounding terror is the stock-in-trade of the fiscal scold movement. And so they are striking back by labeling anybody with a calmer view of the deficit as a “debt denier.” Joe Scarborough ... has a new op-ed in Politico brandishing the epithet. ... Let’s examine their case on the merits. Analyzing the argument in a Joe Scarborough–authored op-ed is inherently challenging. (The written word in general is just a terrible medium for Scarborough, hiding his winning personality while exposing his inaptitude for analysis.) It mainly consists of using variations of “debt denier” repeatedly to describe his opponents. To his credit, Scarborough finally cites one actual economist... Unfortunately for Scarborough, the economist he cites, Alan Blinder, turns out to hold essentially the same view as Krugman. ... That Scarborough would support his claim that Krugman’s view is “extreme” and “indefensible” by citing Blinder is just a total failure of reading comprehension. ...

Goldbugs, Greece, and Affinity Fraud - Paul Krugman - Joe Weisenthal tries to understand why Barron’s, which he describes as a “quiet financial newspaper”, has a hysterical cover story about Obama turning America into Greece, Greece I tell you. So you might want to note that they’ve done this before. I don’t regularly read Barron’s or even notice what they’re saying, but I did note their frantic calls for a rise in interest rates back in October 2009, that’s right, 2009 — because inflation! confidence! The truth is that Barron’s isn’t that different from the WSJ editorial page, which has also been warning about inflation and soaring interest rates for four years or more, and never seems daunted by being wrong again and again. Nor do readers seem to be put off. Weisenthal basically puts it down to a marketing ploy; he notes that there’s a very wide overlap between investment newsletter services, and cranky, anti-debt, armageddonism. It’s part of the pitch. I’ve made much the same point, more offensively: I think of it as a form of affinity fraud, in which these publications (and various web sites too) reach out to readers by appealing to their shared hatred of snooty intellectuals who probably want to take all their money and give it to the 47 percent; since such people also tend to favor monetary and fiscal flexibility, there you have it.

Blinder Leading the Blind - The establishment’s debt and deficit hawks have taken flight once again, this time to launch a counterassault against Paul Krugman’s sensible and increasingly successful campaign to get people to stop clutching their pearls over the federal budget situation, and to focus attention on more pressing matters of high unemployment and economic stagnation.  Joe Scarborough, Ezra Klein and the Washington Post editorial board are among those springing into action on behalf of deficit worry, and against the dangerous movement of calmness and sobriety breaking out all over.  One thing that becomes more apparent as this debate unfolds is that the budget warriors frequently confuse broader public policy challenges that happen to have a budgetary component with narrower problems related to size of the budget deficit itself.  A recent Atlantic piece by Alan Blinder unfortunately contributes to that confusion.

Why the Budget Hawks Should Retract Their Talons, by Jared Bernstein: The WaPo has another in a series of editorials warning against any complacency in our efforts to stabilize the debt. ... I disagree–here’s my view of the economics of the issue, which I think they have wrong... But there’s another very important reason why the WaPo’s view is both dangerous and naive right now: the current Congress simply can’t be trusted to achieve deficit savings in a way that’s compatible with either growth or smart governance. There are too many policy makers today who are driven by deep ideological opposition to government to approach this in a thoughtful way. To the contrary, they’re heavily invested in staying in deficit-freak-out mode so as to slash and burn social insurance, to push balanced budget amendments that would both rob the federal government of counter-cyclical policy and force massive sequesters, and to argue for spending caps that have no reference to the nation’s needs going forward. Arguments like the one in the WaPo simply throw fuel on their fire

House GOP And The Budget: It's Not My Job - Consider the following:

  • 1. After failing miserably on the fiscal cliff (remember the abortive Plan B?), House Speaker John Boehner (R-OH) announced that it was now up to the Senate to deal with the situation.
  • 2. Boehner also announced that he will no longer negotiate directly with the president on anything having to do with the budget. He reiterated that again this week when he said at whenever he negotiated directly with this president it was his "rear end that got burnt.”
  • 3. Immediately after the GOP retreat, House Republicans came up with a scheme to avoid having to vote on the debt ceiling by making believe it doesn't exist.
  • 4. The House GOP then adopted legislation that requires the White House to declare when it will balance the budget. This follows last year's Paul Ryan (R-WI)  plan that didn't balance the budget for 25 years.
  • 5. House Republicans continue to try to blame the Obama administration for the sequester even though more than 75 percent of them voted in favor of it.
  • 6. Last Wednesday, as reported in The Hill,House Republicans told the Senate that it was up to it to stop the sequester from occurring

Macroeconomic Advisers on the Sequester's Impact - Estimated self-inflicted macro harm, from Macroeconomic Advisers today:...we now put the odds of a sequestration at close to 50%, and rising.

  • Our baseline forecast, which shows GDP growth of 2.6% in 2013 and 3.3% in 2014, does not include the sequestration.
  • The sequestration would reduce our forecast of growth during 2013 by 0.6 percentage point (to 2.0%) but then, assuming investors expect the Federal Open Market Committee (FOMC) to delay raising the federal funds rate, boost growth by 0.1 percentage point (to 3.4%) in 2014.
  • By the end of 2014, the sequestration would cost roughly 700,000 jobs (including reductions in armed forces), pushing the civilian unemployment rate up ¼ percentage point, to 7.4%. The higher unemployment would linger for several years.

The macroeconomic impact of the sequestration is not catastrophic. Nevertheless, the indiscriminate fiscal restraint would come on the heels of tax increases in the first quarter that total nearly $200 billion, with the economy still struggling to overcome the legacy of the Great Recession, and when the FOMC is constrained in its ability to offset the additional fiscal drag with a more accommodative monetary policy. ... Here is a graphical depiction of Macro Advisers' estimates of the impact of the sequester.

Economic Optimism vs. the Sequester - Most Americans haven’t realized it yet, but there’s a good deal of positive news about the economy. If it weren’t for what is happening in Washington, the United States would be poised for several years of healthy growth and falling unemployment. I say that as someone who spent years before the financial crisis of 2007-2009 warning about an unsustainable lending and credit bubble, the unwinding of which was sure to be painful and extended. We’ve certainly had a nasty headache. But by paying down some of their debts, and defaulting on others that were never going to be repaid, Americans have, over the past few years, done much to repair their ravaged personal balance sheets. As the economics team at Goldman Sachs pointed out last week, the household debt-to-income ratio is now back to its 2003 level—a little over a hundred per cent. And with interest rates at historic lows (thanks to the Fed), the amount of money that people have to devote to interest and principal repayment has fallen sharply. In 2007, households were paying close to fifteen per cent of their incomes on servicing their debts; today, it’s about 10.5 per cent—the lowest figure since 1983.

CBS’ BOB SCHIEFFER: ‘Even Washington Managed To Underestimate Its Own Ineptitude’ On The Sequester - "Face the Nation" host Bob Schieffer ranted at Congress and the White House during a 90-second monologue Sunday, blaming collective Washington "ineptitude" for the spending cuts scheduled to kick in March 1 as a result of the sequester.  CBS' Schieffer lamented that the sequester was "Washington's own doing." The policy, signed into law as a stipulation of the 2011 Budget Control Act, was designed based on "the idea was that no sane person would allow such cuts to happen." It looks increasingly likely to happen, despite Senate Democrats' introduction a proposal to avert the sequester last week.  Schieffer said the purpose of such massive cuts was designed to make Congress take "responsible steps" toward deficit reduction.  "Well, guess what," Schieffer said. "Even Washington managed to underestimate its own ineptitude. The sequester and the draconian cuts are about to happen, because the White House and Congress can't close the partisan divide and figure out what to do with them — which is disheartening, to say the least."

Homeless, Hungry, Hung Out to Dry - The sequester—a set of deep, across-the-board cuts to discretionary spending set to take effect if lawmakers cannot agree to a longterm budget deal—was never supposed to happen. But as the deadline for reaching an agreement ticks ever closer, Congress appears hopelessly deadlocked to avoid it. Under the original agreement, sequestration would have triggered $100 billion in cuts to both defense and non-defense discretionary spending on January 1—anan 8.2 percent reduction in non-defense expenditures. The “fiscal-cliff” deal reached in December reduced that amount to $85.3 billion and pushed the deadline back to March. Under the new deal, non-defense discretionary spending would be cut by $42.7 billion each year for the next nine years. This is on top of $1.5 trillion in cuts over the next decade that have already been enacted. The phrase “discretionary spending” may not send chills down the spine, and most of the discussion about spending cuts have revolved around entitlements. But discretionary spending supports essential programs that help the poor, fund education, and keep us safe. Here are key examples of the impact these cuts would have should they go into effect March 1:

Pentagon Warns of Widespread Civilian Furloughs - Most of the Pentagon’s civilian employees will face a furlough in the coming months if the planned across-the-board budget cuts come to pass on March 1, Defense Secretary Leon E. Panetta warned Congress on Wednesday.  About 750,000 civilians would experience pay cuts of about 20 percent between late April and September, Pentagon officials warned, if the department is required to cut $46 billion over the remainder of the 2013 fiscal year. The furloughs could come in the form of a four-day workweek.  “We feel we don’t have any choice than to impose furloughs,”  “We can’t do reductions in force.”  In addition to the potential effect of the automatic, across-the-board cuts, known as “sequestration,” Pentagon officials are also concerned about cuts that would be required if Congress fails to replace a stopgap spending measure, called the continuing resolution, with a bill that offers more long-term certainty. In describing the potential consequences of both outcomes, Pentagon officials appeared to be walking a line between scaring lawmakers into action and hurting military morale.

America’s military can handle anything … except a budget cut - On 1 March, the most dreaded word in Washington will become a fiscal reality – sequestration.  It will become the law of the land, plunging the nation into a bleak, dystopian future in which (possibly) the rivers will boil over, locusts will consume the nation's agricultural bounty, and cats will sleep with dogs. America will almost overnight be reduced to a second-rate power, quickly to be overrun by hordes of foreign insurgents empowered by America's retreat from the global stage. Obviously, I am exaggerating. But only sort of. If you listen to American's military leaders talk about the impact of sequestration, you might be convinced that, in fact, the sky is falling. According to the nation's highest-ranking soldier, chairman of the Joint Chiefs of Staff, Martin Dempsey (pdf), sequestration will "put the nation at greater risk of coercion". This is actually tame when compared to Secretary of Defense Leon Panetta's prediction that sequestration would "invite aggression". His deputy, Ashton Carter calls sequestration and the possibility of a year-long continuing resolution to fund military operation as "twin evils" (pdf). In the words of Chuck Hagel, the man likely to replace Panetta, the spending reductions would "devastate" the military. The uniformed military is no less ominous in its warnings. Admiral Jonathan Greenert, head of US Naval Operations, says the cuts will "dramatically reduce: (pdf) our overseas presence; our ability to respond to crises; our efforts to counter terrorism and illicit trafficking" and "may irreversibly damage the military industrial base". General James Amos, Commandant of the Marin Corps goes even further (pdf), in warning that a failure to properly resource the military will put the "continued prosperity and security interests" of the United States at risk.

Budget Hawks ... Until Something Gets Cut In Their Districts - “Preventing future acts of international terrorism” is the most critical foreign-policy goal for Americans, according to Gallup. Next priorities: proliferation of nuclear weapons, energy supply, favorable trade policies, etc. Fighting off Soviet tanks rumbling towards Frankfurt didn’t make the list. Yet Congress, in its infinite wisdom, is still pushing weapon systems designed to do just that, whether the Pentagon wants them or not. Hence the deafening squealing about the looming automatic spending cuts, especially on the defense side. They would account for about half of the $1.2 trillion in “cuts” spread over a decade. The first $46 billion would get snipped this year. Brutal? The Congressional Budget Office estimated that defense spending would still grow by 2.4% annually over the decade. It would just grow less rapidly.  Congress loves defense spending. It’s just too juicy. And they can wrap it—the money—in patriotism. To illustrate, Bloomberg took a gander at two of our heroes. There’s Senate Budget Committee Chairwoman Patty Murray, an “anti-war Democratic senator from Washington State” who “voted against the Iraq war resolution and subsequent troop surges.” She’s spearheading the Senate’s efforts to bring the budget in line. Until it gets to Boeing. Then there’s Jim Jordan, an “anti-tax Republican representative from Ohio.” His favorite toy is the M1 Abrams tank, which entered service in 1980 to battle Soviet tanks in Europe. The Army and Marine Corps have about 6,000 of them. The Army wants to shut down production at the plant in Lima, Ohio, where old tanks are rebuilt and updated. It would save over $2 billion, but 600 workers would lose their jobs.

Flawed F-35 Fighter Too Big to Kill as Lockheed Hooks 45 States - Bloomberg: The Lockheed Martin Corp. (LMT) aircraft has been plagued by a costly redesign, bulkhead cracks, too much weight, and delays to essential software that have helped put it seven years behind schedule and 70 percent over its initial cost estimate. At almost $400 billion, it’s the most expensive weapons system in U.S. history. It is also the defense project too big to kill. The F-35 funnels business to a global network of contractors that includes Northrop Grumman Corp. (NOC) and Kongsberg Gruppen ASA of Norway. It counts 1,300 suppliers in 45 states supporting 133,000 jobs -- and more in nine other countries, according to Lockheed. The F-35 is an example of how large weapons programs can plow ahead amid questions about their strategic necessity and their failure to arrive on time and on budget.  “It’s got a lot of political protection,”

Congress’s committee chairmen push to reassert their power - Rep. Dave Camp (R-Mich.) is chairman of the esteemed House Ways and Means Committee, the oldest of all congressional panels and one with so much influence over the workings of the federal government that past Way and Means chairmen were routinely described as the most powerful men in Washington. When the House voted Jan. 1 to allow tax increases on wealthy wage earners, the most significant tax increase in more than two decades, Camp found himself advocating passage of an unpopular compromise that he had had no role in crafting.  But now Camp is part of a bloc of committee chairmen in the House and Senate trying to reassert themselves and reverse course; their aim is to re-establish their chairmanship gavels as meaningful tentacles of power after years of watching the legislative process atrophy, along with their roles in it. Tired of watching as flailing leadership negotiations fail to produce any key legislation, these senior lawmakers hope that a return to the old days of subcommittee hearings and bill markups, floor amendments and conference reports may offer a path forward on everything from immigration to a long-term budget plan.

House GOP Still Acting As If It Can't Be Beaten - I first posted a month ago about how House Republicans are increasingly acting as if there's no way they won't be in the majority at least through the end of this decade. Back in January I said that this was one of the primary reasons why the threat of a sequester and government shutdown had to be taken more seriously than most analysts were doing. Now there's more evidence that the House GOP thinks its majority will continue to exist for quite a while. At least that's how I read this story from The Hill by Russell Berman that explains how the House is letting the Senate go first so that Democrats can't avoid tough votes on a variety of issues as they have done over the previous two years when it refused to take up House-passed legislation.This is yet another indication that the big budget deal, the so-called Grand Bargain that combines tax reform with major entitlement changes, is all but dead through the 2014 election.

What the Sequester Fight Shows About the Bipartisan Fetish = The sequester was created in the most bipartisan way possible. It was a proposal from a Democratic President to find a way around an impasse with House Republicans that both sides each believed would eventually advance their long-term agendas. It was approved by a Republican House, a Democratic Senate and signed by a Democratic President. As a result, everyone will agree this is a truly horrible policy that will needlessly hurt the country, but no one responsible for it will probably ever pay a political price.This is why bipartisanship is so fetishized in Washington by so many. It gives politicians a way to approve unpopular or even knowingly bad policies without fear. This sequester fight is probably the purest demonstration of exactly how bipartisanship is exploited to destroy accountability.Top Republicans are telling their base it is all Obama’s fault. After all, Obama did come up with the idea, he thought it would work for him, and he signed it into law. For Republicans it is the “Obama Sequester.”Liberals get to tell the Democratic base that their President is mostly blameless. They argue that Republicans voted for it, Republicans demanded only spending cuts, Republicans called it a victory, and Republicans aren’t making an effort to replace it. Apparently, the buck no longer stops at the President’s desk.

Sequester of Fools, by Paul Krugman - The “sequester” [is] one of the worst policy ideas in our nation’s history. Here’s how it happened: Republicans engaged in unprecedented hostage-taking, threatening to push America into default by refusing to raise the debt ceiling unless President Obama agreed to a grand bargain on their terms. Mr. Obama, alas, didn’t stand firm; instead, he tried to buy time. And, somehow, both sides decided that the way to buy time was to create a fiscal doomsday machine that would inflict gratuitous damage on the nation through spending cuts unless a grand bargain was reached. Sure enough, there is no bargain, and the doomsday machine will go off at the end of next week. But that’s water under the bridge. The question ... is who has a better plan for dealing with the aftermath of that shared mistake. Unfortunately, neither party is proposing that we just call the whole thing off. 

Balanced Budget Amendment Still a Terrible Idea - Frustrated by the persistence of large deficits, and alarmed by the long-term gap between spending and revenue, congressional Republicans are promoting a constitutional amendment to require balanced budgets.  The amendment has long been a popular idea. It is also a bad idea, which is why it’s a good thing it isn’t going to come close to being ratified.  There are several competing versions. Some Republicans favor the “clean” amendment they supported in the 1980s and 1990s, which just requires balance. Others fear this would lead to tax increases. They want an amendment that requires balance and also caps spending at 18 percent of gross domestic product and requires a two-thirds vote of Congress to raise taxes. That’s the version that all Senate Republicans have agreed to co-sponsor. Some House Republicans have mused about yet a third version, which would require the government to balance its budgets over the course of an economic cycle rather than in any year.

National Parks Could Be The Budget Canary In The Sequester Mine - One of my most enduring memories from the first government shutdown in 1995 was the report about it on the network evening news the first day. While those of us inside the beltway were focused on the extraordinary political spectacle, the report showed a video of cars, vans, and campers not being allowed to get into a national park -- I think it was Yosemite -- because, like other federal offices not deemed essential, the park was closed. As I remember, the video showed two things. First, the lines were long because, even though the shutdown was widely reported, many people didn't realize that national parks would be affected. Many of those shown said that they didn't know the national parks were federal facilities.Second, to put it mildly, the people shown on camera were irate. The government shutdown that was just an abstraction to most people up to that point immediately became very real and personal. All of these memories flooded back up over the weekend because of this story in the Washington Post by Lisa Rein about how the sequester that is now widely expect to begin to go into effect on March 1 will affect the national parks. As Rein explains, parks could be closed one day a week, visitor centers could be closed or hours sharply curtailed, some parts of the parks could be closed off to visitors completely, trash could be collected less frequently, etc.

Slowing Air Traffic Is Serious Sequester Hardball From The White House - The Clinton administration didn't play as much hardball as it could have during the 1995 and 1996 federal shutdowns because it decided that the air traffic control system was a critical government activity. The Obama White House appears to be going in a very different direction with the sequester. As this story by Matthew Wald in today's New York Times shows, not only will the air traffic control system be included if the sequester occurs, the administration clearly is not reluctant in the slightest about making it clear that flights will be canceled or seriously delayed...or both if the sequester happens.The article also makes it clear that a federal function that didn't exist in 95-96  -- the Transportation Security Administration and the security screenings it conducts at airports -- will also be seriously affected.

Kate Upton and Ryan Gosling Explain the Sequester - Did you know that the federal government is on track to enact massive, across-the-board spending cuts one week from today—cuts that that could affect important government services, cost hundreds of thousands of people their jobs and greatly slow the growth of the economy? No? You didn't? It's okay: it's an incredibly boring story. But don't worry! We're going to make it interesting, the only way we know how: by putting it in the mouths of attractive famous people. Here now: Ryan Gosling and Kate Upton explain the sequester.

Obama Ready to Propose $1.5 Trillion Plan: McDonough - President Barack Obama is ready to work with Republicans to avoid automatic budget cuts that could cripple U.S. defense and programs vital to the middle class, White House Chief of Staff Denis McDonough said.  The president has a plan to reduce the deficit by $1.5 trillion, and Obama will insist that the changes happen in a “balanced way,” which includes revenue increases, McDonough said on ABC’s “This Week” program, one of three appearances he made on the Sunday morning news shows.  “This is not an ideological effort,” McDonough said. “This should not be a social-science experiment. This should be a question where we ask ourselves, ‘What is most important to the economy? What is most important to the middle-class families of this country?’”  Republicans stood firm in opposing any plan that relies on revenue to close the budget gaps. With no budget from the Senate and few specific details from the president about spending cuts, it looks like the automatic reductions will take place, Representative Paul Ryan, the chairman of the House Budget Committee, said on “This Week.”

What the One-Percent Heard at the State of the Union - When President Obama speaks, most Americans hear what he wants them to hear: lofty rhetoric and a “progressive” vision.   But just below the surface the president has a subtly-delivered message for the 1%, whose ears prick up when their buzzwords are mentioned. Exposing these hidden agenda points in the speech requires that we ignore the fluff and use English the way the 1% does. Every time Obama says the words “reform” or “savings,” insert the word “cuts.” Here are some of the more nefarious moments of Obama’s state for the union speech: “And those of us who care deeply about programs like Medicare must embrace the need for modest reforms [cuts]…” “On Medicare, I’m prepared to enact reforms [cuts] that will achieve the same amount of health care savings [cuts] by the beginning of the next decade as the reforms [cuts] proposed by the bipartisan Simpson-Bowles commission.” This ultra-vague sentence was meant exclusively for the 1%.   What are some of the recommendations from the right-wing Simpson-Bowles commission? Obama doesn’t say. Talking Points Memo explains:

  • -Force more low-income individuals into Medicaid managed care.
  • -Increase Medicaid co-pays.
  • -Accelerate already-planned cuts to Medicare Advantage and home health care programs.
  • -Create a cap for Medicaid/Medicare growth that will force Congress and the president to increase premiums or co-pays or raise the Medicare eligibility age (among other options) if the system encounters cost overruns over the course of 5 years.

Good News on Health Care Costs and the Budget - The biggest driver of the "we must cut the national debt now, now, now" is the expectation that the cost of medical services (and hence the cost of Medicare) will escalate rapidly. But that argument is being undercut by new estimates from the CBO: Here’s some good news on the fiscal front: projected Medicare spending over the 2011-2020 period has fallen by more than $500 billion since late 2010 — based on a comparison of the latest Congressional Budget Office (CBO) projections with those of August 2010. ... CBO has reduced its projections of Medicare spending in response to a pattern of very low spending growth in the past three years. ... Medicare spending growth has slowed even more than costs in private health insurance, according to Standard & Poor’s and Medicare’s actuary.  Professional associations, hospitals, and doctors are taking steps to curb costly and ineffective procedures and treatment. ... The deficit hawks want to hurry and cut spending now. Their goal, after all, is smaller government and lower taxes on the wealthy needed to support it. Thus, they need to get the cuts in place before people figure out that they've been misled about the immediacy of the problem -- the scary projections are down the road, not tomorrow -- and that the problem is not as big as we thought.

Simpson, Bowles propose $2.4 trillion U.S. deficit reduction -   Two key deficit experts on Tuesday offered an updated plan to reduce U.S. government deficit spending by $2.4 trillion over 10 years through a combination of spending cuts, a healthcare overhaul and tax reform. The proposal came from Erskine Bowles, a Democrat who served as President Bill Clinton's chief of staff, and former Republican senator Alan Simpson, the co-chairmen of a former fiscal commission that President Barack Obama launched during his first term. It adds to the Washington debate on what to do about $1 trillion in annual deficits and a $16 trillion national debt. The Simpson-Bowles plan, a follow-up proposal that builds on the commission's 2010 report, comes as policymakers brace for automatic budget cuts that appear increasingly likely to kick in starting on March 1. Simpson and Bowles both doubted Congress and the White House would be able to come up with a plan to avoid the cuts, known as sequestration.

Moving The Goal Posts: Simpson And Bowles Renege On Their Own Plan For More Revenue - Former Republican Senator Alan Simpson and former Clinton White House Chief of Staff Erskine Bowles will release a new plan today to reduce the deficit by $2.4 trillion over the next decade. The pair of deficit hawks previously co-chaired a 2010 commission on fiscal reform (which failed) and then released a proposal for $6.3 trillion in deficit reduction.  That plan became a go-to talking point for Republicans — except, of course, whenever Obama recommended similar targets. The outline below is not meant as a revision to the original Fiscal Commission plan, but rather builds upon where elected leaders were in their negotiations last year. […] [W]e call for an additional $2.4 trillion of deficit reduction over the next ten years. Roughly one quarter of those savings should come from health care reforms and another quarter from tax reform. The remaining savings should come from a combination of mandatory spending cuts, stronger discretionary caps, cross-cutting changes such as adopting the chained CPI for inflation-indexed provisions in the budget, and lower interest payments. This $2.4 trillion should exclude savings from policies such as the war drawdown. The new Simpson-Bowles plan adds an additional $2.4 trillion in savings onto the approximately $2.4 trillion in deficit reduction the United States has already carried out since 2010. Roughly three-fourths of that new $2.4 trillion would come from spending cuts and savings on interest payments:

Bowles-Simpson II: A New Plan to Avoid the Sequester - With 10 days to go until the dreaded sequester—the automatic across-the-board spending cuts that most lawmakers profess to hate—the Washington drama machine is starting to get in gear. Today, President Obama stood in front a group of uniformed first responders and warned darkly of layoffs if the spending cuts kick in. At the same time, two veteran deficit hawks—Erskine Bowles and Alan Simpson—proposed their own new framework for deficit reduction aimed at replacing the sequester. Simpson and Bowles, who chaired a 2010 White House deficit reduction panel, presented a broad framework aimed at reducing the debt to “below” 70 percent of Gross Domestic Product in 10 years. The debt/GDP ratio has become a favorite new target for both Democrats and Republicans though, naturally, they disagree on what it should be. Many Democrats and some progressives want to aim for about 73 percent of GDP, which is what it is today. Many Republicans and other deficit hawks are shooting for about 60 percent, which was the upper bound of member state deficits set by the creators of the Eurozone (not that it’s done them much good). For context, the Congressional Budget Office figures that under the most likely fiscal scenario, the debt will approach 90 percent of GDP by 2022. 

New Simpson-Bowles plan: how it envisions a sustainable fiscal path for US - The oracles of bipartisan debt and deficit reduction have yet another plan to get Washington on a sustainable fiscal path for the next decade and beyond.Former White House Chief of Staff Erskine Bowles, a Democrat, and former Sen. Alan Simpson (R) of Wyoming, the co-chairs of President Obama’s 2010 debt commission, laid out that plan Tuesday morning. Their proposals would pare back federal health-care spending, raise government revenue through reducing "tax preferences," and institute a mix of other cuts and policy changes that would, among other things, supplant the “sequester” – $85 billion in automatic spending reductions that are set to hit beginning March 1. Both men savaged the concept of the sequester at a breakfast Tuesday hosted by Politico. “Stupid, stupid, stupid,” Mr. Bowles said. “There’s no business in the country that makes its cuts across the board.” . Instead, the duo said, the negotiations between House Speaker John Boehner (R) and Mr. Obama in the run-up to the “fiscal cliff” nearly netted the type of wide-ranging accord they favor. And their own measure would finish the job, they said. 

Three Reactions to the New Simpson-Bowles Deficit Reduction Plan | Jared Bernstein - That deficit demolishing duo of distinction —Simpson/Bowles—is at it again, out with the shell of a new plan to reduce the deficit by $2.4 trillion over the next decade.  My first reaction was “really??…another new plan??…we need that!??”  My second was “why $2.4 trillion?”  We at CBPP have argued that our first order goal should be to stabilize the debt over the decade, and to do so would take about another $1.5 trillion in deficit reduction ($1.3 trillion in policy savings and the rest in interest savings).  My third reaction was, “Why did the White House elevate these guys and was that a mistake?”  Among the minority that’s actually looked closely at what they’ve proposed, you won’t find anyone who agrees with all of their ideas, as they’d be the first to admit.  But they certainly have very high standing on the issue of the national debt. That said, this new plan doesn’t look to be very helpful (reaction #2).  The White House is on board with the $1.5 trillion for debt stabilization, which would replace the sequester with as-yet-unspecified balance between new revenues and more spending cuts. This will already be an extremely heavy lift and one that if not done thoughtfully, will inflict more fiscal wounds on an economy still struggling to heal. S/B’s main rationale for another $900 billion in deficit savings seems to be that they want the debt to GDP ratio to hit 70% in ten years as opposed to the 73% that we target in our report.

To lower the deficit, don't cut taxes - We talked in some detail yesterday about the flaws in the latest debt-reduction plan from former Sen. Alan Simpson (R-Wyo.) and Erskine Bowles (D-N.C.), the folks celebrated by the political/media establishment as sage voices on fiscal issues for reasons I've never been able to identify. The Simpson-Bowles 2.0 plan probably isn't going anywhere, but before we move on, Tim Noah flags a detail I'd overlooked. It turns out, in their drive to reduce deficits, Simpson and Bowles want to lower tax rates, replacing the revenue with scaling back "most" tax expenditures. It's not unreasonable to wonder why in the world the so-called deficit hawks would do this. ... Worse, they make this recommendation without explanation. Perhaps they think it's obvious that tax cuts are a good idea.  And if they want to make that case, fine, we can have the debate and point to the flaws in their assumption. But let's not keep up the charade that Simpson-Bowles is purely about fiscal responsibility, when there's also clearly a conservative ideological goal underpinning parts of the outline.

Snark That Writes Itself - Paul Krugman - Erskine Bowles tells a Politico event — now that’s a match made in heaven — that The idea of a grand bargain is at best on life support. OK, is there anyone whose immediate reaction isn’t, “Let’s convene a death panel!” Look, a grand bargain right now is a terrible idea. The simple fact is that our political system isn’t ready. Washington is divided between parties with utterly different visions of what our society should look like; Republicans, in particular, would wait maybe a minute before trying to renege on any bargain that raises rather than cuts taxes on the wealthy, and that leaves the basic structure of Medicare and Social Security intact. So grand-bargain negotiations are, in practice, just an attempt to create facts on the ground for future confrontations, not a good-faith effort to secure the nation’s fiscal future.

New Bowles-Simpson Plan Is Just More BS -- A quick post about the new Bowles-Simpson plan that was announced yesterday because that's all it deserves: It's a total nonstarter.  If you haven't heard about it, here's Jeanne Sahadi's story from CNMoney.) Bowles and Simpson didn't have enough support to get their original plan through their own commission in 2010, so why do they or anyone else think their new plan is relevant now that the commission has been disbanded? Bowles and Simpson have no standing and no influence. The new plan should be seen for what it really is: A desperate plea for attention by two men who have hurt rather than helped their reputations by releasing it. It's the federal budget equivalent of Brett Favre continuing to play for other teams long after he should have just retired.

Krugman is Right about Simpson-Bowles: The Buzzards Circle the Fiscal Cliff == L. Randall Wray - In a powerful piece, Paul Krugman blasts Alan Simpson as an ignoramus when it comes to federal government budgets. He rightly wonders why anyone takes this nutter seriously: Simpson is, demonstrably, grossly ignorant on precisely the subjects on which he is treated as a guru, not understanding the finances of Social Security, the truth about life expectancy, and much more. He is also a reliably terrible forecaster, having predicted an imminent fiscal crisis — within two years — um, two years ago…. So what is it that makes Simpson the figure he is? Clearly, it’s an affinity thing: never mind his obvious lack of knowledge, his ludicrous track record, reporters trust and idolize Simpson because he’s their kind of guy. Precisely. The nonsense that comes out of the mouths of reporters is simply amazing. I am only disappointed that Krugman did not include Simpson’s Siamese twin, Erskine Bowles. After all, the dumb and dumber National Commission on Fiscal Responsibility and Reform created by President Obama was headed by these two (presumably hand-picked by Pete Peterson). Bowles was selected to create the patina of bipartisanship necessary to gut Social Security and Medicare (the real purpose of all the deficit hysteria). It is important for the Democrats to share the blame for this mess. Indeed, since Republicans have always opposed any spending to help ordinary folk, these programs have always relied on the goodwill of Democrats. Unfortunately, the party of FDR has abandoned all principles. They serve only Wall Street, too.

Obama Turns Up Pressure for Deal on Budget Cuts - Days away from another fiscal crisis and with Congress on vacation, President Obama began marshaling the powers of the presidency on Tuesday to try to shame Republicans into a compromise that could avoid further self-inflicted job losses and damage to the fragile recovery. But so far, Republicans were declining to engage. To turn up the pressure on the absent lawmakers, Mr. Obama warned in calamitous terms of the costs to military readiness, domestic investments and vital services if a “meat-cleaver” approach of indiscriminate, across-the-board spending cuts takes effect on March 1. Surrounding him in a White House auditorium were solemn, uniformed emergency responders, invited to illustrate the sort of critical services at risk. The president plans to keep up the pressure through next week for an alternative deficit-reduction deal that includes both spending cuts and new revenues through closing tax loopholes. He will have daily events underscoring the potential ramifications of the automatic cuts, aides said, and next week will travel outside Washington to take his case to the public, as he did late last year in another fiscal fight on which he prevailed. In stern tones, Mr. Obama said that the automatic cuts, known in budget terms as a sequester, would “affect our responsibility to respond to threats in unstable parts of the world” and “add thousands of Americans to the unemployment rolls.” He framed the debate in the way that he hopes will force Republicans into accepting some higher tax revenues, something they so far refuse to do.

Obama takes aim at ‘meat cleaver’ cuts - President Barack Obama has warned Congress that $1.2tn in automatic spending cuts at the Pentagon and other government agencies, due to come into effect on March 1, represented a “meat cleaver” approach to deficit reduction that would “jeopardise our military readiness” and “eviscerate job-creating investments”. “These cuts are not smart. They are not fair. They will hurt our economy,” Mr Obama’s dire message came as Alan Simpson and Erskine Bowles, co-chairs of the president’s 2010 bipartisan debt commission, presented a revised plan to avert the automatic cuts with $2.4tn in additional deficit reduction over 10 years. Mr Bowles and Mr Simpson are challenging Mr Obama and Democrats to cut government healthcare and pension programmes more deeply than they would like, while asking Republicans, who oppose any new tax rises, to accept an additional $600bn in new revenues over 10 years.  The two deficit hawks are, however, unlikely to broker a “grand bargain”, as Democrats and Republicans have only grown further apart on budget policy in the past few months. In the absence of a breakthrough, the White House is asking Congress to trim the budget by $110bn to avoid the “sequestration” cuts due to hit this year. Economists estimate that sequestration, if fully complemented, would trim US growth by 0.25 to 0.6 percentage points this year.

When false claims drive the debate: As best as I can tell, New York Times columnist David Brooks is a well-connected pundit. Powerful people return his phone calls, and when he wants information from top governmental offices, Brooks tends to get it. And with this in mind, it's puzzling that Brooks based his entire column today on an easily-checked error. The conservative pundit insists President Obama "declines to come up with a proposal to address" next week's sequester mess, adding, "The president hasn't actually come up with a proposal to avert sequestration." I'll never understand how conservative media personalities get factual claims like this so very wrong. If Brooks doesn't like Obama's sequester alternative, fine; he can write a column explaining his concerns. But why pretend the president's detailed, already published plan, built on mutual concessions from both sides, doesn't exist?

The rest of the dinner table deficit/debt discussion: Equity - I promise, there are numbers here, but lets have some fun first and write a screen play to set up the point. It is long, but...  "Dear, I'm getting nervous. We seem to keep adding to how much money we owe and our income hasn't changed for the better. What can we do?" At this point of the conversation, the conservative ideology (Republican and Democratic Parties) suggests and encourages you to believe that the answer is something like: "Well Honey, as I look over the horizon I see no possibility for improving our current position. The only thing we can do is cut back on our spending. We have to stop spending on anything we don't need to live. If we are willing to sacrifice then eventually we'll have savings that we can then use to invest such that we have more income." Now, for most Americans at this moment in the euphemistically labeled "business cycle" Honey's response would be: "But I don't know where else we can cut!" Of course to the conservative there is always something that money is being spent on that is in actuality an indulgence for which one should repent and thus cut from their spending if said spending is greater than one's income. This is true because no righteous individual would ever let the devil of consumption tempt them from the path to wealth heaven. Redeem one's self through the power of restraint of consumption urges.

Sequestration Suicide -- For once he's right.  President Obama came out blasting against the upcoming sequestration as a major threat to the U.S. economy.   He's right.  These draconian cuts, $85 billion for FY 2013, will be enacted starting in March 2013 if Congress doesn't stop it.  The CBO estimates this year's budget costs will cost the United States a full 1.5 percentage points of GDP. We project that inflation-adjusted gross domestic product (GDP) will increase by about 1½ percent in 2013, but that it would increase roughly 1½ percentage points faster than that if not for the fiscal tightening.  With that slow growth, we expect that, under current laws, the unemployment rate will stay above 7½ percent through next year.  That would make 2014 the sixth consecutive year with unemployment so high, the longest such period in 70 years. America has Congressional manufactured crisis budget cut fatigue.  Crazy people, posing as Congressional representatives, go on national TV to say up is down and black is white when it comes to the economy.  You do not cut government spending in a fragile economy, that's economics 101.  You do confront corporate greed sucking all of the money out of middle class pockets to help balance the budget deficit.  That's morality 101.  Why Congress, in particular Republicans, insist on killing the economy by self-inflicted gunshot is anyone's guess.  Who else is sick to death of fictional spin and fuzzy math? 

Walker Says Entitlements Should Be Cut to Reduce Deficit - Wisconsin Governor Scott Walker said Congress should reduce the budget deficit by paring back spending on Social Security and Medicare instead of relying on across-the-board spending cuts scheduled to begin on March 1.  “Long-term, there’s got to be some sort of entitlement reform,” Walker, 45, said in an interview on Bloomberg Television’s “Political Capital With Al Hunt,” airing this weekend. “You’ve still got to start tackling some of these entitlement reforms now.”

White House Wants Everyone to Know Obama Supports Cutting Social Security Benefits - Just in case you haven’t gotten the message already, the White House wants to make sure everyone knows President Obama supports cutting Social Security benefits. They are even bragging about Obama’s desire to cut Social Security benefits on the official White House blog: And he’s laid out a specific plan to do more. His proposal resolves the sequester and reduces our deficit by over $4 trillion dollars in a balanced way- by cutting spending, finding savings in entitlement programs and asking the wealthiest to pay their fair share. As a result the deficit would be cut below its historic average and the debt would fall as a share of the economy over the next decade.  Just two months ago Speaker Boehner said there was $800 billion in deficit reduction that could be achieved by only closing loopholes and reducing tax expenditures.  So we know we can get this done. Let’s be clear: the President’s proposal to Speaker Boehner is still on the table. Here it is again If you click on the link it takes you to a PDF of the Obama’s current offer. One of the single biggest items in it is “Spending Savings from Superlative CPI with protections for vulnerable $130.” That is adopting the chained-CPI for for Social Security benefits. It would be a cut to benefits every year that would build cumulatively. The AARP actually has a calculator to show roughly how big a cut it would be for you.Obama wasn’t forced to reluctantly accept cutting Social Security by Republicans. It is something Obama has always wanted to do and he is actively trying to use it to entice Republicans to support a grand bargain

The Democratic turncoats behind the “Fix the Debt” attack on Medicare & Social Security - Most left-side commenters paint “Fix the Debt” — the well-funded campaign to scare Americans into believing the debt is not only going to destroy us all, but that massive cuts to Medicare, Social Security and Medicaid are the only way to “fix” the “problem” — as a billionaire-led, CEO-led operation to kill (or at least seriously maim) the social programs by delivering one blow after another. But Fix the Debt is also a bipartisan operation. This is about bipartisanship — real bipartisanship, bipartisanship in the bad way. In a recent post about how the American people overwhelmingly want to strengthen Social Security (and the rest of the social programs), I made the following point about “centrism“: People who perform on TV are fond of talking about the “centrist” position, or the “bipartisan consensus” on various economic matters. This presumes a vertical left-right divide with some kind of center between them. The real divide in this country is not Left versus Right — it’s the Rich versus the Rest. It’s the horizontal division between the people taking all the money they can, and those they’re taking it from.

Americans Want to Cut Spending. They Just Don’t Know What to Cut. As the sequester looms, it’s worth noting that there’s no significant federal spending category that a majority of Americans wants to cut: That chart comes from a Pew Research Center poll conducted Feb. 13-18. In every category except for “aid to world’s needy,” more than half of the respondents wanted either to keep spending levels the same or to increase them. In the “aid to world’s needy” category, less than half wanted to cut spending.  This is part of the problem with heeding any public concerns about getting the budget under control. According to Pew, 70 percent of Americans say it is essential for Washington to pass major legislation to reduce the federal budget deficit this year. But they can’t identify anything worth axing, and it’s not as if tax increases are so terribly popular, either. By the way, Pew asked similar questions about what categories of government spending to cut in 2011. There has been little change since then, with the exception of attitudes toward military spending. In the most recent poll, 24 percent said the government should cut spending for the military, compared to 30 percent two years ago.

Lindsey Graham: Slash health care so sequester cuts won’t ‘destroy the military’ - Sen. Lindsey Graham (R-SC) on Sunday suggested that President Barack Obama’s health care programs for the middle class should be slashed to stop scheduled sequester cuts from “destroying the military.” During an interview on Fox News Sunday, host Chris Wallace point out that the White House has said that if the sequester cuts are not stopped then 70,000 children will lose Head Start, food inspections would be cut and $900 billion in small business loan guarantees would be lost. “You know the president will say that your party is forcing this to protect tax cuts for the wealthy,” Wallace told Graham. “The commander-in-chief came up with the idea of sequestration — destroying the military and putting a lot of good programs at risk,” Graham insisted. “Here’s my idea, let’s take Obamacare and put it on the table. You can make $86,000 in income and still get a subsidy under Obamacare. Obamacare is destroying health care in this country.”

How Obama moved the tax debate to the right - Ezra Klein - Obama won that election and with it, many thought, the argument over taxes. But a few short months later, the “center” on taxes appears to have shifted to the right — even as compared with the months after Republicans won the 2010 midterm elections. And the blame for that may lie as much with Democrats as Republicans. The initial budget plan released in December 2010 by former Republican senator Alan Simpson and former Democratic White House chief of staff Erskine Bowles, if passed today, would raise taxes by more than $2.6 trillion over the next 10 years. The new Simpson-Bowles proposal, released earlier this week, would raise taxes by barely half that. Simpson-Bowles isn’t alone in sharply reducing its tax ask. The bipartisan debt commission chaired by former OMB director Alice Rivlin and former Republican senator Pete Domenici released its first report in November 2010. It called for more than $3.5 trillion in revenues over the next decade — some of which would’ve been raised through a value-added tax. But the post-election update of their report called for only $1.5 trillion in revenues, and it scrapped the value-added tax. Obama ran for reelection with a budget calling for $1.7 trillion in tax increases and a promise that he’d oppose anything that didn’t raise tax rates on families making more than $250,000. In the end, the fiscal-cliff deal raised a bit more than $600 billion in revenues and raised tax rates only on families making $450,000 or more. Today, White House officials say they’d be willing to settle for $1.2 trillion in total revenues.

Updating Reaganomics - TODAY’S Republicans are very good at tending the fire of Ronald Reagan’s memory but not nearly as good at learning from his successes. They slavishly adhere to the economic program that Reagan developed to meet the challenges of the late 1970s and early 1980s, ignoring the fact that he largely overcame those challenges, and now we have new ones. It’s because Republicans have not moved on from that time that Senators Marco Rubio and Rand Paul, in their responses to the State of the Union address last week, offered so few new ideas. When Reagan cut rates for everyone, the top tax rate was 70 percent and the income tax was the biggest tax most people paid. Now neither of those things is true: For most of the last decade the top rate has been 35 percent, and the payroll tax is larger than the income tax for most people. Yet Republicans have treated the income tax as the same impediment to economic growth and middle-class millstone that it was in Reagan’s day. House Republicans have repeatedly voted to bring the top rate down still further, to 25 percent. A Republican Party attentive to today’s problems rather than yesterday’s would work to lighten the burden of the payroll tax, not just the income tax. An expanded child tax credit that offset the burden of both taxes would be the kind of broad-based middle-class tax relief that Reagan delivered. Republicans should make room for this idea in their budgets, even if it means giving up on the idea of a 25 percent top tax rate.

A quick reminder of where the Democratic endgame is on taxes - Former US Deputy Treasury Secretary Roger Altman offers a sequester escape route (via the FT): Unblocking the impasse should follow three principles. First, further deficit reductions are necessary. Second, they must incorporate both reductions in entitlement spending, which is growing too quickly, and increases in tax revenue, which is growing too slowly. Third, they should be phased in to protect the still fragile economy. Later in the piece, Altman says he would raise more tax revenue by reducing the value of tax deductions for high earners. The Obama White House is pushing for about $500 billion in such tax hikes. But the tax hikes won’t stop there. I think it is a good time to remind ourselves of the Democrat/liberal/progressive endgame. Here is Altman back in 2009: We all know the recent and bitter history of tax struggles in Washington, let alone Mr. Obama’s pledge to exempt those earning less than $250,000 from higher income taxes. This suggests that, possibly next year, Congress will seriously consider a value-added tax (VAT). A bipartisan deficit reduction commission, structured like the one on Social Security headed by Alan Greenspan in 1982, may be necessary to create sufficient support for a VAT or other new taxes.

Wealthy disagree with most Americans about income policies - According to the pilot study—directed by scholars at Northwestern and Vanderbilt universities—87 percent of the wealthy say that budget deficits are a "very important" problem facing the United States, putting deficits at the very top of a list of 12 potential problems. About one-third of the wealthy call deficits or excessive government spending the most pressing problem facing the country, much more than any other problem. In contrast, only 7 percent of the general public mentions deficits or the national debt as the most important problem facing the country; more than 50 percent cite the economy and jobs. What's more, the wealthy tilt toward cutting back—rather than expanding—federal government programs like Social Security and health care that ordinary citizens want to expand or keep the same. Overwhelming majorities of Americans oppose such cuts

Want to Tackle Income Inequality? You Need to Go After Capital Gains - Greg Sargent calls our attention to a new study on rising income inequality today. The question at hand isn't how much inequality has increased over the past couple of decades, it's where the increase has come from. The study is from Thomas Hungerford, an analyst with the Congressional Research Service, and the chart on the right tells the story:

  • Wages, interest, and taxes have contributed to a lowering of income inequality.
  • Business income and retirement income have contributed to an increase in income inequality.
  • Capital gains and dividends have contributed more to the rise of income inequality than everything else put together.

As Hungerford put it in an interview, "The reason income inequality has been increasing has been the rising income going to the top one percent. Most of that has come in capital gains and dividends." Sargent relates this to the current sequester talks: Obama and Democrats want to offset the sequester in part by closing loopholes enjoyed by the wealthy, such as the one that keeps tax rates on capital gains and dividends low. Republicans oppose closing any such loopholes and want to avert the sequester with only deep spending cuts.

The Myth of the Rich Who Flee From Taxes - It’s an article of faith among low-tax advocates that income tax increases aimed at the rich simply drive them away..., and on its face, it seems to make sense. But it’s not the case. It turns out that a large majority of people move for far more compelling reasons, like jobs, the cost of housing, family ties or a warmer climate. At least three recent academic studies have demonstrated that the number of people who move for tax reasons is negligible, even among the wealthy.  Of course, some people do move for tax reasons, especially wealthy retirees, athletes and other celebrities without strong ties to high-tax locations, like jobs and families. ... But there aren’t many people like that. “Tax-induced flight is rare,” Professor Tannenwald said. .Yet the tax flight myth remains surprisingly persistent, fanned by media coverage of celebrities, who are among those most likely to have the means and motive to choose a home based on tax considerations. “You can always find an anecdote.” Mr. Shure said. “Many people want this to be true as a way to discourage tax increases. ...”

Paulson Leads Funds to Bermuda Tax Dodge Aiding Billionaires - Last year, about $450 million belonging to top executives at billionaire hedge fund manager John Paulson’s New York firm took a quick round trip to Bermuda. In April, the executives sent the money to a reinsurance company that they’d set up on the island 650 miles off the North Carolina coast. By June, the Bermuda company, which has no employees and sells far less reinsurance than the industry norm, had sent all the cash back to New York, to be invested in Paulson & Co. funds. By recycling the funds through Bermuda-based Pacre Ltd., the Paulson executives are positioned to legally exploit a little-known tax loophole, reduce their personal income taxes and delay paying the bill for years. “These types of reinsurance companies are permitting U.S. taxpayers to defer -- indefinitely -- U.S. tax,”

Tax havens: The missing $20 trillion | The Economist - CIVILISATION works only if those who enjoy its benefits are also prepared to pay their share of the costs. People and companies that avoid tax are therefore unpopular at the best of times, so it is not surprising that when governments and individuals everywhere are scrimping to pay their bills, attacks are mounting on tax havens and those that use them. In Europe the anger has focused on big firms. Amazon and Starbucks have faced consumer boycotts for using clever accounting tricks to book profits in tax havens while reducing their bills in the countries where they do business. David Cameron has put tackling corporate tax-avoidance at the top of the G8 agenda. America has taken aim at tax-dodging individuals and the banks that help them. Congress has passed the Foreign Account Tax Compliance Act (FATCA), which forces foreign financial firms to disclose their American clients. Any whiff of offshore funds has become a political liability. During last year’s presidential campaign Mitt Romney was excoriated by Democrats for his holdings in the Cayman Islands. Now Jack Lew, Barack Obama’s nominee for treasury secretary, is under fire for once having an interest in a Cayman fund.

Cost of Dropping Citizenship Keeps U.S. Earners From Exit - Tax attorney Seth Entin has fielded about a dozen calls since Jan. 1 from individuals or companies thinking about exiting the U.S. or moving assets abroad.  “A fair amount of the time I wind up telling people that it’s easier said than done, and if they try to do it they may wind up in a worse situation.”  Exit taxes and other costs make it prohibitive for most high-income taxpayers and small-business owners to leave the U.S., though they may want to go because of new higher taxes at the federal level and in states such as California. Those who expatriate must renounce their citizenship to avoid U.S. taxes and navigate several sets of Internal Revenue Service rules when setting up a foreign corporation.  A high-income couple worth $100 million whose assets have $50 million in gains may have a $10 million tax liability if they decided to leave this year,

 Who Pays the Corporate Income Tax - The United States has had a corporate income tax since 1909, but in all the years since there is a major question about it that economists haven’t been able to answer satisfactorily: who pays it? Corporations, contrary to the views of some Republicans, are not people. They are legal entities that exist only because governments permit them to and are artificial vehicles through which sales, wages and profits flow. Hence, the actual burden of the corporate tax may fall on any of the groups that receive such flows; namely, customers, workers and shareholders, the ultimate owners of the corporation. Probably most people assume that the corporate income tax is largely paid by consumers of its products or services. That is, they assume that although the tax is nominally levied on the corporation as a whole, in fact the burden of the tax is shifted onto customers in the form of higher prices. All economists reject that idea. They point out that prices are set by market forces and the suppliers of goods and services aren’t only C-corporations, which pay taxes on the corporate tax schedule, but also sole proprietorships, partnerships and S-corporations that are taxed under the individual income tax. Other suppliers include foreign corporations and nonprofits. Therefore, corporations cannot raise prices to compensate for the corporate income tax because they will be undercut by businesses to which the tax does not apply.

Facebook, Coolest Cutest Corporate Welfare Queen Of Them All -- Last year, the government extracted $1.1 trillion in taxes from us more or less hardworking individual taxpayers. But now it will pay, along with the states, $429 million of our taxes to the coolest Silicon-Valley beauty queen: Facebook. In net tax refunds! Part of a vast package of juicy corporate welfare programs. Facebook isn’t just hogging our data; it’s gobbling up our money. Timing was a bit inconvenient, however. The “sequester,” as the automatic spending cuts by the federal government have been elegantly named, is scheduled to kick in on March 1. A national disaster, according to the New York Times. It would threaten everything from national security to preschool programs for low-income kids. It would cause hundreds of thousands of jobs to evaporate, or whatever. So, as the drama with all its lurid theatrics was playing out in Washington, Facebook filed its first 10-K annual report with the SEC, containing its financial statements for 2012 along with a host of small-print footnotes which presumably no one would ever look at. But the recalcitrant nonpartisan research and advocacy group, Citizens for Tax Justice, combed through it anyway.And it found “an amazing admission”: despite $1.1 billion in pre-tax profits from its US operations in 2012, Facebook didn’t pay any federal or state income taxes in the US—in fact it will collect net tax refunds totaling $429 million.

A Tax That Could Change the Trading Game -  To the dismay of the United States government — not to mention Wall Street — much of Europe seems poised to begin taxing financial trading as soon as next year. The idea is hardly new, but until now financial markets and institutions have been able to ward off any such tax in most major markets. The financiers claimed a tax would hurt economic growth and raise the cost of capital for companies. They said it would drive trading to other countries, leaving the country that adopted it with less revenue and fewer jobs.  But those arguments have not proved persuasive in Europe, which thinks it has found a way to keep institutions from avoiding the tax.  If Europe proves to be correct, it could turn out to be a seminal moment in the relation of governments to large financial institutions.

Treasury Nominee Jack Lew’s Head-Spinning Mortgage Transactions - Lew will now have more embarrassing details to explain (or not, as has become his custom). We’ve dug out the details of his head-spinning mortgage deals with his two former employers,  New York University and Citigroup. This comes on the heels of the bombshell dropped by Senator Orrin Hatch in the confirmation hearing regarding Lew’s cozy employment agreement with Citigroup that paid him a bonus of $940,000 if he could somehow manage to secure a “full time high level position with the United States Government or a regulatory body.” The insolvent bank had just been bailed out by the taxpayer, making the $940,000 bonus accepted by Lew in early 2009 a gift from the public purse.  “Investor in Cayman Islands tax haven? Check. Recipient of a bonus and corporate jet rides underwritten by taxpayers at a bailed-out bank? Check. Executive at a university that accepted student-loan ‘kickbacks’ for steering kids toward a favored bank? Check. Excessive compensation with minimal disclosure? Check.” The kickbacks the editorial references were akin to what Bernie Madoff was doing in the “legitimate” stock trading side of his company.  The practice was called “payment for order flow.”  While Jack Lew was employed as a Vice President of Operations at New York University, his future employer, Citigroup, was named a “preferred lender.” NYU students were directed to Citigroup for student loans and the company reciprocated with the equivalent of “payment for loan flow,” kicking back to New York University .25 percent of the net loan value directed to it.

Libor setting ‘still not clean’ despite scandal - The way that the key Libor interest rate is set in the UK is still not clean and free of fraud, according to a top US regulator. "We have a lot more work to do," Gary Gensler, chairman of the Commodity Futures Trading Commission, told the BBC in London. He suggested that the rate was often "completely made up". A number of banks have been fined hundreds of millions of pounds for rigging the lending rate. Mr Gensler is in London to meet officials at the Financial Services Authority, the City watchdog. Libor, which is set in London, is meant to reflect the average rate that banks pay to lend to each other and is used to benchmark everything from car loans and mortgages to complex financial transactions around the world. Speaking of the scandal, Mr Gensler spoke of "pervasive rigging" and said authorities could not guarantee the rate is fraud-free, but refused to criticise the FSA or suggest that setting the rate should be moved to the US.

Lehman seeks to question JPMorgan’s “London Whale” (Reuters) - Lehman Brothers Holdings Inc is seeking court permission to question the JPMorgan Chase & Co trader known as the "London Whale" in connection with its $8.6 billion lawsuit accusing the largest U.S. bank of driving it into bankruptcy. In a late Wednesday night filing in Manhattan bankruptcy court, Lehman and a committee of its unsecured creditors said months of disclosures about the trader, Bruno Iksil, suggest that he played a "greater role" than previously thought in the events underlying the May 2010 lawsuit. They asked U.S. Bankruptcy Judge James Peck for permission to ask French authorities to compel Iksil's testimony. JPMorgan spokesman Joseph Evangelisti declined to comment about the request. A lawyer for Iksil did not immediately return a call seeking comment. Iksil worked for JPMorgan in London and is no longer employed by the New York-based bank. His activities have been linked to more than $6.2 billion of trading losses at JPMorgan's chief investment office. In the court filing, Lehman and its creditors committee said Iksil's "practice of intentional mismarking" of trades warranted an inquiry into trades he oversaw that led to an "unjustified multimillion-dollar collateral call" on September 9, 2008, six days before Lehman filed for bankruptcy protection. Lehman and the committee also want to examine how the chief investment office managed JPMorgan's exposure to Lehman.

Incoming SEC head faces early test - A proposal to force public companies for the first time to disclose all their political activity to investors is emerging as an early litmus test for Mary Jo White, Barack Obama’s nominee to head the Securities and Exchange Commission. If passed the proposal, which is still at an early stage, would shed light on companies’ political donations and lobbying – including fees paid to groups such as the Chamber of Commerce – since the 2010 Supreme Court ruling in the Citizens United case , which found that companies could use their own funds to support political campaigns indirectly.  Last year the SEC included the disclosure proposal, which was introduced to the agency by a group of academics, on its agenda for this year. But advocates and opponents of the proposed regulation believe that it will ultimately fall to Ms White, once she is confirmed, to pass it with the help of the agency’s two Democratic commissioners, or to set it aside to focus on the long list of regulations the SEC must pass, thereby avoiding a big political fight. The issue is causing consternation among lobby groups and among some Republicans in Washington who have staunchly opposed similar proposals that have been floated in Congress but never passed. Mitch McConnell, the top Republican in the Senate and an outspoken opponent of such disclosure rules, said the proposal was a “direct assault” on free speech.

A Revolving Door in Washington With Spin, but Less Visibility - Obsess all you’d like about President Obama’s nomination of Mary Jo White to head the Securities and Exchange Commission. Who heads the agency is vital, but important fights in Washington are happening in quiet rooms, away from the media gaze. After a widely praised stint as a tough United States attorney, Ms. White spent the last decade serving so many large banks and investment houses that by the time she finishes recusing herself from regulatory matters, she may be down to overseeing First Wauwatosa Securities. Ms. White maintains she can run the S.E.C. without fear or favor. But the focus shouldn’t be limited to whether she can be effective. For lobbyists, the real targets are regulators and staff members for lawmakers.Ms. White, at least, will have to sit for Congressional testimony, answer occasional questions from the media and fill out disclosure forms. Staff members, however, work in untroubled anonymity for the most part. So, while everyone knows there’s a revolving door — so naïve to even bring it up! — few realize just how fluidly it spins.

Financial Reform's Triple "F" Rating - Earlier this month, the Justice Department and 16 state attorneys general sued the Standard and Poor’s (S&P) credit-rating agency, accusing the company of improperly inflating the ratings of 40 collateralized debt obligations (CDOs)—essentially, securities made up of other mortgage-backed securities—at the height of the housing bubble. According to the suit, S&P misled investors by rating the risky securities as "triple-A," super-safe investments. But the purchases turned into massive investor losses when the bonds failed after the bubble collapsed. Using emails and other communications, state, and federal prosecutors will seek to prove that S&P knew the securities were junk but rated them highly for the most obvious of reasons: to make more money. The lawsuit gets at a major problem at the heart of the credit-rating business: Rather than investors paying rating agencies to assess the value of securities it is the issuers of the securities themselves who pick up the tab. It is naturally in the interest of issuers—typically big banks—for rating agencies to rate their products highly, which increases the chances investors will buy them. Under this "issuer-pays" model, the largest credit-rating agencies then have a strong incentive to highly rate securities for issuers who can give them more business in the future. This is said to be part of the reason rating agencies ignored the risks from the highly complex securities and simply let everything pass; in one communication revealed in the filing, an S&P employee boasted, "It could be structured by cows and we would rate it."

Markets: In search of a fast buck - In a quiet room overlooking Madison Avenue, seven miles uptown from the New York Stock Exchange, a dozen people are focused intently on banks of computer screens, where programs trade about a 10th of all the US stocks exchanged in a given day. More videoFor this select group of high-frequency traders, part of the 133-person staff at Virtu Financial, using lightning-fast computer systems to trade US equities is just a start. The company now wants to make high-speed trading the norm in new asset classes such as bonds, currencies and derivatives. If Virtu and a handful of its rivals manage to disrupt these new asset classes the way they shook up the stock market, it could spell the end of the long dominance enjoyed by global banks in areas such as bond and foreign exchange trading.

Primary Dealers’ Waning Role in Treasury Auctions - NY Fed - On December 12, 2012, primary government securities dealers bought just 33 percent of the new ten-year Treasury notes sold at auction. This was one of the lowest shares on record and far below the 68 percent average for ten-year notes reported in this 2007 study by Fleming. In this post, we examine recent data on the buyers of Treasury securities at auction to understand whether the December 12 results are part of a trend and, if so, what explains it.  As shown in the chart below, the December 12 auction results are indeed part of a larger trend, with primary dealers’ share of purchases of new securities declining sharply during the 2007-09 financial crisis and not fully recovering since. Primary dealers thus bought 70 percent of new Treasury issuance over the period preceding the Lehman Brothers bankruptcy filing (May 5, 2003, to September 14, 2008), but only 56 percent for the post-Lehman period (September 15, 2008, to June 30, 2012). For nominal ten-year notes, the comparable decline is even sharper, from 71 percent to 53 percent.

Twelve Angry Central Bankers - Simon Johnson - This does not happen very often: the 12 presidents of Federal Reserve Banks have spoken with great clarity and in public on a financial reform issue: the need to change the rules for money-market funds. They are explicitly taking on the biggest banks and their allies, including some recalcitrant officials. As far as I have been able to determine, the comment letter submitted on Feb. 12 by the Federal Reserve Bank of Boston – on behalf of all the regional Fed banks – was literally the first time these 12 organizations have spoken with one public voice without involving the Fed’s Board of Governors.The problem is straightforward. Money-market funds operate in some ways like banks – their liabilities are regarded by investors to be just like bank deposits when times are good. But when times are scary – as when Lehman Brothers failed in September 2008 – there can be rapid and destabilizing runs by investors out of the funds. What we saw in fall 2008 had the potential to become even more damaging than the bank runs that characterized moments of panic before the introduction of deposit insurance. The industry proposes to deal with this by allowing temporary restrictions on withdrawals when the pressure is on. This is a terrible idea that will just encourage people to run sooner and faster.

Financial Crisis Cost Tops $22 Trillion, GAO Says - The 2008 financial crisis cost the U.S. economy more than $22 trillion, a study by the Government Accountability Office published Thursday said. The financial reform law that aims to prevent another crisis, by contrast, will cost a fraction of that. "The 2007-2009 financial crisis, like past financial crises, was associated with not only a steep decline in output but also the most severe economic downturn since the Great Depression of the 1930s," the GAO wrote in the report. The agency said the financial crisis toll on economic output may be as much as $13 trillion -- an entire year's gross domestic product. The office said paper wealth lost by U.S. homeowners totalled $9.1 billion. Additionally, the GAO noted, economic losses associated with increased mortgage foreclosures and higher unemployment since 2008 need to be considered as additional costs.The report, five years after the collapse of mortgage-focused hedge funds in late-2007 set off a yearlong banking panic and a deep recession, was published as part of a cost-benefit analysis of the Dodd-Frank financial reform law of 2010. The GAO tried to determine if the benefits of preventing a future economic meltdown exceeded the costs of implementing that law.

Thanks Banksters - You Cost the Economy $22 Trillion - Nowhere is the evidence of unbridled corporate greed stronger than in what the financial crisis did to the U.S. economy.   The losses are staggering.  Economic growth was killed to the tune of over $13 trillion.  Homeowners lost a whopping $8.1 trillion in home values.   Personal income nose dived.   Between 2007 and 2010 median household net worth fell by $49,100 per family.  That's a 39% loss.  What's worse is most have assumed the economy will eventually recover.   There is an increasingly more real possibility.  It never will.  The reasons are a loss of private investment and since the U.S. worker has been scuttled, all of the expertise and skills have become atrophied.  As the phrase goes, use it or lose it and businesses refusing to hire are making sure American workers are losing their skill sets.  Below is a graph from the GAO report which shows the two scenarios.   The first is when GDP recovers and returns to normal growth after a financial crisis.   The second scenario is a financial crisis that has permanently destroyed the nation's economy.   The bold line is potential GDP and what has been the trend of economic growth in the past.  The wavy lines are actual economic growth.

Can’t Touch This: What the President Wouldn’t Go Near In His State of the Union Address - President Obama covered so much ground in his February 12 State of the Union address that it’s easy to lose sight of the four words he failed to mention – even once: Wall Street and campaign finance. Nothing is going to materially change in America in terms of restoring fairness, opportunity, income equality and representative government until those two areas are radically reformed. Instead, the President offers platitudes and empty promises. To confront the malignancy that is shriveling our democracy, Americans must begin to separate the symptoms from the disease. The diseases are Wall Street’s institutionalized wealth transfer system and the use of that unjustly created vast wealth by corporations and individuals to finance political campaigns. The President can make endless promises about lifting up the middle class, eradicating poverty and leveling the playing field – but these are just the symptoms of the two areas he refuses to tackle for serious reform: Wall Street and campaign finance. When the President said in his speech that consumers “enjoy stronger protections than ever before,” what immediately came to mind was the fact that after destroying trillions of dollars of middle class wealth there has been no meaningful reform of Wall Street and no prosecutions of a multitude of criminal acts involved in the meltdown.

Michael M. Thomas’ Solution to the Crisis from naked capitalism -  Now, if only anyone had listened…. A trillion here, a trillion there. A trillion for TARP, a trillion for TALF.  Throw in what’s in the “stimulus” package and you’re probably at close to $3 trillion. So why not simply distribute $25,000 tax free to every U.S. taxpayer? There are 100 million of us, in round figures, so we’re talking about $2.5 trillion, give or take.  Clearly, these institutional rescue plans are going nowhere. The pricing dichotomy – Uncle Sam either pays too little or too much – seems intractable and the recipients are surely undeserving. Even though there have been two big distress sales of toxic assets – by Merrill Lynch last fall and Legg Mason last week – at around 20 cents on the dollar, which might represent a pricing benchmark, I just don’t think the taxpayer should be put in the business of writing a “make whole” for either pigs or vultures, who in many cases may now be one ad the same. That is capitalism’s tragic paradox, unseen by Adam Smith, probably understood by Marx: the people who cause crashes frequently profit from them.

Disclosure 2.0: Disclosure in the Lab - If, as I suggested in my last post, making the consumer smarter is hopeless, at least for those of us whose prenatal and early childhood environments can no longer be altered, what about disclosure?  Could point-of-sale disclosure equip consumers to make good financial decisions?   Simple disclosures appear effective in directly aiding consumer decisionmaking in some domains, the A, B, and C restaurant hygiene grades being the classic example.  But because financial products have many varying features that consumers need to understand to make good decisions, financial product disclosures are inevitably much more complex.  As a recent article by Omri Ben-Shahar and Carl Schneider details, generally speaking, consumers do not read, or if they do read they do not understand, or if they do understand they do not use correctly, the information presented in complex product disclosures.   I would contend that there are four fundamental problems with traditional static, generic, point-of-sale consumer financial product disclosures:

Bloomberg Terminal Iceberg – Tortious Interference? - A couple of weeks ago forensic auditors and attorneys ran into the Bloomberg Terminal iceberg when Bloomberg Terminal (a securities stock searching software program) locked them out of the loan finding program [LFND]). Without warning Bloomberg Terminal shutdown access to the loan searching program that had been used by numerous companies to research securitized trusts and the loans within in them. It appears too many loans had been found in trusts when the servicers were claiming ownership. What better way to stop the truth than to try to sink the ship?Unknown to most homeowners, their mortgage loans ended up trading on Wall Street in alleged REMIC trusts, supposedly tax shelters for investors who turned over primarily 401ks, pension and retirement funds in what now is viewed by many as the world’s largest and most egregious un-prosecuted Ponzi scheme [and its no wonder why Bernie Madoff wants out of prison, at least some recovery was achieved]. It now appears the INVESTORS in the securitized RMBS (Residential Mortgaged-Backed Securities) trusts failed to scrutinize the assets of the alleged REMICs.  It also appears, the Depositors and Trustees for the trusts apparently did not properly and timely assigned the mortgage loan documents to the Certificateholders and it appears in most cases the REMICs have actually failed.

A Valuable U.S. Export: Banking Regulations - Simon Johnson - By this point in the economic recovery, the biggest U.S. banks had expected the pressure from regulators to abate. In the aftermath of a major financial crisis, there is usually a turn toward tighter rules, and banks naturally build up their equity buffers after near-death experiences. It is standard practice, at this point in the credit cycle, for bank advocates to claim that a great deal has changed, that banks have more equity capital than at any time in recent memory and that governments need to ease up on the rules if they want credit to expand and growth to take hold. This is exactly what leading representatives of global megabanks now say. And there are indications that European regulators are listening, as France, Germany and other nations back away from previously promised reforms. In the U.S., however, there are signs that official thinking is pushing in the opposite direction, in particular toward requiring larger buffers of loss-absorbing equity. With the U.S. rapidly becoming a bastion of more sensible official thinking, and the Europeans moving in the opposite direction, to what extent should countries aim to cooperate and to coordinate capital standards?

Too Big to Regulate? The Warren Debut - Elizabeth Warren’s questioning of financial regulators at her first Senate Banking Committee hearing got a lot of attention for her pointed question about when was the last time any of their agencies had taken a large bank to trial.  It was a telling exchange, but I think the attention it received overshadowed her even more interesting second question (here at 04:29):  why is the market capitalization of the major banks lower than their book value?  Typically companies' market cap is above their book value, but for many large banks, it has been below since 2008. JPMorgan Chase, however, has a book value of $195 billion, but a market cap of just $186 billion.  (Market:Book of 95%)  And Bank of America has a book value is $218 billion, but the market cap is only $129 billion.  (Market:Book is just 59%.)  What accounts for the staggering $89 billion gap? To put things in perspective, a bank with $89 billion in assets would be the sixth largest in the US, just behind Goldman Sachs, and just ahead of MetLife and Morgan Stanley.  Senator Warren proposed two possible (and possibly consistent) answers: that investors think the banks have inflated books or that they're too big to manage.

Too big to fail casts long shadow: That seems an almost heretical notion given the desire to end bailouts and the too-big-to-fail status of some banks. Yet it is also a possibility being debated within regulatory circles in regard to nonbank financing activity and was recently raised by the head of the Federal Reserve Bank of New York. Regulators have been wrestling with how to reduce the risk of runs on the so-called shadow-banking system, or funding markets outside regulated banks. In particular, they have focused on making money-market funds less vulnerable. And they have looked to rein in risks posed by repurchase, or repo, markets, which involve the transfer of cash and securities between banks and financial firms. While regulated banks have faced far tighter oversight following the financial crisis, the shadow-banking market remains a source of potential instability. It is worth remembering that runs here, rather than traditional bank runs, were a cause of the crisis and led to seizures of credit markets. Testifying before the Senate last week, Federal Reserve Governor Daniel Tarullo, the central bank's point person on bank supervision, said this is the issue "we should be debating in the context of too big to fail." How that plays out will influence the future structure and competitive dynamics of banks and Wall Street.

Quelle Surprise! The Administration Wants You to Believe it is Serious About Prosecuting Banks - Yves Smith -   Now the problem is that much of what passes for journalism these days runs afoul of the old Yankee saying, “Fool me once, shame on thee. Fool me twice, shame on me.” Anyone who has been paying attention to the news will recognized that some of these stories are not just obvious plants, but they are simply not credible. That’s not saying the facts are inaccurate, it’s the storyline that’s a howler. And it is also fair to point out that the slant an article winds up with may not be the doing of a reporter so much as his editor.The latest illustration is an article by Ben Protess in the New York Times titled Prosecutors, Shifting Strategy, Build New Wall Street Cases. At least in the web version, this is the picture immediately under the headline: I’m not sure whether this picture is an effort at Big Lie imagery, or whether someone in the Times’s layout department is a subversive. But using Lanny Breuer at the face of a new “get tough with banks” posture at the Department of Justice alone fatally undercuts the article.

Why the biggest US banks are even bigger and riskier than you think - Just how big are the biggest US banks, and how safe are they? When trying to figure all that out, it makes a big difference if you are analyzing them according to US accounting standards or international ones. The latter makes lenders account for a greater portion of risky derivatives on their balance sheets. Take JPMorgan, for instance. Under US accounting rules, the bank is just the fourth largest in the world with total assets of $2.3 trillion and capital equal to roughly 7% of total assets. But under international rules, where lots of off-balance sheets assets like derivatives are accounted for, according to Bloomberg, JPMorgan would be the largest in the world with assets of $4.5 trillion and capital equal to less than 4% of assets. The higher that capital ratios are, the less likely banks are to face liquidity and solvency problems. Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., would prefer using stricter accounting standards. “Derivatives, like loans, carry risk,” Hoenig said in an interview with Bloomberg. “To recognize those bets on the balance sheet would give a better picture of the risk exposures that are there.”

U.S. banks bigger than GDP as accounting rift masks risk - That label, like a similar one on automobile side-view mirrors, might be required of the four largest U.S. lenders if Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., has his way. Applying stricter accounting standards for derivatives and off-balance-sheet assets would make the banks twice as big as they say they are -- or about the size of the U.S. economy -- according to data compiled by Bloomberg.  “Derivatives, like loans, carry risk,” Hoenig said in an interview. “To recognize those bets on the balance sheet would give a better picture of the risk exposures that are there.” U.S. accounting rules allow banks to record a smaller portion of their derivatives than European peers and keep most mortgage-linked bonds off their books. That can underestimate the risks firms face and affect how much capital they need.  Using international standards for derivatives and consolidating mortgage securitizations, JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. would double in assets, while Citigroup Inc. would jump 60 percent, third- quarter data show.

U.S. Banks Would Look Scarier If They Were European Banks -  This Bloomberg article about accounting differences between the US and Europe for derivative-y things comes down pretty squarely on the side of Europe, which is to be expected: European (well, IFRS) standards tend to gross up the size of bank balance sheets, compared to US GAAP standards. Grossing up bank balance sheets makes for bigger numbers and scarier banks, and “US banks are scarier than they seem” is more newsworthy than “European banks are less scary than they seem.” Also intuitively truer. As Bloomberg puts it:U.S. accounting rules allow banks to record a smaller portion of their derivatives than European peers and keep most mortgage-linked bonds off their books. That can underestimate the risks firms face and affect how much capital they need. Or it can overestimate the risk European firms face. Or any estimating of risks based on any measure of balance-sheet size is necessarily indeterminate. Risk happens tomorrow, not yesterday.

In America, bigger is better, especially when you’re a bank, and also defaulting - A reader pointed us to an email distributed by David Kotok of Cumberland Advisors. The email praises a New York Times column from Saturday. The column discusses how the Fed appears to be letting Bank of America off the hook for alleged mortgage-related fraud by issuing a letter in December stating it was “intended” that Fed-sponsored bailout vehicle Maiden Lane II would receive the right to litigate with respect to mortgage-backed securities it bought from AIG. Many of those MBS having been issued by Bank of America, that is. Oh, and the Fed has released the bank from liability with respect to the Maiden Lane II securities, writes the NYTimes. But what we particularly liked about Kotok’s email is that he pointed out a footnote from an additional attachment to the Fed’s June 2008 press release announcing the approval of the acquisition of Countrywide by Bank of America. Footnote 13 states that “a large number of commenters” were concerned that the acquisition would breach part of the Riegle-Neal Act of 1994. This prohibits a bank from making an acquisition that would result in said bank holding more than 10 per cent of all deposits in the US. But, not to worry, because:…Countrywide Bank is not a “bank,” for purposes of the BHC [Bank Holding Companies] Act and the nationwide deposit cap contained in the BHC Act.

The Real Problem with the Big Banks - Ask what’s wrong with America’s banks, and you’re likely to hear that they’re just too complicated, too opaque. Banks are doing too much trading and not enough traditional lending, and their speculation with complicated financial instruments (like the ones that led to J. P. Morgan losing six billion dollars with its “whale” trade last year) is a recipe for disaster, with the financial crisis of 2007-2008 seen as proof positive of the dangers of too much complexity and too little disclosure. (Thus Jesse Eisinger and Frank Partnoy argue in last month’s Atlantic that the panic of 2008 resulted “from a lack of transparency.”) And so we get calls for banks to simplify their operations—to go back to what’s often called “plain vanilla” banking—and to disclose more about what they’re doing. This quest for simplicity and transparency is understandable in a world of collateralized-debt obligations and endlessly proliferating derivatives. But it doesn’t actually get at the heart of the issue. The fundamental problem with the banks isn’t that they look (and act) more and more like hedge funds. The fundamental problem with banks is what it’s always been: they’re in the business of banking, and banking, whether plain vanilla or incredibly sophisticated, is inherently risky.

Counterparties: All loans are risky loans - What if boring banking is actually dangerous? James Surowiecki, citing research by Christian Laux and Christian Leuz, argues that it wasn’t high finance that pushed banks to fail during the financial crisis. Instead, banks simply “lent themselves right into insolvency”. Anat Admati and Martin Hellwig make the case in their book, “The Banker’s New Clothes”, that traditional lending can be just as risky as more as complex trading strategies — it also didn’t help that banks borrowed excessively. Their solution: banks should fund themselves with more equity and less debt. Tom Braithwaite thinks that’s already happened and that the desire to increase return on equity, which is well below its pre-crisis peak, will make banks safer. “They are channelled away from [riskier activities] because Basel III puts tough ‘risk weights’ on riskier businesses… safer businesses such as advisory work or retail brokerage are being preferred because they are ‘capital light’”. That placid view, however, is countered by the role that reducing risk-weighted assets seems to have had in spurring JP Morgan’s London Whale debacle. Will the increased capital requirements of Basel III lead to less lending? Admati and Hellwig’s emphatic answer is that they won’t. In the short-term, the question’s moot: bankers, aside from a uptick in industrial and commercial loans, can’t seem to find anyone to to lend to. Elizabeth Dexheimer writes that new data from Credit Suisse shows the average loan-to-deposit ratio for the top eight commercial banks in the US fell to the lowest level in five years. That glut of deposits, Dexheimer reports, is the result of fewer customers wanting to take on loans and banks adopting more stringent lending standards. —

Don’t Blink, or You’ll Miss Another Bailout - MANY people became rightfully upset about bailouts given to big banks during the mortgage crisis. But it turns out that they are still going on, if more quietly, through the back door. The existence of one such secret deal, struck in July between the Federal Reserve Bank of New York and Bank of America, came to light just last week in court filings. That the New York Fed would shower favors on a big financial institution may not surprise. It has long shielded large banks from assertive regulation and increased capital requirements. Still, last week’s details of the undisclosed settlement between the New York Fed and Bank of America are remarkable. Not only do the filings show the New York Fed helping to thwart another institution’s fraud case against the bank, they also reveal that the New York Fed agreed to give away what may be billions of dollars in potential legal claims.

America's TBTF Bank Subsidy From Taxpayers: $83 Billion Per Year - Day after day, whenever anyone challenges the TBTF banks' scale, they are slammed down with a mutually assured destruction message that limitations would impair profitability and weaken the country's position in global finance. So what if you were to discover, based on Bloomberg's calculations, that the largest banks aren't really profitable at all? What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers? The stunning truth is that the top-five banks account for $64 billion of an implicit subsidy based on the ludicrous (but entirely real) logic that: The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail. Once shareholders fully recognized how poorly the biggest banks perform without government support, they would be motivated to demand better. The market discipline might not please executives, but it would certainly be an improvement over paying banks to put us in danger.

Why Should Taxpayers Give Big Banks $83 Billion a Year? - Bloomberg: On television, in interviews and in meetings with investors, executives of the biggest U.S. banks -- notably JPMorgan Chase & Co. Chief Executive Jamie Dimon -- make the case that size is a competitive advantage. It helps them lower costs and vie for customers on an international scale. Limiting it, they warn, would impair profitability and weaken the country’s position in global finance. So what if we told you that, by our calculations, the largest U.S. banks aren’t really profitable at all? What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers? Granted, it’s a hard concept to swallow. It’s also crucial to understanding why the big banks present such a threat to the global economy. Let’s start with a bit of background.

JPMorgan Leads U.S. Banks Lending Least Deposits in 5 Years - The biggest U.S. banks including JPMorgan Chase & Co. and Citigroup Inc. are lending the smallest portion of their deposits in five years as cash floods in from savers and a slow economy damps demand from borrowers.The average loan-to-deposit ratio for the top eight commercial banks fell to 84 percent in the fourth quarter from 87 percent a year earlier and 101 percent in 2007, according to data compiled by Credit Suisse Group AG. Lending as a proportion of deposits dropped at five of the banks and was unchanged at two, the data show. Consumers and companies are reluctant to take on risk until they see more signs that business is improving, even as the Federal Reserve maintains near-record low interest rates designed to fuel growth. Putting more of the unused money to work could boost profit and help turn around the U.S. economy, whose 0.1 percent annualized drop in the fourth quarter was its worst showing since 2009.

New Bank Rules Reduce Small Accounts - In December the Federal Deposit Insurance Corporation (FDIC) released a survey that found roughly one in 12 American households, or some 17m adults, are "unbanked", meaning they lack a current or savings account.  The survey also found that one in every five American households is "underbanked", meaning that they have a bank account but also rely on alternative services--typically, high-cost products such as payday loans, cheque-cashing services, non-bank money orders or pawn shops.  The unbanked usually have no alternative but to use cash for all their transactions. Without an account to put pay-cheques into, they have to use cheque-cashers. This does not just mean incurring a fee; carrying large amounts of cash also increases the risk and harm of theft. To pay their utility bills the unbanked need either a non-bank money order, for which they have to pay a fee, or a place that accepts utility payments in cash.  When they need credit, the unbanked turn to payday lenders or, if they have a car, to car-title loans secured by their vehicles.  Lawmakers are taking an increasingly dim view of this: 18 states and the District of Columbia outlaw high-rate payday lending.  Clamping down on payday loans would make more sense if regulators had not made it harder for retail banks to serve low-income Americans. The Durbin amendment--passed as part of the Dodd-Frank act in July 2010--capped interchange fees, the commission that merchants pay, on debit cards.   Add in persistently low interest rates, which have eaten into banks’ net interest margins, and the economics of banking the poor is far less attractive than it was.

Unofficial Problem Bank list declines to 812 Institutions - Here is the unofficial problem bank list for Feb 15, 2013.  Changes and comments from surferdude808: Many changes were made to the Unofficial Problem Bank List this week with a failure and the OCC releasing its enforcement action through mid-January 2013. In all, there were 10 removals and three additions that leave the list at 812 institutions with assets of $303 billion. A year ago, the list held 956 institutions with assets of $389.6 billion.

Private-label mortgage securities take root - Sequoia Mortgage Trust 2013-1; Sequoia Mortgage Trust 2013-2; and Sequoia Mortgage Trust 2013-3. Sliced and diced packages of US home loans seem to be sprouting like the giant cypress trees after which the mortgage deals are named. The recent spurt in issuance of these private-label mortgage-backed securities (MBS) has been a rare boost for Wall Street’s securitisation industry, which has largely been languishing in the years following the subprime and financial crisis. Before the credit crunch that rocked markets in 2007 and 2008, private-label MBS dominated the US securitisation landscape. Private-label means the loans backing the bonds are not guaranteed by the US government’s housing giants, Fannie Mae, Freddie Mac and Ginnie Mae. Because of that lack of government support, private-label MBS was – and still is – considered a more risky investment than the “agency” mortgage bonds that are backed and issued by Fannie and Freddie. In the boom years leading up to 2008, amid seemingly relentlessly rising house prices, banks nevertheless sold trillions of dollars worth of the securities to eager investors. In 2006, at the peak of housing euphoria, private-label MBS made up about 56 per cent of the $2tn worth of new mortgage bonds sold to investors. The housing bust turned that proportion on its head – and more. Since 2008, more than 90 per cent of mortgages written have been backed by Fannie, Freddie and Ginnie. It wasn’t until 2010 – more than a year and a half after the collapse of Lehman Brothers – that markets saw the sale of a private-label MBS deal. Some securitisation specialists now see the potential for recovery of this market. Many banks are keeping more of the loans that they originate on their balance sheets; a potential first step to issuing private-label MBS. JPMorgan Chase is reportedly prepping its first private-label deal since the crisis.

Slimin’ Jamie Dimon’s Scheming to Stick the FDIC with WaMu Losses - It’s also how some scandals are picked up and amplified by the media while others lie fallow. The London Whale scandal, which was never going to rise to the level of bank-threatening losses, did reveal JP Morgan to have grossly deficient risk controls and Dimon to be arrogant, lackadaisical, and dishonest in dealing with the problem. Predictably, regulators have refused to acknowledge serious Sarbanes-Oxley violations. And Dimon, who loves to take personal responsibility for JP Morgan’s successes, rapidly threw members of his laxly-managed Chief Investment Office under the bus to salvage his reputation. We’ll go into more details on JP Morgan’s WaMu machinations below. The very short version is this story came to the fore last year, when Deutsche Bank filed a putback suit against both JP Morgan and the FDIC for dud loans in 99 WaMu mortgage securitizations. The FDIC has made a compelling case that WaMu is no longer its problem and JP Morgan assumed the relevant liabilities. Yet we’ve been told that in the next few weeks, JP Morgan is about to enter into a settlement with Deutsche Bank regarding…hold your breath….the liabilities it insists sit with the FDIC. I’m not making this up (the source is legally savvy). I’m not even sure how you paper up something which is so clearly nonsensical.

Wall Street wins again? Not so fast. - Katrina vanden Heuvel - This week’s State of the Union marked a year since President Obama announced the formation of the Residential Mortgage Backed Securities working group, a task force created to investigate and prosecute fraud and criminal activity by Wall Street that led to the housing crisis. The task force, co-chaired by New York Attorney General Eric Schneiderman, was something I applauded last January along with many progressives, who view it as a path to justice and relief for homeowners. We support it because it is vital that the mortgage servicers, lenders and big banks that dragged millions of Americans into foreclosure be held accountable. That was true then, and it’s true today. Many are frustrated that the cases brought so far by the task force, against Bear Stearns and Credit Suisse, were in civil court, not criminal, and we have yet to see a “perp walk.” As last month’s tremendous “Frontline” documentary “The Untouchables” reminded us, four years since the financial crisis, no Wall Street figures of consequence in jail are for financial crimes — an outrage that should boil the blood of anyone committed to the rule of law. We should all be asking questions about who is to blame and why. The issue in front of us now, though, is, how can we push to get results?

Yes, Katrina, Wall Street Won Again, and Progressives Need to Face Up to That Dave Dayen: This offer turned fortuitous after I wrote a little piece from Salon on the “anniversary” of the securitization fraud task force, announced at last year’s State of the Union address. The scare quotes are warranted because, as I detailed, it’s hard to honor an anniversary of something that never really existed in the first place. Well, Katrina vanden Heuvel, editor and publisher of The Nation, got very upset at my characterization of the task force, and scolded me for taking a “victory lap.” I could spend this entire refutation on the revealing attitude behind that phrase. I would have been extremely happy to have been completely wrong about this whole matter if it meant that even one homeowner would get a measure of justice for what they’ve encountered. I don’t tally up my punditry on a whiteboard and seek out the showiest opportunities to boast about my scores. But maybe I should tally up vanden Heuvel’s scores in this case. Because I don’t think she should continue engaging in this debate without a working knowledge of the underlying issues. Consider this opening: The task force, co-chaired by New York Attorney General Eric Schneiderman, was something I applauded last January along with many progressives, who view it as a path to justice and relief for homeowners. We support it because it is vital that the mortgage servicers, lenders and big banks that dragged millions of Americans into foreclosure be held accountable. That was true then, and it’s true today.

New Whistleblower Describes How Bank of America Flagrantly Violates Dual Tracking, Single Point of Contact Requirements in State/Federal Mortgage Settlement - Remember that big, ballyhooed mortgage settlement of early last year? The one where homeowners got $25 billion of relief (well actually only around $5 billion in cold cash, but why bother with pesky details?) The one made possible by Eric Schneiderman abandoning his fellow state attorneys general to grasp the brass ring of a do-just-about-nothing Residential Mortgage-Backed Task Force?  Specifically, that agreement provided for strict limits on one practice, dual tracking, and the creation of a new one, single point of contact. Both relate to mortgage modifications. Dual tracking is when a bank starts and continues to advance the foreclosure process at the same time a borrower is being considered for a modification. That play out badly for a lot of borrowers during HAMP mods, when they would receive foreclosure notices, get understandably freaked out, since they had a modification application in with their servicer, and would typically be told to ignore the foreclosure mortgages.  Consent orders are seldom worth the paper they are printed on.  The banks are known to be welching on their consent orders. California settlement monitor Katie Porter reported that a full 25% of the complaints her office received were about dual tracking. Even thought the number of complaints is half the former level, dual tracking should have stopped entirely.  Similarly, national settlement monitor has blandly ‘fessed up that dual tracking continues: Translation: people are losing their homes when they shouldn’t. Maybe I’ll pretend to be concerned sometime in 2013. Stay tuned!

Reform Suggestions for the Rogue Regulator, the OCC, and its Partner in Crime, the Shadow Regulator Promontory Group - Yves Smith - As a follow up to our series* on how Bank of America and its supposed independent consultant Promontory Financial Group, colluded to make a mockery of a process designed to provide compensation to borrowers who had suffered abuses in foreclosures during 2009 and 2010, we thought we would offer a few suggestions as to how to forestall future fiascoes of this sort. Recall that when the OCC set forth what was later called the Independent Foreclosure Reviews, it envisaged that the process would be carried out by independent consultants. However, that process is well known by those who care about the public interest, as opposed to the interest of banks, to be hopelessly corrupted when the party who is supposed to be subject to tough scrutiny is choosing the consultant and writing the checks. And that’s before you get to the wee problem that large banks are very lucrative clients. Even a party that was not retained by the bank might well want to use a consulting gig to cultivate a relationship with them.This problematic practice is made worse by the special role that Promontory has carved out in the financial services industry. The firm operates as a shadow regulator,** with Promontory’s founder and CEO Gene Ludwig was Comptroller of the Currency under Bill Clinton; he had hired its recently departed chief counsel, Julie Williams, who was firmly ensconced when the consent orders were being negotiated. Williams, having been deeply involved in designing a process that insiders estimate earned Promontory $1 billion in gross fees across three clients, then went from the OCC to Promontory. And, bringing the revolving door to a new level, a Promontory staffer, Amy Friend, took her place at the OCC.

Lender Processing Services (LPS): The Price Of Swindle – $35 Each | Foreclosure Fraud -- I am hereby convinced that there is no longer any argument remaining for obeying the law that has as its predicate any sort of respect for authority, for equality, or in any other fashion that reaches beyond self-preservation. Why? Because it has been officially announced by our government that the price of felony criminal fraud that has destroyed the integrity of the recording system protecting the largest asset that most Americans hold, their homes, aggregating in the trillions of dollars, is a mere $35 a crack. "Lender Processing Services Inc. (LPS), a publicly traded mortgage servicing company has agreed to pay $35 million in criminal penalties and forfeiture to address its participation in a six-year scheme to prepare and file more than 1 million fraudulently signed and notarized mortgage-related documents with property recorders’ offices throughout the United States. The settlement, which follows a felony guilty plea from the chief executive officer of wholly owned LPS subsidiary DocX LLC, was announced today by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division"

Renters, Be Aware: Foreclosure Maneuver Affects You | Foreclosure Fraud - Cunning South Florida real estate investors are buying titles to homes on the cheap through community association foreclosures then renting them out until the bank catches up. It’s the latest tactic aimed at capitalizing on South Florida’s quagmire of vacant and foreclosed homes. And since banks — the primary lien holder on the homes — sometimes take years to foreclose, the strategy could offer the investor a hefty return. Homeowner association foreclosures are usually based on unpaid dues, with judgments far less than what is owed on the mortgage. A savvy investor can pick up a home for a few thousand dollars from an association foreclosure auction and make that money back in several months’ worth of rent. But while the method pays starving homeowners associations their back dues and puts money in the investor’s pocket, unwitting tenants may get a surprise when a lender comes calling to repossess the home.“The Torreses moved into the home in August. Chase filed foreclosure papers in November against the heirs to the previous owner’s estate. A property management company was soon knocking on the Torres’ door saying they needed to leave because the house was in foreclosure and the locks were being changed.”

The Second-Mortgage Shell Game - IN January, federal regulators announced an $8.5 billion agreement with 10 mortgage servicers to settle claims of foreclosure abuses, including bungled loan modifications and the wrongful evictions of borrowers who were either current on their payments or making reduced monthly payments.  Under the deal, announced by the Federal Reserve and the Office of the Comptroller of the Currency, the mortgage servicers will pay $3.3 billion to borrowers who went through foreclosure in 2009 and 2010 and an additional $5.2 billion to reduce the principal or the monthly payments of borrowers in danger of losing their homes.  Those numbers might look impressive, but the deal is far too modest to be a credible deterrent to reckless foreclosure practices.  Consider the last big mortgage settlement. Last February, the federal government and 49 state attorneys general reached a $25 billion deal with the country’s five largest mortgage servicers — Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial (formerly GMAC). They promised to help save homeowners from unnecessary foreclosure. A year later, it’s clear that the settlement hasn’t worked as planned. Banks have dragged their feet in modifying first mortgages, much less agreeing to forgive part of the principal on homes that are underwater. In fact, the deal contained a few flaws. It has allowed banks to push homeowners into short sales, an alternative to foreclosure whereby the distressed homeowner sells the property for less than the debt that is owed. Not all short sales are bad — but as a matter of social policy, the program has failed to keep people in their homes.

Obama, Housing and the Next Big Heist - For those who missed President Obama’s latest giveaway to the Bank Mafia, we’ll repeat what he said here. This is an excerpt from Tuesday’s State of the Union Speech: “Right now, there’s a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today’s rates. Democrats  What are we waiting for? Take a vote, and send me that bill. Right now, overlapping regulations keep responsible young families from buying their first home. What’s holding us back? Let’s streamline the process, and help our economy grow.”First of all, whenever you hear a politician talk about “streamlining the process”, run for cover. The term is a right-wing formulation that means “remove all the rules which inhibit profitmaking”. Naturally, Wall Street’s favorite son, President Hopium, is more than comfortable with the expression and uses it to great effect. But what are the rules that Obama wants to eliminate, that’s the question?Here’s the story from Bloomberg:“At issue is the so-called Qualified Residential Mortgage rule, which six banking regulators including the Federal Deposit Insurance Corp. and the Federal Reserve are aiming to complete this year. The regulators drew protests in 2011 when they released a preliminary draft requiring lenders to keep a stake in mortgages"

Despite Aid, Borrowers Still Face Foreclosure - A year after five of the nation’s biggest banks reached a pact with state and federal officials over claims of vast foreclosure abuses, the banks are taking credit for giving more than half a million struggling homeowners roughly $45.8 billion in relief.  But despite the banner numbers released on Thursday in a report by Joseph A. Smith, the independent overseer of the settlement, thousands of homeowners are still not getting the help they need to save their homes from foreclosure, according to interviews with housing advocates and homeowners facing foreclosure.  Just under 71,000 borrowers, or 13 percent of the total borrowers helped so far, received assistance on their primary mortgage, which has been the main source of defaults and foreclosures through the housing crisis. But more than 170,000 homeowners received assistance on their second mortgage, which typically is a home equity line of credit that borrowers can tap for cash.

MBA: "Mortgage Delinquency and Foreclosure Rates Finished 2012 Down Sharply" = From the MBA: The delinquency rate for mortgage loans on one-to-four-unit residential properties fell to a seasonally adjusted rate of 7.09 percent of all loans outstanding at the end of the fourth quarter of 2012, the lowest level since 2008, a decrease of 31 basis points from the previous quarter, and down 49 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey, While delinquency rates typically increase between the third and fourth quarters of the year, even the non-seasonally adjusted delinquency rate dropped 13 basis points to 7.51 percent this quarter from 7.64 percent last quarter. 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 on which foreclosure actions were started during the fourth quarter was 0.70 percent, the lowest level since the second quarter of 2007, down 20 basis points from last quarter and down 29 basis points from one year ago. The percentage of loans in the foreclosure process at the end of the fourth quarter was 3.74 percent, the lowest level since the fourth quarter of 2008, down 33 basis points from the third quarter and 64 basis points lower than one year ago. This graph shows the percent of loans delinquent by days past due.Loans 30 days delinquent decreased to 3.04% from 3.25% in Q3. This is just below 2007 levels and around the long term average.Delinquent loans in the 60 day bucket decreased to 1.16% in Q4, from 1.19% in Q3.The 90 day bucket decreased to 2.89% from 2.96%. This is still way above normal (around 0.8% would be normal according to the MBA).

Q4 MBA National Delinquency Survey Comments - A few comments from Mike Fratantoni, MBA Vice President, Single-Family Research and Policy Development, on the Q4 MBA National Delinquency Survey conference call.
• There was a significant drop in most measures of delinquencies.
• Overall delinquencies are still elevated, but the movement is in the right direction.
• Fratantoni expects that we will eventually see lower than historical delinquency rates because of the strong credit quality of recent originations.  In response to a question from me, he said that he expects most deliquency measures will be back to normal in "2 to 3" years, but that it will take much longer for the foreclosure inventory to return to normal because of the backlog in judicial states.

• The FHA is showing strong credit quality for origination in 2010, 2011 and 2012. 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 (12.15% in foreclosure down from 13.04% in Q3), New Jersey (8.85% down from 8.87%), New York (6.34% down from 6.46%), Illinois (6.33% down from 6.83%), and Nevada (the only non-judicial state in the top 13 at 5.87% down from 5.93%).

FNC: "Foreclosure price discounts drop to pre-crisis levels" - Some interesting data from FNC: Foreclosure price discounts drop to pre-crisis levels: Though home foreclosures continue to be a challenge in many hard-hit markets, a report released this week by mortgage technology company FNC indicates the ongoing housing recovery should continue for the long haul. According to FNC’s Foreclosure Market Report, foreclosure prices have bottomed out in recent months and the foreclosure market has stabilized while underlying home values are rising. Foreclosure prices are at a 10-year low (when the sizes of foreclosed homes are factored in). This trend of a rising underlying market accompanied by stabilizing foreclosure prices is the first encouraging development in the housing recession, according to FNC Senior Research Economist, Dr. Yanling Mayer. “This is the very first time in the long housing recession that the two are happening at the same time.”

There’s Still a Foreclosure Crisis - There’s an article on the AOL Real Estate blog that explains much of what is happening in today’s housing market although the piece was written back in July 2012. The article, which was written by journalist Teke Wiggen, was widely circulated when it first appeared, but has since been swept down the memory hole to make room for the nonsensical blabber about a “housing recovery”. Even so, it’s worth reviewing the content of Wiggin’s extraordinary piece since the facts are just as relevant today as when he first wrote them 7 months ago. Here’s a clip from the article titled “‘Shadow REO’: As Many as 90% of Foreclosed Properties Held Off the Market, Estimates Suggest”: “As many as 90 percent of REOs are withheld from sale, according to estimates recently provided to AOL Real Estate by two analytics firms. It’s a testament to lenders’ fears that flooding the market with foreclosed homes could wreak havoc on their balance sheets and present a danger to the housing market as a whole. Online foreclosure marketplace RealtyTrac recently found that just 15 percent of REOs in the Washington, D.C., area were for sale, a statistic that is representative of nationwide numbers, the company said. Analytics firm CoreLogic provided an even lower estimate, suggesting that just 10 percent of all REOs in the country are listed by their owners, It’s worth noting, that CoreLogic and RealtyTrac are two of the most respected names in the industry, in fact, Calculated Risk, the nation’s Number 1 economics blog, frequently uses data from CoreLogic to make its point that prices have “bottomed” and that housing is gradually recovering.

Foreclosure delays: D.C., Maryland keeping homes but losing value -  For homeowners in Washington, D.C., Maryland and dozens of other jurisdictions, it’s getting harder and harder to lose a home to foreclosure — even if the owner has not made any mortgage payments. That is what Jeffrey Fisher has noticed in his 38 years as a foreclosure attorney for banks in the Washington area. At the height of the housing crisis, he was selling about 40 foreclosed properties a month in the District, he said, but business has slowed to a trickle. In fact, he has sold only three foreclosed housing properties in the city since the Saving D.C. Homes from Foreclosure Act went into effect a few years ago. For some, the virtual freeze on foreclosures is a good policy that helps struggling homeowners stay put in the wake of the worst economic downturn since the Great Depression. But many real estate professionals are concerned that delaying the inevitable has slowed the housing market’s healing process and could backfire when those inevitable foreclosures hit the market. On average, it takes more than 1,000 days to foreclose on a home in the District and 531 days in Maryland, according to RealtyTrac. The national average is 414 days.

MBA: Mortgage Applications Decrease, Mortgage Rates increase - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier...The refinance share of mortgage activity decreased to 77 percent of total applications, the lowest level since May 2012, from 78 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 4 percent of total applications.The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.78 percent, the highest rate since August 2012, The first graph shows the refinance index. The refinance activity is down over the last four weeks, but activity is still very high - and has remained high for over a year. There has been a sustained refinance boom, and 77 percent of all mortgage applications are for refinancing. The second graph shows the MBA mortgage purchase index. The purchase index was off last week - and is still very low, but the index has generally been trending up over the last six months.

First-time Buyers to Pay for FHA’s Financial Crisis - Facing a financial crisis, FHA is asking first-time buyers to pay for the sins of borrowers who came before them. Increases in FHA mortgage insurance premiums and new, tougher underwriting standards that take effect April 1 will cost new borrowers significantly more than refinancing borrowers who have had an FHA loan four years or longer. On April 1, FHA ill raise the annual mortgage insurance premium paid by borrowers on most new FHA loans by 10 basis points, or 0.1 percent, which the agency expects will add $13 a month to the average borrower’s monthly payments. FHA will also increase premiums on jumbo mortgages (those $625,500 or bigger) by 5 basis points or 0.05 percent, to 155 basis points — the maximum currently allowed by law. Certain streamline refinance transactions will be excluded from the premium increases, the agency said.

Existing Home Inventory up 2.3% year-to-date in mid-February - One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I'll be tracking inventory weekly for the next few months. If inventory does bottom, we probably will not know for sure until late in the year. In normal times, there is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer. The NAR data is monthly and released with a lag.  However Ben at Housing Tracker (Department of Numbers) kindly sent me some weekly inventory data for the last several years. This is displayed on the graph below as a percentage change from the first week of the year. In 2010 (blue), inventory followed the normal seasonal pattern, however in 2011 and 2012, there was only a small increase in inventory early in the year, followed by a sharp decline for the rest of the year.So far - through mid-February - it appears inventory is increasing at a sluggish rate.The key will be to see how much inventory increases over the next few months. In 2010, inventory was up 8% by early March, and up 15% by the end of March.

Existing home sales edge higher, inventory at 13-year low -  U.S. home resales edged higher in January and left the supply of homes at its lowest level in 13 years, a sign that steam is gathering in the U.S. housing market. The National Association of Realtors said on Thursday that existing home sales rose 0.4 percent last month to a seasonally adjusted annual rate of 4.92 million units. That was the second highest rate of sales since November 2009, when a federal tax credit for home buyers was due to expire. Analysts polled by Reuters had forecast a 4.9 million-unit rate. The U.S. housing market tanked on the eve of the 2007-09 recession and has yet to fully recover, but steady job creation helped the housing sector last year, when it added to economic growth for the first time since 2005. The nation's inventory of existing homes for sale, which is not seasonally adjusted, fell 4.9 percent from December to 1.74 million, the lowest level since December 1999. Many Americans are holding back from putting their homes on the market because they owe more on their mortgages than their homes are worth. A sharp drop in inventories over the last year has given developers more incentive to build homes. Home building is expected to boost the economy more in 2013 than it did last year.

Existing Home Sales in January: 4.92 million SAAR, 4.2 months of supply - The NAR reports: January Existing-Home Sales Hold with Steady Price Gains, Seller’s Market Developing Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 0.4 percent to a seasonally adjusted annual rate of 4.92 million in January from a downwardly revised 4.90 million in December, and are 9.1 percent above the 4.51 million-unit pace in January 2012. Total housing inventory at the end of January fell 4.9 percent to 1.74 million existing homes available for sale, which represents a 4.2-month supply 2 at the current sales pace, down from 4.5 months in December, and is the lowest housing supply since April 2005 when it was also 4.2 months. Listed inventory is 25.3 percent below a year ago when there was a 6.2-month supply. Raw unsold inventory is at the lowest level since December 1999 when there were 1.71 million homes on the market.This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in January 2013 (4.92 million SAAR) were 0.4% higher than last month, and were 9.1% above the January 2012 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory declined to 1.74 million in January down from 1.83 million in December. This is the lowest level of inventory since December 1999. Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January. The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

US Home Sales Rise to 2nd-Highest Pace in 3 Years - U.S. sales of previously occupied homes rose in January to the second-highest level in three years, a sign the housing market is maintaining its recovery and helping to bolster the economy. The National Association of Realtors said Thursday that sales rose 0.4 percent in January compared with December to a seasonally adjusted annual rate of 4.92 million. That was the second-highest sales pace since November 2009, when a temporary home buyer tax credit had temporarily boosted sales. The median price for a home sold in January was $173,600, an increase of 12.3 percent from a year ago. Analysts say purchases would be higher if more homes were available. The supply of homes for sale dropped to nearly an eight-year low in January. In December, sales declined to a seasonally adjusted annual rate of 4.94 million from 4.99 million in November. The drop was linked, in part, to the limited supply of homes for sale. For all of 2012, sales rose to 4.65 million, 9.2 percent more than in 2011 and the most since 2007. But even with the gain, sales were below the 5.5 million that economists associate with a healthy market.

Existing Home Sales: Conventional Sales up Sharply - The NAR reported total sales were up 9.1% from January 2012, but conventional sales are probably up closer to 20% (or more) from January 2012, and distressed sales down.  The NAR reported (from a survey):  Distressed homes - foreclosures and short sales - accounted for 23 percent of January sales, down from 24 percent in December and 35 percent in January 2012. Although this survey isn't perfect, if total sales were up 9.1% from January 2012, and distressed sales declined from 35% of total sales to 23%, this suggests conventional sales were up sharply year-over-year - a good sign.  And what matters the most in the NAR's existing home sales report is inventory. It is active inventory that impacts prices (although the "shadow" inventory could come on the market and keep prices from rising). For existing home sales, look at inventory first and then at the percent of conventional sales. The NAR reported inventory decreased to 1.74 million units in January, down from 1.83 million in December. This is down 25.3% from January 2012, and down 19% from the inventory level in January 2005 (mid-2005 was when inventory started increasing sharply). This is the lowest level of inventory since December 1999. 

Recession Prompted Big Spike in Short-Distance Moves - The recession forced a surprisingly high number of Americans to make short-distance moves, new research shows. In 2010, a year after the recession technically ended, nearly 1 in 10 Americans moved locally—defined as moving within your county—in part because they were losing homes to foreclosure or voluntarily downsizing in the face of lean times, according to a study released Wednesday. The percentage of Americans moving locally was the highest in a decade, says UCLA public-policy professor Michael Stoll, who authored the study. “This was a big shock to communities and it will be interesting to see how this plays out,” Mr. Stoll says. Short-distance moves have since dropped back down to more normal levels, Mr. Stoll said. The “local-move rate”—the proportion of people age five and older who say they moved within their home county over the past year—fell from 2010 to 2011 by one percentage point and is now where it was in the middle of the 2000s, before the housing boom, Mr. Stoll says, citing data from the Labor Department’s Current Population Survey. Other data from the U.S. Census show that a slightly higher proportion of Americans are moving to different counties—a sign that Americans are finding more jobs.

Zillow forecasts Case-Shiller House Price index to increase 6.7% Year-over-year for December, Strong Price increases in January - The Case-Shiller house price indexes will be released next week.  Zillow forecasts have been pretty close. Zillow Forecast: December Case-Shiller Composite-20 Expected to Show 6.7% Increase from One Year Ago [W]e predict that next month’s Case-Shiller data (December 2012) will show that the 20-City Composite Home Price Index (non-seasonally adjusted [NSA]) increased 6.7 percent on a year-over-year basis, while the 10-City Composite Home Price Index (NSA) increased 5.7 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from November to December will be 0.7 percent for the 20-City Composite and 0.6 percent for the 10-City Composite Home Price Index (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for December will not be released until Tuesday, February 26th, almost two months after the end of 2012.  Right now it looks like Case-Shiller will be up over 6% in 2012 (through the December / Q4 reports to be released in February). Zillow also released their January index yesterday: January Annual Home Value Increase Is Largest Since Summer 2006 Zillow’s January Real Estate Market Reports, released today, show that national home values rose 0.7% from December to January to $158,100. January 2013 marks the 15th consecutive month of home value appreciation. On a year-over-year basis, home values were up 6.2% from January 2012 – a rate of annual appreciation [for Zillow index] we haven’t seen since July 2006 (when the rate was 7.5%), before the peak of the housing bubble.

US household formation has stabilized - According to the US Census Bureau, about 3.5 million households have been created over the past couple of years. As a comparison, only 755K were created in the previous two years (08-10) - with the recession hampering household formation. The following chart shows the ratio of the number of households (using the revised household number for 2011) to the US population over time. The ratio has stabilized, which is one of the reasons that demand for housing has improved recently.With pent up demand diminishing after 2013 however, housing price appreciation should revert back to the growth in household incomes (as discussed here). That means that going forward price increases on average should moderate.

Update: Real Estate Agent Boom and Bust - Way back in 2005, I posted a graph of "the Real Estate Agent Boom". I updated the graph last year The Real Estate Agent Bust. Below is another update to the long term graph of the number of real estate licensees in California. The number of agents peaked at the end of 2007 (housing activity peaked in 2005, and prices in 2006).  The number of salesperson's licenses is off 31% from the peak, and is still declining. The number of salesperson's licenses has fallen to June 2004 levels. However brokers' licenses are only off 8% and have only fallen to late 2006 levels.Someday the number of licenses will start to increase again (probably a sign that people think they can money as an agent again), but for now the number is still declining.

US Housing Starts Dip But Remain at Solid Pace - U.S. homebuilders began work at a slower pace in January than in December, though activity was the third-highest since 2008. The steady pace of construction is a sign of continued strengthening in residential real estate. The Commerce Department said Wednesday that builders started work at a seasonally adjusted annual rate of 890,000 homes last month. That was down 8.5 percent from December, when housing starts had hit an annual rate of 973,000, the most since June 2008. And in an encouraging sign for the rest of the year, applications for building permits, a sign of future construction, rose to an annual rate of 925,000 in January. That was 1.8 percent more than in December, which had been the high point since mid-2008. The pace of construction of single-family homes rose 0.8 percent in January. Apartment construction, which is more volatile, dropped 24.1 percent.

Housing Starts decrease to 890 thousand SAAR in January, Single Family Starts Increase - From the Census Bureau: Permits, Starts and Completions Privately-owned housing starts in January were at a seasonally adjusted annual rate of 890,000. This is 8.5 percent below the revised December estimate of 973,000, but is 23.6 percent above the January 2012 rate of 720,000.  Single-family housing starts in January were at a rate of 613,000; this is 0.8 percent above the revised December figure of 608,000. The January rate for units in buildings with five units or more was 260,000.Privately-owned housing units authorized by building permits in January were at a seasonally adjusted annual rate of 925,000. This is 1.8 percent above the revised December rate of 909,000 and is 35.2 percent above the January 2012 estimate of 684,000. Single-family authorizations in January were at a rate of 584,000; this is 1.9 percent above the revised December figure of 573,000. Authorizations of units in buildings with five units or more were at a rate of 311,000 in January. The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) decreased sharply in January.  Single-family starts (blue) increased to 613,000 thousand in January and are at the highest level since 2008.The second graph shows total and single unit starts since 1968.

Housing Starts Fell In January As Permits Increased - US housing starts dropped by a more-than-expected 8.5% last month, the Census Bureau reports. Meanwhile, newly issued building permits gained 1.8% over December's total, at a seasonally adjusted annual rate. More importantly, both series continue to advance at 20%-plus levels on a year-over-year basis. That's a strong signal for thinking that housing recovery remains intact. The month-to-month data will, of course, tell us differently at times. As usual, however, it's best not to focus too closely on the short-term figures, which are prone to various distortions. For purposes of discerning the big-picture trend for the business cycle, the annual pace is considerably more reliable for housing and other economic numbers. By that standard, today's housing construction and permit data deliver another round of upbeat news. Permits, which are included in The Capital Spectator Economic Trend and Momentum indices, enter the January column firmly in the black. As a result, last month's economic profile looks a bit brighter, and recession risk a bit lower, as far as this year's first month is concerned.

Housing: No "Troubling Divergence" between Completions and Sales - Business Insider had an article on housing today: A Troubling Divergence In The US Housing Market One of the few concerns about U.S. housing recovery is that building has been outpacing the sales of new homes. As such, there are fears that new home construction is only adding to the inventory of new homes ...This chart from TD Securities shows just why some experts are worried.The article included the following chart from TD Securities: This chart compares cumulative housing completions and new home sales over the last 12 months. This is apparently the "troubling divergence". However this is total completions (including apartments) and total completions is always higher than new home sales! The second graph is a repeat of the above graph with the addition of single family completions over the last 12 months. Just removing multi-family units reduces the "troubling divergence". But some single family homes are built by owner (with or without a contractor) and are not built for sale. Plus a few single family homes are built to rent. So this comparison is also incorrect. Here is a repeat of a post from last November: We can't directly compare single family housing starts to new home sales. For an explanation, see from the Census Bureau: Comparing New Home Sales and New Residential Construction

Quarterly Housing Starts by Intent compared to New Home Sales - I mentioned this yesterday, see: Housing: No "Troubling Divergence" between Completions and Sales. In addition to housing starts for January, the Census Bureau released Housing Starts by Intent for Q4. First, we can't directly compare single family housing starts to new home sales. For starts of single family structures, the Census Bureau includes owner built units and units built for rent that are not included in the new home sales report. However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis. The quarterly report released this morning showed there were 91,000 single family starts, built for sale, in Q4 2012, and that was above the 84,000 new homes sold for the same quarter, so inventory increased a little.  This graph shows the NSA quarterly intent for four start categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.Single family starts built for sale were up about 44% compared to Q4 2011. This is still very low, and only back to 2008 levels.  Owner built starts were down slightly from Q3 2011. And condos built for sale are just above the record low. The 'units built for rent' have increased significantly and are up about 48% year-over-year.  The second graph shows quarterly single family starts, built for sale and new home sales (NSA).

Chart Of The Day: Housing Starts Adjusted vs Unadjusted Redux - This day one month ago, our chart of the day was the spread between adjusted and unadjusted Housing Starts number, which as we showed back then, had a very curious surge in starts on a seasonally adjusted basis at some 103K, even as unadjusted starts dropped. Today, housing starts are finally return back to reality, as the adjusted number printed at 890K, below expectations of a 920K number, with the prior pushed even higher from 954K to 973K. Yet as last month, it was the unadjusted number that was indicative of reality, and at 58.5K housing starts, this was the weakest actual, un-SAARed number since March 2012, when it was 58.0K. Only difference: back in March 2012, the Adjusted Starts number was 706K, or 184K less than today. Today's unadjusted number is also lower than it was in June 2011 when it printed 60.5K, and when the adjusted print was, drumroll,  615K or 275K less than today! Thank you seasonal adjustments.

Residential Remodeling Index declines 6% in December - From BuildFax: Residential remodels authorized by building permits in the United States in December were at a seasonally-adjusted annual rate of 2,725,000. This is 6 percent below the revised November rate of 2,895,000 and is 6 percent below the December 2011 estimate of 2,901,000. Seasonally-adjusted annual rates of remodeling across the country in December 2012 are estimated as follows: Northeast, 636,000 (up 39% from November and up 37% from December 2011); South, 1,088,000 (down 13% from November and down 1% from December 2011); Midwest, 596,000 (down 8% from November and down 17% from December 2011); West, 777,000 (down 16% from November and down 8% from December 2011).This graph shows the Remodeling Index since January 2008 on a seasonally adjusted basis.  This index has generally been trending up, but was down in December even with all the repairs in the Northeast. Note: Permits are not adjusted by value, so this doesn't indicate the value of remodeling activity. Also some smaller remodeling projects are done without permits and the index will miss that activity

Builder Confidence declines slightly in February to 46 - The National Association of Home Builders (NAHB) reported the housing market index (HMI) decreased 1 point in February to 46. Any number under 50 indicates that more builders view sales conditions as poor than good. From the NAHB: Builder Confidence Virtually Unchanged in February Builder confidence in the market for newly built, single-family homes was virtually unchanged in February with a one-point decline to 46 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the February release for the HMI and the December data for starts (January housing starts will be released tomorrow). This was below the consensus estimate of a reading of 48.

Bankrupt Churches  - My colleague, Professor Pamela Foohey, has just posted a paper on SSRN about religious organizations that have filed chapter 11. While the Roman Catholic dioceses bankruptcies have grabbed a lot of attention, Foohey identifies 509 other cases filed by faith-based organizations from 2006 - 2011. The amount of work in this study is impressive. Foohey individually reviewed each of the 60,000+ chapter 11 cases filed during that time frame to find the faith-based bankruptcies. The result is a census of faith-based organizations in chapter 11, including churches, schools, and community-assistance organizations. Previous scholarship has explored the purposes behind small businesses in chapter 11. Traditionally, chapter 11 has been justified as preserving the going-concern value of the corporate entity. Professors Douglas Baird and Ed Morrison published an important paper challenging this traditional conception. Their data showed how many small-business bankruptcies are about redeploying the human capital of the business's entrepreneur. Foohey argues that her data suggest that faith-based organizations in chapter 11 straddle these two accounts. Many of the entities in Foohey's study appear to have substantial going concern value -- for example, a piece of real estate with significant equity -- while others center around the problems of a key leader in the religious organization.

Architecture billings shows strongest growth since 2007 - The American Institute of Architects Architecture Billings Index in January had its strongest showing since November 2007. The score for January was 54.2, a sharp increase from 51.2 in December. Any score above 50 indicates an increase in billings. The new projects inquiry index was 63.2, a significant increase from the reading of 57.9 in December. “We have been pointing in this direction for the last several months, but this is the strongest indication that there will be an upturn in construction activity in the coming months,” the institute’s chief economist, Kermit Baker, said in a news release. “But as we continue to hear about overall improving economic conditions and that there are more inquiries for new design projects in the marketplace, a continued reservation by lending institutions to supply financing for construction projects is preventing a more widespread recovery in the industry.”

AIA: "Strong Surge for Architecture Billings Index" - Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From AIA: Strong Surge for Architecture Billings Index As the prognosis for the design and construction industry continues to improve, the Architecture Billings Index (ABI) is reflecting its strongest growth since November 2007. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the January ABI score was 54.2, up sharply from a mark of 51.2* in December. This score reflects a strong increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 63.2, much higher than the reading of 57.9 the previous month. “We have been pointing in this direction for the last several months, but this is the strongest indication that there will be an upturn in construction activity in the coming months,”This graph shows the Architecture Billings Index since 1996. The index was at 54.2 in January, up from 51.2 in December. Anything above 50 indicates expansion in demand for architects' services.

 Payroll Tax Increase Starts to Bite - Several weeks ago, I noted that we have two macro-level policy issues emanating from Washington that will slow growth, one of which is the payroll tax increase.  It appears that we're starting to see that increase bite: Wal-Mart Stores Inc. had the worst sales start to a month in seven years as payroll-tax increases hit shoppers already battling a slow economy, according to internal e-mails obtained by Bloomberg News.  “In case you haven’t seen a sales report these days, February MTD sales are a total disaster,” Jerry Murray, Wal- Mart’s vice president of finance and logistics, said in a Feb. 12 e-mail to other executives, referring to month-to-date sales. “The worst start to a month I have seen in my ~7 years with the company.” .....Murray’s comments about February sales follow disappointing results from January, a month that Cameron Geiger, senior vice president of Wal-Mart U.S. Replenishment, said he was relieved to see end, according to a separate internal e-mail obtained by Bloomberg News.

Scale Implosion - Kunstler -  Back in the day when big box retail started to explode upon the American landscape like a raging economic scrofula, I attended many a town planning board meeting where the pro and con factions faced off over the permitting hurdle.      The chain stores won not only because they flung money around -- sometimes directly into the wallets of public officials -- but because a sizeable chunk of every local population longed for the dazzling new mode of commerce.      Despite the obvious damage now visible in the entropic desolation of every American home town, WalMart managed to install itself in the pantheon of American Dream icons, along with apple pie, motherhood, and Coca Cola. In most of the country there is no other place to buy goods (and no other place to get a paycheck, scant and demeaning as it may be). America made itself hostage to bargain shopping and then committed suicide. Here we find another axiom of human affairs at work: people get what they deserve, not what they expect. Life is tragic.   The older generations responsible for all that may be done for, but the momentum has now turned in the opposite direction. Though the public hasn't groked it yet, WalMart and its kindred malignant organisms have entered their own yeast-overgrowth death spiral. In a now permanently contracting economy the big box model fails spectacularly. Every element of economic reality is now poised to squash them. Diesel fuel prices are heading well north of $4 again. If they push toward $5 this year you can say goodbye to the "warehouse on wheels" distribution method. (The truckers, who are mostly independent contractors, can say hello to the re-po men come to take possession of their mortgaged rigs.) Global currency wars (competitive devaluations) are about to destroy trade relationships. Say goodbye to the 12,000 mile supply chain from Guangzhou to Hackensack. Say goodbye to the growth financing model in which it becomes necessary to open dozens of new stores every year to keep the credit revolving.

Young Adults Are Shedding Debt Faster Than Older People -- Young adults are cutting debt faster than older people and are less in hock to creditors than a decade ago–despite the ballooning of student loans, a new study shows.Between 2001 and 2010, young households—defined as those headed by someone younger than 35—have generally reduced their indebtedness while older households have increased it, according to a report by the Pew Research Center released Thursday. Some 56% of young households saw either a decline or stabilization in their overall debt load in the period, with only one type of debt—student loans—rising as a share of total debt. By contrast, older households tended to have more non-property-related debt than before, not less. The findings reflect in part the fact that young people are delaying marriage and striking out on their own later—or living with housemates—which reduces home-buying and mortgage debt, by far the biggest source of consumer debt. The share of young households owning their main residence fell to 34% in 2011 from 40% in 2007. However, the lower debt loads among young adults aren’t just about slowing household formation: Young people have also become less willing to take on auto- and credit-card debt. Only 39% of young households had any credit-card debt in 2010, compared with 50% in 2001. Only 66% of young households had a vehicle in 2011, while 73% did in 2007.

More baby boomers facing credit-card quandary - Sandy Harsh never expected to find herself with $16,800 in credit-card debt and her retirement dreams drifting farther away. Harsh's debt snuck up on her as she helped her two daughters with college and living costs. She went back to school after a divorce and dealt with unexpected expenses such as big dental bills. Now she has about $300 a month in minimum payments, spread across three credit cards, and the balance never seems to go down because of all the interest she is paying. "I don't want to leave debt to my daughters. I guess I'm going to have to work until I die at my desk." Harsh is not alone in her predicament. According to new figures from the New York City-based policy research organization Demos, Americans over 50 are struggling with a surprising amount of credit-card debt. Low- and middle-income households of older Americans who owed credit-card companies for three months or more have racked up an average of $8,278 in debt, according to Demos.

75% of Americans cutting back on spending, thanks to payroll tax hike - The payroll tax hike that took effect as a result of the fiscal cliff is taking a toll on many Americans' household budgets. That change in federal tax law means people are taking home smaller paychecks, and that's forcing nearly 75% of Americans to cut back on spending, according to the National Retail Federation . Less money in your pocket, plus higher gas prices and unsteady consumer confidence mean bad news for the economy. “It actually affects me a lot more, because now I have to spend a little less than before. I have less money in my check,” . “I used to go out to eat or see friends at a club or have a drink. I don't do that anymore.”The NRF says that half of the people who were really impacted are now delaying major purchases of items like cars, TVs, and furniture-- and it's what major retailers like Walmart are blaming for low sales in February

Crunched consumers are cutting back: survey -  Smarting from smaller paychecks, consumers are tightening their budgets and looking for other ways to save money, according to a survey released Thursday. Nearly three-quarters of respondents said they were cutting back to cope with tax changes this year -- including dining out less, limiting travel plans and skipping everyday indulgences, according to the National Retail Federation, which sponsored the survey. "We cannot grow the nation's economy until consumers consume," said NRF chief executive officer Matthew Shay in a statement. Consumers are seeing smaller paychecks after a two-year payroll tax "holiday" expired this year. The rate returned to 6.2% on the first $113,700 of annual income, up from 4.2%. For workers earning $30,000 a year, that means about $50 less in their paychecks each month. For those earning $100,000 annually, it's about $167 less a month.  Americans also are facing higher prices at the pump, potentially delayed tax refunds and fears about forced federal budget cuts that could mean the loss of hundreds of thousands of jobs.

Gas Prices Surge To Highest Ever On This Day At Fastest Pace In Four Years - Despite being weeks away from the start of the driving season proper, gas prices - at the pump - have been surging recently. With premium now over $4 nationwide (over $5 in SoCal - up 25 days in a row), this is the most expensive gas has ever been for the second week in February despite gasoline being relatively well supplied. Gasoline futures have ripped higher as unplanned maintenance, refinery closings, and rising crude oil prices (seemingly more central bank liquidity-driven than middle-east tensions) have impacted wholesale price expectations (and thus retail). The 44c rise is the fastest in four years and the year-to-date surge over 12% (outpacing stocks) is almost four times faster than average. What is more worrisome is the fact that seasonally the next month or two are when the biggest price spikes occur - which coupled with the tax-hike drag, will inevitably eat into people's spending habits and sentiment.

Americans face more bad news at the gas pump - As gasoline prices rise above $5/gallon in LA (see video below), analysts are puzzled. Gasoline prices have been on the rise for the past 31 days, which is highly unusual for this time of the year. Typically prices begin rising in March or April as the driving season kicks off.The price increases are particularly puzzling, given the fact that US gasoline markets have been well supplied relative to historical levels.Certainly the recent increases in crude oil prices have been a large part of the explanation. Some have suggested that increased demand due to stronger global economic activity is to blame. Other reasons have been proposed as well.CNN: - What's behind the higher prices at the pump? It's a confluence of factors, from rising crude oil prices, to production cuts and refinery closings."Right now, things are tight worldwide," . "Refineries going down, unanticipated maintenance, and higher demand ... going into driving season. Gasoline futures trading on NYMEX (CME) have been rising almost daily, pointing to even higher prices at the pump in the spring.

Weekly Gasoline Update: Ouch! Regular Rise 14 cents, Premium Now Above $4 - Here is my weekly gasoline chart update from the Energy Information Administration (EIA) data. Prices surged over the past week. Rounded to the penny, the average for Regular rose 14 cents and Premium 13 cents. Regular is up 15.2% and Premium 13.2% since their interim lows in mid-December. On top of the expiration of the 2% FICA tax holiday, the steep rise in gasoline prices is especially painful to many households. According to, two states, Hawaii and California are averaging above $4.00 per gallon. Three states (Illinois, Connecticut and New York) and DC are averaging above $3.90.  How far are we from the interim high prices of 2011 and the all-time highs of 2008? Here's a visual answer.  The next chart is a weekly chart overlay of West Texas Intermediate Crude, Brent Crude and unleaded gasoline end-of-day spot prices (GASO). WTIC is listed at 96.20, down 0.74 since from the start of last week, but it's up 21% from its interim low last June.

Gasoline Prices Rise 34 Straight Days: Are Speculators to Blame? If Not, Who Is? - Given a two-day plunge in crude futures, gasoline prices may have hit a temporary peak. Nonetheless, consumers feel the pinch as pump prices have risen 34 straight days. For only the fifth time in history Gas prices topped $4 a gallon in District of ColumbiaNationwide, the price of a gallon of regular gasoline climbed to $3.78 a gallon, up 47 cents in the past month, the AAA said. In parts of California, Gasoline Prices Topped $5.00 on February 5. CNN Money has an interactive Gas Price map to check prices in your state.  Yahoo!News reports Politicians Cry Foul Over High Gas Prices, Urge Action on Keystone XL Rep. Fred Upton, R-Mich., posted a "Keystone Clock " on his House Energy Committee's website Wednesday. The chairman states more than 1,615 days have passed since TransCanada's Keystone XL pipeline proposal sought approval. Joining Upton's call to build the pipeline is Speaker of the House John Boehner, R-Ohio. The Salt Lake Tribune reports Spike in gasoline prices points to speculators "Like locusts ravaging fertile crops, gasoline prices are soaring again and eating away at the purchasing power of ordinary Americans. And again, financial speculators appear to be a big part of the story."

USDA and BLS Reports on Food and Energy Price Changes for 2012  -Overall food-at-home prices rose 2.6 percent in 2012, but this masked a great deal of variation across food categories. For the second consecutive year, beef and fats and oils showed the biggest percentage increases. Beef prices increased due to record low cattle inventories, while surging soybean prices pushed up prices for fats and oils. Poultry prices also increased substantially in 2012, due to a shift in demand away from high-priced beef and pork coupled with higher costs for broiler feed resulting from the Midwest drought. Pork prices, which saw major inflation in 2011, were flat in 2012 as wholesale prices fell due to rising hog inventories and falling exports. Vegetable prices fell 5.1 percent in 2012 as the unusually warm weather led to bumper crops for lettuce, tomatoes, and other vegetables, in sharp contrast to the poor harvests and high vegetable prices of 2011.

Foods Raising Your Grocery Bill in 2013 - You'll pay more at the supermarket this year, thanks to drought-depleted food supplies and a greater reliance on pricier food imports. Look for food prices overall to go up as much as 4% in 2013, about a percentage point higher than 2012's annual increase. Some products will see even sharper price spikes. For instance, the shortage of soybeans is helping to push the price of vegetable oils up 5% to 6%, on average. A one-pound tub of soft margarine has risen 33%, to $2.08, since 2010, when the nation's persistent drought began. Click through our slide show for an idea of how much to budget for your groceries this year

Vital Signs Chart: Colder Weather Boosts Utilities - Output from utilities is rising. Heating demand fell last winter amid warm weather in much of the U.S. and stayed low during the mild start to this winter. But the return of colder weather has pushed up demand. Output from electric and gas utilities rose 5.9% in January from a year earlier, helping to drive up the Federal Reserve‘s industrial production index by 2.1%.

No Change in CPI for January 2013 - The January Consumer Price Index had no change from December. CPI measures inflation, or price increases.  The culprit is gas prices again, which declined -3.0% for the month.  Take food and energy items out of the index and CPI actually rose 0.3% from December. CPI is up 1.6% from a year ago as shown in the below graph.  We can see this inflation measure is fairly low.  Core inflation, or CPI minus food and energy items, increased 0.3% for January.  Core inflation has risen 1.9% for the last year.  Core CPI is one of the Federal Reserve inflation watch numbers.  These low figures probably help justify continued quantitative easing, which usually increases commodity prices.  A global economic slowdown will trump quantitative easing effect on commodities due to overall weaker demand. Core CPI's monthly percentage change is graphed below.  This is the largest monthly core infltaion increase since May 2011. Core inflation's increase seems to be across the board.  Shelter increased 0.2% and is up 2.2% for the year.  The shelter index is comprised of rent, the equivalent cost of owning a home, hotels and motels. Rent increased 0.2% and lodging away from home, or motels, hotels jumped 1.2% for the month.  Airfares increased 1.1% from December and this is the 5th month in a row where air travel prices have increased.  Used cars and trucks had it's first increase in seven months, 0.2% while apparel increased 0.8%.  Graphed below is rent, where cost increases hits people who can least afford it most.

Inflation Remains Tame Year-over-Year, But Core Inflation Jumped in January -The Bureau of Labor Statistics released the CPI data for December this morning. Year-over-year unadjusted Headline CPI came in at 1.59%, which the BLS rounds to 1.6%, down from 1.74% last month (rounded to 1.7%). Year-over year-Core CPI (ex Food and Energy) came in at 1.93% (BLS rounds to 1.9%), virtually unchanged from last month's 1.89%. However, the January Core number was up 0.3% from December. 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) was unchanged in January on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.6 percent before seasonal adjustment.  The index for all items less food and energy increased 0.3 percent in January.  The energy index fell 1.7 percent in January. Along with the gasoline index, the natural gas and fuel oil indexes also declined, while the electricity index increased. The index for food was unchanged in January after increasing in each of the previous ten months. The food at home index was unchanged with major grocery store food group indexes mixed.  The all items index increased 1.6 percent over the last 12 months; the 12-month change has been slowing since its recent peak of 2.2 percent in October. The index for all items less food and energy rose 1.9 percent over the last 12 months, the same figure as the last two months. The food index has risen 1.6 percent over the last 12 months while the energy index has declined 1.0 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.

Producer Price Index: Headline Below Forecast, Core Above - Today's release of the January Producer Price Index (PPI) for finished goods shows a month-over-month increase of 0.2%, seasonally adjusted, in Headline inflation. Core PPI also rose 0.2%. had posted a MoM consensus forecast of 0.3% for Headline and 0.1% for Core PPI. Year-over-year Headline PPI is up 1.4% and Core PPI is up 1.8%. Here is a snippet from the news release on Finished Goods: In January, over three quarters of the rise in finished goods prices can be attributed to the index for finished consumer foods, which advanced 0.7 percent. Also contributing to the increase in finished goods prices, the index for finished goods less foods and energy rose 0.2 percent. By contrast, prices for finished energy goods fell 0.4 percent.  Finished foods: The index for finished consumer foods rose 0.7 percent in January after a 0.8- percent decline in December. This advance was led by a 39.0-percent jump in prices for fresh and dry vegetables. Finished core: Prices for finished goods less foods and energy moved up 0.2 percent in January, the third straight increase. Most of the January advance can be traced to a 2.5-percent rise in the index for pharmaceutical preparations. Finished energy: The index for finished energy goods moved down 0.4 percent in January, the fourth straight decrease. The January decline is mostly attributable to prices for gasoline, which fell 2.1 percent.   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 (the blue line) declined significantly during 2009 and stabilized in 2010, increase in 2011 and then began falling in 2012. Now, in early 2013, the YoY rate is about the same as in early 2011.

The Dog That Isn’t Barking: Why So Little Pundit Attention to the Caliber of Statistics? - Yves Smith - Ah, the halcyon days of early 2007, when economics and finance bloggers would study the clouds on the horizon and debate what they foretold. Maybe I’m not hanging out in the right circles these days but now that financial markets seem to be completely in thrall to central bankers, there isn’t much point in doing fundamental analysis. As a result, from what I can tell, the level of bullshitting among market pundits has risen considerably. On the government statistics front, I wonder if the decline in poking and prodding of the official statistics has to do with a counteroffensive against John Williams, who produces ShadowStats. Williams was in vogue in 2007, and has done a very good job of cataloguing the various ways official measurements have changed over time. He also produces his own version of various measures, and that left him open to attack, since some of his approaches (like simply adding 4% to the official Consumer Price Index derived inflation rate) were a bit wanting in precision. He became enough of a burr in the side of the officialdom that statisticians from the Bureau of Economic Advisers were dispatched to some economics conferences to defend their methods (I hardly get around, and they showed up at a conference at which I was speaking). The fact that Williams may have been overly broad in some of his criticisms does not obviate that many of them are generally correct (for instance, most economists will concede that CPI is too low, although a typical estimate is on the order of 0.5%)

As spring approaches, will the corporate sector expansion peak once again? -  The Empire (NY State) Manufacturing survey published last week showed a strong recovery for February.  The result, which tends to be volatile, was significantly better than consensus. It remains to be seen however if we are going to repeat an earlier pattern. The survey's historical data shows conditions peaking in late winter to early spring and declining later in the year. This pattern is not confined to NY state, and is in fact also visible at the national level. Within the next few days we should see the result from Markit US PMI for February, giving us a better feel for the trend in US manufacturing. So far however, the cycle remains intact.

Philly Fed Business Outlook: Second Month of Contraction - 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 sharper contraction, moving from -5.8 last month to -12.5. Moreover, the 3-month moving average fell to -4.6, the eighth negative reading in nine months. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. Here is the introduction from the Business Outlook Survey released today: Manufacturers responding to the February Business Outlook Survey reported declines in activity this month. Following reported growth in late 2012, indicators for general activity and new orders have now registered negative readings for the past two months. However, indicators for shipments and employment were slightly positive this month. The survey's broad indicators of future activity edged higher this month. (Full PDF ReportThe 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.

LA area Port Traffic in January - Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for January. LA area ports handle about 40% of the nation's container port traffic. The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container.  To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average. On a rolling 12 month basis, inbound traffic was up slightly in January, and outbound traffic down slightly, compared to the rolling 12 months ending in December. In general, inbound traffic has been increasing slightly recently, and outbound traffic has been mostly moving sideways. The 2nd graph is the monthly data (with a strong seasonal pattern for imports).  For the month of January, loaded outbound traffic was up slightly compared to January 2012, and loaded inbound traffic was up 4% compared to January 2012. This suggest a slight increase in the trade deficit with Asia for January

Freight Shipment Volumes Plunge To Lowest In Two Years - Freight shipment volumes are rather obviously seasonal, but as Bloomberg Brief notes, the Cass Freight index shows shipment volumes have slumped for four consecutive months and are back to their worst levels in two years. This is the first year-over-year contraction since the 2007-2009 Great Recession - and places the reality of the dismal Q4 GDP print in context. If that wasn't enough good news about the real economy, the cyclicality of the shipments are losing momentum (i.e. each seasonal rebound in the last three years has been weaker - just as we saw in the lead up to 2008) and freight expenditures fell in January leading to a 1.6% drop over the last year - compared to a 27.2% rise in January 2011, and 22.2% rise in January 2012. As Cass noted, these volumes will not be enough to "have a significant impact on the unemployment numbers."

ATA Trucking Index "Best Ever January" - This index has been very strong following the dip in October due to Hurricane Sandy.  From ATA: ATA Truck Tonnage Index Posts Best Ever January The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 2.9% in January after jumping 2.4% in December. ... Tonnage has surged at least 2.4% every month since November, gaining a total of 9.1% over that period. As a result, the SA index equaled 125.2 (2000=100) in January versus 121.7 in December. January’s index was the highest on record. Compared with January 2012, the SA index was up a robust 6.5%, the best year-over-year result since December 2011. “The trucking industry started 2013 with a bang, reflected in the best January tonnage report in five years,” Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

Postal Service is more modern than you think - FedEx was the Postal Service’s number-one supplier in fiscal 2012 — transporting Express Mail, Priority Mail, and First Class Mail, and earning a total of $1,618,197,536.71. UPS, the Postal Service’s 10th largest supplier last year, earned a lesser-but-still-quite-substantial $126,357,591 for services rendered. Moreover, the relationship allows FedEx and UPS to maximize the efficiency of their operations. “While the money from the USPS is good work for them, they have a lot of downtime on their planes,” Hendel tells me. “When they first started, most of the FedEx and UPS planes sat empty during the daytime; now they can get some use out of them. And they didn’t have to buy a single new plane.” (Further, while FedEx and UPS may fly large quantities of US Mail, they rely on the Postal Service for “last-mile” delivery in many areas it would cost too much to service. In fact, as UPS spokesman Norman Black said in 2009, “We believe that the government plays a role in terms of ensuring that every mailbox is reached every day.... That is not a responsibility that UPS would want.” 

Bring Back Postal Banking: How to save the Postal Service—and protect ordinary Americans from financial predators—in one easy step: bring back postal banking! How bad have things gotten for America’s national mail delivery system? The US Postal Service lost $1.3 billion last quarter, and this was regarded as good news. The venerable agency has been saddled with significant financial problems since a 2006 law forced it to pre-fund 75 years of employee retirement benefits, something no other public agency or private company has to do. This cash crunch (the Postal Service gets no money from the federal government and must survive on the revenues it generates) has led to austerity measures for the nation’s second-largest employer (right behind Wal-Mart). Mass layoffs last year were followed, earlier this month, by the announcement that Saturday deliveries of first-class mail will cease come August. As many have noted, this is a largely manufactured crisis. Simply relaxing the pre-funding requirement—as the postmaster general beseeched Congress to do this week—would wipe out virtually all of the Postal Service’s deficit. (Absent this heavy payment, the agency would have made $100 million in the last quarter.) But given the reduced use of letters in an age of digital communication, it’s nonetheless true that the Postal Service is due for some changes to its business model. Democrats from Sen. Tom Carper to Rep. Elijah Cummings have laid out various ideas. But there’s one idea they haven’t suggested that would kill two birds with one stone: make money for the Postal Service and level the financial playing field for some of the most vulnerable Americans. Namely: We should allow the Postal Service to return to the practice of offering simple banking services.

The Obama Administration's Public Works Plan - There are three elements of this plan according to the NYTimes:

    • 1. The first element of the plan is a “fix it first” policy that calls for investing $50 billion in transportation infrastructure, subject to Congressional approval. Fully $40 billion of that amount would be directed to work on the highways, bridges, transit systems and airports “most in need of repair,” according to the document. There are 70,000 bridges classified as “structurally deficient” in the United States. The White House estimates that 80 percent of those bridges could be brought up to date under the program.
    • 2. The second part of the plan would draw on private investment from across the nation and around the world for federal, state and local projects. It revives the president’s call for creation of a National Infrastructure Bank, which could bring public and private financing together to plan projects. The proposal would also allow issuing new America Fast Forward bonds to follow up on the Build America Bonds program from the American Recovery and Reinvestment Act of 2009.
    • 3. The third portion of the plan would work to eliminate red tape in permits and review for infrastructure projects. This effort would build on a White House initiative to speed up plans for projects like harbor deepening and surface transportation. The administration has said modernizing the process of permits and review can “create better outcomes for communities and the environment.”

    US immigration proposal would offer ‘eight-year path to legal residency’ - The White House is planning to tackle illegal immigration by allowing undocumented workers a path to permanent residence within eight years of passing government requirements, according to reports. A leaked copy of the draft bill, first reported by USA Today, contains provisions that would allow the nation's estimated 11 million undocumented workers to seek a "lawful prospective immigrant" visa that would allow them to live and work freely in the country.Prospective visa holders would have to pass a criminal background check and submit to biometric tests, according to the document. Eight years after receiving the visa they would be eligible to apply for a green card, which allows permanent residency. Green card holders are able to apply for full US citizenship five years after being granted residency. The White House declined to comment on the details of the report. But in a statement, White House spokesman Clark Stevens said: "The president has made clear the principles upon which he believes any common-sense immigration reform effort should be based. We continue to work in support of a bipartisan effort, and while the president has made clear he will move forward if Congress fails to act, progress continues to be made and the administration has not prepared a final bill to submit."

    Federal Reserve Study: Weak Demand -- Not Taxes -- Preventing Job Growth -- It is a frequent conservative mantra that government taxation and regulation prevent economic growth. Economists Atif Mian and Amir Sufi looked at this claim for a new paper from the Federal Reserve Bank of San Francisco. Using survey data from the National Federation of Independent Business, the two researchers found that when businesses complained most of lack of sales and demand, unemployment was highest. The research also showed that “there was almost no correlation between job growth in a state from 2008 to 2011 and the increase in the percentage of businesses citing regulation and taxes as their primary concern. In fact, if anything, the correlation is positive.”This new research, which again relies on the complaints of businesses themselves, seems to undermine this conservative mantra.

    Robert Samuelson's Psychological Problems - Dean Baker - Robert Samuelson is convinced that the U.S. economy is suffering from psychological problems. In a piece titled, "why job creation is so hard" he tells readers:"We have gone from being an expansive, risk-taking society to a skittish, risk-averse one."Point number one is the rise in the saving rate:"In the boom years, the personal saving rate (savings as a share of after-tax income) fell from 10.9 percent in 1982 to 1.5 percent in 2005. Now it’s edging up; from 2010 to 2012, it averaged 4.4 percent."Is this really a matter of psychology? People have lost $8 trillion in housing wealth as a result of the collapse of the bubble. Homeless people generally don't spend much money, is this due to psychological issues? As Samuelson noted, in the pre-bubble years the saving rate averaged more than 8 percent. If anything, we should be surprised by how much people are spending.

    Problems in the high tech labor market - If you want to understand the high tech labor market in the United States, a good place to start might be one of these stories about a lawsuit in the U.S. District Court in California. These stories trace the progress of legal actions against some of America’s best-known tech companies over their attempts to suppress their employees’ wages through anti-competitive “no-poaching” agreements.  The Department of Justice found evidence that Intel, Adobe Systems, Google, Apple, Pixar, and Intuit made  secret agreements not to call each others’ employees with job offers, thereby reducing job opportunities and salaries in the industry. DOJ induced the six companies to settle an anti-trust suit in 2010 with a promise not to engage in similar restraints on trade in the future. The companies paid no damages and admitted no violations of anti-trust law, but the employees who had been hurt by the practices were not satisfied. Employees filed suit against the six companies and Lucasfilm in federal court alleging an illegal conspiracy to restrain wages and salaries and seeking damages.  When the companies tried to have the suit dismissed, the district court judge sided with the plaintiffs, and in January, according to, Judge Lucy Koh ruled that the case should proceed to trial

    Health Care Aside, Fewer Jobs Than in 2000 - Uwe Reinhardt had a fascinating post Friday about the buffer that health care spending has provided in the last few years. Health care has provided a steady contribution to gross domestic product even as other sectors cut back dramatically. He also notes that in the last two decades, it has created more jobs on a net basis than any other sector. I’d like to point out one other important accomplishment of the much-maligned health care industry. Not only has it added more jobs than any other sector, but without it, there would actually be slightly fewer jobs in the United States today than in 2000. In 2000, the economy had about 121 million non-health-care payroll jobs. Today, on a seasonally adjusted basis, there are 120 million non-health-care jobs. Meanwhile, the health care industry has added about 3.6 million jobs in that time frame, growing about 33 percent (14.5 million health care jobs today versus 10.9 million in 2000).

    How To Solve Our Unemployment, Economic, and Mortgage Problems - The Federal Reserve is creating $85,000,000,000 per month of new money to purchase toxic waste (mortgage-backed securities) from banks, support foreign banks, and to purchase US government treasury debt. This assists (bails out) banks, keeps interest rates low, and helps enable the government to continue excessive spending. Supposedly, it will benefit the economy and reduce unemployment. Perhaps another $85,000,000,000 per month, or more, should be used for direct assistance to employ people, assist families, and supplement mortgage payments. If money creation for the banks and government is good, then direct assistance to Americans should be even better.

    • Problem. The United States has too many unemployed individuals. People need jobs. Let’s solve that problem.
    • Problem. People who purchased a house at inflated prices are reluctant or unable to pay their mortgages, particularly after so many have lost jobs. The banks don’t want to foreclose, the people can’t/won’t pay, and this hurts the economy and the housing market. Let’s provide direct help for this problem.
    • Problem. The economy is sluggish and probably contracting if real inflation numbers are used in the calculation. Let’s stimulate the economy with direct assistance to families, not banks

    It Takes a B.A. to Find a Job as a File Clerk - The college degree is becoming the new high school diploma: the new minimum requirement, albeit an expensive one, for getting even the lowest-level job.  Consider the 45-person law firm of Busch, Slipakoff & Schuh here in Atlanta, a place that has seen tremendous growth in the college-educated population. Like other employers across the country, the firm hires only people with a bachelor’s degree, even for jobs that do not require college-level skills.  This prerequisite applies to everyone, including the the in-house courier who, for $10 an hour, ferries documents back and forth between the courthouse and the office — went to a four-year school.  Economists have referred to this phenomenon as “degree inflation,” and it has been steadily infiltrating America’s job market. Across industries and geographic areas, many other jobs that didn’t used to require a diploma — positions like dental hygienists, cargo agents, clerks and claims adjusters — are increasingly requiring one, This up-credentialing is pushing the less educated even further down the food chain, and it helps explain why the unemployment rate for workers with no more than a high school diploma is more than twice that for workers with a bachelor’s degree: 8.1 percent versus 3.7 percent.

    Why Degree Inflation Hits Women Workers Hardest - A college degree is increasingly required for even the most entry-level jobs, as reported in a widely discussed article in the New York Times Wednesday morning. What’s glossed over is the impact of this “degree inflation” on women. As the piece points out, the increasing demand among employers for a bachelor’s degree applies to all sorts of administrative positions, including secretaries, receptionists, paralegals, and clerks. All of these jobs have traditionally been held by women: Women make up around 96 percent of secretaries and administrative workers. And admin jobs offer—or used to offer—one of the best paths to a middle-class income for women without college diplomas. One woman I interviewed, Keri Crump, 37, who was in the process of looking for work as an executive assistant in New York, said that after many years in the field, she was suddenly encountering obstacles to finding a job due to her lack of a college degree. “There are a lot of executive assistants who have been doing this for years who were laid off during the financial downturn, and they’re coming across this requirement,” Crump said. “Some of them are in their 40s, they’ve raised families. They started out of high school and have built up to the higher $90,000-a-year range. And now they’re being told they need to have a bachelor’s degree.”

    Disposable Workers: Why Throwaway Employees are Bad Policy -  Yves Smith - The media increasingly appears to define the state of the economy based on corporate bottom lines and the experience of the upper echelon, reflected in the way it glosses over the anxiety and distress outside the top 1% of the population. The fact that this disconnect isn’t a figment of our imagination was confirmed by a recent study by Edmund Saez that reported that 121% of the income gains from 2009 to 2011 went to the top 1%, meaning they pulled further ahead while everyone else (in aggregate) became worse off. The big cause is the state of the labor market. And that isn’t just a product of the global crisis but also of a long-term restructuring of the relationship between employers and employees. One of the pet ideas of neoliberalism is to encourage “labor market flexibility” which is code for letting companies fire employees on a whim. The problem is that a quick to hire, quick to fire posture is not a terribly sound idea. It takes a lot of time and effort to hire and train people, so firing people casually means a loss of this investment. Export powerhouse Germany has not been competitively impaired by its restrictions on terminating employees. But while some businesses actually believe the HR trope that “employees are our most important asset”, most, to adopt an image from Robert Oak at the Economic Populist, treat them as disposables.  A recent report from the Heldrich Center at Rutgers, Diminished Lives and Futures: A Portrait of America in the Great-Recession Era, shows how far this trend has gone in the downturn.

    Weekly Initial Unemployment Claims increase to 362,000 - The DOL reports: In the week ending February 16, the advance figure for seasonally adjusted initial claims was 362,000, an increase of 20,000 from the previous week's revised figure of 342,000. The 4-week moving average was 360,750, an increase of 8,000 from the previous week's revised average of 352,750. The previous week was revised up from 341,000. 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 360,750 - the highest 4-week average since the first week of January. Weekly claims were above the 359,000 consensus forecast/

    Weekly Unemployment Claims Rise; Almost Back to The February 2012 Level - The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 362,000 new claims number was a 20,000 increase from the previous week's 342,000, a slight upward adjustment from the previously reported 341,000. The less volatile and closely watched four-week moving average, which is usually a better indicator of the recent trend, rose 8,000 to 360,750. Here is the official statement from the Department of Labor: In the week ending February 16, the advance figure for seasonally adjusted initial claims was 362,000, an increase of 20,000 from the previous week's revised figure of 342,000. The 4-week moving average was 360,750, an increase of 8,000 from the previous week's revised average of 352,750.  The advance seasonally adjusted insured unemployment rate was 2.4 percent for the week ending February 9, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending February 9 was 3,148,000, an increase of 11,000 from the preceding week's revised level of 3,137,000. The 4-week moving average was 3,186,250, a decrease of 6,750 from the preceding week's revised average of 3,193,000.  Today's seasonally adjusted number was above slightly above the consensus estimate of 358K. Here is a close look at the data over the past few years (with a callout for the several months), which gives a clearer sense of the overall trend in relation to the last recession and the trend in recent weeks.

    For Many, Being Out of Work Is Chief Obstacle to Finding It - Kevin Johnson tells people he works off the books rather than admit to being unemployed, because he fears being seen as lazy and unmotivated. And Barbara Brown, a former office manager, has learned that a telltale sign that she is not getting a job is when she is asked why she has been job hunting for a year and a half. These Bronx residents are among the growing ranks of New Yorkers who say they are trapped in a vicious circle of unemployment — rejected time and time again for jobs that could put food on the table, resurrect stalled careers and pull them out of a downward spiral of debt. Despite their qualifications and experience, these job seekers contend that they have not been given a fair shot because of one counterintuitive reason: They are already unemployed. “I’ll do anything — but somebody has to be willing to hire me,” said Mr. Mango, 43, who has not worked in nine months and said he lost his home because he could not pay the rent. “If you’re not working, that’s already Strike 1 against you.”

    Unemployed would lose benefits if federal budget cuts go through - Feb. 20, 2013: The long-term unemployed can kiss goodbye almost 10% of their weekly jobless benefits if federal budget cuts go into effect on March 1. Many safety net programs, such as food stamps and Medicaid, are protected from the $85 billion in forced spending cuts, but extended federal unemployment benefits are vulnerable.Those payments kick in when state benefits, which last up to 26 weeks, run out. Eligible workers can then collect federal benefits for up to 47 weeks. The payments, which average $300 a week, are an emergency measure Congress has been authorizing since 2008. It's a stopgap aimed at protecting the millions of Americans struggling to find new jobs in a challenging economy. The forced spending cuts scheduled to take effect next month trim the program's funding. Recipients of those payments could lose an average of more than $400 in benefits each through the end of the federal fiscal year, according to the Department of Labor. The fiscal year ends on Sept. 30. 

    A job should be a right, not a privilege! -- A job should be a right, not a privilege! - NEP’s Marshall Auerback appears on the Thom Hartman program, 20 February 2013, discussing limits on banksters’ salaries and bonuses. There is some discussion of jobs guarantee near the end of the segment

    Minimum Wage Economics - Paul Krugman - I’m doing this kind of backwards, writing about the politics first. But I wanted to have my intellectual ducks — or rather, my lucky duckies — in a row before taking on the economics. And while I was grubbing around, Mike Konczal produced the perfect post summing it all up. So what should you know? First, as John Schmitt (pdf) documents at length, there just isn’t any evidence that raising the minimum wage near current levels would reduce employment. And this is a really solid result, because there have been a *lot* of studies. We can argue about exactly why the simple Econ 101 story doesn’t seem to work, but it clearly doesn’t — which means that the supposed cost in terms of employment from seeking to raise low-wage workers’ earnings is a myth. Second — and this is news to me — the usual notion that minimum wages and the Earned Income Tax Credit are competing ways to help low-wage workers is wrong. On the contrary, raising the minimum wage is a way to make the EITC work better, ensuring that its benefits go to workers rather than getting shared with employers. This actually is Econ 101, but done right: given a second-best world in which you use imperfect tools to help deserving workers, two tools together can produce a better outcome than either one on its own.

    Raise That Wage, by Paul Krugman -  The question we need to ask is: Would this be good policy? And the answer, perhaps surprisingly, is a clear yes. First of all, increases in the minimum wage have consistently fallen behind inflation, so that in real terms the minimum wage is substantially lower than it was in the 1960s. Meanwhile, worker productivity has doubled. Isn’t it time for a raise?  Now, you might argue that even if the current minimum wage seems low, raising it would cost jobs. But there’s evidence on that question... And while there are dissenters, as there always are, the great preponderance of the evidence from these natural experiments points to little if any negative effect of minimum wage increases on employment. ...Finally, it’s important to understand how the minimum wage interacts with other policies aimed at helping lower-paid workers, in particular the earned-income tax credit.... The tax credit ... is also good policy. But it has a well-known defect: Some of its benefits end up flowing not to workers but to employers, in the form of lower wages. And guess what? An increase in the minimum wage helps correct this defect. It turns out that the tax credit and the minimum wage aren’t competing policies, they’re complementary policies that work best in tandem.

    Is Raising the Minimum Wage a Good Idea? Becker - Serious economic debate over the wisdom of minimum wages has been going on for at lease 70 years, and the debate has been revived by President Obama’s proposal to raise the US’ federal minimum wage to $9 per hour. The two main issues debated are the effects of a higher minimum on employment of the low skilled, and its effects on the degree of poverty. both theory and evidence indicate that higher minimums reduce employment for teenagers and other workers with low productivity, and that it does little to alleviate poverty. Neither conclusion, however, is without controversy, especially the employment effect.Federal minimums in the United States have never been higher than to affect a rather small fraction of the working population, such as teenagers, unskilled immigrants, and some others. The expectation from economic theory is that when the minimum wage is raised above the wages that these low skilled workers are receiving, some of them would become unemployed because they would be priced out of the labor market. The challenges to this conclusion have both theoretical and empirical aspects.

    Should the Minimum Wage Be Raised to $9?—Posner - The President in his State of the Union address last week proposed increasing the federal minimum wage from $7.25 an hour to $9, and then indexing it by the rate of inflation. The proposal will not commend itself to most economists who study the economic consequences of minimum wages. They make three principal arguments: minimum wage laws reduce employment (and efficient resource allocation) by pricing labor above its market rate; the laws do not reduce poverty, because most beneficiaries of minimum wage laws are not poor; and as a means of reducing economic inequality, such laws are inferior to the Earned Income Tax Credit (i.e., the negative income tax). I will try to assess these arguments.  Although there is some disagreement among economists, the majority of those who actually study the effects of minimum wage laws agree that they have a modest disemployment effect concentrated on young persons. But the issue is the effect of a 24 percent increase ($1.75 ÷ $7.25) from the current minimum wage; it could be immodest. The effect will vary from state to state, depending on each state’s minimum wage law. A few states set the minimum wage well above $7.25 and one (Washington) has set it above $9, though only slightly ($9.13). In Connecticut and Illinois the state minimum wage is $8.25, in Oregon $8.95, and in Vermont $8.60. But in most states it is at the federal level and in some states it is below it—and some southern states have no minimum wage at all.

    Raising the minimum wage: Trickle-up economics | The Economist: America’s minimum wage has long been low by international standards, equalling just 38% of the median wage in 2011, close to the lowest in the OECD (see chart). Congress changes it only occasionally, and in the interim inflation eats away its value. The wage was last raised, to $7.25 per hour, in 2009. Since then its real value has slipped back to where it was in 1998. Twenty states now have minimum wages above the federal rate, compared to 15 in 2010, according to the Economic Policy Institute, a liberal research group. Mr Obama’s proposal would boost the nominal wage to $9 per hour by 2015, restoring it, in real terms, to its 1979 level, though relative to median wages it would still be lower than in many other rich countries. Thereafter, it would be indexed to inflation. He would also raise the minimum wage for workers who receive tips for the first time in over 20 years. The proposal drew the predicted response: labour and liberal groups said it would reduce poverty and raise the spending power of the poorest workers, while businesses and Republicans (whose co-operation is needed if the proposal is to become law) said it would cost low-skilled workers jobs.The economic consequences are hard to predict. Economists historically frowned on minimum wages as distortionary price fixing that reduced demand for workers affected by the wage. But that assumption has come under fire from a growing body of research.

    Minimum Wage a Winner Both Politically and Economically - President Obama's proposal to raise the minimum wage to $9.00 per hour puts the Republicans between a rock and a hard place politically. Paul Krugman echoes the point that a big majority of the population supports a minimum wage increase, including a majority of Republicans (his linking to the original poll source appears to have crashed that website, but I will update later). Yet the Republican leadership remains trapped because it opposes this increase as well as any alternative policy that might make the poor better off, such as increasing the Earned Income Tax Credit or endorsing a Guaranteed Minimum Income.  Moreover, much recent research (via Think Progress) shows no "job killing" effects from raising the minimum wage. As originally shown by David Card and Alan Krueger, there was strong evidence of "publication bias" in the studies underlying the former economists' consensus that the minimum wage reduced jobs. That is, economics journals tended to prefer to publish studies with statistically significant results and not publish those showing no effect from the minimum wage. Researchers thus adjusted their statistical specifications until they achieved statistical significance, thereby generating a mass of studies that all barely reached statistical significance despite larger volumes of data which should have produced stronger results. As the Schmitt paper emphasizes, more recent studies of studies ("meta-analysis") continues to support the conclusion that the purported job killing effect was a mirage.

    Where's the monopsony? --- President Obama, Paul Krugman and Robert Reich have all been pushing for an increase in the minimum wage. I want to agree with them, and Krugman is certainly correct that the preponderance of empirical evidence shows that the minimum wage's impact on total employment is negligible.  But the question is, why? Krugman's statement that human beings are not Manhattan apartments is true, and allows him to support the minimum wage while being appropriately skeptical of rent control, but it doesn't give a satisfactory answer as to why putting a floor on the price of labor would not create excess supply of labor. There is in economic theory a set of circumstances, however, under which an increase in the minimum wage might raise employment. If an employer has a market largely to itself--if it has monopsony power--then it will both pay its workers less than their productivity warrants and not hire enough workers to be at the most efficient level of employment. Raising the minimum wage would then both increase pay and induce more workers into the labor market, hence increasing employment. If government could nail the minimum wage to the marginal revenue product of the least productive workers, the minimum wage could produce a first-best outcome--one where pay and employment levels were efficient.

    How to Think About Aggregate Labor Markets - The remarkable Tyler Cowen has me scratching my head again. Here he is at the beginning of a critique of minimum wage laws and sticky-price Keynesianism. Let’s say your labor is worth $10 an hour but you won’t go back to work for less than $12, thereby leading to the unemployment of you.  In essence you are self-imposing a minimum wage on that market, but the employer is responding by leaving you jobless. You can guess where this is headed. The interesting thing is that Cowen apparently has no inkling that most people would find his opening sentence insulting. What makes this interesting to an economist is that the popular perception of unemployment actually fits how we model the aggregate labor market pretty well. Let me explain. The view of most unemployed people, according to the interviews I’ve seen, goes something like this: “I’m looking for a job, and I’m willing to take something that’s worse than what I used to have, but I haven’t found anything yet.” The unemployed person hopes that the job is out there but that the connection hasn’t been made.

    Why Men Are More Likely to Drop Out - As student debt levels continue to rise, more college students are facing a critical decision: Borrow more or drop out? Men and women appear to be reaching different conclusions. Moderate levels of debt can actually help students graduate by allowing them to work less and study more. But beyond a certain point, the relationship breaks down—wary of taking on too heavy a debt burden, students drop out.That dynamic exists for all students, but not equally. According to a new paper in the journal Gender & Society, men are more likely than women to leave school rather than take on more loans. Women are more likely to finish their degrees, even if that means graduating with a higher debt burden. The research suggests that student debt may help explain a significant but poorly understood trend in recent years: Women are not only enrolling in college at higher rates than men, they’re also more likely to graduate. That gender should affect student borrowing decisions might seem surprising, but the authors suggest there is a fairly simple explanation: Men without college degrees face better job prospects than equivalently educated women, at least in the short term. That makes the consequences of dropping out appear smaller for men.

    Who Benefits from the EITC? - Given the discussion on minimum wages and other low-income programs, I thought I’d highlight a study by Jesse Rothstein that roughly argues that the EITC encourages more people to work, which bids wages down for low income workers and enables low-income employers to pay lower wages. Thus, recipients of the EITC don’t get a full dollar of benefits (Rothstein estimates that they get 73 cents on the dollar) due to lower wages and other low income workers who aren’t eligible for the benefit are even worse off since they don’t get the extra EITC funds but do get the lower wages. It’s worth watching Raj Chetty discuss this paper (starts at 56:26) if you’d like more detail as well as some critical reactions to the paper and approach.

    Reproduction, Income, and the Future - Interesting how the problem is the framed the same way at different ends of the political spectrum. A comment on a post at EconLog, a very libertarian website...I can say that in my lifetime, I have not earned enough money for me to have kids. I'm 36. I know some have had kids on my income or less but it certainly is not enough money for me. I can't imagine how it would have been if I had kids.And this comment on a post by Paul Krugman, on the liberal side of the spectrum: I personally have never had the stability in my life where I thought it was okay for me to go off and spawn a family the way my parents did beginning in 1953. My father worked hard, and loved to work, had good employment and good pay, without a college degree.  Where as, he sent me to private schools, I got honor roll grades, bachelors degree, doctorate degree, I re-engineered manufacturing systems at some of America's largest companies, but still I never felt secure in my employment, nor was I. I am unemployed now, as I was in 2010, as I was in 2006, as I was in 1991, as I was for a time in 1984, 1983 and 1982 - when I graduated. The current generation is facing a geometrically greater challenge than I did. So I can see why traditional family life is in decline.

    Growth in Real Household Income by Quintile --In response to Top 1% Received 121% of Income Gains During the Recovery I received a couple of emails from readers that I would like to share. eader "Gordon" wondered how it was possible for a group to get 121% of income gains. Here is the example I sent Gordon. Mary, Tom, and Joe work for the XYZ Corporation. They are the only three employees. Mary's salary rose from $100,000 to $200,000. Tom and Joe were informed of hardships in the corporation and their salaries fell from $100,000 to $80,000 each.  In the above example, net salaries rose by $60,000. Mary's salary rose by $100,000 (more than 100% of the total). Reader "Z" writes ... "Inequality in the US has been rising since the 80s. How do you justify your theory that inflation benefits the wealthy? Not qualitatively, quantitatively." First, let's take a look at inflation as measured by the CPI (any alternative measure of inflation would suffice for this example). Except for a brief period in 2009, price inflation has been positive. The question is "Who Benefited?" I claim it is those with "first access to money" namely banks and the already wealthy. A few charts courtesy of Doug Short at Advisor Perspectives will prove my point. From the above chart it appears the average and median household income has been growing nicely since 1967. If that's what you believe, think again. In "real" (CPI-adjusted) terms, 50% of households are no better off than they were in 1988. Let's dig a litter deeper.

    What Led Chris Dorner to Go Off the Edge: Workplace Abuse, Racism, and Unfair Firing - In the days after his lethal rebellion and violent death, Christopher Dorner has become many things to many different people: a one-man Alamo hero who died fighting the police state; a crazy black man who started murdering cops because that’s what crazy black men do; or a symbol of government oppression and the militarization of America’s police forces.  But all this focus on Dorner’s spectacular ending has obscured the real story about what sent Chris Dorner over the edge: workplace abuse, racial discrimination, and a legitimate claim of wrongful termination. In a nation where workers have fewer legal protections than workers in many developing nations, low-level employees like Dorner have few rights, little power and almost nowhere to turn. Ever since the Reagan Revolution of the 80s, popular culture has neglected labor problems in favor of violent epic fantasies, even though more and more Americans suffered worsening labor conditions in their own lives, privately and alone. Wrongful termination and workplace discrimination are devastating problems for each and every victim, yet collectively we’re infinitely more worried about police state fascism and getting assassinated by armed drones, thanks to media and pop culture conditioning. Labor and workplace problems are considered boring, even embarrassing.

    We're All Women Workers Now: How the Floor of the Economy Has Dropped for Everyone - Our workforce, once dominated by men, is now pretty much equally split between the genders. But a funny thing has happened since women entered it in droves: rather than all workers enjoying the stable, unionized, blue collar jobs men typically held until the latter part of the twentieth century, the jobs held by all workers look more and more like stereotypical “women’s work.” These jobs expect workers not just to make a product, but to do it with a warm attitude. They are less likely to be full-time, but instead modeled after part-time work for “pin money.” And an increasing number of jobs are low-pay, low-benefit work in the service sector, once the purview of women workers. We’re all women workers now, and we’re all suffering for it.

    Millennials, the Stressed, Screwed Generation - Those looking for a reason for sluggish housing, weak retail sales, and low family formations rates, need only look at the plight of millennials (those aged 18-33). Many millennials have no job, high student debt with no way to pay the debt off, and few job opportunities beyond part-time employment in food services or retail.  Millennials are the ones who Obama targeted to pay for Obamacare. Indeed, the forced inclusion of youth (who will overpay for health care) is supposedly what made Obamacare "affordable". Is it any wonder a study of of Stress in America by the American Psychological Association shows millennials to be the most stressed generation.  Both Millennials and Gen Xers report an average stress level of 5.4 on a 10-point scale where 1 is “little or no stress” and 10 is “a great deal of stress,” far higher than Boomers’ average stress level of 4.7 and Matures’ average stress level of 3.7.

    The Lincoln Myth: Social Mobility in America - In recent years, various researchers have described how the distribution of wealth affects the social mobility odds of lower class Americans.[1]  In the US, the top fifth of the population holds 84% of the country's wealth, while the second quintile owns 11%, the third 4%, the fourth 0.2%, and the bottom quintile 0.1%.[2]  The top 1% of American households possesses 36% of all private wealth, more than the bottom 90% combined.[3]  The Center on Budget and Policy Priorities has reported that the lowest 20% of American households earned an average annual income of $20,510, while the top 20% received $164,490 – a 8-1 ratio.  These highest versus lowest quintile comparisons exceeded 8-1 in 15 of the nation’s 50 states.  In the late 1970s, not one state had a ratio greater than 8-1.[4] Of the twelve most economically advanced countries, the US ranks tenth in intergenerational mobility, only slightly above Britain and Italy.[5]  Tom Hertz notes that during their lifetimes, American children born of low-earning families had a 1% chance of eventually having incomes in the highest 5% category, while children born of wealthy parents were 22 times more likely to earn incomes in this range.  Americans with middle class incomes were just slightly more upwardly mobile than their poorer counterparts were; only 1.8% of children born to families in the middle-income quintile eventually had earnings in the highest 5%.[6]

    Equal Opportunity, Our National Myth -  Stiglitz - President Obama's second Inaugural Address used soaring language to reaffirm America's commitment to the dream of equality of opportunity.  The gap between aspiration and reality could hardly be wider. Today, the United States has less equality of opportunity than almost any other advanced industrial country. Study after study has exposed the myth that America is a land of opportunity. This is especially tragic:... there is near-universal consensus that inequality of opportunity is indefensible.  How do we explain this? Some of it has to do with persistent discrimination. ... Of course, there are other forces at play, some of which start even before birth. Children in affluent families get more exposure to reading and less exposure to environmental hazards. Their families can afford enriching experiences like music lessons and summer camp. They get better nutrition and health care, which enhance their learning, directly and indirectly. ...  In some cases it seems as if policy has actually been designed to reduce opportunity: government support for many state schools has been steadily gutted..., especially in the last few years. Meanwhile, students are crushed by giant student loan debts that are almost impossible to discharge, even in bankruptcy. This is happening at the same time that a college education is more important than ever for getting a good job.

    Stones Keep Raining - Paul Krugman  hits hard on one of the most cherished american myths, the golden years of Reaganomics. He shows that using the middle class as a benchmark (the median family income of the economy), the Reagan decade saw a disappointing performance; this, not only if compared to the longest expansion in post war history, during the Clinton presidency, but also with respect to the much less glorious 1970s.  But, maybe, Krugman is telling a story of inequality, and not of sluggish growth. The fact that median income did not grow much during the Reagan years may not mean that growth was not satisfactory, but simply that somebody else grasped the fruits. For curiosity, I completed his figure with average yearly growth rates for two other series: Income of the top 5% of the population, and the growth rate of the economy.Well, it turns out that Reaganomics yielded increasing inequality and unsatisfactory growth. And well beyond that, median income consistently under-performed economic growth in the past forty years.

    Representation without y’know representation - Democratic government works swell, as long as it excludes those filthy commonersThe new study was performed by Thomas Hungerford of the non-partisan Congressional Research Service. Though the study is not a CRS product, Hungerford’s data is widely cited on both sides; he’s an impeccably objective analyst. Here’s what Hungerford found: The single greatest driver of income inequality over a recent 15 year period was runaway income from capital gains and dividends. This, of course, is exactly what the Democrats are arguing in supporting closing loopholes and benefits the richest American’s get in their taxes. It is the opposite of what Boehner and the GOP wants.  After all, for the only people that apparently matter, it’s been one hell of a recovery. When you look at the economic recovery’s first two years, the top one percent (which by 2011 meant any household making more than about $367,000) captured 121 percent of all pre-tax income gains.

    Equal Opportunity is Dead - So says Economist Joseph Stiglitz in this op-ed. Today, the United States has less equality of opportunity than almost any other advanced industrial country. Study after study has exposed the myth that America is a land of opportunity. Stiglitz goes on to talk about how higher education is simply out of reach. It's true, education was the great social leveler in the past. If one was poor after WWII, there was still a way forward through college.Americans are coming to realize that their cherished narrative of social and economic mobility is a myth.  Grand deceptions of this magnitude are hard to maintain for long — and the country has already been through a couple of decades of self-deception.Without substantial policy changes, our self-image, and the image we project to the world, will diminish — and so will our economic standing and stability. Inequality of outcomes and inequality of opportunity reinforce each other — and contribute to economic weakness.Equality has to be one of the biggest rhetorical lies coming out of Washington D.C.  Dream on if one is not born into it, America for reality says you're going nowhere.

    Before Greed? - Mark Thoma, at Economist’s View, points us toward an interesting essay by Richard White called “Before Greed: Americans Didn’t Always Yearn for Riches.” In it, White tells how Abraham Lincoln accumulated only modest wealth, during an era in which “great wealth was an aberration” and the very idea that the accumulation of great riches was a foreign concept.One gets the sense that people “back then” were more noble, more high-minded, and more public-spirited.  At least they seem to be more easily satiated, yearning only for “progress from poverty to competency.”  According to such a narrative, we have degenerated into money-obsessed creatures whose public-mindedness has been considerably damaged in the process.White goes on to claim, without presenting any evidence, that “Most Americans have come to think of the American dream not as a competency but rather as the accumulation of great wealth.” It’s not clear how “great wealth” is defined, so this claim is certainly open to interpretation; however, evidence from the General Social Survey (GSS) suggests that people still consider non-monetary factors to be important reasons why they do what they do. When asked to list the characteristics of a job they most preferred, 48 percent of respondents said the most important to them was that their work was important and they felt a sense of accomplishment from doing it.  We have to be careful in interpreting survey data like this in general, but it does not suggest that desire for “great wealth” is the only factor.

    Ten Things You Should Know About #TheRealTANF -- The Temporary Assistance to Needy Families (TANF) program was created by what is commonly referred to as “welfare reform” in 1996. It replaced Aid to Families with Dependent Children (AFDC) as the program through which some low-income families are able to receive cash assistance. With TANF authorization expiring at the end of March and needing to be renewed (and hopefully improved)—and over 46 million people still living below the poverty line of $23,021 for a family of four—here arethings you should know about the program:

    • 1) There is no cash entitlement program for people living in poverty in the United States. States (including Washington, DC), the tribes and the territories have wide discretion, so there are more than fifty different TANF systems in the country.
    • 2) Most people in poverty do not receive cash assistance. In 1996, for every 100 families with children in poverty, there were 68 families who accessed cash assistance. In 2011, for every 100 families with children in poverty, 27 accessed cash assistance.
    • 3) Over the last sixteen years, the number of people receiving TANF cash assistance has declined by 60 percent, even as poverty and deep poverty—people living below half the poverty line—have increased.
    • 4) TANF is reaching fewer children. TANF lifted just 21 percent of children who would otherwise be in deep poverty, or just 650,000 kids.

    Food Stamps for Thought - The latest Bloomberg poll contains a few shocking results.  Most responses are of the form a majority (but not a huge majority) agree with Obama and disagree with the Republicans in Congress. One shocking result is that a big big 6% correctly answer that the Federal budget deficit is decreasing.  This beats the old low of 8% in an old poll who correctly answered that taxes for the majority of US families were cut in Obama's first two years (which beat the 12% who answered correctly in an older poll).  Wow.  Frankly I usually find polling on public perceptions of fact more interesting than polling on public opinion. But the results which really shocked me were majority support for reducing Social Security cost of living adjustments.  And majority opposition for cutting food stamps: There are many more amazing facts (did you guess a plurality of US adults were Keynesian ?) so do click the link. Update:  Pew finds a plurality opposed to cutting foreign aid

    Southern poverty pimps - The real choice facing America in the 21st century is the same one that faced it in the 19th and 20th centuries — Northernomics or Southernomics? Northernomics is the high-road strategy of building a flourishing national economy by means of government-business cooperation and government investment in R&D, infrastructure and education. Southernomics is radically different. The purpose of the age-old economic development strategy of the Southern states has never been to allow them to compete with other states or countries on the basis of superior innovation or living standards. Instead, for generations Southern economic policymakers have sought to secure a lucrative second-tier role for the South in the national and world economies, as a supplier of commodities like cotton and oil and gas and a source of cheap labor for footloose corporations. This strategy of specializing in commodities and cheap labor is intended to enrich the Southern oligarchy. It doesn’t enrich the majority of Southerners, white, black or brown, but it is not intended to.

    The Prison Problem - Jerry, who has served 25 years for armed robbery and aggravated rape, was released two months ago. Western is studying what happens to prisoners after their release and has come to interview Jerry about his experience. After ordering them coffees, Western, a sociology professor and faculty chair of the Harvard Kennedy Program in Criminal Justice Policy and Management, turns on his tape recorder. Jerry is quick with a joke, charismatic and likable—not what comes to mind when one hears “convicted rapist.” For Western, this has been one of the study’s chief lessons. Although he is one of the foremost experts on incarceration in America, in the past he primarily studied prisoners through datasets and equations. Meeting his subjects in person put a human face on the statistics and dashed preconceived notions in the process. Western has come to believe that just as offenders’ crimes carry a cost to society, so too does the shortage of social supports and rehabilitative services for offenders. A crime-control strategy of locking up more people, and keeping them locked up longer, isn’t working, he says. He is determined to help the American public understand how crime is shaped by poverty, addiction, and histories of family violence, in an effort to promote a more humane—and more effective—prison policy.

    North Carolina lawmakers move to slash unemployment help  - North Carolina lawmakers Tuesday moved to drastically slash jobless benefits, joining the ranks of states that have decided they can no longer sustain the growing financial burden of the unemployed. Despite having one of the nation’s highest jobless rates, North Carolina’s government took steps to enact some of most severe benefit cuts in the country. The measure would shrink the maximum period of time someone could receive state jobless benefits to 20 weeks from 26 weeks and reduce the maximum weekly benefit to $350 from $535. The state Senate gave preliminary approval to the proposal on Tuesday, and Gov. Pat McCrory (R) has promised to sign it into law, which would take effect July 1. The reduction in benefits has another dire consequence for North Carolina’s unemployed. Unless they collect at least 26 weeks of unemployment checks from the state, they are disqualified from getting jobless benefits from the federal government, which add up to an additional 47 weeks of aid.

    A New Congressional Push to Let States Collect Tax Online Sales - How many tax bills introduced have bipartisan support in today’s hyper-partisan Congress? Not very many but last week identical bills were introduced in the House and Senate that enjoyed rare bipartisan support. Twenty senators and 37 members of the House from both parties signed on to the Marketplace Fairness Act of 2013 (MFA)—legislation that would allow states to collect taxes on what consumers buy over the Internet. The measure would finally resolve a decades-old dispute over whether states can collect sales taxes on mail-order and online purchases.  Currently, states are barred from requiring out-of-state sellers to collect sales taxes, unless the retailers have a physical presence (or nexus) in their jurisdiction. The MFA would allow states to require sellers to collect these levies no matter where the firms are located. The MFA is similar to bills that died in 2012 and which my TPC colleagues discussed here and here. Under the new measure, states would be permitted to require online sellers to collect tax, though the decision would be left to each state.  Today, online buyers owe tax on their purchases (through use taxes) whether sellers collect the levy or not, though few taxpayers bother to comply.

    California's budget windfall could end soon, officials say -  The surge of revenue that showed up unexpectedly in state coffers last month may well be offset by a revenue dip in coming months, according to Gov. Jerry Brown's administration. The surprise money has been the source of much speculation in the Capitol. Unanticipated tax receipts filled state coffers with more than $5 billion beyond initial projections for January — more tax dollars than are allocated to the entire state university system in a year. The revenue bump was historic. But the question for budget experts was whether lawmakers could begin allocating the windfall toward government programs and tax breaks — or whether the money amounted to an accounting anomaly. Brown's budget office now advises in an official cash report that it is probably the latter. Lawmakers need not do much reading between the lines to understand that the governor does not see the revenue boost as an occasion to pack the budget with extra spending. The report says the extra money was "likely the result of major tax law changes at the federal and state level having a significant impact in the timing of revenue receipts."

    Will higher taxes on the rich derail California’s economic comeback? - The tax increases approved in November are a big reason the state isn’t staring down another huge budget shortfall or the prospect of issuing IOUs to fill it. They include bumping the sales tax up slightly and raising the top income tax rate to 13.3 percent, which is four percentage points higher than the District of Columbia’s and more than double the rate in Virginia or Maryland. Yet many economists and some young executives in the state say they don’t worry about that high rate chilling growth. Other factors loom much larger for California’s business and economic health, they say, including whether the state can maintain deep pools of highly skilled talent and, in complicated but important ways, the renewed upward march of home prices in the Bay Area and beyond. “I don’t think we should be surprised that the state is growing, nor that California is growing faster than the national economy,” “The evidence is, from past tax increases, that it makes very little difference,” said Jerry Nickelsburg, a senior economist at the UCLA Anderson Forecast, who predicts only a slight scrape to state growth from the new rate increases. Since 1967, he added, tax hikes and cuts in the state have had a “second-order effect” on growth.The bigger threat, other economists say, might be another run-up of housing prices, especially where the innovators live.

    Half of Detroit Property Owners Don't Pay Taxes - Nearly half of the owners of Detroit's 305,000 properties failed to pay their tax bills last year, exacerbating a punishing cycle of declining revenues and diminished services for a city in a financial crisis, according to a Detroit News analysis of government records. The News reviewed more than 200,000 pages of tax documents and found that 47 percent of the city's taxable parcels are delinquent on their 2011 bills. Some $246.5 million in taxes and fees went uncollected, about half of which was due Detroit and the rest to other entities, including Wayne County, Detroit Public Schools and the library. Delinquency is so pervasive that 77 blocks had only one owner who paid taxes last year, The News found. Many of those who don't pay question why they should in a city that struggles to light its streets or keep police on them. "Why pay taxes?" asked Fred Phillips, who owes more than $2,600 on his home on an east-side block where five owners paid 2011 taxes. "Why should I send them taxes when they aren't supplying services?

    Bing, council can't turn Detroit's finances around, state-ordered review finds - An emergency financial report to Gov. Rick Snyder makes it clear that a six-person team poring over Detroit's financial records does not believe that Mayor Dave Bing and the City Council are capable of turning the city around on their own, two people familiar with the document told the Free Press on Saturday. The report, which the state-appointed review team completed after meetings in Detroit on Friday, outlines monstrous debts and a chronic inability to reverse course, highlighted by infighting and disagreements between Bing and the council.  Among the report's conclusions:

    • • Over the last decade, Detroit spent nearly $1 billion more than its revenues, and the city's deficit is still growing while the city's bureaucracy is making it difficult to implement significant change.
    • • Detroit's long-term debts exceed $12 billion, and nearly $2 billion of that liability will come due in the next five years. The officials said the report questions how Detroit can make those payments when the city can't balance an annual budget.
    • • Despite tremendous pressure from the state to reorganize city government, some of the recent cuts made by Bing and the council have amounted to onetime savings or deferred payments rather than deep structural changes

    Financial Review Team Declares Detroit in 'Financial Emergency' -Officials in Lansing have determined that Detroit is in a state of 'financial emergency' with no solid plan for recovery. The decision was made by a team of six individuals appointed by Governor Rick Snyder in December to review the city's finances. The governor will use the findings to decide whether or not to appoint an emergency manager. An announcement could be made as soon as March 27. The state-appointed team made their decision based on problematic elements related to Detroit's General Fund and its Charter as well as long-term liabilities. Billion dollar debt coupled with a tremendous budget deficit and poor cash flow are undoubtedly to blame for the ultimate determination. Detroit now depends on bond money from a state-held escrow account to pay its bills. Nearly a year ago, the city found itself in a similar situation. It was given an opportunity to balance the budget through the consent agreement made between the city and state in March 2012. Shift forward to the present, and things appear as bleak as ever.

    Review team: Detroit faces financial crisis, has no plan to fix it  -- For the second time in a year, a state review team has found Detroit is in a financial emergency that requires Gov. Rick Snyder to intervene in City Hall.  But this time, if Snyder agrees that a financial emergency exists, the governor's choices are more limited. He could appoint an emergency manager to keep Michigan's largest city from plunging into bankruptcy, experts say, or he could continue state financial supervision through a new consent agreement, which seems a faint possibility.  State Treasurer Andy Dillon ruled out a bankruptcy filing at this time.  "The city doesn't have more time," Dillon said. "They have limited cash right now, limited ability to access capital markets. I kind of think they've got one more bite of the apple to get it right." In a sobering report to Snyder, the review team found Detroit has: A cash-flow deficit of more than $100 million without "significant spending cuts" by June 30, on top of an accumulated deficit of $327 million.

    Forget the big comeback; Detroit focuses on what can be saved : (Reuters) - Imagine a city with open space larger than the size of Paris, where people are planting hardwood trees and vegetable gardens, and neighbors have plenty of room to spread out. It would sound so idyllic, if only it weren't Detroit. The open space is largely abandoned land, the lack of neighbors the result of an inexorable exodus, the planting the work of residents striving to stop the blight from spreading. America loves a big comeback, but Detroiters harbor few illusions. For many here, it's about salvaging what remains of a once-great city. Throughout its long decline, Detroit has sought ways to restore to its former glory a city that was home to 1.8 million people, pinning its hopes on grandiose plans for the automotive industry or casinos. With just 700,000 people left, ambitions are now focused on making less populated neighborhoods viable and repurposing land, perhaps for urban farming. Where the cash-strapped city can't provide, grassroots groups and investors help fill the gaps.

    Preschool Economics - Even a 4-year-old can understand the case for early-childhood education. It’s fun, you learn things, you make it easier for Mom and Dad to earn a decent living, and when you grow up you will be better able to earn a decent living yourself. At that point, you will start paying taxes that return the favor, helping finance the retirement and health care of the generation that invested in your education. President Obama’s proposal to help states develop and expand high-quality early-education programs has won verbal support from across the political spectrum, including David Brooks. More tangible evidence of political viability comes from Oklahoma and Georgia, two traditionally red states that now provide universal voluntary preschool for 4-year-olds. Still, conservative opposition remains fierce. The loudest complaint is that public programs have not been shown to be cost-effective. But a wealth of research by highly respected economists shows that well-designed, high-quality early-childhood education programs offer a positive payback. At National Public Radio you can listen to the University of Chicago economist James Heckman reiterate this point – as he has been doing for many years. Timothy Bartik of the Upjohn Institute offers great running commentary on debates over technical issues (such as whether small, demonstrably successful programs can be effectively scaled up) at his Investing in Kids blog.

    The long-run gains of not mixing genders in high-school classes - Vox EU - What causes fewer women than men to choose high-earning potential subjects such as engineering, economics or science at undergraduate level? This column presents new evidence from an accidental natural experiment in Italy, suggesting mixed-gender classes at the high-school level reduce the number of women pursuing these subjects. These results suggest that gender-separated classrooms are an effective way to increase women’s career opportunities and salaries.

    Dalton’s tuition hikes will cost $5K for new out-of-state students -- Dalton Public Schools officials say they “know nobody is thrilled to pay more money on anything,” but tuition costs are going up, especially for new out-of-state students. Last year, new out-of-state students paid $1,000 a year. Starting July 1, they will pay $5,000 a year. There are currently eight out-of-state students enrolled in the school system. The increase comes from a decision by school board members after they discovered a shortfall in state funding — the state doesn’t provide money for out-of-state students — that has been from $20,000 to $27,000 in recent years. The increase was approved 3-1 at last week’s board meeting. Board member Steve Williams voted no because he “felt like the students already in the system should pay the same as other kids paying tuition. I thought we should have grandfathered those existing out-of-state kids in.” Students already in the system are being “phased in” to a higher rate.

    America’s higher education faces economic hurdles - The recession continues to create challenges for higher education in the US.  The optimal response to a cyclical change is to not allow significant changes to the structure of the colleges and universities. But if a change is permanent, adjustments are warranted. Of course, it is difficult to know whether shocks are permanent or temporary – there is a tendency to assume positive shocks are permanent and negative ones temporary, leading to inappropriate policy responses when wrong. One of the most important developments in the US economy is the growth of real incomes. In the past decade, real incomes have suffered, putting downward pressure on tuition increases at many institutions. If real income growth picks up, so will the ability of some institutions to increase tuition. The distribution of income across families also matters. One of the challenges of the past few decades has been that real income growth has been very skewed towards higher income families. The highest income families are willing and able to pay the full price. Schools compete for these students, supplying the services they desire, pushing up costs. At the same time, schools have been committed to increased socioeconomic diversity. Lagging lower-income families’ incomes increases the need for financial aid. If the income distribution were less skewed, the demand for services at one end and the need for financial aid at the other would moderate.

    Classroom Technology Faces Skeptics At Research Universities - Professors at top research universities are highly skeptical of the value of the instructional technologies being injected into their classrooms, which many see as making their job harder and doing little to improve teaching and learning.  That's the conclusion of "Technological Change and Professional Control in the Professoriate," published in the January edition of Science, Technology & Human Values. Based on interviews with 42 faculty members at three research-intensive universities, the study was funded under a grant from the National Science Foundation and particularly focuses on professors in the sciences, including chemistry and biology, with anthropology thrown in as a point of comparison.

    Editorial: The Trouble With Online College - NYT - Stanford University ratcheted up interest in online education when a pair of celebrity professors attracted more than 150,000 students from around the world to a noncredit, open enrollment course on artificial intelligence. This development, though, says very little about what role online courses could have as part of standard college instruction. College administrators who dream of emulating this strategy for classes like freshman English would be irresponsible not to consider two serious issues.  First, student attrition rates — around 90 percent for some huge online courses — appear to be a problem even in small-scale online courses when compared with traditional face-to-face classes. Second, courses delivered solely online may be fine for highly skilled, highly motivated people, but they are inappropriate for struggling students who make up a significant portion of college enrollment and who need close contact with instructors to succeed.

    How Do We Break The Cycle Of Higher Tuition And More Debt - As we have discussed in detail (here, here, and most recently here), many college students face repaying a mountain of debt upon graduating, and many college graduates end up working jobs that don't require a degree. Even worse, 40 percent of college students drop out without earning a degree, but that does not free them from the debt they have accumulated. In this brief clip, Professor Daniel Lin argues - rightly - that government subsidies are to blame for the continually rising costs of higher education. Although such subsidies are supposed to help defray college costs, they are making the situation worse. A policy that worsens the problem it is supposed to fix should be eliminated - even if it is the government's only credit inflating tool left.

    Why Can’t People with Student Loans Refinance at Better Rates? -- One of the few silver linings of the Great Recession has been a precipitous drop in interest rates that has lowered the cost of borrowing for millions of consumers. The historic decline in rates, however, has done almost nothing for folks with a student loan. Those with college debt have largely missed the refinance boom. Why? Congress—not the free market—sets the interest rate on the vast majority of student debt, and because these loans are not secured by collateral, private lenders are loath to step in and undercut the federal government’s terms. Borrowers with decent credit have gotten relief in virtually every other sphere. By one estimate, low rates are saving the typical household $3,100 a year. Americans now spend 5.8% of after-tax income on consumer interest, the smallest share in 34 years and a sharp drop from 9.1% before the recession. Mortgage interest payments alone are down 30%.

    Fiscal trouble ahead for most future retirees - For the first time since the New Deal, a majority of Americans are headed toward a retirement in which they will be financially worse off than their parents, jeopardizing a long era of improved living standards for the nation’s elderly, according to a growing consensus of new research. The Great Recession and the weak recovery darkened the retirement picture for significant numbers of Americans. And the full extent of the damage is only now being grasped by experts and policymakers. There was already mounting concern for the long-term security of the country’s rapidly graying population. Then the downturn destroyed 40 percent of Americans’ personal wealth, while creating a long period of high unemployment and an environment in which savings accounts pay almost no interest. Although the surging stock market is approaching record highs, most of these gains are flowing to well-off Americans who already are in relatively good shape for retirement.

    Unfunded Federal Pension Liabilities Head Skyward - The unfunded liability of federal pensions have skyrocketed to more than $750 billion in the most recent accounting year available, according to an annual government report obtained by the Federal Times. The unfunded liability hit $761.5 billion in fiscal 2011 — an increase of $139 billion from the year before, The Times reported. The Times extracted the information from the Office of Personnel Management (OPM)’s Civil Service Retirement and Disability Fund annual report for 2012, which it received upon request to the OPM. Sen. Tom Coburn, R-Okla., said the report raises questions regarding how the U.S. government intends to pay for government worker retirements. “It is clear Congress should take action to ensure federal employee retirement costs are not being funded at the expense of the taxpayers or by simply borrowing more money,” Coburn said.

    Social Security’s disincentives for longer work lives - Larry Kotlikoff points to “Social Security’s Huge Obscure Incentive to Keep Working,” noting that “Each year you work, you add to your earnings record leading Social Security to automatically recalculate your benefits.” The problem is that, for most people near retirement age, working longer actually produces little or no increase in the benefits they’ll receive at retirement. There are two reasons: First, Social Security bases benefits on your highest 35 years of earnings. So if you’ve already worked 35 years—which is common for many men—then additional work raises your benefits only to the degree that your earnings this year exceed the lowest of the high 35 you’ve currently amassed. Moreover, Social Security’s benefit formula increases your past earnings along with average wage growth, so what you earn this year may not do much to boost your benefits. Social Security presents women with a different problem. Social Security pays the lower-earning spouse, usually a woman, the greater of her own earned benefit or half of the benefit received by the higher-earning spouse, but not both. Despite greater female labor force participation, most women today still receive a spousal benefit. An additional year of work might raise the benefit they could claim on their own earnings, but won’t affect the spousal benefit they can receive. Again, more work often results in no more benefits.

    Obama Warned On Social Security Reform By House Democrats - President Barack Obama may find opposition from inside his own party if he is serious about making changes to the way Social Security benefits are distributed in order to pass a deal to replace sequestration. A majority of the House Democrats -- 107 members -- sent Obama a letter on Friday stating that any changes to entitlements will be opposed by members of his own party. "We remain deeply opposed to proposals to reduce Social Security benefits through use of the chained CPI to calculate cost-of-living adjustments," reads the letter, which was the idea of Reps. Jan Schakowsky (D-Ill.), Keith Ellison (D-Minn.), Raul Grijalva (D-Ariz.), John Conyers (D-Mich.) and Donna Edwards (D-Md.).White House Press Secretary Jay Carney recently said the president would be open to implementing chained Consumer Price Index (CPI), which would alter the annual adjustment in how benefits are paid to Social Security recipients by using a less generous baseline of inflation.

    Strengthening Social Security for all - Americans need Social Security more than ever, and they’re willing to pay for it. Rather than more cuts, we need higher benefits across the board. This was the gist of my presentation at the National Academy of Social Insurance conference last month, whose theme was “Social Security and Medicare in a Time of Budget Austerity” (emphasis added). I wasn’t expecting it to go over very well. Though my colleague Josh Bivens likes to point out that deficit reduction doesn’t necessarily imply spending cuts, and though Republicans don’t hesitate to call for tax cuts in the same context, there’s a general sense that expanding social insurance programs is out of the question and the best we can hope for is targeted measures to protect the most vulnerable.[1] Even many progressives have trimmed their sails. Though most reject the need for additional cuts, few call for fully reversing cuts enacted in 1983, notably the gradual increase in the retirement age that is still taking effect.  Though almost all agree we should “scrap the cap” on taxable earnings, this only gets you part of the way to closing the projected shortfall in the aftermath of the Great Recession.This seems to be changing, if the mood at the NASI conference is any indication. Rather than being contrarian, my presentation was almost redundant

    Canadian Unretirement Index: Most Say They Won't Stop Working After Age 66 - Forget Freedom 55 or even 65. The vast majority of Canadians surveyed in a new poll don't expect to retire before age 66. And the number of Canadians who believe they'll be done with work in the year after they reach the traditional retirement age of 65 has fallen by nearly 50 per cent since 2008, according to Sun Life Financial's annual Canadian Unretirement Index. The number of Canadians anticipating they'll stop working by 66 dropped to just 27 per cent in this year's survey, compared to 51 per cent in 2008. The average age of expected retirement is 68, the same as last year, but up significantly from age 64, which was the average cited in the inaugural 2008 survey. For the first time in the five years Sun Life has tracked retirement trends, the number of Canadians expecting to be retired at 66 (27 per cent) nearly equalled the 26 per cent expecting to be working full time at that age. Another 32 per cent imagined they’d be working part-time at that stage.

    Connecting Entitlement Reform to Immigration Reform - Robert Reich : Most of us early boomers had planned to retire around now. Those born a few years later had planned to retire in a few years. But these plans have gone awry. First, boomer wages didn’t rise as fast as we expected they would. In fact, over the last thirty years the median wage has barely budged, adjusted for inflation. As a result, most of us haven’t saved as much as we’d hoped. Then employers scaled back our pensions. Instead of the predictable monthly benefits many of our parents got when they retired, we received “defined contribution” plans – basically, do-it-yourself pensions. Some employers initially offered to match what we socked away, but those employer matches often shrank to the vanishing point. We nonetheless took comfort from the rising prices of our homes, and assumed they’d become modest nest eggs when we sold them and bought smaller places for retirement. But then the housing bubble burst. Meanwhile, whatever we’d managed to sock away in the stock market lost years of value. We assumed we’d at least have Social Security and Medicare. After all, we’ve been paying into both programs for years. Yet both are now being eyed by deficit hawks who say the only way to avoid large and unsustainable budget deficits in future years is to limit these programs. 

    CalPERS plans 85% rate hike for long-term-care insurance - Dailey Mayo received some stunning news in the mail last week: an 85% rate increase for the long-term-care insurance he has had for 15 years from the California Public Employees' Retirement System. The retired sales manager in Pasadena said his monthly premium of nearly $400 would jump to $738, or about $8,850 annually, under this plan. "I'm 82 now and I might need this care soon," he said. "It really ticks me off that they are doing this." More than 110,000 CalPERS policyholders are receiving similar news after the pension fund's board approved the changes late last year. CalPERS said the hefty rate hikes won't take effect until 2015 and are necessary to keep this $3.6-billion insurance fund intact for future claims. This CalPERS program, like other plans sold by private insurers, has been plagued by higher-than-expected claims, lower investment returns and poor pricing. "We understand people's anger and frustration," said Bill Madison, a CalPERS spokesman. "It's not something the board wanted to do, but it's necessary so benefits are available to people when they need it. We know these rate increases can be a financial hardship."

    Student Health Costs to Rise - Students protest the UC’s response to the SHIP funding crisis, a $54 million deficit. UC Irvine students and staff workers demonstrated outside Aldrich Hall last Tuesday morning to protest and bring awareness to several issues surrounding the UC Student Health Insurance Plan (SHIP). Alliant Insurance Services, an actuarial firm that was hired by UC SHIP management, released a report on Jan. 11 that detailed the approximate $54 million deficit that UC SHIP accumulated during 2010-13. The deficit is partially the result of miscalculations by the firm pricing benefits at too low of a premium.The report released by the consulting firm in January also recommends student premiums be increased by an average of 25 percent for the 2013-14 year. Other options also include cutting services, such as dental and vision care, as well as reducing “unnecessary emergency room visits” and encouraging students to utilize UC facilities.

    Chart of the day: Medicare’s administrative costs, explained - In the Journal of Health Politics, Policy and Law, Kip Sullivan of the Minnesota chapter of Physicians for a National Health Program thinks almost everyone doesn’t understand Medicare’s administrative costs. He has problems of varying degree with the writing of Greg Mankiw, Paul Krugman, John Goodman, Thomas Saving, Dianne Archer, the Kaiser Family Foundation, and Ezra Klein, whom he quotes at length and then responds, If by “premium collection” Klein meant taxes, he was wrong; a portion of IRS costs are allocated to Medicare’s overhead by OACT [CMS's Office of the Actuary]. If by “premium collection” Klein meant Part B premiums, he was wrong on two counts: (1) the Social Security Administration, not the IRS, calculates and collects Part B premiums for the vast majority of Medicare enrollees, and the Railroad Retirement Board does so for former railroad workers; and (2) a portion of the SSA’s and the railroad board’s costs are allocated to Medicare’s overhead by OACT. Klein’s statement that the cost of processing claims for the traditional Medicare program does not appear in Medicare’s administrative expenditures is also incorrect. OACT does include the cost of claims processing, which is done by what used to be called “carriers” and “intermediaries” and are now called “Medicare administrative contractors.” [...]

    Setting the record straight on Medicare's overhead costs - The traditional Medicare program allocates only 1 percent of total spending to overhead compared with 6 percent when the privatized portion of Medicare, known as Medicare Advantage, is included, according to a study in the June 2013 issue of the Journal of Health Politics, Policy and Law. The 1 percent figure ... is based on data contained in the latest report of the Medicare trustees. The 6 percent figure, on the other hand, is based on data contained in the latest National Health Expenditure Accounts (NHEA) report.  ... According to Minneapolis-based researcher Kip Sullivan, there is confusion about Medicare's overhead costs. "The confusion is due partly to the existence of two government reports," says Sullivan, "and partly to claims by critics of Medicare that the government fails to report all of Medicare's overhead costs." The paper addresses both sources of confusion. The article explains the difference between the yardstick used by the trustees and the one used by the NHEA and concludes both are accurate. The 1 percent figure is the one that should be used to analyze several hotly debated health reform issues, including whether to expand traditional Medicare to all Americans and whether to turn Medicare over to the insurance industry, either by expanding the Medicare Advantage program of by converting Medicare to a voucher program as Rep. Paul Ryan has proposed. ... The average overhead of the health insurance industry is approximately 20 percent, he said.

    Privately Run Medicare Plans are Really Expensive - Austin Frakt draws my attention today to a new article about the administrative costs of Medicare. Exciting stuff! Long story short, Kip Sullivan of  of Physicians for a National Health Program wants everyone to understand just what's involved in figuring out the true administrative costs of Medicare. The cost of collecting payroll taxes is one frequently overlooked element, for example. More interestingly, though, there's a large and growing gap between the overhead calculations of the Medicare Trustees and those of the National Health Expenditure Accounts. Why is that? According to Sullivan, the Treasury’s calculation of administrative costs does not include those incurred by Medicare Advantage and private, Part D (drug) plans....The trustees’ and NHEA measures were fairly close until the 1980s. Then they diverged as enrollment grew in Medicare Advantage and its predecessor programs. In 2006, Part D drug plans became available and the two types of administrative costs diverged further still. As traditional Medicare’s administrative costs went down, those of private plans grew.

    The Health Benefits That Cut Your Pay - NYTimes - NOT long ago, a 23-year-old woman joined my company as an assistant in the advertising sales department at a starting salary of $35,000. Smart, ambitious and poised, she should have a promising future. Unfortunately, her earnings prospects are threatened. Like many Americans, she’s unaware of how much of her compensation is being eaten up by health care costs, and how much this share will grow as long as the increase in health costs exceeds growth in gross domestic product. That’s just math. Enlarge This Image Tomi UmThe Affordable Care Act does require employers, beginning this year, to note on W-2’s how much both the employee and the employer contributed to health care costs. Maybe that will help diminish the ignorance regarding true health care costs. But even with greater awareness, many Americans still might not understand that the largest effect of the cost of our health care system is to reduce the amount of money they actually take home. I have estimated that our 23-year-old employee will bear at least $1.8 million in health care costs over her lifetime. That’s assuming that such costs don’t grow by more than current government estimates, that she never has a working spouse, and that she and her dependents don’t ever contract a serious illness.

    Using Deceptive Numbers on Health Care in the NYT - Dean Baker - It is really easy and apparently fun for some people to use scary numbers about health care costs. The trick is to take numbers over a long period of time that are not adjusted for inflation or income growth.  That is what David Goldhill, the chief executive of GSN, did in an oped in the NYT. He told readers about a newly hired 23 year-old at his company who is earning $35,000 a year: "I have estimated that our 23-year-old employee will bear at least $1.8 million in health care costs over her lifetime."  It is unlikely that even 1 percent of NYT readers (I know they are highly educated) has any clue what $1.8 million means over this worker's lifetime. The question then is why did the NYT let Goldhill use the number? He surely could have used a standard discount rate and converted it into 2013 dollars. Alternatively he could have expressed the number as a share of the worker's lifetime income. The NYT was incredibly irresponsible to let Goldhill just include this $1.8 million number with no context. It is probably also worth noting that this recipe for curing health care costs would be quickly dismissed by anyone familiar with current expenses. He wants to restrict insurance to catastrophic care (will he arrest people for providing normal insurance?), but he seems to have missed the fact that the overwhelming majority of health care costs fall into this category. He apparently is also unfamiliar with the experience with health care costs in other countries, which pay an average of less than half as much per person as the United States, while getting comparable health outcomes.

    Oregonians’ courage can bring health care to all - Even with the 2012 Affordable Care Act, access to affordable health care remains out of reach for too many Americans. People needing medical attention often go without or hope for some unexpected intervention (the lottery, say, or some miraculous healing). Oregon Rep. Michael Dembrow, D-Portland, has drafted the Act for Affordable Health Care for All Oregon (House Resolution 2922). The bill has garnered some backing among Dembrow’s colleagues, but needs much more support in the House, the Senate, and from Oregonians who feel pinched by health care costs. The purpose of Dembrow’s Health Care for All Oregon bill is to ensure access to high-quality, patient-centered and affordable health care for all Oregonians, to improve public health overall, and to reel in costs of health care. Who wins? Individuals, families, businesses and society as a whole. The bill, which covers all people living or working in Oregon, would eliminate copayments and deductibles. This bill is not about changing the actual delivery of health care, but about reforming the convoluted means of financing it. Under this bill you and I would no longer be penalized for “going out of network” to get the care we need, nor would we lose our coverage through the loss of a job.

    Big health insurance rate hikes are plummeting, by Sarah Kliff: The number of double-digit rate increases requested by health insurers has plummeted over the past four years, according to a Friday report from the Obama administration. Researchers combed through data available from the 15 states that publicly post all requests for rate increases in the individual market. They found that, in 2009, 74 percent of all requests came in above 10 percent. By 2012, that number had fallen to 35 percent. Preliminary data for 2013, which only cover a handful of states, shows 14 percent of rate increases asking for a double-digit bump. Here’s what this looks like in chart form:

    Chart of the Day: Health spending and job growth - Jared Bernstein shared the chart below, sourcing it to “National Health Expenditures data, BEA, BLS.” You can click over to read his take on it. Mine is much simpler. Perhaps before you read either, you might take a moment to see what story your brain spins from this chart.  Surprise! There’s no story to tell. It’s just math. What we’re seeing is a demonstration that X and Y-X are negatively correlated. A decrease in job growth (red line) is associated with a decrease in GDP growth (recessions in the early 1980s, 1990s, 2000s, and the BIG ONE circa 2008). Health spending growth is relatively less sensitive to business cycles. That makes the difference between health spending growth and GDP growth bigger (blue line). So, a negative correlation is nearly guaranteed.

    States worry about rate shock during shift to new health law - — Less than a year before Americans will be required to have insurance under President Obama's healthcare law, many of its backers are growing increasingly anxious that premiums could jump, driven up by the legislation itself. Higher premiums could undermine a core promise of the Affordable Care Act: to make basic health protections available to all Americans for the first time. Major rate increases also threaten to cause a backlash just as the law is supposed to deliver many key benefits Obama promised when he signed it in 2010. "The single biggest issue we face now is affordability," said Jill Zorn, senior program officer at the Universal Health Care Foundation of Connecticut, a consumer advocacy group that championed the new law. Administration officials have consistently downplayed the specter of rate increases and other disruptions as millions of Americans move into overhauled insurance markets in 2014. They cite provisions in the law that they say will hold down premiums, including new competitive markets they believe will make insurers offer competitive rates. Exactly how high the premiums may go won't be known until later this year. But already, officials in states that support the law have sounded warnings that some people — mostly those who are young and do not receive coverage through their work — may see considerably higher prices than expected.

    It’s official: The feds will run most Obamacare exchanges - Friday was a very important day for health policy days. It was the last day for states to tell the federal government whether they wanted any part in running the Affordable Care Act  health exchanges come 2014. The federal government did not get many takers. Some of the most closely watched states, including Florida and New Jersey, decided to leave the entire task to the federal government. All told, the federal government will run 26 of the state health exchanges. It  also will partner with seven states, where state and federal officials take joint responsibility for the marketplace. Seventeen states and the District of Columbia will take on the task themselves. Here’s what that looks like in map form, via the Kaiser Family Foundation.  As for the partisan breakdown, this graph should give you a sense of how politics played a role in state decisions. While you do see some Republican-led states running exchanges—and some states with Democratic governors passing up the opportunity—there is a definite split along party lines.

    Health Care Thoughts: Obamacare Updates - The slow march toward full implementation continues. Exchanges – As of today 17 states will create their own exchange, seven states will partner with the government, and 26 states have defaulted to the federal program (if anyone asked me I would suggest defaulting in order to let the feds do the early heavy lifting). Perhaps the most important questions now are: Will any of the exchanges be ready on time? Will the products be affordable? How will employers respond? Employer Response – there is a great deal of discussion but very few decisions have been announced (although some are likely in place but not announced). Will a generally weak economy and slack labor market play into the decisions? Time will tell. A strategy of self-insuring may gain favor, and I will do a separate post on that topic. Providers – the word I hear most often is “chaos.” Providers are trying to prepare for a system as yet poorly defined. Some trends are emerging (integration, the early ACOs) but it is too early to tell how anything will work.

    WAPO Uses News Section to Talk About "Revenue-Bleeding Entitlement System" -- Dean Baker -The Washington Post once again showed why it is known as "Fox on 15th Street," when it reported on a group of small business owners urging that Social Security, Medicare and Medicaid be protected from cuts At one point the piece refers to plans for, "overhauling the nation’s revenue-bleeding entitlement system."  "Revenue-bleeding" does not appear to be the official name for the programs in question. Most newspapers would try to constrain their enthusiasm for cuts to Social Security, Medicare, and Medicaid and leave phrases like "revenue-bleeding" for the opinion pages. The piece also includes the inaccurate assertion that: "Once again, the hour is growing late for elected officials to strike a deal to avoid a potentially catastrophic blow to the economy, as the $1.2 trillion round of automatic spending cuts known as “sequestration” is scheduled to commence at the end of the month." It is not clear what is meant by "catastrophic." Any deficit reduction of the sort that the Post routinely advocates will slow growth and increase unemployment. The sequester cuts are no different in this respect, however the Post has usually urged these cuts and praised others for doing pushing them. It is striking that it now seems to treat it as a fact that deficit reduction would be catastrophic.

    Swiss Myths - Paul Krugman - Oh, my. Aaron Carroll is rightly very, very annoyed at Douglas Holtz-Eakin and Arik Roy for saying that Obamacare should be replaced with a free-market system, like Switzerland’s. As he points out, the Swiss system is nothing like their description. In particular, they denounce community rating — but Switzerland has community rating! Actually, though, it’s even worse than Carroll lets on, for two reasons. One is that Obamacare in fact looks a lot like, you guessed it, the Swiss system — so much so that back in 2009 I described it as a plan to Swissfy America. After all the screaming about the awfulness of Obamacare, it’s pretty rich to hold up as a role model a very similar system. But wait, there’s more: the Swiss system is more privatized than other European systems — and guess what, it has higher costs, indeed second only to America’s:

    Health law's backers fear higher costs - Less than a year before Americans will be required to have insurance under President Obama's health-care law, many of its backers are growing increasingly anxious that premiums could jump, driven up by the legislation itself. Higher premiums could undermine a core promise of the Affordable Care Act: to make basic health protections available to all Americans for the first time. Major rate increases also threaten to cause a backlash just as the law is supposed to deliver many key benefits Obama promised when he signed it in 2010. "The single biggest issue we face now is affordability," said Jill Zorn, senior program officer at the Universal Health Care Foundation of Connecticut, a consumer advocacy group that championed the new law. Administration officials have consistently downplayed the specter of rate increases and other disruptions as millions of Americans move into overhauled insurance markets in 2014. They cite provisions in the law that they say will hold down premiums, including new competitive markets they believe will make insurers offer competitive rates.

    US business complain about ‘Obamacare’ costs  - David Dillon, chief executive of the Kroger supermarket chain, told the Financial Times that some companies might opt to pay a government-mandated penalty for not providing insurance because it was cheaper than the cost of coverage. Nigel Travis, head of Dunkin’ Brands, said his doughnut chain was lobbying to change the definition of “full-time” employees eligible for coverage from those working at least 30 hours a week to 40 hours a week. Some restaurants, including Wendy’s and Taco Bell franchises, have explored slashing worker hours so fewer employees qualify for health insurance, arguing that they cannot afford the additional healthcare costs. Other businesses are deliberately keeping headcounts below 50.  The penalty for not providing coverage is $2,000 per worker. According to the Kaiser Family Foundation, a non-partisan policy group, the average annual cost to employers of insurance is $4,664 for a single worker and $11,429 for a family.Companies with more than 50 workers have to pay a penalty if they do not provide full-time employees with health insurance. The employees can instead buy private coverage subsidised by the government on new insurance exchanges.

    Self-Insurance by Small Employers Under the ACA: [S]elf-insurance in employer-sponsored health insurance is a riddle wrapped in a mystery inside an enigma… the explosive growth in self-insurance by employer sponsored health insurance plans is… under-discussed… the New York Times took it on…. explains… 59% of private sector workers with health coverage are enrolled in self-insured plans (up from 41% in 1998)… the exemption of self-insured plan from state health insurance regulation is not premised on any genuine absence from all insurance markets, the article explains about self-insured plans' participation in the stop-loss insurance market…. The stop-loss market responds by cherry picking among the new refugees on the basis of -- you guess it -- health status of the employee group, reintroducing underwriting by small group to places where it had been eliminated for individuals by the Affordable Care Act. The moral of the story? Whereever and whenever we have competing insurance products whose profitability is determined by calculating every health care payout as a loss, the insurance markets will respond accordingly -- ever inventing more methods, even if once or twice removed, to screen those who need health insurance out of the health insurance marketplace.

    Wages and Employer Penalties - The cost to workers of the Affordable Care Act’s employer responsibility penalties is greater than you think, because of their business tax treatment.  Most low-skill workers are not offered health insurance by their employers, and those employers have been complaining about the $2,000-per-employee annual penalty they will pay beginning next year ($3,000 per employee who resorts to a subsidized exchange when insurance offered by the employer is deemed unaffordable to the worker). Next year will not be the first time that employers had to pay taxes based on the number of employees they have. For example, they have been paying payroll taxes that amount to almost $2,000 per year for an employee with a $25,000 salary. Employer payroll taxes have been extensively studied, and economists have concluded that employees ultimately pay for those taxes in the form of lower wages.  Thus you might think that the new $2,000 penalty would reduce wages by about $2,000 per employee per year. But unlike employer payroll taxes, the employer responsibility levies are not deductible from employer business taxes (see page 74 of this I.R.S. document). To have the same after-tax profit, an employer in the 39 percent bracket (a typical state-plus-federal bracket for corporations) would have to cut wages by $3,046.

    Labor unions that pushed Obamacare through want out - Unions, or rather the professional class of union leaders, were vehement supporters of Obamacare’s federal takeover of health care. Now that they’ve had a chance to actually read the 2,801-page bill and “find out what is in it,” they are upset and want out. Major unions like the AFL-CIO and the Teamsters are now demanding that they be allowed to stay on their current health care plans and receive government subsidies to cover the increased costs some of Obamacare’s provisions will impose on lower-income workers. They want to eat their government cake and have it too. What else is new? Who would foot the bill? You guessed it: We, the taxpayers. The rank hypocrisy of Obamacare-backing unions began almost immediately after the passage of the bill three years ago, with hundreds of thousands of union workers being exempted from the law through waivers from the Obama administration. In total, more than 1,200 entities were granted waivers from President Obama‘s signature legislation, the vast majority of them labor unions. In fact, unions representing 543,812 workers received waivers, while only 69,813 employees at private firms, many of them small businesses, managed to secure a waiver. The same unions that fought tooth and nail to impose this program on all Americans used million-dollar lobbyists to make sure they didn’t have to play by the same rules as the rest of us.

    H&R Block warns millions not prepared for Obamacare penalties - The Washington Post reports this morning that tax preparer H&R Block is warning that millions of Americans will be in for a shock in a few years’ time when they don’t get the refunds they were expecting, thanks to Obamacare. H&R Block may lay claim to the most unique gripe. The firm prepares millions of tax returns, one of every seven that gets filed to the Internal Revenue Service. The vast majority of its consumers receive a refund; all told, their 26.5 million customers received $50 billion in refunds in 2012. The Affordable Care Act could change that: It charges a tax penalty to Americans who do not carry health insurance coverage. And that has H&R Block worried that some of those refunds will get eaten up – with a lot of angry customers pointing a finger at them. “Eighty-five percent of our customers get a refund,” Kathy Pickering, who directs the H&R Block Tax Institute, says. “That refund could be offset by the penalty. And if that happens, they’re going to be understandably angry.”

    The terrible little tax inside Obama’s health care reform law - Perhaps never has a more harmful and deceptively named tax received so little attention. The 2010 health care reform law, the Affordable Care Act, included a whopping 3.8 percentage point tax hike on interest, dividends, capital gains, and passive business income received by higher-income Americans. It took effect as of Jan. 1 this year. The levy is called the Unearned Income Medicare Contribution, or UIMC. And when combined with the expiration of the upper-income Bush II tax cuts, it raises investment tax rates from 15% to just shy of 24% (not counting the 1.2% Pease add on). Several observations:

    • 1. The tax applies applies only to taxpayers with modified adjusted gross incomes over $200,000 (individuals) and $250,000 (married couples). Unfortunately, those threshold incomes are not indexed to inflation. So while 3.7 million households will get clipped this year, that number will rise with time, hitting an estimated 7.5 million in 2022.
    • 2. Despite a) the tax’s name and b) that it was passed as part of health care reform, dough from the UIMC is not earmarked for Medicare but goes right into the general treasury to be spent for whatever purpose Congress deems appropriate
    Two factors are driving healthcare costs lower, but are they benefiting the consumer? - The growth in healthcare costs in the US has slowed substantially in recent years. Some have argued that this stabilization is somehow benefiting the US consumer. It's not at all obvious this is the case however. What's really driving this slower growth in American healthcare costs? There seem to be two key factors at play:
    1.  Budgetary constraints are driving a reduction in Medicaid and ... JPMorgan: - Cash-strapped state governments have taken a variety of measures to cut back on Medicaid spending, particularly after a temporary bump up in the federal share of funding expired in mid-2011. In fiscal year 2012 states undertook 193 separate actions aimed at containing Medicaid costs, such as freezing or reducing provider payments or increasing copayments. This fiscal year the states intend to take another 150 steps to limit Medicaid expenses... Medicare spending.
    2. In spite of improved trends in healthcare costs, health insurance premiums are still rising sharply. NY Times: - Major insurers are proposing painful, double-digit premium increases in 2013. In California, Anthem Blue Cross, Blue Shield of California and Aetna all announced rate increases of 20 percent or higher for some of their customers.

    Bitter Pill: The Exorbitant Prices Of Health Care - Instead of asking the endless question of "who should pay for healthcare?" Time magazine's cover story this week by Steve Brill asks a much more sensible - and disturbing question - "why does healthcare cost so much?" While it will not come as a surprise to any ZeroHedge reader - as we most recently noted here - this brief clip on the outrageous pricing and egregious profits that are destroying our health care quickly summarizes just how disastrous the situation really is.  A simplified perspective here is simple, as with higher education costs and student loans: since all the expenses incurred are covered by debt/entitlements, there is no price discrimination which allows vendors to hike prices to whatever levels they want. From the $21,000 heartburn to "giving our CT scans like candy," Brill concludes "put simply, with Obamacare we’ve changed the rules related to who pays for what, but we haven’t done much to change the prices we pay."

    Shame - So, of course you should go read Steven Brill’s excellent article on health care price gouging. Or maybe you shouldn’t. It’s very long. But citizenship does carry burdens. Like this: By the time Steven D. died at his home in Northern California the following November, he had lived for an additional 11 months. And Alice had collected bills totaling $902,452. The family’s first bill — for $348,000 — which arrived when Steven got home from the Seton Medical Center in Daly City, Calif., was full of all the usual chargemaster profit grabs: $18 each for 88 diabetes-test strips that Amazon sells in boxes of 50 for $27.85; $24 each for 19 niacin pills that are sold in drugstores for about a nickel apiece. There were also four boxes of sterile gauze pads for $77 each. None of that was considered part of what was provided in return for Seton’s facility charge for the intensive-care unit for two days at $13,225 a day, 12 days in the critical unit at $7,315 a day and one day in a standard room (all of which totaled $120,116 over 15 days). There was also $20,886 for CT scans and $24,251 for lab work. The burden of citizenship is to share in, and hold people to account for, the injustices experienced by our neighbors. Alice was fucking ripped off to the tune of any semblance of economic and financial security she might ever have had at the very moment that her husband was dying of cancer. This is beyond awful. This is mortal sin in any religion worth the name. This is pure evil.  Is that who we are?

    High Court Lets FTC Review Hospital Merger - —The U.S. Supreme Court on Tuesday gave more muscle to federal antitrust enforcers' ability to police hospital mergers, the latest win for the government in its campaign to monitor the fast-consolidating industry. The court, in a unanimous decision, revived the Federal Trade Commission's challenge to a Georgia hospital deal, ruling the merger wasn't immune to federal antitrust scrutiny. The decision placed limits on the circumstances in which local governments are exempt from federal antitrust laws. At issue was a FTC challenge to a merger in Albany, Ga., that combined Phoebe Putney Memorial Hospital, a subsidiary of a nonprofit corporation created by a local hospital board, and competitor Palmyra Park Hospital, a for-profit hospital owned by HCA Holdings. The two hospitals completed the merger in 2011 after winning an appeals court ruling. The FTC in its challenge argued the hospital combination would create a local monopoly, leading to higher prices for patients and health insurers. The Georgia case was part of a recent batch of merger lawsuits the FTC has brought in an attempt to revive its hospital enforcement program. It and the Justice Department suffered a series of court defeats in hospital cases in the 1990s.

    Trial sans Error: How Pharma-Funded Research Cherry-Picks Positive Result - Before we get going, we need to establish one thing beyond any doubt: industry-funded trials are more likely to produce a positive, flattering result than independently funded trials.  We can begin with some recent work: in 2010, three researchers from Harvard and Toronto found all the trials looking at five major classes of drug—antidepressants, ulcer drugs and so on—then measured two key features: were they positive, and were they funded by industry? They found over five hundred trials in total: 85 per cent of the industry-funded studies were positive, but only 50 per cent of the government funded trials were. That’s a very significant difference. In 2007, researchers looked at every published trial that set out to explore the benefit of a statin. These are cholesterol lowering drugs which reduce your risk of having a heart attack, they are prescribed in very large quantities, and they will loom large in this book. This study found 192 trials in total, either comparing one statin against another, or comparing a statin against a different kind of treatment. Once the researchers controlled for other factors (we’ll delve into what this means later), they found that industry-funded trials were twenty times more likely to give results favoring the test drug. Again, that’s a very big difference.

    Strictly Legal - U.S. v. Caronia involves Big Pharma, shedding a gloomier darkness on that already stygian world. Plaintiff Alfred Caronia is or was a sales rep for the wonderfully named Orphan Medical, which makes a drug named Xyrem. Xyrem has been approved by the Food and Drug Administration (FDA) for a restricted use: namely, to treat narcoleptic patients suffering from cataplexy, once known as hysterical paralysis. The laws currently state that doctors are free to prescribe drugs for “off-label” – i.e., unproven – applications. However, drug manufacturers cannot promote off-label uses. Their marketing statements are limited to the range of uses approved by the FDA, based on the results of clinical testing. These have long been the rules of the game. But minor matters of science, legality and ethics couldn’t stop a go-getter like Mr. Caronia. In his spiel to prescribers, he would make a series of wishfully inflated claims for Xyrem, claiming it could be of use for everything from Parkinson’s syndrome to fibromyalgia to “restless leg syndrome.” He also informed doctors that the drug was safe for patients under the age of 16, although a black box warning printed on the label bluntly states that it has not been tested for safety and efficacy on children. There was good reason to be cautious in this regard, as Xyrem is essentially a gussied-up form of GHB, the date-rape drug of choice for sexual predators. 

    Project Seeks to Build Map of Human Brain -  The Obama administration is planning a decade-long scientific effort to examine the workings of the human brain and build a comprehensive map of its activity, seeking to do for the brain what the Human Genome Project did for genetics.The project, which the administration has been looking to unveil as early as March, will include federal agencies, private foundations and teams of neuroscientists and nanoscientists in a concerted effort to advance the knowledge of the brain’s billions of neurons and gain greater insights into perception, actions and, ultimately, consciousness. Scientists with the highest hopes for the project also see it as a way to develop the technology essential to understanding diseases like Alzheimer’s and Parkinson’s, as well as to find new therapies for a variety of mental illnesses. Moreover, the project holds the potential of paving the way for advances in artificial intelligence. The project, which could ultimately cost billions of dollars, is expected to be part of the president’s budget proposal next month. And, four scientists and representatives of research institutions said they had participated in planning for what is being called the Brain Activity Map project.

    What Our Brains Can Teach Us - AFTER President Obama’s recent announcement of a plan to invigorate the study of neuroscience with what could amount to a $3 billion investment, a reasonable taxpayer might ask: Why brain science? Why now?  We are the aliens in that landscape, and the brain is an even more complicated cipher. It is composed of 100 billion electrically active cells called neurons, each connected to many thousands of its neighbors. Each neuron relays information in the form of miniature voltage spikes, which are then converted into chemical signals that bridge the gap to other neurons. Most neurons send these signals many times per second; if each signaling event were to make a sound as loud as a pin dropping, the cacophony from a single human head would blow out all the windows. The complexity of such a system bankrupts our language; observing the brain with our current technologies, we mostly detect an enigmatic uproar.  Looking at the brain from a distance isn’t much use, nor is zooming in to a single neuron. A new kind of science is required, one that can track and analyze the activity of billions of neurons simultaneously.

    Researchers Link Air Pollution To Heart Attacks -  Air pollution causes heart attacks and death. Especially when the pollutants include ozone and particulate matter. And more often in the summer time, when ozone levels are higher.These are the conclusions of researchers at Rice University who studied the 11,677 cases of cardiac arrest logged by emergency services personnel in Houston, Tx. between 2004 and 2011. They found that during periods of peak pollution, the heart attack risk to Houston residents increases as much as 4.6%. All these heart attacks took place outside of hospitals. The researchers Katherine Ensor and Loren Raun cross referenced the time and place of the cases against air pollutant levels recorded by the extensive network of air monitors throughout the Houston area. They announced their findings over the weekend at the American Association for the Advancement of Science (AAAS) conference in Boston.

    UN will not compensate Haiti cholera victims, Ban Ki-moon tells president - The UN has taken the rare step of invoking its legal immunity to rebuff claims for compensation from 5,000 victims of the Haiti cholera epidemic, the worst outbreak of the disease in modern times and widely believed to have been caused by UN peacekeepers importing the infection into the country. Citing a convention laid down in 1946, the UN secretary general, Ban Ki-moon, telephoned President Michel Martelly of Haiti to tell him that the UN was not willing to compensate any of the claimants. The epidemic has killed almost 8,000 people and stricken hundreds of thousands more – about one out of every 16 Haitians. For the UN to claim immunity for a crisis that most experts are convinced it unwittingly caused through its own disaster relief mission is highly contentious. The infection is thought to have been carried into Haiti by UN peacekeepers from Nepal sent to help with disaster relief following the 2010 Haiti earthquake.

    Zilmax: The cattle growth drug that’s making beef more like chicken. - A new cattle drug called Zilmax is being widely used in the industrial feedlots where most of America’s beef comes from, but not because it produces a better sirloin. In fact, it has been shown to make steak less flavorful and juicy than beef from untreated cattle. So what accounts for the sudden popularity of Zilmax? Zilmax is a highly effective growth drug, and it makes cattle swell up with muscle in the final weeks of their lives. And despite concerns within the industry, the economics of modern beef production have made the rise of Zilmax all but inevitable. The beef industry has been shrinking for decades, a problem that can be traced to cheap chicken. Poultry companies like Tyson Foods figured out in the 1930s and ’40s how to raise chickens in a factory-like system. Using a business model called vertical integration, poultry companies like Tyson began to control every aspect of animal production, from the hatchery to the farm and the slaughterhouse. After the dawn of vertical integration, chickens were raised in barn-like warehouses on the farm, killed and butchered along assembly lines nearby, and, later, shipped out to big customers like McDonald’s and Wal-Mart—with every step of the process dictated by the same company. As chicken got cheaper, it took top billing on fast-food menus. Beef got pushed aside. Some companies have tried to vertically integrate cattle production, but it has never panned out economically.

    Genetically-Engineered Meat Isn’t Tested for Human Safety Because It’s Treated as an “Animal Drug” -USA Today reported last October that the FDA doesn’t even test the safety of genetically engineered food: Genetically engineered foods are overseen by the FDA, but there is no approval process. Foods are presumed to be safe unless the FDA has evidence to the contrary, Jaffe says. The FDA “has to show that there may be a problem with the food, as opposed to the company needing to prove it’s safe to FDA’s satisfaction before it can get on the market,” he says. Now we know why. Bruce Friedrich reports:The problems begin with FDA’s bizarre decision to consider GE meat using its “New Animal Drug Approval” (NADA) process, a process designed for evaluation of new animal drugs (hence the name), not genetically engineered animals. The GE salmon themselves [which increase allergies in people eating them ... but are still being approved for human consumption] are, according to this analysis, the animal drug. As food blogger Ari LeVaux explains on Civil Eats, “the drug per se is AquaBounty’s patented genetic construct… Inserted at the animal’s one-cell stage, the gene sequence exists in every cell of the adult fish’s body.”

    Do GMO Crops Really Have Higher Yields? - According to the biotech industry, genetically modified (GM) crops are a boon to humanity because they allow farmers to "generate higher crop yields with fewer inputs," as the trade group Biotechnology Industry Organization (BIO) puts it on its web page. Buoyed by such rhetoric, genetically modified seed giant Monsanto and its peers have managed to flood the corn, soybean, and cotton seed markets with two major traits: herbicide resistance and pesticide expression—giving plants the ability to, respectively, withstand regular lashings of particular herbicides and kill bugs with the toxic trait of Bacillus thuringiensis, or Bt. Turns out, though, that both assertions in BIO's statement are highly questionable. Washington State University researcher Charles Benbrook has demonstrated that the net effect of GMOs in the United States has been an increase in use of toxic chemical inputs. And in a new paper (PDF) funded by the US Department of Agriculture, University of Wisconsin researchers have essentially negated the "more food" argument as well. The researchers looked at data from UW test plots that compared crop yields from various varieties of hybrid corn, some genetically modified and some not, between 1990 and 2010. While some GM varieties delivered small yield gains, others did not. Several even showed lower yields than non-GM counterparts. With the exception of one commonly used trait—a Bt type designed to kill the European corn borer—the authors conclude, "we were surprised not to find strongly positive transgenic yield effects." Both the glyphosate-tolerant (Roundup Ready) and the Bt trait for corn rootworm caused yields to drop.

    USDA Economist: Sharp Drop in Commodity Prices Coming - - Commodity prices will fall "significantly" in 2013 due to strong corn and soybean production in 2013, USDA’s chief economist predicted today at the agency’s annual Agricultural Outlook Conference in Arlington, Va. Joe Glauber predicted that corn prices will average $4.80 a bushel in 2013/14, down 33% from the marketing year before. Soybean prices, he estimated, would fall 27% to $10.50 per bushel. A return to normal weather conditions, he predicted, will result in higher production that will depress prices. "There’s no reason to believe that we won’t be looking at normal yields this year," said Glauber, noting recent improvement in drought conditions, particularly in the eastern Corn Belt. "Historically, there’s little correlation between rainfall one year and the next." Better weather, combined with more planted acres, should result in strong farm incomes in 2013, he said. Net farm income, according to ERS data released earlier this year, will equal $128 billion, the highest level in real terms since 1973. Livestock producers, on the other hand, won’t feel the beneficial impact of lower feed prices until later in the year. Net cash income for the livestock industry, according to ERS’s forecast, will fall in 2013 due to a 6% increase in feedstock prices

    Biofuel rush is wiping out unique American grasslands - Say goodbye to the grass. The scramble for biofuels is rapidly killing off unique grasslands and pastures in the central US. Christopher Wright and Michael Wimberly of South Dakota State University in Brookings analysed satellite images of five states in the western corn belt. They found that 530,000 hectares of grassland disappeared under blankets of maize and soya beans between 2006 and 2011. The rate was fastest in South Dakota and Iowa, with as much as 5 per cent of pasture becoming cropland each year. The trend is being driven by rising demand for the crops, partly through incentives to use them as fuels instead of food.The switch from meadows to crops is causing a crash in populations of ground-nesting birds. One of the US's most important breeding grounds for wildfowl, an area called the Prairie Pothole Region, is also at risk, with South Dakota's crop fields now within 100 metres of the wetlands. "Half of North American ducks breed here," says Wright.

    A Little Quibble I Had With Ken Salazar Last Week  - Kay McDonald - Under Secretary Michael Scuse went on to tell us the patriotic benefits of biofuels and how they can and will be used to fuel the U.S. military as well as our airline industry, saying that “the best is yet to come” — familiar phrases that those of us who have been paying attention have heard many, many times before. The promotion of pie-in-the-sky biofuels by Scuse was expected. But, I didn’t expect it from our Secretary of the Interior. That brings me to the title of this post, which has a literal interpretation. After Ken Salazar told us how proud he was to have played a role in passing the Energy Independence and Security Act of 2007, I just had to ask him why.  That Act has been responsible for more environmental destruction of our nation’s “interior” that any other legislation passed in recent history. It included our renewable fuels standard and the mandated use of corn ethanol. The policy dictates the amount of corn that we as a nation consume for fuel up through the year 2022, now accounting for more than 40 percent of our entire corn crop.  Since it passed, 1.3 million acres of grasslands in the Western Corn Belt have been plowed under in just five years to grow more corn, a rate unseen since the 1920s and 1930s according to a new PNAS study just released this week. The Renewable Fuels Association has already denounced the study, but the Environmental Working Group gave us reports months ago about the loss of grasslands over the past five years.

    Fewer bees in US a threat to world’s almond supply -"The question is: Will the almond seeds get set? It depends if you have enough of a workforce of bees." That has growers concerned as nomadic beekeepers from across the country converge on the state with their semi-trucks, delivering billions of bees to the orchards for the annual pollination. Most almond trees depend on bees to transfer pollen from the flower of one tree variety to the flower of another variety before fertilization, which leads to the development of seeds. It's a daunting task: California's orchards provide about 80 percent of the global almond supply. And with almond acreage increasing steadily in recent years, the bees must now pollinate 760,000 acres of trees. The number of bees needed is expected to increase as almond demand grows and orchards continue to expand. Already, more than half of the country's honeybees are brought to California at the end of February for almond pollination, which requires about 1.5 million hives from out of state, and another 500,000 from elsewhere in the state.

    Currency crisis hits Egypt’s wheat supply - Egypt, the world’s largest wheat importer, is struggling to buy the staple in the international market because of the impact of a currency crisis, creating a fresh challenge to the government of Mohamed Morsi, the Islamist president. Grain traders shipping wheat to Egypt said Cairo had cut back on its overseas purchases as the Egyptian pound plunged against the US dollar. The slowdown has depleted the country’s grain stocks to unusually low levels, traders added. Cairo on Wednesday said that government inventory levels of wheat, usually at enough to cover six months’ worth of consumption, had almost halved to just 101 days. “They are living hand-to-mouth,” said one Swiss-based international grain trader. The Egyptian cabinet added that wheat reserves would stretch by another month with the arrival of supplies tendered for delivery in March and April.

    India’s rice revolution - Kumar, a shy young farmer in Nalanda district of India's poorest state Bihar, had – using only farmyard manure and without any herbicides – grown an astonishing 22.4 tonnes of rice on one hectare of land. This was a world record and with rice the staple food of more than half the world's population of seven billion, big news. It beat not just the 19.4 tonnes achieved by the "father of rice", the Chinese agricultural scientist Yuan Longping, but the World Bank-funded scientists at the International Rice Research Institute in the Philippines, and anything achieved by the biggest European and American seed and GM companies. And it was not just Sumant Kumar. Krishna, Nitish, Sanjay and Bijay, his friends and rivals in Darveshpura, all recorded over 17 tonnes, and many others in the villages around claimed to have more than doubled their usual yields. The villagers, at the mercy of erratic weather and used to going without food in bad years, celebrated. But the Bihar state agricultural universities didn't believe them at first, while India's leading rice scientists muttered about freak results. The Nalanda farmers were accused of cheating. Only when the state's head of agriculture, a rice farmer himself, came to the village with his own men and personally verified Sumant's crop, was the record confirmed.

    Improved-yield dandelions prepped for tire production —With supply falling short of demand for natural rubber, scientists in The Netherlands are literally planting seeds of hope for a viable solution. Researchers at the Dutch biotech firm KeyGene are engaged in developing the dandelion into a promising source of rubber. The dandelion's roots contain latex, the milky liquid that is a source for natural rubber. The latex from dandelion roots could serve as a needed source of material for tires.

    Aspiring to asbestos - On the way back from the Zambezi river crossing, the driver told me of his life's ambitions: he wanted to be middle class, to give his children a good start in life, and to have an asbestos roof. In this country, he told me, there are two types of roofs: metal and asbestos. Asbestos is much better because it doesn't get hot in summer, and it's quiet - it doesn't rattle when the rain falls on it. Asbestos is also more expensive than metal, and that means it's higher status. I thought "should I tell him that asbestos is deadly and causes cancer?" I thought of my friend's father, who is dying a slow and painful death, caused by exposure to asbestos. But said nothing.  Life expectancy in Zambia has just climbed from 37 to 43. The typical person can expect to die of Aids or tuberculosis long before they come down with mesothelioma, asbestosis or asbestos related lung cancer. Drilling holes in the roof to install wiring, or cutting a sheet of asbestos to size will expose people to deadly asbestos fibres. But an undisturbed, intact asbestos roof is a minuscule health hazard.

    Reptiles On The Brink - It was only a matter of time before conservationists got around to evaluating global reptile populations. And when they did—surprise, surprise!—the news was not so good. Science Daily provides the details in Slithering Towards Extinction: Reptiles in Trouble. Nineteen percent of the world's reptiles are estimated to be threatened with extinction, states a paper published February 14 by the Zoological Society of London (ZSL) in conjunction with experts from the IUCN Species Survival Commission (SSC). The study, printed in the journal of Biological Conservation, is the first of its kind summarising the global conservation status of reptiles. More than 200 world renowned experts assessed the extinction risk of 1,500 randomly selected reptiles from across the globe.Out of the estimated 19% of reptiles threatened with extinction, 12% classified as Critically Endangered, 41% Endangered and 47% Vulnerable...

    Three Eyed Fish Caught Outside a Nuclear Power Plant -  Fishermen in Córdoba, Argentina caught a three-eyed wolf fish in a reservoir fed by a local nuclear power plant, which will surely hinder the plant's owner's attempt to run for local office. The fishermen say their discovery, which actually bears no resemblance to Blinky the three-eyed fish from The Simpsons, has begun to worry local residents who live near the reactor. And instead of feasting on their catch, and presumably gaining superpowers from its probable high levels of radiation, the men have decided to let it be tested to see if the mutation was actually a result of it being exposed to the water from the nuclear plant. After that they plan to have it embalmed for posterity, or sell it to Fox as a promotional item for their long running, and eerily prophetic, animated series. [Infobae via Geekologie]

    Warming Winters: U.S. Temperature Trends - To better understand winter warming patterns we analyzed average-daily temperatures and overnight-low temperatures for December through February for the continental 48 states from 1912-2012 and 1970-2012. We found:

    • Since 1970, winters in the top 5 fastest-warming states — Minnesota, North Dakota, Wisconsin, Vermont and South Dakota — heated up four-and-a-half times faster than winters in the 5 slowest-warming states: Nevada, California, Oregon, Colorado, and Washington. The five fastest-warming states have seen at least 4oF warming in winters since 1970.
    • Winter warming accelerated almost everywhere since 1970, and all states have warmed since that time. Nationwide since 1970, winters warmed more than four-and-a-half times faster per decade than over the past 100 years. 
    • In contrast, over the past century, winters in 13 states — 10 in the South — bucked the warming trend and either cooled significantly or exhibited a non-significant slight cooling trend.
    • Winter nights have warmed in all but one of the lower 48 states since 1970. Across the continent, winter nighttime temperatures have warmed about 30 percent faster than nighttime temperatures over the entire year. Since 1970, overnight winter temperatures in Wisconsin, Minnesota and Vermont have warmed faster than 1.29°F per decade, or more than 5°F in just 43 years.
    • Since 1912, states with average winter temperatures below 32°F warmed three times faster than states with average temperatures above 32°F. Since 1970, winter warming has accelerated almost everywhere and states that previously cooled began to warm in winter. Yet, the coldest states (below 32°F) have still warmed nearly twice as fast as the rest of the country on average. And during that time, winter nights in the coldest states warmed up to five times faster than those in warm states.

    Experts: Global warming can strangely trigger less yearly snowfall, but more potent blizzards -  A warmer atmosphere can hold, and dump, more moisture, snow experts say. And two soon-to-be-published studies demonstrate how there can be more giant blizzards yet less snow overall each year. Projections are that that’s likely to continue with manmade global warming. Consider:

    • — The United States has been walloped by twice as many of the most extreme snowstorms in the past 50 years than in the previous 60 years, according to an upcoming study on extreme weather by leading federal and university climate scientists. This also fits with a dramatic upward trend in extreme winter precipitation — both rain and snow — in the Northeastern U.S. charted by the National Climatic Data Center.
    • — Yet the Global Snow Lab at Rutgers University says spring snow cover in the Northern Hemisphere has shrunk on average by 1 million square miles in the past 45 years.
    • — And an upcoming study in the Journal of Climate says computer models predict annual global snowfall to shrink by more than a foot in the next 50 years. The study’s author said most people live in parts of the United States that are likely to see annual snowfall drop between 30 percent and 70 percent by the end of the century.

    Time Is Running Out to Avert a Third Summer of Drought - Time is running out to avert a third summer of drought in much of the High Plains, West and Southwest, federal officials warned Thursday. Without repeated, significant bouts of heavy snow and rain in the remaining days of winter, a large part of the country will face serious water supply shortages this spring and summer, when temperatures are hotter and average precipitation is normally low.The drought already ranks as the worst, in terms of severity and geographic extent, since the 1950s. Though it’s not over yet, its economic impact appears to be severe, said Brad Rippey, a meteorologist at the Agriculture Department’s Office of the Chief Economist. It “will probably end up being a top-five disaster event” on the government’s ranking of the costliest weather events of the past three decades, he said at a Capitol Hill briefing Thursday. There is little relief predicted in the National Oceanic and Atmospheric Administration’s (NOAA) latest three-month drought outlook, which the agency released Thursday. Federal forecasters predict that drought will persist in the Rocky Mountain and Plains states, expand throughout northern and southern California and return to most of Texas, a state that has been mired in drought since 2011.

    Dust Bowl Days: Historic U.S. Drought Projected To Persist For Months, Worsened By Thin Western Snowpack - Time is running out to avert a third summer of drought in much of the High Plains, West and Southwest, federal officials warned Thursday. Without repeated, significant bouts of heavy snow and rain in the remaining days of winter, a large part of the country will face serious water supply shortages this spring and summer, when temperatures are hotter and average precipitation is normally low. The drought already ranks as the worst, in terms of severity and geographic extent, since the 1950s. Though it’s not over yet, its economic impact appears to be severe, said Brad Rippey, a meteorologist at the Agriculture Department’s Office of the Chief Economist. It “will probably end up being a top-five disaster event” on the government’s ranking of the costliest weather events of the past three decades, he said at a Capitol Hill briefing Thursday.

    Understanding extreme weather in an era of climate change - The US has clearly seen some pretty extreme weather events over the last year. These events have caused both billions of dollars in property damage and endless arguments over how much can be attributed to climate change. Even as scientists work on the problem of attribution, the public has often made up its mind on what's to blame. To try to bring some sanity to the discussion, the meeting of the American Association for the Advancement of Science hosted a session on US weather extremes. Although there were a variety of talks, three presentations nicely captured the challenges: one on the state of the US climate, another on a recent climate event, and a third on trying to convey all of this to the public.

    Climate change real economic risk, World Bank tells G20: Addressing the G20 finance ministers at their meeting in Moscow, Jim Yong Kim called on the world powers to "tackle the serious challenges presented by climate change." "These are not just risks. They represent real consequences," said Kim, calling the lack of attention to the issue by finance ministers and central bank chiefs "a mistake". He said failing to tackle the challenges of climate change risked having "serious consequences for the economic outlook". "Damages and losses from natural disasters have more than tripled over the past 30 years," said Kim, giving as examples the $45 billion of losses from the 2011 floods in Thailand, whose effects "spread across borders disrupting international supply chains." "Years of development efforts are often wiped out in days or even minutes," Kim said, asking the G20 to "face climate change, which is a very real and present danger."

    New research: Louisiana coast faces highest rate of sea-level rise worldwide - Stunning new data not yet publicly released shows Louisiana losing its battle with rising seas much more quickly than even the most pessimistic studies have predicted to date. While state officials continue to argue over restoration projects to save the state’s sinking, crumbling coast, top researchers at the National Oceanic and Atmospheric Administration have concluded that Louisiana is in line for the highest rate of sea-level rise “on the planet.” * Indeed, the water is rising so fast that some coastal restoration projects could be obsolete before they are completed, the officials said. NOAA’s Tim Osborne, an 18-year veteran of Louisiana coastal surveys, and Steve Gill, senior scientist at the agency’s Center for Operational Oceanographic Products and Services, spelled out the grim reality in interviews with The Lens. When new data on the rate of coastal subsidence is married with updated projections of sea-level rise, the southeast corner of Louisiana looks likely to be under at least 4.3 feet of gulf water by the end of the century.That rate could swamp projects in the state’s current coastal Master Plan, which incorporated worst-case scenarios for relative sea-level rise calculated two years ago— which the new figures now make out-of-date. (The state’s estimates of sea-level rise and subsidence are listed on page 83 of the Master Plan.) The state plan, while “valuable and thoughtful,” has a major flaw,

    Going With the Flow-  It has been to the Netherlands, not surprisingly, that some American officials, planners, engineers, architects and others have been looking lately. New York is not Rotterdam (or Venice or New Orleans, for that matter); it’s not mostly below or barely above sea level. But it’s not adapted to what seems likely to be increasingly frequent extreme storm surges, either, and the Netherlands has successfully held back the sea for centuries and thrived. After the North Sea flooded in 1953, devastating the southwest of this country and killing 1,835 people in a single night, Dutch officials devised an ingenious network of dams, sluices and barriers called the Deltaworks. Water management here depends on hard science and meticulous study. Americans throw around phrases like once-in-a-century storm. The Dutch, with a knowledge of water, tides and floods honed by painful experience, can calculate to the centimeter — and the Dutch government legislates accordingly — exactly how high or low to position hundreds of dikes along rivers and other waterways to anticipate storms they estimate will occur once every 25 years, or every 1,000 years, or every 10,000. And now the evidence is leading them to undertake what may seem, at first blush, a counterintuitive approach, a kind of about-face: The Dutch are starting to let the water in. They are contriving to live with nature, rather than fight (what will inevitably be, they have come to realize) a losing battle.

    Exxon Cease-And-Desist Order Gets Climate Change Ad Pulled From State Of The Union Coverage - Exxon Mobil gave a cease-and-desist order to Comcast, forcing the cable provider to pull an ad about climate change from Fox News' coverage of the State of the Union address in some areas Tuesday night, according to emails provided to The Huffington Post by one of the groups responsible for the ad.  The satirical spot, which is brazenly titled "Exxon Hates Your Children" and urges Congress to eliminate fossil fuel industry subsidies, was produced by progressive advocacy groups Oil Change International, The Other 98% and Environmental Action. Having already aired on MSNBC's "The Rachel Maddow Show" and "Up With Chris Hayes", the video has also been viewed more than 170,000 times on YouTube. The ad was scheduled to air Tuesday in Houston, Texas, and Denver, Colo., during Fox's State of the Union coverage. However, a few hours before the event began, a senior vice president of Universal McCann, which handles global media duties for Exxon, fired off an email to Comcast, which provides Fox programming in those areas.

    The best solution on climate change requires Congress to act | Bernie Sanders: Unless we take bold action to reverse climate change, our children, grandchildren and great-grandchildren are going to look back on this period in history and ask a very simple question: Where were they? Why didn't the United States of America, the most powerful nation on earth, lead the international community in cutting greenhouse gas emissions and preventing the devastating damage that the scientific community was sure would come?The leading scientists in the world who study climate change now tell us that their earlier projections were wrong. The crisis facing our planet is much worse than they had thought only a few years ago.Now, scientists say that our planet could be 8F warmer or more by the end of this century if we take no decisive action to transform our energy system and cut greenhouse gas emissions. What would that mean to planet earth? Sea levels would rise by three to six feet, which would flood cities like New Orleans, Boston and Miami and coastal communities all over the world. It would mean that every year we would see more and more extreme weather disturbances, like Hurricanes Irene and Sandy, costing taxpayers tens of billions of dollars every year and resulting in devastating blows to our economy and productive capabilities. Legislation that I introduced(pdf) with the support of leading environmental organizations in the country can actually address the crisis and do what has to be done to protect the planet. Senator Barbara Boxer of California, chairman of the Senate environment and public works committee, co-sponsored the bill that would reverse greenhouse gas emissions in a significant way. It also would help create millions of jobs as we transform our energy system away from fossil fuel and into energy efficiency and such sustainably energies as wind, solar, geothermal and biomass.

    John Kerry: We share nothing so completely as our planet   - The stories that we need to tell, of standing up for American jobs and businesses and standing up for our American values, intersect powerfully in the opportunity that we have now in this moment of urgency to lead on the climate concerns that we share with our global neighbors. We as a nation must have the foresight and the courage to make the investments necessary to safeguard the most sacred trust we keep for our children and our grandchildren, and that is an environment not ravaged by rising seas, deadly superstorms, devastating droughts, and the other hallmarks of a dramatically changing climate. Let’s face it: We are all in this one together. No nation can stand alone. We share nothing so completely as our planet. When we work with others, large and small, to develop and deploy the clean technologies that will power a new world – and they’re there waiting for us, $6 trillion market, huge amount of jobs – when we do that, we know we’re helping create the new markets and new opportunities for America’s second-to-none innovators and entrepreneurs so that we can succeed in the next great revolution in our marketplace. We need to commit ourselves to doing the smart thing and the right thing and to truly take on this challenge, because if we don’t rise to meet it, then rising temperatures and rising sea levels will surely lead to rising costs down the road. Ask any insurance company in America. If we waste this opportunity, it may be the only thing our generation – generations – are remembered for. We need to find the courage to leave a far different legacy.

    The Case for a Higher Gasoline Tax - NYT - THE average price of gasoline in the United States, $3.78 on Thursday, has been steadily climbing for more than a month and is approaching the three previous post-recession peaks, in May 2011 and in April and September of last year. But if our goal is to get Americans to drive less and use more fuel-efficient vehicles, and to reduce air pollution and the emission of greenhouse gases, gas prices need to be even higher. The current federal gasoline tax, 18.4 cents a gallon, has been essentially stable since 1993; in inflation-adjusted terms, it’s fallen by 40 percent since then. Politicians of both parties understandably fear that raising the gas tax would enrage voters. It certainly wouldn’t make lives easier for struggling families. But the gasoline tax is a tool of energy and transportation policy, not social policy, like the minimum wage. Instead of penalizing gasoline use, however, the Obama administration chose a familiar and politically easier path: raising fuel-efficiency standards for cars and light trucks. The White House said last year that the gas savings would be comparable to lowering the price of gasoline by $1 a gallon by 2025. But it will have no effect on the 230 million passenger vehicles now on the road. Greater efficiency packs less of a psychological punch because consumers pay more only when they buy a new car. In contrast, motorists are reminded regularly of the price at the pump. But the new fuel-efficiency standards are far less efficient than raising gasoline prices.

    Another Study Names Oil And Gas As Ozone Culprit - Extensive oil and gas drilling in the Uinta Basin of northeastern Utah produces the great majority of the chemical air pollution that produces winter ozone in that rural region,  a new interagency study has concluded. “An emissions inventory developed for the study indicates that oil and gas operations were responsible for 98 to 99 percent of” volatile organic compounds “and 57 to 61 percent of” nitrogen oxides in the basin, the study concluded. Those substances combine in the presence of sunshine to produce ozone, which a recent report by the Environmental Protection Agency links to heart and lung diseases and mortality. The Utah study, conducted by Utah state and federal agencies and three universities, collected data on pollutants last winter. The study said that ozone formation occurs in the region in about half of winter seasons, with severe ozone occurring about one year in four. It said that transport of ozone-producing chemicals from outside the Uinta Basin “is not likely to represent a major contribution to peak ozone events.” At the press conference announcing the study results, the deputy director of Utah’s Air Quality Administration said ozone levels this year have at times exceeded 130 parts per billion in the basin, far above the 75 parts per billion level considered a health hazard by EPA.

    Massive methane emissions revealed by first-time industry reports - U.S. EPA's addition of oil, gas and coal methane emissions to its online greenhouse gas tracking tool revealed an 82.6-million-metric-ton increase in carbon dioxide equivalents over numbers from the previous year, when those figures were not available. EPA published data yesterday for 2011, adding 12 new sources from the reporting program since last year's 2010 figures. Although carbon dioxide is a much more abundant greenhouse gas than methane, the latter makes a far bigger impact on climate change with more than 20 times the global warming potential of carbon. Yet carbon emissions from power plants were 4.5% lower in 2011 than in 2010, a reduction due in part to the steady switchover of capacity from coal to natural gas, which releases nearly half the carbon of coal per kilowatt-hour. Due to the large impact that power plants have on greenhouse gas emissions, this 4.5% drop factored into an overall 3% decrease in greenhouse gas emissions between 2010 and 2011. The comparison over the two years continues to paint a picture of the role natural gas will play in a less carbon-intensive energy system, said Peter Zalzal, a staff attorney in the climate and air division of the Environmental Defense Fund (EDF). While natural gas provides an option to cut carbon emissions from power generation, the leaks and flaring of methane in the production process could undermine the benefits.

    Greenland glacier melting 5 times faster than in 1990s - Scientists have definitive new evidence that shows all but one of the world's major ice sheets are shrinking. The study, which will be published in the peer-reviewed journal Science on Friday, marks the first time scientists have come up with a way to measure the changing size of the ice sheets in Greenland and Antarctica that they can all agree on. Ice sheets are massive continental glaciers larger than 50,000 square kilometres that are found only in Greenland and Antarctica. The study is a key step towards understanding how those massive melting glaciers are causing rising sea levels and how those levels can be measured in the future. "Our new estimates are the most reliable to date and provide the clearest evidence yet of polar ice sheet losses,""They also end 20 years of uncertainty regarding changes to the Greenland and Antarctic ice sheets. They are intended to be the benchmark data set for climate scientists from now on." The study shows Greenland's ice sheets are melting at a rate five times faster than they were in 1990s. In contrast, Antarctica is more or less stable, although the research shows there has been a 50 per cent increase in ice loss since 1992. The melting is affecting ice sheets in the west side of Antarctica and the Antarctic peninsula.

    Nearing a Tipping Point on Melting Permafrost? - Nearly a quarter of the Northern Hemisphere’s land surface is covered in permanently frozen soil, or permafrost, which is filled with carbon-rich plant debris — enough to double the amount of heat-trapping carbon in the atmosphere if the permafrost all melted and the organic matter decomposed. According to a paper published Thursday in Science, that melting could come sooner, and be more widespread, than experts previously believed. If global average temperature were to rise another 2.5°F (1.5°C), say earth scientist Anton Vaks of Oxford University, and an international team of collaborators, permafrost across much of northern Canada and Siberia could start to weaken and decay. And since climate scientists project at least that much warming by the middle of the 21st century, global warming could begin to accelerate as a result, in what’s known as a feedback mechanism.

    Ice-free Arctic Ocean in 2030?  (Reuters) - Vast uncertainty remains over the causes of melting Arctic sea ice and when it may disappear altogether during the summer, which would have consequences for oil explorers, shipping firms and the fight against climate change. The answer will depend on the balance of natural and manmade causes. Those causes include warmer air and seas as a result of greenhouse gas emissions, variations in atmospheric circulation, and a faster southward ice drift down the east coast of Greenland. A major study said last month that science had underestimated the impact of soot, also called black carbon, adding another complication to an already difficult task of making a forecast. The Arctic region accounts for 15 percent of the world's undiscovered oil and 30 percent of its undiscovered gas, the U.S. Geological Survey estimates. Scientists are still unsure about the exact causes of sea ice melt, and predictions of when the North Pole could have an ice-free summer vary from 2015 to 2080 or later, with forecasts centring around 2040. Oil producers including Russia's Rosneft, Norway's Statoil, U.S.-based Exxon Mobil and Anglo-Dutch Shell are preparing to drill in areas of melting sea ice, despite the technological difficulties and costs. .

    Canadian government suppresses U.S. and its own scientists' research on Arctic sea ice volume - A European satellite named Cryosat has detected record losses in the volume of ice in the Arctic Ocean. The team of scientists that published the latest results includes researchers from York University in Toronto. Meanwhile, Canadian government scientists measuring the same ice loss from the water's surface are facing new restrictions from the government on their ability to publish, much to the annoyance of international partners. Cryosat, the latest in a series of ice-monitoring satellites, has been measuring the decline of Arctic Sea ice using radar for more than two years. In addition to tracking the record-breaking loss of ice during summer months, this satellite also looked at how well the ice recovered during winter freeze-up.Previous measurements have mostly tracked the area covered by the ice, but thanks to Cryosat, they have been able to measure the loss in volume, which is a much more accurate measurement of what's happening to the Arctic ice. In order to know exactly what it's seeing, to establish a baseline from which those differences can be understood, there needs to be "ground truthing." That's where the same piece of the Earth is looked at from above and from the surface to get the most accurate picture of what's going on. But now, thanks to new confidentiality rules introduced into the U.S.-Canada project, both the Canadian scientists working at the Department of Fisheries and Oceans and the Americans may not be able to publish or distribute that data without government approval. Is this yet another example of environmental scientists being restricted by the government from distributing their own work?

    Arctic needs protection from resource rush as ice melts, says UN - The Arctic needs to be better protected from a rush for natural resources as melting ice makes mineral and energy exploration easier, the United Nations' Environment Programme (UNEP) said. The UNEP Year Book 2013 was released on Monday to accompany the opening of talks in Nairobi attended by environment ministers or senior officials from around 150 nations, aimed at making the world economy greener at a time of weak economic growth. "What we are seeing is that the melting of ice is prompting a rush for exactly the fossil fuel resources that fuelled the melt in the first place," said Achim Steiner, U.N. Under-Secretary-General and UNEP Executive Director.

    Satellite images reveal Bangkok is sinking - Surveillance footage from Thaichote, the first Thai observation satellite, has revealed that Bangkok is sinking at a rate even faster than experts had previously predicted. Whereas past governments have invested billions of baht in embankment projects aimed at keeping Bangkok from tumbling into the sea, Thaichote’s data, revealed earlier this week, shows that those embankments have for the most part failed. This is severely bad news, seeing as a lower-lying Bangkok means that 2011’s disastrous floods will almost certainly be repeated some time in the next decade. In an interview with MCOT, Anon Sanitwong Na Ayuttaya, Director of the Geo-Informatics and Space Technology Development Agency (GISTDA), outlined the bleak scenario: “If changes are made within the next five years,” he said, “major floods can be prevented. There are several options, several technologies available. For instance, 1) to not do anything at all, 2) to relocate cities to other areas, 3) to create satellite cities, 4) to build ducts around the cities like in the Netherlands. And 5) to reclaim land and practically cover up the Gulf of Thailand area.”

    China to introduce carbon tax - From the AFR: China has outlined plans to introduce a carbon tax, but the mooted starting price is likely to be a fraction of that under way in Australia. The Ministry of Finance indicated a starting price of about 10 yuan ($1.50) for each tonne of carbon dioxide emitted, rising to 50 yuan a tonne by 2020. EU, China, guess we’re not alone after all. The efficacy of the tax will likely be based on proportionate pricing throughout the economy. Therefore the disparity will be nowhere near as great as the article suggests.

    "China Says It May Implement a Carbon Tax" - China may soon get its very own tax on carbon emissions. That’s the latest scuttlebutt from state-owned news service Xinhua, which noted that the levy would be part of a broader effort to improve the country’s environment. Carbon tax, you say? It’s easy to see why this move is attracting so much attention. China is the world’s largest emitter of greenhouse gases. Yet the country has earned a reputation for bogging down international efforts to tackle climate change. A carbon tax looks like a big about-face. And it’s more than anything Congress is proposing right now. Still, the details matter a lot here. Some experts think China’s carbon tax may be too small and loophole-ridden to make much difference on emissions, at least in the beginning. On the other hand, a carbon tax also isn’t the only thing China is doing to try to rein in its pollution. So here are a few things to consider:

    • 1) China’s carbon tax is likely to be small at first.
    • 2) Any carbon-tax regime in China would probably have loopholes.
    • 3) Much of the cost of China’s carbon tax would be borne by other countries.

    Do Japanese emission controls contribute to global warming? - Japan has one of, if not the, strictest emission control regimes in the world. Upon purchase, when a car is three years old, and every two years after that, each car must undergo a rigorous and sometimes costly Sha-ken inspection. These ensure that it meets tough emission standards and is in sound mechanical condition. Sha-ken makes it expensive for Japanese car owners to keep an older car on the road. Yet these regular inspections, combined with other factors - congested roads that ensure most cars have very low mileage, a relatively temperate climate, underground parking - mean that a five or seven year old Japanese car is typically in excellent condition. The net result is that Japan exports used cars at low prices to Australia, New Zealand, India, South Africa, Botswana, Zambia, and just about every country where right-hand-drive (RHD) cars are used.   From a narrow, national perspective, Japan's emission control regime appears to protect the environment. Yet by encouraging Japanese  car owners to abandon perfectly good vehicles, which are then dumped on other countries, effectively it subsidizes car exports. From a global perspective, therefore, the environmental impacts of Japan's emissions control regime are far less clear.

    Carbon Market’s Fate in Europe Hangs on EU Vote to Fix Surplus - European Union lawmakers may determine the fate of the world’s biggest carbon market when they vote today on a proposal to cut a record surplus of emission permits that has pushed prices to an all-time low. The European Parliament’s environment committee is considering an amendment to EU emissions trading law that will enable sales of some carbon allowances to be delayed until the end of the decade, a process known as backloading. The panel’s non-binding opinion, due after 9 a.m. in Brussels, will serve as a recommendation for the whole parliament in a later vote. At stake is the EU’s 54 billion euro ($72 billion) cap-and- trade system, which imposes emission limits on about 12,000 companies from EON SE, Germany’s largest utility, to steelmaker ArcelorMittal. The aim of backloading is to help support the price of carbon permits, which slumped to 2.81 euros a metric ton last month from more than 10 euros a year ago as Europe’s sputtering economy damped demand.

    Britain ‘on the brink’ of energy crisis, warns chief executive of Ofgem - Households must prepare for a sharp rise in energy bills within two years as Britain comes “dangerously” close to power shortages, the chief executive of Ofgem has warned.  The country would become more reliant on foreign gas to generate electricity as European Union pollution laws meant the dirtiest coal-fired stations had to shut, said Alistair Buchanan, the regulator’s outgoing head.  He pointed out that gas was already 60 per cent more expensive in countries such as Japan that relied on imports. It was impossible to predict how high bills could go for British households, he said.  Ministers admitted that Britain faced a “looming energy gap” but blamed the previous government for agreeing to shut coal plants too quickly.  Nick Clegg, the Deputy Prime Minister, admitted that consumers could feel a “pinch” starting within two years. The Government was fighting to “keep the lights on”, he insisted.

    Tides are changing to expand renewable energy options in Chile - In Chile’s ongoing quest to harness its vast green energy resources, a team of scientists is testing conditions in the country’s southern Chacao Channel in the hopes that it may prove to be a bastion for tidal energy — a barely proven but highly promising form of renewable. To successfully procure tidal energy, underwater turbines need to be placed in narrow, fast currents. Like a wind turbine, the water — which moves back and forth with the tides — will turn a turbine wheel and produce electricity. Chile’s Chacao Channel happens to have the third-strongest tidal energy current in the world with about 2,000 megawatts (MW) of energy potential in the channel. That’s equal to one-quarter of the new energy Chile is projected to demand by 2020.

    Iceland Weighs Exporting the Power Bubbling From Below -  Krafla is today a showcase of Iceland’s peerless mastery of renewable energy sources, another problem that has dogged its energy calculations for decades still remains: what to do with all the electricity that the country — which literally bubbles with steam, hot mud and the occasional cloud of volcanic ash — is capable of producing. In a nation with only 320,000 people, the state-owned power company, Landsvirkjun, which operates the Krafla facility, sells just 17 percent of its electricity to households and local industry. The rest goes mostly to aluminum smelters owned by the American giant Alcoa and other foreign companies that have been lured to this remote North Atlantic nation by its abundant supply of cheap energy. Now a huge and potentially far more lucrative market beckons — if only Iceland can find a way to transmit electricity across the more than 1,000 miles of frigid sea that separate it from the 500 million consumers of the European Union. “Prices are so low in Iceland that it is normal that we should want to sell to Europe and get a better price,” said Stein Agust Steinsson, the manager of the Krafla plant. “It is not good to put all our eggs in one basket.”

    Not-So-Smart ALEC: The Right Wing vs. Renewable Energy - Yves Smith Yves here. This post is useful not simply for its discussion of the economics of green energy but also for showing how think tanks fabricate findings to support their political message. Renewable energy is clean, sustainable, non-polluting, reduces our dependence on fossil fuels, improves the health of communities surrounding power plants, and protects the natural environment. Who could be against it? Answer: The American Legislative Exchange Council (ALEC), a lobbying group that is active in drafting and advocating controversial state legislation. They’re not just interested in energy: in recent years ALEC has supported Arizona’s restrictive immigration legislation, the “Stand Your Ground” gun laws associated with the shooting death of Trayvon Martin, and voter identification laws proposed in many states. ALEC’s priorities for 2013 include making it harder to bring product liability suits against manufacturers of defective products, ending traditional pension plans for public employees, promoting the diversion of public education funds into private schools and on-line education schemes, and supporting resistance to “Obamacare” health policies. When it comes to energy, ALEC wants to speed up the permitting process for mines, oil and gas wells, and power plants – and to eliminate all state requirements for the use of renewable energy. The latter goal is packaged as the “Electricity Freedom Act.”  In a recent study for the Civil Society Institute, my colleagues and I at Synapse Energy Economics analyzed the ALEC studies of the costs of renewable energy. Our report found fundamental flaws in both the energy data and the economic modeling used by BHI.

    Another casualty of the shale gas boom: Nuclear power: The last few years have seen all sorts of drastic upheavals in the U.S. energy sector. Cheap natural gas is dominating. Wind and solar are growing. Coal is dwindling. The Crystal River nuclear plant control room (Will Vragovic/AP)Now we can add another trend to the list: Nuclear power is starting to decline. Since 2010, the amount of electricity generated from America’s nuclear reactors has fallen about 3 percent, or 29 billion kilowatt-hours. That’s a sizable drop: As John Hanger points out, we’d need to quadruple the number of solar installations in the United States just to make up the loss of that carbon-free electricity. So why is nuclear on the wane? Part of the story here is simply that America’s fleet of reactors is aging and are being taken offline more frequently for repairs. The San Onofre plant near San Diego, for instance, has been out since January 2012. But another factor here is competition from cheap shale gas. This month, Duke Energy decided to close its Crystal River nuclear plant in Florida, offline since 2009, rather than pay $1.5 billion to repair a cracked dome. The reason? It was easier to build new natural-gas turbines to replace the lost electricity than repair the reactor.

    Hanford Nuclear Tank Leaking Radioactive Waste -- The long-delayed cleanup of the nation's most contaminated nuclear site became the subject of more bad news Friday, when Washington Gov. Jay Inslee announced that a radioactive waste tank there is leaking. The news raises concerns about the integrity of similar tanks at south-central Washington's Hanford nuclear reservation and puts added pressure on the federal government to resolve construction problems with the plant being built to alleviate environmental and safety risks from the waste. The tanks, which are already long past their intended 20-year life span, hold millions of gallons of a highly radioactive stew left from decades of plutonium production for nuclear weapons. On Friday, the U.S. Department of Energy said liquid levels are decreasing in one of 177 underground tanks at the site. Monitoring wells near the tank have not detected higher radiation levels, but Inslee said the leak could be in the range of 150 gallons to 300 gallons over the course of a year and poses a potential long-term threat to groundwater and rivers. Central to that cleanup is the removal of millions of gallons of a highly toxic, radioactive stew – enough to fill dozens of Olympic-size swimming pools – from 177 aging, underground tanks. Many of those tanks have leaked over time – an estimated 1 million gallons of waste – threatening the groundwater and the neighboring Columbia River, the largest waterway in the Pacific Northwest. Inslee said the state was assured years ago that such problems had been dealt with and he warned that spending cuts – particularly due to a budget fight in Congress – would create further risks at Hanford.

    Radioactive Waste Is Leaking From Washington's Hanford Nuclear Reservation - And now for a quick lesson in government spending: in the 1940s the federal government created the now mostly decommissioned Washington's Hanford Nuclear Reservation as part of the Manhattan Project to build the atomic bomb. During the Cold War, the project was expanded to include nine nuclear reactors and five large plutonium processing complexes, which produced plutonium for most of the 60,000 weapons in the U.S. nuclear arsenal. Sadly, many of the early safety procedures and waste disposal practices were inadequate, and government documents have since confirmed that Hanford's operations released significant amounts of radioactive materials into the air and the Columbia River. The weapons production reactors were decommissioned at the end of the Cold War, but the decades of manufacturing left behind 53 million US gallons of high-level radioactive waste, an additional 25 million cubic feet of solid radioactive waste, 200 square miles of contaminated groundwater beneath the site and occasional discoveries of undocumented contaminations that slow the pace and raise the cost of cleanup. The Hanford site represents two-thirds of the nation's high-level radioactive waste by volume. Today, Hanford is the most contaminated nuclear site in the United States and is the focus of the nation's largest environmental cleanup. The government spends $2 billion each year on Hanford cleanup — one-third of its entire budget for nuclear cleanup nationally. The cleanup is expected to last decades. It turns out that as Krugman would say, the government was not spending nearly enough, and moments ago Governor Jay Inslee said that six underground radioactive waste tanks at the nation's most contaminated nuclear site are leaking.

    Who Will Pay for Nuclear Power Plant Cleanup? - Many of the civilian nuclear power plants built in the US. and Western Europe during the halcyon days of the Eisenhower administration are coming to the end of their operational lives as their operating licenses expire. The looming deadlines leave their operators with two stark choices – apply for a license extension beyond the original forty years, or decommission. A bad choice, however you look at it. For a license extension, aging NPPs must upgrade, while decommissioning raises the primordial question sidestepped since the dawn of the civilian nuclear age – what to do with the radioactive debris? . The predicted cost of decommissioning Sellafield nuclear facility in Cumbria, Britain’s largest nuclear complex, is now estimated at an eye-watering $104.3 billion over the next three decades, a figure that inexorably year by year continues to rise and represents over $1,546 for every man, woman and child in the British Isles.

    Nuclear waste: too hot to handle? - THERE are 437 nuclear power reactors in 31 countries around the world. The number of repositories for high-level radioactive waste? Zero. The typical lifespan of a nuclear power plant is 60 years. The waste from nuclear power is dangerous for up to one million years. Clearly, the waste problem is not going to go away any time soon. In fact, it is going to get a lot worse. The World Nuclear Association says that 45 countries without nuclear power are giving it serious consideration. Several others, including China, South Korea and India, are planning to massively expand their existing programmes. Meanwhile, dealing with the waste from nuclear energy can be put off for another day, decade or century. It's not that we haven't tried. By the 1970s, countries that produced nuclear power were promising that repositories would be built hundreds of metres underground to permanently isolate the waste. Small groups of technical experts and government officials laboured behind closed doors to identify potential sites. The results - produced with almost no public consultation - were disastrous.

    Vital Signs Chart: Coal Loses Market Share -- The U.S. gets less power from coal. Coal-fired power plants generated 37% of U.S. electricity in the 12 months through November, down from 43% a year earlier and 50% a decade ago. A surge in domestic natural-gas production has pushed down prices, leading utilities to burn more gas. But coal’s market share has stabilized in recent months amid higher natural-gas prices.

    2012 U.S. Coal Exports Reach Record High - In 2012 the U.S. exported 114 million metric tons of coal (126 million short tons) — 12 percent more than the previous high set in 1981. The rapid rise of U.S. coal exports exceeded the Department of Energy’s forecast, published in the 2012 Annual Energy Outlook, by 30 percent. Coal export growth is driven by historically low domestic natural gas prices, diminishing U.S. coal demand, and growing use globally over other primary energy sources. On a global level, the International Energy Agency forecasts that coal will rival oil as the world’s top primary energy source by 2017. Analysis by the World Resources Institute found that more than 1,100 coal-fired power plants are currently being proposed for development globally. Given that the U.S. has more proven coal reserves than any other country, there is large potential for continued export growth.  In 2012, the largest destination for U.S. coal exports was the Netherlands, followed by the United Kingdom. The European Union accounted for 45 percent of U.S. 2012 coal exports by volume. China was the third largest destination, and Asia accounted for 26 percent of 2012 American coal exports.

    Activist investors put climate-change issue up for vote at bank - Activist investors have succeeded for the first time in placing a shareholder resolution on the risks of greenhouse-gas emissions up for a vote at a major bank, a step toward making climate change an important consideration for corporations. The resolution, which follows years of protests over banks financing certain coal operations, is to be included in proxy material being sent to shareholders of PNC Financial Services Group of Pittsburgh before the bank's April 23 annual meeting. It asks PNC to assess and report back to shareholders on how its lending results in greenhouse gas emissions that can alter the climate, posing financial risks for its corporate borrowers and risks to its own reputation. PNC is the only major bank based in Appalachia, a region where coal and gas extraction is a major business. It has long lent to mining companies, including those engaged in mountaintop removal, which involves blowing up peaks to reach coal seams below and has been blamed for degrading landscapes, destroying habitat and polluting streams.

    Natural gas consumers just got a big subsidy from investors, but it can’t continue - It isn’t often that the world’s working stiffs get a chance to fleece rich investors. But that’s essentially what has happened as a result of the vast overinvestment in natural gas drilling in the United States. That overinvestment has led to a glut which last April pushed the price of U.S. natural gas down to $1.82 per thousand cubic feet (mcf), a level not seen since 2001. Investors have essentially subsidized natural gas through huge loss-making investments, creating an oversupply that has sent prices significantly below the average cost of new production. That means consumers get cheap natural gas while investors kick themselves for not realizing that they were buying into a flawed concept—one that oil and gas consultant Art Berman has called “an improbable business model that has no barriers to entry except access to capital, that provides a source of cheap and abundant gas, and that somehow also allows for great profit.” The conventional wisdom is that prices are likely to stabilize between $3 and $4 per mcf and stay there for the rest of the decade as the natural gas drilling juggernaut continues. There just one problem with this outlook. The juggernaut has most definitely NOT continued. Since the last week of August 2008 when the count of active U.S. natural gas drilling rigs peaked at 1606, the number of active rigs has plunged to just 425 for the week ending February 8.

    Shale Gas Bubble Looms, Aided by Wall Street - Two long-awaited reports were published today at by the Post Carbon Institute (PCI) and the Energy Policy Forum (EPF).   Together, the reports conclude that the hydraulic fracturing ("fracking") boom could lead to a "bubble burst" akin to the housing bubble burst of 2008.  While most media attention towards fracking has focused on the threats to drinking water and health in communities throughout North America and the world, there is an even larger threat looming.  The fracking industry has the ability -- paralleling the housing bubble burst that served as a precursor to the 2008 economic crisis -- to tank the global economy.  Playing the role of Cassandra, the reports conclude that "the so-called shale revolution is nothing more than a bubble, driven by record levels of drilling, speculative lease & flip practices on the part of shale energy companies, fee-driven promotion by the same investment banks that fomented the housing bubble..." a summary details. "Geological and economic constraints – not to mention the very serious environmental and health impacts of drilling – mean that shale gas and shale oil (tight oil) are far from the solution to our energy woes."

    Fracking has a Lesson to Learn from the Sinking City - Fracking is moving closer and closer to urban areas, but before it actually enters towns and cities the fracking industry should take a look at Long Beach, California, and follow the lessons that have been learnt there. Back in 1930 the Wilmington oil field was discovered under the streets and harbour of Long Beach, and in 1932 production began to extract the estimated seven billion barrels. The uncontrolled extraction of the oil and gas lowered the pressure in the hydrocarbon reservoir by a considerable amount. The sands of the reservoir then lacked the structural strength to support the weight above it, leading to a subsidence bowl with a depth of as much as 29 feet covering more than 20 square miles of the city. The City of Long Beach Department of Oil Properties described the scene: “the ocean inundated wharves, rail lines and pipelines were warped or sheared, while buildings and streets were cracked and displaced.” Eventually engineers halted the subsidence by injecting water into the reservoir as extraction occurred in order to maintain the pressure. Once known as the ‘Sinking City’, Long Beach offers a lesson to all intending on extracting hydrocarbons within built up areas, and acts as a strong warning against carrying out such activities without first knowing the exact consequences that they could incur.

    Fracking the country side - Technological advancement and the shale gas revolution currently underway in the United States has encouraged other countries to seek to extract natural gas trapped in shale rocks or coal seams via the process of hydraulic fracking. This process essentially involves drilling and inserting a pipe deep into the ground and then pumping millions of litres of high pressure water and ‘fracking fluid’ into the shale rock or coal seam, causing it to fracture and releasing stored natural gas where it is then captured for energy production (see below image). While natural gas is a relatively clean burning fuel, the process of fracking is highly controversial as it risks contaminating nearby water tables with both methane and fracking fluid, which is known to contain a number of carcinogens. Over the weekend, I watched the US documentary Gasland, which is currently available for viewing via SBS on Demand (click to watch). The film documents in great detail communities in the US adversely impacted by natural gas drilling and, specifically, hydraulic fracking. The film is highly disturbing as it shows the destruction of dozens of US farming communities via poisoning of drinking water and the natural environment, often leading to severe health problems for its citizens.While I highly recommend that you watch the documentary in full, below is a two-part extract from YouTube, which summarises the key bits:

    Is Europe Next for a Shale Natural Gas Boom? - Chevron and Royal Dutch Shell are getting an early start on shale exploration campaigns in eastern European countries. With the United States fast emerging as a shale natural gas leader, European economies eager to bolster their own energy independence are working to follow suit. Shell plans to spend more than $400 million to tap into Ukrainian shale, while Chevron has similar ambitions in eastern Romania. While regional shale gas production isn't going to match that seen in the United States, it's expected to eventually weaken the Russian grip on the region's energy sector.The U.S. Energy Department's Energy Information Administration estimates that, together, Bulgaria, Hungary and Romania may hold many trillion cubic feet of shale natural gas. That was enough to give U.S. supermajor Chevron the confidence to move ahead with an exploration campaign there. The company began taking on shale concessions in 2010 and has since announced plans to start exploration. If EIA estimates are close to accurate, there may be enough shale gas in Romania to cover its energy needs for the next 40 years. The company, however, still needs environmental permits to move forward with its campaign.

    They’re drilling, baby, drilling – and gas prices still going up - They’re baaaacccck. Like locusts ravaging fertile crops, gasoline prices are soaring again and eating away at the purchasing power of ordinary Americans. And again, financial speculators appear to be a big part of the story. The national average pump price hit $3.74 for a gallon of unleaded gasoline Tuesday, up a sharp 44 cents per gallon from just a month ago, according to the AAA Motor Club’s Fuel Gauge Report. “It’s the 33rd day in a row that we’ve seen a consecutive increase” in gasoline prices, said Nancy White, a spokeswoman for AAA, who said there are several explanations but that none seem overly convincing. The rising gasoline prices come even as the United States now produces more than half the oil it consumes. In fact, the nearly 800,000 barrel per day increase in U.S. production output from 2011 to 2012 reflected the largest one-year jump since oil drilling began in 1859. The U.S. Energy Information Administration projects that U.S. oil production will rise from 6.89 million barrels per day in November 2012 to 8.15 million by December 2014. At the same time, the International Energy Agency has lowered its estimates for global demand for oil. Lacking demand, OPEC, the oil-exporters cartel, has reduced production. It all argues for lower oil prices, or at least less volatility in the price of oil and thus gasoline.

    The End Of The Shale Era - Big Shift In Junior Oil Exploration - The oil and gas game can be a tricky one for junior companies, but if played right the pay-off can be massive. At a time when juniors are risking a lot in volatile venues in the Middle East and Africa, Canada’s Aroway Energy (ARW) is planting its feet firmly in homeland soil and in conventional plays. Why? Because for the smaller juniors this is not a long-term game and blowing all your capital to drill a single unconventional well in a risky frontier won’t pay off. Canada still has plenty to offer for juniors, even though you have to kiss plenty of frogs to find the prince. The end game, after all, is merger and acquisition. In an exclusive interview Aroway CEO Chris Cooper discusses:  How to make or break a junior oil and gas company;  Why rail is becoming more attractive than pipeline transit; Why most juniors won’t make it big in risky frontiers; Why Keystone XL will get the green light; Why oil and gas prices will increase; Why the smaller juniors will stick to the conventional plays; How the asset market is heating up … and what is ideal; Why having control of infrastructure is key to success; Where Canada’s oil and gas industry will be in a decade; What every junior’s goal should be.

    Planned crude oil pipelines - The EIA last week released a nice summary of planned additional U.S. pipeline capacity. The reversal of the Seaway Pipeline began last May to carry 150,000 b/d of crude oil from Cushing, Oklahoma to refineries near Houston. Last month the capacity was increased to 400,000 b/d, and a second pipe twinning the first is expected to bring the total capacity up to 850,000 b/d by 2014:Q1. At the same time, TransCanada expects the Gulf Coast portion of its Keystone Project to be completed by the end of this year with the capacity to transport an additional 700,000 b/d. Six other projects are planned or under construction that would bypass Cushing and could carry an additional 355,000 bbl/d from west Texas directly to the Gulf Coast by the end of this year, with 478,000 b/d added to that in 2014. Yet additional new projects will help transport new production from eastern Texas to the Gulf.

    Keystone XL Pipeline Work Delayed, Nebraska Utility Says: A Nebraska utility says the new route for a proposed oil pipeline that would carry Canadian crude oil through the state will delay work on electric transmission lines for the pipeline. Nebraska Public Power District officials said they won't be able to build the transmission lines by the deadline TransCanada set for the end of 2014. NPPD Chief Operating Officer Tom Kent said there's no way the transmission lines will be ready by 2015, the Columbus Telegram reported ( "We have a lot of work to do," he said. TransCanada's proposed Keystone XL pipeline will carry Canadian crude to the Gulf Coast if it can win President Barack Obama's approval. The proposed $7 billion pipeline would cross Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas. TransCanada also has proposed connecting it to the Bakken oil field in Montana and North Dakota.

    Some Environmental Issues Surrounding Keystone XL - From "Keystone XL Pipeline Project: Key Issues," CRS Report R41668 (Jan. 24, 2013): For the pipeline project represented in the August 2011 final EIS, approximately 95% of the land affected by pipeline construction and operation was privately owned, with the remaining 5% almost equally state and federal land. Private land uses were primarily agricultural—farmers and cattle ranchers.  The pipeline’s construction and continued operation would involve a 50-foot-wide permanent right-of-way along the length of the pipeline. Keystone agreed to compensate landowners for losses on a case-by-case basis. However, a concern among landowners and communities along the route is the potential for their land or water (used for drinking, irrigation, or recreation) to be contaminated by an accidental release (spill) of oil. That concern is heightened in areas where the pipeline will be located near or would cross water or is in a remote location.  A primary environmental concern of any oil pipeline is the risk of a spill. In estimating the possible impacts of an oil spill, location is generally considered the most important factor— particularly the potential for the spill to reach surface or groundwater. For example, the potential impacts of a spill to water is highlighted in the Keystone XL final EIS, as follows:

    Obama Golfed With Oil Men As Climate Protesters Descended On White House - On the same weekend that 40,000 people gathered on the Mall in Washington to protest construction of the Keystone Pipeline -- to its critics, a monument to carbon-based folly -- President Obama was golfing in Florida with a pair of Texans who are key oil, gas and pipeline players.Obama has not shied away from supporting domestic drilling, especially for relatively clean natural gas, but in his most recent State of the Union speech he stressed the urgency of addressing climate change by weaning the country and the world from dependence on carbon-based fuels. But on his first “guys' weekend" away since he was reelected, the president chose to spend his free time with Jim Crane and Milton Carroll, leading figures in the Texas oil and gas industry, along with other men who run companies that deal in the same kinds of carbon-based services that Keystone would enlarge. They hit the links at the Floridian Yacht and Golf Club, which is owned by Crane and located on the Treasure Coast in Palm City, Florida. Watch video reporting here:

    The politics of emissions: Keystone is an easier target than U.S. coal-fired power plants -  Canada’s oil sands are one of the most carbon-intensive sources of crude in the world, and for American climate activists, the Keystone XL pipeline represents a “line in the sand” on climate policy. But greenhouse gas produced by the oil sands is a fraction of the amount spewed by U.S. coal-fired power plants. In 2010, the oil sands produced 48 million tons of carbon-dioxide emissions. Coal-fired power plants in the state of Wisconsin alone produced 43 million tons.No wonder Canadian politicians challenge environmentalists who rally in Washington to stop the Keystone pipeline but are not chaining themselves to the White House fence to demand the shutdown of power stations. Quoting the chief economist from the Paris-based International Energy Agency, Natural Resources Minister Joe Oliver says oil-sands emissions amount to “not peanuts, but less than peanuts” in the grand scheme of global climate change. And he notes that emissions from U.S. coal-fired power plants are 40 times greater than those from the oil sands.

    The 8 Reasons America Should Embrace Canada's Crude - Canada's oil sands are besieged with two myths: That a "clean" coal technology exists and that the oil sands imperil the planet as the world's dirtiest fuel. Both statements are bunk and yet they inform an environmental movement that swarms the White House and Congress to fight the Keystone XL pipeline designed to bring more oil sands exports from Canada.Meanwhile, for instance, they are not swarming around America's biggest carbon dioxide emissions culprit -- Southern Company's Scherer Plant. In 2007, the plant was the single largest source of carbon dioxide in the U.S. and 20th biggest worldwide, spewing out 27 million tons annually. Digging deeper, the Georgia emissions are far worse using the "wheel to wheel" measure that environmentalists like to apply to the oil sands. This is because the Scherer is fed with coal from distant Wyoming and every day between two and five trains, with 124 cars each, are unloaded in Georgia. And there are dozens more plants like this one across the U.S. What's most disturbing about oil sands bashing is that it may offer a distraction from smart energy/environmental policy. There are other benefits involved in importation of oil sands crude oil that are never acknowledged:

    BP agreement could cut oil spill fines -  BP has won an agreement from the Justice Department that there will be no penalties on the barrels of crude oil the company was able to recapture during the 2010 Gulf of Mexico spill, effectively cutting the company’s potential Clean Water Act fines by as much as $900 million, or even up to $3.5 billion. The volume of oil spilled into the Gulf of Mexico has been a matter of intense dispute, hinging on estimates of flow rates. The government has asserted that the blowout on the Macondo exploration well caused a spill of 4.9 million barrels. BP has contended that the amount spilled was “at least 20 percent” less than that. Moreover, it has argued that whatever the size of the spill, it kept 810,000 barrels out of the water by capturing the oil with its containers and vessels. That would mean that civil penalties would apply only to 3.1 million barrels of oil.

    PwC: Shale oil could revolutionize global energy markets and transform the world economy - In a new report from PricewaterhouseCoopers (PwC) titled “Shale oil: the next energy revolution,” the global consulting group predicts that worldwide shale oil production could soar to 14 million barrels per day over the next several decades and account for 12% of the global oil supply by 2035 (up from only 1% currently).  As shale production spreads globally from the US, the increased global supply of crude oil could reduce oil prices by as much as 40% by 2035, relative to the EIA’s projection of $133 per barrel that assumes low levels of shale oil production.  By lowering oil prices, worldwide shale oil production could increase world GDP by between 2.3% and 3.7% in 2035 (see chart above), which would expand the size of the global economy by $1.7 to $2.7 trillion per year.

    Oil Supply Flatness Continues - January oil supply numbers are out - chart above.  Still no real sign of supply increases - there was a very small bump up in November, but it has now faded. This is becoming a pretty interesting situation.

    OECD Oil Consumption - The above shows oil consumption in the major developed regions of the world though September 2012 (according to the EIA).  You can see that since the Arab spring (when prices went up), US and European consumption has gone down.  In the US this is mainly through improved oil efficiency reducing consumption faster than the rather slow economic growth increases it.  In Europe, the double dip recession is probably the main factor reducing consumption.  Europe was already more oil efficient than the US, so there is less scope for further improvement. Global peak oil is probably not here, though I think it likely we are on the bumpy plateau.  However, for the US and Europe, peak oil consumption has probably been and gone.  We survived.  However, certainly the economic situation is not that fun for a lot of people, so perhaps this guy had a point after all (even if he somewhat overstated it):

    Jeremy Grantham: Managing Progress in a World of Finite Resources - Peter Day talks with the prominent investment manager Jeremy Grantham about managing progress in a world of finite resources.

    OPEC Seen Cutting by Morgan Stanley as Tanker Charters Slump - OPEC may be extending the longest stretch of production cuts since the 2009 global recession as fewer oil tankers are booked to ship Middle East crude to Asia, according to Morgan Stanley. Hiring of supertankers from the world’s largest export region slumped 33 percent from a year ago, Fotis Giannakoulis, a New York-based analyst at the investment bank, said in an e- mailed report today. The 12 members of the Organization of Petroleum Exporting Countries already cut output for five months, most recently by 1.7 percent to 30.5 million barrels a day in January, estimates compiled by Bloomberg show. “Chartering activity in the Middle East has collapsed during the last four weeks, indicating a steep drop in oil production,” Giannakoulis said. “The decline is a signal that OPEC output might be also moving lower.” Expanding production from shale rocks in North America and slowing growth in Europe are curbing demand for OPEC cargoes. The International Energy Agency cut its forecast for demand for the group’s supply by 0.3 percent to 29.7 million barrels a day in a Feb. 13 report. The U.S. will overtake Saudi Arabia as the biggest oil producer in about 2020, the Paris-based agency predicts. Euro-area economies will contract 0.1 percent this year, economists’ estimates compiled by Bloomberg show.

    Saudi Arabia ready to lift oil output - Saudi Arabia expects to raise its oil output in the second quarter to satisfy higher demand from China and feed economic recovery elsewhere, oil industry sources said. The world's largest oil exporter kept production steady at about 9 million barrels per day (bpd) last month and sources say production has since hovered around that level because buyers have not asked for more. Saudi Arabia cut production sharply in the fourth quarter of last year because of weak economic growth abroad and lower seasonal consumption during cooler weather at home. But exports are expected to rise again in the second quarter, driven by growth in Asia, one industry source said. "There are positive economic indicators in the second quarter and demand is picking up from China. If things stay the same there will be more supply coming from Saudi for sure," the oil industry source said.

    Is Nigeria, And Its Light Sweet Crude, About To Be Drawn Into The Mali "Liberation" Campaign? - Precisely a month ago, when we last looked at the ongoing French campaign in Mali, whose diplomatic justification before the people of the "democratic" world was the eradication of "insurgents", and various other "Al Qaeda rebels", we asked readers, rhetorically, to look at a map of Mali and tell us what they see.  We even provided an answer: "Nothing. Mali is one of the most irrelevant countries in West Africa from a resource standpoint, and what happens inside of it is certainly irrelevant from a greater geopolitical standpoint. What is more important is what this map doesn't show, specifically the name of the country located a few hundred miles to the south: Nigeria. Now Nigeria is important: very important. Or rather, Nigerian light sweet, one of the highest quality crudes in the world, is. And thanks to the "bungled" French peacemaking attempt, the US now has a critical foothold in what is the most strategically placed stretch of desert in Western Africa, a place where US "military trainers" will now be deployed at will. Be on the lookout for curious escalations in violence around the capital Abuja, and key port city Lagos, in the coming months once the current Mali fracas is long forgotten." It appears that Nigeria will be drawn into the fray far sooner than even we expected following today's news that Islamist militants from neighboring Nigeria abducted a French family of seven, including four children, in northern Cameroon on Tuesday

    Iran plans to build oil refinery in Pakistan — An Iranian semi-official news agency says Iran is planning to build an oil refinery in Pakistan. The plan is part of Iran's effort to decrease international pressure on its oil industry, which has been target of international sanctions over the country's disputed nuclear program. Thursday's report by Fars quotes Asim Hussain, an adviser to the Pakistani prime minister, as saying that the refinery in the Pakistani port of Gwadar will be able to refine 400,000 barrels a day. The report says Iran will sell products from the refinery to Pakistan in return of food, especially wheat, meat and rice.

    US warns Pak on Iran-built oil refinery: Amidst reports of Iran building an oil refinery inside Pakistan and a joint gas pipeline project, the United States today cautioned Islamabad against activities that are “sanctionable” under US laws. The US asserted that there are better and more cost-effective ways to address Pakistan’s energy needs. “We’ve made clear to countries around the world, including Pakistan, that we believe that it’s in their interest to avoid activities that could be prohibited by UN sanctions or that could be sanctionable under US law,” State Department spokesperson, Victoria Nuland, told reporters at her daily news conference. “We understand that Pakistan has significant energy needs and requirements, but there are other long-term solutions to Pakistan’s energy needs that we would believe would have better potential for success and would better meet Pakistan’s needs than spending scarce resources on projects like this,” she said. The United States is involved in many ways to help Pakistan address its energy needs, she said while responding to questions on Iran building an oil refinery inside Pakistan.

    China Decides that South China Sea Oil is a National Asset - While the Western press is fixated on both recent North Korean nuclear tests and Beijing’s recent skirmishes with Japan over the Senkaku (“Diaoyu” in Chinese) islands, other maritime issues have developed further south, where China is involved in sovereignty disputes over the Spratly islands’ 750 islands, islets, atolls, cays and outcroppings with the Philippines, Taiwan, Vietnam, Malaysia and Brunei. Beijing is bolstering its claims with ancient Chinese maps, despite the 2002 “Declaration on the Conduct of Parties in the South China Sea,” designed to ease tensions over the archipelago.Now, no less an authority than the U.S. government’s Energy Information Agency has waded into the dispute over the potential riches at stake. The EIA’s updated “South China Sea” brief, issued on 7 February, after noting, “The South China Sea is a critical world trade route and a potential source of hydrocarbons, particularly natural gas, with competing claims of ownership over the sea and its resources,” goes on to add, “EIA estimates the South China Sea contains approximately 11 billion barrels of oil and 190 trillion cubic feet of natural gas in proved and probable reserves.”

    Pakistan hands management of strategic Gwadar port to China  (Reuters) - China took over management on Monday of Pakistan's Gwadar port, en route to key Hormuz Straits oil shipping lanes, in a move which has prompted nerves in India about its fellow Asian giant's growing strategic clout. China financed more than 80 percent of the $248 million development cost of the port on the Arabian Sea, as part of a plan to open up an energy and trade corridor from the Gulf, across Pakistan to western China. When complete, the port could be used by the Chinese Navy, analysts say, and Indian Defence Minister A.K. Antony told reporters on February 6 that Chinese control of the port was "a matter of concern." Indian policy-makers are wary of a string of strategically located ports being built by Chinese companies in its neighborhood, as India beefs up its military clout to compete. China has also funded ports in Hambantota, Sri Lanka, and Chittagong in Bangladesh, both India's neighbors. After a signing ceremony on Monday, Pakistani President Asif Ali Zardari said he hoped Gwadar would soon be a "hub of trade and commerce in the region".

    Pakistan Signs Gwadar Port Over to China Despite Rohrabacher’s Meddling  - Even though he was unsure of its pronunciation, Representative Dana Rohrabacher mounted what was initially a one-man campaign that he claimed was for a free and independent Balochistan. He did eventually enlist top-notch intellectual luminaries Louie Gohmert and Steve King in his effort, but the lingering question I had regarding his efforts on this front boiled down to:Does Rohrabacher want to help the Baloch, or does he merely want US control of the port of Gwadar and an end to the planned gas pipeline from Iran to Pakistan through Balochistan? We now have the opportunity to answer that question, as Rohrabacher’s attempts to arrange US control of Gwadar and to prevent the gas pipeline have failed. Pakistan officially transferred control of the port of Gwadar to China today from the Port of Singapore Authority. The final agreement relating to construction of the gas pipeline through Pakistan (Iran claims to have completed 900 kilometers of the pipeline within its borders already) was expected to be signed last Friday, but it appears a last-minute disagreement of gas pricing has delayed those signatures for a week.

    Why China Will Miss Its Shale Gas Production Targets - China, consuming energy at the fastest pace among major economies, has set ambitious targets to exploit its reservoirs of shale gas, the same fuel the U.S. touts as the means to energy independence. It won’t meet them. China is producing no commercial quantities of shale gas yet has set a target of 80 billion cubic meters by 2020, or 23% of total expected demand. Output in 2020 will likely be 18 billion cubic meters, according to the average estimate of seven analysts surveyed by Bloomberg. That’s more pessimistic than a year ago when the forecast was 23 billion cubic meters. “The only way China is going to be able to meet its output goals is for the government to pour money into exploration and development and ease up on the price controls.” By dictating fuel prices in a centrally controlled economy, China has discouraged investment in shale because drillers risk losing money. The result: China National Petroleum Corp. and China Petrochemical Corp., the two largest gas producers, didn’t win exploration blocks in the last auction while companies with zero gas-drilling experience did.

    China to suppress housing, steel smacked - It seems China news is also hitting the ASX today. From Bloomie: China told local authorities to “decisively” curb real estate speculation and take steps to rein in the property market, stopping short of imposing fresh measures after prices rose the most in two years last month. Cities that have had “excessively fast” price gains should “promptly” impose home-purchase restrictions if they’ve not done so already, according to a statement yesterday after a State Council meeting headed by Premier Wen Jiabao. Provincial capitals and municipalities reporting directly to the central government should publish annual price control targets to keep new-home costs “basically stable,” according to the statement. Investors had been concerned the government, preparing for a change of leadership next month, would impose new curbs on the property market, sending shares of Chinese developers listed in Shanghai to the biggest drop in more than six months on Feb. 19. Home prices rose 1 percent last month from December, the most since January 2011, according to data from SouFun Holdings Ltd., the nation’s biggest property website.

    In China, Families Bet It All on a Child in College - Wu Yiebing has been going down coal shafts practically every workday of his life, wrestling an electric drill for $500 a month in the choking dust of claustrophobic tunnels, with one goal in mind: paying for his daughter’s education.  His wife, Cao Weiping, toils from dawn to sunset in orchards every day during apple season in May and June. She earns $12 a day tying little plastic bags one at a time around 3,000 young apples on trees, to protect them from insects. The rest of the year she works as a substitute store clerk, earning several dollars a day, all going toward their daughter’s education.  Many families in the West sacrifice to put their children through school, saving for college educations that they hope will lead to a better life. Few efforts can compare with the heavy financial burden that millions of lower-income Chinese parents now endure as they push their children to obtain as much education as possible.  Yet a college degree no longer ensures a well-paying job, because the number of graduates in China has quadrupled in the last decade.

    Beijing's Steady Progress Toward Rebalancing - While the world's attention has been focused on the political and economic dramas in Europe, Japan and the U.S., one country has been quietly chipping away at some of its own economic problems. Recent data suggest a gradual but remarkable transformation in China's growth model. It is far too early to declare victory, however, and the new leadership has its work cut out for itself.  New data suggest that it is time to revise the view that China's growth is driven largely by exports and investment. Private and government consumption together accounted for more than half of China's output growth in 2011-12, signaling a big shift in the composition of domestic demand. Physical capital investment, the main driver of growth over the previous decade, is no longer the dominant contributor to growth. As for exports, a shrinking trade balance has in fact dragged down growth these past two years. China has made substantial progress in reducing its external imbalances. Its trade and current account surpluses have shrunk steadily and markedly relative to their peaks in 2007, when they hit 7.6% and 10.1% of gross domestic product, respectively. In 2012, both of these surpluses were below 3% of GDP.

    China Central Bank Reverses Cash Pump - Chinese authorities took a step to ease potential inflationary pressures Tuesday by using a key mechanism for the first time in eight months. The move by the central bank to withdraw cash from the banking system is a reversal after months of pumping cash in. That cash flood was meant to reduce borrowing costs for businesses as the economy slowed last year—but recent data has shown growth picking up, along with the main determinants of inflation: housing and food prices. The People's Bank of China used a liquidity-draining tool in the interbank market that enables the central bank to borrow money from commercial lenders. It withdrew 30 billion yuan ($4.81 billion) by offering 28-day repurchase agreements, alternatively known as repos. The PBOC hadn't offered repos since June. "The central bank is trying to send a message that it will not tolerate too-easy liquidity conditions," The central bank had pumped a record amount of cash into the interbank market ahead of the weeklong Lunar New Year holiday, which ended Friday. The break typically spurs increased spending for gifts and travel, and shuts down financial markets.

    Surge in Chinese credit raises fears - Chinese credit issuance surged to a record high in January on the back of a boom in shadow banking, stoking concerns that the economy could overheat. Total new financing in January reached Rmb2.5tn ($400bn) – up more than 50 per cent from December and more than double the figure a year ago – eclipsing even the start of 2009 when China unleashed stimulus spending to battle the global financial crisis. Analysts warned that the credit jump could lead to a sharp rise in Chinese inflation and debt levels if left unchecked and said that regulators would be forced to intervene to contain the excesses. “The main problem may be that markets are expecting some policy tightening in the coming months and are pre-empting that,” “In itself this practically guarantees policy tightening in the immediate future,” he added. “This year can be exceptionally risky for markets.” The explosion in financing was only partly driven by banks, which made Rmb1.07tn in loans. The rest of the new credit – 60 per cent of the total – came from corporate bonds, loans by investment companies, direct lending from companies to other companies and bankers’ acceptances, a popular form of short-term financing in China.

    Yes, but how much did China REALLY grow in 2012? How about 5.5%? - We’ve read two very interesting and distinct pieces of analysis today that raise quite dramatic questions about China’s GDP data. Yes, we know you probably weren’t too credulous to begin with, but the details of both are interesting. First, a column by Toshiya Tsugami in Japan’s Asahi Shimbun Asia & Japan Watch. Tsugami compares official data on fixed asset investment and credit. FAI accounts for about half of China’s GDP growth; and Tsugami totals up four years’ worth of this investment from 2009 to 2012, coming out with Rmb110tn. Yet total bank assets are much, much smaller than this figure would imply: According to the latest statistics by the People’s Bank of China, the total of all bank deposits and bank loans is 94 trillion yuan and 67 trillion yuan, respectively, and among total bank loans, two out of five are short-term lending less than one year. Investors can seek other financing such as corporate bonds outstanding and assets in various investment trusts in China, which are growing sharply these days and are estimated at somewhere between 20 trillion and 30 trillion yuan. Next China GDP questioner of the day is StanChart’s Stephen Green: This is where the provocative 5.5 per cent figure in the post’s header comes from, in case you were getting impatient. Green’s critique centres on comparing official GDP data with proxies for both investment and consumption. While his favourite proxies indicate growth began to lift in Q4 last year, Green notes that official quarter-on-quarter GDP data show Q3 as the strongest point in the year:If they were ‘good’ investments, it might make sense, he says:

    Australia Faces A$5.9 Billion Budget Revenue Shortage, Swan Says - Australian Prime Minister Julia Gillard’s government is facing a revenue shortfall of about A$5.9 billion ($6 billion), undermining her ruling Labor party’s economic credentials with elections due in September. “Company tax and resource rent taxes continue to be hit by a combination of the high dollar, lower commodity prices and greater deductions from the investment boom,” Treasurer Wayne Swan said today at a speech in Sydney. Cash receipts for the six months to Dec. 31 were A$3.9 billion less than previously forecast and “early data for January suggests another A$2 billion could be added to that revenue shortfall,” Swan said. Gillard’s bid to overcome the opposition Liberal National coalition’s lead in opinion polls is being damaged by weaker growth, lower prices for Australia’s resources, and a strong local currency that’s curbing tax receipts. She was forced in December to abandon a pledge to return the budget to a surplus this year. Gillard’s Minerals Resource Rent Tax, which puts a 30 percent levy on iron ore and coal profits, raised A$126 million in its first six months, trailing targets, the government said earlier this month. The Tony Abbott-led opposition claims the shortfall in revenue is an example of the government’s fiscal bungling.

    South Korea Continues to Have Growth Problems: The top chart shows the quarter to quarter percentage change of various contributors to SK GDP.  Notice that both manufacturing and construction have been experiencing negative or slow growth for most of the last 5 quarters. The bottom chart shows the overall structure of Korean GDP going back 8 quarters.  Here we see a few interesting trends, starting with the extremely negative impact of gross capital formation, which has been negative in 6 of the last 8 quarters.  Also note that both exports and imports have been negative in 3 of the last five quarters.  Last quarter, the economy was hit by negative contributions from government spending, investment and exports, leading to a .4% growth rate.  If it wasn't for private consumption, the economy would have been in far worse shape.

    India's Growth Problems in Detail - On February 7, the government of India revised its growth forecast for India down to 5%: Gross Domestic Product (GDP) at factor cost at constant (2004-05) prices in the year 2012-13 is likely to attain a level of Rs.55,03,476 crore, as against the First Revised Estimate of GDP for the year 2011-12 of Rs. 52,43,582 crore, released on 31st January 2013. The growth in GDP during 2012-13 is estimated at 5.0 per cent as compared to the growth rate of 6.2 per cent in 2011-12.These are of course estimates, or someone's best statistical analysis based on current factors.  However, there are other structural problems, as pointed out in a recent IMF report: the financial positions of banks and corporates, both strong before 2009, have deteriorated. The current account deficit (CAD) widened to 4.2 percent of GDP in 2011/12 and other external vulnerability indicators have deteriorated, which led to a sharp depreciation of the rupee in 2011 and early 2012.  Put another way, this is not the relatively simply situation where a country that supplies cheap labor to the world sees a period of slow growth because the rest of the world is slowing down, and therefore not purchasing that labor.  There are other issues that are contributing to the slowdown.

    Poverty, Squalor and Nuns - As a non-Catholic, I can mock their rituals, I can deplore their history, I can wail in indignation at their sexual molestation scandals, and I can snicker at the Pope’s hat.  And as an atheist I could fly to the moon on the gas created by Catholicism’s medieval hocus-pocus.  But as a former Peace Corps volunteer in Northern India, who saw firsthand the humanitarian contributions made by the Catholic Church, I shall neither mock nor criticize them.  Indeed, the extent to which Catholic nuns were helping needy Indians was awe-inspiring.  Back then, the big, institutional relief agencies in India—the ones whose motorized vehicles constituted practically the only traffic on India’s rural, one-lane highways—were CARE, UNICEF, the Red Cross, OxFam, and the CRS (Catholic Relief Services).  Prior to India I had no experience with any of this stuff.  I was 22 years old.  Although I had heard of CARE, UNICEF, OxFam, et al, I had no idea how they operated.  It took me a while to figure out that, despite being dedicated to their jobs, the thing these guys cared most about was career advancement.

    India Said to Plan About 6 Trillion Rupees Gross Borrowing - India plans gross market borrowing of about 6 trillion rupees ($111 billion) in the year through March 2014, a record high, according to three Finance Ministry officials with direct knowledge of preliminary estimates. The increase from 2012-2013’s level will provide funds for government spending and debt repurchases as existing sovereign bonds near maturity, the officials said, asking not to be identified as the details aren’t public. Another official said borrowings will climb next fiscal year, without giving a figure. Exact numbers have yet to be finalized, all four said. India’s government faces the task of containing the widest fiscal deficit in major emerging nations to avert a credit- rating downgrade to junk status. Finance Minister Palaniappan Chidambaram, due to unveil the budget Feb. 28, has vowed to pare the gap even as economic growth falters and an election due by May 2014 adds pressure for spending to win the support of voters.

    Millions strike in India over high prices - A strike by millions of low-skilled workers in India has seen banks close and public transport disrupted, amid reports of two deaths in the north. An estimated 100 million Indians, angry about rising prices, low pay and poor working condition, walked off their jobs on Wednesday, on the first day of a two-day strike organised by eleven major trade unions. The strikers are demanding a legal minimum wage, fairer contracts and improved working conditions. "Workers are being totally ignored and this is reflected in the government's anti-labour policies," said Tapan Sen, general secretary of the umbrella Centre of Indian Trade Unions.

    Trade unions’ strike hits banking, transport services - Key services, including banking and transport, were affected as the two-day general strike by 11 central trade unions and several independent federations began on Wednesday. While States such as Kerala, Bihar and Tripura were completely shut, the response was mixed in other States. There were reports of sporadic violence and lathi-charge in some areas, leading to the death of two workers in Haryana and Noida. Meanwhile, production is likely to be affected in the auto hub of Gurgaon, as 50 unions will stay off work on Thursday, including in Maruti, Suzuki Motorcyle and Hero Motocorp, trade union leaders said at a press conference at the INTUC headquarters here. “We had a meeting with representatives of different unions in the region and we have agreed to go on a one-day strike tomorrow in support of the central unions. There will not be any production tomorrow both at Maruti’s Gurgaon and Manesar plants,” Maruti Udyog Kamgar Union General Secretary, Kuldeep Jhangu, told a news agency.

    India's external debt nearly trebles as trade deficit widens - With the trade deficit increasing, the country's external debt has nearly trebled and has the potential to fuel an already high inflation. The external debt has risen to $365 billion in the third quarter of 2012 from $137 billion during the same period in 2006. "These rising deficits are being financed by increased foreign-currency borrowing, raising India's vulnerability to international financial volatility," Moody's Investors Service, a division of ratings agency Moody's said. "Wider trade deficits can also weaken the currency, raising domestic prices of imported commodities, further fueling India's already high inflation rate," said Atsi Sheth, Vice President - Senior Analyst, Sovereign Risk Group, Moody's Investors Service. Though the country' external debt rose to $206 billion from $94 billion between 1997 and 2007, there was a fall in ratios of debt/foreign exchange reserves and debt/current account receipts. But these ratios have been increasing since 2007, Moody's said. "Should the current trend of more rapid growth in debt and import payments than export earnings and non-debt inflows persist, these ratios, and thus India's vulnerability to external shocks, will deteriorate significantly," it warned.

    Japan posts record $17.4B trade deficit in Jan - Japan posted a record 1.63 trillion yen ($17.4 billion) trade deficit in January as rebounding exports lagged behind surging imports of crude oil and gas due to rising prices and the weakening yen. The provisional data released Wednesday show exports for the world's third-biggest economy rose 6.4 percent to 4.8 trillion yen ($51.2 billion) in January from a year earlier, the first year-on-year increase in eight months. Imports jumped 7.3 percent to 6.43 trillion yen ($68.6 billion.) A weakening in Japan's currency over the past few months has helped boost exports by making its products more price competitive overseas. But it has also inflated the value of resource-scarce Japan's imports of crude oil and other commodities, which offset a recovery in demand for Japanese-made vehicles and machinery. The trend is hindering Japan's long-time strategy of relying heavily on exports to drive growth and adds to pressure for stronger domestic demand at a time when the workforce is aging and shrinking and corporate investment remains feeble

    Japan's Abe Continues to Press BOJ on Inflation - A failure to hit its recently established 2% inflation target would be a condition for changing the law governing the Bank of Japan, Japanese Prime Minister Shinzo Abe told parliament. ."It would be necessary to proceed with revising the BOJ law if the central bank cannot produce results under its own mandate," Mr. Abe said during a debate Monday. He didn't elaborate on the substance of any revision, but indicated he was seeking ways to hold the bank responsible for meeting the inflation target, saying that under the current law, the government can't even introduce a target without the BOJ's consent. In the run-up to his landslide election victory last year, Mr. Abe repeatedly made veiled threats about revising the law if the central bank failed to comply with his government's desire for more aggressive measures to fight deflation. Since then, he has said the central bank should choose what measures it takes—so long as it achieves the 2% target. When opposition lawmakers argued Monday that the central bank has done nothing specific to back up its commitment to the new inflation goal, Mr. Abe responded that he won't comment on current BOJ policy.

    And the Pressure on the Bank of Japan Rises, by Tim Duy: The Wall Street Journal reports that Japanese Prime Minister Shinzo Abe is serious about a 2 percent inflation target: "It would be necessary to proceed with revising the BOJ law if the central bank cannot produce results under its own mandate," Mr. Abe said during a debate Monday. He didn't elaborate on the substance of any revision, but indicated he was seeking ways to hold the bank responsible for meeting the inflation target, saying that under the current law, the government can't even introduce a target without the BOJ's consent. Not exactly a veiled threat. Hit a 2 percent target, or your independence (what little you have left) is history. Abe doesn't comment on current policy, but "hints" at some future policies: "There are views calling for foreign-bond purchases," as well as for purchases aimed at directly boosting the stock market, he noted, without expressing his own opinion on such proposals. "I hope the BOJ will take effective policy steps that would contribute to overcoming deflation." The problem with foreign bond purchases - a problem that Abe may simply choose to ignore - is that such purchases would be consistent with outright intervention in the foreign exchange market. It would then become much more difficult to defend the depreciation of the Yen as simply a side-effect of domestic monetary policy. Refer to ECB President Mario Draghi's efforts to limit some of the currency war hysteria: “Most of the exchange rate movements that we have seen were not explicitly targeted; they were the result of domestic macroeconomic policies meant to boost the economy,” Mr. Draghi told the committee, without mentioning any countries by name. “In this sense, I find really excessive any language referring to currency wars.”

    The BOJ Gets It Right On Europe; EU Analysis Redux - From the latest BOJMinutes: Members shared the recognition that economic activity in the euro area had receded slowly. A few members pointed out that the negative effects had been spreading even to core countries such as Germany. As for the outlook, members shared the view that the euro area economy would likely still lack momentum for recovery on the whole as fiscal austerity measures would continue to be implemented for the time being, particularly in peripheral countries. That's about right.  Last week I looked at the EU and its four largest countries (see here, here, here, here and here).  The region is still a mess.  While there are some positive developments (German manufacturing and services indices are increasing, Italy's manufacturing sector's problems are easing), three of the four largest economies (France, Spain and Italy) are still either in a recession (Spain and Italy) or barely printing any growth (France).  And the region as a whole is still enthralled with the idea of expansionary austerity, which will continue to hurt growth as pointed out above.

    G-20 Signals Support for Japan Easing Without Yen Talk - Bloomberg: Global finance chiefs signaled Japan has scope to keep stimulating its stagnant economy as long as policy makers cease publicly advocating a sliding yen. The message was delivered at weekend talks of finance ministers and central bankers from the Group of 20 in Moscow. While they pledged not “to target our exchange rates for competitive purposes,” Japan wasn’t singled out for allowing the yen to drop and won backing for its push to beat deflation.“There was no censure of the Japanese attitude, which was considered a policy to develop its economy and not to intentionally devalue,” Brazilian Finance Minister Guido Mantega told reporters after the meeting. The yen extended its losses against the dollar today as Prime Minister Shinzo Abe told parliament that buying foreign bonds is a monetary policy option and the law governing the central bank may be revised if it fails to get results.

    Group of 20 Vows to Let Markets Set Currency Values - In a concerted move to quiet fears of a so-called currency war, finance officials from the world’s largest industrial and emerging economies expressed their commitment on Saturday to “market-determined exchange rate systems and exchange rate flexibility.”  In a statement issued at the conclusion of a conference here of the Group of 20, the finance ministers from the Group of 20 promised: “We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes.”  In its statement, the group also vowed to “take necessary collective actions” to discourage corporate tax evasion, particularly by preventing companies from shifting profits to avoid tax obligations. For instance, a number of big American companies, including Apple and Starbucks, have come under scrutiny recently for seeking out the friendliest tax jurisdictions.  Over all, the statement largely echoed one last week by seven top industrial nations pledging to let market exchange rates determine the value of their currencies. Currency devaluation can be used to gain competitive advantage because it makes a country’s exports cheaper.

     G-20 Takes Harder Line on Currencies - Two days of talks between G-20 finance ministers and central bankers ended in Moscow yesterday with a pledge not to “target our exchange rates for competitive purposes,” according to a statement. That’s stronger than their position three months ago and leaves Japanese officials under pressure to stop publicly giving guidance on their currency’s value. With the yen near its lowest level against the dollar since 2010, policy makers are attempting to soothe concern that some countries are trying to weaken exchange rates to spur growth through exports. The risk is a 1930s-style spiral of devaluations and protectionism if other countries retaliate to safeguard their own economies. “Politically-motivated devaluations can’t sustainably improve competitiveness; they don’t solve structural problems and they set off reactions,” Bundesbank President Jens Weidmann said yesterday. “The clear language in the communiqué underlines this unity and will allow the debate in the future to take place with a less excited tone.” Japanese officials in Moscow denied driving down their currency, arguing its fall was a byproduct -- not a focus -- of their effort to revive the world’s third-largest economy. 

    With the world watching, Bernanke gives a go-ahead to the currency war - In the past few weeks global markets have focused on the weakening yen, as politicians and business leaders, particularly in Europe have called for a halt in Japan's "weak currency" policy. Tokyo's efforts to stimulate it's export sector have become front and center topic in the financial media, as global businesses become increasingly concerned about the currency war. In fact the number of FT articles containing the word "yen" hit a record recently. Public's attention has therefore turned to the G20 meeting this week, where some have hoped Japan would be asked to moderate its policy. The Eurozone is particularly concerned that the relative strength of the euro will delay its exit from the economic malaise.  But with the world watching and the Germans hoping for action against Japan, the US quickly stepped in to support Japan's policy. After all the US has been following a similar policy itself. This NY Times article described the situation quite well: NY Times: - Ben S. Bernanke, the Federal Reserve chairman, strongly indicated on Friday that the United States did not intend to censure Japan for weakening its currency over the last several months, something that has aided Japanese exporters and angered its competitors.

    Is the World on the Brink of a Currency War? The latest hot topic among economic talking heads is the coming currency war. According to conventional wisdom, there’s a risk that major countries will – simultaneously – try to revive their sluggish economies by pushing down the value of their currencies. That strategy could backfire, according to this line of thought, stifling international trade, tipping economies back into recession, and possibly causing Depression-style hyperinflation to boot.   It all sounds very unpleasant.But the dogs of war are unlikely to slip their leash. In a classic currency war, a country prints money, holds interest rates down, or intervenes in foreign exchange markets in order to depress the value of its own currency. That makes the country’s exports cheaper and more attractive for foreign buyers. In theory, this can enable an economy to grow faster than would be possible on the basis of domestic demand alone. Only trouble is, if every country pursues a similar strategy, they all devalue their currencies at the same time and no country gains an advantage over its trading partners.

    Vital Signs Chart: Dollar Rises Against Global Currencies - The dollar is strengthening. The Wall Street Journal Dollar Index, which measures the greenback against seven currencies, has risen 5% since mid-September. Some countries have said the Federal Reserve’s bond-buying programs weaken then dollar—and make foreign exports costlier in the U.S. But the WSJ Dollar Index is above its average level since 2007.

    'Currency War' Is Less a Battle Than a Debate on Economic Policy - Never mind about North Korea; the talk in some quarters is that the biggest threat to Asia and the rest of the world today may very well be a “currency war,” in which countries race to devalue their currencies in a desperate attempt to stimulate growth. Yet the reality is much different. It is really a debate about how industrialized countries will grow out of their economic malaise, and even the term “currency war” is being misused. That catchy phrase was first uttered by Guido Mantega, the Brazilian minister for finance, in 2010. What he was referring to was actually something more complicated than countries racing to depreciate their currencies, which is what most people refer to today when they use the phrase. Instead, Mr. Mantega was really talking about the United States. The huge quantitative easing undertaken by the Federal Reserve has created an environment of low interest rates and put downward pressure on the dollar while pushing the currencies of other countries up.

    South Korea Starts Currency War Rumblings; Has Japan In Its Sights - While the rest of the developed (read trade deficit) world's foray into the currency wars was completely predictable and expected, there was one country that had so far kept very silent on the topic of Japan's attempts to crush its currency: its main export competitor, South Korea. Recall that for this Asian nation exports are everything, and as Yonhap reminds us, "exports of goods and services amounted to 538.5 trillion won (US$506 billion) in the January-September period, or 57.3 percent of the nation's gross domestic product (GDP), according to the data by the Bank of Korea. The reading was higher than 56.2 percent tallied for all of 2011 and the highest since the central bank began compiling related data in 1970, and South Korea's exports accounted for 13.2 percent of its GDP." The reason for South Korea's relative silence is that, as we showed yesterday, in the global race to debase launched with the end of the Bretton Woods, it was the undisputed leader, outdoing even the US. Moments ago South Korea may have just had enough and broke the seal on its code of silence. As Reuters reports, "South Korea said that while the Group of 20 nations at their meeting last weekend did not single out Japan for monetary and fiscal measures that have weakened the yen, the group did not exactly endorse Japan's quantitative easing policy, which in fact stirred controversy."

    Norway Enters The Currency Wars - While the G-20 and the G-7 haggle among each other, all (with perhaps the exception of France) desperate to make it seem that Japan's recent currency manipulation is not really manipulation, and that the plunge in the Yen was an indirect, "unexpected" consequence of BOJ monetary policy (when in reality as Richard Koo explained it is merely a ploy to avoid the spotlight falling on each and every other G-7/20 member, all of which are engaged in the same type of currency wars which eventually will all morph into trade wars), Europe's energy powerhouse Norway quietly entered into the war. From Bloomberg: "Norges Bank is ready to cut interest rates further to counter krone gains that interfere with the inflation target, Governor Oeystein Olsen said. If it gets too strong over time, leading to inflation that’s too low, we will act,” Olsen said yesterday in an interview at his office in Oslo.

    Saxo Bank CEO Says Euro Is Doomed as Currency Woes Resurface - Lars Seier Christensen, co-chief executive officer of Danish bank Saxo Bank A/S, said the euro’s recent rally is illusory and the shared currency is set to fail because the continent hasn’t supported it with a fiscal union. “The whole thing is doomed,” Christensen said yesterday in an interview at the bank’s Dubai office. “Right now we’re in one of those fake solutions where people think that the problem is contained or being addressed, which it isn’t at all.” The euro has gained 8.2 percent versus the dollar in the past six months and reached as high as $1.3711 on Feb. 1, the strongest since Nov. 14, 2011. The European Central Bank forecasts the euro-area economy will shrink 0.3 percent this year and ECB President Mario Draghi said on Feb. 7 that the currency’s gains pose a risk for growth and inflation. While the euro has strengthened, the economies of Germany

    ECB President Draghi Urges Less Talk and More Talk (On the Same Subject) - When it comes to currency wars, ECB president Mario Draghi made an amusing set of statements as excerpted from the Bloomberg article Draghi Seeks to Quiet Talk About Global Currency War

    1. "I find really excessive any language referring to currency wars."
    2. "The less we talk about this, the better it is."
    3. Draghi said he had "urged all parties" to exercise "very, very strong verbal discipline"
    4. The relative strength of the euro "is important for growth and price stability" and that "to the downside," an "appreciation of the euro is a risk." He said the E.C.B. would assess whether the exchange rate was having an effect on inflation. 
    Let's see if I have this straight: "The less we talk about currency wars the better, but we need to exercise very, very strong verbal discipline because currency war talk is excessive and the exchange rate may have an effect on inflation."

    Sterling At Risk Of "Large-Scale Devaluation" As Currency Wars Intensify - The pound took a fresh beating yesterday as concerns of currency wars and debasement of sterling led to another sell-off and experts said the currency was at risk of a "large-scale devaluation". Sterling trails only Japan's yen as the worst performer against a basket of international currencies this year as a 4.5 per cent decline fuels import prices and pushes up the cost of food, insurance and other necessities for hundreds of thousands of households.  As central banks tolerate higher levels of inflation, the pound is set to weaken further across the board particularly against safe haven gold. UBS warned that the pound seems clearly at risk of following the yen and "suffering the next large-scale devaluation." Dealers also noted weekend comments from Bank of England rate-setter Martin Weale, who warned the pound was still too high to help the UK economy rebalance effectively. The continued pressure on the currency comes after its biggest weekly loss since June last year amid gloom over weak growth prospects.  The Bank of England has signalled it is willing to tolerate higher inflation for longer, while the pound's safe-haven appeal has also waned as the European Central Bank makes explicit commitments to prop up Eurozone strugglers and preserve the single currency.

    Iceland Foreshadows Death of Currencies Lost in Crisis - Bloomberg: Iceland is hinting its currency may be too small to survive in the volatile world left behind by the global financial crisis. Less than five months after Finance Minister Katrin Juliusdottir said the krona probably will never be restored to a free floating regime, central bank Governor Mar Gudmundsson is signaling the same.“We’ve said that Iceland can live with the krona, but then we have to do this and that,” Gudmundsson said in a telephone interview from Reykjavik. “And it may well be the case that we don’t like all the things we have to do. Then we have to consider other options. Another option is to join a large currency union.”  After its biggest banks defaulted on $85 billion in 2008, Iceland imposed currency controls to cauterize the outflow of capital. The International Monetary Fund and economists, including Nobel laureate Paul Krugman, praised the step as necessary. Now, even as Iceland outgrows much of Europe, the nation is holding on to the currency restrictions amid concern the krona won’t survive on its own.

    EU-US Free Trade Agreement: End of the Asian Century?: Did February 12 mark the end of the “Asian Century”, barely a decade after it began? Delivering his State of the Union Address, U.S. President Barack Obama declared his key goals for trade policy in his second term as leader of the world’s biggest economy. “To boost American exports, support American jobs, and level the playing field in the growing markets of Asia, we intend to complete negotiations on a Trans-Pacific Partnership(TPP),” Obama said in the address. “And tonight, I am announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union – because trade that is free and fair across the Atlantic supports millions of good-paying American jobs.” The Obama administration previously set the goal of completing negotiations on the 11-member TPP by October, ahead of rival free trade agreements (FTAs) planned in Asia such as the “Regional Comprehensive Economic Partnership” encompassing 16 nations or the mooted trilateral FTA between regional powers China, Japan and South Korea. The TPP would represent around 26 percent of global gross domestic product, presenting a sizeable bloc that critics contend would act to curb China’s increasing economic influence. 

    Spanish Debt Grows by €146 Billion, Largest Ever Recorded; Debt-to-GDP Highest Since 1910 - Proof there is no rebalancing in Europe is easy to find. For example, El Pais reports Spanish Debt Grows by €146 Billion. What follows is a Mish-modified translation of the above Google-translation. Key Points:

    • The public debt exceeded €882 billion at the end of 2012
    • Debt Grew by €146 Billion in one year
    • The increase in the first year of Prime Minister Mariano Rajoy is the largest ever recorded
    • Debt-to-GDP is highest since 1910 
    • Interest expense is at record high

    The Government and the Bank of Spain debt figures are chilling. Government debt broke records in 2012. In the first year of the Government of Mariano Rajoy, debt skyrocketed to €882 billion, a one year increased of €146 Billion. Never in the economic history of Spain's general government debt had increased so much in a single year. In five years, the debt has increased by €500 Billion, Debt is one of the major drags on the recovery of the Spanish economy.

    Chart Of The Day: Spanish Debt - Beleaguered Prime Minister Mariano Rajoy just broke another record. As if a plague of corruption scandals was not enough, Spain's debt-to-GDP has now reached levels not seen in over 100 years. As El Pais reports, Spanish debt levels rose at an alarming EUR 400 million per day in 2012 making for the largest annual increase in debt in the nation's history - all the while proclaiming austerity. The EUR 146 billion increase in debt in 2012 is the equivalent of more than 14 percentage points of GDP leading to a staggering EUR 882.3 billion or 84% of GDP overall - far exceeding the government's own budget forecast of 79% and expected to rise significantly further in 2013. The last time levels of debt were this high relative to GDP Spain was recovering from war and the loss of its colonies.At EUR 38.7 billion, Spain has never spent so much money to pay only the interest on its debt, 33% more than budgeted for last year; unless this situation is corrected, this "is a dynamic that eventually leads to non-payment," especially as the nation's unemployment surges and GDP shifts from recessionary to depressionary.

    Spain's labour reforms won't bring growth or reduce unemployment - An old spectre is returning. Last week, Tony Barber in the Financial Times – usually among the more sensible commentators – suggested, though carefully and with many caveats, that Spain's labour market reforms are the basis of the country's improved economic performance. By limiting possible wage claims and negotiating flexible working conditions, companies in the car industry and beyond have become more competitive and boosted their exports. The data first. Spain's unemployment rate is 26%, and not falling particularly rapidly. The current account deficit is falling, less as a result of increased exports and more because imports fell dramatically as domestic demand collapsed in the wake of the housing and financial crisis. It is unclear if growth will pick up enough in the short run to avoid a rise in the debt-GDP ratio. So much for economic performance. The key reason, of course, why even the tiniest shimmer of light has to be greeted with jubilation is that wages are always seen as the problem – even in a financial catastrophe-induced economic crisis. For policy-makers, austerity is ultimately self-defeating: current accounts are outcomes, not policy tools, and competitiveness is difficult to target, consisting, as it does, of price and quality relative to what others do. In this light, it follows that labour markets are possibly the only area where governments can be seen to be doing something about the economy. For many commentators, if Spain is doing better – and if the country has just reformed its labour markets, then the reform must explain the improvement (however small it might be).

    Rebalancing in Spain Stage Two: 20,000 Iberia Airline Workers to Strike, 1,222 flights Cancelled in First five Days - The "rebalancing" in Spain continues along the lines I have suggested, not as suggested by economists and those who think there is guaranteed future of the eurozone. Via Google translate from El Economista, please consider Strike by Iberia Starts Monday The nearly 20,000 workers are called from Iberia to strike on Monday in the first week of the 15 days of strikes called by unions CCOO, Asetma, USE, SITCPLA and CTA-Flight, which has forced airlines group to cancel a total of 1,222 flights in its first five days. The 24-hour strikes, affecting ground staff and cabin crew (TCP), but which are called all employees of the airline, will be held from Monday 18 to Friday 22 February, from Monday 4 to Friday 8 March and Monday 18 (a public holiday in some ACs) to 22 next month. The pilots' union will join the strike in March. Furthermore, the six unions representing 93% of the staff have organized concentrations for 18 and 22 February in all Spanish airports, coinciding with the start of the 15-day strike.

    Spanish Property Giant Files for Insolvency - Spanish real estate giant Reyal Urbis said Tuesday it had filed for insolvency after failing to renegotiate a debt of 3.6 billion euros (4.7 billion dollars) with its creditors. If final negotiations to reach a deal fail, the company faces the second-largest bankruptcy ever in Spain after that of Martinsa-Fadesa, another victim of Spain's 2008 property crash. It was unable to repay 7 billion euros in debt that year. Reyal Urbis manages housing, offices, business premises, hotels and land in more than 20 localities in Spain and Portugal. Its property portfolio was worth 4.2 billion euros in 2012. The company's creditors include a group of Spanish banks; funds; the Finance Ministry; and Sareb, a bad bank created by the government to absorb banks' toxic real estate assets.

    Now A Vast Political Espionage Scandal To Top Off The Sordid Corruption Scandal In Spain - Spain just can’t catch a break—a horrid economy with dizzying unemployment, collapsing banks, a prime minister and ruling party tarred by corruption.... Now a political espionage scandal blew up, scattering debris and money laundering allegations far and wide. Unemployment in Spain was 26% in December, youth unemployment 55%. GDP last quarter dropped for the fifth month in a row (-0.7%), the steepest decline since the financial crisis. Consumer spending plunged 10% in December from prior year—following a hike in the value-added tax. And the budget deficit target of 6.3% (not counting the billions plowed into bailing out the banks) is skidding out of reach. This leitmotif is accompanied by an elegantly escalating corruption scandal that broke in early February. A classic cash-for-contracts arrangement, where senior politicians received secret payments from business folks who in return were awarded juicy government contracts. It was documented in handwritten ledgers, involved a €22 million slush fund in Switzerland, and was allegedly run by Luis Bárcenas, the ex-treasurer of the conservative People’s Party (PP), the party of Prime Minister Mariano Rajoy, whose name appears repeatedly and very inconveniently on the ledgers as recipient [which put him and Chancellor Merkel on the corruption hot seat in Berlin....

    Italian bank lending drops to record low - Loans to families and companies dropped by record amounts in January, Italy's banking association ABI reported Tuesday, adding that it expected the country's economy to contract even more than it previously forecast. According to ABI the value of total loans issued, 1.467 billion euros, represented a 2.5% drop on the December value and was largely the result of the continuing recession in Italy. Meanwhile, for the current year ABI researchers said their forecasts of a 0.6% contraction in the economy would likely be revised for the worse after a higher than expected contraction of 0.9% in the fourth quarter of 2012. On this basis, and unless the government takes any measures to stimulate growth, the economy could be on track to shrink by about 1%, ABI said. The banking association also warned of the increasing amount of potentially dud loans in the financial system - another result of the continuing poor economic climate in Italy - but added there was no cause for alarm, as the increase was "physiological" and "could be managed". According to ABI, the total value of bad loans reached a net value of some 64.3 billion euros at end 2012, representing about 3.3% of total bank lending, up from about 2.7% to the end of 2011.

    Berlusconi Win May Prompt Italy ECB Bailout, Mediobanca Says -- Victory by Silvio Berlusconi may be the best outcome from Italian elections this week as it “would scare the market,” prompting Europe’s fourth-biggest economy to get a bailout to lower borrowing costs, Mediobanca SpA said. A Berlusconi win in Feb. 24-25 parliamentary elections would lead to higher Italian bond yields, Antonio Guglielmi, an analyst at Mediobanca in London, said in a report today. Higher borrowing costs would offer “the perfect excuse” to apply for a rescue led by the European Central Bank, which is “the best way out” of Italy’s unsustainable debt levels, he wrote. Italy sidestepped asking for an ECB-led bailout last year as Prime Minister Mario Monti’s tax increases helped reduce borrowing costs, shielding the nation from the worst of the sovereign debt crisis. Berlusconi, a three-time premier, has vowed to reverse Monti’s austerity policies if re-elected. “Paradoxically, the worst-case scenario could become the best case to us,” Guglielmi said of a possible Berlusconi win and subsequent bailout request. Mediobanca is Italy’s largest publicly-traded investment bank.

    ‘Gambling Away Trust’: Fears Rise of a Berlusconi Resurrection - Germany's Martin Schulz, the president of European Parliament, became the latest on Wednesday to warn Italians against casting their ballots for Il Cavaliere. Berlusconi, he said, "has previously sent Italy into a tailspin with his irresponsible actions as head of government and his personal escapades." He said that a lot was riding on the upcoming vote "including the avoidance of gambling away trust."He joins a growing list of leaders who are wary of the return of "Il Cavaliere." The worry is particularly pronounced in the financial world. It is, of course, hardly news that Schulz is no great fan of Berlusconi. In 2003, when Schulz was a rank-and-file European parliamentarian and Berlusconi occupied the position of European Council president, the Italian prime minister took umbrage at critical comments made by Schulz. In response, Berlusconi said: "I know that in Italy there is a man producing a film on Nazi concentration camps. I shall put you forward for the part of guard." The comment unleashed a brief but intense diplomatic tiff between Rome and Berlin.

    Italy's recession and upcoming elections threaten reforms -The Guardian had a good summary yesterday on the situation in Italy, where the recession is showing no signs of abating. The winner of the upcoming elections will face some severe challenges.The Guardian: - A stagnating economy, corruption, organised crime, political apathy, misogyny, youth unemployment ... The person elected to run Italy next weekend will have a formidable to-do list. The country is now in its longest recession in 20 years, the economy having contracted for the last six consecutive quarters and languished in more than a decade of almost non-existent growth. Unemployment is at more than 11%; for under-25s, it is more than 36%. Italy has the second highest ratio of sovereign debt to GDP in the EU.  . In autumn 2011, when Mario Monti took over after years of successive governments largely ignoring the problem, there were fears that the EU's fourth largest economy might fall into the abyss and drag the rest of the eurozone with it. The technocrat government avoided that disaster scenario and has done much to restore the markets' faith in Italy. Late last year, before the spectre of a Silvio Berlusconi comeback unsettled matters, 10-year bond yields were at a two-year low. It has implemented reforms – including of the pension system and labour market – that are viewed as a crucial part of long-term recovery and could, according to the IMF, lead to a 6% increase in GDP if properly implemented.  It is particularly troubling to see the industrial sector of the economy still contracting, even as Germany's industries stabilize.

    ECB: Nearly half of bond holdings from Italy - The European Central Bank says Italian government bonds account for nearly half of its total holdings under a now discontinued bond-buying program launched in 2010 to ease the eurozone's debt crisis. The ECB on Thursday detailed for the first time what countries' bonds it acquired under the so-called Securities Markets Program, which it started when the euro area's debt crisis flared in May 2010. The central bank for the 17 European Union countries that use the euro said it holds bonds with a face value of €218 billion ($292 billion) — €102.8 billion of them from Italy. Spain accounted for the second-biggest holding, with bonds nominally worth €44.3 billion. The ECB also holds Greek bonds with a face value of €33.9 billion; Portuguese bonds worth €22.8 billion; and Irish bonds to the tune of €14.2 billion.

    Ford Leads Drop as European Auto Sales Decline to Record - European Union car sales fell to the lowest level for a January, with Ford Motor Co. and PSA Peugeot Citroen posting the biggest drops, as economic contractions in the southern part of the region widened to Germany and France.  Registrations dropped 8.7 percent to 885,159 vehicles last month from 969,219 cars a year earlier, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said today in a statement. The figure was the lowest start to the year since the group began tracking sales in 1990, it said. Carmakers are struggling to end losses in Europe that Fiat SpA Chief Executive Officer Sergio Marchionne has estimated at an industrywide 5 billion euros ($6.68 billion) in 2012. Ford, whose Europewide sales fell 26 percent in January, and Peugeot are among manufacturers in the region planning a combined 30,000 job cuts and five plant shutdowns. Sales fell 8.6 percent in Germany, Europe’s biggest economy, and 15 percent in France, the second-biggest among the 17 nations using the euro.

    European Car Sales Had Their Worst January Since 1990 - Ford, PSA Peugeot Citroen and Toyota led European car sales to a new low in January, kicking off 2013 with an 8.5 percent decline, the Association of European carmakers said on Tuesday. Registrations fell to 918,280 new cars, the Brussels-based industry body said in a statement, the slowest January since its records began in 1990. Ford, which is cutting back its European production capacity with three plant closures to stem regional losses, recorded a 26 percent sales plunge to 61,544 cars. Peugeot and Toyota posted the next biggest declines among major automakers, dropping 16 percent each. After falling to a 17-year low in 2012, European car demand is expected to contract further this year, squeezing mass-market brands still harder between excess capacity and cutthroat pricing. Most carmakers see the regional market shrinking between 3 and 5 percent in 2013. Germany in particular is weighing on the outlook. After resisting much of last year's slump, Europe's biggest car market is in sharp decline, extended by an 8.6 percent drop in January. Despite weak demand at home, Volkswagen increased its share of European sales. Its registrations fell 5.5 percent in January, a more modest decline than the market's, as the premium Audi nameplate fell just 2.1 percent.

    PIIGS Unemployment Stabilizing? - Well, except for Greece, anyway.  The chart above shows the data for the unemployment rate in the five PIIGS countries through December 2012 (November for Greece).  The interesting thing is that Ireland, Spain, Italy, and Portugal all have at least a few months of the unemployment rate looking stable, as opposed to still going up.  This is pretty encouraging - you have to stop going up before you can start to go down.  The situation in these countries is really pretty dreadful, so it would be a heartening thing if this stabilization can hold, and then a recovery begin.

    France's fiscal tightening is inhibiting growth - France seems to be the only EMU nation who is undergoing a larger fiscal tightening in 2013 than it did in 2012.  While many of its austerity measures are clearly necessary, such action (combined with poor private sector competitiveness) is translating into a significant divergence in growth between France and the rest of the Eurozone. As discussed earlier (see post), the French composite PMI (manufacturing + services) has deviated sharply to the downside. With this weakness in the corporate sector, it was not surprising to see Hollande announcing that France will miss its target on GDP growth this year. Fox News: - French President Francois Hollande has said his country will miss its economic growth target this year. Speaking during a brief visit to Athens on Tuesday, Hollande said that "everyone knows that for 2013, we will not reach our target, which was 0.8 percent." There may be a lesson here for the US, which is quickly approaching the so-called "sequestration" (see discussion). An ill timed, sharp fiscal tightening could have a severe impact on a nation's economic growth.

    France Sinks Further Into Gutter; PMI Accelerates to 4-Year Low; "Core" of Europe Now Consists of Germany Only - The PMI reports are out today, and inquiring minds will note the Markit Flash France PMI shows the decline in French private sector output accelerates further to reach near four-year record.  Key points:

    • Flash France Composite Output Index drops to 42.3 (42.7 in January), 47-month low
    • Flash France Services Activity Index falls to 42.7 (43.6 in January), 48-month low
    • Flash France Manufacturing PMI climbs to 43.6 (42.9 in January), 2-month high
    • Flash France Manufacturing Output Index rises to 41.2 (40.8 in January), 2-month high
    Summary: Latest Flash PMI data indicated that the downturn in French private sector output deepened in February. January’s Markit Flash France Composite Output Index , based on around 85% of normal monthly survey replies, slipped from 42.7 in January to 42.3, its lowest reading since March 2009. The steeper fall in overall output was driven by an accelerated decline in the service sector where activity contracted at the fastest pace in four years. Manufacturers signalled a slightly slower decrease in production compared with one month previously, albeit still sharper than signalled in the service sector.

    France freezes spending to hit EU targets as slump deepens -  France is to freeze spending on defence, higher education and research in a frantic bid to meet European Union deficit targets this year, tightening fiscal policy yet further as the country slides into deep slump. The move came as Brussels slashed its 2013 growth forecast for France to just 0.1pc, implying a triple-dip recession. Paris had been counting on 0.8pc growth. The severity of the downturn has caught officials by surprise. Markit’s survey data for French manufacturing and services fell to 42.3 in February, plunging at the fastest rate since the financial crisis in early 2009. Anything less than 50 signals contraction. Markit warned that the country may be tipping into a “downward spiral” as sliding confidence causes businesses to delay spending. A key gauge of France’s money supply – six-month real M1 – has contracted faster than in Italy or Spain over recent months, pointing to a grim outlook ahead. Le Monde said Brussels will pencil in a budget deficit for France of 3.6pc of GDP this year when it unveils its forecasts on Friday, low by world standards but far above the 3pc target seen as a political test of president François Hollande’s fiscal credibility.

    Panic-Driven Austerity in the Eurozone and its Implications - Eurozone policy seems driven by market sentiment. This column argues that fear and panic led to excessive, and possibly self-defeating, austerity in the south while failing to induce offsetting stimulus in the north. The resulting deflation bias produced the double-dip recession and perhaps more dire consequences. As it becomes obvious that austerity produces unnecessary suffering, millions may seek liberation from ‘euro shackles’.

    (Fading) light at the end of the tunnel - MARTIN WOLF condenses my recent euro-crisis fretting into a succint point: Those who believe the eurozone’s trials are now behind it must assume either an extraordinary economic turnround or a willingness of those trapped in deep recessions to soldier on, year after grim year. Neither assumption seems at all plausible. We can't yet speak to the willingness of those trapped to soldier on. The extraordinary economic turnaround, however, remains a distant dream. Flash estimates of euro-zone economic activity showed a quickening downturn in February, ruining hopes that the slower pace of contraction in January might represent green shoots. The worst news? French economic activity slowed ever faster, touching a 47-month low. And so the pressure in the cooker rises...

    Martin Wolf Misses the Real Reason the Eurozone’s Unhappy Marriage Has Not Broken Up Yet - Yves Smith - The normally astute and blunt Martin Wolf is either having an uncharacteristic bout of circumspection or is managing to miss an important, arguably determining reason why the Eurozone persists in inflicting destructive austerity on much of its population.  As his current column shows, Wolf is under no illusion as to the success of the Eurozone experiment and reminds readers it could still fail: Wolf then proceeds to tell us that the Eurozone continues to be a resolute practitioner of austerity policies. Readers may recall that there was a huge kerfluffle in the economics-related media when the IMF admitted it was all wrong, that the fiscal multipliers in the Eurozone had turned out to be larger than one. In econ-speak that means you can’t starve your way back to health. Cutting fiscal deficits results in an even greater economic contraction, resulting in even worse debt to GDP ratios. But the rest of the European officialdom seems to be in shoot-the-messenger mode. Wolf says the way out is more debt writedowns and restructurings, internal rebalancing, and financing national deficits as the rebalancing is in process. At this remove, I don’t see how this happens. Germany still wants to have its cake and eat it too. It does not want to give up running surpluses with the rest of the Eurozone and keep financing its trade partners. The fact that it insists on irreconcilable objectives is putting the periphery into a depression which will eventually infect Germany.

    The ever-receding recovery - A WEEK after official figures showed a steep fall in euro-zone output in late 2012 the European Commission (EC) has added to the gloom by unveiling some gloomy forecasts for 2013. Three months ago the EC envisaged a modest recovery getting under way in the first half of this year. Now that is not expected until the second half of 2013.The lower starting-point for GDP and the delay in the recovery mean that the picture for 2013 as a whole now looks bleaker. Last November the EC expected the euro area to grow this year though barely, by just 0.1%, following a 0.4% decline in 2012; now it is expecting a fall in GDP of 0.3% following a 0.6% drop last year. This year’s prospects for southern Europe have generally darkened. The EC now expects the Portuguese economy to contract by 1.9% compared with its November forecast of a 1% fall. The outlook in Italy has also deteriorated, with a decline of 1% now expected rather than one of 0.5%. The projection for Spain, of a 1.4% fall, has been left unchanged. Evidence that the euro area continues to shrink came yesterday from Markit, a research firm, in a survey showing that activity in the services and manufacturing sectors of the euro area had fallen at a faster pace in February than January. According to this preliminary estimate, the index recorded 47.3 this month, down from 48.6.

    Europe's Growth Problems Continue -- From Markit: The Markit Eurozone PMI Composite Output Index fell to 47.3 in February from 48.6 in January, according to the flash estimate. The decline signals a steepening of the economic downturn, contrasting with the easing trend seen in the previous three months. Business activity has now declined throughout the past year-and-a-half, with the exception of a marginal increase in January last year. Despite accelerating, the rate of contraction in February remained slower than the post-crisis record seen in October, and the average drop in activity in the first quarter so far is less severe than the trend for the fourth quarter of last year.  Let's take a look at the accompanying graphs:

    Euro zone economy to shrink again in 2013, EU says - The euro zone will not return to growth until 2014, the European Commission said on Friday, reversing its prediction for an end to recession this year and blaming a lack of bank lending and record joblessness for delaying the recovery. The 17-nation bloc's economy, which generates nearly a fifth of global output, will shrink 0.3 percent in 2013, the Commission said, meaning the euro zone will remain in its second recession since 2009 for a year longer than originally foreseen. The Commission, the EU executive, late last year forecast 0.1 percent growth in the euro zone's economy for 2012, but now says tight lending conditions for companies and households, job cuts and frozen investment have delayed an expected recovery. The Commission sees the euro zone economy growing 1.4 percent in 2014, with a figure of -0.6 percent for 2012.

    EU forecasts paint grim economic picture - The economic slowdown that has shaken the eurozone’s periphery will continue to bleed into the currency bloc’s core this year, with France and Germany barely growing, according to highly anticipated forecasts published on Friday by the European Commission. The worsening economic picture – where France’s gross domestic product is expected to grow just 0.1 per cent and Germany’s by 0.5 per cent in 2013, both 30 basis point downgrades from three months ago – will see the eurozone as a whole shrink 0.3 per cent this year. The commission had predicted growth of 0.1 per cent in November. “The weakness of economic activity towards the end of 2012 implies a low starting point for the current year,” Olli Rehn, the EU’s economic affairs commissioner, said in a statement. “The current situation can be summarised like this: we have disappointing hard data from the end of last year, some more encouraging soft data in the recent past and growing investor confidence in the future.” The disappointing outlook curbed the euro’s gains on Friday, while more optimistic data from Germany, where the Ifo institute report showed business confidence in Europe’s largest economy had risen to a 10-month high, sent Bund yields higher. The deepening recession will hit particularly hard in countries that have required EU financial assistance, particularly Greece, Spain and Portugal, which are expected to suffer deeper recessions this year and barely return to growth next year, according to the new forecasts.

    Confidence is Just around the Corner! - Kevin O'Rourke: The good news: confidence is just around the corner, by Kevin O’Rourke, Irish Economy Blog: You might have thought that the disastrous but wholly unsurprising eurozone GDP numbers indicate that the bloc is in a bad way, and will continue to be so until the current macroeconomic policy mix is jettisoned. Happily, Olli “Don’t mention the multiplier” Rehn has good news for us:The current situation can be summarised like this: we have disappointing hard data from the end of last year, some more encouraging soft data in the recent past and growing investor confidence in the future. As noted in the comments of the post, Rehn also says: Rehn urged nations to keep cutting budgets and overhauling their economies in the face of slowing growth. In a statement, he said any shift away from fiscal consolidation would prolong the downturn. “The decisive policy action undertaken recently is paving the way for a return to recovery,” Rehn said. “We must stay the course of reform and avoid any loss of momentum, which could undermine the turnaround in confidence that is under way, delaying the needed upswing in growth and job creation.”

    The Spring is Nice, but then Comes Fall - The much awaited European Commission Forecasts for 2013-14 are out. What do they say, in a sentence? That the situation is grim, but that the EU is gradually overcoming the headwinds. So that, surprise, surprise, the second half of the year will be better. I guess we already heard that.  Every Spring forecast depicts a negative situation, and predicts an improvement in the Fall. And every year the Fall turn out as mother nature meant it to be, worse than the Spring. I made a back-of-the-envelope exercise. The following figure depicts the forecasts error for each year of the Commission’s Eurozone GDP growth estimates from 3 different time horizons. The same year Fall forecast, the same year Spring forecast, and the previous year Fall forecast. To make it clearer, the three bars for say 2012, represent the forecast error of the Fall 2011 forecast (blue), of the Spring 2012 forecast (red), and of the Fall 2012 forecast (yellow).

    Counterparties: Austerity bites - How long is Europe going to stay in recession, despite its experiment with austerity coming to an end some eight months ago? The European Commission today projected that the continent’s economy will shrink by 0.3% in 2013, its second straight year of contraction. In Spain and Greece unemployment will remain around 27% in 2013, with unemployment in the Eurozone as a whole rising to 12.2% from 11.4%. Hale Stewart, diving into Europe’s dreadful manufacturing data, finds only one bright spot: Germany. “The bottom line is that all the ‘good news’ coming out of Europe right now is projection”, he writes. Things are no sunnier in Italy, whose presidential election this weekend takes place against a backdrop of “stagnating economy, corruption, organised crime, political apathy, misogyny, youth unemployment”. Intrade gives current prime minister Mario Monti just 2.2% odds of holding onto his job. Joe Weisenthal notes another problem: Beppe Grillo, a comedian-turned-politician who wants to give every Italian an iPad, may get enough votes to prevent Italy from forming a coalition. “It’s hard to see Grillo’s movement as a source of stability,” one unnamed diplomat told Reuters. So how did we get here? Paul Krugman spots a new paper from Paul De Grauwe and Yumei Ji that’s worth unpacking. Europe’s austerity movement started, in large part, because of worries around widening credit spreads in countries like Greece. Those worries, in some cases, were exaggerated: “Market sentiments of fear and panic first drove the spreads away from their fundamentals.” (The opposite effect happened when the ECB announced it’d do anything to save the Euro).

    GOLDMAN: Europe Needs More Austerity - Goldman Sachs Chief European Economist Huw Pill and his team are out with a new report on the fiscal situation in the euro zone, and they are very much focused on debt. Specifically, the report takes aim at some of the eurozone's biggest economies. While smaller economies like those of Greece, Portugal, and Ireland have submitted to international rescue programs – mostly allaying fears over outsized debt loads – others remain "too big to bail," so to speak. In the report, Pill writes, "Government debt sustainability is achievable in the largest Euro area economies, but further consolidation will be required to ensure this outcome in Italy, France and Spain." Goldman's Europe economists point to one of the central sources of tension in the ongoing euro crisis – the inability of euro-area governments to meet their own budgeting goals. The Goldman economists write While weak growth is a key near-term risk to debt accumulation, the medium-term risks focus on the ability of governments to maintain large primary budget surpluses and avoid ‘fiscal fatigue’. Simply attaining our base-case scenario of debt dynamics requires that after half a decade of austerity, as growth returns and market pressure eases, no subsequent fiscal easing occurs. But governments have had difficulties in the past preventing public spending from increasing when the ‘good times’ return.

    Europe Needs a Hegemonic Germany - Germany’s elites are now finding it conceptually difficult to come to terms with the new ‘normal’:

      • • A world in which sufficient aggregate demand is no longer maintainable by the United States, or any other single bloc, and in which Germany can no longer take for granted the demand for its goods.
      • * A world in which there is no room for a Eurozone that operates like an augmented Germany.

    Germany’s disciplinarian imposition of the greatest austerity upon the weakest of Europeans, lacking any plan for countering the resulting asymmetrical recession, is a sorry and dangerous leftover of a long-gone world order built by America. It is the result of a mental atrophy caused by a United States acting for too long as the over-protective parent. It will backfire with mathematical precision, causing higher debt-to-income ratios and lower economic dynamism throughout Europe. The time is, therefore, ripe for a Gestalt Shift from an authoritarian to a hegemonic Germany. Europe needs a Germany ready and willing to make this shift and, indeed, so does Germany.

    Anti-austerity strike to bring Greece to a standstill - Greek workers walk off the job on Wednesday in a nationwide anti-austerity strike that will disrupt transport, shut public schools and tax offices and leave hospitals working with emergency staff. Greece's two biggest labor unions plan to bring much of the near-bankrupt country to a standstill during a 24-hour strike over the cuts, which they say only deepen the plight of a people struggling to get through the country's worst peacetime downturn. Representing about 2.5 million workers, the unions have gone on strike repeatedly since Europe's debt crisis erupted in late 2009, testing the government's will to implement necessary reforms in the face of growing public anger. "The (strike) is our answer to the dead-end policies that have squeezed the life out of workers, impoverished society and plunged the economy into recession and crisis," said the private sector union GSEE, which is organizing the walkout with its public sector sister union ADEDY. "Our struggle will continue for as long as these policies are implemented," it said.

    Exclusive Interview: Meet Alexis Tsipras, the Most Dangerous Man in Europe - Greece has become the hellish microcosm of Europe's failed austerity policies. Politicans bargain with unscrupulous financiers as formerly middle-class people sort through garbage for food and shiver beside smoke-belching wood fires. Burdened by widespread corruption, sky-high unemployment, and plans to pay off the banks at any cost to the people, the country is headed to the breaking point.  The New Democracy party, currently in power, is struggling for dominance over left-wing Syriza, led by Alexis Tsipras, a bold young politician who many believe is Greece's brightest hope. His revolutionary idea? Economic policies linked to the needs of ordinary people. For those who benefit from the current disaster, this makes him a very dangerous man. Recently, Tsipras visited the U.S. on a campaign to counter his opponents' image of him as a wild-eyed radical and to share his vision of a more equitable, human-centered economy. I caught up with Tsipras during his trip, and far from his opponents' portrait, I found him a pragmatic, thoughtful leader well-versed in economics and eager to discuss the details of a transformation that will benefit not only Greece, but the rest of us, too. The following interview was conducted via email following our meeting.

    EU data law draft uses language—word-for-word—from US, EU corporations -- Ars recently reported on intense efforts by American tech firms and lobbying groups to influence data protection reforms being debated in Brussels. Now, a new European activist group has published evidence illustrating that significant proposed revisions have been introduced, nearly wholesale, via model legislation written by American and European corporate interests. This disclosure comes during an ever-intensifying level of political debate in Brussels that could have a substantial impact on how American tech companies—notably Amazon, Facebook, Google, and many others—operate in the European Union. The watchdog project, known as LobbyPlag, shows verbatim contributions from US and EU corporate interests showing up in the opinion amendment already approved (PDF) last month by the Internal Market and Consumer Protection (IMCO) committee. The documents’ publication has caused ripples amongst other members of European Parliament (MEPs), as well as many digital and privacy advocates in Brussels.

    EU ready to set tough bank pay curbs - The most stringent curbs on bankers’ pay since the 2008 financial crisis are to be imposed by the EU, as Britain faces defeat in Brussels over an issue dear to the City of London. Talks on EU reforms to make banks safer are entering a potentially decisive week with London heavily outgunned after almost a year of backroom diplomacy to blunt a bonus crackdown pushed by the European Parliament. France is now backing the parliament’s demand for strict limits on bonuses that exceed salary, and a clear majority – which now crucially includes Germany – want to compromise so the bonus dispute does not hold up reforms of bank capital rules. This hardening of opinion is enabling Ireland, which holds the EU’s rotating presidency, to press the three UK-led holdouts to agree terms it can offer parliament on Tuesday. Dublin is confident it already has a strong majority. British officials are scrambling to secure revisions to the tentative compromise, which imposes a 1:1 bonus to salary ratio, which can be raised to 2:1 with the backing of a supermajority of shareholders.

    Just a third of Britons want to stay in European Union - poll | Reuters: (Reuters) - Only a third of Britons would vote to stay in the European Union in a proposed referendum, a poll showed on Monday, underlining the scale of Prime Minister David Cameron's task in persuading voters to back his flagship EU policy. In one of the biggest gambles of his premiership, Cameron promised last month to win back powers from Brussels and hold a vote on Britain's 40-year EU membership. Cameron would campaign to stay in the EU, provided he can reform Britain's ties with Brussels in the face of opposition from European allies and he secures a second term in an election due in 2015. Just 33 percent of voters would support his call to remain in the bloc, with 50 percent wanting to leave and 17 percent not planning to vote, according to the Harris Interactive poll in the Financial Times.

    Tax avoiders ‘should be named and shamed’ -  Individuals and companies using tax avoidance schemes should be “named and shamed”, according to MPs who lambast the Government for not doing enough to close legal loopholes. Her Majesty’s Revenue & Customs is also losing a game of “cat and mouse” with firms that promote tax avoidance schemes to individuals, a new report from the Public Accounts Committee (PAC) argues, in the latest salvo in the growing debate over tax laws. Although the MPs’ report is largely focused on schemes aimed at wealthy individuals, it comes at a time when evidence of minimal UK corporation tax payments by multinationals such as Starbucks and Amazon has catapulted tax to the top of the political agenda. At the start of his three-day tour of India boosting British trade, David Cameron, the Prime Minister, said “some forms of tax avoidance have become so aggressive that there are moral questions that we have to answer about whether we want to encourage or allow that sort of behaviour”.

    UK QE May Need to Be Raised by $270 Billion: Official - The Bank of England has a good case for restarting monetary stimulus, and may need to buy up to 175 billion pounds more of government bonds ($267 billion) if growth is far below potential, a senior policymaker said. David Miles, in a speech on Thursday, gave a detailed model of how policy should respond to the amount of slack in the economy - something the central bank has generally avoided before, and which moves in the direction of policy guidance favored by incoming central bank governor Mark Carney. Miles is an external member of the bank's Monetary Policy Committee, and until this month he was alone in voting for an extra 25 billion pounds of asset purchases, also known as quantitative easing. But his views appear to be gaining momentum. This month he was joined by Governor Mervyn King and markets expert Paul Fisher, prompting economists to pencil in a possible restart to the bond purchase scheme and pushing sterling to an 8-month low.

    Fed and Bank of England head in different directions -The markets were impacted yesterday by two very different sets of monetary policy minutes from the Fed and the Bank of England. In the case of the Fed, the worry is that the central bank is back-tracking on its commitment to maintain open-ended QE until the labour market has improved “substantially”. Meanwhile, at the Bank of England, the concern is that monetary policy might be too easy in the context of a declining exchange rate, and an inflation outlook that will exceed the official target for at least the next two years. Although coming at the monetary policy problem from entirely different angles, these concerns have one thing in common. It has become increasingly difficult for both the Fed and the BoE to communicate their policy regime clearly to the markets in an environment where their policy committees have become openly split about the right stance to pursue in the months ahead. The days when almost all members of the FOMC and the MPC were broadly united in their desire to conduct further QE in response to low growth and high unemployment are effectively over. Markets should expect the central banks to be a less consistent source of support for risk assets from now on.

    Blow for Osborne as Britain loses triple A credit rating in downgrade - George Osborne has vowed to stick to the Coalition’s economic plans even after Britain lost its cherished AAA credit rating amid concern about weak growth and rising debt. n a symbolic blow to the Government’s economic plans, Moody’s, one of the biggest global credit ratings agencies, downgraded Britain. The agency said it had acted because of “continuing weakness in the UK's medium-term growth outlook”, the risk that the Government will fail to hit its targets for reducing the deficit and the UK's “high and rising debt burden”. However, Moody’s predicted that on its current course, the UK will eventually regain its AAA status. Any relaxation in the deficit-reduction could lead to another downgrade, it suggested. Mr Osborne insisted that the Coalition will not change course on the economy, saying the downgrade made it all the more important to stick to attempts to cut Britain’s deficit.

    Employment up by a further 154,000, Bank split. -The employment numbers continue to be surprisingly strong, with a rise of 154,000 to 29.73 million in the October-December 2012 period, and a huge 584,000 increase over 12 months. Interestingly, the rise in employment was more than accounted for by an increase in full-time employment of 197,000 in the latest three months, with part-time employment down 43,000. Unemployment, however, is stuck at around 2.5 million, and slipped by only 14,000 in the latest three months. Reducing unemployment at a time of strong workforce growth is a challenge. However, there was an encouraging 23,000 fall in the claimant count, to 1.54 million, in January. Pay continues to be weak, up just 1.4% over the past year. More here. Also today, three members of the Bank of England's monetary policy committee - Sir Mervyn King, Paul Fisher and David Miles - voted to increase quantitative easing by £25 billion. This was a surprise. More here.

    Living costs rise at fastest pace in 18 months - Households suffered another income squeeze in February as living costs rose at the sharpest pace since September 2011, causing hopes for the year ahead to darken. The change in mood, after fresh optimism in January, will come as a disappointment to economists, following recent signs of rising confidence. A separate survey showing that footfall on the high street fell by 3.3pc in the worst January performance for three years will have underscored concerns. According to Markit’s household finance index, 41pc of the survey’s 1,500 respondents expected their finances to worsen over the year ahead, compared with only 23pc predicting improvement. Lower income earners were particularly hard hit in February, with those on incomes of £15,000-£23,000 experiencing the tightest financial squeeze in the survey’s four-year history. It also found evidence of a widening income divide, with those paid more than £57,750 enjoying the slowest pace of income contraction in a year. The lowest earners were also the most downbeat, with 57pc anticipating a deterioration in their finances in the year ahead, while those on the highest incomes had a neutral outlook. Rising rents, food costs and energy bills have piled pressure on families, while average wages have risen at just 1.4pc – below the pace of inflation.