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

Saturday, March 9, 2013

week ending Mar 9

U.S. Fed balance sheet grows to record large size (Reuters) - The U.S. Federal Reserve's balance sheet grew to a record large size in the latest week with increased holdings of U.S. government debt, Fed data released on Thursday showed. The Fed's balance sheet, a broad gauge of its lending to the financial system, stood at $3.091 trillion on March 6, compared with $3.072 trillion on February 27. The Fed's holdings of Treasuries totaled $1.762 trillion as of Wednesday versus $1.750 trillion the previous week. The Fed's ownership of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and the Government National Mortgage Association (Ginnie Mae) totaled $1.016 trillion on Wednesday, which was little changed from the previous week. The Fed's holdings of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Bank system was $73.59 billion, unchanged on the week. The Fed's overnight direct loans to credit-worthy banks via its discount window averaged $21 million a day compared with an average of $3 million per day the prior week.

FRB: H.4.1 Release--Factors Affecting Reserve Balances -- March 7, 2013

Fed Balance Sheet Risks - As everyone knows, the Fed's balance sheet has more than tripled since the financial crisis. Here is a look at the liability side of the Fed's balance sheet: What's interesting here is that prior to the crisis, almost all the Fed's liabilities were in the form of (zero-interest) cash -- that is, currency in circulation (the blue area). At the time of the financial crisis, the balance sheet doubled over a very short period of time, and has continued to grow since then. What's interesting here is that subsequent to the crisis, most of the growing liabilities are in the form of interest-bearing reserves (held by depository institutions with accounts at the Fed).  Now, three trillion dollars sounds like a heck of a lot of liabilities. There is no danger of bankruptcy, however. That's because Fed liabilities are not debt; or, if they are (as in the case of reserves), they are made redeemable in cash, which the Fed can print at any time. Next question: what did the Fed do with all this money it "printed" up (out of thin air, I might add)?  Alas, that's not quite how it works (even if it does work this way in some other countries, like the recent experience in Zimbabwe). You see, while the Fed is "pumping money into the economy," it is simultaneously sucking some other group of assets out of the economy.

Fed's Yellen: Challenges Confronting Monetary Policy - From Fed Vice Chair Janet Yellen: Challenges Confronting Monetary Policy. A few excerpts on asset purchases and what a "Substantial Improvement in the Outlook for the Labor Market" means:  The first imperative will be to judge what constitutes a substantial improvement in the outlook for the labor market. Federal Reserve research concludes that the unemployment rate is probably the best single indicator of current labor market conditions. In addition, it is a good predictor of future labor market developments.  That said, the unemployment rate also has its limitations. As I noted before, the unemployment rate may decline for reasons other than improved labor demand, such as when workers become discouraged and drop out of the labor force. In addition, while movements in the rate tend to be fairly persistent, recent history provides several cases in which the unemployment rate fell substantially and then stabilized at still-elevated levels.To judge whether there has been a substantial improvement in the outlook for the labor market, I therefore expect to consider additional labor market indicators along with the overall outlook for economic growth. For example, the pace of payroll employment growth is highly correlated with a diverse set of labor market indicators, and a decline in unemployment is more likely to signal genuine improvement in the labor market when it is combined with a healthy pace of job gains.

Benefits of Fed Policy Outweigh Risks, Yellen Says - The potential for the Federal Reserve‘s easy-money policies to fuel excessive risk taking and undermine financial stability is the most serious cost the central bank must consider though she doesn’t see any reason to curtail its bond-buying programs now, the Fed’s No. 2 official said Monday.At present, there’s no “pervasive evidence” that investor risk-taking has reached dangerous levels, the official, Janet Yellen, vice chairwoman of the Fed board of governors, said in a speech at a National Association for Business Economics policy conference. However, she did single out financial stability risks of current policy as “the most important potential cost associated with the current stance of monetary policy.”

Fed’s Yellen: Full steam ahead on QE3 — A key member of the Federal Reserve on Monday gave her clear support for continuing the central bank’s policy of buying bonds at current levels. “At present, I view the balance of risks as still calling for a highly accommodative monetary policy to support a stronger recovery and more rapid growth in employment,” Federal Reserve Vice Chair Janet Yellen said Monday in a speech to the National Association for Business Economics. While there are some potential costs to the purchases, “at this stage, I do not see any that would cause me to advocate a curtailment of our purchase program,” she said. Yellen is seen as a possible replacement for Fed Chairman Ben Bernanke if he steps aside when his second term ends in January 2014. Bernanke also endorsed the Fed’s current policy, in a speech on Friday night. See: Bernanke says hasty end to easing could backfire. “A premature removal of accommodation could, by slowing the economy, perversely serve to extend the period of low long-term rates,” Bernanke said in a speech to a Fed research conference in San Francisco. Yellen’s comments add weight to the idea the Fed will maintain an $85 billion-a-month bond purchase program at its next meeting on March 19-20.

Volcker: Fed Shouldn’t Wait Too Long to Unwind Stimulus - Former Federal Reserve Chairman Paul Volcker says the central bank must be cautious about waiting too long to unwind its unprecedented stimulus programs. His advice came hours after current Fed Vice Chairman Janet Yellen said that she doesn’t see any reason to right now curtail bond-buying programs. Low inflation supports current Fed policy, Mr Volcker said during a talk at the National Association for Business Economics conference, but added that central bankers must soon decide how and when to retreat. “The much-more frequent mistake, in my opinion, is that we go too slow,” he said. “It’s never popular to take the so-called punch bowl away.”

Countparties: The Fed’s unemployment crusader - Monetary policy is largely about setting expectations. When the likely future Chairman of the Fed speaks, as Janet Yellen did earlier today, we’re given a glimpse into what what we can expect when Ben Bernanke’s term ends in January 2014. Earlier this year, Yellen diagnosed the reasons for America’s lackluster post-crisis recovery — and, to the delight of nerds everywhere, she explained it in chart form.Today, Yellen’s message was a clear indication that she would continue Bernanke’s strategy of monetary stimulus (aka “quantitative easing”). Why? Here’s Yellen:There is the high cost that unemployed workers and their families are paying in this disappointingly slow recovery. There is the risk of longer-term damage to the labor market and the economy’s productive capacity. At present, I view the balance of risks as still calling for a highly accommodative monetary policy to support a stronger recovery and more-rapid growth in employment.Neil Irwin thinks Yellen’s speech was a direct response to the recent bubble bursting rhetoric of Fed Governor Jeremy Stein. Translating brusquely, Irwin says Yellen’s message was, “Are you crazy?… Why should we cripple the prospects of economic recovery just because investors may be paying too much for certain types of corporate bonds and end up losing money”.The FT’s Robin Harding says that Yellen supports continuing to refill the economy’s punchbowl through asset purchases. Yellen also specified the factors that would need to improve in order for her to consider ending the policy: unemployment; employment growth; the job-quitting rate; personal consumption. Monetary policy based on those five metrics is a world away from that of the Greenspan era.

Fed’s Duke Open to Changing Pace of MBS Purchases - With the housing market recovering, Federal Reserve officials may change the pace of purchases of mortgage-backed securities, a tool central bank officials have used to push down mortgage rates and boost the housing market, a top central bank official said. In remarks prepared for a speech Friday night in Avon, Colo., Federal Reserve Gov. Elizabeth Duke also said the central bank's policies have helped the housing market recover from the deepest bust in decades.

Fed’s Plosser Wants Bond-Buying Effort to Be Wound Down - The Federal Reserve should be moving to put an end to its aggressive bond-buying program, given the rising odds that such a monetary policy stance will cause economic trouble, a top Fed official said Wednesday. The current state of “monetary policy is posing risks to the economy in terms of financial stability, market functioning, and price stability,” Federal Reserve Bank of Philadelphia President Charles Plosser said. “In light of what I believe are meager benefits, should economic conditions evolve as I currently anticipate, I believe we should begin to taper our asset purchases with an aim of ending them before year-end,” the official said in a speech given to a local business group in Lancaster, Penn

Fed’s Lacker: ‘Small Errors’ in Policy Tightening Could Have Large Impact - The Federal Reserve will have a difficult task when it moves from its current easy-money stance to policy tightening given the massive size of its balance sheet, said Jeffrey Lacker, president of the Richmond Federal Reserve Bank. The central bank is continuing to pour on the economic stimulus, buying $85 billion in bonds per month. But with the economy showing signs of steady improvement, Mr. Lacker and others have begun to think about a reversal–including raising interest rates set near zero and ultimately unwinding the Fed’s more than $3 trillion balance sheet. “We’ll be in such uncharted territory,” he said Tuesday at a National Association for Business Economics conference. “The consequence of small errors is going to be large, with a large portfolio.”

Will the Next Exit from Monetary Stimulus Really Be Different from the Last? - Atlanta Fed's macroblog - I gather that a good measure of concern about the size of the Fed's (still growing) balance sheet comes from the notion that there is more inherent inflation risk with bank reserves that exceed $1.5 trillion than there would be with reserves somewhere in the neighborhood of $10 billion (which would be the ballpark value for the pre-crisis level of reserves). I understand this concern, but I don't believe that it is entirely warranted. My argument is as follows: The policy strategy for tightening policy (or exiting stimulus) when the banking system is flush with reserves is equivalent to the strategy when the banking system has low (or even zero) reserves in the same way that the two strategies for meeting customer demand that I offered at the outset of this post are equivalent. Here's why. Suppose, just for example, that bank reserves are literally zero and the Federal Open Market Committee (FOMC) has set a federal funds rate target of, say, 3 percent. Despite the fact that bank reserves are zero there is a real sense in which the potential size of the balance sheet—the shadow balance sheet, if you will—is very large.  The reason is that when the FOMC sets a target for the federal funds rate, it is sending very specific instructions to the folks from the Open Market Desk at the New York Fed, who run monetary policy operations on behalf of the FOMC. Those instructions are really pretty simple: If you have to inject more bank reserves (and hence expand the size of the Fed's balance sheet) to maintain the FOMC's funds rate target, do it.

Bernanke on long-term interest rates - On Friday I attended a conference at the Federal Reserve Bank of San Francisco, which included a very interesting presentation by Fed Chairman Ben Bernanke on long-term interest rates. The Chairman began by noting that, with the exception of Japan, the nominal yields on 10-year bonds in many of the major economies have moved together quite closely over the last decade. The data below are quite persuasive-- one should not attribute the recent very low yields in the United States to policies or developments that are unique to our country. Using a model of bond yields developed by Federal Reserve staff, Bernanke showed how the movements in the U.S. nominal 10-year rate might be broken down into three separate components: market expectations of future inflation (blue triangles in the graph below), expectations of future short-term real interest rates (black circles), and a residual referred to as the term premium on 10-year bonds (green crosses). The contribution of the first of these (expected inflation, in blue) has been reasonably steady around the Fed's long-run goal of a 2% inflation rate.

Bernanke's Friday Night Special: Part I - Fed Chairman Ben Bernanke gave one of his best speeches last Friday night. In it, he explained why long-term interest rates have declined over the past four years and, in so doing, provided an important rebuttal to the popular view of the Fed as the great enabler of the large government deficits. The evidence Bernanke presented in his speech should give any honest proponent of the Fed as the great enabler (FGE) view pause. Unfortunately, this speech has not received the attention it deserves and many of the FGE proponents probably missed it.1 Therefore, it is worth reviewing and elaborating on this important speech.    Chairman Bernanke began by his speech by observing that both nominal and real long-term interest rates on safe sovereign debt have been declining across the world, not just in the United States. Here, for example, is his chart showing the global decline in real interest rates on government bonds: What is striking about this figure is that there is both a sudden, downward shift in trend beginning in 2008 and a narrowing of spreads among these interest rates. This pattern is also evident in long-term nominal yields, as I noted last year. These figures alone undermine FGE claims since they indicate something global in nature is affecting all these yields in a similar manner. Blaming the Fed for the low, long-term interest rates ignores this global phenomenon

The low rate conundrum -- LONGER-TERM interest rates have been low for quite some time now across much of the rich world, and there is little sign of an upturn any time soon. This is disconcerting. As Ben Bernanke put it in an interesting speech delivered Friday, there are two reasons to worry about low long-term rates: that they'll rise and that they won't. As rates remain low, financial market participants may be encouraged to "reach for yield", by taking dangerous risks and leveraging up. Alternatively, if rates rise sharply then there could be large financial losses in the system. Long-term rates can be decomposed into three contributing factors. The first is expected inflation. Long-run rates have fallen steadily alongside sinking inflation expectations since the early 1980s. Most of the positive component of long-run rates is accounted for by inflation, but that component is much, much smaller than it used to be. The second factor is the cumulated expectations of short-rates. As Mr Bernanke notes, markets now anticipate that short-rates will be close to zero on average over the next ten years. That, in turn, reflects assessments of Fed behaviour (that the central bank will keep its nominal-rate target near zero for much of this time period) and expectations for real growth. Finally, low long-term rates consist of a term-premium component, which is a residual not accounted for by the other factors. The term premium on long-run Treasuries is actually negative at the moment, which means that investors are paying to hold longer-term American government debt after taking into account inflation.

Krugman and Plosser on Deleveraging - Philadelphia Fed President Charles Plosser argued that low interest rates are actually causing people to save more, not less, because the income effect currently outweighs the substitution effect. In his words:. However, as I’ve noted, in the current circumstances, consumers have strong incentives to save. They are deleveraging and trying to restore the health of their balance sheets so they will be able to retire or put their children through college. They are behaving wisely and in a perfectly rational and prudent way in the face of the reduction in wealth.  In fact, low interest rates and fiscal stimulus spending that leads to larger government budget deficits may be designed to stimulate aggregate demand or consumption, but they could actually do the opposite. This reminds me of an article by Paul Krugman last year called Deleveraging Shocks and the Multiplier (Sort of Wonkish). we had a period of excessive complacency about leverage, which came to a sudden end. Household debt in particular surged, then was suddenly perceived as excessive... Leveraging up, other things equal, leads to high aggregate demand — but this can be and is in practice offset by the central bank, which can always raise rates. Deleveraging, on the other hand, can’t be offset equally easily; the central bank can cut rates, but only to zero, and unconventional monetary policy is both controversial and an iffy proposition (which doesn’t mean that it shouldn’t be tried).

Bernanke, Bankers, Bubbles - In 1999, at the height of the dot-com bubble, Ben Bernanke and Mark Gertler argued emphatically against central banks responding to movements in asset prices.  Monetary policy could react to the macroeconomic consequences of asset price movements, but not to asset prices themselves.  The housing bubble prompted a number of challenges to the Bernanke-Gertler dictum. A fairly common view is that expansionary monetary policy contributed to the housing bubble. Dean Baker and John Taylor have both argued that the housing bubble was caused by the Fed keeping interest rates too low for too long. (In 2001 the Federal Funds Target rate was lowered from 6.5 to 1.75 percent. In 2003 it was lowered to 1 percent and held there for a year.) Bernanke counters that increased use of variable-rate and interest-only mortgages and the decline of underwriting standards were more to blame than low interest rates.  Now, interest rates are again very low, and have been for quite some time. Challenges to the Bernanke-Gertler view are more vociferous than ever, and come not only from John Taylor but also from Chairman Bernanke's committee members and his contemporaries at other central banks. Fed Governor James Bullard, for example, says that "maybe you should think about using interest rates to fight financial excess a little more than we have in the last few years.” Kansas City Fed President Esther George and Fed Governor Jeremy Stein express similar views that the Fed should use its control of interest rates to do something about "overheating." However, Fed Vice Chairwoman Janet Yellen shares Bernanke's view that the benefits of accomodative monetary policy at this point outweigh the risks of any potential financial overheating.

Bernanke versus Stein - While watching Ben Bernanke's speech on Friday night, I wrote two notes to myself. The first was "regulation versus interest rates (debate with Stein)" and the second was "interest rate on reserves." Bernanke's comments on the interest rate the Fed pays on bank reserves came in response to a question after the speech. He was asked why the Fed hasn't lowered interest on reserves to zero, or even made it negative to promote bank lending. As in the past when asked this question, Bernanke emphasized that the Fed was worried about the effect this might have on money markets -- an objection that has never been adequately explained in my view -- but it was clear this is not and will not be on the Fed's agenda. The Fed might raise the IOR to address inflation worries, but lowering it further isn't going to happen. Neil Irwin has a nice summary of this debate: Jeremy Stein, a Fed governor since last May ... argued in a Feb. 7 speech that there are already signs of overheating in the markets for certain kinds of securities, including junk bonds and real estate investment trusts that invest in mortgages. And if those or other potential bubbles get so large that if they popped the whole U.S. economy could be in danger, he argued, there is a case for using the Fed’s most blunt tool to combat them—raising interest rates across the economy.

Debt hawks for Bernanke - There’s this idea out there that the Bernanke Fed is a) somehow aiding and abetting Washington’s deficit spending by monetizing government debt, and b) risking the creation of dangerous asset bubbles. So the Fed should end its QE program ASAP and start raising interest rates, right? Actually, that’s a recipe for making the US debt problem worse. MKM’s Mike Darda If the Fed were to prematurely tighten (which in our view makes no sense after a huge NGDP/velocity shock and the high unemployment and low inflation that has followed) long rates would probably fall as expectations of future growth weakened. This has happened countless times in Japan over the last 12 years, one of the key reasons Japan’s debt/GDP ratio has continued to march ever higher. Along these lines, it is worth pointing out that in countries with their debt funded in local currency and with their own central banks, long rates are a reflection of expected future short rates, which are driven by expected future NGDP and the central banks’ reaction function thereto. Weak nominal GDP growth is a surefire way to make a debt problem a whole lot worse. Just ask Europe.

How Much Should We Worry About Debt, Inflation, and Unemployment? -  Here are the slides from a talk I gave last night:  How Much Should We Worry About Debt, Inflation, and Unemployment? (ppt ) (pdf) The last slide concludes with:  We face a tradeoff. Attempts to lower unemployment can increase the risk of inflation and increase the debt . The reverse is true as well. Attempts to lower the debt and reduce the risk of inflation can increase unemployment.  In my view, presently we are too worried about inflation and debt, and not worried enough about unemployment.

Hyperinflation! The Libertarian Fantasy That Never Occurs - While it is probably true that no one has ever gone broke underestimating the intelligence of the public, it is also true that many who try to turn a profit from stupidity often become the victims of their own nonsense. As we have discussed previously, the fear industry that has grown up since 2008 – mainly centred on the gold market – is a manifestation of this dynamic. Their clarion call is that hyperinflation is inevitable and could happen at any moment. We will not debunk their false claims that Quantitative Easing and other monetary easing programs will lead to hyperinflation because these programs do not contribute to aggregate demand, as we have discussed earlier on this site. Instead, we will peek behind the hyperinflationist’s mask. Although the proponents are often loud and shrill they rarely explain their reasoning in any sustained manner – probably because they don’t fully understand it themselves. However, if you are familiar with the economic theories that they hold you can reconstruct their reasoning. This is what we propose to do here together while showing that, even if we accept their reasoning, economies will not generally react to increases in demand as the hyperinflationists think they will.

The Way We Talk (and Don’t Talk) About Money - Victoria Chick, a student of Hyman Minsky’s, elaborates on an issue that often strikes non-economists as somewhere between scandalous and baffling:  the absence of any substantive acknowledgment of money in much of contemporary economics and economic modelling.(Particularly interesting around the 12:10 mark, where Chick argues that faulty or outdated language in relation to banking helps reinforce misunderstandings about deposits, lending, and the relationship between the two.) For more on this question of how to understand money and its role in our economic systems, see this working paper.

Q4 2012 GDP Details: Commercial Real Estate investment very low, Single Family investment increases Here is some investment data from the BEA. The first graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased slightly, but from a very low level. Investment in offices is down about 55% from the recent peak (as a percent of GDP). With the high office vacancy rate, investment will probably not increase significantly (as a percent of GDP) for several years - even though there has been some increase in the Architecture Billings Index lately.Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 63% from the peak (note that investment includes remodels, so this will not fall to zero). The vacancy rate for malls is still very high, so investment will probably stay low for some time. Lodging investment peaked at 0.32% of GDP in Q2 2008 and is down about 73%. The second graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes). Usually the most important components are investment in single family structures followed by home improvement. Investment in single family structures is now increasing after mostly moving sideways for almost three years (the increase in 2009-2010 was related to the housing tax credit). Investment in home improvement was at a $159 billion Seasonally Adjusted Annual Rate (SAAR) in Q4 (about 1.0% of GDP), still above the level of investment in single family structures of $143 billion (SAAR) (or 0.9% of GDP).

Stockpiling Will Add to GDP’s Growth - Open the warehouses and dust off the shelves. Companies are laying in more goods and supplies. Faster inventory accumulation will provide a boost to gross domestic product growth this quarter. Renewed interest in inventory-building is a key take-away from the two industrial surveys by the Institute for Supply Management. Companies are adding to their stockpiles this quarter and, importantly, the accumulation is a response to more orders coming in. Both trends are good signs for the economic outlook. The ISM factory survey out last week showed manufacturers added to inventories in the first two months of this quarter, after drawing down stockpiles in the fourth quarter. Indeed, a sharp downshifting in inventory gains across all economic sectors knocked 1.55 percentage points from GDP growth last quarter.

Fed's Beige Book: Economic activity expanded at "modest to moderate" pace --Fed's Beige Book: Reports from the twelve Federal Reserve Districts indicated that economic activity generally expanded at a modest to moderate pace since the previous Beige Book. ... Most Districts reported expansion in consumer spending, although retail sales slowed in several Districts. Automobile sales were strong or solid most Districts, and tourism strengthened in a number of Districts. The demand for services was generally positive across Districts, most notably for technology and logistics firms. ... Many Districts noted rising gasoline prices and fiscal policy as having a negative effect on consumer sales, and contacts in the Boston, New York, and Minneapolis Districts said severe weather depressed sales somewhat.   Residential real estate activity continued to strengthen in most Districts, although the pace of growth varied. Contacts in the Boston, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco Districts noted strong growth in home sales, while New York and Chicago reported slight improvements. Home construction increased in most Districts, with the exception of the Kansas City District where it was reported as unchanged.  Home prices edged higher in the majority of Districts, with lower inventories generally cited as the primary cause.

Fed Survey: U.S. Economy Growing Throughout Country — Strong auto sales, hiring gains and a continued housing recovery helped the U.S. economy grow throughout the country in January and February, according to a survey released Wednesday by the Federal Reserve. The Fed says 10 of its 12 banking districts reported moderate or modest growth, while Boston and Chicago districts reported slow growth. Consumer spending increased in most regions, although growth slowed in many districts and much of the increases were driven by auto sales. Many districts said that consumers pulled back slightly on spending outside of autos after seeing taxes rise and gas prices increase. Some also expressed concerns about federal spending cuts that started on March 1. Housing markets showed more strength in nearly all parts of the country, while manufacturing showed modest improvements in most regions. And most districts reported some improvement in individual jobs markets.The report, called the Beige Book, provides anecdotal information on economic conditions through February 22. The information will be used as the basis for the Fed’s policy discussion at the March 19-20 meeting. Many economists believe Fed officials will take no new steps when they meet.

Beige Book: District-by-District Summary of Conditions - The Federal Reserve‘s latest “beige book” report noted that the economy expanded at a “modest or moderate” pace in most regions of the country. Of the 12 Fed districts, only Boston and Chicago reported slow growth. The following is a district-by-district summary of economic conditions for January and February:

Rethinking Potential Output: Embedding Information About the Financial Cycle - This paper argues that incorporating information about the financial cycle is important to improve measures of potential output and output gaps. Conceptually, identifying potential output with non-inflationary output is too restrictive. Potential output is seen as sustainable;yet experience indicates that output may be on an unsustainable path even if inflation is low and stable whenever financial imbalances are building up. More generally, as long as potential output is identified with the non-cyclical component of output fluctuations and financial factors play a key role in explaining the cyclical part, ignoring these factors leaves out valuable information. Within a simple and transparent framework, we show that including information about the financial cycle can yield measures of potential output and output gaps that are not only estimated more precisely, but also much more robust in real time. In the context of policy applications, such“finance-neutral” output gaps are shown to yield more reliable estimates of cyclically adjusted budget balances and to serve as complementary guides for monetary policy.

Is slow growth America’s new normal?: Good economists are great storytellers. They sculpt narratives with squiggly graphs and crowded charts. Like a novel, a good economic forecast has action and characters and, in the end, helps you make a little better sense of the world. Unless it turns out to be wrong. Consider the dominant story that economic forecasters have been telling you for years now: The U.S. economy just can’t catch a break. It has been poised time and again to rocket back to a growth rate that would recapture all the ground lost in the Great Recession, while delivering big job gains. But every time, some outside event scuttles things. The euro crisis flares up. A Japanese tsunami scrambles global supply chains. Lawmakers play chicken with the federal debt limit. Most recently, “fiscal cliff” tax hikes and sequestration budget cuts are playing the culprit. And the bad-luck economy, like a fireball pitching prospect dogged by freak arm injuries, never reaches its full potential. Now consider the possibility that the can’t-catch-a-break story gets it backward. What if the economy isn’t particularly unlucky? What if it’s basically doing what we should expect it to? What if something has changed, thanks to fallout from the recession, or a string of bad policy choices, or both, and growth has shifted into a lower gear? What if this slow and fragile expansion is as good as we’re likely to get for a while? This is an alternative story that economists across the ideological spectrum have begun to explore. If it’s correct, the implications for economic policy are big.

Who Should We Listen To? - Paul Krugman  -- Dean Baker is feeling dyspeptic — not for the first time — over a WaPo piece suggesting that slow growth is the new normal. Dean wonders why we should listen to people who have been wrong about everything so far. But it’s actually worse than he says. In the article, the case for slow growth forever is mainly made by quoting Kevin Warsh, a former Fed governor. And Warsh is indeed someone who has been wrong about everything; a bubble denier who spoke of strong capital markets before the crash, a hawk who has been warning about the risk of inflation for three years, an invoker of invisible bond vigilantes who somehow managed to describe the supposed threat from these vigilantes as somehow both a certainty and unknowable. If there is a special distinction to those of Warsh’s speeches and articles I’ve read, it’s this: he has had a habit of saying and writing things that are supposed to be profound, but say nothing at all. Can anyone tell me the point, if any, of this WSJ op-ed?  Still, if someone is going to make pronouncements about how the whole nature of the business cycle has changed, you’d like some sign that somewhere in his life he has thought hard about, well, anything.

The Market Speaks, by Paul Krugman - Four years ago, as a newly elected president began his efforts to rescue the economy people who claimed to understand markets and know how to satisfy them — warned of imminent financial disaster. Even a casual trawl through the headlines of the time turns up one dire pronouncement after another. .Sure enough, this week the Dow Jones industrial average has been hitting all-time highs, while the current yield on 10-year U.S. government bonds is roughly half what it was. But the important point .is that they came from people who constantly invoke the potential wrath of the markets as a reason we must follow their policy advice. Don’t try to cover America’s uninsured, they told us; if you do, you will undermine business confidence and the stock market will tank. Don’t try to reform Wall Street, or even criticize its abuses; you’ll hurt the plutocrats’ feelings, and that will lead to plunging markets. Don’t try to fight unemployment with higher government spending; if you do, interest rates will skyrocket.  And, of course, do slash Social Security, Medicare and Medicaid right away, or the markets will punish you.  What, then, are the markets actually telling us? Those low interest rates are the sign of an economy that is nowhere near full recovery. ...

Fed's Fisher Says Politicians to Blame for Slow Economic Growth - Federal Reserve Bank of Dallas President Richard Fisher on Wednesday blamed both major U.S. political parties for a "horrid" political climate in Washington, and said monetary policy alone can't drive the economy. "We provided the fuel for economic recovery," Mr. Fisher said of the central bank, describing the Fed's stimulus as "very high-octane, dirt-cheap gasoline." But he said that neither Republican nor Democratic politicians in Washington have done their part by putting policies in place that spur the private sector "to take the cheap fuel that we have provided and step on the accelerator." Mr. Fisher, who isn't a voting member of the Federal Open Market Committee, has been an outspoken opponent of the Fed's easy-money stance, a fact he noted during his remarks Wednesday. He also reiterated his view that promotion of maximum sustainable job growth—one of the Federal Reserve's legal mandates—isn't possible using monetary stimulus alone. "Republicans and Democrats, I think they are equally bad" and haven't done enough through public policy to help repair the economy, he said. He added that the U.S.--as what he called "the driver of the world economy"--is setting a bad example by relying solely on monetary policy to power its economy.

Six rounds of interviews for one job? It’s the aggregate demand, stupid - Catherine Rampell has a good piece in Thursday’s New York Times, documenting how employers are dragging their feet on filling open positions. She dubs this “hiring paralysis,” and shows how it sometimes goes to absurd lengths – job candidates being called back for sixth- or even ninth-round interviews at the same company. The story is filled with horrifying anecdotes, but it’s this sentence, midway through, that really hints at what “hiring paralysis” tells us about the state of the economy: “The hiring delays are part of the vicious cycle the economy has yet to escape: jobless and financially stretched Americans are reluctant to spend, which holds back demand, which in turn frays employers’ confidence that sales will firm up and justify committing to a new hire.” Put more simply: There’s still not enough aggregate demand in the economy.

A Short Note on Deficits and Growth - Here’s a neat figure from Wonkbook today, showing the difference, in CBO’s opinion—one that matches mainstream econ—between the deficit’s impact on growth in the near term vs. the long term.  In the near term given current conditions here and in most of Europe, deficit reduction is contractionary; in the longer term, lower deficits lead to lower interest rates, and are thus positive for growth. My first thought was “sure” re the near term but “hmmm” re the long term.  The evidence for lower deficits leading to lower interest rates is surprisingly weak.  It’s largely predicated on the “crowding out” hypothesis, where the government competes with private investors for scarce capital, putting upward pressure on rates.  So, why not just go the Dick Cheney place and not worry about budget deficits at all?  Well, a) because who’d want go to Dick Cheney’s place, b) rising debt/GDP levels (meaning primary deficits, i.e., deficits>~3% of GDP) makes us more vulnerable to interest rate spikes, wherever they come from, c) rising debt/GDP politically means we’ll be less able to add to the debt when we hit the next downturn, and d) structurally, you want you debt ratio growing in weak times and falling in bona-fide expansions–the definition of a sustainable fiscal path.

The Deficit Gamble - The historical behavior of interest rates and growth rates in U.S. data suggests that the government can, with a high probability, run temporary budget deficits and then roll over the resulting government debt forever. The purpose of this paper is to document this finding and to examine its implications. Using a standard overlapping-generations model of capital accumulation, we show that whenever a perpetual rollover of debt succeeds, policy can make every generation better off. This conclusion does not imply that deficits are good policy, for an attempt to roll over debt forever might fail. But the adverse effects of deficits, rather than being inevitable, occur with only a small probability.

How money enters the economy through deficit spending - When the government deficit spends here are the mechanics:
a) Government buys goods from some private entity, let's say $1,000 worth. The government deficit spends to do this. They credit the private entity's checking account to the tune of $1,000 (increases reserves by $1,000)
b) Government issues a bond for $1,000
c) Private entity's checking account is debited $1,000 to buy…
On net, a financial asset of $1,000 has been added to the economy - the original reserves are still there!
In this spreadsheet I have created three scenarios, for the sake of discussion. Don't worry where the initial $1,000 for each person comes from, do not consider one rich or one poor - this is for illustrative purposes only to see the mechanics. There is no foreign trade, nor any private borrowing. That is for another discussion. Treat each year as a a calendar year.

$1 trillion to be spent on direct hiring...that's the ticket! - With all this stalemate posturing in Washington, today Chris Hayes has come up with the best idea I have heard yet to move the players. And, in my opinion actually solve our economic depression. One trillion dollars to be spent on direct hiring by the government along with debt forgiveness.  A solution right out of the New Deal program. Unfortunately for Chris, Obama does not have the language within his vocabulary to recognize such an approach and thus in Obama's own words: “...put us on a fundamentally different path because the country was ready for it.” In fact, not only does he not have the language within his vocabulary to recognize a solution from history, he thinks the 60's and 70's were full of excesses (while noting Kennedy moved the nation in a new direction...right into the excesses of the 60's?)* Do you think anyone who remembers what it meant to be a leader in the Democratic Party was watching?  

Treasury Needs a Better Long Game - Sooner or later, the Federal Reserve will want to raise interest rates. Maybe next year. Maybe when unemployment declines below 6.5%. Maybe when inflation creeps up to 3%. But it will happen.  Can the Fed tighten without shedding much of the record $3 trillion of Treasury bonds and mortgage-backed securities on its balance sheet, and soaking up $2 trillion of excess reserves? Yes. The Fed can easily raise short-term interest rates by changing the rate it pays banks on reserves and the discount rate at which it lends. But this comforting thought leaves out a vital consideration: Monetary policy depends on fiscal policy in an era of large debts and deficits. Suppose that the Fed raises interest rates to 5% over the next few years. This is a reversion to normal, not a big tightening. Yet with $18 trillion of debt outstanding, the federal government will have to pay $900 billion more in annual interest.  The obvious answer is to fix the long-run deficit problem, with the reform of runaway spending, entitlement programs and a pro-growth tax policy. So far that is not happening.  Still, the Fed and the Treasury can buy a lot of time by lengthening the maturity of U.S. debt. Suppose all U.S. debt were converted to 30-year bonds. Then, if interest rates rose, Treasury would pay no more on its outstanding debt for 30 years. And if the country couldn't solve its fiscal problems by that time, it would deserve a Greek crisis.

No, the United States will never, ever turn into Greece - Have you read the opinion section of any newspaper in the last three years? Yes? Then there is a better-than-even chance you have come across some impressive-sounding analyst predict that the United States is "turning into Greece." . The short version of this story is that we'll spend ourselves into bankruptcy. The longer version says that too much public debt makes markets nervous. Nervous markets demand higher interest rates. Higher rates mean higher deficits and lower growth, both of which mean more burdensome debt. More burdensome debt makes markets even more nervous. And around and around we go in a vicious circle into insolvency. As far as scare stories go, this is pretty damn scary. It's also just a story. Rates haven't risen as debt has the last few years; they have fallen to historic lows. Of course, that hasn't stopped the Greek chorus from predicting that the economy is going to Hades. But when? Is it when debt reaches 100 percent of GDP? Or 90 percent, as Carmen Reinhart and Kenneth Rogoff famously argued?  What about 80 percent?

Republicans Are Not Telling the Truth When They Say that Government Spending Is Out of Control - Dean Baker - It would have been helpful if the NYT had pointed out this fact in an article that included assertions from House Speaker John Boehner that spending is out of control. "The president got his tax hikes on January the First. The issue here is spending. Spending is out of control." In fact, spending as a share of potential GDP is near a 30-year low and is lower than at any point in the Reagan-Bush I administrations. The chart shows federal spending as a share of GDP and as a share of the GDP projected by the Congressional Budget Office in 2008 before it recognized the impact of the collapse of the housing bubble. It would have been helpful to remind readers of the actual path of government spending since many may not have not realized that Boehner was not being truthful.

The Effects of Automatic Stabilizers on the Budget as of 2013 - CBO - In fiscal year 2012, CBO estimates, automatic stabilizers added $386 billion to the federal budget deficit, an amount equal to 2.3 percent of potential GDP. That outcome marked the fourth consecutive year that automatic stabilizers added to the deficit by an amount equal to or exceeding 2.0 percent of potential GDP, an impact that had previously been equaled or exceeded only twice in the past 50 years, in fiscal years 1982 and 1983. (Those historical calculations, as well as the projections presented below, involve potential GDP rather than actual GDP because potential GDP excludes fluctuations that are attributable to the business cycle.) According to CBO’s projections under current law, the contribution of automatic stabilizers to the federal budget deficit, measured as a share of potential GDP, will rise slightly in fiscal year 2013, to 2.5 percent. That contribution accounts for about half of the estimated deficit this year. The contribution will remain at 2.5 percent of potential GDP in 2014, accounting for roughly three-quarters of the projected deficit next year. CBO expects that the budgetary effects of automatic stabilizers will remain large because of the continued weakness in the economy, which is caused in part by the fiscal tightening that is occurring in calendar year 2013 under current law. That tightening includes the reduction in federal spending resulting from the sequestration that went into effect on March 1; the expiration of the payroll tax cut that was in place in 2011 and 2012; and the increase in tax rates on income above certain thresholds starting in 2013.  read complete document  (pdf, 197 kb)

Forget Spending Cuts, the US Needs a $2 Trillion Stimulus - More than five years after the start of the Great Recession in December 2007, the U.S. economy is still mired in a depressed state of output, and economic growth has decelerated below rates needed to bring us out of this slump. But our current macroeconomic policy — driven entirely by a contractionary fiscal approach — is poised to further slow near-term growth and delay recovery. What is needed at the moment is renewed pursuit of an expansionary fiscal policy in order to restore full economic health. The signs calling for additional targeted stimulus and cautioning against austerity are all there, if only policymakers would recognize them. History and international experience teaches that policymakers must fight deep economic slumps until they are ended. We cannot afford to repeat the “Mistake of 1937,” when policymakers prematurely withdrew fiscal and monetary support, pushing the economy into a steeper contraction than experienced during the Great Recession. Since emerging from recession in July 2009, the United States has outperformed our austerity-infatuated peers in the advanced world. Regrettably, though, many U.S. policymakers are increasingly turning a blind eye to the mounting international evidence and historical experience — as well as an overwhelming consensus of economic research — that austerity wreaks havoc on depressed economies. And the opportunity costs of prolonging this depression are staggering.

Stephanie Kelton and the Sequestration on UP with Chris Hayes - Stephanie appeared on UP with Chris Hayes this morning (3/3/13) discussing the sequestration. You can view the program by clicking this link or the image below

Obama Orders Cuts That Will Be ‘Slow Grind’ on Economy - President Barack Obama ordered the start of $85 billion in government spending cuts, beginning a potentially decade-long wave of belt-tightening that risks curbing U.S. economic growth this year.  The White House released the order last night, the deadline set by a law passed two years ago to avoid a debt default, and the Office of Management and Budget sent Congress a detailed list of program cuts. The reductions’ impact will become clear over the next several weeks, as agencies inform affected government contractors and notify employees about furloughs, most of which wouldn’t begin for at least a month.  “What’s important to understand is that not everyone will feel the pain of these cuts right away,” Obama said at the White House earlier yesterday, after meeting with the top four leaders of Congress. “The pain, though, will be real.”  The across-the-board cuts, known as sequestration, were intended to be so onerous that Congress and the president wouldn’t let them occur and would come up with a plan to replace them. Instead, Democrats and Republicans deadlocked on an alternative. Obama insists that any plan must include new tax revenue and Republicans, led by House Speaker John Boehner, reject that approach.

The president who cried ‘Sequester!’ - The sequester is only four days old and it has already done untold damage — not to teachers, air traffic controllers, or the military, mind you, but to President Obama’s credibility. Obama has been caught in one misstatement after another about the sequester — from lying to Americans about its origins to exaggerating its impact. Obama is fast becoming the president who cried “Sequester!” And the price he pays for his exaggerations will be lasting.  President Obama began issuing apocalyptic warnings of the plagues and pestilence that would soon descend upon the land if the sequester took effect: “Border Patrol agents will see their hours reduced. FBI agents will be furloughed. Federal prosecutors will have to close cases and let criminals go. Air traffic controllers and airport security will see cutbacks, which means more delays at airports across the country. Thousands of teachers and educators will be laid off. Tens of thousands of parents will have to scramble to find child care for their kids. Hundreds of thousands of Americans will lose access to primary care and preventive care like flu vaccinations and cancer screenings.” His claims were so obviously overwrought that, when the sequester finally happened, Obama backtracked, declaring, “This is not going to be [an] apocalypse, as some people have said.” Some people have said? Not some people, Mr. President. You and your senior officials.

Sequestration 2013: Ignore Rush Limbaugh, Budget Cuts Are Real -- The automatic budget cuts of "sequestration" are starting to take effect, but most Americans probably aren't going to notice right away. The lines at the airport won't be longer on Saturday and the border gates to Canada and Mexico won't suddenly fling open. Officers from the Federal Bureau of Investigation and inspectors from the Agriculture Department aren't walking off the job. Come Monday, parents will be able to send their kids to Head Start and college students will be able to get their loans processed, just as they always have. Folks like Rush Limbaugh, who has already likened sequestration to the Y2K scare, will likely take the lack of discernible effects as proof that the government can operate on a lot less money. They will be wrong. The cuts won't affect services immediately only because, by law, they can't.  The federal government must give 30 days' notice before reducing direct payments, such as Medicare reimbursements and supplemental unemployment benefits. It must also give 30 days' notice before asking workers to take furloughs. Meanwhile, individual agencies have some discretion over when cuts take place, even though they don't have discretion over what the cuts are. Of course, before that happens, another policy event may intervene. Because the congressional budget process has broken down, the government relies on what's called a "continuing resolution" to spend money. The existing resolution expires on March 27. Without it, government can't operate. Democrats and Republicans remain far apart on how to renew it, essentially for the same reason they can't agree on a replacement for sequestration:

Washington's sequester: Into the vast inane: Welcome to the vast inane. Today the “sequester” - mindless, across the board cuts of military and domestic spending designed to be abhorrent - will go into effect. Republicans claimed a “big victory” as House Speaker John Boehner shut down any negotiations and sent the House home. The cuts will cost jobs and add to the headwinds facing the economy. The sequester will be followed by operatic melodrama over keeping the government open after the end of March and keeping the government from defaulting on its debt beginning in the middle of May. The deficit is falling faster than any time since the demobilization after World War II, Americans are afflicted with mass unemployment and falling wages, but Washington will be traveling into the vast inane for the foreseeable future. The media is focused on the possible effects of the cuts. But what is actually being sequestered is any sensible debate about the fundamental changes needed to revive the middle class and make this economy work for working families once more. The old economy - and the failed economic ideas that drove it - benefited the few, while undermining the broad middle class, even before the collapse. Sadly, that old economy is back. Consider the unsustainable imbalances that contributed directly to the Great Recession

Nothing New Under the Wingnut Sun: Reckless Spending Cuts So: the “sequester.” That too-clever-by-half notion, born of last year’s debt ceiling negotiations out of the White House’s presumption that, when faced with the horror of heedless, profligate, across-the-board budget cuts to all manner of popular government programs, the Republicans’ “fever would break”—remember that?—and the Loyal Opposition would somehow come to agree to a reasonable, “balanced” deficit reduction package. It all seemed so cut and dried in those palmy days, just a few months ago: who could possibly imagine a major American political party could possibly let such madness actually go into effect?  I wonder how many folks within the White House, gaming out whether Republicans might not just call the bluff, bothered to consider the fact that an embrace of heedless, profligate, across-the-board budget cuts to all manner of popular government programs is a key component of hardcore conservative ideology. That, when Barry Goldwater proclaimed in his 1960 manifesto Conscience of a Conservative, “I have little interest in streamlining government or in making it more efficient, for I mean to reduce its size …. My aim is not to pass laws, but to repeal them …. And if I should later be attacked for neglecting my constituents’ ‘interests,’ I shall reply that I was informed that their main interest is liberty,”

White House Economist: Sequestration Poses New Risk to Economy - The across the board government spending cuts now in place pose a new threat to the U.S. economy, White House economist Alan Krueger said Tuesday. The so-called sequester adds the risk that the “dumb” cuts will be made to important investments without addressing long-run problems, the chairman of the president’s Council of Economic Advisers said. “The sequester forces us to cut spending that supports key investments in education, research, security and infrastructure,” Mr. Krueger said in a speech to the National Association for Business Economics. “This hurts future generations and doesn’t ease the burden of debt they will inherit.”

How Obama's Politics Led to Sequestration - Jeffrey Sachs  - Since Reagan, the Republicans have been out to destroy the federal government by "starving the beast" of revenues. Following the Reagan tax cuts in the 1980s, they instituted a new round of temporary tax cuts a decade ago in the Bush Administration (with an expiration date of 2010). And yet who became the lead champion for making the temporary Bush tax cuts permanent? The Democrats. Obama campaigned to make the tax cuts permanent for 98 percent of households, and restore the pre-Bush rates only for the top 2 percent of households. This policy made it look like Obama was on the side of raising government revenues, and compared with the far-right Republicans, he was. Yet by making most of the temporary tax cuts permanent he sided de facto with the Republican campaign to undermine government by reducing revenues.  On New Year's Day, Obama and the Republicans agreed to make the Bush tax cuts permanent for 99 percent of households, excluding married couples with incomes above $450,000. They also agreed to keep low tax rates on dividends and capital gains. This "deal" will cost the federal budget an average of around $400 billion per year in foregone revenues during the coming decade, or roughly 2 percent of GDP each year. Once that deal was done the stark shrinkage of discretionary government programs became inevitable.

As Automatic Budget Cuts Go Into Effect, Poor May Be Hit Particularly Hard  — The $85 billion in automatic cuts working their way through the federal budget spare many programs that aid the poorest and most vulnerable Americans, including the Children’s Health Insurance Program and food stamps. But the sequestration cuts, as they are called, still contain billions of dollars in mandatory budget reductions in programs that help low-income Americans, including one that gives vouchers for housing to the poor and disabled and another that provides fortified baby formula to the children of poor women. Republican and Democratic lawmakers largely resigned themselves to allowing sequestration — a policy meant to force them to the negotiating table, not to actually reduce the deficit — to take wider effect after it started on Friday. That leaves agencies just seven months to carry out their cuts before the fiscal year ends on Sept. 30. In many cases, they will eventually have to deny aid to eligible needy families. Unless a deal is reached to change the course of the cuts, housing programs would be hit particularly hard, with about 125,000 individuals and families put at risk of becoming homeless, the Department of Housing and Urban Development estimated. An additional 100,000 formerly homeless people might be removed from emergency shelters or other housing arrangements because of the cuts, the agency said.

Poll: Most feel sequester will personally affect them - Congress and President Obama continue to remain at odds on how best to reduce the federal deficit -- causing the automatic spending cuts referred to as the sequester to start taking effect last Friday. A CBS News Poll conducted as the sequester cuts were about to begin finds that most (53 percent) percent say they personally will be affected by the cuts in the sequester. In addition, most Americans want to cut spending and raise taxes to reduce the deficit. More Americans blame the Republicans in Congress more for the difficulty in reaching agreement on spending cuts by the deadline. But both sides are urged to compromise. There is plenty of blame to go around for the inability to reach agreement on deficit reduction by the March 1 deadline. Thirty-eight percent of Americans place more blame on the Republicans in Congress for the failure, while 33 percent blame President Obama and the Democrats in Congress more. Nineteen percent volunteer that they blame both sides.

 Boehner Says No Progress in ‘Very Frank’ Budget Meeting -  House Speaker John Boehner reported no progress from what he called a “polite” though “very frank” meeting with President Barack Obama over the automatic spending cuts known as sequestration.  “I don’t think anyone quite understands how it gets resolved,” said Boehner, speaking on NBC’s ‘Meet the Press.” Boehner, who met March 1 with Obama and other congressional leaders, blamed Democrats for the impasse over the “silly” cuts. He also said Republicans will hold firm in their demands for cuts in entitlement spending.  “I’ve been here for 22 years” and “I’ve watched leaders from both parties kick this can down the road,” said Boehner. “We’re out of road to kick the can down. We’ve got a long-term spending problem that has to be addressed’” and “it is going to be addressed.”

GOP Throws Defense Spending Way Under The Budget Bus In The Sequester - I don't use the word "defense" much when talking about the federal budget because it always prejudices the conversation. So why did I violate my own rule and use the word "defense" in the headline to this post? To make a point: In spite of all the spin and all the warm feelings Americans supposedly have about the military, Congress was more than willing to throw defense spending under the budget bus in the sequester. When it was a question of tax increases and Medicare reductions vs the Pentagon, not only did the Pentagon lose, but it wasn't even on the field or the same game. It's important to note that this big time defeat came in spite of a large campaign by military contractors to limit the impact of the sequester on the Pentagon. For much of the past year, one of the military community's most powerful organizations -- the Aerospace Industries Association -- spent millions on a highly coordinated effort that included studies showing the projected job losses from the sequester reductions. Many of the largest and previously most powerful companies repeatedly went public in a big way about the layoffs they said they might have to implement if the sequester went into effect.

Our Fiscal Anorexia - Anyone who has had a personal encounter with Anorexia Nervosa knows what a mystifying and frightening experience it is. The young women all suffered from the same delusion: they had convinced themselves that eating, taking nourishment into their bodies, was pathological. The delusion had variations: some of the adolescent girls looked into the mirror and—in spite of the fact they were five feet eight inches tall and weighed only 75 pounds—SAW a body that was grotesquely over-weight and fat. Others seemed to have a disconnected relationship with their bodies, as if they personally were one thing and their body another—and the “other” was something that, for complex, obscure, and compelling reasons, deserved punishment and starvation. I was reminded of this as I watched our nation’s leaders explain to the American people why America must now impose a new austerity upon itself. By what process, I wondered, have we convinced ourselves that we do not have enough U.S. Dollars to pay ourselves to create the goods and services we need to prosper as a society? What exactly is the “fiscal crisis” that we see when we look in the mirror? How is it that we view our national community with such detachment that we can knowingly impose upon it a painful—and unnecessary—deprivation? How can it be that we view the spending of our OWN sovereign currency to create public goods and services—the essential nourishment of our private economy—as creating a “deficit” that we must somehow repay to someone in the future? How have we bought into this massive delusion? And where is the rehab center, the clinical psychologists and counselors, who will help us overcome it?

Why The Sequester Really Happened (Hint It Has Nothing To Do With The Deficit) - How did the sequester happen? How is it possible that what supposedly was the worst possible way to cut the deficit somehow became what actually happened? Over the weekend Ezra Klein, in a much retweeted blog post that was the talk of large parts of the political blogosphere, said that the GOP was never going to make a deal to avoid the sequester if it included a tax increase. Nothing...not the prospect of reductions in military spending, not the projected reduction in GDP, not the estimated increase in unemployment, not the lost possibility of a bigger deal to reduce the deficit and not the overwhelming likelihood that Republicans would get blamed for all of this...made any difference. The GOP's position seems to defy all economic and political commonsense until you realize how much GOP politics have changed in recent years. The big fear among Republicans -- especially those in the House -- isn't that a Democrat will beat them in the 2014 election. The big GOP concern these days is about being "primaried," the new verb that tells you all you need to know about what's happening in Washington. If there's a big fight for a House seat, it's far more likely to be in a primary. Once the nomination is over, the seat effectively is won and, except in waves when there is a larger-than-usual change, the general election is more of a formality

Lobby To Get Israel Exempted From Sequestration - Douglas Bloomfield, who served as AIPAC’s chief lobbyist for more than a decade, reports this week that the lobby intends to insist that the United States not include Israel’s $3 billion grants package in the sequester that goes into effect today. Writing in the New York Jewish Week, Bloomfield saysAt a time when sequestration is about to take a big bite out of the Pentagon budget, the American Israel Public Affairs Committee (AIPAC) will be sending thousands of its citizen lobbyists to Capitol Hill next week to make sure Israel is exempted from any spending cuts. This could prove a very risky strategy at a time when millions of Americans will be feeling the bite of the sequestration debacle, from the defense budget to the school lunch program. But not aid to Israel, which will be untouched if AIPAC gets its way.

This is why Obama can't make a deal with Republicans - My column this weekend is about the almost comically poor lines of communication between the White House and the Hill. The opening anecdote was drawn from a background briefing I attended with a respected Republican legislator who thought it would be a gamechanger for President Obama to say he’d be open to chained CPI — a policy that cuts Social Security benefits — as part of a budget deal. The only problem? Obama has said he’s open to chained CPI as part of a budget deal. And this isn’t one of those times where the admission was in private, and we’re going off of news reports. It’s right there on his Web site. It’s literally in bold type. But key GOP legislators have no idea Obama’s made that concession.The question my column left open was whether improving the lines of communication would actually change anything. Chait’s view is no, it wouldn’t. “It is impossible to make a man understand something if his livelihood depends on not understanding it.” Chait continues: If Obama could get hold of Klein’s mystery legislator and inform him of his budget offer, it almost certainly wouldn’t make a difference. He would come up with something – the cuts aren’t real, or the taxes are awful, or they can’t trust Obama to carry them out, or something.

Lessons of the Sequester - The automatic sequester—the across-the-board cuts to discretionary programs that President Obama said “will not happen”—happened. The reason is simple and predictable: Republicans insist that the sequester be replaced entirely by spending cuts, while Democrats insist that tax increases must be part of the bargain. One of the more controversial positions that I have taken, on several occasions over the past two years, was that the Bush tax cuts should have been allowed to expire completely. Now we see why. In White House Burning, Simon and I calculated that the Bush tax cuts would be worth 2.5 percent of GDP in the long term. In other words, extending the tax cuts would mean that, in order to stabilize the debt-to-GDP ratio in the long term, we would have to come up with other tax increases or spending cuts equivalent to 2.5 percent of GDP—in today’s terms, about $400 billion per year. The problem for President Obama is that, now that most of the Bush tax cuts have been made permanent, it is simply impossible to raise taxes without Republican cooperation. That cooperation will not happen. That’s not just because John Boehner says he won’t support any tax revenue increases. It’s because Republicans in the House cannot support tax increases, or else they will be primaried from the right in 2014.

What if the sequester was a true across-the-board spending cut? While the sequester is advertised as an across-the-board spending cut, it’s not.Let’s review:

  • The sequester is modeled after a similar provision in law from more than 20 years ago.  That earlier sequester exempted certain programs from spending cuts, most notably Social Security, and it limited any Medicare cut to at most 2% 4%. These are the two largest entitlement programs in the federal budget.
  • When the terms of this sequester were negotiated in the summer of 2011, the President’s advisors expanded the list of programs exempt from spending cuts to include most low-income/safety net entitlement programs. Most notable here is the exemption of Medicaid, the third largest entitlement. They also limited the Medicare cut to no more than 2%.

Let’s do a thought experiment: suppose the sequester now taking effect was instead structured as a true across-the-board spending cut?  Suppose we wanted to cut government spending this year by the same $85 B as is being cut now, but we didn’t exempt huge swaths of entitlement spending?  And suppose we cut all spending by the same percentage?

Sequestration – Fourth Austerity Shoe Drops - video - Latest segment from The Black Financial and Fraud Report at

Pentagon: Cuts Could Hamper Ability To Invade Countries For No Reason - The spending cuts mandated by the sequester may hamper the United States’s ability to invade countries for absolutely no reason, a Pentagon spokesman warned today.  The Pentagon made this gloomy assessment amid widespread fears that the nation’s ability to wage totally optional wars based on bogus pretexts may be in peril.  “Historically, the United States has stood ready and able to throw billions of dollars at a military campaign with no clear rationale or well-defined objective,” said spokesman Harland Dorrinson. “Our capacity to wage war willy-nilly is now in jeopardy.”  In the past, Mr. Dorrinson said, the Pentagon has had the resources to fight three meaningless and completely random wars at any given time, “but now in our planning meetings we are cutting that number back to two.”  Sen. Lindsey Graham (R—S.C.) agreed about the catastrophic effects of the Pentagon cuts, telling reporters, “The ability of the United States to project its military power in an arbitrary and totally capricious way must never be compromised.”

Regulators and Prosecutors Gird for Sequester Cuts -  Although many of the deepest federal budget cuts under “sequestration” are still likely at least a month away, and the first round of sequester won't actually hit until just before midnight, the fallout has already begun. Earlier today, Rep. Elijah Cummings, a Maryland Democrat and ranking member of the House Committee on Oversight and Government Reform, made public the furlough notices sent to prosecutors working for the 93 U.S. Attorney offices. Employees of the National Labor Relations Board have also been warned that they may be faced with an unpaid furlough of at least 14 days. The Securities and Exchange Commission is facing a $108 million reduction to it nearly $1.3 billion budget, and its austerity would also be shared by the Public Company Accounting Oversight Board, the nonprofit corporation that oversees the audits of public companies. Last month, the SEC approved a 9-percent increase in the fees public companies pay to fund the PCAOB. The Commission pointed out, however, that the PCAOB's new budget may need to be revisited.

Congress Budget Cuts Damage U.S. Economy Without Aiding Outlook - President Barack Obama and congressional Republicans have stumbled into an approach to deficit reduction that inflicts the pain of economic austerity without the gain of addressing the long-term budget gap. Automatic spending cuts that began March 1, combined with tax increases enacted earlier this year, will depress U.S. economic growth by about half in 2013, according to government projections. At the same time, the spending cuts leave untouched the popular retirement and health benefits that both Obama and Republican leaders agree are the main drivers of the deficit. “It attacks the wrong part of the budget,” Bob Bixby, executive director of the Concord Coalition, a group that’s pushing for lower deficits, said of the spending cuts. “It’s a losing proposition in the long term.” Obama and the Republicans agreed to the latest across-the- board cuts, called sequestration, only in the expectation they would be so unacceptable that they’d force a broader compromise on a budget.

The Worst Possible Way to Cut Spending - One big problem in the sequestration debate is that both sides have been talking past each other, with unstated assumptions underlying their statements and positions. There is also a great deal of posturing going on that disguises more agreement than the public knows. The guiding Republican premise is that there is a vast amount of fat and waste in the federal government. Just as when individuals are overweight, a diet will improve their health. Contrary to popular belief, Democrats don’t disagree that many programs could be cut substantially without harming government’s core mission. The problem is twofold. First, they disagree with Republicans on which programs are wasteful. Second, Republicans tend to believe that any program they disagree with, philosophically, is, per se, money wasted. Democrats, I think, are more inclined to think that money spent inefficiently, that doesn’t advance a program’s basic purpose, is the primary source of wasteful spending. In general, Republicans think of national security as the federal government’s primary function and just about everything else as optional. Democrats don’t disagree that national security is a core function of government but also believe that it has a responsibility to help those who can’t help themselves and to improve the quality of life of all Americans.

The Sequester’s Hidden Danger - The sequester is dangerous, but not for the reasons we think. Contrary to what some alarmists predicted, there is little evidence that the automatic, across-the-board cuts to the US budget that went into effect on Friday are causing cataclysmic harm. The stock market has risen slightly to near record heights, and most economists agree that the $85 billion down payment this year on about $1 trillion in cuts over the next ten will not trip the economy into recession. Recent polls, meanwhile, indicate that a large part of the electorate has no opinion on the sequester, which is still poorly understood—making it perhaps less of a political liability for either party than some anticipated. But what makes the sequester threatening is not that it will plunder the economy in 2013. Rather, it is that these arbitrary cuts are exactly the opposite of what the economy needs both in the short run, and—if the promised $1 trillion in further cuts over ten years is made—in the long term. In the coming months, it will make it difficult for the president to cut the unemployment rate from current levels around 8 percent. And the sequester will be painful. Educational and housing subsidies will be cut, as will unemployment insurance and research spending. More than $40 billion will be cut from the defense budget, music to my ears, but not to those who will lose jobs at defense contractors. Above all, claims that economic growth down the road will be spurred by reducing the federal deficit through spending cuts are not credible.

The Sequester and Fiscal Policy - Laura D'Andrea Tyson - The sequester – the large, across-the-board cuts in federal government spending that began to take effect on March 1 and are scheduled to persist through the next decade – is a product of political stalemate and ideology cloaked in the language of fiscal responsibility. Despite what some of its champions proclaim, there is no economic justification for the sequester. It is the wrong medicine for what ails the economy now and the wrong cure for its future budgetary challenges..As a result of a deep and lingering deficiency in aggregate demand, the United States economy is operating far below its potential. Real gross domestic product fell by 8 percent relative to its non-inflationary potential level in 2008 and has remained about 8 percent below the level consistent with its pre-recession growth rate ever since.The gap between the actual and potential level of output means about $900 billion of forgone goods and services this year alone. This tremendous waste of productive potential is reflected in an unemployment rate of 7.9 percent, a higher rate than at any point in the 24 years before the depths of the 2008 recession, and a poverty rate of 15 percent, significantly above the average of the last 30 years. The longer the economy operates below its current capacity, the slower the growth of its future capacity as a result of diminished risk-taking, forgone investment and the erosion of skills.

White House Report On Sequester Cuts Will Make You Sick - The Office of Management and Budget (OMB) has come out with a detailed breakdown of the spending cuts associated with the sequester (LINK).  This is one heck of a document, it runs 83 pages. Those who believe that government is too big should spend some time looking this over. They will get sick. For those who think that government is too small; well, they should also spend some time with the report. No reasonable person could look at this and conclude that all is well in D.C. I reviewed the report to determine what the consequence of sequestration would be on interest payments on BABs bonds.There was so much more to consider than BABs. First some details on the BABs, then some thoughts about the budget in general. The Build America Bond program (BABs) was a child created in 2009 when the Muni bond market was freezing up. The federal government agreed to pay 1/3 of the interest on the Muni bonds. The cost to the Treasury in 2013 was anticipated to be $3.4b, but the 5.1% cut across all budget items reduces the payout by $171m. Really? The amount involved is small, but a payment default on interest is a payment default on interest. What’s going to happen? Are investors in BABs going to get stiffed? Are the states and cities that did the actual borrowing going to have to pick up the Federal shortfall?

April 1st Is the New February 28th -The sequester cuts are officially in place but the sky hasn’t fallen. It is unlikely that you even noticed the cuts yet, because while the sequester went into effect last week the impact won’t really begin to be felt until next month. The big aspects of the sequester don’t really start until April 1st ,at the earliest. Most agencies won’t start to furlough their employees until then. Agencies are normally required to give 30 days notices before furloughing workers, those notices should be going out around now. In addition, the 2 percent cut in Medicare reimbursements rates doesn’t take effect until April 1st. That is when doctors and hospitals will start seeing slightly smaller payments from the government. We will need to basically wait another month before the real “pain” of the sequester starts being felt by a significant number of Americans. This is probably part of the reason there seemed to be so little urgency among members of Congress to reach a deal before the official sequester deadline

Holder: Sequester may have 'profound' impact - Attorney General Eric Holder told senators Wednesday morning that the broad budget cuts known as the sequester are "already having a significant negative impact" Justice Department operations and could have a "profound" effect on the public if not halted soon. At a Senate Judiciary Committee oversight hearing, Holder said the department's progress made over the last four years "will be severely hampered unless Congress adopts a balanced deficit reduction plan and ends the untenable reductions that last week set in motion a move to cut over $1.6 billion, that's 9 percent, of the department's budget in just seven months' time.""As we speak, these cuts are already having a significant negative impact not ust on Department employees, but on programs that could directly impact the safety of Americans across the country....Our capacity—to respond to crimes, investigate wrongdoing, and hold criminals accountable has been reduced. And, despite our best efforts to limit the impact of sequestration, unless Congress quickly passes a balanced deficit reduction plan, the effect of these cuts-on our entire justice system and on the American people—may be profound," Holder said.

Sequester Cuts 'Will Impact Food Inspection,' Reducing Meat Supply, Agriculture Secretary Says: Of all the possible consequences of the U.S. budget sequestration that popped up in the media before Friday's deadline, few provoked as much fear and loathing (at least on the HuffPost Food team) as the threat of a meat industry shutdown. At the beginning of February, Agriculture Secretary Tom Vilsack warned that the budget cuts mandated by the sequester would force the USDA to furlough meat inspectors for up to 15 days. Federal law prohibits meat plants from operating without a federal inspector, so this suggested the entire industry would have to shut for more than two weeks, leading to higher prices and shortages. Now that the sequester has begun, Vilsack on Tuesday explained to the House Agriculture Committee what that means for our meat supply. Here's the bad news: Vilsack said there's no way the USDA can avoid furloughing inspectors as long as its budget remains at the level dictated by the sequester. "No matter how you slice it, no matter how you dice it, there is nothing you can do without impacting the frontline inspectors," he said.

Janet Napolitano Dazed And Confused About What Sequester Really Means - In the face of Janet Napolitano's terrifying claims that major airports were already seeing lines "150 to 200 percent as long as we would normally expect" as a result of the budget-crushing sequestration cuts that went into force on Friday, The Telegraph reports that, in fact, LAX "haven't had any slowdowns." But how can that be? The government said it would all be horrible - and to think of the children... it appears Ms. Napolitano was speaking that dialect of English we call 'politician' as airports have 'received no reports of unusual security delays.' Unpossible. The DHS would not return calls questioning her exclamations that she "did not mean to scare, just inform," about LAX, O'Hare, and Atlanta's Hartfield-Jackson.

The 'Catastrophic' Sequester Narrative Dies a Quick Death - However you calculate the sequester spending cuts, and however uneven they may be, the reality is that the sequester at least moves the ball in the right direction. I maintain that by reducing the government spending share of GDP, the sequester is pro-growth. The White House and the CBO are predicting a 0.5 percent to 0.7 percent decline in GDP, post-sequester, and a loss of 750,000 jobs. All this from a spending reduction of roughly 2.4 percent over the next ten years, in which Uncle Sam's spending growth will be $44.8 trillion rather than $46 trillion.  Fed chairman Ben Bernanke and other demand-siders have called for a slow, gradual federal-spending reduction. Well, that's exactly what they're going to get. The first fiscal year of sequester will see $44 billion in spending cuts, which is about one quarter of 1 percent of GDP. That's pretty gradual.  And compare that $44 billion 2013 spending cut (most of which is slower baseline growth, not a cut in spending levels) to a roughly $150 billion 2013 tax hike. Hmm, let me get this right: It's okay to raise taxes, because that won't hurt the economy, but it's not okay to cut spending, because that will lower output?

Deal to avert government shutdown likely, officials say - Congress returns to work this week with no plan to reverse across-the-board spending cuts that took effect Friday, but with hope on both sides of the aisle of averting an end-of-the-month showdown that could result in a government shutdown. The House plans to vote Thursday on a spending measure that would keep the government running after its current funding mechanism elapses March 27.It would provide funding through the end of the fiscal year on Sept. 30, allowing new flexibility to the Pentagon to manage the $40 billion hit the military took Friday but otherwise locking in the sequester’s lower spending levels. House Speaker John A. Boehner (R-Ohio) said on NBC’s “Meet the Press” that he discussed the need to avoid a shutdown with President Obama at a meeting Friday between the president and congressional leaders. The interview was filmed after that meeting and aired Sunday morning. “The president this morning agreed that we should not have any talk of a government shutdown,” Boehner said in the interview. “So I’m hopeful that the House and Senate will be able to work through this.”

A way out of our budget wars - There are, believe it or not, grounds for hoping that the so-called sequester, stupid as it is, might open the way to ending our nation’s budget stalemate. Hope is in short supply right now, but the case for seeing a way out of the current mess rests on knowable facts and plausible assumptions.It starts with the significant number of Republicans in the Senate — possibly as many 20 — who think what’s going on is foolish and counterproductive. The White House is betting that enough GOP senators are prepared to make a deal along lines that President Obama has already put forward. Obama’s lieutenants argue that, while Republicans are aware that the president is seeking new revenue through tax reform, many did not fully grasp the extent to which he has offered significant long-term spending cuts. These include reductions in Medicare and a willingness (to the consternation of many Democrats) to alter the index that determines Social Security increases. Obama has proposed $930 billion in cuts to get $580 billion in revenues.

Obama renews budget offer to cut social safety nets   - President Barack Obama raised anew the issue of cutting entitlements such as Medicare and Social Security as a way out of damaging budget cuts, a White House official said on Sunday, as both sides in Washington tried to limit a fiscal crisis that may soon hit millions of Americans. Signaling he might be ready to explore a compromise to end automatic spending cuts that began late Friday, Obama mentioned reforming these entitlement programs in calls with lawmakers from both parties on Saturday afternoon. "He's reaching out to Democrats who understand we have to make serious progress on long-term entitlement reform and Republicans who realize that if we had that type of entitlement reform, they'd be willing to have tax reform that raises revenues to lower the deficit," White House senior economic official Gene Sperling said on Sunday on the CNN program "State of the Union." Republicans have long argued that the only way to tame budget deficits over the long haul is by slowing the cost of sprawling social safety net programs. These include the Social Security retirement program and Medicare and Medicaid healthcare programs for the elderly, disabled and poor that are becoming more expensive as a large segment of the U.S. population hits retirement age.

President Obama insists on social safety net reform? - From the MSBN comes this announcement from President Obama on agenda for reform of the social safety net. President Barack Obama raised anew the issue of cutting entitlements such as Medicare and Social Security as a way out of damaging budget cuts, a White House official said Sunday, as both sides in Washington tried to limit a fiscal crisis that may soon hit millions of Americans. Signaling he might be ready to explore a compromise to end automatic spending cuts that began late Friday, Obama mentioned reforming those entitlement programs in calls with lawmakers from both parties Saturday afternoon. I suppose we will have to wait to find out what exactly is for sale.

Why Is Obama Taking Orders From A Secretive Billionaire? - Move over Koch brothers. Get out of the way Shelly Adelson. There’s another billionaire in town, and he’s doing all he can to privatize Social Security and Medicare programs.  Say hello to Pete Peterson. Petersen is a Wall Street billionaire, who, according to The Center for Media and Democracy’s SourceWatch.Org, almost exclusively uses his wealth to back numerous organizations and public relations campaigns whose primary goals are to slash government funding to Social Security, Medicare and Medicaid.  According to SourceWatch’s, in 2007, after making a fortune off of the public offering of a Wall Street private equity firm, Peterson pledged to spend a staggering $1 billion of his personal wealth to “fix America’s key fiscal-sustainability problems.” As SourceWatch’s points out, in reality, the “Campaign to Fix the Debt” is just the latest effort by Peterson and a bunch of his billionaire friends and corporate cronies to cut away at Social Security and Medicare, all in the name of fixing America’s “debt problem”.

Pete Peterson...success or failure? - Dean Baker on occasion mentions the influence of Pete Peterson, and Peterson funded the Simpson Bowles efforts, and this piece by Thom Hartmann takes a current look: While a name well known to some, it is interesting I rarely hear it mentioned in less political circles. I run into the Soros name more often...  But it is hard to credit Soros having more influence that happen to pop up in discussions around my hometown. Peterson's influence and funding goes far beyond the reported 500 million of his personal money being spent. When Angry Bear Bruce Webb and Dale Coberly were so diligently writing about Social Security a few years ago, many thought it was time not well spent as Social Security was safe. Even now many I speak with have little idea about the chained CPI being pushed by Democrats.

Lords of Disorder: Billions for Wall Street, Sacrifice for Everyone Else - The President’s “sequester” offer slashes non-defense spending by $830 billion over the next ten years. That happens to be the precise amount we’re implicitly giving Wall Street’s biggest banks over the same time period. We’re collecting nothing from the big banks in return for our generosity. Instead we’re demanding sacrifice from the elderly, the disabled, the poor, the young, the middle class – pretty much everybody, in fact, who isn’t “too big to fail.” That’s injustice on a medieval scale, served up with a medieval caste-privilege flavor. The only difference is that nowadays injustices are presented with spreadsheets and PowerPoints, rather than with scrolls and trumpets and kingly proclamations. And remember: The White House represents the liberal side of these negotiations.

It's Alberto Alesina's World and We're All Just Unemployed in It - In March 2011, the new Tea Party had taken over the House, and it needed a plan for what it would do about the deficit. It proposed that the effects of imposing austerity, even when the economy is weak, "may be strong enough to make fiscal consolidation programs expansionary in the short term." How did it propose we cut the budget? The Tea Party's study called for 85 percent spending cuts and 15 percent revenue increases. This was based largely off a 2009 study by Alberto Alesina titled "Large changes in fiscal policy: taxes versus spending." This is the ur-text of expansionary austerity, which made the case, for example, "On the demand side, a fiscal adjustment may be expansionary if agents believe that the fiscal tightening generates a change in regime that 'eliminates the need for larger, maybe much more disruptive adjustments in the future.'" Flash forward two years from that report to March 2013. President Obama and Congress have overseen $4 trillion dollars in deficit reduction set for the next ten years. What do the percentages look like? Here's a graphic from a recent New York Times blog post by Steve Rattner on the deficit deals:

Why fiscal problems don’t have fiscal solutions - The main lesson I’ve learned from the sequester fustercluck, and from the failure of austerity programs in Europe, is that you can steer yourself very, very wrong indeed if you try to find fiscal solutions to fiscal problems. The two phenomena are different: the stated aim of the sequester was to focus attention on long-term fiscal problems, while European austerity is generally targeted much more at the short term. But both resulted in the same thing: governments cutting their spending and hurting growth, when growth is the only real solution to the problem at hand. In Europe, the key short-term problem is unemployment; in the US, the long-term problem is America’s ability to pay its scarily-rising healthcare costs. In neither case do government budget cuts do anything whatsoever to address the problem; instead, they exacerbate it. Unemployment is the more obvious case: if the government lays off thousands of workers, and stops injecting money into the economy through other channels, that’s never going to help people find work in the short term. But the case against a fiscal solution to the healthcare-cost problem is also a pretty simple one. Here’s John Carney: It’s not really even a question of “entitlements” at all. The challenge is just whether the economy in the future will be productive enough to produce all the medical care, food, and shelter required by the elderly when there are fewer people actually working. How we pay for this is secondary matter.

Four Things To Know About The Next Big Budget Battle - Now that the sequester has taken effect, there's a new phrase that keeps popping up in Washington: the "continuing resolution." If Congress doesn't pass a continuing resolution by March 27, the government will run out of money and will likely shut down. Here's a list of four things you might want to know about how a continuing resolution works and how it might soften the blow of the sequester.

  • 1. Exactly what is a "continuing resolution"? The continuing resolution, or CR for short, is legislation that basically allows Congress to just carry over the previous fiscal year's budget into the next one. In other words, it permits Congress to maintain roughly the same budget priorities and budget levels over the subsequent year. A CR can last for any length of time, whatever Congress wants — a few weeks, six months, a year, anything.
    2. Why would Congress want to pass a CR in the first place? Every year, Congress has to set funding levels for agencies and departments. According to the Constitution, Congress is supposed to do this through appropriations bills. But when Congress can't agree on what those appropriations should look like, they punt, by passing a continuing resolution. 

Republicans move to avoid government shutdown (Reuters) - Congressional Republicans announced a plan on Monday to avoid a government shutdown later this month, seeking to calm the waters after months of budget fights that ended in a failure last week to halt damaging spending cuts. Just three days into the $85 billion of automatic "sequester" cuts, Republicans in the House of Representatives turned their attention to the next fiscal deadline: the March 27 expiration of funding for government agencies and programs. Should Congress fail to pass a new spending measure, the government will have to shut down most agencies and services - from national parks to the Federal Aviation Administration. That would pile even more uncertainty onto the economy just as the worst effects of the sequester cuts begin to take effect in April. After bruising encounters last year over the fiscal cliff of broad tax increases and spending cuts, and now sequestration, both Republicans and Democrats in Congress have lost some of their appetite - at least temporarily - for more confrontation and want to get through March without having to fight about how to keep government funded.

Moving First on Budget, House Passes Funding Bill - The House on Wednesday easily passed legislation to keep the government financed through September, raising pressure on the Senate to quickly follow suit before the current financing runs out on March 27.  The House bill gives military and veterans programs some breathing room under the automatic spending cuts that took effect on Friday by increasing financing for Pentagon priorities. But domestic programs are left largely unprotected from cuts of up to 11 percent under the so-called sequestration. Senator Barbara Mikulski of Maryland ... said she would demand the kind of changes the House afforded military programs for at least some of the domestic side of the spending bill. That way Congress can prioritize programs that lift economic growth now, like transportation and infrastructure, and strengthen future economic growth through science and technology, even within the strictures of across-the-board cuts.

Republican goal to balance budget could mean deep cuts to health programs - Anxiety is rising among House Republicans about a strategy of appeasement toward fiscal hard-liners that could require them to embrace not only the sequester but also sharp new cuts to federal health and retirement programs. Letting the sequester hit was just the first step in a pact forged in January between conservative leaders and Speaker John A. Boehner (R-Ohio) to keep the government open and the nation out of default. Now comes step 2: adopting a budget plan that would wipe out deficits entirely by 2023.The strategy runs counter to warnings from prominent Republicans such as Louisiana Gov. Bobby Jindal against becoming “the party of austerity.” Just as GOP lawmakers are tacitly endorsing sequester cuts to the Pentagon, long a sacred cow, they fear the balanced-budget goal will force them to abandon a campaign pledge not to reduce Medicare benefits for those who are now 55 and older. “I know a number of people who have real concerns about where this is going,” said Rep. Peter T. King (R-N.Y.), who said Medicare cuts targeting people as old as 58 are under discussion. “One of the last presidents to balance the budget was Herbert Hoover,”

Paul Ryan Plan: Will Medicare Changes Affect Those Over 55? - Paul Ryan is about to unveil a new proposal for how the government should spend its money. According to multiple media accounts, it will look a lot like the budget plans he's produced before, the ones that famously called for radically downsizing the government. The main difference? The cuts in this proposal will be even bigger. It seems Ryan will seek to reduce spending, and balance the budget, more quickly than he has previously. That would mean even less money for food stamps, less money for Medicaid, and many other vital programs on which low-income Americans, in particular, depend. In addition, Ryan may tweak his signature proposal, which would transform Medicare into a voucher plan and, arguably, undermine its basic guarantee of benefits. Previously, Ryan called for delaying introduction of the scheme, so that it would not affect anybody who is already 55 years old. He may now call for introducing the transformation sooner, thereby exposing more seniors to it, although media reports on that part of the proposal were particularly fuzzy.

Ryan Budget Plan Draws GOP Flak - House Republican leaders, faced with the daunting task of writing a budget that would eliminate deficits within 10 years, are backing away from a proposal to revamp Medicare for more Americans than previously suggested. House Budget Committee Chairman Paul Ryan (R., Wis.) has in recent weeks floated the idea of rolling back the GOP promise that people 55 and older would be exempt from his signature plan to offer future retirees a subsidy to buy private health insurance as an alternative to traditional Medicare. House GOP centrists are balking at the idea, and in a meeting with them Tuesday, Mr. Ryan said he would leave it to his party colleagues to decide whether to raise the age cutoff to 56—or even higher—in the budget for the fiscal year that starts Oct. 1 that he is unveiling next week, according to a GOP aide familiar with the meeting. Rep. Charlie Dent (R., Pa.), one of the centrists who was worried about the proposal, said after the meeting he believed the proposal would be dropped. "There's a fairly good shot that the budget will maintain no [Medicare] changes for anybody 55 and up," said Mr. Dent. "That was a concern that I think many members had." Mr. Ryan's staff said the House budget's Medicare provisions remain in flux, and no final decisions have been made. But the intense backroom debate over Medicare rules underscores the challenge facing Mr. Ryan and his party as they try to make good on their promise to House conservatives to balance the budget within a decade.

Paul Ryan Wants To Get Thin Without Counting His Love Handles - What Ryan is proposing is the fiscal equivalent of him saying that he wants to lose 20 pounds but isn't going to counting the fat around his midsection to achieve it. For weeks the budget and political worlds have been buzzing about how Ryan was going to be able to keep his pledge to bring a plan to the House floor that would balance the budget in 10 years without raising taxes. That's a substantial task even after the already enacted revenue increases in the fiscal cliff deal and the $85 billion in sequester spending cuts, both of which Ryan has said he will include in his plan. It requires significant and politically very sensitive reductions in Medicare, Medicaid and probably Social Security. We now know how Ryan's planning to do it: by balancing the budget without counting interest on the national debt. In economic terms, that's called bringing the budget into "primary balance."

Why Future Budget Deals Must Include New Revenues - CBPP -  As we’ve noted, CBPP Senior Fellow Jared Bernstein told a Senate Budget Committee hearing yesterday that tax expenditure reform offers a useful way forward in the debate over deficit reduction, since it can raise significant revenues while cutting spending that’s administered through the tax code.  In this excerpt from his testimony, he explains why new revenues should be a part of future budget deals: Congress and the Administration worked together to achieve around $2.4 trillion in deficit savings, 2013-2022, including (with interest savings) $1.7 trillion in spending cuts and $700 billion in tax increases.  Thus, using just the policy changes (leaving off interest savings) in this recent round of deficit reduction, Congress has so far legislated $2.40 of spending cuts for every one dollar of tax increases. . . .My Center on Budget and Policy Priorities colleague Richard Kogan has updated these estimates for the most recent budget window, 2014-2023, and also added what it would take to stabilize the ratio of debt-to-GDP (the debt ratio) over that window, an accomplishment I would consider the first step to getting the nation on a sustainable fiscal path. . . .  [I]t would take another $1.5 trillion in savings over this period to stabilize the debt at 73% of GDP. . . . [The chart] shows that ratio of cuts to revenues prevailing so far and the ratio if Congress were to split the needed $1.5 trillion between both budget categories. . . .  An even split at this point would still not reach the roughly 1:1 ratio proposed by the earlier [bipartisan deficit] commissions, but it would narrow the ratio some, bringing it to 1.7 to 1.  On the other hand, a 75/25 split (cuts to revenues) would result in a less balanced split than the current ratio. . . .Click here for the full testimony.

Boehner sees reform as way to budget deal - The senior Republican in Congress is zeroing in on tax reform and a debate over next year’s budget as a possible pathway for a deal with the White House to tackle US deficits, but said there was no resolution at hand to end $85bn in automatic spending cuts. “I don’t think anyone quite understands how it gets resolved,” said John Boehner, the speaker of the House of Representatives, on NBC’s Meet the Press. Mr Boehner repeatedly rejected the White House’s call for some tax increases to end the impasse and questioned whether some of President Barack Obama’s most dire warnings about the impact of sequestration – cuts totalling $1.2tn over 10 years – had been exaggerated. But even as the Republican indicated he was not interested in further negotiations on sequestration alone, the president was trying to circumvent the leader by calling other Republican lawmakers and Democrats this weekend to work on a compromise. Gene Sperling, Mr Obama’s economic adviser, told CNN: “He’s making those calls to see where there might be a coalition of the willing, a caucus for common sense, and trying to build trust.” For now, however, the White House and Republican leaders seem to see eye-to-eye on just one issue: the importance of reaching a separate agreement to fund the government through the remainder of this fiscal year and avoid a politically-messy shutdown.

Eliminating Energy-Related Tax Expenditures - With domestic oil production soaring, and petroleum and coal sector profits rising at a rapid clip, now seems the right time to cut back on tax expenditures related to oil extraction and processing. The Administration has proposed elimination of several tax expenditures. According to OMB, this would yield ten year savings equal to $41.4 billion. In the recent debate over the sequester, other provisions were suggested, including an end to an exemption for the tar sands industry that excludes it from paying an 8-cent-per-barrel fee that supports an oil spill fund. [1] The Congressional Research Service has discussed the elimination of the provisions in the table above. On the one hand, the tax changes proposed ... would increase tax collections from the oil and natural gas industries and may have the effect of decreasing exploration, development, and production, while increasing consumer prices and possibly increasing the nation’s dependence on foreign oil. These same proposals, from an alternate point of view, might be considered to be the elimination of tax preferences that have favored the oil and natural gas industries over other energy sources and made oil and natural gas products artificially inexpensive, with consumer cost held below the true cost of consumption when external costs associated with environmental costs and energy dependence, among others, are included.I believe the negative impact on output is highly overstated.

Changing Government’s Inflation Measure Would Raise Taxes as Much as it Would Cut Spending - Changing the way government adjusts spending and taxes for inflation is one of those issues that continues to hang around the edges of the budget debate. Republicans and many economists argue for shifting to a more accurate inflation measure, called the chained Consumer Price Index (CPI). President Obama would support a version as part of a fiscal grand bargain. Because Social Security benefits would likely grow more slowly under this measure, many Democrats and social insurance advocates strongly oppose the idea. But a new Congressional Budget Office estimate shows fiscal effects that chained CPI backers might not want to see. It turns out that shifting to the new inflation measure would raise taxes by nearly as much as it would slow Social Security spending over the next decade. Indeed, after 2021, the adjustment would raise taxes more than it would cut projected Social Security benefits. CBO figures chained CPI would raise taxes by nearly $124 billion over 10 years. It would reduce projected Social Security spending by $127 billion and cut planned spending for all programs by a total of $216 billion. Note that CBO counts a nearly $18 billion cut in refundable tax credits as a spending reduction. If you prefer to include it among the tax hikes, the overall revenue increase would reach $142 billion over 10 years.

Tax bills for rich families approach 30-year high - The poor rich. With Washington gridlocked again over whether to raise their taxes, it turns out wealthy families already are paying some of their biggest federal tax bills in decades even as the rest of the population continues to pay at historically low rates. President Barack Obama and Democratic leaders in Congress say the wealthy must pay their fair share if the federal government is ever going to fix its finances and reduce the budget deficit to a manageable level. A new analysis, however, shows that average tax bills for high-income families rarely have been higher since the Congressional Budget Office began tracking the data in 1979. Middle- and low-income families aren't paying as much as they used to. For 2013, families with incomes in the top 20 percent of the nation will pay an average of 27.2 percent of their income in federal taxes, according to projections by the Tax Policy Center, a research organization based in Washington. The top 1 percent of households, those with incomes averaging $1.4 million, will pay an average of 35.5 percent.

If I were writing that piece - Here is an interesting way to deal numbers, with the complete post to be read from the link: Obama taxes us into recession  (Mish) Withheld income and employment taxes have been running about 8.3% higher year over year, comparing the same 33 business days between Tuesday, January 8 and Monday, February 25....Regardless, there is no doubt that the Obama Administration has taxed us into a recession. Congratulations.Lifted from several e-mails in response to the link being sent: Ken Houghton:    If I were writing that piece, it would be about how the cuts in taxes last year are the only thing that allowed people to pretend we were in a recovery, which has otherwise been jobless. (Check out YoY for 2009 to 2010 or 2010 to 2011.) Krugman is probably right not to dismiss out of hand the idea that you can sustain economic growth with a plutocracy, but it's not at all an even odds bet. Dale Coberly: As I may have tediously tried to point out elsewhere, rescinding the tax holiday is not a tax raise.. it is the end of a government "stimulus" funded by borrowing, unnecessarily attached to the payroll tax for devious political purposes. the SS "tax" is always circulating... it goes to benefits to the otherwise poor elderly who spend it right away. unless you are going to fund those benefits by borrowing or taxing the rich, reducing the payroll tax would reduce "circulating" by the extent to which people "saved" that money for their eventual retirement...

Surprise: Studies Show Rich People are more Unethical than Poor People - Last week, a team of five researchers that conducted a set of seven psychological experiments confirmed Fitzgerald’s opinion, specifying that the rich behave more unethically and greedily than lower-class individuals. The team—four Psychology professors from the University of California at Berkeley and a Business professor from the University of Toronto—conducted two “naturalistic” field studies to determine if the rich were more likely to break the law while driving, and five laboratory studies gauging upper-class attitudes and propensities toward unethical decision-making. In all seven studies, the rich subjects behaved more unethically and harbored positive opinions of greed that helped justify their selfishness.

It’s time to tax financial transactions -  On Friday at midnight, the sequester kicked in, triggering $85 billion in deep, dumb budget cuts that sent “nonessential personnel”— such as air traffic controllers — packing. Not to worry, though: Wall Street’s day was pretty much like any other. Billions of dollars in profits were made off of trillions of dollars in financial transactions. And the vast majority of those transactions were conducted tax-free.Moral of the story: What else is new? Crash the economy? Free pass. Prevent planes from crashing? Pink slip. We don’t need a team of policymakers to tell us this isn’t good policy, or that it needs changing. But on Thursday, we heard policymakers propose exactly that: a change. Sens. Tom Harkin (D-Iowa) and Sheldon Whitehouse (D-R.I.), along with Rep. Pete DeFazio (D-Ore.), unveiled a bill that would place a light tax on all financial transactions — three pennies on every $100 traded.

Qualified Private Activity Bonds Come Under New Scrutiny - The last time the nation’s tax code was overhauled, in 1986, Congress tried to end a big corporate giveaway.  But this valuable perk — the ability to finance a variety of business projects cheaply with bonds that are exempt from federal taxes — has not only endured, it has grown, in what amounts to a stealth subsidy for private enterprise.  A winery in North Carolina, a golf resort in Puerto Rico and a Corvette museum in Kentucky, as well as the Barclays Center in Brooklyn and the offices of the Goldman Sachs Group and the Bank of America Tower in New York — all of these projects, and many more, have been built using the tax-exempt bonds that are more conventionally used by cities and states to pay for roads, bridges and schools.  In all, more than $65 billion of these bonds have been issued by state and local governments on behalf of corporations since 2003, according to an analysis of Bloomberg bond data by The New York Times. During that period, the single biggest beneficiary of such securities was the Chevron Corporation, which issued bonds with a total face value of $2.6 billion, the analysis showed. Last year it reported a profit of $26 billion.

The Savings Glut Explanation: Why It Might Be Wrong and Why It Matters - In the wake of the Great Crash, we were treated to raucous discussions among economists offering explanations for how such a thing could have happened and who was to blame. Let’s ignore the wingnut explanation that the Government caused the disaster by forcing defenseless banks to lend money to poor people to buy houses. A common view among less insane conservative economists is the Savings Glut theory, that all that money from trade surpluses from China and OPEC nations drove down interest rates and encouraged too much risk-taking. Fed Chair Ben Bernanke strongly supports this view.*But Bernanke isn’t the only one. The decidedly not conservative Paul Krugman and Robin Wells wrote an article for the New York Review of Books, arguing that Great Crash was primarily the result of the housing bubble, which in turn they attribute to the savings glut, along with out of control financial innovation and the utterly disastrous failure of US and other financial sector regulators. That view is challenged by economists at the Bank for International Settlements. I described one paper by Claudio Borio here. The essential point of this paper, available here, is that financial models used by macroeconomists ignore the impact of finance on the real economy. Borio and Piti Disyatat wrote another paper in 2011 directly addressing the savings glut. Yves Smith gives space to Andrew Dittmer to translate it from economese to English here, and I won’t try to compete with Dittmer’ explanation. Here’s the short version from Borio and Disyatat’s 2012 paper

Eric Holder: Some Banks Are So Large That It Is Difficult For Us To Prosecute Them - While it is widely assumed that the too-big-to-fail banks in the US (and elsewhere) are beyond the criminal justice system - based on simple empirical fact - when the Attorney General of the United States openly admits to the fact that he is "concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them," since, "it will have a negative impact on the national economy, perhaps even the world economy," one has to stare open-mouthed at the state of our union. It appears, just as the proletariat assumed, that too-big-to-fail banks are indeed too-big-to-jail.

Holder Claims He Can't Prosecute the the Banks Because It Would Negatively Impact the Global Economy - Attorney General Eric Holder, the highest law enforcement officer in the land, said he cannot prosecute the big banks because that would endanger the global economy.  This is an admission the world is run by the banks and not governments or the rule of law.  Holder testified before the Senate Judiciary Committee and in answering Senator Chuck Grassley's questions said this: I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.  And I think that is a function of the fact that some of these institutions have become too large. First, it is absurd to think stopping illegal financial activity would harm the global economy.  What does Holder believe the financial crisis was, a help to the global economy?  Below is a video clip of the entire exchange between AG Holder and Senator Grassley.

The Government Has It Bass-Ackwards: Failing To Prosecute Criminal Fraud by the Big Banks Is Killing – NOT Saving – the Economy - U.S. Attorney General Eric Holder said today:  I am concerned that the size of some of these institutions [banks] becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. As we’ve repeatedly noted, this is wholly untrue. If the big banks were important to the economy, would so many prominent economists, financial experts and bankers be calling for them to be broken up?  If the big banks generated prosperity for the economy, would they have to be virtually 100% subsidized to keep them afloat? If the big banks were helpful for an economic recovery, would they be prolonging our economic instability? In fact, failing to prosecute criminal fraud has been destabilizing the economy since at least 2007 … and will cause huge crashes in the future.

“Some Of These Institutions Have Become Too Large” - Simon Johnson - In a recent interview with PBS’s Frontline, Lanny Breuer – head of the criminal division at the Department of Justice – appeared to admit that some financial institutions were too big to prosecute.  In the “too big to fail is too big to jail” controversy that ensued, lobbyists and other supporters of big Wall Street firms tried all kinds of complicated ways to spin Mr. Breuer’s words. Their job got a lot harder yesterday when Eric Holder, the attorney general, stated clearly to the Senate Judiciary Committee, “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,” (Watch the video for yourself.) According to Mr. Holder, speaking as the top enforcer of the country’s laws, “some of these institutions have become too large.” American Banker, a trade publication, called Mr. Holder’s statement a “stunning admission” and suggested this could mark a turning point in the debate about the size of very large financial institutions.

Does Dodd-Frank really end ‘too big to fail’?: With Romney’s defeat, the Dodd-Frank financial regulations are here to stay. But that doesn’t mean the debate over them is finished. Bloomberg View recently estimated that the law provides the equivalent of an $83 billion subsidy to the biggest banks — a figure questioned by Wonkblog here — and skeptical lawmakers quickly used the number as a cudgel against the reform.

“The bottom line is Dodd-Frank didn’t end too big to fail,” Rep. Jeb Hensarling, chairman of the House Committee on FInancial Services, told Fox Business News. “Dodd-Frank institutionalized and codified too big to fail.”To give a sense of where the current debates on Dodd-Frank and Too Big to Fail stand, I’m going to examine three of the most common questions debated among experts.

  • 1. What does it mean to end bailouts and Too Big To Fail?
  • 2. Does Dodd-Frank do too little, or too much?
  • 3. How much extra capital should banks hold, and what should it look like?

Fed’s Powell: Efforts To End ‘Too Big To Fail’ Promising, On Track - Efforts by U.S. regulators to end the idea of “too big to fail” financial firms are “promising” and should be given time to work, but more intrusive efforts to mandate a reduction in size of the biggest financial firms may eventually need to be considered, Federal Reserve governor Jerome Powell said Monday. Mr. Powell, speaking to a group of international bankers in Washington, said regulators have made progress through international capital agreements and the 2010 Dodd-Frank financial overhaul law to start down the path towards resolving the issue of “too big to fail.” But in a nod to the recent drumbeat from former regulators and lawmakers on both sides of the aisle about the ongoing risks posed by systemically important financial firms, he acknowledged that the issue hasn’t been resolved. “The too-big-to-fail reform project is massive in scope. In my view, it holds real promise. But the project will take years to complete. Success is not assured,” Mr. Powell said in prepared remarks.

Counterparties: Ending capital punishment - Tomorrow the Fed will release the first set of data from its stress tests. Bank execs will have to wait until next week to find out whether they’ll finally be allowed to return more capital to shareholders.Bloomberg’s Dakin Campbell and Hugh Son write that US banks may return $41 billion to investors over the next year, using the average of estimates from research analysts at Barclays, Credit Suisse, and Morgan Stanley. As David Benoit notes, this is a turnaround from last year, when Bank of America and Citi were forced to keep their payouts at a pro forma cent a share.Bank earnings rose 20% in 2012 and executives want to hand capital to shareholders, even if, as Benoit writes, they’re unlikely to return enough to drive major moves in bank stocks. Before they can do so, big banks must pass the Fed’s stress tests, which simulate two scenarios. Scenario 1 is six consecutive quarters of economic contraction with rising interest rates; Scenario 2 is 13% unemployment combined with a 52% fall in the stock market. Jesse Eisinger thinks Bank of America, for one, is being overoptimistic with respect to the amount of capital it’s showing regulators. He says that the bank has low-balled the amount money it has set aside to pay future legal settlements, despite continuing to face lawsuits related to its ill-fated acquisition of Countrywide.

Higher Bank Equity Is in the Public Interest - Simon Johnson  - In their important new book, “The Bankers’ New Clothes,” Anat Admati and Martin Hellwig challenge a cherished belief of people who run big banks: Equity is “expensive” and requiring banks to fund themselves with more equity (relative to their debts) will somehow slow the economy.  This is what we hear from top executives as their central argument in the pushback against financial reforms. Jamie Dimon, the chief executive officer of JPMorgan Chase & Co., for example, suggested last week: “I think all banks will have too much capital in two and a half years. And they’re not going to know what to do with it.” Their book, excerpts of which were published by Bloomberg View, dissects the bankers’ claims -- along with many of Dimon’s public statements -- in meticulous and often humorous detail.  Their bottom line is simple: The people who run banks will always want to have less equity, because this enables them to get more upside when times are good, and they can rely on various forms of government downside support when decisions go wrong. It is very expensive for the rest of us if banks fund themselves with so much debt and so little equity, because this creates a fragile and distorted financial system that doesn’t provide reliable support to the economy.

The Growing IT Mess at Big Banks - Yves Smith - There is a very useful and accessible article at BBC on the information technology hairballs and baked-in level of future problems at major banks. The article was prompted by widespread problems at NatWest this week in accessing accounts. It’s hard to manage large, complex IT installations when they require frequent feature changes and upgrades due to customer and regulatory requirements, plus (on the trading side) product innovation, but it is made vastly worse when it is treated like a stepchild, which is the attitude in most financial firms. Perhaps readers can add to the list, but the only firm I’ve ever worked with that treated IT as a strategic priority was O’Connor & Associates, which in its heyday ran the biggest private Unix network in the world and spent half its budget on technology. Even then, it had the usual trading firm problems of everyone wanting their work done yesterday and not wanting to spend any money on documenting the work the developers did (which would have added 20% to the development costs but lowered lifetime costs). What is not sufficiently well recognized is that IT risks are a not-sufficiently-well-recognized source of systemic risk. We seem some recognition of that, in the emphasis firms place on having backup facilities that are kept in ready-to-go condition. But firms below the TBTF level can have costly, even catastrophic mistakes.

Filling a Fed Vacuum in Bank Supervision - Simon Johnson - President Obama should nominate Sheila Bair as vice chairwoman for supervision at the Federal Reserve. This position was created by the Dodd-Frank financial reform legislation (Section 1108 in Title XI) but has gone unfilled for nearly three years – clearly not in line with the intentions of legislators, who even specified that this official should testify before Congress on a semiannual basis. Ms. Bair is an experienced regulator, the former chairwoman of the Federal Deposit Insurance Corporation. She currently works as an effective advocate for financial reform as a senior adviser at the Pew Charitable Trusts, and she founded and is chairwoman of the Systemic Risk Council (I am a member of this council). No one has stronger bipartisan support and a better working relationship with reasonable people across Washington. There is now a potential vacancy on the Fed board, as Elizabeth Duke’s term as governor expired more than a year ago; she continues to serve until a successor is appointed. The reformist wing at the Fed desperately needs serious reinforcement.And the Federal Reserve itself faces a broader impending crisis of legitimacy if it fails to decisively confront the problem of too big to fail. Anyone who believes in the importance of an independent central bank should work hard to force the Fed to act decisively on big banks.

Fallout from ‘Untouchables’ Documentary: Another Wall Street Whistleblower Gets Reamed - Matt Taibbi - A great many people around the county were rightfully shocked and horrified by the recent excellent and hard-hitting PBS documentary, The Untouchables, which looked at the problem of high-ranking Wall Street crooks going unpunished in the wake of the financial crisis. The PBS piece certainly rattled some cages, particularly in Washington, in a way that few media efforts succeed in doing. (Scroll to the end of this post to watch the full documentary.) Now, two very interesting and upsetting footnotes to that groundbreaking documentary have emerged in the last weeks. The first involves one of the people interviewed for the story, a former high-ranking executive from Countrywide financial who turned whistleblower named Michael Winston. You can see Michael's segment of The Untouchables at around the 4:20 mark of the piece. The story Winston told during the documentary is essentially an eyewitness account of the beginning of the financial crisis.The other involves some of the comments made by the head of the Justice Department's Criminal Division, Lanny Breuer, who said (as he has on other occasions, including after the recent non-prosecutions of HSBC and UBS for major scandals) that his Justice Department has to weigh the financial consequences of bringing prosecutions.

Is the Justice Department Conspiring on the Libor Conspiracy - Just when one thinks the winks and nods between Washington and Wall Street couldn’t get any worse, there is growing evidence that the U.S. Justice Department knows that 20 banks engaged in the rigging of Libor but is intentionally delaying bringing charges against U.S. banks JPMorgan Chase and Citigroup. Evidence is also stacking up that while the largest banks in the world were under intensive investigation for rigging Libor, they continued to rig it, while regulators remain dumbfounded about what to do. And, in an Alice in Wonderland type of development, despite trillions of dollars of financial products resetting based on the Libor index, a key regulator says it’s become a fictional benchmark because the loans between banks that it’s based on have all but disappeared. Libor is an acronym for London Interbank Offered Rate. It is supposed to be a reliable reflection of the rate at which banks are making uncollateralized loans to each other according to their own submissions. If a trader knows in advance where Libor is to be set, he can make enormous trading profits for the proprietary trading desk (the desk that bets for the house) at big Wall Street firms and other global banks. According to hundreds of emails released by regulators, that is exactly what happened.

Senate Report Said to Fault JPMorgan - While a trader known as the “London whale” has come to represent a multibillion-dollar blowup at JPMorgan Chase, Congressional investigators have discovered that the problems involved more senior levels of the nation’s largest bank. A report by the Senate Permanent Subcommittee on Investigations highlights flaws in the bank’s public disclosures and takes aim at several executives, including Douglas Braunstein, who was chief financial officer at the time of the losses, according to people briefed on the inquiry. The report’s findings — scheduled to be released on March 15 — are expected to fault the executives for allowing JPMorgan to build the bets without fully warning regulators and investors, these people said. The subcommittee, led by Senator Carl Levin, could ask Mr. Braunstein and other senior executives to testify at a hearing this month, according to the people. The subcommittee does not currently intend to call the bank’s chief executive, Jamie Dimon, but Congressional investigators interviewed Mr. Dimon last year.

Treasury and Fed Officials Prevaricate Before Elizabeth Warren About Whether They Will Ever Get Tough With Banks - Yves Smith - It’s a good thing Elizabeth Warren seems to regard contending with uncooperative, evasive and obviously misleading witnesses as a form of sport. I’d want to punch them. Today Warren continued the line of questioning that she started in her first Senate Banking Committee hearing: what is it going to take to get someone in authority to come down hard on banks and bank executives? Given the time limits imposed on each Senator, she is forced to focus on relatively simple questions that will expose how regulators are craven and/or captured. This time, the point of departure was the settlement for HSBC’s money laundering, which was widely decried as inadequate.  As much as Warren came off well today, if you knew the history on this beat, the responses by the Treasury and Fed officials were dishonest and infuriating.  There is a big dead body in the room, namely, Standard Chartered’s settlement last year over Iran-related money laundering lasting over a decade. Warren keeps asking the officials what level of money laundering-related abuses would it take to get them to pull the license of a bank, or even hold hearings on revoking their license. We’ll discuss shortly how that issue was addressed. But the bottom line is the Treasury and Fed representatives made clear that this was something they would not entertain, and the Fed was remarkably direct in taking that position.

‘Regulatory Capture’ Emasculated The Regulators Of Megabanks - I almost felt sorry for David Cohen, the Treasury’s Under Secretary for Terrorism and Financial Intelligence, when Elizabeth Warren skewered him about the uncanny ways in which megabanks and their bankers dodge any kind of serious punishment even for terrible crimes that they’d been committing for years. Senator Warren set him up brutally during the Senate Banking Committee hearing (webcast). HSBC, one of the world’s largest banks, had admitted in December “to laundering $881 billion that we know of”—she said, leaving room to imagine what we don’t know of—“from Mexican and Colombian drug cartels and also admitted to violating our sanctions”—against Iran—“and they didn’t do it just one time... they were caught... and kept doing it.”HSBC settled these allegations for $1.92 billion before taxes (so perhaps $1.2 billion after taxes),  Alas, after charging that fine to its income for the year 2012, it still had a net profit of $13.5 billion: the fine for years of wrongdoing had dented its bottom line by half a quarter’s worth of net profit— So Senator Warren turned up the heat on the grill. “HSBC paid a fine but no individual was banned from the bank and there was no hearing to consider shutting down HSBC’s activities in the United States,” she said. “How many billions of dollars of drug money do you have to launder before someone will consider shutting down a bank?” Cohen, twitching on her skewer, did the best he could under the circumstances, offering that they took money laundering “very seriously,” and so on. She became testier and wanted him to draw a line in the sand, a crime that would be big enough for the bank to be shut down. Turns out, there was no crime that would be big enough.

Warren: Drug possession warrants jail time but laundering cartel money doesn’t? - Appearing at a Senate Banking Committee hearing Thursday, Sen. Elizabeth Warren (D-MA) grilled officials from the Treasury Department over why criminal charges were not filed against officials at HSBC who helped launder hundreds of millions of dollars for drug cartels.  “HSBC paid a fine, but no one individual went to trial, no individual was banned from banking, and there was no hearing to consider shutting down HSBC’s activities here in the United States,” Warren said. “So, what I’d like is, you’re the experts on money laundering. I’d like an opinion: What does it take — how many billions do you have to launder for drug lords and how many economic sanctions do you have to violate — before someone will consider shutting down a financial institution like this?”

A Sneaky Way to Deregulate - SLAPPING a catchy acronym like the JOBS Act on a piece of legislation makes it more difficult for politicians to oppose it — and indeed that’s what happened with the Jumpstart Our Business Startups Act. Unveiled a year ago by House Republican leaders, the proposal was rushed into law with large majorities just two months later; its provisions are gradually taking effect. Its enticing acronym notwithstanding, the JOBS Act has little to do with employment; it’s a hodgepodge of provisions that together constitute the greatest loosening of securities regulation in modern history. Most troublesome is the legalization of “crowd funding,” the ability of start-up companies to raise capital from small investors on the Internet. While such lightly regulated capital raising has existed for years, until now, “investors” could receive only trinkets and other items of small value, similar to the way public television raises funds. As soon as regulations required to implement the new rules are completed, people who invest money in start-ups through sites similar to Kickstarter will be able to receive a financial interest in the soliciting company, much like buying shares on the stock exchange.  Picking winners among the many young companies seeking money is a tough business, even for the most sophisticated investors. Indeed, most professionally run venture funds lose money. For individuals, it’s pure folly. Buy a lottery ticket instead. Your chance of winning is likely to be higher.

Opaque finance, again, and solutions - Steve Randy Waldman - There a few people whose work I more respect than Yves Smith at Naked Capitalism. She is a tireless researcher, remarkably immune to the bleary-eyed depression I experience when digging through the obfuscatory minutia of financial industry predation. I have and will continue to hold Smith in very high regard, whatever her regard for me. However, in a recent post, I think I have been treated unfairly. I think no fair reading of my financial opacity piece, alone or with its two followups, could characterize my position as “extoll[ing] deception and theft”. The first piece is not satirical, in the sense of advancing a position which its author does not hold. But it is hyperbolic and sardonic, in the sense of laughing into ones execution. I think it is true that the business of banking, in order to effectively perform its social function of mobilizing resources at scale, necessarily involves a degree of deception. It must work to persuade a variety of stakeholders that their claims are very close to risk-free when in fact they cannot all be. That a degree of deception, or at least obfuscation, is inherent to banking does not justify all possible misbehavior. If you must lie for some greater good, you are especially bound to put the proceeds of the lie towards the greater good, and not just run off with the cash. Nothing justifies the sort of looting to which no one has called attention more assiduously than Smith. However, the opacity built into the very structure of modern banking systems, irreducibly if they are to perform the work we now delegate to them, renders it nearly impossible to prevent the pillage. Far from hagiography, in my mind this thesis is bitter eulogy for the hope that a banking system like ours can be “reformed”. I think that we need to find other, very different, means of performing the functions that status quo banks currently perform, so that we can encourage the institutions that currently dominate to wither into obscurity. I know this is a tall order.

Policy wonks, pitchforks, and the contradictions of capitalism - Steve Randy Waldman - Yves Smith has asked, not entirely gently, that I reconcile differences in my outrage towards health-care chicanery and what she perceives as “a clever defense of abuses by the powerful” in the sphere of finance. This post is a second response; the first is here. In a nutshell, Smith wonders, why so much outrage for rapacious hospitals when I give a pass to rapacious banks? The premise of the question is mistaken. I’ve been writing interfluidity for about seven years, and precisely one post has been specifically devoted to health care. Mostly I’ve blogged about finance. Many, many of my posts about finance express outrage toward self-dealing and rapacity in finance, including both private sector banks and their public sector enablers. I’ve not been as prodigious or relentless a critic as Smith. No one on the planet has, and I mean that as a completely unalloyed compliment. But I can’t cop to the crime of giving finance a pass, and I don’t think any fair reader of this blog could characterize me as doing so. I hope that readers who wish to play judge and jury will read the posts that angered Smith, and check out many other posts as well. If you think my posts on opacity somehow mark a change in my politics or my views on finance, you are wrong.

Is financial risk becoming excessive again? - It is now almost universally accepted that the major central banks were woefully mistaken in ignoring the build up of credit risk in the years before 2008. Whether they should have acted through raising interest rates or by tightening regulations on the financial system is still under dispute, but the abject consequences of doing nothing are plain for all to see. This has naturally made policymakers very determined not to make the same mistake again. But they are also aware that they do not want to be a group of generals focused on winning the last war. In the past, these decisions have not proved easy to make in real time. Consequently, a great deal of recent research has been aimed at doing better in future. The Fed has been in the front line of this work, but the Bank for International Settlements has joined in with some very valuable insights and empirical work, led by Claudio Borio. Although there is clearly a very active exchange of views occurring at the Fed, the bottom line for investors is that restrictive monetary action in the US, in response to a build up of excessive financial risk, is not likely for quite some time.

SEC shares expertise with FBI on algorithmic trading (Reuters) - Examiners at the U.S. Securities and Exchange Commission who specialize in computerized trading strategies have started sharing their expertise with the Federal Bureau of Investigation. In recent months, representatives from the FBI as well as other regulatory agencies have met with members of the SEC's Quantitative Analytics unit, an SEC spokesman said. Launched in 2011, the Quantitative Analytics unit is housed within the SEC's Office of Compliance, Inspections and Examinations. It is staffed by computer trading experts and math gurus who help gather data, identify risks and target examinations of investment advisers for hedge funds and other firms. "Our Quantitative Analytics Unit consists of specialized examiners with PhDs and extensive backgrounds in mathematics, physics, and computer science," SEC spokesman Kevin Callahan said. "They play a key role in examinations of the most sophisticated algorithmic trading firms and other investment advisers. The unit shares its expertise in this area with other regulatory agencies and participates in conferences to increase the dialogue with financial firms and other regulators."

Promises, Promises at the New York Fed - TWO weeks ago, I wrote a column about a secret agreement struck in July 2012 by the Federal Reserve Bank of New York and Bank of America. The existence of the confidential deal was disclosed recently in court filings, which showed the New York Fed releasing Bank of America from all fraud claims on mortgage securities the Fed had bought as part of the government’s rescue of the American International Group in 2008. A.I.G., which is suing Bank of America to recover losses it suffered on those securities, has calculated the value of the fraud claims at $7 billion.  Late on Thursday, a copy of the actual agreement came to light. It was filed by Bank of America in a California court that is hearing the matter of who owns those fraud claims — A.I.G. or the New York Fed. The agreement was also filed by the New York Fed in a related lawsuit in the Southern District of New York, where the New York Fed asked that the court keep the agreement under seal.  A reading of the document makes it clear why.  The agreement spells out the terms of a deal in which the New York Fed received $43 million from Bank of America’s Countrywide unit. The money changed hands to settle a narrow dispute involving cash flows on several mortgage securities held by an investment vehicle, known as Maiden Lane II. The previously confidential agreement released Bank of America from all litigation claims on the securities held by Maiden Lane II.  But in exchange for that $43 million, the New York Fed did something else for Bank of America. It agreed to testify on behalf of the bank in its legal battle against A.I.G. over fraud claims.

Wall Street selling junk bonds at record pace - Wall Street banks are selling junk bonds at a record pace — raising concerns they are selling debt that may be poised to lose value. The banks spent more than $93 billion dealing with costs from the 2008 credit crisis, including lawsuits and fines for allegedly misleading investors about mortgage-backed products. This time is different, bankers say. Wall Street banks have underwritten $89.6 billion of high-yield debt so far this year, up 36 percent from the same period in 2012, according to data compiled by Bloomberg. Last year’s $433 billion of sales was an all-time high for the asset class and produced about $6 billion in fees, the data show. JPMorgan Chase, Deutsche Bank Citigroup and Bank of America are leading firms benefiting from growth in a market where the average underwriting fee is almost three times as big as for selling more creditworthy bonds.

Corporate Profits Are Eating the Economy - Here are two things that are true about the economy today.
(1) The Dow Jones industrial average is poised to set a new record as corporate profits stretch to all-time highs.
(2) There are still fewer working Americans today than there were before the start of the Great Recession.
The fact that these two things can be true at the same time might outrage you. But it shouldn't surprise you. In the last 30 years, there has been a great divergence between growth and workers' incomes, as the New York Times reminds us today. Corporate profits have soared, in the last decade especially, particularly because of three things: Globalization has pushed down the cost of labor available to multinational corporations; technology has allowed companies to make more with fewer workers, in general; and Big Finance has gobbled up the economy, as the banks' share of total corporate profits has tripled to about one-third since the middle of the last century, according to Evan Soltas. Here's the short story of corporate profits, GDP, and workers' income since the Great Recession. As you can see, corporations rode a wild roller coaster, but they quickly found their way back on top. GDP has been sluggish and overall labor income has struggled to keep up with even that sluggish pace.

Corporate Profits Soar as Worker Income Limps -  With the Dow Jones industrial average flirting with a record high, the split between American workers and the companies that employ them is widening and could worsen in the next few months as federal budget cuts take hold.  That gulf helps explain why stock markets are thriving even as the economy is barely growing and unemployment remains stubbornly high. With millions still out of work, companies face little pressure to raise salaries, while productivity gains allow them to increase sales without adding workers.  “So far in this recovery, corporations have captured an unusually high share of the income gains,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “The U.S. corporate sector is in a lot better health than the overall economy. And until we get a full recovery in the labor market, this will persist.”

As Dow Sprints to New High, the Middle Class and Manufacturing Languish - Yves Smith - It’s hard to fathom the celebratory mood in the US markets, save that the moneyed classes are benefitting from a wall of liquidity reminiscent of early 2007, when risk spreads across virtually all types of lending shrank to scarily low levels. Then the culprit was not well understood, although Gillian Tett discerned that CDOs were a huge source of leverage, and in April 2007, an analyst, Henry Maxey at Ruffler, LLC, did an impressive job of piecing together how levered structured credit strategies were driving market liquidity.  Now it’s a lot easier to see what is afoot. The Fed has been trying to reflate asset values to goose the real economy. What it has done instead is goose the incomes of the top 1% while everyone else is on the whole worse off. But the central bank is suffering from a very bad case of “if the only tool you have is a hammer, every problem looks like a nail” syndrome. It’s unwilling or unable to admit that its program is working only for a very few. It has convinced itself that if it just keeps on the same failed path long enough, things will turn around. As we can see from Japan, “long enough” can exceed 20 years, and it is not clear that the latest Japanese pump priming will finally pull the economy out of the ditch.

When Nudges Fail: Slippery Defaults - Now that my last few posts have bludgeoned consumer financial education and at least bloodied disclosure, and given that my suggestion of comprehension requirements is completely untested as a means of consumer protection for financial products, what about “nudges”?   One nudge I have taken a close look at is the use of policy defaults. Defaults are settings or rules about the way products, policies, or legal relationships function that apply unless people take action to change them. Although some defaults in the law are mere gap-fillers and others penalize one or more parties with the intention that the parties will contract out of them, policy defaults aim for stickiness. The idea behind policy defaults is to set the default to a position that is good for most individuals, under the assumption that only the minority who have clear preferences to the contrary will opt out.   The poster child for policy defaults is automatic enrollment in employer 401k retirement savings plans, which has boosted participation dramatically. But how broadly applicable are the results obtained from the retirement savings automatic enrollment default? My research shows that policy defaults may not be as effective in increasing welfare as many have hoped, in at least two respects. First, defaults created by the law are not always sticky, and can even be slippery. Second, those who opt out are not consistently the ones who are better off outside of the default. 

Payday Loans Are Bad Enough Without Banks Getting Into the Act -- Consumers who use online payday lenders may be taken advantage of twice: first, by the lenders’ triple-digit interest rates that flout state caps, then with fees tacked on by the borrowers’ own banks.  A new report published last week by the Pew Charitable Trusts states that while consumers often turn to payday lenders in order to avoid writing bad checks or getting hit with overdraft fees, in many cases customers wind up paying overdraft and payday loan fees. “Although payday loans are often presented as an alternative to overdrafts, most payday borrowers end up paying fees for both,” the report states. The payday lenders make out, the banks make out — and the losers are their customers. The fees can add up especially quickly and snowball when banks refuse to block payday lenders from accessing borrowers’ accounts — which can then trigger overdraft fees from the bank.

Banks Pass Fed’s Tests; Critics Say It Was Easy -Four years after the financial crisis, federal regulators said that many of the nation’s largest banks were better prepared to sustain future market shocks, paving the way for the healthiest institutions to increase their dividends and buy back shares. The results of so-called stress tests, released on Thursday by the Federal Reserve, indicate that most large banks would survive a severe recession and a crash in the markets. The tests, which measured a bank’s capital levels during adverse conditions, help validate the government’s efforts to shore up the financial systems.But some analysts contend that the Fed was still too lenient with the banks. The stress tests, they argue, underestimate potential losses and the effects of several major financial firms collapsing, which can paralyze the entire system.

Results of Fed’s Stress Tests of Banks - In the stress tests, the Federal Reserve examined how the biggest U.S. banks would fare in various economic scenarios, an exercise required under the 2010 Dodd-Frank financial overhaul. Below are the Fed’s estimates for the minimum capital ratios the banks would see in the “severely adverse” economic scenario (1). Click any column to re-sort.

Unofficial Problem Bank list declines to 808 Institutions - Here is the unofficial problem bank list for Mar 1, 2013.  Changes and comments from surferdude808:  There was only one removal this week to the Unofficial Problem Bank List. After removal, the list holds 808 institutions with assets of $298.1 billion. From last week, assets fell by $4.7 billion with $4.0 billion of the decline in assets during the fourth quarter. A year ago, the list held 959 institutions with assets of $385.4 billion. According to an SEC filing, the FDIC terminated the action against Bank of Granite, Charlotte, NC ($717 million Ticker: FNBN). This week the FDIC issued industry results for the fourth quarter including an update on the Official Problem Bank List. While the FDIC does not disclose institutions on the official list, they provided an institution count of 651 with assets of $233 billion. During the quarter, the official list declined by 43 institutions and assets dropped $29 billion. Since the last FDIC release, the unofficial list declined by 66 institutions and assets dropped $36.9 billion. After the FDIC released problem bank figures for the second quarter of 2010, the unofficial list has been higher since while it was lower at the time of prior quarterly releases. The upside tracking difference peaked at 185 institutions and assets of $72.6 billion when second quarter of 2012 figures were released. With the current release, the differences have been reduced to 157 institutions and assets of $65.0 billion.

Congressmen Criticizing OCC Mortgage Settlement, While More Misrepresentations and Coverups Emerges - Yves Smith - Last week, the Wall Street Journal publicized that the OCC cooked the books in its incredible claim that only 4.2% of the files examined in the recently shuttered foreclosure reviews showed harm. It looked like a case of lying with statistics, in that the Journal noticed that they had cited a higher error rate at the time of the settlement (6.5%), and then added a bunch of JP Morgan completed reviews to the sample. And that’s before you get to the fact, as Dave Dayen stressed, “The numbers reported by the banks to OCC merely reflect how successful they were at controlling the review process and limiting the finding of borrower harm.” He contrasted the simply miraculous error rate claimed by JP Morgan of 0.6% when a small sample examined by the HUD inspector general found a 97.2% error rate.  The Journal today stresses that a lot of Democratic congressmen are unhappy about the botched settlement process but are unlikely to do more than beef because the new Comptroller of the Currency, Tom Curry, was selected by Obama. Huh? This is his first major act in office and it’s a disaster. He was presented with a mess, but as we’ll discuss below, he played his hand badly.  But the more people poke at the settlement, the more creepy crawlies emerge. Tonight, the New York Times tells us that the banks ‘fessed up that they foreclosed improperly on 700 active duty servicemembers. The reason this is a big deal is that in 2011, the Veterans Affairs Committee got wind of these violations of laws dating back to World War I on prohibitions against foreclosures actions against active duty soldiers.  But it turns out the bank lied in a major way back then as to how many servicemembers they had foreclosed on illegally.

SCRA and Foreclosures -- The more we learn about the mortgage servicing settlement, the more rotten it's looking. I really didn't think it was possible, but this piece in the New York Times details more problems, including with Servicemembers Civil Relief Act (SCRA) violations in the form of foreclosures on active duty military members.   I'm still trying to wrap my head around how mortgage servicers have been violating SCRA. This should be one of the easiest darn things for servicers to comply with. The Department of Defense runs a free SCRA database. It's really easy to run a SCRA check prior to commencing a foreclosure. The total transaction costs of doing the search are virtually zero--a couple minutes of time from a high school graduate is all that is necessary.  The fact that this doesn't seem to have happened in way too many cases is a sign of how bad compliance has been in the servicing space.

To serve and protect … banks? - Imagine that you’re serving at a forward operating base in Afghanistan. You’ve been in country nine months, coping with hazardous and punishing conditions, trying to survive and return to your family. Then you get a call from your spouse that they’re about to be evicted from the family home. The sense of anxiety is acute, and so is the feeling of helplessness – you’re thousands of miles away, focused on your mission, and you’re wracked with regret and guilt, unable to protect your family from the tragedy and shame of foreclosure. This has happened at least 700 times to service members on missions overseas since the beginning of the foreclosure crisis in 2008. And it’s actually illegal; it violates the Servicemembers Civil Relief Act, a statute that carries criminal penalties. The nation’s biggest banks have admitted to the conduct before Congress and in regulatory filings, and they only recently acknowledged that they illegally foreclosed on 10 times as many service members as they previously claimed. Any serious effort to hold banks accountable for routine abuse of homeowners should include prosecutions of this execrable behavior. But the government rolled out settlements years before the true depth of these violations ever began to come to light.

Even American Banker is Savaging the OCC’s Mortgage Settlement - Yves Smith - I couldn’t bring myself to dial into a conference call with the OCC yesterday the details on the payout of the mortgage settlement, figuring the propaganda to information ratio would be unacceptably high. That decision appears to have been correct, based on a new American Banker article, since I read between the lines that they at most summarized documents released last week.  It’s clear the OCC is winging details it should have nailed down before settling. The excuse it offered in shutting down the consultant reviews was that they’d be able to get money to wronged homeowners faster. But since we have no payout date for this improvised procedure, it ins’t clear how much of a benefit the banks will get on this front. And homeowners were much more interested in getting a hearing of their case and an appropriate payout. Of course, the whole procedure was so stacked against them that only the most egregious cases had any hope of meaningful restitution.

Why the Independent Foreclosure Reviews Were Doomed to Fail - Apparently part of the bank flaks' talking points regarding the foreclosure reviews is that to the extent homeowners harmed by wrongful foreclosures, they were actually drug dealers. The message: we didn't foreclose on anyone who didn't deserve it. We were just foreclosing on some scumbags and doing you all a favor by getting the meth lab out of the neighborhood before it blew up. We're part of the war on drugs.  This talking point is particularly revealing, I think, both about how seriously our largest financial institutions take sanctity of contract, and about the nature of the whole independent foreclosure review sham.   Running a meth lab in your basement may be an event of default on a mortgage--but if that's going to be the default that triggers a foreclosure, the bank is going to have to prove that you've been running a meth lab on the property. The lender's relationship with the borrower is contractual, not moral. If the borrower does something morally objectionable, it only matters if there is a breach of the contract. If sanctity of contract matters as a social principle, then even meth lab owners rights' must be respected. We have criminal forfeitures to the government, but that doesn't result in civil forfeitures to private lenders other than pursuant to contract. We've seen this vigilante foreclosure line before

Whistleblower: Wells Fargo Fabricated and Altered Mortgage Documents on a Mass Basis - Yves Smith - Wells Fargo, like most of the major mortgage servicers, has claimed that it had a “rigorous system” to insure that mortgage documents were accurate and complete. The reason this mattered was that there was significant evidence to the contrary. Foreclosure defense attorneys found repeatedly that, for securitized mortgages, the servicer or foreclosure mill attorney would present documents to the court that failed to show the borrower’s note (a promissory note) had been transferred properly to the trust. This mattered not only on a borrower level, but indicated that originators of the mortgage securitizations hadn’t bothered transferring the notes properly to the trusts that were to hold them. This raised the ugly specter of what was called “securitization fail,” that investors had been sold securities that they had been told were mortgage backed when they might in practice not be.  The robosiging scandal was merely the tip of the iceberg of mortgage and foreclosure problems that resulted from the failure to adhere to the requirements of well-settled state real estate law. The banks maintained that there was nothing wrong with mortgage ownership or with the records. All they had were occasional errors and some unfortunate corners-cutting with affidavits. If they merely re-executed all those robosigned documents, all would be well.Wells Fargo’s own actions say the reverse. It has been doctoring documents in house for over fifteen months for borrowers who are targeted for foreclosure. It was having this sort of work done outside the bank for an unknown period of time prior to that.

The Fannie Mac Daddy: Fannie Freddie To Merge Select Operations - In what we are sure will be a BLS job creating moment, Fannie Mae and Freddie Mac will create a common platform for issuing MBS as they wind down operations and plan for a future in which the two companies no longer exist. Big is about to get bigger as Bloomberg reports, these two GOEs will start sharing risk with private financiers in the single-family loan market. FHFA head Ed DeMarco comments that they are beginning to move to a "post-conservatorship world," though we assume still as explicitly and implicitly guaranteed by the good taxpaying public of America. The merger and creation of a joint securitization company with the goal of executing $30bn each in transactions partnered with the private sector will attempt to reduce that taxpayer load and "ease the transition from where we are today to wherever lawmakers decide the country ought to ultimately go."

Will Reform of Fannie and Freddie Kill the 30-Year Mortgage? - But remember Fannie Mae and Freddie Mac? You know, the once quasi-independent housing giants whose takeover by the federal government has cost taxpayers upwards of $190 billion thus far? Well, Fannie and Freddie are still owned by the federal government and, on top of that, are the only thing holding the U.S.’ badly battered housing-finance system together, as the Feds back 9 out of 10 mortgages issued today. Last week the Bipartisan Policy Center — a think tank formed by former Senate Majority Leaders Howard Baker, Tom Daschle, Bob Dole, and George Mitchell — tried to bring this very important issue back to the fore by releasing a 131-page report on the future of housing policy in America. Their solution is to wind down Fannie Mae and Freddie Mac by slowly selling off their assets to the private sector as the economy improves. In their place, the government would create a public guarantor of mortgages, sort of like what Ginnie Mae does for FHA and VA loans now. This guarantor would not purchase mortgage-backed securities as Fannie Mae and Freddie Mac do now; rather it would simply insure mortgages in case of default, and charge a fee to do so. The BPC framework would also require issuers of mortgage-backed securities to purchase private insurance, so that the government guarantor would only have to step in in the case of a total real estate market meltdown, similar to the one we experienced in 2008.

Fannie Mae Mortgage Serious Delinquency rate declined in January, Lowest since early 2009 - Fannie Mae reported that the Single-Family Serious Delinquency rate declined in January to 3.18% from 3.29% in December 2012. The serious delinquency rate is down from 3.90% in January 2012, and this is the lowest level since March 2009.  The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.. Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".  Although this indicates some progress, the "normal" serious delinquency rate is under 1%.  At the recent pace of improvement, it will take several years until the rates are back to normal

Freddie Mac Mortgage Serious Delinquency rate declined in January, Lowest since mid-2009 - Freddie Mac reported that the Single-Family Serious Delinquency rate declined in January to 3.20% from 3.25% in December 2012. The serious delinquency rate is down from 3.59% in January 2012, and this is the lowest level since mid-2009.  The Freddie Mac serious delinquency rate peaked in February 2010 at 4.20%. Fannie Mae reported earlier that the Single-Family Serious Delinquency rate declined in January to 3.18% from 3.29% in December 2012   These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

LPS: Mortgage Delinquencies decline in January, "Non-Judicial States’ Pipeline Ratios Extending Due to Legislative, Legal Actions" - LPS released their Mortgage Monitor report for January today. According to LPS, 7.03% of mortgages were delinquent in January, down from 7.17% in December, and down from 7.67% in January 2012.  LPS reports that 3.41% of mortgages were in the foreclosure process, down from 3.44% in December, and down from 4.23% in January 2012.  This gives a total of 10.44% delinquent or in foreclosure. It breaks down as:
• 1,974,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,531,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,703,000 loans in foreclosure process.
For a total of ​​5,208,000 loans delinquent or in foreclosure in January. This is down from 6,082,000 in January 2012. This following graph from LPS shows Foreclosure Starts and Foreclosure Sales.From LPS: The January Mortgage Monitor report released by Lender Processing Services found significant differences continue in foreclosure pipelines between states with judicial and non-judicial foreclosure processes. Though both foreclosure starts and sales rates have been relatively volatile at the national level due to the effects of regional processes and compliance issues, the foreclosure inventory in judicial states remains three times that of non-judicial states. However,  even this now-familiar judicial/non-judicial dichotomy is not as clearly defined as it once was. “On average,” Blecher said, “pipeline ratios – the rate at which states are currently working through their existing backlog of loans either in foreclosure or serious delinquency – are almost twice as high in judicial states than non-judicial states. At today’s rate of foreclosure sales, it will take 62 months to clear the inventory in judicial states as compared to 32 months in non-judicial states. A few judicial states – New York and New Jersey in particular – have such extreme backlogs that their problem-loan pipelines would take decades to clear if nothing were to change.

State high court rules big foreclosure trustee broke consumer law - The state Supreme Court on Thursday ruled that one of the West Coast’s major players in the foreclosure industry violated the state consumer-protection law by falsely notarizing legal documents and not considering requests to delay the auction of a Whidbey Island home.  The court, overturning an appeals court’s decision, instructed a King County Superior Court judge to issue an injunction against foreclosure trustee Quality Loan Service.  Quality “has demonstrated little understanding or regard for Washington law,” wrote Justice Tom Chambers. Foreclosure trustees are not simply agents for the lender, the court wrote. “The power to sell another person’s property, often the family home itself, is a tremendous power to vest in anyone’s hands,” Chambers wrote. The law “requires that trustee to be evenhanded to both sides and to strictly follow the law.”

Foreclosures' Silver Lining: They Could Restrain Rent Inflation - Dallas Fed - Recent economic indicators suggest that the worst of the housing crisis has passed, with home sales and prices reaching bottom in 2012. Construction, housing prices and homeowner’s equity show early signs of resumed growth. While these signs are encouraging, a notable disconnect has emerged. Rental inflation has surpassed historic levels despite a supply of housing that partly reflects a persistent inventory of foreclosed, vacant homes. Several impediments have hindered a market-based resolution to the crisis’ lingering effects. Among them, individuals have found mortgages hard to come by due to tougher credit standards, and investors interested in bulk purchases have encountered owners unwilling to enter into these types of sales.

Existing Home Inventory is only up 3.4% year-to-date in early March - 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 early March - it appears inventory is increasing at a sluggish rate. Housing Tracker reports inventory is down -23.2% compared to the same week in 2012 - still falling fast year-over-year.

MBA: Mortgage Applications Increase Sharply in Latest Weekly Survey - From the MBA: Mortgage Applications Increase as Rates Drop in Latest MBA Weekly Survey The Refinance Index increased 15 percent from the previous week and was at its highest level since mid-January. The seasonally adjusted Purchase Index also increased 15 percent from one week earlier and was at its highest level since the week ending February 1. ...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.70 percent from 3.77 percent, with points decreasing to 0.39 from 0.48 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.The first graph shows the refinance index. There has been a sustained refinance boom for over a year, and 77 percent of all mortgage applications are for refinancing. Refinance activity will probably slow in 2013. The second graph shows the MBA mortgage purchase index. The 4-week average of the purchase index has generally been trending up (slowly) over the last six months.

No down payment? No problem - You probably thought nothing-down mortgage loans disappeared in the wake of the American subprime lending crisis, which has ensnarled much of the world in a credit crunch.  They didn't. Even more surprising, many Americans can still buy homes with nothing down thanks in large part to the federal government and a legal loophole that lets builders and bankers ensure a steady stream of asset-challenged borrowers for taxpayer-insured loans. With quietly expanded powers, the Federal Housing Administration is already offering the next-best thing to nothing down on a house: a payment of just 3.0 percent will get practically any American with a pulse and a job a mortgage of up to $729,000, at least until the end of this year.But for those who lack the wherewithal to put even a little skin in the game, there's a workaround: a not-for-profit organization can give prospective buyers the teensy downpayment. The spigot is wide open. Of the 180,881 loans that the FHA insured in the first half of fiscal 2008, 36.7 percent, or 66,337, were seller-funded. With home builders and sellers desperate to make sales in a slowing real estate market, this percentage is likely to grow.

The NINJAs Are Back: Buy Life Insurance, Get A No Doc Mortgage Loan For Free -  First we got GM subprime interest-free car loans,  then we got subprime ABS securitizations, then we got soaring student loan defaults and delinquencies, then we got the opportunity to sell and short student loan exposure, and now, finally, the credit bubble is complete as FastFunds Financial Corporation is proud to announce that it has acquired exclusive mortgage servicing rights for an "Innovative New Mortgage Product." Why is it so innovative? Because it requires no credit verification, no credit history, no docs and needs no personal guarantees. In other words, it is the very worst of the worst lending practices we saw in 2006: the NINJA.

Update: Seasonal Pattern for House Prices - There has always been a clear seasonal pattern for house prices, but the seasonal differences have been more pronounced in recent years.  Even in normal times house prices tend to be stronger in the spring and early summer than in the fall and winter. Recently there has been a stronger than normal seasonal pattern because conventional sales are following the normal pattern (more sales in the spring and summer), but distressed sales (foreclosures and short sales) happen all year. So distressed sales have had a larger negative impact on prices in the fall and winter. However, house prices - not seasonally adjusted (NSA) - have been pretty strong over the last few months - at the start of the normally weak months.This graph shows the month-to-month change in the CoreLogic and NSA Case-Shiller Composite 20 index since 2001 (both Case-Shiller and CoreLogic through December). The seasonal pattern was smaller back in the early '00s, and increased since the bubble burst. The CoreLogic index was positive in both the November and December reports (CoreLogic is a 3 month weighted average, with the most recent month weighted the most). Case-Shiller NSA turned negative month-to-month in the October report (also a three month average, but not weighted), but was only slightly negative in November and turned positive in the December report. This shows that the "off-season" for prices has been pretty strong this year. The second graph shows the seasonal factors for the Case-Shiller composite 20 index. The factors started to change near the peak of the bubble, and really increased during the bust.

CoreLogic: House Prices up 9.7% Year-over-year in January -  This CoreLogic House Price Index report is for January. The recent Case-Shiller index release was for December. Case-Shiller is currently the most followed house price index, however CoreLogic is used by the Federal Reserve and is followed by many analysts. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic Home Price Index Rises by Almost 10 Percent Year Over Year in January. Home prices nationwide, including distressed sales, increased on a year-over-year basis by 9.7 percent in January 2013 compared to January 2012. This change represents the biggest increase since April 2006 and the 11th consecutive monthly increase in home prices nationally. On a month-over-month basis, including distressed sales, home prices increased by 0.7 percent in January 2013 compared to December 2012. The HPI analysis shows that all but two states, Delaware and Illinois, are experiencing year-over-year price gains.

US Home Prices Rose by Most in Nearly 7 Years - U.S. home prices jumped in January, a sign the housing market is gaining momentum as it nears the spring selling season. Home prices rose 9.7 percent in January from a year ago, according to data released Tuesday by CoreLogic. That’s up from an 8.3 percent increase in December and the biggest annual gain since April 2006. Prices rose in all states except Delaware and Illinois. And prices increased in 92 of the 100 largest metro areas, up from 87 in December. Home prices also rose 0.7 percent in January from December. That’s a solid increase given that sales usually slow over the winter months. Rising demand combined with fewer available homes is pushing up prices. Sales of previously owned homes ticked up in January after rising to their highest level in five years in 2012, according to the National Association of Realtors. At the same time, inventories of homes for sale fell to a 13-year low. The states with the biggest price gains were Arizona, where prices rose 20.1 percent, followed by Nevada, with 17.4 percent, and Idaho, with 14.9 percent. California and Hawaii rose 14.1 percent and 14 percent, respectively. The cities with the biggest gains were Phoenix, Los Angeles, Riverside, Calif., New York, and Atlanta.

Home prices surged 9.7% in January, the highest annual increase in almost 7 years as housing recovery strengthens - CoreLogic reported  today that its repeat-sales Home Price Index (HPI), based on sale prices for the same homes over time, posted a 9.7% year-over-year gain in January (including distressed sales), which was the largest annual increase in home prices nationwide in almost seven years, going back to April 2006 (see chart above).  The January gain was the eleventh consecutive monthly increase in national home prices on a year-over-year basis starting in March of last year. The last time there were 11 back-to-back monthly increases in year-over-year home prices was in 2006.  Excluding distressed sales, CoreLogic reported that national home prices increased annually by 9.0% in January. At the state level, there were six states that experienced double-digit gains in January home prices (including distressed sales): Arizona (20.1%), Nevada (17.4%), Idaho (14.9%), California (14.1%), Hawaii (10.7%), and Utah (10.1%). Looking forward one month, the CoreLogic Pending Home Price Index predicts that home prices in February will match January’s gain with another 9.7% increase in the HPI on an annual basis.

Trulia: Asking House Prices increased in February, Inventory not expected to bottom in 2013 - Press Release: Trulia Reports Asking Home Price Gains Accelerating While Housing Inventory No Longer in Free Fall  - Since bottoming 12 months ago, national asking home prices rose 7.0 percent year-over-year (Y-o-Y) in February. Seasonally adjusted, asking prices also increased 1.4 percent month-over-month (M-o-M) and 3.0 percent quarter-over-quarter (Q-o-Q) – marking two post-recession highs. Asking prices locally are up in 90 of the 100 largest U.S. metros, rising fastest in Phoenix, Las Vegas, and Oakland. Meanwhile, rent increases are slowing down. In February, rents rose just 3.2 percent Y-o-Y. This is a notable decrease from three months ago, in November, when rents were up 5.4 percent Y-o-Y. Among the 25 largest rental markets, rents rose the most in Houston, Oakland, and Miami, while falling slightly in San Francisco and Las Vegas.  More on inventory from Jed Kolko, Trulia Chief Economist: Rising Prices Mean Falling Inventory … in the Short Term - In the short term, less inventory leads to higher prices, which leads to less inventory, and so on. But the inventory spiral can’t go on forever because eventually rising prices will encourage homeowners to sell and builders to build, which add to inventory and breaks the spiral. How long until inventory turns positive, rather than becoming just less negative? ... it could be at least another year until national inventory starts expanding. Of course, inventory will probably turn up this spring and summer because of the regular seasonal pattern, but the underlying trend will be less inventory than is typical for each season, not more.

US Housing: Is the Recovery Real? - There’s no doubt that housing prices are going up. According to Corelogic, home prices have risen nearly 10 percent in the last year. And sales have been improving, too. In fact, in the last year alone, sales for new “single-family” homes are up 28.9 percent (437,000 homes) while sales for existing homes have increased by 9.1 percent year-over-year. (4.92 million units) At the same time, inventory is at a 13-year low, which is pushing prices even higher. Across the country, inventory is down 25.3 percent, but it’s much worse in some of the nation’s hotter markets. So, if sales and prices are going up, and inventory is shrinking, then how can anyone dispute that housing is finally recovering? While it’s true that the data don’t lie, it’s also true that there’s more in the data than meets the eye. For example, did you know that there are currently 9.8 million vacant housing units in the US, but only 1.74 million of those homes are listed for sale on the MLS? That’s less than 20 percent of the total. So where did the rest of the homes go? Did they just vanish into the ether or are they being kept off the market for some other reason, like to keep prices artificially high?

Bloomberg Businessweek: Why Are All These Colored People Wrecking Everything Again?: Have you heard the news? The housing crisis is over! Instead, minorities are rolling around in houses full of cash. It is craziness! This must be the case, because it’s all over the cover of Businessweek, and they have never had an inappropriate cover before. What are these crazy Individuals Of Color doing with all that money? They are only going to mess everything up again! Look at the barefoot black man with the fistful of dollars and the crazed look in his eye — you think he’s going to be spending that wisely? How about the weird black lady drooling into a cereal bowl upstairs? “What could possibly go wrong?” it says, and we believe it! Everybody knows minorities caused the last housing bubble, with their whole “believing banks who were intentionally screwing them” and all. Now they have cash by the houseful, and they are going to do it again! Say it ain’t so. Actually… it… ain’t so? What’s going on? Apparently, the story that goes along with this cover is called “A Phoenix Housing Boom Forms, in Hint of U.S. Recovery,” though you can’t blame them for changing that for the front, since it is a perfect example of a really, really boring headline. Also really, really boring? The story!

The Great Senior Sell-Off Could Cause the Next Housing Crisis - Demographers often describe the baby boom generation as if it were an indigestible mammal – maybe a pig, or a rabbit, or a really big rat – slowly moving through the python that is America’s population. In the coming years, baby boomers will be moving on (inching further through the python, if you will). “They will want to sell their homes, and they’re hoping there are people behind them to buy their homes,” says Nelson, director of the Metropolitan Research Center at the University of Utah. He expects that in growing metros like Atlanta and Dallas, those buyers will be waiting. But elsewhere, in shrinking and stagnant cities across the country, the story will be quite different. Nelson calls what’s coming the “great senior sell-off.” It’ll start sometime later this decade (Nelson is defining baby boomers as those people born between 1946 and 1964). And he predicts that it could cause our next real housing crisis. We can predict the next housing crash, and that’ll be in about 2020. “Ok, if there’s 1.5 to 2 million homes coming on the market every year at the end of this decade from senior households selling off,” Nelson asks, “who’s behind them to buy? My guess is not enough.”

Fed's Q4 Flow of Funds: Household Mortgage Debt down $1.2 Trillion from Peak - The Federal Reserve released the Q4 2012 Flow of Funds report today: Flow of Funds.  According to the Fed, household net worth increased in Q4 compared to Q3 2012, and is up 9% from Q4 2011. Net worth peaked at $67.4 trillion in Q3 2007, and then net worth fell to $51.4 trillion in Q1 2009 (a loss of $16 trillion). Household net worth was at $66.1 trillion in Q4 2012 (up $14.7 trillion from the trough, but still down $1.3 trillion from the peak). The Fed estimated that the value of household real estate increased $447 billion to $17.6 trillion in Q4 2012. The value of household real estate is still $5.0 trillion below the peak.This graph is the Households and Nonprofit net worth as a percent of GDP. This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations. This graph shows homeowner percent equity since 1952. Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008. In Q4 2012, household percent equity (of household real estate) was at 46.6% - up from Q3, and the highest since Q1 2008. This was because of both an increase in house prices in Q4 (the Fed uses CoreLogic) and a reduction in mortgage debt. The third graph shows household real estate assets and mortgage debt as a percent of GDP

Snapshot: Household and Corporate Finances -Data released by the Federal Reserve shows that household sector debt outstanding rose at a 2.5% annual pace in the last quarter of 2012. It was the first time since the beginning of the recovery that household debt didn’t fall as a percentage of GDP. Households had been steadily de-leveraging until the most recent quarter. Debt to GDP remains 15 percentage points below its level at the peak of the cycle and those levels will not likely be seen again soon. Total borrowing by the household sector also increased in the fourth quarter, indicating that the household sector is willing to take on additional debt in this very low interest rate environment. In terms of net worth (assets minus liabilities), households’ balance sheets are slowly improving, aided by a recovery in the housing sector and rising equity prices. As a percentage of GDP, the fall in household net worth from the peak in 2007 was 4 times as severe as the fall caused by the dot-com bust that spurred the 2001 cycle. The difference, of course, was the collapse of the housing market. The total market value of real estate assets fell 40 percent more than the fall in GDP. This was combined with a similar fall in the value of household’s holdings of financial assets.

US Households Have Never Been More Reliant On The Stock Market For Their "Net Worth" - When it comes to assets, there are two kinds: hard, tangible assets such as real estate, equipment and durable goods, and then there are financial assets, or "things" that only have an actual worth in the context of a capital market and a smoothly functioning financial system allowing for value-for-value exchanges and mark-to-market: among these are corporate equities, mutual and pension fund shares and reserves, credit instruments and equity in non-corporate businesses. We bring this up because today, as it does every quarter, the Fed released its Z.1, Flow of Funds report, which shows total US household assets and liabilities. Not surprisingly, with the ongoing surge in the stock market courtesy of the Fed's open-ended QE ticking time bomb, and the second housing bubble courtesy of the banking subsidy known as foreclosure stuffing, in the quarter ended December 31, 2012, at least according to the Fed, the US household's total net worth rose by another $1.2 trillion, taking it to $66.1 trillion. However, one thing was particularly notable in this latest update, and as implied by the above paragraphs, is that as of Q4, 2012, total US household financial assets hit an all time high of $54.4 trillion, well over the previous peak of $52.8 trillion in Q3 2007, and nearly $1 trillion higher compared to the past quarter. In other words, as of Q4 2012, the US household's net worth has never been more reliant on the stock market, which by implication means: Ben Bernanke and his centrally printing colleagues around the world.

Household Net Worth: The "Real" Story - Let's take a long-term view of household net worth from the latest Flow of Funds report. A quick glance at the complete data series shows a distinct bubble in net worth that peaked in Q4 2007 with a trough in Q1 2009, the same quarter the stock market bottomed. The latest Fed balance sheet shows a total net worth that is 25.5% above the 2009 trough and only 2.0% below the 2007 peak. The nominal Q4 net worth is up 1.8% from the previous quarter and up 9.0% year over year. But there are problems with this analysis. Over the six decades of this data series, total net worth has grown about 6774%. A linear vertical scale on the chart above is misleading because it fails to provide an accurate visual illustration of growth over time. It also gives an exaggerated dimension to the bubble that began in 2002. But there is another more serious problem, one that has to do with the data itself rather than the method of display. Over the same time frame that net worth grew six-thousand-plus percent, the value of the 1950 dollar shrank to about nine cents. The Federal Reserve gives us the nominal value of total net worth, which is significantly skewed by money illusion. Here is my own log scale chart adjusted for inflation using the Consumer Price Index.Here is the same chart with an exponential regression through the data. The regression helps us see the twin wealth bubbles peaking in Q1 2000 and Q1 2006, the Tech and Real Estate bubbles. The trough in real household net worth was in Q1 2009. From that quarter to the latest data point, net worth has been trending at about the same growth rate as the overall regression, but we are currently 11.6% below the regression.  Let's now zoom in for a closer look at the period since 2000. I've added some callouts to highlight where we are currently with regard to the all-time peak and 2009 trough.

U.S. Deleveraging? Not So Fast - Here’s a status report on deleveraging in the U.S. economy, based on today’s flow of funds report, which tracks debt levels among households, business, financial institutions and government. In the private sector (nonfinancial businesses and households) deleveraging has been substantial. In the financial sector, it has been even more substantial and continues. In the public sector, most notably federal, there has been a substantial buildup in debt. Taken altogether, total U.S. debt today is higher as a percentage of gross domestic product than ever before, due to federal borrowing.

Report: Personal Bankruptcy Filings decline 21% year-over-year in February - From the American Bankruptcy Institute: February Bankruptcy Filings Decrease 21 Percent from Previous Year, Commercial Filings Fall 29 Percent - Total bankruptcy filings in the United States decreased 21 percent in February over last year, according to data provided by Epiq Systems, Inc. Bankruptcy filings totaled 82,285 in February 2013, down from the February 2012 total of 104,537. Consumer filings declined 21 percent to 78,611 from the February 2012 consumer filing total of 99,378. ...“The post-recession trends of reduced consumer spending, low interest rates and tighter lending standards continue to be reflected in fewer bankruptcy filings,” said ABI Executive Director Samuel J. Gerdano. “As these trends persist, expect bankruptcy filings to continue to decline in 2013.” Personal bankruptcy filings peaked in 2010 at 1.54 million (highest since the bankruptcy law change in 2005). Filings declined to 1.22 million last year, and will probably be just over 1 million this year - the lowest level since 2008. Note: Even in good economic years, there are around 800 thousand personal bankruptcy filings

Young Adults Retreat From Piling Up Debt - Young people are racking up larger amounts of student debt than ever before, but fresh data suggest they are becoming warier of borrowing in general: Total debt among young adults dropped in the last decade to the lowest level in 15 years. A typical young U.S. household—defined as one led by someone under age 35—had $15,000 in total debt in 2010, down from $18,000 in 2001 and the lowest since 1995, according to a recent Pew Research Center report and government data. Total debt includes mortgage loans, credit cards, auto lending, student loans and other consumer borrowing. In addition, fewer young adults carried credit-card balances and 22% didn't have any debt at all in 2010—the most since government tracking began in 1983. The lower overall debt comes despite an increase in student borrowing, which ballooned to $966 billion last year from $253 billion at the end of 2003, according to the Federal Reserve.

Young Adults’ About-Face on Saving - When it comes to saving, no age-group has experienced a bigger change of heart than young adults. Measures of saving rates among young adults under 35 show they’re suddenly saving a whole lot more. According to Moody’s Analytics, one measure, the four-quarter moving average of the saving rate of young adults — which smoothes out volatility — started dropping in the late 1990s and hit roughly -15% in 2006 — before climbing higher during the 2008 global financial crisis and its economic aftermath to over 5%. It’s now around 2% or 3%, as of the third quarter of 2012. No other age group has seen so violent a turn from borrowing to saving. (See related article.) Sure, people between 35 and 44 also increased saving during the recession, but their about-face wasn’t as dramatic. Young people now save roughly as much as people 35 to 44 — and nearly as much as those between 45 and 54. The trend suggests the recession may have made some young people more “risk averse,” economists’ jargon for less willing to take risks by, say, borrowing. It’s likely that many young people are having a harder time getting credit, especially those with super- high student-loan burdens. But young adults are also seeing their incomes fall, and generally make less money than older people. So they may now — post financial crisis and recession — find themselves less able to service debt. That, in turn, may reduce their demand for credit. “Younger households were significantly dis-saving — aggressively borrowing — prior to the recession, but they are now saving at a healthy rate,” said Mark Zandi, economist at Moody’s Analytics. “I think this clearly shows a significant increase in the risk aversion of younger households given the economic nightmare of the downturn and weak recovery,” he adds. “It is unclear how long this heightened risk aversion will last, but I suspect the last few years will have an indelible impact on how younger households think about their finances.”

February 2013 Financial Security Index Charts - Bankrate's monthly survey of six questions measures how secure Americans feel about their personal finances compared to 12 months ago. From Feb. 7-10, 2013, telephone interviews (on landlines and cellphones) with 1,004 adults living in the continental U.S. were conducted by Princeton Survey Research Associates International. The results of Bankrate's Financial Security Index have a margin of error of plus or minus 3.5 percentage points. This month, the index decreased to 96.8, 1.8 points less than January 2013. Highlights:

  • 60% of men and 49% of women say they have more in savings than in credit card debt.
  • 29% of parents with children younger than 18 have more money in credit card debt, compared to 21% of people without young children.
  • 67% of people making at least $75,000 a year have more savings than credit card debt, while just 41% of those making less than $30,000 report the same.

Time to Bury Pew Report on Wealth by Age Group - I realize that Pew is a very prestigious outfit, but Pew's garbage is still garbage. Its report on wealth by age group, or at least the interpretation that it and others have given this report, fits the bill. A couple of years ago, Pew did an analysis that gave breakdowns of wealth by age group. It found that the median household over the age of 65 had $170,500 in net worth. I was actually pleased that they came up with this number, since it meant that the projections that I had done more than two years earlier were almost right on the nose. But what was remarkable about this report was that the Pew researchers took this number as evidence of the affluence of the elderly. The study points out that this was a 42 percent real increase from the 1984 level. By contrast, households under age 35 saw their median net worth fall by 68 percent to just $3,700. This disparity in wealth by age continues to be the take away from this report in the media. To realize the absurdity of this position, try thinking for a moment. The bulk of people who are now turning age 65 do not have a defined benefit pension. This means that the only income they have is their Social Security check, which averages a bit over $1,200 a month. Right off the bat, $100 a month is subtracted to pay for their Medicare Part B premium. This means that our high living seniors have an income of $1,100 a month, plus their $170,500 in net worth. Is this rich? My guess is that 90 percent of the reporters who have covered this Pew study have no clue what net worth means. The $170,000 figure includes  everything in retirement accounts and other personal savings, the value of their car and the equity in their home. To put this in perspective, the median house price is roughly $180,000.

Consumers Add to Auto, Student Debt - Consumers stepped up borrowing outside of mortgages in January, taking on more debt to pay for education and cars. U.S. consumer credit rose at an annual rate of 7%, or $16.15 billion, from December, the Federal Reserve said Thursday. That was slightly higher than economists’ forecast of a $15 billion rise. The pickup in January, like throughout much of the past year, was due largely to an increase in student loans and auto loans. Non-revolving credit–which mainly reflects car and student loans–rose by an annual rate of 10%. That marks the third consecutive month in which such credit has risen by at least 9%.

US January Consumer Credit Rises $16.15 Billion  - U.S. consumer credit rose at an annual rate of 7%, or $16.15 billion, from December, the Federal Reserve said Thursday. That was slightly higher than economists' forecast of a $15 billion rise. The pickup in January, like throughout much of the past year, was due largely to an increase in student loans and auto loans. Non-revolving credit--which mainly reflects car and student loans--rose by an annual rate of 10%. That marks the third consecutive month in which such credit has risen by at least 9%. The report suggests many Americans continued to replace aging cars and those damaged by last fall's Superstorm Sandy, even as paychecks fell due to the end of the payroll tax holiday in January. It also suggests that student debt continues to rise as many Americans attend college in the weak labor market. Meantime, revolving credit--mainly, credit cards--rose by a slight 0.1%, after falling by 4.4% in December. Also Thursday, the Fed revised December figures to show that consumer credit rose that month by $15.10 billion instead of the initially reported $14.95 billion.

Federal Government Injects Near Record Amount In Student Loans In January As Consumer Credit Rises -  Minutes ago the January Consumer Credit report was released. It was expected to post an increase of $14.7 billion. Instead it rose by $16.2 billion. On the surface this would be great: consumers are spending more, levering up confident in the future, etc, etc. Alas, as always in the New Normal, the story was below the surface. Specifically, of the $16.2 billion rise, a tiny $106 million was due to revolving, or discretionary spending credit card, debt. The balance, or 99% of the total, was non-revolving debt, best known as student loans, and less known as GM NINJA car loans. And here is the scary math: in the past 12 months, of the $153 billion in total consumer credit increase, just $6.4 billion was in revolving credit. The balance: student and car loans.

Tax-Refunds Won't Save Us From Disposable Income Drop This Year -  Tax refunds, which can be an important source of cash flow for consumers early in the year, have totaled $20bn less year-to-date than refunds in 2012. Goldman Sachs notes that this is the equivalent of nearly 1% of disposable income over that period, and some consumer-oriented businesses have attributed lackluster sales in late January and early February to lower refund payments. Balancing the possibility of a small amount of additional catch-up with the possibility that some of the decline versus 2012 is fundamentally driven by the effects of tax law changes or other factors, the upshot is that Goldman believes the cumulative gap of around $20bn looks likely to persist. Since the current rate of change in tax refunds looks similar to last year's, this should not weigh further on consumer cash flow. However, it also implies that we should not expect the consumer to receive much of a tailwind from delayed tax refunds in March or April. It does make one wonder a little if this marginal cash-flow is the reason for the extremely unusual cyclical strength and weakness we have seen in macro data for the last few years.

Why Many Americans Feel Like They’re Getting Poorer - Data released by the Commerce Department last week showed that personal income fell 3.6% in January, the biggest decline in 20 years. The drop was even bigger when taxes and inflation are taken into account. Real personal disposable income fell by 4%, the biggest monthly drop in half a century. In part, this is a statistical blip. Companies accelerated certain payments – giving year-end bonuses in December rather than January, for example – so that employees could avoid higher taxes going into effect for 2013. But even if that blip is smoothed out, real aftertax income is lower than it was six months ago. What this means is that the U.S. economy is not merely recovering from the recession more slowly than one might like, but is actually getting worse for many Americans. Despite three-and-a-half years of uninterrupted growth in real GDP and a decline of more than two percentage points in the unemployment rate since 2009, the standard of living is falling for as much as half the population, particularly if you look beyond monthly numbers to longer-term trends.

What caused the temporary spike in personal income? - The drop in personal income last week got some media attention, particularly given that it was the largest one-month drop in 20 years. USA Today: - Personal income growth plunged 3.6% in January, the biggest one-month drop in 20 years, the Commerce Department said Friday. And consumer spending rose just 0.2% with most of it going toward higher heating bills and filling up the gas tank.  The income drop was offset by Americans' savings a hefty 2.6% rise in December. But most of that gain, analysts said, reflected a rush by companies to pay dividends and bonuses before income taxes increased on top earners at the start of 2013.

Personal Incomes & The Decline Of The American Saver - The latest report on personal incomes and outlays showed the expected collapse in personal incomes post the pre-fiscal cliff surge. However, the reversion was more than expected. It is crucially important to understand the impact of low savings rates on economic growth. The reason, that despite all of the government's best attempts, that economic growth and employment remains weak can be directly attributed to still high leverage ratios for consumers and low savings rates. It is only when debt levels fall to sustainable levels, and savings rates rise, that the economy can begin to function normally again. So, while "QE to Infinity" will likely continue to push asset prices higher, at least until the next financial bubble pops, higher asset prices only benefit a small portion of the overall economy. For the rest of America the struggle to maintain their declining standard of living continues as the impact of ongoing weak economic growth and high levels of real unemployment take their toll.

New Cars Increasingly Out of Reach for Many Americans - The typical new vehicle is now more expensive than ever, averaging $30,500 in 2012, according to data, and heading up again as makers curb the incentives that helped make their products more affordable during the recession when they were desperate for sales. According to the 2013 Car Affordability Study by, only in Washington could the typical household swing the payments, the median income there running $86,680 a year. At the other extreme, Tampa, Fla., was at the bottom of the 25 large cities included in the study, with a median household income of $43,832. The study looked at a variety of household expenses, such as food and housing, and when it comes to purchasing a new vehicle, it considered more than just the basic purchase price, down payment and monthly note, factoring in such essentials as taxes and insurance.

Weekly Gasoline Update: Down Two Cents -Here is my weekly gasoline chart update from the Energy Information Administration (EIA) data. Prices rose again over the past week. Rounded to the penny, the average for Regular and Premium fell by two cents. This is the first decline in eleven weeks. With the expiration of the 2% FICA tax holiday, the rise in gasoline prices since mid-December has been painful to the average household.According to, two states, Hawaii and California and Alaska are averaging above $4.00 per gallon. Two states (New York and Connecticut) and Washington DC are averaging above $3.90.Earlier today Business Insider featured a chart illustrating the gasoline price trend over the course of a year. However, if we dig into EIA the data, we find that over the past 20 years, the weekly high for the average retail price of all gasoline formulations occurred in May seven times, in August four times, twice in November and once January, April, June, July, September, October and December. February and March don't make the list. If history is a guide, we can expect that 2013 peak prices lie ahead.

US Starts 2013 with Higher Trade Deficit - Starting the year in the wrong direction, the U.S. trade deficit increased in January to $44.4 billion, up from $38.1 billion in December 2012, the U.S. Department of Commerce reported today. The deficit figure was higher than analysts' consensus estimates of about $43 billion. January exports fell to $184.5 billion in January from $186.6 billion in December. Meanwhile, imports increased in January to $228.9 billion from $224.8 billion in the previous month. "The decline in exports reflected a 1.5% decrease in goods and a 0.3% downtick in services exports. On the import side, the rebound was entirely a petroleum story. Excluding petroleum products, goods imports declined slightly in January," said James Marple, senior economist with TD Economics. The year-to-year comparison showed that the goods and services deficit decreased $7.8 billion from January 2012 to January 2013. The trade deficit in goods increased $5.7 billion, with exports of industrial supplies falling from $44.1 billion in December 2012 to $41.4 billion in January 2013. Advanced technology exports were $24.0 billion in January, while imports were $31.2 billion, resulting in a deficit of $7.1 billion. The trade deficit in goods with China increased in January to $27.8 billion from $24.5 billion in December. The monthly deficit also rose with Japan to $6.1 billion

Trade Deficit increased in January to $44.4 Billion -The Department of Commerce reported: [T]otal January exports of $184.5 billion and imports of $228.9 billion resulted in a goods and services deficit of $44.4 billion, up from $38.1 billion in December, revised. January exports were $2.2 billion less than December exports of $186.6 billion. January imports were $4.1 billion more than December imports of $224.8 billion. The trade deficit was above the consensus forecast of $43.0 billion. The first graph shows the monthly U.S. exports and imports in dollars through January 2013. Click on graph for larger image. Exports decreased in January, and imports increased (most of the increase was petroleum). Exports are 11% above the pre-recession peak and up 3.3% compared to January 2012; imports are near the pre-recession peak, and down 1% compared to January 2012. The second graph shows the U.S. trade deficit, with and without petroleum, through January. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. The increase in the trade deficit in January was mostly due to an increase in the volume of petroleum imports. Oil averaged $94.08 per barrel in January, down slightly from $95.16 in December. The trade deficit with China increased to $27.8 billion in January, up from $26.0 billion in January 2012. Most of the trade deficit is still due to oil and China. The trade deficit with the euro area was $7.7 billion in January, up slightly from $7.6 billion in January 2012.

Trade Deficit Snaps Back In January, Larger Than Expected - So much for that December plunge in the US trade deficit, which plunged from $48.6 billion to three year low of $38.5 billion supposedly on a drop in energy imports, but in reality was due to a drop in broad imports as the US economy ground to a halt ahead of the Fiscal Cliff. In January, or after the stop gap measure to allow the economy to continue, things went back to normal, with the US returning to doing what it does best: importing, especially importing expensive energy, and sure enough the deficit spiked promptly back to $44.4 billion - it recent long-term average - as exports were $2.2 billion less than December exports of $186.6 billion while January imports were $4.1 billion more than December imports of $224.8 billion. Immediate result: look for banks to trim 0.2-0.3% GDP points from their Q1 GDP forecasts

Trade Deficit Pops Back Up, Increases 16.2% for January 2013 - The U.S. January 2013 monthly trade deficit increased 16.2% to $44.45 billion after December's -20.9% trade deficit implosion.  This month is all about oil imports and we suspect Hurricane Sandy potentially affected imports in December and why the wild swings.  December had the lowest petroleum related imports since August 2009.  January's U.S. exports decreased $2.18 billion or -1.2%.  Imports shot back up by $4.13 billion, an increase of 1.8% from last December.  Seems December was an anomaly as our roaring trade deficit comes back to life. The three month moving average gives a trade deficit of $43.606 billion and a inrease of $0.8 billion.   The real goods trade deficit by a Census accounting basis,increased 8.7% on a monthly basis.  Real valued trade goes into the GDP estimate so at least from January's statistics, don't expect any miracles from trade for Q1 economic growth.  Graphed below are imports vs. exports of goods and services.  Imports subtract from GDP and exports add and why trade deficits matter. Below are the goods import monthly changes, seasonally adjusted. &nbspOverall imports increased by $3.693 billion as oil imports resumed and increased by $2.956 billion.   Automotive imports declined again, which might be better news for U.S. auto workers, although two months does not a trend make.  At the top of the list for capital goods imports is oil drilling equipment, an increase of $390 million.  Consumer goods declined on -$687 million less cell phone and other imports.  This month's trade deficit increase is all about oil, hidden within is another month of slowing other imports, which is good news.

  • Industrial supplies and materials: +$4,040 billion
  • Capital goods: +$0.499 billion
  • Foods, feeds, and beverages: -$0.003 billion
  • Automotive vehicles, parts, and engines: -$0.659 billion
  • Consumer goods: -$0.875 billion
  • Other goods: +$0.690 billion

Analysis: Oil Explains About 2/3 of Wider Trade Gap - The U.S. trade deficit expanded more than expected in January, fueled by a pickup in oil imports. The deficit grew by almost 17% to $44.45 billion, the Commerce Department said. Separately, first-time claims for jobless benefits unexpectedly declined again last week – a drop of 7,000 to a seasonally adjusted 340,000 – the latest sign of an improving labor market. Joel Naroff, president of Naroff Economic Advisors, discusses the reports with the Wall Street Journal Online’s Jim Chesko.

Vital Signs Chart: Wider U.S. Trade Deficit - U.S. imports continued to outweigh exports in January, widening the trade deficit to $44.4 billion, from $38.1 billion in December. Among factors behind the shift: more crude-oil imports and fewer fuel-oil exports. The seasonally adjusted three-month moving average puts the gap at $43.6 billion in January, suggesting trade is unlikely to contribute much, if at all, to first-quarter growth.

AAR: Rail Traffic "mixed" in February - From the Association of American Railroads (AAR): AAR Reports Mixed Rail Traffic for February, Gains for Week Ending March 2 Intermodal traffic in February 2013 totaled 983,078 containers and trailers, up 10.5 percent (93,231 units) compared with February 2012. That percentage increase represents the biggest year-over-year monthly gain since December 2010. The weekly average of 245,770 intermodal units in February was the highest weekly average for any February in history.  Carloads originated in February totaled 1,113,843 carloads, down 1.1 percent (12,562 carloads) compared with the same month last year. However, carloads excluding coal and grain were up 4.5 percent (25,311 carloads) in February 2013 over February 2012. This graph from the Rail Time Indicators report shows U.S. average weekly rail carloads (NSA).  Green is 2013. Excluding coal and grain, U.S. rail carloads were up 4.5% (25,311 carloads) in February 2013 over February 2012. The second graph is for intermodal traffic (using intermodal or shipping containers):

Wholesale Inventories Surge Most In 14 Months, Sales Plunge - The build in wholesale inventories was a remarkable four times expectations at +1.2%. This is the biggest surge (and largest beat) since December 2011. GDP-enhancing 'if we build it, they will buy' attitudes pervade but the sames data was desparately disappointing. Wholesale sales dropped 0.8% (against an expectation of a 0.1% rise) for the biggest drop in 3 months and one of the lowest since the crisis 'ended'. Wholesale inventory-to-sales ratio rose to its equal highest since mid 2009 - it seems a lot has been banked on the consumer's return as the inventory build was dominated by Computers, Lumber, and Drugs wheras the sales drop saw Farm Products and Petroleum biting.

U.S. factory orders drop 2.0% in January - Orders for goods produced in U.S. factories fell 2.0% in January, largely because of fewer orders for aircraft, the Commerce Department said Wednesday. Economists surveyed by MarketWatch expected orders to decline by 2.2%. Excluding transportation, orders climbed 1.3%. Orders for durable goods - products meant to last at least three years - slumped 4.9% in January. Orders for nondurable goods such as food and clothing rose 0.6%. In December, factory orders were revised down to show a 1.3% increase instead of 1.8% as initally reported. Shipments of all factory goods in January dipped 0.2%.

Copper Declines as Inventories Rise, US Factory Orders Fall - Copper fell in New York for the first time in three sessions as rising inventories and a drop in U.S. factory orders fueled demand concerns.  Stockpiles monitored by the London Metal Exchange climbed for a 15th straight day and are the highest since October 2011. Bookings to U.S. factories slid 2 percent in January, the most in five months, after a revised 1.3 percent increase in December that was lower than a prior estimate, government data showed today. Copper also fell on a stronger dollar, which makes commodities less appealing as an alternative investment.  “Factory orders were a bit of a dud, and inventories will certainly work to keep speculative buying at bay,”

Vital Signs Chart: Slowing Manufacturing Growth - Manufacturers are feeling economic pressures but continue to inch ahead. In January, new orders for manufactured goods were up 0.3% from a year ago on a seasonally adjusted basis, suggesting that factories continue to rebound. In January, overall factory orders were held back by weak demand for defense and transportation equipment. However, demand rose for construction and industrial machinery.

Yet Another Funny Chart: January Factory Orders Confirm Manufacturing Slump Continues - Following the earlier laughable seasonally adjusted ADP data (because for some reason Mark Zandi does not find it necessary to supplement his report with the unadjusted data), courtesy of which the gullible public was supposed to believe that in February as small businesses were running out of money they proceeded to engage in a massive hiring spree, we thought: "hmmm: maybe there is a free lunch, and a drop in government spending however meager, will not manifest itself in economic data. Why, just look at the ADP..." Alas, moments ago we got the January factory orders data, and our thought experiment was promptly terminated. The good news: the headline number posted a -2.0% drop in January, the biggest M/M drop in 5 month, which however beat expectations of an even more acute drop of -2.2%, which was driven by a collapse in defense and transportation orders, as spending cuts are finally felt through the supply chain. The bad news... well, we'll let the chart below do the talking.

ISM Non-Manufacturing Index indicates faster expansion in February - The February ISM Non-manufacturing index was at 56.0%, up from 55.2% in January. The employment index decreased in February to 57.2%, down from 57.5% in January. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: February 2013 Non-Manufacturing ISM Report On Business®  Economic activity in the non-manufacturing sector grew in February for the 38th consecutive month, "The NMI™ registered 56 percent in February, 0.8 percentage point higher than the 55.2 percent registered in January. This indicates continued growth at a slightly faster rate in the non-manufacturing sector. This month's reading also reflects the highest NMI™ since February 2012, when the index registered 56.1 percent. The Non-Manufacturing Business Activity Index registered 56.9 percent, which is 0.5 percentage point higher than the 56.4 percent reported in January, reflecting growth for the 43rd consecutive month. The New Orders Index increased by 3.8 percentage points to 58.2 percent, and the Employment Index decreased 0.3 percentage point to 57.2 percent, indicating growth in employment for the seventh consecutive month. The Prices Index increased 3.7 percentage points to 61.7 percent, indicating prices increased at a faster rate in February when compared to January. This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

Non-Manufacturing ISM Has Highest Print Since February 2012, 8 Beats In A Row - Not like a market test was needed, but in a time when bad news is great for stocks, we fully expected today's Service ISM consensus beat to be great-er for the several hot potato passing algos still trading. Sure enough, the February non-manufacturing ISM just printed at 56.0, higher than the 55.0 expected, up from the 55.2 in February and the 8th beat of expectations in a row. That the service sector output rose despite consensus it wouldn't due to tax hikes, and higher gas prices, indicates just how "valid" and accurate it truly is, but with every data point now geared to only one goal - to get everyone to play musical chairs while the music plays, does any data actually even matter? After all, an improving economy would mean a tapering QE, but Bernanke has now made it clear no matter what the actual real or fake state of the economy is, he will never stop the liquid(ity) moprhine. Perhaps that is why the employment index actually dipped in February from 57.5 to 57.2 - supposedly this makes it "realistic."

Vital Signs Chart: Service-Sector Activity Highest in 12 Months - Services-sector activity expanded in February, rising to its highest point in 12 months. The Nonmanufacturing Index climbed to 56 last month from 55.2 in January. Readings above 50 indicate expansion. Within the report, a gauge of new orders reflected business optimism about economic conditions — but an employment benchmark indicated caution about more hiring.

How the Postal Service Is Being Gutted - The United States Postal Service just announced that it is cutting Saturday delivery in August, moving to a five-day schedule as part of a multiyear effort to reduce costs and remain viable. That's not the only change coming down in 2013. The USPS will close half of its processing centers, shutter more than 3,000 local branches, and eliminate about one-third of its workforce -- nearly 220,000 employees. It won't surprise you to learn that these moves will slow the delivery of first-class mail (i.e., letters) by one to three days, making citizens less reliant on the postal service and hastening its demise.Why would the USPS take such radical measures? The simple truth is that the postal service is a fundamentally sound business, though not without its challenges. If you look closely, you'll see a concerted campaign to drive USPS out of business, despite the fact that it operates without government subsidies and, potentially, at a profit. It's being subjected to a politically manufactured crisis in order to ram through drastic change. But without the USPS, citizens will face much higher costs without better service. Below, I outline three common misconceptions about the USPS and explain why they're misleading.

January USPS Financials: $437 Million Loss or $261 Million Profit? Take Your Pick - The Postal Service has released its financial statement for January 2013. Compared to January of last year, First Class revenues are down slightly less than 1%, while Standard Mail revenues are up 2.6%, Periodicals are up nearly 3%, and Packages are up over 4%. Total revenues are up 4.4% for the month and up almost one percent for the year to date (YTD, October-January). Considering how weak the economy is, those look like pretty decent numbers, but that’s probably not how the financials will be reported. Instead, we’ll just hear the bottom line: A net loss of $436 million for the month, and a $1.7 billion loss for the first four months of the fiscal year. Those losses, however, include two key numbers that probably won't get much attention: the prepayments for the Retiree Healthcare Benefit Fund (RHBF) and the retirement incentives paid out to tens of thousands of postal workers. The Postal Service shouldn't be paying into the RHBF at this point (at least not $5.5 billion a year), and the incentive buyouts were a one-time expense and not a regular operating cost. If you put the RHBF payments and the incentive payments to the side, then, the bottom line looks a little different. It shows that the Postal Service would have actually made a profit of $261 million for January and $482 million for the year to date.

House GOP Spending Bill Would Require USPS To Keep Saturday Mail Delivery - A spending bill being put forward by House Republicans would force the Postal Service to keep Saturday mail delivery: The new House GOP spending bill directs the U.S. Postal Service to deliver mail six days a week, against the wishes of the nation’s postmaster general. A House Appropriations aide confirmed that the spending measure, which would fund the rest of fiscal 2013 and avoid a government shutdown at the end of the month, mandated that USPS continue six-day delivery. Congress has used the appropriations process to force USPS, which has lost billions of dollars in recent years, to continue Saturday delivery for roughly three decades. Postmaster General Patrick Donahoe had announced a plan last month to get rid of Saturday delivery of letters and other pieces of first-class mail in August, which the flailing agency said would save some $2 billion a year. “You don’t want the Postal Service to fail in this country. It’s my responsibility, and I’ve taken that responsibility to make sure that we do everything in our power,” Donahoe told the Senate Homeland Security Committee last month.

House GOP Spending Bill Requires Post Office To Keep Saturday Delivery - The spending bill passed yesterday by the House of Representatives to fund the government through the end of the year includes a provision requiring the Post Office to keep Saturday mail delivery: – A spending measure passed by the House on Wednesday to keep the government operating through September requires that the Postal Service maintain a six-day mail delivery schedule, a potential setback for the agency, which announced last month that it planned go to five-day deliveries to cut costs. The legislation passed the House 267 to 151, with 137 Democrats voting against it. The measure now moves to the Senate.Faced with billions of dollars in losses, Postal Service officials said last month that beginning in August the service would stop delivering mail on Saturdays, though it would continue to deliver packages on a six-day schedule. The agency said cutting Saturday delivery would save about $2 billion a year. The agency lost about $15.9 billion last year, partly the a result of a 2006 law requiring it to pay about $5.5 billion into a health benefits fund for its future retirees. A drop in mail volume has also hurt the agency’s finances.

Black Political Class Could Pick A Fight Over Postal Service Privatization — But Won’t. Why? - Black Agenda Report - Twenty, forty and sixty years ago, a job at the Post Office was, for African Americans, the ticket to something like middle class stability. Since people with steady and well-paid work, who don't have have long commutes were more able to participate in community-building and sustaining activities black postal workers were well-represented in a wide range of civic, voluntary and political organizations from the 1940s clear to the end of the 20th century. It was predictable that when, in the 1980s, public policy took a turn against steady jobs at good wages, to force more and more Americans, particularly African Americans into less and less secure jobs at lower and lower wages, at the same time it vastly expanded the prison state and made welfare as scarce and punitive as possible, that the Postal Service, a monopoly enshrined in the Constitution itself, became a target for privatizers.

Jobs start to go as US sequestration cuts in - Robert Baillie, a computer programmer in the small town of State College, Pennsylvania, is one of the first victims of sequestration. He worked for a consultancy that writes electronic warfare software for US military agencies. As sequestration loomed – across-the-board cuts in public spending began on March 1 – those agencies stopped signing contracts. What has happened to Mr Baillie is a taste of the devastation that sequestration will wreak on jobs if it stays in place. It could stall the revival in the labour market, put 750,000 more people out of work by the end of the year, and delay a rise in US interest rates until 2016. So far, economists have played down the effects of the sequestration, because they are slow-burning and growth is resilient enough to make recession unlikely. But at a time of high unemployment – 7.9 per cent – the damage to jobs will be severe. Figuring out the effect on jobs is harder than usual because of the way sequestration works. Spending authority between now and September falls by $85bn although actual cuts to outlays build up over time. The effect over a full year is about 0.7 percentage points of output. But many federal agencies plan to handle the cuts by sending staff home, without pay, for one day a week or fortnight. Such workers will not show up as unemployed because official jobs data include anybody who did any work in the past week

ADP Says Companies in U.S. Added 198,000 Workers in February - Companies added more workers than projected in February, indicating the U.S. job market will keep expanding this year, according to a private report based on payrolls.The 198,000 increase in employment followed a revised 215,000 gain the prior month that was more than initially estimated, figures from ADP Research Institute showed today. The median forecast of 41 economists surveyed by Bloomberg called for an advance of 170,000. Sustained hiring by businesses, even as lawmakers in Washington were sparring over budget reductions, signals there is enough demand to support consumer spending, the biggest part of the economy. “The job market remains sturdy in the face of significant fiscal headwinds,” Mark Zandi, chief economist at Moody’s Analytics Inc., said in a statement. Moody’s produces the figures with ADP. “Businesses are adding to payrolls more strongly at the start of 2013 with gains across all industries and business sizes. Tax increases and government spending cuts don’t appear to be affecting the job market.”

Weekly Initial Unemployment Claims decrease to 340,000 - The DOL reports:In the week ending March 2, the advance figure for seasonally adjusted initial claims was 340,000, a decrease of 7,000 from the previous week's revised figure of 347,000. The 4-week moving average was 348,750, a decrease of 7,000 from the previous week's revised average of 355,750.The previous week was revised up from 344,000. 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 decreased to 348,750 - this is the lowest level since March 2008.Weekly claims were below the 355,000 consensus forecast. Note: Claims might increase soon due to the "sequestration" budget cuts

4-Week Average Of Jobless Claims Drops To 5-Year Low - Jobless claims declined last week by 7,000 to a seasonally adjusted 340,000, which is near a post-recession low. Meanwhile, the four-week moving average for claims broke through the previous floor and touched a new cyclical low last week. The four-week average slipped to 348,750 on a seasonally adjusted basis—the lowest in five years. That's a fairly potent clue for expecting that the labor market will continue to grow in the near term.  The downward momentum in this series appears to have found a second wind lately. The sideways action that prevailed in recent months has given way to a new round of declines.  Reviewing the year-over-year change in the raw (unadjusted) claims data tells a similar story. New filings for weekly jobless benefits last week dropped 9.5% from the year-earlier level. In fact, year-over-year declines, with only a few exceptions, have been the norm all along. When the annual change is positive, and the ranks of the jobless are rising, we’ll have a dark signal to ponder for the business cycle. But there’s no sign of trouble by that standard, as the next chart reminds.

Weekly Unemployment Claims: 4-Week Moving Average at a Five Year Low - The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 340,000 new claims number was a 7,000 decrease from the previous week's 347,000, an upward adjustment from the previously reported 344,000. The less volatile and closely watched four-week moving average, which is usually a better indicator of the recent trend, declined by 7,000 to 348,750 -- the first number below 350K since early March 2008, a five-year low. Here is the official statement from the Department of Labor:In the week ending March 2, the advance figure for seasonally adjusted initial claims was 340,000, a decrease of 7,000 from the previous week's revised figure of 347,000. The 4-week moving average was 348,750, a decrease of 7,000 from the previous week's revised average of 355,750. The advance seasonally adjusted insured unemployment rate was 2.4 percent for the week ending February 23, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending February 23 was 3,094,000, an increase of 3,000 from the preceding week's revised level of 3,091,000. The 4-week moving average was 3,121,750, a decrease of 37,500 from the preceding week's revised average of 3,159,250. Today's seasonally adjusted number was below the consensus estimate of 350K. 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

ADP: Private Employment increased 198,000 in February - From ADP: Private sector employment increased by 198,000 jobs from January to February, according to the February, according to the January ADP National Employment Report®, which is produced by ADP® ... in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. The January 2013 report, which reported job gains of 192,000, was revised upward by 23,000 to 215,000 jobs. ...Mark Zandi, chief economist of Moody’s Analytics, said, “The job market remains sturdy in the face of significant fiscal headwinds. Businesses are adding to payrolls more strongly at the start of 2013 with gains across all industries and business sizes. Tax increases and government spending cuts don’t appear to be affecting the job market.” This was above the consensus forecast for 173,000 private sector jobs added in the ADP report. Note:  The BLS reports on Friday, and the consensus is for an increase of 171,000 payroll jobs in February, on a seasonally adjusted (SA) basis.

ADP: Payrolls Increased 198,000 In February - Private-sector payrolls expanded by 198,000 in February, according to today’s ADP Employment Report. That's down a bit from January's 215,000 advance. Nonetheless, February's increase is strong enough to inspire confidence for expecting that Friday's Labor Department report on payrolls will also profile February as another month of modest growth for jobs creation. “The job market remains sturdy in the face of significant fiscal headwinds," says Mark Zandi, chief economist of Moody’s Analytics, in the accompanying ADP press release. "Businesses are adding to payrolls more strongly at the start of 2013 with gains across all industries and business sizes. Tax increases and government spending cuts don’t appear to be affecting the job market." From an econometric perspective, today's ADP report looks encouraging for expecting Friday's government update will show that private payrolls in February matched or exceeded January's 166,000 rise. In each of the three months through January, the ADP estimate exceeded its Labor Department counterpart. That implies that Friday's data will move closer to the ADP's February number.

ADP Employment Report Shows 198,000 Jobs for February 2013 - ADP's proprietary private payrolls jobs report shows a gained of 198,000 private sector jobs for February 2013.  ADP January's reported 192,000 job gains were significantly revised upward by 23,000 to 215 thousand.  Trade, transportation and utilities was the big winner with 43,000 private sector jobs gained  This report does not include government, or public jobs.  Most of the jobs gains were in the service sector and this month services added 164,000 private sector jobs. Trade/transportation/utilities showed the strong growth for the third month in a row with 45,000 jobs.  Financial activities payrolls increased by 7,000 and Professional/business services jobs grew by 35,000.  The goods sector added 34,000 jobs.   Construction work is clearly recovering and this month ADP reports a gain of 23,000 jobs in private construction.   Manufacturing reversed their losses for a gain of 9,000 jobs.  Graphed below are the month job gains or losses for the five areas ADP covers, manufacturing (maroon), construction (blue), professional & business (red), trade, transportation & utilities (green) and financial services (orange).  ADP reports payrolls by business size, unlike the official BLS report.  Small business, 1 to 49 employees, added 77,000 jobs with establishments having less than 20 employees adding 47,000 of those jobs.   Medium sized business payrolls are defined as 50-499 employees, added they added 65,000 jobs.  Large business in a surprising twist added 57 thousand to their payrolls.   If we take the breakdown further, all jobs lost were in businesses with greater than 1,000 workers, a total of 34,000 jobs.  Below is the graph of ADP private sector job creation breakdown of large businesses (bright red), median business (blue) and small business (maroon), by the above three levels.  For large business jobs, the scale is on the right of the graph.  Medium and Small businesses' scale is on the left.

U.S. Jobless Rate Falls to 7.7%, a 4-Year Low — A burst of hiring in February added 236,000 U.S. jobs and reduced the unemployment rate to 7.7% from 7.9% in January. The strong job growth showed that employers are confident about the economy despite higher taxes and government spending cuts. The February jobs report issued Friday provided encouraging details: The unemployment rate is at its lowest level in four years. Job growth has averaged more than 200,000 a month since November. Wages rose. And the job gains were broad-based, led by the most construction hiring in six years. The unemployment rate had been stuck at 7.8% or above since September. About half the decline in February occurred because more of the unemployed found jobs. A decline in the number of people looking for work accounted for the other half: People who aren’t looking for jobs aren’t counted as unemployed. Employers did add slightly fewer jobs in January than the government had first estimated. Job gains were lowered to 119,000 from an initially estimated 157,000. Still, December hiring was a little better than first thought, with 219,000 jobs added instead of 196,000.

Employment Situation (7 graphs) This was one of the better employment reports of this cycle. Private payroll employment grew 246,00 while government employment fell about 10,000 for a net gian of of 236,000. The household survey also showed a nice gain of 170,000. On a year over year change basis both series are showing nice gains. You would never know it to listen to the news, but employment in this cycle continues to better than in the previous cycle. The workweek also increased 0.1% and the index of aggregate hours worked grew 0.5% of all workers and 0.9% for production workers. The index is now back to the trend established early in the cycle. Average hourly earnings growth has bottomed and are starting to move up very nicely. And this is leading to an improvement in weekly earnings.

February Employment Report: 236,000 Jobs, 7.7% Unemployment Rate - From the BLS: Total nonfarm payroll employment increased by 236,000 in February, and the unemployment rate edged down to 7.7 percent ....The change in total nonfarm payroll employment for December was revised from +196,000 to +219,000, and the change for January was revised from +157,000 to +119,000. The headline number was above expectations of 171,000 payroll jobs added. Employment for January was revised lower, but jobs added in December was revised higher. NOTE: This graph is ex-Census meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes. The second graph shows the unemployment rate. The unemployment rate decreased to 7.7% from 7.9% in January. The unemployment rate is from the household report and the household report showed only a small increase in employment. The third graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate decreased slightly to 63.5% in February (blue line. This is the percentage of the working age population in the labor force. The Employment-Population ratio was also unchanged at 58.6% in February (black line). I'll post the 25 to 54 age group employment-population ratio graph later. The fourth graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions

Employment +236,000; Unemployment at 7.7%; Finally a Better Than Average Report From the BLS: Total nonfarm payroll employment increased by 236,000 in February, and the unemployment rate edged down to 7.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services, construction, and health care. On the surface, these are good numbers. The total number of jobs has increased over 200,000 and the unemployment rate ticked down .2%. The employment-population ratio held at 58.6 percent in February. The civilian labor force participation rate, at 63.5 percent, changed little. These numbers tell us that on a macro scale comparing the total number of employed to the total population, nothing really changed last month. In looking at the establishment data, let's start with this nugget: In February, employment in construction increased by 48,000. Since September, construction employment has risen by 151,000. In February, job growth occurred in specialty trade contractors, with this gain about equally split between residential (+17,000) and nonresidential specialty trade contractors (+15,000). Nonresidential building construction also added jobs (+6,000). Yes -- it's only one month of data. But it indicates that the housing rebound is starting to have a positive impact on construction employment -- long a laggard in the statistics. This is a very good development. Professional and business services added 73,000 jobs in February; The health care industry continued to add jobs in February (+32,000). Employment in the information industry increased over the month (+20,000), Employment continued to trend up in retail trade in February (+24,000).

236K New Jobs, Unemployment Rate Falls to 7.7% - Here is the lead paragraph from the Employment Situation Summary released this morning by the Bureau of Labor Statistics, with the bold bracketed text added by me: Total nonfarm payroll employment increased by 236,000 in February, and the unemployment rate edged down to 7.7 percent, the U.S. Bureau of Labor Statistics reported today [a decrease from 7.9 percent last month]. Employment increased in professional and business services, construction, and health care.  Today's nonfarm number is higher than the consensus, which was for 165K new nonfarm jobs, and the unemployment rate is lower than the expectation that it would remain unchanged at 7.9 percent. The previous month's nonfarm payrolls, however, was revised down from 157K to 119K. The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948. Unemployment is usually a lagging indicator that moves inversely with equity prices (top chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982.  The second chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. The latest number is 3.1% — up from 3.0% last month. This measure gives an alternative perspective on the relative severity of economic conditions. As we readily see, this metric remains higher than the peak in 1983, which came six months after the broader measure topped out at 10.8%. The next chart is an overlay of the unemployment rate and the employment-population ratio. This is the ratio of the number of employed people to the total civilian population age 16 and over.

Jobs Up More Than Expected Last Month - Payrolls expanded by 236,000 last month and the jobless rate ticked down to 7.7%, its lowest rate since late 2008, outperforming analysts expectations.  Hours worked per week increased and hourly pay rose as well, suggesting a potential improvement in employer demand (though, as noted, some indicators in the report point the other way—these monthly reports are never an analytical slamdunk). Whether the better-than-expected results signal a faster underlying trend in job growth, and whether it can withstand the fiscal drag from the sequester, is yet to be seen, a point I return to below. Since we want to avoid reading too much into any one month in these volatile data, the smart move is to average the last few months of payroll gains to smooth out the noise.  Doing so reveals some acceleration in hiring: over the past three months, average monthly gains were 191K; over the prior three months, 182K; and over the three months before that, 135K.What might be behind this recent acceleration?  Even while wages and incomes have been relatively flat for most people, households have improved their balance sheets by deleveraging their debt and, with home prices rising in many places, are building back a bit of wealth.  That’s probably helping to boost consumer spending, which has been doing better than expected.

Ready to work - Despite fears that a first quarter full of uncertainty over fiscal showdowns, expiring tax cuts, and automatic spending increases would present serious headwinds to the American economy, private firms seem willing to keep hiring, and at an impressive pace by the standards of this expansion. According to new data from the Bureau of Labour Statistics, the economy added 236,000 jobs in February, and the unemployment rate dropped to 7.7%. Firms have added more workers in only a handful of months since the recession ended in June of 2009. There is no questioning the strength of the report. Private firms actually added 246,000 workers, offset by a small decline in government payrolls. Hiring was broad-based. Construction employment rose by 48,000, helped along by a housing sector that is finally beginning to pull its weight. Yet manufacturing and service employment were also up. So was hiring in retail, which might have been expected to contract given the January expiration of the government's stimulative payroll-tax cut. Both hours worked and wages notched meaningful increases, hinting at the robustness of labour demand. In the household portion of the report, employment also showed an increase, helping to nudge the unemployment rate down to 7.7%. Overall employment has risen by about 2m in the past year and is up almost 6m from the trough reached in early 2010.

February Private Payolls: The Best Month For Growth Since November - Private-sector payrolls grew by 246,000 in February on a seasonally adjusted basis—the most since November and at a substantially faster pace compared with January’s relatively tepid rise of 140,000, the Labor Department reports. Meanwhile, the year-over-year percentage change in private payrolls continued to advance at just under 1.9% through last month, or roughly in the range we've seen in recent history. In addition, the unemployment rate ticked down to 7.7%, a post-recession low. Is this a sign that growth is set to ramp up in the labor market? Maybe, but that’s a speculative interpretation of today’s data. What we can say with a high degree of confidence is that the moderate growth train of late rolls on.  Today’s decent payrolls report isn’t all that surprising, as I’ve been discussing in recent days, and as yesterday's preview suggested. Wednesday’s release of the February ADP Employment Report was certainly encouraging, as was yesterday’s weekly update on initial jobless claims. Overall, the incoming data for February continues to trend positive, as I noted in Monday’s update of The Capital Spectator Economic Trend & Momentum indices. After several days of upbeat data points, the econometric case for arguing that recession risk remains low resonates a bit deeper as the business week comes to a close.

February Employment Report Beats Expectations - 7 graphs - The increase in total nonfarm employment, +236,000 as seen in today’s Employment Situation, beat most analysts expectations, although January employment was revised down slightly, from +157,000 to +119,000, as seen in the Net Employment Change chart below. Private sector employment was up +246,000 while the government sector continued to shed jobs, -10,000. State government was responsible for 80% of that decline. The largest gain came from private service workers, +179,000. Professional and business services added +73,000. Goods producing employment was also up, +67,000, led mainly by construction, +48,000, and in that sector the largest gain was in specialty contractors. Total employment continues to grow steadily, but is still not back to its level in December of 2007. The unemployment rate ticked down from 7.9% to 7.7%, and at 12,032,000 there were about 300,000 fewer unemployed persons compared to last month. However, those unemployed more that 27 weeks edged up by 89,000. Overall there are about 4.7 million persons who have been unemployed more than 27 weeks. The employment to population ratio was unchanged from last month at 58.6%, moreover, it was also 58.6% in February of 2012 and was close to that level three years ago. While this picture reveals no growth over the past year, it is not necessarily a sign that labor market is still under considerable duress. There are many factors that drive this statistic, such as decisions about entering the labor force, retiring, or staying in school. The point is that while the employment population ratio is indicator of labor market health, there are lots of things that drive it. The ratio at the beginning of the recession in December of 2007 may have been “cyclically” high, and now has adjusted to a new level. This can also be seen in the labor force participation rate, which actually declined slightly over the month, from 63.6% to 63.5%.

Jobs +236,000, Unemployment Rate 7.7%, Part-Time Employment +446,000 - The establishment survey reports of +236,000 job.  For the first time in four months the establishment survey was accompanied by a healthy +170,000 surge in the household survey. The economy added a whopping 446,000 part-time jobs. Thus, the economy shed 276,000 full-time jobs. Those part-time jobs were supposedly "on purpose". One possible explanation for the surge in voluntary part-time employment is retirees needing additional income. However, that theory is not consistent with a labor force shedding 130,000 workers. Part-time employment for "economic reasons" rose by 15,000. Those not in the labor force rose by 296,000 and the labor force itself fell by 130,000. Those factors, coupled with the massive rise in part-time employment explains the .2 drop in the unemployment rate. Long-term unemployment (27 weeks or more) rose by 89,000, the first increase since October.  This is a decent report, but it is nowhere near as good as it looks at first glance, with obvious questions about part-time employment and duration of unemployment. February BLS Jobs Report at a Glance

  • Payrolls +236,000 - Establishment Survey
  • US Employment +170,000 - Household Survey
  • US Unemployment -300,000 - Household Survey
  • Involuntary Part-Time Work +15,000 - Household Survey 
  • Voluntary Part-Time Work +446,000 - Household Survey
  • Baseline Unemployment Rate -.02 at 77% - Household Survey
  • U-6 unemployment -.01 to 14.3% - Household Survey
  • The Civilian Labor Force -130,000 - Household Survey
  • Not in Labor Force  +296,000 - Household Survey
  • Participation Rate -.01 to 63.5 - Household Survey

      A Solid Employment Report, by Tim Duy - 6 graphs - The February employment report was solid - not a blockbuster report, but definitely solid. And three of the last four employment reports have been solid as well, with payroll growth about 200k per month. This will undoubtedly raise some chatter that the Federal Reserve's large scale asset purchase program will be tapered back soon than later. I suspect such talk would be premature. While the labor market currently has some momentum, we have seen such momentum fade in the past. Moreover, we are still deep in the labor market hole, so to speak. The Fed has time to see this play out, and, even if labor markets continue to improve at this pace, will most likely take that time, delaying any reduction of the pace of asset purchases until late this year. Headline job gains totaled 236k for February: December was revised up, but January was revised down. The three-month average is 191k, while the twelve-month average is a more modest 164k, declining slowly over the year. Note that during the last two years we have seen momentum on either side of the start of the year fade by spring or summer. The Fed knows this as well, and thus will tend to question the resiliency of these numbers. This is especially the case as the fiscal contraction is just beginning to work its way through the economy. Note that government employment continues to be an overall drag on the numbers: The sequester may aggravate this trend in the near term. Calculated Risk is optimistic that layoffs at the state and local levels are mostly over; my conversations with municipalities in Oregon tend to be somewhat more pessimistic. Even though revenues are stabilizing in some cases, costs continue to rise, squeezing budgets. Anecdotal and regional evidence, so use with caution. The unemployment rate edged down to 7.7%; at this rate of decline, we will be into next year before we see 6.5%. And that's not a trigger for Fed action on interest rates - as long as inflation remains contained, 6.5% early next year suggests a rate hike in late 2014 or early 2015, consistent with current expectations. Why the delay after hitting 6.5%? Again, I think it reflects the depth of the hole. Progress on some indicators remains woefully slow:

      The stagnation behind the excellent jobs report - Today’s jobs report is an unambiguously positive one: America had 236,000 more jobs in February than it had in January, and the unemployment rate is down to 7.7%, the lowest it’s been since 2008, before Barack Obama was even sworn in. (Although, it’s still nowhere near the 6.5% at which the Fed will start thinking about tightening monetary policy.) Things are getting better, US fiscal policy notwithstanding, and it’s great to see construction in particular, especially non-residential construction, finally making a substantial positive contribution to the numbers. All is not entirely sweetness and light, though, as Brad DeLong and many others have noted. The number of multiple jobholders rose by 340,000 this month, to 7.26 million — a rise larger than the headline rise in payrolls. Which means that one way of looking at this report is to say that all of the new jobs created were second or third jobs, going to people who were already employed elsewhere. Meanwhile, the number of people unemployed for six months or longer went up by 89,000 people this month, to 4.8 million, and the average duration of unemployment also rose, to 36.9 weeks from 35.3 weeks. In terms of the economy, it’s not good enough to simply increase employment and decrease unemployment, if the proportion of people with jobs isn’t actually going up. Which is why this chart, from Calculated Risk, is the most important one to look at right now:Both the employment-to-population ratio ad the labor force participation rate are much lower than they ought to be: if this is a recovery, the former in particular ought to be going up, rather than going nowhere.

    • Payrolls Surge By 236,000 In February, Following Big Downward Revision, Unemployment Rate Slides To 7.7% - February payrolls rose by a whopping 236,000, much better than the 165,000 expected, and 1K higher than the highest Wall Street forecast of 235K. However this takes place as the January number was revised from 157K to 119K. The unemployment rate slides to 7.7%, on expectations of a 7.9%. This was the lowest unemployment rate since December of 2008. The civilian labor force dropped as usual from 63.6% to 63.5%. The household survey saw an increase of 170K jobs in February, following a 17K increase in January. More details:

      • Change in Private Payrolls: +246K, on Exp. 170K, last revised from 166K to 140k
      • Change in Manufacturing Payrolls: +14K on Exp. 9K, last revised from 4K to 12K
      • Average hourly earnings M/M rose by 0.2%, and 2.1% Y/Y, in line with expectations
      • Average hourly hours for all employees rose from 34.4 to 34.5
      • Birth death adds 102K to the unadjusted number

      Video: U.S. Jobless Rate Lowest in Four Years - WSJ Staff - Phil Izzo and Sudeep Reddy analyze the February jobs report, which featured positive numbers not seen since 2009.

      Job Growth Picks Up Steam in February, by Dean Baker: The Labor Department reported that the economy added 236,000 jobs in February. With a small downward revision to job growth over the prior two months, this brings the average growth rate over the last three months to 191,000. The unemployment rate fell to 7.7 percent, but this drop was largely attributable to a decline in labor force participation. The employment-to-population ratio (EPOP) was unchanged at 58.6 percent, exactly the same as the rate in February of 2012 and just 0.4 percentage points above the low hit in the summer of 2011. This compares with an EPOP of 63.0 percent in 2007. The 54.8 percent employment-to-population ratio for women is just 0.2 percentage points above the low hit last month. The decline in labor force participation in this cycle has been striking. While the unemployment rate has dropped more than 40 percent of the way back to its pre-recession level, the employment-to-population ratio is still far closer to its trough than its pre-recession peak. ... By education attainment there is the striking anomaly: The EPOP for those with less than a high school degree is almost back to its pre-recession level. It rose by 1.9 percentage points in February to 41.9 percent. This compares with a 43.3 percent average for 2007. Insofar as the aging of the population is a factor depressing EPOPs, the decline should show up most clearly among those with less than a high school degree since these are disproportionately older workers. The fact that EPOPs have not fallen much for this group suggests that the aging of the population is not an important factor behind declining EPOPs. ...

      The BLS Jobs Report Covering February 2013: A Solid Seasonal Rebound - Trendline, 236,000 jobs were added in February and the official unemployment rate fell to 7.7%. Actual jobs increased 959,000 but this followed a loss of 2.840 million last month. Similarly, employment rose 614,000 this month against a 1.446 million loss last month. However, notably the size of the labor force did not increase. The current rebuild and expansion of jobs should continue for the next two to three months. If this growth is choked off by the sequester or austerity, the consequences will extend through the rest of the year. My recalculated rate of unemployment remains high and declined only slightly to 12.5%. Hours increased this month which is good but wage gains taking inflation into account remain largely flat. Looking first at revisions in the seasonally adjusted job numbers for the last two months: January 157,000 > 119,000. December 155,000 > 196,000 > 219,000 meaning that December was somewhat better and January was worse than previously reported. The potential civilian labor force as measured by the noninstitutional civilian population over 16 (NIP) increased 165,000 in February from 244.663 million to 244.828 million. Multiplying the NIP by the employment-population ratio (58.6% unchanged from January) gives us an estimate of the number of jobs needed in February to keep up with population growth: 96,700. Seasonally adjusted, the labor force decreased 130,000 from 155.654 million to 155.524 million. Unadjusted it decreased 67,000 from 154.794 million to 154.727 million. This bears watching because it could be the first signs of a boomer retirement effect.

      And yet the labor force participation rate is still falling - From Peter Coy, source here.  (And broken down by age here, I never find that disaggregation reassuring however, since the elderly are working more and the young less.)  Here are related comments and charts from Dylan Matthews.  Yet perhaps Felix Salmon has the clincher: The number of multiple jobholders rose by 340,000 this month, to 7.26 million — a rise larger than the headline rise in payrolls. Which means that one way of looking at this report is to say that all of the new jobs created were second or third jobs, going to people who were already employed elsewhere. Meanwhile, the number of people unemployed for six months or longer went up by 89,000 people this month, to 4.8 million, and the average duration of unemployment also rose, to 36.9 weeks from 35.3 weeks. Catherine Rampell discusses the rise of part-time work, very important stuff.  Here are relevant remarks by Pethoukis.  Here is more on the long-term unemployed. By the way, my point is not to deny the “good news” aspects of the report, as summarized by Matthews and discussed elsewhere.  I would instead put it this way: we are recovering OK from the AD crisis, but the structural problems in the labor market are getting worse.  It’s becoming increasingly clear those structural problems were there all along and also that they are a big part of the real story.  On the AD side, mean-reversion really is taking hold, as it should and as is predicted by most of the best neo-Keynesian models.

      Are Long-Term Unemployed Being Left Behind? - The job market is improving — but there are signs America is making less progress on its long-term unemployment problem. The Labor Department Friday said the economy added a healthy 236,000 jobs in February and unemployment fell to 7.7%. U.S. employers have created over 190,000 jobs a month since December, a fast enough pace to gradually reduce unemployment. Wages for private workers also continued rising, perhaps signaling companies are having to pay slightly more to attract workers they want. But something disturbing was lurking in February’s report: After falling for several months, the number of Americans out of work for 27 weeks or longer — the long-term unemployed — rose slightly to 4.797 million from 4.708 million. The long-term unemployed now account for 40.2% of the unemployed, up from 38.1% in January.

      Deeper Dive into the Jobs Report: Labor Force Participation and Weekly Earnings - Today’s jobs report is widely being viewed as a sign of an improving job market, a view I share with (of course) caveats.  The biggest question is, as I noted earlier, is whether the recent acceleration of payroll growth sticks, especially as the sequester takes hold, which is hasn’t yet.  A few things jumped out at me that you might find interesting. First, there’s the tick down in the labor force participation rate, explaining part of the decline in unemployment and one of not-so-bright parts of the report.  I’ve heard some commentators suggest that this is due to unemployed people giving up and dropping out of the job market (remember, you’re not counted as unemployed if you’ve given up looking).  So why is the labor participation rate (LFPR) stuck in the tank, or slightly more technically, about 2.5 points below its pre-recession peak (Dec07-Feb13)?  Certainly, weak labor demand is the big story.  But it’s not the only factor at play—research has attributed one-quarter to one-third of the decline to older workers leaving the workforce, predumably for retirement.With both weekly hours and hourly wages up last month, weekly earnings got a nice 0.5% bump last month—that’s before inflation, btw.  On an annualized basis, that just below 6%, so a nice pace if it can be sustained.  The figure below shows the nominal year-over-year growth in weekly earnings, a better way to suss out the trend.  Their growth got slammed in the heart of the downturn—an hours’ story more than an hourly wage one—but climbed back when jobs and hours began to expand.  But they’re been trending down since.

      Federal Austerity’s Bite on Job Growth -The latest jobs report could have been even better. Employers added 236,000 jobs in February, evidence that the economy is gaining strength, but analysts generally agree that the number would have been higher if the federal government had not increased payroll tax rates in January. And the sequestration of federal spending, which began last week, has joined the tax increases in restricting the pace of job growth.  As a result, the rest of the year is shaping up as a tug of war between a strengthening private sector and federal austerity. Government and private forecasters expect austerity, in the form of the spending cuts and tax increases, to take a big bite: about 142,000 fewer jobs a month for the rest of the year than would otherwise be added. That’s more than the 134,000 jobs that employers added each month last year, on average.  “Clearly, the labor market was in decent shape before the sequester began and before the impact of the Jan. 1 payroll tax hike started to work through,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisers. “But that does not mean these two factors — a tightening worth about 1.5 percent of G.D.P. — will not reduce payroll growth in the months ahead.”The Congressional Budget Office estimated last year that the payroll tax increase would cost about 800,000 jobs this year, or about 67,000 a month.

      Government Jobs Shrinking Even Before Budget Cuts - February’s jobs report is one of the best of the recovery, driven by private-sector gains that put the total number of private payrolls at their highest since October 2008. The public sector? Still shrinking, with more job losses likely ahead as government-spending cuts kick in. Government payrolls fell by 10,000 in February, the fifth straight month of declines. The total number of government jobs in the U.S. — about 21.8 million at the local, state and federal level — is now the lowest since October 2005.

      The Shrinking Government - For the 31st consecutive month, the number of government jobs in February was less than it had been a year earlier. There is an employment recovery, but it is confined to the private sector. The only comparable period in government data, which goes back to 1939, came after World War II, when the government was shrinking for a very good reason. The year-over-year string of declines ended in December 1947 at 30 months. So we have a new record here — a record being set largely because governments, particularly local ones, have been squeezed by a dearth of tax revenues. Year-over-year jobs have been down for 44 consecutive months in local governments. For the most recent 12 months, private sector employment is up 1.9 percent. Government employment is down 0.5 percent.  As I noted last month in an Off the Charts column, men have done better in the recovery than women have done. That column was based on the government’s household survey, which asks people if they have jobs. The establishment survey, which asks employers both how many workers they have and how many of them are women, helps to explain why that is. Women dominate in government jobs, now holding 57 percent of them, and have been losing them at a slightly more rapid pace than men have lost their government jobs. The decline in teacher employment probably explains much of that.

      Number of the Week: Unemployment Rate Without Government Cuts - 7.1%: What the unemployment rate would be without government job cuts. While most industries have added jobs over the past three years, the recovery has largely bypassed the government sector. Federal, state and local governments have shed nearly 750,000 jobs since June 2009, according to the Labor Department‘s establishment survey of employers. No other sector comes close to those job losses over the same period. Construction is in second worst place, but its 225,000 cuts are less than a third of the government reductions. To be sure, construction and other sectors performed worse during the depths of the recession, but no area has had a worse recovery. A separate tally of job losses looks even worse. According to the household survey, which is where the unemployment rate comes from, there are nearly 950,000 fewer people employed by the government than there were when the recovery started in mid-2009. If none of those people were counted as unemployed, the jobless rate would be 7.1%, compared with the 7.7% rate reported on Friday.

      Analysis: Don’t Expect Job Gains at This Level Throughout 2013 - U.S. job growth jumped ahead in February, a sign of a steadily improving labor market and stronger economic gains. Employers added 236,000 jobs last month, the Labor Department said. Plus, the unemployment rate, obtained by a separate survey of U.S. households, fell two-tenths of a percentage point to 7.7%, the lowest level since the end of 2008. PNC Financial Services Senior Economist Gus Faucher discusses the report with the Wall Street Journal Online’s Jim Chesko

      The Rise of Part-Time Work - One of the more unsettling trends in this recovery has been the rise of part-time work. We are nowhere near recovering the jobs lost in the recession, and the track record looks even worse when you consider that so many of the jobs lost were full time, whereas so many of those gained have been part time.Compared with December 2007, when the recession officially began, there are 5.8 million fewer Americans working full time. In that same period, there has been an increase of 2.8 million working part time. Part-time workers — defined as people who usually work fewer than 35 hours a week — are still a minority of the work force, but their share is growing. When the recession began, 16.9 percent of those working usually worked part time. That share rose sharply in 2008 and 2009 and has not fallen much since then. Today the share of workers with part-time jobs is 19.2 percent.  This would not be so troubling if people were electing to work fewer hours. But that is not the case.Basically all of the growth in part-time workers has been among people reluctantly working few hours because of either slack business conditions or an inability to find a full-time job. Together these people are considered to be working part time “for economic reasons.” Their numbers have grown by 3.4 million since the downturn began. The number of people working part time “for noneconomic reasons,” on the other hand, has fallen by 639,000 since the recession began.

      Concerns Within Lower Unemployment Rate - The U.S. unemployment rate tumbled to 7.7% in February but a broader rate that includes discouraged workers fell by a smaller amount to 14.3%. The drop in the main unemployment rate was driven mostly by positive factors. The unemployment rate is based on the number of unemployed — people who are without jobs, who are available to work and who have actively sought work in the prior four weeks. The “actively looking for work” definition is fairly broad, including people who contacted an employer, employment agency, job center or friends; sent out resumes or filled out applications; or answered or placed ads, among other things. The unemployment rate is calculated by dividing the number of unemployed by the total number of people in the labor force. The number of people who say they are working increased by 170,000, solid increase from the prior month. Meanwhile, the number of people counted as unemployed tumbled by an even larger 300,000. That sparks some concern. It means that all of those unemployed didn’t find jobs. The number of discouraged workers jumped in February. The issue can be seen in the smaller drop in the broader unemployment rate, known as the “U-6″ for its data classification by the Labor Department. That includes everyone in the official rate plus “marginally attached workers” — those who are neither working nor looking for work, but say they want a job and have looked for work recently; and people who are employed part-time for economic reasons, meaning they want full-time work but took a part-time schedule instead because that’s all they could find.In February, the rate only ticked down 0.1 percentage point as the number of part-time workers who would like full-time jobs increased and the ranks of those marginally attached to the labor force climbed.

    • In February Multiple Jobholders Rose By A Record, As Full-Timers Dropped, Part-Timers Increased - When it comes to government data, every silver lining has a cloud. Sure enough even today's NFP number, which on the surface was quite acceptable, had its share of thorny issues. Those who track the quality composition of the jobs, as opposed to just the quantity, will know that the part and full-time jobs breakdown has long been a major issue. And not unexpectedly, in February according to the Household Survey, the number of full-time jobs declined by 77K from 115,918 to 115,841. The offset: a jump in part-time workers which rose from 27,467 to 27,569, or 102K. Part-time jobs, for those who are unaware, are "jobs" only in the broadest of definitions. But the most surprising development in February from a quality standpoint was that the number of multiple job-holders rose by a massive 340K, which just happens to be a record. One wonders: how many actual people got new jobs, as opposed to how many qualified single individuals ended up getting more than one job in February in order to boost that much needed weekly income to sustainable levels.

      Jobs numbers are far worse than they look - Economists were surprised by the massive "beat" in today's reported job numbers. The unemployment rate dropped .2 to 7.7% and the economy allegedly added 236,000 jobs. Is that what really happened? No not really.  According to the household survey (on which the unemployment rate is based) the economy added a healthy 170,000 jobs. However, a whopping 446,000 of those jobs were part-time jobs. Simply put, the economy shed 276,000 full-time jobs.  The BLS labeled those 446,000 part-time jobs as "voluntary". I am not so sure. A Gallup Survey yesterday on Jobs show the percentage of workers working part time but wanting full-time work was 10.1% in February, an increase from 9.6% in January, and the highest rate measured since January 2012. Gallup notes "Although fewer people are unemployed now than a year ago, they are not migrating to full-time jobs for an employer. In fact, fewer Americans are working full-time for an employer than were doing so a year ago, and more Americans are working part time. Although part-time work is clearly better than no work at all, these are not the types of good jobs that millions of Americans are still searching for."Obamacare is in play. Recall that under Obamacare, the definition of full-time employment is 30 hours. The BLS cutoff is 34 hours. At 30 hours, companies have to pay medical benefits so they have been slashing the number of hours people work. This reduced the number of hours people worked and provided an incentive for many to take on an extra job.  We can see the effect in actual BLS data.

      Don’t be fooled: 7.7% is likely a short-lived low in the US unemployment rate - Dean Baker - More than five years into the downturn, it doesn't take much to get people excited about the state of the economy. The Labor Department's February employment report showing the economy generated a better than expected 236,000 jobs and the unemployment rate had fallen 0.2 percentage points to 7.7% was sufficient to get the optimists' blood flowing. Unfortunately, they are likely to be disappointed. First off, if the 236,000 jobs number sounds good to you, then you probably are not old enough to remember the 271,000 number reported last February, or the 311,000 number reported in January of 2012. The strong winter job growth in 2011-2012 was followed by a dismal spring, in which job growth slowed to a trickle. While most economic measures implied that the economy had suddenly shifted from hot to cold, the more obvious explanation was that unusually good winter weather in the US northeast and the midwest had pulled hiring forward, as some of us warned at the time. This is likely part of the story this year, as well. The drop in the unemployment rate is also not as good news as it may initially seem. The Labor Department reported that 130,000 people left the labor force during the month – so they are no longer counted as unemployed. The percentage of the adult population that is employed (the employment-to-population ratio, or EPOP) was unchanged at 58.6%. This is just 0.4 percentage points above the low hit in the summer of 2011; and it is unchanged over the last year.

      What A Difference For Jobs $1.2 Trillion In Debt Makes -The media's ecstatic read through of today's Nonfarm payroll beat can barely end: after all, a print of 236k on expectations of 165K, why that has to be great. Well, it is. Until one looks to the number from February 2012, which happens to be 271,000. And even the Keynesian will agree that February follows January, which in 2013 was a downward revised 119K. January 2012? 311,000. In other words, the first two months of 2012 saw a 582,000 increase in non-farm payrolls. In 2013: 355,000. But something else happened between February 29, 2012 and February 28, 2013... Oh yes, the US government issued some $1,198,397,883,967.30 in debt. Oh, and the Fed monetized about half of this amount, and virtually all of the Treasurys issued to the right of the ZIRP period (i.e., risky debt). To summarize: $1.2 trillion in debt buys the US.... 61% of the jobs created a year ago.

      Employment Report Comments and more Graphs - The 236 thousand payroll jobs added in February is from the establishment survey (a survey of businesses for payroll jobs), but the unemployment rate is from the household survey.   The "Population" is the Civilian Noninstitutional Population, or the number of people 16 and over who are "not inmates of institutions (for example, penal and mental facilities and homes for the aged) and who are not on active duty in the Armed Forces".  This is increasing every month, and increased 165 thousand in February. The Civilian Labor Force is based on the percentage of people who say they are either employed or unemployed.  This yields the participation rate (the percentage of the civilian noninstitutional population that is in the labor force).  The participation rate has declined recently due to both demographic reasons and the weak recovery from the financial crisis.  Separating out the two reasons is difficult, see: Understanding the Decline in the Participation Rate and Further Discussion on Labor Force Participation Rate and Labor Force Participation Rate Update. If the participation rate increases, then it would take more jobs to reduce the unemployment rate.  If the participation rate continues to decline (or just flat lines for a couple of years), then it takes fewer jobs to reduce the unemployment rate.This graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at maximum job losses. graph shows the number of workers unemployed for 27 weeks or more.   This graph shows total state and government payroll employment since January 2007. State and local governments lost jobs for four straight years.

      Real Hourly Wages and Hours Worked: Monthly Update - Here is a look at two key numbers in the latest monthly employment report for February: Average Hourly Earnings and Average Weekly Hours. The government has been tracking the data for Production and Nonsupervisory Employees for decades. But coverage of Total Private Employees only dates from March 2006. Let's look at the broader series, which goes back far enough to show the trend since before the Great Recession. I want to look closely at a five-snapshot sequence. First, here is a chart of the Average Hourly Earnings. I've included a linear regression through the data to highlight the trend. Hourly earnings increased at a faster pace through 2008, but the pace slowed from early 2009 onward. But the hourly earnings above are nominal (not adjusted for inflation). Let's look at the same data adjusted for inflation using the Consumer Price Index. Since the government series above is seasonally adjusted, I've used the seasonally adjusted CPI, and I've chained the series to the dollar value of the latest month of hourly wages so that the numbers reflect the purchasing power in today's dollars. As we see, the difference is amazing. The decline in real wages at the onset of the recession accords with our expectations. But why the rise in the middle of the recession when the Financial Crisis began unfolding in earnest? Let's add another data series to the mix: Average Hours per Week. About eight months into the recession, hours per week began to fall. The number bottomed a few months before the recession ended and then began increasing a few months after it ended. For a better understanding of the relationship between hourly earnings and the average work week, let's overlay the two. We see a striking inverse correlation during the Financial Crisis. And by the Fall of 2010, the two began to reverse their directions.

      The Scariest Jobs Chart Ever Isn't Scary Enough - One of the defining graphs of our time (yes, there are defining graphs of our time) comes from the blog Calculated Risk. It tracks the job market in every U.S. recession and recovery since WWII — and it shows just how brutal the the past few years have been. Business Insider calls this the Scariest Jobs Chart Ever. But the Scariest Jobs Chart Ever isn't quite scary enough. The chart cuts off when employment gets back to its previous peak. But, because of population growth, getting back to where we were five years ago isn't enough. To get back to full employment, we need to have millions more jobs than we had then.This led us to wonder: What would Scariest Jobs Chart Ever look like if you compared the past five years with comparable periods for all of the other postwar recessions. How much worse is it this time?Here's the answer:

      Quiz: Who Counts as Unemployed? - After five straight years of high unemployment, you probably know more than you ever wanted to about the intricacies of unemployment statistics. You might know, for example, that the monthly jobs numbers are based on two separate surveys, one of businesses and one of households. You might also know that people only count as “unemployed” if they’re actively looking for work, or that people who stop looking because they can’t find a job are considered “discouraged.” But how well do you really know the jobs data?To find out, we pulled together 20 fictional cases to test your knowledge of labor force concepts. Your mission: Figure out where the following people should be classified in the labor force. Read closely; when it comes to jobs, details matter. Getting stumped? Check out our guide to how the figures are calculated, read up on some common unemployment myths or check out the government’s own guide to employment statistics.

      With Positions to Fill, Employers Wait for Perfection -   American employers have a variety of job vacancies, piles of cash and countless well-qualified candidates. But despite a slowly improving economy, many companies remain reluctant to actually hire, stringing job applicants along for weeks or months before they make a decision.If they ever do. The number of job openings has increased to levels not seen since the height of the financial crisis, but vacancies are staying unfilled much longer than they used to — an average of 23 business days today compared to a low of 15 in mid-2009, according to a new measure of Labor Department data by the economists Steven J. Davis, Jason Faberman and John Haltiwanger. Some have attributed the more extended process to a mismatch between the requirements of the four million jobs available and the skills held by many of the 12 million unemployed. That’s probably true in a few high-skilled fields, like nursing or biotech, but for a large majority of positions where candidates are plentiful, the bigger problem seems to be a sort of hiring paralysis.. “There’s this great fear of making a mistake, of wasting money in a tight economy.” As a result, employers are bringing in large numbers of candidates for interview after interview after interview. Data from, a site that collects information on hiring at different companies, shows that the average duration of the interview process at major companies like Starbucks, General Mills and Southwest Airlines has roughly doubled since 2010.

      Yes, Even Young College Graduates Have Low Unemployment - I’ve written recently about the job prospects for college graduates versus those without bachelor’s degrees, noting that the unemployment rate for college graduates is about half that for workers with no more than a high school diploma (3.7 percent versus 8.1 percent as of January). Several readers wrote me to take issue with the fact that I was looking at the whole universe of workers with these credentials, rather than just the recently graduated. Perhaps college graduates from generations past are more protected than those just entering the work force, they wrote, and it is misleading to say that young graduates are equally secure. It is true that young workers have higher unemployment rates than their older counterparts, at just about all levels of education. A recent report published by the Bureau of Labor Statistics on the job prospects of new college graduates, for example, found that as of October 2011, the graduates of the class of 2011 had an unemployment rate of 14 percent. But that number refers to joblessness just a few months after graduation. If you look at all recent college graduates in their 20s, the unemployment rate drops sharply. It is especially impressive when compared with the jobless rate for all high school graduates in the same age group.

      The No-Limits Job - Sleepless nights are more likely because they are on the clock, not at the club.  “If I’m not at the office, I’m always on my BlackBerry,” said Casey McIntyre, 28, a book publicist in New York. “I never feel like I’m totally checked out of work.”  Ms. McIntyre is just one 20-something — a population historically exploitable as cheap labor — learning that long hours and low pay go hand in hand in the creative class. The recession has been no friend to entry-level positions, where hundreds of applicants vie for unpaid internships at which they are expected to be on call with iPhone in hand, tweeting for and representing their company at all hours.  “We need to hire a 22-22-22,” one new-media manager was overheard saying recently, meaning a 22-year-old willing to work 22-hour days for $22,000 a year. Perhaps the middle figure is an exaggeration, but its bookends certainly aren’t. According to a 2011 Pew report, the median net worth for householders under 35 dropped by 68 percent from 1984 to 2009, to $3,662. Lest you think that’s a mere side effect of the economic downturn, for those over 65, it rose 42 percent to $170,494 (largely because of an overall gain in property values). Hence 1.2 million more 25-to-34-year-olds lived with their parents in 2011 than did four years earlier.  The young are logging hours, too. In 2011, according to the Bureau of Labor Statistics, full-time workers ages 20 to 24 put in just 2.1 fewer hours a week than those 25 and over. That’s not a big gap of leisure for the ostensibly freewheeling time in one’s life.

      Prison Labor: Exposed - From Starbucks to Microsoft: a sampling of what US inmates make, and for whom - The breaded chicken patty your child bites into at school may have been made by a worker earning twenty cents an hour, not in a faraway country, but by a member of an invisible American workforce: prisoners. At the Union Correctional Facility, a maximum security prison in Florida, inmates from a nearby lower-security prison manufacture tons of processed beef, chicken and pork for Prison Rehabilitative Industries and Diversified Enterprises (PRIDE), a privately held non-profit corporation that operates the state’s forty-one work programs. In addition to processed food, PRIDE’s website reveals an array of products for sale through contracts with private companies, from eyeglasses to office furniture, to be shipped from a distribution center in Florida to businesses across the US. PRIDE boasts that its work programs are “designed to provide vocational training, to improve prison security, to reduce the cost of state government, and to promote the rehabilitation of the state inmates.” And Each month, California inmates process more than 680,000 pounds of beef, 400,000 pounds of chicken products, 450,000 gallons of milk, 280,000 loaves of bread, and 2.9 million eggs (from 160,000 inmate-raised hens). Starbucks subcontractor Signature Packaging Solutions has hired Washington prisoners to package holiday coffees (as well as Nintendo Game Boys). Confronted by a reporter in 2001, a Starbucks rep called the setup “entirely consistent with our mission statement.”

      Revised Figures Confirm Slow Productivity -  The latest productivity figures show Americans worked longer and increased output more than initially reported in the fourth quarter, confirming the period’s slow growth. Nonfarm business productivity, which is the output per hour of all workers, decreased at a 1.9% annual rate between October and December to the lowest rate since the same period in 2008, the Labor Department said Thursday. The report revised earlier fourth quarter figures that showed productivity fell by 2.0%. Unit labor costs rose 4.6% during the period, compared to a previously reported 4.5% increase. Economists surveyed by Dow Jones Newswires had forecast that productivity would drop 1.6% in the quarter and labor costs would rise 4.4%.

      Why America's middle class is losing ground - In the wake of the Great Recession, millions of middle-class people are being pinched by stagnating incomes and the increased cost of living. America's median household income has dropped by more than $4,000 since 2000, after adjusting for inflation, and the typical trappings of middle-class life are slipping out of financial reach for many families.  Families with young kids are struggling to afford childcare and save for the ever-climbing costs of college. Those nearing retirement are scrambling to sock away funds so they don't have to work forever. A weak labor market means that employed Americans aren't getting the pay raises they need to keep up -- especially with big-ticket items such as health care eating away at their paychecks.  Economists say it boils down to two core problems: jobs and wages. The traditional "middle-class job" is disappearing.  Mid-wage occupations such as office managers and truck drivers accounted for 60% of the job losses during the recession, but only 22% of the gains during the recovery, according to a National Employment Law Project analysis of Labor Department data. Low-wage positions, on the other hand, soared 58%.

      We've Moved Backward in Closing the Gender Wage Gap - The gender wage gap is a hot topic. With all of this attention and even some legislation, you might think that we’re making progress toward closing the gap between men and women’s earnings. You’d be wrong. In fact, a new report from the Institute for Women’s Policy Research out today shows that the gap between median annual earnings for men and women working full time was lower in 2011 than in 2010 – and in fact equal to the gap as it stood in 2009. Median weekly earnings for full-time workers saw a gap of 80.9 percent in 2012, declining more than a whole percentage point since the year before. (Keep in mind all you gender gap naysayers: this is for full-time employees. Factoring in women’s “choices” to go part-time or take time off from their careers would make the gap even larger.)

      The Minimum Wage, Employment and Income Distribution - Christina Romer  - RAISING the minimum wage, as President Obama proposed in his State of the Union address, tends to be more popular with the general public than with economists. I don’t believe that’s because economists care less about the plight of the poor — many economists are perfectly nice people who care deeply about poverty and income inequality. Rather, economic analysis raises questions about whether a higher minimum wage will achieve better outcomes for the economy and reduce poverty. One argument for a minimum wage is that there sometimes isn’t enough competition among employers. In our nation’s history, there have been company towns where one employer truly dominated the local economy. As a result, that employer could affect the going wage for the entire area. In such a situation, a minimum wage can not only make workers better off but can also lead to more efficient levels of production and employment. But I suspect that few people, including economists, find this argument compelling today. Company towns are largely a thing of the past in this country; even Wal-Mart Stores, the nation’s largest employer, faces substantial competition for workers in most places.

      The Maximum Impact of the Minimum Wage - Cristina Romer, Berkeley economics professor and the former head of President Obama’s Council of Economic Advisers, passed judgment on the merits of raising the minimum wage in Saturday’s New York Times, and in the process made clear why she wasn’t a member of the president’s de facto council of political advisers. She argued, as some mainstream economists do, that the merits of a heightened minimum wage were slight—that it may, for instance, raise prices, offsetting the gain to low-wage workers. The better solution, she argues, is to raise the earned income tax credit (EITC)—the government’s payment to the working poor—and to support universal pre-K education. “Why settle for half-measures,” she concludes (by which she means raising the minimum wage), “when such truly first-rate policies [by which she means the EITC and pre-K schooling] are well understood and ready to go?” Ready to go? Congressional Republicans are rarin’ to increase government spending on the working poor and create a funded federal mandate for universal pre-k? To be sure, you could argue that Republicans will be equally resistant to raising the minimum wage. But that would present them with a political problem that declining to raise the EITC would not: The American people understand the minimum wage and virtually always support raising it. Unlike the EITC, it does not involve government spending, which garners far less public support.

      What Economists Think About Raising the Minimum Wage - As Christina D. Romer wrote in a column on Sunday, there is some disagreement among economists about the prudence of raising the minimum wage. The Initiative on Global Markets at the University of Chicago’s Booth School of Business recently queried a panel of 38 economic experts on the subject, and the responses were mixed, particularly about the effect on low-skilled job seekers. (Nancy Folbre mentioned this survey in passing in her weekly post; here are the fuller findings.)  These were the responses to the first question, which dealt with whether raising the minimum wage would make it more difficult for low-skilled workers to find jobs. As you can see, of those who responded, about a quarter said they were “uncertain” about the proposition. Exactly zero percent said they either agreed or disagreed “strongly.” It’s no wonder there’s so much expert uncertainty on this question, given the contentious and tangled literature on the subject. Twenty years ago, a landmark study by Alan Krueger (now chairman of President Obama’s Council of Economic Advisers) and David Card used a natural experiment to study an increase in the minimum wage. It found that raising the wage did not reduce employment. Other studies have had more mixed results, and some have shown negative, though generally small, employment effects.

      Blogs review: The Minimum Wage debate - What’s at stake:  In his State of the Union Address, US President Barack Obama resurrected a pledge to raise the minimum wage he had made during the 2008 campaign. In an effort to fight inequality, alleviate poverty and make work more attractive President Obama proposed proposed a $9 federal minimum wage, indexed to inflation. This has generated a lot of writings in the blogosphere, with the main issues revolving around the classic questions of the employment effect of the minimum wage as well as its efficacy as a means of redistribution.

      Spending, income, and debt responses to minimum-wage hikes -  How are spending, income and debt affected by minimum-wage hikes? This column argues that putting money into the hands of consumers, especially low-income consumers, ultimately leads to predictable increases in spending. Evidence suggests that a $1 wage hike increases household spending by minimum-wage workers – usually in the form of collateralised debt – by around $700 per quarter.

      Minimum Wage Households That Get Pay Increases Typically Increase Their Borrowing Even More - Yves Smith - The debate around Obama’s proposed minimum wage increase (when he had promised to deliver an even bigger wage rise in his first term) focuses mainly around how much economic stimulus it will provide and whether it will simply lead employers to cut worker hours (given how obscene corporate profits are, most companies have plenty of room to pay their employees more, even if their kvetching would lead you to believe otherwise. Remember, companies used to share the benefits of productivity gains with workers; it was in the later 1990s they started keeping the upside all for themselves). But a look at that question reveals what low wage workers do when they get pay increases.However, $9 an hour (which won’t be in place till the end of 2015 if Obama prevails) is still well below today’s living wage in most states. For instance, from the MIT site, Poverty in America (click to enlarge): So even a single person can’t get by now on $9.20 an hour in Jefferson County (see MIT site for the breakdown of living expenses). Well, if you go to Oklahoma, the ninth poorest state in the US, you might get by: This is to give some context to what happens when minimum wage workers get wage increases. They go into debt.

      Minimum Wage & Consumer Borrowing - Over at VoxEU, economists Daniel Aronson and Eric French have a discussion about the their research of the effects of a minimum wage hike. I found my way to this post through Yves Smith's discussion of the topic at Naked Capitalism, which also includes some informative tables showing that the proposed hike to $9/hour is still below a living wage in many areas of the country.  My purpose here is only to highlight one part of this discussion. Aronson and French find that spending rises about $700 per quarter for households with minimum wage workers and that most of this spending ($500 per quarter) is for new cars and trucks, the majority of which is debt financed. The research suggests an increase in the minimum wage leads to an increase in borrowing from minimum-wage households in an effect that persists for a little over two years after the minimum-wage hike. The discussions at VoxEU and Naked Capitalism understandably focused on the economic stimulus effects of a minimum wage increase,  but what caught my eye was the consumer credit side.

      Conservative lobby group behind push to lower minimum wage, report says - The conservative lobbying group Alec has been behind a major push against the pay rates of low-wage American workers by sponsoring or supporting scores of new laws aimed at weakening their protections, a new survey has found. Since 2011, politicians backed by the American Legislative Exchange Council, which has hit the headlines for previous campaigns on voting rights and gun laws, have introduced 67 different laws in 25 different states on the issue. The proposed laws are generally aimed at reducing minimum wage levels, weakening overtime protection or stopping the local creation of minimum wage laws in cities or states. Using language similar to "model bill" templates drafted by Alec, they were put forward by local politicians who are almost always Republican and affiliated with the powerful conservative group. Critics say Alec is backed by powerful corporate groups that are seeking to draft legislation that serves their business interests. "Public scrutiny is the best weapon against their agenda," said Jack Temple, a policy analyst at the National Employment Law Project, which advocates on workers' rights and drew up the report. Eleven of the 67 bills eventually became law. They included an Arizona bill weakening public sector wage contracts, an Idaho bill preventing state and local government from adopting some wage laws and New Hampshire legislation that repealed that state's minimum wage law.

      Costco CEO: Raise The Minimum Wage To More Than $10 Per Hour - President Barack Obama wants to raise the federal minimum wage to $9 per hour. And the CEO of one of America's largest retailers says such a move would be good for workers and businesses alike. In fact, he says raise it even more. On Tuesday, Costco CEO and President Craig Jelinek came out in support of the Fair Minimum Wage Act of 2013, which aims to raise the federal minimum wage to $10.10 per hour, then adjust it after that for inflation. "At Costco, we know that paying employees good wages makes good sense for business," Jelinek said in a statement. "We pay a starting hourly wage of $11.50 in all states where we do business, and we are still able to keep our overhead costs low." "An important reason for the success of Costco’s business model is the attraction and retention of great employees," Jelinek added. "Instead of minimizing wages, we know it's a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty. We support efforts to increase the federal minimum wage." Costco has a reputation for paying its employees above market rate, with the typical worker earning around $45,000 in 2011, according to Fortune. Walmart-owned Sam's Club, in contrast, pays its sales associates an average of $17,486 per year, according to salary information website

      A $10.10 minimum wage would give economy (and more low-wage workers) a bigger boost - Following the President’s expression of support for a $9.00 minimum wage, Sen. Tom Harkin (D-Iowa) and Congressman George Miller (D-California) sent out a press release indicating their support for increasing the minimum wage to $10.10 (this proposal follows their 2012 effort to pass legislation supporting a $9.80 minimum wage).  Their proposal would increase the minimum wage via three incremental increases of $0.95, after which it would be indexed to inflation. The tipped minimum wage (the minimum wage paid to workers who earn a portion of their wages in tips) would also be increased in $0.85 increments from its current value of $2.13 per hour, where it has languished since 1996, until it reaches 70 percent of the regular minimum wage. At noon today, Senator Harkin and Congressman Miller will unveil the Fair Minimum  Wage Act of 2013. Raising the minimum wage would help reverse the ongoing erosion of wages that has contributed significantly to growing income inequality, while providing a modest stimulus to the entire economy, as increased wages contribute to GDP growth, which in turn leads to modest employment growth. Following are the major national findings of an upcoming EPI report on the impacts of a $10.10 minimum wage for the country and individual states.

      In support of the Fair Minimum Wage Act -On Tuesday, March 5, Sen. Tom Harkin (D-IA) and Rep. George Miller (D-CA) announced the introduction of The Fair Minimum Wage Act of 2013 to raise the minimum wage from $7.25 an hour to $10.10 an hour over the next three years. Once it reaches $10.10, the minimum wage would be raised automatically each year to account for inflation and ensure that it never loses its purchasing power. The bill also raises the wages of those who rely on tips, phasing in an increase until the “tipped minimum” – currently stuck at $2.13 an hour — reaches 70 percent of the regular minimum wage. Harkin and Miller spoke eloquently about the need to make work pay, to reward people for the time and effort they put into serving or delivering food, caring for children and the elderly, and cleaning hotel rooms or office buildings. Citing Economic Policy Institute calculations, Harkin estimated that 30 million workers would get a raise, including 17 million women. He pointed out that nearly 90 percent of minimum wage workers are adults, not teenagers, and that two-thirds are in low or moderate income households.

      Minimal Wages, Minimal Families - Announcing his support for an increase in the federal minimum wage to $9 an hour, President Obama called attention to the needs of children: “Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong.” 71 percent of Americans polled in mid-February by the Pew Research Center for the People and the Press support the proposed increase, including 50 percent of Republicans. Influential economists have announced their support as well, including many affiliated with the Initiative on Global Markets at the Booth School of Business at the University of Chicago. Of 38 economists in the group, 18 agreed, 4 disagreed, 12 were uncertain and 4 had no opinion or didn’t answer. The classical political economists believed that the forces of supply and demand would always be constrained by the cost of subsistence, setting a floor under wages. Because people don’t live forever, the costs of subsistence should include the costs of producing replacement workers, namely, raising children. But as many young children and unmarried women began entering wage employment in the 19th century, it became apparent that an increase in the supply of workers without family responsibilities could potentially drive average wages well below the level adequate to support children. Market forces, in other words, could discourage, even penalize, family commitments.

      TANF Provided a Weak Safety Net During and After Recession - CBPP  - Temporary Assistance for Needy Families (TANF), which provides basic assistance to families with little or no income, responded only modestly to the severe recession that began in December 2007, exposing its inadequacy as a safety net, as we explain in a new paper. We found that:

      • Nationally, the TANF caseload rose only modestly during the downturn and began to decline while need remained high.
      • Changes in states’ caseloads varied widely. Forty-five states’ caseloads grew between December 2007 and December 2009 but by widely differing amounts, ranging from 2 to 48 percent; in more than half of these states, the increase was 14 percent or less.  After the recovery began, caseloads continued to grow in some states but fell sharply in others. 
      • Variations in unemployment do not fully explain the variation in state caseload changes. There is no overlap between the ten states with the largest percentage increases in the number of unemployed workers and the ten states with the largest percentage increases in TANF caseloads. 
      • In most states, TANF provides a weaker safety net now than it did before the recession. The number of families with children served by TANF for every 100 such families living in poverty fell in 35 states between 2006-2007 and 2010-2011, while it rose in just five states.
      • State actions had a significant impact on TANF caseloads. In response to budget pressures, several states cut TANF benefit levels, shortened or tightened time limits, or made other cutbacks during the recession, contributing to substantial caseload declines.

      Extreme wealth inequality in the USA - The above YouTube video provides an easy-to-understand graphical presentation of wealth inequality across the United States, and is drawn from a variety of sources. For me, the most shocking statistic to come out of the video is that the top 1% of Americans owns 40% of the nation’s wealth, whereas the bottom 80% own just 7% of total wealth. Unbelievable.

      Wealth inequality will keep growing unless workers demand better - With US unemployment near 8%, millions of Americans simply cannot find the work they need to keep a roof overhead, the lights on, and food on the table for their families. The problem is simple enough: there are not enough jobs to go around in an economy marked by slow growth and a growing number of job seekers. To be sure, big and small firms alike are hiring to replace workers who retire or to expand as the economy recovers. For the newly unemployed, the competition for these job openings is fierce. Many find themselves locking horns with dozens, hundreds and sometimes thousands of fellow job seekers, all of whom are jockeying to score not a job but a job interview with a living human being.Employers, inundated with job applications, are taking shortcuts to winnow the field of job applicants, eliminating from consideration applicants who are currently unemployed or have been out of work for more than a few months. Some are excluding job candidates with their credit score. In what is essentially a game of musical chairs, employers are taking away more and more of the chairs before the music even starts. None of these strategies are unique to recessions; employers use themwhen unemployment is high or low. But with the unemployment rate high, these practices are prolonging the pain for millions of Americans unlucky enough to have a lost a job following the worst recession in decades.

      Don’t think class war from above is real? Check out productivity and wage growth since 1973  Talk about a picture being worth a thousand words. The facts are these: From 1948 until 1973, American workers' earnings grew with productivity. Workers made more goods and provided more services per hour, and they earned more along with that. From 1973 to 2011, though, productivity rose by 80.4 percent and median hourly compensation rose by just 10.7 percent. Bluntly: "A bigger share of what businesses in the U.S. are producing is going to the owners of the firms and the people who lent money to the firm, and a smaller share is going to workers," said Gary Burtless, senior fellow in economic studies at The Brookings Institution. Also, don't forget we're talking about median earnings here, and during these same years, income inequality skyrocketed. You simply don't get results like these without an organized, sustained attack on workers—exactly what we've seen since 1973.

      Income Inequality Goes Viral - Bill Moyers - Over the weekend, a YouTube video breaking down income inequality in America went viral. As a reader of, you may have been aware that the disparity in wealth between the richest one percent of Americans and the bottom 80 percent has grown exponentially over the last thirty years — but the video, posted by user politizane and relying on data from a popular Mother Jones post, focuses on the difference between the ideal disparity that Americans would like to see and the reality. The gap is a lot larger than many informed Americans realize. Watch the video.

      Poverty rate is highest in 15 years, says professor - The Great Recession leaves behind the largest number of long-term unemployed people, or 4.7 million, since records were first kept in 1948, according to research from the University of Michigan. "About 46 million Americans, according to our latest count, are poor. That means for a family of four, they're living on less than $23,000 a year," . "This is the highest rate of poverty that we've had in about 15 years." Seefeldt's research with John Graham of Indiana University focused on the safety net for the poor and how it performed during the recession. Some programs worked, such as federal food programs and Medicaid, while federal cash assistance for the nondisabled poor and federal housing programs did not respond much to the burgeoning numbers of families in need of help.

      Demographic Shift Underway: Majority of Babies are Minorities - The racial and ethnic makeup of the United States has reached a historic milestone, with minorities now accounting for the majority of babies. Census data released today underscores the nation’s growing population of young minorities. An estimated 50.4 percent of Americans less than a year old were minorities in 2011, topping non-Hispanic whites for the first time. “The American population is really changing from youngest to oldest,” said Kenneth Johnson, senior demographer at the Carsey Institute. “This is the beginning of that transformation.” Many regions experienced drastic shifts in recent years. In some areas, an influx of young Hispanics, Asians, and other groups now make up a sizeable portion of the population. Governing compiled Census figures for all states, shown in the map below. An analysis of the new data found minorities account for the majority of the under-age-10 population in 12 states and the District of Columbia. Total populations for Hawaii, California, New Mexico and Texas are already majority-minority.

      Virginia’s Feast on U.S. Funds Nears an End - While the rest of the country experienced a corrosive recession, unemployment in Arlington County, home of the Pentagon, never rose above 5 percent. Nearby Fairfax County, with a cyberintelligence industry that took off after the Sept. 11 terrorist attacks, gorged on government contracts to private companies.  The Washington metropolitan area, especially Northern Virginia, is in line to experience the largest economic hit of any region from the $85 billion in spending cuts that President Obama made official late Friday.  Because the automatic cuts, known as sequestration, fall unevenly across the country, many Americans are greeting them with a shrug. Their nonchalance is heightened because the 2.4 percent lopped from a federal budget of $3.55 trillion is relatively small and will not happen all at once. But in Northern Virginia the cuts will be deeply felt, economists said, assuming there is no political deal to undo them, a dimming prospect. The White House said the Defense Department would furlough 90,000 civilian employees based in Virginia, the most of any state, reducing their salaries by 20 percent this year.  The ripple effect, as those employees pare expenses, put off car purchases and delay buying a home, is expected to be large. Some economists predict that Virginia will slip into recession.

      Public authorities rack up nearly $250 billion in debt - Debt at the state's shadowy public authorities has reached $243 billion and was racked up with little public input, a report Tuesday from Comptroller Thomas DiNapoli found. The state has a remarkable 1,169 authorities that oversee public services, such as the state's transit systems. Started in the 1920s, they operate outside of state government, accumulate debt without voter approval and their revenues are used to plug holes in the state's operating budget, DiNapoli said. Moreover, the authorities employ 153,502 people, with 12 percent earning more than $100,000 a year compared to 8.3 percent of the state workforce. “Public authorities are an increasingly influential sphere of government, but they still operate in the shadows with too little accountability to the public,” DiNapoli said in a statement.

      Report: record 50,000 homeless now in NYC - City records show that the number of people sleeping in shelters nightly this year averaged over 50,000, a number that a new report from the Coalition for the Homeless states is a record high “since modern homelessness emerged three decades ago.” The report notes that these numbers do not include “the thousands of New Yorkers displaced by Hurricane Sandy, many of whom comprise extremely low-income households.” The city testified last week that around 1,500 families are still in hotels, YMCAs, and shelters, but Patrick Markee at the Coalition said there are “obviously many more still doubled up with friends or family.” The report directly calls out Mayor Michael Bloomberg, and holds him responsible for the rise, alleging that had he not discontinued practices that existed under the previous three mayors, the “homeless shelter population” would not have “risen by a staggering 61 percent and the number of homeless families [by] 73 percent.” “Mayor Bloomberg’s elimination of all affordable housing assistance for homeless families is a major factor behind the historic homelessness crisis,” the report says. “Previous New York City mayors, from Ed Koch to David Dinkins to Rudy Giuliani, targeted Federal and City housing resources to help homeless families relocate from shelters to stable, permanent housing.”

      New York City’s Spike in Homeless Families Illustrates Severity of Economic Stress - Yves Smith - As readers may know, I live in the Upper East Side of Manhattan. Although that was once the toniest part of town, and the most exclusive buildings are here, the rents are generally higher some of the hipper downtown areas. Plus for all of the Upper East side, the further east you go the lower the caliber of the housing stock. East of Second Avenue, you have small walk-ups that were once tenements, punctuated by high-rises.  I’m going into this level of detail to drive home that this area has a bigger range of incomes than you might think.  The Wall Street Journal reports tonight that there has been a big increase in homeless families, particularly in New York City.Notice, as the footnote indicates, the total is based on people living in shelters. That means it greatly understates the number of homeless, since many homeless regard shelters as more dangerous than living on the street (although homeless parents are probably much more reluctant to expose their children to the elements than take that risk themselves). As the Journal tells us: New York City has seen one of the steepest increases in homeless families in the past decade, advocates said, growing 73% since 2002. The surge was accelerated by the financial crisis and mortgage meltdown, which put many lower-middle class families out of their homes, economists have said. And even though New York City has regained all the jobs it lost in the recession, economists have said they are lower-paying ones.

      New York's Homelessness Worst Since The Great Depression - State and local governments nationwide have struggled to accommodate a homeless population that has changed in recent years - now including large numbers of families with young children. As the WSJ reports, more than 21,000 children - an unprecedented 1% of the city's youth - slept each night in a city shelter in January, an increase of 22% in the past year; as homeless families now spend more than a year in a shelter, on average, for the first time since 1987. New York City has seen one of the steepest increases in homeless families in the past decade, advocates said, growing 73% since 2002, and "is facing a homeless crisis worse than any time since the Great Depression."

      The Tragedy of Detroit - This week the governor of Michigan will appoint an emergency financial manager for Detroit, if anyone will take the job. Even the left-leaning Detroit Free Press is on board with a takeover. The alternative would be a Chapter 9 bankruptcy filing. Detroit has probably been bankrupt for a long time, but no one really knows. The City of Detroit, the Detroit Water and Sewer department, the Detroit pension plans, and the Wayne County government are all a mess. About sixty square miles of the city have been largely abandoned. Detroit has been hit hard by economic deterioration and middle class flight (more than just white flight), but the core problem in Detroit is four decades of gross mismanagement and rampant corruption. Both the Bush and Obama administrations have attacked the corruption, and to Obama's credit he redoubled the efforts to put Detroit officials and cronies in prison where they belong. Why were huge obvious problems allowed to fester until Detroit is ready to collapse? Political correctness and race politics. Even as Detroit is on the brink, race baiting is in full throat. And attempts to blame the GOP, although I can't find any elected Republicans in major Detroit offices for at least two decades. The people living in Detroit will continue to suffer for a long, long time.

      The collapse of Detroit: An indictment of American capitalism - Wall Street’s financial elite celebrated a new record Dow Jones Industrial Average this week, even as the city of Detroit plunged towards bankruptcy and state and local politicians began outlining plans for expanding a Greek-style austerity program.  Michigan’s Republican governor, Rick Snyder, a multimillionaire former venture capitalist, declared a “financial emergency” in Detroit. The action paves the way for the imminent appointment of an emergency manager with sweeping powers to tear up labor agreements, dump pension obligations, shut down essential services and carry out a fire sale of publicly owned assets, including the water and sewerage system, zoo and art museum. The move has been hailed by the corporate media, which sees the looting of the city as the model for the ruling class in the US and internationally. “Only radical—and unpopular—action will reverse Detroit’s vicious spiral,” declared the London-based Financial Times Monday in an editorial hailing the plan to impose an emergency manager. For the banks and their bought-and-paid-for representatives in both political parties, no democratic formalities must stand in the way of the ever-greater accumulation of personal wealth. In particular, the human misery inflicted in Detroit is necessary to ensure maximum returns on the tax-free municipal bonds held by the billionaire hedge fund managers.

      Haunting images at the heart of Detroit’s financial emergency - Detroit has a $327 million budget deficit, and it’s drowning in more than $14 billion in long-term debt. As it deals with its ongoing financial crisis, the city has instituted mandatory unpaid days off for many city workers and it has left many of its key service departments such as the police and fire departments underfunded. Once a prosperous hub for the American automotive industry, Detroit has seen its population dwindle from 1.8 million in 1950 to 706k in 2011. The beleaguered city has seen its neighborhoods abandoned, its properties vandalized, and its homes stripped of any valuable materials such as copper piping and roofing.And the images are stunning.

      The children going hungry in America -- (BBC video) Child poverty in the US has reached record levels, with almost 17 million children now affected. A growing number are also going hungry on a daily basis. Food is never far from the thoughts of 10-year-old Kaylie Haywood and her older brother Tyler, 12. At a food bank in Stockton, Iowa, they are arguing with their mother over the 15 items they are allowed to take with them. There is little money to go shopping for extras. Apple sauce is in, canned vegetables, tinned spaghetti, meatballs and ravioli might be. Kaylie wants a decent education, so that she will not go hungry in future But when Kaylie asks for ground beef, she is overruled as their motel room does not have a fridge to keep things fresh - just a sink filled with crushed ice. There's nowhere to cook, either.

      Report: Poor U.S. Students Receive Developing-World Educations - Poor students in the U.S. often receive educations comparable to those of children in the developing world, according to a report presented last week to the U.S. Department of Education. “While some young Americans — most of them white and affluent — are getting a truly world-class education, those who attend schools in high poverty neighborhoods are getting an education that more closely approximates school in developing nations,” the report states. The findings, compiled by the Equity and Excellence Commission — an independent group consisting of more than two dozen leaders in the education field — further estimate that racial disparities in education cost the country about $50 trillion in unfulfilled earning potential. If African-American and Hispanic students performed at the same level as white students for the next 80 years, in other words, they would contribute that staggering amount, more than three times current GDP, to the economy.

      In tense meeting, SRC votes to close 23 schools, spare 4 - In a tense, dramatic conclusion to a months-long battle, the Philadelphia School Reform Commission voted Thursday night to close 23 schools across the city - and spare four it had considered shutting. The vote capped a long series of protests, rallies, and public outcries against what appears to be one of the largest mass school closings in the nation's history. And it happened after 19 people, including American Federation of Teachers president Randi Weingarten, were arrested when they tried to block SRC members' entrance into the meeting. Earlier, addressing a crowd that officials estimated numbered at least 700 and that shut down parts of North Broad Street, Weingarten was adamant. "Philadelphia is being watched across the country," she shouted, standing on a concrete pillar outside the Philadelphia School District's headquarters. "This is a city that is under fire."

      ‘Massive layoffs’ predicted in law schools due to big drop in applicants - A plunge in the number of applicants to law schools will likely lead to closures and faculty layoffs, according to law professors following the statistics. Based on current trends, the number of law school applicants for the 2013 school year is expected to number between 53,000 and 54,000, a 30-year low. In 2004, for example, 100,000 people applied to law schools, the New York Times reports. “Responding to the new environment,” the Times says, “schools are planning cutbacks and accepting students they would not have admitted before.” Experts attribute the drop in interest to higher tuition costs and a decline in high-paying law firm jobs. University of Southern California law and economics professor Gillian Hadfield told the Times there is “a significant mismatch between demand and supply.” According to Hadfield, the problem is not an overproduction of lawyers. “Actually, we have an exploding demand for both ordinary folk lawyers and big corporate ones,” she said. But general practitioners dealing with matters like mortgages and divorce have a hard time making a living, she said. Big companies, on the other hand, aren’t satisfied with law schools’ emphasis on academics at the expense of practical training, she said.

      Tuition At Public Colleges And Universities Hit Record Levels In 2012  - College tuition has been rising steadily for decades. Average tuition rose by more than 8 percent in 2012 and now tops $5,000 a year, a record high, according to a new report from the State Higher Education Officers Association, CNN Money reports: Average tuition costs – the amount students paid in tuition and fees after state and institutional aid was taken into account — rose by 8.3% to an average of $5,189 in the 2011-12 school year, the State Higher Education Executive Officers Association reported. In the previous academic year, students paid an average of $4,793. At the same time, state and local funding for operating expenses, research and student aid fell by 9% to $5,896, the lowest level in 25 years, said association president Paul Lingenfelter. The upward trend is likely to continue in 2013, since state governments plan to spend 10.8 percent less on higher education this year than they did in the year prior to the Great Recession. Only 12 states now spend more on higher education than they did before the recession. The decrease in funding has contributed to the six-fold increase in college tuition over the last 30 years.

      The Diploma Gap Between Rich and Poor - When people get more education, they become more productive and help strengthen the entire U.S. economy. So it is discouraging to see that students from wealthy families are increasingly more likely to graduate from college than are those from poor families. This perpetuates inequality from one generation to the next and limits the economic benefits that could come if a wider swath of the population earned college degrees.  Looking at children born in the early 1960s, the researchers found that only 5 percent of children from families in the lowest-income quartile completed college, while 36 percent of those from families in the highest-income quartile did.For children born around 1980, the college completion rate among low-income students rose to 9 percent, but among high- income students it jumped to more than half (54 percent). In other words, over two decades, the college income gap widened to 45 percentage points from 31 percentage points. This widening was observed even after the researchers accounted for differences

      How Colleges Are Making Income Inequality Worse -  In higher education, as in health care, America boasts many of the world’s best institutions but produces disappointing results overall. Access is improving: Since 1972, the share of low-income high school graduates who start college immediately has about doubled, to more than half, according to the National Center for Education Statistics. Yet nearly half of students who enroll in a postsecondary institution don’t complete a degree within six years. For African-Americans and Hispanics, the number is about three-fifths. Despite Washington’s huge investment in access, since 1970 the gap in college completion rates between students from the bottom and top fifths of the income ladder has doubled. Those from the top fifth are now seven times more likely to graduate than those from the bottom.Debt compounds the problem. Stagnant family incomes and rising tuition expenses—driven by both growing costs and shrinking state support for public colleges—have forced students to borrow twice as much annually as a decade ago. Student debt has soared past $1 trillion (outpacing credit-card debt) and, as the Education Trust notes, low-income students are more likely to borrow, and less likely to finish, than higher-income classmates.Education remains critical to reversing the erosion in upward mobility that has made it harder for kids born near the bottom to reach the top in the United States than in many European nations. Yet with these dispiriting trends in cost, completion, and debt, higher education arguably now serves more to stratify than to dissolve class privilege.

    • Public Support for Education in Real Terms - Travis Waldron is rightfully worried about the cost of a college education and the diminishing support from the government:  Only 12 states now spend more on higher education than they did before the recession. The decrease in funding has contributed to the six-fold increase in college tuition over the last 30 years.  A six-fold increase? Let’s be fair – consumer prices today are about 2.5 times what they were 30 years ago – so in real terms, college tuition is up by a factor of 2.5 or so. But OK – this is a staggering increase. Mark Thoma highlighted this as well and is getting some comments doubting that government support for education has declined. This table labeled “Table 3.15.6. Real Government Consumption Expenditures and Gross Investment by Function, Chained Dollars” shows that in real terms (2005$), total government spending on education was $690 billion in 2009 but was only $648 billion in 2011. Any fiscal restraint now prolongs this Great Recession. And this kind of austerity impairs the creation of human capital needed for long-term growth. It is not just the cutbacks in higher education that concern me but the general tendency for state and local governments to layoff teachers in order to balance their budgets.

      ‘We are angry’: Quebec students return to streets for nighttime protest against tuition increases, 50 arrested -  People who thought they’d seen the last of the nighttime protests in Montreal streets against tuition fee increases heard the familiar drone of police helicopters over the city core Tuesday night as the noctural gnashing of teeth by students over the cost of their education was renewed, boiling over into a battle with police. Montreal’s first nighttime tuition-fee protest in several months was almost a mirror image of the demonstrations that filled the city’s streets last year. The biggest change was that protesters were chanting against Premier Pauline Marois instead of Jean Charest, who also tried to jack up tuition when he was premier. And like some of last year’s marches, Tuesday night’s protest ended with the crash of breaking plate glass splitting the night, the scream of police sirens and the clatter of batons against riot shields as police charged the thousands of demonstrators.

      College could cost over $300k in 10 years - You may need a billionaire friend to help pay for college in the future. Vanguard Personal Investors released its college cost-estimator Monday. The calculator works by entering the number of years until your child is in college, then how many years your child will be in school, and the tuition cost at a certain college in today's dollars. The website puts in an inflation rate of 6 percent. 9NEWS decided to put it to the test by using current in-state tuition rates at CU Boulder, CSU in Fort Collins and DU. Estimated costs in the year 2031:

      •CU: $295,645
      •CSU: $53,431
      •DU: $496,268.

      Higher and Higher Ed; Will no one stop the rising cost of college? - The statistics are astonishing. Controlling for inflation, tuition and fees have risen 26 percent during the past ten years at private four-year colleges, 47 percent at public two-year colleges, and 66 percent at public four-year colleges. The most plausible explanation for why this is so, offered by Richard Vedder, a gadfly economist at the American Enterprise Institute, is “because they can.” A college degree is such an obvious necessity in this economy that people will pay nearly anything for it, and colleges know that. Yes, price increases have been mitigated by needs-based grants and loans—some from the colleges, more from the government. But subsidies merely transfer the cost of inflation to taxpayers, while loans burden students with unprecedented levels of debt.

      Student debt triples since 2004 - The New York Fed (pdf) has some interesting statistics regarding the increase and composition of student debt by age and amounts. Such debt has tripled in the last nine years.

      A Dangerous ‘New Normal’ in College Debt - As college tuitions rise and state and local funding for higher education falls — along with median household incomes — students are taking on staggering levels of debt. And many can’t find jobs that pay well enough to quickly pay off the debt. This has long-term implications for our society and our economy, as that debt begins to affect when and if young people start families or enter the housing market.  The student debt crisis may become a dangerous “new normal,” according to a report this week by the nonprofit State Higher Education Executive Officers Association:  “In the ‘new normal,’ retirement and health care costs simultaneously drive up the cost of higher education, and compete with education for limited public resources. The ‘new normal’ no longer expects to see a recovery of state support for higher education such as occurred repeatedly in the last half of the 20th century. The ‘new normal’ expects students and their families to continue to make increasingly greater financial sacrifices in order to complete a postsecondary education. In constant dollars, state and local educational appropriations per full-time student reached their high in 2001, at $8,670. In 2012, those appropriations fell by nearly one third, to just $5,896.

      The future of online education - MIT News On Monday at the MIT Media Lab, MIT and Harvard University, the founders of the online-learning initiative edX, convened a group of academic leaders and other online-learning experts for a daylong summit meeting titled “Online Learning and the Future of Residential Education.” The conversation was broken into three keynote addresses and three panel discussions. But while the panels were organized around different topics, several themes recurred across all of them. One was a questioning of the pedagogical efficiency of lectures. Eric Mazur, a professor of physics at Harvard, cited a study (see PDF) by MIT professor of media arts and sciences Rosalind Picard and her students in which subjects were fitted with wristbands that measured skin conductance as an index of the “arousal associated with emotion, cognition and attention.” Mazur presented a figure from the Picard group’s paper showing wrist-sensor readings for a single MIT student over the course of week. The sensor recorded regular, strong spikes during periods of study, lab work and homework, but the readout flatlined during two activities: attending class and watching TV. During the second panel, “Online Learning: Today and Tomorrow,” Khan echoed Mazur’s point.

      Student Loan Snapshots - The total value of outstanding student loans has nearly tripled in the last eight years--and 17% that total value is owed by people over the age of 50. These and more disturbing facts are apparent from a presentation by Donghoon Lee of the New York Federal Reserve on "Household Debt and Credit: Student Debt," given last week as part of the quarterly release of data on overall household debt and credit trends.  Start with the big picture. Total student debt outstanding has risen from about $350 billion in 2004 to $950 billion by fourth quarter 2012. One-third of that debt is owed by people over the age of 40, and shockingly, at least to me, 5% is owed by people over the age of 60.Other kinds of debt like credit card loans, auto loans, and home equity loans are down from the peaks they hit just before the recession, while student loans are way up. The increase is built on more students taking out loans each year, and the average balance per borrower is rising.Perhaps not surprisingly, given these borrowing trends combined with poor job prospects and continued high unemployment, the rate of delinquencies on loans is up. This is measured in two ways. Some borrowers are not yet "in repayment," because they are able to defer their loan for some reason--like they have continued on to another degree. The figures on the right don't count the loan as delinquent if you aren't yet "in repayment." But for those in repayment, on the right, about one-third of all borrowers are more than 90 days delinquent on their payments, compared with one-fifth back in 2004.

      Student Loan Bubble So Big It’s Trumping Credit Cards as a Spending Driver - Yves Smith - On February 28, the New York Fed released a study on student loans. Much blogosphere chatter, of the “it’s a bird, it’s a plane, it’s a bubble” based on charts like this….pointing out that student debt outstanding is nearly three times as large as the total as of 2004, and more scary charts like this: This is even uglier than you might think, since 30-49 are peak earning years. Oh wait, that was the old normal. And when you integrate this with the just-released New York Fed quarterly household credit survey, you reach some not pretty conclusions. Student debt is now a bigger source of consumer borrowing than credit cards (we are speaking in terms of macroecomoic impact): And it’s now the loan category where borrowers are in most distress (hat tip Russell H): This level is particularly ugly given that student loans cannot be discharged in bankruptcy. It’s more rational to get in arrears on anything else, since you have some hope of negotiating for a restructuring.  As Warren Mosler said via e-mail: Student loans have been making a meaningful contribution to aggregate demand. If origination slows it’s another negative for growth and output to add to the tax hikes and spending cuts. This is not to say I favor the student loan channel for education. Quite the contrary, in fact. But just like the savings and loan credit expansion leg propelled the Reagan years, the .com and y2k credit expansion the Clinton years, and the sub prime credit expansion the Bush years, to a much lesser extent the student loan credit expansion has supported the current modest recovery. And when they end the support ends.

      New Front Against Enforcement of Securitized Student Loans - In plain English if a chartered bank did not take in the loan as a loan receivable and instead converted it into a bond receivable to investors, then the bank took no risk at all, and there was no reason to provide a guarantee of a risk of loss that did not exist. The misrepresentation of the financial community has dumped hundreds of billions of "losses" onto the federal government when those losses were actually covered by various risk avoidance vehicles like insurance and credit default swaps. So here is how it is working now, from what I can determine at this time: the bank stands in as naked nominee in the loan with no assumption of any risk and therefore nothing to guarantee. The bank is renting out its name to grab onto the federal guarantee because it is not apparent that investors are funding the loan and that insurance and credit de fault swaps are not only protecting against the loss, but providing the same opportunity for Wall Street to create tier 2 yield spread premiums and multiple payments of the entire principal --- payable to Wall Street investment banks who never had a nickle in the game. The proceeds of insurance and credit default swaps are neither reported nor paid to the investors --- just like the mortgage mess.

      Student-Loan Securities Stay Hot - Student loans are souring at a growing rate—and investors can't seem to get enough.SLM Corp., the largest U.S. student lender, last week sold $1.1 billion of securities backed by private student loans. Demand for the riskiest bunch—those that will lose money first if the loans go bad—was 15 times greater than the supply, people familiar with the deal said.  Meanwhile, SecondMarket Holdings Inc., a New York-based trading platform best known for private stock shares, said it would roll out on Monday a platform to allow lenders to issue student-loan securities directly to investors. "The catalyst for this new suite of services is investor demand," said Barry Silbert, founder and chief executive of SecondMarket. But while investors are piling into student loans, borrowers are falling behind on their payments at a faster clip. According to a Thursday report by the Federal Reserve Bank of New York, 31% of people paying back student loans were at least 90 days late at the end of the fourth quarter, up from 24% in the fourth quarter of 2008. The figures include federal student loans and those issued by private lenders.

      As coal industry declines, what will happen to all those retired miners?: The U.S. coal industry has been struggling in recent years. Mining companies are getting crushed by rising costs, new pollution rules and competition from cheap natural gas. Mass layoffs are ticked up of late. But there’s another aspect to the decline of coal that’s getting less attention — namely, what will happen to the hundreds of thousands of currently retired coal miners who still rely on these companies for pensions and health benefits? There are a few big issues here: First, the United Mineworkers of America’s pension plan, which was established in 1974 and covers more than 100,000 retired miners, is seriously underfunded. That’s partly because of losses from the recent financial crisis and partly because contributions are dwindling — as time passes, there are fewer and fewer mining companies left to chip in to the multi-employer plan. Second, a controversial bankruptcy case is putting thousands of retirees’ health benefits at risk. Back in 2007 and 2008, two of the largest U.S. mining companies, Peabody Energy and Arch Coal, spun off the majority of their unionized mines and retirees into a brand-new company, Patriot Coal. A few years later, Patriot declared bankruptcy. Some 12,000 retired miners and their dependents now face the loss of some or all of their health benefits.

      N.J. Unfunded Pension Liabilities Widen to $47.2 Billion - New Jersey’s public pension deficit swelled 13 percent to $47.2 billion in fiscal 2012 as the state continued to make partial contributions to its retirement plans. The system had about 64.5 percent of assets needed to cover promises to current and future retirees as of July 1, 2012, compared with 67.5 percent a year earlier, when the gap stood at $41.7 billion, according to data posted on the state Treasury Department’s website. “They’re making reforms, which is good. But that liability is still growing.” New Jersey’s pension shortfall reached $53.9 billion in 2010 after a decade of expanded benefits and skipped payments. The gap narrowed to $36.3 billion after Governor Chris Christie signed bills that boosted contributions from employees, raised the minimum retirement age for new workers and froze cost-of- living adjustments for retirees. It swelled when Christie skipped a $3 billion pension payment in fiscal 2011.

      Pension woes weigh on Illinois budget - Illinois Governor Pat Quinn unveiled what he called a “difficult” but “honest” budget on Wednesday, taking aim at legislators for their inability to take action on the state’s $96bn unfunded pension liability. “We all know that we must reform the Illinois public pension system,” he said in an address to legislators in the capital, Springfield. “So, members of the general assembly, what are you waiting for?” Mr Quinn laid out his vision for reforming the pension system, which has the highest funding gap in the country, including suspending 3 per cent annual cost of living adjustments for those with higher pensions. The state’s pension obligations are set to rise over $900m in the coming fiscal year, beginning in July. Despite mounting pressure from unions, civic groups and the governor, state legislators have yet to propose any reforms this session, after failing to do so last year.

      The Pension Fund That Ate California - California taxpayers help fund CalPERS’s pensions and ultimately guarantee them, so they might wonder: How could a financially troubled former union leader occupy such a powerful position at the giant retirement system, which manages roughly $230 billion in assets? The answer lies in CalPERS’s three-decade-long transformation from a prudently managed steward of workers’ pensions into a highly politicized advocate for special interests. Unlike most government pension funds, CalPERS has become an outright lobbyist for higher member benefits, including a huge pension increase that is now consuming California state and local budgets. CalPERS’s members, who elect representatives to the fund’s board of directors, ignored concerns over Valdes’s suitability because they liked how he fought for those plusher benefits. CalPERS has also steered billions of dollars into politically connected firms. And it has ventured into “socially responsible” investment strategies, making bad bets that have lost hundreds of millions of dollars. Such dubious practices have piled up a crushing amount of pension debt, which California residents—and their children—will somehow have to repay.

      Retirees No Better Off Than In 1999 - ICI recently released their retirement plan data through Q3 of 2012 - including IRA's, defined contribution plans, private defined benefit plans, state and local government pension plans, federal pension plans, and annuities. The good news is that the liquidity induced rally over the last four years has finally, along with plan matches and contributions, recovered much of the lost value that occurred during the financial crisis in 2008.  The bad news is, as shown below, that on average each working age person has roughly only $79,651 saved up for retirement and is no better off today than they were in 1999. There are two major problems that arise from this.  The first is that for individuals trying to save for their retirement they have lost 14 years of irreplaceable time to do so. Secondly, consumption makes up roughly 70% of the overall economy - and with the average income at roughly $55,000 per year - retirees have little margin of error with only 18 months of incomes saved up in retirement plans.

      Have Americans Given Up On Saving for Retirement? - In the wake of the Great Recession, retirement-minded Americans are feeling an unprecedented amount of futility. They are under-saved and — worse — see little reason to do anything about it. That’s the alarming conclusion in a new report from the Deloitte Center for Financial Services, which found that 60% of pre-retirees believe health care costs will consume their savings no matter how much they save. Similarly, 39% believe investment returns won’t be high enough to provide decent retirement income regardless of how much they manage to put away. Deloitte found exasperation at every turn: 58% don’t have a retirement plan; nearly 40% don’t know what an annuity or mutual fund is; and 20% expect to rely purely on Social Security for their retirement needs. More than half don’t trust anyone’s advice. Collectively, we seem to be throwing the towel. It’s not difficult to understand why, to be sure. After a sharp pullback in 2008-09, stocks are only now touching levels they first reached in the late 1990s. So the market has been dead money for nearly 15 years if you bought then and simply held on. A lot of folks who were on track with savings at, say 45, have fallen way behind and now they are 60. This helps explain why so many boomers now plan to work past their normal retirement age of 66 or 67.

      A President Who'll Cut Social Security -- And Liberals Who Love Him Too Much - The spectacle of a supposedly liberal president repeatedly and needlessly trying to cut Social Security is enough to bring a reasonable, economically literate person to the point of existential despair. To see leading liberal lights like Rachel Maddow and Ezra Klein chuckle indulgently at those foolish Republicans in Congress over the subject -- Don't they know he's already giving them what they want? -- is to risk plunging into the depths of that despair. This week the president hosted a dinner for Republicans leaders where he worked to sell his budget proposal, including his harmful plan to cut benefits through the "chained CPI." National Security was the main course and Social Security was the dessert. And guess who wasn't coming to dinner: The elderly, the disabled, or any policy experts who understand the disastrous implications of the chained CPI. The Maddow/Klein exchange (which we'll bring to you as soon as a transcript is available) is the crest of a building wave in pro-Democratic Party commentary which says, as Klein puts it, that "what we have here is a failure to communicate." Klein says that at least "some of the gridlock (in Washington) is due to poor information." Jonathan Chait bemoans the fact that Republicans "won't acknowledge [Obama's] actual offer, which includes large cuts to retirement programs."

      Chained CPI for Social Security May Be Second Stupidest Idea in Washington - I would like to call cutting Social Security by adopting the chained CPI the worst idea seriously being considered in Washington, but that title already belongs to raising the Medicare eligibility age. Chained CPI is at least a strong contender for second place. First, cutting Social Security at this time is incredibly misguided because the private retirement system is clearly failing. Traditional company pensions are quickly becoming a thing of the past. Private retirement savings, like 401(k), have also failed to live up to their promise especially during the great recession. If anything, Social Security benefits should be increased to make up for the failure of the private retirement systems. Second, adopting a slower inflation index for senior citizens is completely unjustifiable. It is simply not a more accurate measure of inflation for this age group. Much of their spending is on health care and that has grown faster than other sectors. The Bureau of Labor Statistics actual has a separate consumer price index for the elderly based on their purchasing habits. It found inflation for the elder is actually slightly higher than the official measurement the government is currently using.  Finally, if you insist on cutting Social Security benefits, the chained-CPI is one of the worst possible ways to do it. The slow measure of inflation is a series of small cuts that builds with every passing year. That means the burden of cutting benefits this way falls primarily on the oldest individual. This is both idiotic and cruel. The oldest Americans are the one most likely to exhaust their private savings, most likely to need extra help, and are least able to perform a job to augment their income.

      The Life Expectancy Zombie - Paul Krugman  - So, one of the moments in my debate with JoScar — which wasn’t as bad as I felt, but should have gone much better — was my “wow” when JS raised the old line that life expectancy was 62 when Social Security started, so the program was no big deal. Let me just turn this over to the Social Security administration’s post on the issue:Life expectancy at birth in 1930 was indeed only 58 for men and 62 for women, and the retirement age was 65. But life expectancy at birth in the early decades of the 20th century was low due mainly to high infant mortality, and someone who died as a child would never have worked and paid into Social Security. A more appropriate measure is probably life expectancy after attainment of adulthood. As Table 1 shows, the majority of Americans who made it to adulthood could expect to live to 65, and those who did live to 65 could look forward to collecting benefits for many years into the future. So we can observe that for men, for example, almost 54% of the them could expect to live to age 65 if they survived to age 21, and men who attained age 65 could expect to collect Social Security benefits for almost 13 years (and the numbers are even higher for women). Also, it should be noted that there were already 7.8 million Americans age 65 or older in 1935 (cf. Table 2), so there was a large and growing population of people who could receive Social Security. Indeed, the actuarial estimates projected that there would be 8.3 million Americans age 65 or older by 1940 (when monthly benefits started). So Social Security was not designed in such a way that few people would collect the benefits.

      The War On Entitlements - The debate over reform of Social Security and Medicare is taking place in a vacuum, without adequate consideration of fundamental facts.These facts include the following: Two-thirds of Americans who are over the age of 65 depend on an average annual Social Security benefit of $15,168.36 for at least half of their income. Currently, earned income in excess of $113,700 is entirely exempt from the 6.2 percent payroll tax that funds Social Security benefits (employers pay a matching 6.2 percent). 5.2 percent of working Americans make more than $113,700 a year. Simply by eliminating the payroll tax earnings cap — and thus ending this regressive exemption for the top 5.2 percent of earners — would, according to the Congressional Budget Office, solve the financial crisis facing the Social Security system. So why don’t we talk about raising or eliminating the cap – a measure that has strong popular, though not elite, support? When asked by the National Academy of Social Insurance whether Social Security taxes for better-off Americans should be increased, 71 percent of Republicans and 97 percent of Democrats agreed. In a 2012 Gallup Poll, 62 percent of respondents thought upper-income Americans paid too little in taxes.Medicare, in turn, is financed by a flat 1.45 percent tax on the first $200,000 of earnings for a single person and $250,000 for a married couple, matched by the employer, after which it rises by a modest 0.9 percent on all income above the $200,000 and $250,000 levels.

      Expand Social Security -  Some people who have objected to my proposal for increasing Social Security retirement benefits have done so on the basis that this is something people should be personally responsible for. Essentially, life's a big test, and one element of that test is a lifelong commitment to amassing significant personal wealth that can be drawn down in your twilight years. If you fail, well, better luck next time. Except ... But there's no need for retirement income to be in this special category of things we must be personally responsible for. We are not personally responsible for many things in our lives. I didn't build the roads I drive on, or purchase the buses that stop regularly on my corner. Our hopefully somewhat democratically accountable governments provide many things for us. There are economic arguments about the areas where government should be more or less involved generally and ideological disagreements about the appropriate role for government. There will probably always be disagreement about just who should pay, and how. But there also practical arguments. If there's broad political agreement on a particular outcome, such as that most people should expect to have a reasonably comfortable retirement, then the question is how best to achieve that. I don't think 75-year-olds should face economic ruin and homelessness for any reason. I am not alone in that opinion. How do we ensure that?

      Build America Bonds, the Medicaid Expansion, and Trust Between the States and the Feds - States trying to decide whether to expand their Medicaid programs to cover more low-income uninsured might want to take a look at the fate of a more obscure federal program—cash subsidies to state and local governments that sell certain kinds of bonds, especially Build America  Bonds.  If they do, they’ll see what happens to a federal promise of aid when that commitment gets caught up in bigger fiscal issues.   Obamacare made what sounded like an offer governors couldn’t refuse: Agree to cover 16 million more low-income people under Medicaid and the feds will pick up the full cost of the expansion from 2014 through 2016 and pay 90 percent through 2020. Bubbling just beneath the surface of the debate over whether states should take the deal is an issue of trust: Would the feds keep their part of the bargain? And that brings us to BABs. State and local issuers took the deal and BABs were a huge hit. Investors—many of which don’t pay taxes–happily traded off the tax-exemption for the higher yield. Between 2009 and 2010, when Congress let the scheme expire, state and local governments sold $181 billion of taxable munis, and took the cash rebate. It seemed like a great deal all around.Except last week, as a result of the sequester, Treasury slashed $255 million from the $3.35 billion it was supposed to pay this year in subsidies for BABs (along with some other taxable munis). That leaves those state and local issuers on the hook for those higher yields but with about 8 percent less in federal aid than they were promised. Sometimes, life just isn’t fair.    

      Panicked Texas Republicans May Throw $100 Million Back At Women's Health - Oops! Remember that time that Texas lawmakers cut $73 million of family planning funding and thought that wouldn't have an effect on the overall birth rate in the Lone Star state? As it turns out, proving fewer alternatives to having babies means... that there will be more donut holes. I mean, paper clips. Wait, no, I mean babies. More babies. The Health and Human Services commission is now projecting that over 20,000 unplanned births are on the horizon for women in poverty on Medicaid, at a $237 million cost to taxpayers. Although the Texas Women's Health Program admittedly boasts an entertainingly tacky old-school Sweet Valley High-cover-style logo, Republican lawmakers have finally decided that its inadequacies will cost them more than the benefits of "defrauding the abortion industry." They've proposed an additional $100 million of general revenue to be filtered into Community Primary Care Services Program to be used specifically for women's health services.

      Mooching Off Medicaid, by Paul Krugman - Conservatives like to say that their position is all about economic freedom, and hence making government’s role in general, and government spending in particular, as small as possible. When it comes to conservatives with actual power, however, there’s an alternative, more cynical view of their motivations —’s all about comforting the comfortable and afflicting the afflicted, about giving more to those who already have a lot. And if you want a strong piece of evidence in favor of that cynical view, look at the current state of play over Medicaid. ... Last year’s Supreme Court decision upholding Obamacare also opened a loophole that lets states turn down the Medicaid expansion if they choose. And there has been a lot of tough talk from Republican governors about standing firm against the terrible, tyrannical notion of helping the uninsured. Now, in the end most states will probably go along with the expansion because of the huge financial incentives... Still, some of the states grudgingly allowing the federal government to help their neediest citizens are ... insisting that it must be run through private insurance companies. And that tells you a lot about what conservative politicians really want. Don’t tell me about free markets..., privatizing Medicaid will end up requiring more, not less, government spending, because there’s overwhelming evidence that Medicaid is much cheaper than private insurance.

      Welfare for the Medical-Industrial Complex - Paul Krugman - Stephen Brill’s long piece about medical costs has brought forth a mixture of praise and annoyance from health-care economics experts, including Aaron Carroll and Uwe Reinhardt; they’ve been screaming for years that our medical system charges too much, and so they’re both gratified and annoyed to see a major-media piece confirming what they’ve been saying all along. Weirdly, though, Brill sniffs at one thing that we know works to keep prices down: single-payer systems that can say no. There’s a reason single-payer systems are pretty much universally much cheaper than systems — even the Swiss system — that run things through private insurers. And it’s not just the administrative costs. Note that Medicaid, in particular, which is able to say no in ways Medicare can’t, is substantially cheaper than both Medicare and, even more so, private insurance. So why does Obamacare run through the private sector? Raw political necessity: this was the only way that it could get past the insurance industry’s power. OK, that was how it had to be. But you should really be outraged at the efforts of some states to ensure that the Medicaid expansion is done not via direct government insurance but run through the insurance industry. What you need to understand is that this is a double giveaway, both to the insurers and to the health care industry, because private insurers don’t have the government’s bargaining power. It is, bluntly, purely a matter of corporate welfare for the medical-industrial complex.

      Sessions Isn’t a Wonk McCarthyite, or a Wonk Anything - Last week, I wrote an item that made what can only be called a highly unflattering assessment of Alabama Senator Jeff Sessions. Sessions touted a study from the General Accounting Office that, he claimed, proved that Obamacare’s fiscal assumptions were lies and that the law would increase the deficit. In the item, I argued that the report showed no such thing and was following directed assumptions that its cost containment efforts would fail. I called Sessions a “Wonk McCarthyite,” and illustrated his fallacious reasoning with a tongue-in-cheek analogy to my asking the GAO to assume that Sessions were to acquire a nuclear weapon and detonate it in Manhattan, and then touting this report as finding that Sessions was going to murder 4 million people.Senator Sessions’s staff on the Budget Committee has contacted both me and my editor objecting to the item in the most strenuous terms. I have further explored the matter at length and determined that, in my haste, I treated Senator Sessions’s claims far too generously. Senator Sessions’s combination of ignorance and gross lack of intellectual standards turns out to be even more horrifying than I managed to initially communicate. Calling Sessions a "wonk McCarthyite" implies a level of policy understanding on his part that is wholly unsupported by the facts.

      Medicare doctors' pay to be cut -  The nation's Medicare doctors, already facing higher costs and sluggish revenue, now face a pay cut because of the automatic spending cuts that were triggered Friday. Under the so-called sequester, Medicare payments to health care providers, health care plans and drug plans will be reduced by 2% starting April 1, according to the Centers for Medicare & Medicaid Services.The bottom line is that doctors who treat Medicare beneficiaries will only be reimbursed 98 cents on every dollar for a vast array of services. Reimbursement for low-income beneficiaries is exempt. Overall, the cut will mean $11 billion less for doctors, hospitals and other providers in 2013. Last year, the agency doled out more than $500 billion in such payments. A 2% cut may not seem large, but Medicare payments to doctors have been lagging, said Dr. Jeremy Larazus, president of the American Medical Association. "Over the last 12 years, Medicare payments to physicians have increased by only 4%, while the cost of providing care has jumped 20%," said Lazarus.

      Obama Asks Health Plans to Report Rising Rates- The Obama administration says it will require health insurance companies to report all price increases, no matter how small, to the federal government so officials can monitor the impact of the new health care law and insurers’ compliance with it. Under current rules, the federal government requires insurers to report information on rate increases of 10 percent or more. New rules being issued by the administration will extend this requirement to all rate increases for all health plans sold to individuals, families and small businesses — a total of 60 million people. Federal health officials said they needed the additional data to monitor trends in premiums as major provisions of the law take effect and more people buy insurance. “The purpose of this policy is to identify patterns that could indicate market disruption, which could occur given the additional standards that apply” to insurance starting next year, the administration said in a justification of the rules adopted by Kathleen Sebelius, the secretary of health and human services.

      Painkiller Abuse Calls for Closer Watch on Prescriptions - The profession once took pain to be a positive sign of healing. As recently as 50 years ago, even patients recovering from surgery went without medicine to relieve the ache and discomfort. Today, when patients complain of pain, doctors listen and respond, and in many ways that’s a good thing.  It has brought about a new problem, however: an epidemic of overdose from opioid painkillers. The number of deaths -- 16,651 in 2010, according to statistics released last month -- has tripled since 1999 and is now greater than fatalities from heroin and cocaine combined. For every fatality, there are 35 emergency-room visits and 161 other reports of abuse or dependence. Statistics show that the rise in abuse has tracked a rise in doctors’ orders for the drugs.  To fight back, the federal government is expected to soon tighten the rules for prescribing a popular subset of painkillers, those containing the narcotic hydrocodone mixed with acetaminophen (Vicodin is one of these) or with ibuprofen. This would be a matter of moving hydrocodone combinations up a notch from Schedule III to Schedule II, the most-restricted category of legal drugs, as recommended by an expert panel. Then, no refills will be allowed; patients will be able to get additional pills only by new prescription, either written or prescribed through an electronic system.

      Some U.S. women dying younger, and no one knows why -- A new study offers more compelling evidence that life expectancy for some U.S. women is actually falling, a disturbing trend that experts can't explain. The latest research found that women age 75 and younger are dying at higher rates than previous years in nearly half of the nation's counties -- many of them rural and in the South and West. Curiously, for men, life expectancy has held steady or improved in nearly all counties. The study is the latest to spot this pattern, especially among disadvantaged white women. Some leading theories blame higher smoking rates, obesity and less education, but several experts said they simply don't know why. Women have long outlived men, and the latest numbers show the average life span for a baby girl born today is 81, and for a baby boy, it's 76. But the gap has been narrowing, and data from the Centers for Disease Control and Prevention has shown women's longevity is not growing at the same pace as men's. The phenomenon of some women losing ground appears to have begun in the late 1980s, though studies have begun to spotlight it only in the past few years.

      The Decline of Communities Could Explain America’s Health Problems - Strong communities made up of neighbors that care for, and about, one another are low on the list of health concerns of most Americans.  In a survey conducted for The Atlantic in conjunction with GlaxoSmithKline, participants ranked regular access to doctors and dentists (82 percent said it was "very important") second only to clean air and water (87 percent) as community resources that are important to their health.  There's good reason for fixing health care to be a priority in the U.S., but a burgeoning school of thought suggests that access to care can turn out to matter less, in terms of overall health, than we're apt to assume. The World Health Organization insists, "to a large extent, factors such as where we live, the state of our environment, genetics, our income and education level, and our relationships with friends and family all have considerable impacts on health, whereas the more commonly considered factors such as access and use of health care services often have less of an impact." "There's a mismatch between the structure of the health care system and what's actually killing people." Population health, he adds, is better served by prevention measures and by attention the factors, like place, that impact well-being.

      U.S. Has 7th Highest Cancer Rate in the World: - About 300 of every 100,000 Americans develop cancer each year, which means the U.S. has the seventh highest cancer rate in the world. “We are higher than we should be, and this is not the type of list you want to be on top of,” says Alice Bender, MS, RD, a nutrition communications manager at the American Institute for Cancer Research (AICR) in Washington, D.C. The new rankings were compiled by the AICR,using World Health Organization (WHO) estimates. The American Cancer Society and the International Agency for Research on Cancer (IARC) in France are planning to issue a report on the same data in the coming weeks. The U.S. ranks 10th in the world for cancers in men and 8th for cancer in women, the report shows.

      Deadly Drug-Resistant Infections Rise in Hospitals, Report Warns - Deadly infections with bacteria that resist even the strongest antibiotics are on the rise in hospitals in the United States, and there is only a “limited window of opportunity” to halt their spread, health officials warned Tuesday.  The bacteria, normally found in the gut, have acquired a lethal trait: they are unscathed by antibiotics, including carbapenems, a group of drugs that are generally considered a last resort. When these resistant germs invade parts of the body where they do not belong, like the bloodstream, lungs or urinary tract, the illness may be untreatable. The death rate from bloodstream infections can reach 50 percent.  Dr. Thomas R. Frieden, director of the CDC, called the organisms “nightmare bacteria”  and noted that they could pass their trait for drug resistance — encoded in a scrap of genetic material called a plasmid — along to other bacteria.  Most people who contract these infections already have other serious illnesses that require complicated treatment and lengthy stays in hospitals, nursing homes or long-term care facilities.According to a new report by the disease centers, among all infections with gut bacteria, the proportion caused by carbapenem-resistant types rose to 4 percent in 2012, from 1 percent in 2001; among infections caused by one type of bacteria, Klebsiella, 10 percent have become resistant, compared with 2 percent a decade ago.

      CDC sounds alarm on deadly, untreatable superbugs  - A family of "nightmare" superbugs — untreatable and often deadly — is spreading through hospitals across the USA, and doctors fear that it may soon be too late to stop them, senior health officials said Tuesday. "These are nightmare bacteria that present a triple threat," said Thomas Frieden, director of the Centers for Disease Control and Prevention. "They're resistant to nearly all antibiotics. They have high mortality rates, killing half of people with serious infections. And they can spread their resistance to other bacteria." So far, this particular class of superbug, called carbapenem-resistant Enterobacteriaceae, or CRE, has been found only in hospitals or nursing homes, rather than in the community, Frieden said. But officials sounded the alarm partly because, if the bacteria's spread isn't contained soon, even common infections could become untreatable. The superbug tends to strike immune-compromised people who are hospitalized for a long time or living in a nursing home, Frieden said. "Unfortunately, it doesn't seem like anything is slowing their spread." In 2001, only 1.2% of the common family of bacteria, Enterobacteriaceae, were resistant to carbapenem antibiotics — the strongest class available. By 2011, that figure had jumped to 4.2%

      Stubborn TB Exposure Grows Along the Border - Four years ago, while living in this teeming border city, Gonzalo Garcia had no idea he was developing a potentially deadly form of tuberculosis. Exactly how long he had it will never be known. He says he started losing weight and becoming tired and tried to get help. But it took a year before a doctor finally figured out what was wrong: He had a drug-resistant strain of TB. "Many doctors said I was just fine," said Mr. Garcia, sitting in the clinic where he was cured.  To this day, it isn't clear if he infected anyone on either side of the border while he was contagious. But his tale illustrates a nagging concern among health officials who say the 2,000-mile border between the U.S. and Mexico could become a breeding ground for one of the hardest forms of TB to treat. Already, both California and Texas, as well as some states on the Mexico side of the border, have unusually high rates of drug-resistant TB. "This is a very hot region" for drug-resistant TB, With tuberculosis of any form, people can get around until the disease is quite advanced. "You will go and work and move around," he said. "You will transmit the disease before you know you're sick."

      Mortality Under Age 50 Accounts For Much Of The Fact That US Life Expectancy Lags That Of Other High-Income Countries - Life expectancy at birth in the United States is among the lowest of all high-income countries. Most recent studies have concentrated on older ages, finding that Americans have a lower life expectancy at age fifty and experience higher levels of disease and disability than do their counterparts in other industrialized nations. Using cross-national mortality data to identify the key age groups and causes of death responsible for these shortfalls, I found that mortality differences below age fifty account for two-thirds of the gap in life expectancy at birth between American males and their counterparts in sixteen comparison countries. Among females, the figure is two-fifths. The major causes of death responsible for the below-fifty trends are unintentional injuries, including drug overdose—a fact that constitutes the most striking finding from this study; noncommunicable diseases; perinatal conditions, such as pregnancy complications and birth trauma; and homicide. In all, this study highlights the importance of focusing on younger ages and on policies both to prevent the major causes of death below age fifty and to reduce social inequalities.

      Even As Mortality Fell In Most US Counties, Female Mortality Nonetheless Rose In 42.8 Percent Of Counties From 1992 To 2006 - Researchers increasingly track variations in health outcomes across counties in the United States, but current ranking methods do not reflect changes in health outcomes over time. We examined trends in male and female mortality rates from 1992–96 to 2002–06 in 3,140 US counties. We found that female mortality rates increased in 42.8 percent of counties, while male mortality rates increased in only 3.4 percent. Several factors, including higher education levels, not being in the South or West, and low smoking rates, were associated with lower mortality rates. Medical care variables, such as proportions of primary care providers, were not associated with lower rates. These findings suggest that improving health outcomes across the United States will require increased public and private investment in the social and environmental determinants of health—beyond an exclusive focus on access to care or individual health behavior.

      Russia finds ‘new bacteria’ in Antarctic lake - Russian scientists believe they have found a wholly new type of bacteria in the mysterious subglacial Lake Vostok in Antarctica, the RIA Novosti news agency reported on Thursday. The samples obtained from the underground lake in May 2012 contained a bacteria which bore no resemblance to existing types, said Sergei Bulat of the genetics laboratory at the Saint Petersburg Institute of Nuclear Physics. "After putting aside all possible elements of contamination, DNA was found that did not coincide with any of the well-known types in the global database," he said. "We are calling this life form unclassified and unidentified," he added.

      Sugar is behind global explosion in type 2 diabetes, study finds  -- Sugar is behind the global explosion in type 2 diabetes, say researchers who claim it plays a uniquely damaging role in causing a disease that experts fear could overwhelm the NHS. Obesity is usually cited as the main driver of diabetes. But a new study by US medical researchers identifies sugar as a predictor of diabetes separately from obesity. The findings, published in the scientific journal Plos One, do not claim that sugar causes obesity. But they are significant because they pinpoint it as being closely associated with diabetes, a disease that at least 2.7 million Britons already have.

      It s Time to Rethink America’s Corn System - So why do we, as a nation, grow so much corn?The main reason is that corn is such a productive and versatile crop, responding to investments in research, breeding and promotion. Corn can be used for food as corn flour, cornmeal, hominy, grits or sweet corn. It can be used as animal feed to help fatten our hogs, chickens and cattle. And it can be turned into ethanol, high-fructose corn syrup or even bio-based plastics. But it is important to distinguish corn the crop from corn the system. As a crop, corn is highly productive, flexible and successful.   However, many are beginning to question corn as a system: how it dominates American agriculture compared with other farming systems; how in America it is used primarily for ethanol, animal feed and high-fructose corn syrup; how it consumes natural resources; and how it receives preferential treatment from our government. The current corn system is not a good thing for America for four major reasons.

      The lasting effect of the initial allocation of land -  One of the most basic predictions about a competitive market is that the initial allocation of a resource should not influence the efficiency of its use. A terrific paper by Gary Libecap and Dean Lueck shows that this prediction fails dramatically in the market for land.They look at the 116 billion square meters of land in the state of Ohio. Because of an accident of history, a large fraction of these square meters were assembled into irregularly shaped parcels via an uncoordinated process of private claims by independent individuals. The rest were assembled first into rectangular parcels along the lines of the survey called for in the Northwest Ordinance and then transfered to private ownership. It’s worth reading the paper to get all the details, but the punch line is that this difference in the initial bundling of small bits of land had a lasting effect on how they are used. Today, more than 200 years later, a flat square meter is worth 30% less if it was initially assigned to an irregularly shaped parcel.

      How Food Companies Exploit Americans with Ingredients Banned in Other Countries - Thoughts of outrage, unfairness, disbelief, and ultimately grief consumed me while I was doing this investigation. A list of ingredients that are banned across the globe but still allowed for use here in the American food supply recently made news. While I have written about some of those ingredients before, this list inspired me to look a little deeper and find out how pervasive this issue is for us. Could these banned ingredients be contributing to the higher mortality and disease rates here in the U.S.? The United States spends 2.5 times more on health care than any other nation, however, when compared with 16 other nations we come in dead last in terms of health and life expectancy for men and near the bottom for women. Food is medicine, and plain and simple, if our food is sick (filled with GMO’s, chemicals,  additives, artificial ingredients, and/or carcinogens), collectively we as a country are going to continue to be sick. Using banned ingredients that other countries have determined unsafe for human consumption has become a pandemic in this country. To prove this point, I found the best and easiest place to look for evidence was just across “the pond” in the United Kingdom, where they enjoy some of the same types of products we do – but with totally different ingredient lists.

      Expiration of first-generation Roundup Ready soybeans - The patents for Monsanto's first generation of pesticide-resistant soybeans will expire in 2014. Genetically modified organisms (GMOs) have for many years been protected by patents, which allow one company to forbid farmers from saving and growing a particular type of crop seeds.  Without patent protection, farmers will be able to grow the pesticide-resistant soybeans, called Roundup Ready soybeans, without paying royalties and licensing fees to Monsanto. Monsanto will still use patents to protect the company's new line of GMO soybeans, called Genuity Roundup Ready 2 Yield.  There had been some fear that Monsanto would use patents on specific seed varieties to extend the protection of first-generation Roundup Ready technology, but -- if I understand this Monsanto press release correctly -- it appears the company plans to let this first-generation technology really enter the public domain without any trickery involving specific seed varieties.  Monsanto does not plan to require farmers to destroy unsold seeds from the final patent-protected harvest, but instead the farmers may go ahead and save those seeds for the first legal non-licensed planting.

      Time To Stop Monsanto And The US Supreme Court -The US Supreme Court heard a case on February 19 that is interesting perhaps not even so much because of the topic at hand but more because of the level of absurdity involved. It feels like we warpsped our way into a parallel universe where the laws of nature are entirely different from those on earth. That is to say, the court should never have been in a position to hear the case, but it has created the legal space for itself, aided and abetted by Congress and the US patent system, to hear it anyway. Because of this we should all ask ourselves: How on earth have we ever allowed things to get this far? What were we thinking, and what were we not, because we were busy doing other things? And finally: how do we get out of this parallel universe and into our own? I would argue that it's perhaps the US Supreme Court itself (and maybe the US government as a whole) that should be taken to court by the international community, for instance for grossly overstepping its legal boundaries, but let's first look at the case before the court last week.

      Ag lobbyists grab billions from taxpayers - Farmers deserve all the credit they get for supplying the nation with wholesome, plentiful food. Their lobbyists, however, have exploited the heartland's good name for too long. Their greed for money and power on Capitol Hill is feeding a backlash against farm subsidies and other government support for a business that plainly doesn't need it. After decades of getting their way, agriculture lobbyists have failed to pass a farm bill — for good reason. The legislation they cooked up over the past year was anti-competitive, wasteful and so excessively costly that it rang alarm bells on both sides of the aisle, even in free-spending Washington. At the same time the farm bill has stalled, trade deals have moved forward, threatening entrenched agricultural interests. Formal talks will open in June for a potentially far-reaching pact with Europe. A similar agreement with some of the biggest economies in Asia also is in the works. The pace of the Asia negotiations is likely to get a welcome boost from the U.S.-European Union activity. A new era of freer trade could be in the offing. In the past, agricultural interests would have dictated many of the terms. Yet preliminary talks have pointed to reduced subsidies and fewer rules. Farm sectors that have profited from protectionism could be getting a much-needed dose of market competition.

      Is No One Paying Attention? We’ve Lost 9.7 Million Acres of CRP Land in Five Years. - The amount of land enrolled in the Conservation Reserve Program (CRP), at 27.1 million acres, is down by 26 percent, or 9.7 million acres in the past five years, to a 25 year low. During this same time period, corn acreage has increased by 13 million acres. Farmers are once again planting crops on marginal lands “fencerow to fencerow” to cash in on today’s high commodity prices. CRP payments haven’t risen to compete with crop returns, and the program itself is being whittled away by Congress.  The Conservation Reserve Program exists to provide land owners with some financial incentive to idle their land, which in turn benefits the environment while providing commodity price support by reducing surplus production. But now, ethanol policy makes that curb of surplus production unnecessary. The original CRP legislation, the Food Security Act of 1985, set a goal of enrolling over 40 million acres into the program by 1990 but that has never been reached and is now falling sharply. The laws regulating the program have been tweaked many times since begun in 1985, being tugged and pulled by various special interests. Prior to the CRP, we had “set aside acres” in the 1970′s and “soil bank” acres in the 1960′s.

      U.S. Drought Intensifies in Texas and Florida - Drought expanded in two key areas of the country last week – Florida and West Texas – where several weeks of low rainfall have allowed already dry conditions to intensify, according to an update to the U.S. Drought Monitor released Thursday. While much of the East Coast has seen heavy precipitation over the past two weeks, very little of that has extended into the Florida peninsula. According to the Drought Monitor, “abnormal dryness” pushed into all of southern Florida, while conditions of “severe drought” expanded in the eastern and central parts of the state. Meanwhile, relatively wet conditions in the Florida Panhandle have kept the northwestern part of the state out of drought.

      India's grain mountain grows despite push for exports: (Reuters) - India will be unable to consume or export enough wheat and rice to rein in a record stockpile after another bumper harvest, a failure that means crops risk rotting in fields instead of being sold on world markets to cash in on higher prices. In March, farmers in India will begin to harvest the sixth consecutive wheat crop expected to exceed demand, and when threshing is over in June the government's combined wheat and rice stocks are set to hit 100 million tonnes. That is about a fifth higher than the volume in storage a year ago. The grain mountain is worth about $30 billion and the nation of 1.2 billion will soon have enough wheat piled up to feed its poor for a year. But in a stark example of India's corruption-plagued and inefficient food distribution and storage system, much will simply end up rotting in a country with 500 million poor, and despite a need for income from exports to reduce a record current account deficit. The food ministry is pressing the government to increase exports, but India's creaking transport system means that a large portion of grains will simply not be able to get to ports even with global prices jumping a fifth last year. The country's grain export facilities are working flat out, but the government will struggle to ship more than 6 million tonnes of wheat in 2013 from its stocks, while sales by private exporters will be capped at around 2 million tonnes. If exports reach 8 million tonnes in 2013, it would make India one of the world's top 10 exporters. The volume would amount to about a quarter of the 30 million tonnes shipped by top exporter the United States.

      Locust Plague, Shy of Biblical Proportions - Israel first announced that it was on “locust alert” on Monday, after large swarms were spotted in the Cairo area. The Food and Agriculture Organization of the United Nations warned that wind and climate conditions increased the chances of an entomological cross-border invasion. The Ministry of Agriculture set up a hot line for swarm sightings. By Tuesday, grasshoppers the size of small birds were reported on balconies and in gardens in central and northern Israel. But the largest concentration, an ominous black cloud of millions, settled for the night near the tiny rural village of Kmehin in Israel’s southern Negev desert, not far from the border with Egypt. Potato farmers in the area complained that their fields were being ruined. Drivers said they could not see through their windshields for all the bugs flying in their direction. On the up side, some considered the curse almost a blessing. The popular Channel 2 television news showed delighted Thai agricultural workers frying up locusts for a crunchy snack. The Israeli television crew munched on a few too, noting that locusts are considered kosher. The Agriculture Ministry said it was the first time that Israel had seen locusts since 2005, and recalled an even worse invasion in the 1950s.

      Almost one-third of Nile Delta to sink by 2030, say experts - Environmental experts have predicted that 30% of the Nile Delta will be submerged under water by 2030 because of the rise in land temperatures due to climate change. They added that this may threaten agriculture in Egypt. This is also largely due to the even more rapid urbanisation witnessed as a result of the lack of security after the revolution, said Head of the Environmental Committee at the Egyptian Businessmen’s Association (EBA) Ali El-Koraiey, according to MENA. The predictions came during a conference, ‘The Future of Egypt’s Water and Investments in Nile Basin Countries’, organised by the Environmental Committee at the EBA. Climate change and the rise of Mediterranean Sea water levels due to global warming are major challenges facing Egypt in the coming era, said the experts. “The increase of salts in underground water is a crisis and real challenge,” said El-Koraiey. “Moreover, it also threatens agricultural land”.

      Energy poverty deprives 1 billion of adequate healthcare, says report - Energy poverty has left more than 1 billion people in developing countries without access to adequate healthcare, with staff forced to treat emergency patients in the dark, and health centres lacking the power they need to store vaccines or sterilise medical supplies, according to a report. In India, nearly half of all health facilities – serving an estimated 580 million people – lack electricity, according to this year's Poor People's Energy Outlook (pdf), published on Wednesday by the NGO Practical Action. A further 255 million people are served by health centres without electricity in sub-Saharan Africa, it says, where over 30% of facilities lack power. "For critical and urgent health services such as emergency treatments and childbirth, staff have no option but to cope as well as possible in low lighting or in the dark, increasing the risk for all patients, including mothers and babies," the report says. Even where health centres have access to power, frequent power shortages significantly hamper the ability to provide quality care, it says.

      Why food riots are likely to become the new normal - We now know that the fundamental triggers for the Arab spring were unprecedented food price rises. The first sign things were unravelling hit in 2008, when a global rice shortage coincided with dramatic increases in staple food prices, triggering food riots across the middle east, north Africa and south Asia. A month before the fall of the Egyptian and Tunisian regimes, the UN's Food and Agriculture Organisation (FAO) reported record high food prices for dairy, meat, sugar and cereals.Since 2008, global food prices have been consistently higher than in preceding decades, despite wild fluctuations. This year, even with prices stabilising, the food price index remains at 210 – which some experts believe is the threshold beyond which civil unrest becomes probable. The FAO warns that 2013 could see prices increase later owing to tight grain stocks from last year's adverse crop weather. Whether or not those prices materialise this year, food price volatility is only a symptom of deeper systemic problems – namely, that the global industrial food system is increasingly unsustainable. Last year, the world produced 2,241m tonnes of grain, down 75m tonnes or 3% from the 2011 record harvest.

      Derivatives, water and financial risk - David Zetland comments on future funding of 'water' risk management.  There are plenty of examples of misguided government interventions, as well as examples of private enterprise run amok.  Now a derivatives market? : The danger of flashing wrong signals Have you heard the stories of people who have driven through fields, into lakes or off cliffs while following their GPS units? Any outsider would have told them to use their common sense before making a right turn over a cliff, but are WE so wise when it comes to our indicators? Although the water sector really needs more and better information (that's why I founded the water data hub*), I worry about people putting the wrong weight on the wrong information -- a worry that puts these recent stories into a different context:

      Now, I'm not worried about the discussion of water risk. I think that it's a topic of growing importance, as the end of abundance exposes business models, bureaucratic assumptions and personal habits formed in an era of too much, too cheap water to a new reality of scarce water that cannot be taken for granted.

      Asia’s Dammed Water Hegemon  As if to highlight that Asia’s biggest challenge is managing the rise of an increasingly assertive China, the Chinese government has unveiled plans to build large new dams on major rivers flowing to other countries. The decision by China’s State Council to ride roughshod over downstream countries’ concerns and proceed unilaterally shows that the main issue facing Asia is not readiness to accommodate China’s rise, but the need to persuade China’s leaders to institutionalize cooperation with neighboring countries. China is at the geographical hub of Asia, sharing land or sea frontiers with 20 countries; so, in the absence of Chinese participation, it will be impossible to establish a rules-based regional order. How, then, can China be brought on board?This challenge is most striking on trans-boundary rivers in Asia, where China has established a hydro-supremacy unparalleled on any continent by annexing the starting places of major international rivers – the Tibetan plateau and Xinjiang – and working to reengineer cross-border flows through dams, reservoirs, barrages, irrigation networks, and other structures. China – the source of trans-boundary river flows to more countries than any other hydro-hegemon – has shifted the focus of its dam-building program from dam-saturated internal rivers to international rivers after having already built more large dams than the rest of the world combined.

      30 Facts On The Coming Water Crisis That Will Change Everything - The world is rapidly running out of clean water. Some of the largest lakes and rivers on the globe are being depleted at a very frightening pace, and many of the most important underground aquifers that we depend on to irrigate our crops will soon be gone. At this point, approximately 40 percent of the entire population of the planet has little or no access to clean water, and it is being projected that by 2025 two-thirds of humanity will live in "water-stressed" areas. But most Americans are not too concerned about all of this because they assume that North America has more fresh water than anyone else does. And actually they would be right about that, but the truth is that even North America is rapidly running out of water and it is going to change all of our lives. Today, the most important underground water source in America, the Ogallala Aquifer, is rapidly running dry. The most important lake in the western United States, Lake Mead, is rapidly running dry. The most important river in the western United States, the Colorado River, is rapidly running dry. Putting our heads in the sand and pretending that we are not on the verge of an absolutely horrific water crisis is not going to make it go away. Without water, you cannot grow crops, you cannot raise livestock and you cannot support modern cities. As this global water crisis gets worse, it is going to affect every single man, woman and child on the planet.

      EU tariff on US ethanol officially in place for five years - For the next five years, U.S. ethanol—and only U.S. ethanol—exported to European Union countries will be subject to an $83.03 per metric ton tariff or duty. It’s a disappointing blow for ethanol producers like two Iowa ethanol plants with combined capacities of nearly 250 MMgy. The U.S. ethanol industry is fighting on multiple fronts to protect and expand its market share. “We need to do everything we can to keep our export markets open,” he said, adding that he’s confident that the industry will be successful in its fight to repeal the EU decision on the anti-dumping case. Growth Energy and the Renewable Fuels Association have pledged to challenge the decision. The battle began in October 2011, when the European Commission initiated anti-dumping and anti-subsidy investigations. Although the anti-subsidy investigation concluded in December, without imposition of a tariff, the anti-dumping investigation had a different outcome. The EU regulation requiring the duty went into effect Feb. 23, one day after it was published in the Official Journal of the European Union.

      Australian Government Blames Climate Change for ‘Angry Summer’ - — Climate change was a major driving force behind a string of extreme weather events that alternately scorched and soaked large sections of Australia in recent months, according to a report issued Monday by the government’s Climate Commission.  A four-month heat wave during the Australian summer culminated in January in bush fires that tore through the eastern and southeastern coasts of the country, where most Australians live. Those record-setting temperatures were followed by torrential rains and flooding in the more densely populated states of New South Wales and Queensland that left at least six people dead and caused roughly $2.43 billion in damage along the eastern seaboard.  Climate scientists have long hesitated to link individual weather events directly to climate change. Australian climate scientists in particular have been cautious to connect the two in part because of the country’s naturally occurring cycles of drought and flooding rains, which are already extreme when compared with much of the rest of the world.  But the report from the Climate Commission, titled “The Angry Summer,” argues that the frequency and ferocity of recent extreme weather events indicate an acceleration that is unlikely to abate unless serious steps are taken to prevent further changes to the planet’s environment.

      Newtown Creek In NYC, One Of Most Polluted Areas In US, Awaiting Cleanup -- Just across the East River from midtown Manhattan's shimmering skyscrapers sits one of the nation's most polluted neighborhoods, fouled by generations of industrial waste, overflow from the city's sewage system and an underground oil leak bigger than the Exxon Valdez spill. It's easy to see – and smell – the filth in and around Newtown Creek, which runs through an area of working-class homes, warehouses and industrial lots straddling Brooklyn and Queens. The odor of petroleum mixes with the smell of sewage, particularly on rainy days when the city's treatment plants can't handle the volume and municipal pipes send trash and human waste straight into the creek. Oily, rainbow-slicked water is filled with soda cans, plastic bottles, raw sewage and decaying food. Ditched vehicles are stuck in the mud on the banks. And what was once a creek teeming with fish, surrounded by marshland, is now a dull gray waterway that cannot sustain life.

      Public concern for environment lowest in 20 years - Public concern in environmental issues including global warming, the loss of species and air pollution has dropped to its lowest level in two decades, according to an international poll released this week. The GlobeScan poll showed levels of public concern in 12 countries over environmental problems – which also also included fresh water shortages and depletion of natural resources – were even lower than 1992, when the first Earth summit was held in Rio. The decline has come in a period when the signs of environmental degradation have become clearer and the science stronger, from species going extinct faster than new ones can evolve to dramatic climate change impacts such as the shrinking of Arctic sea ice in 2012 by 18% against the previous record. "Evidence of environmental damage is stronger than ever, but our data shows that economic crisis and a lack of political leadership mean that the public are starting to tune out." On average globally, only 49% of people said climate change was a "very serious" concern, with 50% saying the same for biodiversity loss and the highest level being 58% for shortages of fresh water. The poll shows concern for most issues was rising through the noughties and declined since around 2009 when a major UN climate summit in Copenhagen failed to reach a strong deal.

      House Votes to Increase Weather Satellite Funding - The House of Representatives approved legislation Wednesday that would ease a budget shortfall that threatens to delay a key weather satellite program. Lawmakers voted 267-151 to pass a spending bill that would keep the federal government operating after the current stopgap funding legislation expires on March 27. Although the bill would keep funding flat at the 2012 level for most federal agencies and departments, it makes an exception for the National Oceanic and Atmospheric Administration’s geostationary weather satellites.The agency keeps a pair of geostationary probes orbiting at fixed points above Earth. The orbiters beam down data that is crucial for NOAA’s weather forecasts, including the agency’s ability to track developing storms. The new spending bill would set aside $802 million for NOAA’s next generation of geostationary probes, known as GOES-R — $186 million more than the program received in 2012. That should be welcome news for NOAA, which has warned that budget shortfalls this year could delay the launches of the first two GOES-R satellites, now scheduled for 2015 and 2017. The agency says it needs $802 million in 2013 to begin purchasing and testing the equipment that will launch the two probes into orbit and process the information they collect.

      US Climate Policy: Take Five - Environmentalists blame Republicans and climate change deniers for the past defeats. But if there is to be any chance of forging a successful policy this time around, some deeper introspection is in order.An insightful essay by Harvard political scientist Theda Skocpol offers a good starting point. Skocpol doesn’t downplay the role of fossil-fueled extremists in blocking climate legislation, but neither does she ignore the fatal weakness in the Democratic party’s past strategy: relying on insider bargains, lubricated by carbon permit giveaways to energy corporations, to get the votes needed to pass a bill. Broad-based democratic mobilization (with a small ‘d’) was notably lacking in the efforts of the last decade.  The public’s role was relegated, in Skocpol’s apt phrase, to a “background chorus that, hopefully, will sing on key.” Opponents of climate policy avidly exploited this weakness. A well-funded campaign rebranded the legislation as “cap and tax,” claiming it could cost American families an inflated $3,100 per year in higher fuel prices. “By imposing a tax on every American who drives a car or flips on a light switch,” House speaker John Boehner declared, “this plan will drive up the prices for food, gasoline and electricity.” Editorial writers at the Wall Street Journal echoed the cry, warning that cap-and-trade would be “the biggest tax in American history.” Instead of confronting the fuel-price issue head-on, Democrats whined that the Republican numbers were wrong. They were, but the opponents scored a political bull’s eye regardless.

      In Epic Blunder, NY Times And Washington Post All But Abandon Specialized Climate Science Coverage Columbia Journalism Review slams Times for “outright lie” about its commitment to environmental coverage. This weekend two of the premier newspapers in the country basically abandoned the story of the century — climate change — as a specialized beat. The NY Times shut down its Green Blog (fast on the heels of dismantling its environment desk) and the Washingon Post is switching its lead climate reporter, Juliet Eilperin, off the environment beat. These epic blunders in editorial judgment essentially signal the end of the era of great national newspapers — certainly neither the New York Times nor Washingon Post qualify anymore. One can hardly be a great national newspaper while moving to slash coverage of the single most important story to the nation (and the world), the story that will have the biggest impact on the lives of readers and their children in the coming decades. And we can finally strip the NY Times of its vaunted title “The Paper of Record.” Now, like most others, it is just a “paper of record-keeping.”

      2012 Rise In CO2 Levels Second-Highest In 54 Years: — The amount of heat-trapping carbon dioxide in the air jumped dramatically in 2012, making it very unlikely that global warming can be limited to another 2 degrees as many global leaders have hoped, new federal figures show. Scientists say the rise in CO2 reflects the world's economy revving up and burning more fossil fuels, especially in China. Carbon dioxide levels jumped by 2.67 parts per million since 2011 to total just under 395 parts per million, says Pieter Tans, who leads the greenhouse gas measurement team for the National Oceanic and Atmospheric Administration. That's the second highest rise in carbon emissions since record-keeping began in 1959. The measurements are taken from air samples captured away from civilization near a volcano in Mauna Loa, Hawaii. More coal-burning power plants, especially in the developing world, are the main reason emissions keep going up – even as they have declined in the U.S. and other places, in part through conservation and cleaner energy. At the same time, plants and the world's oceans which normally absorb some carbon dioxide, last year took in less than they do on average

      US scientists report big jump in heat-trapping CO2: The amount of heat-trapping carbon dioxide in the air jumped dramatically in 2012, making it very unlikely that global warming can be limited to another 2 degrees as many global leaders have hoped, new federal figures show. Scientists say the rise in CO2 reflects the world's economy revving up and burning more fossil fuels, especially in China. Carbon dioxide levels jumped by 2.67 parts per million since 2011 to total just under 395 parts per million, says Pieter Tans, who leads the greenhouse gas measurement team for the National Oceanic and Atmospheric Administration. That's the second highest rise in carbon emissions since record-keeping began in 1959. The measurements are taken from air samples captured away from civilization near a volcano in Mauna Loa, Hawaii. ----- Since the mid-1800s temperatures haven already risen about 1.5 degrees. Current pollution trends translate to another 2.5 to 4.5 degrees of warming within the next several decades, Reilly says.

      Atmospheric Warming Altering Ocean Salinity And The Water Cycle: A clear change in salinity has been detected in the world’s oceans, signaling shifts and acceleration in the global rainfall and evaporation cycle tied directly to climate change. In a paper published … in the journal Science, Australian scientists from the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and Lawrence Livermore National Laboratory reported changing patterns of salinity in the global ocean during the past 50 years, marking a clear symptom of climate change. Lead author Paul Durack said that by looking at observed ocean salinity changes and the relationship between salinity, rainfall and evaporation in climate models, they determined the water cycle has become 4 percent stronger from 1950-2000. This is twice the response projected by current generation global climate models. “These changes suggest that arid regions have become drier and high rainfall regions have become wetter in response to observed global warming,” said Durack, a post-doctoral fellow at Lawrence Livermore National Laboratory.

      The Deep Sea is in Deep Trouble -- The Deep Sea begins at around 200 meters (m) depth, which is the limit at which sufficient sunlight penetrates the sea for photosynthesis to occur, and extends to nearly 11,000 m.   The area comprising the Deep Sea is vast, covering around 90% of the ocean floor.  This region consists of many diverse and interconnecting ecosystems, including abyssal plains, continental slopes, deep-sea canyons, manganese nodule fields, seamounts, cold water coral reefs and gardens, cold seeps and hydrothermal vents.  The structure, functioning and dynamics of Deep Sea ecosystems are complex and shaped by many factors, including the depth of the water column above them.  In addition, it is still poorly understood how these Deep Sea ecosystems interact with the rest of the ocean on which humankind depends for food, climate and ocean regulation, recreation and other ecosystem goods and services. The Deep Sea is also rich in terms of natural resources, principally sources of seafood, fossil fuels and minerals.  As a result, the world is already embarking on the industrialization of the Deep Sea. Trawling in this region has been increasing for decades, pollution is already reaching the ocean depths and climate change is acidifying the seas at global scale.  Oil and gas exploration and extraction have started on the shallower fringes of the Deep Sea, and the International Seabed Authority (ISA) has pre-approved leases to mine the ocean floor.  As Deep Sea ecosystems are extremely vulnerable to these activities, the global community needs to develop strategies for ecosystem conservation, restoration and overall management of the diverse habitats that constitute the deep-sea environment.

      Global Temperatures Highest in 4,000 Years, Study Says - Global temperatures are warmer than at any time in at least 4,000 years, scientists reported Thursday, and over the coming decades are likely to surpass levels not seen on the planet since before the last ice age.Previous research had extended back roughly 1,500 years, and suggested that the rapid temperature spike of the past century, believed to be a consequence of human activity, exceeded any warming episode during those years. The new work confirms that result while suggesting the modern warming is unique over a longer period. Even if the temperature increase from human activity that is projected for later this century comes out on the low end of estimates, scientists said, the planet will be at least as warm as it was during the warmest periods of the modern geological era, known as the Holocene, and probably warmer than that. That epoch began about 12,000 years ago, after changes in incoming sunshine caused vast ice sheets to melt across the Northern Hemisphere. Scientists believe the moderate climate of the Holocene set the stage for the rise of human civilization roughly 8,000 years ago and continues to sustain it by, for example, permitting a high level of food production.

      Global Temperatures Close to 11,000-Year Peak - Global average temperatures are now higher than they have been for about 75% of the past 11,300 years, a study suggests. And if climate models are any indication, by the end of this century they will be the highest ever since the end of the most recent ice age. Instrumental records of climate extend back to only the late nineteenth century. Beyond that, scientists depend on analyses of natural chronicles such as tree rings and isotope ratios in cave formations. But even these archives have their limits: many detailed reconstructions of climate, particularly of temperature, apply to only limited regions or extend back at most a couple of millennia, says Shaun Marcott, a climate scientist at Oregon State University in Corvallis. Marcott and his colleagues set about reconstructing global climate trends all the way back to 11,300 years ago, when the Northern Hemisphere was emerging from the most recent ice age. To do so, they collected and analyzed data gathered by other teams. The 73 overlapping climate records that they considered included sediment cores drilled from lake bottoms and sea floors around the world, along with a handful of ice cores collected in Antarctica and Greenland.

      Climate to Warm Beyond Levels Seen for 11,300 Years A new reconstruction of the Earth's climate history — dating back 11,300 years — found that the planet has rarely been warmer than it is today during that time, and that temperatures are likely to climb into unprecedented territory by 2100, due to increasing amounts of planet warming greenhouse gases in the air. The study, published Thursday in the journal Science, confirms the now famous “hockey stick” graph that Michael Mann published more than a decade ago. That study showed a sharp upward temperature trend over the past century after more than a thousand years of relatively flat temperatures. But the new report extends that research back much further, using evidence from the seafloor and from lake sediments to gauge past temperatures, not the tree rings previous researchers have used. “What’s striking,” said lead author Shaun Marcott of Oregon State University in an interview, “is that the records we use are completely independent, and produce the same result.”

      Recent heat spike unlike anything in 11,000 years - A new study looking at 11,000 years of climate temperatures shows the world in the middle of a dramatic U-turn, lurching from near-record cooling to a heat spike. Research released Thursday in the journal Science uses fossils of tiny marine organisms to reconstruct global temperatures back to the end of the last ice age. It shows how the globe for several thousands of years was cooling until an unprecedented reversal in the 20th century. Scientists say it is further evidence that modern-day global warming isn't natural, but the result of rising carbon dioxide emissions that have rapidly grown since the Industrial Revolution began roughly 250 years ago.The decade of 1900 to 1910 was one of the coolest in the past 11,300 years — cooler than 95 percent of the other years, the marine fossil data suggest. Yet 100 years later, the decade of 2000 to 2010 was one of the warmest, said study lead author Shaun Marcott of Oregon State University. Global thermometer records only go back to 1880, and those show the last decade was the hottest for this more recent time period. "In 100 years, we've gone from the cold end of the spectrum to the warm end of the spectrum,"

      To Boldly Go Where None Have Been Before... The amazing image of the day here is is Figure S3 from the supplementary material of Marcott et al, A Reconstruction of Regional and Global Temperature for the Past 11,300 Years, in the current issue of Science.  Note that the authors' work suggests that global temperature has not yet exceeded the mid-Holocene optimum, but obviously that is going to change in a hurry: Our results indicate that global mean temperature for the decade 2000–2009 has not yet exceeded the warmest temperatures of the early Holocene (5000 to 10,000 yr B.P.). These temperatures are, however, warmer than 82% of the Holocene distribution as represented by the Standard5×5 stack, or 72% after making plausible corrections for inherent smoothing of the high frequencies in the stack (Fig. 3). In contrast, the decadal mean global temperature of the early 20th century (1900–1909) was cooler than >95% of the Holocene distribution under both the Standard5×5 and high-frequency corrected scenarios. Global temperature, therefore, has risen from near the coldest to the warmest levels of the Holocene within the past century, reversing the long-term cooling trend that began ~5000 yr B.P. Climate models project that temperatures are likely to exceed the full distribution of Holocene warmth by 2100 for all versions of the temperature stack (Fig. 3), regardless of the greenhouse gas emission scenario considered (excluding the year 2000 constant composition scenario, which has already been exceeded). By 2100, global average temperatures will probably be 5 to 12 standard deviations above the Holocene temperature mean for the A1B scenario.

      Developed Nations Must Cut Emissions In Half By 2020, Says New Study - Further research has continued to examine the global GHG emissions reductions necessary to avert dangerous climate change. And as countries implement existing policies and consider new ones, the scale of required emissions cuts is a fundamental question. In fact, it’s one of the most pressing questions facing the international climate change community. One new study shows that we have to reduce emissions even more than scientists initially thought in order to avoid climate change’s worst impacts. A paper published in Energy Policy on February 20 by Michel den Elzen and colleagues examines new information on likely future emissions trajectories in developing countries. This includes recent clarification of assumptions and conditions related to developing country pledges. In addition, countries have also come forward with further information on their emissions projections. As a result, the report finds that developed countries must reduce their emissions by 50 percent below 1990 levels by 2020 if we are to have a medium chance of limiting warming to 2°C, thus preventing some of climate change’s worst impacts.

      Report: Most insurers not prepared for climate change: Most insurance companies do not have comprehensive strategies to cope with climate change despite mounting weather-related claims, says a report to be released Thursday. Of 184 companies surveyed, only 23 had such strategies, and 13 of those that did were foreign-owned, according to report by Ceres, a Boston-based non-profit that promotes eco-minded business practices. The report says the most prepared tend to be the largest companies with scientists on staff and those that insure property rather than life or health. Many companies "won't talk about climate change" and if they do, they use "hedged" language to avoid the controversial issue of whether it's man-made, says author Sharlene Leurig, senior manager of Ceres' insurance program. She says the issue is less politically divisive in Europe, where insurers are often better prepared. The report comes as weather-related disasters cost an estimated $100 billion in damages last year, and the U.S. government's latest National Climate Assessment says climate change increases the risks and severity of of heat waves, downpours, droughts and wildfires as well as the intensity of hurricanes.

      Investors Seek Ways to Profit From Global Warming -  Investing in climate change used to mean putting money into efforts to stop global warming. Morgan Stanley (MS), Goldman Sachs (GS), and other firms took stakes in wind farms and tidal-energy projects, and set up carbon-trading desks. The appeal of cleantech has dimmed as efforts to curb greenhouse gas emissions have faltered: Venture capital and private equity investments fell 34 percent last year, to $5.8 billion, according to Bloomberg New Energy Finance. Photograph by Getty ImagesNow some investors are taking another approach. Working under the assumption that climate change is inevitable, they’re investing in businesses that will profit as the planet gets hotter. (The World Bank says the earth could warm by 4C by the end of the century.) Their strategies include buying water treatment companies, brokering deals for Australian farmland, and backing a startup that has engineered a mosquito to fight dengue, a disease that’s spreading as the mercury climbs.

      Canada's Arctic glaciers headed for unstoppable thaw: study - - Canadian glaciers that are the world's third biggest store of ice after Antarctica and Greenland seem headed for an irreversible melt that will push up sea levels, scientists said on Thursday. About 20 percent of the ice in glaciers, on islands such as Ellesmere or Devon off northern Canada, could vanish by the end of the 21st century in a melt that would add 3.5 cm (1.4 inch) to global sea levels, they said. Governments are trying to understand every likely centimeter of sea level rise caused by global warming to plan how to protect cities from New York to Shanghai or low-lying coasts from Ghana to Bangladesh. "We believe that the mass loss is irreversible in the foreseeable future" assuming continued climate change, the scientists, based in the Netherlands and the United States, wrote in the journal Geophysical Research Letters.

      Global warming to open 'crazy' shipping routes across Arctic - Science: By the middle of this century, thanks to climate change, anyone with a light icebreaker can spend their Septembers going anywhere they want in the Arctic Ocean, including straight over the North Pole, according to a new study. Ordinary vessels, which account for more than 99 percent of shipping traffic, could easily navigate the Northern Sea Route along the Russian coastline and, in some years, even find a route through the fabled Northwest Passage. "That’s kind of crazy and, frankly, a little bit worrisome," . "It is not like these will be open blue seas and safe or open year round."Nevertheless, the temptation is likely to prove irresistible to some shipping companies and adventurous tourists, which opens up new concerns about search and rescue infrastructure, the environmental impact from increased shipping traffic and the potential for oil spills, among other issues.

      Common Resources on China’s Carbon Tax Plan - Xinhua reported recently that China will introduce a carbon tax. The actual announcement by Jia Chen from the Ministry of Finance buried the mention of the new carbon tax within a broader set of tax reform goals. A carbon tax in China is a great idea, for three reasons. First, a carbon tax will decrease carbon dioxide emissions. China is the world’s top emitter of greenhouse gases; its emissions are also growing at a breathtaking rate. So a carbon tax in China would be wonderful news for climate change.Second, a carbon tax will help with air and water pollution, two major problems in China. This is because the activities which are most carbon-intensive, like coal burning and heavy industry, are also very polluting. Forcing industry to consider the cost of their carbon emissions will also have the effect of shifting them away from emitting other noxious products generated along with carbon. Finally, a carbon tax is the lowest cost way to accomplish carbon reductions. Given the pressing need for China to continue its economic development, a carbon tax is the best instrument that can be deployed.

      Solar Report Stunner: Unsubsidized ‘Grid Parity Has Been Reached In India’, Italy–With More Countries Coming in 2014 - Deutsche Bank just released new analyses concluding that global solar market will become sustainable on its own terms by the end of 2014, no longer needing subsidies to continue performing. The German-based bank said that rooftop solar is looking especially robust, and sees strong demand in solar markets in India, China, Britain, Germany, India, and the United States. As a result, Deutsche Bank actually increased its forecast for solar demand in 2013 to 30 gigawatts — a 20 percent increase over 2012. Here’s Renew Economy with a summary of Deutsche Banks’s logic: The key for Deutsche is the emergence of unsubsidised markets in many key countries. It points, for instance, to India, where despite delays in the national solar program, huge demand for state based schemes has produced very competitive tenders, in the [12 cents per kilowatt hour] range. Given the country’s high solar radiation profile and high electricity prices paid by industrial customers, it says several conglomerates are considering large scale implementation of solar for self consumption.“Grid parity has been reached in India even despite the high cost of capital of around 10-12 percent,” Deutsche Bank notes, and also despite a slight rise  in module prices of [3 to 5 cents per kilowatt] in recent months .

      Homes show greatest seasonal variation in electricity use - (EIA) Electricity use varies with the weather, as changes in temperature and humidity affect the demand for space heating and cooling. The three main sectors that use electricity—residential, commercial, and industrial—respond differently to seasonal changes in the weather.

      • The residential end-use sector has the largest seasonal variance, with significant spikes in demand every summer and winter. Virtually all homes that have air conditioning use electricity as the main source of cooling in the summer, while winter heating needs are met by a variety of fuels.
      • The commercial sector experiences less variance in electricity use, although it shows a noticeable increase in the summer and a slight increase in the winter. Compared to the residential sector, a smaller portion of commercial sector energy consumption is devoted to heating, cooling, and ventilation.
      • The industrial sector's demand for electricity is relatively flat (with just a slight increase in the summer) because a much smaller portion of its energy consumption (electric and otherwise) is used for heating and cooling. Economic variables generally play a larger role in industrial energy use than weather-related factors. However, seasonal changes can affect industrial activity.

      Shell Predicts that Natural Gas or Solar will Become the No. 1 Energy Source - Royal Dutch Shell has just released new forecasts for its ‘New Lens Scenarios’ program, which aims to predict how current business decision and policies may unfold over time and affect the markets in the future. Peter Voser, the CEO of Shell, explained that the scenarios “highlight the need for business and government to find ways to collaborate, fostering policies that promote the development and use of cleaner energy and improve energy efficiency.” The scenarios take two different approaches: one considers the world with a high level of government involvement, and the other looks at the markets when they are given more freedom to develop naturally. With high government involvement in dictating energy and policies, Shell believes that natural gas will flourish to become the number one energy source in the world over the next couple of decades, overtaking coal and helping to reduce carbon emissions.

      Shell to build LNG plants in Ontario and Louisiana - Royal Dutch Shell said it would build two small-scale gas liquefaction units in Louisiana and Ontario as part of an investment plan to unlock value in the use of liquefied natural gas as a transport fuel. “These two units will form the basis of two new LNG transport corridors in the Great Lakes and Gulf Coast regions,” Shell said in a statement on Tuesday. Shell said it was also working to use natural gas as a fuel in its own operations, which follows an investment decision in 2011 on a similar corridor in Alberta, Canada. Shell, which has bet the most heavily of all the top oil firms on a future for cleaner-burning natural gas, said it is using its expertise to make LNG a viable fuel option for the commercial market.

      The Myth of Purifying Fracking Water in Saudi America: The Competition Between Food, Drink and Energy Needs - In 2011, Texas had about 93,000 natural gas fracking wells, up from around 58,000 in 2000. According to the Texas Railroad Commission, more than 15,300 wells have been drilled in the Barnett Shale underlying Texas. Critics of fracking claim the industry actually uses far more water than it discloses. Because water used in the fracking process becomes contaminated with hydrocarbons and other toxins, frackers typically sequester it deep underground, removing that wastewater permanently from the hydrologic cycle. Unlike the water used for irrigation or daily living, it doesn't re-enter rivers, aquifers or the atmosphere. The waste from fracking is about 70 percent of the 8 million gallons of water containing 400,000 gallons of toxic chemicals per well. 649 chemicals are used in fracking water. A 2012 study published in the journal Proceedings of the National Academy of Sciences analyzed 67 earthquakes recorded between November 2009 and September 2011 in a 43.5-mile grid covering northern Texas' Barnett Shale formation. The study found that all 24 of the earthquakes with the most reliably located epicenters originated within two miles of one or more injection wells for fracking wastewater disposal. Sequestering toxic fracking waste is at best, a temporary expedient. If the sequestering process for fracking waste is responsible for subsequent earthquakes, then the waste is even more likely to be disgorged uncontrollably and unexpectedly into the environment.

      Is fracking a ‘bridge’ to a clean-energy future? Ernest Moniz thinks so.: When it comes to energy, Ernest Moniz seems to be an “all of the above” guy. President Obama’s new nominee for the Energy Department has heaped praise on everything from solar panels and efficiency to nuclear power and shale-gas fracking. It’s that last bit that has triggered some grumbling from green groups. Moniz, a physicist at the Massachusetts Institute of Technology, has argued that natural gas can serve as a “bridge fuel” to a lower-carbon future. He outlined his views at length during a 2011 Senate hearing on a report he co-authored, “The Future of Natural Gas.” “In broad terms,” Moniz testified, “we find that, given the large amounts of natural gas available in the U.S. at moderate cost … natural gas can indeed play an important role over the next couple of decades (together with demand management) in economically advancing a clean energy system.”

      US natgas rigs fall to 14 year low-Baker Hughes (Reuters) - The number of rigs drilling for natural gas in the United States fell by 13 this week to the lowest level since May 1999 as weak gas prices continued to discourage drilling. The gas-directed rig count fell to 407, data from Houston-based oil services company Baker Hughes Inc showed on Friday, representing the fifth drop in six weeks. U.S. producers have largely been curbing dry-gas drilling in favor of more profitable oil and liquids-rich plays such as Eagle Ford in Texas and Marcellus in Appalachia. The oil-focused rig count, which hit a 10-month low of 1,315 six weeks ago, rose by eight to 1,341, Baker Hughes data showed. The oil count is up 45 rigs from the same week last year. Baker Hughes also reported that horizontal rigs, the type often used to extract oil or gas from shale, fell by 11 this week to 1,130. The horizontal count is down from the record high of 1,193 set last May. Drilling for natural gas has largely been in decline for more than a year. The count is down about 57 percent since peaking in 2011 at 936, but so far production has not shown any significant signs of slowing. The associated gas produced from more-profitable shale oil and shale gas liquids wells has kept dry gas flowing at or near a record pace. Data from the U.S. Energy Information Administration last week showed that gross natural gas output in December fell 1.1 percent from November's record high, the first time in four months that production failed to notch a new peak.

      China Joining U.S. Shale Renaissance With $40 Billion - China National Petroleum Corp., the country’s biggest oil company, is seeking its first stake in the U.S. as Chinese explorers with $40 billion of cash try to join an energy renaissance unlocking billions of barrels of crude. “We are currently studying” investing in U.S. oil, Jiang Jiemin, chairman of the state-run company, said yesterday at the National People’s Congress meetings in Beijing. Domestic rival China Petrochemical Corp. last month agreed to buy stakes in an Oklahoma field from Chesapeake Energy for $1.02 billion. Chinese oil companies using government loans want stakes in shale fields that are fostering the most crude production in the U.S. in 21 years and helping wean it off Middle Eastern imports. They’ll be guided by the experience of China’s Cnooc, whose $19 billion bid for Unocal Corp. was blocked by U.S. lawmakers eight years ago. While China is taking over entire oil and gas fields from Canada to Latin America, Africa and Australia, such purchases in the U.S. may prove challenging because of political opposition, Pearson said. The world’s biggest economy is curbing Chinese deals when the targets are close to military installations or have access to certain kinds of technology. Growing concerns over intellectual property theft and cyber-attacks also have fueled scrutiny of Chinese acquisitions.

      Breaking: NY Assembly Passes Two Year Fracking Moratorium, Senate Expected to Follow - In a roll call vote of 95-40, the New York State Assembly has passed a two-year moratorium on hydraulic fracturing ("fracking"), the toxic horizontal drilling process through which oil and gas is procured that's found within shale rock basins across the country and the world. The bill, if passed by the Senate and signed off by Democratic Gov. Andrew Cuomo, would close the state's doors to the oil and gas industry's desire to begin operating in New York's portion of the Marcellus Shale basin until May 2015. New York has had a moratorium on the books since 2008. This is the third time the Assembly has passed such a bill, with similar moratorium bills passing in 2010 and 2011, but then dying a slow death in the Senate and never reaching the Governor's desk, meaning the de facto moratorium has remained in place. Could the third time be a charm in 2013 in the Empire State? Signs point to "quite possibly," because the bipartisan Independent Democratic Conference (IDC) bloc of the Senate - which shares control of the Senate with the Republicans - has come out in support of the bill's passage, according to the Associates Press

      State’s Keystone Report Is The Tar Sands Pits - Friday, the State Department released a revised draft environmental impact assessment of the Keystone XL pipeline project that irresponsibly ignored the dire environmental impacts of building the pipeline. In response to the announcement, environmental advocates — including Bill McKibben of and Sierra Club’s Michael Brune — held a press call to highlight one of the most unbelievable aspects of the analysis: that Keystone “is unlikely to have substantial impact on the rate of development of the oil sands.” It also didn’t account for the impact on climate change and national security. The Canadian Association of Petroleum Producers’ own report stated that Keystone is necessary to increase the expansion of tar sands. In 2012, it noted that:  If the only projects to proceed were the ones in operation or currently under construction, oil sands production would still increase by 54 per cent to 2.5 million b/d by 2020 and then remain relatively flat for the rest of the forecast.Jane Kleeb of Bold Nebraska also explained: Tarsands does not expand unless Keystone XL is built. The State Department’s assumption that tarsands development does not change with or without this pipeline is wrong and laughable. Why would TransCanada spend billions on building the pipeline and millions on lobbying unless this piece of infrastructure is the — not a — but the lynchpin for the expansion of the tarsands. Without this pipeline Canada stays at 2 millions barrels a day, with it they get 3 million barrels a day.

      Keystone: Exporting Canadian Oil Across America's Backyard - Given the relentless “all of the above” energy strategy pursued by the Obama Administration, the release this past Friday of a positive environmental impact report for the proposed Keystone oil pipeline was no big surprise. The U.S. State Department essentially declared that since the extra-dirty tar sands oil designated for the pipeline was going to be shipped and burned one way or another, building the pipeline down from Canada to Gulf coast refineries would not have that much impact on the environment — despite warnings from climate scientists that burning all the tar sands oil would be “game over” in the fight to stop climate change. This conclusion by the State Department was a laughable bit of self-fulfilling logic. But perhaps the biggest surprise in the report was the tacit admission that the tar sands oil isn’t going to be burned in the U.S. at all. Instead, it is destined for refining and export overseas. The State Department report details how Gulf Coast oil refineries will use the tar sands crude oil delivered by Keystone to replace supplies from Venezuela and Mexico, refine the crude into high-end products like gasoline, and then export the refined fuel overseas. Meanwhile, as if to add insult to injury, fuel prices paid by U.S. consumers in the Midwest are expected to jump as the pipeline will siphon off crude oil supplies that are currently landlocked in America.

      State Department's Keystone EIS work done by firms with ties to Koch Industries, ExxonMobil  "The State Department's recent conclusion that the Keystone XL pipeline "is unlikely to have a substantial impact" on the rate of Canada's oil sands development was based on analysis provided by two consulting firms with ties to oil and pipeline companies that could benefit from the proposed project. EnSys Energy has worked with ExxonMobil, BP and Koch Industries, which own oil sands production facilities and refineries in the Midwest that process heavy Canadian crude oil. Imperial Oil, one of Canada's largest oil sands producers, is a subsidiary of Exxon. ICF International works with pipeline and oil companies but doesn't list specific clients on its website. It declined to comment on the Keystone, referring questions to the State Department."

      'State Department' Keystone XL Report Actually Written By TransCanada Contractor - The State Department's "don't worry" environmental impact statement for the proposed Keystone XL tarsands pipeline, released late Friday afternoon, was written not by government officials but by a private company in the pay of the pipeline's owner. The "sustainability consultancy" Environmental Resources Management (ERM) was paid an undisclosed amount under contract to TransCanada to write the statement, which is now an official government document. The statement estimates, and then dismisses, the pipeline's massive carbon footprint and other environmental impacts, because, it asserts, the mining and burning of the tar sands is unstoppable. The department's contractor-written Draft Supplemental Environmental Impact Statement even says the pipeline will be safe from the climate impacts to which it will contribute. The documents from the ERM-TransCanada agreement are on the State Department's website, but payment amounts and other clients and past work of ERM are redacted. In the contract documents, ERM partner Steven J. Koster certifies that his company has no conflicts of interest. He also certifies that ERM has no business relationship with TransCanada or "any business entity that could be affected in any way by the proposed work" (notwithstanding the impact statement contract itself). An investigation by Inside Climate News finds that ERM's report draws from work done by other oil industry contractors, Ensys Energy and ICF International.

      New Report States that Keystone XL will Only Create 35 Permanent New Jobs - TransCanada have always maintained that the Keystone XL pipeline, for which they are battling to gain permission to build, will provide a huge boost to the US economy through the generation of over half a million permanent jobs. A study which they commissioned in 2010 stated that the construction of the pipeline would create 118,935 non-permanent jobs, mostly in construction and manufacturing whilst the pipeline was being built; an additional 553,235 permanent jobs due to the increased US oil supply. The State Department has just this week released a report which actually estimates a far lower number of jobs will be created by the Keystone XL pipeline. The one to two year construction phase of the pipeline will likely only create around 42,100 jobs, and this number would fall to just 35 permanent jobs in order to perform maintenance and inspections along the entire length.

      Interior Nominee Has Owned Oil-Company Stocks - —President Barack Obama's pick to head the Interior Department, Sally Jewell, owns or recently owned stock in several major oil companies, including Exxon Mobil Corp. and ConocoPhillips, according to documents reviewed by The Wall Street Journal. If confirmed for the job, Ms. Jewell will be in a position to decide how much oil and natural-gas drilling takes place on federal lands and in U.S. waters, and also will weigh whether the administration's conservation and environmental goals should prevent new production.

      Update on US Oil Rig Count - I noted in October that the US oil rig count (which has been powering the resurgence in US oil production by exploiting oil in very tight rocks) had stopped increasing.  Then in January, it seemed to actually be declining.  Above is the latest, in which the small decline seems to have stopped, and there's a very slight notch up. I was prompted to have a look at this again today by this comment by Brian Sahadak.  I don't have any insight on whether the rig count is likely to grow or shrink in the future, but it does appear to me that, given the very high initial decline rates of tight-oil wells, US oil production will not be able to grow for long unless the rig count resumes increasing - months maybe, but not years. Here's the latest US production stats (through December, and from the EIA): Still increasing at this time.

      Bakken drilling times and costs are dropping -The cost of drilling new oil and gas wells in the Bakken region of North Dakota and Montana is dropping and the work is going faster, allowing crude oil to reach the market sooner, a Minnesota-based oil company said Friday. Northern Oil and Gas of Wayzata added the equivalent of 48 Bakken wells in 2012, and expects to complete almost that many in 2013. In a major shift, multiple wells are being drilled in different directions from a single location, avoiding the need to move equipment as often. “It is very simple math; if you are drilling four wells on one pad, you are going to get those wells drilled more efficiently,” Reger and other executives said drilling times also are dropping — to about 90 days from when the bit first hits the ground to initial oil and gas production. In early 2012, it took twice as much time because oil field services such as hydraulic fracturing teams were in short supply.One well now can be drilled for $8.4 million to $8.8 million, and company officials see that dropping to $8 million on average by the end of the year.

      US was world’s largest petroleum producer in November, surpassing Saudi Arabia for first time in ten years - The Energy Information Administration is reporting today that “Saudi Arabia was the world’s largest producer and exporter of petroleum and other liquids in 2012, producing an average of 11.6 million barrels per day (bbl/d) and exporting an estimated 8.6 million bbl/d (net).” The United States (“Saudi America”) was the No. 2 petroleum-producing country last year with an average output of just over 11 million bbl/d (see bottom chart above). However, based on international monthly oil production statistics from the EIA currently available through November 2012, the United States surpassed Saudi Arabia’s petroleum output in November (see top chart above). Thanks to the significant increases in shale oil production in North Dakota and Texas, total oil output in the US expanded by more than 7% between August and November, while output in Saudi Arabia fell by 4% during that period. Those trends brought “Saudi America’s” petroleum output in November (11.65 millions bbl/d) above Saudi Arabia’s production (11.25 million bbl/d) by 400,000 barrels per day, and is the first time in more than ten years (since August 2002) that the US has produced more petroleum products than Saudi Arabia. Although there are certainly variations in oil production that could mean that the US won’t continue to out-produce Saudi Arabia in every month, the upward trend in US oil output will continue, and the EIA predicts that the US will be the world’s largest petroleum producer within the next few years. The EIA forecasts that US petroleum production will continue to increase from the current level of 11.65 million bbl/d by another 11.5% to about 13.0 million bbl/d in the 2018-to-2020 period.

      U.S. Oil Production Tops 7 Million Barrels-Per-Day - Back in 2006-2007 when I was writing about peak oil, I would never have believed that U.S. crude oil production would reach 7 million barrels-per-day (bbl/d) in the last month of 2012. But if we look at the EIA's latest data, that's what happened. U.S. crude oil production exceeded an average 7 million barrels per day (bbl/d) in November and December 2012, the highest volume since December 1992. The end-of-year data were reported on February 27 in EIA's Petroleum Supply MonthlyI would never have believed (back in 2006-2007) that North Dakota Bakken production would exceed 700,000 barrels-per-day. I also would never have believed that U.S. liquids production would surpass that of Saudi Arabia if you throw in natural gas liquids, refinery gains, moonshine and the kitchen sink.The U.S. has catapulted past Saudi Arabia as the world's biggest fuel producer, now that abundant production from shale-oil fields has pushed U.S. crude-oil output to a 20-year high. They say confession is good for the soul, so let's try it out. What was my mistake? In this case, I completely underestimated just effective humans can be in extracting a natural resource (crude oil) they desperately need. I confess—I missed the boat here. Mea culpa. It's a mistake I won't make twice.

      We Live In An Age Of Energy Abundance: What will it take for us to realise that the doom-mongers and peak-oil theorists are wrong, and that we live in an era of energy abundance? We are not lacking in evidence. Over the past 20 years, global oil consumption has increased by thirty per cent, but proven reserves have increased at twice that rate.[1] The IEA has said that there are many sources of uncertainty surrounding future oil supplies, but the size of the resource base is not one of them. Today’s proven oil reserves are sufficient to provide for over fifty years of demand at current rates. If estimates of undiscovered resources and future improvements in technology are included, this rises to almost two hundred years. Natural gas tells a similar story. Proven reserves are sufficient to supply 65 years of current demand, but the reality is likely to be nearer 230 years. Coal, the dirtiest of fossil fuels, is just as ubiquitous. Even in the renewable energy sector, there has been an almost eight-fold increase in installed capacity over the past decade.[2]

      America has an energy boom. Now what? -  America's energy production is booming. What we should do about it is one of Washington's most divisive issues. Since 2006, the country's natural gas production has surged 30%. Oil production is up 33%. The country is on track to surpass Saudi Arabia as the world's leading oil producer by 2020. Champions of this boom point to the hundreds of thousands of jobs it has created and its significant contribution to reducing the country's reliance on foreign oil.  Critics counter that with those gains come real threats to the nation's environment, particularly its water supply. They also worry that this new-found abundance will foster a greater reliance on fossil fuels and a dangerous inattention to global warming.  On Wednesday, a group from the Bipartisan Policy Center -- including former senators, oil company executives, environmentalists and others with a stake in the game -- released a set of recommendations on how the country can best balance these competing interests. Here's a rundown on their suggestions.

      Oil demand could peak within five years | Nick Butler: I have always been sceptical of the extensive theories of peak oil built around the study first published in 1956 by M King Hubbert. Those studies have always seemed to ignore the reality of technical progress that opens new frontiers and reduces costs. They have been much used to support the idea that oil prices should be ever increasing, on the basis that scarcity should be reflected in high prices. The reality is that oil provinces (think of the North Sea) keep going well beyond their original schedule, and recovery rates from established fields keep rising. On average, even after some advances in reservoir management technology, only some 50 per cent of the oil in place is recovered from most fields, so there is a long way still to go. On top of that, we now have tight oil (the oil equivalent of shale gas), which BP in its latest Long Term Outlook now expects to provide some 9 per cent of global production in 2030.I do, however, believe in peak oil demand and considering the latest trends, I would expect demand to peak at less than 100mbd before 2020 and perhaps at a lower level even sooner. Demand is now 89mbd. Why the peak in demand? Because in the end markets work. Energy markets can be complicated and slow but they do still operate and respond to price signals and the insecurity of supply. Energy consumers dislike high prices and supply uncertainties caused by repeated wars, conflicts and threats in the Middle East. As a result they look for alternatives and in those places where price signals are effective they look for ways in which to reduce costs.

      OECD predicts Brent at $190 by 2020 - Brent oil prices have found a new normal: the five-year forward futures have been anchored in the $90-$110 per barrel range for some time. Among official forecasters, the International Energy Agency suggests average oil import prices will reach only $120 by 2020. The US government even sees prices falling from today’s levels in real terms. But in a recent paper, the OECD forecasts a Brent price of $190 per barrel in today’s money by 2020, with the possibility of it climbing to as high as $270 a barrel. How does the OECD come to such a different conclusion from other forecasters, including its own energy watchdog, the IEA, and should we be worried? The OECD study – “The Price of Oil – Will it Start Rising Again?” – looks at how oil consumption in various countries has responded to changes in gross domestic product and changes in the oil price over the past 20 years, using this to model future consumption patterns. In India, China and Indonesia, the OECD finds that oil demand has grown almost one for one with income in the past 20 years.

      Reaching Debt Limits - If an economy is growing, it is easy to add debt. The additional growth in future years provides money both to pay back the debt and to cover the additional interest. Promotions are common and layoffs are few, so a debt such as a mortgage can easily be repaid. The situation is fairly different if the economy is contracting. It is hard to find sufficient money for repaying the debt itself, not to mention the additional interest. Layoffs and business closings make repaying loans much more difficult. . If an economy is in a steady state, with no growth, debt still causes a problem. While there is theoretically enough money to repay the debt, interest costs are a drag on the economy.  I think we can expect that from here, the debt situation will deteriorate. One issue is rising oil prices. While there seems to be a large supply of oil available, it is at ever-higher cost of extraction, because of diminishing returns. (This is even true of tight oil, such as from the Bakken.) Furthermore, I recently showed that not only do high oil prices adversely affect government finances, they also adversely affect wages.

      Mexico’s Pena Nieto Gets Nod From PRI to End Pemex Monopoly -  Mexico’s President Enrique Pena Nieto won support from his party to advance with his growth plan that includes ending a 75-year-old state monopoly on the oil industry. Pena Nieto’s Institutional Revolutionary Party, known as PRI, voted yesterday at its national assembly to end its opposition to constitutional changes that would ease state-owned Pemex’s grip on the oil industry. Pena Nieto hasn’t yet presented a bill proposing the changes and would have to win the votes in Congress, where his coalition controls 241 of 500 seats in the lower house. Pena Nieto, 46, has pledged to open the oil industry to more competition and to reduce the tax burden on Pemex in a bid to boost economic expansion, which has trailed Latin America’s for the past decade. The move could increase gross domestic product by as much as 2 percentage points a year, according to the Energy Ministry. Oil output in Mexico, the world’s ninth- largest producer of crude, has fallen for eight years as Pemex finances a third of the government’s budget.

      Egypt to start rationing petrol subsidies in May - Egypt will start implementing the ‘smart card’ system to sell subsidised petrol on government vehicles in May 2013 and on private cars in July, Planning Minister Ashraf El-Araby said Monday. Under the new system, vehicles with smaller engines (1,600cc or smaller) will be assigned an annual 1,800 litres at the subsidised price. If consumption exceeds this amount, motorists will have to buy petrol at market prices, El-Araby was quoted as saying by state owned news agency MENA. Cars with larger engine sizes will not be eligible for any subsidies. The final market prices for petrol have not been announced yet; nor has the price at which petrol will be sold to commercial vehicles. Egypt aims to slash its extensive subsidy bill in a quest to curb its budget deficit, expected to edge above LE200 billion ($30 billion) in the current fiscal year. Fuel subsidies make up approximately half of the total subsidies allocated in the budget.

      Recent Oil Discovery off Lebanese Coast Draws Naval Powers to East Med: The discovery a few years ago of an important deposit of oil and gas reserves in the waters just off the Lebanese, Israeli and Cypriot coasts has raised the interest of foreign militaries who have in recent weeks become attracted to the region, adding ingredients at sea to an already explosive atmosphere on land. From China to Iran, not forgetting Turkey, Israel, the United States, Britain, and France, all the principal actors in the region are now present in the waters of the Eastern Mediterranean.In addition to the important oil fields under the sea waiting to be exploited, the bloody civil war that has been raging in next door Syria for the past two years has brought renewed interest in these troubled waters. Russia, primarily, is very concerned by what the future holds for the Assad regime in Damascus as the Syrian Mediterranean port of Tartous serves as the Russian Mediterranean Fleet’s main port of call, where the Russians continue to hold onto an important facility established back in the days of the Soviet Union. For Russia, whose northern Baltic ports freeze over during the long cold winter months, having access to a friendly port for its Med fleet is a matter of national security.

      How more than $8 billion in US taxpayers' money went to waste in Iraq -  During the course of the nine-year US presence in Iraq, at least $8 billion – or 13.3 percent of US reconstruction spending – was wasted, according to the final report released today by the Special Investigator General for Iraq Reconstruction.The report, entitled Learning From Iraq: A Final Report From the Special Inspector General for Iraq Reconstruction, offered a detailed assessment how $60 billion in American taxpayer money was spent in Iraq during the war. Of that sum, about $25 billion went to training and equipping the Iraqi security forces, while the remainder went an array of development projects ranging from infrastructure construction to governance improvement programs. The report offers several case studies demonstrating waste, including a project to reconstruct a bridge and oil and gas pipeline in northern Iraq. Geologists advised against drilling in the Tigris River to do the repair work because the soil was too sandy. Engineers ignored the report and spent tens of millions of dollars before the drilling plan was aborted. The Iraqi reconstruction program was the second-largest nation building effort ever undertaken by the US, superseded only by Afghanistan, where appropriations for reconstruction spending are nearing $100 billion.

      $36 Billion of Military Hardware Could Be Destroyed in Afghan Pullout: The Obama White House is cutting $65 billion in the sequester, but it could easily leave or torch 750,000 pieces of major military hardware — worth $36 billion — in Afghanistan after U.S. troops pull out by the end of next year. Here are the options, according to Face the Facts USA of the George Washington University: Leave the equipment — or destroy it — in Afghanistan; move it to other U.S. military outposts; or transfer it to another U.S. agency or to another country. The estimated cost for the latter two options: $5.7 billion. The equipment includes trucks, aircraft, and armored vehicles — most of which are controlled by the Army. Because the Afghanistan terrain is mountainous and landlocked, transport would be difficult. But leaving it behind intact could put the equipment in the wrong hands.

      Canada Condemns Pakistan’s $7.5 Billion Pipeline Project To Iran: John Baird, Canadian foreign minister issued a statement saying that the Canadian federal government got disappointed by Pakistan's decision to build the $7.5 billion gas pipeline to Iran to purchase Iranian resources through the pipeline. "Canada is deeply disappointed by Pakistan's decision to build a new natural gas pipeline with Iran and to purchase Iranian resources through it," said John Baird in the statement Friday. Labeling Iran as a 'dangerous' nation and a 'threat' to the global peace, the Canadian foreign minister said Pakistan is collaborating with the nation that the international community was trying to reverse its (Iran's) dangerous course. "At a time when the international community is united in using every lever possible to convince Iran to reverse its dangerous course, Pakistan's decision runs directly contrary to these objectives and should be revisited," said Baird.

      How Far Will the US Go to Derail Iran-Pakistan Pipeline? - Next week Iran and Pakistan will begin work on a $7.5 billion gas pipeline that the US has been fighting tooth and nail to stop in all manner of proxy methods. On 11 March, Pakistani officials braved the “international community” by announcing that “groundbreaking” work on the 780-kilometer pipeline would begin on the Pakistani side of the border, marking the start of construction by an Iranian-Pakistani consortium. Just prior to the announcement, Pakistani President Asif Ali Zardari met with Iranian President Mahmoud Ahmadinejad and Supreme Leader Ayatollah Ali Khamenei in Tehran. The Pakistani portion of the pipeline will cost around $1.5 billion. This is the key here because the 900-kilometer Iranian portion of the pipeline is already nearing completion. The pipeline will go ahead largely because Pakistan’s energy crisis dictates that it must. And even US sanctions won’t prevent it, and threats emanating from Washington (largely through the US mainstream media) are only working to increase already volatile anti-American sentiment in Pakistan.

      Iran to set up oil refinery in Gwadar: Iran plans to set up the largest refinery in Pakistan, a US$4 billion facility at Gwadar in the country's southwestern Balochistan province. Islamabad and Tehran are set to sign a deal for the refinery, which will have a 400,000 barrels per day capacity, on March 11, the day two sides have announced they will begin the Iran-Pakistan (IP) gas pipeline project on their border. Under the deal, Tehran will lay an oil pipeline from its territory to Gwadar to transport crude oil for processing. Visiting Iranian oil minister Rostam Ghasemi last month agreed in Islamabad to set up an oil complex with an oil refinery at the Gwadar Port in Balochistan. The proposed refinery in Gwadar is expected to give China an impetus to restart work on its Gwadar oil refinery after it was halted in 2009. “If Pakistan and Iran succeed in completing the oil refinery and the pipeline, it may prompt China to revive its projects of establishing an oil refinery in Gwadar and laying an oil pipeline from Gwadar to western China to get oil supplies,”  “The coastal oil refinery project may also create scores of employment opportunities for the local people.”Iran’s plan to lay an oil pipeline and establish an oil refinery in Gwadar is likely to raise eyebrows in Washington, which is already opposed to the IP (Iran-Pakistan) gas pipeline. The addition of oil to the pipeline mix being planned by the authorities in Tehran and Islamabad comes at a time when the US is trying to block the Iran’s oil exports to the world and pressing Islamabad to abandon the IP project because of Tehran’s nuclear program. Gwadar is strategically located as a hub for South Asia, Central Asia and West Asia, and is likely to emerge as a free oil port serving as petro-chemical center for the region.

      U.S. efforts on Iran not working, Syria planning underway: Mattis (Reuters) - A top U.S. general said on Tuesday that American efforts aimed at preventing Iran from obtaining a nuclear weapon were not working, even as he voiced support for crippling sanctions and diplomatic efforts aimed at isolating the Islamic state. "I still support the direction we're taking. I'm just paid to take a rather dim view of the Iranians, frankly," General James Mattis, the head of the U.S. military's Central Command, told a Senate hearing. Mattis also painted a daunting portrayal of events on the ground in Syria, where he said the situation was too complex at this point for him to support arming rebels battling Syrian President Bashar al-Assad's regime.

      U.S. Weighs Risks and Motives of Hacking by China or Iran -  When Telvent, a company that monitors more than half the oil and gas pipelines in North America, discovered last September that the Chinese had hacked into its computer systems, it immediately shut down remote access to its clients’ systems. Company officials and American intelligence agencies then grappled with a fundamental question: Why had the Chinese done it? Was the People’s Liberation Army, which is suspected of being behind the hacking group, trying to plant bugs into the system so they could cut off energy supplies and shut down the power grid if the United States and China ever confronted each other in the Pacific? Or were the Chinese hackers just trolling for industrial secrets, trying to rip off the technology and pass it along to China’s own energy companies? “We are still trying to figure it out,” a senior American intelligence official said last week. “They could have been doing both.”

      China becomes world’s top oil importer - China has overtaken the US as the world’s largest net importer of oil, in a generational shift that will shake up the geopolitics of natural resources.  US net oil imports dropped to 5.98m barrels a day in December, the lowest since February 1992, according to provisional figures from the US Energy Information Administration. In the same month, China’s net oil imports surged to 6.12m b/d, according to Chinese customs.  The US has been the world’s largest net importer of oil since the mid-1970s, shaping Washington’s foreign policy towards energy-rich countries such as Saudi Arabia, Iraq and Venezuela.  As China overtakes the US as the world’s leading net oil importer, Beijing is likely to face pressure to take a larger role in patrolling the world’s key shipping lanes. China has already taken a more assertive foreign oil policy in countries such as Sudan, Angola and Iraq, where state-owned Chinese companies have invested billions of dollars.

      Spill Underlines Environmental Concerns  The first warning came in the form of dead fish floating in a river. Then officials in this city got confirmation that a chemical spill had taken place at a fertilizer factory upstream. They shut off the tap water, which sent residents into a scramble for bottled water. In the countryside, officials also told farmers not to graze their livestock near the river. The spill, which occurred on Dec. 31, affected at least 28 villages and a handful of cities of more than one million people, including Handan. Officials here were irate that their counterparts in Changzhi, where the polluting factory was located, had delayed reporting the spill for five days. For the past two months, Changzhi officials and executives at the company running the factory, Tianji Coal Chemical Industry Group, have generally stayed silent, exacerbating anxiety over water quality. The conflict over the Changzhi spill has drawn attention to the growing problems with water use and pollution in northern China. The region, which has suffered from a drought for decades, is grappling with how industrial companies should operate along rivers. Local officials are shielding polluting companies and covering up environmental degradation, say environmentalists.

      Scary New Satellite Pictures Of China's Ghost Cities - China's notorious ghost cities are a disaster waiting to happen, according to a new report from 60 Minutes.  Take it from the CEO of Vanke, the country's largest residential real estate developer, who tells 60 Minutes that developers are deep in debt, projects are being abandoned, and things could get ugly fast. The nightmare scenario could be like America's housing crash but worse.  "It's like walking into a forest of skyscrapers, but they're all empty," financial analyst Gillem Tulloch said of another ghost city, Chenggong.  We're taking this occasion to check with satellite imagery on China's most famous empty developments.  Of course things may be better than they seem. Yale's Stephen Roach argues that China is experiencing "the greatest urbanization story the world has ever seen," and that these ghost cities will soon become "thriving metropolitan areas."

      China's "State Of The Union" Address Warns Of Tepid Growth, Sees Larger Deficit, Hawkish On Housing - The most notable overnight event was the release of the Chinese Government Work Report as part of the annual meeting of the National People's Congress which kicked off today and runs until March 17. This is the Chinese equivalent of the US State of the Union address, delivered in this case by the outgoing premier Wen Jiabao. In it, Wen summarized his administration’s achievement in the past ten years in some detail, but still voiced a sense of crisis when talking about existing social and economic problems. The key highlights were the closely watched economic targets for 2013, which while not surprising, were at the lowest levels in the past decade, confirming that the Chinese slowdown in both economic and loan growth is likely here to stay as the economy downshifts from its mercantilist approach, even while pesky inflation pressures persist.

      China fact of the day - Ninety members of the National People’s Congress are on a list of China’s 1,000 richest people published by the Shanghai- based Hurun Report, up from 75 last year, according to a review of the data by Bloomberg News. Everyone on the Hurun list had a fortune of at least 1.8 billion yuan ($289.4 million), more than former Republican presidential candidate Mitt Romney.

      Next Stage for China's Economy - When you look at China's annual rates of economic growth, no major problem is apparent. Here's a figure showing annual growth rates for China since 1980, generated using the World Development Indicators from the World Bank. Sure, there's a little dip back in the 1989-1990, and the growth rate has slowed a bit since the go-go days of 2006 and 2007 just before the Great Recession hit. But take a look just under the surface, and it becomes clear that the main engine of China's economic growth needs to change.For two recent papers discussing the "rebalancing" that China's economy needs, I recommend "A Blueprint for Rebalancing the Chinese Economy," by Nicholas Lardy and Nicholas Borst, written as Policy Brief PB 13-02 for the Peterson Institute for International Economics, and "What's Next for China?" by Jonathan Woetzel, Xiujun Lillian Li, and William Cheng from McKinsey.

      China to increase 2013 deficit to 1.2 trillion yuan (Xinhua) -- The Chinese government is projecting a fiscal deficit of 1.2 trillion yuan (191 billion U.S. dollars) for 2013, 400 billion yuan more than the budgeted figure last year, according to a government work report delivered to the national legislature on Tuesday. The deficit consists of a central government deficit of 850 billion yuan and 350 billion yuan in bonds to be issued on behalf of local governments, the report said. "It is necessary to appropriately increase the deficit and government debt, as the time lag of past structural tax cuts will make it hard for government revenues to grow rapidly this year, while fixed government expenditures will increase," the report said. China has a relatively low debt-to-GDP ratio and the increase in the deficit this year will bring the deficit-to-GDP ratio to a safe level of about 2 percent, according to the report. The increased spending will be used to ensure and improve the people's well-being and maintain support for economic growth and structural adjustments, it said.

      Wider U.S.-China Trade Gap May Spur Lawmakers - A near-14% jump in the U.S. trade deficit with China in January may bolster calls by American lawmakers to press China on its trade and currency practices. The U.S. trade gap with China grew to $27.8 billion from $24.45 billion the month before, as imports surged and exports fell. While not a record, it is 6% larger than last year’s historically high average deficit with the country of $26.3 billion. Earlier this week, a senior U.S. Treasury official took China to task, saying Beijing needed to accelerate yuan appreciation and align its trade policies with international norms. Many U.S. businesses complain the value of China’s currency is much lower than market fundamentals suggest. They say the country’s exchange-rate policy, combined with protections for its own industries, gives Chinese firms an unfair trading advantage.

      Another step towards an East-West trade war - As you may have seen, Chinese exports surged 22pc in February. Imports fell 15pc. This is exactly what pessimists feared. For all the talk of a great shift by China away from export-led growth to internal demand, the reality is that the Politburo is still propping up the same old system, still shovelling subsidies to loss-making firms and state behemoths to keeps factories open. Investment is still 49pc of GDP. Consumption is still 36pc. China is still a massively deformed economy, and the global effects of its imbalances are getting bigger every year as the economy grows at far higher rates than the West. The trade surplus with the US is the highest in four years. The US Treasury may well have been right to warn in its annual report on currencies that the recent fall in China's current deficit to 2.6pc of GDP is temporary, to be followed by a rise back to 4pc or more by mid-decade. And remember, 4pc will soon matter as much for the world as 10pc in 2007. It is simple compound arithmetic. Even if you strip out the distortions of the Lunar New Year and lump together January and February, it is clear that China's trade surplus is growing again.

      China Central Bank Says It Is "Fully Prepared For Looming Currency War" - Just in case Lagarde (and everyone else except for the Germans, who have a very unpleasant habit of telling the truth), was lying about that whole "no currency war" thing, China is already one step ahead and is fully prepared to roll out its own FX army. According to China Times, "China is fully prepared for a looming currency war should it, though "avoidable," really happen, said China's central bank deputy governor Yi Gang late Friday." We look forward to the female head of the IMF explaining how China is obviously confused and that it is not currency war when one crushes their currency to promote "economic goals." Of course, that same organization may want to read "Zero Sum for Absolute Idiots" because in this globalized economy any attempt to promote demand (by an end consumer who has no incremental income and stagnant cash flow) through currency debasement has no impact when everyone does it. But then again, this is the IMF - the same organization that declared Europe fixed in 2009, 2010, 2011, 2012, 2013 and so on.

      China warns over fresh currency tensions - Beijing has issued a new warning against competitive devaluations by rich countries, saying that emerging markets will pay the price for so-called currency wars. “For the global economy this year, I am worried about inflation, about competitive currency depreciation and about the negative spillover effects of excessive issuance of the main currencies,” commerce minister Chen Deming said on Friday. Mr Chen, speaking at the National People’s Congress, China’s rubber stamp parliament, said the deliberate depreciation of major currencies could have a “huge impact” on developing countries including China. Beijing has expressed fears that a “currency war” will hurt its exporters while driving up the cost of global commodities, fuelling inflation in China, which relies heavily on natural resource imports. Global worries over competitive devaluation have been on the rise since January, when Japanese prime minister Shinzo Abe announced Japan would buy government bonds in potentially unlimited quantities to stimulate the economy and raise inflation. On Thursday, the European Central Bank reiterated its commitment to an “accommodative” monetary stance as the Eurozone battles record unemployment. Mr Chen urged central bank governors and finance ministers of the other Group of 20 nations to abide by their commitment, made at a meeting in Moscow last month, not to “target our exchange rates for competitive purposes”.

      Treasury: Pushing G-20, Including China, on Currency Vows ‘High Priority’ - The U.S. will prod the world’s leading economies, including China, to deliver on recent currency vows as a top priority, Treasury’s foremost international official said Tuesday. “We’re going to continue to push very hard on fulfillment of those G-20 commitments not to target exchange rates for competitive purposes and to move more rapidly to market-determined exchange rates,” Under Secretary for International Affairs Lael Brainard said. “It’s a very high priority for us,” she added, speaking at the annual National Association for Business Economics conference. Ms. Brainard said that tightly managed exchange rates, such as Beijing’s control over the yuan, risk fueling “beggar-thy neighbor” trade policies across the world economy at a time when global growth is still weak and vulnerable to downside risks.

      U.S. Tells G-7 to Avoid Currency Intervention Except Rare Cases - The U.S. Treasury Department’s top international official urged Group of Seven economies to avoid targeting exchange rates and let markets set currency levels, calling for full and timely data on the scale of nations’ interventions. “The G-7 pledged that exchange rates should float freely, except in rare circumstances where excess volatility or disorderly movements might warrant cooperation,” Lael Brainard, the undersecretary for international affairs, said at a conference in Washington today. “In addition, the G-7 members committed to avoid targeting exchange rates and to orient domestic monetary and fiscal policy toward meeting domestic objectives, using only domestic instruments.” Global finance chiefs at a Group of 20 meeting in Moscow last month signaled Japan has scope to keep stimulating its stagnant economy as long as policy makers cease publicly advocating a sliding yen. Japanese officials in Moscow denied driving down their currency, arguing that its weakness was a byproduct of their effort to revive their economy, which would benefit trading partners. The G-7 must adhere to its pledges “both in word and in action,” Brainard said in prepared remarks.

      Kuroda Pledges Bolder Action as Bank of Japan Governor: Economy - Haruhiko Kuroda, nominated to be the next Bank of Japan governor, said that a central bank under his leadership would do whatever is needed to combat 15 years of deflation. “I would like to make my stance clear that we will do whatever we can do,” Kuroda, the president of the Asian Development Bank, said in a confirmation hearing in the parliament in Tokyo today. Prime Minister Shinzo Abe’s nomination of Kuroda has raised expectations for more aggressive monetary easing to revive the world’s third-biggest economy after Masaaki Shirakawa exits the job on March 19. The opposition Democratic Party of Japan, the largest party in the upper house, has signaled it will back Kuroda, easing his passage through a split parliament. Kuroda said in an interview this month that falling prices exacerbate real debt burdens, and give an incentive to companies and households to postpone spending. Consumer prices excluding fresh food fell 0.2 percent in January. The price gauge hasn’t advanced 2 percent -- the central bank’s new target -- for any year since 1997, when a national sales tax was increased

      Bank of Japan Pick Kuroda Pledges to Beat Deflation - The Japanese government's pick for the next Bank of Japan governor on Monday said he would do "everything possible" to beat deflation, in a stark turnaround from his predecessors that signals the bank may be headed for a big, new wave of monetary easing. Haruhiko Kuroda, who was tapped last week to take the top BOJ post, blasted the central bank for not having done enough so far to reverse 15 years of price falls, and said he would push for increased easing through purchases of more assets, most likely government bonds.  "If I were appointed as the governor…I would do everything possible to get ourselves out of deflation," said Mr. Kuroda, currently the president of the Asian Development Bank, at a parliamentary confirmation hearing that marks his first public comments since being nominated. In an apparent nod to persistent concerns by other nations that Japan was seeking to depreciate the yen through monetary easing, Mr. Kuroda, formerly Japan's top currency official, told the hearing that taking action on foreign exchange wasn't part of the BOJ's goal.

      Japan Government Bonds Rise, Pushing 5-Year Yield to Record Low - Japan’s bonds rose, pushing five- year yields to a record low, after prospective Bank of Japan governor Haruhiko Kuroda said he would consider starting the central bank’s open-ended asset purchases sooner. Benchmark 30-year bond yields slid to a 2 1/2-year low after Kuroda said the BOJ should acquire longer-dated bonds and there’s no need for it to limit buying to three-year maturities. Five-year rates dropped to 0.095 percent, falling below the rate the BOJ pays to financial companies on excess reserves. The Ministry of Finance will sell as much as 2.4 trillion yen ($26 billion) of 10-year bonds tomorrow. “There is still some more room for yields to decline,” . “Expectations are mounting that the BOJ will step up monetary easing and increase purchases of government bonds.” The yield on the benchmark 10-year note fell 4 1/2 basis points to 0.60 percent at 4:45 p.m. in Tokyo...

      Japan could miss fiscal target even with 3 percent economic growth - Japan will miss its target for cutting its fiscal deficit even if it achieved nominal economic growth of 3 percent, unless there are further cuts in spending, according to a government estimate obtained by Reuters on Monday. The government aims to halve the ratio of Japan's primary budget deficit to gross domestic product by fiscal 2015/16 from the 2010/11 level, and to achieve a primary budget surplus by 2020/21. That is becoming increasingly difficult after Japan decided to issue 43 trillion yen ($460 billion) in new bonds under the state budget for next fiscal year, boosting public works spending to revive the economy. The country's primary budget balance, which excludes debt servicing costs and income from bond sales, showed a deficit of 6.8 percent of gross domestic product (GDP) in fiscal year 2010/11. Even if Japan achieved an average nominal economic growth of 3 percent, the ratio will only improve to 3.3 percent of GDP without spending cuts, the estimate showed. If Japan only achieves average growth of 1.5 percent, the ratio would stay at 3.8 percent of GDP without spending cuts, it showed.

      BOJ nominee Kuroda sets out aggressive policy ideas - The Japan government’s nominee to be the next central bank governor outlined more forceful policy prescriptions on Monday to finally defeat deflation, saying he would not set any limits on the amount of cash the Bank of Japan pumps into the economy. Underlining expectations he would be an aggressive governor, Haruhiko Kuroda told lawmakers the BOJ’s current policies were not powerful enough to boost inflation to 2 percent, a target he said the central bank should strive to achieve in two years. Kuroda suggested the most natural way to ramp up the central bank’s stimulus for the economy would be through huge purchases of longer-dated government bonds. The BOJ should also consider kicking off its open-ended asset purchases early, rather than waiting until the scheduled start date of 2014. “It would be natural for the BOJ to buy longer-dated government bonds in huge amounts,” Kuroda said in a confirmation hearing in the lower house of parliament. “But the central bank also needs to scrutinise market developments at the time, as well as the potential drawbacks.”

      BoJ rejects call for monetary easing - Masaaki Shirakawa has bowed out as governor of the Bank of Japan by leaving monetary settings on hold, rejecting proposals for more urgent easing from two of his board members. After the two-day meeting that ended on Thursday – the last of Mr Shirakawa’s five-year term – the BoJ left its Y101tn ($1.1tn) asset-purchasing programme unchanged and its key interest rate near zero. The bank noted some brighter signs in the economy, which it said had “stopped weakening”. Analysts had expected the governor and his board to stand pat, given the improving outlook and a recent flurry of easing measures. In January, for example, the BoJ adopted a 2 per cent inflation target and pledged to begin open-ended asset purchases next year. However, analysts noted that the pro-easing stance of the two members – Sayuri Shirai and Ryuzo Miyao – could be critical in tilting the balance of the BoJ’s nine-strong board under the new regime led by Haruhiko Kuroda.

      The risky task of relaunching Japan - Shinzo Abe, Japan’s prime minister, continues to astonish. He could hardly have chosen a more radical team than the one he has appointed to run the Bank of Japan. Haruhiko Kuroda, a critic of the BoJ’s past passivity, is now in charge of monetary policy.  Make no mistake. Mr Kuroda not only wants to deliver 2 per cent annual inflation, but considers this to be within the power of the central bank. He can also expect to have the backing of the government and the new deputy governors, Kikuo Iwata and Hiroshi Nakaso. BoJ may grumble. But a shift in policy seems sure. The question is: will it work? Indeed, what might “work” mean? One must start by noting Japan’s peculiar position. Expectations of deflation are well-entrenched, in bond markets, if not in surveys, with yields on government 10-year bonds now at 66 basis points (see chart). Real rates of interest have remained positive, even at the short end. Deflation has also been very sticky. Finally, the distribution of debt has shifted from the private to the public sectors: according to economic advisers Smithers & Co net debt of non-financial companies has fallen from 150 per cent of equity in 1995 to 30 per cent. But government net debt has jumped from 29 per cent of gross domestic product at the end of 1996 to 135 per cent at the end of 2012.

      Thailand passes Canada in car production - Canada's heft as a maker of automobiles is shrinking, and a new analysis of the world's car industry from Scotiabank suggests we're barely in the Top 10, leapfrogged by Thailand. In his monthly report, the bank's economist Carlos Gomes says concerted efforts by the Thai government to build up production seem to be working, as the Asian nation produced 68 per cent more cars in January 2013 than it did the same month a year earlier. Unlike Canada, which exports most of its cars, some 60 per cent of Thai-made vehicles are for the domestic market. And booming demand thanks to a new-car buyer's rebate that the Thai government has implemented until June 2013 is pushing the country to make even more cars to keep up with demand. The Thai Federation of Industries expects vehicle production to jump 43 per cent in the first quarter of 2013, and a government official recently stated that Thailand could build 2.8 million vehicles this year, up from 2.4 million last year. Canada has seen its share of the global market slowly erode in recent years. While China remains the world's largest car manufacturer, building 19.2 million cars last year, America held on to second place with 10.3 million vehicles.

      Mexico’s Central Bank Slashes Rates, Ending Years of Inaction - Mexico’s central bank slashed interest rates Friday, ending almost four years of inaction with a move intended to support sluggish economic growth in Latin America’s second-largest economy. In one of the Bank of Mexico‘s policy decisions that has generated the most expectations in recent times, the central bank cut the overnight lending rate by a half-percentage point to 4%, its first shift in the rate since July 2009. The bank made it clear it was a one-time cut and not the start of an easing cycle. A central bank renowned in the region for steadfastly sticking to its inflation target appeared this time to give preference to mounting concerns over the Mexican economy, in a decision that some observers labeled as hasty. “It wasn’t the appropriate moment. Inflation still isn’t around the 3% target. The bank is putting at risk its credibility,” said a former Bank of Mexico deputy governor who requested that he not be named. The central bank’s move, which was widely anticipated in the market, still surprised some analysts who had expected the bank to wait for confirmation of a slower inflation trend.

      Venezuela's Human Development Index  -  In response to yesterday's post, several commenters suggested looking at the UN's human development index, a composite measurement which combines components of education, life expectancy, and income.  I was able to generate the above figure at the UN's HDI website; which again compares Venezuela to Brazil, Mexico, Argentina, and Chile. I think the comparison is important.  Most countries have developed significantly in recent decades, so absolute improvements from the beginning to the end of Chavez's reign don't tell us much - we want to know if he did better or worse than governments in somewhat similar countries. I agree this index places things in a different perspective.  Recalling that Chavez came to power in 1999, we see that there was a long period from 1980 to the late 1990s when Venezuela was doing much worse than its neighbors.  After 1999, Venezuela appears to have done better than its neighbors. I'm somewhat puzzled by this - given that yesterday we found that income and life expectancy did worse in Venezuela, this implies either that Chavez massively outperformed on the education front, or that there is a data or analysis issue of some kind.  I will try to investigate further tomorrow.

      World Is In a Recession (Go about your business as usual) - My pal Lakshman Achuthan was just on Bloomberg TV, defending his 2013 (and 2012) recession call. While I respectfully disagree, I understand his point: The current environment is a typical feeble post-credit crisis recover. Indeed, we are in a Fed driven economy, and but for their interventions, we in the USA would very likely already be in a recession. As I have have stated to  many times, but for the Fed, equity markets would likely be 20-30% lower (and I may be too optimistic with those numbers). But the key takeaway, based on the chart above from Recession Alert, is that the rest of the world IS ALREADY IN a recession. Indeed, more than half of the 41 OECD member nations are in economic contractions — and have been since Q4 2012.

      European recession grinds on - The latest Eurozone  manufacturing PMI data came out on Friday night and the story is much the same that we have seen over the last year.

      • Final Eurozone Manufacturing PMI unchanged at 47.9 in February (flash: 47.8)
      • Germany stabilises but downturns seen in all other nations bar Ireland
      • Upswing in new exports–especially for German goods – fails to offset weak domestic markets

      The good news is that there is some consolidation in the rate of decline in new orders, but the bad news is that this is a continuation of the divergence in the economies of the Eurozone. The other large economies, France, Italy and Spain are all still deep in contraction and an improvement in Germany is actually the reverse of what is required in regards to re-balancing the Eurozone’s economy. So much the same story. The Germany economic machine continues to show strength in an environment of peripheral austerity, but the rest of the Eurozone continues to struggle as internal demand shrinks further. Italy is looking particularly weak.

      Europe's Recession Deepens - The European Central Bank downgraded its forecast for the eurozone economy Thursday but decided against cutting interest rates to a new record low despite tame inflation, record unemployment and political instability in Italy. The 17-nation currency area economy will contract by 0.5% rather than 0.3% as previously predicted, according to revised projections from the central bank. Eurozone inflation, which fell to 1.8% last month, should average 1.6% this year and 1.3% in 2014

      Number of Spanish jobless tops 5m -  The number of registered unemployed in Spain rose beyond the 5m mark for the first time, but the relatively modest month-on-month increase raised fresh hopes that the country’s economic crisis may be starting to recede. According to labour ministry data, almost 60,000 more people registered as unemployed in February than in the previous month, an increase of 1.2 per cent. It was the smallest rise for that month since 2008, the year that saw the end of Spain’s long credit-fuelled building boom that ultimately plunged the country into a deep recession and record unemployment. Last year, by comparison, the month-on-month increase in February was more than 112,000. Engracia Hidalgo, the employment minister, said that the pace of job destruction had also slowed markedly in year-on-year comparisons. From a peak of 13 per cent in May last year, the annual increase in registered unemployment had now fallen to 7 per cent, he said. Labour market experts warned, however, that a real turnround in Spanish unemployment data was not on the immediate horizon. Juan José Dolado, a professor of economics at Carlos III University in Madrid, said: “You can always look on the bright side of life. But when you have 5m registered unemployed then this is still bad news.”

      How the corrala movement is occupying Spain - The financial crash and plummeting property market struck Spain with a high eviction rate and a rash of empty houses. Now victims of the crisis are fighting back by setting up home in a network of vacant buildings

      Madrid's Renaissance of Occupied Spaces - Not many tourists know this, but Madrid is a capital city of squatting. In all societies, in some form or another, there are young people who live in abandoned properties without the consent of the property owner. Political squatting, however, only really started after 1968, and arrived in Spain in the 1970s. Since 1995, there has been a legal and cultural split between housing squats and squatted “social centers” (centros sociales okupados, or okupas for short) in Spain, as a result of a change to the penal code, which dictates specific punishment in the form of daily fines if squatters intended to reside in a property. While live-in squatting has largely become a clandestine activity, political squats that use occupied spaces for various social activities try to make themselves highly visible, as models of alternative lifestyles and radical approaches to private property. Barcelona has historically had more squatted spaces than Madrid, but the capital city has been quickly catching up as a swath of new sites have been taken over in recent years.

      Spain Has A Long Way To Go Down - I received another entry from Dave Fairtex, who delves into Spanish housing data this time around. We had a nice discussion about it, since I question some of the assumptions on which he bases his interpretation of the data. In particular, I think Dave assumes 2 things:

      • 1) That, during the - ongoing - bust, Spanish home prices will fall to the level they were at when the boom began (a drop of 55%), and then stop falling right there.
      • 2) That there is a bottom underneath prices, determined by their "utility value", i.e. people will always need to live somewhere.

      As for 1), it immediately makes me think of a series of 3 graphs we use in Nicole's presentations, and which those of you who have acquired our DVD set "A World of Change" will readily recognize: What you see is that in these 3 crises, the end point is (way) below the starting point, due to what can be called the "undershoot". In each case, it makes prices fall by well over 90% of its peak level. Now, Dave says he thinks homes are not tulips, and so 2) the utility value of a house will make sure prices won't fall below the point their boom started. Not only do I find this too arbitrary an assumption (though, granted, in Dave's view he derives it from his data), there are a few other things that I feel may well influence this. That is, Spain built a huge amount of homes (more than Germany, France and Britain combined for 10 years), of which many are of too poor a quality to last for more than 20 years.

      EU Calls on Spain to Hike Taxes Again, Economic Stupidity at its Finest - The sheer stupidity out of nannycrats in Brussels is staggering. Smack in the midst of a depression, Brussels once again calls on Spain to hike taxes. Via Google translate from El Economista ...  The European Commission today called on Spain to restrict the application of the reduced VAT rate and raise fuel taxes to reduce the deficit, and continue reforms in the labor and pensions, delaying the effective retirement age. These requests collide with the ideas defended by the Spanish Government no further adjustment and lower taxes in 2014.  Brussels also calls on the Government to implement a stricter budgetary stability law to the autonomous regions in breach of their deficit targets and accelerate the implementation of budgetary control office. Brussels admits that the increase in VAT which applies since last September (from 18% to 21% and the basic rate from 8% to 10% reduced rate) is a "progress" to improve the effectiveness of the Spanish tax system. "However, there is scope to limit the application of different VAT rates low and to increase environmental taxes, especially fuels," says the report.

      Mass protests in Portugal over austerity cuts - Many thousands of demonstrators have held marches in more than 20 cities in Portugal to protest against government-imposed austerity measures aimed at lifting the ailing country out of recession. Tens of thousands of people filled a Lisbon boulevard during Saturday's protests and headed to the finance ministry carrying placards saying "Screw the troika, we want our lives back". The troika is a reference to the European Commission, the International Monetary Fund and the European Central Bank, the lenders behind the country's financial bailout. Many protesters were singing a 40-year-old song linked to a 1974 popular uprising known as the Carnation Revolution. Portugal is expected to suffer a third straight year of recession in 2013, with a two percent contraction. The overall jobless rate has grown to a record 17.6 percent. The marches were powered mostly by young people among whom unemployment is close to 40 percent.

      Ireland, Portugal want 15-year extension of EU loans: Ireland and Portugal want up to 15 more years to pay back loans to the EU to ease their return to financial markets, but sources said on Monday that while an extension is likely it may not be as long as they want. The head of the Eurogroup meeting of finance ministers said late on Monday he would ask non-euro European Union colleagues on Tuesday if they were willing to adjust the conditions of the loans the EU made to Ireland and Portugal. "If there was to be an agreement tomorrow, we would ask the troika (of European Central Bank, European Commission and International Monetary Fund) to come forward with a proposal for the best possible option for each of these of the two countries," Jeroen Dijsselbloem said. EU Commissioner Olli Rehn said he hoped the ministers could make a decision at the next Eurogroup and EU finance ministers meeting in Dublin in April.

      Brave Ireland is the poster-child of EMU cruelty and folly - Ireland has done everything demanded by the EU’s creditor powers, and seemingly survived. It has endured a fiscal squeeze of 16pc of GDP. It has stabilized the colossal debts left from taking on the gambling losses of Anglo Irish Bank at EU behest, that is to say from shielding German, British, Dutch and Belgian lenders from systemic contagion at a critical moment. It has clawed its way back to market credibility, issuing bonds at respectable rates. “Our last issue of routine 3-month treasury bills was at 0.26pc, not quite what Germany gets but very low,” said finance minister Michael Noonan. It was spared serious contagion from last week’s anti-austerity revolt in Italy, evidence of sorts that the Celtic Tiger is off the sick list. Deo volente, it will be the first of the EMU victim states to regain its sovereignty by early next year and escape control of the EU-IMF Troika, though it will answer to inspectors for another 20 years and the yet unborn will be paying off the €67bn of Troika indenture until 2042. “If measured in terms of what the Troika expects, we have been very successful,” said Mr Noonan. Other measures are less cheerful. The EU’s latest survey on “poverty and social exclusion” shows that the number of children at risk in Ireland has reached 37.6pc, worse than Italy (32pc), Greece (31pc), Spain (30pc) or Portugal (29pc).

      German car sales plunge as Europe's auto crisis deepens - New car sales in Germany fell by more than 10 percent year-on-year in February, signaling the crisis for Europe's auto makers is deepening as recession-hit consumers curb spending. New car sales in the region dropped to a 17-year low in 2012. Speaking ahead of the industry meeting in Geneva, the sales chief of General Motors' (GM.N) Opel brand said car sales for the whole of Europe might fall by as much as 10 percent this year. Until recently, industry executives have been penciling in a decline of around 3-5 percent for Europe's car market in 2013. The market shrank 7.8 percent last year. Germany continues to outperform markets such as France and Italy, where car registrations tumbled 12 percent and 17 percent respectively in February. German car sales fell 2.9 percent in 2012, including a 16 percent drop in December.

      Euro Leaders Demand Austerity as Italy Nears New Vote - European leaders demanded that euro members press on with budget cuts to end the debt crisis as Italy edged closer to a new election after an anti-austerity vote last week resulted in political deadlock. Finance ministers from the 17-member single-currency bloc meet in Brussels today to discuss issues including a bailout for Cyprus. In Rome, a top aide to Democratic Party leader Pier Luigi Bersani said the country may need to hold another election this year after passing new electoral laws. “Now in Europe, after the Italian election, it seems to be a case of either austerity and savings programs or growth, but that’s a completely false premise,” German Chancellor Angela Merkel said at March 1 event. EU Economic and Monetary Affairs Commissioner Olli Rehn echoed those comments this weekend, telling Germany’s Der Spiegel magazine that there’s no scope for the bloc to let up on budget discipline. Italian political instability, after last week’s election ended in a four-way split, threatens to reignite concern about the deepening of the debt crisis. Voters in the bloc’s third- largest economy revolted against German-inspired austerity measures, handing the party of comedian-turned-politician Beppe Grillo more than 25 percent of the vote with its anti-spending cut message and a call for a referendum on euro membership.

      Good Italy, Bad Italy: Girlfriend in a Coma - Yves Smith - Richard Smith recommended this video by Bill Emmott, the editor of the Economist from 1993 to 2008. Weirdly, I met Emmott in 1985 when he was running the Economist’s Tokyo office. I was an enthusiastic reader of the Economist before Emmott took the helm of the magazine and quit reading it in the early 2000s, after it had moved to the right and had that slant permeating its coverage.  I had time to listen to about 2/3 of it. You need to tune out its neoliberal bias (the undercurrent of debt fearmongering, and blaming it on government corruption, when all major governments around the world had their debt levels rise sharply as a result of the global crisis. Nevertheless, there is a lot of useful detail on the power structure of Italy that may prove useful in interpreting the arm-wrestling of the next few months.

      Quelle Surprise! Technocrats in Italy Scheming to Steamroll Voter Rejection of Austerity - Yves Smith - Even though we were keen about how voter repudiation of austerity in the Italian elections last week was throwing a wrench in the Troika’s austerity plans, we also warned, based on the example of Greece, that they’d try to neutralize the results. That effort is already underway. Ambrose Evans-Pritchard’s latest article, “Anger builds in Italy as old guard plots fresh technocrat take-over,” tells us: Italian officials say the Bank of Italy’s governor Ignazio Visco is front-runner to take over as premier despite warnings that this will be seen as an elitist ploy. It is far from clear whether the Democrats (Pd) in charge of the lower house will back the idea. The plans amount to a near replica of the outgoing team of Mario Monti, though one greatly weakened by the earthquake upset in the elections a week ago. Almost 57pc of the vote went to groups that vowed to tear up the EU-imposed austerity agenda. At the moment, this looks like brave talk. Beppe Grillo’s Five Star Movement does not have enough votes to block a coalition. Grillo has no doubt further rattled the northern countries by reiterating his campaign proposal of having a referendum on the euro. But at least today, Mr. Market isn’t betting on a technocratic counter-revolution in Italy.

      Beppe Grillo’s Parliamentarians Threaten Nuremberg Trials for Corrupt Italian Politicians - Yves here. While this account, that the presence of the Grillo faction, the Grillini, in the Italian Parliament, has led a politician charged with accepting a huge bribe from Berlusconi to cooperate with prosecutors, the cynic in me wonders about the timing. Berluconi is famously corrupt. He is also anti-austerity. So it is awfully convenient that the issue that pits Grillo against Berlusconi (and the rest of the Italian political establishment) would come to the fore, just as the technocrats are trying to put together a coalition. The one thing that Berlusconi and Grillo agree on is the need to change economic policy profoundly, and I wonder if this revelation is part of an effort to make sure they are pitted fiercely against each other. Italians are encouraged to tell me whether I am reading too much into this incident.

      Beppe Grillo’s new advisor? - It would appear to be Joseph Stiglitz (link is in French, or try this link in English), but do we know?  Here is Grillo discussing the situation in English (translated).  The link includes a dialogue between the two.  Yet here (in Italian) is already some discord between the two, with Stiglitz accusing Grillo of lying by claiming that his party’s platform is based on Stiglitz’s ideas. I cannot be sure which of these links to believe in its entirety, but at the very least there is an ongoing exchange between these two men.

      "Grillonomics" Beppe Grillo Exchanges Emails with Krugman, Calls on Stiglitz and Fitoussi to Create Five-Star Economic Plan - Beppe Grillo's anti-corruption, eurosceptic, Five Star Movement (M5S) is now the largest political party in Italy.  Via Google translate from French, Les Echos reports Fitoussi and Stiglitz are working on the economic program of Beppe GrilloAll eyes are beginning to converge on the "economic program" Beppe Grillo, still limited to a page and a half on the site M5S.  With Italian economist Mauro Gallegati acting as coordinator, Nobel Prize winning economist Joseph Stiglitz and French economist Jean-Paul Fitoussi were called on to help formulate the economic doctrine M5S.  "To move from protest to proposal, the first step is to get studying. In this context, I am trying to organize a task force of academics begin to teach the newly elected" "Bruce Greenwald of Columbia University in New York and Jean-Paul Fitoussi will give me a hand," says Gallegati who rejects the label of "Beppe Grillo's Economic Guru." The real "sponsor" of M5S's economic program, based on the decay and the development of clean energy, is mainly Nobel Laureate Joseph Stiglitz (Columbia University), with Bruce Greenwald as one of the closest staff.  Paul Krugman has also maintained a dialogue with Beppe Grillo for several years.

      "Grillonomics" Is a Mess - I asked reader "AC" who is from Italy but now lives in France for some comments on "Grillonomics". She replies ...Your translation seems correct. It's quite astonishing is that a serious newspaper like Les Echos reports this story. It is far from clear and proven that Stiglitz has collaborated to any significant extent on the program of M5S. Some newspapers reported a formal denial from Stiglitz. What is true is that Stiglitz has been writing a few posts (2 or 3) on Grillo's blog, but just that. The main "ideologists" of Grillonomics seem to be Italian economist Mauro Gallegati, Alberto Bagnai (an economics professor in Pescara) and Loretta Napoleoni. Beppe Grillo's economic program is quite a mess. Grillo provides no details on where the money for all the expenditure he wants will come from.  M5S wants free Internet, abolition of several taxes, citizenship income, revoking reforms that have made the job market more flexible, and nationalization of banks. Some things he seeks are pro-market, some others not at all. He seeks many tax cuts (a good thing) but he does not specify enough cuts elsewhere to balance.  Succinctly, his economic program is a real mess.

      Italian Elections: Europe’s Lost Generation Finds Its Voice - Only a few weeks ago, they hardly would have thought it was possible. But now here they are; their first public appearance following their surprise success in the Italian general election. In a hotel in Rome, not far from the Piazza San Giovanni, eight of the 162 newly elected parliamentary representatives of Movimento 5 Stelle (the Five Star Movement, or M5S) are squinting into the spotlights and speaking softly -- and what they are saying actually sounds reasonable. ANZEIGEThey are talking about empowering Italians and giving people more of a say in political decisions -- and they want to know how their tax money is being spent. Grassroots politics is the goal. Their efforts remain somewhat clumsy, but they are sincere. This group includes a male nurse, an IT specialist and a single mother -- all in their 30s or 40s with good educations and no previous political experience. Soon, they will enter the newly constituted parliament, which will be younger, have more women and, on the whole, be best less politically experienced than any other in Italian history. M5S emerged as the strongest single party in the lower house of parliament, the Chamber of Deputies, and the second strongest party in the upper house, the Senate. The party garnered nearly one-third of its votes in Sicily. The "Grillini," as the followers of former comedian Beppe Grillo are called, are the true miracle of this otherwise so chaotic election.

      Europeans are rejecting austerity -  Joe Stiglitz - The outcome of the Italian elections should send a clear message to Europe's leaders: the austerity policies that they have pursued are being rejected by voters. The European project, as idealistic as it was, was always a top-down endeavour. But it is another matter altogether to encourage technocrats to run countries, seemingly circumventing democratic processes, and foist upon them policies that lead to widespread public misery. While Europe's leaders shy away from the word, the reality is that much of the EU is in depression. The loss of output in Italy since the beginning of the crisis is as great as it was in the 1930s. The youth unemployment rate in Greece now exceeds 60%, and the figure for Spain is above 50%. With the destruction of human capital, Europe's social fabric is tearing, and its future is being thrown into jeopardy.

      QE for the People: Grillo’s Populist Plan for Italy - Comedian Beppe Grillo was surprised himself when his Five Star Movement got 8.7 million votes in the Italian general election of Feb. 24-25. His movement is now the biggest single party in the chamber of deputies, says The Guardian, which makes him "a kingmaker in a hung parliament." Grillo's is the party of "no." In a candidacy based on satire, he organized an annual "V‑Day Celebration," the "V" standing for vaffanculo ("f--k off").   "If we get into parliament," says Grillo, "we would bring the old system down, not because we would enjoy doing so but because the system is rotten." Critics fear, and supporters hope, that if his party succeeds, it could break the euro system. Steven Colatrella, who lives in Italy and also has an article in Counterpunch on the Grillo phenomenon, has a different take on the surprise win. He says Grillo does have a platform of positive proposals. Besides rejecting all the existing parties and treaties, Grillo's program includes the following:

      • unilateral default on the public debt;
      • nationalization of the banks; and
      • a guaranteed "citizenship" income of 1000 euros a month.

      What's Next for Italy? No Working Government for 7 Months, Followed by Elections in September - Now that elections are over and declarations have been made by the three major party leaders, we can look at what's ahead for Italy. In a nutshell: It's highly likely that no empowered government will be in charge for six months or longer, and in September Italy will be voting again. The first session of the Parliament will take place on 3-15. By 3-20, the presidents of the Chamber and Senate will be elected. The President will then meet with parliament groups to see if a government can be formed. Based on statements made by the key political parties, no grand coalition is possible.   By 4-15 the Parliament will seek to elect a new President because the mandate of Napolitano expires on 5-15 and Napolitano has already said he will not accept another term. Outgoing presidents at the end of their term are forbidden by the constitution to call new elections. Therefore, Italy has to wait for the new president to be elected. This process may take until the end of May.

      A “Politically Explosive” Secret – Italians Are Over Twice As Wealthy As Germans - In December 2006, the ECB established the HFSC network of survey specialists, statisticians, and economists from its own ranks, national central banks of the Eurozone, and statistical institutes. The acronym stood for Household Finance and Consumption Survey. It would collect “micro-level structural information” on household wealth. A massive bureaucratic undertaking. Surveys went out in 2010. Results are now ready. No one in Europe had ever done a survey on that scale before. And no one might ever do it again. Because, in the era of bailouts and wealth-transfers, the results are so explosive that the Bundesbank is keeping its report secret—and word has leaked out why. The considerable wealth in Austria was very unevenly distributed. The wealthiest 5% owned nearly half of the country’s wealth. Their median wealth was €1.7 million in diversified assets. The lower 50% owned only 4% of the country’s wealth. Of them, 83% rented their homes.  Italy’s report (142-page PDF) finds that median household net wealth has increased 56% since 1991. And from 2008 to 2010, it increased by about 5% annually, despite the crisis! But the wealth of German households stagnated during much of that time while they paid taxes out of their noses. And now they might learn that Italy’s median household wealth is €163,875—while Germany’s is closer to Austria’s, around €76,000. Less than half!

      Self-destructive Europe - Paul Krugman -- I just wanted to flag two important articles on Europe. First, Simon Wren-Lewis reminds us that while extreme austerity is being imposed on Europe’s periphery, the core has also pursued contractionary fiscal policies. Here’s the IMF’s estimate of the cyclically adjusted primary balance — a measure of what the non-interest budget balance would have been at full employment: Basically, faced with a huge blow to private demand from a burst housing bubble and deleveraging, Europe has responded not as 75 years of economics said it should, with temporary stimulus, but with Herbert Hoover — or, better, Chancellor Brüning — policies of retrenchment. And policy makers pronounce themselves shocked both to find that the bottom is dropping out of Europe’s economy and that their perceived authority and wisdom is being rejected by voters. Meanwhile, Mark Mazower, an actual European historian, says better and with more authority than I could what I’ve been trying to get at: the Chancellor Brüning reference is not a joke: The Italian elections should remind eurozone leaders to pay attention to their voters. Economic fixes have failed to staunch a political crisis that has the capacity to harm not only EU integration, but the legitimacy of the continent’s democratic order itself.

      Cockroaches at the European Commission - Paul Krugman - I’ve written several times about cockroach ideas in economics — ideas that you try to flush away, but keep coming back.   (I think of cockroach ideas as misconceptions held because the people holding them are just unaware of basic facts, while zombie ideas are held by people who refuse to acknowledge contrary evidence).Anyway, Ambrose Evans-Pritchard catches Olli Rehn with a cockroach: While the tone is changing, there is no sign yet of a retreat from fiscal belt-tightening. “Given that average debt exceeds 90pc of GDP in the EU, I don’t think there’s any room for manoeuvre to leave the path of budgetary consolidation,” said EU economics chief Olli Rehn. “We won’t solve our growth problems by piling new debt on top of our old debt,” he said. Defying his critics, Mr Rehn said John Maynard Keynes himself would not be a Keynesian today’s circumstances. Ah yes, the old “when Keynes wrote in the 1930s, governments weren’t deep in debt the way they are now” claim. Been there, done that:

      Of Cockroaches and Commissioners - Paul Krugman - Kevin O’Rourke points me to the FT’s Brussels blog, which passes on the news that various officials at the European Commission are issuing outraged tweets against yours truly. You see, I’ve been mean to Olli Rehn. And the EC response perfectly illustrates why I do what I do. What you would never grasp from those outraged tweets is that all my criticisms have been substantive. I never asserted that Mr. Rehn’s mother was a hamster and his father smelt of elderberries; I pointed out that he has been promising good results from austerity for years, without changing his rhetoric a bit despite ever-rising unemployment, and that his response to studies suggesting larger adverse effects from austerity than he and his colleagues had allowed for was to complain that such studies undermine confidence. It’s telling that what the Brussels blog calls a “particularly nasty attack” was in fact a summary of Paul DeGrauwe’s work indicating that European austerity has been deeply wrong-headed, in the course of which I quoted Mr. Rehn asserting, once again, that old-time austerian faith.

      Michael Pettis on Misguided European Optimism - Via Email, Michael Pettis dispels the myth that Spain and peripheral Europe are on a sustainable rebalancing path relative to Germany. Pettis writes ... Several euro-optimists have pointed out that unit labor costs in Spain have dropped substantially relative to Germany, by as much as 6 or 7 percentage points. This whole reform process is working, they claim, and if we can just wait it out another year or two Spain will be fully competitive again.  I am not so sure. Although I agree that there have been real economic reforms, I am a lot less sanguine about the ability of these reforms to stave off the crisis. First, the reforms have come at a huge social cost, and it isn’t obvious that people can suffer much longer as they already have. After all we know how to force down unit labor costs. It is really quite easy. High unemployment usually does the trick.  The problem is that Spain, after four years of punishingly high unemployment, has only clawed back in labor competitiveness about one-third of what it needs to claw back in total, and Madrid has already picked most of the low hanging fruit. As brutally difficult as this has been, this was the easy part. For Spain to claw back other 10-15 percentage points in unit labor costs, and it may need more, may well be beyond the capacity of the population to endure. Second, labor is only one factor in international competitiveness. Capital is the other, and everyone is in a hurry to forget this. It is hard to calculate the appropriate trade-off, but while relative labor costs in Spain have certainly declined, the relative cost of capital has just as certainly risen, and probably by a lot more (to the extent that businesses can even get capital)

      The Eurozone Rift: It Would Be Wrong “To Give In To Panic” - Euros entered circulation on January 1, 2002, and for six years, they were practically growing on trees in southern Europe. But the bubble got pricked. Since then, the monetary union has been in crisis—almost half of its existence! Until late last year, when it was decided that the worst was over, that the problems had been solved. But now, confidence in the future of the monetary union is weaker than ever. And this time, there is a hue of acquiescence in Germany. The Federal Association of German Banks (BdB), not normally given to pessimism, is worried. During the bi-annual economic forecast on Wednesday (slide show and speeches), Stefan Schilbe, chairman of the Committee for Economic and Monetary Policies, described 2013 as an “economically difficult and bumpy year.” The Eurozone would see “more or less stagnation,” spread unevenly between countries. For Germany, he forecast growth of only 0.7% in 2013—after a “the collapse” in the fourth quarter that had been “surprisingly steep.” The largest threat: the election results in Italy. The top three parties distanced themselves from, or outright attacked, the reform and austerity policies that Prime Minister Mario Monti, Germany’s hand-picked and now deposed point man, had implemented. And that, Schilbe said, ignited “new uncertainties” about “the future of the European monetary union.” Under this uncertainty, companies would be less inclined to make investments and contribute to growth. He saw other threats as well: deficit targets for 2013 were moving out of reach in some countries. The fiscal problems in the US were “piling up ever higher.” And then there were the “side effects of expansionary monetary policies,” among them: risks to price stability, the formation of bubbles, and “an escalating currency war.”

      'Why Politicians Ignore Economists on Austerity' - So why are politicians, in the Netherlands and elsewhere, pursuing a policy that most economists regard as an elementary error? This was a question raised by Coen Teulings, who is the director of the CPB, the Dutch fiscal council. He was commenting on an IMF sponsored conference in Sweden, at which most economists argued against short run austerity when the economy was weak, and instead advocated dealing with budgetary problems through long term structural reform. The politicians in the audience, led by the Swedish finance minister Anders Borg, disagreed. He summarizes their view as follows: “Politicians lack the ability to commit today to austerity measures to be implemented tomorrow. Hence, the only option is to take action straightaway.” ... Tuelings does not take this argument seriously, for good reasons. Instead he provides three suggestions as to why politicians are ignoring the economists. The first is a memory of the 1970s, when Keynesian policies were pursued because many failed to see the structural impact of the oil crisis. Politicians do not want to make the same mistake again. The second is that economists neglected countercyclical fiscal policy for too long, and therefore have failed to provide politicians with a clear guide to what policy should be, like perhaps an equivalent to the Taylor rule for monetary policy. Third, while both structural reform and short term austerity have political costs, politicians can sell the latter more easily, and success can be demonstrated more quickly.

      European Ministers Advocate Austerity as an End In Itself, not to End the Debt Crisis - The Washington Post began an article on a meeting of the euro zone finance ministers by telling readers: "European leaders demanded that euro members press on with budget cuts to end the debt crisis." At this point there is overwhelming evidence that the primary effect of the austerity being demanded by the finance ministers is to slow growth and increase unemployment. As a result of the negative impact on output, the budget cuts lead to little improvement in the financial situation of the affected countries. Since the evidence shows that the ministers' austerity agenda is not an effective way to deal with the debt crisis it is wrong of the Post to tell readers that this is motive of the finance ministers. This assertion assumes that the finance ministers have no clue about the actual effect of the policies they advocate. While this may in fact be true, the Post certainly cannot claim to know that the euro zone's finance ministers are completely clueless about economics.

      Money-Laundering Suspicion Stalls Europe’s Latest Bailout - Cyprus's newly elected government is bargaining for a €17 billion bailout from its euro-zone peers. But the little island won't get a cent until it wrestles with a long-standing issue: money laundering. Cyprus's reputation as a transit point for shady cash, and its unusual connections to Russia, are making many of its would-be rescuers nervous. Monday, euro-zone finance ministers agreed that Cyprus would have to submit to a fresh outside examination of its money-laundering controls—an audit that many here resent. The new president, Nicos Anastasiades, sworn in last week, has pledged cooperation with the euro zone—"We have nothing to hide," he told a German newspaper—but his new finance minister said Sunday that there "has to be a balance" between a tough audit and bank secrecy.  The country's rescue, though small, is an essential test of the currency bloc's newly proclaimed cohesion, which has calmed financial markets after years of turmoil. If Cyprus's long-delayed bailout descends into discord, much of that progress could be undone.

      Euro Exports Fell in Fourth Quarter as Slump Deepened - Euro-area exports fell in the fourth quarter for the first time in more than three years and investment declined as the sovereign debt crisis pushed the region deeper into a recession. Shipments from the euro area dropped 0.9 percent in the last three months of 2012, helping to drive gross domestic product down 0.6 percent, the European Union’s statistics office in Luxembourg said today. Exports last declined in the second quarter of 2009. Imports also fell 0.9 percent in the fourth quarter. “Real economic activity is yet to show major improvement in many countries and it looks highly likely that growth will remain a major struggle for the euro zone for some time to come,” The 17-nation currency bloc’s economy recorded a third straight decline in the fourth quarter, a trend that will continue in the first three months of 2013, according to a Bloomberg News survey of economists. The European Commission sees the economy shrinking 0.3 percent this year.

      Eurozone Downturn Accelerates Despite German Growth; Divergence to France Widest in 15 Years - The Markit Eurozone Composite PMI Final Data shows the Eurozone downturn accelerates.  Key Points:
      Final Eurozone Composite Output Index: 47.9 (Flash 47.3, January 48.6)
      Final Eurozone Services Business Activity Index: 47.9 (Flash 47.3, January 48.6)
      At 47.9 in February, the Markit Eurozone PMI® Composite Output Index came in above the earlier flash estimate of 47.3 but remained down on January’s reading of 48.6. The index therefore signalled a steepening of the downturn in business activity, contrasting with the easing trend which had been evident in the three months to January. Chris Williamson, Chief Economist at Markit said: “The dip in the Eurozone PMI compared to January is a disappointment, but the region still looks set to see a much smaller drop in GDP in the first quarter compared to the 0.6% decline seen in the final quarter of last year, with the PMI so far consistent with a 0.2% GDP decline.  “Worryingly, the divergence between Germany and France so far this year is the widest in the 15-year survey history. Germany is on course to see the strongest quarterly growth since the spring of 2011, but France is contracting at the fastest rate for four years.

      French Unemployment Climbs to 13-Year High as Growth Stalls - French unemployment climbed to a 13- year high in the fourth quarter as companies eliminated tens of thousands of jobs to cope with a stalled economy. The jobless rate based on International Labor Organization standards rose to 10.6 percent from a revised 10.2 percent in the previous three months, national statistics office Insee in Paris said today. Excluding France’s overseas territories, the rate was 10.2 percent, compared with a median forecast of 10.1 percent in a Bloomberg News survey. Faced with an economy that fell back into recession early last year and risks doing so again, companies such as PSA Peugeot Citroen (UG), Renault SA and Alcatel-Lucent are slashing payrolls. That’s adding pressure on President Francois Hollande who is trying to retain support of unions while attempting to revamp Europe’s second-largest economy in the wake of the region’s sovereign debt crisis. “Unemployment will likely rise further in coming months, with the peak only coming at the end of the year or early next year,” . “The economy may gain some traction in the second half but it’s unlikely to be enough to induce companies to start hiring in a serious way.”

      French and Italian debt chiefs warn on EU Tobin Tax - Officials in charge of managing French and Italian public debt have warned that Europe’s ‘Tobin Tax’ on financial trades risks damaging the sovereign bond market and may prove self-defeating. Both France and Italy have been keen advocates of the new Financial Transaction Tax (FTT) proposed by Brussels last month, claiming that it will raise money and curb speculation. But they may have overlooked the unintended effect on their own borrowing costs. Maya Atig, acting chief of French debt agency, said the European Commission’s internal documents acknowledge that the FTT could drain liquidity in the bond markets by 15pc, an effect that would push up yield spreads and raise debt costs. Brussels estimates that the tax will raise €30bn to €35bn each year for the eleven EU states taking part, but Mrs Atig told a Euromoney conference in London that any revenue would offset “the extra costs that we might have to pay”. She said the French government is searching for ways to ensure that the tax does not “perturb” the bond market. “This something still to be discussed.” Maria Cannata, director of Italy’s debt agency, said her country already has a version of the Tobin Tax but has been careful to exempt sovereign debt, adding that policy-makers must bear in mindful the “importance of not damaging the government bond markets”.

      On the social conditions in Greece, now - The difference between a recession and a depression is, primarily, that in the former it is the average company and household that experience a contraction whereas in the latter everyone does. In this sense, a recession has some redemptive effects in that, while most sectors suffer, some firms and lines of business do well eventually acting as the locomotive that pulls the whole train out of the mire. But in a depression there are no silver linings. Even profitable companies go under because, for instance, the Greek banks’ guarantees are not acceptable overseas, the result being that Greek manufacturers cannot import raw materials on credit – which, in turn, means that their capacity to produce is severely constrained and cannot supply consumers even if profitable and even if they have a full order book. So, the combination of failed banking, wholesale retrenchment in the private sector, savage cutbacks in the public sector, ridiculous new taxes imposed on the exhausted band of dependable taxpayers (who are a minority in view of the tax immunity of the upper class) – all this conspires to create a long Winter of Discontent. One that has lasted for three years and counting.

      The Greek Catastrophe: Three Generations of Greek Workers - As Greece enters the sixth year of Europe’s worst economic depression, with 30% of its labor force unemployed and over 52% of its youth jobless, the entire social fabric is unraveling; a suicide rate are skyrocketing and close to 80% of the population is downwardly mobile. Family and inter-generational relations are deeply impacted; previous certainties evaporate.  Household budgets shrink to one half or one third of their previous levels. In a growing number of households, three generations are living under one roof, barely surviving on their grandparents’ shrinking pensions; some households on the brink of destitution. The prolonged – never ending and worsening – capitalist depression has caused a deep rupture in the life cycle and living experiences of grandparents, parents and children. This essay will focus on grandfathers, fathers and sons due to greater familiarity with their life experiences The intergenerational rupture can best be understood in the context of the contrasting ‘life experiences’ of the three generations: The focus will be on work, political, family and leisure experiences.

      Still in Search of Expansionary Fiscal Contraction - The revisions in Euro zone and UK GDP figures have confirmed the lackluster performance in economies where rapid fiscal consolidation has been implemented. In the Euro zone, estimated growth has now been negative for five quarters. And in the UK, revised figures indicate negative growth for 2012Q4. In contrast, the US has exhibited continued, albeit modest, growth. Together, these economies account for 50% of 2013 estimated world output, evaluated at current exchange rates. What is the common factor in the three contracting economies, in contrast to the United States? While many factors are not controlled for (including for instance the earthquake and tsunami in Japan), one interesting commonality is the pace of fiscal consolidation. Figures 2 and 3 show the change in the structural budget balance to potential GDP ratio for the three countries, and for selected economies in the Euro zone, respectively. The point is not that fiscal consolidation is unnecessary. Over the longer term, one wants to bring revenues in line with spending (if only we’d done that in 2005!). But when output is around 6% below potential GDP, one wants to go very slow on cutting spending, especially spending that takes place now, as opposed to in the future.

      Switzerland Clamps Down Hard on Obscene CEO Pay - Yesterday, voters in Switzerland overwhelmingly  approved new measures to clamp down on executive pay. Under the approved referendum — which means that the new provisions will be  added to the Swiss constitution — shareholders will have the ability to veto executive pay packages, so-called “golden parachutes” will be outlawed, and executives who defy the rules could see jail time. As the Wall Street Journal’s Andrew Peaple wrote, “Swiss voters’ anger is understandable. Like other countries, it has seen executive pay rise out of all proportion over the past decade”: Switzerland has the highest remuneration per board member in Europe, according to Deloitte. Pharmaceutical company Novartis’s recent offer of a six-year $76 million golden parachute to outgoing Chairman Daniel Vasella is the latest example of seemingly egregious rewards. UBS Chairman Axel Weber was paid $5.3 million when he joined the bank this year. Compared with Swiss average wage of $73,500, such payments look out of whack.  The European Union has also  approved new restrictions on bonuses at large financial firms.

      Mirabile Dictu! More Executive Pay Revolt as Swiss Impose Curbs - Yves Smith - It isn’t clear how effective the pushback against stratospheric top-level compensation will be, but the howls in the European media suggests that the corporate overlords really are concerned. But the problem in that folks in finance in the US have taken to wildly exaggerating the effects of any incursion on what they see as their God-given right to loot profit. If the authorities planned to escalate from wet noodle-lashings to wet towel snappings, it is depicted as if they were plotting the Rape of Nanking with new horror added, like salting the earth. The latest indignity about to be foisted on the Masters of the Universe is that shareholders in Swiss companies might actually have “say on pay” votes with real teeth. From Aljazeera (hat tip Marshall): Swiss citizens voted to impose some of the world’s strictest controls on executive pay, forcing public companies to give shareholders a binding vote on compensation, initial result projections showed. Claude Longchamp, of pollsters Gfs Bern, told Swiss state television on Sunday early returns in a referendum showed 68 percent backed plans for shareholders to veto executive pay and for a ban on big rewards for new and departing managers. The clear majority was unusual given fierce opposition and intense campaigning by a business lobby group, which warned the proposals will damage the country’s competitiveness and scare away international talent.Support for the move was fired by anger over the big bonuses blamed for fuelling risky investments that nearly felled Swiss bank UBS, as well as outrage over a proposed $78m payment to outgoing Novartis chairman Daniel Vasella.

      IEA's shadow MPC votes 5-4 for quarter-point rate hike - In its most recent e-mail poll, which was finalised on 26th February, the Shadow Monetary Policy Committee (SMPC) decided by five votes to four that Bank Rate should be raised on Thursday 7th March. Three SMPC members wanted an immediate increase of ½%, while two advocated a rise of ¼%, implying a rise of ¼% on normal Bank of England voting procedures. This represented the second consecutive month that a majority of shadow committee members had decided that a rate increase was justified on economic grounds. However, no one expected to see an actual rate change this close to Mr Osborne’s 20th March Budget. In addition, four SMPC members believed the British economy was so weak that Bank Rate should be held, while one believed that additional Quantitative Easing (QE) would be required before the economy could recover. The majority view was that the stock of QE should be held at its present £375bn, however. Both the SMPC’s ‘hawks’ and ‘doves’ included people who believed that QE would be more effective if the Bank bought more private-sector assets and relied less on government debt purchases. There was also disquiet about the extent of the structural fiscal weakness that might be revealed in the 20th March Budget.

      Bank of England Keeps Interest Rate at Record Low - NYT - The Bank of England decided to keep its benchmark interest rate unchanged on Thursday amid doubts about the strength of Britain’s economic recovery.  The central bank left its interest rate at 0.5 percent, a record low, and also held its program of economic stimulus at £375 billion, or about $560 billion. Some economists had expected the central bank would expand its stimulus program to help keep the economy from falling back into recession, from which it emerged only in the third quarter of last year. Britain’s central bank has been focusing on reviving economic growth by keeping interest rates low and encouraging banks to lend more even though inflation continued to hover above the central bank’s 2 percent target. The pound has been tumbling since the beginning of this year and fell to the lowest level in almost three years as some investors anticipate the central bank to inject more money into the ailing economy.

      King calls for RBS to be broken up - Mervyn King, the outgoing governor of the Bank of England, has urged the government to break up the Royal Bank of Scotland as the best way to recover the bulk of the £45bn used to bail out the state-controlled bank. In unusually blunt testimony to the Commission on Banking Standards, Sir Mervyn said that RBS’s current structure, in which it is 82 per cent government-owned but managed at arm’s length, is “a nonsense” and unworkable.The bank’s efforts to shrink were also proving to be a drag on the broader economy, he said, adding the bank should be separated into a “good” and “bad” bank.

      FSA admits slow response to Libor but denies failure - Telegraph: The regulator, which on Tuesday released the findings of an internal audit into its handling of the scandal, said employees "at all levels of management" were aware of "severe dislocation" in the Libor markets from summer 2007 to early 2009, years before it launched a formal investigation in 2010.  The audit, which reviewed 97,000 documents, threw up "instances where information available provided some indication lowballing might be occurring" but insisted that no information available to the watchdog could have indicated that traders were manipulating the key rate for their own financial gain.  It blamed its sclerotic response on preoccupation with the ongoing financial crisis and the fact that it had no formal regulatory responsibility for Libor, but stopped short of admitting to major regulatory failure.

      UK manufacturing shrinks unexpectedly in February, triggers slide in the pound - Telegraph: A shock contraction in British manufacturing last month dragged the pound below the psychologically important $1.50 mark for the first time since June 2010, as tough conditions both at home and abroad indicated that the sector will drag down growth in the first quarter.The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) fell to 47.9 from 50.5 in January, well below the 50 level that divides growth from contraction, as employment levels in the sector fell at the fastest pace in more than three years. The pound sank by one-and-a-half cents against the dollar, which strengthened on the back of disappointing Canadian GDP data, to $1.4998, and by almost a cent against the euro to €1.152, as economists described the data as "very disappointing".

      Food banks are thriving, much to the government's embarrassment  - Many charities may be dying a slow death by cuts to grants and contracts, but in one area the big society is alive, well and seemingly thriving: the provision of emergency food aid.Food banks, soup kitchens and emergency breakfast help for hungry children: all these social phenomena represent an austerity-era civil society growth industry in the UK. There is increasing evidence that volunteers are rallying to try to fill the food gap, distributing charity food to families that can no longer afford put a meal on the table as a result of rising living costs, shrinking incomes and cuts to benefits.Most food banks are run by church groups, generally without taxpayer financial help; they are almost entirely dependent on public donations of food, collected outside supermarkets, schools and voluntary group events. The most cited data is collected by the Trussell Trust food-banks network. As it opens more branches so it distributes more food parcels, with no sign of any let-up. This week, it announced it will feed 280,000 people in 2012-13, up from 129,000 in 2011-12.

      Revealed: The shocking true scale of food poverty - New research has given a shocking insight into the struggle to afford food faced by thousands of people in Greater Manchester. One in 10 people in the region now skip meals so family members can eat – with one in five cutting down on the amount of fruit and veg they buy, a report has found. Fifteen per cent of those surveyed also said they went without meals – because they simply didn't have any money to buy food for themselves. The report funded by cereal giant Kellogg’s also found the poorest, many of them single parents with one or more children and pensioners, are now spending nearly a quarter of their income on food as prices have risen so much. The figures also show while people are spending more than ever before on food, many are actually eating less – painting a bleak picture of people struggling to cope with rising food prices.

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