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

Saturday, April 6, 2013

week ending Apr 6

Fed Balance Sheet Expands in Latest Week: The U.S. Federal Reserve's balance sheet grew in the past week, which is the 11th consecutive week the central bank's holdings have remained above the $3 trillion mark. The Fed's asset holdings in the week ended Wednesday increased to $3.217 trillion from $3.204 trillion a week earlier, the central bank said in a weekly report released Thursday. Holdings of U.S. Treasury securities increased by $134 billion in the past week to $1.806 trillion. The central bank's holdings of mortgage-backed securities rose by $234 billion to $1.071 trillion. The decline in the mortgage balance is likely due to week-to-week accounting and does not reflect a shift in policy.  The central bank has said it will purchase $85 billion a month of Treasury and mortgage bonds. The Fed's portfolio has more than tripled since the financial crisis thanks to stimulus programs intended to keep interest rates low. Mr. Bernanke said the Fed may adjust the pace of those purchases as the economy strengthens over time, but vowed to continue the program until there is "substantial improvement" in the labor market. Thursday's report showed total borrowing from the Fed's discount lending window was $394 million on Wednesday, up from $385 million a week earlier.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--April 4, 2013: Federal Reserve statistical release

Fed’s Lockhart Expects Bond Buying Through All of 2013 - Federal Reserve bond-buying likely will continue through the remainder of the year as policy makers look to see if the economy can maintain or build on its current momentum, a veteran central-bank official said Tuesday.“The decision to curtail asset purchases ought to be forward-looking, and in my judgment, that point could come later this year or early next year,” Federal Reserve Bank of Atlanta President Dennis Lockhart said in a speech.The official was commenting on the outlook for the Fed’s open-ended buying of mortgage and Treasury bonds, an effort the central bank is pursuing to push up growth and lower the unemployment rate. The economy’s improving prospects and rising concerns about the risks that come from continuing to expand the Fed’s balance sheet are raising questions about the future of the program.

Fed’s Tarullo: Not Ready to Scale Back Bond Purchases - Federal Reserve governor Daniel Tarullo said he hasn’t seen enough sustained evidence that the economic outlook has improved to justify changes in the central bank’s bond-buying programs.In an interview on CNBC, Mr. Tarullo said “my judgment is that the benefits outweigh the costs” of the Fed’s effort to propel the economy through bond purchases. While the economy has been improving, Mr. Tarullo said there are still risks that it may deteriorate as has happened in recent years.The Fed is currently buying $45 billion in long-term Treasurys and $40 billion of mortgage-backed securities each month–part of an effort to boost the economy by driving down long-term interest rates. Fed Chairman Ben Bernanke said last month that the Fed “may adjust” the pace of its bond-buying to a strengthening job market.

Fed’s Kocherlakota Calls for More Stimulus - One of the Federal Reserve’s most dovish policymakers repeated Tuesday his desire for the central bank to make monetary policy even more stimulative of growth. In a speech in Grand Forks, N.D., Federal Reserve Bank of Minneapolis President Narayana Kocherlakota essentially repeated a speech he gave last week in Minnesota. Mr. Kocherlakota, who is not a voting member of the Federal Open Market Committee, continues to support the central bank working very aggressively to help drive up growth and lower unemployment.“The FOMC should provide more monetary accommodation,” Mr. Kocherlakota repeated in the text of a speech prepared for delivery before a local group. The official said the best way the central bank can accomplish this is to change the guidance it has been providing about when it will tighten interest rates.

Fed’s Lockhart Won’t Rule Out Tapering QE3 This Summer - Federal Reserve Bank of Atlanta President Dennis Lockhart said Thursday he “wouldn’t totally rule out” a tapering of the Fed’s quantitative easing in the summer. But said, in an interview on CNBC, that “we need a few more months of really solid data and evidence that the recovery is moving ahead.” “The last two years we have had a strong first quarter, which they will certainly get when the numbers come out, followed by a swoon in the middle of the year. I really want to get beyond that,” he said.

Fed’s Lockhart, Evans Looking for More Job Growth Before QE End -Two Federal Reserve district bank presidents said they needed to see stronger job growth before they’d support winding down the central bank’s $85 billion a month of bond purchases. “If we see several more months of progress in terms of job creation and some reduction in the unemployment rate I think later in the year or perhaps 2014 it would be appropriate to consider tapering off some of our purchases,” Atlanta Fed President Dennis Lockhart said on a panel discussion today in Dayton, Ohio. Chicago Fed President Charles Evans, speaking on the same panel, said that he would like to see payrolls rise by “200,000 a month increases for like six months” and that “I would hope that we can conclude these purchases as soon as possible because that would mean that the economy is ramping up in a very substantial way.”Chicago Fed President Charles Evans, speaking on the same panel, said that he would like to see payrolls rise by “200,000 a month increases for like six months” and that “I would hope that we can conclude these purchases as soon as possible because that would mean that the economy is ramping up in a very substantial way.” Fed policy makers reiterated in a March 20 statement that they will press on with bond purchases until the labor market outlook improves “substantially.” The central bank each month is buying Treasuries and mortgage bonds aimed at boosting economic growth and reducing the 7.7 percent unemployment rate.

A Debate in the Open on the Fed -— Federal Reserve officials regularly air their views in public speeches, but they rarely engage in public debates. On Tuesday night, two of the officials who disagree most sharply about the Fed’s current policy did just that. The exchange between Charles L. Evans, an outspoken advocate for the Fed’s efforts to stimulate the economy, and Jeffrey M. Lacker, the Fed’s most persistent internal critic, suggested their differences are as much a matter of temperament as economics. Mr. Lacker, the president of the Federal Reserve Bank of Richmond, said he did not expect the economy to recover the losses sustained during the recession. “It’s hard to talk about the economic outlook without being a little bit of a sourpuss,” he said during a panel discussion sponsored by Virginia Commonwealth University. Mr. Evans, describing himself as “the happy guy in the room,” said the recovery had been postponed rather than canceled. Mr. Lacker said he doubted monetary policy had more power to increase growth. Mr. Evans said the Fed had an obligation to try because unemployment remained high. Mr. Evans said the Fed would have sufficient warning of inflationary pressures to keep price increases under control. Mr. Lacker said he was worried the Fed was overconfident about its ability to manage the risk.

A Case for Monetary Policy Accommodation - (Chicago Fed video) Federal Reserve Bank of Chicago President Charles Evans provided his perspective on monetary policy as part of a panel discussion(pdf) with Federal Reserve Bank of Richmond President Jeffrey Lacker at Virginia Commonwealth University.

Fed Dissenter George Says Policy ‘Overly Accommodative’ - Federal Reserve Bank of Kansas City President Esther George warned Thursday that current central bank policy is risky and may be creating new financial bubbles that could eventually hurt economic growth and job gains. “I support an accommodative stance of monetary policy while the economy recovers and unemployment remains high,” Ms. George said. “But I view the current policies as overly accommodative, causing distortions and posing risks to financial stability and long-term inflation expectations with the potential to compromise future growth,” the official warned in the text of a speech to be delivered in El Reno, Okla. Ms. George is a voting member of the monetary-policy-setting Federal Open Market Committee, and she is currently the body’s most-high-profile dissident. The FOMC has held two meetings so far this year, and in both, the official, who took control of her bank in 2011, has dissented against the collective decisions of her fellow policymakers

Fed's Williams: Expects to Meet "test for substantial improvement in the outlook for the labor market by this summer" - From San Francisco Fed President John Williams: The Economy and the Federal Reserve: Real Progress, but Too Soon to Relax I see the benefits of our asset purchases continuing to outweigh the costs by a large margin. I expect that continued asset purchases will be appropriate well into the second half of this year. In making this assessment, I don’t have a specific unemployment or job-gain threshold in mind for cutting back or ending these purchases. Instead, I’m looking for convincing evidence of sustained, ongoing improvement in the labor market and economy. The latest economic news has been encouraging. But it will take more solid evidence to convince me that it’s time to trim our asset purchases. An important rule in both forecasting and policymaking is not to overreact to what may turn out to be just a blip in the data. But, assuming my economic forecast holds true, I expect we will meet the test for substantial improvement in the outlook for the labor market by this summer. If that happens, we could start tapering our purchases then. If all goes as hoped, we could end the purchase program sometime late this year.

Fed Watch: Hawkish Dove - The generally dovish San Francisco Federal Reserve President John Williams sounded relatively hawkish in today's speech. The money quote: I expect that continued asset purchases will be appropriate well into the second half of this year. In making this assessment, I don’t have a specific unemployment or job-gain threshold in mind for cutting back or ending these purchases. Instead, I’m looking for convincing evidence of sustained, ongoing improvement in the labor market and economy. The latest economic news has been encouraging. But it will take more solid evidence to convince me that it’s time to trim our asset purchases. An important rule in both forecasting and policymaking is not to overreact to what may turn out to be just a blip in the data. But, assuming my economic forecast holds true, I expect we will meet the test for substantial improvement in the outlook for the labor market by this summer. If that happens, we could start tapering our purchases then. If all goes as hoped, we could end the purchase program sometime late this year. Based on William's current forecast, he expects the Fed will begin tapering off asset purchases this summer, perhaps the June FOMC meeting. He is apparently more optimistic than me, as this puts him at least three months ahead of my expectations - I had not anticipated slowing the pace of purchases until late in the year. Of course, the reality will be data dependent, with the next three employment reports being particularly important. As a recap, three of the last four reports have shown nonfarm payroll growth at or above 200k:

QE Catastrophizing - There have been many concerns expressed on the internet about the eventual necessity of reversing the Fed’s cheap-money policies, which include “quantitative easing,” as well as a near-zero federal funds rate. One idea some have is that there are “too many bonds” in the Fed’s portfolio, and that problems will occur with insufficient demand whenever the Fed attempts to reduce its holdings. This doomsday scenario often seems to vex public discussion but is unlikely to materialize, given that the Fed can always make use of its ability to “make a market” for Treasury securities. Also, inflation remains below the Fed’s 2-percent approximate objective, and the greater risk by far is still recession. An alternative way of looking at the same situation is that there is a huge amount of money and money-equivalents on bank balance sheets and in nonfinancial corporate coffers, and that the tendency of the modern economy toward financial fragility will eventually lead to risky loans and investments using these funds. Concerns have already emerged about “junk” bonds, so-called leveraged loans, and other effervescent areas of finance. Of course, the problem then becomes for the authorities to implement an appropriate restraint on financial excesses.

Fed's Yellen: Communication in Monetary Policy - Fed Vice Chair Janet Yellen gave an overview about the importance of communication in monetary policy today: Communication in Monetary Policy. Here are a few excerpts related to the eventual exit plan:  The Federal Reserve's ongoing asset purchases continually add to the accommodation that the Federal Reserve is providing to help strengthen the economy. An end to those purchases means that the FOMC has ceased augmenting that support, not that it is withdrawing accommodation. When and how to begin actually removing the significant accommodation provided by the Federal Reserve's large holdings of longer-term securities is a separate matter. In its March statement, the FOMC reaffirmed its expectation that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the current asset purchase program ends and the economic recovery has strengthened. Accordingly, there will likely be a substantial period after asset purchases conclude but before the FOMC starts removing accommodation by reducing asset holdings or raising the federal funds rate.

Fed’s Yellen Says Tapering Bond Buying Will Reduce Risk of Misunderstanding - Tapering the rate of the Federal Reserve‘s bond-buying programs as the jobs market improves should help the Fed ease toward ending its unconventional policies, the No. 2 official at the central bank said Thursday in a speech emphasizing the central role communication will play in the Fed’s exit plan. “In my view, adjusting the pace of asset purchases in response to the evolution of the outlook for the labor market will provide the public with the information regarding the [Fed's] intentions and should reduce the risk of misunderstanding and market disruption as the conclusion of the program draws closer,” Janet Yellen, vice chairwoman of the Fed board, said in remarks prepared for delivery at a conference in Washington. Ms. Yellen didn’t offer a specific timeline for when the Fed would start slowing the pace of its bond-buying as some of other Fed officials have in recent days. She merely said that it will be appropriate for the Fed to end the programs “at some point” and then later “begin the process of withdrawing the significant accommodation” the Fed has provided.

Fed Weighs a Reaction to Stirrings of Recovery - — Federal Reserve officials are grappling publicly with a better kind of problem than most they’ve confronted in recent years: what if the labor market continues to improve more rapidly than they had expected? The economy added an average of 187,000 jobs a month from September to February, slightly faster than the average monthly pace from 2004 to 2006, the best years of the last economic upswing. The government plans to release a preliminary estimate Friday morning of March job creation. Some Fed officials have suggested in recent weeks that if economic growth continues on its present trajectory, the central bank should begin to roll back its economic stimulus campaign by the middle of the year, ahead of expectations.  But the Fed’s chairman, Ben S. Bernanke, and his allies remain wary that another surprising spring will be followed by another disappointing summer. Janet L. Yellen, the Fed’s vice chairwoman, who is viewed as a potential successor to Mr. Bernanke, reflected that caution in a speech on Thursday. “I am encouraged by recent signs that the economy is improving and healing from the trauma of the crisis, and I expect that, at some point, the F.O.M.C. will return to a more normal approach to monetary policy,” she said, referring to the Federal Open Market Committee, which sets policy for the central bank. For now, she said, the Fed needs to remain focused on reducing unemployment.

Fed Watch: Labor Market Hits Air Pocket - My first thought on the employment report is that, at its core, it was more of the same. For the last two years, nonfarm payrolls growth has shifted between promising and disappointing on the drop of a hat. Underneath the drama, the labor market continues to grind forward at a suboptimal pace - a pace that allows for a slow decline in the unemployment rate, but also suggests more policy action is necessary. My second thought is that San Fransisco Federal Reserve President John WIlliams was likely far too optimistic in his assessment that the Fed could begin tapering off QE as early as this summer. That is only three months away, and I have trouble seeing how policymakers could be sufficiently confident in the pace and sustainability of the recovery to justify taking their foot off the gas after just three more months of data.  Headline nonfarm payrolls gained by just 88k, with a 95k in the private sector offset by a 7k loss on the public side of the ledger. To be sure, some of the sting was eased by upward revisions to the previous two months, but I think that is cold comfort at this point. Instead, anyway you slice it this report does not signal that momentum is building in the labor market. Notice that the twelve-month average is slowing declining, and stands at 159k/month, down from 202k/month last March:Arguably, momentum has faded over the past year. Put in context of the Yellen batch of indicators, there is little reason to believe that the Fed should shift policy gears anytime soon [click on charts to enlarge]:

Jobs Report Reinforces Fed Wariness About Premature End to QE3 -- Friday’s jobs report shows that talk of an early end to the Federal Reserve’s bond-buying programs might have been premature. Fed officials have said they would continue buying long-term Treasury and mortgage bonds until the employment outlook improves substantially. One Fed official this week raised the possibility of a job market strong enough by summer to begin pulling back from the program. But the Labor Department report released Friday could raise doubts inside the Fed about how quickly the job market is healing and deflate that hope. There are many yellow flags in Friday’s report. The monthly gain in payroll employment, at 88,000 in March, was the smallest since June. Measures of hiring in earlier months were revised up and worker hours extended a bit – good news — but the soft March reading suggests that a start-and-stop pattern in hiring data persists. And hourly earnings were up just 1.8% from a year earlier, meaning little upward momentum in household purchasing power or inflation. That comes after other reports this week — such as soft readings from the Institute for Supply Management — suggested economic activity might have lost some momentum last month.

Why Curing Job Market Is So Important to Fed - WSJ - In a speech that occurred just as the disappointing March jobs data were released, one of the Federal Reserve‘s most dovish members helped explain why curing what ails the labor market is so important to the central bank. Boston Fed President Eric Rosengren used remarks in Boston Friday morning to note in some detail the scars unemployment leaves on those who find themselves jobless. Time out of work can depress wages for years to come, the official said. Lost earnings can weigh on overall growth over time, especially when unemployment is high and has been for a long time. Because of this, Mr. Rosengren argued the Fed must press forward for the remainder of 2013 with its campaign of bond buying, in a bid to drive up growth and quicken the pace of hiring.

QE Forever? -  Yves Smith - Ambrose Evans-Pritchard, in a provocative column, argues that the monetary authorities are not going retreating from QE, and that might not be a bad thing. But in its current form, it probably is. His key argument is that we might as well stop pretending that QE is about lowering borrowing costs. It can and should be about monetizing debts. He further argues, agreeing with a recent speech by Adair Turner, former head of the FSA, that the world needs more fiscal stimulus: Lord Turner went on to argue that central banks in the US, Japan and Europe should stand ready to finance current spending as well, if push comes to shove. At least the money would go straight into the veins of the economy, rather than leaking out into asset bubbles. Today’s QE relies on pushing down borrowing costs. That is a very blunt tool in a deleveraging bust when nobody wants to borrow. It would be better for central banks to put the money into railways, bridges, clean energy, smart grids, or whatever does most to regenerate the economy. Now of course there is a wee problem, since in the US, Congress is in charge of spending, and Congress and our deficit-loathing President are not at all interested in increasing deficit spending, even if they grokked that the Fed could monetize rather than have the Treasury borrow. 

Global Savings Glut? Global Risk-Tolerance Shortage? - Brad DeLong - Kenneth Rogoff: The Long Mystery of Low Interest Rates: As policymakers and investors continue to fret over the risks posed by today’s ultra-low global interest rates, academic economists continue to debate the underlying causes… a “global savings glut” is at the root of the problem. But economists disagree on why we have the glut, how long it will last, and, most fundamentally, on whether it is a good thing. I would point out that ultra-low interest rates are not accompanied by ultra-low equity yields. Current earnings yields on the S&P Composite are on the order of 6%/year. The way to bet is that profits right now are not cyclically elevated but rather cyclically depressed--as the economy gradually recovers to normal levels of activity relative to potential volumes will rise at least as fast as real wages, and profits will grow. Figure a cyclically-adjusted earnings yield of 7%/year at current stock market valuations, compares that to the -2%/year of current real short-term debt returns, and it looks like not a global savings glut but rather a global risk-tolerance shortage.

3 reasons why the Bernanke Fed hasn’t been wildly expansionary the past four years - Has the Federal Reserve really been so dovish and superexpansionary? Some good insight by Michael Darda of MKM Partners on why it has not:

    • 1. The problem of course is how to define “expansionary.” It cannot simply be a large monetary base, since the demand for base will tend to soar when short rates are low and/or during periods of low inflation and pessimism about future growth prospects.
    • 2. Similarly, the stance of monetary policy cannot be described by the level of the short-term rates since depressed or deflationary economies often are associated with low nominal rates.
    • 3. From an interest rate perspective, what matters is whether the administered rate is below the Wicksellian natural real rate — the rate that balances output at potential. Although the natural rate is invisible, a central bank persistently holding the administered rate below the natural rate will set off a boom in nominal GDP growth and eventually inflation. This is not the background we have today:  This is the primary reason that rates are low, not the Fed’s QEs or even the stock of debt held by the Fed.

Unconventional Monetary Policy and the Dollar -  Economic Letter, FRBSF: After the financial crisis began in 2007, the Federal Reserve reduced the federal funds rate, its main policy tool, close to zero, its lowest possible level. It has remained there since. Because the federal funds rate cannot be reduced further, the Fed has introduced unconventional policy measures to stimulate the economy. One of these unconventional measures is large-scale asset purchases, which are intended to lower long-term interest rates. Another measure is known as forward guidance, communication about the Fed’s expectations for future policy that is intended to guide market expectations and reduce policy uncertainty. The effectiveness of these new policy tools is an open question. In particular, we don’t know whether the standard channel for transmitting monetary policy through financial markets works as well now as it did in the past. One way to measure the effectiveness of unconventional monetary policy tools is through the U.S. dollar exchange rate. Although the Fed does not target the exchange rate specifically, monetary policy decisions ultimately affect the dollar’s value, which can have important effects on the economy. For example, before the crisis, the dollar typically depreciated following declines in the target for the federal funds rate. The lower value of the dollar in turn helped raise U.S. net exports, boosting output and employment in the United States.

Currency Wars: “The Fed is Playing with a Nuclear Reactor" - The United States is at war, but not in the conventional sense. There are no troops on the ground. There are no drone strikes. Instead, the weapon of choice is the US dollar and the “enemy” is America’s trading partners. Welcome to Currency War III. That, at any rate, is James G. Rickards’s view of the world. In a presentation at the recent Global Investment Risk Symposium, Rickards, a partner at JAC Capital Advisors and author of Currency Wars: The Making of the Next Global Crisis, outlined the case for why the international monetary system is dominated by currency wars. . He also argued that capital markets are complex systems that are bordering on a “critical state” and are “potentially prone to collapse” — and that the US Federal Reserve risks “melting down the system.” As Rickards sees it, we are well into the third currency war of the past 100 years. President Obama fired the first salvo during his 2010 State of the Union address, when he announced the launch of the National Export Initiative and said the goal was to double exports over the next five years. The easiest way to do that, of course, is to cheapen the US dollar. But that is only part of the explanation, Rickards said.

Richard Alford: Fed Policy – Old Wine in New Bottles from naked capitalism  Yves here. This is an important post, in that it describes how the Fed, despite the unconventional look of some of its measures, is using more extreme variants of traditional policy approaches, and why that is not such a hot idea.  One place where I quibble with Alford is in attributing the way Greenspan dropped short term rates dramatically in the early 1990s recession as driven by unemployment policy. At the time, there was considerable concern about the health and stability of banks in the US. It wasn’t just savings and loans that were hemorrhaging losses. Citibank nearly went under.  Another quibble is at the very end, where Alford is correctly concerned about our sustained trade deficits, but also is unduly exercised about our fiscal deficits. They are in fact necessary and desirable as long as the business sector keeps net saving, which it did even in the years immediately preceding the crisis. If capitalists refuse to play their proper role and loot rather than dedicate resources to future growth, government has to step in. But as we are seeing now, what is unsustainable about this arrangement is the politics much more than the economics.

Uncertainty as a Tool - At the Fed, uncertainty is frequently blamed for dragging down the economy. "There’s no question that slow growth, high unemployment, and significant uncertainty are challenges for monetary policy," John Williams of the San Francisco Fed remarked earlier this year. Williams and other Fed officials have pointed to several sources of uncertainty. The fiscal cliff is an often-cited example, as is the European debt crisis. These sources of uncertainty are basically exogenous to monetary policy, but the Fed itself can also add or reduce uncertainty through its policies and communications. A handful of economists--George Shultz, Michael Boskin, John Cogan, Allan Meltzer, and John Taylor-- wrote in a Wall Street Journal editorial that "The Fed is adding to the uncertainty of current policy. Quantitative easing as a policy tool is very hard to manage. Traders speculate whether and when the Fed will intervene next."  If uncertainty really does have significant effects on the economy, and the Fed really can significantly influence the level of uncertainty, then a logical implication is that uncertainty management is a powerful policy tool. And yet, at least in most countries (with a notable exception that I will get to), this implication does not seem to be taken seriously.

Special Report: How the Fed fueled an explosion in subprime auto loans (Reuters) - Thanks largely to the U.S. Federal Reserve, Jeffrey Nelson was able to put up a shotgun as down payment on a car. Money was tight last year for the school-bus driver and neighborhood constable in Jasper, Alabama, a beaten-down town of 14,000 people. One car had already been repossessed. Medical bills were piling up. And still, though Nelson's credit history was an unhappy one, local car dealer Maloy Chrysler Dodge Jeep had no problem arranging a $10,294 loan from Wall Street-backed subprime lender Exeter Finance Corp so Nelson and his wife could buy a charcoal gray 2007 Suzuki Grand Vitara. All the Nelsons had to do was cover the $1,000 down payment. For most of that amount, Maloy accepted Jeffrey's 12-gauge Mossberg shotgun, valued at about $700 online. In the ensuing months, Nelson and his wife divorced, he moved into a mobile home, and, unable to cover mounting debts, he filed for personal bankruptcy. At car dealers across the United States, loans to subprime borrowers like Nelson are surging - up 18 percent in 2012 from a year earlier, to 6.6 million borrowers, according to credit-reporting agency Equifax Inc. And as a Reuters review of court records shows, subprime auto lenders are showing up in a lot of personal bankruptcy filings, too. It's the Federal Reserve that's made it all possible.

How Fed Policy Could Be Causing Asset Bubbles (Which Must Burst) - The Fed has stated that its expansionary monetary policy will continue until inflation and unemployment reach the targets of 2.5 and 6.5 percent respectively. This statement has given businesses the expectation that price inflation will stop monetary expansion and dampen our already struggling economy. Directly or indirectly due to this expectation, businesses have restrained prices and constrained expansion and hiring, which in turn maintains expansionary monetary policy, creating a kind of vicious circle. Unused profits are stockpiled and invested, alongside the speculative funds of financial-capital investors who have easy access to bank loans at Fed-controlled super-low rates, in relatively liquid assets such as stocks, regular bonds, junk bonds, and a variety of other vehicles where cash can find an above average short-term return. Thus as a direct result of business pricing restraints, surplus money supply in circulation (i.e. that amount over the amount required to clear the marketplace) surfaces not in the usual spot (the general price level) but rather in a variety of asset bubbles. These bubbles will, by definition, burst; and given the ephemeral and quasi-arbitrary nature of the psychological drivers behind expectations, the bursting point will be reached suddenly and unexpectedly, when the marketplace perceives that the Fed is going to reverse its expansionary policy.

Bernanke (Mis)Explains the Effect of the Tech and Housing Bubbles - Discussing the failure of modern macro to incorporate the financial system into its models, Ben asks, why did the bursting of the housing bubble spank the economy so much harder than the dot bomb crash? He sez" …From a standard macro model or even one elaborated with financial factors, you would not have really thought that the housing bubble would have been more damaging than the stock bubble. Now the reason it was more damaging, of course, as we know now, is that the credit intermediation system, the financial system, the institutions, the markets, were far more vulnerable to declines in house prices and the related effects on mortgages and so on than they were to the decline in stock prices. It was essentially the destruction of the ability of the financial system to intermediate that was the reason the recession was so much deeper in the second than in the first. This familiar (and delusional) self-serving lionization of financial-industry “intermediation” completely misses the most significant difference between the two bubbles: one briefly dinged the wealth of a small proportion of the population — those who own stocks — while the other slammed hundreds of millions of people, permanently

Should Fed Raise Rates to Curb Risk Taking? -The debate continues over whether the Federal Reserve should raise interest rates to address excessive risk-taking in financial markets. A new International Monetary Fund working paper by Itai Agur and Maria Demertzis provides additional fodder, suggesting that central banks that want to prevent financial instability should cut rates faster and farther than they would if not focused on financial market risk-taking, but leave them low for briefer periods when negative economic shocks hit. Brief rate cuts mean the central bank would start raising interest rates just when banks start itching to build up their risk again, they said. But because the central bank would still want to help the economy recover to its full potential growth level, the interest rate cut “needs to be bigger than otherwise,” they say.

The “War on Savers” Myth - Ben Bernanke may look like a mild-mannered academic, but, according to a chorus of critics, the chairman of the Federal Reserve is one of history’s great thieves. Over the past four years, the Fed has kept interest rates near zero and has pumped money into the economy by buying trillions of dollars in mortgage-backed securities and government debt.  But, to his detractors, Bernanke is guilty of waging a “war on savers”—fleecing people, especially retirees, of hundreds of billions of dollars that they could have earned in interest. Among many conservatives, this notion has become mainstream. Last year, both Mitt Romney and Paul Ryan regularly attacked the Fed for keeping interest rates too low, and, when Bernanke testified before Congress in February, Senator Bob Corker, of Tennessee, upbraided him for “throwing seniors under the bus.” But most Americans have more debt than savings, which means that they benefit directly from lower interest rates. Only an estimated seven per cent of all financial assets nationally are directly held in interest-bearing assets (like CDs or savings bonds). Even seniors, one of the groups most obviously hurt by low interest rates, get only ten per cent of their income from interest payments. Bernanke has been accused of waging class warfare and forcing senior citizens to eat cat food, but the simple fact is that people who are net savers are, on average, wealthier than those who aren’t.

Will Janet Yellen, a Woman and a Keynesian, Succeed Ben Bernanke at the Fed? - With Ben Bernanke’s term as chairman of the Federal Reserve up at the end of January, 2014, the speculation about the identity of his successor is starting in earnest. Two recent articles in The Economist and at the Washington Posts Wonkblog have both made Janet Yellen, who is currently Bernanke’s number two on the Fed’s board of governors, the firm favorite for the job. Slate’s Matt Yglesias reckons her accession isn’t even in doubt, saying bluntly, “it’ll be Janet Yellen.” Other possible candidates include Larry Summers, Tim Geithner, and Bernanke himself, although it’s been widely reported that Geithner isn’t interested and Bernanke doesn’t want to be reappointed. Given Yellen’s résumé, she’s a justifiable favorite. Before taking her current job, in 2010, she served for six years as President of the San Francisco Fed, one of the twelve regional reserve banks. She’s also got political experience and close ties to the Democratic Party. From February of 1997 until August of 1999, during Bill Clinton’s second term, she headed up the White House Council of Economic Advisers.

Treasuries’ Lure Abroad Grows in $3 Trillion Fed Account -  International investors bought more Treasuries last quarter than any other start to a year since 2009, with holdings approaching $3 trillion, as a new crisis in Europe weighs on the euro and Japan debases the yen. The Federal Reserve’s holdings of U.S. government debt on behalf of foreign central banks rose $63.5 billion, or 2.4 percent, to $2.95 trillion as of March 27, according to the central bank. China, the largest foreign lender to the U.S., has been buying Treasuries at the fastest pace since 2011. Rather than slowing purchases as U.S. lawmakers struggled to avoid $600 billion in automatic spending cuts and tax increases, international investors are again seeking Treasuries, underscoring their role as a store of value. The demand is helping Fed Chairman Ben S. Bernanke keep yields low, increasing investor appetite for dollars even after the central bank poured more than $2.5 trillion into the financial system since 2008.

Treasury Yield Snapshot: 10-Year at Its 2013 Low - I've updated the charts below through today's close. The S&P 500 is fractionally off its all-time high set on April 2nd.The yield on the 10-year note closed today at 1.78%, which is the lowest daily close of 2013, matching the close on December 31st of last year. The latest Freddie Mac Weekly Primary Mortgage Market Survey puts the 30-year fixed at 3.54%, down from its interim high of 3.63% in mid-March but 23 basis points above its historic low of 3.31%, which dates from the third week in November of last year. Here is a snapshot of selected yields and the 30-year fixed mortgage starting shortly before the Fed announced Operation Twist.For a eye-opening context on the 30-year fixed, here is the complete Freddie Mac survey data from the Fed's repository. Many first-wave boomers (my household included) were buying homes in the early 1980s. At its peak in October 1981, the 30-year fixed was at 18.63 percent.The 30-year fixed mortgage at the current level is a confirmation of a key aspect of the Fed's QE success, and the low yields have certainly reduced the pain of Uncle Sam's interest payments on Treasuries (although the yields are up from recent historic lows of last summer). But, as for loans to small businesses, the Fed strategy is a solution to a non-problem.

Personal Consumption Expenditures: Price Index Update - The March Personal Income and Outlays report for February was published Friday by the Bureau of Economic Analysis. The first chart shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. I've also included an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. The latest Headline PCE price index year-over-year (YoY) rate of 1.32% is an increase from last month's adjusted 1.25%. The Core PCE index of 1.26% is decrease from the previous month's adjusted 1.34%. On the chart below I've highlighted 2 to 2.5 percent range. Two percent has generally been understood to be the Fed's target for core inflation. However, the December 12 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place.I've calculated the index data to two decimal points to highlight the change more accurately.  PCE is a key measure of inflation for the Federal Reserve, and the price increase in oil and gasoline, although now well off their interim highs, puts consumer behavior in the spotlight.  For a long-term perspective, here are the same two metrics spanning five decades.

Two Measures of Inflation: New Update - The BEA's Personal Consumption Expenditures Chain-type Price Index for February shows core inflation below the Federal Reserve's 2% long-term target at 1.26%. The Core Consumer Price Index, also data through January, is significantly higher at 2.00%. The Fed is on record as using PCE as its primary inflation gauge: Elsewhere the Fed stresses the importance of longer-term inflation patterns, the likelihood of persistence and the importance of "core" inflation (less food and energy).  The October 2010 core CPI of 0.61% was the lowest ever recorded, and two months later the core PCE of 1.08% was an all-time low. However, we have seen a significant divergence between the headline and core numbers for both indicators, especially the CPI, at least until a few months ago, when energy prices began moderating. The latest headline CPI and PCE are both well off their respective interim highs set in September. This close-up comparison gives us a clue as to why the Federal Reserve prefers Core PCE over Core CPI as an indicator of its success in managing inflation: Core PCE is lower than Core CPI and less volatile. Given the Fed's twin mandates of price stability and maximizing employment, it's not surprising that the less volatile Core PCE is their metric of choice. The Bureau of Labor Statistic's Consumer Price Index and The Bureau of Economic Analysis's monthly Personal Income and Outlays report are the main indicators for price trends in the U.S. The chart below is an overlay of core CPI and core PCE since 2000.

Update: Recovery Measures - By request, here is an update to four key indicators used by the NBER for business cycle dating: GDP, Employment, Industrial production and real personal income less transfer payments.  These graphs show that some major indicators are still below the pre-recession peaks. This graph is for real GDP through Q4 2012. Real GDP returned to the pre-recession peak in Q4 2011, and hit new post-recession highs for five consecutive quarters. At the worst point - in Q2 2009 - real GDP was off 4.7% from the 2007 peak. This graph shows real personal income less transfer payments as a percent of the previous peak through the February report. This measure was off 11.2% at the trough in October 2009. Real personal income less transfer payments declined sharply in January, and were 3.7% below the previous peak in February. The third graph is for industrial production through February 2013. Industrial production was off over 17% at the trough in June 2009, and is still 1.2% below the pre-recession peak. This indicator will probably return to the pre-recession peak in 2013. The final graph is for employment and is through February 2013. This is similar to the graph I post every month comparing percent payroll jobs lost in several recessions. Payroll employment is still 2.2% below the pre-recession peak.

Vital Signs Chart: Slowing Expansion - The economy slowed its pace of expansion from the start of 2012 toward the end of the year. Gross domestic product, which measures goods and services produced in the U.S., expanded at an annual rate of 0.4% during the fourth quarter. Stronger business spending on equipment and software helped raise the pace from the government’s earlier estimate for the period.

Recession Redux: Why I'm Not Cheering the Recovery - On Thursday, the Standard and Poor’s stock market index hit a record high, surpassing the previous record set in October 2007. Last month, the unemployment rate fell to 7.7 percent, the lowest since December 2008. Only the most determined pessimist would find grounds for worry in the current economy. Sadly, I am one. I don’t believe we are doomed, but I doubt the current recovery is leading toward the buoyant growth and widespread prosperity that we enjoyed after the country’s last great crash and downturn. We may even be smoothing the way toward another financial crash in a decade or so.I base my thinking on long-term trends in economic history rather than on what happened last month or year or even the last fifty years. I think the financial crash of 2007 and 2008 and the Great Recession that followed was dissimilar from any recession that occurred after World War II. Instead, it was a recurrence of the kind of crash and downturn that we experienced from 1929 to 1939—the years of the Great Depression.

The Remarkable Persistence of Long-Run U.S. Growth - Long-term economic growth in the United States has a remarkable continuity: indeed, on a certain kind of graph, it almost looks like a straight line. The graphs that follow are from the Measuring Worth website, an extremely useful resource for long-term economic data led by Lawrence Officer and Samuel Williamson. At the website, you will find long-run data on GDP, earnings, prices, interest rates, and other statistics for the U.S., U.K, Japan, and China. One useful purpose of the website is to use long-run data on prices, household consumption, income, and output as ways of putting in perspective what things were worth at different times. Here, I want to focus on growth of the U.S. economy over time. The first graph shows growth of the real (that is, inflation adjusted) U.S. output from 1790 to the present. The second graph shows growth of real per capita U.S. GDP over the same time--that is, it is calculated on a per person basis and thus adjusts for population growth.

The Big Four Economic Indicators: Employment Update -  I've now updated this commentary to include the March Nonfarm Employment series, shown in the adjacent thumbnail and the blue line in the chart below. Today's employment report showed an increase of only 88,000 new nonfarm jobs, far below the consensus. But the unemployment rate dropped from 7.7% to 7.6%. How can that happen? The reason is that, quite apart from the 88K increase in jobs, the numbers for both the civilian labor force and the civilian employed shrank last month (-496K and -206K respectively). Since the labor force shrank more than the employed, the unemployment rate dropped fractionally.The chart and table below illustrate the performance of the Big Four and simple average of the four since the end of the Great Recession. Today's employment report was a disappointment. The number of new jobs was less than half the expectation, and the job declines in retail sales do not augur well for personal consumption data in the months ahead. The Federal Reserve is looking for a lower unemployment rate, but the mathematics of today's fractional decline is clearly not how they want the unemployment target to be reached.Of course all recent data are subject to further revision, so we must view these numbers accordingly.Wall Street’s Brightest Minds Reveal The Charts That Worry Them Most - chart slideshow

Depression, Not Ended - Paul Krugman - Lousy jobs report. OK, you don’t want to put too much stress on one month’s numbers, yada yada, but it doesn’t look at all good. But is this really a surprise? I mean, it’s true that the incipient housing recovery has made many people somewhat optimistic — I’ve been one of them — but when all is said and done, we are following strongly contractionary fiscal policy in an economy in which monetary policy is still ineffective because of the zero lower bound. How contractionary? Look at CBO’s estimates of the cyclically adjusted budget deficit (third column): That deficit has declined from 5.6 percent of potential GDP in 2011 to 2.5 percent in 2013 — that’s 3 percent of GDP, which is a lot of austerity. Not all of that cut has even hit yet — the sequester isn’t in the macro numbers yet — but the rise in the payroll tax is very clearly driving the latest bad numbers, which show big declines in retail. This is really stupid; as long as we’re at the zero lower bound, austerity is a huge mistake. Yet for what, the third time since 2009, all discussion in Washington has turned away from job creation to deficits (even though the debt problem has largely faded away) and the need for an early Fed exit from stimulus (even though unemployment remains high and inflation low). Clearly, the answer is to cut Social Security!

David Stockman Writes Huge Unhinged Screed About How America Is Doomed And How You Should Get Out Of The Market NOW - Former Reagan budget director David Stockman has a new book coming out on Tuesday, and he's warming up the public with a massive piece in today's New York Times titled Sundown in America, which basically says the future of America bleak because of massive government debts, crony capitalism, bailouts, megabanks, the removal of the gold standard, and even green energy. The piece can truly be characterized as Hard Money Buzzword Bingo, as Stockman tries to get in as many scare lines as possible. Check out this one sentence where he talks about bubbles, Wall Street casinos, the Crucifixion of savers, commodities Main Street, a "Great Deformation", and a rogue central bank: Instead of moderation, what’s at hand is a Great Deformation, arising from a rogue central bank that has abetted the Wall Street casino, crucified savers on a cross of zero interest rates and fueled a global commodity bubble that erodes Main Street living standards through rising food and energy prices — a form of inflation that the Fed fecklessly disregards in calculating inflation.

'David Stockman Goes Way, Way Over the Top' - The wingnut of the day award is easy to pick, it's David Stockman: Cranky Old Men, by Paul Krugman: ... Actually, I was disappointed in Stockman’s piece. I thought there would be some kind of real argument, some presentation, however tendentious, of evidence. Instead it’s just a series of gee-whiz, context- and model-free numbers embedded in a rant — and not even an interesting rant. It’s cranky old man stuff, the kind of thing you get from people who read Investors Business Daily, listen to Rush Limbaugh, and maybe, if they’re unusually teched up, get investment advice from Zero Hedge. Sad. David Stockman Goes Way, Way Over the Top, by Jared BernsteinHe has a featured piece in today’s NYT which, while about 11.8% absolutely and totally on target, is mostly a horrific screed, an ahistorical, dystopic, Hunger-Games vision of America based on debt obsession and willful ignorance of macroeconomics and the impact of market failure. ... David Stockman wants to pee in your cornflakes, Kids Prefer Cheese: Wow. David Stockman confuses cause and effect, goes all gold-buggy, slanders Milton Friedman, and just generally comes unhinged in a massive hissy fit in today's NYT. ...See also David Henderson's "David Stockman Screeches."

The Stockman’s big swinging whip - Unemployment is everywhere and always a monetary phenomenon, and necessarily a government imposed crime against humanity. The currency is a simple public monopoly.  The dollars to pay taxes, ultimately come from government spending or lending (or counterfeiting…)  Unemployment can only happen when a govt fails to spend enough to cover the tax liabilities it imposed, and any residual desire to save financial assets that are created by the tax and by other govt policy. Said another way, for any given size government, unemployment is the evidence of over taxation. Motivation not withstanding, David Stockman has long been aggressively promoting policy that creates and sustains unemployment.  State-Wrecked: The Corruption of Capitalism in America By David Stockman: I predict this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.  Phony money? What else are $US other than credit balances at the Fed or actual cash in circulation? Of course he fails to realize US treasury securities, also known as ‘securities accounts’ by Fed insiders, are likewise nothing more than dollar balances at the Fed, and that QE merely shifts dollar balances at the Fed from securities accounts to reserve accounts. It’s ‘money printing’ only under a narrow enough definition of ‘money’ to not include treasury securities as ‘money’. Additionally, of course, QE removes interest income from the economy, but that’s another story…

Stockman Fires Back at Krugman, Critics - There is the issue that Congress ultimately is the fiscal authority. But my argument is, when the Fed becomes a massive buyer of bonds and debt and artificially suppresses interest rate below market-clearing levels, it’s a terrible signal to the Congress that debt is cheap, that running deficits is a viable strategy. So therefore they are induced to kick the can, to let it drift and avoid hard choices. Who wants to tell the public you are going to take your broccoli of higher taxes and lower benefits and spending if you can issue debt on a three-year basis for 40 basis points. That’s free. I was in Congress, they don’t do decimal math, OK? And they think the money is free, it’s a bad problem philosophically, we shouldn’t be doing this for the great long run, but it’s no harm today. Then they have professors like Krugman who give them the disingenuous advice that the bond vigilantes don’t care. The market is saying, “fine with us, we don’t care, keep piling the debt on, we love it.” That is so much baloney. The reason the interest rate on the 10-year bond 10_YEAR -0.33% today is 1.8% or whatever it happened to settle today, is the market knows the Fed is buying half of the debt and is front running the Fed. And it is renting the bond on repo, 98 cents on the dollar, based on overnight money that’s free thanks to Bubbles Ben as well. For a so-called Nobel laureate to claim the vigilantes are validating this crazy deficit expansion through the fact the interest rate is 1.8% is the height of disingenuous.

America the Debtor - Krugman - I guess I’m going to have to write more about David Stockman’s unfortunate rant, since a lot of people who should know better seem to think he made serious points.  America as a net international debtor. Stockman describes a horror show: Then came Lyndon B. Johnson’s “guns and butter” excesses, which were intensified  when Richard M. Nixon essentially defaulted on the nation’s debt obligations by finally ending the convertibility of gold to the dollar. That one act  meant the end of national financial discipline and the start of a four-decade spree during which we have lived high on the hog, running a cumulative $8 trillion current-account deficit. Leave the goldbuggery aside (does Stockman think that countries pegged to gold — or, for that matter, the euro — never run current account deficits?). Are things as bad as he says?Well, the $8 trillion number is right. But while it may be EIGHT TRILLION DOLLARS, that’s a cumulative deficit (which began in the 80s, by the way, not the 70s) of only half of this year’s GDP. And if you know anything about the subject, you know that America’s debtor position isn’t actually that deep, because of capital gains (which aren’t counted in the current account):

Debt and David Stockman - Paul Krugman - What I want to point out is the way Stockman unintentionally makes a point I’ve been trying to get across: debt does not directly impoverish us, because it’s money we owe to ourselves. OK, some of it is money we owe to foreigners, but I’ve dealt with that part already.  So here’s Stockman on how we lived “high on the hog”; he cites the current account deficit (which actually turns out to be a smaller thing than he imagines), then declares In effect, America underwent an internal leveraged buyout, raising our ratio of total debt (public and private) to economic output to about 3.6 from its historic level of about 1.6. Hence the $30 trillion in excess debt (more than half the total debt, $56 trillion) that hangs over the American economy today.  Actually, the LBO analogy isn’t too bad; but if he thought about that for even a minute, he would realize that LBOs have nothing to do with spending sprees, they’re just a change in the structure of risk, Anyway, think about the macroeconomics; did America really put itself $30 trillion in hock to someone else? No, some Americans lent to other Americans, which is a very different issue. And wait: even that isn’t really true. About half of the rise in Stockman’s rise in the debt-GDP ratio is debt of the financial sector:

On the Economy, Think Long-Term - Jeff Sachs - The economy is still sluggish. Unemployment remains high, especially for lower-skilled workers. Inequality of incomes is higher still. What’s more, the fundamental structural challenges to our economy remain. Deeply disruptive forces — rapidly evolving information technology, globalization and environmental stresses — are radically reshaping the jobs market. Decent jobs for low-skilled workers have virtually disappeared. Some have been relegated to China and emerging economies, while others have been lost to robotics and computerization. The results of these changes can be seen in two starkly different employment figures: since 2008, 3.1 million new jobs have been created for college graduates as 4.3 million jobs have disappeared for high-school graduates and those without a high school diploma. These trends will only continue, and even become more sharply defined. But in the face of such immense challenges, Republicans continue to hawk their age-old remedy, demanding cuts in government spending, tax rates and regulation so that market forces can respond in due course. Democrats, meanwhile, push just as stridently for their familiar fixes — short-term spending programs like the 2009 stimulus package enacted during President Obama’s first term. It’s time to move beyond such transitory and piecemeal policies. Our underlying economic problems are chronic, not temporary; structural, not cyclical. To solve them, we need a systematic long-term approach. Consider three priorities for this new, long-range perspective: infrastructure, energy and job skills. With a smart, ambitious strategy in these sectors we can encourage the creation of good jobs and begin to resolve huge problems of competitiveness and the environment.

A Sustainable Federal Budget Should Survive Any Storm – Mankiw - IN the national debate over fiscal policy, an important question is what the long-run goal should be. Representative Paul D. Ryan, chairman of the House Budget Committee, has a plan to balance the federal budget in 10 years. When asked if he would do the same, President Obama demurred.  The White House press secretary, Jay Carney, said the president’s goal was instead a “fiscally sustainable path.”  Which raises two questions: What is fiscal sustainability? And how do we know when we have achieved it?  For you and me, the answer is pretty easy. As individuals, we have to balance our budgets over our lifetimes. In other words, in the long run, our spending is constrained by our earnings.The federal government, however, is very different. Having survived now for more than two centuries, it has been granted the presumption of immortality by its creditors. As a result, there is no final day of reckoning on which all debts need to be repaid.

'Reactions to Mankiw on the Long Run Budget Path' - Greg Mankiw says the goal for the budget should not be a stable debt-to-GDP ratio as the president has called for, instead the ratio should be falling. But there are a few important qualifiers to this statement that are easy to miss. Even if you agree with Mankiw that the debt to GDP ratio should be falling rather than stable, he never answers falling to what? (Does it fall forever until it hits zero, then a surplus which gets larger and larger until spending is zero and taxes take everything? I doubt that's what he has in mind.) How fast it should fall? (Do we balance the budget this year or over 100 years?). Should the debt to GDP ratio vary over the business cycle (i.e. can we do countercyclical fiscal policy?). On the latter point, Owen Zidar: Reactions to Mankiw on the Long Run Budget Path: I agree with most of Greg Mankiw NYTimes piece on long-term debt to GDP but can’t overlook a fairly glaring omission –  he seems to ignore the fact that we are currently experiencing a major economic catastrophe. ... While I completely agree that we should save in good times (i.e. have a falling debt to GDP ratio), we are not in good times and it’s quite likely that trying to save too much in bad times will be counterproductive. A primary reason why we want to be creditworthy is to have the ability to borrow for times like this. I simply have a hard time understanding why preparing for the next crisis should supersede adequately dealing with the current one.

Debt to GDP Ratios: Why Not Make the Numerologists Happy? - Dean Baker -- Numerology is usually held in low regard in intellectual circles. Unfortunately it is front and center in the debate over national economic policy. Many economists and political leaders tell the public that we have to keep the DEBT to GDP ratio (capitalized to show reverence) below some magical level. Greg Mankiw professes his adherence to the faith in the NYT on Sunday. The reason that either a specific number or a strict focus on debt to GDP ratios is viewed as silly by people who are not numerologists is that the DEBT to GDP ratio is a completely arbitrary number that tells us almost nothing about the financial health of the government or the country. First, the debt to GDP ratio is not even telling us anything about the burden of the debt on the government's finances. While the current debt to GDP ratio is relatively high, the ratio of interest payments to GDP is near a post-war low at 1 percent of GDP. (It's roughly 0.5 percent of GDP if we net out the money refunded to the Treasury by the Federal Reserve Board.) By contrast, the interest to GDP ratio was six times as large in the early 90s, at 3.0 percent of GDP. If we revere debt to GDP ratios, we will have the opportunity to buy back large amounts of long-term debt at steep discounts if interest rates rise later in the decade, as projected by the Congressional Budget Office and others. This exercise would be pointless, since it leaves the interest burden unchanged, but it should make the numerologists who dominate economic policy debates happy. (This debt buyback story is discussed here.) 

Financing the Deficit – Krugman - OK, a bit more on the puzzle of people who think there’s an interest rate puzzle. Here’s the picture of what has happened to saving and investment in America in recent years:  The blue line is government saving, roughly speaking (leaving some public investment aside) the public sector surplus or deficit; the red line is the private sector surplus, the difference between private saving and private investment. So yes, the budget deficit has soared — but it’s just offsetting a surge in the private sector surplus. Now, this is almost an accounting identity, so by itself the figure doesn’t tell you which side is driving the action. But we know the answer to that question from other evidence. For one thing, we know that most of that surge in the private sector surplus reflects the collapse of the housing bubble, and that most of the surge in the public deficit reflected automatic stabilizers. For another, we know that if government deficits were crowding out private spending, we should have seen rising interest rates; what we actually saw was falling rates.

The Urge to Purge, by Paul Krugman- When the Great Depression struck, many influential people argued that the government shouldn’t even try to limit the damage. According to Herbert Hoover, Andrew Mellon, his Treasury secretary, urged him to “Liquidate labor, liquidate stocks, liquidate the farmers. ... It will purge the rottenness out of the system.” Don’t try to hasten recovery, warned the famous economist Joseph Schumpeter, because “artificial stimulus leaves part of the work of depressions undone.” How naïve we were. It turns out that the urge to purge — the urge to see depression as a necessary and somehow even desirable punishment for past sins, while inveighing against any attempt to mitigate suffering — is as strong as ever. Indeed, Mellonism is everywhere these days. Turn on CNBC or read an op-ed page, and the odds are that you ... encounter an alleged expert ranting about the evils of budget deficits and money creation, and denouncing Keynesian economics as the root of all evil.  The latest example is David Stockman...

Gross Mistake -  In a couple of recent posts Paul Krugman reminds us that interpreting data on debt as a sign of excessive spending and living beyond our means is incorrect. I have made this point before when looking at government debt.The first flaw in the logic is that while it is correct to argue that if someone lives beyond his or her means we will see their debt increasing, it is not correct to argue that every time we see debt increasing it means that someone is living beyond his or her means. The reason is that we need to consider assets and not just liabilities. This argument becomes even more relevant when you go from an individual to a country as what is debt for a person is likely to be an asset for someone else. In other words, for an individual you want to look at the balance sheet (and not just debt), for a country we need to look at the consolidated balance sheets of all economic actors. As Krugman argues in his blog post, the main reason why we see debt increasing in the US (and other advanced economies) during the years that preceded the global financial crisis was an increase in leverage and not overspending. I borrow to invest in someone else's business or idea who is borrowing from me to invest in someone else's asset, etc. In this scenario, the collective level of debt keeps increasing even if no one is living beyond their means; our balance sheets look fine with assets matching liabilities. It can, of course, be the case that we are creating a risk in the system by this increasing lending with leverage that could itself become an amplification mechanism to any future disturbance to the economy (so maybe increasing debt as a result of increasing leverage is bad after all) but this has nothing to do with the level of spending (no spending spree here). ...

Thinking Straight About Debt - Krugman -A heads-up: I’m doing This Week this week. Also on the panel: David Stockman. This should be, um, interesting.So, a few more thoughts on debt and what it does and doesn’t signify.  This is how you want to think about debt: it’s not a burden on the nation’s resources, because it’s mainly money we owe to ourselves, and it’s a problem not because we have to tighten our belt but because debt is currently leading to spending that’s less than we need to maintain full employment. I would add that the debt of financial intermediaries is a big part of the real story and if anything bears even less resemblance to the notion of debt as a consequence of national overspending; to a large extent it’s just an accounting issue, because old-fashioned deposits aren’t counted as debt even though they are. Maybe a short way to put all this is to say that we have a real problem with excessive leverage; that’s not at all the same thing as the nation being deeply in hock to some external player or players. And failing to understand that difference is a way to get both the nature of our crisis and the shape of appropriate policies totally wrong.

Hedge Fund America - Paul Krugman - Still thinking about debt; and it seems to me that there’s an important aspect of the story that isn’t getting any play, namely, the extent to which US debt has in effect been issued to buy assets overseas. Here’s what the figures for US assets abroad and foreign assets in the US look like: What we’ve seen is a lot of financial globalization, with both assets and liabilities rising fast. The liabilities have gone up more than the assets, so we’ve gone from being a net creditor to a net debtor, but the fact that both sides have gone up matters, because the way America invests isn’t the same as the way it borrows. Basically, we issue debt and buy equity: US liabilities consist largely though not entirely of bonds — yes, there are a lot of foreign-owned companies, but they’re a much smaller factor — while US assets abroad consist mainly either of direct investments (companies we own) or stocks. Because US assets are higher-yielding although riskier than US liabilities, we still earn more from our investments than we pay on our liabilities. In the aggregate, America is a bit like a hedge fund that borrows to make risky investments; that’s arguably not a good thing, but it’s not a story of living beyond our means. Now, the point for the debt discussion is that the bonds we sell to foreigners count as part of the US debt number, but the assets we buy abroad don’t count against it. So financial globalization would show up as a rise in “American debt” even if we were buying just as many assets as we were selling, and therefore not living beyond our means at all.

Everyone's a Welfare Queen  -  Did you know that the federal government spends more money on welfare than it does on Social Security, or Medicare, or the military? Me neither, perhaps because it isn’t true. It’s the kind of hooey that the crankier, less-informed sort of conservative is all too ready to believe. Yet the highest-ranking Republican on the Senate budget committee has lately been spreading this meme, and a variation is included in Representative Paul Ryan’s proposed budget. It’s part of a larger bait-and-switch that Republicans have been playing against Democrats, making it harder for both parties to agree on necessary spending cuts that don’t harm those in need. The budget committee poobah is Senator Jeff Sessions. In October, Sessions put out a press release under the headline “Welfare Spending the Largest Item in the Federal Budget,” a claim repeated uncritically by Eric Bolling on “The Five,” a Fox News chat show, and on sites such as National Review and Human Events. An urban myth was born.

Social Programs Face Cutback in Obama Budget - President Obama next week will take the political risk of formally proposing cuts to Social Security and Medicare in his annual budget in an effort to demonstrate his willingness to compromise with Republicans and revive prospects for a long-term deficit-reduction deal, administration officials say.In a significant shift in fiscal strategy, Mr. Obama on Wednesday will send a budget plan to Capitol Hill that departs from the usual presidential wish list that Republicans typically declare dead on arrival. Instead it will embody the final compromise offer that he made to Speaker John A. Boehner late last year. Congressional Republicans have dug in against any new tax revenues after higher taxes for the affluent were approved at the start of the year. The administration’s hope is to create cracks in Republicans’ antitax resistance, especially in the Senate, as constituents complain about the across-the-board cuts in military and domestic programs that took effect March 1. Mr. Obama’s proposed deficit reduction would replace those cuts. And if Republicans continue to resist the president, the White House believes that most Americans will blame them for the fiscal paralysis. Besides the tax increases that most Republicans continue to oppose, Mr. Obama’s budget will propose a new inflation formula that would have the effect of reducing cost-of-living payments for Social Security benefits, though with financial protections for low-income and very old beneficiaries, administration officials said. The idea, known as chained C.P.I., has infuriated some Democrats and advocacy groups to Mr. Obama’s left, and they have already mobilized in opposition.

Obama Wants Cuts To Social Security - President Barack Obama has once again started his negotiations by scoring into his own net. In what may be the dumbest plan yet proposed, Obama has offered cuts to Social Security hoping for a change in the Republican’s position on tax loopholes for the wealthy. President Barack Obama’s proposed budget will call for reductions in the growth of Social Security and other benefit programs by including a proposal to lower cost-of-living adjustments to government social safety net spending, a senior administration official says. Because with poverty hitting new record levels, now is a great time to cut benefits. The reductions in growth of benefit programs, which would affect veterans, the poor and the older Americans, is sure to anger many Democrats Especially the ones who are not termed out like Obama and would like not to get primaried. And, brace yourself, the cuts Obama has proposed on seniors are more severe than the closed loopholes/tax increases on the wealthy. I know it’s hard to believe the man who raised a billion dollars from Corporate America would do such a thing

Obama's Budget Proposal: Cut Social Security, Medicare Benefits - President Obama's budget proposal to be unveiled next week will include cuts to Social Security and Medicare, according to media reports Friday morning. Politico reports:  The most controversial element of Obama’s proposal is the inclusion of “chained CPI,” the adjustment that would over time reduce cost-of-living increases to Social Security and other federal benefit programs — effectively, a cut to Social Security benefits by tying them to inflation. He also calls for $9 billion in new tax revenue by setting limits on “tax-preferred retirement accounts for millionaires and billionaires.”Switching to a chained CPI "is not a minor tweak, as its proponents contend," Sen. Bernie Sanders (I-Vt.), founder of the Defending Social Security Caucus, stated on Friday.  It represents a real cut in benefits, as many progressives have pointed out. And as liberal blogger Digby noted, Obama has the dubious honor of being the first "Democratic president [that] has officially proposed to cut the Democratic Party’s signature New Deal program, Social Security."

Obama Is the Driving Force Behind Cutting Your Social Security - If it wasn’t already abundantly clear there is now more proof President Obama really really really wants to cut Social Security benefits for current retirees. Obama will include the chained-CPI, which is a yearly and continuously growing cut to your Social Security benefits, in his budget. From Politico: President Barack Obama will make another run at a grand bargain by proposing significant new entitlement cuts and new tax revenues — including a new cigarette tax — in what the White House is portraying as a compromise budget to be released next week. The most controversial element of Obama’s proposal is the inclusion of “chained CPI,” the adjustment that would over time reduce cost-of-living increases to Social Security and other federal benefit programs — effectively, a cut to Social Security benefits by tying them to inflation. He also calls for $9 billion in new tax revenue by setting limits on “tax-preferred retirement accounts for millionaires and billionaires.”Official budgets, be they from the President or one house of Congress, are non-binding statements of principle. They are how that group wants to see the country operate in the next few years. Despite what defenders of Obama may claim this budget is in fact no different. It is not about “negotiating.”

Now It’s Official: Obama Sells Catfood Futures, Um, Social Security and Medicare Cuts - Yves Smith - There is no more pretense possible. As we’ve warned for some time, Obama is eager to put a notch on his belt by being the President that rolled back the New Deal programs that helped create broad-based middle-class prosperity and dignity. He’s cast himself as an adult inflicting discipline on profligate Americans. But in reality, the profligacy was most concentrated among elite financiers who used leverage on leverage vehicles to stoke liquidity that led to worldwide underpricing of risk. But are the real perps the object of Obama’s disciplinary impulses? No. He seems spectacularly unwilling to take on anyone even remotely approaching his size (as if a President should be cowed by senior banker bullies like Jamie Dimon).  Keep in mind what is happening here. We are not in the realm of Obama kayfabe, where he pretends that those big bad Republicans forced him to do what he wanted to do all along. This is Obama’s budget offer, not the result of pretend hard fought battles over positions that are at most 10 degrees apart. As the Grey Lady describes it: President Obama next week will take the political risk of formally proposing cuts to Social Security and Medicare in his annual budget in an effort to demonstrate his willingness to compromise with Republicans and revive prospects for a long-term deficit-reduction deal, administration officials say… Besides the tax increases that most Republicans continue to oppose, Mr. Obama’s budget will propose a new inflation formula that would have the effect of reducing cost-of-living payments for Social Security benefits, though with financial protections for low-income and very old beneficiaries, administration officials said. The idea, known as chained C.P.I., has infuriated some Democrats and advocacy groups to Mr. Obama’s left, and they have already mobilized in opposition…..

Where are the center of things? - Via Huffington Post comes this quote: One senior administration official offered the following explanation as to why they started with a “compromise” offer.  While this is not the president’s ideal deficit-reduction plan, and there are particular proposals in this plan -- like the CPI change -- that were key Republican requests and not the president’s preferred approach. This is a compromise proposal built on common ground, and the president felt it was important to make it clear that the offer still stands. The president has made clear that he is willing to compromise and do tough things to reduce the deficit, but only in the context of a package like this one that has balance and includes revenues from the wealthiest Americans and that is designed to promote economic growth. That means that the things like CPI that Republican leaders have pushed hard for will only be accepted if congressional Republicans are willing to do more on revenues. This isn’t about political horsetrading; it’s about reducing the deficit in a balanced way that economists say is best for the economy and job creation. That’s why the president’s offer –- which will be reflected in his budget -- isn’t a menu of options for them to choose from; it’s a cohesive package that reflects the kind of compromise we should be able to reach.

President Obama: Expand Social Security, Don't Cut It - A fierce debate over Social Security is raging between deficit busters who say Social Security is unaffordable and must be trimmed back, and defenders who want to maintain the status quo. On Friday, the White House said President Obama's budget, which will be released next week, will propose that the program reduce cost-of-living payments. A Democratic president proposing any kind of cut to this popular New Deal program is a very big deal indeed, and predictably his plan drew outrage from liberal groups. But it also drew swift rejection by Republican House Speaker John Boehner. Yet neither the trimmers nor the status quo advocates are facing up to reality. As I wrote here in December, the real dilemma is not the long-term solvency of Social Security but the fact that millions of Americans are facing an increasingly insecure and underfunded retirement. A more realistic assessment makes it clear that the solution to America's retirement crisis lies in expanding Social Security, not cutting it. In December, I suggested doubling the Social Security payout from the current stingy replacement rate of 33 to 40 percent of annual earnings, since most experts estimate that individuals will need at least 70 percent of their annual earnings to maintain their living standards in retirement. But in a new policy paper that I co-authored, "Expanded Social Security," the New America Foundation proposes a new way to design a more robust retirement system that also decreases the total amount of national wealth expended on today's unstable system.

Desperately Seeking “Serious” Approval - Paul Krugman - Sigh. So Obama is going with the “chained CPI” thing in his latest proposal — changing the price index used for Social Security cost adjustments. This is, purely and simply, a benefit cut. Does it make sense in policy terms? No. First of all, there is no reason to believe that the chained index is a better measure of inflation facing seniors than the standard CPI. It’s true that the standard measure arguably understates inflation for the typical household — but seniors have a different consumption basket from the young, one that includes more medical expenses, and probably face true inflation that’s higher, not lower, than the official measure. Anyway, it’s not as if the current level of real benefits has any sacred significance. The truth — although you’ll never hear this in Serious circles — is that we really should be increasing SS benefits. Why? Because the shift from defined-benefit pensions to defined contribution, the rise of the 401(k), has been a bust, and many older Americans will soon find themselves in dire straits. SS is the last defined-benefit pension still standing — thank you, Nancy Pelosi, for standing up to Bush — and should be strengthened, not weakened.

The Budget is Not an Appropriate Place to Try and Solve All the Country's Problems - The Washington Post's coverage of the budget, the debt, and the deficit has been overall pretty terrible, once you exclude Wonkblog at any rate.  A couple of posts today particularly stood out for for their awfulness.  First of all, the editorial board posted an editorial that hits some good points but really falls down hard in a couple of places.  The real doozy was this: It is on the issue of entitlements that the Democrats’ document really disappoints. There is literally nothing — not a word — suggestive of trimming Social Security, whether through greater means-testing, a more realistic inflation adjustment or reforming disability benefits. The document’s fuzzy call for $275 billion in “health savings” is $125 billion less than the number President Obama has floated. Does anyone recall that just a few years ago we spent a rather large amount of legislative time on health care reform? Does anyone really think that Social Security reform should use less time? Isn't it just as sensitive of a topic? Why in the world should this be done in a budget?

I think we're all bozos under this bus - by Jill - I wonder if we'll ever again have a president without a lot of childhood baggage that plays out in the lives of the people he purports to lead. Bill Clinton's father was killed in a car accident before he ever met him and his stepfather beat him, his brother and his mother -- so he needs to be loved by everyone (including young female acolytes). Designated Family Shithead George W. Bush had to prove he had a bigger penis than Daddy's, so he sent this country's young people to war in a country that had done nothing to us. And now there's Barack Obama -- a mixed-race child raised variously by a bohemian mother and white-bread white grandparents from Kansas, straddling two worlds and spending his life trying to show that he's not one of those threatening black men and wanting desperately to be liked by the flyover states crowd that lived in his grandparents' neighborhood. It's not that it would have been any better under Willard Rmoney -- another guy with a Louis Vuitton steamer trunk full of Daddy Baggage. The question is which is worse -- the guy who screams that he's gonna beat you till you beg for mercy so you know what's coming, or the one who takes you out for a nice dinner before turning into Mr. Hyde at home.

Three guesses on where chaining the CPI came from - An awful lot of talk and writing about the chained CPI has been focused on the results of its implementation on Social Security. Using this formula for figuring the cost of living ends up reducing the money citizens will receive in their SS checks. One of our commenters, Denis Drew labeled it the Cascading CPI.  What I'm suggesting here is that the chained CPI reasoning is a massive amount of conflation. When I start seeing concepts and perceptions being conflated, I get suspicious and start asking questions. Usually the first question is what's behind the promotion of the conflation. What's the history and in that possibly will I find the intention? And, as I taught my daughter, life is intention. Using Mr. Peabody's WABAC machine we set the dial for 1995. This was the time of Newt Gingrich and the “Contract with America”.  The contract included social security reform.Ever heard of the Boskin Commission?  Its formal name: "Advisory Commission to Study the Consumer Price Index". It was created on the order of the Senate Finance Committee. The Senate majority leader then was: Bob Dole followed by Trent Lott. There is no need to ask anymore as to the reasoning behind the policies and offers in negotiations that is Obama. It is what he wants. We are living the continual implementation of the conservative economic and thus social ideology that came in with Reagan and fully came out with Gingrich and The Contract with America. .

Dynamic Scoring Once Again - On March 22, the United States Senate adopted an amendment to S. Con. Res. 8, the concurrent budget resolution for fiscal year 2014, that would require the Congressional Budget Office and the Joint Committee on Taxation to produce estimates of the revenue effect of tax changes that incorporate their macroeconomic effects (Sec. 416). While seemingly innocuous, this amendment opens the door to “dynamic scoring,” which Republicans have long supported to make it easier to enact tax cuts and harder to enact tax increases. Tellingly, they reject the idea of dynamic scoring on the spending side of the budget. The origins of the debate on dynamic scoring go back to the 1970s, when my former boss, Representative Jack Kemp, Republican of New York, used the “Laffer curve” to assert that an across-the-board cut in income tax rates of 30 percent would not lose any revenue. That is because the stimulative effect of the tax cut on the gross domestic product, employment, investment and so on would be so great and instantaneous that the tax base would expand more than the tax cut, he said.. The problem has always been estimating the curve empirically and calculating the impact of any particular tax cut at a given moment under a certain set of conditions. There is also the question of the appropriate time period over which to estimate revenue effects.

How Much Will 2013’s Payroll Tax Hikes Cut Your Take-Home Pay? - 2013 is a tough year if you owe payroll tax, as most of us do. Not only did the 2010 payroll tax cut die at the end of 2012, but high-income workers now owe an extra 0.9 percent, thanks to the Affordable Care Act. Economists worry about what the combined new taxes will mean for workers’ net pay, consumer spending, and an economy still trying to get its footing. Now the Tax Policy Center’s updated Payroll Tax Calculator shows just what the tax hit means for individual households. The 2010 tax act cut the workers’ rate for the Social Security payroll tax from 6.2 percent to 4.2 percent for 2011 and 2012. Congress allowed the reduced rate to expire as scheduled at the beginning of this year. The Tax Policy Center has estimated that the higher tax rate will take $115 billion out of workers’ pockets this year and cut consumer spending. The ACA created a new “additional Medicare tax” that kicked in for the first time in January. Individuals earning more than $200,000 and couples earning more than $250,000 now pay a 0.9 percent tax on earnings above those thresholds. Few of us will pay the new tax, but it will nip at high earners’ wallets. Finally, the cap on earnings subject to the Social Security payroll tax increased from $110,100 to $113,700.

U.S. tax code isn't as progressive as you think - It’s easy to make the U.S. tax system sound really, almost preposterously, progressive. The Tax Foundation, for example, likes to emphasize that the top 10 percent of taxpayers paid 70.6 percent of income taxes in 2010, compared to 54.6 percent in 1986. That sure sounds like a lot! But it’s incomplete. For one thing, you need to compare the share each group is paying of taxes to their share of income. If the top 10 percent is paying 70.6 percent of taxes and makes 70.6 percent of income, then the system isn’t actually progressive, for example. You also need to account for payroll taxes, and state and local taxes. Most states have regressive tax codes, which reduces the progressively of the overall system. A new report from Citizens for Tax Justice, a left-leaning tax analysis shop, does all that. Overall, CTJ finds that the tax code is still progressive, but much more mildly so than you might think. The bottom 80 percent of the income distribution pays less than their share of income, but not a whole lot less. And interestingly, the 20th through 60th percentiles get a bigger break than the poorest 20 percent. The tax code has a bias for the middle-class over the poor, in other words.

Here’s What An Inefficient Tax Break Looks Like -There are a lot of people running around DC these days talking about closing tax loopholes.  But when you push them on specifics, most are hard pressed to say which ones. Though I name names in recent testimony on the topic, I’m sympathetic.  You’re loophole is my treasured job-creation program without which the economy will collapse. Anyway, these thoughts came to mind when I saw the graph below from my CBPP colleague Will Fischer (here’s the post from which I plucked it).  It’s about the mortgage interest deduction (MID), and to my eyes, it’s a picture of an expensive, inefficient, and unfair tax break. Fischer lines up the billions in tax payments forgone by income class next to a measure of housing cost burden, defined as the number of households that pay more than half of their income for housing.  If economic need were the motivation for the MID, you’d expect the two sides of the graph to correlate.  But they don’t even come close. The bulk of the deduction’s benefits go to higher-income households who generally could afford a home without assistance:  in 2012, 77 percent of the benefits went to homeowners with incomes above $100,000.  Meanwhile, the deduction provides little benefit to the middle- and lower-income families who are most likely to struggle to afford homeownership (see chart) — and no benefit at all to more than a third of homeowners with mortgages.

The Economics of Corporate Rate Cuts are More Complicated than Politicians Think -- Rewriting the corporate income tax, goes the theory, is easier because there is a consensus within the business community to lower rates and broaden the tax base. A closer look suggests this may be more wishful thinking than smart analysis. The Wall Street Journal’s John McKinnon wrote a nice piece on Friday on the divisive tax reform politics inside corporate America. John reported on how big business is dividing itself into opposing camps—preparing for what former senator and 1986 tax reformer Bill Bradley calls “total war” over reform.  Also on Friday, the Tax Policy Center and the American Tax Policy Institute held a program on the economics of corporate tax reform. There, two panels of tax economists described some of the effects of corporate reform. Here are three conclusions:

  • Lowering corporate rates will have a major impact on individual taxpayers. As Plesko described, The vast majority of businesses are pass-through entities (such as partnerships and S Corporations) that do not pay the corporate income tax.  Rather, their owners report their business income on their 1040s. These firms account for more than half of net business profits in the U.S
  • Corporate rate cuts may not create U.S. jobs, despite what politicians claim. Hines predicted rate cuts would boost both more foreign direct investment in the U.S. and greater U.S. investment overseas.
  • Lowering corporate taxes can create awkward accounting problems for public companies. 

How an anti-rentier agenda might bring liberals, conservatives together - Throughout the late 19th century, the political economist Henry George argued that a main reason there was so much poverty amidst prosperity was the large presence of people collecting unearned income, or what he called “rents”. His particular focus was on land, and his solution was taxes. In a recent series of three posts at Salon, Michael Lind of the New America Foundation argues that this threat of rentiers is back and causing mass stagnation in an age of huge wealth. Lind believes that an anti-rentier agenda could unite a broad coalition, including “owners of productive businesses as well as workers, populist conservatives and liberal reformers.” Meanwhile, conservatives are trying to assemble their own coalition by developing an economic agenda suited to where the country is right now. Tim Carney at the Washington Examiner called for a free-market populism, one that shows that “big government expands the privileges of the privileged class.” Others see a younger generation of conservative activists as harbingers of this approach to economic policy. If that’s the case, where might we see overlap on the left and the right, and where might we see stark differences?

Some followups on capital taxation - I thought I’d point to some very good commentary inspired by the previous post on capital taxation. You already know that interfluidity is like a really drab version of Playboy, no one reads it for the articles, the really good stuff happens in the centerfold under the fold, in the comments. The piece provoked smart responses on other blogs, Increasing Marginal Utility, Separating Hyperplanes, and Asymptosis. [1] Robert Waldmann points out that glib euphemisms like “the long run” lead one to overstate the case against capital taxation even on the most sympathetic understandng of the models, that under human relevant distributions and time parameters the models can favor capital taxation. Here is his case (in a PDF he describes as “heroically constructed by Sigve Indregard”). Here are a very few substantive comments, in response to responses:

The Tax Free Tour; a look at the offshore tax haven system - We've all talked and read about the idea and practice of offshore accounting to reduce taxation. Here is an article produced by a show called Backlight.  Backlight appears to be a news journal show in the idea of Frontline by a Dutch public broadcasting organization known as VPRO. This episode is titled: The Tax FreeTour.  To date it has only just over 22 thousand hits.  Considering the effect offshoring plays in everyone's life, I think more people need to see it.   It is about 1 hour long taking a look at the places of tax havens and the structures to get there. I found it very interesting and highly encourage you to watch the entire episode.  I have not seen another presentation as complete as this on the issue of off shore tax havens and the system.   Here are four cuts from the show. The first two are to let people know what our Senate Banking committee hearings would look and sound like if there were more than just Elizabeth Warren.

Secrecy for Sale: Inside the Global Offshore Money Maze - Key findings:

  • Government officials and their families and associates in Azerbaijan, Russia, Canada, Pakistan, the Philippines, Thailand, Canada, Mongolia and other countries have embraced the use of covert companies and bank accounts.
  • The mega-rich use complex offshore structures to own mansions, yachts, art masterpieces and other assets, gaining tax advantages and anonymity not available to average people.
  • Many of the world’s top’s banks – including UBS, Clariden and Deutsche Bank – have aggressively worked to provide their customers with secrecy-cloaked companies in the British Virgin Islands and other offshore hideaways.
  • A well-paid industry of accountants, middlemen and other operatives has helped offshore patrons shroud their identities and business interests, providing shelter in many cases to money laundering or other misconduct.
  • Ponzi schemers and other large-scale fraudsters routinely use offshore havens to pull off their shell games and move their ill-gotten gains.

Let's put a sales tax on Wall Street - I learned of a petition at the presidents site, that one where anyone can start a petition and have it addressed if you reach 100,000 signatures. We the People it's called. The petition is sponsored by United Front Against Austerity which also goes by the name Against  I know nothing about this organization, though I have looked. Thus, I'm remaining without opinion. But, I do like this one idea of theirs and the idea needs push. The petition is to have a sales tax placed on Wall Street's transactions. I think this is a grand idea. After all, Wall Street and the banks have always referred to their stuff as “products”. Finance accounts for over 8% of our GDP, over 30% of corporate profits. But, mostly financial transactions are so numerous that the total dollar value makes our GDP look puny. Our GDP represents 1.9% of the total of the financial sales. Of course, not all items would be taxable. It' like food. We don't tax that.  Many would call this a transaction tax but, this is the wrong terminology. Wall Street has made it's self into a producer within our economy. To paraphrase the infamous words of Larry the Liquidator, they “make you money”. Odd as it is, money is what they sell to the consumer. They're a regular “retail” establishment. At least that's how they view themselves. So, we should welcome them to such a status by making them collect and submit biweekly sales tax. 

Eric Holder Gets Busy: Enron's Skilling May Be Released From Prison Over A Decade Early - Former Enron CEO Jeff Skilling may be the latest beneficiary of the culture of pervasive permitted, even at times encouraged, crime. After being sentenced to prison for 24 years in the aftermath of Enron's spectacular 2001 bankruptcy, the former CEO may be released after serving well less than half of his term. As a result his prison term, which scheduled to end in 2028, may be cut by more than half as a result of a new agreement with the Department of Justice. It appears that AG Eric Holder is so busy not prosecuting Wall Street for being Too Big To Prosecute, he has decided it is far wiser to spend his time productively by commuting the sentences of convicted financial felons, because apparently there is nothing more important to do.

Former SEC Chair Mary Schapiro Monetizes Her Rolodex -  In addition to collecting her $250,000 for sitting on the Board of General Electric, former SEC Chair Mary Schapiro, who left the SEC post in December, will be hanging her shingle at Promontory Financial Group LLC as a managing director.  Promontory’s founder, Eugene Ludwig, was formerly the head of the Office of the Comptroller of the Currency (OCC) from 1993 to 1998. The OCC is the primary regulator of national banks. Before becoming head of the OCC, Ludwig was a partner at the corporate law firm, Covington & Burling, the firm where former head of the criminal division of the Justice Department, Lanny Breuer, returned earlier this year. The U.S. Attorney General, Eric Holder, also hails from Covington & Burling. Former OCC chief, John Dugan, who served at the OCC from 2005 to 2010, also came from and returned to Covington & Burling. Prior to joining the OCC as its head, Dugan was a registered bank lobbyist. Ludwig founded Promontory in 2001. In 2006, Ludwig was listed on a Federal lobbying disclosure form as a lobbyist for General Motors on an issue before the Federal Deposit Insurance Corporation (FDIC) as part of his work for Promontory. The company was paid $3.4 million by General Motors for the 2006 lobbying engagement. It earned additional sums from GM in subsequent years. Another Promontory lobbyist, Colleen Brennan, lobbied the SEC in 2006 on behalf of TD Ameritrade, a securities firm. In more recent years, Promontory’s business model has evolved from lobbyist to self-styled privatized regulator-for-hire. One of its engagements was selection as one of the firms hired by the OCC and Federal Reserve to review foreclosure files by banks found to have engaged in abusive foreclosure practices. As we previously reported, that process has a strong stench.

Mary Schapiro and Lanny Breuer Give Us the Ultimate Dog-Bites-Man Story - As head of the Securities and Exchange Commission for the past four years, Mary Schapiro failed to win a major civil action against any Wall Street executive connected to what may be the worst financial fraud in history, the subprime-mortgage scam that led to the 2008 crash. As head of the Justice Department’s criminal division for the past four years, Lanny Breuer failed to accomplish the same with criminal action. And now both are headed back over to the other side: deep-pocketed firms that earn their keep largely from Wall Street. In Schapiro’s case, that’s Promontory Financial Group, which advises financial firms on regulation; in Breuer’s, it’s Covington & Burling, a major law firm that defends financial clients. If this sounds like a dog-bites-man story, it is. Actually it’s more like, Wall Street bites everybody. But that too is pretty predictable these days. “It used to be called ‘selling out,’ ‘cashing in,’ or ‘influence peddling.’ Now it’s referred to politely as the ‘revolving door,’ ” said Dennis Kelleher, president of Better Markets, a Washington nonprofit that advocates for better regulation of financial markets. “But whatever it’s called, nothing is more corrosive to the American people’s trust in government than when former senior public officials turn their so-called public service into multimillion-dollar riches unimaginable to almost all Americans.”

Regulators Let Big Banks Look Safer Than They Are - Sheila Bair  -- The recent Senate report on the J.P. Morgan Chase "London Whale" trading debacle revealed emails, telephone conversations and other evidence of how Chase managers manipulated their internal risk models to boost the bank's regulatory capital ratios. Risk models are common and certainly not illegal. Nevertheless, their use in bolstering a bank's capital ratios can give the public a false sense of security about the stability of the nation's largest financial institutions.  Capital ratios (also called capital adequacy ratios) reflect the percentage of a bank's assets that are funded with equity and are a key barometer of the institution's financial strength—they measure the bank's ability to absorb losses and still remain solvent. This should be a simple measure, but it isn't. That's because regulators allow banks to use a process called "risk weighting," which allows them to raise their capital ratios by characterizing the assets they hold as "low risk."  For instance, the Bank of America reported to the Federal Reserve that its capital ratio is 11.4%. But that was a measure of the bank's common equity as a percentage of the assets it holds as weighted by their risk—which is much less than the value of these assets according to accounting rules. Take out the risk-weighting adjustment, and its capital ratio falls to 7.8%.

It's still a lovefest between Wall Street and regulators - For years, people have been asking the question: in all of the financial crisis, why hasn't anyone from Wall Street gone to jail? The answer is simple: because the Washington regulators who investigate Wall Street are intent on providing no proof that anyone ever did anything wrong.  When the Securities and Exchange Commission puts the heat on a bank or hedge fund for doing something inappropriate, the negotiations follow a predictable dance. The first step is that the SEC gathers evidence that the banks or hedge funds broke the rules. Much of that information is provided by the banks themselves, since the SEC has a small budget and no resources to chase the thousands of instances of Wall Street malfeasance every day. Regulators like the SEC are outmatched and underfunded. The second step is that the bank, confronted with the possibility of public humiliation, agrees to pay a fine to settle the allegations. The third step is that the bank agrees to a press release in which it "neither admits nor denies" any wrongdoing. So this is the problem: courts can't send anyone to jail without proof. But the Securities and Exchange Commission and other regulators don't allow proof of guilt in their investigations. This is designed specifically to keep the banks out of court. And that's why there are no significant cases around Wall Street malfeasance: they're practically impossible.

Tom Hoenig: "This System Distorts The Market And Turns Appropriate Risk-Taking Into Recklessness" - This system distorts the market and turns appropriate risk-taking into recklessness. The result is a more concentrated and powerful financial sector — and a more fragile economy. The way to return the financial services industry to the free market is by separating trading from commercial banks and by reforming the so-called shadow banking sector. Government guarantees should be limited primarily to those commercial banking activities that need it to function: the payments system and the intermediation process between short-term lenders and long-term borrowers.... It is time to return our financial system to one in which success is no longer achieved through government protections but, rather, through innovation and competition. While trading and investment activities are vital parts of the financial services industry, there is no economic or social rationale for protecting and subsidizing them. Financial services firms are in the business of taking risks. Our country shouldn’t attempt to take the risk out of the system. But we should absolutely stop subsidizing it.

Democrats Are Undermining Wall Street Reform, Too - Many of the laws that Congress passed to rein in big banks in the wake of the 2007 financial meltdown have yet to go into effect, but lawmakers are already working to dismantle them. And it's not a partisan thing either.A group of 21 House lawmakers—including eight Democrats—is pushing seven separate bills that would dramatically scale back financial reform. The proposed laws, which are scheduled to come before the House financial-services committee for consideration in mid-April, come straight on the heels of a major Senate investigation that revealed that JP Morgan Chase had lost $6 billion dollars by cooking its books and defying regulators—who themselves fell asleep on the job. Why the move to gut Wall Street reform so soon? Financial-reform advocates say Democrats might be supporting deregulation because of a well-intentioned misunderstanding of the laws, which lobbyists promise are consumer-friendly. But, reformers add, it could also have something to do with Wall Street money. "The default position of many members of Congress is to do what Wall Street wants. They are a main source of funding," says Bartlett Naylor, a financial-policy expert at the consumer advocacy group Public Citizen. "These are relatively complicated [bills]. It's easy to come to the misunderstanding that they are benign."

Don’t panic – financial reform is coming to America - Barney Frank We are going to sort out the US financial system. This might seem a bold statement when, two and a half years after the Dodd-Frank Act was signed into law, much necessary regulation is still not on the books.  While I share the frustration that many feel about our slow progress, I do not share the angst that often accompanies it. Some of the factors responsible for the pace were inherent in the task. Some critics have complained that we overloaded the agencies’ circuits with a law that was much too long. But our 124-page bill covered more subjects. We decided to cover all interrelated issues in a financial system vastly more complex than that which existed in the 1930s, and to do it in one bill that treated the system as an integrated whole. A second complaint is that we left too much to regulators. Trying to be prescriptive would have required setting rules in concrete that we should allow to evolve with experience. Specificity without discretion would have been an invitation to evasion. A third criticism is both wholly valid and wholly unavoidable. Responsibility for regulating derivatives is divided between two separate agencies: the SEC and the Commodity Futures Trading Commission. This division is both irrational and impossible to fix without a major legislative fight. The good news is there is a growing bipartisan interest in taking on this task. Until that is done, much important regulation will require the two five-member commissions to agree on a single set of rules. If the new SEC chair is quickly confirmed, the requisite decisions will be made soon.

The Growing Sentiment on the Hill For Ending 'Too Big To Fail' | Matt Taibbi - Start with last week, Bernie  Sanders announced plans to introduce an interesting new bill, one that's a direct response to comments made recently by the likes of Eric Holder about the difficulty in prosecuting big banks. Holder said some institutions have grown so large that prosecuting its executives may have a "negative impact on the national economy, perhaps even the world economy."  This was an extraordinary statement to come out of the mouth of the Attorney General – essentially announcing in advance a disinclination to prosecute a whole class of people. It's Minority Report in reverse – pre-noncrime. What was even more bizarre was that this wasn't an inadvertent comment or a slip of the tongue, it was absolutely consistent with comments made by other DOJ officials late last year after the slap-on-the-wrist HSBC (money-laundering) and UBS (rate-fixing) settlements. Worse, after Holder and other prosecutorial pushovers like Lanny Breuer made these comments, there was utter silence from the White House, making it crystal clear that this is a coordinated policy. What the Sanders bill would do is force Holder and the White House to actually spell out the policy. It would give Treasury Secretary Jack Lew 90 days to compile a list of all the financial institutions that they think are too big to prosecute. The list would include "any entity that has grown so large that its failure would have a catastrophic effect on the stability of either the financial system or the United States economy without substantial government assistance." But this isn't an isolated thing. Bernie's bill comes on the heels of a series of developments that, to me anyway, signal a shift in thinking on this issue on the Hill.

Why there won’t be any big new bank laws in the US, in three quotes – Simon Johnson, former chief economist at the IMF, is ruffling feathers in the economic world with his article arguing that it’s only a matter of time before the largest banks in the US are broken up. He points to a number of trends: A bipartisan Senate vote last week urging regulators to end subsidies to the largest banks; the continuing concerns about banks that are “too big to fail”; and the debacle in Cyprus that has made everyone more nervous about banks again. But there won’t be any big legal changes soon. While the Senate flirts with tougher restrictions, the executive branch has its hands more than full trying to implement Dodd-Frank, the 2010 law that overhauled financial regulation.  In addition, almost every Republican voted against it, and they are still attempting to repeal parts of the law, which Democrats see as their big regulatory victory. That doesn’t exactly lend itself to deal-making. And then there’s financial services committee chairman Jeb Hensarling, whose campaign last year ran on tens of thousands of dollars from major banks. Greater capital standards like the ones in Basel III, which  many critics of the big banks say are still too lax? Here’s a letter Hensarling sent last year on the topic: “While the higher capital requirements contained in Basel III are entirely appropriate for large, internationally active financial institutions that may pose a systemic risk to our economy, the application of these requirements to community and regional banks raises serious concerns.”

How Congress and the Courts Are Closing in on Dodd-Frank - What are the serious threats to Dodd-Frank? Last month, Haley Sweetland Edwards wrote "He Who Makes the Rules" at the Washington Monthly, which is the best single piece on Dodd-Frank implementation I've seen. In it, she identifies "three main areas on this gauntlet where a rule can be sliced, diced, gouged, or otherwise weakened beyond recognition." The first is "the agency itself, where industry lobbyists enjoy outsized influence in meetings and comment letters, on rule makers’ access to vital information, and on the interpretation of the law itself." The second is the courts, "where industry groups can sue an agency and have a rule killed on a variety of grounds." And the third is Congress, "where an entire law can be retroactively gutted or poked through with loopholes." How important have those three areas been? Looking at the first two and a half years of Dodd-Frank, the courts turned out to be the unexpected danger for financial reform. I have a piece in Bloomberg View today arguing this, as well as the fact that the courts are structurally biased against reform in some very crucial ways.

Bankers’ Court Wins Could Come Back to Haunt Them - The courts are likely to keep playing an outsized role in financial regulation. This is bad news for those seeking reform. There are three reasons the courts are going to be stacked in favor of industry, making them particularly useful for lobbyists who want to weaken Dodd-Frank.  First, an asymmetry exists in the types of claims that courts will accept. As David Arkush put it: “Businesses nearly always have standing to challenge rules that affect them. But if you’re someone who benefits from a rule and thinks it should be stronger, it’s much harder to get into court.”  Second, litigation is a blunt and unpredictable weapon with the power to gut whole sections of financial reform, as opposed to merely watering them down. It’s very hard for regulators to anticipate exactly what parts of their rules lawyers will challenge, and how the courts will react.  Judges are simply showing up at the end of a long process and giving a thumbs-up or a thumbs-down ruling, with little clarity or guidance to influence policy makers and no institutional back and forth. Third, the threat of litigation has a chilling effect that individual lobbying successes do not. It puts pressure on regulators to take more time writing the rules, to make them longer and more complicated, and to tilt them in favor of industry so that it won’t sue. The potential for courts to take issue with specific word choices, or to set unpredictable requirements for cost-benefit analysis, hang like a sword of Damocles over the whole rulemaking process.

If Wall Street beats Dodd-Frank, it could be the worst thing that ever happens to them: Is Washington likely to break up the country’s biggest banks? No, not right now. But perhaps soon.  Political momentum for dismantling them has been, in recent weeks, overstated. That unanimous vote in the Senate for a budget amendment critical of big banks? It was a nonbinding amendment to end “too-big-to-fail subsidies.” As it happens, there isn’t a line item in the federal budget titled “too-big-to-fail subsidies.” The vote was a freebie against the abstract concept of taxpayers subsidizing Wall Street — that’s why the outcome was unanimous. It was like a vote against halitosis. Similarly, in a town starved for bipartisanship, the odd-bedfellows coalition of Sens. Sherrod Brown, a liberal Democrat, and David Vitter, a conservative Republican, has attracted quite a bit of media attention. But if you want to see even more bipartisanship, regard the huge, bipartisan effort to leave the biggest banks alone, which counts dozens of senators from both sides of the aisle among its supporters. That said, those who dismiss efforts to break up the big banks as no more than a populist fantasy are missing the long game — and for opponents of a concentrated financial sector, the long game is going surprisingly well.

Fiduciary Duty to Cheat? Jim Chanos Reveals the Perverse New Mindset of Financial Fraudsters (interview by Lynn Parramore) - Hustlers. Cheaters. Crooks. American business has always had them, and sometimes they’ve been punished. But today, those who cheat and put the rest of us at risk are often getting off scot-free. The recent admission of Attorney General Eric Holder that systemically dangerous megabanks may escape prosecution because of their size has opened a new chapter in fraud history. If you know your company won’t be prosecuted, a perverse logic says that you should cheat and make as much money for shareholders as you can. Jim Chanos is one of America’s best-known short-sellers, famed for his early detection of Enron’s fraudulent practices. In deciding which companies to short (short-sellers make their money when the price of a stock or security goes down), Chanos acts as a kind of financial detective, scrutinizing companies for signs of overvaluation and shady practices that fool outsiders into tlhinking that they are prospering when they may be on shaky financial footing. Chanos teaches a class at Yale on the history of financial fraud, instructing students in how to look for signs of cheating and criminal activity. I caught up with Chanos in his New York office to ask what’s driving the current era of rampant fraud, who is to blame, what can be done, and the ways in which fraud costs us financially and socially.

La-La Libor Lawsuit Land - Another bank ripoff and another lawsuit dismissed.  The Libor manipulation scandal spurred private investors and others to sue the banks over their losses.  A judge just threw out major portions of their case.  There were at least 22 Plaintiffs.  Now groups like the City of Baltimore are out of luck in recovering all of their losses due to banks manipulating a key interest rate. In a significant setback for the plaintiffs, U.S. District Judge Naomi Reice Buchwald in Manhattan granted the banks' motion to dismiss federal antitrust claims and partially dismissed the plaintiffs' claims of commodities manipulation. She also dismissed racketeering and state-law claims.Buchwald did allow a portion of the lawsuit to continue that claims the banks' alleged manipulation of Libor harmed traders who bet on interest rates. Earlier Freddie Mac sued the banks for an undisclosed amount over rigging the LIBOR, which cost Freddie Mac and Fannie Mae over $3 billion as calculated in this study (pdf).   Some of the banks Freddie Mac sued are Bank of America Corp, JPMorgan Chase & Co, UBS AG and Credit Suisse Group AG.  Below is a graph of the LIBOR against the Federal Reserve Eurodollar deposit rate, or Fed Ed.  The two diverged, up to 3% in September 2008, as illustrated.  Barclays rate rigging cost thousands of businesses millions, as the LIBOR dictates interest payments on a slurry of holdings .

Another Report Blames Corzine In MF Global Failure, Are Criminal Charges On The Way This Time? - Forbes: MF Global clients have recovered much of the missing assets since the firm’s failure but former CEO Jon Corzine is not off the hook just yet. The trustee in the MF Global case filed a 174-page report outlining his investigation into the failure of MF Global. The report by Louis Freeh hones in on Corzine’s role in the matter and his management team’s knowledge of the flaws at the firm that led to its ultimate collapse.Under Corzine’s reign MF Global transformed from a commodities broker into a full service broker dealer and investment bank and eventually engaged in proprietary trading, he says. Corzine initiated a new and aggressive prop trading strategy that invested heavily in European sovereign debt leading up the the EU crisis, the trustee says in his report. From the report: “Corzine and his management team failed to strengthen the Company’s weak control environment, making it almost impossible to properly monitor the liquidity drains on the Company caused by Corzine’s proprietary trading strategy. Among other significant gaps, the Company lacked an integrated global treasury system, preventing management from obtaining an accurate real-time picture of the Company’s liquidity. The inadequate controls also prevented the Company from knowing, during the last week of its existence, that customer segregated funds at the [futures commission merchant] were being used to meet the B/D’s liquidity needs and satisfy an obligation of MFG UK. These glaring deficiencies were long known to Corzine and management, yet they failed to implement sufficient corrective measures promptly.

Rise of Dark-Pool Trading Concerns Regulators - As the stock market continues to climb, trading has increasingly migrated from established bourses like the New York Stock Exchange to private platforms, including dark pools, that are largely hidden from public view. The shift is helping big traders hide what they are doing in the markets, and regulators are worried that the development could obscure the true prices of stocks and scare away ordinary investors. The movement, under way for several years, has gathered force recently. The portion of all stock trading taking place away from the public exchanges hit new highs over the last few weeks, amounting to close to 40 percent on several days, up from an average of 16 percent in 2008, according to Rosenblatt Securities. The trend has bucked the government’s broad effort in recent years to move more of the financial industry out of the back rooms and into the light. The increasing opacity of stock trading in the United States, long the most transparent place in the financial world, is troubling for investors and regulators. “We’ve been having a lot of discussions about whether we are reaching a tipping point between lit and unlit markets,” said Thomas Gira, head of market regulation at the Financial Industry Regulatory Authority, the industry-financed regulator.

Ex-Thomson Reuters Employee Claims Insider Survey Leaks -A former Thomson Reuters Corp. employee filed a lawsuit claiming he was fired for telling the FBI that the company’s “tiered release” of a consumer survey violated insider-trading laws.  Mark Rosenblum said in his complaint, filed today in Manhattan federal court, that he was fired on Aug. 3, soon after complaining to U.S. authorities that the company gave some customers an advantage by releasing the Thomson Reuters/University of Michigan Surveys of Consumers to them first. He said he told company executives about his complaint to the federal agents.  “Mere weeks after the report, Rosenblum’s employment with Thomson was terminated with no severance,” the plaintiff, a former redistribution specialist selling financial data, said in his complaint.  Rosenblum, who lives in New Jersey, is seeking unspecified damages for alleged violations of a U.S. whistle-blower law.

How Liquid Is the Inflation Swap Market? - NY Fed - An inflation swap is a derivatives transaction in which one party agrees to swap fixed payments for floating payments tied to an inflation rate for a given notional amount and period of time. For example, an investor might agree to pay a fixed per annum rate of 2.5 percent on a $25 million notional amount for ten years in order to receive the rate of inflation for that same time period and amount. The inflation gauge for U.S. dollar inflation swaps is the nonseasonally adjusted consumer price index for urban consumers. Inflation swaps are used to transfer inflation risk and make inferences about the future course of inflation. Despite the importance of this market to inflation hedgers, inflation speculators, and policymakers, there is little evidence on its liquidity. Based on an analysis of new and detailed data in this post we show that the market appears reasonably liquid and transparent despite low trading activity, likely reflecting the high liquidity of related markets for inflation risk. In a previous post, we examined similar issues for the broader interest rate derivatives market.

I Want My Money Now: The Highs and Lows of Payments in Real Time - NY Fed - Peel back the layers of complex financial institutions and instruments, and you're left with individuals demanding to be paid, and to be paid quickly. Payments are the electricity that powers the entire financial system. The ability to securely send and receive timely payments is a prerequisite for commerce and the smooth functioning of financial markets. Despite the seemingly straightforward nature of the subject, a preliminary exploration of payments data offers insight into how institutions react to changing economic conditions. In this post, we aim to investigate recent volatility in the amount of payments, particularly during the recent financial crisis. We focus on estimating and extracting changing levels of payments required for interbank lending, which reflect banks’ varying needs for liquidity. We find that variables capturing macroeconomic conditions and financial market stress are additional large drivers of fluctuations in payments.

Analysis: Big inflows into bonds undercut the “Great Rotation” (Reuters) - Fears of a rush for the exits from the U.S. bond market have been greatly exaggerated. Even as the fixed-income sector grapples with a rare negative start to the year, many of the biggest and widely followed bond firms are still attracting new cash to their flagship funds. And it is not expected to stop any time soon. "I think the demand is there because many investors, especially mom-and-pop investors, still want income and, equally important, have been burned twice on equities,""They lost so much money, like in the double-digits, during the tech bust (2000-2002) and credit crisis in 2008 - and don't want to go through that again,"The Federal Reserve's massive bond-buying program, $85 billion a month of U.S. Treasury debt and residential mortgage bonds, has driven bond prices higher and pinned their yields, which move in the opposite direction, near record lows. That has led many market experts to warn there was a much greater risk of significant losses - as yields eventually return to more normal levels - than any further gains in the bond market. They therefore predicted 2013 would be the year of a large-scale investment shift market many dubbed "The Great Rotation" - a tilting of pension and insurance funds' long-term asset mix back towards equities from heavy weighting in bonds.

Big Business believes in taxpayer subsidies, not "free markets" - David Cay Johnston writes about the thing that most journalists don't bother to (or are told not to) write about--the way that Big Business successfully lobbies legislators and regulatory agencies to write the rules to favor Big Business, at the expense of ordinary Americans, all under the false claim that they are pushing de-regulation for the good of competition and ordinary consumers.   Missing the Story, Johnston describes a number of ways that state legislatures, Congress and state and federal regulatory agencies have made life easy-street for Big Business at the cost of ordinary consumers.  He notes it is often discussed as "deregulation" but that "is a misnomer because, literally, no such thing exists in commerce....Everything in business is regulated in some fashion, and has been since long before the first nearly full set of laws we have....  [Thus, d]eregulation typically means reregulation under new rules that favor business interests."  Id. Businesses claim that the 'deregulation' they seek is just another step towards their ideal of "free markets" to help competitiveness.  Not so, Johnston replies.  The regulatory climate that results is almost always one that creates "moats" making competition much harder for small businesses and allowing duopolies or monopolies to arise that can set prices as high as they wish. And often the captured regulatory agencies allow the most absurd subsidies imaginable. 

Cash Cow: Of the 50 Largest US Companies, Who has the Cash? Who has the Debt? - Here's the question of the day: How much actual cash is on hand at corporations?  Fed by glowing reports from sell-side analysts, most investors are unaware that except for a handful of companies, there is no cash, only debt. Even counting short-term investments there is surprisingly little cash on hand. Courtesy of Mike Klaczynski at Tableau Software please consider the latest update to my periodic "Cash Cow" interactive report.The data for this sheet is from Yahoo!Finance. Scroll over any of the bars (not the company name) to see more details. Cash is a liability not an asset for banks, so I left off financial corporations in the default map. Certainly the $277 billion in cash on hand at Bank of America is not a sign of genuine strength or profitability.   As you can see, actual cash on hand at non-financial corporations is a net negative $850 billion.

No Trickle - Paul Krugman - I should give a shout-out to Larry Mishel’s note showing that the share of corporate-sector income going to profits has soared to levels not seen in more than 40 years. Here’s another way to see the same thing, with total workers’ compensation in blue and profits in red, both shown as indexes with the quarter before the recession at 100:  There doesn’t seem to be much trickle-down going on.

Pay for Boards at Banks Soars Amid Cutbacks - Wall Street pay, while lucrative, isn’t what it used to be — unless you are a board member. Since the financial crisis, compensation for the directors of the nation’s biggest banks has continued to rise even as the banks themselves, facing difficult markets and regulatory pressures, are reining in bonuses and pay. Take Goldman Sachs, where the average annual compensation for a director — essentially a part-time job — was $488,709 in 2011, the last year for which data is available, up more than 50 percent from 2008, according to Equilar, a compensation data firm. Some of the firm’s 13 directors make more than $500,000 because they have extra responsibilities. And those numbers are likely to skyrocket for 2012 because the firm’s shares rose more than 35 percent last year and its directors are paid in stock. Goldman Sachs is expected to release fresh pay data in the coming weeks. Goldman’s board is the best compensated of any big American bank and the fifth-highest paid of any company in the country, according to Equilar. Some of its rivals are not that far behind. The nation’s biggest banks paid their directors over $95,000 a year more on average in 2011 than what other large corporations paid.

Think Your Bank Deposits Will Always Be 100 Percent Guaranteed by the FDIC? Think Again. - I think this is a huge story, and it takes very little to tell it. These are the basics on deposit confiscation and how we got there:

  • ■ You know that the EU-forced solution to the failure of banks in Cyprus is to require the Cypriot government to confiscate (“tax”) deposits. That news is everywhere you look; it’s not in dispute or doubt. The latest has depositor losses at 60% due to the bailout-related “one-time” tax.
  • ■ “Confiscating deposits” is exactly the opposite of “insuring deposits,” which is what is required in the EU, and also offered by the FDIC (as the ads say, “your deposits are insured up to $250,000″).
  • ■ The next monster taxpayer-financed bank bailout could spark a revolution. Find me anyone who isn’t a friend of Big Money who doesn’t hate the Bush-Obama bailout.
  • ■ This takes a taxpayer-financed bailout off the table as the next way to make bankers whole when they stumble.
  • ■ But bankers are going to stumble soon, and big. The derivatives market is huge, and they’re aggressively reversing the tepid Dodd-Frank derivatives regulations as we speak. Of course, friends-of-big-banks in Congress are helping (that’s you, Ann Kuster).
  • ■ So the next big bailout (which is coming) will have to come from somewhere else. Guess where that “somewhere else” is? Deposits.

US Bank Depositors Unlikely to Take Losses - A recent post by Ellen Brown at Web of Debt claims that US bank depositors could lose some of their money if the bank failed, citing this paperfrom the FDIC and The Bank of England. She quotes from the paper, bracketed material is her addition: An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S., the new equity would become capital in one or more newly formed operating entities. … Brown doesn’t mention the National Bank Depositor Preference Act, 12 USC § 1812 (d)(11). That law says that in a bank receivership, the depositors get first call on any assets. It seems almost impossible that a bank could lose enough money to cause losses to depositors. But I have other questions about the paper. The paper is a joint exercise between the FDIC and the Bank of England. It is designed to help with the difficulties presented by international financial entities that are too big to fail. The parties agree that the strategy for dealing with a failed TBTF should “assign losses to shareholders and unsecured creditors”, p. 2, and there is where the problem arises. When you deposit money in a bank, the money belongs to the bank, and you become an unsecured creditor. You have the right to get the money back from the bank, but if it doesn’t have enough to go around, you are just one of many creditors. In the US, we ameliorate that problem through the FDIC, which insures your deposit up to $250K, and the distribution priorities.

Your Humble Blogger Appears on RT’s “Truthseeker” - Yves Smith - I’ve been violating the Gore Vidal rule of media (“never turn down the opportunity to have sex or be on TV”) but in Vidal’s day, TV was broadcast, with mass audiences and major impact. Trust me, if you blink, you’ll miss the bit where I make a couple of observations in this new RT show. I’m not sure how I feel about this program. The striving-for-sensationalism posture undercuts the credibility they should garner via featuring high caliber guests. Things are so bad, I’m not sure tarting it up helps, at least with an American audience. And when they interviewed me, they were pushing for me to say US deposits are at risk, and they appear not to have been happy with my stressing that uninsured deposits were and are at risk, and are even more so by virtue of the 2005 bankruptcy law changes, which make derivatives counterparties senior to depositors by making them secured creditors. Plus the lighting sucked. But some of the other interviewees, such as Bill Black and Dean Baker) did make interesting observations, so I anticipate most reader will enjoy this segment

Love the Bank, Hate the Banker - Bankers are widely reviled today. But banking is also mystifying. So any critic who has the intellectual heft to clear away the smokescreen that bankers have laid around their business, and can portray bankers as both incompetent and malevolent, finds a ready audience. The critic’s message – that banks need to be cut down to size – resonates widely. Bankers can, of course, ignore their critics and the public, and use their money to lobby in the right quarters to maintain their privileges. But, every once in a while, a banker, tired of being portrayed as a rogue, lashes out. He (it is usually a man) warns the public that even the most moderate regulations placed on banks will bring about the end of civilization as we know it. And so the shrillness continues, with the public no wiser for it. A more specific example drives home the point. A significant number of banks operated at very high levels of leverage prior to the recent crisis, with debt/equity ratios of 30-1 (or more) in some cases, and much of the debt very short term. One might reasonably conclude that banks operated with too little equity capital, and too little margin of safety, and that a reasonable regulatory response would be to require that banks be better capitalized.

Unofficial Problem Bank list declines to 791 Institutions - Here is the unofficial problem bank list for Mar 29, 2013.  As anticipated, the FDIC released its enforcement action activity through February 2013 this week, which led to several changes to the Unofficial Problem Bank List. For the week, there were eight removals and two additions leaving the list at 791 institutions with assets of $290.0 billion. A year ago, the list held 948 institutions with assets of $377.6 billion. For the month of March 2013, the list shrank by a net 18 institutions and assets fell by $12.8 billion. It is the third time over the past year the list has experienced a monthly net decline of 18 institutions. The Treasury recently released its monthly update to Congress on the Troubled Asset Relief Program (TARP) for February 2013. Treasury reported that 113 banking companies failed to make their required TARP dividend payment on February 15th. There are 85 institutions or their parent holding companies on the Unofficial Problem Bank List that failed to make the February 15th dividend payment (see spreadsheet). Within this group, 54 institutions have missed 10 or more quarterly dividend payments. There are 13 banks that did not make the February 15th dividend payment, but have been released from a formal enforcement action.

Counterparties: The most profitable insurer in America - If you’re looking for evidence of just how far the housing market has come since its implosion triggered the financial crisis, consider Fannie Mae. The housing giant seized by US government five years ago reported a record profit of $17 billion for 2012, after a roughly equal loss in 2011. It’s Fannie’s first annual profit since 2006; as  Clea Benson notes, the profit eclipsed that of companies like Wal-Mart, GE and Berkshire Hathaway. Drilling down into Fannie’s filing gives you a snapshot of the American housing market. The company set aside less to cover future losses on loans it guaranteed ($62 billion, compared to $76 billion in 2011); suffered lower delinquency rates; had higher loan volume and higher fees; and saw the value of its derivatives positions improve. Bill McBride at Calculated Risk pulls out another bright spot: Fannie says that there was a “4.7% increase in home prices in 2012 compared with a home price decline of 3.7% in 2011.”

Judge Questions Fairness Of Citigroup's $590 Million Settlement: - A Manhattan federal judge on Monday signaled he will not rubber-stamp Citigroup Inc's proposed $590 million settlement of a shareholder lawsuit accusing it of hiding tens of billions of dollars of toxic mortgage assets. U.S. District Judge Sidney Stein asked lawyers for the bank and its shareholders to address several issues at an April 8 fairness hearing, including requested legal fees and expenses of roughly $100 million, and the absence of payments by former Citigroup executives. Citigroup spokesman Mark Costiglio declined to comment. Peter Linden, a partner at the law firm Kirby McInerney who represents the shareholders, did not immediately respond to requests for comment. Stein joined other judges in recent years to question the fairness of large legal settlements in the financial industry.

As mad as hell! Fury as judges nix ‘no-fault’ Wall Street deals  - A growing number of federal judges have had about as much as they can take with Wall Street firms paying hefty fines to settle probes into serious wrongdoing — without admitting any guilt or any executive taking the fall. So at least four judges, in New York and Washington, are not going to take it any more. The mostly quiet attack by these judges on a long-standing business practice could mushroom into one of the most serious threats to bad corporate culture in many years. The pushback against the “neither admit nor deny guilt” settlements comes as many Americans grow frustrated that few executives have been held personally accountable for toxic mortgages, betting against the client and insider-trading practices. The latest example of judicial frustration came this week when Manhattan federal judge Sidney Stein raised concerns about a $590 million settlement agreed to by Citigroup to settle charges it deceived shareholders about its toxic mortgage holdings. The shareholder suit named former CEO Chuck Prince and senior adviser Robert Rubin — but only the bank and not the executives paid out to settle the case.

Repercussions from Rakoff ruling in Dexia MBS case vs JPMorgan? - Amid the fusillade of securities suits against the banks that sponsored and underwrote mortgage-backed notes, there have been a couple of reasons to pay particular attention to the Franco-Belgian bank Dexia's case against JPMorgan Chase and its predecessors Bear Stearns and WaMu Mortgage. For starters, it was a big case: $1.6 billion in MBS and supposed damages of about $800 million. Moreover, Dexia's lawyers had piled allegations into an amended complaint so apparently damning that it was the basis of a splashy story in The New York Times. And finally, the case was shaping up as a bellwether for MBS claims by individual investors. The litigation was on the rocket docket of U.S. Senior District Judge Jed Rakoff of Manhattan, who denied the bank's motion to dismiss last September and talked in a recent hearing about a July trial date on Dexia's claims. Given the resounding victory Rakoff delivered in February to the bond insurer Assured Guaranty in Assured's MBS case against Flagstar Bank, the Dexia case seemed like it could be a perfect storm for defendants: a strong plaintiffs' firm trying a high-profile case before a judge with demonstrated skepticism for bank defenses.

Washington law firm sues bank regulator over foreclosure reviews (Reuters) - A top Washington law firm is suing regulators to hand over information about how it selected consulting firms to participate in a multibillion-dollar review of banks' past foreclosures. The reviews, mandated by regulators in 2011 after widespread foreclosure shortcuts came to light, proved slow and expensive, and earlier this year 13 banks agreed to pay $9.3 billion to end them and compensate foreclosed borrowers. But in a lawsuit in federal court in Washington, D.C., the law firm Williams & Connolly revisited the original reviews. It is seeking documents explaining how the Office of the Comptroller of the Currency defined "independent" in its requirements for mortgage servicers to hire "independent consultants" to conduct the reviews. The law firm declined to identify the client on behalf of which it filed the complaint. It is possible that a consulting firm that lost out on the review contracts is behind the suit. An OCC spokesman declined comment.

Wells Fargo’s “Reprehensible” Foreclosure Abuses Prove Incompetence and Collusion of OCC -  Yves Smith - Two bankruptcy cases in Louisiana that have revealed systematic, persistent foreclosure abuses by Wells Fargo have gotten enough media attention that it is inconceivable that banking regulators don’t know about them. The lack of any intervention, or even so much as a throat-clearing by the Office of the Comptroller of the Currency is yet another proof of how the regulator apparently sees its role as fronting for banks rather than enforcing rules. This story is back in the news thanks to an appeals court smackdown of Wells, which has engaged in a long-standing war of attrition with one of the plaintiffs, a Michael Jones. The reason for the appeal was that the bank was fighting the judge’s imposition of punitive damages of $3.1 million for Wells’ “reprehensible” conduct.  We wrote about the underlying case a year ago. Bankruptcy judge, Elizabeth Magner of the Eastern District of Louisiana, had found Wells Fargo guilty of egregious foreclosure abuses in a 2007 case, Jones v. Wells Fargo. In it, the bank admitted that the types of overcharges it made in bankruptcy cases were “part of its normal course of conduct, practiced in perhaps thousands of cases.” The judge awarded damages and recovery of attorney fees on top of repayment of the impermissible charges, and ordered the bank to fix its accounting. Fast forward four months, and another case appears in Mangers’s court with the same sort of verboten charges, proving that Wells has not taken the required corrective measures.

GAO Report on Independent Foreclosure Reviews Expose OCC, Fed’s Plan to Deliberately Minimize Evidence of Borrower Harm - David Dayen - This morning the Government Accountability Office released their second report on the Independent Foreclosure Reviews. Kudos to Rep. Maxine Waters for getting GAO to take another look. At the time that the OCC and the Fed scrapped the reviews and amended their consent orders, this review, expected to be critical of the process, was seen as a proximate causeMiller said that that one problem the GAO was likely to highlight was an “unacceptably high” error rate of 11 percent in a sampling of bank loan files. That indeed is in the report, though I wouldn’t call it a major feature. And there are only a few big bombshells or pieces of corroboratory evidence in the report. Furthermore, its narrow scope – GAO only looked at the regulators’ design and ovesight of the foreclosure reviews, rather than what the independent reviewers did, and in fact they used the bank consultant reviewers as primary sources – tends to give a very circumscribed picture of the reviews. You could even say that this report will help get the bank consultants off the hook by putting the blame on OCC and the Fed.  But the regulators were definitely part of the story here, and once you get through the government audit-ese, you can begin to see the picture of how they conspired to ensure the reviews would offer little to no value, and indeed attempt to exonerate the banks. The ensuing calamity only shows how the scheme worked too well, burying any evidence of borrower harm among an avalanche of deliberately cracked design.

Blame Abounds Over a Flawed Foreclosure Review -  Private consultants and federal regulators are facing a fresh round of scrutiny in Washington after botching a broad review of foreclosures and failing to thwart financial misdeeds. A new report by the Government Accountability Office will take aim at the Federal Reserve and the Office of the Comptroller of the Currency for creating a bureaucratic maze that delayed relief to homeowners in foreclosure, according to a draft of the 74-page document provided to The New York Times. The regulators, the report found, designed a flawed review of troubled loans that the consultants carried out and mishandled. Adding to the scrutiny, the Senate Banking Committee plans to hold a hearing next week to examine the foreclosure review and other recent missteps at consulting firms like Promontory Financial and Deloitte & Touche, according to several people with direct knowledge of the matter. Senator Sherrod Brown, the Ohio Democrat leading the inquiry, is expected to broadly question the quality and independence of consulting firms that are paid billions of dollars by the same banks they are expected to police.

More Than 100 Watchdog Groups Demand Full Fair-Lending Compliance and Disclosure in National Mortgage Settlement -On Wednesday, March 27th, a coalition made up of 109 civic groups sent a letter to Mortgage Settlement Monitor Joe Smith and the Executive Monitoring Committee highlighting concerns with the slow pace of change on the ground for hardest-hit communities and the need for greater oversight.Homeowners and advocates around the nation have grown frustrated by the banks’ failure to disclose information about consumer relief under the National Mortgage Settlement as communities continue to see persistent servicing violations and struggle to get affordable mortgage modifications with principal reduction.Advocates pointed out that communities of color and low-income communities, who are among the hardest hit by the fraudulent practices of Wall Street banks, have been slow to receive relief.

Half of Nevada foreclosed homes are vacant, abandoned - Delays in the foreclosure process are leaving thousands of Nevada homes vulnerable to vandalism and deterioration, an executive for RealtyTrac said Thursday. Roughly half of foreclosed homes in Nevada are “zombie foreclosures,” or properties flagged as vacant or abandoned, said Daren Blomquist, vice president for the Irvine, Calif.-based online listing service. In many cases the delinquent owner vacated the home expecting it to go to foreclosure, and may not realize the property has yet to be scheduled for trustee sale, he said. That means the homeowner is still responsible for — but not paying — maintenance and property taxes. Kentucky was identified as having 54 percent vacant foreclosures, followed by Indiana and Maine at 53 percent. This was RealtyTrac’s first analysis of such data based on U.S. Postal Service records, so there is no comparison data from previous quarters, Blomquist said. “When you’re dealing with this, there’s always going to be exceptions,” he said. “Second homes, vacation homes — people are gone half the year. This is people who have completely vacated the property.”

The 'Walking Dead' Housing Recovery - Zombie Foreclosures - With the mainstream media becoming increasingly worked up about the pending real-estate 'parabolic' surge and 'now is the time to buy', the reality of 'zombie foreclosures' and 'foreclosure stuffing' that we discussed six months ago continues to grow. While most prefer to ignore inventory as an issue (apart from Bob Shiller and Karl Case who have adamantly refused to 'bless' this 'exuberant' housing recovery), knowing full well that at some point these huge volumes of vacated but still 'owned' homes must come to market (once the foreclosure process picks up). The reality is that with Nevada, Kentucky, Maine, and Indiana having over 50% of homes in vacant foreclosure, there is plenty of supply to come (and with it the accompanying downward pressure on prices)... Karl Case pours a little cold water on the ebullience of the nascent housing recovery hopers - once again due to the foreclosure and auction process...

Fannie Mae: Mortgage Serious Delinquency rate declined in February, Lowest since February 2009 - Fannie Mae reported that the Single-Family Serious Delinquency rate declined in February to 3.13% from 3.18% in January. The serious delinquency rate is down from 3.82% in February 2012, and this is the lowest level since February 2009.  The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.Earlier Freddie Mac reported that the Single-Family serious delinquency rate declined in February to 3.15% from 3.20% in January. Freddie's rate is down from 3.57% in February 2012, and this is the lowest level since July 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  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. At the recent rate of improvement, the serious delinquency rate will be under 1% in 2017 or so.

MBA: Mortgage Purchase Applications increase, Refinance Applications decrease - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey The Refinance Index decreased 6 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier..“Total purchase applications increased last week, due to an almost 7 percent increase in purchase applications for government loans. This was likely driven by borrowers applying for loans prior to the scheduled increase in FHA premiums that took effect on April 1,” . “On a year over year basis, purchase applications are up about 4 percent, in line with the trend we are seeing in home sales volumes.” The first graph shows the refinance index. There has been a sustained refinance boom for over a year. 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 year

Why It’s Still Hard to Get a Mortgage - The housing market may be coming back, but a growing number of policy makers have expressed concerns in recent months that it’s still too hard to get a mortgage.  Federal Reserve governor Elizabeth Duke outlined some of these concerns and their causes in a speech last month. She was quick to note — as is anyone else who has sounded similar alarms — that she doesn’t want the market to return to the go-go days of 2005 or 2006 when anyone who could fog a mirror could get a loan. “But I also don’t think it would be a good idea to go back to the quite restrictive credit conditions of the early 1980s,” she said in the speech to mortgage bankers. The drop in purchase mortgages — loans for buying a home rather than refinancing an existing loan — has been most pronounced among borrowers with low credit scores. Originations have dropped by 30% for borrowers with credit scores above 780 between 2007 and 2012, but they’ve dropped by 90% for borrowers with credit scores between 620 and 680. Duke concedes that some of the decline is probably due to weaker loan demand. But the trend nevertheless “has disturbing implications for potential new households” because younger borrowers typically have credit scores that are more than 50 points below older borrowers, said Duke.

Obama administration pushes banks to make home loans to people with weaker credit  - President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession. In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default. Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps.

US pushes sub-prime mortgages (again!?!?!) -Sometimes I feel like I am operating in bizarro world. Just five years ago, the US and a number of European nations experienced first hand the carnage of a full scale property bust. These experiences should have taught the world that debt-fuelled property speculation, along with placing regulatory constraints on housing supply, is a recipe for disaster and bound to end badly. Yet, unbelieveably, the Obama Administration is looking to cement the US housing recovery by re-igniting sub-prime lending – one of the factors that caused the US housing bust (along with the Global Financial Crisis) in the first place. From the Washington Post: The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place. …administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

Vital Signs Chart: Mortgage Rates Still Favorable - The spring home-sales season has begun and mortgage rates are favorable for would-be buyers. The average rate on a 30-year fixed-rate mortgage was 3.54% for the week ended April 4, down from 3.57% the previous week. Historically low mortgage rates along with pent-up demand from those who postponed purchases during leaner times augur a brisk selling season.

Existing Home Inventory is up 6.5% year-to-date on April 1st Weekly Update: One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I'm tracking inventory weekly this year. The NAR data is monthly and released with a lag.  However Ben at Housing Tracker (Department of Numbers) has provided 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 (to normalize the data).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 April 1st - inventory is increasing faster than in 2011 and 2012. Housing Tracker reports inventory is down -21.3% compared to the same week in 2012 - still a rapid year-over-year decline.

CoreLogic: House Prices up 10.2% Year-over-year in February - The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic Home Price Index Rises by 10.2 Percent Year Over Year in February: The Biggest Increase in Nearly Seven Years Home prices nationwide, including distressed sales, increased 10.2 percent on a year-over-year basis by in February 2013 compared to February 2012. This change represents the biggest year-over-year increase since March 2006 and the 12th consecutive monthly increase in home prices nationally. On a month-over-month basis, including distressed sales, home prices increased by 0.5 percent in February 2013 compared to January 2013. Excluding distressed sales, home prices increased on a year-over-year basis by 10.1 percent in February 2013 compared to February 2012. On a month-over-month basis, excluding distressed sales, home prices increased 1.5 percent in February 2013 compared to January 2013. Distressed sales include short sales and real estate owned (REO) transactions. The CoreLogic Pending HPI indicates that March 2013 home prices, including distressed sales, are also expected to rise by 10.2 percent on a year-over-year basis from March 2012 and rise by 1.2 percent on a month-over-month basis from February 2013. This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was up 0.5% in February, and is up 10.2% over the last year.  The index is off 26.3% from the peak - and is up 10.2% from the post-bubble low set in February 2012.

Trulia: Asking House Prices increased in March, Rents "flatten" - Press Release: Trulia Reports Rents for Single-family Homes Flatten Nationwide Heading into the spring house hunting season, asking home prices rose 7.2 percent year-over-year (Y-o-Y) nationally in March. Seasonally adjusted, prices rose 1.1 percent month-over-month and 3.5 percent quarter-over-quarter. Regionally, prices rose in 91 of the 100 largest metros.  Nearly 4 million more single-family homes have been added to the rental market since 2005 . This new supply has fully caught up with the increased rental demand during the housing crisis – causing single-family home rents to flatten nationwide. Nationally, rents rose 2.4 percent Y-o-Y. For apartments only rents rose 2.9 percent Y-o-Y, while rents for single-family homes were flat, rising just 0.1 percent Y-o-Y. These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and this suggests further house price increases over the next few months on a seasonally adjusted basis.

Rents Soften as Investors Buy More Homes - It’s well documented that investors have played key roles helping to stabilize home prices by scooping up distressed homes and renting them out in some of the hardest hit U.S. housing markets. But a new report shows that those purchases also have begun to squeeze single-family rents in some of the markets where investors have been the most active in buying and renting out homes. Nationally, asking prices of single-family homes were up by 7.2% from one year ago in March, according to real-estate website Trulia. Asking rents, meanwhile, were up just 0.1% from one year ago.

Vital Signs Chart: Housing Recovery Continues - The housing market continues to recover as the spring selling season gets under way. The pending home-sales index edged down to 104.8 in February from 105.2 in January, but is up 8.4% from February 2012. The index, which is based on sales that have gone into contract but haven’t yet closed, surged three years ago just before a home-buyer tax credit expired.

Three Myths About Housing Market Rebound - Housing is recovering due to the extremely low supply of homes for sale. Demand, meanwhile, is up amid strong appetite from investors and from extremely favorable affordability conditions thanks to record-low interest rates. The upshot is that the recovery is unfolding faster than it would due to low inventory, low interest rates, and investors. But does that make for another bubble? Ivy Zelman and John Burns, two housing analysts that were among the first to call the bottom last year, highlighted three misunderstood concerns about the housing market: Large private-equity backed investors have made a splash by purchasing thousands of homes that can be rented out. “If all of the big funds went out of business today, we’d still be talking about investors,” says Burns. “They’re mostly mom-and-pop outfits. They’re doctors, local professionals, and they’re probably worried about being in a lot of cash.” In markets such as Phoenix, where prices in January have increased by 23% from one year ago, there are certainly fewer deals to be had, and it’s possible that some investors are overpaying.  But at a presentation to a few hundred private-equity investors who gathered in midtown Manhattan earlier this year, Zelman explained how professional buyers have been able to buy homes at discounts, even as prices rise, because they are “securing these homes in a more sophisticated way” — often at courthouse auctions before banks ever take back the properties.

Construction Spending increased in February - The Census Bureau reported that overall construction spending increased in February:  The U.S. Census Bureau of the Department of Commerce announced today that construction spending during February 2013 was estimated at a seasonally adjusted annual rate of $885.1 billion, 1.2 percent above the revised January estimate of $874.8 billion. The February figure is 7.9 percent above the February 2012 estimate of $820.7 billion. Both private construction and public construction spending increased: Spending on private construction was at a seasonally adjusted annual rate of $613.0 billion, 1.3 percent above the revised January estimate of $605.2 billion. Residential construction was at a seasonally adjusted annual rate of $303.4 billion in February, 2.2 percent above the revised January estimate of $296.9 billion. ... February, the estimated seasonally adjusted annual rate of public construction spending was $272.1 billion, 0.9 percent above the revised January estimate of $269.6 billion. This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Private residential spending is 55% below the peak in early 2006, and up 36% from the post-bubble low. Non-residential spending is 25% below the peak in January 2008, and up about 37% from the recent low. Public construction spending is now 16% below the peak in March 2009 and just above the lowest level since 2006 (not inflation adjusted). The second graph shows the year-over-year change in construction spending. On a year-over-year basis, private residential construction spending is now up 20%. Non-residential spending is up 6% year-over-year mostly due to energy spending (power and electric). Public spending is down 1.5% year-over-year.

US Construction Up 1.2 Percent in February - Spending on U.S. construction projects rebounded in February, helped by a surge in home construction, which rose to the highest level in more than four years. The Commerce Department says construction spending rose 1.2 percent in February, compared to January, when construction had dropped 2.1 percent. Spending rose to a seasonally adjusted annual rate of $885.1 billion, 7.9 percent higher than a year ago. The advance was led by a 2.2 percent rise in private residential construction, which advanced 2.2 percent to an annual rate of $303.4 billion, the best showing since November 2008. Private nonresidential constructionwas up 0.4 percent while public construction rose 0.9 percent. Construction spending is expected to keep growing this year, fueled by more homebuilding and broader improvement in the economy.

Reis: Apartment Vacancy Rate declined to 4.3% in Q1 2013 - Reis reported that the apartment vacancy rate fell to 4.3% in Q1, down from 4.5% in Q4 2012. The vacancy rate was at 5.0% in Q1 2012 and peaked at 8.0% at the end of 2009. Some data and comments from Reis VP of Research Victor Calanog: Vacancy fell by 20 basis points in the first quarter, dipping to 4.3%. Over the last four quarters, national vacancies have declined by 70 basis points, a far faster pace than any other sector in commercial real estate. The vacancy rate has now fallen by 370 basis points since the cyclical peak of 8.0% observed right after the recession winded down in late 2009. By contrast, office sector vacancies have only fallen by a paltry 60 basis points since fundamentals began recovering five quarters ago. The sector absorbed over 36,000 units in the first quarter, a relatively healthy rate comparable to the rise in occupied stock from one year ago (in 2012Q1). Deliveries have remained modest at 13,706 units, representing roughly the same pace of inventory growth as previous first quarter periods over the last two years. Apartment landlords have another quarter or two to enjoy tight supply growth before a large number of new properties come online. Over 100,000 units are expected to enter the market, most scheduled to open their doors in the latter half of the year. With home prices recovering and mortgage rates staying low, it remains to be seen whether demand for apartments will continue to push vacancies down once inventory growth ramps up.This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.

Reis: Office Vacancy Rate declines slightly in Q1 to 17.0% - Reis released their Q1 2013 Office Vacancy survey this morning. Reis reported that the office vacancy rate declined slightly to 17.0% from 17.1% in Q4 2012. Vacancy declined by 10 basis points during the first quarter to 17.0%. This is roughly the same pace as any improvements in occupancy recorded throughout 2012 (when vacancies fell by a scant 30 basis points over four quarters, from 17.4% to 17.1%). Occupied stock rose by only 4.020 million SF in the first quarter, roughly the same anemic pace as the prior quarter. ... Only 1.578 million SF of new office space came online in the first quarter of 2013, the lowest quarterly figure for new completions since Reis began publishing quarterly data in 1999. If inventory growth for all of 2013 continued to grow at this quarter’s rate we will set a new historic low for construction activity (the previous low is 7 million SF in 1994, the nadir following the Savings and Loan crisis).  Asking and effective rents both grew by 0.7% during the first quarter. ... Asking and effective rents have now risen for ten consecutive quarters. However, given the meager increases over the last two and a half years, rent levels are still anchored at benchmarks last observed in late 2007. National effective rents, for example, are still about 7.7% below peak levels observed in the second quarter of 2008, right before the fall of Lehman Brothers pushed the US recession into overdrive.This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis: Mall Vacancy Rate declines in Q1 - Reis reported that the vacancy rate for regional malls declined to 8.3% in Q1, down from 8.6% in Q4 2012. This is down from a cycle peak of 9.4% in Q3 2011. For Neighborhood and Community malls (strip malls), the vacancy rate declined slightly to 10.6% in Q1, down from 10.7% in Q4 2012. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011. Comments from Reis Senior Economist Ryan Severino:  [Strip Malls] On a year‐over‐year basis, the vacancy rate declined by only 30 bps. Net absorption continues to outpace new construction, marginally pushing vacancy rates downward. With only 873,000 square feet delivered, even moderate demand for space would result in meaningful declines in the national vacancy rate. Yet despite the dearth of new completions, demand remains insufficient to make a meaningful dent in what is still an elevated vacancy rate. [New construction] With retail sales struggling to recover and muted demand for space, new construction remained near record‐low levels during the quarter. 873,000 square feet were delivered during the first quarter, versus 1.231 million square feet during the fourth quarter. This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

Vital Signs Chart: Americans Save More - Americans are saving more. The personal-saving rate — which reflects how much people have left after spending and taxes — hit 2.6% in February from 2.2% in January. Incomes grew, allowing Americans to spend, yet save more. The saving rate soared in December as fiscal-cliff fears prompted some companies to distribute bonuses early, but it then plunged in January as payroll taxes rose.

Saving: Too thin a cushion - AMERICANS probably aren’t saving enough. Savings come in handy in many circumstances: when buying a home, paying for a child’s education, retiring, or in cases of unexpected need. Yet despite aging populations and rising educational costs, America's savings rate has been falling. The figure below shows the saving rate (for January) the last 44 years:  The drop began in the 1980s, perhaps because the Great Moderation made people less fearful of economic uncertainty. When uncertainty returned during the financial crisis, and as credit conditions tightened, the saving rate shot up. Wage stagnation may also play a role; people expected better living standards and cut back on saving to raise consumption. The saving rate fell again this past January. That may reflect greater economic optimism or the return of the full payroll tax, which lowered take-home pay. Rather than decrease consumption people may have saved less.

Debt a common theme as Americans struggle to feel benefits of recovery - "I made the choice to keep my standard of living for my family at the cost of my personal savings, vacations, retirement planning, and gift purchases," Alger said. He says he spent his savings and gave up perks – vacations and retirement planning and buying gifts – just to keep up his family's lifestyle. Alger and others don't feel a financial spring in their step; many are surprised by the cheerier economic statistics issuing from government number-crunchers like the Commerce Department and the Bureau of Labor Statistics. On Friday, for instance, the Commerce Department reported that personal income for Americans rose by 1.1% – a significant uptick showing that somehow people have more money to spend. Another measure, gross domestic income, which estimates all the income in the US, jumped a whopping 2.6%; some economists, like Justin Wolfers of the University of Michigan, herald GDI as the best measure of how much the economy is growing. At the same time, consumer spending seem to be rising again, indicating that ordinary Americans have faith in the economic future. But there's something else that's rising: debt.

Consumer Credit Jumps on Student, Auto Loans - Borrowing by U.S. consumers rose in February due to a big jump in student and auto loans, a sign consumers are getting more comfortable about the economic recovery. Consumer credit, a measure of lending that excludes home mortgages, rose by $18.14 billion to a seasonally adjusted $2.799 trillion in debt outstanding, a Federal Reserve report showed Friday. The expansion in borrowing was larger than the $16.2 billion increase predicted by economists surveyed by Dow Jones Newswires.

97% Of February Consumer Credit Is Student And Car Loans - The releveraging deleveraging continues. While US consumers barely dare to touch their credit cards, as they did in February when just $533 million in revolving consumer credit was added, they continue to take advantage of Federal largesse to take out student and car loans for the maximum amount possible, and as expected in February of the $18.1 billion in total credit taken out, a whopping 97% was non-revolving, or mostly student and GM loans (recall that now one can "finance" a car using their shotgun as collateral). To show just how dramatic the shift toward Uncle Sam as bank of only recourse for the US consumer has become, consider that in the past 12 months, of the $158.8 billion in total consumer credit issued, just $6 billion is credit card based. The remainder: debt that will never be repaid because those who take it out use it to finance such things as their education in vocational school (and iPads, tattoos, lap dances, semiautomatic guns and booze of course), as well as various GM cars that amortise by about 100% the second they are driven off the car lot.

Gasoline Prices down 12 cents over last month - From the USA Today: Pain at the pump: Have gas prices peaked for 2013? After surging nearly 60 cents a gallon from late December to a recent peak of $3.79 on Feb. 27, prices have fallen for 25 of the past 29 days. Nationally, regular grade gas averages $3.64 a gallon -- 28 cents below year-ago levels. The month-long drop has come at a time when gasoline prices typically climb, prompting some industry forecasters to rethink early 2013 estimates of $4 a gallon or higher by the peak summer driving season. Patrick DeHaan, senior petroleum analyst for price tracker, now expects average prices to peak at $3.64 to $3.69, versus the $3.95 he predicted in January. The following graph shows the recent decrease in gasoline prices. Gasoline prices have been on a roller coaster over the last year.

Weekly Gasoline Update: Fifth Week of Falling Prices - It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Gasoline prices fell again last week. Rounded to the penny, the average for Regular dropped four cents and Premium three cents. This is the fifth week of relatively small declines after eleven weeks of price rises. Since their interim high in late February, Regular is down 14 cents and Premium 13 cents. According to, two states, Hawaii and California are averaging at or above $4.00 per gallon, down from three last week. Alaska fell off the list and is now the sole occupant of the $3.90 to $4.00 range. Earlier this month 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, odds are that the 2013 peak prices lie ahead

Trade Deficit declined in February to $43 Billion - The Department of Commerce reported[T]otal February exports of $186.0 billion and imports of $228.9 billion resulted in a goods and services deficit of $43.0 billion, down from $44.5 billion in January, revised. February exports were $1.6 billion more than January exports of $184.4 billion. February imports were $0.1 billion more than January imports of $228.9 billion. The trade deficit was below the consensus forecast of $44.8 billion.The first graph shows the monthly U.S. exports and imports in dollars through January 2013. Exports increased in February, and imports were essentially flat, so the deficit declined. Exports are 12% above the pre-recession peak and up 3.2% compared to February 2012; imports are slightly below the pre-recession peak, and up 2% compared to February 2012. The second graph shows the U.S. trade deficit, with and without petroleum, through February. 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 decrease in the trade deficit in February was mostly due to a decrease in the volume of petroleum imports.

Trade Deficit Narrows as Exports Increase - The nation’s trade deficit unexpectedly narrowed in February, the government reported Friday, as exports climbed near a record and the volume of imported crude oil fell to the lowest level in 17 years. The gap between exports and imports shrank to $43 billion in February, down 3.4 percent from a revised $44.5 billion in January, the Commerce Department said on Friday. It was the smallest trade imbalance since December, when the gap had declined to $38.1 billion, the lowest point in nearly three years. Exports rose 0.8 percent, to $186 billion, close to the record set in December. Stronger exports of energy products and autos offset declines in sales of airplanes and farm equipment. Imports were flat at $228.9 billion, with the volume of crude oil falling to the lowest point since March 1996. The deficit with China shrank to $23.4 billion, the lowest point in 11 months. Exports to the European Union were down 0.9 percent in February, compared with January. Through the first two months of this year, the United States deficit is running at an annual rate of $524.5 billion, down slightly from the $539.5 billion imbalance last year. Economists expect the deficit this year will narrow slightly, in part because of continued gains in energy exports. A narrower trade gap lifts growth because it means American companies are earning more from overseas sales while domestic consumers and businesses are spending less on foreign products. The economy as measured by the gross domestic product grew at an annual rate of 0.4 percent in the October-December quarter. Economists say they believe economic growth strengthened in the January-March quarter to around 3 percent. In addition to increases in energy exports, economists are hopeful that exports of other products will rise this year as well, helped by stronger growth in some major export markets.

Boom Times on the Tracks: Rail Capacity, Spending Soar - Welcome to the revival of the Railroad Age. North America's major freight railroads are in the midst of a building boom unlike anything since the industry's Gilded Age heyday in the 19th century—this year pouring $14 billion into rail yards, refueling stations, additional track. With enhanced speed and efficiency, rail is fast becoming a dominant player in the nation's commercial transport system and a vital cog in its economic recovery.  This time around, though, the expansion isn't so much geographic—it is about a race to make existing rail lines more efficient and able to haul more and different types of freight. Some of the railroads are building massive new terminals that resemble inland ports. They are turning their networks into double-lane steel freeways to capture as much as they can get of U.S. freight demand that is projected to grow by half, to $27.5 billion by 2040, according to the U.S. Department of Transportation. In some cases, rail lines are increasing the heights of mountain tunnels and raising bridges to accommodate stacked containers. All told, 2013 stands to be the industry's third year in a row of record capital spending—more than double the yearly outlays of $5.9 billion a decade ago.

AAR: Rail Traffic "mixed" in March - From the Association of American Railroads (AAR): AAR Reports Mixed Rail Traffic for March, Declines for Week Ending March 30 Intermodal traffic in March 2013 totaled 933,208 containers and trailers, up 0.5 percent (4,859 units) compared with March 2012. That percentage increase represents the smallest year-over-year monthly gain for intermodal since August 2011.  Carloads originated in March 2013 totaled 1,117,427, down 0.5 percent (5,969 carloads) compared with the same month last year. While it was a decline, March had the lowest year-over-year monthly dip in carloads since January of 2012. Carloads excluding coal and grain were up 3.4 percent (19,965 carloads) in March 2013 over March 2012.This graph from the Rail Time Indicators report shows U.S. average weekly rail carloads (NSA).  Green is 2013.
Commodities with the biggest carload increases in March included petroleum and petroleum products, up 54.3 percent or 19,295 carloads; crushed stone, gravel and sand, up 11.9 percent or 8,380 carloads; motor vehicles and parts, up 6.1 percent or 4,127 carloads; and coke, up 11.4 percent or 1,550 carloads. Commodities with carload declines last month included grain, down 20.1 percent or 16,971 carloads; coal, down 2 percent or 8,963 carloads; metallic ores, down 13.2 percent or 2,908 carloads; and chemicals, down 1.3 percent or 1,581 carloads. Note that building related commodities were up. The second graph is for intermodal traffic (using intermodal or shipping containers):

Factory Orders Rise in February - New orders for U.S. factory goods rose sharply in February but a gauge of planned business spending slipped, suggesting factory activity continued to expand at a moderate pace. The Commerce Department on Tuesday said orders for manufactured goods climbed 3.0%. Economists polled by Reuters had forecast orders advancing 2.9%. Factory orders were boosted by the aircraft industry, which is prone to sharp swings. Civilian aircraft orders surged 95.1%. U.S. manufacturer Boeing had previously reported orders in February for 179 aircraft, up from two a month earlier. Gains were modest when stripping out more volatile categories. Orders excluding transportation equipment increased just 0.3%. Orders for non-defense capital goods excluding aircraft - seen as a measure of business confidence and spending plans -declined 3.2% instead of the previously reported 2.7% drop. While often looked at as a core reading for orders, this measure has also been quite volatile in recent months. In January, it rose 6.7%, the biggest gain since March 2010, according to revised readings.

Factory orders rise 3% in February: (AP) — Factory orders rose sharply in February from January on a surge in demand for aircraft. The gain offset a drop in key orders that signal business investment. The Commerce Department said Tuesday that factory orders rose 3% in February. That's up from a 1% decline in January and the biggest gain in five months. The increase was due mostly to a jump in orders for commercial aircraft. Those orders rose 95.1%. Orders for motor vehicles and parts also increased 1.4%. Orders for all durable goods, which are products expected to last at least three years, jumped 5.6%. Orders for non-durable goods, such as processed food and clothing, rose 0.8%. Despite the gains, the report showed that a key measure of business investment plans fell. That could mean some companies were worried in February about steep federal spending cuts that started March. 1. Core capital goods, which include machinery and equipment orders, fell 3.2%. Demand for construction machinery, turbines and generators all fell sharply. Orders for computers and electronic products rose slightly.

Factory orders rise, boosted by aircraft (Reuters) - New orders for factory goods rose in February but a gauge of planned business spending slipped, suggesting factory activity continued to expand at a modest pace. The Commerce Department on Tuesday said orders for manufactured goods climbed 3.0 percent. Economists polled by Reuters had forecast orders advancing 2.9 percent. Factory orders were boosted by the aircraft industry, which is prone to sharp swings. Civilian aircraft orders surged 95.1 percent. U.S. manufacturer Boeing had previously reported orders in February for 179 aircraft, up from two a month earlier. Gains in new orders were modest when stripping out more volatile categories. Orders excluding transportation equipment increased just 0.3 percent. Orders for non-defense capital goods excluding aircraft - seen as a measure of business confidence and spending plans - declined 3.2 percent instead of the previously reported 2.7 percent drop.Data on Monday showed slowing growth of factory activity in March, suggesting the economy lost some momentum at the end of the first quarter as the effects of tighter fiscal policy started kicking in. The factory orders data suggested some of the slowdown due to the fiscal restraint was present in February as well.

Factory Orders "Saved By The Transports", Annual Increase Barely Positive - That the US manufacturing sector has hardly performed in line with a record stock market is not news to anyone, and was confirmed most recently when the February CapEx number was revealed (i.e., Durable Goods non-defense ex aircraft) and missed expectations. Today, we closed to page on February production with the monthly Factory Orders, which printed just better than expected at the headline level or 3.0% vs expectations of a 2.9% number. However, just like with the Durable Goods data, this was entirely driven by the transportation industry, i.e., Boeing airplanes. Stripping transports, the increase from January to February was a tiny 0.3%, far below the 2.0% sequential increase in the prior month, as the entire delta in the headline increase from $477.5 billion to $492 billion was purely as a result of transports. Finally, when looked at correct on a Year over Year basis, this is how Factory Orders (headline and ex-trans) look. Surely this chart of economic activity should explains record stock prices, as sadly no other one can.

ISM Manufacturing Index Expands, But Less Than Expected - Today the Institute for Supply Management published its February Manufacturing Report. The latest headline PMI at 51.3 percent is the fourth month of expansion following a month of contraction. However today's number was below the consensus of 54.0 percent. Here is the key analysis from the report: Manufacturing expanded in March as the PMI™ registered 51.3 percent, a decrease of 2.9 percentage points when compared to February's reading of 54.2 percent. This month's reading reflects the fourth consecutive month of growth in the manufacturing sector. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.  A PMI™ in excess of 42.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the March PMI™ indicates growth for the 46th consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the fourth consecutive month. Holcomb stated, "The past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through March (52.9 percent) corresponds to a 3.3 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI™ for March (51.3 percent) is annualized, it corresponds to a 2.8 percent increase in real GDP annually."

ISM Manufacturing Index - PMI 51.3% for March 2013 - The March 2013 ISM Manufacturing Survey shows PMI decreased by -2.9 percentage points to 51.3% and is in expansion for the 4th month in a row.  New orders as well as production declined significantly from last month and show a slower growth manufacturing sector.  March's Manufacturing survey shows inventories contracted as well. This month's ISM report comments from manufacturing survey responders are a mixed bag with two blaming slowdowns in medical reimbursements and reduced DoD spending. New Orders decreased -6.4 percentage points to 51.4%. New Orders inflection point, where contraction turns into expansion for the long term, isn't exactly 50%, it is 52.3% for new orders. The March decline implies demand is really slacking for manufacturing. A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders. The Census reported manufactured February durable goods new orders growth was 5.7%, where factory orders, or all of manufacturing data, will be out April 2th.  The ISM claims the Census and their survey are consistent with each other and February's results to match to the ISM February manufacturing new orders.    Below is a graph of manufacturing new orders percent change from one year ago (blue, scale on right), against ISM's manufacturing new orders index (maroon, scale on left) to the last release data available for the Census manufacturing statistics.  Here we do see a consistent pattern between the two. Below is the ISM table data, reprinted, for a quick view.

ISM Manufacturing index declines in March to 51.3 - The ISM manufacturing index indicated expansion in March. The PMI was at 51.3% in March, down from 54.2% in February. The employment index was at 54.2%, up from 52.6%, and the new orders index was at 51.4%, down from 57.8% in February. From the Institute for Supply Management: March 2013 Manufacturing ISM Report On Business® Economic activity in the manufacturing sector expanded in March for the fourth consecutive month, and the overall economy grew for the 46th consecutive month,  "The PMI™ registered 51.3 percent, a decrease of 2.9 percentage points from February's reading of 54.2 percent, indicating expansion in manufacturing for the fourth consecutive month, but at a slower rate. Both the New Orders and Production Indexes reflected growth in March compared to February, albeit at slower rates, registering 51.4 and 52.2 percent, respectively. The Employment Index registered 54.2, an increase of 1.6 percentage points compared to February's reading of 52.6 percent. The Prices Index decreased 7 percentage points to 54.5, and the list of commodities up in price reflected far fewer items than in February. In addition, the Backlog of Orders, Exports and Imports Indexes all grew in March."

Manufacturing ISM Tumbles, Biggest Miss In 13 Months - Typically, when the ISM-leading Chicago PMI has a horrible print as it did last week, the subsequent ISM response in a "baffle with BS" centrally planned regime is one of a stunning beat just to make sure all vacuum tubes are kept on their binary toes, and the bad news is good news, good news is better news meme continues propagating. Not this time: moments ago, the March ISM printed at 51.3, the biggest miss to expectations (of 54.0) in 13 months, in fact below the lowest estimate, driven by a collapse in New Orders which tumbled from 57.8 to 51.4, as the rapid deceleration in the US economy is confirmed in virtually every recent metric. The good news, and what will be used to spin the market back into green following its epic 0.2% selloff on the news, is that the Employment Index rose from 52.6 to 54.2, the highest since June 2012. Elsewhere, the 1.2% increase in construction spending came in better than estimated... on a seasonally adjusted basis. Unadjusted it had its biggest drop since July 2011 but who cares: we all live in a seasonally-adjusted "reality" in which only the daily record S&P prints matter. And now, with yet another economic miss in tow, we resume your regularly scheduled no-volume Federal Reserve mandated "stock market" levitation.

Analysis: Manufacturing Slower, but Still Expanding - The Institute for Supply Management's manufacturing index revealed numbers that were not bad, just not as good as expected. The Wall Street Journal’s Mike Weinstein spoke with John Silvia of Wells Fargo about the data.

Manufacturing Growth Slowed In March... Maybe - The manufacturing sector's growth slowed in March, according to the Institute for Supply Management. The composite reading for ISM's Manufacturing index dropped to 51.3, down from 54.2 in February. Values above the neutral 50 mark indicate growth. The index for new orders for manufactured goods also declined, according to ISM data, slumping to 51.4 from 57.8 previously.  On the other hand, the employment component in today’s report picked up, rising to the highest level since June. The fact that employment activity strengthened a bit leaves room for debate if today's decline in the broad read on manufacturing is noise or a sign of new headwinds for the sector. Another reason for reserving judgment comes from a competing survey of US manufacturing activity that offers a considerably brighter profile of the sector in March. The final estimate of the Markit U.S. Manufacturing PMI for last month reflects "strong growth" and "faster" employment growth (pdf). Markit's PMI benchmark rose to 54.6, up slightly from 54.3 in February.  This isn't the first time that the two manufacturing measures have contradicted one another. Let's recall that the ISM Manufacturing Index faltered last November while the Markit data suggested otherwise. It turned out the slight dip under 50 in the ISM composite data was a false alarm. In fact, the Markit data remained above 50 in November and beyond, implying that manufacturing activity would continue to expand, as it has in the months since.

Complete confusion over the trajectory of the US manufacturing sector - The divergence between the two US manufacturing gauges (discussed here) is making market participants uneasy - again. The Markit PMI measure (both seasonally adjusted and unadjusted) for March was clearly in growth territory.Markit's commentary on US manufacturing was incredibly upbeat. Chris Williamson, Chief Economist, Markit: - “Manufacturers enjoyed another month of strong output and order book growth in March, finishing off the best quarter for two years. The sector will have provided a firm boost to the economy in the first quarter, with output possibly growing by as much as 2% (roughly 8% annualised) compared to the final quarter of last year. The Institute for Supply Management (ISM) however published a rather different report. LA Times: - Growth in the crucial manufacturing sector unexpectedly slowed in March as companies reported fewer new orders and less production compared with the previous month.  The Institute for Supply Management's widely watched purchasing managers index dropped to 51.3 last month compared with 54.2 in February. The reading came in below analyst expectations of about 54.

Vital Signs Chart: Manufacturing Hiring Picks Up - Manufacturers picked up the pace of their hiring last month. An index of employment issued by the Institute for Supply Management rose to a 54.2 level in March from 52.6 in February. Readings above 50 indicate expansion. The March reading is the employment measure’s highest point reached since June. However, it is still below the 55.6 level notched one year ago.

U.S. Light Vehicle Sales decreased to 15.3 million annual rate in March - Based on an estimate from AutoData Corp, light vehicle sales were at a 15.27 million SAAR in March. That is up 8% from March 2012, and down slightly from the sales rate last month. This was below the consensus forecast of 15.4 million SAAR (seasonally adjusted annual rate). This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for March (red, light vehicle sales of 15.27 million SAAR from AutoData).This is a solid start to the new year.    After three consecutive years of double digit auto sales growth, the growth rate will probably slow in 2013 - but this will still be another positive year for the auto industry. Even if sales average the Q1 rate all year, Total sales would be up about 6% from 2012. The second graph shows light vehicle sales since the BEA started keeping data in 1967.

America the Innovative? - NYT  - CONGRESS might be at loggerheads, the unemployment rate might be too high and America’s infrastructure might be crumbling — but Americans of all political viewpoints comfort themselves with the notion that at least they lead the world in high technology and always will.  It’s a pleasing, convenient idea. China can’t outrun the United States, because it’s not creative enough. It’s authoritarian. Democracy is central to innovation, according to this comforting scenario.  Although America has accounted for a sizable share of all technological innovations that have shaped our modern world, the wider historical evidence is disappointing for anyone who thinks political freedom is a fundamental precondition for innovation.

What Happened to the Internet Productivity Miracle? - Back in the late nineteen-nineties, there was a lot of optimism about the future, and it wasn’t all emanating from those lucky souls who had gotten in early on the I.P.O.s of companies like Yahoo and Amazon. Many economists, with Alan Greenspan prominent amongst them, believed that over time the heavy investments in new information and communication technologies (I.C.T.) that companies were making would lead to rapid growth in productivity and wages. There was much discussion of a third industrial revolution, with the Internet playing the role that the steam engine played in the early nineteenth century and electricity played in the late nineteenth and early twentieth centuries.

Service Sector Expansion Slows - The U.S. nonmanufacturing sector downshifted in March and employment slowed as well, according to data released Wednesday by the Institute for Supply Management. The ISM’s nonmanufacturing purchasing managers’ index slowed to 54.4 in March from 56.0 in February. The March rading was the lowest level since August 2012. Forecasters surveyed by Dow Jones Newswires expected last month’s PMI to be little changed at 55.8. Readings above 50 indicate activity is expanding.

ISM Non-Manufacturing Index indicates slower expansion in March - The March ISM Non-manufacturing index was at 54.4%, down from 56.0% in February. The employment index decreased in March to 53.3%, down from 57.2% in February. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: March 2013 Non-Manufacturing ISM Report On Business® Economic activity in the non-manufacturing sector grew in March for the 39th consecutive month, "The NMI™ registered 54.4 percent in March, 1.6 percentage points lower than the 56 percent registered in February. This indicates continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 56.5 percent, which is 0.4 percentage point lower than the 56.9 percent reported in February, reflecting growth for the 44th consecutive month. The New Orders Index decreased by 3.6 percentage points to 54.6 percent, and the Employment Index decreased 3.9 percentage points to 53.3 percent, indicating growth in employment for the eighth consecutive month. The Prices Index decreased 5.8 percentage points to 55.9 percent, indicating prices increased at a slower rate in March when compared to February. According to the NMI™, 15 non-manufacturing industries reported growth in March. This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. This was below the consensus forecast of 56.0% and indicates slower expansion in March than in February

ISM Non-Manufacturing Business Report: Slower Growth in March - Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 54.4 percent, signaling slower growth than last month's 56 percent. The consensus was for 55.5 percent.Here is the report summary: The NMI™ registered 54.4 percent in March, 1.6 percentage points lower than the 56 percent registered in February. This indicates continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 56.5 percent, which is 0.4 percentage point lower than the 56.9 percent reported in February, reflecting growth for the 44th consecutive month. The New Orders Index decreased by 3.6 percentage points to 54.6 percent, and the Employment Index decreased 3.9 percentage points to 53.3 percent, indicating growth in employment for the eighth consecutive month. The Prices Index decreased 5.8 percentage points to 55.9 percent, indicating prices increased at a slower rate in March when compared to February. According to the NMI™, 15 non-manufacturing industries reported growth in March. The majority of respondents' comments continue to be positive about business conditions; however, there is an underlying concern regarding the uncertainty of the future economy.

Non-Manufacturing ISM Joins All Other Economic Misses, Prints At Lowest Since August, Biggest Miss In A Year - Chicago PMI, manufacturing ISM, ADP and now Non-manufacturing ISM. If you said all big misses, give yourself a pat on the back. Because in the New Normal, the recovery apparently goes backward and downward especially when funded by what is now some $400 billion in QEternity. Despite expectations of a modest decline from 56.0 in February to just 55.5, the March Services ISM dropped to 54.4, the lowest since August, and the biggest miss in one year, with the critical New Orders components declining by 3.6 to 54.6, Employment down by 3.9 to 53.3 - the lowest since November, and Exports down 4 with imports up 5 surely doing miracles for GDP. Why the big miss? Three reasons: the post Sandy rebuilding effort is over; the abnormally strong winter seasonal adjustments have phased out and now is the time to pay the piper, and of course, the complete collapse in global trade as we have been hammering for the past year, now that Europe is in the worst depression since the 19th century. But don't worry: there is a POMO for that, and for everything else to give the impression that just because the Bad Bank formerly known as the Fed will onboard every piece of toxic garbage that is not nailed down, one can safely ignore reality for ever and ever.

Vital Signs Chart: Slowing Nonmanufacturing Growth - The pace of growth in U.S. businesses outside the manufacturing sector slowed in March from February. The Nonmanufacturing Index slipped last month to 54.4 from 56 in February; readings above 50 indicate expansion. Inside the March report, new orders and employment were among the areas where growth slowed. February’s Manufacturing Index also showed a deceleration.

U.S. Service Firms Grow More Slowly, Hiring Weakens - Two reports Wednesday showed that U.S. service companies grew more slowly in March and private employers pulled back on hiring. The declines suggest businesses may have grown more cautious last month after federal spending cuts took effect. The Institute for Supply Management said that its index of non-manufacturing activity fell to 54.4 last month. That’s down from 56 in February and the lowest in seven months. Any reading above 50 signals expansion. Slower hiring and a steep drop in new orders drove the index down. A gauge of hiring fell 3.9 points to 53.3, the lowest since November. That means companies kept hiring, just at a slower pace.The ISM report covers companies that employ roughly 90% of the work force. A separate report from payroll processor ADP also pointed to slightly weaker hiring in March. ADP said private employers added 158,000 jobs in March, down from 237,000 the previous month. Construction firms didn’t add any jobs after three months of solid gains.

Weekly Initial Unemployment Claims increase to 385,000 - The DOL reports: In the week ending March 30, the advance figure for seasonally adjusted initial claims was 385,000, an increase of 28,000 from the previous week's unrevised figure of 357,000. The 4-week moving average was 354,250, an increase of 11,250 from the previous week's unrevised average of 343,000.The previous week was unrevised at 357,000. The following graph shows the 4-week moving average of weekly claims since January 2000. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 354,250 - the highest level since February. Weekly claims were above the 350,000 consensus forecast.  Note: This appears to be the beginning of the impact of the "sequestration" budget cuts.

Weekly Unemployment Claims Rise 28,000, Much Higher than Forecast -  The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 385,000 new claims number was a 28,000 increase from the previous week's 357,000. The less volatile and closely watched four-week moving average, which is usually a better indicator of the recent trend, rose by 11,250 to 354,250. Here is the official statement from the Department of Labor: In the week ending March 30, the advance figure for seasonally adjusted initial claims was 385,000, an increase of 28,000 from the previous week's unrevised figure of 357,000. The 4-week moving average was 354,250, an increase of 11,250 from the previous week's unrevised average of 343,000.  The advance seasonally adjusted insured unemployment rate was 2.4 percent for the week ending March 23, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending March 23 was 3,063,000, a decrease of 8,000 from the preceding week's revised level of 3,071,000. The 4-week moving average was 3,067,250, a decrease of 10,500 from the preceding week's revised average of 3,077,750.  Today's seasonally adjusted number was well above the consensus estimate of 345K. 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.

Survey: Private Employers Add 158K Jobs in March - A survey shows U.S. companies added fewer jobs in March compared with the previous month, as construction firms held off on hiring after three months of solid gains. Payroll processor ADP says employers added 158,000 jobs last month, down from February’s gain of 237,000 and January’s 177,000. Construction companies didn’t add any jobs in March, after average monthly gains of 29,000 in the previous three months. The hiring surge during the previous months likely reflected a jump in rebuilding after Superstorm Sandy. The ADP report is derived from actual payroll data and tracks total nonfarm private employment each month.

ADP: Private Employment increased 158,000 in March -- From ADP: Private sector employment increased by 158,000 jobs from February to March, according to the March 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. Revisions to job gains in the two prior months were offsetting; February’s gain of 198,000 jobs was revised up by 39,000 to 237,000, and January’s 215,000 gain was revised down by 38,000 to 177,000...Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth moderated in March. Construction employment gains paused as the rebuilding surge in the wake of Superstorm Sandy ended. Anticipation of Health Care Reform may also be weighing on employment at companies with close to 50 employees. The job market continues to improve, but in fits and starts.” This was below the consensus forecast for 205,000 private sector jobs added in the ADP report. Note:  The BLS reports on Friday, and the consensus is for an increase of 193,000 payroll jobs in March, on a seasonally adjusted (SA) basis.

ADP Employment Report Shows 158,000 Jobs for March 2013 - ADP's proprietary private payrolls jobs report shows a gained of 158,000 private sector jobs for March 2013.  ADP revised February's job figures up by 39,000 to 237 thousand, yet January's tally was revised down by 38,000 to a total of 177 thousand private sector jobs gained for the month.  This report does not include government, or public jobs.  Most of the jobs gains were in the service sector and this month services added 151,000 private sector jobs.  The goods sector added only 7,000 jobs  Professional/business services jobs grew by 39,000 and was the largest growth services sector.  Trade/transportation/utilities showed strong growth again with 22,000 jobs.  Financial activities payrolls increased by 9,000.  According to ADP, the private services sector has added an average of 191,000 jobs per month for Q1 2013. Construction work added zero jobs, and ADP claims this is due to the rebuilding from Hurricane Sandy tapering off in terms of new hires.  From December to February construction added 29,000 private jobs on average.   Manufacturing had a gain of 6,000 jobs, the second month in a row for gains in manufacturing This is the slowest job growth for the private goods sector in six months.  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).

U.S. Private Employment Growth Slowed in March - ADP's data could be showing the effect of a slowdown in post-Hurricane Sandy rebuilding. Mark Zandi discusses with CNBC.

Can Anyone Predict Jobs Numbers? - Economists, of course, long have published their forecasts for the change in nonfarm payrolls. But a spate of nongovernment reports also try to capture the monthly change in jobs. The Labor Department‘s employment situation report, usually released the first Friday of the month, long has been the biggest market-moving report in the U.S. data set. What makes the employment report more important right now is that the Federal Reserve has tied its future policy decisions to a U.S. labor market outlook that “has improved substantially.” The sooner Fed officials believe the job markets have turned for the better, the quicker they will discuss tapering off their accommodative monetary policy. The most widely followed private job report comes from payroll processor Automatic Data Processing. On Wednesday ADP said the private sector added 158,000 jobs in March–less than the 192,000 expected by economists. Another report clamoring for investors’ attention is that from TrimTabs Investment Research. TrimTabs says the U.S. economy, including the government sector, created 156,000 jobs.

U.S. Economy Adds 88,000 Jobs, Rate Drops to 7.6% — U.S. employers added just 88,000 jobs in March, the fewest in nine months and a sharp retreat after a period of strong hiring. The slowdown is a reminder that the job market’s path back to full health will be uneven. The Labor Department said Friday that the unemployment rate dipped to 7.6 percent from 7.7 percent. While that is the lowest rate in four years, it fell last month only because more people stopped looking for work. The government counts people as unemployed only if they are actively looking for a job. The percentage of Americans working or looking for jobs fell to 63.3 percent in March, the lowest in nearly 34 years. The weakness in March may signal that some companies were worried last month about steep government spending cuts that began on March 1. March’s job gains were half the pace of the previous six months, when the economy added an average of 196,000 jobs a month. The drop raises fears that the economy could slow after a showing signs of strengthening over the winter. In fact, the government said hiring was even stronger over the previous two months than estimated last month. February’s job gains were revised to 268,000, up from 236,000. January job growth was 148,000, up from 119,000.

March Employment Report: 88,000 Jobs, 7.6% Unemployment Rate - From the BLSNonfarm payroll employment edged up in March (+88,000), and the unemployment rate was little changed at 7.6 percent, the U.S. Bureau of Labor Statistics reported today. ....The change in total nonfarm payroll employment for January was revised from +119,000 to +148,000, and the change for February was revised from +236,000 to +268,000.The headline number was well below expectations of 193,000 payroll jobs added.  However employment for January and February were revised higher. 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 7.6% from 7.7% in February. The unemployment rate is from the household report and the household report showed a sharp decline in the labor force - and that meant a lower unemployment rate. The labor force (household survey) declined from 155.524 million to 155.028 million - a decline of 496 thousand. The third graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate decreased to 63.3% in March (blue line). This is the percentage of the working age population in the labor force. The Employment-Population ratio was also declined to 58.5% in March (black line). I'll post the 25 to 54 age group employment-population ratio graph later.

Only 88K New Jobs, But Unemployment Rate Falls to 7.6% - Here is the lead paragraph from the Employment Situation Summary released this morning by the Bureau of Labor Statistics, with the bracketed text added by me: Nonfarm payroll employment edged up in March (+88,000), and the unemployment rate was little changed at 7.6 percent, the U.S. Bureau of Labor Statistics reported today [a decrease from 7.7 percent last month]. Employment grew in professional and business services and in health care but declined in retail trade.  Today's nonfarm number is less than half than the consensus, which was for 192K new nonfarm jobs, and the unemployment rate is lower than the forecast that it would remain unchanged at 7.7 percent. The latest number is the lowest since December 2008.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. The second chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. The latest number is 3.0% — down from 3.1% 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 +88,000, Unemployment Rate 7.6%, Household Survey Employment Drops by 206,000 - The surge in employment fueled by part-time jobs and the Obamacare effect may finally be over. Although the establishment survey showed a gain of 88,000 jobs, the household survey, off which the unemployment rate is based, showed a loss of 206,000 jobs. The unemployment rate edged lower by .1% because a whopping 496,000 people dropped out of the labor force. Last month, voluntary part-time employment rose by a reported 446,000. It's plain to see that last month's numbers were a statistical aberration. This was a miserable jobs report from every angle.

  • Payrolls +88,000 - Establishment Survey
  • US Employment -206,000 - Household Survey
  • US Unemployment -290,000 - Household Survey
  • Involuntary Part-Time Work -230,000 - Household Survey;
  • Voluntary Part-Time Work -163,000 - Household Survey
  • Baseline Unemployment Rate -.01 - Household Survey
  • U-6 unemployment -.05 to 13.8% - Household Survey
  • The Civilian Labor Force -496,000 - Household Survey
  • Not in Labor Force +663,000 - Household Survey
  • Participation Rate -.02 to 63.3 - Household Survey

US Payroll Job Growth Slows; Unemployment Rate Drops as Labor Force Shrinks - The U.S. economy created a disappointing 88,000 payroll jobs in March, according to today’s report from the Bureau of Labor Statistics. That was down sharply from the 268,000 gain in February. The unemployment rate fell to 7.6 percent, a new low for the recovery, but even that was largely due to a drop in labor force participation. The bulk of the 88,000 new jobs were created in the private service sector. Professional and business services provided 51,000 jobs, followed by 44,000 in educational and health services. Goods producing industries contributed just 16,000 jobs, mostly in construction. Manufacturing employment fell slightly. Government employment continued its long downward trajectory, led by a loss of 14,000 federal jobs. State government employment gained slightly and local government jobs barely changed.The 88,000 increase in payroll jobs was especially disappointing after the strong growth reported in January and February. The latest report revised job gains upward for both of those months, but the total of 504,000 payroll jobs created in the first quarter of 2013 was still well below the 626,000 for the fourth quarter of 2012. The unemployment rate is based on a separate survey of households that differs from the establishment survey in methodology and includes self-employed and farm workers. The household survey showed a decrease in both the total number of employed workers and the total number of unemployed, accompanied by a drop in the labor force participation rate. The March unemployment rate of 7.6 percent was down by slightly more than a tenth of a percentage point from February’s rate of 7.7 percent.

Another Disappointing Jobs Report - Going into today’s release of the March Jobs report, most analysts expected that we’d see that the economy had added something between 150,000 and 190,000 jobs last month. Partly that was based upon the good-but-not-great job creation numbers we saw for January and February and the signs, from at least some sectors of the economy, that the economic conditions were improving albeit modestly. Surely, though, there were some signs of economic weakness, especially in the retail sector where companies like Wal-Mart reported significantly lower sales figures from a year beforehand. Then, there’s the question of what impact, if any, the sequester, which didn’t actually go into effect until March 1st and hasn’t resulted in significant layoffs to date, would have on the economy. Those are questions that we still don’t know the answer to, but today’s report seems to indicate that the economy remains as generally anemic as it has been for pretty much the entirety of this so-called recovery: Total nonfarm payroll employment edged up in March (+88,000). Over the prior 12 months, employment growth had averaged 169,000 per month. In March, employment increased in professional and business services and in health care, while retail trade employment declined. (See table B-1.) Professional and business services added 51,000 jobs in March. Over the past 12 months, employment in this industry has grown by 533,000. Within professional and business services, accounting and bookkeeping services added 11,000 jobs over the month, and employment continued to trend up in temporary help services and in several other component industries. Job growth in health care continued in March, with a gain of 23,000, similar to the prior 12-month average. Within health care, employment increased by 15,000 in ambulatory health care services, such as home health care, and by 8,000 in hospitals.

Jobs Report: First Reaction - Payrolls were up only 88,000 last month, well below expectations, and while the unemployment rate ticked down to 7.6%, the decline in the jobless rate was due not to job gains, but to people leaving the labor market.  In fact, the share of the population in the workforce—working or looking for work—fell to 63.3%, the lowest level in decades. In other words, a notably weak jobs report.  As usual, we want to be careful not to over-interpret one month’s worth of pretty volatile data.  Still, over the first quarter of the year—thus averaging out some of the statistical noise in the report—payrolls are up 168,000 per month, compared to 209,000 per month in the fourth quarter of 2012. I’ll have more details later, but for now, I’ve gotta say that this deceleration in job growth and deterioration in labor force participation looks a lot like what you’d expect if you hit a still weak recovery with the repeal of the 2% payroll tax break and the sequester (which, as I said yesterday, is probably only a minor factor in these numbers, but will grow as the year progresses). There’s a lot of moving parts in our economy, and the signal-to-noise ratio is never as high as you’d like in these monthly reports.  But this looks to me like a confirmation of the basic truth that policy matters, especially at a time like this.  And from the perspective of a labor market that has yet to reliably show consistent signs of solid gains, we’re simply not making the right policy choices.

Employment Situation - (6 graphs) The headline numbers in the employment report were very weak as payroll employment rose by only 88,000 and the household survey reported a -206,000 drop in employment while the labor force fell by -496,000. The futures markets are reacting very badly. But the workweek expanded and aggregrate hours worked increased 0.3% as compared to 0.5% last month.  Private payrolls grew 96,000 and government employment fell 7,000 implying that the sequester is not yet having a significant impact. After falling to below trend last year hours worked is now back on the 0.2% trend displayed earlier in the cycle. So basically it looks like the headline numbers are overstating the weakness. Average hourly earnings were essentially unchanged last month, but the smoothed data still implies that wage gains have bottomed. Average weekly earnings also still looks like it has bottomed.

Nonfarm Payrolls' Growth Slows Sharply In March - Private payrolls increased by 95,000 in March, but the net gain is the smallest since last June, the Labor Department reports. Today's update represents a sharp slowdown from February's revised 254,000 advance. Even more troubling is the hefty deceleration in the year-over-year trend: private payrolls rose by just under 1.8% for the year through March—the slowest pace in nearly two years. Today's payrolls report raises more questions than it answers, starting with the obvious one: Is the number du jour a warning sign for the economy? It's too early to say for sure, but in the wake of yesterday's discouraging news for weekly jobless claims and the sluggish rate of increase for last month's print on the ISM Manufacturing Index, the March macro profile so far looks mixed. By contrast, February data was relatively strong on a number of fronts. It's anyone's guess how, or if, that tailwind will influence the full boat of March numbers once the final reports are in. Meantime, the state of macro looks wobbly, based on the numbers so far.

The BLS Jobs Report Covering March 2013: Blah Trend Numbers but Some Seasonal Strength Although Not As Good As Previous Years - The short form: In March, in the Household survey, the BLS undercount of those unemployed grew, and the labor force became smaller. It will take 6-12 months to know whether the declines we are seeing in the size of the labor force are cyclical or secular. The adjusted and unadjusted numbers for the labor force showed different pictures. Adjusted (trend line), the labor force fell with employment and unemployment also falling. That is nearly half a million workers left or were defined out of the labor force leaving the mix of the labor force little changed between employed and unemployed, and between full and part time. Unadjusted (where the economy is now), the decline in the labor force was smaller, 215,000 removed from the labor force. And the mix in the labor force was more positive. Employment increased 470,000 and full time employment grew by 605,000. Still while the unadjusted data were showing improvement, the rate of improvement showed some weakness as compared to the trend. Nor is any strength to be found in earnings with wages for all employees marginally increasing and wages for blue collar employees marginally declining. Neither wages nor hours have shown much improvement over the last 12 months. Average weekly hours for all workers still remain below 35, the definition of full time employment.  Differences between the adjusted and unadjusted were reflected as well in my own calculations. Trend unemployment showed some worsening to 12.7% while current unemployment improved to 13.3%. Trend disemployment was unchanged at 17.4% while current disemployment improved to 17.8%.

The best awful employment report I've ever seen - The headlines for most analyses of this morning's employment report are probably going to be very negative, with only 88,000 jobs added. The darned thing is, when you drill down into the internals of the report, many of them had a real positive jump, and are at their best levels ever since the onset of the 2008 recession.  Here's a few items that ought to make you take a bunch of deep breaths:

  • The broad U-6 unemployment rate, that includes discouraged workers, fell a full .5% from 14.3% to 13.8%
  • the index of aggregate hours worked in the economy also surged .3 from 97.9 to 98.2
  • temporary jobs - a leading indicator for jobs overall - increased 20,300
  • construction jobs added 18,000
  • the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - fell by 203,000 to 2,464,000. This may be a new post-recession low. If it isn't, it's close (I'll double check this and update). UPDATE: It's the second best by 11,000. In March 2011, the number was 2,453,000. This is NOT recessionary.
  • January's report was revised up 29,000 to 198,000. February was revised up 32,000 to 268,000. Positive revisions like this happen in recoveries, not at the onset of recessions
  • average hourly earnings increased $.01. While the YoY change declined to +1.8%, when we get the CPI for March we are probably going to find that real, inflation adjusted hourly earnings are the most positive in several years
  • the average workweek increased .1 to 34.6
  • overtime hours increased .1 to 3.4
  • the most commonly reported unemployment rate, U-3, also declined to a new post-recession low of 7.6%

Another Spring Swoon for U.S. Jobs? - video - Employment growth missed expectations in March, raising fears of a stalling recovery. Mark Zandi discusses the data with CNBC.

Latest jobs report an unmitigated disappointment - The startling reality about this month’s lower-than-expected employment report is that the report should not be at all surprising. The U.S. economy added jobs at a slower pace in March than it has in nine months, and the fall in the unemployment rate, to 7.6 percent, was mostly attributable to people giving up their search for work. The 88,000 new jobs created last month undershot the consensus view that the economy would grow by 200,000 jobs, and since the U.S. economy needs about 120,000 new jobs per month just to keep up with population growth, Friday’s report is an unmitigated disappointment. Employment growth was so bad in March because demand has fallen across the economy. When demand for goods and services falls, the demand for labor falls too, and businesses create fewer jobs as a consequence. In March, Congress and the American consumer conspired to create a toxic cocktail for job creation. The simple problem is that Americans are spending less because they’re earning less. It’s hard to convince people they should spend more money when they are earning less of it, and personal disposable income has been on a downward trajectory since mid-2012. Consumer spending habits have followed suit.

The Terrible Unemployment Figures of March 2013 - The BLS employment report shows the official unemployment rate ticked down 0.1 percentage point to 7.6%, but not because people gained employment.   Instead the unemployment rate dropped due to less people participating in the labor market.  The labor participation rate just hit a record low, not seen since May 1979 when many segments of the population was still quite discriminated against in the workforce.   One cannot just blame retiring baby boomers for low labor participation rates  This article overviews and graphs the statistics from the Current Population Survey of the employment report.   Below is a graph of the official unemployment rate. The labor participation rate dropped 0.2 percentage points to 63.3%, mentioned above.   The labor participation rate is at artificial lows, where people needing a job are not being counted.  A drop isn't good actually for it means that those who dropped out of the labor force are staying out of the labor force.  For those claiming the low labor participation rate is just people retired, we proved that false by analyzing labor participation rates by age. The number of employed people now numbers 143,286,000, a -206,000 monthly decline.  We describe here why you shouldn't use the CPS figures on a month to month basis to determine actual job growth.  These are people employed not actual jobs.   In terms of labor flows, the employed has been static for the last six months, a decline of 42,000 employed since October 2012.  From a year ago the employed have risen 1.266 million, but bear in mind the noninstitutional population has also increased by 2.391 million during the same time period.  The statistics from the CPS generally vary widely from month to month.   Below is a graph of the Current Population Survey employed. Those unemployed stands at 11,742,000, a decline of -290,000 from last month.  Below is the change in unemployed and as we can see, this number also swings wildly on a month to month basis. 

Bad News: Broad Unemployment Rate Tumbles - Unemployment rates dropped for the wrong reasons in March. The main U.S. rate ticked down to 7.6%, while a broader rate that includes discouraged workers tumbled 0.5 percentage point to 13.8%. The drop in the main unemployment rate was driven by a huge drop in the number of people in the labor force. 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 unemployment rate is calculated by dividing the number of unemployed by the total number of people in the labor force. This month the number of unemployed dropped by nearly 300,000, but it doesn’t appear that most of them found jobs. That’s because the number of employed people also tumbled by more than 200,000. Both numbers dropped because the total number of people working or looking for work tumbled. The labor force participation rate fell to 63.3%, the lowest level since 1979 when women were still just beginning their move into the labor force. The issue is even starker 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 March, the rate dropped even further than the headline number to its lowest level since 2008. That was due to a huge drop in the number of people working part time but wanting full time work. Meanwhile, the number of marginally attached workers was little changed.

Jobs Report: Winners and Losers - Here are some highlights from the Labor Department’s snapshot of the U.S. jobs market in March. BLEAK: There were few encouraging signs from this report. Employers added just 88,000 jobs in March, roughly a third the level of February’s number and the lowest figure since June 2012. Manufacturers cut jobs. The jobless rate fell for the wrong reasons–people dropped out of the labor market. One silver lining: Job growth in January and February was stronger than initially reported. The number of jobs added in those months was revised up by a combined 61,000. GOVERNMENT CUTS: Governments are continuing to cut. Overall public jobs declined by 7,000. Cuts were steeper at the federal level, which lost 14,000 jobs–mostly at the U.S. Postal Service. Economists have said it’s too early to tell how much the sequester–the across-the-board government spending cuts–is affecting the labor market. But this doesn’t bode well for future growth. RETAIL: Indeed, retailers cut roughly 24,000 positions in March, a potential sign that stores are worried about potential consumer cutbacks. CONSTRUCTION: One bright spot was construction, which added 18,000 jobs in March. The industry has added 169,000 jobs since September, reflecting the stronger housing market.

Employment Report: Bonddad Is Not Pleased - From the BLS: Nonfarm payroll employment edged up in March (+88,000), and the unemployment rate was little changed at 7.6 percent, the U.S. Bureau of Labor Statistics reported today. Employment grew in professional and business services and in health care but declined in retail trade. The headline number is extremely disappointing.  Let's delve into the details, starting with the household survey. There are a few important points here.
1.) The number of employed dropped 206,000.
2.) The participation rate dropped .2%.
3.) The employment/population ratio decreased .1%
4.) The unemployment rate decreased 1%.
With the exception of the unemployment rate, none of these developments is healthy.

The Employment Rate - The government said Friday that 58.5 percent of Americans over the age of 16 had jobs in March. This employment rate has held remarkably steady since 2010, never higher than 58.7 percent or lower than 58.2 percent. . The share of Americans with jobs is still stuck about 5 percentage points lower than before the recession.This may seem surprising. After all, the unemployment rate — the labor market indicator that gets all the attention — has fallen from 9.8 percent to 7.6 percent over the same three-year period. It’s only surprising, however, because people tend to treat the unemployment rate as an inverse of the employment rate. But notice that the two numbers do not sum to 100 percent. About 34 percent of Americans are missing: People who don’t have jobs, and are not actively looking.Some of those people are retired or disabled. Some are stay-at-home parents. And some of them have stopped looking for work because they have given up hope of finding work.  But it is impossible to know how many 66-year-olds would return to work if jobs were available, or how many parents would put children in day care if they could earn enough to cover the cost.  The unemployment rate treats all of these people as invisible. The employment rate treats them all as potential workers. The truth surely lies in between: It has become a little easier, but not much, to find work if you want it.

Payrolls Plunge To 88K, Biggest Miss Since December 2009, Participation Rate At New 30 Year Low - So much for "open-ended QE driven recovery". Moments ago the March Non-farm payroll hit and it was a doozy, printing at 88K, below the lowest forecast of 100K, well below the expected number of 190K, and a tragedy compared to the February revised print of 268K (was 236K). This was the biggest miss to expectations since December 2009 and the worst print since June 2012. The unemployment rate declined to 7.6%, but this was due entirely to the collapse in the labor force participation rate, which declined by 20 bps to 63.3%, a new 30 year low.

Real March Unemployment Rate: 11.6% - Today, we got the laughable news that the unemployment rate declined even as those not in the labor force grew by over 660,000, while the total civilian non-institutional population grew by just 167,000 to 244,995, meaning the actual labor force declined by 496,000. Which is precisely the issue: fudging the labor force participation rate is how the Obama administration has managed to maintain the myth the economy has grown under his leadership for the past 4+ years. It hasn't, and in fact if one renormalizes for the recent long-term average participation rate of 65.8%, one gets a very different number. How different? A difference that is now at a record compared to what is reported. As the chart below shows, a "renormalization" process indicates a massive and record 4% difference between the reported unemployment rate of 7.6%, and what the real unemployment rate is assuming normal growth of the labor force, which in March was 11.6%, up from 11.3% in February, and the highest since August 2012 when it was 11.7%. More importantly, as the real unemployment chart shows, the economy has not improved by one bit since 2009!

People Not In Labor Force Soar By 663,000 To 90 Million, Labor Force Participation Rate At 1979 Levels - Things just keep getting worse for the American worker, and by implication US economy, where as we have shown many times before, it pays just as well to sit back and collect disability and various welfare and entitlement checks, than to work .The best manifestation of this: the number of people not in the labor force which in March soared by a massive 663,000 to a record 90 million Americans who are no longer even looking for work. This was the biggest monthly increase in people dropping out of the labor force since January 2012, when the BLS did its census recast of the labor numbers. And even worse, the labor force participation rate plunged from an already abysmal 63.5% to 63.3% - the lowest since 1979! But at least it helped with the now painfully grotesque propaganda that the US unemployment rate is "improving."

This chart suggests the US labor market might be broken - One striking feature of the March jobs report was the decline (again) in the labor force participation rate. If it had merely held steady from a year ago, the unemployment rate would have been 8.3% rather than 7.6%. So does the decline show a) something structurally wrong with the labor market such as not enough skilled workers, or b) lots of baby boomers heading off to retirement. JPMorgan economist Mike Feroli is beginning to think it’s the former: The decline in labor force participation was experienced across a number of demographic groups. In particular, participation for 25-54 year-olds fell yet again, at odds with the idea that the decline is simply due to the changing age-structure of the population. More distressingly, the aggregate decline occurred after a run of several months of decent job gains, calling into question the notion that an improving labor market will pull back into the labor force those on the sidelines. The idea that labor force participation is structurally or institutionally impaired gains increasing credence with each passing jobs report.

The Fries-With-That Economy - One of the more striking patterns in the recovery has been the fast clip of low-wage job growth. The best example of this is probably in food services and drinking places, which have been adding jobs for 37 consecutive months. (Employment over all has been growing for 30 consecutive months.) Over that time, eating and drinking places have added 856,200 jobs. As a result of all this cumulative hiring, the industry accounted for almost one in 13 of all American jobs in March. That is the highest share it has held.. The average hourly wage in food services and drinking establishments is $11.98, which is about half that for the private sector over all ($23.82 an hour). I should note, by the way, that the National Restaurant Association says its members are still not very upbeat about the future of the economy. And also, the trends in food services growth are still not nearly as impressive as those in health care, which has been growing nonstop in both recession and recovery. Health care employment as a share of total employment is also at its high, at 10.7 percent.

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. 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.

Employment Report Comments and more Graphs - The 88 thousand payroll jobs added in March is from the establishment survey (a survey of businesses for payroll jobs), but the unemployment rate is from the household survey.   To help understand the decline in the unemployment rate, here is some data from the household survey.  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. According to the household survey, the economy lost 206 thousand jobs (the establishment survey is MUCH better for payroll jobs added), and there were 290 thousand fewer people unemployed - so the unemployment rate declined to the lowest level since December 2008.  We'd prefer to see the unemployment rate decline because of more jobs, as opposed to less participation.

Counterparties: The slow March of the recovery - The US economy added just 88,000 jobs in March, which was the lowest monthly job growth since June of last year. We know, of course, that the jobs report is highly subject to revision. But, as Dashiell Bennett points out, that didn’t stop the interpretation. Henry Blodget jokingly blamed the sequester, which still hasn’t fully gone into effect. Others blamed March’s numbers on the payroll tax — or on their political rivals. March’s jobs data sparked a new round of second-guessing the Fed. Neil Irwin calls the report “terrible, horrible, no-good, very bad” and says it may lead the Fed to reconsider its flirtation with ending QE. Jon Hilsenrath agrees about the Fed, noting that “hourly earnings were up just 1.8% from a year earlier, meaning little upward momentum in household purchasing power or inflation”. The markets agreed, with the 10-year Treasury yield falling to 1.6855%, the lowest level of the year. Not everyone saw doom in the BLS figures. Joe Weisenthal calls the data “GREAT” news, based on job growth in key sectors like construction (18,000 jobs) and professional services (54,000 jobs). The Bonddad Blog points to other positives: the broader U6 unemployment rate, which includes people who’ve stopped looking for work, fell, and Americans are working longer hours. The Center on Budget and Policy Priorities notes that, after cutting 718,000 jobs since 2008, states and cities actually added jobs in March.

Sequestration and the Jobs Report -- The March jobs report came in much weaker than expected, with employers adding just 88,000 workers over the course of the month. Did sequestration – the $85 billion in mandatory budget cuts that Congress never managed to unwind, despite promises to the contrary – take a bite? The short answer is no. At least according to the preliminary data, sequestration does not seem to be particularly at fault. Government employment actually climbed during March, if you exclude the Postal Service, which shed nearly 12,000 workers. Economists expect the government ranks to take a hit as agencies and offices carry out their budget cuts before the end of the fiscal year in September. But not yet. The budget cuts formally came into effect on March 1, and many agencies waited to see if Congress might undo them later in the month. Furloughs, layoffs, contract changes and other disruptions have started accumulating, but remain very small at this point. Economists expect the jobs hit from sequestration to be significant, but backloaded toward the end of the year. But another change emanating from Washington seems as if it might be having a serious effect on jobs: the expiration of the payroll tax cut. In January, Congress effectively increased payroll taxes by declining to extend a temporary tax holiday. That wiped out a full year’s worth of wage gains for millions of Americans, and economists expected it to depress consumer sentiment and consumer spending. Lo and behold, the retail sector showed significant weakness in this report, perhaps evidence of families’ having less spending money and cutting back at the mall. Employment dropped by 24,000 positions, with significant declines in clothing stores, garden supply stores and electronic stores.

Did Sequestration Kill The Labor Market Already? - It’s impossible to identify the reasons for such a pronounced drop with any certainty, but several factors may be contributing. Irrespective of the internal figures in the report, it’s important to note that for three years running now, BLS reports have pointed to impressive growth in winter months followed by a steep drop in spring. That trend could be repeating, and it would suggest a miscalibrated seasonal adjustment formula — the mathematical function the labor department uses to present a clearer picture of the labor market, absent predictable hiring trends throughout the year. But real forces might be at play as well. The expiration of the payroll tax cut on January 1 reduced worker paychecks in a highly contractionary way, and the report notes that retail trade lost 24,100 jobs this month, after having gained nearly 40,000 jobs in the previous two months combined. The unusually long winter, likewise, may have delayed spring hiring. And then there’s sequestration, which is expected to be a drag on private sector hiring broadly, such that it’ll be hard to identify its direct private-sector consequences in the payroll reports. However, it should hit public sector hiring in a much more predictable way, and that impact isn’t visible yet — at least not in this initial report.

Don’t Blame Federal Budget Cuts for Weak Jobs, Yet - The March labor-market slowdown may have been caused in part by decisions from Washington. But don’t blame it all on budget cuts, yet. The sequester — federal spending cuts that started March 1 — are likely to depress government payrolls in the coming months.. Hiring freezes have already hit most federal agencies and some job cuts are on the horizon, alongside sweeping furloughs set to begin in the coming weeks. The spending reductions will certainly flow into state and local governments, which get about a quarter of their funding from Washington. But you won’t find much evidence of that in the latest jobs report. The federal government’s civilian workforce fell by just 2,000 in March apart from almost 12,000 cuts at the U.S. Postal Service, which of course has a different set of problems. (Total federal civilian employment is still around 2.8 million.) State-government jobs rose by 9,000 to 5.1 million, the second straight monthly increase. Local-government employment dipped by just 2,000 jobs, sitting around 14 million. If the sequester had an effect, it could’ve been through reduced federal contracting with private companies. But that effect is tough to discern in employment data, even though we know that some defense firms have already cut back. Many contractors show up in the professional and business services sector, which actually was one area that had strong gains in March. Still, other employers, despite the stock market hitting fresh records over the past month, could have been spooked by the risks from Washington as the budget cuts started with no end in sight.

Time to Look Behind the Curtain and See Who is Against Full Employment - Yves Smith - Have you noticed how political leaders are nowhere near as upset about unemployment as they ought to be? Ronald Reagan was far more concerned and took more aggressive measures when unemployment, measured more conservatively than it is now, reached 8% than Obama was when it was languishing over 8%. And now that is has fallen into the 7% range, he’s gone whole hog to implement deficit cuts which are sure to send jobless rates back up.  So what gives? Put crudely, the corporocrats have discovered that if job markets are weak enough, they can keep all the benefits of productivity gains for themselves. The current economic “expansion” has labor getting a vastly lower share of GDP gains than any of its predecessors. Those at the top don’t care, since their incomes continue to pull away from the rest of us. So lousy employment levels aren’t a policy mistake, they are a covert policy aim. Look at how some employers, even now, complain that they can’t find “qualified” workers. If you investigate what is really going on, in the overwhelming majority of cases, they aren’t willing to pay enough to get decent people.  In Back to Full Employment, Michael Sawyer explains that seventy years ago, economist Michal Kalecki described the political dynamics that keep unemployment higher than it needs to be. An economy with high employment levels gives too much power to the wrong people and requires a bigger government sector, which undermines the claims of businessmen that their role is of supreme importance and their pet wishes should therefore take precedence.

BLS Revisions to the Nonfarm Payroll Jobs Report - Last month I posted a commentary on Some Stunning Demographic Trends in Employment. In a footnote I commented on the unreliability of the Bureau of Labor Statistics' employment data for Nonfarm Payroll Employment, which included a link to historic revisions back to 1979 on the BLS website. I subsequently posted a commentary to illustrate the changes. With the release of today's jobs report, we have an additional month of data. My approach is to take the employment numbers since January 2000 and plot the change from the first to third estimate for each month through January 2013, the most recent month for which we have three revisions. During this timeframe there were 91 upward revisions and 63 downward revisions. The absolute mean (average) revision was 46 thousand, which breaks down as 48K for the upward adjustments and 44K for the downward adjustments. Interestingly enough, the direction of revisions was upward during the brief recession of 2001 but downward during the nasty recession from December 2007 to June 2009. The message is clear: Don't take the initial monthly employment jobs data too seriously.

Number of the Week: Youth Unemployment at 22.9%? - 22.9%: The unemployment rate for Americans under age 25, adjusting for the decline in the labor force since the start of the recession. Perhaps no group has been hit harder by the recession and grinding recovery than the young. The official unemployment rate for those under age 25 is 16.2%, more than double the rate for the population as a whole. In percentage terms, unemployment has fallen far more slowly for young people than for the wider population. Those figures actually understate the severity of the problem, however. The government only considers people “unemployed” if they’re actively looking for work. People who stop looking—whether they’re retired, in school, raising a family or living on friends’ couches — are instead considered “not in the labor force,” even if they would prefer to work given the opportunity. When the recession began in December, 2007, 59.2% of the under-25 population was in the labor force, meaning they were either working or looking for work. Today, that figure has fallen to 54.5%.  If the so-called participation rate had remained unchanged, there would be 1.8 million more young people in the labor force today than there actually are. Counting those people as unemployed, rather than out of the labor force, would push the unemployment rate up to 22.9%.

Young Adults Make Up Nearly Half Of America's Unemployed Workforce - The 5.6 million young adults who are willing and able to work but cannot find a job make up 45 percent of America’s unemployed workforce, while another 4.7 million are stuck in part-time jobs when they are seeking full-time employment, according to a new report from Demos. In total, the U.S. needs to add 4.1 million jobs for young workers — ages 18 to 34 — to return to pre-recession levels of employment. While unemployment for ages 18-to-34 is high, it is especially high for workers on the bottom half of that range, as this chart from the Demos report shows: Unemployment is also worse for minority youths — particularly blacks and Latinos — and for young people without a college education. While the unemployment rate is low for young workers with a college degree — 7.7 percent for ages 18-to-24 and 5.1 percent for ages 25-to-34 — it is 10 percent for workers with only a high school diploma and 16.5 percent for workers with less education than that. Worse, young workers are increasingly employed in low-wage sectors. More than 40 percent of workers between ages 18 and 24 work in either retail or food services, both of which are among the lowest-paying sectors in the American economy. College graduates, as recent Labor Department data showed, are increasingly working in low-wage jobs, largely because they have made up a majority of jobs added since the recession ended. One of every four Americans is projected to be working in a low-wage job in a decade.

Wages of young college graduates have failed to grow over the last decade - As we enter college graduation season, attention often turns to the labor market prospects for the young men and women preparing to enter the workforce. We can get a sense of the earnings this new crop of graduates might expect by looking at the wages of young (age 21-24) college graduates. In 2012, young college graduates had an average hourly wage of $16.60 per hour, which translates into an annual income of roughly $34,500 for a full-time, full-year worker. Average hourly wages for young female graduates remain substantially less (12.2 percent) than those of young male graduates. The wages of young college graduates have fared poorly during the Great Recession and its aftermath. Between 2007 and 2012, the wages of young college graduates dropped 7.6 percent (9.4 percent for men and 6.6 percent for women).  As the figure shows, however, the wages of young graduates fared poorly even before the Great Recession began; they saw no growth over the entire period of general wage stagnation that began during the business cycle of 2000–2007. Between 2000 and 2012, the wages of young college graduates decreased 8.5 percent (6.1 percent for men and 10.9 percent for women). These drops translate into substantial amounts of money; for full-time, full-year workers, the hourly wage declines from 2000 to 2012 represent a roughly $3,200 decline.

Rumors of a Cheap-Energy Jobs Boom Remain Just That - Libbey's shares have risen to almost $20 from below $1, sales of its tableware are at a record high, and its energy-intensive factories saved more than $5 million in 2012 as natural gas prices fell. Despite all the upbeat news, however, Libbey recently announced it would lay off 200 workers at its plant in Shreveport, La., and move some production to Mexico as it cuts costs and discontinues several products. Libbey’s decision is just one example of why manufacturing, for all its renewed promise, is likely to fall far short of the claims by industry groups that millions of new factory jobs are about to be created in the United States because of the unlocking of abundant supplies of domestic energy. “Even though the U.S. is more competitive globally, manufacturing doesn’t give you the kind of direct job creation it did in years past,” Indeed, while the sector has added 500,000 jobs since the recession ended and the value of what the nation’s factories churn out is close to a high, there are nonetheless two million fewer manufacturing workers today than in 2007. Ever since the early 1960s, the share of jobs in manufacturing has been on a nearly uninterrupted downward slope, now accounting for less than 9 percent of all employment in the United States.

Massachusetts McDonald's demands bachelors degree and two years' experience for cashiers job - It used to be high school drop outs flipping burgers at McDonald's, now the fast-food joint is demanding a bachelors degree.In a frightening example of how competitive the job market is for young people right now, a McDonald's outpost in Winchedon, Massachusetts, has just posted a call-out for a full time cashier - but insists only college graduates need apply. And even they must have 1-2 years of cashier experience before they'll be trusted with the Big-Mac-selling responsibility, according to the advert.

The thinning out of the labor market middle - The US has gained 387,000 managers and lost almost 2m clerical jobs since 2007, as new technologies replace office workers and plunge the American middle class deeper into crisis. Data from the Bureau of Labour Statistics divide the US workforce into 821 jobs from dishwasher to librarian. They show rapid structural shifts – on top of a cyclical unemployment rate of 7.7 per cent – that may increase income inequality. One probable cause of rising inequality is new computing technologies that destroy some middle-class occupations even as they create jobs for highly skilled workers who can exploit them. The number of clerical workers such as book-keepers, tellers, data entry keyers, file clerks and typists has been falling, pointing to a structural decline. The number of retail cashiers has also dropped – indicating that internet shopping and self-checkout systems may be eroding another occupation. Employment growth came from healthcare, management, computing and food service jobs. The number of personal care aides is up 390,000 since 2007. Demand for people who figure out how to replace clerical workers – such as operations managers, management analysts and logisticians – grew substantially. …But salaries for many of the fast-growing occupations are lower than those they are replacing. The average wage for a clerical job in 2012 was $34,410 compared with $24,550 for a post in personal care. The average computing wage was $80,180 and $108,570 for managers.

Is the Demand for Skill Falling?, by Arnold Kling: Paul Beaudry, et al have a paper with an intriguing abstract, which says in part, Many researchers have documented a strong, ongoing increase in the demand for skills in the decades leading up to 2000. In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow. We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together..

The Economy is “Recovering” By Creating More Low-Wage Jobs… Increasingly Filled By Graduates -  Last month, the Department of Labor released new job market numbers, which suggests that the economic recovery is perpetuating the trend of college graduates turning to minimum wage jobs. Though there has been significant employment gains, many recent college graduates have been forced to resort to low-wage, low-skilled jobs. There are now 13.4 million college graduates working for hourly pay, up 19 percent since the start of the recession. According to the Department of Labor, there are about 284,000 graduates with at least a bachelor’s degree that were working minimum wage jobs in 2012.  In a recent study released by NELP, the National Employment Law Project, the low-wage occupational sector is the fastest growing sector in the economy, even though this sector only lost about one-fifth of its jobs. According to the NELP study:  Lower-wage occupations were 21 percent of recession losses, but 58 percent of recovery growth.  Mid-wage occupations were 60 percent of recession losses, but only 22 percent of recovery growth.  The burden of student loan debt could be one of the driving forces behind this trend. College graduates are turning to low-wage jobs more than ever in order to pay of their high amounts of student loan debt. By working these low-wage jobs, it hinders their ability to overcome this financial burden and plan for the future. Only 9 percent of 29-34 year-olds got a first-time mortgage, according to a recent Federal Reserve survey.

Wages stink at America's most common jobs - Workers in seven of the 10 largest occupations typically earn less than $30,000 a year, according to new data published Friday by the Bureau of Labor Statistics. That's a far cry from the nation's average annual pay of $45,790. Food prep workers are the third most-common job in the U.S., but have the lowest pay, at a mere $18,720 a year for 2012. Cashiers and waiters are also popular professions, but the average pay at these jobs tallies up to less than $21,000 annually. There are 4.3 million retail sales workers out there, making them the most common job, but the position pays only $25,310 for the year.  Among the 10 most popular professions, only the nation's 2.6 million registered nurses earn a good living, bringing home nearly $68,000 a year on average. Another two of the most common jobs -- secretaries and customer service representatives -- have an average annual wage of about $33,000.  Wages have been in the spotlight this year as the debate over income inequality intensified. Middle-class Americans have been losing ground, as median household income dropped by more than $4,000 since 2000.  Part of this decline stems from a disappearance of middle-class jobs and an explosion of lower-paying ones. Some 58% of the jobs created during the recovery have been low-wage positions, according to a 2012 report by the National Employment Law Project. These low-wage jobs had a median hourly wage of $13.83 or less.

The Price Is Wrong, by Paul Krugman --But which price — that is the question. So, start with our big problem, which is mass unemployment. Basic supply and demand analysis says that things like that aren’t supposed to happen: prices are supposed to rise or fall to clear markets. So what’s with this apparent massive and persistent excess supply of labor? In general, market disequilibrium is a sign of prices out of whack; and most people commenting on our mess accept the notion that one or more prices are for some reason not adjusting. The big divide comes over the question of which price is wrong. As I see it, the whole structural/classical/Austrian/supply-side/whatever side of this debate basically believes that the problem lies in the labor market.  For some reason, they would argue, wages are too high given the demand for labor. Some of them accept the notion that it’s because of downward nominal wage rigidity; more, I think, believe that workers are being encouraged to hold out for unsustainable wages by moocher-friendly programs like food stamps, unemployment benefits, disability insurance, and whatever. As regular readers know, I find this prima facie absurd — it’s essentially the claim that soup kitchens caused the Great Depression. But let’s stick with the economic logic for now.

The McJobs Strike Back: Will Fast-Food Workers Ever Get a Living Wage? - Edwin Guzman already lost his job once for union-organizing. But today, he and several hundred fast food workers across New York City are on strike anyway. A few weeks ago, an organizer with the Fast Food Forward campaign, begun by New York Communities for Change (NYCC) and supported by the Service Employees International Union (SEIU) and other labor and community groups walked into the Burger King in Sunset Park, Brooklyn, where Guzman works. He had a petition with him, calling for a raise to $15-an-hour and union recognition for the workers. Guzman and some of his colleagues signed. Not long afterward, he had to take a couple of days off for a court date--he was being evicted from his apartment, in part because of his steadily decreasing hours and low pay at his job. Like most of the city's fast food workers, he makes just $7.25 an hour and struggles with irregular scheduling. When he returned to work, his supervisor called him in to talk. "He told me he had to let me go," Guzman explained. "He felt like I disrespected him. He felt violated that I signed the petition."

Fox News tells striking workers to get two jobs and ‘expect to get paid the minimum wage’ - The hosts of Fox & Friends on Friday suggested that fast food workers should stop striking for higher pay and get a second job because the minimum wage “was never meant to be a career wage.” On Thursday, hundreds of restaurant workers in New York City went on strike to demand a wage of at least $15 an hour. The current median wage of $9 an hour puts workers at about $4,500 lower that the poverty threshold of $23,000 for a family of four. The current minimum wage in New York City is $7.25. “Here’s the deal, you’re a minimum wage worker, that’s an entry-level salary,” Fox News host Brian Kilmeade opined on Friday. “If you’re good, you’ll get a raise.”“Minimum wage was never meant to be a career wage. If you work hard you will get higher — you will get more money. Here’s the other thing, as hard as it is in some cases, because you are a single mom or a single dad, you’ve got to get another job. You’ve got to get another job on top of that so you have two incomes.”

Exclusive: Wal-Mart may get customers to deliver packages to online buyers (Reuters) - Wal-Mart Stores Inc is considering a radical plan to have store customers deliver packages to online buyers, a new twist on speedier delivery services that the company hopes will enable it to better compete with Inc. Tapping customers to deliver goods would put the world's largest retailer squarely in middle of a new phenomenon sometimes known as "crowd-sourcing," or the "sharing economy." A plethora of start-ups now help people make money by renting out a spare room, a car, or even a cocktail dress, and Wal-Mart would in effect be inviting people to rent out space in their vehicle and their willingness to deliver packages to others. Such an effort would, however, face numerous legal, regulatory and privacy obstacles, and Wal-Mart executives said it was at an early planning stage. Wal-Mart is making a big push to ship online orders directly from stores, hoping to cut transportation costs and gain an edge over Amazon and other online retailers, which have no physical store locations. Wal-Mart does this at 25 stores currently, but plans to double that to 50 this year and could expand the program to hundreds of stores in the future.

Walmart Strains to Keep Aisles Stocked Fresh - Walmart, the nation’s largest retailer and grocer, has cut so many employees that it no longer has enough workers to stock its shelves properly, according to some employees and industry analysts. Internal notes from a March meeting of top Walmart managers show the company grappling with low customer confidence in its produce and poor quality. “Lose Trust,” reads one note, “Don’t have items they are looking for — can’t find it.” Walmart is addressing the grocery concerns with measures like a new inventory system and signs that will help employees figure out what is fresh and what is not, Jack L. Sinclair, Walmart United States executive vice president for food, said in an interview. Brooke Buchanan, a company spokeswoman, said Walmart felt its stores were fully staffed. Before the recession, at the start of 2007, Walmart had an average of 338 employees per store at its United States stores and Sam’s Club locations. Now, it has 281 per store, having cut the number of United States employees while adding hundreds of stores. “In its larger supercenter stores, Walmart can’t keep the shelves stocked, and that is driving customers away,”

Wal-Mart Customers Complain Bare Shelves Are Widespread - More than 1,000 e-mailed complaints signal that Wal-Mart Stores Inc.’s (WMT) restocking challenges are more widespread than the world’s largest retailer has said. Wal-Mart customers from Hawaii to Florida and from Texas to Vermont wrote to express their frustration after Bloomberg News reported March 26 that there aren’t enough workers in the stores to keep shelves stocked, cash registers manned and shoppers’ questions answered. In response to the original article, Brooke Buchanan, a Wal-Mart spokeswoman, said in part: “The premise of this story, which is based on the comments of a handful of people, is inaccurate and not representative of what is happening in our stores across the country.” The e-mails began arriving shortly after the article was published and were still coming a week later. Most were from previously loyal Wal-Mart customers befuddled by what had happened to service at a company they’d once admired for its low prices and wide assortment. Many said they were paying more and driving farther to avoid the local Wal-Mart.

The Walmartization of the American food chain is making communities poor and poorly fed -Walmart doesn't just hurt the people who work in its stores and supply chain. It and a few other companies are consolidating control of the entire American food chain, hurting small farmers and food producers, other grocery stores and their workers, consumers, and local economies. Stacy Mitchell of the Institute for Local Self-Reliance shows how Walmart's death grip on groceries expands well beyond the people who actually go into the stores to work or shop:

  • Walmart has a 25 percent share of the grocery market; back in the 1940s, A&P never got above a 12 percent share because of an antitrust case. But there's no serious threat of an antitrust case against Walmart.
  • Walmart talks about buying local, but that mostly means buying from big producers in the same state, not buying from small farmers in the immediate community. And it's not just Walmart squeezing those small producers: Four meatpackers slaughter 85 percent of the nation's beef.  One dairy company handles 40 percent of our milk, including 70 percent of the milk produced in New England.  With fewer buyers, farmers are struggling to get a fair price. Between 1995 and 2009, farmers saw their share of each consumer dollar spent on beef fall from 59 to 42 cents. Their cut of the consumer milk dollar likewise fell from 44 to 36 cents.  For pork, it fell from 45 to 25 cents and, for apples, from 29 to 19 cents

More on Devolution and the Walmartization of Our Economy - Yves Smith - A couple of months ago, I wrote about devolution: I think they miss one aspect that may prove to be important, that of how the pursuit of efficiency doesn’t always produce net gains, as economic theory might tell us. The measure of productivity, more stuff per unit input, misses how service/product quality can deteriorate. Some of this is deliberate: But there are other aspects of the downside of the willy-nilly pursuit of efficiency that have become so routine we accept these indignities and often don’t recognize them (such as the widespread implementation of call routing and prompts in place of humans answering phones). The most stunning recent example has proven to be Walmart.  It appears that its answer to every competitive challenge is to cut costs further. It has gone way beyond the point of maximum advantage as a result. It is losing customers to Costco and Target because it has cut staffing so far that even bargain hunting customers find checkout lines to be intolerably long; they’d rather pay a smidge more to be spared the nuisance. And even worse, they can’t even keep shelves stocked, and other customers leave in frustration. From Bloomberg: “If it’s not on the shelf, I can’t buy it,” she said. “You hate to see a company self-destruct, but there are other places to go.”

The New Social Darwinism: Companies Require Workers to Divulge Health Info so They Can Charge Overweight and Others Deemed Less Healthy -Matt Stoller warned last June that citizens will increasingly have to submit to personal surveillance to get many types of insurance and financial products. He wrote: The main theme of a recent IBM consulting document on the future of the insurance industry is how much more money an insurance company can make if it tracks and tags its customers… It’s not just sensors in your car – insurance companies are modeling tighter and tighter risk chunks. IBM goes on, saying that new products “will facilitate “just-in-time insurance” as a person moves through a set of “spaces.” Each step of the journey represents a different risk such as car-to-train-station, train-to-city-station, station-to- office, and so on. Each leg of the trip truly represents a varying amount of risk.” We are moving towards that future from two separate directions. One from the employer side, where companies are increasingly requiring workers to divulge information about their physical condition, and imposing extra charges, in the form of higher health insurance charges, on ones with conditions deemed to be treatable, like overweight and hypertension. From the Wall Street Journal: Are you a man with a waist measuring 40 inches or more? If you want to work at Michelin North America Inc., that spare tire could cost you. Employees at the tire maker who have high blood pressure or certain size waistlines may have to pay as much as $1,000 more for health-care coverage starting next year

Our Math Deficit Doesn’t Add Up - Here's a story you've probably heard before: General Plastics Manufacturing of Tacoma, Washington, needs factory workers to make foam products. So they give all their applicants a math test that asks them to convert inches to feet, calculate the density of a block of foam, and a few other things: Basic middle school math, right? But what troubles General Plastics executive Eric Hahn is that although the company considers only prospective workers who have a high school education, only one in 10 who take the test pass. And that’s not just bad luck at a single factory or in a single industry. Hahn said that the poor scores on his company’s math test have been evident for the past six years.  OK, now look at the chart on the right. It shows results from the NAEP math test—a national assessment that's generally considered highly reliable—for 17-year-olds. And basically, it shows nothing. If you take a look at the 25th and 50th percentiles, which is where most factory workers come from, scores have been pretty flat for the past two decades. If anything, they're up slightly. So how do we square this with Eric Hahn's contention that General Plastics has had trouble over the past few years finding qualified workers?

Lack of paid sick leave is unhealthy for America - More than 40 million Americans — disproportionately low-income, black and Latino workers — cook, clean, fold, and ring us up without any paid time off when they or their children are ill. On any given day, these workers must choose between caring for a sick child and their job. They handle our food and our purchases, coughing and sniffling through Kleenex, to avoid being handed a pink slip. The absence of paid sick leave is a glaring injustice that puts American workers in the distinguished company of workers in Syria, Somalia and North Korea. It’s an affront to our values and the dignity of a hard day’s work. And it’s a drag on our families, our businesses, and our society. For all the vibrant national debate on work/life balance and encouraging women to “lean in” at their workplace, sometimes we need to make it easier for women and men—for all working adults—to stay home. After all, should catching a cold really mean you could wind up out in the cold?

Men Falling Behind - When any large group of Americans seems to be moving backward over a sustained period of time, it's cause for concern. In Wayward Sons: The Emerging Gender Gap in Labor Markets and Education, a report written for Third Way, David Autor and Melanie Wasserman point out: "Over the last three decades, the labor market trajectory of males in the U.S. has turned downward along four dimensions: skills acquisition; employment rates; occupational stature; and real wage levels." Moreover, Autor and Wasserman argue that these patterns are intertwined through mechanisms that involve marriage decisions and family structure. Educational achievement for men went backward for a time, and has only recently been recovering back toward the levels of the 1960s. Here's a figure showing the pattern for the share of 35 year-olds who have completed a four-year college degree, but similar patterns arise if one looks at completing high school, or completing some college, or other measures of education.

What Immigration Reform Could Mean for American Workers, and Why the AFL-CIO Is Embracing It, by Robert Reich: Their agreement on is very preliminary and hasn’t yet even been blessed by the so-called Gang of Eight Senators working on immigration reform, but the mere fact that AFL-CIO President Richard Trumka and Chamber of Commerce President Thomas J. Donohue agreed on anything is remarkable.   The question is whether it’s a good deal for American workers. It is. The unions don’t want foreign workers to take jobs away from Americans or depress American wages, while business groups obviously want the lowest-priced workers they can get their hands on. So they’ve compromised on a maximum (no more than 20,000 visas in the first year, gradually increasing to no more than 200,000 in the fifth and subsequent years), with the actual number in any year depending on labor market conditions... Priority would be given to occupations where American workers were in short supply.   The foreign workers would have to receive wages at least as high as the typical (“prevailing”) American wage in that occupation, or as high as the prospective employer pays his American workers with similar experience — whichever is higher. The unions hope these safeguards will prevent American workers from losing ground to foreign guest-workers.

US inequality will define the Obama era - Barack Obama has said his biggest goal is to revive the US middle class. “Our country cannot succeed when a shrinking few do very well and a growing many barely make it,” the president said in his inaugural address. It remains to be seen whether higher inequality lowers the US growth rate, as Mr Obama hinted (and some economists fear). The chances are that it does. Either way, Mr Obama has been unable to check America’s most unequal distribution of income since the 1920s. Is it within his means to do so? The tide against him is powerful. For the past three years, Washington has been consumed in fiscal battles. But in his budget launch next week, Mr Obama will have his best chance before the 2014 midterm elections to shift the focus from deficit reduction to broad-based growth – though the two are entirely compatible. The US budget deficit is already on course to fall to about 4 per cent of gross domestic product within five years. And America’s real fiscal challenge will only start to be felt 10 years from now when retirement costs, such as those from the Medicare healthcare programme, begin to rise sharply. It might be a good moment to pivot to today’s problems.

Entrenching inequality - Does inequality feed on itself? Some recent experiments by Jeffrey Butler suggests the answer is: yes. He got subjects to play an urn-guessing game. They were presented with two urns, one with with mostly red balls and another with mostly white, and were asked to guess which of two urns the experimenter was using, based upon seeing one ball drawn. Subjects were split randomly into two groups, one being better paid than the other. Both the low-paid and high-paid groups got roughly the same amount of guesses right.However, when they were asked: are you a better or worse than average guesser? things changed. Whereas 85% of the high-paid group said they were better than average, only 60% of the low-paid group did. Butler says: Inequality undermines the confidence of the disadvantaged and boosts the con dence of the advantaged. This confidence is not just idle talk. In other experiments, Butler found that more confident subjects were more likely to choose to enter winner-take-all tournaments, thus increasing their chances of big payoffs later. This implies that initially arbitrary inequality can become persistent, because it reduces the desire of the worst-off to compete

This American Life Features Error-Riddled Story On Disability And Children - Media Matters -  Public radio program This American Life pushed a series of myths about Supplemental Security Insurance (SSI), a Social Security program that supports families that include children with disabilities. The piece ignored that the recent rise in disability benefits is tied to the recession and higher rates of poverty, that qualifying for benefits is difficult, that SSI encourages employment, and that the current program has significantly reduced poverty among children with disabilities.

Doing infrastructure right - We talked briefly on Friday about President Obama speaking in Miami on the need for infrastructure investments, which was encouraging. Indeed, given all the talk about sequestration and debt reduction, any discussion about job growth is welcome. But over the weekend, I took a closer look at the plan, which the White House calls the "Rebuild America Partnership," and I think it'd be a mistake to just dismiss this as another speech. Congress notwithstanding, Obama's plan is the sort of infrastructure agenda that should, in theory, enjoy broad support.To be sure, the rhetoric is familiar."When you ask companies who brought jobs back to America in the last few years they'll say, if we upgrade our infrastructure, we'll bring even more. So what are we waiting for? There's work to be done; there are workers who are ready to do it. Let's prove to the world there's no better place to do business than right here in the United States of America, and let's get started rebuilding America." But what struck me as noteworthy about Obama's infrastructure agenda is that it's not just about throwing money at the problem. The President is continuing to call for Congress to enact a National Infrastructure Bank capitalized with $10 billion, in order to leverage private and public capital and to invest in a broad range of infrastructure projects of national and regional significance, without earmarks or political influence.

Obama Plans to Sacrifice Ordinary Americans Yet Again in “Public/Private Partnership” Infrastructure Scam - Yves Smith - Some NC readers were correctly alarmed by a speech by Obama on Friday on using public/private partnerships to fund infrastructure spending.  Investors in mature infrastructure deals expect 15% to 20% returns on their investment. And that also includes the payment of all the (considerable) fees and costs of putting these transactions together. The result is tantamount to selling the family china and then renting it back in order to eat. There is no way that adding unnecessary middlemen with high return expectations improves the results to the public. In fact, the evidence is overwhelmingly the reverse: investors jack up usage fees and skimp on maintenance. And their deals are full of sneaky features to guarantee their returns. For instance, Truthout noted:. For example, now when Chicago does street repairs or closes streets for a festival, it must pay the private parking meter contractor for lost meter fares. . Some even require making an existing “competing” road worse. For example, the contract for SR-91 in Southern California prohibited the state from repairing an adjacent public road, creating conditions that put drivers’ safety at risk. A proposed private highway around the northwest part of Denver required that local governments reduce speeds and install speed humps and barriers and narrow lanes on “competing” roads to force drivers to use the privatized road…. Virginia decided to promote carpooling to cut down on pollution, slow highway deterioration and lessen highway and urban congestion. As a result, Virginia must reimburse the private contractor for lost revenues from carpoolers,

Storm drain grates go missing, create safety hazard - Thieves in communities around the USA are stealing metal storm drain grates, costing local governments thousands of dollars and imperiling the safety of motorists, bicyclists and pedestrians. The steel or iron grates, which weigh 200-300 pounds apiece, cover storm drains that are sometimes 4-5 feet wide with a drop of 10 feet or more, says Mark McKinnon of the Georgia Department of Transportation. Authorities here and elsewhere worry that motorists pulling over could damage their vehicles by driving into an uncovered storm drain. Or that someone stopping alongside a highway and getting out of a car, especially at night, could tumble into one."This is a safety issue. When these things turn up missing, we've got to replace them.It's happening in other places, too: In recent weeks, thieves have stolen storm grates from several communities in the Philadelphia area. In New Garden Township, police are investigating the theft of 16 grates, says interim township manager Spencer Andress. "It's a real safety hazard," he says. "There are three other neighboring communities that have experienced this." Factoring in transportation, installation and labor costs, replacing each grate costs $700-$800,

States Propose Crackdowns On Copper Theft - The price of copper remains at near historic highs, and that means so, too, does the amount of copper getting stolen. Everything from telephone wire to plumbing is a target, and lawmakers in nearly half the states are considering legislation aimed at making it harder for thieves to sell the stolen metal. . With thousands of dollars at stake, Rubino says, thieves are taking risks. One of the targets, for example, was a power substation at the end of a remote road. "Even though it says 'High voltage, may cause injury or death,' obviously they were not concerned with that," Rubino says. Police say the thieves who robbed this substation may be responsible for another theft of copper out of air-conditioning units and heat pumps at an office park 10 miles away — and a theft across town at a used car lot. "We've had somebody cut a hole in that fence and then go in and remove radiators from some cars, and catalytic converters," Rubino says.

Philly Fed: State Coincident Indexes increased in 45 States in February - From the Philly FedThe Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for February 2013. In the past month, the indexes increased in 45 states, decreased in three (Alabama, Illinois, and New Mexico), and remained stable in two (Hawaii and Wyoming), for a one-month diffusion index of 84. Over the past three months, the indexes increased in 46 states, decreased in two (Illinois and Wyoming), and remained stable in two (Alaska and Alabama), for a three-month diffusion index of 88. Note: These are coincident indexes constructed from state employment data. This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged). In February, 47 states had increasing activity, down from 45 in January (including minor increases). This measure has been and up down over the last few years since the recovery has been sluggish.  Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession.  The map is mostly green again and suggests that the recovery is geographically widespread

Just Released: February Report Points to Moderate Regional Economic Growth - New York Fed - The February Indexes of Coincident Economic Indicators (CEIs) for New York State, New York City, and New Jersey released today show activity expanding at a moderate pace across the region. Like those for January, the February CEIs incorporate the annual benchmark employment revisions for 2011 and 2012, and reveal that the economies of the region did not go off track as a result of the disruptions caused by Superstorm Sandy. (A recent blog post explores the employment effects of Sandy in the New York City metropolitan area.)   The CEIs reported here are single composite measures designed to provide a monthly reading of economic activity. They are constructed from four data series: payroll employment, the unemployment rate, average weekly hours worked in manufacturing, and real (inflation-adjusted) earnings. Details of the construction of the CEIs can be found in a 1999 article in the Federal Reserve Bank of New York series Current Issues in Economics and Finance; a more recent article in the series illustrates how the CEIs are used to analyze regional economic trends.

Sequestration Effects: Cuts Sting Communities Nationwide: Organizations and companies have begun laying off workers, while many more have decided not to staff vacant positions. Schools on military bases are contemplating four-day weekly schedules. Food pantries have closed, as have centers that provide health services. Farmers have been forced to go without milk production information, causing alarm in the dairy industry and the potential of higher milk prices. Workers at missile-testing fields are facing job losses. Federal courts have closed on Fridays. Public Broadcasting transmitters have been shut down. Even luxury cruises are feeling the pinch, with passengers forced to wait hours before debarking because of delays at Customs and Immigration. Yes, sequestration is creating the possibility of another poop cruise. On the national level, sequestration may be defined by canceled White House tours and long lines at airports that never materialized. But on the local level, it is beginning to sting.

California in the red by $127.2 billion, state auditors say - A financial report issued by state auditors finds that the state of California is in the red by an unsustainable $127.2 billion. The report says that the state’s negative status increased that year, largely because it spent $1.7 billion more than it received in revenues and wound up with an accumulated deficit of just under $23 billion in fiscal year 2011-2012, the Sacramento Bee stated. Gov. Jerry Brown has referred to the deficit and other budget gaps, mostly money owed to schools, as a “wall of debt” totaling more than $30 billion, the Sacramento Bee reported. About half of the deficit came from the state issuing general obligation bonds and then giving the money to local governments and school districts for public works projects. The report listed California’s long-term obligations at $167.9 billion, nearly half of which ($79.9 billion) were in general obligation bonds, with another $30.8 billion in revenue bonds, the Sacramento Bee reported.

Say It With Me: Correlation ≠ Causation - The WSJ recently ran an editorial piece that perfectly exemplified two things:

  1. The (well-known) cognitive biases caused by the politics and intellectual dishonesty of its editorial board
  2. The peril of confusing correlation with causation, which BR has written about countless times*

In a piece titled The Red-State Path to Prosperity, Stephen Moore and Art Laffer argue that metropolitan migration nationwide is going from blue states to red states because “Workers and business owners are responding to clear economic incentives,” i.e. lower tax rates, less regulation, more employer-friendly. They state that: Among the 10 fastest-growing metro areas last year were Raleigh, Austin, Las Vegas, Orlando, Charlotte, Phoenix, Houston, San Antonio and Dallas. All of these are in low-tax, business-friendly red states. Blue-state areas such as Cleveland, Detroit, Buffalo, Providence and Rochester were among the biggest population losers. In an accompanying video, Mary Kissel opens the segment by stating: “So it turns out that tax rates do actually matter, according to the Census Bureau,” at which point she begins a conversation with the aforementioned Art Laffer about what he and Mr. Moore inferred from the data. (Census main page on migration is here.) The simple fact of the matter is that Census Bureau made no such claim; Ms. Kissel is distorting Census data and giving voice to it through the ideological lens of Mssrs. Moore and Laffer.

Report: Ohio Is Illegally Throwing Poor People In Jail For Owing Money - The Americans Civil Liberties Union on Friday revealed that courts in Ohio are illegally throwing poor people in jail for being unable to pay off a debt.  In a report titled, “The Outskirts of Hope,” (PDF) the ACLU shines a light on a harrowing “debtors’ prison” system in Ohio — one that violates both the United States’ and the Ohio constitution. Ohioans are being jailed for “as small as a few hundred dollars,” despite the constitutional violation, and the economic evidence that it costs the state more to pay for their jail sentence than the amount of the debt.  In its report, the ACLU details the stories of several people sent to debtors’ prison. Jack Dawley owed $1,500 in “fines and costs in the Norwalk Municipal Court,” and was behind on child support payments, leading the Ohio courts to send him to prison in Wisconsin for 3 and a half years. He still struggles with trying to repay the fines. Another victim of the system, single mother Tricia Metcalf, was taken to jail each and every time she wasn’t able to make her $50-a-month payments on fines for writing bad checks. Megan Sharp, whose husband is currently in jail on overdue fines, was unable to pay $300 in fines for driving on a suspended license and went to jail for 10 days. When she got out, she owed $200 more on top of the original amount. Both she and her husband are unemployed.

Most Americans think teen pregnancy is getting worse. Most Americans are wrong. - Teen births and pregnancies have plummeted over the past two decades, down 42 percent from 1990. Most Americans, it turns out, have no idea that we’re actually in the midst of a big public health success story. In a new survey from the National Campaign to Prevent Teen and Unplanned Pregnancy,  50 percent thought the teen pregnancy rate had gone up over that period.   Eighteen percent correctly answered that it has declined.

Tennessee Advances Legislation That Would Tie Welfare To Children’s Grades - Two Tennessee lawmakers introduced legislation that would tie welfare assistance under the Temporary Assistance for Needy Families program to the educational performance of students who benefit from it, and the legislation was approved by committees in both the state House and Senate last week. Under the legislation brought by two Republicans, a student who doesn’t not make “satisfactory progress” in school would cost his or her family up to 30 percent of its welfare assistance, the Knoxville News and Sentinel reported: The bill is sponsored by Sen. Stacey Campfield, R-Knoxville, and Rep. Vance Dennis, R-Savannah. It calls for a 30 percent reduction in Temporary Assistance for Needy Families benefits to parents whose children are not making satisfactory progress in school. As amended, it would not apply when a child has a handicap or learning disability or when the parent takes steps to try improving the youngster’s school performance — such as signing up for a “parenting class,” arranging a tutoring program or attending a parent-teacher conference.

Tennessee Republicans threaten to kill GOP voucher bill over fear of funding Muslim schools - Republican lawmakers in Tennessee are threatening to block Republican Gov. Bill Haslam’s school voucher bill over fears that Muslim schools could receive funding. The Knoxville News Sentinel reported on Monday that Haslam hinted that he would withdraw his bill after objections from Republican lawmakers that it was not broad enough and that the vouchers could be used by Islamic schools. Over the weekend, state Sen. Jim Tracy (R) had told The Murfreesboro Post that he had “considerable concern” that tax dollars could go to schools that teach principles from the Quran. Tracy, who is on the Senate Education Committee and identifies himself as a member of the Church of Christ, insisted that Islamic school funding was an “an issue we must address” before the voucher bill can go forward.

School forces 25 hungry students to throw away lunches when they couldn’t pay - A group Massachusetts parents are outraged and at least one worker has been placed on administrative leave after about 25 students Robert J. Coelho Middle School in Attleboro were forced to throw away their lunches over concerns that they could not pay for the food.  Parents said that some students cried and went home hungry. School officials told The Sun Chronicle that Whitson’s, the contractor responsible for providing lunches, made the decision to stop students from eating their lunch if there was not enough credit in the student’s pre-paid account or they were not able to provide cash for the meal.

Sequester in Action: Head Start Cuts - The furloughs haven’t much phased in yet, and the economy doesn’t show obvious signs of sequester drag yet.  It’s early, however, and anecdotal signs of trouble (brown shoots?) are showing up, like this one from an Indiana paper (h/t: SP). At least two Indiana Head Start programs have resorted to a random drawing to determine which three-dozen preschool students will be removed from the education program for low-income families, a move officials said was necessary to limit the impact of mandatory across-the-board federal spending cuts. Got that?  A lottery to see who gets kicked out of preschool?  That’s how we’re building the future?  Really?  That’s a better way forward than closing the carried interest loophole or lowering the housing subsidy to the most affluent homebuyers?

Investments in Education May Be Misdirected - James Heckman is one of the nation’s top economists studying human development. Thirteen years ago, he shared the Nobel for economics. In February, he stood before the annual meeting of the Nebraska Chamber of Commerce and Industry, showed the assembled business executives a chart, and demolished the United States’ entire approach to education.The chart showed the results of cognitive tests that were first performed in the 1980s on several hundred low-birthweight 3-year-olds, who were then retested at ages 5, 8 and 18. Children of mothers who had graduated from college scored much higher at age 3 than those whose mothers had dropped out of high school, proof of the advantage for young children of living in rich, stimulating environments. More surprising is that the difference in cognitive performance was just as big at age 18 as it had been at age 3. “The gap is there before kids walk into kindergarten,” Mr. Heckman told me. “School neither increases nor reduces it.” If education is supposed to help redress inequities at birth and improve the lot of disadvantaged children as they grow up, it is not doing its job.

Tuition remission...okay, now what? - Tuition is only $1747 a year.  But then comes the other part...austerity budgets and as state support dwindles, one aspect is that creative cost shifting flourishes.  The tripling of student debt since 2004 are discussed here. And graduation rates remain flat. From the chart provided at Umass Amherst bursar's office per semester costs are shown, excluding room and board, which is worth a different post as to how that impacts which colleges are chosen.  Pro Publica Hidden charges and tuition for college. U.S. Department of Education data shows that in more than half the states across the country, degree-granting institutions reported that fees comprised a greater portion of combined tuition and fees in the 2010-2011 school year than they had in 2008-2009. But fees for specific programs and courses typically get left out of that data. The same goes for fees that apply to specific pockets of students, such as honors students or international students.

College Grads Earn Nearly Three Times More Than High School Dropouts - By some measures, nearly 50% of working college grads are in jobs that don’t require a college degree — but for most people that diploma does pay, eventually. The U.S. Census Bureau on Tuesday said the typical American with a college degree earned $11,749 in the final three months of 2011 — the latest data available. That’s nearly three times more than the $4,026 earned by the typical American who didn’t graduate from high school. This education premium was even higher for those with a post-graduate degree: Their median earnings — the level at which 50% are above and 50% are below — was $15,733 in the fourth quarter of 2011. The value of a college education has come into doubt thanks to rising tuition costs, ballooning student-loan debt, high unemployment and a sluggish economy that’s keeping millions of college-educated Americans in jobs that don’t require their education. As the Journal has reported, new research suggests the job opportunities of college-educated Americans may not improve much even when the economy rebounds. Still, the hard numbers show Americans with higher levels of education tend to benefit long-term — and that the U.S. is struggling with a divide not just of income but of education. The unemployment rate for Americans 25 years and older with a Bachelor’s degree was 3.8% in February, far below the nation’s overall 7.7% rate. The jobless rate for people without a high-school diploma? 11.2%. High-school graduates without college faced a 7.9% rate.

284,000 College Graduates Had Minimum-Wage Jobs Last Year - About 284,000 Americans with college degrees were working minimum wage jobs last year, according to the Wall Street Journal. That’s 70 percent more college grads working for the minimum wage than 10 years ago. Still, the number is down from its 2010 high of 327,000.  As unemployment skyrocketed during the economic downturn, job opportunities for everyone -- including college graduates -- narrowed and low-wage work began to replace steady middle-class jobs. Three-fifths of the jobs lost during the recession paid middle-income wages, while the same share of the jobs created during the recovery are low-wage work, according to an August study from the National Employment Law Project.  The result: Nearly half of the college graduates in the class of 2010 are working in jobs that don’t require a bachelor’s degree and 38 percent have jobs that don’t even require a high school diploma, according to a January report from the Center for College Affordability and Productivity. The report called into question whether too much public money is being spent on providing students with degrees that make them overqualified for the only jobs that are available.

Surging Student-Loan Debt Is Crushing the System: Student-loan defaults surged in the first three months of 2013, while efforts to collect bad loans are faltering, according to credit analysts and government audits. It is the latest twist in a college debt crisis that is hanging over recent graduates and dragging on the broader economy. Credit-rating firm Equifax said $3.5 billion in government and private student loans went bad in the first three months of 2013, the most since the company began keeping track. The U.S. Department of Education said 6.8 million federal student loan borrowers are now in default, representing $85 billion in debt. And the department's systems for collecting the bad loans are struggling to keep up. The Department's Office of Inspector General found in December that more than $1.1 billion in defaulted student loans were stuck in a sort of computer limbo. "The Department is not pursuing collection remedies and borrowers are unable to take steps to remove their loans from default status," wrote Assistant Inspector General for Audit Patrick Howard in the December 13 report, which blames a system installed in 2011 by Xerox that is supposed to transfer defaulted loan accounts from servicing companies to private collection agencies. Those collection firms have considerable power, including the ability to garnish up to 15 percent of a borrower's wages. But none of that can happen until the accounts are transferred.

Memo to Employers: Stop Wasting Your Employees’ Money - The general problem is one I’ve touched on several times: many Americans are woefully underprepared for retirement, in part because of a deeply flawed “system” of employment-based retirement plans that shifts risk onto individuals and brings out the worse of everyone’s behavioral irrationalities. The specific problem I address in the article is the fact that most defined-contribution retirement plans (of which the 401(k) is the most prominent example) are stocked with expensive, actively managed mutual funds that, depending on your viewpoint, either (a) logically cannot beat the market on an expected, risk-adjusted basis or (b) overwhelmingly fail to beat the market on a risk-adjusted basis. People in all fields often say that some outcome is bad—here, plan participants pay a weighted average of 74 basis points in expenses for their domestic stock funds, not counting the extra transaction costs incurred by actively managed funds—and say that someone should change the law. In “Improving Retirement Options for Employees, I argue that including actively managed funds, in asset classes where everyone knows that index funds are cheaper and likely to do better than most active funds, may already be against the law (depending on how carefully those funds are selected). In particular, it violates the existing fiduciary duty of employers and plan trustees to invest participants’ money prudently.

Abolish the 401(k) - The real crisis facing current and future retirees in America’s aging society is the failure of the private components of America’s mixed public-and-private retirement system. When Social Security was created in 1935, it was not intended to be the sole source of retirement income for most Americans. It was assumed that employer-provided defined benefit pensions with guaranteed payouts would supplement Social Security checks for many workers after they retired. Unfortunately, employers have been abandoning defined benefit pensions for decades. The number of private sector workers with defined benefit pensions has fallen from around 40 percent in 1980 to a mere 15 percent today. At the same time, among public sector workers, poor management by state governments, combined with years of economic trouble, has created a crisis for public pension systems in many states. In order to save money and shift risks to individual workers, employers in the last generation have been switching from defined benefit plans to defined contribution plans like 401Ks. 401K retirement plans and other defined contribution plans, including individual retirement accounts (IRAs), now cover about 42 percent of the workforce as opposed to only about 17 percent in 1979.

Unfit To Report - Re the Planet Money/This American Life propaganda piece for the financial industry, disguised as highbrow progressive journalism.  The piece was called "Unfit For Work: The Startling Rise of Disability in America" and it essentially argued — using wildly flawed research and straight-up lies — that our Social Security program is burdened by a glut of freeloader disability queens, faking their disabilities in order to live high on the Social Security disability insurance hog.  Why would NPR run such a flawed, biased story? The answer takes us right to the heart of Wall Street’s plans to privatize government benefits, which Wall Street bond holders want to slash for their own profits. This battle pits powerful Wall Street interests and their media and political lackeys on the one side, versus an overwhelming majority of Americans — Republicans and Democrats both — on the other. In the middle stands a radio piece from a trusted source, NPR/This American Life/Planet Money, telling its progressive, educated audience that there is in fact a problem with Social Security, and that problem is a bunch of human parasites faking disability to suckle from the Social Security teat.

Social Security, Present and Future - NYTimes editorial board - In the fight over the federal budget deficit, Social Security has so far been untouched. That may soon change. In last year’s “fiscal cliff” debate, President Obama offered to reduce the annual cost-of-living adjustment, or COLA, for Social Security benefits, a spending cut favored by Republicans and scorned by Democrats. Republicans rejected the offer because Mr. Obama wanted tax increases in exchange, while Democrats said it would be too harmful. More recently, Senate Democrats did not include Social Security reforms in their budget and specifically rejected a COLA cut. The House Republican budget also steered clear of explicit cuts to Social Security, a move partly aimed at isolating Mr. Obama. The question now is whether Mr. Obama will again propose to cut the COLA when he unveils his budget next week. We think he should not do so. The president might want to seem like he is willing to compromise by renewing his call for a COLA cut. But Republicans already spurned his offer and are unlikely to take him up on it now. They are more likely to paint him as a foe of Social Security, which would be reinforced by Democrats’ opposition to the cut.

Like Nixon to China, It Takes a Democrat to Put the First Knife in Social Security -Bottom line first, since this is turning long. For the owners of the country (and their paid national managers), the real emergency associated with Social Security isn’t the day the last dollar will leave the Trust Fund. It’s the day the first dollar will leave. That’s a whole different problem, and a whole different timeline, for them.  I’ve written about Obama’s (and neoliberalism’s) four big economic goals for his two tours of duty. For me, they are:

  1. Health care “reform” — a privatized alternative to Medicare expansion [done]
  2. A “grand bargain” in which social insurance benefits are rolled back [in work]
  3. Plentiful oil & gas and passage of the Keystone Sludgepipe (KXL pipeline) [in work]
  4. Passage of the Trans-Pacific Partnership (TPP) trade agreement [in work]

One of them doesn’t look like the others — item 2. You can see the obvious benefit to billionaires and owners of the political system of a public-private health care “partnership” that enriches insurance and Pharma CEOs (item 1). On the oil front, Keystone will make David Koch and the other carbon lords even wealthier, and plentiful oil will extend the carbon regime from which so much wealth is extracted (“drilled”) out of the economy (item 3). Finally, TPP is just a geo-political wet dream for corps and their CEO owners, a one-stop international treaty that would elevate corporate power above sovereign power everywhere it’s implemented. New World Order indeed (item 4).

Obama and social safety nets - There is a lot of posting on the proposed budget (out next week) from our President focusing on his insistence of including the cuts to Social Security benefits as part of the 11 dimensional chess game analogy Beltway convention likes to applaud. How clever of them. Yves Smith gives us an impassioned declaration of outrage over the 'chained cpi' proposal our President insists on proposing as part of a grand bargain that is sold as a benefit to all Americans.   Angry Bear certainly has many, many posts on the state of health of the Social Security program and reasonable alternatives if you care to tackle why we say it is healthy. I happen to have the opinion the fixing is a preferred policy action by the President and not so much a political strategy.  However, here is Linda Beale's take on the issueObama not standing up to radical right attempting to undo America's Social Insurance ProgramObama seemed to get a spine for a brief time around the State of the Union address. But he just can't seem to maintain a strong progressive position--too easily swayed by the Wall Street bunch that run his Treasury or just not understanding what is required to keep his base voting for him. If he treats Social Security--which doesn't have anything to do with the deficit--as one of the cards he can "trade" to the right-wing Republican crowd for some kind of a "grand deal" (of undefined necessity), he will destroy the gains of Roosevelt's New Deal for petty concessions from the entrenched GOP that intends to dismantle the New Deal.

The case for expanding Social Security, not cutting it - Nowadays, whenever Social Security comes up in policy debates around Washington, the discussion often focuses on how best to cut benefits in order to shore up the program’s finances. But a big new report (pdf) from the New America Foundation suggests that the conventional wisdom is exactly backward. Congress should be looking at ways to expand Social Security, not shrink it — particularly at a time when traditional corporate pensions are disappearing, and 401(k)s have proved fairly risky. The major proposal in the report is to add a brand new benefit to Social Security, called Part B, which would provide a flat $11,699 per year to all retired workers. This would come on top of regular Social Security, which would also be protected from any further cuts.

White House Trial-Balloons Medicare Cost Increases - In the New York Times, anonymous sources representing the White House offered the following trial-balloons: Mr. Obama would apply any changes only to people becoming eligible for Medicare after 2016. So far, the changes the president has proposed do not go as far as a single deductible and a cap on catastrophic costs. Instead, Mr. Obama has called for increasing the Part B deductible, which has risen much less than medical costs. He also proposed that beneficiaries pay something for home health care, which is among Medicare’s fastest-growing and most fraud-prone expenses; people just released from the hospital would be exempted. Third, Mr. Obama proposed a 15 percent surcharge on Medigap plans that cover all or nearly all of a beneficiary’s initial annual expenses. Economists say that such coverage leaves beneficiaries insensitive to costs, increasing Medicare’s spending and the premiums beneficiaries pay.” We have seen these recommendations before in 2011, but with more description of why these changes were considered.

The recent boost to Medicare - This was an under-reported story which I missed at first. Sarah Kliff reports: …the Obama administration reversed a proposed 2.3 percent pay cut for private Medicare plans, replacing it with a 3.3 percent raise. For health plans, this was a huge victory. As Citi analyst Carl McDonald put it in a Tuesday note to investors, this was “Armageddon averted.” “The rate adjustment,” McDonald continues, “sends a pretty clear message that CMS has no interest in seeing major disruption in the Medicare Advantage program right now, quieting concerns about a post election desire to rein in enrollment and margins.” Medicare Advantage plans will still get a tiny haircut due to other changes the federal government proposed. The 2.3 percent pay cut that became a 3.3 percent raise was one among a few cuts that the Obama administration had proposed for 2014. Cuts to Medicare Advantage plans mandated in the Affordable Care Act, for example, will still go forward. Overall though, the cuts are way smaller than what the Obama administration initially proposed. McDonald at Citi estimates that Medicare Advantage plans will see a 2 percent rate reduction, compared to 7 percent to 8 percent that analysts predicted with the initial rates. Here is more.  This is but a single data point, but I take it as further evidence that fiscal consolidation cannot easily be done on a dime. 

Cancer clinics are turning away thousands of Medicare patients. Blame the sequester.: Cancer clinics across the country have begun turning away thousands of Medicare patients, blaming the sequester budget cuts. Oncologists say the reduced funding, which took effect for Medicare on April 1, makes it impossible to administer expensive chemotherapy drugs while staying afloat financially. nPatients at these clinics would need to seek treatment elsewhere, such as at hospitals that might not have the capacity to accommodate them. “If we treated the patients receiving the most expensive drugs, we’d be out of business in six months to a year,” “The drugs we’re going to lose money on we’re not going to administer right now.”

Small Companies and the Affordable Care Act - Beginning next year, the Affordable Care Act will penalize employers that fail to offer health insurance to their employees. Because small employers are especially unlikely to offer health insurance (see Table 3 in this paper from the Congressional Budget Office), and large businesses are likely to avoid the penalties because they already offer insurance, the penalties seem like an attack on small business. But the Affordable Care Act simultaneously rewards employees at small companies by heavily subsidizing their purchases of health insurance on the exchanges created by the law. Because employees cannot take the subsidies with them if they switch to a large company offering health insurance, the subsidies are, in effect, subsidies to the small businesses themselves, helping them compete more cheaply in the market for employees.  Employees at the smallest companies, with fewer than 50 employees, are eligible to receive the subsidies, even though their employers are exempt from the penalties.  Indeed, some medium-size businesses that currently offer health insurance say they find the smaller company “penalty plus subsidy” combination attractive and plan to drop their health insurance plans in order to partake in it, too, even though their participation will entail a penalty.

Lobbying Power: Another Reason Insurance Exchanges Fail to Control Cost - Private health insurance exchanges, like those created by the Affordable Care Act or in Medicare Advantage, have historically failed to control cost. Part of the reason is the basic economic issue of individuals lacking real market power and actually choosing the “best” insurance option, which is extremely complicated. Another problem is lobbying related. Whenever you needlessly create private middlemen you also create another layer of lobbyists. You don’t just have providers lobbying for higher prices, you now have private insurances companies lobbying for them as well. Because of their business design these middlemen are even better at lobbying and/or rallying their customers to lobby. This dynamic makes what we have seen happen in Medicare Advantage more likely to occur. From CNN: CMS had initially proposed a 2.3% reduction in what the government pays the insurance companies that provide the plans — a move that would have saved the government money but potentially would cost the public more. However, CMS on Monday announced a 3.3% increase instead. Insurance companies were upset by the proposed cut, and spent the public comment period time lobbying legislators and running ads against it.

Two Big Components of the Affordable Care Act Delayed for a Year - Sen. Maria Cantwell (D-WA) announced that the Obama administration will delay the Federal Basic Health Plan Option (FBHPO) until 2015. Cantwell is responsible for putting the provision into the law. It will allow states to create a program to cover people from 138% to 200% FPL instead of putting them on the new private insurance exchanges. The administration has also delayed implementing the Small Business Health Options Program (SHOP exchanges) for at least a year. From the New York Times: Unable to meet tight deadlines in the new health care law, the Obama administration is delaying parts of a program intended to provide affordable health insurance to small businesses and their employees — a major selling point for the health care legislation. The law calls for a new insurance marketplace specifically for small businesses, starting next year. But in most states, employers will not be able to get what Congress intended: the option to provide workers with a choice of health plans. They will instead be limited to a single plan. Both of these programs were supposed to start in 2014 along with the other coverage expansion provisions. Despite having an incredibly long time to implement the law the administration has failed to have it fully ready on time

Jack-booted Insurance-bringing Thugs - Paul Krugman - Jonathan Chait and Aaron Carroll both have fun with Elizabeth Cheney‘s bonkers op-ed about how Obamacare will destroy our freedom.  As both note, the stirring quote from Ronald Reagan the younger Vader uses comes from the recording he made for Operation Coffee Cup, a 1961 project organized by the AMA to mobilize doctors’ wives and their friends against the looming horror of Medicare, which would clearly turn American into a totalitarian state.  However, neither Chair nor Carroll mention what seems to me to be an obvious parallel, which is with the whole Hayekian notion that the welfare state sets us on the slippery slope to Stalinism. And with Hayek, as with Reagan, the truly amazing thing is that we have people citing as a source of wisdom someone who has been as thoroughly refuted by history as anyone can be. Three generations into the modern welfare state, and western democracies look less Stalinist than ever.  Of course, you can still say that social insurance destroys freedom if you define freedom as the absence of social insurance — which isn’t quite what these guys are doing, but may capture the spirit of the thing.

Supply Chain Problems Hitting Hospitals Near You - Yves Smith - I’ve taken off and on to writing about devolution, which is when the application of new technology winds up not producing net gains, but at best, questionable tradeoffs, and at worst, net negatives. The stealthy “technology” that has been applied across large businesses around the world is the relentless pursuit of efficiency, which too often takes the form of simple-minded cost cutting. It’s not hard to see how this can create all sorts of problems: reduced service levels or product quality leading to customer defections; reductions in investment or maintenance producing catastrophic breakdowns; concentration on a few suppliers to gain more bargaining leverage over them producing vulnerability to problems with those suppliers, whether directly (problems in their operations) or indirectly (changes in shipping, tariffing, or foreign exchange rates making them less attractive, and their size impeding an easy migration to a new source).  Readers have had a bit of schaudenfreude in seeing how Walmart has gotten too clever by half and has squeezed both its workers and staffing levels so much that it is undermining critical store operations to the point where the mainstream media has taken notice. But while Walmart’s tsuris are unlikely to have broad negative social ramifications, that’s not true when drug makers become unduly fixated with their bottom lines. Reader and MD Francois T passed along this sighting from the Denver Post, of hospitals having trouble getting critical medications. The number in scarce supply is 323, the highest level since the database was started in 2001.

A possible fix for that coming US doctor shortage? Disruptive innovation - A Drudge headline right now highlights this medical math: 30 million Americans currently without health insurance will be getting coverage next year. But by 2020, there’s a projected shortage of 45,000 primary care physicians. This seems like a big problem. But there is an obvious solution: Give more autonomy to nurse practioners. As this AARP blog post points out, “the American Association of Nurse Practitioners [have] 43,000 members who say they can offer basic care if state laws would just let them set up an independent practice without doctor supervision.”Clayton Christensen argues that nurse practitioners working in retail clinics — such as those at Walmart, CVS and Target – can offer care as good as or better than what doctor’s offices provide — at about 40% lower cost. And these clinics are already upping their game. Kaiser Health News:Walgreens officials say they will have nurse practitioners and physician assistants at more than 300 Take Care Clinics in 18 states and the District of Columbia to do tests and make diagnoses – and also write prescriptions, refer patients for additional tests and help them manage their conditions.

President Obama Pitches Brain Mapping Project, But Are We Late To The Table? - President Obama has proposed $100 million in federal funding to seed an exhaustive brain mapping initiative similar to the Human Genome Project that mapped all human DNA, officially called  Brain Research through Advancing Innovative Neurotechnologies (BRAIN). He also pointed to the initiative as a major step toward finding cures for diseases such as Alzheimer’s and autism.Aside from these health benefits, Obama said the project will eventually create jobs and drive economic growth. He cited the Human Genome Project, completed in 2003, as proof, claiming it had paid $141 for every dollar invested. Early on, the initiative seems to have bipartisan support. “Mapping the human brain is exactly the type of research we should be funding,” said House Majority Leader Eric Cantor in a public statement. This response sounds promising but one might ask why it has taken the U.S. so long to arrive at a table populated with global superpowers? The European Union, for example, already has a similar initiative up and running called The Human Brain Project, funded with one billion euros (one euro equals roughly $1.28). China may be farther along than Europe or the U.S., with older initiatives such as Brainnetome, and long-standing ties to the U.S.-based Organization for Human Brain Mapping, which held its 2012 Annual Meeting in Beijing. And a number of private companies around the world have already started brain mapping projects..

Obama’s brain mapping project is a good idea. But is he selling it like a sports stadium? - Spending $100 million on a brain mapping project that may, as President Obama said today, “find new ways to treat, cure, and even prevent brain disorders, such as Alzheimer’s disease, epilepsy, and traumatic brain injury” is a no-brainer. That, even if we are starting behind China and Europe. Basic research is something government should do, and $100 million is a pretty small sum. The world’s economy and technology leader should be pushing the frontiers of science. Nobody does it better. But does the White House really need to also justify the paltry investment as if it were a Keynesian stimulus project? The Financial Times: The president also pointed to how the project could stimulate the economy and keep the US competitive in the race for innovation with other countries. “We can’t afford to miss these opportunities while the rest of the world races ahead. We have to seize them. I don’t want the next job – creating discoveries to happen in China or India or Germany; I want them to happen right here, in the United States of America,” he said.

1 in 5 American teenage boys diagnosed with ADHD - Nearly one in five American teenage boys is diagnosed with attention deficit hyperactivity disorder, marking a dramatic rise in the past decade, the New York Times reported on Monday. The condition, for which potent stimulant drugs like Adderal or Ritalin are often prescribed, has been previously estimated to affect three to seven percent of children. The newspaper compiled the data from raw figures provided by the Center for Disease Control and Prevention, which took a phone survey of 76,000 parents from 2011 to 2012. The report said that 15 percent of school-age boys in the United States have received an ADHD diagnosis, compared to seven percent among girls. Among those age 14 to 17, the rate was higher: 19 percent for boys and 10 percent for girls. An estimated 6.4 million children ages 4 through 17 have received an ADHD diagnosis at some point in their lives, a 16 percent increase since 2007 and a 53 percent rise in the past decade, the newspaper said.

Diagnosis: Human - THE news that 11 percent of school-age children now receive a diagnosis of attention deficit hyperactivity disorder — some 6.4 million — gave me a chill. My son David was one of those who received that diagnosis.  In his case, he was in the first grade. Indeed, there were psychiatrists who prescribed medication for him even before they met him. One psychiatrist said he would not even see him until he was medicated. For a year I refused to fill the prescription at the pharmacy. Finally, I relented. And so David went on Ritalin, then Adderall, and other drugs that were said to be helpful in combating the condition.  In another age, David might have been called “rambunctious.” His battery was a little too large for his body. And so he would leap over the couch, spring to reach the ceiling and show an exuberance for life that came in brilliant microbursts.  As a 21-year-old college senior, he was found on the floor of his room, dead from a fatal mix of alcohol and drugs. The date was Oct. 18, 2011.  No one made him take the heroin and alcohol, and yet I cannot help but hold myself and others to account. I had unknowingly colluded with a system that devalues talking therapy and rushes to medicate, inadvertently sending a message that self-medication, too, is perfectly acceptable.

Study: Almost One-Third of Babies Born After Fukushima in Alaska, California, Hawaii, Oregon and Washington Have Thyroid Problems  - Infants are much more vulnerable to radiation than adults. And see this. However, radiation safety standards are set based on the assumption that everyone in the world is a healthy man in his 20s. Now, a medical doctor (Janette Sherman, M.D.) and epidemiologist (Joseph J. Mangano) have released a study showing a 28% increase in thyroid problems in babies born in Hawaii and America’s West Coast after the Fukushima nuclear accident. Their new study – published in the Open Journal of Pediatrics – is entitled “Elevated airborne beta levels in Pacific/West Coast US States and trends in hypothyroidism among newborns after the Fukushima nuclear meltdown.”

Fukushima meltdown appears to have sickened American infants - Radioactive isotopes blasted from the failed reactors may have given kids born in Hawaii and along the American West Coast health disorders which, if left untreated, can lead to permanent mental and physical handicaps. Children born in Alaska, California, Hawaii, Oregon, and Washington between one week and 16 weeks after the meltdowns began in March 2011 were 28 percent more likely to suffer from congenital hypothyroidism than were kids born in those states during the same period one year earlier, a new study shows. In the rest of the U.S. during that period in 2011, where radioactive fallout was less severe, the risks actually decreased slightly compared with the year before. Substantial quantities of the radioisotope iodine-131 were produced by the meltdowns, then wafted over the Pacific Ocean and fell over Hawaii, the American West Coast, and other Pacific countries in rain and snow, reaching levels hundreds of times greater than those considered safe. After entering our bodies, radioactive iodine gathers in our thyroids. Thyroids are glands that release hormones that control how we grow. In babies, including those not yet born, such radiation can stunt the development of body and brain. The condition is known as congenital hypothyroidism. It is treatable when detected early.

Traffic Smog Tied to Serious Birth Defects -  The study included women who lived in California's San Joaquin Valley for at least the first eight weeks of their pregnancy. The valley is known as one of the smoggiest regions in the United States. "We found an association between specific traffic-related air pollutants and neural tube defects, which are malformations of the brain and spine," study lead author Amy Padula, a postdoctoral scholar in pediatrics at the Stanford University School of Medicine, said in a university news release. She and her colleagues focused on two types of neural tube defects: spina bifida, which is a malformation of the spinal column; and anencephaly, which is an underdeveloped or absent brain. The study included 806 women who had babies with birth defects between 1997 and 2006, and 849 women who delivered healthy babies. After accounting for factors such as race/ethnicity and mothers' education levels and vitamin use, the researchers concluded that women exposed to the highest levels of traffic-related carbon monoxide pollution in early pregnancy were nearly twice as likely to have a baby with spina bifida or anencephaly as those with the lowest carbon monoxide exposure.

Air Pollution Linked to 1.2 Million Deaths in China - Outdoor air pollution contributed to 1.2 million premature deaths in China in 2010, nearly 40 percent of the global total, according to a new summary of data from a scientific study on leading causes of death worldwide.  Figured another way, the researchers said, China’s toll from pollution was the loss of 25 million healthy years of life from the population.  The data on which the analysis is based was first presented in the ambitious 2010 Global Burden of Disease Study, which was published in December in The Lancet, a British medical journal. The authors decided to break out numbers for specific countries and present the findings at international conferences. The China statistics were offered at a forum in Beijing on Sunday.  “We have been rolling out the India- and China-specific numbers, as they speak more directly to national leaders than regional numbers,” said Robert O’Keefe, the vice president of the Health Effects Institute,.  What the researchers called “ambient particulate matter pollution” was the fourth-leading risk factor for deaths in China in 2010, behind dietary risks, high blood pressure and smoking. Air pollution ranked seventh on the worldwide list of risk factors, contributing to 3.2 million deaths in 2010.

Multi-Toxin Biotech Crops Not Silver Bullets, Scientists Warn - Corn and cotton have been genetically modified to produce pest-killing proteins from the bacterium Bacillus thuringiensis, or Bt for short. Compared with typical insecticide sprays, the Bt toxins produced by genetically engineered crops are much safer for people and the environment. Bt crops were first grown widely in 1996, and several pests have already become resistant to plants that produce a single Bt toxin. To thwart further evolution of pest resistance to Bt crops, farmers have recently shifted to the "pyramid" strategy: each plant produces two or more toxins that kill the same pest. As reported in the study, the pyramid strategy has been adopted extensively, with two-toxin Bt cotton completely replacing one-toxin Bt cotton since 2011 in the U.S. Most scientists agree that two-toxin plants will be more durable than one-toxin plants. The extent of the advantage of the pyramid strategy, however, rests on assumptions that are not always met, the study reports. Using lab experiments, computer simulations and analysis of published experimental data, the new results help explain why one major pest has started to become resistant faster than anticipated.

Corn slides to 9-mth low, wheat down on higher stocks  -The USDA surprised the market with forecasts for old-crop corn supplies, estimating the stockpile at the lowest in nine years, up from an average estimate of the lowest in 15 years. It pegged corn stocks as of March 1 at 5.399 billion bushels, above the average analyst estimate of 5.013 billion bushels. The USDA also said farmers would plant the highest corn acreage since 1936. The USDA showed corn disappearance for the Dec-Feb quarter tumbled 27 percent from a year earlier. USDA chief economist Joe Glauber said the figures implied the smallest corn consumption for that period since 2002. Although corn and soybean stocks were larger than expected, three years of declining production have depleted supplies and leave little leeway for a bad harvest. March 1 stocks for both crops were the smallest total on that date since 2004.

Daily Show "Monsanto Bill": In Budget Bill Congress Inserts Provisions on Genetically Modified Foods and Gun Control - Please watch the first part of last night’s Daily Show.  In a bill that funds the government for another six month, and already signed by president Obama, a couple of interesting provisions were inserted into the bill.  One provision prohibits the government from restricting genetically modified foods. A second provision negates the government’s ability to enforce gun legislation.   These provisions clearly do not belong in a bill to allow the government to stay in operation. Worse yet, members of Congress did not know they voted for them as no one ever bothers to read legislation. The provisions were put in anonymously in committee. The person or persons amending the bill can do so without leaving fingerprints. One might think that a member of the president's staff would look at this stuff, but obviously there is no review any step of the way by anyone.  As Nancy Pelosi says, "We have to pass the bill to see what's in it".

Biotech rider is "very, very bad government" - Senator Jon Tester and Mother Jones journalist Tom Philpott summarize the problems with the new Senate rider that protects Monsanto technologies from particular consequences of review in the courts, on the TakeAway on National Public Radio today. Senator Tester says in the audio below, "Congress screwed up....  This isn't the way our government is supposed to work."  As with the proposed genetically modified (GM) salmon (covered earlier on this blog), my view is that GM supporters and opponents alike should speak up for adequate democratic review of these policies.  For GMO supporters in particular, it is foolish to try to slip these policies through Congress as riders to unrelated essential legislation.  A key part of the argument in favor of GM technology is supporters' claim that our government is capable of giving these technologies a scientifically credible, independent, and skeptical review.  It is unwise for Monsanto to protect its GM technologies from review by proving how easily our federal government can be manipulated.  This is the same government on which Monsanto and all other GM supporters depend to reassure the consuming public about the safety of GM foods

Bee Deaths From Colony Collapse Disorder On The Rise As Researchers Point To Pesticides - Honeybee deaths are on the rise across the world, and researchers are working to find the cause. With as many as 40 or 50 percent of commercial U.S. bee hives lost to colony collapse disorder, according to the New York Times, scientists are eyeing a relatively new class of pesticides as a likely culprit. Neonicotinoids, which are chemically similar to nicotine, have already been shown to interfere with bees' capacity to learn scents, hampering their efforts to collect food. Colony collapse disorder -- which follows a "sudden loss of a colony’s worker bee population," according to the Environmental Protection Agency -- may be relatively new. It first surfaced around 2005, the New York Times explains, but has gotten dramatically worse in the past year. The European Commission has been pushing for a neonicotinoid pesticide ban in the EU, but chemical companies have been protesting. Syngenta and Bayer, two of the top producers of the pesticides, recently proposed a plan to expand bee habitats and increase monitoring in an attempt avoid restrictions on their products. In the U.S., a group of environmentalists and beekeepers recently filed suit against the EPA for approving the pesticides. Neonicotinoids, they wrote in the lawsuit, have been "repeatedly identified as highly toxic to honeybees, clear causes of major bee kills and significant contributors to the devastating ongoing mortality of bees known as colony collapse disorder,” reported Bloomberg.

Ban pesticides to save bees, say MPs - The UK government should suspend the use of a number of pesticides linked to the deaths of bees, a committee of MPs has said. Members of the Commons Environmental Audit Committee are calling for a moratorium on the use of sprays containing neonicotinoids. Britain has refused to back an EU ban on these chemicals saying their impact on bees is unclear. But MPs say this is an "extraordinarily complacent" approach. Wild species such as honey bees are said by researchers to be responsible for pollinating around one-third of the world's crop production. Stinging criticism In their report, MPs say that two-thirds of these species have suffered population declines in the UK. They argue that a "growing body of peer-reviewed research" points the finger at a group of pesticides called neonicotinoids.

Administration Outlines Plan To Help Wildlife Adapt To Climate Change - On Tuesday, the Obama administration released the National Fish, Wildlife and Plants Adaptation Strategy, a document that provides recommendations for the country to address the threats climate change poses to wildlife and natural resources.The strategy, which was developed by federal, state and tribal leaders and is meant to be implemented over the next five years, highlights the observed impacts that increased atmospheric CO2 and a changing climate have had on the environment, including ocean acidification, changes in phenology, the spread of invasive species and the shifting of the geographic range of native species. It also lists seven non-binding goals that would help wildlife adapt to climate change. Dan Ashe, director of the U.S. Fish and Wildlife Service, said the list should serve as an “urgent call to action” for government officials.

The drought is drying up all our ethanol - In August, corn prices hit their highest level ever, driven mainly by the severe drought that crippled America’s corn belt. By October, Pracht could see that he was spending more on corn than he could make with ethanol, and with no relief in sight, he began to have doubts about keeping the plant open.  So, he pulled the plug, shuttering the plant and laying off 20 employees until conditions improve enough to make churning out what was until recently one of the nation’s fastest-growing fuel sources profitable again. And as the EPA nears a final decision on new regulations that would require oil companies to use more ethanol in their gasoline mixes, Pracht’s story illustrates a risk of increasing reliance on corn-based fuels in a warming world. Pracht isn’t alone: Over the last year, nearly 10 percent of the nation’s ethanol plants have shut down. Annual corn yields came in almost a third lower than projected, according to the USDA, driving record-high corn prices that are likely to continue to rise into 2013, up to 19 percent higher than 2011-2012 averages. Overall, 2012 was the first year since 1996 (another drought year) in which total ethanol production decreased [PDF] (by 4.5 percent), reversing a trend of exponential growth that’s lasted almost a decade, according to the federal Energy Information Administration:

Don’t blame ‘Big Oil’ for high gas prices. Blame ‘Big Corn.’ - A frequent question that has beeen asked in recent months is why the record increases in America’s crude oil production over the last several years haven’t translated into lower prices at the pump for gasoline in the US.  A recent BloombergBusinessweek article explains “Why Abundant Oil Hasn’t Cut Gasoline Prices,” here are some edited excerpts: This year, U.S. refiners are required to blend 13.8 billion gallons of ethanol into the fuel they sell to domestic customers. In their calculations when crafting the bill in 2007, lawmakers assumed gasoline demand would continue to rise and that refiners would need all that ethanol to make up 10 percent of the fuel sold to motorists. The problem is that U.S. drivers are consuming less, not more, gasoline because they’re driving fewer miles in increasingly fuel-efficient vehicles. As a result, refiners don’t need all the ethanol the government forces them to buy. To make up the roughly 400 million gallon difference between the ethanol the industry needs and the amount the government mandates, refiners must buy credits called Renewable Identification Numbers, or RINs. The end result is that refiners have an even greater incentive to sell their fuel abroad, where it isn’t subject to U.S. ethanol requirements.

Biofuels: Difference Engine: End the ethanol tax | The Economist - THE uneasy relationship between America’s corn (maize) farmers and its oil refiners is fraying at the edges. The source of the conflict is the amount of corn-derived ethanol which has to be blended into petrol as an oxygenator, to boost the fuel’s octane rating (while also providing a generous off-budget subsidy for corn-growers). The farmers want the amount of ethanol used in petrol to be increased from 10% to 15% of each gallon sold at the pump. The distillers argue that diluting petrol with that amount of ethanol would damage engines and leave them liable to lawsuits from motorists and manufacturers alike. Ethanol in such quantities can certainly damage engines that are not equipped to handle it—as few are. The problem is that, unlike the hydrocarbons of pure petrol, ethanol has a special affinity for water from the atmosphere. The entrapped moisture can corrode petrol tanks, pumps, fuel lines and injectors. Only 3.6% of vehicles on the road in America are certified to use fuel containing higher blends of ethanol like E15 and E85 (15% and 85% ethanol, respectively). Moreover, ethanol burned in an engine produces more than twice as much ozone as the equivalent amount of petrol. Ground-level ozone is a big cause of smog. And, while good at boosting a fuel’s octane rating, ethanol packs only two-thirds the energy per gallon of petrol. As a result, motorists get fewer miles per gallon using fuel blended with ethanol than with undiluted petrol. So, even if blended fuel is cheaper per gallon than petrol (thanks to ethanol's subsidies), the overall cost of using it tends to be higher.

Withering drought still plaguing half of America - The $50 billion drought that bedeviled the country last summer — the worst since the Dust Bowl of the 1930′s — still has its fingers around half the country. And if predictions are to be believed, it’s only going to get worse for many in the coming months. Weekly drought figures released Thursday by the U.S. Drought Monitor, a joint project of the National Oceanic and Atmospheric Administration, the USDA, and several other government and academic partners, show the situation has worsened slightly from last week, with nearly 52 percent of the continental U.S. now suffering from a moderate drought or worse. Below-average winter snow pack and rainfall are keeping much of the country in a holding pattern. The forecast for the next two weeks? Dry and dry again. The National Oceanic and Atmospheric Administration’s Climate Prediction Center warns that drought is likely to persist for much of the West and expand across northern California and southern Oregon. Although the numbers are more optimistic across eastern Kansas and Oklahoma, with some rain on the way, drought still has a strong grip on much of Colorado, New Mexico, Utah, Nevada, and Arizona due to low snow-water (around 75 percent of normal) heading into spring and early summer. That is just the latest in a battery of warning signs that show another brutal summer on its way: California experienced its driest January-February period on record, and average winter temperatures across the contiguous U.S. were 1.9 degrees F above the 20th century average.

Great Lakes drought has ripple effect on auto industry - - The 2013 shipping season opened this week on the Great Lakes, with enormous freighters passing through the locks at Sioux St. Marie, Mich. This year, however, the industry is awash in uncertainty. The government reported this week the ongoing drought is getting worse. More than half the country - and virtually all of Texas - is experiencing drought. The persistent drought has produced some of the lowest levels ever recorded in Lake Michigan and Lake Huron. And as a consequence, the big ships that carry iron ore to mills around the lakes are now being forced to lighten their loads - or risk running aground. "When she came down with her cargo here - the last cargo in January - she was at the 25 mark. If she had been loaded to her full mark, she would have been up just an inch short of 28 feet," said

New Mexico Farmers Push to Be Made a Priority in Drought -  Just after the local water board announced this month that its farmers would get only one-tenth of their normal water allotment this year, Ronnie Walterscheid, 53, stood up and called on his elected representatives to declare a water war on their upstream neighbors. The drought-fueled anger of southeastern New Mexico’s farmers and ranchers is boiling, and there is nowhere near enough water in the desiccated Pecos River to cool it down. Roswell, about 75 miles to the north, has somewhat more water available and so is the focus of intense resentment here. Mr. Walterscheid and others believe that Roswell’s artesian wells reduce Carlsbad’s surface water. For decades, the regional status quo meant the northerners pumped groundwater and the southerners piped surface water. Now, amid the worst drought on record, some in Carlsbad say they must upend the status quo to survive. They want to make what is known as a priority call on the Pecos River.  A priority call, an exceedingly rare maneuver, is the nuclear option in the world of water. Such a call would try to force the state to return to what had been the basic principle of water distribution in the West: the lands whose owners first used the water — in most cases farmland — get first call on it in times of scarcity. Big industries can be losers; small farmers winners.

Canada's Latest Climate Change -  Just days after World Water Day, the Canadian government quietly acknowledged last week that it had dropped out of the United Nations anti-drought convention. The move reportedly makes Canada the only nation in the world not party to United Nations Convention to Combat Desertification, or Unccd. The transcript of the exchange can be read here. Despite the ruling Conservative government’s claim that it had opted out because too little of its contribution was going toward actual anti-drought programming — branding the U.N. convention a “talkfest” in the process — many critics were quick to say the move fits a patten of a conservative party that has opposed environmental regulation. “It’s just another step Canada moves away from protecting the environment and towards the oil industry,” said John Bennett, executive director of Sierra Club Canada.

Canada defends leaving UN convention on droughts -   Canada defended its decision to pull out of a United Nations convention that fights the spread of droughts just a month before a major gathering would have forced the country to confront scientific analysis on the effects of climate change.  Canada is the only country in the world outside the agreement. Prime Minister Stephen Harper's government has been vilified an as outlier on climate change policy in past international meetings.  Harper said Thursday that the U.N. Convention to Combat Desertification is too bureaucratic. Foreign Affairs Minister John Baird called it a "talkfest" that does a disservice to taxpayers. The federal cabinet last week ordered the withdrawal on Baird's recommendation.  Former Canadian ambassador to the U.N. Robert Fowler said the move is a "departure from global citizenship."

Scientist 'Muzzling' To Be Investigated By Federal Information Watchdog: Federal policies that restrict what government scientists can say publicly about their work are about to be put under the microscope. Federal Information Commissioner Suzanne Legault has agreed to investigate how government communications rules on taxpayer-funded science impact public access to information. Legault is responding to a detailed complaint lodged by the Environmental Law Centre at the University of Victoria and the ethics advocacy group Democracy Watch. Their lengthy report — "Muzzling Civil Servants: A Threat to Democracy?" — laid out repeated examples of taxpayer-funded science being suppressed or limited to pre-packaged media lines across six different government departments and agencies. In a letter to the complainants, the commissioner's office noted she is required under the Access to Information Act to investigate any matter related to obtaining or requesting records. The complaint alleges that by keeping government scientists from speaking out about their work, the public is denied the chance to request records — because no one is ever made aware they exist in the first place.

Climate Change Will Harm Mekong Basin Harvests One of the most fertile areas of south east Asia, the Lower Mekong Basin, faces a bleak future from the impacts of climate change, according to a U.S.-funded study. Hotter and wetter rainy seasons and more long-lasting dry seasons in Cambodia, Laos, Thailand and Vietnam will jeopardize the region’s reputation as one of the world’s major producers of crops on which hundreds of millions depend. Climate change will also have a profound economic impact in the region. The fertility of the region around the Mekong will suffer due to a changing climate. "We’ve found that this region is going to experience climate extremes in temperature and rainfall beyond anything that we expected”, says Dr. Carew-Reid. The Basin is known for its production of maize and rice, the two grains with the highest worldwide production levels. Rice provides more than a fifth of the calories consumed by humans. The study forecasts fundamental shifts in the kinds of crops that can be grown in parts of the Basin. The USAID-funded Climate Change Adaptation and Impact Study for the Lower Mekong examines how changes in temperature and precipitation will affect growing conditions and yields for major crops including not only maize and rice but rubber, cassava, soya and coffee, and  how fisheries and livestock productivity will be affected.

Greenland's Glaciers Are Hemorrhaging Ice, Best Seen By Photos from Space - According to a new study published in the journal Geophysical Research Letters, Greenland’s melting glaciers and ice caps sent 50 gigatons of water gushing into the oceans from 2003 to 2008. This comprises about 10 percent of the water flowing from all ice caps and glaciers on Earth. The research comes on the heels of a study last year that showed the ice sheets of Greenland and Antarctica are disappearing three times faster than in the 1990s, and that Greenland’s is melting at an especially accelerated rate. In the new study, scientists were able to put an even finer point to the ice-melt situation by separating out the glaciers and ice caps from the ice sheet, which blankets 80 percent of the island. What they discovered is that Greenland’s glaciers are actually melting more quickly than the ice sheet.Studies such as these demonstrate the impacts of a warming climate on Greenland’s glaciers. But, as they say, a picture is worth a thousand words. Visual evidence of this liquefaction is captured by NASA satellites, which are able to take snapshots of calving glaciers and document longer-term ice melt. NASA displays photos of the glaciers in its State of Flux photo gallery, along with a rotating collection of satellite images that illustrate other changes to the environment, including wildfires, deforestation and urban development.

Must Read: Arctic Sea Ice Death Spiral And Cold Weather - The media are debating if the decrease in  Arctic ice  is related to this winter’s cold weather in Germany. This post discusses the most recent current research about this including the most important figures from relevant studies.  Translated from an article by Stefan Rahmstorf First, what does the unusual temperature distribution observed this March actually look like? Here is a map showing the data. Freezing cold in Siberia, reaching across northwestern Europe, unusually mild temperatures over the Labrador Sea and parts of Greenland and a cold band diagonally across North America, from Alaska to Florida. Averaged over the northern hemisphere the anomaly disappears – the average is close to the long-term average. Of course, the distribution of hot and cold is related to atmospheric circulation, and thus the air pressure distribution. The air pressure anomaly looks like this:There was unusually high air pressure between Scandinavia and Greenland. Since circulation around a high is clockwise [anticyclone], this explains the influx of arctic cold air in Europe and the warm Labrador Sea.

NASA: Warm Arctic, Chilly Mid-Latitudes -- Arctic Oscillation Index remains negative for most of 6 months - I am adding a graphic showing that the negative Arctic Oscillation goes all the way back to early October 2012.  I was going to post on this a few weeks ago, but wondered if this -AO had occurred over such a long time period before.  I found some data that seemed to show that this had occurred once in the 1970s, but I don't think the numbers were as extreme.  Need to find more info on this. While a high-pressure weather system brought warmer than normal temperatures to Greenland and northern Canada in March 2013, much of North America, Europe, and Asia shivered through weeks of unseasonably cool temperatures. The contrasting temperatures are no coincidence: the same unusual pressure pattern in the upper atmosphere caused both events.Atmospheric pressure patterns are constantly in flux, as air masses of differing temperatures and densities move around the skies. One key measure of pressure that meteorologists track closely is known as the Arctic Oscillation (AO) index, the difference in relative pressure between the Arctic and the mid-latitudes. Changes in the AO have can major impacts on weather patterns around the world.When the AO index is in its “positive” phase, air pressure over the Arctic is low, pressure over the mid-latitudes is high, and prevailing winds confine extremely cold air to the Arctic. But when the AO is in its ”negative“ phase, the pressure gradient weakens. The pressure over the Arctic is not as low and pressure at mid-latitudes is not as high. In this negative phase, the AO enables Arctic air to flow to the south and warm air to move north.

NSIDC Arctic Sea Ice Report of April 2, 2013: Single-year ice takes over - Arctic sea ice has passed its annual maximum extent and is beginning its seasonal decline through the spring and summer. While total extent was not at record low, it remained well below average through March. Ice fracturing continued north of Alaska, and the Arctic Oscillation was in a strongly negative phase during the second half of the month, with unusually high sea level pressure over almost all of the Arctic Ocean. Levels of multiyear ice remain extremely low. The ice is thinner, and satellite data suggests that first-year ice may now cover the North Pole area for the first time since winter 2008.Arctic sea ice extent in March 2013 averaged 15.04 million square kilometers (5.81 million square miles). This is 710,000 kilometers (274,000 square miles) below the 1979 to 2000 average extent, and 610,000 square kilometers (236,000 square miles) above the record low for the month, which happened in 2006. Continuing a trend in recent winters, ice extent was near or below average levels throughout most of the Arctic, with the exception of higher extent in the Bering Sea.

Ice That Took 1,600 Years to Form in Peru’s Andes Melted in Only 25, Scientists Say -  Glacial ice in the Peruvian Andes that took at least 1,600 years to form has melted in just 25 years, scientists reported Thursday, the latest indication that the recent spike in global temperatures has thrown the natural world out of balance.The evidence comes from a remarkable find at the margins of the Quelccaya ice cap in Peru, the world’s largest tropical ice sheet. Rapid melting there in the modern era is uncovering plants that were locked in a deep freeze when the glacier advanced many thousands of years ago. Dating of those plants, using a radioactive form of carbon in the plant tissues that decays at a known rate, has given scientists an unusually precise method of determining the history of the ice sheet’s margins. Lonnie G. Thompson, the Ohio State University glaciologist whose team has worked intermittently on the Quelccaya ice cap for decades, reported the findings in a paper released online Thursday by the journal Science.

Recent Warming Is Still Unprecedented In Speed, Scale And Cause - Earlier this month, we reported on a new study by Marcott et al. in Science: Recent Warming Is ‘Amazing And Atypical’ And Poised To Destroy Stable Climate That Enabled Civilization. It was the source of most of the data in this popular, jaw-dropping graph: Now Real Climate has posted a summary and FAQ by Shaun Marcott and colleagues, which I’ll excerpt below. As the real climate scientists at RC note:  Our view is that the results of the paper will stand the test of time, particularly regarding the small global temperature variations in the Holocene. If anything, early Holocene warmth might be overestimated in this study. The main, stunning conclusion we can draw from the paper is that the rate of warming since 1900 is 50 times greater than the rate of cooling in the previous 5000 years, which undermines the whole notion of adaptation. But the study also means the famous “Hockey Stick” graph is correct (and indeed too optimistic — even by mid-century, the hockey stick actually looks more like a brick wall for humanity, as the figure shows).

World Bank chief says global warming threatens the planet and the poorest - World Bank President Jim Yong Kim on Tuesday said climate change was a “fundamental threat” to global economic development as he called for a major new push to reduce extreme poverty over the next 17 years. The bank is in the middle of an internal debate over how to reshape its role in a world where the major developing nations — the core “customers” for its loans and programs — have become increasingly middle class and where states caught in civil war pose an intractable development problem. At the same time, the impact of climate change disproportionately threatens the African and Asian nations that would find it hardest to cope.Kim said the bank, a sprawling institution that lends to everything from power plants to local governance projects, would try to tailor its work to focus on the elimination of extreme poverty and on easing inequality in countries that are doing better economically. Finding ways to avoid or lessen potential climate effects, he said, are central to that effort.“If we do not act to curb climate change immediately, we will leave our children and grandchildren an unrecognizable planet,” Kim said. “It is the poor, those least responsible for climate change and least able to afford adaptation, who would suffer the most.”

Economist: World headed towards climate change catastrophe - The author of an influential 2006 study on climate change warned Tuesday that the world could be headed toward warming even more catastrophic than expected but he voiced hope for political action. Nicholas Stern, the British former chief economist for the World Bank, said that both emissions of greenhouse gas and the effects of climate change were taking place faster than he forecast seven years ago. Without changes to emission trends, the planet has roughly a 50 percent chance that temperatures will soar to five degrees Celsius (nine degrees Fahrenheit) above pre-industrial averages in a century, he said. “We haven’t been above five degrees Centigrade on this planet for about 30 million years. So you can see that this is radical change way outside human experience,” Stern said in an address at the International Monetary Fund. “When we were at three degrees Centigrade three million years ago, the sea levels were about 20 some meters (65 feet) above now. On sea level rise of just two meters, probably a couple of hundred million people would have to move,” he said.

The Problem with Global Warming - I'm suspicious that the nearer term risk of global warming isn't that it gets too hot, as much as that the arctic sea ice is quickly getting smaller in the summer and fall. That is reducing the contrast between the termperatures of arctic ice and the open waters to the south. The contrast in temperatures is vital because that is what creates large high pressure systems over the northern Atlantic and Pacific. Those high pressure systems suck warm weather up from the south and push cold weather down from the north. That circulation makes our jet stream fast, and makes it dip down. It brings cold fronts and rain to the south central parts of North America and Asia. And brings (relatively) warmer weather to Europe and Alaska. When the contrast in ocean temperatures drop from July to December (which is to say that he Arctic surface is warmer), then the jet stream becomes weaker. Weather tends to stagnate. Colder northern latitudes stay cold, and interior southern latitudes stay hot and dry. Tropical storms aren't so much stronger, as much as they occur at more northern latitudes because there is less instability in the tropical zones, and less resistance from high pressure systems over temperate oceans.

Doubling Down on Our Faustian Bargain - James Hansen -  Humanity is doubling down on its Faustian climate bargain by pumping up fossil fuel particulate and nitrogen pollution. The more the Faustian debt grows, the more unmanageable the eventual consequences will be. Yet there are plans to build more than 1000 coal-fired power plants and plans to develop some of the dirtiest oil sources on the planet. These plans should be vigorously resisted. We are already in a deep hole — it is time to stop digging. Humanity’s Faustian climate bargain is well known. Humans have been pumping both greenhouse gases (mainly CO2) and aerosols (fine particles) into the atmosphere for more than a century. The CO2 accumulates steadily, staying in the climate system for millennia, with a continuously increasing warming effect. Aerosols have a cooling effect (by reducing solar heating of the ground) that depends on the rate that we pump aerosols into the air, because they fall out after about five days. Aerosol cooling probably reduced global warming by about half over the past century3, but the amount is uncertain because global aerosols and their effect on clouds are not measured accurately. Aerosols increased rapidly after World War II as fossil fuel use increased ~5%/year with little pollution control (Fig. 1). Aerosol growth slowed in the 1970s with pollution controls in the U.S. and Europe, but accelerated again after ~2000.

EPA Proposes to Revise Industry Potentials for Global Warming Under Reporting Rule - The Environmental Protection Agency will propose revising the global warming potentials industries use to calculate their annual greenhouse gas emissions to conform with international reporting standards. A proposed rule to be published in the Federal Register April 2 would revise the global warming potential values listed in Table A-1 of EPA's mandatory greenhouse gas reporting rule (40 C.F.R. Part 98) to align with the values in the Intergovernmental Panel on Climate Change's Fourth Assessment Report. As part of the proposal, the global warming potential for methane would increase from 21 times more potent than carbon dioxide over a 100-year timeline currently to 25 times more potent. Other greenhouse gases, such as nitrous oxide and sulfur hexafluoride, would have their global warming potentials decreased as part of the proposed rule. The proposal also will include global warming potentials for 26 fluorinated greenhouse gases that were not previously included in EPA's reporting rule.

Republicans believe climate change is a problem and renewable and clean energy should be use: Quelle surprise! This report contains topline results of a national survey of 726 adults who recently identified as a Republican or a Republican-leaning Independent.

  • A majority of respondents (52%) believe climate change is happening, while 26% believe it is not, and 22% say they “don’t know.”
  • A large majority (77%) says the United States should use more renewable energy sources (solar, wind & geothermal) in the future. Among those who support expanded use of renewable energy, nearly 7 out of 10 think the U.S. should increase the use of renewable energy “immediately.”
  • Republicans and Republican-leaning Independents prefer clean energy as the basis of America’s energy future and say the benefits of clean energy, such as energy independence (66%), saving resources for our children and grandchildren (57%), and providing a better life for our children and grandchildren (56%) outweigh the costs, such as more government regulation (42%) or higher energy prices (31%).
  • By a margin of 2 to 1, respondents say America should take action to reduce our fossil fuel use..

Cool It: Is the Internet Too Hot for Data Centers to Handle?: The Internet may not consume nearly as much environmentally unfriendly fossil fuel as airplanes or automobiles, but the growth of cloud-based services offered by Apple, Netflix and others is forcing data centers to provide greater speed and more storage capacity. All of this size and speed comes at a price. Data centers generate a lot of heat that has to be whisked away by power-hungry air and liquid-cooling systems to keep the Internet’s engines from burning themselves out. Efforts to combat this growing power consumption have been lukewarm, points out Diego Reforgiato Recupero,. In the March 29 issue of the journal Science, he shows that Internet traffic volume doubles every three years, yet this increase in usage has not been matched by a similar increase in network energy efficiency. Citing data on projected energy use increases for telecoms and Internet service providers, Recupero says the world’s data centers will consume 19 percent more energy in 2013 than they did a year ago.

E.P.A. Plans Stricter Limit for Sulfur in Gasoline - The Environmental Protection Agency will propose a rule on Friday that will cut the amount of sulfur allowed in gasoline by two-thirds to improve the performance of the catalytic converters in engines that fight smog, the agency has told refiners and clean-air advocates. The proposal has been ready for about 15 months but was delayed until after the election because opponents will argue that it will raise the price of gasoline, according to people familiar with its history. “They didn’t want to have a big fight during an election year,” said S. William Becker, executive director of the National Association of Clean Air Agencies. The rule will essentially move the country to the sulfur standards now in place in California, Mr. Becker said.

U.S. Clean-Gasoline Rule Opposed by Oil Group Said Near - The Environmental Protection Agency proposed standards aimed at cutting the amount of sulfur in gasoline by two-thirds by 2017, a move oil industry groups said may increase the price at the pump. “These common-sense cleaner fuels and cars standards are another example of how we can protect the environment and public health in an affordable and practical way,” EPA Acting Administrator Bob Perciasepe said today in a statement. The standards, which also include emissions reductions for passenger cars and trucks, will help prevent as many as 2,400 premature deaths annually by 2030, according to an EPA fact sheet. While the costs of the program would be about $3.4 billion by that year, the resulting health benefits would be worth as much as $23 billion, according to the agency. With the sulfur standards, the government is targeting a gasoline ingredient that hurts the effectiveness of vehicles’ catalytic converters, allowing more smog-causing pollutants into the air. Smog is linked to a variety of heart and lung ailments.

Why Abundant Oil Hasn't Cut Gasoline Prices - For the first time since 1995, the U.S. will likely produce more oil than it imports. That’s great for the country’s trade balance, but the benefits of all that cheap domestic crude still haven’t shown up at the one place it matters most: the gas station. Even as fuel consumption has fallen to 16 percent below its 2007 peak, gasoline remains about a dollar higher than the average price over the past decade. So far this year, gasoline prices have risen 11 percent nationwide, to $3.65 a gallon. Simple economics suggest that higher supplies and lower demand should translate into cheaper prices. That presumes today’s petroleum markets are simple. Over the last year, the oil boom has upended the long-held belief that U.S. production would inexorably decline while America’s appetite for gasoline continued to rise, leaving the country hopelessy hooked on foreign crude. As the opposite has occurred, regulatory and transportation systems that grew out of those old assumptions have become increasingly outdated, preventing the forces of supply and demand from working efficiently. Most of the surge in oil production has happened in places such as North Dakota, Wyoming, Colorado, and Oklahoma, far from refining hubs and big population centers. With competition fierce for limited pipeline capacity, producers have begun moving crude on barges and trains, adding as much as $17 a barrel to the price of domestic oil. That extra cost eventually makes its way to the price at the pump.

Environmentalists signal they’ll sue BNSF over coal dust - The Sierra Club and four other environmental groups Tuesday said they intend to file a federal lawsuit to force BNSF Railway and six coal companies to better contain the coal being shipped in open-topped train cars. In a legal notice sent to the companies, the environmental groups contend that the trains are spewing coal dust and chunks of debris into the Columbia River, the Lake Washington Ship Canal and other Northwest waterways in violation of the federal Clean Water Act. The legal challenge comes as environmental groups are campaigning against proposals to build new coal-export terminals in Washington and Oregon that would greatly increase the amount of coal trains moving through the Northwest. “This action today seeks to stop illegal pollution and keep our river free of dirty coal,” said Brett VandenHeuvel, executive director of the Columbia Riverkeeper. “The threat of coal export makes this lawsuit even timelier.” Puget Soundkeeper Alliance, Friends of the Columbia Gorge and RE Sources for Sustainable Communities also signed on to the intent-to-sue letter.

How Ontario Is Putting an End To Coal-Burning Power Plants - After a decade of work by the Liberal Party government, Ontario at the end of this year is scheduled to close the last of its big coal-fired generators, and leave a single small coal-fired unit available during periods of peak electrical demand until it closes next year. In shutting down the province’s 19 boilers fueled by coal, Ontario will become the first industrial region on the continent to eliminate coal-fired generation. The decade-long process to replace a quarter of the province’s electrical generating capacity with new plants fueled by natural gas and renewable energy sources represents one of the most ambitious low-carbon generating strategies in the world. And achieving the coal-less electricity sector has yielded lessons about the constraints of government policy and public acceptance in an industrial democracy seeking to make such a momentous transition.

Cooling system fails at Fukushima nuclear plant for second time in a month - The cooling system for a storage pool for fuel at one of the reactors at the tsunami-damaged Fukushima nuclear plant in Japan failed today for the second time in a month, although there was no immediate danger from the breakdown. Nuclear Regulation Authority spokesman Takahiro Sakuma said an alarm went off in the afternoon about the problem at reactor No. 3. The cause was still under investigation. The cooling system can be turned off for two weeks before temperatures approach dangerous levels at the spent fuel storage pools, according to the Tokyo Electric Power Company, or TEPCO, the utility that runs Fukushima Dai-ichi in northeastern Japan. But if the water runs dry, the fuel rods, even spent ones, will emit enormous levels of radiation.

Ending Nuclear Power DECREASED Carbon Dioxide Output In Germany - There has been a tremendous amount of voodoo science pushing the claim that radiation isn’t harmful.  (It is.) Similarly, a new report published by Environmental Science & Technology claims that nuclear power saves more lives than it cost, due to reduction in carbon dioxide emissions. An International Forum on Globalization report – written by environmental luminaries Ernest Callenback, Gar Smith and Jerry Mander – have slammed nuclear power as catastrophic for the environment: Nuclear energy is not the “clean” energy its backers proclaim. For more than 50 years, nuclear energy has been quietly polluting our air, land, water and bodies—while also contributing to Global Warming through the CO2 emissions from its construction, mining, and manufacturing operations. Every aspect of the nuclear fuel cycle—mining, milling, shipping, processing, power generation, waste disposal and storage—releases greenhouse gases, radioactive particles and toxic materials that poison the air, water and land. Nuclear power plants routinely expel low-level radionuclides into the air in the course of daily operations. While exposure to high levels of radiation can kill within a matter of days or weeks, exposure to low levels on a prolonged basis can damage bones and tissue and result in genetic damage, crippling long-term injuries, disease and death. See this excellent photographic depiction of the huge amounts of fossil fuel which goes into building and operating a nuclear power plant.

Treatment Plant for Waste in Nuclear Cleanup Has Design Flaws, Panel Says - — A treatment plant that the Energy Department is counting on to stabilize the radioactive waste at the nation’s largest environmental cleanup project, at the Hanford Nuclear Reservation in Washington State, has design problems that could lead to chemical explosions, inadvertent nuclear reactions and mechanical breakdowns, a federal advisory panel warned on Tuesday.The panel, the Defense Nuclear Facilities Safety Board, said the waste was also not safe where it was now, in leaking tanks that have long put dangerous pollutants into the soil a few miles from the Columbia River. In addition to the leaks, the board said, radioactive sludge and liquids in the tanks produce hydrogen that could burn and further disperse the waste. The current problems are only the latest in the treatment plant’s long and expensive history. The Energy Department signed an agreement with the Environmental Protection Agency and Washington State to start construction of the plant in 1989, paid for two sets of designs for such a plant in the 1990s and then did not build either one.

Suddenly No Solution For 56 Million Gallons Of Highly Radioactive Toxic Waste Leaking Into The Ground  - Engineers around the world have done a great job developing nuclear technologies to serve mankind’s many endeavors. However, engineers haven’t figured out yet what to do with the highly radioactive and toxic materials nuclear technologies leave behind. They leak through corroded containers, contaminate soil, water, and air, and after decades, we try to deal with them somehow, but mainly we’re shuffling that problem to the next generation. For example, the Hanford Nuclear Reservation in Washington State, the largest, most daunting environmental cleanup project in the US. More than 11,000 people work on it. Buried underground are 177 tanks containing 56 million gallons of highly radioactive and toxic waste. The 31 oldest tanks, made of a single layer of now rust-perforated carbon steel, have been leaking highly radioactive and toxic sludge into the ground for decades. In its annual report to Congress,the Department of Energy (DOE), describes the task at Hanford:After these wastes are retrieved from the tanks, the plant will chemically separate the waste into two streams of differing radioactive hazard and solidify them into glass in stainless steel canisters. The low-radioactivity glass will be disposed of onsite, while the high-level waste glass will be shipped offsite for permanent disposal once a repository is available. Turns out, almost none of it, according to the report, can be done safely or at all. And that “repository?” It doesn’t exist. Despite decades of trying, the US has not been able to come up with one.

U.S. Baker Hughes Gas Rig Count Declines to Near 14-Year Low - Bloomberg: The number of gas rigs in the U.S. declined to near a 14-year low, according to Baker Hughes Inc. (BHI) Gas rigs dropped by 29 to 389, while oil rigs climbed by 30 to 1,354 this week, data posted on Baker Hughes’ website show. Total energy rigs increased by two to 1,748, the field-services company based in Houston said. The rig-count figures were released a day early this week because of the Good Friday observance tomorrow. The U.S. gas rig count has shrunk to almost a fourth of its peak in September 2008 as a glut of domestic supplies pushed prices of the fuel down to 10-year lows and drove energy producers toward more profitable oil and liquids-rich plays. Improvements in drilling technologies have also weakened total demand for additional rigs in the U.S. Schlumberger Ltd. (SLB), the world’s largest oil-services company, said last week that first-quarter drilling in North America “is coming below expectations,” with customers reactivating fewer rigs than initially planned.

America is producing more natural gas today with fewer than 400 active rigs than in 2008 with more than 1,600 rigs - Baker-Hughes, one of the world’s largest oilfield services companies, releases data every Friday on rig counts for the oil and gas industry in North America, with detailed breakdowns by active rigs per US state, by the split between oil and gas rigs, by offshore vs. onshore rigs, and by rig drilling type (horizontal vs. vertical).  Based on the rig count data released last Friday, here are some highlights, including a few new noteworthy milestones:

  • 1. There were a total of 1,748 active rigs last week, 389 drilling primarily for natural gas (22.25% of the total) and 1,354 drilling primarily for crude oil (77.5% of the total), see top chart above.
  • 2. Over the last four years, there’s been a complete reversal in the rig share between oil and gas as can be seen in the top chart. In 2008 and 2009 about 80% of the rigs were being used to drill for natural gas and 20% for crude oil. Now it’s almost exactly the opposite – 77.5% of the rigs last week were drilling for oil and only 22.25% were drilling for natural gas.
  • 3. The share of rigs drilling for gas at 22.25% last week was the lowest in the history of Baker-Hughes rig count data back to 1987, and the number of gas rigs (389) was the lowest since June 1995 (see blue line in middle chart above). Over the last year, the number of rigs drilling for natural gas has declined by 41% from 658 at the end of March last year.  Last week’s rig count of 389 was less than half the number of rigs two years ago of  880, and less than 25% of the peak of more than the 1,606 rigs that were drilling for natural gas in August 2008, less than five years ago

The Methane Beneath Our Feet - There is a huge, ongoing gas leak beneath your very feet. A team of natural gas experts recently commissioned to survey the New York system has found vastly elevated levels of methane in locations all over Manhattan, a clear indication that Con Ed’s 4,320-mile network of pipes, dating back to the 1800s, is corroded, full of holes, and spewing methane into the atmosphere. The main danger here is to planetary, not personal, safety: though it has received relatively little attention, methane, the primary component of natural gas, is second only to carbon dioxide on the list of greenhouse gases that are inducing climate change.  This unhappy news actually comes as little surprise to those who have been following the issue of gas leakages in recent months. Similar revelations actually began to emerge some years ago, when a Boston University professor fell in with a former local gas company contractor named Bob Ackley, who had been hired by gas companies throughout New England to find leaks, which he discovered were pervasive. As the years passed, he realized his employers considered gas lost from a myriad number of small leaks simply a cost of doing business, and declined to take remedial action unless there was immediate risk of explosion. Because of the grave threat methane poses to the climate, the dangers of natural gas leakages go well beyond the immediate risk of exploding manhole covers (though recent measurements in Washington, DC indicate that there is enough leaking gas to cause any cautious pedestrian a certain amount of worry). And given the vastness of the problem, the leaks challenge some of the basic assumptions of current US energy policy, which has aggressively endorsed natural gas as a “clean” and climate-friendly alternative to oil and coal.

Actual Methane Emissions Measured in Manhattan Show No Advantage to Natural Gas: Two Reports:  We now have empirical evidence that current steps of continuing and increasing natural gas use would only accelerate climate change. Two reports, co-authored by Dr. Bryce F. Payne Jr and Robert Ackley of Gas Safety, Inc. in Southborough, MA, resulted from a study commissioned by Damascus Citizens for Sustainability (DCS) of Damascus, PA in the Delaware River Basin, in order to better understand leakage from natural gas distribution systems in the context of global climate concerns. The level of leakage measured shows that natural gas should not be considered a "bridge fuel". In November and December of 2012, Gas Safety, Inc. recorded natural gas fugitive emission data during a 160-mile survey on Manhattan streets, and then did extensive analysis of the data collected and previous leakage estimating schemes. There is an increasing awareness of methane as a potent greenhouse gas and in its role in climate change.  Natural gas is 93% methane, and methane is more than 20 times more potent a GreenHouse Gas (GHG) than CO2. Because natural gas generates less carbon dioxide when burned, it has been considered a cleaner energy source than other fossil fuels.  However, to look at the emission levels from burning alone is to hide natural gas' total greenhouse impact.  Even if only some methane leaks into the atmosphere during extraction, transport and delivery to the consumer, then what had been assumed was a small gas carbon footprint is in reality a highly significant gas carbon footprint.

Natural gas extraction causing frequent quakes, property damage in northern Netherlands -  “We’ve been living here for 25 years and for the last five years we’ve had regular earthquakes,” Martha Bos, 48, told AFP. Her husband Jan, wearing traditional wooden clogs, is tending to the sheep: “We don’t want to leave, we’ve built our lives here but we’re really very afraid of a big earthquake,” she said. Their home in the northern province of Groningen is built on top of the biggest gas field in the EU, which gives the Netherlands — the world’s 10th-biggest gas producer — two-thirds of its gas, according to the US Energy Information Administration (EIA). In February of this year alone, four earthquakes above magnitude 2 have hit the region. The relatively low magnitude is nevertheless felt more because the quakes happen just two miles (three kilometres) beneath the ground, experts say. The earthquakes are a “natural” result of huge pockets of air left underground by massive gas extraction.

GAS LEAK! - Four Corners: The coal seam gas industry promotes itself as a cleaner carbon-fuel alternative; but how do we know this is true? Until now much of the information used to back this claim has come from the industry itself.  The problem is this "cleaner-greener" claim doesn't always square with experience on the ground. Next on Four Corners reporter Matthew Carney talks to farmers who've seen rivers bubble with methane, their bore water polluted with chemicals, while the reserves of ground water on their property have dropped alarmingly. "It was quite frightening that they would consider approving such a project without the basic information that a normal mining project would have been asked to submit, given that this was like six hundred times the size of your standard, large mine."

Will California's Shale Oil Boom Go Bust? -  You might expect California, home to vast, untapped reserves of shale oil and a powerful environmental movement, to watch closely every move by its oil and gas industry. But when it comes to the controversial technique of hydraulic fracturing (fracking) used to extract oil and gas from shale, regulators have remarkably little idea what is going on.This Friday, April 5, air quality regulators in southern California will consider approving a rule requiring oil and gas companies to notify authorities before drilling and report air pollutants emitted during extraction. Drillers must also disclose the chemicals used in fracking fluid, which is injected into wells at high pressure to break up rock formations that contain oil and natural gas. “Communities will start to get a sense of what type of impacts these operations are having on folks who live near drilling and fracking,” says Damon Nagami, a senior attorney with the Natural Resources Defense Council in Santa Monica, California. “This is information we just don’t have right now.” The California Department of Conservation, the state agency that regulates the oil and gas industry, is also set to begin drafting regulations that would impose similar, if weaker, disclosure requirements on drillers, though companies could claim trade secret protection for fracking fluids. And at last count, half a dozen bills have been introduced in the California legislature to impose restrictions on fracking.

So Your Groundwater's Poison and Your Tap Water's On Fire. Not to Worry: Fracking Chemicals Are Trade Secrets You Don't Need To Know About -  A judge in Wyoming has denied a lawsuit by environmental groups against the Wyoming Oil and Gas Conservation Commission demanding that the list of chemicals in fracking fluids be made public, ruling such lists are trade secrets that may be withheld under Wyoming’s open records law. Soooo: Never mind that fracking wastewater, shown to conain benzene, xylene, methane, radioactive materials and other deadly toxins, has already appeared in Wyoming water; that EPA officials say an accident in Wyoming last year contaminated groundwater with toxins "well above” Safe Drinking Water Act standards; that a recent fracking accident in Pennsylvania spewed a quarter million gallons of possibly radioactive wastewater before being capped, requiring residents to be evacuated and use bottled water for weeks, after which officials helpfully told them that "most" of the fluid was contained; that a fracking blowout in South Texas, where groundwater contamination, lung disease from toxic dust, oil spills, buckling roads and truck accidents are already concerns, miraculously failed to kill anyone but caused injuries, impaled a truck and virtually trashed the site, with catastrophic photos to show for it; etc etc etc. But yeah, let's trust for-profit gas and oil companies to keep their secrets and do right by us. What could go wrong?

Fracking's Latest Scandal? Earthquake Swarms - The earthquake registered a magnitude 5.7*—the largest ever recorded in Oklahoma—with its epicenter less than two miles from the Reneaus' house, which took six months to rebuild. It injured two people, destroyed 14 homes, toppled headstones, closed schools, and was felt in 17 states. It was preceded by a 4.7 foreshock the morning prior and followed by a 4.7 aftershock.  Such seismic activity isn't normal here. Between 1972 and 2008, the USGS recorded just a few earthquakes a year in Oklahoma. In 2008, there were more than a dozen; nearly 50 occurred in 2009. In 2010, the number exploded to more than 1,000. These so-called "earthquake swarms" are occurring in other places where the ground is not supposed to move. There have been abrupt upticks in both the size and frequency of quakes in Arkansas, Colorado, Ohio, and Texas. Scientists investigating these anomalies are coming to the same conclusion: The quakes are linked to injection wells. Into most of them goes wastewater from hydraulic fracking, while some, as those in Prague, are filled with leftover fluid from dewatering operations.The impact of fossil fuels is no secret, but until now the short list of dirty energy's villains never included water. Together, oil and gas extraction and production generate about 878 billion gallons of wastewater annually, roughly what tumbles over Niagara Falls every two weeks. More than a third is injected back into disposal wells. With natural gas production on the rise—it has jumped 26 percent since 2007, chiefly because fracking now makes it economically viable to pursue gas trapped in shale deposits—and unconventional practices such as dewatering ramping up domestic oil development, the wastewater deluge is expected to get worse. Operators are injecting more water than ever into drilling wells, while boring new wells to accommodate the overflow. Yet nobody really knows how all this water will impact faults, or just how big an earthquake it could spawn.

Gambling on Methane Hydrates: Risk Outpaces Reward - Everyone’s so excited about Japan’s successful extraction of natural gas from methane hydrates trapped in crystalized formation under the sea floor. The headlines are certainly promising, and we’ve had numerous requests to delve into the subject for our premium subscribers. I usually like to outline new opportunities, but this time I see more risk than reward: we’ve known about these methane hydrates for a long time; It’s too expensive; the infrastructure requirements are massive; the technology for commercial extraction is too far way; and the environmental impact is a very dangerous unknown. This may be the stuff of the future, but a future that is too distant to attract enough investment outside of countries like Japan, which is desperate enough to make it work and willing to spare no expense to achieve commercial viability. Earlier this month, Japan successfully extracted gas from a layer of methane hydrates 1,000 feet below the seabed in the Eastern Nankai Trough. To do this it lowered an excavator to the seafloor about 1,000 meters below the surface where it separated solidified methane hydrated into water and natural gas and then transported the gas up to the surface. Methane hydrates are crystalized water molecules containing methane, which is the key element in natural gas, and they are prevalent beneath the seafloor and underneath Arctic permafrost.

Exxon Mobil Pipeline Ruptures in Central Arkansas - Emergency crews worked Saturday to contain several thousand gallons of crude oil that spilled from a ruptured Exxon Mobil pipeline in central Arkansas. Crews from Exxon Mobil were still investigating the cause of the rupture, which occurred on Friday afternoon in a section of the Pegasus pipeline near the town of Mayflower, which has about 1,700 people and is 25 miles north of Little Rock. The local authorities said in a statement on Saturday that 22 homes in the vicinity of the spill had been evacuated. As soon as the spill was detected, the pipeline was shut down and isolation valves were closed to prevent further leakage, Exxon Mobil said in a statement. About 2,000 feet of boom was set up to contain the oil, and 15 vacuum trucks were deployed to clean it up, Exxon Mobil said. About 4,500 barrels of oil and water had been removed by Saturday evening, the company said. Crews were working to make sure no oil entered nearby Lake Conway. The Environmental Protection Agency classified the leak as a “major spill,”

Exxon/Enbridge Canadian tar sands dilbit Pegasus pipeline ruptures in Mayflower, Arkansas, forcing evacuation of 22 homes - A pipeline that ruptured and leaked at least 80,000 gallons of oil into central Arkansas on Friday was transporting a heavy form of crude from the Canadian tar sands region, ExxonMobil told InsideClimate News. Local police said the line gushed oil for 45 minutes before being stopped, according to media reports. Crude oil ran through a subdivision of Mayflower, Ark., about 20 miles north of Little Rock. Twenty-two homes were evacuated, but no one was hospitalized, Exxon spokesman Charlie Engelmann said on Saturday. In an interview with InsideClimate News, Faulkner County Judge Allen Dodson said emergency crews prevented the oil from entering waterways. The judge issued an emergency declaration following the oil spill and is involved in coordinating clean-up efforts among federal, state and local agencies and Exxon. The 20-inch Pegasus pipeline runs 858 miles from Patoka, Ill., to Nederland, Texas. Engelmann said the line was carrying Wabasca Heavy crude from Alberta, Canada when it ruptured.

Exxon Mobil Oil Spill Turns Residential Roads into Rivers of Oil - On Friday afternoon a pipe in Exxon Mobil’s Pegasus pipeline, which carries more than 3.7 million gallons of crude oil a day between Illinois and Texas, burst in the town of Mayflower, Arkansas. Residents were evacuated from 22 homes as thousands of barrels worth of heavy Canadian crude oil flowed through back yards, and along the roads in a residential neighborhood. The Environmental Protection Agency has called it a ‘major oil spill’. Joe Bradley, one of the evacuated residents, described a scene where oil was “running down the road like a river.” Officials have not been able to confirm when the area will be safe enough for people to return to their houses.

Arkansas AG to investigate oil pipeline leak - The Arkansas attorney general is opening an investigation into what caused last week's pipeline rupture that allowed thousands of barrels of heavy crude oil to flow into a residential area. Attorney General Dustin McDaniel said Tuesday he asked Exxon Mobil, the owner of the 60-year-old Pegasus pipeline, to preserve all documents and information related to the spill and cleanup efforts. "This incident has damaged private property and Arkansas's natural resources. Homeowners have been forced from their homes as a result of this spill," McDaniel said in a news release Tuesday. "Requesting that Exxon secure these documents and data is the first step in determining what happened and preserving evidence for any future litigation."

Not Just Toxic, But Exempt - The news from Exxon's Arkansas pipeline spill just keeps getting worse. Not only are dead and what officials are calling "oiled" ducks turning up - coated in oil so thick it's "like removing gum from someone's hair" - but Exxon, thanks to a legal technicality, won't be paying into the fund used to clean up their mess. What's running through their pipelines is diluted bitumen from Alberta tar sands heavy crude, which under a 1980 law is mysteriously not classified as oil. That means that companies transporting it do not have to pay into the federal Oil Spill Liability Trust Fund that covers the costs of inevitable debacles like the one now inundating Arkansas. So they get a free ride/subsidy for trashing our backyards. And yes. Same goes for Keystone.

Exxon's Unfriendly Skies: Why Does Exxon Control the No-Fly Zone Over Arkansas Tar Sands Spill? The Federal Aviation Administration (FAA) has had a "no fly zone" in place in Mayflower, Arkansas since April 1 at 2:12 PM and will be in place "until further notice," according to the FAA website and it's being overseen by ExxonMobil itself. In other words, any media or independent observers who want to witness the tar sands spill disaster have to ask Exxon's permission.  Mayflower is the site of the recent major March 29 ExxonMobil Pegagus tar sands pipeline spill, which belched out an estimated 5,000 barrels of tar sands diluted bitumen ("dilbit") into the small town's neighborhoods, causing the evacuation of 22 homes.   The rules of engagement for the no fly zone dictate that no aircraft can fly within 1,000 feet of the ground in the five-mile radius surrounding the ExxonMobil Pegasus tar sands pipeline spill. The area located within this radius includes the nearby Pine Village Airport.  The Arkansas Democrat-Gazette revealed that the FAA site noted earlier today that "only relief aircraft operations under direction of Tom Suhrhoff" were allowed within the designated no fly zone.

Exxon controls skies over Arkansas oil spill -  : DeSmog Blog’s Steve Horn Thursday drew attention to an interesting detail in the Arkansas ExxonMobil oil spill story. He notes, “The Federal Aviation Administration (FAA) has had a ‘no fly zone’ in place in Mayflower, Arkansas since April 1 at 2:12 PM and will be in place ‘until further notice,’ according to the FAA website and it’s being overseen by ExxonMobil itself.” This means that any journalists or observers wishing to survey the tar sands disaster and cleanup efforts must ask the Pegasus pipeline owner for permission. Via Horn: The Arkansas Democrat-Gazette revealed that the FAA site noted earlier today that “only relief aircraft operations under direction of Tom Suhrhoff” were allowed within the designated no fly zone. Suhrhoff is not an FAA employee: he works for ExxonMobil as an “Aviation Advisor“ and formerly worked as a U.S. Army pilot for 24 years, according to his LinkedIn page.

This Is Not an Oil Spill - EconbrowserTechnically speaking.  From RT: Legally speaking, diluted bitumen like the heavy crude that's overrun Mayflower, Arkansas, is not classified as 'oil'. And it's that very distinction that exempts Exxon from contributing to the government's oil spillage cleanup fund.There aren't many more pictures, since access to the airspace over the spill of non-oil has been restricted. [1]

A Tale of Two Oil Spills - What's the difference between an oil spill from a pipeline and an oil spill from a train? Answer: A lesson in political opportunism. The media have played up Friday's discovery of an oil leak in an old Exxon pipeline near Mayflower, Arkansas.  The real reason for the headlines is that Pegasus was delivering heavy crude from the Canadian oil sands to Texas. This is similar to the oil the proposed Keystone XL pipeline would deliver from Canada to the Gulf Coast, and the anti-Keystone capos are using the Exxon spill to scare up political opposition to the new pipeline. All of this is in marked contrast to the non-reaction last week when a Canadian Pacific train carrying crude to Chicago derailed in western Minnesota, spilling about 15,000 gallons. Much of the press also ignored the train accident, though the spill was certainly serious and also took place near a town.  The train wreck illustrates one economic reality of the U.S. shale drilling boom, which is that energy companies have turned to shipping by rail as pipeline capacity has been filled.  Journal reporters recently analyzed federal data and found that railroad-related oil incidents are soaring, with 112 oil spills reported from 2010 to 2012 compared to 10 in the previous three years.

Lessons from the Arkansas pipeline leak - LAST FRIDAY AFTERNOON, heavy crude oil began flowing out of ExxonMobil’s Pegasus pipeline and into the town of Mayflower, Ark. The company says that at least several thousand and at most 10,000 barrels of oil flowed into yards, down a street and into a storm drain.  It’s another oily reminder that, for now, the exceptional advances in living standards that the world’s advanced economies have seen still rely on the ready abundance of a volatile, toxic sludge. The challenge is dealing rationally with that messy reality. Inevitably, the pipeline spill has been folded into the fight over another pipeline. Yet the Keystone XL, studied and then restudied for years, would be a state-of-the-art pipeline with an array of safety features — 20,000 leak sensors and automatic shut-off valves designed to rapidly stop the flow of oil in case of a rupture. Instead, the Arkansas spill should focus attention on the half-million miles of less-advanced high-volume pipelines that carry oil, gas and other hazardous materials across the country every hour of every day. A lot of them are old. The leaky section of the Pegasus pipeline dated to the late 1940s. Given that, and the sheer scale of this continent-spanning operation, there will occasionally be accidents.

The Tar Sands Disaster - IF President Obama blocks the Keystone XL pipeline once and for all, he’ll do Canada a favor.   Canadians don’t universally support construction of the pipeline. A poll by Nanos Research in February 2012 found that nearly 42 percent of Canadians were opposed. Many of us, in fact, want to see the tar sands industry wound down and eventually stopped, even though it pumps tens of billions of dollars annually into our economy.  The most obvious reason is that tar sands production is one of the world’s most environmentally damaging activities. It wrecks vast areas of boreal forest through surface mining and subsurface production. It sucks up huge quantities of water from local rivers, turns it into toxic waste and dumps the contaminated water into tailing ponds that now cover nearly 70 square miles.  Also, bitumen is junk energy. A joule, or unit of energy, invested in extracting and processing bitumen returns only four to six joules in the form of crude oil. In contrast, conventional oil production in North America returns about 15 joules. Because almost all of the input energy in tar sands production comes from fossil fuels, the process generates significantly more carbon dioxide than conventional oil production.  There is a less obvious but no less important reason many Canadians want the industry stopped: it is relentlessly twisting our society into something we don’t like. Canada is beginning to exhibit the economic and political characteristics of a petro-state.

How the Tar Sands Are Crushing Science in Canada -The Canadian government is currently under investigation for its efforts to obstruct the right of the media and public to speak to government scientists. These policies are widely believed to be a part of the government's unspoken campaign to ensure that oil keeps flowing from the Athabasca tar sands — even if it’s at the cost of free scientific inquiry, the environment, and by consequence, democracy itself. Federal Information Commissioner Suzanne Legault officially launched the investigation into the alleged ‘muzzling’ of Canadian scientists earlier this week. Calls for the inquiry came in the form of a recent 128-page report chronicling “systemic efforts” to obstruct public access to researchers — a request that originated from the non-profit group Democracy Watch. The agencies to be investigated include departments of the environment, fisheries and oceans, natural resources, and the National Research Council of Canada.

Total Dumps Canadian Oil Sands Project for $1.65bn Loss - France’s Total will sell its 49% stake in its Canadian oil sands project to Suncor Energy Inc. for $500 million, netting the French oil giant a $1.65 billion loss on the beleaguered project. Total would have had to spend another $5 billion (at least) on the Alberta oil sands Voyageur Upgrader project over the next five years—an investment that cannot be justified according to its executives. The project is beleaguered by increasing labor costs, a shortage of labor and the falling prices of Canadian heavy crude against rising US oil production. Profit margins have narrowed to the extent that the project is no longer economically feasible. Not only does the Total divestiture raise questions about the long-term viability of Canadian oil sands investments, it also raises questions about whether the controversial Keystone XL pipeline project is really in the US’ interests—at a time when US oil output is rising and Canada’s oil sands are becoming less strategically advantageous.

Is Canada's Tar Sands Expansion In Trouble? - Is Canada's tar sands expansion in trouble? Likely not, but the issue is complicated, so bear with me. Back on November 9, 2012 I wrote a post called A Slowdown At The Tar Sands, noting that the economics of new projects had become "challenging". Bloomberg recently reported on a new development at the tar sands which confirms that diagnosis. Total SA (FP), Europe’s third-biggest oil company, will book a $1.65 billion loss in the first quarter on the canceled Voyageur Upgrader project in Canada’s oil sands after selling its stake to Suncor EnergyTotal’s decision to sell its stake “is the right one and made due to negative market conditions,”  It demonstrates “some level of capital discipline when project economics are no longer favorable.” What do new tar sands cost in per-barrel terms? In short, what how high must oil prices be to make the economics favorable? Here's a report from December 14, 2012. Bitumen is expensive to extract, upgrade and refine and cannot compete with the many new shale oil plays which have pushed US production to its highest level in a decade. Existing projects are not threatened, but new projects are. And here's a Globe & Mail report from June 4, 2012. “Oil sands projects display some of the highest break-evens of all global upstream projects,” the firm said. “The potential for wide and volatile differentials could result in operators delaying or cancelling unsanctioned projects.” New oil sands mines, for example, require prices of around $80 (U.S.) a barrel to break even

Japan eyeing billions in LNG investments in Western Canada - Japan is prepared to invest billions directly in natural gas infrastructure in Western Canada as part of a plan to secure massive supplies of liquefied natural gas to replace nuclear power, a top government advisor said Thursday. The plan, a new model for Japan, could intensify the race by Asian countries to lock down Western Canada’s energy resources and infrastructure, which so far has been led by China. Tokyo-based Tadashi Maeda, managing executive officer of the Japan Bank for International Cooperation, said Japan is ready to start discussions with private and government entities in Canada to support construction of pipelines and liquefied natural gas terminals to serve the Japanese market exclusively. “The Japanese government is [prepared to make] a strategic investment for the purpose of developing a commodity market for natural gas, a more transparent and flexible market,” “So we are going to make some strategic investments to fill the gap of the infrastructure needs. “The pipelines and export terminals are imperative. Therefore if it is needed, we are going to bring some capital to cover the cost of the infrastructure.”

Is the United States Sitting on Trillions of Barrels of Oil? - Five years ago, if someone told you the U.S. would be independent in 15 years, you might have thought that person was crazy. But thanks in large part to technological advancements in drilling, it's very possible that North America could be energy independent by 2020. Given this fundamental change, if I were to tell you that America may have an oil source that's more than the rest of the world's combined proven reserves, would you believe it? There's a unique geological formation in the U.S. that could hold as much as 6 trillion barrels of oil, but there's a chance that we may never even touch this vast resource. Let's see why we haven't really touched it, and why we may never use it. Kerogen lies deep under the surface, and very little is known about it. Like bituminous oil sands, kerogen is a solid organic matter that isn't extractable like traditional oil. Unlike bitumen, kerogen can't be extracted through an organic chemical solvent. It's an organic material within the rock itself, and the rock must be thermally treated to get the oil out. Total deposits of this type of resource is in the trillions of barrels, but much of it is trapped in places where the total oil extracted per ton of rock is so small as to not be economically feasible. The EIA estimates that there are about 2.9 trillion barrels of recoverable kerogen deposits worldwide, and nestled tight within the Wind River, Unita, and Wasach Mountains of Wyoming and Colorado is the largest kerogen deposit in the world, with about 1.8 trillion barrels of technically recoverable oil. If all of this oil were economically recoverable, we could supply U.S. energy demand for more than 250 years based on current demand.

The death of peak oil - "Peak oil is dead," Rob Wile declared last week. Colin Sullivan says it has "gone the way of the Flat Earth Society", These comments inspired me to revisit some of the predictions made in 2005 that received a lot of attention at the time, and take a look at what's actually happened since then. Here's how Boone Pickens saw the world in a speech given May 3, 2005: ""Global oil (production) is 84 million barrels (a day). I don't believe you can get it any more than 84 million barrels. . I think they are on decline in the biggest oil fields in the world today and I know what's it like once you turn the corner and start declining, it's a tread mill that you just can't keep up with....But others, like Daniel Yergin, chairman of Cambridge Energy Research Associates, were not as concerned. Yergin wrote on July 31, 2005:There will be a large, unprecedented buildup of oil supply in the next few years.  Let's start by taking a look at what happened to global oil production in the years since those two very different views were offered. Total world liquids production as reported by the EIA had reached 85.2 million barrels a day at the time Pickens issued his pronouncement. It briefly passed that level again in June 2006 and June 2008, though mostly was flat or down over 2005-2009 before resuming a modest and erratic climb since then. The most recent number (December 2012) was 89.3 million barrels a day, 4 mb/d higher than where it had been in May 2005, and 12 mb/d below the levels that Yergin had expected we'd be capable of by 2010.

Texas Refinery Is Saudi Foothold in the U.S. - The giant Motiva oil refinery, which just completed a $10 billion expansion that makes it the largest processor of gasoline, diesel and other petroleum products in the United States, is owned by Saudi Aramco and Royal Dutch Shell in a 50-50 partnership. Saudi Aramco’s investment in the refinery expansion is meant to ensure that Saudi Arabia will retain an important market for its crude in the United States at a time when American politicians are declaring their intention to wean the country off imported oil. Adding to the urgency for the Saudis is the fact that the United States is vastly increasing its production and replacing OPEC crude with that from oil sands in Canada.

Europe to shut 10 refineries as profits tumble - Oil refiners in Europe will shut 10% of their plants this decade as fuel demand falls to a 19-year low. Of the region’s 104 facilities, 10 will shut permanently by 2020 from France to Italy to the Czech Republic, a Bloomberg survey of six European refinery executives showed. Oil consumption is headed for a fifth year of declines to the lowest level since 1994, the International Energy Agency estimates. Two-thirds of European refineries lost money in 2011, according to Essar Energy Plc, owner of the U.K.’s second-largest plant. “Purely from the falling European demand point of view, one bigger refinery or two smaller plants would have to shut in Europe every year,” . “And it’s not even assuming any negative impact from more competitive refining markets in other regions.” A 50% jump in three years in U.S. diesel exports coupled with waning demand for imports of European fuels, as well as two recessions in five years in the euro region, have curbed profit from oil products at companies from Italy’s Eni SpA to Royal Dutch Shell Plc. The losses are being compounded by the configuration of Europe’s refineries. Most of the plants, more than 50% of which were constructed in the wake of World War II, are geared toward gasoline production, though diesel now accounts for 75% of the region’s motor fuel needs.

Iraqi oil: Once seen as U.S. boon, now it's mostly China's — Ten years after the United States invaded and occupied Iraq, the country’s oil industry is poised to boom and make the troubled nation the No.2 oil exporter in the world. But the nation that’s moving to take advantage of Iraq’s riches isn’t the United States. It’s China.  . Iraq remains highly unstable in terms of security, infrastructure and politics. Chinese state-owned oil companies appear more willing to put up with that than Americans are.  The International Energy Agency expects China to become the main customer for Iraq’s vast oil reserves. Fatih Birol, the agency’s chief economist, recently declared “a new trade axis is being formed between Baghdad and Beijing.” Birol said that about 80 percent of Iraq’s future oil exports were expected to go to Asia, mainly to China.

‘Airpocalypse’ drives expats out of Beijing - Air pollution is driving expatriates out of Beijing and making it harder for companies to recruit international talent, according to anecdotal accounts from diplomats, senior executives and businesses. No official figures are available on how many people are planning to leave after three months of the worst air pollution on record in the Chinese capital. But companies that mainly serve foreign residents are bracing for an exodus around the middle of the year when the school term ends. “We’re anticipating this summer will be a very big season [of moves out of Beijing] for us,” said Chad Forrest, North China general manager for Santa Fe Relocations, a global service. “It seems a lot of people, particularly families with small children who have been here a few years, are reconsidering the cost-benefit equation and deciding to leave for health reasons.” Doctors at private hospitals that mostly treat expat patients tell a similar story. “We don’t have good statistics yet but we are seeing many more patients telling us they are leaving because of air pollution,” said Dr Andy Wong, head of family medicine at Beijing United Family hospital, the biggest private healthcare provider for foreign residents in China. “Recruitment is getting harder for all companies – how do you convince people to come work in the most polluted city in the world?”

Zhengzhou: China's Largest Ghost City - I’d been chasing reports of deserted cities around China since last December, and I had yet to find one. Over and over again I would read articles in the international media which claim that China is building cities that are never inhabited only to find something very different upon arrival. The New South China Mall had a lot of empty shops but it turned out to be a thriving entertainment center, Dantu showed that an initially stagnant new city can become populated and come alive, and I found that Xinyang’s new district, a place called a ghost city since 2010, wasn’t even close to being built yet. The 60 Minutes report served as portent that there are really ghost cities out here in China. Or so it appeared.  The area that 60 Minutes shot in surely looked “ghost-like” on film, but when I arrived there I found an entirely different scene. I found a sparkling new financial district that was full of sparkling new cars, well-dressed pedestrians, corporate offices of major businesses, skyscrapers full of occupied offices, expensive coffee houses, laundry hanging in the windows of luxury condos, there were cars parked in nearly every available parking space, and signs of life everywhere.  I could not snap a photo or take a video which replicated the desolate scenes that have been broadcast around the world. There were just too many people, too many cars, too many businesses, and my shots kept getting buggered by the life that’s sprouting everywhere here. Whereas other media sources are consistently able to get videos that show a ghost city, I was only able to get shots that showed a living and breathing new district.

China PMI Shows Modest Improvement - The HSBC China Manufacturing PMI shows Modest improvement in operating conditions.  After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in t he manufacturing economy – posted 51.6 in March, up from 50.4 in February, signalling a modest improvement. Operating conditions in the Chinese manufacturing sector have now improved for five consecutive months.  Production levels increased for the fifth month in a row in March. The rate of expansion accelerated from February to a solid pace, the second-fastest in two years. Behind the rise in output, total new orders rose solidly, and for the sixth month in a row. A number of respondents attributed growth to strengthened client demand. Meanwhile, new export orders also increased, albeit marginally.  Volumes of outstanding business declined for the second successive month in March. The rate of backlog depletion was broadly unchanged from February, and remained slight overall. Staffing levels, however, were relatively unchanged from the previous month.

Do You Believe China's GDP Numbers? - Do you believe growth figures in China? What about the US, Canada, or Germany? Actually, there is no reason to believe any GDP numbers. A recent email from Michael Pettis at China Financial Markets explains.From Pettis ....Last year China’s official growth rate was 7.8%, above the 7.5% target but the lowest number in many years and far lower than the more than 10% growth rates China had generated for the past two decades.  But even with the lower growth numbers throughout the year economists were puzzled by evidence that the economy was in fact growing more slowly than the official numbers suggested. Energy consumption in China, for example, usually grows more quickly than GDP, but surprisingly, in 2012 energy usage grew by only 5.5%, well below the official growth rate of 7.8%. Other indicators also indicated that growth may have been lower than the official numbers suggested.While some of the sell-side economists still insist that China’s growth remained high and healthy enough, in fact among independent economists who specialize in the Chinese economy, both among Chinese and foreign economists there has been growing skepticism. A consensus is developing that China grew by less that 7.8% in 2012. For example Stephen Green at Standard Chartered, one of my favorites of the sell-side economists, refigured his numbers and guesses that instead of 9.3% for 2011 and 7.8% for 2012 (the official numbers), actual growth might have been 7.2% for 2011 and 5.5% for 2012. Other economists are suggesting even lower numbers, closer to zero.

Is China's Growth Model Sustainable? - As I noted in an earlier post, one of the things I wanted to learn about at this conference is the sustainability of China's growth model and its applicability to other countries. One of the big issues is China's ability to rebalance its economy toward more reliance on internal consumption and less on exports. It's a delicate process because of China's large reliance on export-led growth. If China reduces its exports, but isn't able to successfully replace it with domestic consumption, it could cause huge problems for the economy. Nevertheless, rebalancing is essential. A second issue is growing inequality and the social unrest that comes with it. What surprised me is an argument from Huang Yiping, Professor of Economics, National School of Development, Peking University, that this process is already well underway. He claims that if you correct for the service component of GDP, which is under reported, consumption has already climbed from somewhere in the 40 percent range to 52 percent of the economy. In addition, according to his estimates -- which I found convincing -- inequality is falling as well. Then main reason for this is a labor shortage (believe it or not) that is driving up wages, a process that began around 2008. Thus, there has been a transfer from profits -- which flow to higher incomes -- to wages of those at the bottom of the distribution (the five year plan allows for a 13 percent per year increase in the minimum wage).

Why China’s economy might topple - Over the next decade, China’s growth will slow, probably sharply. That is not the view of malevolent outsiders. It is the view of the Chinese government. The question is whether it will do so smoothly or abruptly. On the answer depends not only China’s own future, but also that of much of the world. Official Chinese thinking was on display at last month’s China Development Forum, organised by the Development Research Center of the State Council (DRC), which brought influential foreigners together with high-level officials. Among the background papers was one prepared by economists at the DRC, entitled “Ten-year Outlook: Decline of Potential Growth Rate and Start of a New Phase of Growth”. Its proposition is that China’s growth will slow from more than 10 per cent a year from 2000 to 2010 to 6.5 per cent between 2018 and 2022. Such a decline, notes the paper, is consistent with the slowdown since the second quarter of 2010 (see chart). Here are a few reasons why the authors say this view is plausible. First, the potential for infrastructure investment has “contracted conspicuously”, with its share in fixed asset investment down from 30 per cent to 20 per cent over the past decade. Second, returns on assets have fallen and overcapacity has soared. The “incremental capital output ratio” – a measure of the growth generated by a given level of investment – reached 4.6 in 2011, the highest since 1992. China is getting less growth bang for its investment buck. Third, growth of the labour supply has fallen sharply. Fourth, urbanisation is still rising, but at a decelerating rate. Finally, risks are growing in the finance of local governments and real estate.

China Releases New Measures to Restrict Housing Sales - In an effort to cool the resurgent property market, two of China’s biggest cities announced over the weekend that they would put in place a series of new restrictions and penalties on housing sales. In the nation’s capital, the Beijing municipal government said that unmarried individuals would now be allowed to purchase only one residence. The city also increased the minimum down payment for buyers of a second home and imposed a 20 percent capital gains tax on owners’ selling a residence. In Shanghai, an identical capital gains tax was announced and took immediate effect, and city officials pledged to install and enforce other measures aimed at stabilizing housing prices. The stiffer capital gains taxes take the place of a 1 percent to 2 percent transaction tax that was previously assessed on the final price of the property being sold. The announcements came weeks after China’s State Council, or cabinet, said the government would take stronger action to ensure that property prices do not continue to soar, fueling what many analysts believe is a real estate bubble that could seriously damage the economy and exacerbate social tensions between the rich and the poor.

Chinese Foreign Fisheries Catch 12 Times More Than Reported, Study Shows - Chinese fishing boats catch about US$11.5 billion worth of fish from beyond their country's own waters each year -- and most of it goes unreported, according to a new study led by fisheries scientists at the University of British Columbia.The paper, recently published in the journal Fish and Fisheries, estimates that China's foreign catch is 12 times larger than the catch it reports to the United Nation's Food and Agriculture Organization, an international agency that keeps track of global fisheries catches. Using a new method that analyzes the type of fishing vessels used by Chinese operators around the world and their catch capacity, the UBC-led research team estimates Chinese foreign fishing at 4.6 million tonnes per year, taken from the waters of at least 90 countries -- including 3.1 million tonnes from African waters, mainly West Africa.

Bank of Japan governor says all available means will be used to beat deflation - Bank of Japan governor Haruhiko Kuroda said the central bank will use all options available to achieve its 2 per cent inflation target, reinforcing expectations of bold monetary stimulus ahead of his first policy-setting meeting on Thursday. But his pledge for aggressive stimulus faced heat in parliament for relying too much on the psychological impact of any action, while a plunge in workers' bonus payments underscored the challenges the central bank faces in trying to put an end to nearly two decades of grinding deflation. Prime minister Shinzo Abe also said he is not necessarily asking the BOJ to achieve its price target "at all costs," as factors beyond the bank's control, such as global economic developments, may sway future price moves.

Bank of Japan Overhauls Monetary Policy - (Reuters) - The Bank of Japan unleashed the world's most intense burst of monetary stimulus on Thursday, promising to inject about $1.4 trillion (929.3 billion pounds) into the economy in less than two years, a radical gamble that sent the yen reeling and bond yields to record lows. New Governor Haruhiko Kuroda committed the BOJ to open-ended asset buying and said the monetary base would nearly double to 270 trillion yen (1.92 trillion pounds) by the end of 2014 in a shock therapy to end two decades of stagnation. The U.S. Federal Reserve may buy more debt under its quantitative easing, but with the Japanese economy about one-third of the size of the United States, the scope of Kuroda's "Quantitative and Qualitative Monetary Easing" is unmatched. "This is an unprecedented degree of monetary easing," a smiling Kuroda told a news conference after his first policy meeting at the helm of the central bank. "We took all available steps we can think of. I'm confident that all necessary measures to achieve 2 percent inflation in two years were taken today,"

Bank of Japan unveils aggressive easing - The Bank of Japan will aim to double the monetary base over two years through the aggressive purchase of long-term bonds, in a dramatic shift aimed at ridding Japan of the deflation that has dogged the country for almost two decades. Haruhiko Kuroda on Thursday announced his arrival as central bank governor with a “new phase of monetary easing”, a move that comes after Prime Minister Shinzo Abe told the bank to target a 2 per cent rate of inflation. “We can’t escape deflation with the incremental approach that’s been taken until now,” Mr Kuroda said after the announcement. “We need to use every means available.” While he did not rule out a further acceleration of the bank’s easing programme should prices fail to rise as desired, Mr Kuroda said the new measures would be sufficient to achieve his goal. “I am confident that all the policies we need to achieve 2 per cent inflation in around two years are now in place,” he said. The BoJ said it would boost Japan’s monetary base from Y135tn ($1.43tn) to Y270tn by March 2015, mainly by buying more long-term government bonds. That will raise the average remaining maturity of its holdings from about three years to seven years, keeping downward pressure on yields all along the curve. The BoJ will also set a new framework for those asset purchases. Previously, it had carried out market operations with the aim of keeping the overnight interest rate as close to zero as possible. Now it is focusing on the monetary base.

Bank of Japan to Pursue Qualitative and Quantitative Easing – Double Their Monetary Base - Along with most monetary enthusiasts I was anticipating a significant announcement from the BOJ two day policy meeting this week, and this seems to be it. They are going with an aggressive set of both qualitative and quantitative easing with the express intention of weakening the Yen and creating monetary inflation. Japan will be firing up their industrial policy using the weaker yen to create more foreign demand for their goods to make up for the slack domestic demand based on their declining demographics. As you may recall, Japan has been unable to stimulate their economy despite spending rather significant sums on infrastructure and other stimulus projects. The lack of reform in their fairly well entrenched and pervasive crony capitalist keiretsu structure, which one might say is about a half step removed from outright feudalism, has resisted all their best attempts at livening things up. And the declining demographics of an island nation that discourages immigration is certainly no help either. But I would not discount the tax that corruption and inefficiency plays in dampening GDP growth, post bubble. Corruption creates inefficiency, fraud, and malinvestment, always and everywhere. Just ask China.

The BoJ’s Kuroda Acts - From IDEAglobal today:The Bank of Japan (BOJ), under the leadership of Kuroda, introduced a new phase of monetary easing called Quantitative and Qualitative Monetary Easing. Under this, the bank will aim to achieve a 2% inflation target within 2 years. Most surprisingly, the BOJ decided to target the monetary base for its money market operations instead of the uncollateralized call money rate. The central bank expects that this new step would lead to an annual increase of about JPY 60-70tn in the monetary base, thereby reaching JPY 270tn at end-2014. Kuroda is apparently betting that an aggressive expansion of base money can boost Japan’s stagnant economy and help the country end its prolonged deflation....... The BOJ also astonished the markets by saying that all maturities of JGBs including 40 yr would be eligible for its bond-buying programme. Market players were previously nervous that the current governor would not get enough support for his policies. But, interestingly, the radical step of changing the target for money market operations was made by a unanimous vote, suggesting that Kuroda will find it easier to push through even bolder steps in the future.

Bank of Japan Joins Fed, ECB in Record Stimulus -  The world’s monetary floodgates are swinging wide open.After watching Ben S. Bernanke take unprecedented steps for four years to rebound from the worst recession since the Great Depression, the Bank of Japan (8301) is signaling that the Federal Reserve’s full-throttle approach to stimulus is the way to end 15 years of deflation. New BOJ Governor Haruhiko Kuroda’s move this week to embark on record easing means the world’s four biggest developed-market monetary authorities -- the BOJ, the Fed, the European Central Bank and the Bank of England -- are aligned in their commitments to spur growth and return their economies to full strength. “This is unprecedented on many levels,” “Not only do you have the most in terms of size of economy or number of central banks, but the effort is a record effort. We’ve never seen such unconventional methods used to create as much inflation as possible.” The Fed, the ECB and the BOJ have more than doubled the combined size of their balance sheets since the global financial crisis broke out in 2007, expanding them by a total $4.7 trillion. With the BOJ’s action, that amount could be increased by at least a further $1.3 trillion by the end of 2014.

Money Spigot Opens Wider - The Bank of Japan's new leaders delivered on their pledge to radically overhaul its strategy to revive Japan's economy, unveiling a package of easy-money policies Thursday so aggressive in scale and tactics that it surprised investors.   "This is an entirely new dimension of monetary easing, both in terms of quantity and quality,'' the Bank of Japan's new governor, Haruhiko Kuroda, said Thursday. The BOJ said the programs would continue at least two years. The strategy seeks to broadly change Japanese behavior and attitudes that have contributed to depressed spending, wages and prices over the past two decades. "I will not use my fighting power in an incremental manner," Mr. Kuroda said at a news conference following the central bank's two-day meeting. "Our stance is to take all the policy measures imaginable at this point to achieve the 2% target in two years."

Abe surprised me! - For months I voiced heavy skepticism that Shinzo Abe's new administration would follow through on its plans for huge economic policy changes - in particular, a serious push for reflation. Yesterday, Abe's new central bank chief, Haruhiko Kuroda, proved me wrong by announcing a dramatic new program of quantitative easing: The Bank will achieve the price stability target of 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI) at the earliest possible time, with a time horizon of about two years. In order to do so, it will enter a new phase of monetary easing both in terms of quantity and quality. It will double the monetary base and the amounts outstanding of Japanese government bonds (JGBs) as well as exchange-traded funds (ETFs) in two years, and more than double the average remaining maturity of JGB purchases...  With a view to pursuing quantitative monetary easing, the main operating target for money market operations is changed from the uncollateralized overnight call rate to the monetary base...The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 60-70 trillion yen...  With a view to encouraging a further decline in interest rates across the yield curve, the Bank will purchase JGBs so that their amount outstanding will increase at an annual pace of about 50 trillion yen... With a view to lowering risk premia of asset prices, the Bank will purchase ETFs and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at an annual pace of 1 trillion yen and 30 billion yen respectively...

Abenomics is the only way to stop Japan’s debt compound crisis -The great counter-attack against Abenomics has begun. “What Japan is doing is actually quite dangerous because they’re doing it after 25 years of just simply accumulating deficits and not getting the economy going,” said George Soros on CNBC. Kyle Bass from Hayman Capital says "macro tourists" – like me, I suppose – have lost their heads over Japan. The experiment will end in tears and an explosion of debt. "What they're trying to do is materially devalue the currency, in order to become slightly more trade competitive, while attempting to hold their rates marketplace flat. Frankly, I think these arguments offer more heat than light, much as I admire these gentlemen on other matters. What QE does is to reduce the debt burden by 1) inflating away the debt stock, or at least slowing the rate of deflation, 2) bending the debt trajectory downwards and 3) lowering "real" borrowing cost. And yes, Japan's "real" rates have been much higher than in the US, UK, France, or Germany. That is part of the problem. Repeat after me a thousand times: QE REDUCES DEBT, compared to what it would otherwise be. It mitigates debt crises. It does not cause debt crises.

Central Banks May Not Need Large Foreign-Currency Reserves - Since 2008, central banks from China to Japan to Switzerland have squirreled away money and engineered an unprecedented expansion in their foreign-currency reserve holdings, typically with the goal of trying to manage their exchange rates. But a new paper from the researchers at the Federal Reserve Bank of New York argues that for many of those institutions, the pool of money might be getting so unwieldy that the benefits of this supposed “insurance policy” are outweighed by the costs. China’s gargantuan $3 trillion store of reserves attracts the most attention, but the paper also singles out central banks in industrialized countries, including Japan and Switzerland, for their aggressive reserve accumulation.

Go For Gold - Simon Johnson - In both 13 Bankers (2010) and White House Burning James Kwak and I weighed the merits of going back on a global gold standard.  In those books, we ended up siding with the prevailing fiat currency system – in which money is backed by nothing more than your confidence in central banks.In the light of recent events – in the US and in Europe – I feel we should reconsider the arguments.  On balance, I am now in favor of going back on gold for ten main reasons.First, gold worked well for Winston Churchill in 1925.Second, we have all had about as much as we can take with regard to us – i.e., the taxpayer – bailing out banks.  Let’s go back on gold and turn the tables, as Grover Cleveland did in 1895, when JP Morgan (the man) was forced to bailout the US government with the famous “gold loan”. Of course, the bankers could let us just go bust.  But that would hardly be in their best interests.  And the beauty of the gold standard is that it ties the hands of the government – forcing big banks to either lend at generous terms or watch their franchise value collapse (with the economy). Third, eurozone officials have created serious confusion on the order of priority for claims when a European bank gets into trouble.  With the gold standard it’s easy in a way that everyone can understand – no one gets anything when a bank collapses (and even less when world trade disintegrates).

Some want global cop to stop currency meddling --Does the world need an enforcer to prevent countries from using exchange rates to gain an unfair trade advantage? Some governments and influential economists say the answer is yes, but international politics have so far prevented the International Monetary Fund, the World Trade Organization or the Group of 20 leading economies from playing that role. Currency intervention is cutting U.S. growth, costing 3 million U.S. jobs and even threatening to create the kind of global problems that contributed to the 1930s Great Depression, says Fred Bergsten, a senior fellow at the Peterson Institute for International Economics and a former top U.S. Treasury official. On Tuesday, a group of central bankers, International Monetary Fund officials and top economists is set to consider the issue at the Peterson Institute, a think tank. "There's a glaring flaw in the global economic and monetary system," Mr. Bergsten said. It's ironic, he adds, that the international system created to avoid the currency conflicts that led to the Great Depression has been "totally ineffectual" in dealing with modern exchange-rate problems.

Interest rates: The bottleneck | The Economist -- THIS week's print edition includes a package (here and here) on the phenomenon of low interest rates around the globe. The focus of the package is on the low, short-term interest rates that have been a feature of central-bank policy since the financial crisis of 2008. But low rates, as a strange and potentially worrying phenomenon, have been a problem for longer than that.  Nominal interest rates, across the yield curve, have been tumbling since the early 1980s. Much of that reflects the defeat, across the rich world, of high inflation. But real interest rates have also been trending down for more than a decade, even at long time horizons. In 2006, during a boom period for the American and global economy, the real 10-year Treasury yield hovered at around 2% (to the dismay of Fed officials trying to take some of the air out of America's housing boom).  The most common explanation for the drop in real interest rates (one advanced by Ben Bernanke) is the global savings glut. In a sense, the explanation is almost tautological; if a price is falling, a glut (or excess of supply relative to demand) is almost by definition the cause. The more interesting issue is the source of the imbalance. Mr Bernanke points, among other things, to reserve accumulation by emerging markets. More recently, he has also noted that a shortage of safe assets could be contributing to the problem.

India Taxes: Rich Disappear This Time Of Year - In a country long defined by its poverty, it's easy now to find India's rich. They're at New Delhi's Emporio mall, where herds of chauffeur-driven Jaguars and Audis disgorge shoppers heading to the Louis Vuitton and Christian Louboutin stores. They're shopping for Lamborghinis in Mumbai. They're putting elevators in their homes and showing off collections of jewel-encrusted watches in Indian luxury magazines. They're buying real estate in comfortable but unpretentious neighbourhoods — neighbourhoods thought of as simply upper-middle-class just a couple years ago — where apartments now regularly sell for millions of dollars. They're just about everywhere. Unless it's income tax time. Then, suddenly, they barely exist. The reality is simple: "There are very few people who are paying taxes," said Sonu Iyer, a tax expert at Ernst & Young in New Delhi. And tax dodging is everywhere. "It's rampant — rampant."

Canada sheds 54,500 jobs, the worst loss in more than four years - Canada’s job market pulled back dramatically in March, shedding the most positions in four years — surpassing those created the previous month and pushing the unemployment rate up to 7.2%. Statistics Canada said 54, 500 fewer people were working last month, nearly all full-time workers and mainly in the private sector. That more than reversed the 50,700 job gain in February. Adding to the gloom were the trade figures for February, which showed Canada’s deficit increased to $1.02 billion on lower exports and higher imports. Traders had expected a small surplus. The Canadian currency fell to C$1.0207 to the U.S. dollar, or 97.97 U.S. cents, down from Thursday’s North American session close at C$1.0123 to the U.S. dollar, or 98.78 U.S. cents, after the data was released.

Moody’s analysis contemplates 44% drop in Canadian housing prices -- A severe economic shock, such as the kind that hit Japan in the early 1990s and California and Nevada in 2006, would have to knock Canadian housing prices down by 44% to cause securities linked to Canadian mortgages to lose the highest ratings assigned by Moody’s Investors Service. Such a house price decline, were it to happen, would be driven primarily by the phenomenal upswing in Canadian home prices over the past decade, Moody’s said. Canada joins Spain, as well as the United Kingdom and Australia, in the ratings agency’s assessment of countries where growth in housing prices over the past 10 years has driven their values away from sustainable market fundamentals and into “overheated” territory. “As with Australia, Spain and the U.K., we expect house prices in Canada to suffer the most due to the misalignment of current house prices with historic fundamentals,” Moody’s said. The ratings agency released the report Monday that included its housing market analysis, along with request for comment on its proposed approach to analyzing the credit risk of non-insured mortgage pools.

TransPacific Partnership Threatens Sovereignty and Public Ownership - Yves Smith - Although the TransPacific Partnership negotiations are being kept firmly under wraps, what little has leaked out is so appalling that it legitimates Alex Jones-type fears about world government, or more accurately, a market state where the interests of globe-spanning businesses come first. The TPP expands on NAFTA’s extreme investor-state regime that allows foreign companies to directly challenge a government’s derivatives regulation, capital controls, and other financial, health, and environmental policies. We’ll be writing more about the TPP, and this Real News Network segment provides a good introduction.

Bill Greider on Why Paul Krugman Was So Wrong - Yves Smith -  A good piece in the Nation by Bill Greider, which focuses on Krugman’s long standing support of free trade, and how, contrary to his predictions, the results were not positive for ordinary American workers. Greider, who has long stressed that our system is not open trade but managed trade, and that other countries manage it with much more attention to protecting their workers than we do, has reason to personalize this discussion. He does point out that Krugman’s positions on trade were widely held among mainstream economists in the 1990s. But it is still fair for Greider to call Krugman out. First, Krugman, as a trade economist, was taken seriously not just in the profession but in wider policy debates. Second, Krugman took it upon himself to act as an enforcer, and went after people who dared suggest that opening up more sources of low wage labor might reduce pay levels in the US.

Mexico Follows U.S. in Foreclosures Crushing Builders - Just as the U.S. emerges from the worst of its foreclosure crisis, Mexico’s is getting worse. Home repossessions more than doubled last year to a record 43,853 from 2011, according to Infonavit, the state-backed lender responsible for about 70 percent of home loans in Mexico, as the past decade’s expansion in government-subsidized housing backfires and adds to a glut of empty homes weighing on the nation’s beleaguered builders. Efforts to build thousands of properties on low-cost land beyond city limits has led to unpaid mortgages as workers shun commuting costs and return to urban living, according to the government. With abandoned homes mounting, Infonavit has ramped up home seizures by acting on unpaid taxes instead of delinquent loans, reducing its transaction time to about four months from more than two years, the lender said. “We have a serious problem with unoccupied homes,” Eduardo Torres, an economist with the local unit of Banco Bilbao Vizcaya Argentaria SA (BBVA), said in a telephone interview from Mexico City. “They were built under the false premise that the housing deficit was so great that everything they built would be bought regardless of conditions. So people got their homes, but that didn’t resolve their needs when the homes were three hours from their jobs.”

How Wall Street Gets Development Agencies to Push Emerging Economies into Derivatives - Why are development institutions so supportive of the derivatives industry? Given what we now know about derivative instruments and markets—they are complex, volatile, poorly regulated, crisis-prone, and dominated by very large financial firms—the alliance between prominent global development agencies like the World Bank and UNCTAD and the derivatives industry gives real reason for concern. In fact, this appears to be yet another instance in which the interests of the development establishment seem grossly misaligned relative to the goals of the constituencies they purport serve. As I detail in my recent book on the topic, the governments of commodity dependent economies, agricultural firms involved in commodity trading and processing, and even small farmers have been targeted by these two institutions as actors who stand to benefit from more derivatives trading and the expansion of derivative markets across the developing world. The basic argument is that the welfare of these actors depends critically on prices in global commodities markets. By using derivatives to manage the risk of price fluctuation, tax and export revenues, business revenues and personal incomes could be stabilized and even raised in some cases.

Short of Money, Egypt Sees Crisis on Fuel and Food - A fuel shortage has helped send food prices soaring. Electricity is blacking out even before the summer. And gas-line gunfights have killed at least five people and wounded dozens over the past two weeks.  The root of the crisis, economists say, is that Egypt is running out of the hard currency it needs for fuel imports. The shortage is raising questions about Egypt’s ability to keep importing wheat that is essential to subsidized bread supplies, stirring fears of an economic catastrophe at a time when the government is already struggling to quell violent protests by its political rivals.  Farmers already lack fuel for the pumps that irrigate their fields, and they say they fear they will not have enough for the tractors to reap their wheat next month before it rots in the fields.  United States officials warn of disaster unless Egypt soon carries out a package of tax increases and subsidy cuts tied to a $4.8 billion loan from the International Monetary Fund. That would persuade other lenders that Egypt was creditworthy enough to obtain billions more in additional loans needed to meet its yawning deficit. But fearful of a public reaction at a time when the streets are already near boiling, the government of President Mohamed Morsi has so far resisted an I.M.F. deal, insisting that Egypt can wait.

Egypt calls in favours as credit crunch hits key imports - Yahoo! News: (Reuters) - Egypt has hit breaking point in its ability to pay for imports of oil, wheat and other basic commodities, forcing it to call in diplomatic favours or seek easy payment terms from suppliers who hope for future advantage in return. Two years after ousting Hosni Mubarak, new, Islamist leaders are struggling to win a credit line from the IMF as they try to manage the hopes of 84 million people with a depreciating currency and an economy hooked on state subsidies but starved of tourism revenues since the political upheavals began. Fuel shortages, tighter security at petrol stations and scuffles in the streets are becoming common in Egyptian towns as state importers struggle to meet demand for diesel and gasoline.

IMF team to arrive in Egypt on Wednesday for loan talks - Yahoo! News: Reuters) - An IMF delegation will arrive in Egypt on Wednesday for talks with the government on a $4.8 billion loan, a government spokesman said on Sunday, as Cairo seeks to conclude a deal vital to easing a deep economic crisis. Spokesman Alaa El Hadidi added that Egypt would not seek any emergency loan from the International Monetary Fund and faced no "crisis" in funding the import of essential commodities. The most populous Arab country has been seeking a loan from the Fund to ease economic strains after two years of political upheaval. Reserves of foreign currency have fallen to critically low levels, threatening Egypt's ability to buy in supplies of wheat, of which it is the world's biggest importer, and fuel. President Mohamed Mursi's government initialed a deal with the IMF last November but postponed final ratification in December in the face of unrest triggered by a political row over the extent of his powers.

Global Economic Slowdown Accelerates Again - It would appear that between the historical revisions of over-optimistic initial prints in macro data in the last few months and the reality of the weakness in Europe; the global economy is in Slowdown. Goldman's Swirlogram has now seen its Global Leading Indicator in the 'slowdown' phase for two months as momentum fades rapidly and seven of the ten major factors in the index declining with Global (Aggregate) PMI, and Global New Orders-less-Inventories worsening. Quite comically, the three factors providing some positivity are the Baltic Dry Index (which we are told is irrelevant when it drops), Japanese Inventory/Sales (which improved but remains at depression-era levels), and US initial jobless claims (which have become a farce statistically from what we can tell). Of course, none of this macro reality matters for now - until it does that is.

Oil Tanker Market In "State Of Panic" As Charter Rates Plunge, Cargoes Rejected - While everyone knows about the epic oversupply of dry bulk containerships as a result of the pre-bubble surge in charter rates (and subsequent collapse), which sent many shipping companies to an early bankruptcy or outright liquidation and also resulted in very depressed shipping rates for the last several years as the supply overhang continues to be cleared out of the system (coupled with still depressed end-demand for "dry" commodities) , few may be aware that in the past several months the same fate has befallen the oil-tanker industry. As Bloomberg reports, John Fredriksen's oil-tanker behemoth Frontline Ltd., said it’s rejecting some cargoes after a rout in rates for the vessels. "Frontline is offering tankers for charters “selectively” and the market is in a “state of panic” as excess ship supply drives down charter costs, Jens Martin Jensen, chief executive officer of the Hamilton, Bermuda-based company’s management unit, said by phone today." The reason for the charter rate crunch: plunging rates. "Crude rates remain in the doldrums,” RS Platou Markets AS, an Oslo-based investment bank, said by e-mail today. VLCCs earned $17,000 a day on average in the first quarter, down 32 percent from a year earlier, it said

Are You Going To Entropy Faire? - Things are breaking loose. Holes have appeared in the fabric of fraud and lies that passes for the world money system. They are black holes, gravitationally sucking in the things breaking loose, and as these things cross their event horizons, they will never be seen again. These things I speak of are the collateral for vast nebulae of falsely generated debts and obligations that were never intended to be honored (i.e. regarded as real). As they vanish down the wormholes of time, they take with them their pretenses of money value, meaning they leave reverberations of impoverishment in the shadowy place that the real world has become.     Of course, great geopolitical forces spin in the background. Only idiots subscribe to the paranoid fantasies of "one world government" and "global currencies." In the scramble underway, the things falling apart include units of governance, breaking into smaller pieces: empires, nation states. These will include the unraveling European Union but also the matrix of agreements and protocols that binds together the West - everything from the IMF to the G-7 to the World Bank - into an entropy express. 

World-Wide Factory Activity, by Country - Manufacturing expanded at a slightly faster pace across much of the globe in March, but European woes weighed on the world-wide numbers. The JPMorgan Global Manufacturing Purchasing Managers’ Index, a broad measure of manufacturing activity across the world, rose slightly to 51.2 in March, up from 50.9 the prior month. The reading above 50 signals that global activity remained in expansionary territory. The U.S., China and much of Asia were expanding in March, though American factory activity slowed from February. Things looked dark in the euro zone, where manufacturing was contracting in every country tracked, as well as the U.K. which doesn’t share the common currency.“Global manufacturing employment increased for the fourth consecutive month in March. However, with output and new order growth still relatively subdued, the rate of job creation was only slight,” according to J.P. Morgan and Markit. The following chart lists PMIs from a variety of countries. Readings above 50 indicate expansion.

Living in a material world - MIT News - A new report by researchers at MIT and elsewhere finds that the global manufacturing sector has made great strides in energy efficiency: The manufacturing of materials such as steel, cement, paper and aluminum has become increasingly streamlined, requiring far less energy than when these processes were first invented.  However, despite more energy-efficient manufacturing, the researchers found that such processes may be approaching their thermodynamic limits: There are increasingly limited options available to make them significantly more efficient. The result, the team observed, is that energy efficiency for many important processes in manufacturing is approaching a plateau.  The researchers looked at how materials manufacturing might meet the energy-reduction targets implied by the Intergovernmental Panel on Climate Change, which has suggested a 50 percent reduction in carbon-dioxide emissions by 2050 as a means of avoiding further climate change. Meanwhile, economists have estimated that global demand for materials will simultaneously double.The researchers identified the five most energy-using materials produced, and outlined scenarios in which further energy may be saved in manufacturing. But even in the most aggressive scenario, the team found it was only able to reduce energy use by about 50 percent — far short of its 75 percent goal.

Russian Economy Slows to Weakest Growth Since 2009 Slump - Russia’s economy grew at the weakest pace in the fourth quarter since a recession in 2009 as Europe’s debt crisis prompted companies to cut investment and the government curbed a year-end spending splurge. Gross domestic product rose 2.1 percent from a year earlier, slowing from an upwardly revised 3 percent in the third quarter, the Federal Statistics Service in Moscow said in an e- mailed statement today. That matched the median estimate of 18 analysts in a Bloomberg survey. Consumer demand is waning just as a recession in the European Union, which accounts for about half of Russian trade, chokes corporate investment and curbs demand for commodities, hurting sales at companies from OAO Novolipetsk Steel to carmaker OAO AvtoVAZ. The slowdown, which has continued into this year, sparked an argument between policy makers over interest-rate cuts to spur growth with inflation above target. “Our economic growth of less than 3 percent is stagnation, putting us behind the global economy,” former Finance Minister Alexei Kudrin said at a conference in Moscow today. “We’ll have to fight for 3 percent. And every month so far this year has edged us toward cutting the growth forecast.”

Did Putin Sink Cyprus? - Moscow’s billionaires squirrel their fortunes abroad, and many businessmen register their companies as British, Dutch, Swiss or Cypriot — anything but Russian. Whistle-blowers would have us believe that even President Vladimir V. Putin stashes his money offshore.  Simply put, Russian money is frightened of Russia. This is because after Boris N. Yeltsin made the transition to crude capitalism in the 1990s, Mr. Putin never delivered secure property rights. That makes Russian money paranoid; since 2008 alone more than $350 billion in capital has fled the country.  These billions craved secrecy and security, and financial islands inside the European Union welcomed them. A love affair started, especially, between Cypriot banks and Russia’s cash. Only weeks ago, the Cypriot capital, Nicosia, was Russia’s most important offshore accountant.  How did so much Russian money end up in Cyprus? Mr. Putin took office in 2000 promising a “dictatorship of law,” but the moneymakers lost confidence in him. By 2003, the country’s richest man, Mikhail Khodorkovsky, had been arrested, ultimately to be stripped of his biggest holdings and thrown into a Siberian prison, making it clear that what Mr. Putin really had in mind was manipulating the law to control any potential challenge from the oligarchs’ wealth.

Monte Paschi says lost billions in deposits after February scandal (Reuters) - Customers' deposits at Italian bank Monte dei Paschi fell by "a few billion euros" after a scandal erupted in February over loss-making derivatives trades at the lender, the bank said in a document posted on its web site on Saturday. Monte dei Paschi last week reported a higher-than-expected net loss for the whole of 2012 on the back of a rise in provisions for bad loans and 730 million euros in losses on the derivatives trades, which are at the center of a fraud. But it has yet to make clear what impact the scandal itself had on its first quarter results. "The illicit nature of the derivatives trades and their consequence on the bank's assets exposed the bank to reputational damage that was immediately translated into...the withdrawal of a few billion euros in deposits," the bank said in a document for shareholders attending its April 29 meeting. The bank's chief financial officer said after the earnings were released on Thursday that it was "quick in recovering ground in March" on lost deposits in February.

Italian President Giorgio Napolitano Denies He Is Stepping Down After Phone Call From ECB President - Whether or not Italian President Giorgio Napolitano intended to step down or it was just a rumor, following ECB President Mario Draghi phone call, Napolitano denies resignation reports. Napolitano pledged on Saturday that he would stay in office until the end of his term on May 15 following reports that he planned to step down to break the deadlock created by last month's election, which left no party able to form a government. The ECB clearly does not want to take a chance that Beppe Grillio's Five Star Movement will win the next election, so the pressure is on by the ECB for a different result.

Napolitano Names Advisers in Renewed Push for Italian Deal  - Italian President Giorgio Napolitano renewed his push to forge a government from the country’s divided parliament by drafting advisers from two of the top three political forces. Members of the parliamentary coalitions headed by Pier Luigi Bersani and ex-Prime Minister Silvio Berlusconi were among the 10 men selected, according to an e-mail sent late yesterday by Napolitano’s office. Civil servants, a former politician, a retired judge and a central banker rounded out the two lists. Beppe Grillo’s Five Star Movement, the third-largest group, had no lawmakers included.  Grillo, an ex-comic who characterized his party’s mission as the French Revolution without the guillotine, criticized Napolitano’s appointment of advisers in a blog posting today. Italy “doesn’t need ‘caretakers of democracy,’ but rather to make its parliament function better and quickly,” Grillo said. “The country doesn’t need mysterious negotiators or facilitators of the caliber of Violante, the grand master of backroom deals, to cite just one, to act as a group of wise men.”

Beppe Grillo "We are the French Revolution Without the Guillotine" - With Beppe Grillo unwilling to form a coalition government, and with Prime former Prime Minister Silvio Berlusconi making demands that Bersani will not go along with, Italian President Giorgio Napolitano Considers Options. One of those options includes stepping down early so the next president can call elections. Under Italian law, an outgoing president is restricted. Napolitano's term ends mid-April. Napolitano, who met with lawmakers yesterday, may make an announcement today, the president’s spokesman said late yesterday. Napolitano will continue talks with leaders in parliament and may consider resigning, daily La Repubblica reported today, without citing anyone. To reach a compromise, Napolitano would need help from lawmakers loyal to either former Prime Minister Silvio Berlusconi or Beppe Grillo’s Five Star Movement. Berlusconi said yesterday he would back a government in partnership with the Democratic Party, while Grillo reiterated he will shun a deal with other parties.  “We’re going to win with our ideas and our strength because we’re a miracle,” Grillo said. “We are the French Revolution without the guillotine.”

The Clown Says, “Italy Should Not Be In A Rush To Have A Government” - And Beppe Grillo, the (former) clown, may be right.  Indeed, as of yesterday, Luigi Bersani of the Democratic Party who has been trying to form a government in Italy, gave up.  He has refused to make a grand coalition with Silvio Berlusconi's party, and his efforts to attract support from Grillo's 5 Star Movement have failed.  As a result, while there is a parliament, there is no government.  President Napolitano has appointed a group of 10 Wise Men to work for 10 days to come up with proposals to change how elections are run, five politicians and five bureaucrats.  None are from Grillo's 5 Star Movement, which came in second in the Senate election, which has led to Grillo's statement contained in the subject head of this post.  For more details see .

Small businesses spell big problems for Italy and Spain (Reuters) - Small companies struggling to repay loans in Italy and Spain signal bigger problems on the horizon for the euro zone after the dust has settled on Cyprus's last-ditch bailout this week. Defaults by small and medium-sized enterprises (SMEs), easily the biggest employers in Spain and Italy, are rising at a worrying clip, spelling trouble for the banks and two countries at the heart of Europe's debt crisis. The ability of Italy and Spain, which account for 28 percent of the euro zone economy compared with Cyprus's 0.2 percent, to pull themselves out of crisis and avoid full-blown bailouts depends on the health of their banks; weak banks conserve capital rather than lend to get the economy moving. Profits at Spain's top three lenders Santander, BBVA and Caixabank fell an average 60 percent in 2012 due to steep government-enforced provisions for property losses. Writedowns of nearly 24 billion euros at state-owned Bankia led to a record 19.2 billion euro loss. In Italy, the two biggest banks, Intesa Sanpaolo and UniCredit, set aside a combined 14 billion euros in 2012 to cover bad loans. Smaller lenders also had to increase provisions after the central bank conducted simultaneous audits of around 20 institutions.

Greece to begin privatizing rail system in June -Greece will in June launch a tender to privatise the national rail operator Trainose, officials said on Monday, with the aim of finding a buyer by early 2014 to keep international credits flowing. “The privatisation of Trainose is now on track,” Development Minister Costis Hatzidakis said in a statement. “The procedure will begin in June…and in a short space of time we will have a very different landscape in Greek railways,” he added. According to the Greek government, Chinese and French companies are interested in the tender. To make the sale possible, authorities broke up Trainose’s parent company, OSE, which in 2011 owed more than 10 billion euros ($12.8 billion), axed train services and shifted excess staff to other state organisations.

Greek recapitalisation delay predicted - GREECE'S central banker is forecasting that an eagerly-awaited recapitalisation of the country's crisis-hit leading banks could be delayed by a few weeks to May. .."The recapitalisation will be over in a few weeks," Bank of Greece governor George Provopoulos told state television NET in a late Monday interview. "According to the program, it will have to be completed in April. I would say this date is slightly unrealistic, there could be a delay of a few weeks ... it could go to the end of May," Provopoulos said. The recapitalisation of Greek banks, who took a major blow last year in helping the country reduce its sovereign debt, is a condition for the continued release of EU-IMF rescue loans for Greece's crisis-hit economy. A sum of 50 billion euros ($A62.13 billion) out of the total EU-IMF bailout fund of 240 billion euros has been earmarked for this purpose. At least 10 per cent of new capital must come from private investors to keep the banks from being effectively nationalised.

Russians In Cyprus: It’s Not About Tax It’s About The Rule Of Law And Property Rights - One thing that has greatly puzzled me in the discussion of all that Russian money that is in Cyprus is the way that it has been described as money as a result of tax evasion. Or perhaps tax avoidance, it depends on who is talking about it and how accurate they’re being about the distinction. I’m afraid this really isn’t correct, really not quite right at all. The reason that Russian money will go outside Russia is very little to do with the legal taxation system: it’s about illegal taxation and the risks of expropriation. To start with it’s worth pointing out that the Russian income tax is a flat rate of 13%. That’s really not a rate which people expend much effort trying to avoid. True, there are social taxes, akin to national insurance or social security, to pay but those top out at about $16,000 a of income a year. Above that no more is payable so that rate really is the 13% income tax rate. Corporate income tax is 20%, again not a rate that normally has people fleeing for the doors of a taxing jurisdiction. So the claim that vast sums of Russian money move to Cyprus in order to evade tax looks pretty weak on the face of it.

Cyprus President's Family Transferred Tens Of Millions To London Days Before Deposit Haircuts -  A day after former Cypriot President Vassilou was found to be among many elite Cypriot (politicians and businessmen) who had loans written-off by the major (now insolvent) banks; it appears the rot is far fouler than expected. In a somewhat stunning (or purely coincidental) revelation, ENETEnglish reports that Cypriot newspaper Haravgi claims that current President Nicos Anastasiades' family businesses transferred 'dozens of millions' from their Laiki Bank accounts to London just a week before the devastating depositor haircuts were unleashed upon his people. Of course, the denials are loud and Anastasiades has demanded an investigation into the claims; we are sure the government-selected 'independent' committee will be as thorough as the Libor anti-trust investigators. As a reminder, as we noted yesterday, here are Cyprus' gun control laws.

List Released With 132 Names Who Pulled Cyprus Deposits Ahead Of "Confiscation Day" - With every passing day, it becomes clearer and clearer the Cyprus deposit confiscation "news" was the most unsurprising outcome for the nation's financial system and was known by virtually everyone on the ground days and weeks in advance: first it was disclosed that Russians had been pulling their  money, then it was suggested the president himself had made sure some €21 million of his family's money was parked safely in London, then we showed a massive surge in Cyprus deposit outflows in February, and now the latest news is that a list of 132 companies and individuals has emerged who withdrew their €-denominated deposits in the two weeks from March 1 to March 15, among which the previously noted company Loutsios & Sons which is alleged to have ties with the current Cypriot president Anastasiadis.

Scramble to find Cypriot cash escape route -- The hunt is on to find ways to circumnavigate the new draconian capital controls in Cyprus and get money off the island. At least three people have attempted to flee the island in recent weeks with more than €200,000 in cash on their person, according to official sources. The money was in all cases confiscated and the people questioned by the authorities. Individuals have only been allowed to take €1,000 a day out of the country since Thursday under strict capital controls designed to prevent a bank run. The imposition of the eurozone's first ever capital controls followed the re-opening of the country's two banks for the first time after the European Union and International Monetary Fund bailout. Amid the financial confusion that has characterised recent weeks, police have stepped up their security at the marina in the southern town of Limassol, in a bid to combat those trying to get money off the island by boat. Others have, it seems, approached the problems with more sophistication.

Pop Quiz: How Big Is the Bailout Of Cyprus? - Most publications talk about the €10 billion or €17 billion Cyprus bailout. Let’s take a pop quiz on the right answer. Now let’s work through the answers, in steps:

  • (a) The €17 billion figure was calculated assuming the bailout would provide €7 billion for the banks. The final number provided not a single Euro for the banks who were asked, against the approach taken in the last 147 banking crises worldwide tracked by the IMF, to find the whole €7 billion out of their depositor base. So, part (a) is wrong
  • (b) The remaining €10 billion is described as a bailout of the government. Of this €10 billion however, €7.5 billion is being used to refinance maturing debt. This debt, I would guess, is mostly at this point beneficially held by ECB. This is just an assumption, but we know that 75% of it was held domestically, largely by the banks. This was probably the first collateral pledged by the banks via the ELA, so ultimately if the Central Bank and the government default it will ultimately fall on the ECB’s balance sheet. The 25% is probably traded internationally and, again outside of Cyprus hands. So, the €7.5 billion is being lent to Cyprus in order to be paid right back to Europe. That is not charity, that is ‘hiding their embarrassing losses until later when someone else is in office’. If moral hazard requires clueless Cypriot retail depositors to pay for their banks’ decision to lend to the insolvent Greek government, then presumably it also applies to the financial wizards at ECB that lent to the insolvent Laiki, despite having full access to their financial information.

A failure of compassion - The deed has been done. A deal has been struck to wind up Laiki Bank and restructure the Bank of Cyprus. Deposits of less than 100,000 Euros are protected from loss, as are deposits at other banks. Deposits of over 100,000 Euros are frozen and will be seized in part or whole to pay the debts that Laiki Bank and Bank of Cyprus cannot pay - including the money lent to Laiki Bank by the ECB to keep it going even though it was obviously insolvent. So Cypriot taxpayers and small savers are off the hook. Popular belief has it that those who will pay are rich Russian oligarchs, who are probably criminals and tax evaders and therefore deserve what is coming to them. Tax campaigners claim that as Cyprus was a tax haven, the destruction of its banking sector is only just and fair. Small savers across Europe breathe a sigh of relief at the news that their deposits are safe. Larger depositors cling to the Eurogroup's assurance that Cyprus is a "special case" and this will never happen anywhere else - despite Dijsselboem's  incautious remarks about the Cyprus deal forming a basis for other bailouts. None of this is true. There is no justice in the Cyprus deal. Everyone in Cyprus, and many people in other countries, will pay - for what is in fact a sovereign bailout. Let me explain.

Trade Prospects for Cyprus - The question of what would happen if Cyprus were to leave the euro with a sharply devalued national currency has been much debated in recent days.  Krugman and others arguing for it note that nations outside the euro such as Iceland recovered better from banking crises after a year or two lag than those tied to broader currencies.  For Cyprus to gain from a devaluation, although it looks likely Cyrpus will stick with the euro, its exports would need to surge. As it is, Cyprus is a very open economy.  Of its 24 billion euro GDP, nearly 40% is exports.  Important sectors in this are refined petroleum products, agriculture, particularly citrus fruits and potatoes, semin-conductors, pharmaceuticals, and some textile products.  However, Cyprus has traditionally run a trade deficit in most years.  Greece has been by far the leading destination of exports as well as supplier of imports.  Egypt and Germany are second and third as export destinations, with China and Israel second and third for import suppliers. While it is not part of the trade account, important to the current account is tourism, which is about 10% of GDP and is the largest single sector of the Cypriot economy.  Certainly a surge of tourism would be necessary to prop up the economy in the case of a devaluation.  Russians, British, Germans, and Swedes are the top tourists, although Russians might be less inclined to come after being hit for uninsured deposits in Cyrpriot banks.

After Cyprus, euro zone will slip into depression -  A deal was always likely to be done at the last minute in Cyprus. The sums of money were too small, and the impact of the country chaotically pulling out of the euro too catastrophic, for the two sides not to be prepared to compromise. Late at night, with a deadline looming, the two sides managed to cobble together a deal. The euro staggers on for another day. But the Cyprus debacle will deepen the depression now starting to grip the European economy. This is no longer a financial crisis — it is an economic crisis. And the collapse of Cyprus will make that a whole lot worse. The so-called rescue will push one more country into a catastrophic recession. It will provoke an outflow of global funds from the euro-zone. And it will encourage small businesses and depositors to hoard cash. A modern economy can’t function without a healthy banking system. And after Cyprus, no bank in the euro zone can be regarded as safe anymore.

Following Cyprus bank closings, Other Tax Havens step in - From the NY Times: As Banks in Cyprus Falter, Other Tax Havens Step InWe are aware of the economic problems facing Cyprus at the moment,” read one such message from a law firm in Malta, also a euro zone member. “We would like to propose an avenue of action for your consideration: offering corporate relocation to Malta,” continued the business pitch, trumpeting Malta’s low taxes and “flexible yet robust regime” for financial services.  Similar unsolicited offers have originated in well-known havens like Switzerland, Luxembourg and the Cayman Islands, as well as in a host of other locations, including Dubai and Singapore. ...Particularly successful at luring Russians, Cyprus has built up a large infrastructure of lawyers, accountants and other professionals schooled in the arts of tax avoidance. Its corporate registry now has 320,000 registered companies, a staggering number for a country with only 860,000 people. Most are shells set up for foreign companies and wealthy individuals seeking to avoid taxes. Meet the new tax haven, same as the old tax haven!

For Cyprus, The Pain Is Only Just Starting - If the suffering, yet docile, Cypriot serfs thought deposit confiscation would be the end of their problems under the European feudal system, they are about to be shocked. Because as part of their banking sector bailout, the country is set to get a "loan" from the Troika, a loan which comes with a Memorandum of Understanding, aka a "blueprint for austerity", with dictates terms for government revenue increases and spending cuts (of the variety that nearly caused America's leader to blow a gasket when he was describing the untold devastation that would result if the rate of acceleration in US budget spending dared to be slowed down even by a tiny bit). Today, a draft of the revised Cypriot MOU being prepared by the head of the IMF mission to the island nation, Delia Velculescu, leaked and can be found in its 24 page entirety here. However, for the benefit of our Cypriot readers, here is the important part: the listing of the anticipated austerity tsunami coming, not to mention healthcare system, "pension reform" changes and other proposals the ECB and the IMF are imposing on Cyprus as part of their generosity to keep the recently insolvent country as a well-behaving serf in the Eurozone.

In Cyprus, Feeling the Pain of a Bailout - Shaking his head in disgust, Stavros Agrotis, an independent financial executive here, peered Thursday morning at the stock chart of Bank of Cyprus on his computer screen — a bright red line sloping sharply downward, before it stopped trading altogether in recent days.  “The screen says 20 cents, but according to the troika it’s zero,” he said angrily. He was referring to the three international lenders — the European Commission, the European Central Bank and the International Monetary Fund — that had devised the tough new program that requires shareholders, bondholders and depositors to share with European taxpayers the cost of bailing out Cyprus’s two biggest banks and preventing the government from going bankrupt.  “We were a member of the European family,” he continued. “Now it seems they want to push us out of the euro.”  But while Mr. Agrotis and his compatriots may be feeling enormous pain, the broader reaction by investors in Europe and beyond was more or less muted on Thursday, as it has generally been since the Cypriot bailout negotiations burst into chaotic public view the weekend before last. For the broader world of finance, the prevailing view — for now, at least — seems to be that the implosion of this tiny island economy of 20 billion euros ($25.6 billion) need not wreak broader market havoc.

Visualizing The Cypriot Deposit Confiscation - From 'why Cyprus could not bail out its banks' to its failed financing needs and the road to confiscation, Demonocracy provides the 'everything you wanted to know about Cyprus' infograph 'but were afraid to read'.

Insight: Inside Laiki - Countdown to catastrophe (Reuters) - On the evening of the last Wednesday in March, the directors of Laiki bank, the second largest in Cyprus, gathered in their sixth floor board room for the last time. With the portraits of chairmen past staring down at them, they all resigned, something that had become inevitable earlier in the week when each director received a letter from the Central Bank of Cyprus telling them a special administrator had been appointed to run their bank and the board was suspended. After less than an hour, the board broke up for the last time, its members accepting that their 112-year-old institution was no more. "It was like a funeral," one director said. The death of Laiki, also known as Cyprus Popular Bank, was brutal. Board members said they had fought to the bitter end, imploring political leaders not to accept the bank's closure as part of a 10 billion euro ($13 billion) bailout deal last week to save the country from bankruptcy. The bank the directors were fighting to save lost 1.8 billion euros before tax in the first nine months of 2012 and another 4.1 billion euros the year before, as a gamble on Greek bonds ended badly, and bad lending decisions took their toll. "Laiki Bank was a very good bank for many, many years," "Unfortunately, they were the victim of too many things. First, the haircut on the Greek sovereign debt which caused a loss of about 2.5 billion euros, secondly its exposure to Greece in loans given to Greece, and thirdly the world economy crisis which hit the company."

EU in ‘denial’ that sick economy costs lives, say health experts - Europe's financial crisis is costing lives, with suicides and infectious diseases on the rise, yet politicians are not addressing the problem, health experts said on Wednesday. Deep budget cuts and growing unemployment are tipping more people into depression, and falling incomes mean fewer people can see their doctors or afford to buy medicines. The result has been a reversal since 2007 of a long-term decline in suicide rates, coupled with worrying outbreaks of diseases including HIV - and even malaria - in Greece, according to an major analysis of European health in The Lancet journal. Countering these threats requires strong social protection schemes, researchers argue. But the austerity measures imposed after a string of crises in southern Europe - most recently in Cyprus - has shredded such safety nets. "There is a clear problem of denial of the health effects of the crisis, even though they are very apparent,"

    Economics will catch up with the euro - It is a question that I have been asking myself for a while: at what point does it become economically rational for a country to leave the eurozone? There are two things to consider. The first is whether the country’s banking system is viable in the presence of an imperfect banking union – one that will not share any risks in the foreseeable future. The second is whether public and private sector debts are sustainable, given the country’s present and expected future growth rates. For Cyprus, the answers to both questions are no. The decision to bail in shareholders, bondholders and uninsured depositors would have been logical if the eurozone had a full banking union. There would be no bank run as all banks would be reinsured centrally. In this parallel universe, one could have wound down Cyprus’s second-largest bank without collateral damage to the wider banking system, or to the Cypriot economy.  But as each eurozone country remains responsible for their banking systems, Cyprus had no choice but to impose capital controls after the bail-in. Despite official protestations, these controls will persist for a very long time. The authorities have in effect launched a new parallel currency convertible to the standard euro at an exchange rate of one to one, but only up to €5,000, the monthly transfer limit. It is not hard to imagine that exit from the eurozone would have been more traumatic to the population, but it would have brought the benefit of a devalued exchange rate. And that answers the second question. Cyprus is more likely to return to debt sustainability outside the eurozone, because a lower exchange rate would reduce net debt, and because of a faster resumption of economic growth.

    ‘Abject Error’: How the Cyprus Deal Hurts EU Strategic Interests - Der Speigel - Investors keep getting burned in betting on members exiting the euro zone, let alone the break-up of the European Union's common currency. And economics experts keep getting their predictions wrong. The simple reason: The EU, on the economic front as well in other policy areas, is at its heart a political project. Events continue to show that despite the painful strains of major economic duress, this commitment remains intact.The euro-zone bailout of Cyprus exposed deep divides within Europe and also brought back the specter of the euro crisis. In addition to harming the island nation's economy, errors made in negotiating the deal will ultimately be a setback to strategic EU interests as well.

    The ECB and the Austerity Trap - Paul Krugman  -- Simon Wren-Lewis tries to show some sympathy for the devil: he tries to get into the mindset of European officials who defend austerity. And he gets at an important point in the process, although he may let the austerians off too lightly. As he suggests, the crucial place to start is with why Wren-Lewis, Brad DeLong, Martin Wolf, Larry Summers (at this point, anyway), yours truly, and more are against austerity now. We’re not always and everywhere against fiscal consolidation; give me the right economic circumstances and I’ll turn at least modestly deficit hawk. We are, instead, against austerity when the interest rate is against the zero lower bound, because when the economy is in a liquidity trap the contractionary effects of fiscal tightening can’t be offset by monetary expansion. So do the austerians reject this argument? No — they basically fail even to acknowledge that it exists. So what I’m arguing, I guess, is that the EC obtuseness on fiscal policy is derived in part from the broader European obtuseness on monetary policy. Still, it’s quite a remarkable thing: we’re five years into this crisis, and key European policy makers still talk as if they were unaware of the central argument their critics have been making from day one.

    Spain's Deficit Set to Soar; GDP Poised to Plunge; Job Losses Fastest in 3 Years; IIF Wants Permanent Tax Hikes - The situation in Spain took another sharp turn for the worse. Employment losses are the greatest since 2009, tax revenue is declining, the deficit is increasing and the IIF wants economically insane tax hikes. El Economista reports IIF believes that the Spanish economy will contract by 2% in 2013The Institute of International Finance (IIF) believes the Spanish economy contraction will accelerate to register a gross domestic product (GDP) decline of 2%. "The decline in GDP seems likely to accelerate to 2% in 2013 after 1.4% in 2012, as high unemployment, tight monetary conditions and current lower wages further reduce domestic spending and weak demand contain domestic exports," said the IIF in a report on the eurozone. The agency believes that this growth outlook "much weaker" have made ​​the agreed deficit targets for 2013 and 2014 are "unreachable", and believes that this year will close above 6%.

    Eurozone Unemployment at Record 12 Percent — Unemployment across the 17 European Union countries that use the euro has struck 12 percent for the first time since the currency was launched in 1999, official figures showed Tuesday. Eurostat, the E.U.’s statistics office, said the rate in February was unchanged at the record high after January’s figure was revised up to 12 percent from 11.9 percent. Over the month, a net 33,000 people in the eurozone joined the ranks of the unemployed. Spain and Greece continued to suffer from unemployment rates above 26 percent, and many other countries were seeing their numbers swell to uncomfortable levels. It’s not all doom and gloom. Germany, Europe’s biggest economy, has an unemployment rate of only 5.4 percent. That’s even better than the U.S. rate of 7.7 percent. The February figures came before the recent Cyprus crisis, which has reignited concerns over the future of the euro. Under the terms of its bailout, big depositors in the country’s two top banks are facing hefty losses.

    Unemployment in Euro Zone Reaches a Record 12% - NYT - While the euro zone has been transfixed lately by the Cyprus meltdown, another and potentially bigger European crisis has continued to simmer: record-high unemployment. The euro zone jobless rate rose to 12.0 percent in the first two months of the year, the latest in a series of record highs tracing to late 2011, Eurostat, the statistical agency of the European Union, reported Tuesday. The agency revised upward the January jobless rate for the euro zone from the previously reported 11.9 percent, itself a record. For the overall European Union, Eurostat said the February jobless rate rose to 10.9 percent from 10.8 percent in January, with more than 26 million people without work across the 27-nation bloc. Both the jobless rates and the number of unemployed are the highest Eurostat has recorded in data that reach back to 1995, before the creation of the euro. Spending cuts and tax increases aimed at trimming debt and addressing the financial crises in bailed-out euro zone countries, and the rising rate of joblessness in much of the currency bloc, “are feeding off of each other,” “It’s a bit of a vicious circle,”. “Europe is pursuing a policy that is self-evidently failing.”

    Euro slips on dismal PMI, record unemployment - The final March manufacturing purchasing managers’ index for the euro area showed that activity contracted at an accelerating pace in March, dropping to a three-month low of 46.8. A reading of less than 50 indicates activity shrank. Separately, official data showed the number of unemployed in the euro zone hit a new record above 19 million in February, while the unemployment rate hit 12%. Against that backdrop, it’s difficult to expect European Central Bank President Mario Draghi to do anything to talk up the euro when he holds his monthly news conference after the central bank’s monthly policy meeting on Thursday, according to Kathleen Brooks, research director at in London.

    Eurozone unemployment at record 12 percent - Unemployment across the 17 European Union countries that use the euro has struck 12 percent for the first time since the currency was launched in 1999, official figures showed Tuesday. Eurostat, the EU's statistics office, said the rate in February was unchanged at the record high after January's figure was revised up to 12 percent from 11.9 percent. Over the month, a net 33,000 people in the eurozone joined the ranks of the unemployed. Spain and Greece continued to suffer from unemployment rates above 26 percent, and many other countries were seeing their numbers swell to uncomfortable levels. It's not all doom and gloom. Germany, Europe's biggest economy, has an unemployment rate of only 5.4 percent. That's even better than the U.S. rate of 7.7 percent. The February figures came before the recent Cyprus crisis, which has reignited concerns over the future of the euro. Under the terms of its bailout, big depositors in the country's two top banks are facing hefty losses.

    Vital Signs Chart: Euro Zone Unemployment at 12% - The euro zone is still grappling with a lack of jobs. The unemployment rate for the currency bloc’s 17 nations was a seasonally adjusted 12% in February, up from 10.9% in February 2012. Among member nations with the lowest unemployment rates are Austria, at 4.8%, and Germany, at 5.4%. Among members with the highest unemployment rates is Spain, at 26.3%.

    Eurozone Youth Face Unemployment Catastrophe - Youth unemployment hit nearly 60% in Greece in February, according to new figures published on Tuesday by the Eurostat statistics agency, revealing widespread job losses across the Eurozone as austerity wreaks a "cycle of decline." Additionally, Eurostat said February unemployment for youth workers (under 25) hit 55.7% in Spain, 38.2% in Portugal and 37.8% in Italy, following Greece's 58.4% Overall unemployment in the Eurozone, broke previous records at 12%. The number of people out of work in the region reached a total of 19.07 million. Eurostat stated that the overall rate had "risen markedly" compared with February 2012, when it was 10.9%.Greece and Spain, among the countries hit hardest by the Eurozone crisis, have in turn seen the most extreme austerity measures imposed by the Troika.

    Decoupling: One expensive euro | The Economist - MOST of the time, American economic trends closely track those in Europe and vice-versa. When growth in one slows so does growth in the other. When one's economy tanks so does the other's, as in late 2008. And when recovery begins in one, so too does a rebound begin in the other, as in mid-2009. Sort of. In fact, America managed slightly better growth in the early years of the Great Recession than did the euro area. The overall divergence in recovery paths widened slowly through 2010, but as of 2011 the gap has grown much larger. For a simple reason: America's economy has trundled on growing at a fairly steady pace over the past two years while the euro-zone economy has been stuck in recession.The contrast only seems to be growing starker. Forecasters now reckon that the American economy may have grown at close to a 4% annual pace in the first quarter of 2013. Meanwhile, the euro area's recession once again appears to be deepening; the latest PMI data are particularly bleak. In March, manufacturing activity declined across the euro area, from Germany to Greece. Through February, unemployment continued to worsen, albeit at a slowing pace. The March figures now coming in suggest the early-2013 slowdown in job loss has probably come to an end.

    One Size Fits None - Paul Krugman - In today’s Business Insider, Joe Weisenthal reports on Europe’s truly dismal PMIs (survey-based indexes that act as early-warning indicators for official economic data). There’s no doubt at all that the continent is falling deeper into recession, even in the core countriesOne issue – which is the one that gets the most attention – involves the degree of austerity imposed on debtor countries. Clearly, debtor nations have very little choice about going along with the troika’s demands unless they’re willing to abandon the euro – and that’s a line nobody has yet been willing to cross, although Cyprus and the onset of capital controls bring the possibility closer. As for the troika itself, I would argue that enlightened self-interest on their part would call for milder austerity – loosening up by a few percent of GDP would make relatively little difference either to debt dynamics or to the pace of internal devaluation, but could be make or break for the political outlook. But even austerity skeptics would agree that some austerity in these countries is unavoidable; that’s the price of one-size-fits-all monetary policy. But there’s a separate issue – the status of Europe as a whole. What has happened in Europe is that the peripheral countries have been forced into extreme austerity, but this has not been offset in the core – in fact, core countries have also engaged in austerity measures, albeit not as severe. So the overall result has been a sharp fiscal contraction in Europe – the cyclically adjusted balance is now much tighter than it was before the crisis, even though private-sector demand remains very weak — with no offset from looser monetary policy.

    Chart Of The Day: Euro Area Unemployment Hits New Record High - It appears like the New Normal is merely a phrase used to describe daily records in virtually everything: the Dow Jones, the S&P, US foodstamps, sovereign bailouts, US total debt, and, today, Euro Area unemployment, which just rose to a fresh all time high 12%. From Bloomberg brief: "Euro-area unemployment rose to a record 12 percent in February and January’s figure was revised up to the same level from 11.9 percent estimated earlier, the European Union’s statistics office said. Jobless rates in January ranged between 4.9 percent in Austria and 27 percent in Greece. While rates in the euro area have risen by 1.1 percent point in the past year, unemployment has fallen by 0.6 percentage point to 7.7 percent during the same period in the U.S." Or said otherwise, European unemployment has now been rising constantly for 22 consecutive months - the longest period for deteriorating unemployment since the early 1990s, which, however, is to be expected for a continent which as we showed yesterday, has now reverted to 19th century growth rates.

    Greece Jobless Figure: Youth Employment At 58% - Youth unemployment has nearly hit 60% in Greece, new figures on EU unemployment have revealed. According to statistical agency Eurostat's latest available figures, the jobless rate for young Greeks hit 58.4% in December. The figure is expected to worsen before the start of the traditional summer tourist season. Meanwhile, Eurostat said February unemployment for the under-25s topped 55.7% in Spain, 38.2% in Portugal and 37.8% in Italy. The EU described the latest level of unemployment across the eurozone, which stood at 12% for February, as "unacceptable". With more than 19 million people on unemployment benefits, the EU said it was a "tragedy" for Europe. The figures and a weak manufacturing sector report added to the gloom after data earlier this year had encouraged some hope the European economy might finally have touched bottom. Analysts suggested the jobless figures are set to worsen, with jobless queues likely to grow as the debt crisis continues to sap the economy.

    Europe’s leaders paralysed as EMU jobless rate hits record high - Eurozone unemployment reached a record 12pc in February and looks certain to ratchet higher as fiscal cuts deepen and manufacturing continues to struggle, raising the spectre of social explosion across southern Europe. A total of 19m people were out of work in the 17-member bloc in February, the European Union’s statistics office said on Tuesday, a rise of 1.77m on the same month last year. Greece was the worst affected, with unemployment at 26.4pc, but Spain remains the hardest hit of the large economies with a jobless rate of 26.3pc. Youth unemployment is above 60pc across large parts of the country. Almost 2m jobless workers have been out of work so long in Spain that their benefits have expired. “Such unacceptably high levels of unemployment are a tragedy for Europe and a signal of how serious a crisis some eurozone countries are now in,” said EU jobs commissioner Laszlo Andor. At the other extreme, the jobless rate was 4.8pc in Austria and 5.4pc in Germany, a North-South chasm that makes it increasingly difficult to fashion a viable policy response within the limits of monetary union. France slipped deeper into the southern camp, shedding 20,000 to 30,000 jobs each month and unemployment hit a post-monetary-union high of 10.8pc.

    Eurozone data stinks up again - Overnight was also another round of  manufacturing PMI data and there wasn’t any good news in it. Germany manufacturing hit a 3 month low, French data continues to worsen,  Spain is accelerating downwards, as is GreeceThe Netherlands is getting weaker and even Ireland took a dive in March: Comments from Markit Economics wrap the dour data well: The Eurozone manufacturing sector looks likely to have acted as a drag on the economy in the first quarter, with an acceleration in the rate of decline in March raising the risk that the downturn may also intensify in the second quarter.The surveys paint a very disappointing picture across the region, with all countries either seeing sharper rates of decline or – in the cases of Germany and Ireland – sliding back into contraction. Companies reported that signs of stronger demand from markets such as Asia and the US were countered by a renewed weakening of demand within the euro area, in turn reflecting deteriorating business and consumer confidence.

    Euro-da-Fé - Nonplussed by this week’s unemployment report showing the Eurozone jobless rate rising to an unprecedented 12%, members of the European Parliament and Europe’s national governments pressed ahead on Wednesday with passage of a stringent new package of austerity measures.  Dubbed “hyperaustérité” or “Übersparpolitik” by its backers, the new program of ruthless cuts and social demolition promises to deliver even higher levels of joblessness, misery and hopelessness than has been achieved so far by earlier rounds of austerity.Along with the new economic measures, the European Union (EU) also announced its intention to change its name to the “European Sadomasochistic Cult.”  The new ESC will take the leading role in the implementation of European hyperausterity.  Commentators outside Europe have expressed surprise at the willingness of Europeans to accept month upon month of seemingly meaningless and self-inflicted pain.   However, longtime observers of European history and internal politics have been less surprised, and have suggested current events are fully consistent with enduring European traditions of tormenting themselves for no good reason. ESC officials will also supervise the creation of a number of new programs aimed at promoting ritual penitence and mortification across the continent.  This new Flagellation 2013 initiative has already begun to yield fruit in several European countries.

    The euro crisis: Has anyone seen the ECB? | The Economist: LET'S just review the brutal facts:

    • • The economy of the euro area has been in recession since the third quarter of 2011.
    • • The euro-area unemployment rate is at a record-high 12%, up more than two percentage points from 2011.
    • • Year-on-year inflation is falling and is now down to 1.7%. Monthly inflation rates are flat to falling across most of the euro area.
    • • The latest data indicate that recession continued through the first quarter and may have been deepening as of March.

    The European Central Bank has a price stability mandate, and so, superficially, it doesn't have to care about a terrible performance on output or employment. In reality, of course, terrible performances on output and employment feed into falling inflation. One would think that the ECB would be worried about the possibility that inflation may soon slip well below its target.

    What does the ECB think it is doing? - Or rather, why isn’t it doing something? Consumer price inflation is currently 1.7%. The OECD expects 1.6% as a whole for 2013, and 1.2% for 2014. The ECB sees downside risks due to the impact from lower activity, which it acknowledges is falling but which it hopes will recover soon. The OECD expects GDP to be flat this year, and increase by 1.3% next - is that what is meant by a recovery? On activity the ECB sees downside risks, but does not mention any upside risks. On the prices side they see upside risks from administered prices, VAT and oil, but for all three it is questionable whether it should react to these type of shocks at all.  In fact, if you look at other measures of inflation, the inactivity is even more puzzling. Annual increases in the GDP deflator have been at or below 1.2% since 2009, and the OECD expect a rise of only 1% in 2014. Wage increases (compensation per employee) have been below 2% since 2009, and are expected by the OECD to be around 1.5% this year and next. (Wages should normally increase by more than price inflation because of underlying productivity growth.)  With this in mind I read Draghi’s statement today, where he announced no change in the 0.75% interest rate, looking for some justification for why nothing was being done despite falling activity and below target inflation. After listing all the reasons that would normally suggest cutting interest rates, there was this: “Against this overall background our monetary policy stance will remain accommodative for as long as needed.”

    Trends behind declining LTRO balances; Italy overtakes Spain as the largest LTRO borrower - As European banks find some private sources of capital to fund themselves, they continue to repay their ECB loans - particularly in the 3y LTRO program. FoxBusiness: - Next week, nine banks will repay just over 4 billion euros ... in loans during the first round of three-year financing in late 2011, ECB data showed Friday. Eleven banks will repay just under EUR4 billion of the second borrowing spree in early 2012. Total repayment is just over EUR 1 billion more than was repaid this week.Part of this repayment trend however is coming from over-borrowing in early 2012. As banks, particularly in Spain saw their deposits dwindle, they went into a panic mode, borrowing all they possibly could - particularly with Spain's government "encouraging" them to buy government paper. But as portions of the deposits came back (see post) and banks being able to sell some government paper (thanks to the ECB's commitment to buy it), they are repaying some central bank borrowings.

    Underwater: The Netherlands Falls Prey to Economic Crisis - The Netherlands, Berlin's most important ally in pushing for greater budgetary discipline in Europe, has fallen into an economic crisis itself. The once exemplary economy is suffering from huge debts and a burst real estate bubble, which has stalled growth and endangered jobs. "Underwater" is a good description of the crisis in a country where large parts of the territory are below sea level. Ironically, the Netherlands, once a model economy, now faces the kind of real estate crisis that has only affected the United States and Spain until now. Banks in the Netherlands have also pumped billions upon billions in loans into the private and commercial real estate market since the 1990s, without ensuring that borrowers had sufficient collateral. Private homebuyers, for example, could easily find banks to finance more than 100 percent of a property's price. "You could readily obtain a loan for five times your annual salary," says Scheepens, "and all that without a cent of equity." This was only possible because property owners were able to fully deduct mortgage interest from their taxes.

    Housing bust plunges Dutch into economic crisis - I have noted previously (here, here, and here), how the Netherlands housing system all but guarantees unaffordable housing and a susceptibility to housing bubbles, via:

    1. ridiculously easy credit, with a third of mortgages guaranteed by the government;
    2. mortgage interest tax relief and generous subsidies offered to home buyers;
    3. a dysfunctional rental market that encourages households to strive for owner-occupation; and
    4. severely restricted housing supply, which ensures that changes in demand flow predominantly into homes prices rather than new construction.

    Dutch house prices have fallen sharply since the onset of the Global Financial Crisis (GFC). According to the National Statistics Agency, Dutch house prices fell by -8% in the year to December 2012 to be down -18% since prices peaked in 2008, with nominal prices now back at June 2005 levels (see next chart).

    IMF Urges Denmark to Drop Risky Mortgages as Losses Loom - The International Monetary Fund is urging Denmark to phase out interest-only mortgages or risk destabilizing its housing market, as lawmakers and lenders debate whether to aid borrowers unable to pay their loans. “In many countries, this type of loan is forbidden, so it wouldn’t be given in the first place,” Yingbin Xiao, senior economist at the Washington-based IMF, said in a telephone interview. “Given that this is an option in Denmark, we think it would be prudent for them to phase them out gradually because of the risk. The Danish market already has experienced a correction.” The IMF is now adding its voice to a growing body of critics, including the central bank and Standard & Poor’s, arguing the interest-only loans have weakened Denmark’s $500 billion mortgage market. Though the model helped keep mortgages affordable during recessions, failure to amortize has underpinned growth in private debt to a world-beating 322 percent of disposable incomes, S&P estimates.

    Welcome to Ireland, where mortgage payments are apparently optional – Quartz: Ireland’s homeowners are the European and perhaps the world champions in not repaying mortgages. The country’s national debt has increased fourfold in about as many years. Its banking system is being kept afloat by borrowing from Europe. And while a change in the law may soon force the banks to start cleaning up their balance sheets, nobody is quite sure how bad a mess they will find there when they do.Welcome to Ireland, where the hangover is in fact just beginning.The RisingIn the last few years, a staggering number of Irish homeowners have simply stopped making mortgage payments. The Irish central bank says that at the end of December 2012, 11.9% of Ireland’s mortgages were late by more than 90 days, up from September’s 11.5%.And the truth is probably even worse. The chart above, which was produced by Deutsche Bank using Moody’s data, pegs the percentage of Irish mortgages that are three months late somewhere closer to 16% in September. S&P analysts argue that 25% of Ireland’s home loans are in some kind of trouble, either behind on payments, or in foreclosure, or in forbearance, which is when the bank just isn’t collecting payments. (We’ll get to why later.)

    Sharp Deterioration in French Manufacturing - As expected, economic news in France continues to worsen. The Markit France Manufacturing PMI final data French manufacturing sector operating conditions continue to deteriorate at marked pace.  Key points:
    PMI remains indicative of sharp downturn despite rising to three-month high
    Output, new orders and employment fall further
    Prices charged cut at fastest rate since November 2009
    Summary: Operating conditions in the French manufacturing sector continued to worsen in March. Although the headline Purchasing Managers’ Index ® inched up to a three-month high of 44.0, from 43.9 in February, it continued to signal a marked rate of deterioration. The level of incoming new orders placed with manufacturers in France decreased further during March, extending the current period of contraction to 21 months. Moreover, the pace of decline accelerated slightly since February. Reduced workloads prompted French manufacturers to cut staffing levels further in March. The rate of job shedding was solid, albeit the slowest in three months.

    Top executives join France exodus - New evidence of top French executives leaving the country has emerged as President François Hollande battles a stalling economy and tumbling approval ratings. Two senior executives at Moët Hennessy, the champagne and cognac arm of the LVMH luxury group, are moving to London from Paris and the head of Dassault Systèmes, the software arm of Dassault Aviation, said some senior managers of his company had left and he was considering following suit. LVMH, headed and controlled by Bernard Arnault – Europe’s richest man – told the Financial Times that the moves by Gilles Hennessy, an LVMH director who is also executive vice-president of commercial at Moët Hennessy, and Christophe Navarre, chief executive of Moët Hennessy and a member of LVMH’s executive committee, were not because of tax reasons. But Bernard Charlès, chief executive of Dassault Systèmes, was sharply critical of the high tax policies of Mr Hollande’s Socialist government, telling Le Monde newspaper in an interview: “Residing in France has become a big handicap. Very largely, our hiring of top managers will have to be done elsewhere than in France.” The news follows Mr Arnault’s own application for Belgian citizenship, leaked last September, which poured fuel on a fiery debate in France about entrepreneurship, patriotism and high taxes.

    The making of a German Europe - In the end, the Cypriots swallowed the bitter medicine. Facing national humiliation and a bleak future many complain their small nation has been forced to succumb to the will of a larger, merciless power – Germany. Newspapers in Cyprus have portrayed Angela Merkel, the German chancellor, as a Hun – and accused Wolfgang Schäuble, her finance minister, of talking like a “fascist”. They are echoing the anti-German sentiment that has become commonplace in Greece and Italy. This Germanophobia is unfair. Behind all the shouting and the wrangling, German taxpayers will once again be funding the biggest single share of yet another eurozone bailout. It seems a bit harsh that Germany is extending loans of hundreds of billions of euros to its neighbours – only to be accused of neo-Nazism in return.  Yet growing German power – and growing resentment of that power – are now the main themes in European politics. This is a historic irony, given that the main purpose of the whole European project, from the 1950s onwards, has been to end for ever the idea that Germany is simply too powerful to coexist comfortably with its neighbours. The stock phrase – in Berlin, as much as in Paris or Brussels – was about the need for a “European Germany, rather than a German Europe”. After the Cyprus crisis, however, it looks increasingly like this is a German Europe – because the direction of a continent in crisis is being shaped, above all, by the ideas and preferences of politicians and officials in Berlin.

    Portugal Court Strikes Down Austerity Measures - Portugal's Constitutional Court struck down some of the austerity measures planned by the government, forcing Prime Minister Pedro Passos Coelho to find new ways to lower the budget deficit or risk derailing the country's €78 billion ($101 billion) international bailout. The ruling, issued late Friday, said that plans to trim public employee wages and retiree pensions—while not touching the income of other groups—violated the constitutional principle of equality. It also overturned a planned tax on unemployment benefits. As a result, the government must fill a hole estimated at €860 million to €1.3 billion in its €5.3 billion budget for 2013, according to calculations by several independent economists. While some economists said the government could find ways to fill the gap, the ruling was still a political blow that could weaken its authority to demand new sacrifices from a recession-weary population. Portugal, one of the euro zone's poorest countries, has sunk deeper into recession since it began applying spending cuts and tax increases imposed by its bailout lenders two years ago. Since then the economy has contracted by nearly 5% and the unemployment rate has risen to 17%.

    I.M.F. and Europe Set Strict Terms for Cyprus - The International Monetary Fund said on Wednesday that it would contribute 1 billion euros, or about 10 percent, of a bailout package for Cyprus but stipulated that the country would need to take tough measures to overhaul its beleaguered economy.The other 9 billion euros, or $11.6 billion, of the bailout is to come from the other 16 euro zone countries whose approval is still required. “This is a challenging program that will require great efforts from the Cypriot population,” Christine Lagarde, the managing director of the I.M.F., said in a statement issued by the fund, which is based in Washington. The commitment comes after the completion of a memorandum of understanding the fund has drafted with Cyprus and the other two international organizations involved in the bailout, the European Central Bank and the European Commission. Though it has not yet been made public, officials say the agreement includes budget cuts, the privatization of state-owned assets and other conditions Cyprus must meet.

    Bomb from Brussels: Cyprus Model May Guide Future Bank Bailouts - Jeroen Dijsselbloem's original game plan was to just keep a low profile. Dijsselbloem seemed determined to become the most boring of all the boring bureaucrats in Brussels -- until last Monday, that is, when he did something no one would have anticipated: He detonated a bomb. The way that large depositors and creditors were being drawn into the bailout of Cypriot banks, he said, could become a model for the entire euro zone. In future aid packages, he said, one must look into whether bank shareholders, bond holders and large depositors could participate so as to spare taxpayers from having to foot the bill. He was announcing nothing less than a 180 degree about face. Cyprus as a model? Dijsselbloem had hardly finished his comments before international news agencies began registering its impacts. Markets around the world nosedived, the euro sank to a four-month low and EU leaders had to rush into damage-control mode, as did the man who triggered the storm himself.But increasing numbers of European politicians would like to see bank shareholders and investors bear a greater share of crisis risk. The EU may be changing its strategy.

    Are All G20 Bank Depositors Exposed to a Cyprus Style Seizure of Deposits for a 'Bail-in?' - Dave from Golden Truth has let me know of an interesting quote from an article by Eric Sprott titled Caveat Depositor which *could* explain why countries like New Zealand and Canada are quietly tilting towards seizing bank deposits to recapitalize failed banks. "If there is a risk in a bank, our first question should be: ‘Ok, what are you the bank going to do about that? What can you do to recapitalise yourself?’ If the bank can’t do it, then we’ll talk to the shareholders and the bondholders. We’ll ask them to contribute in recapitalising the bank. And if necessary the uninsured deposit holders: ‘What can you do in order to save your own banks?’” Jeroen Dijsselbloem, March 26, 2013. Apparently this template has already been agreed to by the G20 according to Dave. "Because the use of taxpayer-funded bailouts would likely no longer be tolerated by the public, a new bank rescue plan was needed. As it turns out, this new "bail-in" model is based on an agreement that was the result of a bank bail-out model that was drafted by a sub-committee of the BIS (Bank for International Settlement) and endorsed at a G20 summit in 2011".

    Why Go After the Depositors To Save 'the Taxpayers? -- Why go after depositors, in order to save the 'taxpayers.' Aren't they the same people? Well, obviously in the case of the European Monetary Union this is not the case. Wealthy Germans feel no kinship with Cypriots, Greeks, or Spaniards. But what about New Zealand and Canada, countries that have their own sovereign currencies and are viable political entities? Are the taxpayers and the depositors there essentially the same constituent base? And what about the rest of the G20 that seemingly has adopted the same template of sacrificing depositors to save the gambling bankers? What are they thinking? When a major financial institution gets into trouble it is not usually a sudden event for the most part, but plays out over a period of time. This is true from MF Global to the Popular Bank of Cyprus to Lehman Brothers. The public does not see what is going on because the financial system is opaque. But wealthy insiders often know what is going on in their interconnected world of money. Remember the stories of the uber-wealthy who managed to get their funds out of MF Global before it collapsed? I seem to recall those friends of the people, the Koch Brothers, being mentioned.

    Cyprus and the financing of banks - The final deal agreed to restructure the Bank of Cyprus involves the bail-in of senior bond holders and large depositors (over 100,000 Euros). What this means is that in return for the seizure of some of their money, bond holders and depositors will be provided with shares in the resolved banks. They will become part-owners of the bank. From the point of view of small depositors, this looks rather good. It ensures that their deposits are protected not only now, but in the future. I pointed out in a previous post that small deposits are only protected to the extent that their sovereign can afford them (or to the limit of the amount that can be raised from other banks): but if large deposits and senior bonds can be bailed-in, deposit insurance should always  be affordable - shouldn't it? That is, of course, assuming there are any. I shall return to that shortly.The Bank of England's Financial Policy Committee has recommended recently that banks should have more capital. Contrary to popular opinion, capital is not "cash" - it is shareholders' funds. It is the difference between the bank's debt and its assets. And borrowing - of any kind, including from the central bank - is NOT "capital", except under certain circumstances that I shall explain.

    Bail-In Blues: Luxembourg Warns of Investor Flight from Europe - The debate over this week's "bail in" of bank account holders in Cyprus as part of the country's debt crisis bailout is continuing to simmer in Europe. In Luxembourg, Finance Minister Luc Frieden has warned that the example set in Cyprus by taxing people holding €100,000 ($129,000) or more in their accounts could drive investors out of Europe.  "This will lead to a situation in which investors invest their money outside the euro zone," he told SPIEGEL. "In this difficult situation, we need to avoid anything that will lead to instability and destroy the trust of savers."  Earlier this week, Euro Group President Jeroen Dijsselbloem sparked an enormous controversy after stating that the solution found in Cyprus could be applied throughout the euro zone in the future.

    'British solution' saves Laiki UK deposits from Cyprus haircut - Savers in Britain's four branches of Cypriot lender Laiki will be shielded from deep losses under the bail-out deal as all deposits move to Bank of Cyprus' UK subsidiary. Under the deal, Laiki UK customers will regain access to any assets over €100,000 (£84,000), which had been frozen in the wake of a eurozone rescue mandating the break up and resolution of the ailing lender. Laiki Bank, also known as Cyprus Popular Bank, has three branches in London and one in Birmingham holding around £270m across some 15,000 accounts. These branches will continue to operate under the deal, Bank of Cyprus said in a statement. The Bank of England's new Prudential Regulation Authority, which takes over part of the defunct FSA's function, said the money will be covered under Britain's compensation scheme, which protects deposits up to £85,000. Bank of Cyprus UK is a separately capitalised UK subsidiary of its Cypriot parent, unlike Laiki, and already operates under British regulation.

    Number of Britons on ‘zero hours’ contracts hits record high - Record numbers of British workers are being employed on "zero hours" contracts which keep staff on standby and deny them regular hours, official figures disclose.The number of workers in jobs without any guarantee of regular hours or pay nearly doubled during last year to reach 200,000, according to data from the Office for National Statistics. The contracts – now used by almost a quarter of Britain's major employers - legally allow firms to employ staff, often in low paid jobs, without any guarantee of actual work, or income. In turn workers are able to turn down work and go for other jobs as they are not contracted to work any hours. Last month, Government figures showed the number of people in work had risen to 29.73 million - the highest level since records began in 1971 - during the three months to the end of December.

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