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

Saturday, April 13, 2013

week ending April 13

U.S. Fed balance sheet grows again in latest week (Reuters) - The U.S. Federal Reserve's balance sheet liabilities reached a fresh record size on an increase in the central bank's holdings of U.S. government debt, Fed data released on Thursday showed. The Fed's balance sheet liabilities, a broad gauge of its lending to the financial system, stood at $3.210 trillion on April 10, compared with $3.198 trillion on April 3. The Fed's holdings of Treasuries totaled $1.814 trillion as of Wednesday, up from $1.806 trillion the previous week. The Fed's ownership of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and the Government National Mortgage Association (Ginnie Mae) totaled $1.071 trillion on Wednesday, matching previous week's total. The Fed's holdings of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Bank system was $72.05 billion, down slightly from $72.42 billion the prior week. The Fed's overnight direct loans to credit-worthy banks via its discount window averaged $10 million a day, faster than the $8 million daily average of the prior week.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--April 11, 2013: Federal Reserve statistical release

Pianalto Says Fed Could Trim Bond Buying Amid Risks - The leader of the Cleveland Fed continued to strike a hawkish tone on monetary policy, saying in a speech Monday the central bank could slow its bond-buying program and still provide considerable stimulus to the economy. “Slowing the pace of purchases could help minimize the potential risks associated with our large and growing balance sheet,” Federal Reserve Bank of Cleveland President Sandra Pianalto said in the text of a speech. “Even continuing asset purchases at a reduced pace, and limiting the size of the overall program would enable the Federal Reserve to continue adding accommodation and providing meaningful support to economic growth and job creation,” she said.

Fed’s Williams Sees Reduced Fed Bond Buying in Second Half of 2013 - The economy could be on a strong enough footing by the second half of the year for the Federal Reserve to begin winding down its bond-buying programs, John Williams, president of the Federal Reserve Bank of San Francisco, said in an interview with The Wall Street Journal.  Mr. Williams said this has long been his view and a disappointing jobs report Friday wouldn’t alter his thinking too much. The Labor Department said Friday that employers added just 88,000 jobs in March, after expanding by more than 200,000 in three of the previous four months. “We just have to get away from overreacting to one piece of data,” he said.

Fed Watch: Handicapping Labor Data -- We know the Fed intends to taper off quantitative easing. We know the timing is dependent on progress in achieving a stronger and sustainable recovery in the labor market. Courtesy of San Francisco President John Williams, we have also know the time they expect to be confident of that recovery - this summer, which could be as early as the June FOMC meeting.  June is earlier than I had anticipated. I had expected the Fed would want to be confident that the economy would not experience one of its Spring/Summer swoons.  Moreover, given that inflation remains under the 2 percent target and it is likely that significant slack in the labor market will remain deep into 2014, there does not appear to be any need to rush into scaling back quantitative easing.  I don't think they would want to increase the pace of purchases just two months after a decrease. I would expect they would want to be sure that they did not have to reverse course.  But that does not seem to be the case. Instead, it is evident that FOMC members anticipate ending asset purchases this year. This I find somewhat puzzling, as they seem to have reached a consensus that they need to be scaling back the asset purchase program on the basis of their own forecast, but that forecast itself anticipates that unemployment - what Vice Chair Janet Yellen described as the “the best single indicator of current labour market conditions”- will remains unacceptably high in the 6.8 to 7.3% range at the end of 2014. Indeed, arguably the Fed has fallen back into the trap of placing an implicit calendar date for the end of quantitative easing, rather than leaving the timing data dependent. It seems they want to end the program by the end of 2013, and are desperately hoping the data cooperates.

Fed’s Plosser: Bond Buying Should End by Year’s End - The Federal Reserve has seen enough progress in reducing unemployment to start shrinking the size of its bond-buying program, a veteran central banker said Thursday.“The data we have received since last September, and my outlook, are sufficient to indicate to me that it is appropriate to begin tapering the pace of purchases with the goal of ending them before the end of the year,” Federal Reserve Bank of Philadelphia President Charles Plosser said in the text of a speech to be given in Hong Kong. The Fed is currently pursuing an open-ended program to buy $85 billion a month in Treasury and mortgage bonds, in a bid to spur growth and lower unemployment. Mr. Plosser, who is not currently a voting member of the monetary-policy setting Federal Open Market Committee, believes the central bank has seen enough good news on the jobs market to shift gears.

Rosengren: Fed Mandate Argues for Aggressive Stimulus - Federal Reserve Bank of Boston leader Eric Rosengren defended his central bank’s unique job and inflation mandate Friday, and argued those goals continue to call for a very aggressive course of stimulus to get the economy back on track. “Falling short on both elements of the Federal Reserve’s dual mandate from Congress – inflation and employment – provides a strong rationale for continuing our highly accommodative monetary policy,” the official said in the text of a speech presented at a conference at his bank. “With inflation at 1.3%, and with my own forecast that inflation will remain well below our 2% target over the next two years, one could argue that consistently missing our inflation target alone would justify a highly accommodative policy,” he said. Add in the weak state of the job market and the case for stimulus only grows stronger, he said.

Fed Divided Over When to End Stimulus— Federal Reserve policymakers are divided over when to end extraordinary measures intended to encourage more borrowing and spending to help stimulate the U.S. economy, according to minutes of the Fed’s last meeting released Wednesday.The minutes of the Fed’s March 19-20 meeting were released at 9 a.m. EDT — five hours earlier than planned — after the Fed inadvertently sent them a day earlier to congressional staffers and lobbyists. The report showed that a few members want to end “relatively soon” a program that is spending $85 billion a month to purchases bonds. Those members say the costs likely outweigh the benefits. A few others saw the risks as increasing quickly and said the purchases would likely need to be reduced “before long.”Many members said an improved job market could lead them to slow purchases within a few months, and a few said economic conditions would likely justify continuing the program until late this year.

Fed Minutes: Key Passages - Here is a look at key passages in the Federal Reserve’s minutes. In a nutshell, the debate has begun on when to stop the $85 billion per month bond-buying program, but as often is the case, there are a wide range of views. And Fed chairman Ben Bernanke is playing his own views close to his chest as he watches the debate unfold:

FOMC Minutes: Benefits of QE "outweigh the likely costs and risks" - From the Fed: Minutes of the Federal Open Market Committee, March 19-20, 2013. A few excerpts:  The staff provided presentations covering the efficacy of the Federal Reserve's asset purchases, the effects of the purchases on security market functioning, the ways in which asset purchases might amplify or reduce risks to financial stability, and the fiscal implications of purchases. In their discussion of this topic, meeting participants generally judged the macroeconomic benefits of the current purchase program to outweigh the likely costs and risks, but they agreed that an ongoing assessment of the benefits and costs was necessary. Pointing to academic and Federal Reserve staff research, most participants saw asset purchases as having a meaningful effect in easing financial conditions and so supporting economic growth. ... A range of views was expressed regarding the economic and labor market conditions that would call for an adjustment in the pace of purchases. Many participants emphasized that any decision to reduce the pace of purchases should reflect both an improvement in their overall outlook for labor market conditions, as implied by a wide range of available indicators, and their confidence in the sustainability of that improvement. There is some disagreement, but the committee generally views the benefits of QE outweighing the costs.

Fed Watch: FOMC Minutes Signal End to QE -  As is now well known, the FOMC minutes were inadvertently released early. Robin Harding tells the story: ...“A Fed staffer inadvertently sent an email with the minutes to a group of contacts,” said the Fed. Sounds like an honest mistake - In any event, the minutes gave a clear indication that FOMC members were leaning toward pulling the plug on asset purchases by the end of this year: Members stressed that any changes to the purchase program should be conditional on continuing assessments both of labor market and inflation developments and of the efficacy and costs of asset purchases. In light of the current review of benefits and costs, one member judged that the pace of purchases should ideally be slowed immediately. A few members felt that the risks and costs of purchases, along with the improved outlook since last fall, would likely make a reduction in the pace of purchases appropriate around midyear, with purchases ending later this year. Several others thought that if the outlook for labor market conditions improved as anticipated, it would probably be appropriate to slow purchases later in the year and to stop them by year-end. It seems the center of gravity at the FOMC has shifted toward contentment with the current pace of progress in the labor markets. This seems somewhat odd to me; it is as if they were more interested in putting a floor under the recovery rather than trying to accelerate the pace of activity. The desire to pull the plug on the program as soon as possible also seems odd considering that the majority of policy makers find it to be effective:

Economists Expect Fed Bond Buying to Continue for Some Time - The somewhat discordant outlook Federal Reserve officials have for their bond-buying program stands at odds with the views top economists hold for central-bank policy. Key analysts reckon the Fed will be able to press forward into next year with its purchases of Treasury and mortgage bonds. They speculate it would likely be months before central bankers cut the buying from its current $85 billion pace per month. To be sure, there are a wide variety of views on the outlook for monetary policy, but many of Wall Street’s biggest forecasters don’t reflect the fragmented view portrayed in the March Federal Open Market Committee meeting minutes, released Wednesday. The minutes showed some officials favoring ending the program, while others want the purchases to be shrunk as a prelude to ending them, as others don’t see an end date looming. Consensus, such as it is, has “all but a few” central bankers expecting the Treasury and mortgage buying to continue through the middle of the year.

BlackRock urges Fed to rein in QE3 - One of Wall Street’s biggest money managers has called on the Federal Reserve to rein in its programme of quantitative easing, saying its bond-buying tactics are a “large and dull hammer” that have distorted markets and risk stoking inflation. Rick Rieder, who oversees $763bn in fixed income investments for BlackRock, spoke out as the Fed debates how long to persist with the unorthodox measures it has used to stimulate the US economy. His comments add BlackRock to the growing list of Fed critics who are warning of trouble ahead for the bond market. BlackRock has been an advocate of government debt in recent years, in comparison to the shrill voices that delivered premature warnings of higher rates. Mr Rieder’s shift comes as the asset manager pushes clients towards investments with less sensitivity to the effect of higher interest rates than long-dated bonds. Mr Rieder favours government debt that matures within five years, corporate and emerging market debt, and bank loans that offer floating interest rates. “Fed policy has had a distorting effect on capital allocation decisions of all kinds at virtually every level of the economy,” he told the Financial Times. “It is a very large and dull hammer for markets.” The Fed buys $85bn of Treasuries and mortgage-backed securities every month, about two-thirds of the net issuance of such bonds. Mr Rieder called for the Fed to cut its bond-buying to $40bn-$45bn a month, a level that would just maintain its stock of holdings by reinvesting debt as it matures.

Shrilling for Thoma - Mark Thoma once claimed to be pleased that I was shrilly criticizing him.  I sure hope he meant it, because here I go again.  He comments on the newly released FOMC minutes I have long believed that the Fed failed to appreciate the signalling component of quantitative easing. Indeed, I could be convinced it was the most effective channel of transmission. I am glad to see that policymakers are starting to see that as well. In comments I go to FRED and stay there. The signalling effect of QE should show up as low medium term interest rates.  I think there really is no sign of this on the dates of announcement of QE2 (3 or 4 dates right there) QE3 or QE3.1 (Dec 12 2012).  I don't see it either on the day (as asset prices should respond quickly) or over an interval of time.  I really think that the hypothesis that signalling future short term rates is a highly effective component of QE is fairly easily testable and rejected by the data.

'Monetary Policy in a Liquidity Trap' - David Andolfatto argues this is not "grandma's liquidity trap": Krugman has an interesting article today, Monetary Policy in a Liquidity Trap. I (sort of) agree with much of it. But I believe that a few comments are in order...In grandma's liquidity trap, the real interest rate is too high because of the zero lower bound. Steve [Willaimson] argues that in our current liquidity trap, the real interest rate is too low, reflecting the huge world appetite for relatively safe assets like U.S. treasuries.  If this latter view is correct, then "corrective" measures like expanding G or increasing the inflation target are not addressing the fundamental economic problem: low real interest rates as the byproduct of real economic/political/financial factors.  Given these "real" problems, Steve's view is that the Fed is largely irrelevant. But he does assign hope to the Treasury: increase the supply of its securities to meet the world demand for them. I've been making similar arguments for some time now; for example, here.

Simple Natural Goodness - Paul Krugman - One of the baffling aspects of economic debate during this Lesser Depression, or so it seems to me, is the apparent urge of many economists to shy away from straightforward conclusions, the urge to make the simple complicated and the clear blurry. That’s certainly what seems to be happening in this round-robin from me, to Cowen/Andolfatto, to Brad DeLong. Other things equal, a lower real interest rate leads to higher demand for goods and services; however, we are currently suffering from inadequate demand, but can’t get the interest rate any lower because of the zero lower bound. So in that sense interest rates are too high, which means that it would be good to raise expected inflation, and also that there’s a case for temporary fiscal stimulus. But Cowen and co. say no, interest rates aren’t too high, they’re too low.  When I say that the rate is too high, I mean relative to the rate that would produce full employment, When they say that the rate is too low, I think they mean that it’s too low compared with some Platonic ideal of the interest rate — what the rate would be if we didn’t have safe asset shortage, or something. In terms of my diagram, they’re asserting, I think, that some set of changes — or maybe an alternative history — would have led the demand curve to be shifted to the right, and would have produced full employment at a higher real rate than the one we see. To which my response is, so? I guess this is an interesting point, if true — but you go to monetary policy with the economy you have, not the economy you wish you had. As far as I can see, it changes nothing about the policy analysis.

IMF warns over rock-bottom interest rates- The International Monetary Fund has warned central banks to be alert to the potentially damaging side-effects of ultra-low interest rates and "unconventional" measures to boost growth after the deep slump of 2008-09. While backing the use of exceptional action to prevent the collapse of the financial system, the IMF said the risks would grow the longer the stimulus was kept in place. The Washington-based body used a chapter in its latest global financial stability report to note that rock-bottom interest rates and purchases of government bonds might be shifting instability from banks to other parts of the financial system or other parts of the global economy. It added that care would have to be taken when central banks decided the time was right to remove the stimulus. "Interest rate and unconventional policies conducted by the central banks of four major regions – the euro area, Japan, the UK and the US – appear indeed to have lessened vulnerabilities in the domestic banking sector and contributed to financial stability in the short term," the IMF said. "Policymakers should be alert to the possibility, however, that financial stability risks may be shifting to other parts of the financial system, such as shadow banks, pension funds and insurance companies. The central bank policy actions also carry the risk that their effects will spill over to other economies."

The Fed, Primary Dealers, and the Ineffectiveness of Monetary Policy - The Federal Reserve's primary tool for monetary policy is buying or selling securities, in particularly US notes, bills and bonds. But... it doesn't buy and sell bonds to you and me. Instead, it deals with primary dealers - the complete list is here. The list includes reputable and scandal-free companies such as Citigroup, Bank of America, Goldman Sachs, and UBS. What does it take to get removed from the list? Well, the most recent change to the list occurred when MF Global was removed on October 31, 2011. By coincidence, that was the day that MF Global declared bankruptcy after making almost $900 million of other people's money disappear. Bear Stearns came off October 1, 2008, four months after the company imploded and sold itself to JP Morgan. Lehman came off a week after it declared bankruptcy. Other past luminaries include Countrywide, Drexel Burnham Lambert, Continental Illinois and Salomon Brothers, which makes for an interesting list if you tend to be the kind of person who remembers financial scandals of times past. I have no idea what criteria the Fed uses in picking its primary dealers - clearly controlling massive quantities of financial assets is a requirement, but financial viability and being off the public dole are not.

The Impact (if Any) of the Fed’s Dual Mandate - Eric Rosengren, the president of the Federal Reserve Bank of Boston, made a compelling case on Friday morning that the Fed’s dual mandate doesn’t really matter. That was not the point of Mr. Rosengren’s talk. He set out to defend the unusual operating instructions that require the Fed to seek maximum employment in addition to the standard focus of a central bank, maintaining price stability. In particular, he argued that over the last 20 years, the Fed has controlled inflation more successfully than central banks that operated under a single mandate. The chart below shows the Fed has held price inflation close to the 2 percent annual pace that the Fed, like most other central banks, regards as most healthy.So, the Fed is pretty effective at controlling inflation. The dual mandate doesn’t seem to be doing any harm. But it doesn’t seem to be doing much good, either.As Mr. Rosengren put it, over the last two decades, “the U.S. has a tighter inflation range and a broader unemployment range than many other countries with a single inflation mandate.” In other words, countries with single-mandate central banks have seen less fluctuation in unemployment rates than the United States.

Inequality and monetary policy - “Coincidentally (or not), three speeches that exemplify a renewed focus on inequality have been given in recent weeks by the three women on the Federal Reserve Board – Governor Sarah Bloom Raskin, Governor Elizabeth Duke, and Vice Chair Janet Yellen.” That’s an observation from Neal Soss of Credit Suisse in a note released at the end of last month, writing that inequality has increasingly appeared on the radar screen of monetary policymakers.  The note makes a number of points, but I would highlight and comment on two in particular. The first is about the difficulty of measuring inequality in US households in real time, and the second is about how monetary policy can (or can’t) address inequality.

Federal Reserve Officials Leave For Wall Street With Privileged Info - The Huffington Post and MSNBC's "Dylan Ratigan Show" filed Freedom of Information Act requests in January to obtain the minutes of Federal Open Market Committee meetings from 2007 to 2010. In response, the bank provided 513 pages of mostly blacked-out paper and cited policy to justify withholding the information. "[T]he Committee has a long-standing policy of routinely releasing full transcripts on a five-year schedule. Each year's transcripts will be made public in their entirety according to that schedule," the bank offered by way of explanation. By withholding the 2007 and 2008 minutes, the Fed is able to keep secret certain information on how it decided to respond to the financial crisis until after the presidential election, hampering what could be a serious debate between the two parties on its response.One of the few things not redacted in the Fed's FOIA response is the list of officials who attended each confidential meeting. Many of those people have since left the central bank and gone to work in the financial industry, taking with them privileged information about the Fed's thinking that is still closed to the public.

My Cohort Believes QE Only Benefits the Nation’s Wealthiest - Forbes - There was plenty of lively controversy last night as two hedge fund mavens, two immensely successful internet investment services, a closely-followed fixed income adviser and two journalists met to hash over the economic and market controversies of our day; there was just about unanimous opinion that Ben Bernanke’s 4 years of quantitative easing (QE) had for the most part benefited only the nation’s wealthiest cohort– without doing much practically to create more jobs for ordinary people. At least one participant was strident about phasing out QE and letting interest rates begin to rise, arguing vociferously that QE was just the most recent terrible major policy making mistake for America. . One closely followed blogger of sharp wit and tongue was clear that Messrs. Bernanke, Paulson and Geithner should have let the insolvent giant banks fail rather than stabilizing them with cheap money. There was more consensus about he likelihood of another financial crisis emanating from the Too Big To Fail banking giants The controversy over QE (Quantitative Easing) brought forth this pithy bit of tartness from the quick-witted chap just opposite me, who exclaimed that “QE is supply side economics for central bankers,” just like cutting taxes was the crux of the supply-side clique that ruled the economics of the Reagan administration in the 1980s. “Interest rates,” quipped my neighbor, ” are the traffic lights of economics today– and there are NO traffic lights,” meaning that zero interest rates are no cautionary obstacle to potential bubbles, I imagine.

Fed May Have to Tolerate Inflation to Fix Labor Problem - The Federal Reserve may have to push the unemployment rate beyond the point that it starts generating inflation if it wants to heal underlying labor-market weakness, a paper written by two economists working at the International Monetary Fund argues. The research, which was presented Friday at a conference held by the Federal Reserve Bank of Boston, sought to make sense of a substantial drop in the numbers of people seeking employment, at a time where the unemployment rate continues to decline. While the retirement of baby boomers has long been expected to lower what’s called the economy’s labor force participation rate, the decline seen since the start of the Great Recession and its aftermath has been sharper and more enduring than many had foreseen. The paper’s authors Fed board economists on leave to work at the IMF. They say in their study that the decline in labor force participation rates is largely tied to economic weakness. It isn’t the result of structural forces, and because of that, it means monetary policy can play a role in improving the state of the labor market.

Bond bull David Rosenberg is losing his comfort zone - The Fed likely believes Congressional Budget Office (CBO) estimates that the output gap (the amount of excess supply in the U.S. economy) is around 6%. That would be consistent with the Fed targeting a de facto -2% funds rate and thereby justifies continued balance-sheet expansion to achieve that objective. But what if the output gap is actually closer to 3%? Then we are talking about a Taylor rule estimate for the Fed funds rate of 0% and, as such, the Fed’s relentless experiment in adding more securities to its balance sheet would be providing too much juice to the system and risks building an inflationary process in the future. Prolonged periods of negative or zero real rates never end well. The Fed historically overstays on the easing cycle, and it is no different this time around.

Inflation Fears Overblown, IMF Says - Inflation is likely to remain stable as the global recovery strengthens, freeing central banks to spur growth with easy-money policies, the International Monetary Fund said in research published Tuesday. The findings counter concerns from some economists that low interest rates and extraordinary monetary policy set by the Federal Reserve, the European Central Bank and Bank of Japan may unintentionally spark an uncontrollable and damaging increase in prices. The IMF has long argued central banks need to provide financial oxygen to help revive anemic growth, giving governments breathing room to cut spending and curb their debts. But it hadn’t addressed worries that too much central bank fuel could light a fire under inflation.In its latest paper, the IMF said those fears are largely overblown. The findings are presented in a chapter of the fund’s flagship report, the World Economic Outlook, to be published in its entirety next week. The fund argued that because investors, companies and workers largely trust that central banks will hit their targeted inflation levels in the future, they won’t change prices much now.

The mystery of stable prices - WHY hasn't there been deflation? That has been one of the central mysteries of the Great Recession and its aftermath. In the 1930s soaring unemployment led to galloping deflation. In the early 1980s a 4.5 percentage point increase in the unemployment rate came alongside a drop in the core inflation rate from about 12% to under 3%. American unemployment rose by more between 2007 and 2010. And yet core inflation dropped only a bit, from a little over 2% prior to the recession to a low of 0.6% in 2010. Inflation has since recovered to 2% despite continued high unemployment. The experience across the rich world has been broadly similar.On the face of things, the answer is simple: inflation did not fall by much because central banks did not want it to. In the 1930s, central banks didn't care about deflation or didn't appreciate its costs and allowed it to occur. In the 1980s, disinflation was the explicit goal of monetary tightening. But in the 2000s, central banks worldwide responded aggressively to falling inflation, slashing policy rates to near zero, deploying quantitative easing, and using new communication strategies to raise inflation expectations back to target.

Why has the US broad money supply flat-lined in 2013? - The US money indicators have been showing something odd in the last few months. While the monetary base (M0) has been rising sharply due to increasing bank reserves (the liability side of the Fed's balance sheet), the broader money supply has stalled. Both M2 and MZM measures of money stock have been relatively flat this year. Some attribute this to limited bank lending driving the so-called velocity of money lower, "trapping" liquidity from entering the broader economy. That would explain the growing monetary base and stagnant M2 and MZM. But stalled credit growth can not be the explanation - simply because bank lending in the US continues to increase at a fairly constant pace since mid 2011. The answer has to do with cash balances, particularly in money market funds. The amount of cash in dollar money market funds has declined sharply since the beginning of the year. The retail accounts show a particularly large relative drop. In preparation for higher federal taxes, both individuals and institutions took capital gains, received special dividends, and pushed incomes into 2012 where possible (see discussion). And these accounts have been deploying this cash from the beginning of the year - with a big chunk of it apparently going to equities..In fact a closer look at the broad money supply trend shows that the growth has been fairly linear except for the late 2012 jump which has dissipated this year. That's why the broad money supply looks flat from the beginning of the year. Here is another example of "unintended consequences" of government policy and policy uncertainty.

America’s Most Profitable Export Is Cash - Two things I’ve heard my whole life that always seem within reach but have never occurred are that we will move to paperless offices and a cashless society. In theory, it seems simple enough; computers and the Internet should obviate the need for paper, and credit and debit cards and electronic bill pay should make cash superfluous. However, as we all know, we are no closer to a paperless office than we were at the dawn of the computer era. Same goes for the cashless society. As a new report from the Federal Reserve Bank of San Francisco explains, cash has not only held its own against competitors but continues to grow in popularity. Measured in dollar terms, there is 42 percent more cash in circulation today than five years ago. Many economists believe that the rise in cash is strongly related to growth in the so-called underground economy – criminal activity such as drug dealing, as well as tax evasion by people working off the books for cash. Strong evidence for this proposition comes from examining the distribution of cash holdings by denomination. Another key factor has been the rising amount of United States currency being exported. The Federal Reserve estimates the annual flow of United States currency abroad as well as the total level of such currency, which is counted in the aggregate currency figures in the table above. (These data appear on Line 25 in Tables F.204 and L.204 in the Fed’s Z.1 flow of funds release.)

Who is holding all those U.S. dollars? - If recent trends continue, in a few months there will be $1.2 trillion in Federal Reserve notes (otherwise known as dollar bills) in circulation. Who is holding all these? One clue comes from looking at the denominations: 3/4 of the currency held by the public is in the form of hundred-dollar bills. Personally I never use $100 bills. So the first thing I know is, whoever is holding most of that currency, it's not people like me. And $100 bills account for most of the growth in currency over the last two decades. A recent paper by Federal Reserve economist Ruth Judson uses a variety of methods to infer that many of those $100 bills are being held outside the United States, where U.S. currency is sometimes regarded as a safer store of value than other local options. This is a long-standing trend that seems to have accelerated during the financial crisis. Judson estimates that about half of the growth since 1988 in currency held by the public has ended up outside the United States.That growth represents one important benefit that the U.S. has received from having a currency that is regarded as a safe and stable store of value. In effect, the growth in foreign-held dollars has meant that the U.S. government has been able to buy hundreds of billions of dollars worth of goods and services without ever needing to tax its own citizens or borrow in the form of interest-bearing Treasury securities.

The Great Moderation Just Moderated the Risks of the Rich - Following up on my earlier post, about people swimming in a stream of economic change over which they have no control: As I often do, I was re-reading some old Steve Randy Waldman posts, and came across one that made the same point quite elegantly: “Stabilizing prices is immoral“. (If you want to understand how economies work, just read everything he’s ever written. Twice.) One line stood out for me. Wonkish, but remarkably pithy and apt (and accurate): Symmetrical price targeting turns debtors, taxpayers, and marginal workers into high-beta speculators on the state of the broad economy He explains Symmetrical price targeting turns debtors, taxpayers, and marginal workers into high-beta speculators on the state of the broad economy, while reducing the risk exposure of creditors and secure workers. It represents a vast subsidy, a transfer paid in risk-bearing, from debtors, taxpayers, and marginal workers to creditors and secure workers. A symmetric price target is a better deal than asymmetric price restraint for debtors, taxpayers, and marginal workers — better to have some benefit than no benefit for the burden of guaranteeing other peoples’ purchasing power! But a symmetric price target is still a raw deal. IOW, “the great moderation” as engineered by the Fed was a thirty-year campaign (still continuing) to protect, preserve, and expand the wealth of creditors and stable job-holders at the expense of those other groups. Remember: an extra point of inflation transfers hundreds of billions of dollars per year in real buying power from creditors to debtors, from financial-asset holders to real-asset holders (with “real assets” very much including the ability to work).* And the Fed is run by creditors.

What Does Paul Ryan NOT Understand about Reserve Banking? - It’s clear that Paul Ryan believes the Federal government uses money created by the U.S. banking industry for its sovereign spending. If this actually were the case, we’d be correct in believing that, like the rest of us, the Federal government has to EARN the dollars it spends—in its case, by collecting taxes, fines and fees—or it will have borrow them from someone who has more dollars than they need. There would also be some justification for Congressman Ryan’s fearful belief that the Federal government is spending a whole lot more dollars than it “earns” and, as a result, is having to borrow way more dollars that it can ever pay back.In truth, however, the Federal government does NOT use money created by U.S. banks—it is the other way around:  U.S. banks have accounts at the Federal Reserve which they use to leverage money created by the Federal government. And this operational relationship leads inexorably to three apparent realities that Congressman Ryan would do well to consider and understand before he succeeds in leading our nation into poverty.

Is the recovery dying? - The Bureau of Labor Statistics reported on Friday that the number of Americans with jobs only increased by 88,000 in March on a seasonally adjusted basis. That's one of the weakest months in the last two years. Although it's clearly a disappointment, I would caution against reading too much into the latest number. Nonfarm payroll employment is one of the most important and widely followed indicators. Notwithstanding, there's a lot of noise in the initial estimates. The graph below plots the job growth numbers as they were initially reported (in yellow), what they were reported by the BLS to be one year later (fuchsia), and what the BLS is claiming today was the appropriate figure for that month's job growth. The average absolute change between the first two numbers is 52,000. In other words, it would be quite typical if one year from now the BLS tells us that March job growth was really 130,000, or was only 36,000. I think that the right take-away from the latest report is that U.S. economic growth is continuing at about the pace it has been-- sluggish growth and high unemployment continue to be with us.

Obama White House: US likely faces ‘permanently slower’ economic growth - In 2009, Obama economists predicted the unemployment rate — if Congress passed the $800 billion stimulus — would decline to 5% by mid-2013. But in its new budget, the Obama White House doesn’t see the unemployment rate declining below 5.4% by 2023: But it’s worse that that. If not for the decline in the labor force participation rate, the unemployment rate would be much higher today. Even accounting for demographics, the true jobless rate is closer to 10% than 5%. White House economists says that  ”over time the Administration projects a return to the average unemployment rate that prevailed in the 1990s and 2000s.” But how long will that take? And will it be an unemployment rate depressed by lower labor force participation?

Obama More Optimistic on ’13 U.S. Growth Than Private Economists -- The Obama administration predicted the U.S. economy will be stronger this year than the consensus of private forecasters as the annual unemployment rate falls to the lowest since 2008. The White House lowered its 2013 growth estimate to 2.3 percent from a 2.7 percent expansion projected in July and 3 percent seen 14 months ago, according to budget documents released in Washington today. The median forecast of 76 economists surveyed by Bloomberg News was for 2 percent growth this year, weaker than last year’s 2.2 percent increase. The budget predicted the nation’s jobless rate will average 7.7 percent for the year, compared with the economists’ survey median of 7.6 percent. The $3.8 trillon budget sent to Congress says the world’s largest economy is “now on the mend.” It also underscores the fragility of the recovery as President Barack Obama and Congress wrestle over ways to cut deficits while seeking to sustain the expansion and boost employment. “Our economy is adding jobs -- but too many people still cannot find full-time employment,” Obama said in a letter to Congress accompanying the budget. “As we continue to grow our economy, we must take further action to cut our deficits.”

IMF to cut US growth forecast amid downbeat retail and confidence data - America's budget wrangling is holding back recovery in the world's largest economy, according to a leaked draft of forecasts from the International Monetary Fund that coincided with data showing a dip in consumer confidence and weaker spending in the nation's shopping malls. Official figures from Washington showed that retail sales in March dipped by 0.4% in March – worse than Wall Street had been anticipating and the second monthly fall since payroll taxes and income tax rose at the start of 2013. Chris Williamson, economist at Markit, said: "This weakness is possibly linked to increased payroll and income tax hikes which took effect at the start of the year, and will inevitably add to worries that the US economy is slowing as we move into the spring as automatic budget spending cuts come into force. ." Meanwhile, the monthly snapshot of sentiment conducted by Michigan university showed consumer confidence dropped to its lowest in nine months. The downbeat news came as the Bloomberg news agency reported that the International Monetary Fund would trim its growth forecast for the US in next week's half-yearly World Economic Outlook. Bloomberg said a leaked draft of the WEO showed that growth in the world's biggest economy would be 1.7% in 2013, down from 2% in January when the IMF last updated its predictions.

These numbers don’t add up - Gross Domestic Product (GDP) was invented during the Great Depression for politicians who wanted to know if their policies were working. GDP as a measure of production has several flaws. First, it only counts payments for goods and services. It does not reflect our work—and pleasure—in the home. A home-cooked meal contributes less to GDP than Happy Meals from McDonalds. Second, its measures are based on prices, not values. An innovation that lowers the price of phone calls, for example, appears to reduce the benefit from calls—and totally misses the greater value of calls on Mother’s Day. Third, GDP ignores the benefits of functional ecosystems and grows when unpriced environmental inputs become priced outputs—when water moves from rivers to irrigated fields, for example. Politicians claim they will increase GDP—and thus prosperity, happiness and national pride—while their opponents will destroy it. Those claims lead to policy. Why protect an unpriced wetlands when you can convert it into a housing subdivision and boost the economy?  Why promote walking to work in 20 minutes when people can buy cars and use gasoline to drive for an hour on highways whose construction costs boost local GDP?  There is no GDP value in the unpriced time people spend commuting or the air pollution that results, but there’s plenty of GDP value in the (priced) resources burned on the way.

Treasury Yield Snapshot: 10-Year at a New 2013 Low - I've updated the charts below through Friday's close. The S&P 500 is only 1.08% off its all-time high set on April 2nd.The yield on the 10-year note closed Friday at 1.72%, which is the lowest daily close of 2013, matching the close on December 12th of last year, when the Fiscal Cliff was in the headlines. 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.

Who Really Owns the U.S. National Debt? (Final Edition for FY2012!) - The U.S. Treasury Department has revised its estimates of the foreign ownership through the end of Fiscal Year 2012, which means that we can now finalize our picture of just who the major holders of the 16.027 trillion dollars of the outstanding U.S. government debt issued through 30 September 2012 are:  Overall, U.S. entities own 66% of all debt issued by the U.S. federal government. Ranking the major U.S. entities from high to low, we find that:

  • U.S. individuals and institutions, which includes regular Americans, banks, insurance companies and other government entities, own 30.5% of the nation's debt.
  • The U.S. Social Security Trust Fund claims 16.7%.
  • The U.S. Federal Reserve, thanks to its quantitative easing programs of recent years, has racked up holdings equal to 10.8% of the total U.S. national debt.
  • The U.S. government's civilian employee retirement fund accounts for another 5.6% of the nation's debt.
  • The U.S. government's military retirement fund owns 2.4% of the national debt.

The GFC is Dead, Long Live the GFC! - PIMCO famously coined the phrase to “the new normal” to capture what it saw was a structural change to global markets in the wake of the GFC. It was to be period defined by lower returns on assets owing to a combination of delevering, deglobalization, and reregulation. Today that looks like fantasy.  Last night, the Obama Administration proposed its new budget plan for the years ahead with significant austerity measures already embedded. From Bloomie:The administration forecasts that the federal budget deficitfor the fiscal year that begins Oct. 1 will be $744 billion, or 4.4 percent of the economy. The Office of Management and Budget estimates that the shortfall this year will be $973 billion, or 6 percent of the economy. The budget projects the deficit will decline to 2.8 percent of the economy by 2016 and 1.7 percent by 2023.Administration forecasters cut their estimate for U.S. economic growth this year to 2.3 percent, matching last year’s rate, down from the projected 2.7 in July. For all of 2014, the economy may expand 3.2 percent, budget figures showed. Private forecasters surveyed by Bloomberg put growth at 2 percent for calendar year 2013 and 2.7 percent for calendar year 2014.

Stockman feels force of Washington fury - It takes a lot for an official who served at the heart of the White House to go beyond the pale in Washington, but a diatribe against all economic policy since 1933 – attacking everyone from Franklin Roosevelt to Milton Friedman – is one way to manage it.David Stockman, budget director for Ronald Reagan from 1981 to 1985, is the man who will be short of dinner party invitations after becoming the most mainstream figure to argue that all America’s economic problems stem from the welfare state and the end of the gold standard.Mr Stockman’s new book, The Great Deformation , highlights the enduring conservative appeal of a kind of economic primitivism that harks back to the days when laisser-faire ruled and macroeconomics had not been invented.  “The modern Keynesian state is broke, paralysed and mired in empty ritual incantations about stimulating “demand”, even as it fosters a mutant crony capitalism that periodically lavishes the top one per cent with speculative windfalls,” wrote Mr Stockman in the New York Times article that set off a minor furore in Washington this week. The reaction, left and the right, was scathing. Jared Bernstein, former economic adviser to vice-president Joe Biden, gave one of the gentler liberal critiques. Mr Stockman, he said, was “about 11.8 per cent absolutely and totally on target” with his criticisms of crony capitalism. But the other 88.2 per cent was “a horrific screed, an ahistorical, dystopic, Hunger Games vision of America based on debt obsession and wilful ignorance of macroeconomics and the impact of market failure”.

The Intellectual Contradictions of Sado-Monetarism - Paul Krugman - What I realized is that Stockman, and many others, represent the latest incarnation of sado-monetarism, the urge to raise rates even in a deeply depressed economy. It’s a long lineage, going back at least to Schumpeter’s warning that easy money would leave “part of the work of depressions undone” and Hayek’s inveighing against the “creation of artificial demand”. Nothing must be done to alleviate the pain! I have to admit that the resurgence of sado-monetarism has come as a surprise.  But now that the deficit scolds have killed fiscal policy, monetary policy is also under attack, and with even more vehemence. Yet there’s something very odd about that attack. The modern sado-monetarist view is, after all, very much centered on the presumption that markets, left to their own devices, will get it right, and that it’s only the distortions introduced by money-printing central banks that cause bubbles and crises — which is why the Fed must stop its easing right away. But here’s the problem: for loose monetary policy to have the dire effects the sadomonetarists claim, markets must massively get it wrong, and hugely overreact to low interest rates.

Krugman vs. Stockman - It was no Rumble in the Jungle, that’s for sure. There were no blindside blows to the ribs, no bone-crushing roundhouse punches, and no blood-spattered warriors sprawled out on the canvas for the mandatory 10-count. But by the time ABC’s 15-round bareknuckle extravaganza was over, just one man was left standing, David Stockman, TKO champ of ”This Week’s“ Sunday morning political blabberfest. The anticipation for the main event had been building for more than two weeks, ever since Reagan’s former budget director had delivered his hyperbolic libertarian manifesto on the editorial pages of the New York Times. Stockman’s incendiary treatise took a sledgehammer to Washington, Wall Street, “mutant crony capitalism”, FDR, the ballooning budget deficits, Lyndon Baines Johnson, the droves of debt-encumbered, consumption-addled Americans and, of course, Beelzebub Satan himself, the perfidious John Maynard Keynes. And Stockman doesn’t pull his punches either. He “kicks ass and takes names”, and the name that looms larger than all others inkjet Ben Bernanke, public enemy #1. The micromanaging central planners at the Fed take a real beating in Stockman’s diatribe, according to him– their scatterbrain printing operations and gluttonously-lavish bailouts are at the very heart of all that ails the nation.

Why do people hate deficits? - People really don’t like deficits. Polls measuring national priorities tend to find that the deficit/debt is the second most important issue to voters, after “the economy” generally and ahead of health care, guns, foreign policy and immigration. Politicians don’t like deficits either. Both President Obama and the Republican leadership in the House pay lip service to wanting to reduce the national debt burden, and almost all their fights to date have centered on how best to do that. But hold on a second. Why do we hate deficits? “Balancing the budget” sounds really nice, but what reason do we have to believe it’s actually valuable? There are a number of reasons to think it might be good for the debt load to be smaller rather than larger, but almost all of them are controversial among economists, and some more so than others. Here are the common reasons for balancing the budget you hear, and what the evidence says about each.

Deficit Derangement Syndrome - Paul Krugman - This Dylan Matthews piece on the evils people perceive from deficits, and why they’re almost all wrong, is a must-read. I would quibble with a few points — in particular, it really doesn’t matter how much of our public debt foreigners own, what matters is our overall net international investment position (do we as a country owe more to foreigners than they owe to us). And I wish he’d made the no-crowding-out point in terms of the state of the economy, not just actual interest rates. But these are minor points, and the overall thrust of the piece is excellent. One thing I was really glad he took on was the Reinhart-Rogoff 90 percent = disaster stuff. He lays out the right critique — mainly, poorly performing economies tend to have high debt rather than the other way around — and gets a remarkably weak response from Reinhart: Reinhart dismisses these criticisms as wishful thinking. “We’re quite aware that you have causality going in both directions,” she says. “But please point out to me what episodes from 1800 to the present have we had advanced economies who carried high levels of debt growing as rapidly or more rapidly than the norm.”“It’s not about some exotic magic threshold where you cross the Rubicon,” she says. “But high debt levels are like a weak immune system.” Gah. The fact is that there really aren’t a lot of episodes in which advanced countries had high debt, and many of those episodes — like Japan or Italy in recent decades — are clearly associated with growth slowdowns that were happening for other reasons.Why, exactly, would you expect to see countries doing well have high debt in the first place?

Budget Deficit Is Shrinking - The federal budget deficit: It’s shrinking. Lost in the chatter about President Barack Obama’s behind-schedule delivery of his annual budget was this word from the U.S. Treasury: The federal deficit for the first six months of the fiscal year (October 2012-March 2013) was $600 billion, a whole lot less than the $779 billion recorded for the same months of the previous year. Revenues are running 12.5% ahead of last year; outlays are running 2.5% below last year. “The deficit,” economists at Goldman Sachs said in a note to clients, “is likely to decline substantially further in the next two to three years… Sequestration has barely started to show up in the outlay data, and the expiration of the Bush tax cuts for high-income earners is likely to reduce tax refunds and boost [tax payments] in early 2014.” Although inflation-adjusted growth has been a sluggish 2% to 2.5% since the recession official ended in mid-2009, the Goldman economists noted, “this has been enough to generate a sizeable improvement in tax receipts, over and above the more recent impact of higher tax rates.” Indeed, the Obama White House worries that the deficit is — brace yourself — coming down too fast. Its budget is seeking to slow the shrinking a bit to avoid putting the fiscal brakes on a still slow-growing economy. The Federal Reserve seems to share that concern. The latest minutes of the Fed’s policy committee, released Wednesday, report that Fed policymakers around the table “thought that fiscal policy was exerting significant near-term restraint on the economy”

"The Rapidly Shrinking Federal Deficit" - From a research note by Goldman Sachs chief economist Jan Hatzius: The Rapidly Shrinking Federal Deficit: The federal budget deficit is shrinking rapidly. ...[I]n the 12 months through March 2013, the deficit totaled $911 billion, or 5.7% of GDP. In the first three months of calendar 2013--that is, since the increase in payroll and income tax rates took effect on January 1--we estimate that the deficit has averaged just 4.5% of GDP on a seasonally adjusted basis. This is less than half the peak annual deficit of 10.1% of GDP in fiscal 2009.  There are three main reasons for the sharp reduction in the deficit:
1. Lower spending. On a 12-month average basis, federal outlays have fallen by a total of 4% in the past two years, the first decline in nominal dollar terms over a comparable period since the demobilization from the Korean War in the mid-1950s.
2. Higher tax rates. The increase in payroll tax rates in January 2013 has boosted federal receipts by around $120 billion (annualized), or about 0.8% of GDP.
3. Economic improvement. Although real GDP has only grown at a sluggish 2%-2.5% pace since the end of the 2007-2009 recession, this has been enough to generate a sizable improvement in tax receipts, over and above the more recent impact of higher tax rates. Even prior to the tax hike that took effect in early 2013, total federal receipts had grown by 7% (annualized) from the 2009 bottom, nearly twice the growth rate of nominal GDP.

Stiglitz Says More Fiscal Stimulus Needed in U.S.: Tom Keene - Bloomberg: The U.S. economy needs more fiscal stimulus because monetary policy has little traction and government spending cuts threaten the expansion, Nobel Prize- winning economist Joseph Stiglitz said. “What we need now is another round of stimulus to get out of the doldrums,” Stiglitz, a Columbia University professor, said today on the “Bloomberg Surveillance” television program with Tom Keene and Sara Eisen. “We can’t rely on exports given the weaknesses in Europe.” Without President Barack Obama’s 2009 stimulus package, unemployment would have peaked at more than 12 percent instead of the 10 percent high it hit in October of that year, Stiglitz said. Now, he said America is undergoing austerity by a “slightly different name” with public-sector job losses that could undermine growth. Since the latest recession began in December 2007, public payrolls have dropped by 511,000, according to Bureau of Labor Statistics data compiled by Bloomberg. The jobless rate was 7.6 percent in March and the economy added 88,000 jobs, the smallest gain in nine months and less than the lowest economist estimate in a Bloomberg survey. To bolster growth, the U.S. must use fiscal policy because the central bank’s efforts “have very little effect,” at present, Stiglitz said.

President Obama’s Plan to Cut Social Security Benefits - President Obama is expected to release his budget proposal this week and, as confirmed by his administration over the weekend, he is planning to cut Social Security benefits for seniors, veterans and people with disabilities by indexing payments to chained CPI. Damon Silvers, Director of Policy for the AFL-CIO, sent an angry email alert to members over the weekend, saying the action was “unprecedented for a Democratic president” and that chained CPI is “a discredited way of calculating annual cost-of-living increases that does not keep up with actual costs, eating into benefits.” Damon said the president’s proposal would also “require middle-class seniors — people who make $47,000 a year and more — to pay higher Medicare premiums.” (Read the full statement from the AFL-CIO below.) The sellout by the President, who was elected to save Social Security not gut it, was confirmed by administrative sources.  Dan Pfeiffer, a senior advisor to the President, had this to say:This president will — this — this chained CPI that’s being referred to here, is something the president will only accept on two conditions. It’s something Speaker Boehner and Senator McConnell asked for in the context of the original negotiations, and those two conditions are, one, it’s part of a balanced package that includes asking — closing tax loopholes to benefit the wealthiest, and, two, that it has protections for the most — for the most vulnerable, including the oldest seniors.

Obama caves yet again: offering Social Security cuts to appease the right... Linda Beale - Obama's budget isn't even released yet and he's already caving to the "let's make the rich richer and forget the rest" crowd.  That crowd that claims that we need a capital gains preference so the rich can gather all that extra money to purportedly create jobs.  The crowd, that is, that fails to acknowledge that the rich tend to take all that extra money to Singapore, the Bahamas, or the Cayman Islands or hide it away in some Swiss bank, none of which does any good for our economy compared to what the government investing that money in infrastructure projects would do. See, e.g., David Leigh, Leaks reveal secrets of the rich who hide cash offshore, The Guardian (Apr. 3, 2013);  The corporatist crowd that refuses to admit the empirical evidence that says government investment is as important as private investment in creating jobs.  It is the government that makes the market go round.  And government money--our money--spent for schools, bridges, safer communities provides jobs and improves lives.  Without that government investment, there is no market, just barter.

President Obama Breaks His Promise On Social Security - Which was that he would not cut any of its benefits, a promise made during the 2008 campaign and now broken with his proposed budget that will replace using CPI-W for the COLA with the chained CPI-W, the former estimated by many to rise about 0.3% more per year than the latter. However, nobody should be surprised that he has done so as he has been signaling a willingness to do so for some time now at least since the 2011 budget negotiations with Congressional Reptards over the debt ceiling increase (and, yes, he should declare the debt ceiling unconstitutional and dispense with that bloody thing). I am not going to comment on the politics of this move, although plenty of people argue that it is not a winner in any way shape or form. As it is, I weirdly take this sort of personally. Back during the 2008 campaign, Bruce Webb and I wrote a memo to the Obama campaign at a time when he was supporting some sort of "Social Security Reform," arguing that such was not needed, and he made his promise not to do anything at all to or about SS shortly after our memo was sent, although I suspect that it was broader political forces that were responsible for his change of mind then rather than our memo. However, I took the promise to heart and am now sad to see it definitely broken (although see more below). There are many economic arguments for why this new proposal is a bad idea.

Barack Obama's budget: Chained, chained, chained -- Barack Obama will release a budget that modifies the government's method of adjusting Social Security benefits to changes in the cost of living. Currently, cost-of-living adjustments are determined by a version of the Consumer Price Index, the CPI-W, that is believed by most economists to overstate inflation by failing to take into account the way consumers respond to price increases in one good by shifting to lower-priced substitutes. For example, if the price of beef rises faster than the price of chicken, consumers will tend to eat more chicken and less beef. If we assume that this shift doesn't deliver a significant blow to consumers' quality of life, a price index oblivious to this change in consumption patterns will deliver a misleading picture of the change in the cost of living. The so-called "chained CPI", the C-CPI-U, which the president's budget will endorse, is sensitive to substitution, and is widely believed a superior metric of inflation. There are two primary objections to moving to the chained CPI. The first is that the move amounts to a cut in Social Security benefits. The second is that the chained CPI understates increases in the cost of living for Social Security recipients by failing to account for the distinctive consumption habits of older Americans. Paul Krugman sums up the liberal criticism of Mr Obama's proposal: This is, purely and simply, a benefit cut.

Obama says budget that cuts Social Security and Medicare benefits aims to reinvigorate middle class -US President Barack Obama said on Saturday his budget blueprint due to be unveiled next week will aim to reinvigorate America’s middle class while introducing reforms to curb the mushrooming deficits. “Our top priority as a nation, and my top priority as president, must be doing everything we can to reignite the engine of America’s growth: a rising, thriving middle class,” Obama said in his weekly radio address. “That’s our North Star. That must drive every decision we make.” The comments followed reports that in his budget proposal, Obama will make key concessions to Republicans by offering to cut some entitlement programs like the Social Security retirement program and Medicare, a health care plan for the elderly. According to a senior administration official, the president’s fiscal blueprint will slash the deficit by $1.8 trillion over 10 years, in what the official described as a “compromise offer” that cuts federal spending, finds savings in Social Security and raises tax revenue from the wealthy.

Obama Budget Splits The Democratic Party - President Obama’s proposal to cut Social Security and Medicare has fueled a civil war within the Democratic Party. The social insurance programs are considered by many Democrats to be the party’s greatest achievements in the New Deal and Great Society, respectively. Obama’s alignment with Bush style Neoliberalism has provoked the progressive wing of the party to begin to openly defy the termed out president. There are economic liberals, in the vein of Elizabeth Warren, who believe that very rich people who lead a good life can afford to pay more in taxes to support basic services for struggling people, seniors, and others who are vulnerable. And then there are “pro-business” Democrats, These are the pro-fracking, self-described “entitlement reformers”  who talk about the need to keep taxes low and make “bold” decisions like cutting the social safety net, in an effort to fix the debt, restore “balance” and “get serious.” While the split is not discussed as often as it might be, these two camps stand far apart on economic issues, and, in some ways, are fighting for the soul of the Democratic Party. And, with President Obama’s newly reiterated proposal to cut Social Security through his chained CPI plan, a big test is approaching to see which wing of the party will prevail. The Progressive Change Campaign Committee promised a nuclear war if Obama did this. We’ll have to see if it goes that far. AARP has already come out swinging. First releasing a video reminding Obama he promised not to cut Social Security and breaking down why Chained CPI is bad for the program.

Obama’s benefit-cuts budget takes more from seniors than from the wealthy - Social Security benefit cuts are in Obama’s budget. It’s official. Barack Obama, he of the Hope and the Change, is putting benefit cuts in his budget proposal. (If you were hoping he’d change, he won’t; he’s always been this guy.) Here are a couple of things to know about this amazing Democratic budget proposal. Washington Post (this is the bad news):Obama budget would cut entitlements in exchange for tax increases President Obama will release a budget next week that proposes significant cuts to Medicare and Social Security and fewer tax hikes than in the past, a conciliatory approach that he hopes will convince Republicans to sign onto a grand bargain. Obama will break with the tradition of providing a sweeping vision of his ideal spending priorities, untethered from political realities. Instead, the document will incorporate the compromise offer Obama made to House Speaker John A. Boehner (R-Ohio) last December. And Boehner’s reaction (this is the good news): “If the president believes these modest entitlement savings are needed to help shore up these programs, there’s no reason they should be held hostage for more tax hikes,” Mr. Boehner said. So far, so good. Statement stalemate.

They’re Making Love to the Third Rail: What Are We Gonna Do About It? - OK, the President has officially proposed the “chained CPI” cut to Social Security in opposition to what the heavy majority of American voters want him to do and in contradiction with promises he and Joe Biden made during their re-election campaign. So, what punishment should we exact from this Administration, and what should we do to prevent cuts from happening in addition to signing petitions, and calling Representatives and Senators? President Obama and Vice President Biden clearly lied to our faces about what they would do when the Republicans came for Social Security if they were re-elected.  I propose that a Democratic Congressperson introduce a bill of impeachment in the House for this President as soon as possible. The grounds for impeachment could include failure to prosecute the torturers from the Bush Administration, failure to prosecute the control frauds in the FIRE sector, as well as the charge that the President lied to the American people about his intentions on SS policy in the last election campaign, in order to deceive us into re-electing him. I think that’s fraud. It’s essential that a Democratic Congressperson introduce the bill of impeachment. Otherwise, the first step in making it clear that the party has repudiated its leadership on the safety net issue will not be clearly made.  If a majority of Democrats can come together to this, then candidates of the Party will be free to run against the President on the chained CPI in 2014.

Chained CPI Could Provide Litmus Test - When President Barack Obama introduces his budget proposal Wednesday, one expected twist is adopting a new cost-of-living calculation. Instead of the traditional consumer price index, the budget would use the so-called chain-weighted CPI. It is a good idea. The new inflation measure will dole out the budget-cutting pain in a very gradual manner while making progress over time. The chain-weighted CPI registers slower inflation than the usual CPI because it allows for the substitution effect of price changes; the traditional CPI does not. The impact each year is small. According to Bureau of Labor Statistics data for the past 10 years, yearly inflation measured by the chained CPI has run about one-quarter of a percentage point below the traditional CPI rate. According to a March report from the Congressional Budget Office, if Washington began using the chained CPI in fiscal 2014, the cumulative reduction in the deficit from 2014 through 2023 would be about $340 billion, or about 5% of the current projection. That’s not a huge cut, but it’s progress that will be relatively painless.

Chained CPI’s Diminishing Returns for U.S. Budget - Peter Orszag - News that the White House will propose a new cost-of-living index in the budget it releases this week has brought joy to deficit scolds and consternation to defenders of Social Security. The measure, called the chained consumer price index, would lower the annual payment increases for Social Security beneficiaries, saving the government money as it lowers the future monthly income of retirees and disabled Americans. The change would also raise revenue over time because it would cause more taxpayers to wind up in higher marginal brackets. What neither side seems to have noticed, however, is that the difference between the chained CPI and the standard CPI has been diminishing. That means the impact of switching indexes may not be as great as many assume. The change may still be a good idea, but it probably won’t matter as much as expected. A decent guess is that, over the next decade, the effect on the deficit of adopting the chained index would be less than $150 billion. Social Security benefits even 20 years after retirement would be reduced by less than 2 percent. This does not amount to bold long-term deficit reduction. On the other hand, it wouldn’t be the end of Social Security as we know it either.

Chained CPI Versus the Standard CPI: Breaking Down the Numbers - The Consumer Price Index is the most familiar gauge of inflation in the US. The data for the non-seasonally adjusted series stretches back a century to January 1913. But the news of late is about a relative newcomer to the inflation metrics of the Bureau of Labor Statistics (BLS), the Chained CPI for Urban Consumers (C-CPI-U).  The reason the Chained CPI is now a hot topic in the news is that it's being proposed as the method for determining cost of living adjustments for Social Security. Here are some typical examples of topic in the popular press:

I'll have more to write about Chained CPI in future commentaries and updates. But for openers, I spent some time this afternoon modifying a column chart I've been updating monthly for the past several years. The chart illustrates the overall change in inflation for CPI, Core CPI, and the eight top-level components of CPI since the turn of the century (more here). I also include energy, which is a collection of subcomponents, and College Tuition and Fees, a subcomponent of one of the top eight. The BLS has published the data for these metrics for chained CPI from December 1999. The one missing element is College Tuition and Fees. The chart below pairs the two versions of each component showing the total change since December 1999. We can thus have a more educated sense of how the Chained CPI and conventional CPI differ from one another.

Obama Proposes $3.77 Trillion Budget to Revive Debt Talks - President Barack Obama sends a $3.77 trillion spending plan to Congress today that calls for reductions in Social Security and other entitlement spending in a political gamble intended to revive deficit-reduction talks. Obama’s budget for fiscal 2014 proposes $50 billion for roads, bridges and other public works, $1 billion to spur manufacturing innovation and $1 billion for an initiative to revamp higher education, according to administration officials who briefed reporters and asked to not be identified. It renews his request to raise $580 billion in revenue by limiting deductions and closing loopholes for top earners. Obama again seeks adoption of the Buffett rule, named for billionaire investor Warren Buffett, to impose a 30 percent minimum tax on households with more than $1 million in annual income. The administration projects the deficit for fiscal 2014 would be $744 billion, or 4.4 percent of the economy. That would mark the first budget shortfall of less than $1 trillion since Obama took office. The revenue proposals have been previously rejected by Republicans and party leaders yesterday indicated they’ve seen nothing that will change their minds.

Another Day, Another Budget… Here are the White House’s bullets:

–Creates jobs by responsibly paying for investments in education, manufacturing, clean energy, infrastructure, and small business.
–Includes $1.8 trillion of additional deficit reduction over 10 years, bringing total deficit reduction achieved to $4.3 trillion.
–Represents more than $2 in spending cuts for every $1 of new revenue from closing tax loopholes and reducing tax benefits for the wealthiest.
–Deficit is reduced to 2.8% of GDP by 2016 and 1.7% by 2023 with debt declining as a share of the economy, while protecting the investments we need to create jobs and strengthen the middle class.
–Includes $400 billion in health savings that crack down on waste and fraud to strengthen Medicare for years to come.
The shift to the chained CPI, a benefit cut for Social Security, is embedded in the $1.8 trillion in savings in the second bullet, as is the cost of a benefit bump up for older workers to help offset the cut (i.e., they reverse some of the impact of the cuts with revenues from the switch to the slower growing price index).

White House: We’ll balance the federal budget … in 2055! - Republicans have mocked the Obama White House for talking about a “balanced approach” to debt reduction that doesn’t actually ever balance the budget. But in its 2014 budget report, Team Obama tries to create the impression that its plan does balance the budget … in the year 2055!   From the White House Office of Management and Budget: The Budget reaches balance in 2055, when revenues and outlays are 21.5 percent of GDP, slightly higher than their levels during the budget surpluses of 1998-2001. The Federal Government is then projected to run surpluses over the remainder of the projection window, with publicly-held debt falling rapidly until it reaches zero in 2074 (see Chart 4–1). The 75-year fiscal gap disappears in the base case, becoming a fiscal surplus of 1.6 percent of GDP. Now, the White House does add the bureaucratic caveat that these projections “are not intended to be a prediction of future legislative action, nor are they intended to reflect explicit policy proposals for the years beyond 2023; rather, they are a mechanical extrapolation of the Budget policies.”

The Flaw in Obama’s Budget Approach - Simon Johnson - From the White House, we need a clearer articulation of what the federal government does and why this makes sense. Instead, the president has allowed the debate to become dominated by excessive paranoia about deficits and by extremist demands to shrink government in a radical and inappropriate manner. This tension reflects the three ways to think about medium-term fiscal policy — the relationship between government spending and revenue over the next decade or two. The first way of thinking becomes paramount when countries have any form of serious fiscal crisis. But countries also differ considerably in the extent to which market pressures force them to make bringing down the budget deficit a priority. The second view of budgets holds that it is of paramount importance to cap the size of the federal government budget relative to the economy. A major problem with this approach is that the United States population is aging. As this demographic shift occurs, if we maintain social insurance — Social Security and Medicare, primarily — at or close to current levels, there is a natural tendency for government transfers to increase relative to the size of the economy.The third approach is to figure out what you want government to do — in terms of defense, social insurance, infrastructure investments, assistance for poor children and anything else. Once you know that, you know how much revenue you need — and you should also figure out the least distorting way to raise revenue.

New Obama budget says US won’t hit pre-Great Recession unemployment levels before 2023 - You want to know what the New Normal is? This (via the new White House budget): In the 21st Century, real GDP growth in the United States is likely to be permanently slower than it was in earlier eras because of a slowdown in labor force growth initially due to the retirement of the post-World War II baby boom generation, and later due to a decline in the growth of the working age population.Indeed, Team Obama is looking for real GDP growth of 2.3% in the final years of its budget projection, “markedly slower than the average growth rate of real GDP since 1947 of 3.2% per year.” But this long-term slowdown isn’t historically or economically inevitable. As we have seen in recent years, policy can have a huge impact on factors such as labor force participation. (In this case, bad policy.) Look at it this way: US GDP growth has averaged 3.3% over the past 50 years, with roughly half coming from a growing labor force (1.6%) and half coming from higher productivity (1.7%). But with America aging, annual labor force growth is expected to slow dramatically to just 0.5%. A higher retirement age and smarter immigration policy could boost that rate to 1% or so. But even then, productivity growth would have to increase to 2.3% long term just to maintain the historic US growth rate.

Obama’s Budget Would Cap Tax-Advantaged Savings - Some of us have worried for decades that when America’s tax-advantaged savings pot got large enough, our perpetually revenue-challenged federal government would raid the nest egg. All that untaxed growth would simply prove irresistible.  That day may be at hand. President Obama’s budget, just sent to Congress, proposes to cap tax-advantaged savings across all accounts at $3 million in order to raise $9 billion over 10 years.The proposal is being spun as a way to prevent wealthy private-equity executives from amassing huge IRAs—like Mitt Romney’s, once estimated to be worth as much as $100 million. But it would also curb the savings ability of self-employed professionals like doctors and lawyers. As these business owners reach the cap, and there’s nothing left in it for them, they might shut down or reduce plans that benefit their employees.

A Budget Focus on Inequality - The Obama budget proposal released Wednesday, like other White House budgets before it, also emphasizes the problem of inequality and the failure of the American economy to promote a thriving middle class. The budget includes several proposals to tackle inequality and wage stagnation.

  • Increasing the federal minimum wage to $9 an hour from its current rate of $7.25, and indexing it to inflation. The White House asserts that this would lift the wages of about 15 million low-wage workers.
  • Creating a “Preschool for All” initiative to provide early childhood education to 4-year-olds from low- and middle-income families. The big idea is that this might improve economic mobility in the future.
  • Increased taxes on wealthy Americans, including taxing carried interest as ordinary income. Hedge-fund managers and the like use the carried interest loophole to pay preferential rates on their earnings.
  • Increased support for manufacturing, which the White House argues might be an important source of middle-class jobs.
  • Making permanent the expansion of the earned income tax credit and child credit, which were due to expire in 2017. The proposal also makes permanent the American Opportunity Tax Credit, which helps families with students pay for college.

Measuring Inflation for Social Security - President Obama’s proposal to change the inflation measure used to adjust tax brackets and Social Security benefits is, on the face of it, not an unreasonable tool to coax Republicans to sign on to some grand bargain to tackle the budget deficit. But a more careful look at the details suggests that the president’s proposal may not be the most effective way either to raise money or to reform the nation’s pension system.  The “chained Consumer Price Index” that the White House proposes to use is, after all, a more accurate measure of the inflation experienced by American families than the index used today, taking into account that consumers respond to the rise in the price of one good by shifting to cheaper alternatives.  Because it rises more slowly than the current index, the White House estimates that the move would cut the budget deficit by $230 billion over the next 10 years.  The slower rise of the chained index would slow cost-of-living adjustments of Social Security benefits and some other programs, saving $130 billion over a decade. And it would raise $100 billion in tax revenue by slowing the rise of tax brackets – which are also adjusted for inflation– keeping more taxpayers in higher brackets paying higher marginal rates.

Obama Moves Forward with Cutting Social Security and Medicare as We Lecture Europe Otherwise -  Yves Smith - It must be really hard to be an Obama defender these days, at least if you are not on a big corporate payroll.  Kos waded in yesterday and in all seriousness wrote, “I can’t imagine President Barack Obama actually wants to cut Social Security. I’m not that cynical.”  I don’t even have to shred it. Go read his comments section. His readers cite chapter, book and verse the overwhelming evidence that this is exactly what Obama wants to do.  But the loyalists on the left are trying variants of the 11th dimensional chess argument, some quite condescendingly, when it’s not that hard to see what is really going on. Obama is a Rubinie. Obama is a neoliberal. Obama in 2006 and again in the Presidential debates made it clear he wants to “reform” Social Security and Medicare. He sees undoing the New Deal as the anchor of his legacy. He’s probably envying the Maggie Thatcher obits and wondering if he’ll get ones at least as good.  Look at his latest plans for negotiating the budget, with much of his party in revolt. From the Associated Press: But instead of moving Congress nearer a grand bargain, the Obama’s proposals so far have managed to anger Republicans and Democrats alike….As part of the administration’s effort to win over Republicans, Obama will have a private dinner at the White House with about a dozen GOP senators Wednesday night. The budget is expected to be a primary topic, along with proposed legislation dealing with gun control and immigration.

Progressives Rage Outside the White House Over Plan to Cut Social Security: - In what is likely an historical first for a Democratic President, groups that were his most loyal and hardworking supporters during last year’s campaign massed outside the White House yesterday to pronounce the President a traitor to his people and his party. Just five months after spending millions from their campaign war chests and an equal amount of volunteer hours, the progressive groups who delivered a second term to Barack Obama feel betrayed. Using unusually harsh language and delivering 2.3 million signed petitions, the President’s base came to warn Congressional Democrats against falling in lockstep with the President. The uproar comes over the President’s plan, to be unveiled today in his budget proposal, to cut Social Security payments by indexing benefits to a chained Consumer Price Index (CPI), a process viewed as a rigged system of reducing payments over time to the Nation’s most vulnerable seniors, veterans and disabled. Under chained CPI indexing, it is estimated that a Social Security recipient could receive $1,000 less annually after 20 years.

Seriously, what the hell is Obama thinking? - The White House says their budget proposal, which includes idiotic cuts to Social Security for no apparent reason than to do the GOP's dirty work for them, is "not ideal". brooklynbadboy says the White House wants to cut Social Security. Others defend the White House by claiming that this is all theater to prove just how "reasonable" the president is compared to congressional Republicans.  I can't imagine President Barack Obama actually wants to cut Social Security. I'm not that cynical. Yet. If this was really about "saving" a program that is solvent for several more decades, all he'd have to do was raise the cap on payroll taxes. Right now, earnings above $110K-ish don't pay a Social Security tax. Why? Who the hell knows. But you raise that (or eliminate it altogether), and any potential future Social Security problem evaporates. I'll bet my first-born that the American people prefer that to cutting benefits for seniors. So I actually take him at his word, that he is simply trying to give Republicans what they want in order to appear compromising and reasonable. Why does he need to appear compromising and reasonable? Who the hell knows, but he sure has a pathological need to appear that way. It didn't help him last time he bent over backwards to make a deal—the infamous debt ceiling negotiations of 2011. Let's look at the numbers after the fold

Elizabeth Warren ‘Shocked’ At White House Plan To Cut Social Security With Chained CPI  - Senator Elizabeth Warren (D-Mass.) made it clear Wednesday in an email to supporters that not only would she oppose President Barack Obama's plan to cut Social Security benefits through a cost-of-living adjustment known as chained CPI, but that she was "shocked to hear" it was included in the White House's budget proposal at all. Warren said her brother David lives on the $13,200 per year he receives in Social Security benefits. "I can almost guarantee that you know someone -- a family member, friend, or neighbor -- who counts on Social Security checks to get by," she wrote. She continued: That's why I was shocked to hear that the President's newest budget proposal would cut $100 billion in Social Security benefits. Our Social Security system is critical to protecting middle class families, and we cannot allow it to be dismantled inch by inch. The President's policy proposal, known as "chained CPI," would re-calculate the cost of living for Social Security beneficiaries. That new number won't keep up with inflation on things like food and health care -- the basics that we need to live. In short, "chained CPI" is just a fancy way to say "cut benefits for seniors, the permanently disabled, and orphans." Two-thirds of seniors rely on Social Security for most of their income; one-third rely on it for at least 90% of their income. These people aren't stashing their Social Security checks in the Cayman Islands and buying vacation homes in Aruba – they are hanging on by their fingernails to their place in the middle class.

Counterparties: A surplus of cuts - President Obama’s 2014 budget was released yesterday; Wonkblog has a concise rundown of its winners and losers. The plan aims to cut $1.8 trillion in spending while raising $580 billion in revenue over ten years. To the considerable dismay of liberals, it includes cuts to Medicare and a reduction in Social Security cost-of-living increases. Despite these cuts, Annie Lowrey writes that the President’s budget zeroes in on the twin problems of inequality and wage stagnation by increasing the federal minimum wage, instituting free preschool, and making the five-year extension of the earned income tax credit permanent. Sam Stein and Ryan Grim, however, see a budget full of old stimulus ideas that likely won’t pass. The deficit is already shrinking rapidly. Bill McBride points to a Goldman Sachs research report estimating that in the first three months of 2013, the federal deficit was 4.5% of GDP — less than half its 2009 level. Dan Gross thinks that even though current policy is “nobody’s idea of optimal”, we are experiencing a “golden age of deficit reduction”. The budget also includes several major changes to the tax code, including the often discussed “Buffett Tax”, which would impose a 30% minimum tax on household income over $1 million. Private equity managers won’t be pleased either: the budget would kill the “carried interest” tax break. John Carney says this is futile; Dan Primack has a good rebuttal. Simon Johnson isn’t pleased. He sees a president who “has allowed the debate to become dominated by excessive paranoia about deficits and by extremist demands to shrink government”. As Derek Thompson writes, the President is proposing between $200 billion and $380 billion more in Social Security and Medicare cuts than Republicans are asking for. Jonathan Chait thinks the reason Obama is proposing these cuts has everything to do with politics: the president wants to beat Republicans to the punch on spending cuts and deficit reduction.

Will the birthday bump prevent an increase in senior poverty from the chained CPI? - The chart shows how the nominal benefit might increase for a prototypical retiree with the current COLA (tied to the CPI-W), the proposed COLA (tied to the Chained CPI-U), and the chained COLA with the proposed benefit enhancement. The projections assume that the benefit at age 76, when the birthday bump first takes effect, is equal to the average benefit for all retirees, which appears reasonable based on Census data. Though the chart shows the annual benefit up to age 100, life expectancy at age 65 is around 20 years, so what matters for the typical retiree is the area to the left of the shaded rectangle. The benefit enhancement—a.k.a. the “birthday bump”— eventually equals 5 percent of the average retiree benefit but is phased in over 10 years, starting at age 76 and again at 95. If the bump were in place today, the maximum amount would be around $760 dollars per year, phased in at $76 dollars (1/10 of $760) at age 76, $152 at age 77 (2/10 of $760), and so on.As shown on the chart, by age 85, the bump is sufficient to offset the COLA cut. Then, strangely, it goes away and reappears at age 95, explaining the weird squiggle. The reason the birthday bump has a bigger effect at older ages is that the average retiree benefit—and therefore the birthday bump—grows faster than the COLA (the projections are based on the assumption that the bump grows by 4 percent per year, based on Social Security wage growth projections).

How high does senior poverty have to go? - It's official: President Obama has proposed cutting Social Security by replacing the program's current inflation adjustment with the stingier "chained" Consumer Price Index. As I've discussed before, this risks undoing all the progress made against senior poverty since the passage of Medicare and Medicaid in 1965. 25% of seniors were poor according to official poverty line in 1968, compared to just 9.4% in 2006. Note, however, that the Supplemental Poverty Measure, which includes things like out of pocket health care expenses which hit seniors disproportionately, already shows a 16.1% rate by 2009. And our senior poverty rate, measured by the international standard of 50% of median income, is already 25%, much higher than most developed countries, more than three times Sweden's rate and over four times as high as Canada. We've seen this game before. The Heritage Foundation's health care plan became "death panels" when President Obama endorsed it.  And, as Beutler's title makes clear, we have plenty of examples of the President negotiating with himself to bad effect, most notably in the 2011 debt ceiling battle. If this cut really happens, Social Security benefits will steadily fall in true inflation-adjusted terms due to the magic of compounding. Moreover, with 49% of the workforce having no retirement plan at work and another 31% with only a grossly inadequate 401(k), the cuts will worsen the coming retirement crisis. The only question will then be: how high will senior poverty have to go before we do something about it?
Michael Hudson on Obama’s “Catfood” Social Security Reform - Michael Hudson, in a Real News Network interview, puts paid some of the key ideas used to sell catfood futures, um, Social Security and Medicare cuts, such as if we don’t Do Something, interest on government bonds will eat the economy. He also gives a good explanation of what “chained CPI” is really all about. He asked us to post this transcript, which is a bit cleaner than the Real News Network version:

Budget Snippets - I’ve been gum flapping on the President’s new budget all day in two cities and I’m not done yet.  But here are some brief thoughts, if not for your enlightenment then for your entertainment.  From the department of “who didn’t see that coming?” here’s Rep Eric Cantor’s response: “Let’s set aside our differences and come together on things we can agree on.”  In other words, let’s just cut Social Security benefits (chained CPI) since we both want to do that, and not fool around with new revenues, cuz only one of us wants that. And there you have the risk of leading with your last offer.  The White House has to have expected that and I believe them when they say no deal—it’s not a menu.  But why go there?  I think I can answer that, and offered some thoughts here.  But reading Krugman’s take earlier, I found myself in rare disagreement.  Paul believes the President is grasping for the approval of “imaginary grownups,” and he rhetorically asks: “who do you think could possibly be persuaded by this budget who hasn’t already been persuaded?”  Actually, I predict—and this is a testable hypothesis—that the White House actually might be successful in changing the rhetoric of some of the elites—the Serious ones, in PK’s vernacular—who make a living off of the “pox on both their houses” arguments.

A Disappointing, Procyclical, and Highly Politicized Budget - The White House has officially unveiled its budget for fiscal year 2014. I hope to have a chance to look at some of the numbers and programs in depth over the coming weeks, but the overview alone confirms what many leaks have suggested, namely, that this is a disappointing, highly politicized document. Here are some first impressions: The first thing the proposal makes clear is that the White House has joined Congressional Republicans in a bi-partisan commitment to austerity. It promises $1.8 trillion of additional fiscal consolidation over 10 years, in addition to $2.5 trillion already achieved, about the same as the GOP is looking for. The only difference is a fig leaf’s worth of proposed new revenue in the White House version, $1 for each $2 of spending cuts. Under the proposal, federal tax receipts would reach 20 percent of GDP by 2020, about same as would have been allowed by such conservative initiatives as a balanced budget amendment proposed last year by Sen. Orin Hatch. The path of fiscal policy under the budget proposed by the White House continues the procyclical pattern that has prevailed for most of the past decade. A countercyclical policy would move the structural balance (that is, the surplus or deficit adjusted to take account the state of the business cycle) toward deficit when the economy is operating below its potential and toward surplus only after it approaches or reaches full employment. Instead, the pattern since 2010, and continued under the budget plan, is exactly the opposite. As the chart shows, the structural balance has been moving steadily toward surplus since 2010, slowing the recovery, and will continue to do so through 2015. Only after 2016, as the economy approaches full employment, will fiscal policy become expansionary again.

The Obama budget’s misguidedly lower revenue target - President Barack Obama’s fiscal year 2014 budget request, released Wednesday, is a more centrist blueprint than his fiscal 2013 request—which was the most progressive and ambitious with regards to job creation and taxation to date. As I argued in a U.S. News debate club series, the contrast is most conspicuous and consequential on three fronts: proposing less ambitious revenue targets, largely abandoning the American Jobs Acts, and identifying benefit cuts (not just efficiency savings) in social insurance programs that the president would exchange for the more modest revenue increases. Of these, the pre-compromise on Republicans’ third rail—raising new revenue—is perhaps the most perplexing, because unlike scaling back stimulus or cutting Social Security benefits it works directly against the administration’s prioritization of deficit reduction (a priority regrettably at odds with ensuring faster economic recovery). Remember that the “ten dollars in spending cuts for a dollar in revenue” formulation—an empirical policy slam-dunk for the GOP and twice as conservative as the five-to-one ratio for deficit-reduction measures enacted in the 112th Congress—was heretical during the GOP presidential primary campaign. The political hurdle on taxes is getting Republicans to accept the first penny of revenue and buck Grover Norquist’s Taxpayer Protection Pledge. Given this, scaling back revenue proposals accomplishes nothing. At first blush, the president’s budget doesn’t appear to have given away much on the revenue front. The OMB Summary tables show revenue averaging 19.1 percent of GDP over FY2014-2023, seemingly roughly in line with revenues at 19.2 percent of GDP over FY2013-2022 in his previous budget request (and revised to 19.1 percent in the Mid-Session Review). But it’s important to dig deeper and figure out what’s going on here.

What’s the Mix of Spending and Revenue in the President’s Deficit Reduction Proposal? - President Obama’s budget identifies a group of policies as a $1.8 trillion deficit reduction proposal. I found the budget presentation of this proposal somewhat confusing; in particular, it is difficult to see how much deficit reduction the president wants to do through spending cuts versus revenue increases. The proposal would increase revenue by $750 billion over the next decade. Much media coverage has been incorrectly suggesting an increase of either $580 billion (revenue from limiting tax breaks for high-income taxpayers and implementing a “Buffett Rule”) or $680 billion (adding in the revenue that would come from using chained CPI to index parameters in the tax code). But there’s another $67 billion in additional revenue. Almost $47 billion would come from greater funding for IRS enforcement efforts that lead to higher collections. To get that funding, Congress must raise something known as a “program integrity cap.” The administration thus lists this as a spending policy, but the budget impact shows up as higher revenues.  Several similar administrative changes in Social Security and unemployment insurance add almost $1 billion more.Another $20 billion would come from increasing federal employee contributions to pension plans. That sounds like a compensation cut to me and, I bet, to affected workers, and would be implemented through spending legislation. Under official budget accounting rules, however, it shows up as extra revenue as well.

President’s budget “compromises” on job-growth too - Yesterday the president released his FY2014 budget request. While there is a lot to be commended in the budget (canceling sequestration cuts, calling for an (admittedly insufficient) increase in the minimum wage, infrastructure investment, creating a “Buffett rule”) there is also plenty to dislike. Perhaps the most controversial measure is the inclusion of the chained CPI to measure the cost of living adjustment for Social Security (and to index tax brackets and other programs). This is a not a policy favorite of EPI’s (see here and here for why). Less commented on is the dramatic scaling back of stimulus efforts in this year’s budget relative to previous versions. In last year’s FY2013 budget request, the president included a section within his proposals dedicated to “temporary tax relief and investments to create jobs and jumpstart growth.” While perhaps not as robust and exhaustive as we would like to see in an effort to insure a full economic recovery, last year’s budget was not too shabby on stimulus. It included $178 billion in stimulus proposals for FY2012, and $355 billion over FY2012-2022. Examples of stimulus in the FY2013 request included a two-year payroll tax holiday, an extension of unemployment insurance benefits, some business and energy tax credits, investment in surface transportation priorities, and a number of different policies aimed on hiring and supporting teachers and first responders and rehabilitating and rebuilding neighborhoods and schools (many of these policies were seen in his September 2011 American Jobs Act proposal).

President Obama’s budget: Dread on arrival - For those hoping to avoid another debt ceiling fiasco like that witnessed in the summer of 2011, the president’s new budget is dread on arrival. It virtually guarantees a total impasse on budget negotiations that will end in a debt ceiling crisis by early in the fall. The president’s 2014 budget proposal includes an alleged $1.8 trillion in deficit reduction over 10 years, $1.1 trillion of which is used to off-set $1.1 trillion in cuts already achieved by the sequester which the president employed shameless scare tactics to derail. In other words, the president, having once already failed to scare Congress and the public into rescinding the sequester, wants to try again. The president’s budget, after using $1.1 trillion of the alleged $1.8 trillion in deficit reduction measures over 10 years, is left with $700 billion of claimed net deficit reduction. However, the president simply assumes that about $1.4 trillion of his total $1.8 trillion in claimed savings will come from winding down the wars in Iraq and Afghanistan. No one believes the $1.4 trillion phantom savings number. The actual net deficit reduction proposed is more like zero. Without the proposed $563 billion in additional taxes on the wealthy, which Republican have already rejected, the deficit actually rises under the president’s budget. Its best parts are a cigarette tax boost of $78 billion, along with savings from re-indexing social security worth $230 billion, both over 10 years. The latter is strongly opposed by liberal Democrats.

GOP Has Already Declared Obama FY14 Budget DOA - This week's most frequently repeated description of the Obama fiscal 2014 budget, which is scheduled to be released this Wednesday, April 10, will be something close to "...which was sent to Congress more than two months after the statutory February 4 deadline..." Yes, the budget is very late. Yes, this may be the latest any president has ever sent his budget to Congress since the Congressional Budget Act became law in 1974. And, yes, in spite of the fiscal cliff at the beginning of January and the sequester on March 1, both of which got in the way of the typical presidential budget formulation process, this extreme delay is more than just a little hard to fathom. Having said that, the only real difference the delay to April will make in this year's debate is that it deprived House and Senate Republicans from declaring the president's budget dead on arrival in February. That will be the great irony about everything that's said about the Obama budget this week. House Republicans, who were virtually certain not to think about taking the Obama budget into consideration when they drafted their own budget last month, this week will complain loud and long about not getting the chance to to ignore it earlier in the year. 

Fiscal frauds - This afternoon on CNN, GOP Rep. Greg Walden, the chairman of the NRCC, opened fire on Obama’s budget by claiming it is an assault on seniors: “I’ll tell you when you’re going after seniors the way he’s already done on Obamacare, taken $700 billion out of Medicare to put into Obamacare and now coming back at seniors again, I think you’re crossing that line very quickly here in terms of denying access to seniors for health care in districts like mine certainly and around the country,” he said on CNN Wednesday afternoon. This makes it all but certain that Republicans will use Obama’s Chained CPI proposal to attack Democrats in the 2014 elections for cutting Social Security. Brian Beutler points out that this vindicates the warnings of those on the left who predicted this would happen. Let’s step back a bit. Late last year, Boehner and Mitch McConnell explicitly called on Obama to agree to Chained CPI, with McConnell even claiming that Chained CPI and Medicare means testing “would get Republicans interested in new revenue.” But now that Obama has included those things in his budget, Republicans are not only still unwilling to contemplate new revenue; the chair of the NRCC is signaling that Republicans will us it to attack Democrats for “coming back at seniors,” just as they did in 2012 and 2010.

Treasury Secretary Jack Lew Pushes the Anti Social Security, Pro Wall Street Agenda - This past February, 11 European countries, including Germany and France, agreed to the financial transaction tax which is expected to raise $45 billion annually. The tax would be imposed at the rate of 0.01 percent for derivatives and 0.1 percent for stocks and bonds.    In written responses during his Senate confirmation hearing, Lew said both he and the Obama administration oppose a similar tax in the U.S. Now it appears that Lew doesn’t just oppose the tax here in the U.S., but is using his bully pulpit to trash talk the tax among our trading partners. Particularly egregious is that he is traveling on the U.S. taxpayers’ dime to attempt to defeat a tax that the majority of Americans support.  In a 2012 national survey by the Mellman Group, 65 percent of respondents thought that increasing “taxes on Wall Street banks that helped create our economic problems” was a superior plan than reducing the nation’s deficit by cutting spending on Social Security, Medicare or environmental protection.” Such a U.S. tax would support another public interest – slowing the use of high frequency trading which is effectively looting the retail investor.    But despite that lopsided public opinion, the President proposes to shift the burden to seniors by using a chained CPI to cut Social Security benefits while his Treasury Secretary, who took $940,000 in taxpayer bailout funds to Citigroup as a personal bonus for himself, tries to stall a tiny tax on Wall Street by shuttling across Europe on the U.S. taxpayers’ dime. Does it get any more revolting than this?

Imaginary Grownups - Paul Krugman -  So the Obama budget is out, Social Security cuts and all. Why is this happening? Well, it’s all about the positioning. Ezra Klein gets at what I hear from the WH too (and what’s obvious in any case): Today’s budget is the White House’s effort to reach the bedrock of the fiscal debate. Half of its purpose is showing what they’re willing to do. They want a budget compromise, and this budget proves it. There are now liberals protesting on the White House lawn. But the other half is revealing what the GOP is — or, more to the point, isn’t — willing to do. Republicans don’t want a budget compromise, and this budget is likely to prove that, too. The question is, to whom are these things being “proved”? Since the beginning, the Obama administration has seemed eager to gain the approval of the grownups — the sensible people who will reward efforts to be Serious, and eventually turn on those nasty, intransigent Republicans as long as Obama and co. don’t cater too much to the hippies. This is the latest, biggest version of that strategy. Unfortunately, it will almost surely fail. Why? Because there are no grownups...

Obama’s Plan to Shield Groups From Chained-CPI Proves It Is a Con - If chained-CPI was merely a technical fix or a more accurate measure of inflation, it should be applied equally across the entire federal budget. This is not what Obama is proposing. Instead he plans to “shield” many groups from what he claims is only a technical adjustment. From CBS News: White House Press Secretary Jay Carney called the Social Security benefit change a “technical adjustment” and described it a good-faith gesture to Republicans seeking new entitlement savings. Senior administration officials who briefed reporters on budget details said Mr. Obama would shield low-income senior, veterans and the very elderly from the change in Social Security inflation adjustments. Fifteen million retirees receive Social Security. The average yearly payment is just over $15,000. This proves that chained-CPI is just a con to cut Social Security and increase middle class taxes while trying to avoid responsibility. If chained-CPI is actually a more accurate measure of inflation, there would be no need to shield anyone from the change.  By admitting that some vulnerable people will need to be shielded from the chained-CPI, the administration is acknowledging it is a cut. Yet instead of having the decency to be honest to the American people, Obama is promoting a poorly designed cut so he can hide behind talk of technical corrections.

Even with Exemptions, Chained CPI Proposal Will End Up Hurting Low-Income People - The budget documents released so far today don’t provide much detail on the President’s proposal to switch to the chained CPI. But a short section on the proposal, at page 46 of the budget, says that the shift to the chained CPI would be made for “most programs and the Internal Revenue Code” and that it “includes protections for the very elderly and others who rely on Social Security for long periods of time, and only applies the change to non-means tested benefit programs.” And a just-released White House fact sheet claims that the proposal is coupled with “measures to protect the vulnerable and avoid increasing poverty and hardship.” Does this mean people who rely on means-tested benefits and low-income income people generally should breathe a sigh of relief? Hardly. Here are some reasons why (setting aside for the moment the impact of the chained CPI on Social Security for low-income retirees, which I’m sure my colleague Dean Baker will have more to say about):

How Social Security Cuts Could Affect Children - President Obama’s budget includes a controversial — at least on the left — change in the way Social Security benefits are adjusted for inflation that would save the government about $130 billion over 10 years.  The change would mean less money for the elderly. But it would also mean less money for children. One underappreciated point is that Social Security benefits millions of children and working-age Americans, as well as older adults. According to calculations of census data performed by the Center on Budget and Policy Priorities, a left-leaning Washington research group, Social Security keeps about 21 million Americans above the poverty line every year. About a third of those people are younger than retirement age, and about 1.1 million of them are under age 18.  It is not just those very low-income families that benefit, either. As of 2011, about six million children, or 8 percent of all people under 18, lived in a household receiving Social Security benefits. In part, that is because so many households with children also include a grandparent. But more than four million children are direct recipients of benefits, too, often because they have a deceased or disabled parent.  President Obama’s chained C.P.I. proposal does include protections that would prevent benefit reductions for many of the most vulnerable households. Means-tested benefit programs — like the Supplemental Security Income program — would not be affected, for instance.

Obama Social Security Reform Ignores Data on Actual Living Standards of Seniors - Yves Smith - This Real News Network segment does a very nice, compact job of explaining why chained CPI is such a disastrously bad policy for older Americans. I’m featuring it with the hope that it might prove useful in educating friends and family members who might not be up to speed on this issue.

Chained CPI Means You Can’t Have Nice Things - The Obama Budget Document includes 11 mentions of Chained CPI. Here are the first four:  The first bold section tells us that Obama believes there is a bipartisan consensus that we have to cut Social Security and raise taxes on the middle class. I’m not seeing that in any segment of the political world except vicious jerks like the Club for Growth. I can’t wait to see the Hastert Rule operate in the House, forcing Speaker Boehner to admit that a majority of House Republicans thinks hiking taxes on the middle class and slashing Social Security is a terrible idea.  The second explains that this is good because when prices go up, or incomes drop, consumers can just buy some cheaper thing than the thing they really like. You can read a paper from the Bureau of Labor Statistics explaining this in detail here. The plain fact is that this is an outright admission of the utter failure of the consumption society.

Obama Tries to Make Every False GOP Attack True - What I find most ironic about President Obama’s budget is that in trying to find “common ground”, he became the caricature Republicans created about him. Throughout most of Obama’s first term Republicans attacked him based on what were two false premises. The first was that Obama raised taxes on the middle class. Republicans would sometimes point to the individual mandate or minor tax changes to justify this broad claim but it was not really true until now. The other much bigger attack was that Obama was out to hurt seniors. This was the core of the 2010 GOP campaign. They tried to spin cost reductions in Medicare as actual cuts to Medicare benefits. Republicans even falsely claimed Obamacare had “death panels” or was some attempt to pull the plug on grandma. After years of asking regular Democrats to help refute what were baseless attacks, Obama has gone out of his way to be some kind of Republican self-fulfilling prophecy. Obama might not have previously violated his major campaign promise to never raise taxes on the middle class before, but he is determined to now. Chained-CPI, which is the heart of his new budget, is a regressive middle class tax increase

What Is the Political Payoff of Proposing Social Security Cuts? - The President’s budget has arrived and, as reported, it does contain proposed cuts to Social Security (through adopting a different measure of inflation called “chained CPI”).   The idea here is that Republicans are extremely unlikely to make a deal that contains any revenue increases on high-income-earners; even one that includes the entitlement cuts they have (sort of) demanded.  As a result of the President putting these cuts on the table in so public a fashion, so the theory goes, centrist op-ed writers will finally drop the false equivalence and declare that Republicans are being intransigent and are not negotiating in good faith toward a grand deficit-reduction bargain. Paul Krugman points out that this is an exceedingly unlikely scenario.  But even if DC pundits play along, here’s a question about this gambit that I don’t think has an obvious answer:  what’s supposed to happen next?  What’s meant to be the tangible payoff of the new narrative that would be created by all these editorial spankings? Put it this way.  What will have a bigger impact on a (generally more elderly) midterm electorate in 2014:  ads about Republican obstinacy featuring sorrowful quotations from Fred Hiatt, or ads savaging Democrats for trying to slash Social Security? 

Cash Benefit Programs Are Not Really Government Spending - For accounting purposes, it makes sense to count programs like Social Security, disability insurance, and Temporary Assistance for Needy Families as government spending. But these kinds of programs are not really government spending because the government does not actually direct how the money is spent. Unlike building a road, for instance, where the government decides that a road should be built and then pays to make it happen, cash benefit programs involve the government distributing money to people and allowing them to decide where to spend it. This is an important distinction because many of the problems people often raise about government spending simply do not apply to cash benefit programs. For example, one common criticism of government spending is that the government is incapable of figuring out what people actually want, and therefore wastes a bunch of money on projects and services that do not deliver much value. Another common criticism is that directly spending money generates all sorts of corruption and waste in the government contracting process. Big firms with lots of money competing for government contracts is a recipe for disaster due to the money-infused nature of our political system.

A Good Grade for a Responsible Budget - Alan Blinder - On Wednesday morning, President Obama released his proposed budget for fiscal year 2014, which begins this October. The president is supposed to deliver his budget in early February, but hey, given the pace at which Congress works, who's counting? The important thing is: This is a fine effort. Presidential budgets always contain their share of bluster, self-praise and unrealistic optimism.  They never get enacted into law because, as the saying goes, the president proposes and Congress disposes. But this budget is a reasonable model of what might pass for compromise in a less partisan Congress. In appraising any budget, I'd emphasize four criteria: credible numbers, sensible priorities, appropriate macroeconomics, and putting spending and taxes on reasonable trajectories for the future.

A Little Less Fiscal Drag In the Budget - I don’t want to make a huge deal out of 0.7% of GDP, nor do I want to create the impression that fiscal policy is moving in the right direction.  It’s not.  But I give the White House and my old pals on the econ team over there credit for raising the 2014 budget deficit as a share of GDP above current law. First, pull in your talons, deficit hawks.  The deficit is still scheduled to shrink next year under the President’s budget from around 6% of GDP this fiscal year to 4.4% in 2014.  But, if current policy were to prevail next year—i.e., if neither the President’s nor the other budgets were adapted—the deficit ratio would shrink to 3.7% of GDP.  So, a bit less fiscal drag thanks to the fact that the administration replaces the sequester with more back-loaded spending cuts and implements some jobs measures as well.And yes, I know that none of this is at all likely to happen, but I just wanted to point out that this budget is less austere than you might have thought–or at least less so than what we might be in for.

The Stock of Federal Investment - Each year when the president releases a proposed federal budget, as President Obama did on Wednesday, an "Analytical Perspectives" volume is also released with other angles on the budget. This year, Chapter 20 of that volume is about "Federal Investment." Of course, there's a certain tendency by those who favor a certain area--from national defense to health care to antipoverty programs--to label as "an investment." But as the budget states: "The distinction between investment spending and current outlays is a matter of judgment. The budget has historically employed a relatively broad classification of investment, encompassing physical investment, research, development, education, and training." In these areas, what is the accumulated value of the federal investments over time?  The total stock of physical capital from federal investment is worth $3.2 trillion in 2013, according to the budget estimates, which look both at investment and at depreciation over time. About 30% of that is defense-related. About 20% is direct federal spending on projects like water and power. The remaining half or so is capital financed by federal grants, and about two-thirds of that ($1.1 trillion) is related to transportation.

Taxing Millionaires: Obama’s Buffett Rule - From the start of his 2008 campaign, President Obama has called for raising taxes on the rich. Now his FY2014 budget takes another couple of bites at that apple. The first repeats his proposal to cap at 28 percent the value of itemized deductions and specified exclusions, which would raise $530 billion over ten years. The president has pushed this idea in each of his five budgets, expanding it last year to include selected exclusions ranging from interest on municipal bonds to employer-paid health insurance premiums. This year’s new wrinkle would extend the limitation to some taxpayers with income below Obama’s threshold for being rich—$250,000 for couples and $200,000 for singles.Obama’s other bite on the rich is a Buffett Rule that would ensure that high-income households pay at least a minimum percentage of their income in taxes. Until now, the president has only spoken aspirationally about this idea. But his budget includes a concrete plan, dubbed the Fair Share Tax, or FST, that would collect $53 billion over ten years.But it turns out that setting a floor on the taxes rich people pay is not so easy. It is complicated and messy, and might not even accomplish its intended goal.

Dynamic Scoring: Still a Bad Idea - CBPP  - The Senate narrowly adopted an amendment to its recent budget resolution that would require the Congressional Budget Office and Joint Committee on Taxation to prepare “dynamic” estimates of the budgetary impact of tax legislation.  But, policymakers should reject the temptation to use “dynamic scoring” to estimate how tax reform proposals would affect the budget, as we have explained. There are several very good reasons why federal agencies don’t use dynamic scoring.

  • Estimates of the macroeconomic effects of tax changes are highly uncertain.   They would likely be small, however, according to most studies. 
  • Dynamic scoring would impair the credibility of the budget process. Because the estimates of macroeconomic feedbacks are so uncertain, observers would almost surely view the revenue estimates on which they are based as biased and politically motivated.
  • To assure fairness and consistency in the budget process, federal agencies would have to use dynamic scoring for spending bills as well as tax bills. Government investments in infrastructure, education, and basic research can boost long-term economic growth, just like private investment.
  • Dynamic scoring would make deficit reduction harder to achieve.

F-35 and sequester dollars and cents - With constant delays due to significant engineering issues and design flaws, the cost of the F-35 has risen to $395.7 billion. But that's just to build the planes. When you add in the cost of testing, operations and support, it will cost an additional $1.1 trillion — bringing the overall price tag to an incomprehensible $1.5 trillion.2 Think about this — the sequester, which cut $1.2 trillion from the budget, is actually less money than the entire F-35 program. Instead of cutting vital programs like Medicare, education, Head Start and unemployment insurance, we could end the F-35 program and invest in jobs and crucial services in our communities.

When will this do-nothing Congress wake up to America's jobs crisis? - Nero fiddled while Rome burned; Washington politicians have apparently taken him as their inspiration. There are fewer Americans working than at any time since 1979. This finally adds urgency – political urgency – to a jobs crisis that is only getting deeper and more painful for Americans. The numbers of jobs added and the unemployment rate don't show the real picture of America's employment situation. The unemployment rate keeps dropping – it's currently at 7.6% – which gives the illusion of a better economy. The real story is told by another number. Economists call it the "labor force participation rate". It tells us how many people are working, and how many are dropping out of the workforce because they can't find a single employer who could use their abilities, even for a few hours a day. The labor force participation rate is really a measure of potential that is lost: the intelligence and strength of Americans that goes idle because it cannot find a single profitable outlet. While the unemployment rate is dropping, and the number of jobs goes up and down, the labor force participation rate has been steadily falling since the economy started weakening in 2007. Here is what the chart looks like: 

Obama Proposes Retirement Account Limit In First "Wealth Tax" Salvo -First, it was Europe deciding that €100,000 in savings is the "fair" threshold on savings above which any haircut goes, with Cyprus demonstrating first and next Italy making it clear local depositors above the threshold will also be impaired in the future; then a group of journalists mysteriously lands millions in top secret files exposing essentially every offshore bank account: a perfectly legal option, however when mixed in with the implication that this money is all tax-evasion gotten it provides for a combustible mix, and now it is America's turn to fire the first shot across the capital control bow, because as part of his proposed budget, Obama plans to set a limit of how much one can spend per year on retirement through tax-preferred retirement plans. As it turns out, according to the Obama administration it is only fair to spend a total of $205,000 in nominal dollars per year on retirement, but not more. This means that as a result of the artificial limit, the Budget will set a total cap on retirement plans of about $3 million

The President’s Plan to Cap Retirement Saving Benefits - The president’s FY 2014 Budget would limit tax benefits for workers with high-balance retirement saving accounts. Although critics call the plan a blow to workers’ retirement saving, I consider the plan a smart way to roll back the billions in tax breaks that go to investors who don’t need tax incentives to save for retirement. Under current law, annual defined-benefit distributions are limited to $205,000 per plan. The president’s proposal extends the limitation to defined-contribution accounts like 401(k)s and IRAs and recognizes that, unlike in the past, individuals may have multiple pensions. If the combined value of a worker’s retirement accounts exceeds the amount necessary to provide a $205,000 annuity, they can no longer receive tax benefits for retirement saving. As under current law, the maximum benefit level would be indexed to the cost-of-living and would be sensitive to interest rates, which determine the price of an annuity. This year, the cap would affect individuals with defined-contribution account balances exceeding about $3.4 million.The absence of a cap on defined-contribution accounts allows some high-income workers to shield large amounts of saving from tax. A worker and his employer can contribute up to $51,000 each year to a workplace retirement account (a worker can contribute up to $17,500 on their own) and a worker without a retirement plan can generally contribute $5,500 annually to an IRA.  One analysis estimated that the cap would apply to only one in a thousand current account holders aged 60 and older and would eventually affect just one in a hundred current workers later in their careers. Wouldn’t the president’s limit discourage saving? Probably not. Research has found that tax incentives for retirement saving have only miniscule impacts on overall net saving—contributions to retirement accounts mostly represent saving that would have happened anyway.

'What Happens When Top Income Earners Receive Smaller Subsidies for Retirement Savings?' - Greg Mankiw complains that rich people (like him presumably) will stop saving so much if there is "some kind of penalty for people who have accumulated more than $3 million in retirement accounts" in the president's budget:  The President's Latest Bad Idea. His big complaint? "President Obama's $3 million constraint would be a significant disincentive for saving." Here's something to consider via Owen Zidar: What happens when top income earners receive smaller subsidies for retirement savings?: Raj Chetty, et al ask this question and answer it here. When individuals in the top income tax bracket received a smaller tax subsidy for retirement savings, they started saving less in retirement accounts….. but the same individuals increased the amount they were saving outside retirement accounts by almost exactly the same amount, leaving total savings essentially unchanged. We estimate that each $1 of government expenditure on the subsidy raised total savings by 1 cent. ... I saw this paper presented at an NBER meeting at the SF Fed. It is very impressive work. I'm surprised Greg is unaware of it.

...exceeding $3 million in such accounts is not very difficult for an individual - Greg Mankiw suggests a part of the new budget proposed by President Obama affects 401k and IRA accounts. Apparently, President Obama's budget is going to include some kind of penalty for people who have accumulated more than $3 million in retirement accounts.  The details are not yet known, but I think we know enough to say that this is a terrible idea. A sizable body of work in public finance suggests that consumption taxes are preferable to income taxes.   Retirement accounts, such as IRAs and 401k plans, are one way our tax code has gradually evolved from an income tax toward a consumption tax.  The use of these accounts should be encouraged, not discouraged. By the way, exceeding $3 million in such accounts is not very difficult for an individual who is financially successful and frugal.   Pro Growth Liberal notes another aspect of Greg Mankiw's outlook: Greg explains by noting some folks can readily put away $50,000 a year. The median worker, however, cannot. But there may be something else afoot here as Brian Beutler explains:  One way experts believe financial managers avoid the current annual contribution limit to IRAs is by using IRAs to participate in investments and assigning those investment interests a nominal value vastly below fair market.  Brian cites as an example some clever tax planning done by a chap named Mitt Romney.

"Saving" ≠ "Saving Resources"* - Many economists — mostly the freshwater/neoclassical/supply-side/conservative types, but also many on the left — hold in their heads a very peculiar model of how economies work. In this model, if you don’t eat some portion of the corn you grew this year, you’ve “saved.” You can eat it next year. Makes perfect sense. You can see this thinking played out in Scott Sumner’s justification for consumption taxes: I’d tax people on the basis of how many resources they consume, or take out of society, not what they produce. He describes the opposite approach — taxing returns on financial investments or “savings” — as “morally grotesque.” They’re assuming that if you “save” (a.k.a. don’t spend), you don’t “consume resources.” You “save” them, and don’t “take them out of society.” This makes absolutely no sense. If you forego a massage this week, or wait a few years to get your house painted, is the labor for that massage or paint job “saved”? How about this year’s sunlight — the ultimate source of that labor power? Can you use it next week, or next year? Understand: services comprise 80% of U.S. GDP. And that’s before you even think about Apple and similar, with their just-in-time, on-demand supply chains — when you buy it, and only when you buy it, they produce it.If you don’t buy it, it doesn’t get produced.

Does Reduced Consumption, and Increased "Saving," Result in "Capital" Formation? - Matthew Yglesias riffs off my recent post, “Saving” ≠ “Saving Resources,” and there’s been quite a bit of commentary there, plus on Asymptosis and Angry Bear (plus a bit of twitter talk that I can’t figure out how to link to easily and usefully). There are a dozen things I want to discuss on the topic, but I’d like to address the key belief underpinning much of the commentary (including Matthew’s). In my words: If you don’t spend all your income, the unspent part is used by others to produce/purchase* “fixed” or “real” or “productive” assets. More money gets spent on investment, and less on consumption. There are all sorts of problems with this notion, empirical and theoretical (notably the confusion of an accounting identity, “S is identical to I,” with economic incentives). I want to try and cut to the crux, with this: A. If I transfer $100K from my bank to yours to purchase goods or labor, is there more money to produce/procure productive assets? B. If I (or all of us) instead transfer $75K, leaving (“saving”) $25K in my bank, is there more money to produce/procure productive assets? The answer to B is obviously “no.”

The U.S. Collects Smaller Percentage In Taxes Than Most Developed Countries: Study - A look at 2010 data reveals that the U.S. is one of the least taxed countries in the Organization for Economic Cooperation and Development (OECD), according to a study released Monday by Citizens For Tax Justice.  The only countries in the OECD that collected a smaller percentage in taxes are Chile and Mexico, according to the data. The OECD is a group of 34 countries that work together to improve the global economy.  These findings challenge the Republican talking point that Americans face too high a tax burden. In March, House Republicans passed Rep. Paul Ryan's (R-Wis.) budget plan which seeks to balance the budget within 10 years without raising taxes. Ryan's plan would eliminate 2 million jobs in 2014 and shrink the economy by 1.7 percent, the Economic Policy Institute study projected.

The U.S. Collects Less In Taxes Than All But Two Industrialized Countries - President Obama and Senate Democrats have presented deficit reduction plans that would rely on both spending cuts and increased tax revenues, but Republicans continue to insist that the U.S. has only a “spending problem” and that deficit reduction does not require new revenues.The premise of the argument from Republicans is that Americans already face an extraordinarily heavy tax burden. Citizens for Tax Justice, however, compared levels of taxation in 2010 in the other industrialized countries that make up the Organization for Economic Cooperation and Development (OECD) and found that the U.S. not only collects far less in tax revenues than the average OECD country, but that it also collects less in taxes as a share of its economy than all but two other OECD nations, as the chart at right shows. The U.S. share of taxes has likely increased slightly since 2010, the latest year for which OECD data is available, because of tax increases from Obamacare and from the fiscal cliff deal that restored Clinton-era tax rates on all incomes above $450,000. Those increases likely won’t push the U.S. up the chart and would leave it well short of the OECD average. Similar data for corporate taxes shows that the U.S. collects less than all but one other OECD countries.

Debunking the Idea that Americans are Overtaxed - Yves Smith - Now admittedly, there are some apples and oranges problems with this chart, in that the other countries on the list have government paid medical systems or public/private systems. And Australia has a publicly-mandated private pension scheme in which employers are required to set aside 9% of wages into a “superannuation” fund (workers are encouraged to contribute as well). Of course, we do have a higher level of military spending than the other countries on the list (although if you check the World Bank rankings, some small countries have a bigger proportion of GDP in military expenditures, such as Saudi Arabia). Nevertheless, the overall picture is striking.  I’m using Wolf Richter’s version of this chart, since it’s easier to scan than the original from the Center for Tax Justice. Note that this chart captures total taxes, meaning Federal, state, and local. CTJ also points out how America has always been low tax, but has become relatively even lower taxed. In 1979, the total level of taxation in the US was 26% of GDP versus 24.8% now. That means the vaunted Reagan Revolution served mainly to shift taxation from progressive income taxes (hitting the rich harder) and corporate taxes to regressive sales taxes, rather than lower the level. But our tax level has fallen while they’ve grown in other advanced economies. Tax burdens in OECD countries excluding the US were 31.7% of GDP in 1979 and have risen to 33.4% in 2010. So the US ranking has fallen from 16 out of 24 to 32 out of 34. Any wonder why our infrastructure is crumbling and our educational attainment is falling?

How High Should Top Income Tax Rates Be? (Hint: Much Higher) - The U.S. economy is mired in a depression. Output is running $975 billion, or 5.8 percent, below its noninflationary potential as the result of a huge demand shortfall in the aftermath of the housing bubble’s implosion. Insufficient spending by households, businesses and government has resulted in a severe jobs crisis, with demand for workers having fallen sharply across all major industries and educational attainment levels. The downward trend in the unemployment rate has been driven by discouraged workers dropping out of the labor force, not robust rehiring; the unemployment rate would have registered 9.8 percent instead of 7.6 percent in March if some 4 million “missing” workers are added back to the labor force. Worse, the pace of recovery has decelerated below rates needed to eventually recover, largely driven by expiring fiscal stimulus being replaced with austerity. The top policy priority must be ensuring a full economic recovery, and any near-term deficit reduction will necessarily delay recovery, albeit with varying degrees of impact per dollar. Policymakers have nevertheless pivoted from prioritizing job creation to implementing near-term austerity, as underscored by recently implemented sequestration spending cuts, expiration of the payroll tax cut and obstruction of President Obama’s American Jobs Act. The U.S. is embarking down the austerity path despite virtual consensus among economists as well as ample evidence from Europe and elsewhere that spending cuts forced on depressed economies will elevate unemployment and counterproductively increase public debt as a share of the economy.

IRS: We can read emails without warrant -  The Internal Revenue Service (IRS) has claimed that agents do not need warrants to read people's emails, text messages and other private electronic communications, according to internal agency documents. The American Civil Liberties Union (ACLU), which obtained the documents through a Freedom of Information Act request, released the information on Wednesday. In a 2009 handbook, the IRS said the Fourth Amendment does not protect emails because Internet users "do not have a reasonable expectation of privacy in such communications." A 2010 presentation by the IRS Office of General Counsel reiterated the policy. Under the Electronic Communications Privacy Act (ECPA) of 1986, government officials only need a subpoena, issued without a judge's approval, to read emails that have been opened or that are more than 180 days old. Privacy groups such as the ACLU argue that the Fourth Amendment provides greater privacy protections than the ECPA, and that officials should need a warrant to access all emails and other private messages.

The extent of evil - Someone suggested to me recently that tax avoidance should be "stamped out". He wanted such severe controls on economic behaviour by firms and individuals that avoiding tax became impossible: among other things he wanted strict capital controls so that money could not flow out of the country into tax havens, and severe penalties for tax avoidant behaviour. I have used the term "avoidance" here deliberately: the narrower term "evasion" applies to practices that are actually illegal, but my correspondent was not referring to those. He meant any activity that deprived government of what he considered its rightful income. At the opposite extreme are a number of people who have suggested to me that taxation is theft and therefore inherently wrong. To them, money that they have earned or inherited is rightfully theirs, and government should defend their title to it rather than deprive them of it. Avoiding tax is a legitimate defensive response to a predatory government that seeks to take their property from them by force. Both of these positions claim the moral high ground: each claims that the position of the other is "wrong" and the behaviour that the other supports is "bad". This is a logical impossibility. They can't both be right.

Investigation Reveals Trillions Hidden in Tax Havens - Real News Video - Bill Black: An international collaboration of investigative journalists has released the names of wealthy individuals stashing as much as three times the American GDP in tax havens

Analysis: Dow 30 companies show what a joke calling corporate tax burden - You've no doubt heard other iterations of a story appearing in Wednesday's Washington Post. Corporations, though still whining about their "heavy" tax burden, are paying less in taxes as a percentage of total revenue and making more in profits as a percentage of gross domestic product. Check out the 30 companies listed on the Dow Jones industrial average, for instance: We found that in the late 1960s and early 1970s, companies listed on the current Dow 30 routinely cited U.S. federal tax expenses that were 25 to 50 percent of their worldwide profits. Now, most are reporting less than half that share. The reason is not simply a few loopholes tucked deep in the tax code. It’s far bigger: the slow but steady transformation of the American multinational after years of globalization. Companies now have an unprecedented ability to move their capital around the world, and the corporate tax code has not kept up with the changes. Just the opposite, in fact. Experts say the U.S. code has encouraged companies to shift their income overseas, where it is more lightly taxed by the U.S. government.   The Post goes on to cite some of the complainers, and points out that companies have found means to shift their income "roving from country to country in search of the lowest tax burden." The biggest portion of the dive in taxable corporate income in the United States is derived from accounting tricks, not actually moving operations overseas, but finding tax havens. Not illegal. Tax law simply has not kept up. Read why below the fold.

Tax Dodging By Corporations And The Wealthy Cost Each Taxpayer $1,026 In 2012 - America’s largest corporations have stashed nearly $1.5 trillion in offshore tax havens like Bermuda, the Cayman Islands, and Ireland — countries where they do little business but claim massive profits due to low tax rates. As a result, corporate tax rates fell to a 40-year low in 2011 even as profits rose to a 60-year high. Tax avoidance from corporations and wealthy individuals has a cost for individual taxpayers and small businesses, according to a new report from the U.S. Public Interest Research Group. According to U.S. PIRG, tax dodging cost individual taxpayers $1,026 and each small business $3,067 in 2012. Those costs don’t necessarily come from higher taxes; instead, they often come in the form of higher budget deficits or, as they are now, from substantial cuts to public programs and services that benefit middle- and low-income families. “This is a real loss and it’s putting great pressure on the budget and all kinds of investments and programs that the federal government needs to continue to fund,” Michigan Sen. Carl Levin (D) said on a conference call unveiling the report today. Levin has authored legislation calling for the closure of tax loopholes that incentivize the offshoring of profits. “It’s time to close the loopholes, reduce the deficit to protect these important investments in our future, and to bring some fairness back to the tax code,” Levin said.

Debunking today's carried interest tax arguments - -- President Obama today unveiled his federal budget proposal, which included a change to how private equity fund managers are taxed on investment profits (i.e., carried interest). Basically, it would tax carried interest as ordinary income, rather than at the lower capital gains rate. And, to be clear, this only relates to gains where the original money was invested by third parties (endowments, pension funds, etc.). Any money risked by private equity pros themselves would remain taxed as a capital gain. Obama's proposal was expected, given that he has publicly supposed such a change since first running for president. Also, as expected, specious arguments are being used to defend the status quo.So what follows is a rundown and obligatory debunking. If you're looking for my more general argument for why Obama is right, go here. It's from 2011, but the underlying issue remains the same. I also received a lot of critical feedback from that piece, and dealt with it in a follow-up post. Without further ado, some of what we've already heard today:

Let the Punishment Fit the Crime of the Recession, by Mark Thoma - As Paul Krugman observed recently, “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.”  According to this view punishments such as austerity and high levels of unemployment provide a moral lesson that helps to prevent us from making the same mistakes again.  This is bad economics and it has the moral lesson all wrong. It wasn’t government debt that caused our problems, or households consuming beyond their means. It was an out of control, unregulated, over-leveraged financial sector. Cutting government spending and urging households to save more may or may not have merit, but it does nothing to solve the problems that caused the financial meltdown and subsequent recession. As for the moral lesson, if we are going to punish people, shouldn’t it be the people who actually caused the problems rather than innocent bystanders?  Why should the working class pay for problems caused by people making huge profits in the financial sector as they inflated a dangerous housing price bubble? Why should the working class be burdened with high and prolonged levels of unemployment, their children’s futures diminished with cuts to teachers, Head Start, Medicaid, and so on when it was the financial sector that caused the problems? What moral lesson are workers supposed to learn from all of this, that bad things happen to good people?

Volcker Addresses Overhaul Progress, or Lack Thereof -- Former Federal Reserve Chairman Paul Volcker sounded underwhelmed on the progress made thus far in overhauling financial markets. More than four years after Lehman Brothers sought bankruptcy protection and roiled markets world-wide, the U.S. is only about half-way to repairing its systems and ensuring that such a crisis doesn’t happen again, the former Fed chief said. Speaking Monday at a panel at New York University’s Stern School of Business, Mr. Volcker conceded that fixing and restructuring the country’s complex financial system is “a very difficult process… that’s not going to happen in a hurry.” That is because “attitudes haven’t changed,” and politics have ensnared the drafting of some regulations. Three years ago, the Dodd-Frank omnibus reform measure, was signed into law. Among those regulations is one named for the former Fed chairman. The Volcker rule restricts banks from so-called proprietary trading with their own money and limits investments in risky funds. Disagreements among regulators over drafting have delayed the rule for months. A number of people involved with the talks say a final draft is unlikely before the second half of the year.

Why Rescue Fragile Banks? Outsource Them Instead - Executives of the largest U.S. banks warn that efforts to make the financial system safer will harm their global competitiveness. They conjure a world in which foreign institutions, supported by government subsidies, dominate the business of providing banking services to multinational corporations. My response: Great idea. Let’s outsource fragile banking. Large as they are, institutions such as Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) aren’t the primary source of U.S. dominance in the global financial-services industry. The country’s real advantage is in asset management. At the end of 2011, hedge funds, mutual funds and other U.S. institutions managed about $33 trillion in assets around the world, more than three times the amount commanded by the six largest U.S. banks. The asset managers’ activities support domestic and global growth, distribute risk and reinforce market discipline. The banks differ from the asset managers largely in the risk they pose to the broader economy. The sheer complexity of their operations, and their penchant for using large amounts of debt to fund their business, make them “systemically important” and necessitate taxpayer bailouts when they get into trouble. In other words, they concentrate risk, rather than distribute it, and extract a very high price from taxpayers for whatever role they play in supporting growth.

FDIC’s Hoenig: Basel III Is Well-Intended Illusion - International regulators hoping to bolster the health of the world’s largest banks are fooling themselves by focusing on risk-weighted capital measures, Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig said Tuesday. Speaking in Basel, Switzerland, the outspoken Mr. Hoenig said the Basel III capital regime international regulators have agreed on to require banks to have more sizable buffers against losses does not achieve its stated goal. Such approaches are an “illusion of precision and insufficient in defining adequate capital,” Mr. Hoenig said, relying too much on gauging past risks. “All of the Basel capital accords, including the proposed Basel III, look backward and then attempt to assign risk weights into the future. It doesn’t work,” he said.

BOE’s Haldane: Simplify Bank Rules to Strengthen Them - International financial regulators need to simplify rules governing banks instead of pushing ahead with an ever-dizzying array of rules attempting to guard against every potential risk or variable, a top Bank of England official said Tuesday. “I think we need to do a radical pruning, simplifying of our regulatory apparatus which places much less emphasis than has been the case … on what are unreliable measures of risk,” Andy Haldane, executive director for financial stability at the BOE, told a conference of economists, investors and central bankers sponsored by the Federal Reserve Bank of Atlanta. Mr. Haldane, who made waves with his speech about “the dog and the frisbee” at last year’s Jackson Hole confab, said regulators should focus on simplified rules governing the “Three Rs”: regulation, restructuring and resolution. The current push to predict and get ahead of all potential market risks “I think will not serve us all that well,” he said, and instead regulators should streamline regulation in a way that allows them to effectively respond and wind down a large failing financial firm in the event of a crisis.

Sherrod Brown and David Vitter have a new bipartisan bill to end Too Big to Fail. Here’s what it does. - Sens. Sherrod Brown (D-Ohiol) and David Vitter (R-La.) have been working on a bill to block the largest banks and financial firms from receiving federal subsidies for being deemed Too Big to Fail. On Friday, a draft version of that bill was leaked to Tim Fernholz of Quartz, much to Vitter’s chagrin. So, what does the bill do? Let’s start with what it doesn’t do: It doesn’t break up the big banks. Rather, it focuses on how much capital they have to hold to protect themselves from disasters and would “prohibit any further implementation of” the international Basel III accords on financial regulation. But let’s back up. Banks hold capital to protect against losses. The more capital they hold, the safer they are from crisis.  (Here is Ezra Klein’s introduction to capital ratios.) The “ratio” in question is the amount of capital against the amount of assets. So, if a bank has $10 in cash and $100 in assets, its capital ratio is 1:10. Regulators set minimum capital ratios for banks. A capital ratio is like any other ratio, with a numerator and denominator. Some amount of capital held goes on top, and some value of the assets the bank holds goes on the bottom. The Brown-Vitter legislation would significantly change both parts of that ratio.

Fed’s Lacker: ‘Living Wills’ Only Way To End ‘Too-Big-To-Fail’ - Mandating that large financial institutions prepare robust wind-down plans — including the possibility of breaking off foreign and domestic subsidiaries — is the most-effective way to end the “too-big-to-fail” problem, the head of the Federal Reserve Bank of Richmond said Tuesday. Richmond Fed President Jeffrey Lacker said that, despite post-crisis reforms, conditions continue to exist that could compel U.S. authorizes to bail out large financial firms. If that possibility isn’t ultimately eliminated, creditors will continue to take undue risk when loaning to financial firms, he said.

How to Save American Finance from Itself: Has financialization gone too far? - Any complicated economy needs a complicated financial system: to allocate dispersed capital to dispersed productive uses, to provide liquidity, to do maturity and risk transformation, and to produce market evaluations of uncertain prospects. If these functions are not performed adequately, the economy cannot produce and grow with anything like efficiency. Granted all that, however, the suspicion persists that financialization has gone too far. What would that mean? It would mean that the last x percent of financial activity absorbs more resources (especially intellectual resources) and creates more potential instability than its additional efficiency-benefits can justify. This charmingly subversive suggestion is easy to make, but it is extremely difficult to validate. Yes, it is hard to imagine that the Hedge Fund Operator of the Year does anything that is remotely socially useful enough to justify the enormous (and lightly taxed) compensation that results; but that is not really an argument. Much more significant is the fact that the bulk of incremental financial activity is trading, and trading, while it may provide a little useful public information about market opinion, is largely a way to transfer wealth from those with inferior information and calculation ability to those with more. There is no enhancement of economic efficiency to speak of. This is, you might say, the $64 trillion question. Maybe I shouldn’t wish it on Ben Bernanke.

The Economic Story of the Year: The Stock Market vs. the Labor Market - On Tuesday, the S&P 500 and the Dow closed at nominal all-time highs. Three days later, the Bureau of Labor Statistics reported that the economy added a shockingly low 88,000 jobs in March. How bad is 88K? Well, put it this way, we're theoretically in the midst of an accelerating recovery, and 88K new jobs per month won't get us back to full employment for another 20 years, or more. I suspect that this will be one of the defining national stories of 2013, and beyond: The big, sustained, and accelerating gap between the working opportunities of most Americans and the profits produced at the top. You could argue that this is a new, and transitory, story. You could say I picked two headlines from the past four days (I did). You could say that firms rushed to technology and efficiency to replace workers in an exceptional, and slowly normalizing, crisis (they did). You could say that the balance between labor and capital might naturally come back to normal as rising Asian wages send more work back into the U.S. (they might). But when you draw back the lens, you see that this week's stock market/labor market schism isn't a new story, at all. Here's the 40-year look at the growth of corporate profits vs. GDP vs. income that goes to workers, rich and poor. I mean, holy wow. 

Has Walmart Been Engaging in Large Scale Accounting Fraud? - Yves Smith - We’ve been poking at Walmart of late because the Bentonville giant appears to have feet of clay. It has been pursuing its relentless cost-cutting strategy to the point where it is damaging its franchise. Bloomberg (and later, the New York Times) described how the retailer had cut headcount to the point where it was having difficulty keeping shelves stocked and checkout lines to a tolerable length. Proving the validity of the Bloomberg account, over 1000 Walmart customers e-mailed the news service, describing their crummy experiences.. But Walmart may have started going off the rails even earlier than the counterproductive staffing cuts suggest. A story in Nation, on a whistleblower lawsuit, buries the lead. The title is “Former Walmart District Manager Accuses Company of Widespread Inventory Manipulation.” But if you understand the allegations, what he is effectively charging them with is accounting fraud, since that was the motivation to tinker with the inventories, to report better financial results.  And rest assured, inventory manipulation can rise to the level of accounting fraud. One classic technique is “channel stuffing” which is making shipments to customers and counting them as sales even if the shipments are in advance of orders. For instance, the SEC sued Bristol Myers for improperly reporting $1.5 billion in revenues resulting from selling excess pharmaceutical inventories to its two biggest wholesalers at the end of two quarters. Bristol Myers paid $150 million to settle the charges.

Wall Street Journal De-Links Story That Jamie Dimon Will Meet the President at the White House Today - At 6:46 p.m. last evening, the White House sent out the President’s schedule for today. One item on the agenda reads as follows: “Later in the morning, the President will meet with members of the Financial Services Forum as part of the organization’s daylong Spring Meeting. This meeting in the Roosevelt Room is closed press.” There is no mention in this press announcement that the President will be meeting with the CEOs of the too-big-to-fail banks – certainly a detail worthy of the public’s attention. Early this morning, the Wall Street Journal’s link on the front page of its web site to its story on the President’s meet-up with members of the Financial Services Forum tells us the following: “PAGE UNAVAILABLE — The document you requested either no longer exists or is not currently available.” Fortunately, Google has cached the article and from it we learn that Jamie Dimon, Chairman and CEO of JPMorgan Chase (whose firm is under an FBI investigation for losing $6.2 billion of depositors’ money in a derivatives trading scheme) is expected to meet with the President at the White House today as part of the Financial Services Forum. Also expected to attend is Brian Moynihan, CEO of Bank of America.

Dimon Exit Seen Hastened If JPMorgan Names Separate Chairman - JPMorgan Chase investors risk shortening Jamie Dimon’s tenure as chief executive officer if they appoint a separate chairman to help lead the bank, according to Charles Peabody, an analyst at Portales Partners. “If the board is forced by a shareholder vote to strip Jamie Dimon of his chairman’s role, then shareholders may find that Jamie Dimon decides to move on, maybe not immediately but within the year,” Peabody wrote in a note to clients today. “If that were to occur, is there someone with Mr. Dimon’s talents capable of stepping into the breach?” Calls for Dimon, 57, to give up the chairmanship have been building since the bank disclosed risk-control lapses on derivatives bets last year that fueled more than $6.2 billion in losses. In March, the New York-based firm’s board urged investors to vote against naming a separate chairman at the next shareholder meeting, saying that Dimon’s dual role remains the “most effective leadership model.” Dimon told investors in February that he wouldn’t have agreed to take a previous job, leading Bank One Corp., if the board hadn’t given him both roles, Peabody recalled. JPMorgan acquired Bank One in 2004 to create the company it is today.

JPMorgan Analysts Say Big Investment Banks Are ‘Uninvestable’ - JPMorgan Chase & Co. (JPM), the largest U.S. bank by assets and the top investment bank by fees, is questioning the so-called universal bank model’s future. Top-tier investment banks are “uninvestable at this point with a risk of spinoff from universal banks,” JPMorgan analysts led by London-based Kian Abouhossein wrote in a research note today. They cited potential rule changes and curbs on capital and funding.Investors should avoid Goldman Sachs Group Inc. (GS), once the world’s most profitable securities firm, and Deutsche Bank AG (DBK), Germany’s largest bank, because of pressure on earnings and the unknown impact of new regulations, according to the report. Both firms rank among the biggest sales and trading rivals for New York-based JPMorgan, which isn’t mentioned in the report. The bank is scheduled to report first-quarter results tomorrow.

Money Funds, Waiting for the Fog to Lift - After wrangling for four years over new rules that would fundamentally change how money funds work, the Securities and Exchange Commission has hit the pause button to await the arrival of a new chairwoman and to study the accounting and tax issues raised by its reform agenda. The money-fund industry, meanwhile, is bracing for new rules while facing old realities: low interest rates that discourage investors and compress fees. By law, money funds can buy only top-quality, short-term assets like overnight bank notes or Treasury bills. And unlike other mutual funds, their price is always quoted at $1 a share, with gains treated as interest earned. Those features of safety and stability made them a popular place to park both family and corporate cash, and after their debut in 1971, they hummed along for decades, attracting little regulatory attention. That changed in September 2008, when Lehman Brothers’ bankruptcy set off a run at the Reserve fund family, whose money funds owned about $800 million in Lehman notes. The panic spread to other money funds and abated only after a temporary government guarantee program was imposed. In the aftermath, regulators like Ms. Schapiro came to see money funds as a threat to the stability of the financial system.

IMF: Low Interest Rates Raise Risk of Money-Market Mutual Fund Run - Money-market mutual funds could face widespread investor panic if debt markets suddenly sour, the International Monetary Fund warned Thursday. That’s one of several threats to financial stability long-term monetary easing may be creating, the IMF said in a new study. The IMF has been a major supporter of the Federal Reserve, the Bank of England and the European Central Bank cutting interest rates to near zero and using unconventional monetary-policy tools to repair the global economy. But in a chapter of its latest Global Financial Stability Report, the fund explored how flooding the world with cheap money could be creating new financial crises ahead.

Evidence grows that when banks lose loan contracts, they 'recreate' original loan agreements : It is hard to credit, but lenders routinely mislay the card and loan agreements their customers originally sign. But even more astonishingly, if there has been a dispute later on, the lenders have used computer software to ' recreate' the original documents, sometimes with less than accurate results. Being able to recreate agreements in this way helps banks pursue borrowers over debts, but there is growing evidence that when lenders 'recreate' contracts they often do not stick to the original terms. The result is that borrowers who are often already in financial trouble are left in worse difficulties. Document 'recreation' is in the spotlight after a court case last month involving a number of borrowers with credit cards issued by HBOS, Barclaycard, MBNA and HSBC. Part of the case, heard in the High Court in Manchester, was to assess the circumstances in which banks could ' reconstitute' lost agreements.

Good Banker, Bad Banker - I distinguish in my mind two different kinds of bankers: I'll call them "restrained" and "unrestrained." The restrained banker loads up the debt serfs with debt up to their Plimsoll Lines or credit limits. Then he stops. He knows that if he keeps loading more debt onto them, they may go bankrupt, and he wants to avoid the mess and losses that come with that. The unrestrained banker has a completely different skill set. He will make high-interest loans (Payday Loans) to insolvent borrowers. He is not afraid of bankruptcies; bankruptcies are part of his business model. He knows how to take advantage of borrowers who are desperate, ignorant, or impulsive (or all three). He knows all about asset stripping. He knows how to unload bad loan paper on suckers. He thrives in an environment of chaos and desperation, where his customers are often at the end of their ropes. In the old days, the restrained bankers and community-minded Americans used to put controls on the unrestrained bankers. There were usury laws that made it illegal to charge interest above a certain rate, such as 15%. Unrestrained bankers were not welcomed into polite society, and people were warned against doing business with them.

Dirty Harry to World Savers “You’ve Got To Ask Yourself… – Do You Feel Lucky? - In a complete role reversal of the good guys and the bad guys, the world banking elite has been, for some time now, pointing a great big dangerous gun at the heads of all savers and investors on the planet. The bullets in that gun are each a little different but still extremely deadly. Here is what investors worldwide are facing:

  • Between $600 trillion and $1.25 quadrillion of extraordinarily risky derivative bets made by major world banks that have been placed on extremely shaky and suspect sovereign national debt (think Greece, Portugal, Spain, etc., etc.). These bets in the form of loans and/or credit default swaps have placed the participating banks’ capital at extreme risk.
  • Massive inflationary money printing by the world’s central banks. The world’s central banks continue to accelerate unabated both their money printing and zero interest rates policy (ZIRP).
  • Seizure and subordination of both public and private pension funds..
  • Last but not least, the outright confiscation of the savings accounts of trusting depositors to help pay off sovereign loans to private banks.

Stress Testing Banks: What Have We Learned? -  Bernanke excerpt - [T]he banking system is much stronger since the implementation of the SCAP four years ago, which in turn has contributed to the improvement in the overall economy. The use of supervisory stress tests--a practice now codified in statute--has helped foster these gains. Methodologically, stress tests are forward looking and focus on unlikely but plausible risks, as opposed to "normal" risks. Consequently, they complement more conventional capital and leverage ratios. The disclosure of the results of supervisory stress tests, coupled with firms' disclosures of their own stress test results, provide market participants deeper insight not only into the financial strength of each bank but also into the quality of its risk management and capital planning. Stress testing is also proving highly complementary to supervisors' monitoring and analysis of potential systemic risks. We will continue to make refinements to our implementation of stress testing and our CCAR process as we learn from experience. As I have noted, one of the most important aspects of regular stress testing is that it forces banks (and their supervisors) to develop the capacity to quickly and accurately assess the enterprise-wide exposures of their institutions to diverse risks, and to use that information routinely to help ensure that they maintain adequate capital and liquidity. The development and ongoing refinement of that risk-management capacity is itself critical for protecting individual banks and the banking system, upon which the health of our economy depends.

Unofficial Problem Bank list declines to 790 Institutions, Q1 Transition Matrix - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Apr 5, 2013.  Changes and comments from surferdude808:  The failure last night is the only change to the Unofficial Problem Bank List this week. The removal leaves the list at 790 institutions with assets of $290.0 billion. A year ago the list held 946 institutions with assets of $376.5 billion.With the first quarter of 2013 ending this past week, it is time for an update of the transition matrix. As seen in the table, there have been a total of 1,624 institutions with assets of $811.2 billion that have appeared on the list. For the first time since publication of the list, more than half of the institutions that have appeared on the list have been removed. Specifically, 833 institutions or 51.3 percent of the total are no longer on the list. Failure is still the primary removal reason as 351 institutions with assets of $290.8 billion have failed since appearing on the list. However, action terminations are rapidly approaching the number of failures. A total of 343 institutions with assets of $153.2 billion have improved enough for their enforcement action to be terminated. Other forms of exit include 129 institutions with assets of $55.9 billion finding a merger partner and 10 institutions with assets of $6.7 billion voluntarily surrendering their banking charters. The slowdown in action terminations noted last quarter reversed as 51 terminations occurred during the first quarter of 2013 compared to 40 in the fourth quarter of 2012. Next quarter, terminations will finally exceed failures.

Bailed-Out Banks Used Billions Meant For Small Business Aid To Repay TARP Funds: Watchdog -- A government watchdog says that 137 community banks used $2.1 billion from a special fund aimed at boosting lending to small businesses to repay their bailouts from the financial crisis. A report issued Tuesday by the special inspector general for the Troubled Asset Relief Program says the bailed-out community banks didn't step up their loans to small business nearly as much as other small banks that weren't rescued. Some banks that used the small-business lending fund to repay bailouts didn't increase lending at all, while others increased loans to small business by 25 cents for every $1 from the fund. Congress created the small-business lending fund in 2010 to encourage banks with less than $10 billion in assets to expand their lending to small businesses. At a time of economic distress, the aim was to help small businesses get capital that had become difficult for them to obtain. The loan program charged the community banks lower interest rates if they used the money for loans to small businesses.

OCC Releases Embarrassing List of Foreclosure Review Payouts on Eve of Senate Hearings - As much as people who were watching the shutdown of the foreclosure reviews expected the payouts to be grotesquely low, seeing the actual numbers is….revolting. As readers may recall, borrowers who were foreclosed on or had foreclosure actions underway were given the opportunity to have foreclosures completed or underway in 2009 and 2010 reviewed by “independent” consultants. 510,000 borrowers submitted letters. But the process was shut down, with hardly any reviews completed and the ones that were done highly suspect, given that multiple whistleblowers (and not just ours!) reported the banks and reviewers were colluding to suppress any finding of harm. This is part of the OCC’s payout matrix (click to enlarge); you can see it in full here.

Fed Argues that Mortgage Abuses are Trade Secrets, Meaning Institutionalized Fraud - Yves Smith - When the media discusses how banks have ridden like a steamroller over borrowers and investors, the typical response is a combination of minimization and distancing: that the offense wasn’t such a big deal and that it was a mistake. Recall the PR barrage in the wake of the robosigning scandal: its was “sloppiness,” “paperwork errors”. Servicers kept claiming, despite overwhelming evidence of bad faith and the institutionalization of impermissible practices, that there was really nothing wrong with how they were operating. Remember it was important for them to take that position, because if they were to admit that the bank knew it was engaging in widespread abuses with management knowledge and approval, it would be admitting to fraud. Two major government settlements later, this position is looking awfully strained. And the Fed, in stonewalling Elizabeth Warren’s and Elijah Cumming’s efforts to get more information about the Independent Foreclosure Reviews, presented the bad practices as servicer policies, which means that they were deliberate, hence, fraudulent.  Now since the Fed is apparently making this absurd argument in all seriousness, let’s look at the implications. A trade secret is a form of intellectual property. I encourage IP experts to pipe up in comments, but my understanding, based on the experience of a client who successfully sued a former employee for violating trade secrets, is that it is difficult to prove that your internal know-how rises to the level of being a trade secret. One of the key elements in making the case is that you have to show you went to some length to keep your special tricks secret, such as limiting access to them, having employees sign confidentiality agreements, etc.

Foreclosure Review Finds Potentially Widespread Errors:  Nearly a third of all foreclosed borrowers who faced proceedings brought by the biggest U.S. mortgage companies during the height of the housing crisis came to the brink of losing their homes due to potential bank errors or under now-banned practices, regulators have revealed. Close to 1.2 million borrowers, or about 30 percent of the more than 3.9 million households whose properties were foreclosed on by 11 leading financial institutions in 2009 and 2010, had to battle potentially wrongful efforts to seize their homes despite not having defaulted on their loans, being protected under a host of federal laws, or having been in good standing under bank-approved plans to either restructure their mortgages or temporarily delay required payments. More than 244,000 of those borrowers eventually lost their homes, government data show. The estimates, disclosed Tuesday, far exceed projections made over the past few years after document abuses known as robosigning gained widespread attention in late 2010. They are likely to further calls in Congress to either strengthen protections for borrowers or increase disclosures by the Federal Reserve and Office of the Comptroller of the Currency, both bank regulators. The regulators made public the latest figures as part of a previously announced multi-billion dollar settlement to resolve allegations of wrongdoing. They reveal that nearly 700 borrowers who faced foreclosure proceedings had actually never defaulted on their loans.

Government foreclosure relief brings homeowners only $300 to $500 - The government’s largest effort to compensate victims of the banks’ foreclosure practices is finally sputtering to an end. But for most of those eligible 2013 nearly three million borrowers 2013 it won’t be much of an ending: they’ll be receiving a check for $300 to $500. For many borrowers, it’s a likely an unsatisfying end to a process defined by years of frustration. If you were a homeowner in danger of losing your home at the height of the foreclosure crisis, chances are you soon discovered that your bank’s mortgage servicing division was a mess. They were hard to reach, gave you misinformation, lost your documents, and generally screwed things up. In some cases, homeowners were even foreclosed on by mistake. In 2011, federal bank regulators announced a process to right these wrongs. The Independent Foreclosure Review had a simple aim. If a borrower had suffered “financial injury” (the emotional toll would not be considered), then the review would make it right. Compensation payments would range as high as $125,000. But for borrowers, it was yet another descent into confusion. Just as so many had waited months and often years for an answer from their servicer, homeowners sent in a pile of documents and watched and waited as 2011 turned into 2012 and then 2013. The review process ended with a whimper early this year. The process was such a mess, regulators announced, that they’d decided it was better to call it quits. No more trying to determine each borrower’s “financial injury.” The banks would just cut a check for millions of homeowners who had been in foreclosure, regardless of whether they were wronged.

GAO Report on Foreclosure Reviews Misses How Regulators Conspired with Banks Against Homeowners - Yves Smith - I suppose one has to be grateful for any official pushback against failed regulatory initiatives, such as the just-released GAO report criticizing the Independent Foreclosure Reviews. Of course, in this instance, I am charitably assuming that these reviews were a failure. They have certainly proven to be an embarrassment to the lead actor, the OCC, which has tried to maintain as low a profile as possible on this topic rather than offer any defenses.  But “failure” assumes that the OCC and the Fed did not achieve their real objective, which was to protect the banks. That hardly appears to be the case. The short story of the reviews is that to dampen down criticism of the many foreclosure horrors revealed in the media and in courtrooms all over the country, borrowers who were foreclosed on or had foreclosure actions underway in 2009 and 2010 were promised an independent review and compensation if they were found to have suffered financial harm. And even though the abrupt termination of the reviews has left the regulators with a lot of egg on their face, the result is that the banks paid a lot less than if the reviews had lived up to their billing.  The biggest problem, though, is the GAO was tasked only to do a very high level review of process, which meant it looked for how procedural weaknesses led to bad outcomes. It did not question the intent of the review, nor did it examine at how the reviews operated in practice, as opposed to theory.

Bank stole your house? Have 10 pitchforks’ worth of compensation -  The Office of the Comptroller of the Currency (OCC) announced Tuesday details of how much money the banks will pay homeowners who were found to be wrongfully foreclosed on, or who suffered financial harm at the hands of the banks. Just as a sampling, individuals who had loan modifications approved by banks but were still foreclosed upon will receive a paltry $300. Six hundred seventy-nine people were faced with foreclosure even though they were never once in default; they will be compensated $5,000. Former Wall Street V.P. and current Occupy Wall Street activist and member of Strike Debt Alexis Goldstein took it upon herself Tuesday to put the payouts in a little context. She created a site detailing “What You Can Buy for Having Your House Stolen,” on which she lists a varied taxonomy of items the compensation can afford wrongfully foreclosed individuals — all the items that are not your house back. Goldstein told Salon via email, “I’m hoping to (1) draw attention to the OCC, one of the lesser-known banking regulators who are completely captured by the banks. (2) point out how egregiously low these settlement numbers are.” We thought we’d pick out some of Goldstein’s choice examples to drive the message home in the following slideshow. (All slideshow text from Goldstein’s 

Elizabeth Warren Tears Into Federal Regulators For Shielding Big Banks - Sen. Elizabeth Warren (D-MA) embarrassed government regulators during a Senate Banking Committee hearing on Thursday morning as she demanded to know why they won’t reveal how frequently big banks illegally foreclosed on homeowners. In January, regulators abandoned a case-by-case review of foreclosure fraud conducted by some of the nation’s largest banks in favor of a $9.3 billion settlement. Under the deal, most of the 4.4 million homeowners who were foreclosed on in 2009 or 2010 received less than $1,000 each.  Fair housing advocates and Democratic lawmakers panned the agreement, claiming that it short-circuited a more detailed review process (known as Independent Foreclosure Review) and let banks off the hook for illegally foreclosing on millions of homeowners.During the hearing, Warren pressed officials from the Office of the Comptroller of the Currency and The Federal Reserve for answers about how frequently banks broke the law, only to discover that regulators didn’t know the exact number before reaching their settlement and were now unwilling to publicize the error rate. She pressed for public disclosure, but was told that the information about banks’ illegal activities is proprietary and may not ever be released:

Elizabeth Warren’s Foreclosure Settlement Bombshell: Banks Determined the Number of Victims of Their Own Foreclosure Frauds -  There is only one thing more Kafkaesque than the ongoing Wall Street frauds and that is watching a live United States Senate investigation of a diabolical settlement the banks themselves concocted to repay the victims of their own fraud. Such was the case yesterday when Senators Sherrod Brown, Jack Reed, and Elizabeth Warren grilled regulators from the Office of the Comptroller of the Currency and Federal Reserve along with outside consultants over allowing banks to hand pick the consultants to do their foreclosure reviews, negotiate confidentiality agreements with them and pay them directly. Hundreds of millions of dollars in checks from the Foreclosure Review settlement will start going out today, eventually topping $3.6 billion in the cash portion of the settlement, and yet it was revealed during yesterday’s Senate hearing that it was the actual banks that engaged in the illegal foreclosure actions that tallied up and classified their wrongdoing under various degrees of harm; deciding themselves how many people would receive $300 and how many $125,000. The outside consultants that were hired to compute the harm were in the dark about this final, and most important, stage of the review process. While two previous reports by the General Accountability Office (GAO) hinted at a sham settlement, questioning by Senator Warren of three of the highest paid outside consultants left no room for doubt

Who Will Get The Real Mortgage Crisis Profits? - The stock market has reached now highs, home sales are soaring while interest rates are in the pits. All of this would seem to suggest that the end of the housing crisis is here, but with weak employment gains and declining household incomes much of the public thinks the economic recovery is a myth. They’re half right. If you’re looking for a job, a better job or a job with benefits the economy sucks. The latest employment and unemployment data from the Bureau of Labor Statistics claims that we gained 88,000 jobs in March, a number only made possible if you don’t count the 496,000 people who left the workforce. If you’re earning less you’re not alone. So who is benefiting? Well, let’s see:

  • Freddie Mac had 2012 profits of $11 billion.
  • Fannie Mae had profits of $17.2 billion in 2012.
  • The government advanced $187 billion to Fannie Mae and Freddie Mac. Nearly $50 billion has already been repaid.
  • The Federal Reserve had 2012 profits of $90.6 billion and generously shipped $88.4 billion back to the US Treasury.
  • FHA mortgage reserves have been bolstered by $20 billion in the last three years because of policy changes and premium increases.

Foreclosures Loom Large in the Region - NY Fed - While the foreclosure rate has been edging down in the nation recently, the opposite is true in New York and northern New Jersey. The chart below shows the foreclosure rate as measured by the share of all active mortgages in foreclosure in a given month. After rising sharply during the housing bust, the U.S. foreclosure rate plateaued at about 4 percent in 2011, and has since fallen. Unlike the national rate, the foreclosure rate in our region has steadily climbed over the past several years. The rate in northern New Jersey and downstate New York now hovers at around 8 percent, double the national average. In this blog post, we describe this outsized increase in the region’s foreclosure rate and explain why it has occurred. We then discuss why the large build-up in foreclosures could cause a headwind for home-price gains in the region.

Lawler: Table of Short Sales and Foreclosures for Selected Cities in March - Economist Tom Lawler sent me the table below of short sales and foreclosures for several selected cities in March.   Look at the right two columns in the table below (Total "Distressed" Share for March 2013 compared to March 2012). In every area that has reported distressed sales so far, the share of distressed sales is down year-over-year - and down significantly in most areas.  Also there has been a decline in foreclosure sales just about everywhere. Look at the middle two columns comparing foreclosure sales for March 2013 to March 2012. Foreclosure sales have declined in all these areas, and some of the declines have been stunning (the Nevada sales were impacted by the new foreclosure law).   Also there has been a shift from foreclosures to short sales. In all of these areas - except Minneapolis- short sales now out number foreclosures. This is worth repeating: Imagine that the number of total existing home sales doesn't change or even declines over the next year - some people would argue that is "bad" news and the housing market isn't recovering. But also imagine that the share of distressed sales declines sharply, and conventional sales increase significantly. That would be a positive sign - and that is what is now happening.

LPS: Mortgage Delinquencies decline in February -LPS released their Mortgage Monitor report for February today. According to LPS, 6.80% of mortgages were delinquent in February, down from 7.03% in January, and down from 7.28% in February 2012.  LPS reports that 3.38% of mortgages were in the foreclosure process, down from 3.41% in January, and down from 4.20% in February 2012.  This gives a total of 10.18% delinquent or in foreclosure. It breaks down as:
• 1,927,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,483,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,694,000 loans in foreclosure process.
For a total of ​​5,104,000 loans delinquent or in foreclosure in February. This is down from 5,854,000 in February 2012. This following graph from LPS shows Foreclosure Starts and Foreclosure Sales.From LPS: The February Mortgage Monitor report released by Lender Processing Services found an increase in loan “cure” rates (those loans that were delinquent in the prior month and are now current). The majority of cures were on loans one-to-two months delinquent, with approximately 500,000 loans curing in February alone. As LPS Applied Analytics Senior Vice President Herb Blecher explained, these cures were not unusual, but rises seen in loans three-to-five months delinquent and foreclosure-initiated categories were unexpected.

Obama administration pushes banks to make home loans to people with weaker credit - 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. 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.

MBA: Mortgage Applications Increase, Conventional Purchase Applications highest since October 2009 - From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey. The Refinance Index increased 6 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. Although total purchase application volume fell last week, there was a significant divergence between the conventional and government markets,” . “Following the April 1 increase in FHA mortgage insurance premiums, government purchase applications fell by almost 14 percent, to their lowest level since February 2013. On the other hand, applications for conventional purchase loans increased by more than 5 percent, bringing the conventional purchase index to its highest level since October 2009 and the highest level since the expiration of the homebuyer tax credit. With these changes, the government share of all purchase loans fell to 30 percent, the lowest level since we began tracking this series in 2011.”

NY Times: "Fewer Home Loans Start to Affect Banks" - From the NY Times: Fewer Home Loans Start to Affect Banks - The nation’s biggest banks, capitalizing on government efforts to bolster the housing market, have raked in handsome mortgage profits of late. On Friday, that started to change. Wells Fargo, the nation’s largest home lender, disclosed that it originated fewer home loans and recorded lower mortgage banking income in the first quarter of 2013. JPMorgan Chase, the biggest bank by assets, reported limited appetite for new mortgages and a drop in mortgage banking income...Underscoring a slowdown in refinancing, Wells Fargo said those loans accounted for 65 percent of mortgage originations in the first quarter, down from 76 percent in the period a year earlier.As the weekly MBA surveys have shown, refinancing activity is still at a very high level, but starting to slow.   Purchase activity is slowly picking up, but not enough to make up for the decline in refinance activity.  So overall mortgage originations will most likely decline in 2013

Freddie Mac: Mortgage Rates decrease slightly in latest Survey - From Freddie Mac today: Mortgage Rates Edge Down for Second Week Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates edging down for the second consecutive week following weak employment reports. 30-year fixed-rate mortgage (FRM) averaged 3.43 percent with an average 0.8 point for the week ending April 11, 2013, down from last week when it averaged 3.54 percent. Last year at this time, the 30-year FRM averaged 3.88 percent.  15-year FRM this week averaged 2.65 percent with an average 0.7 point, down from last week when it averaged 2.74 percent. A year ago at this time, the 15-year FRM averaged 3.11 percent. This graph shows the MBA's refinance index (monthly average) and the the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey®.

Report: Housing Inventory declines 15% year-over-year in March - From March data indicates that the amount of homes on the market showed a modest increase since February 2013In March, the total number of single-family homes, condos, townhomes and co-ops for sale in the U.S. (1,529,432) increased by 2.36 percent month-over-month. On an annual basis, however, inventory decreased by 15.22 percent. The median age of inventory of for sale listings fell to 78 days in March, down 20.41 percent from February and 12.35 percent below the median age one year ago (March 2012). Note: reports the average number of listings in a month, whereas the NAR uses an end-of-month estimate. Inventory decreased year-over-year in 134 of the 146 markets tracks,  and inventory decreased by 20% or more year-over-year in 55 markets.

Existing Home Inventory is up 8.5% year-to-date on April 8th - Weekly Update: I'm tracking inventory weekly this year. In normal times, there is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer. The NAR data is monthly and released with a lag.  However Ben at Housing Tracker (Department of Numbers) 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 mostly 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 8th - inventory is increasing faster than in 2011 and 2012.

Housing Prices Are on a Tear, Thanks to the Fed - The U.S. housing market has broken out of a deep slump, and prices are shooting up faster than anyone thought possible a year ago. For many homeowners, that is a cause for celebration. But the speed at which prices are rising is prompting murmurs of concern that the Federal Reserve's campaign to reduce interest rates could be giving the housing market a sugar high. Prices of existing homes rose 10% in February nationally from a year ago. They have been rising during the seasonally slow winter months—and they show signs of jumping further as the spring buying season gets under way. What's going on? First, inventories of homes available to buy have fallen to 20-year lows. Home builders have added little in the way of new construction since 2008. Banks are selling fewer foreclosures. Investors have scooped up more homes, converting them to rentals.   Many borrowers, meanwhile, aren't willing or able to sell at prices that are down sharply from their 2006 highs, despite a greater inclination among banks to approve short sales. Tight lending standards mean some owners will hold back from selling because they aren't sure they would qualify for a mortgage on their next home.

Fed Policy Helps Drive Housing Prices Higher: The U.S. housing market is finally on the road to recovery, but rising prices are due largely to the Federal Reserve’s policy of maintaining low interest rates, according to The Wall Street Journal. Home prices jumped 10 percent in February, during the typically slow winter season, and they are poised to head higher as the spring buying season gets underway, the Journal reported Monday. Before the housing crisis in 2008, the average rate for a 30-year fixed mortgage was 6.1 percent, and a borrower who qualified for a monthly payment of $1,000 could get a $165,000 mortgage. Now, with that rate at 3.5 percent, the same borrower can get as much as $222,000, roughly a third more. Editor's Note: Controversial Book Outs Obama’s Uncharted Economy If prices keep going up at this pace, “we’re going to have a real affordability problem” once rates move above 6 percent, John Burns, chief executive of a real-estate consulting firm in Irvine, Calif., told the newspaper. 

Zillow forecasts Case-Shiller House Price index to increase 8.9% Year-over-year for February - Zillow has started forecasting the Case-Shiller a month early - and they have been pretty close. Zillow Zillow Anticipates Strengthening Appreciation in February Case-Shiller Index [W]e predict that next month’s Case-Shiller data (February 2013) will show that the 20-City Composite Home Price Index (non-seasonally adjusted [NSA]) increased 8.9 percent on a year-over-year basis, while the 10-City Composite Home Price Index (NSA) increased 8.0 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from January to February will be 0.7 percent for the 20-City Composite and 0.6 percent for the 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below. To forecast the Case-Shiller indices we use past data from Case-Shiller, as well as the Zillow Home Value Index (ZHVI), which is available more than a month in advance of Case-Shiller numbers, paired with foreclosure resale numbers, which we also have available more than a month prior to Case-Shiller numbers. ...  Further details on our forecast can be found here ... Zillow also just released their city by city forecasts for the next year: Zillow Home Value Forecast for February 2014.

Home-Price Gains May Be Overstated - Home prices might not have risen as high last year as widely tracked home-price indexes have indicated, according to a research note from economists at Goldman Sachs. After controlling for certain technical factors, home prices on a national basis in 2012 probably rose by 3% to 4%, rather than the 7% to 8% reported by key gauges such as the Standard & Poor’s/Case-Shiller index, the Goldman analysts said. The analysis doesn’t cast a cloud on the recent turnaround in the housing market. Even with the more modest gain, home prices would have still posted their best year since 2006. Indeed, Goldman analysts say they expect home prices this year to surpass last year’s gains with a 5.2% increase in 2013. The Goldman report says home price indexes likely overstated the rate of increase last year for two reasons. First, repeat sales indexes can produce bigger gains (and declines) due to a shift in the “mix” of distressed sales, such as foreclosures. Those homes typically aren’t as well maintained and banks are more likely to sell them at a discount in order to get rid of them.

Goldman's Pretty Weak Argument that “National” Home Prices Last Year “Really” Increased by 3-4% - In Goldman Sach’s weekly “Mortgage Analyst” report (April 4), Goldman analysts argue that the 7-8% “national” home price growth rate in 2012 suggested by some “major” home price indexes overstated the likely “true” growth rate in US home prices, and that “national” home prices more likely increased 3-4%” last year. Interestingly, the piece includes a table showing the 2012 growth rates in a number of different “national” home price indexes, some of which include distressed sales but others that don’t; some of which are “flow” based; some of which are housing stock based; some of which are “hedonic”; and one of which (the S&P Case-Shiller “national” HPI is a “flow/stock hybrid” (flow based for Census Division HPIs, but stock based (in value) when aggregating the Census Divisions into a “national” HPI). What Goldman analysts don’t explain, however, is if “national” home prices adjusted for adjusted for shifting “distressed” sales shares and “stock vs. flow” weighting “really” increased by 3.4%, then why did EVERY HPI that excludes distressed (or at least foreclosure) sales and which is “stock” weighted increase by MORE than 3-4%? The piece does, in a sloppy way, make a good point (which I’ve made many times): how one “builds up” local home price indexes to “national” home price indexes (e.g., unit vs. value stock weights, granularity of geographic HPIs, etc.) can have a substantial impact on the “national” HPI. But it’s estimate of “true” national home price growth last year is way too low

Lumber Prices near Housing Bubble High - Demand for lumber is increasing, but demand is still far below the levels during the housing bubble. However supply is lower than during the bubble years too. There are several factors impacting supply including a large number of sawmills still idled (it takes time to restart), the impact of the Mountain pine beetle, reduced maximum cuts in parts of Canada, and the permanent closure of high cost mills. Here is a great series on the Pine Beetle The B.C. government estimates that of the 2.3-billion cubic metres of merchantable lodgepole pine in the province, the beetles have claimed 726-million cubic metres over at least 17.5-million hectares. Last month the WSJ had an article about some producers increasing supply:  Georgia-Pacific, the largest U.S. producer of plywood ... plans to invest about $400 million over the next three years to boost softwood plywood and lumber capacity by 20%.This graph shows two measures of lumber prices (not plywood): 1) Framing Lumber from Random Lengths through last week (via NAHB), and 2) CME framing futures.

New U.S. Housing Bubble Sparks Import Surge from China - From all appearances, the U.S. economy is now performing much more strongly than China's economy. Going by the growth rate of the value of trade between the two nations, it appears that the U.S. economy turned a corner in August 2012, when it briefly turned negative. . For the data just released for February 2013, it appears that pace of economic growth in the U.S. is outstripping the rate of growth in China.  Meanwhile, the pace of growth of the Chinese economy appears to have rebounded off its slowness from last year, confirming that nation's economy has likewise improved, although not at the same rate as the U.S. economy. This period of increased demand for imported goods in the U.S. approximately coincides with beginning of the sudden inflation in new home sale prices, as the housing sector of the U.S. economy began to show signs of a new bubble beginning to inflate in August 2012. That activity, in turn, appears to be what has sparked an increasing level of Chinese exports to the United States. We can confirm that much of this increase was driven by the improvement of the housing sector of the U.S. economy, as 54.6% of the year-over-year net increase in the total dollar value of goods imported into the U.S. from China in 2012 is represented by such goods as household and kitchen appliances, furniture and especially other kinds of household items.

Producer Price Index: Headline Inflation Drops, But not Core - Today's release of the March Producer Price Index (PPI) for finished goods shows a month-over-month decrease of 0.6%, seasonally adjusted, in Headline inflation. Core PPI rose 0.2%. had posted a MoM consensus forecast of -0.1% for Headline and 0.1% for Core PPI.  The March decline in Headline PPI follows two months of increases, which had followed three months of declines. Year-over-year Headline PPI is up 1.1% and Core PPI is up 1.7%. Here is the essence of the news release on Finished Goods: In March, the decline in the finished goods index is attributable to prices for finished energy goods, which dropped 3.4 percent. By contrast, the indexes for finished consumer foods and for finished goods less foods and energy moved up 0.8 percent and 0.2 percent, respectively.  Finished energy: Prices for finished energy goods fell 3.4 percent in March, the largest decline since a 3.5-percent decrease in February 2010. A 6.8-percent drop in the gasoline index accounted for more than eighty percent of the March decline. Lower prices for diesel fuel and home heating oil also were factors in the decrease in the finished energy goods index. (See table 2.) Finished foods: Prices for finished consumer foods moved up 0.8 percent in March, the largest advance since a 1.1-percent rise in November 2012. Accounting for nearly ninety percent of the March increase, the index for fresh and dry vegetables surged 21.5 percent. Higher prices for strawberries also contributed to the rise in the finished consumer foods index. More... Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. As we can see, the YoY trend in Core PPI (the blue line) declined significantly during 2009 and stabilized in 2010, increase in 2011 and then began falling in 2012. Now, in early 2013, the YoY rate is about the same as in early 2011.

Inflation Is Miserable. Unemployment Is Worse. - Unemployment makes people unhappy, according to economic research. So does inflation. But here’s the part the economists are paid for: evidence that unemployment makes people more miserable than inflation.About four times as miserable, according to a new paper. That’s a big difference with potentially significant implications for central bankers, who have long treated lower inflation as their primary goal. The paper is based on surveys of Europeans between 1975 and 2012, a stretch of time that includes periods of high inflation and high unemployment. It was presented on Friday by David G. Blanchflower, an economist at Dartmouth College, at a conference held by the Federal Reserve Bank of Boston.  Higher unemployment and higher inflation correlate with lower levels of reported well-being, the research shows. But the impact of unemployment is much larger. A one percentage point increase in unemployment lowers well-being nearly four times as much as an equivalent rise in inflation, the paper says.A 2003 paper by Justin Wolfers, an economist at the University of Michigan, reached a similar conclusion using survey data from the United States

Weekly Gasoline Update: Sixth 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 yet again last week. Rounded to the penny, the average for Regular dropped three cents and Premium four cents (the reverse of the previous week). This is the sixth week of small declines after eleven weeks of price rises. Since their interim high in late February, Regular is down 18 cents and Premium 17 cents. According to, one state, Hawaii and is averaging above $4.00 per gallon, down from two last week. California, Alaska and Washington DC are in $3.90 to $4.00 range.Last 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. So far, this year is shaping up to be different.

Average summer gasoline prices expected to be slightly lower than in 2012 - The retail price for regular gasoline is expected to average $3.63 per gallon during this summer driving season, slightly below average prices over the last two summers, according to the U.S. Energy Information Administration's Short-Term Energy Outlook (see chart above). The forecast reflects a small decline in crude oil prices and expected gasoline consumption, as well as higher gasoline inventory levels. Crude oil prices—which account for two-thirds of the price of gasoline at the pump—are expected to be lower, and thus the main contributor for less-expensive gasoline during the driving season (April through September). The average price of Brent crude oil, a benchmark price closely related to the U.S. wholesale gasoline price, is expected to average $107.50 per barrel this summer, down about $1.50 from last summer. U.S. gasoline prices vary by region, with the West Coast pump price expected to be as much as 26 cents per gallon higher this summer than the national average, while the Gulf Coast could be 16 cents per gallon lower than the national average (see chart below).

Cold March Keeps Shoppers’ Spending Tepid - U.S. retailers reported a key revenue figure rose slightly during the month, as shoppers held back on spending because of the cold weather across the nation, particularly the Midwest and East Coast, and continued fears about the economy. Economists monitor consumer spending because it accounts for more than 70 percent of economic activity. According to a preliminary tally of 15 retailers by the International Council of Shopping Centers, revenue in stores open at least a year rose 1.6 percent, or 2.5 percent excluding drugstores. That was below expectations, said Michael Niemira, chief economist at the ICSC. Weather was a factor, with March being the coldest in seven years. The comparison with last March was especially tough. Last year saw the warmest March on record, according to weather research firm Planalytics Inc. “Wintry weather conditions persisted deep into March, depressing spring apparel, home and garden, and seasonal merchandise sales,”

U.S. Retail Sales Fall 0.4% in March - Sales at U.S. retailers fell in March from February, indicating that higher taxes and weak hiring may have made some consumers more cautious about spending. Retail sales declined a seasonally adjusted 0.4 percent last month, the Commerce Department said Friday. That followed a 1 percent gain in February and a 0.1 percent decline in January. Both February and January figures were revised lower. Consumers cut back across a wide range of categories last month. Sales at auto dealers dropped 0.6 percent. Gas station sales dropped 2.2 percent, partly reflecting lower prices. The retail figures aren’t adjusted for price changes. Excluding the volatile categories of autos, gas and building materials, core sales dropped 0.2 percent in March. That followed a gain of 0.3 percent in February. Department stores, electronics retailers and sporting goods outlets all reported lower sales. The retail sales report is the government’s first look at consumer spending, which drives about 70 percent of economic activity.

Retail Sales decline 0.4% in March - On a monthly basis, retail sales decreased 0.4% from February to March (seasonally adjusted), and sales were up 2.8% from March 2012. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $418.3 billion, a decrease of 0.4 percent from the previous month, but 2.8 percent above March 2012. ... The January to February 2013 percent change was revised from +1.1 percent to +1.0 percent (±0.2%). Sales for January were revised down too. This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales are up 26.2% from the bottom, and now 11.2% above the pre-recession peak (not inflation adjusted) Retail sales ex-autos decreased 0.4%. Retail sales ex-gasoline decreased 0.2%.Excluding gasoline, retail sales are up 23.5% from the bottom, and now 10.4% above the pre-recession peak (not inflation adjusted). The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail sales ex-gasoline increased by 3.3% on a YoY basis (2.8% for all retail sales).

March Retail Sales Tumble The Most In 9 Months - Today's retail sales report for March looks pretty bad. It may turn out to be a temporary setback due to the cold weather or an early Easter. That's the optimistic outlook. The alternative view is that today's weak update on consumption is a sign of deeper trouble for the business cycle in the months ahead. Only time will tell, of course, but for now it's hard to ignore the number du jour. It's still premature to assume the worst, but the latest data point hasn't done us any favors for thinking positively. Retail sales dropped 0.4% in March, the deepest monthly slide in 9 months. Stripping out gasoline sales eases the pain a bit, but there's no getting around the fact that consumption's retreat was broad based, including a 0.4% decline for retail sales ex-autos. More troubling is the sight of deterioration in the year-over-year trend for retail spending. The annual comparison is still positive, but the 2.8% gain for the year through last month is the lowest since August 2010. The margin for error, in short, has dwindled considerably in terms of the annual trend. A few more rounds of disappointing monthly updates, if it comes to that, and it'll be all but impossible to explain away the numbers as anything other than a sign of contraction for the economy overall.

Don't Blame March Retail Sales -0.4% Drop on Gas Prices - March 2013 Retail Sales decreased, by -0.4%.   This is the lowest monthly change in retail sales since June 2012.  Gasoline sales declined the most, -2.2% for the month.  If one removes gasoline sales from retail sales, overall the decrease from February would have been -0.2%, or half of the monthly decline.  Auto sales decreased -0.6% and minus all autos & parts but including gas sales, retail sales dropped -0.4% from last month.  This report should amplify Wall Street's worries people are so tapped out they have stopped spending and ruin their stock market run up.    Retail sales are reported by dollars, not by volume with price changes removed. For the three month moving average, from January to March (Q1) in comparison to October to December (Q4), retail sales have increased 1.0%.  The retail sales three month moving average in comparison to a year ago is up 3.7%. That's going to be upsetting to Wall Street in terms of consumer spending implications.Retail trade sales are retail sales minus food and beverage services.  Retail trade sales includes gas, and is down -0.6% for the month, up 2.6% from last year.Total retail sales are $418.3 billion for March.  Below are the retail sales categories monthly percentage changes.  These numbers are seasonally adjusted.  Online shopping making increasing gains, increasingly important in overall retail sales. Nonstore retail sales have increased 14.5% from last year.  Autos sales have increased 8.2% from a year ago. For reference sake, graphed below are weekly regular gasoline prices, so one can see what happened to gas prices in March.  Gas prices actual declined -2.7% from February to March.  If one takes the last price of March vs. the April 1st price, gas has dropped -3.7% for March, on the outside.  That said, considering February's gas price increase run up of 12.7%, we cannot blame March's poor retail sales figures on the price of gas this time.  Instead it looks like people just filled up the tank less.

Retail Sales: The March Shopping Boycott - The Advance Retail Sales Report released this morning shows that sales in March came in at -0.4% month-over-month, the worst monthly report since June of 2012. Today's headline number came in below the consensus forecast of no change. Even with cheaper gasoline prices, shopper frugality apparently kicked in. Perhaps we're finally seeing some changed behavior in the wake of the 2% FICA tax increase. Now let's dig a bit deeper into the "real" data, adjusted for inflation and against the backdrop of our growing population. The first chart shows the complete series from 1992, when the U.S. Census Bureau began tracking the data. I've highlighted recessions and the approximate range of two major economic episodes. Here is the same chart with two trendlines added. These are linear regressions computed with the Excel Growth function. The green trendline is a regression through the entire data series. The latest sales figure is 5.1% below the green line end point.The blue line is a regression through the end of 2007 and extrapolated to the present.  The next chart gives us a perspective on the extent to which this indicator is skewed by inflation and population growth. The nominal sales number shows a cumulative growth of 154.9% since the beginning of this series. Adjust for population growth and the cumulative number drops to 106.1%. And when we adjust for both population growth and inflation, retail sales are up only 21.6% over the past two decades.

March Retail Slide, Miss Expectations, Post Biggest Drop Since June - Add retail sales to the ongoing economic US crunch, which, just as predicted here in February, would start taking place once the regular seasonal adjustment rotation out of the "strong" winter season into spring started and once the now annual European swoon in the spring spread to the US, as it always does. Sure enough, March retail sales missed across the board, with headline down -0.4% (exp. 0.0%, Feb revised lower to 1.0%), ex autos down -0.4% as well (exp. 0.0%, last 1.0%), and ex autos and gas -0.1, on expectations of a +0.3%. This was the biggest miss ex autos since June and the biggest drop since June as well. More troubling perhaps for the true strength of the US consumer, electronics sales dumped -3.2% Y/Y (confirms the collapse in PC sales reported yesterday), while general merchandise sales declined by 4.9% year over year. As we have said all along, the US consumer - that very levered driver of 70% of US GDP - even when factoring in the trillion + in student loans, is getting very much tapped out. But at least car sales, funded by the still very generous Federal Reserve and Uncle Sam, of course, are merrily chugging along at a +6.5% Y/Y pace.

Analysis: Retail Sales Report Another March Clunker - Economist John Canally of LPL Financial talks with the Wall Street Journal’s Jim Chesko about morning economic data on retail sales and wholesale inflation.

Q1 PC Shipments Drop By Most Ever - If weak PC sales throughout 2012 were blamed on expectations for Windows 8, now it is the turn to blame weak PC sales on Windows 8 "lukewarm reception" disappointment. Just never the economy, and the fact that there just is no actual end demand. "Although the reduction in shipments was not a surprise, the magnitude of the contraction is both surprising and worrisome," is how IDC describes the utter collapse in PC Shipments in Q1 2013. Against a forecast -7.7%, the worldwide shipment of PCs collapsed -13.9% to a mere 76.3 million units. This is the fourth consecutive quarter of declines and is the worst quarter since records began in 1994. Interestingly, Europe did not do as bad as expected (though the consumer was worse) but the US and AsiaPac (Ex Japan) both plunged more than expected. Lenovo has almost closed the gap to HP as the world's leading supplier after HP's shipments fell a stunning 23% in Q1. HP opened -7.5% and MSFT -4.3%.

Demand Slowdown Puts Inventories in Spotlight - Inventories are like attention: some is desired but some can be unwanted. The distinction will determine whether the current economic slowdown is only a small pothole or something more serious. With consumers feeling downbeat in April after pulling back their spending in March, businesses have to ensure their stock of goods-on-hand don’t get out of hand. So far, the inventory data ring no alarm bells. But an unwanted overhang of goods at a time of weak demand could fall back on ordering and production activity later on.  That risk is worth remembering in light of the downbeat news on consumers. Retail sales fell a larger-than-expected 0.4% in March. Part of the drop reflected falling gasoline prices; but even excluding gasoline, sales were down.

Preliminary April Consumer Sentiment declines to 72.3 (graph) The preliminary Reuters / University of Michigan consumer sentiment index for April declined to 72.3 from the March reading of 78.6.  This was well below the consensus forecast of 79.0. There are a number of factors that impact sentiment including unemployment, gasoline prices and, for 2013, the payroll tax increase and even politics (sequestration, default threats, etc). Sentiment is mostly moving sideways at a fairly low level (with ups and downs).

Consumer Sentiment at Lowest Level Since July 2012 = U.S. consumers unexpectedly pulled back on the economic confidence at the start of April, according to data released Friday. The Thomson-Reuters/University of Michigan consumer sentiment index’s preliminary April reading dropped to 72.3 from a final March level of 78.6 that was up sharply from March’s preliminary reading of 71.8, according to an economist who has seen the numbers. The April reading matches a recent low of 72.3 in July 2012. Economists surveyed by Dow Jones Newswires had expected the early April index to increase to 79.0.

Michigan Consumer Sentiment Shows a Sharp Downturn - The University of Michigan Consumer Sentiment preliminary number for April came in at 72.3, a hefty drop from the March final reading of 78.6. The consensus was for 78.0. The latest number takes us back to a level associated with recessionary consumer sentiment. See the chart below for a long-term perspective on this widely watched index. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy. To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is 15% below the average reading (arithmetic mean) and 14% below the geometric mean. The current index level is at the 20th percentile of the 424 monthly data points in this series.The Michigan average since its inception is 85.2. During non-recessionary years the average is 87.6. The average during the five recessions is 69.3. So the latest sentiment number puts us a mere three points above the average recession mindset and 15.3 points below the non-recession average. It's important to understand that this indicator can be somewhat volatile. For a visual sense of the volatility here is a chart with the monthly data and a three-month moving average.

NFIB: Small Business Optimism Index declines in March - From the National Federation of Independent Business (NFIB): Small Business Optimism Down in March After three months of sustained growth, the March NFIB Index of Small Business Optimism ended its slow climb, declining 1.3 points and landing at 89.5. In the 44 months of economic expansion since the beginning of the recovery in July 2009, the Index has averaged 90.7, putting the March reading below the mean for this period. ... Job creation in the small-business sector was perhaps the only bright spot in the March report. The fourth consecutive month of positive job growth, owners reported increasing employment an average of 0.19 workers per firm in the month of March. This is the best reading NFIB has recorded in a year.In a small sign of good news, only 17% of owners reported weak sales as the top problem (lack of demand).  During good times, small business owners usually complain about taxes and regulations - and taxes are now the top problem again. This graph shows the small business optimism index since 1986. The index decreased to 89.5 in March from 90.8 in February.

Small Business Sentiment: Contraction after Three Months of Slow Growth - The latest issue of the NFIB Small Business Economic Trends is out today (see report). The April update for March came in at 89.5, which puts it deep in the cellar at the 9th percentile in this series, where a distinctly recessionary mood prevails. Here is the opening summary of the report: After three months of sustained growth, the March NFIB Index of Small Business Optimism ended its slow climb, declining 1.3 points and landing at 89.5. In the 44 months of economic expansion since the beginning of the recovery in July 2009, the Index has averaged 90.7, putting the March reading below the mean for this period. Of the ten Index components, two increased, two were unchanged and six declined. Among the greatest declines were labor market indicators, inventory investment plans and sales expectations.  The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings of the past three years. The NBER declared June 2009 as the official end of the last recession.

Number of the Week: Small Business Causing Spring Swoon? - 999,840: How many fewer jobs, on average, are being created by businesses less than 12 months old in the years since the recovery compared with the years before the recession hit. Small businesses have had a rougher recovery than large companies, and the disparity may be playing a role in the spring swoon that has hit the economy in the past few years. As the economy began to recover in 2009, large firms were the first ones to emerge from the rubble. Small businesses relied on community banks, which were still recovering from the financial crisis, and they didn’t have access to capital markets, which have been boosted by the Federal Reserve‘s easy-money policies. Even now that things have improved,  “small businesses remain cautious about the recovery and fiscal uncertainty, and are not investing their capital,” . That hesitancy has translated into more muted hiring. Since the economy started adding jobs again in early 2010, large private-sector firms have boosted their payrolls by nearly 8%, according to ADP. Businesses with fewer than 50 workers, meanwhile, have only increased employment by 4.7%.

The Post Office’s Biggest Problem Isn’t Saturday Delivery — It’s Congress - It may seem like the United States Postal Service is unwilling to adapt to a world of declining mail volume and increased digital communication. But the real obstacle in the way of true reform aren’t the folks running the postal service itself. It’s their bosses in the U.S. Congress. Postmaster General Patrick Donahoe is like a man waiting for a package that never arrives. Donahoe, who has led the U.S.P.S. since 2010, has over the past few years made numerous proposals to get the money-losing postal service back in the black. He’s suggested closing post offices, modernizing post offices, “village” post offices, increased postal rates, decreased services, a reduced workforce, and a number of digital approaches involving tracking packages, QR codes, and mobile solutions. But there’s only so much the Post Office can do on its own to reduce the billions it loses every year. (Last year it lost $16 billion.) Congress holds all the cards, and that became increasingly clear this week. If the U.S.P.S. is ever going to break even, Congress will need to pass some comprehensive reform legislation.

Trans Pacific Partnership Bad for the Middle Class, but How Bad? - What you don't know can hurt you. I think that's a clear lesson of some so-called trade agreements the United States has signed over the last 20 years, and illustrated further by the few that have been defeated, most notably the Multilateral Agreement on Investment, negotiated by the Organization for Economic Cooperation and Development from1995 to 1998, but then abandoned in the face of ever growing protests. Haven't heard of the Trans Pacific Partnership? That's no surprise: while the negotiations are not really being conducted in secret (the Office of the US Trade Representative provides periodic updates here), the level of disclosure from the USTR office rarely ventures beyond bland statements like thisLeaders of the nine Trans-Pacific Partnership Countries - Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States - announced the achievement of the broad outlines of an ambitious, 21st-century Trans-Pacific Partnership (TPP) agreement that will enhance trade and investment among the TPP partner countries, promote innovation, economic growth, and development, and support the creation and retention of jobs. The USTR website continues by claiming that the agreement will be "increasing American exports, supporting American jobs." This is all too similar to the Clinton administration's reporting on NAFTA, which would point out all the gains from increased exports while omitting any mention of increased imports. Recent evidence suggests this may already be happening with Korea.

Silicon Valley Fights Restrictions on Chinese Tech - Business groups raised alarms Thursday about a provision in the recently enacted government spending bill, making it harder for some federal agencies to buy technology made in China. The U.S. Chamber of Commerce and ten technology trade groups representing some of the large U.S. tech companies, including Hewlett-Packard Co. and Intel Corp. , fired off a letter Thursday asking congressional leaders to ensure future spending bills don’t include the language. The provision prohibits four federal agencies from purchasing certain tech equipment from China unless they obtain prior approval from the Federal Bureau of Investigation or other law enforcement agency after a cyber-security risk analysis. The affected agencies are NASA, the Justice Department, Commerce Department and National Science Foundation, and it applies to “information technology systems” produced or assembled in China. The measure was included in last month’s bill funding government operations through September. Tech companies don’t want the language to be included in future spending bills or be expanded to cover other federal agencies. They’re worried an FBI review of tech products would hurt sales to government agencies.

Does Import Competition Improve the Quality of Domestic Goods? - NY Fed - Firms must produce high-quality goods to be competitive in international markets, but how do they transition from producing low- to high-quality goods? In a new study (“Import Competition and Quality Upgrading,” forthcoming in the Review of Economics and Statistics), we focus on how tougher import competition affects firms’ decisions to upgrade the quality of their goods. Our results, which we summarize in this post, show that stiffer import competition affects quality-upgrading decisions. For firms already producing very high-quality goods, lower tariffs induce them to produce goods of even higher quality. However, for firms producing very low-quality goods, lower tariffs actually discourage quality upgrading. Ours is the first study to show a significant relationship between import competition and quality.

Study: Manufacturing collapse is killing US labor market, non-college workers - The 2000s witnessed two huge economic phenomenon: First, you had a collapse in manufacturing employment. Second, the housing market boomed and then went bust. Between 1997 and 2007, after decades of being relatively flat, housing prices surged by about 37% before collapsing. Might an examination of the interaction of those two events explain today’s high unemployment and low labor force participation? Just maybe, argue Kerwin Kofi Charles, et al in “Manufacturing Decline, Housing Booms, and Non-Employment,” an NBER Working Paper: This paper studies how manufacturing decline and housing booms affect labor market outcomes, with a particular emphasis on non-employment among the two-thirds of workers without a college degree.  … We find that roughly 40 percent of the increase in non-employment during the 2000-2011 period can be attributed to the decline in manufacturing. ...We also find that increases in housing demand sharply lowered non-employment during 2000-2007, especially among non-college men and women. … The results imply that the positive labor market effects of the temporary housing boom “masked” the negative effect of sectoral decline in manufacturing that would have otherwise been more evident in the mid- 2000s.

How ‘Made in the USA’ is Making a Comeback - The U.S. economy continues to struggle, and the weak March jobs report — just 88,000 positions were added — briefly spooked the market. But step back and you’ll see a bright spot, perhaps the best economic news the U.S. has witnessed since the rise of Silicon Valley: Made in the USA is making a comeback. Climbing out of the recession, the U.S. has seen its manufacturing growth outpace that of other advanced nations, with some 500,000 jobs created in the past three years. It marks the first time in more than a decade that the number of factory jobs has gone up instead of down. From ExOne’s 3-D manufacturing plant near Pittsburgh to Dow Chemical’s expanding ethylene and propylene production in Louisiana and Texas, which could create 35,000 jobs, American workers are busy making things that customers around the world want to buy — and defying the narrative of the nation’s supposedly inevitable manufacturing decline. The past several months alone have seen some surprising reversals. Apple, famous for the city-size factories in China that produce its gadgets, decided to assemble one of its Mac computer lines in the U.S. Walmart, which pioneered global sourcing to find the lowest-priced goods for customers, said it would pump up spending with American suppliers by $50 billion over the next decade — and save money by doing so. And Airbus will build JetBlue’s new jets in Alabama.

Manufacturing Returns to USA (Jobs Not So Much) - Fascinating cover story in Time magazine about the renaissance in US Manufacturing.What is so interesting about this is while new businesses are being created, the amount and kinds of jobs that go with this are very different than what the manufacturing sector produced in the past. Some takeaways from the article:

    • • Post-recession, U.S. manufacturing growth is outpacing other advanced nations;
    • • 500,000 manufacturing jobs created in the USA over the past three years;
    • • U.S. factories access to cheap energy, (oil and gas from the shale boom) means cheaper costs versus expensive overseas Oil and costly shipping prices.
    • • Energy- and resource-intensive industries do better, powered by that cheaper homegrown energy.
    • • New made-in-America economics is centered largely on cutting-edge technologies;
    • • New US factories are “superautomated” and heavily roboticized;
    • • Employees typically are required to have computer skills and specialized training; Minimum of two-year tech degree, which is likely to rise to four-year degree (eventually);

A Slowly Improving Labor Market - The U.S. unemployment rate remains disturbingly high. It first rose above 7.5% in January 2009, and 50 months later in March 2013 remains above 7.5%. For comparison, in the aftermath of the 2001 recession, the unemployment rate peaked at 6.3% and in the aftermath of the 1990-91 recession it peaked at 7.8%. Since the Great Depression, only the "double-dip" recessions of the early 1980s offer a comparably sustained rate of high unemployment: unemployment rates reached 7.5% or higher for 7 months in 1980, and then after a mini-recovery,went back above 7.5% for 31 months from September 1981 through April 1984.  After the deep recession of 1974-74, the unemployment rate exceeded 7.5% for 26 months. Here's a figure from the ever-useful FRED website run by the Federal Reserve Bank of St. Louis showing the unemployment rate since 1970.But although the figure shows that the unemployment rate remains high, it also shows that the U.S. labor market is slowly healing itself. For evidence on the internal functioning of U.S. labor markets, beyond the headline unemployment rate, I now and then check the JOLTS report--that is, Job Openings and Labor Turnover Survey--also published by the Bureau of Labor Statistics. The data for February 2013 was just released, and here are a few figures that caught my eye.

March Employment Report Underwhelms (9 graphs) The tiny increase in total non-farm employment reported in the  Employment Situation for March undershot analysts expectations…or rather their hopes? However, there was a little good news. First, January and February employment were revised up, from  +119,000 to +148,000, in January and from +236,000 to +268,000 in February, as can be seen in the employment change graph below.  Second, the average workweek for all employees actually rose to 34.6–only one other time, February of 2012 was it that high since June of 2008. The picture that emerges is of a labor market that usually turns out to be a little bit stronger than first estimates suggest. But, while the economy has continued to add jobs, it has not done so at a pace that is consistent with population growth.  The employment to population ratio ticked down once again from its stubbornly low ratio and the labor force participation continued its steady decline. It is now as low as it has been since the early 1980s. The household survey paints an even more dismal view of the labor market.  Employment declined by more than 200,000, the biggest decline in a couple of years. Unlike previous months, employment in the government sector didn’t change very much but that is likely to be temporary.  Early indications are that the sequester is gooing to further impact employment in the sector

Jobs Report, Market Reaction, Fedhead Response All So Predictable, Who Believes This Crap? - The BLS  reported a seasonally adjusted (SA) gain of 88,000 in March nonfarm payrolls. The consensus guess was for an increase of 192,000. The forecasters missed by more than what the BLS says is the statistical margin of error. This shows again that the field of economic forecasting is quackery by quacks, reported by willing fools. Once again, had they paid any attention to the real time withholding tax data published by the Treasury, they would not have missed by this much.  No doubt they would have missed, because it's a fictitious number that's impossible to guess with regularity, but not by this much. This "miss" just emphasizes what a stupid game this is. The SA number compared with a gain of 759,000 in  the actual, not seasonally adjusted number (NSA). Since this number is not seasonally finagled we must look at past years to judge whether it's good, so-so, or lousy. Last year the March NSA gain was 901,000 .  In 2011, it was 907,000. The 10 year average increase for March 2003 to 2012 was 733,000, pulled down by a negative year in 2009. This year's number was worse than the last two years, and otherwise blah. A bigger problem was in the number of full time jobs, which I'll get to below. The NSA number is not massaged to represent an idealized curve with seasonal tendencies filtered out. As bad as the headline SA number was,  the actual data was smack on the trend of the past year. The number of jobs has been growing at virtually the same rate for the past 18 months, around 1.5% per year, give or take a tenth or two. QE 3-4, which was announced in September, with the cash flow starting in November, has not changed the growth rate one iota.

The Pathetic Payroll Gains of March 2013 -- The BLS unemployment report shows total nonfarm payroll jobs gained were 88,000 for March 2013, with 20,300 of those jobs being temporary.  February was revised up by 32,000 to 268,000 jobs gained and January was also revised up by 29,000 to show payrolls gained 148,000 employees for that month.   Probably the worst news of the March job figures is how the sequester layoffs have not hit yet.  The BLS employment report is actually two separate surveys and we overview the current population survey in this article.  The start of the great recession was declared by the NBER to be December 2007.  The United States is now down -2.847 million jobs from December 2007, five years, three months ago. The ongoing employment crisis is past the half decade anniversary.  The below graph is a running tally of how many official jobs are permanently lost from the establishment survey since December 2007.

Graphs for Construction Employment, Duration of Unemployment, Unemployment by Education and Diffusion Indexes Construction employment increased by 18,000 in March (up 91,000 in the first quarter).  This still leaves construction with 1.92 million fewer payroll jobs compared to the peak in April 2006, but employment is up 367,000 from the low in January 2011.I expect residential investment to make a solid positive contribution to GDP growth this year, and for construction employment to continue to increase. This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more. The general trend is down for all categories, but only the less than 5 weeks is back to normal levels. The long term unemployed is just under 3.0% of the labor force - the lowest since June 2009 - however the number (and percent) of long term unemployed remains a serious problem. This graph shows the unemployment rate by four levels of education (all groups are 25 years and older). . The BLS diffusion index for total private employment was at 54.3 in March, down from 59.6 in February. For manufacturing, the diffusion index decreased to 46.3, down from 54.3 in February. Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.

Labor Force Participation Rate Update - A few key long terms trends include:
• A decline in participation for those in the 16 to 24 age groups. This is mostly due to higher enrollment rate in school

• There is a general long term trend of declining participation for those in the key working years (25 to 54). See the second graph below.
• There has been an increase in participation among older age groups. This is probably a combination of financial need (not good news) and many workers staying healthy or engaged in less strenuous jobs. 
Of course, even though the participation rate is increasing for older age groups, there are more people moving into those groups so the overall participation rate falls. Here is a repeat of the graph I posted Friday showing the participation rate and employment-to-population ratio. Here is an update to a few graphs I've posted before. Tracking the participation rate for various age groups monthly is a little like watching grass grow, but the trends are important.

Boston Fed: Labour force participation - The Boston Fed’s annual economic conference has opened with a paper on labour force participation, presented by two senior Federal Reserve Board economists Christopher Erceg and Andrew Levin, that has pretty dovish implications for monetary policy. Like most other research on this subject, they find that the big decline in labour force participation since 2007 is mainly cyclical, not structural. More interestingly, they split the “employment gap” — the gap between current employment and maximum possible employment — into an “unemployment gap” and a “participation gap”.In other words, the bigger part of the current gap between actual and maximum possible employment now is due to low levels of labour market participation, not high unemployment. Then they have a model for why participation has fallen so much. Without going into too many details, the model hinges on people who have high adjustment costs to move in and out of the labour force. That makes intuitive sense: think of the cost of getting disability benefits and then the cost of going back to work once you’ve got them. But the really interesting part is what it means for monetary policy if the model is true. In particular, what happens if you just target the “unemployment gap” — how far unemployment is from its lowest possible rate — when the bigger problem is a “participation gap”. All of the Fed’s current policy explicitly targets the unemployment gap.

The 37 Percent Mystery: Where Did All the Workers Go? - But the recession's effect is more complicated than you might think. According to a new paper by Kerwin Kofi Charles, Erik Hurst, and  Matthew J. Notowidigdo, what we're really seeing is the decline of manufacturing, which is only being felt now because the band-aid provided by a temporary construction bubble was ripped clean off the labor market. Nearly 40 percent of the increase in non-working Americans between 2000 and 2011 "can be attributed to manufacturing decline," they wrote. The housing boom shifted some of these jobs to construction. But after the bust, the crutch was gone -- and so were the workers. It's about time for an upshot. So, where did all the workers go? Four answers, in order of importance.

    • (1) They retired. The country is getting older, and older countries have a smaller share of workers. 
    • (2) They went to school. More young people are going to college, and young people in college are less likely to look for work.
    • (3) They just stayed home -- they stopped looking for work and decided instead to raise their kids; they sat on the couch waiting for the market to thaw; they filed for disability insurance. The recession discouraged them from seeking a job.
    • (4) And the factories closed. Behind all of these stories lurks the long decline of manufacturing, which has very little to do with the Great Recession, or college attendance, or demographics, but nonetheless explains a significant portion of falling participation rates among prime-age workers.

The Missing Workforce: It’s Worse Than the Post Says - The Post had a good piece noting the large number of people dropping out of the workforce, presumably because they can't find jobs in the weak economy. However the problem is likely worse than the piece indicates. There are a large number of people who do not respond to the Bureau of Labor Statistics' Current Population Survey (CPS), the standard survey used to measure labor force participation. In recent years the non-response rate overall has been close to 12 percent, as opposed to just 5 percent three decades ago. For older white men and women it is 1-2 percent. By contrast, for young African American men it is close to one-third. The Bureau of Labor Statistics effectively assumes that the people who don't get picked up in the CPS are just like the people who do. This assumption may not be plausible. The people who don't respond may be more transient or may have legal issues that make them less willing to speak to a government survey taker. For these reasons they may be less likely to be employed than the people who do respond to the survey. My colleague, John Schmitt, examined this issue by looking at the 2000 Census. These results imply that the problem of people dropping out of the labor force is likely much worse than is generally recognized. The problem is that many of those who are dropping out are not responding to the surveys we use to measure the problem.

Young Adults Hit Hardest in March Jobs Report - In March 2013, the number of Americans counted as being employed fell by 206,000 to 143,286,000 from its level in the previous month, wiping out all of the apparent gains that had been made in that statistic since November 2012 in the process.  Working young adults between the ages of 20 and 24 were the hardest hit during the month, as their numbers in the U.S. workforce dropped sharply by 145,000 from the 13,527,000 that had been recorded as having jobs in February 2013 to the 13,382,000 counted as employed in March 2013. These individuals represent 9.3% of all employed Americans.The situation wasn't much better for other age groups, who also saw their numbers among the employed decline in the month of March 2013. The number of working adults (Age 25 and older) fell by 36,000 to 125,553,000 and the number of working teens (Age 16 to 19) was reduced by 25,000 to 4,351,000.

Vital Signs Chart: Smaller Share of Population Working - One measure of the nation’s jobs picture shows the last recession’s toll. The employment-to-population ratio, which measures the proportion of the adult population with jobs, was 58.5% in March. In 1979, the ratio climbed past 60%, a level seen most recently in 2009. Demographics also are a factor in the decline: An aging population means many people have retired.

More Than 101 Million Working Age Americans Do Not Have A Job = The jobs recovery is a complete and total myth. The percentage of the working age population in the United States that had a job in March 2013 was exactly the same as it was all the way back in March 2010.  In addition, as you will see below, there are now more than 101 million working age Americans that do not have a job.  But even though the employment level in the United States has consistently remained very low over the past three years, the Obama administration keeps telling us that unemployment is actually going down. Anyone that tells you that "a higher percentage of Americans are working today" is telling you a complete and total lie. The sad truth is that there has been no jobs recovery whatsoever. If things were getting better, there would not be more than 101 million working age Americans without a job.

Underemployment Is Also the Right Target (Not Just Unemployment) - If we wanted to target the persistent slack in the labor market, though I can’t see any signs that we do, we shouldn’t just target the unemployment rate; we should also go after the underemployment rate.  Since it captures the important dimension of not just do you have a job, but are you getting the hours of work you want, it’s a more comprehensive measure of the extent to which workers are underutilized–i.e., slack–in the labor market. The difference is pretty well known by now: the underemployment rate includes various groups of underutilized workers or job seekers who are left out of the official rate.  The largest difference is the inclusion of part-time workers who would rather have full-time jobs.  Most recently, there were about eight million such folks, elevating this measure of underutilization to around 14% compared to about 8% for unemployment (2013Q1).  Other components of this rate include discouraged workers who’ve recently looked for work but given up, and some other smaller groups that are neither working nor looking for work but remain marginally attached to the job market

Employment Index Signals Modest Gains Ahead - A compilation of U.S. labor-market indicators dropped in March, but still signals modest job gains ahead, according to a report released Monday.The Conference Board said its March employment trends index fell 0.2% to 111.20 from 111.43 in February, first reported as 111.14. The latest index is up 3.7% from a year ago.Despite the drop, “the employment trends index is still signaling moderate job growth in the coming months,” said Gad Levanon, director of macroeconomic research at the board. Future employment gains are likely to be better than the March increase of 88,000 nonfarm jobs report last Friday, he said but added, “200,000 new jobs per month in the current economic environment is not in the cards either.”

Weekly Initial Unemployment Claims decline to 346,000 - The DOL reports: In the week ending April 6, the advance figure for seasonally adjusted initial claims was 346,000, a decrease of 42,000 from the previous week's revised figure of 388,000. The 4-week moving average was 358,000, an increase of 3,000 from the previous week's revised average of 355,000.  The previous week was revised up from 385,000. 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 358,000 - the highest level since February.

Weekly Unemployment Claims Better than Forecast, Fall by 42,000 -  The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 346,000 new claims number was a 42,000 decline from the previous week's upwardly revised 388,000. The less volatile and closely watched four-week moving average, which is usually a better indicator of the recent trend, rose by 3,000 to 358,000. Here is the official statement from the Department of Labor:In the week ending April 6, the advance figure for seasonally adjusted initial claims was 346,000, a decrease of 42,000 from the previous week's revised figure of 388,000. The 4-week moving average was 358,000, an increase of 3,000 from the previous week's revised average of 355,000.  The advance seasonally adjusted insured unemployment rate was 2.4 percent for the week ending March 30, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending March 30 was 3,079,000, a decrease of 12,000 from the preceding week's revised level of 3,091,000. The 4-week moving average was 3,079,250, an increase of 5,250 from the preceding week's revised average of 3,074,000.  Today's seasonally adjusted number was below the consensus estimate of 365K.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

Analysis: Despite Drop in Claims, Trend Is Upward - Economist Vincent Malanga, president of LaSalle Economics in New York, talks with the Wall Street Journal’s Jim Chesko about this morning’s report showing that first-time filings for unemployment benefits declined sharply last week.

Vital Signs Chart: Applications for Unemployment Benefits - Jobless claims are at a five-year low. Initial claims for unemployment compensation fell 42,000 last week to 346,000, reversing a spike in applications, as seasonal factors tied to Easter muddy the data. The four-week moving average of new claims — used to smooth out volatility — inched up to 358,000. That was near the 2013 average, easing worries about weakening job growth.

What Do Weekly Unemployment Claims Tell us About Recession Risk? -- Every Thursday for the past few years I've posted an update on weekly unemployment claims shortly after the BLS report is made available. One of my featured charts in the update shows the four-week moving average from the inception of this series in January 1967. The chart, above, however, gives a rather distorted view of Initial Claims. Why? Because it's based on a raw, albeit seasonally adjusted, number that doesn't take into account the 102% growth in the Civilian Labor Force since January 1967. The Civilian Labor Force in the chart above has more than doubled from 76.64 Million in January 1967 to 155.03 Million today. The curve of the line, which the regression helps us visually quantify, largely reflects the employment demographics of the baby boom generation, those born between 1946 and 1964. In 1967 they were starting to turn 21. The oldest are now eligible for full retirement benefits. Another factor is the curve is the rising participation of women in the labor force (see this illustration). For a better understanding of the weekly Initial Claims data, let's view the numbers as a percent ratio of the Civilian Labor Force.

Will Baby Boomers Drag Down Growth? - The aging of America’s population is often cited as a headwind for U.S. economic growth over the long haul. But two reports — one from a Wall Street economist and another presented at this year’s Population Association of America conference today — suggest offsetting factors can diminish aging’s economic effects. In a report last month, Torsten Slok, chief international economist at Deutsche Bank AG, called concerns about the economic effects of population aging “overblown.” While the growing number of retiring baby-boomers relative to productive workers does mean fewer available workers and extra burdens for those in the labor force, there’s little reason to assume these effects will cripple the nation’s economic output — or not be outweighed by things like immigration that could replenish the economy’s labor supply. At the first day of this year’s PAA conference in New Orleans, David Neumark and Joanne Song at the University of California, Irvine, looked at whether efforts to boost the retirement age in different states are working, or being cancelled out by things like age discrimination and the physical demands of working when you’re old. Their finding? In states with stronger age-discrimination laws, some older people were finding ways to keep working.

BLS: Job Openings increased in February, Most since May 2008 - From the BLS: Job Openings and Labor Turnover Summary There were 3.9 million job openings on the last business day of February, up from 3.6 million in January, the U.S. Bureau of Labor Statistics reported today. The hires rate (3.3 percent) and separations rate (3.1 percent) were little changed in February. ...Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... The number of quits (not seasonally adjusted) rose over the 12 months ending in February for total nonfarm and was essentially unchanged for total private and government.The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.  This series started in December 2000. Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for February, the most recent employment report was for March.

Job Openings Hit Postrecession High - Prospects are looking a little better for the unemployed — or at least they were until March’s hiring slowdown. Employers posted 3.9 million jobs in February, the most since the recession ended in June, 2009, the Labor Department said Tuesday. There are now just over three unemployed workers for every job opening, down from a peak of nearly seven in 2009. The data, from the government’s monthly Job Openings and Labor Turnover Survey, known as JOLTS, are from February, when employers added 268,000 jobs. The labor market has since taken a turn for the worse, according to Friday’s jobs report, which showed payrolls growing by a disappointing 88,000 jobs in March. That decline won’t show up in the JOLTS data for another month.

JOLTS Shows 3.1 Unemployed per Job Opening in February 2013 - The BLS February JOLTS report, or Job Openings and Labor Turnover Survey shows there are 3.1 official unemployed per job opening.  Job openings increased 8.7% from January to a total of 3,925,000.  Actual hires, on the other hand, increased 2.8% to 4.418 million.  Real hiring has only increased 22% from June 2009.  Job openings are still below pre-recession levels of 4.7 million.  Job openings have increased 80% from July 2009.  While the increase in job opportunities is great, every month it is the same thing.  There is never enough actual hiring.There were 1.8 official unemployed persons per job opening at the start of the recession, December 2007.  Below is the graph of the official unemployed per job opening.  The official unemployed ranked 12.03 million in February 2013. If one takes the official broader definition of unemployment, or U-6, the ratio becomes 5.8* unemployed people per each job opening.  The January U-6 unemployment rate was 14.3%.  Below is the graph of number of unemployed, using the broader U-6 unemployment definition, per job opening.  We have no idea the quality of these job openings as a whole, as reported by JOLTS, or the ratio of part-time openings to full-time.  The rates below mean the number of openings, hires, fires percentage of the total employment.  Openings are added to the total employment for it's ratio. 

  • openings rate:   2.8%
  • hires rate:  3.3%
  • separations rate:   3.1%

Job Openings Rise, but Unemployment Stays High - The Labor Department has released its latest report on job openings and labor turnover today, which showed that job vacancies were at their post-recession high in February. But we still have a strangely high unemployment rate relative to the job openings rate, at least when compared with the relationship these two variables had before the recession began. The chart above is the Beveridge Curve. It shows the relationship between the unemployment rate and the job openings rate. As I also explained in an earlier post, during an expansion the jobless rate is low and the job vacancy rate is high; a small share of workers are looking for jobs, and so when employers post a vacancy, the opening can be hard to fill (or alternately, if there are a lot of jobs available, people will not have much trouble finding work, leading to low unemployment). In a recession, the reverse is true: there is a high unemployment rate and a low vacancy rate. Where you end up on the curve generally depends on where you are in the business cycle, but you will probably be somewhere on or near that line. Since late 2009, though, the Beveridge Curve has shifted outward. That means that even though today’s job market is not great, there are still more vacancies out there than the unemployment rate alone would have predicted a few years ago.

Good News, More People Are Quitting Jobs - March’s extremely disappointing payrolls gain was in stark contrast to the vibrant pace of job growth in January and February. Was March a sign of weak hiring ahead or fluke? The latest Job Opening and Labor Turnover Survey suggests the latter. Monthly payroll gains may not top 200,000 in a sustained manner, but they won’t remain in the five figures, either. The JOLTS report lags the nonfarm payrolls by a month, but it offers details of the churning in the labor markets. The report — now often overlooked — should become more closely watched in the financial markets since its details will give clues to the thinking at the Federal Reserve. Tuesday’s report shows despite solid job gains in January and February, many businesses were still looking for workers heading into March. Job openings increased about 300,000 slots to 3.9 million on the last business day of February, the highest reading since May 2008. Despite high unemployment, more businesses are facing difficulty finding workers. The March survey of small businesses released Tuesday by the National Federation of Independent Business showed 77% of owners who wanted to fill a position reported few or no qualified applicants for the open spots. Companies may have to adjust salary offerings or rely on the upcoming class of graduates to fill those slots.

Job Openings and Nonfarm Payrolls - Reader Picosec suggests "An interesting graph would be a time series showing both Job Openings and Change in Payroll Jobs. [This] might indicate whether one was predictive of the other, and to what extent." Sometimes I do requests ... Unfortunately the JOLTS time series for job openings is very limited (released for February this morning) and only has data back to December 2000. We always have to be extra careful with limited data.The following graph shows non-farm payroll (left axis) and job openings (right axis). In general the two series move together, although it appears job openings leads non-farm payroll at turning points.  However the JOLTS is a noisy series, so we might not be able to tell at turning points - but if job openings turned down over several months, I'd be concerned about payrolls.  Right now job openings are at the highest level since May 2008

Who Makes Up the ‘Working Poor’ in America? - Roughly 46 million people in the U.S., or 15% of the population, lived below the official poverty line in 2011 ($11,484 for an individual or $23,021 for a family of four per year). About 10.4 million of them are considered part of the “working poor.” That means they spent at least half the year in the labor force (working or looking for work), but they still fell below the poverty level. Who falls into the group? The Bureau of Labor Statistics breaks it down in a new report. Five facts: Part-time work is only half the problem. About 4.4 million people who usually worked in full-time jobs were classified as working poor in 2011. That’s about 4% of all full-time workers. About 14% of part-time workers were classified as working poor. It’s a lot of hard jobs. . About 17% of workers in farming, fishing and forestry jobs were part of the working poor. And about 10.6% of workers in construction and extraction roles were working poor. Job loss is a leading problem, but not the only one. About 39% of the working poor in 2011 experienced unemployment during the year. About 6% of the working poor faced three major problems at some point in 2011: low earnings, unemployment and involuntary part-time employment. Kids, stay in school. One in five people (20.1%) with less than a high school diploma who were in the labor force for half the year were classified as working poor in 2011.  Kids, stay at home. Among teens who were in the labor force for at least half of 2011 and who lived alone or with people unrelated to them, 40.3% lived below the poverty line. About 14% percent of 20- to 24-year-olds who were in the labor force for half the year were in poverty in 2011, double the rate for workers age 35 to 44.

Wall Street on the dole: America pays out millions in jobless benefits to millionaires - The U.S. government paid almost US$80 million in unemployment benefits during the worst of the economic downturn to households that made more than US$1 million, including a record US$29.9 million in 2010, tax records show. Almost 3,200 households — about 20% of them from New York — that reported adjusted gross income of more than US$1 million received jobless-insurance payments averaging US$12,600 in 2010, the latest year for which figures are available, according to IRS data compiled by Bloomberg. Those payments outpaced the total incomes for about 25 million U.S. households. The US$80 million represents less than 0.01% of this year’s US$845 billion projected deficit. Yet the unemployment aid to millionaire households underscores the lack of means-testing in some federal aid programs as the Labor Department reported new jobless figures Friday. The aid also is a reminder of the difficulty of reining in spending.

WSJ Finds the Real Cause of Weak Recovery: Disabled Workers - Dean Baker - The WSJ ran a piece headlined,"Workers Stuck in Disability Stunt Economic Recovery," that told readers: "The unexpectedly large number of American workers who piled into the Social Security Administration's disability program during the recession and its aftermath threatens to cost the economy tens of billions a year in lost wages and diminished tax revenues. Signs of the problem surfaced Friday, in a dismal jobs report that showed U.S. labor force participation rates falling last month to the lowest levels since 1979, the wrong direction for an economy that instead needs new legions of working men and women to drive growth" Let's see how this one is supposed to work. According to the Bureau of Labor Statistics were 11.7 million people who were counted as unemployed last month. This means that they were actively looking for work. On the other hand, a separate survey of firms showed that there were 3.3 million job openings. This means that there were 3.2 workers looking for jobs for every opening that was listed. We also know that there are millions of other workers who would like a job, and are not on disability, but have given up looking for work because they don't see any jobs available. Okay, so now we put the Wall Street Journal's news division in charge of the disability program and they throw 9 million workers off disability. How exactly does this create more jobs?

GOP-led Florida House Passes ALEC-Linked Anti-Sick Leave, Anti-Living Wage Bill: The GOP-led Florida House of Representatives passed a bill last night that would prohibit local governments in the state from implementing laws that extend paid sick leave benefits to workers. The bill is similar to others backed by the conservative American Legislative Exchange Council, or ALEC. ALEC and Florida’s anti-sick leave bill have a considerable amount of corporate support. Florida’s House Bill 655, which passed 75-43 Thursday, would also invalidate any move by local governments to mandate living wages for workers. Currently, activists in Orange County have been working to place a measure on a ballot that would allow residents to vote on whether they want a county-wide ordinance requiring earned sick pay. They were able to collect the thousands of signatures needed to get on on the ballot last year, but county commissioners intentionally stalled to prevent a sick pay measure from getting on the November 2012 ballot. It was later discovered that some of the commissioners who kept the measure off the ballot were communicating with lobbyists representing companies opposed to the measure, including Darden Restaurants and the Walt Disney World.

Figuring the costs of minimum wage hikes - Real News interview - Jeannette Wicks-Lim : Well, one of the things I've been thinking a lot about is that because of the recent proposal by President Obama to raise the federal minimum wage to $9 an hour, I've been thinking about the debate that always, you know, gets rehashed each time the minimum wage proposal is put on the table. And every single time the minimum wage proposal has been put on the table, there is this back-and-forth argument about whether there are negative employment effects from raising minimum wage. There's almost verbatim this fight about, you know, whether or not raising minimum wage is going to cost jobs, and despite the fact that there's been a large amount of research in the recent years that has pointed towards basically finding no negative employment effects from minimum wage increases, and we still have the same old debate. And so I've been thinking about, you know, what is it that would really help answer this question about whether or not there are job losses from raising the minimum wage. And one of the simple facts that we've come up with here in PERI in our research around the minimum wage is that actually when you look at the cost that businesses face when the minimum wage goes up, the costs are actually quite modest. And that's what explains why there isn't some big negative, you know, job loss that you can associate with any minimum-wage hike. This is something that we try to make clear but seems to get lost in the debate.

Bernanke: Low-Income Communities Struggle Despite Recovery - While the U.S. economy as a whole appears on the mend, low-income communities hit hardest by the recession continue to struggle and require multi-pronged strategies to recover, Federal Reserve Chairman Ben Bernanke said Friday. “While employment and housing show signs of improving for the nation as a whole, conditions in lower-income neighborhoods remain difficult by many measures,” said Mr. Bernanke, in remarks prepared for delivery at a Fed conference on community development.

Bait and Switch, CEO-Style - As the U.S. Commerce Department released a report late last month showing corporate profits at a 60-year high, suddenly the big news was about how cheating surely must be rampant in Social Security disability.     Wait, what? Also late last month, a Washington Post investigation showed that the 30 companies that make up the Dow Jones industrial average pay a dramatically smaller portion of their profits in taxes than they did a half century ago. Instead of discussing how that impacts government services, all of Washington is talking about slashing Social Security and Medicare.It’s bait and switch.CEOs and 1 percenters have elevated that old con to a whole new level. To them, bait is not a lure to a store but a taunt about the poor. “Look over there, a welfare queen!” they goad. “Look, someone not-quite-dirt-poor might get Medicaid,” they needle. Then they laugh all the way to their secret accounts in the Caymans as the 99 percent fight among themselves over how many pennies the government throws at the poor. The rich snicker as the vast majority of Americans are so distracted they don’t focus on record corporate profits, on record low corporate tax payments or on lobbyists buying tax breaks for corporations and loopholes for offshore accounts.

Where Do The Rich And Poor Live? - From counties with a 50%-plus poverty rate to counties with over 20% of household incomes over $200,000, the United States is increasingly becoming a divided union. But all the time American Idol is on, and the iPad is still running, Aldous Huxley's vision of a 'numb' society (as opposed to an Orwellian 1984 'imposed' utopia) seems more and more realistic.

This Week in Poverty: Sequestration, Housing, Homelessness - Sequestration can seem a little vague, abstract, difficult to wrap your head around. But here’s what it means when it comes to housing: up to 140,000 fewer low-income families receiving housing vouchers, more children exposed to lead paint, higher rent for people who can’t afford it and a rise in homelessness. These are among the human costs of sequestration noted in a new paper by Doug Rice, senior policy analyst at the Center on Budget and Policy Priorities, who has worked on housing policy for ten years. “These kinds of cuts are really unprecedented,” Rice told me. “The Section 8 voucher program has been around for nearly 40 years—it was created during the Nixon Administration and has had strong, bipartisan support for its entire history. Part of that support has consisted of Congress providing adequate money to ensure that the vouchers currently used by families are renewed from year to year.” But for just the third time in 39 years, Congress will not fund local housing agencies so that they can renew all current vouchers. A $938 million cut in the voucher program translates to a 6 percent shortfall below what is needed to maintain assistance to the same number of families in 2013 as last year.

Bank Throws Away Food Right In Front Of The Poor And Hungry - Last week, I wrote about a company that forced school kids to throw away their lunch because they didn’t have enough to pay. That was pretty outrageous and a lot of people were upset, chief among them the parents. Now, the company apologized and blamed an untrained cashier for the mistake and promised that it would never happen again. It was all just a big misunderstanding, you see. But a few weeks ago in Augusta, Georgia, it was anything BUT a misunderstanding as hundreds of people were forced to watch as a bank repossessed a grocery store and then throw away all of the food:  Residents filled the parking lot with bags and baskets hoping to get some of the baby food, canned goods, noodles and other non-perishables. But a local church never came to pick up the food, as the storeowner prior to the eviction said they had arranged. By the time the people showed up for the food, what was left inside the premises—as with any eviction—came into the ownership of the property holder, SunTrust Bank. The bank ordered the food to be loaded into dumpsters and hauled to a landfill instead of distributed. The people that gathered had to be restrained by police as they saw perfectly good food destroyed. Local Sheriff Richard Roundtree told the news “a potential for a riot was extremely high.”

BBC on Child Poverty in the US - Yves Smith - One of the ongoing frustrations in being (of necessity) a heavy consumer of what passes for media in the US is how insistent and disconnected the official narrative is with conditions on the ground. The crushing effects of protracted unemployment are hard to understand unless you’ve been there.   It’s frustrating to hear economists, finance touts, and the hackocracy natter on about how the economy is getting better, just not as quickly as we’d like. And then you see the occasional toad hopping out of an official mouth. From Bloomberg: Rising stock prices, rebounding profits, restored dividends and a growing economy are signaling to U.S. banks it’s time for more job cuts. What is conveniently omitted by the people who interact with the world mainly through data are the real, lasting costs of unemployment and low wages. This BBC documentary gives a much-needed counterpoint.

US homeless numbers expected to rise as spending cuts deepen - More than 630,000 Americans, equivalent to a city the size of Boston, are homeless, according the latest national estimate. Federal stimulus funding helped keep the figure flat year-on-year, but the National Alliance to End Homelessness, which published the report, said it expected a steep rise as a result of the current squeeze on government spending and growth in poverty. The national total of 633,782, based on the most recent official data for 2012, is calculated from the number of people sleeping rough or in shelters on a given night, meaning that far more people are likely to experience a bout of homelessness over the course of a year. In 2011 the equivalent figure was 636,017. Twenty-eight states and the District of Columbia saw a rise and there was also 10% jump in the number of people sharing homes with other families – seen as a precursor to future homelessness.

Police discover hidden underground tunnels used by the homeless - While checking on the seemingly ordinary homeless campsites, Cooley discovered a series of tunnels that went several feet under the earth and stretched nearly 25 feet. “It was kind of in a little hill and probably four feet beneath the surface,” Cooley told the Kansas City Star. Hope Faith Ministries, a local homeless organization, said the group had never seen anything like it.  Police said they were especially concerned about a pile of dirty diapers discovered next to one of the underground tunnels. "We're working to find out if, in fact, they've got kids down here, because this is not a safe environment for that," Cooley said.

The Tunnel People That Live Under The Streets Of America - Did you know that there are thousands upon thousands of homeless people that are living underground beneath the streets of major U.S. cities?  It is happening in Las Vegas, it is happening in New York City and it is even happening in Kansas City.  As the economy crumbles, poverty in the United States is absolutely exploding and so is homelessness.  In addition to the thousands of "tunnel people" living under the streets of America, there are also thousands that are living in tent cities, there are tens of thousands that are living in their vehicles and there are more than a million public school children that do not have a home to go back to at night.  The federal government tells us that the recession "is over" and that "things are getting better", and yet poverty and homelessness in this country continue to rise with no end in sight.  So what in the world are things going to look like when the next economic crisis hits?

Debtors’ prisons are back: how heart-warmingly Dickensian! - The latest creepy relic from the darkest recesses of the Dickensian past that appears to be making a comeback these days are debtors’ prisons. Debtors’ prisons show up in a number of Dickens’ novels, most notably Little Dorrit, which is one of his masterpieces. George Bernard Shaw claimed it converted him to socialism and called it “a more seditious book than Das Kapital.” Dickens surely knew from debtors’ prisons, since his chronically impecunious father had been in one. And now, as Think Progress reports, this reviled institution is being revived, and poor people in Ohio are being thrown in the clink for being unable to pay off debts — mostly legal fees and court fines. On Friday, Ohio’s ACLU released a report about the state’s debtors’ prisons, and it is a sobering and quietly enraging read.Among the findings of the report:

  • — Being imprisoned for debt is clearly unconstitutional and was declared so by the U.S. Supreme Court over 20 years ago.
  • — People are being jailed for failure to pay fines and court costs, sometimes for amounts as low as a few hundred dollars.
  • — It’s affecting many people — as many as 20% of the bookings in the Huron County jail in the second half of 2012, for example. In two other counties, in one six-week period in 2012, a total of at least 120 people were jailed.
  • — Sentence lengths vary.  A man who owed $1,500 in court fines and was behind in child support payments was sent to prison for three and half years.

State Government Tax Revenue Hits All-Time High - State governments raked in almost $800 billion in revenue last year to reach an all-time high, according to a report released Thursday by the U.S. Census Bureau. State tax receipts totaled $794.6 billion in 2012, a sizeable increase over the year before and the first time the figure has surpassed the previous peak of almost $780 billion in 2008, the Census Bureau reported. (The government doesn’t adjust those figures for inflation, so last year’s total is still about 4% lower than tax collections in 2008 on an inflation-adjusted basis.  Overall, states have been seeing higher tax collections as economic conditions and the housing market have slowly improved. State tax revenues hit a low in 2010 but have steadily improved ever since, with higher collections each of the last 13 quarters. North Dakota and Alaska, in particular, showed the strongest tax revenue gains, (47% and 27%, respectively), mostly because of higher collections from companies using state resources, the Census Bureau said. Overall, tax revenue collected from companies using natural resources was up almost 39%, or $4.2 billion, from 2011. Unfortunately for the people of Illinois, that state recorded the largest increase in personal income tax collections. Revenue from income taxes in Illinois was up almost 40% last year. That’s because state legislators approved a massive tax hike in 2011 to ease Illinois’ budget woes.

Will Efforts to Fix Illinois Budget Hamper Economic Growth? - Chicago Fed - An independent “State Budget Crisis Task Force” recently concluded unambiguously that “The existing trajectory of (Illinois) state spending and taxation cannot be sustained.” This follows a growing recognition by many observers and analysts that state government (and many local governments) in Illinois have been running chronic deficits, financing public services each year for many years through added debt. Although the state’s primary funds (the General Funds) were often reported to operate in balance, total state liabilities typically exceeded revenues collected.[1] As a consequence, Illinois state government finds itself today with hefty unfunded debt obligations—namely unfunded pension liabilities and unpaid bills for current services—amounting to over $100 billion. These debt obligations represent payment claims for government services that have already been delivered.[2] While the state government paid the wages and salaries of its teachers, professors, and state workers at the time that their services were provided, part of the employee compensation for these services was deferred to the future through the promise of retirement income. But, the state government did not put aside sufficient financial assets to pay the promised retirement income and other deferred benefits. Looking forward, no one expects the state’s likely economic growth path to lift tax revenue streams much above recent (tepid) norms.

Controller Releases March Cash Update - State Controller John Chiang today released his monthly report covering California's cash balance, receipts and disbursements in March 2013. Total revenues for the month were $395.5 million above (7.2 percent) estimates found in the Governor's proposed 2013-14 State budget. Total revenues for the fiscal year through the end of March were $4.7 billion ahead of the Governor’s estimates.“While the first nine months of revenue far exceeded expectation, income tax deposits over the next two weeks will show whether that uptick is solid or fleeting,” Chiang said. “The Governor and lawmakers have exercised discipline by waiting to make spending decisions until we can explain whether this surge reflects economic growth, or simply means that taxpayers paid their taxes earlier than usual.”

Do We Underinvest in Public Schools? -- Melissa Harris-Perry has caused a stir with her MSNBC “Lean Forward” video, which reignites the “It Takes a Village to Raise a Child” debate by asserting a “collective” responsibility to raise children. Perry is wrong on this topic, but not for the reason most of her detractors are saying. Here’s her quote: “We have never invested as much in public education as we should have because we’ve always had a private notion of children. Your kid is yours and totally your responsibility. We haven’t had a very collective notion of these are our children. So part of it is we have to break through our kind of private idea that kids belong to their parents or kids belong to their families and recognize that kids belong to whole communities.” I don’t love Perry’s use of “belong;” various people and institutions have responsibilities to support children, but children don't belong to anyone but themselves. But she’s right that responsibility for children is properly shared between families and broader institutions. And I don’t even think that claim is terribly controversial if you frame it differently. The state particularly serves as a check against terrible parenting. Schools provide support and enrichment (and even nutrition) when parents fail to do so. Courts serve as a last line of defense against neglectful and abusive parenting. The existence of public schooling, state and local child welfare agencies, the Children’s Health Insurance Program, subsidized school lunches and various other government programs for children reflects a view that much of the responsibility for children lies with the broader community.

With Police in Schools, More Children in Court-  As school districts across the country consider placing more police officers in schools, youth advocates and judges are raising alarm about what they have seen in the schools where officers are already stationed: a surge in criminal charges against children for misbehavior that many believe is better handled in the principal’s office.  The effectiveness of using police officers in schools to deter crime or the remote threat of armed intruders is unclear. The new N.R.A. report cites the example of a Mississippi assistant principal who in 1997 got a gun from his truck and disarmed a student who had killed two classmates, and another in California in which a school resource officer in 2001 wounded and arrested a student who had opened fire with a shotgun.  Yet the most striking impact of school police officers so far, critics say, has been a surge in arrests or misdemeanor charges for essentially nonviolent behavior — including scuffles, truancy and cursing at teachers — that sends children into the criminal courts.

Are there online solutions to rising college costs? -Bowen has a very clear and reasonable understanding of why university costs tend to rise more rapidly than inflation. Universities are very labor-intensive organizations, and the largest component of their workforce are highly skilled and nationally competitive faculty. But highly skilled professionals on university faculties are linked to employment markets outside of academia, and salaries in those external markets continue to rise healthily. To maintain excellence in research and teaching, universities need to increase compensation annually, and often at rates that are moderately higher than inflation. There are other cost drivers that Bowen doesn't discussed -- i.e. rising healthcare costs -- but competition for the best faculty is key.  Moreover, Bowen correctly notes that processes leading to productivity gain in other parts of the economy have not been possible in the teaching and research environment. Teaching undergraduates is a time-consuming activity for skilled professors, and reducing the time per student means lowering the quality of learning that occurs.

Interest on government student loans set to double this summer - The interest rate on government-subsidized Stafford loans is set to double on July 1 – to 6.8 percent from 3.4 percent – unless Congress acts to stop it. And there’s no guarantee it will. Christian Walker, an economics and political science major already expects to graduate with $50,000 in debt. “Raising the interest rate on those loans just compounds the problem and increases the amount of money I’ll have to pay back after I graduate,” he said. It’s truly déjà vu for families who rely on Stafford loans to help pay for college. The interest rate hike was going to take effect last year, but faced with a nationwide backlash, Congress agreed to delay the increase for one year. So here we are again. Student groups and college educators across the country have called on Congress to stop the rate hike, which would affect more than 7 million students. The consumer advocacy group U.S. PIRG estimates that doubling the interest rate on Stafford loans would add another $1,000 to the cost of each loan – and many students need one loan for each year of school.

Student Loan Rate Set to Rise, Despite Lack of Support - The interest rate on many student loans is scheduled to double on July 1, to 6.8 percent from 3.4 percent — just as it was last year, when in the midst of an election campaign, Congress voted to extend the lower rate. Again this year, no one wants the increase to happen, especially since even the current rate is well above market. But once again, there is likely to be a good deal of brinkmanship before the issue is settled. This time around, though, longer-term solutions may be on the horizon. On Tuesday, the day before the White House plans to send its budget to Congress, student advocacy groups are releasing an issue brief charging that the federal government should not be profiting from student loans, while more and more students bear a crushing debt burden. The brief, citing a February report from the Congressional Budget Office, said the federal government makes 36 cents in profit on every student-loan dollar it puts out, and estimates that over all, student loans will bring in $34 billion next year.

The Student Loan Money Machine - Going to college these days amounts to sinking oneself into a lifetime of massive debt.  A new student advocacy report spells out some damning facts.  Did you know the federal government is slated to make a whopping $34 billion in 2014 off of student loans?  Meanwhile other reports are showing student debt is keeping people from obtaining credit, buying a home and moving on with their lives.  According to the New York Fed, student loan debt has tripled over the last eight years to a whopping $966 billion in by the end of 2012.  That is a 70% increase in borrowers and a 70% increase in debt held by each.  Student loan debt is now the largest consumer debt, second only to residential mortgages and one of the reasons is student debt is not discharged through bankruptcy.  Between 2004 and 2012, the total student debt in the US almost tripled, an increase of 14 percent per year. About two-thirds of the total student debt is held by borrowers under age 40: one-third by borrowers in their 20s, and one-third by borrowers in their 30s. Older people also have student debt, but their share is smaller. Below is the breakdown of debt held by students.  Almost 60% of students hold debt greater than $10,000.  Now imagine not being able to get a job, or having to take a minimum wage job and make payments on that debt.  Not a pretty picture.

How Uncle Sam made $100 billion on student debt - Worried about student loan debt? Uncle Sam isn't. The Huffington Post reported Wednesday that the combination of low borrowing costs for the government and fixed interest rates for students generated $101.8 billion in profit for the Education Department over the last five years. The department was expected to take in $33.5 billion from student loans made during the 2013 fiscal year, according to budget documents. The agency's Direct Loan program delivered a $24 billion profit on loans made in 2012 and nearly $27.5 billion on 2011 loans. How does that work out? Simple. The government's funding costs, measured in the yield on 10-year U.S. Treasurys, has averaged less than 2% since the summer of 2011, thanks in no small part to the Federal Reserve's attempts to stimulate the economy. At the same time, laws have kept the rates on Stafford loans made by the Education Department to undergraduate borrowers from middle-class households fixed at 6.8% since 2006. Students from low-income households can qualify for small loans at 3.4%, but the majority of government borrowers pay the higher rate. The difference between Treasury and Stafford loan rates has drifted from 4.5 percentage points to 5.27 percentage points since August 2011.  The White House is considering a variable rate for student loans that moves with the market, but it's still in the developmental stages.

Higher Education: A Deflating Bubble?  - Atlanta Fed's macroblog - There are at least two sides to every debate, but it’s becoming clearer by the day that the debate over the cost of higher education is being won by people like University of Tennessee law professor Glenn Reynolds. A frequent writer and lecturer, and even more frequent blogger, Reynolds visited the Atlanta Fed recently to share his views with local community leaders. He reported that total student loan debt now stands at over $1 trillion—more than total credit card debt and auto loan debt combined. As these charts from the New York Fed show, the increase in total student debt over the past eight years is a result of greater numbers of students and families taking on educational debt as well as higher debt balances per student.  One can argue that this trend is not necessarily a bad thing. Education is an investment in human capital, and if those newly acquired skills are valued highly by employers, then going to college can be a positive net present value project, even with debt financing. And wage data reveal that these skills are indeed valuable. As this Cleveland Fed article and chart show, the median wage for a worker with a bachelor’s degree was about 30 percent higher than that of a worker with only a high school diploma in the late 1970s and grew to more than 60 percent higher by the early 2000s. However, the data also show that over the last decade the value of a college degree measured by wages has stagnated.

Pension underfunding grows despite U.S. market rally: study (Reuters) - The gap between what major corporations will owe retired workers and how much they have put aside grew last year despite a strong stock market rally, according to a study set to be released on Monday by Wilshire Associates. The cumulative liability among defined benefit pension plans sponsored by companies in the benchmark Standard and Poor's 500 index increased to $1.56 trillion in 2012 from $1.38 trillion the year before, outpacing the growth in assets. As a result, the overall funding ratio - a measure of a plan's assets divided by its commitments - for all plans fell from 79.7 percent to 78.1 percent, the study found. Low interest rates - which are used to calculate future benefits - were a significant factor behind the increase in pension liabilities, said Russell Walker, a vice president at Wilshire and one of the authors of the report. Mergers and acquisitions also increased pension funding liabilities.

U.S. GAO - Private Pensions: Timely Action Needed to Address Impending Multiemployer Plan Insolvencies: The most severely distressed multiemployer plans have taken significant steps to address their funding problems and, while most plans expected improved financial health, some did not. A survey conducted by a large actuarial and consulting firm serving multiemployer plans suggests that the large majority of the most severely underfunded plans--those designated as being in critical status--either have increased or will increase employer contributions or reduce participant benefits. In some cases, these measures will have significant effects on employers and participants. For example, several plan representatives stated that contribution increases had damaged some firms' competitive position in the industry, and, in some cases, threatened the viability of such firms. Similarly, reductions in certain benefits--such as early retirement subsidies--may create hardships for some older workers, such as those with physically demanding jobs. Most of the 107 surveyed plans expected to emerge from critical status, but about 25 percent did not and instead seek to delay eventual insolvency.

Carmen Reinhart: "No Doubt. Our Pensions Are Screwed."- "The crisis isn't over yet," warns Carmen Reinhart, "not in the US and not in Europe." Known for her deep understanding that 'it's never different this time', the Harvard economist drops the truth grenade a number of times in this excellent Der Spiegel interview. Sweeping away the sound and fury of a self-serving Federal Reserve or BoJ, she chides, "no central bank will admit it is keeping rates low to help governments out of their debt crises. But in fact they are bending over backwards to help governments to finance their deficits," and guess what, "this is nothing new in history." After World War II, all countries that had a big debt overhang relied on financial repression to avoid an explicit default. After the war, governments imposed interest rate ceilings for government bonds; but, nowadays, she explains, "monetary policy is doing the job. And with high unemployment and low inflation that doesn't even look suspicious. Only when inflation picks up, which is ultimately going to happen, will it become obvious that central banks have become subservient to governments." Nations "seldom just grow themselves out of debt," as so many believe is possible, "you need a combination of austerity, so that you don't add further to the pile of debt, and higher inflation, which is effectively a subtle form of taxation," with the consequence that people are going to lose their savings. Reinhart succinctly summarizes, "no doubt, our pensions are screwed."

The Calamity of So Long Life: How Not to Outlive Your Assets - In a survey conducted by the Society of Actuaries, less than 20 percent of men and women say their planning horizon is at least 20 years. Thing is, the repercussions of not properly planning for a long retirement are higher for women, who face strong odds their retirement will be far longer than that.  Average life expectancy at age 65 is 20 years for women, compared with 17 for men. That means there is a 50 percent chance a woman age 65 today will still be alive at age 85. And that's just if you're average. Nearly one-third of women age 65 today will celebrate their 90th birthdays. “What often isn’t understood is the variability,” says Cynthia Levering, a retired pension actuary who continues to work with the Society of Actuaries. “You really need to plan around what happens if you are healthier and fall into above average.” To wit, a 65-year-old woman who lands in the top quartile in terms of longevity has a 62 percent chance of making it to (at least) 85 and a 42 percent chance of getting to 90. (For men in good health, the odds shift to 50-50 of being alive at 85 and 30 percent for age 90.)

An Automatic Solution for the Retirement Savings Problem - MANY problems are so complex that even if we had the money to fix them, we wouldn’t know how to do it. But some problems are frustrating in another way: we know how to fix them and we can afford to fix them, but we drop the ball. That’s the situation with a crisis facing many Americans: saving enough for retirement. Here is one measure of the problem: A Boston College economist, Alicia H. Munnell, and her colleagues have estimated that more than half of Americans are saving too little to support an adequate lifestyle if they plan to retire at 65. Why is the situation so serious? One reason is that traditional pension plans — in which employees have almost no decisions to make — are being supplanted by defined-contribution plans like 401(k)’s. In these plans, employees have to decide for themselves how much to save and how to invest their money. For many people, being asked to solve their own retirement savings problems is like being asked to build their own cars. To fix this, we need to do two things. First, make payroll retirement savings plans available to everyone. Then, add empirically proven design features to them, making it easier for workers to make good choices. In other words, improve the plans’ choice architecture.

Wells Fargo 401(k) Loans Jump 28% as Older Workers Borrow - The number of people taking loans from their 401(k) retirement accounts increased 28 percent in the fourth quarter from a year earlier as older workers tapped their savings, according to Wells Fargo (WFC) & Co. The number is based on 1.9 million survey participants who have 401(k)s administered by the company, of which 34,987, or about 1.8 percent, took out loans, the San Francisco-based bank said today in a statement. The average new loan balance rose 7 percent to $7,126.  “The increased loan activity particularly among older participants is concerning because those are the years when workers can start to make ‘catch-up’ contributions and really need to focus on preparing for retirement,” Laurie Nordquist, director of Wells Fargo Retirement, said in the statement. “This age is also the ‘sandwich’ generation, caught between paying for their kids’ education and supporting elderly parents.”

In Spite of the Recovery, More Workers Are Borrowing From 401(k)s - One statistic about U.S. household finances is so startling that it deserves its own post: Nearly one in three employees say they took a hardship loan or distribution from their 401(k) retirement accounts last year, up from one in four in 2011. Considering that hardship loans and distributions can trigger penalties or other costs, this is an expensive proposition. Then there are the ripple effects: Borrowers miss out on any investment gains, like the market’s big rally over the past four years. To understand what’s driving the increased desperation, even as the U.S. economy recovers, it helps to break down the data (PDF). The financial-education firm behind the study, Financial Finesse, provided Bloomberg Businessweek with additional stats that shows three groups struggling more than others:

  • Women. Thirty-four percent of female employees said they took 401(k) loans or hardship distributions, compared to just 23 percent of men—a wider gap than in 2011.
  • Lower-income employees. Forty-five percent of employees earning from $35,000 to $60,000 said they had to tap their 401(k)s, compared to 11 percent of people earning more than $200,000.
  • Younger workers. Those aged 30 to 44 reported a big increase in hardship loans and distributions, going from 27 percent in 2011 to 37 percent in 2012.

The Terrible, Awful Truth About SSDI - The email: The Simple Boring Reason Why Disability Insurance Exploded.  Ahem... just spot on stuff here... Sounds like a challenge. The Post article clearly explains that the explosion in the number of people receiving disability benefits is not really the fault of the economy; and, they will grudgingly admit, not the fault of "doctors [and applicants] conspiring to game the system somehow--" the default narrative of anti-corporate, pro-common sense This American Life, whose typical maneuver for depicting a complicated social process is to find an N of 1 living somewhere in Appalachia and imply that this nice but toothless baptist woman doesn't know what's good for her.  "This week on This American Life, snark by Reductio Ad Absurdum, in four acts." No, says the Post, the answer is more boring: people are getting older, and older people get more disabled.

Disability Fund to Be Depleted by 2016 - Even as more people in the U.S. rely on disability benefits, the program that pays them is running into a problem: there isn’t enough money coming in to cover the amount that’s going out.  The disability insurance trust fund has been running at a deficit since 2009. So far, it has been able to make payments drawing down on surpluses built during the 1990s and early 2000s. But unless revenue increases or payouts drop that extra cash will eventually run out. In fact, the most recent report of the fund’s board of trustees expects it to run dry as soon as 2016. If the trust fund runs out, that doesn’t mean that all benefits payments must stop, just that they won’t be able to remain at the current level. The only way to keep payouts at the current level is to increase revenue. The disability insurance trust fund is primarily financed by payroll taxes, but the recent increase in that tax rate won’t help raise revenue. Congress enacted a temporary reduction in payroll taxes in 2011 and 2012 that expired early this year. In order to keep Social Security programs secure, lawmakers told Treasury to make up the difference from its general fund. So, even though taxpayers sent less money in, the fund remained where it would be had the tax cut never existed. The only way to keep benefits at the current level is either through higher tax rates, or the reallocation of money earmarked for all Social Security programs.

The People’s Choice for the People’s Pension - Social Security, the most transparently self-financed program of the federal government, is not increasing our budget deficit. The most recent trustees’ report shows sufficient funds to pay full benefits until 2033.  No one is making out like a bandit: Social Security beneficiaries who retired in 2010 are expected to get back approximately what they paid in.  If we wanted to adopt a cautious policy measure that would eliminate the shortfalls predicted 20 years down the road, we could eliminate the cap on earned income subject to Social Security taxes, currently set at $113,700. Such a measure would lead to increased payments by about the top 5.2 percent of wage earners.  Legislation designed to “scrap the cap” has been introduced in Congress. Senators have drafted a law that would require all workers to pay the same overall Social Security tax rate, and Senator Bernie Sanders of Vermont, an independent, and Representative Peter DeFazio, Democrat of Oregon, recently proposed application of the tax to earnings over $250,000 (as well as under $113,700) creating a “doughnut hole” exemption for earners in between in order to win more votes.

Insurance and Freedom, by Paul Krugman - How many Americans will be denied essential health care in the name of freedom? I’m referring, of course, to the question of how many Republican governors will reject the Medicaid expansion that is a key part of Obamacare. What does that have to do with freedom? In reality, nothing. But when it comes to politics, it’s a different story.  It goes without saying that Republicans oppose any expansion of programs that help the less fortunate — along with tax cuts for the wealthy, such opposition is pretty much what defines modern conservatism. But they seem to be having more trouble than in the past defending their opposition without simply coming across as big meanies.  . For example, Senator Ron Johnson of Wisconsin has called it the “greatest assault on freedom in our lifetime.” And this kind of rhetoric matters, because when it comes to the main obstacle now remaining to more or less universal health coverage — the reluctance of Republican governors to allow the Medicaid expansion that is a key part of reform — it’s pretty much all the right has. In fact, the real, lived experience of Obamacare is likely to be one of significantly increased individual freedom. For all our talk of being the land of liberty, those holding one of the dwindling number of jobs that carry decent health benefits often feel anything but free, knowing that if they leave or lose their job, for whatever reason, they may not be able to regain the coverage they need.

How Obamacare Will Distort the Health-Care Market - President Barack Obama and his fellow Democrats sold many Americans on the Affordable Care Act largely by emphasizing two arguments: The law would help to reduce overall health-care costs, and it would provide health insurance to those who, for financial or health reasons, cannot get it now.  Unfortunately, both of these arguments are flawed. The law creates market distortions that will significantly raise premiums and costs for many Americans -- including some middle- income families. And there are less costly, less distortionary and less intrusive ways to address the problem of the uninsured.  Two recent independent and nonpartisan studies help to explain how the law fails in its mission.  The first is from the Society of Actuaries, a group representing professionals who measure and manage financial risk. The main conclusion is that individuals and families who purchase their health insurance in the non-group (basically the non-employer-based) market will have to pay higher premiums. This is because the law will increase by 32 percent the costs that insurers must cover for health-care services, the largest driver of health-insurance premiums.  The second study, commissioned by Covered California, the California entity responsible for setting up the state’s health- insurance exchange, speaks directly to premium rates. Isolating the impact that market changes caused by the new federal law will have, the study concludes that premiums for Californians will rise by an average of 14 percent.

The ACA doesn’t squeeze employers - Under the Affordable Care Act firms with at least fifty 30+ hours-per-week workers have the following choice. They must either offer health insurance coverage or pay a $2,000 penalty for each employee above 50 in number that they employ. Yeah, it’s hard for me to keep all these numbers in my head too. The key is that it’s a play-or-pay mandate (play=offer coverage, pay=penalty). The important bits are that it is triggered by hiring the 50th employee working at least 30 hours per week. About this, in late February, the Wall Street Journal published a dire warning, though you’ve likely read similar elsewhere. The play-or-pay incentives motivate firms to stay smaller and offer fewer hours of work, precisely the opposite one would want for an economy struggling to add enough full time jobs to keep up with population growth. The goal of the legislation is not to collect fines from employers, but rather to induce them to make health insurance part of their compensation package. So what the employer should do is to make insurance available. […] [B]ecause the benefit has undoubted value to the worker rather than being uninsured—it helps to pay medical bills and avoid the individual mandate “tax”—the smart employer will do what labor economics says—take the money out of wages.

Health Care Thoughts: Obamacare Fail - When I mention problems with Obamacare implementation in the blogosphere, I am pummeled. Liberals think I am overly cynical, too focused on the practical, and I fail to understand the power of good intentions. Ok. The S.H.O.P. program for small businesses has been delayed until 2015 for the 33 states with federal involvement in the exchanges. Full exchange states have an option to delay. In effect, there will only be one policy available for employers, rather than the menu promised. If that policy does not fit, then..........? What does this mean? 2014 is shaping up to be a disaster in the small business health insurance markets, where half of a transition equals chaos. Small businesses may have greater incentives to dump employees into the state exchanges, IF the state exchanges are operating as intended (not a sure thing). One more time. Complexity is the enemy of a smooth roll out and operational efficiency.

Scientists angry about budget cuts come out of the lab and onto the streets — Thousands of prominent cancer and other medical researchers will rally in the nation’s capital Monday to protest federal funding cuts that began several years ago and were accelerated by additional forced reductions beginning to take effect under the congressionally mandated process of sequestration. “It’s really come on top of a fairly extended period of flat funding, which has eroded the purchasing power of biomedical dollars,” said Roy A. Jensen, director of the University of Kansas Cancer Center, who will join the demonstration. “It’s almost like the final push over the edge. I know a lot of labs are having to lay people off and not pursuing promising scientific leads.”  Influential scientists say the United States has fallen to 10th place in medical research spending as a percentage of its total economy, at a time when China, Britain, Singapore, India and other countries are increasing their investments. They say the pace of breakthroughs in lifesaving treatment of cancer, HIV/AIDS and other major diseases will be slowed unless the decline is reversed.

Employer Health Coverage in U.S. on 10-Year Decline - The share of Americans who get health benefits through work dropped to 60 percent in 2011, continuing a decade-long slide that highlights the challenges facing President Barack Obama’s insurance overhaul. U.S. employers provided coverage for 159 million people in 2011, 12 million fewer than in 2000, according to a study released today by the Robert Wood Johnson Foundation. The report blamed the decline on the total number of jobs available as well as insurance premiums that have more than doubled in some cases. “Everyone’s costs have increased dramatically,” Risa Lavizzo-Mourey, president of the Princeton, New Jersey-based foundation, said in a statement. “Higher costs naturally translate into fewer employers offering insurance coverage, and fewer employees accepting it, even when it is offered.” Obama’s Affordable Care Act, passed in 2010, is expected to boost coverage in the U.S. by 27 million people this decade, according to congressional projections, even as employer- sponsored insurance continues to shrink. The law penalizes businesses that don’t offer affordable insurance and offers subsidies for small employers. It also imposes taxes and regulations that may increase the cost for some.

Pharmaceutical sales reps regularly misinform doctors about drug side effects: study - Most family doctors say they receive little or no information about harmful effects of medications when visited by drug company sales representatives promoting their products, a survey of Canadian, U.S. and French physicians has found. The study, which involved 255 doctors in Montreal, Vancouver, Sacramento and Toulouse, France, shows that sales reps failed to provide any information about common or serious side-effects and the type of patients who should not use the medicine in 59% of promotions. In Vancouver and Montreal, no potential harms were mentioned for 66% of promoted medicines, says the study published online Wednesday in the Journal of General Internal Medicine. “Laws in all three countries require sales representatives to provide information on harm as well as benefits,” said principal researcher Barbara Mintzes of the University of British Columbia. “But no one is monitoring these visits and there are next to no sanctions for misleading or inaccurate promotion.”

Americans Skipping Prescription Meds To Save Money - American adults younger than 65 are twice as likely to skip prescription medication to save money, with the uninsured and poor most likely to forgo medicine, a new study shows. The Centers for Disease Control and Prevention, CDC, released a study Tuesday indicating that more Americans cannot afford to pay for all of their prescribed medications, even as they spent $45 billion out-of-pocket for pharmaceuticals in 2011. "If you're not insured or you face high co-payments, you're going to stretch your prescriptions," "Even among insured populations, there is this invincibility mindset among the very young. Older people are more likely to adhere to chronic therapies over a longer period of time than younger." In fact, 13 percent of those younger than 65 skipped prescription medications to save money, compared to 6 percent of elderly Americans. The same percentage of younger Americans, and 2 percent of elderly, said they tried alternative therapies to avoid the higher cost of prescription drugs.

U.S. Survey Highlights the Impacts of Drug Shortages on Patients and Care - The results of a national survey of health professionals in the United States that was published recently in the American Journal of Health-System Pharmacy shows that cancer patients are suffering the effects of cancer drug shortages in the form of higher medication costs, delays in chemotherapy, treatment changes, and increased risk of medication errors. According to the paper, the researchers sent an online survey to 1672 members of the Hematology/Oncology Pharmacy Association and other organizations, focusing on a 12-month period that ended in October 2011. Of the 243 individuals — mostly pharmacists — who responded to the survey, 93 percent reported that in the last 12 months drug shortages resulted in delayed chemotherapy or other changes in cancer drug therapy. Meanwhile, 85 percent of respondents reported that drug shortages resulted in increased costs, and 10 percent reported that they’d faced reimbursement challenges related to drug shortages. Also, 16 percent of respondents reported having to change therapies leading to “near-miss errors” with 6 percent reporting “one or more actual medication errors attributable to a drug shortage.” The researchers also found that drug shortages caused disruptions to cancer drug development efforts. About 44 percent of represented institutions in the survey reported that they either had to halt or delay enrollment in clinical trials as a result of drug shortages.

Dementia Will Take Toll on Health-Care Spending - The latest news on the cost of dementia, done by the Rand Corporation, highlights the growing burden of health care on government spending and the economy in general. Researchers at Rand, in a study published Thursday in the New England Journal of Medicine, estimated direct medical costs of treating dementia totaled $109 billion in 2010, more money than was spent on heart disease or cancer. (The Rand estimates are lower than previous estimates done by the Alzheimer’s Association.) As the baby boom generation ages, the spending will keep increasing. Using projections in the Rand study as well as forecasts from the Centers for Medicare & Medicaid Services, by 2020 — a short seven years away — dementia patients will account for about 10% of the elderly, but direct medical spending on them will be equal to about 17% of all the spending projected for Medicare and Medicaid devoted to the aged. While some of the costs will be paid by private insurance or out-of-pocket, the figures illustrate how dementia is on track to become a drain on the government finances.

Boomers Push Doctor-Assisted Dying in End-of-Life Revolt - A subject of intense debate since the 1990s, state- sanctioned and regulated end-of-life drugs are gaining support amid demographic changes and shifting attitudes. Baby boomers are beginning to confront their own mortality even as they face the sometimes prolonged and painful deaths of their parents -- the first to die in an era of modern medical care that can keep death at bay for months, often at great expense, with feeding tubes, ventilators and defibrillators. About 10,000 baby boomers, those Americans born from 1946 to 1964, will turn 65 each day for the next 19 years, according to the Pew Research Center in Washington. Baby boomers, like Burzichelli, a former eduction manager at Rutgers University, are at the forefront of a new movement. They brought on the sexual revolution, demanded natural childbirth, fought for legalized abortion and turned the mid- life crisis into a force for self-improvement. Now they’re engaged in transforming how Americans experience death. In states across the country, including New Jersey, Connecticut, Massachusetts and Vermont, graying baby boomers have been lobbying lawmakers in recent months at hearings, in letters and by phone, pushing to make it legal for doctors to prescribe life-ending drugs to terminally ill patients. Advocates and opponents say there is more support this year than in past attempts with five states considering such legislation.

FDA Finds ‘Unsanitary Conditions’ at 30 Specialty Pharmacies-- The Food and Drug Administration says it has uncovered potential safety problems at 30 specialty pharmacies that were inspected in the wake of a recent outbreak of meningitis caused by contaminated drugs. The agency said its inspectors targeted 31 compounding pharmacies that produce sterile drugs, which must be prepared under highly sanitary conditions. The FDA said Thursday it issued inspection reports to all but one of the pharmacies citing unsanitary conditions and quality control problems, including: rust and mold in supposedly sterile rooms, inadequate ventilation, and employees wearing non-sterile lab coats. The agency generally issues such reports before taking formal action against companies. Inspectors visited pharmacies in 18 states, including Florida, Arizona, Colorado, Tennessee and New Jersey. The wave of inspections comes in response to a deadly fungal meningitis outbreak linked to contaminated steroids from the New England Compounding Center, a Massachusetts pharmacy. The company's injections, mainly used to treat back pain, have been linked to 53 deaths and 733 illnesses since last summer.

Shocking study reveals mortality rates for women are increasing over 43% of U.S. counties compared to just 3.4% for men - A startling map has revealed female death rates are rising across 43 per cent of U.S. counties compared to just 3.4 per cent of counties for men. The findings were reported by two public health experts from the University of Wisconsin-Madison who looked at the rates of death for men and women aged 75 and under between 1992 and 2006. It means 1,334 counties in the U.S. had increased mortality rates for women in the 14 year period while only 108 counties had increased rates for men.They did not find what caused the differences between men and women but found socioeconomic factors as well as prevalence of smoking in a county accounted for increased mortality rates. They called for a change in health policy to reflect their findings 'Mortality rates are falling in most US counties, but we found a large number of counties with no reductions in female mortality rates during the study period,' the study said.

America's Health (Dis)advantage - infographic - The United States spent $2.6 trillion on health care in 2010 - more than any other country in the world. Yet based on research from a collaborative effort within the National Academy of Sciences, Americans live shorter lives and experience more injuries and illnesses than people in similar high-income countries. Out of 17 countries surveyed (Australia, Austria, Canada, Denmark, Finland, France, Germany, Italy, Japan, Norway, Portugal, Spain, Sweden, Switzerland, the Netherlands, and the United Kingdom), the U.S. finished dead-last (or perhaps dead first is more appropriate) in nearly every category.*

Nearly 25% of Canadian nurses wouldn't recommend their hospital - Nearly a quarter of nurses wouldn't recommend the hospital where they work to their family or friends, a survey by CBC News has found. A nurse's world Where stress is status quo Read stories from nurses across the countryThe startling figure comes from an online survey that CBC's flagship investigative show, the fifth estate, distributed to registered nurses across the country as part of Rate My Hospital, a sweeping series about health care that continues all week. Twenty-four per cent of respondents to the survey distributed through nursing associations and unions said they definitely would not or probably would not recommend their hospital to loved ones. Rate My Hospital Visit on Wednesday to find out how your hospital was rated by the fifth estate. "I'm very disappointed that nurses can’t recommend their facilities, the places where they work, to their loved ones," said Ontario Nurses' Association vice-president Andy Summers. "When they look around them and they realize that they couldn’t recommend that facility, it tells me that they're recognizing how dire their practice is." More than 4,500 registered nurses from at least 257 hospitals responded to the survey asking about how nurses felt on a range of topics from hospital resources to quality of care.

Australia to Compensate Organ Donors - Australia once again proves that it is a world leader in innovative public policy with an experimental plan to compensate (living) organ donors. Workers who want to donate a kidney will be offered up to six weeks’ paid leave under a federal government plan to reduce the waiting list for life-saving organs. Ms Plibersek says living donors will be paid six weeks on minimum wage, totalling up to $3600, to help take the financial pressure off before and after the major surgery. …the scheme is one step towards bridging the gap between the number of kidney donors and recipients. The proposed experiment does, however, contains a peculiar restriction which is worth highlighting because it illustrates a tension between economics and ethics, at least ethics as conventionally understood (e,g, Michael Sandel). The compensation “will only be available to donors who have a job.”

British shops ration baby milk as Chinese demand surges - British shops are rationing sales of baby milk after Chinese visitors and bulk buyers cleared their shelves to send it to China, where many parents fear the local versions are dangerous. The British Retail Consortium (BRC), whose members account for 80 percent of the sector, said many stores had imposed a two-box limit on each customer to deter the "unofficial exports" to China. Demand for foreign milk powder has been high in China since at least six infants died and 300,000 fell ill in 2008 after they drank milk laced with the industrial chemical melamine. The scandal sapped consumer confidence in Chinese-made food and led to shortages of powdered milk in Hong Kong and Australia as people bought boxes to export to China. The rise of the middle-class Chinese working mother has greatly increased sales of baby milk in the world's most populous country. Fast-growing markets like China support a global baby food market worth an estimated $30 billion a year.

Chinese H7N9 Bird Flu Strain Found In Chickens, Poultry Markets Closed, Culled As Epidemic Concerns Spread - When we updated last on the most recent happenings in Shanghai (and now various adjoining provinces) as a result of the spread of the H7N9 bird flu, which has so far taken 6 lives, we warned that it is "starting to have major spillover effects on the broader economy, such as mass slaughter of poultry at local markets - a move which will have certain inflationary effects to an economy already on the cusp of losing the war with the G-7's hot money." Indeed, while the human casualties may be promptly contained, it will be the downstream effects on the economy that will have long-term reverberations. As SCMP reports, following yesterday's spot checks at various closed Shanghai poultry markets, the H7N9 strain has been found to have infected local chickens. "The ministry said last night that 10 chicken samples from two markets in the Minhang district of Shanghai and at the Huhuai Farm Products Market in the adjacent Songjiang district had tested positive for H7N9. The virus was also found in two pigeon samples and seven environmental samples collected from these markets, out of a total 738 samples tested." The result has been widespread culling of chickens both in Shanghai and elsewhere, and while the government has been "generous", promising to pay vendors "compensation equal to at least 50% of the market price of the poultry slaughtered",

New Bird Flu Seen Having Some Markers of Airborne Killer - The new bird influenza that’s killed six people in eastern China has some of the genetic hallmarks of an easily transmissible virus, according to the scientist who showed how H5N1 avian flu could become airborne. The H7N9 strain, which is a new virus formed as a result of two others merging their genetic material, has features of viruses that are known to jump easily from birds to mammals, and a mutation that may help it attach to cells in the respiratory tract, said Ron Fouchier, a professor of molecular virology at Erasmus Medical Center in the Netherlands, in a telephone interview yesterday.“That’s certainly not good news,” said Fouchier, who reviewed a gene sequencing of H7N9 published by Chinese health authorities. “This virus really doesn’t look like a bird virus anymore; it looks like a mammalian virus.” To curb the spread of H7N9, Shanghai, Hangzhou and Nanjing, cities with confirmed human cases of the virus, have halted trading in live poultry, closed bird markets and slaughtered more than 20,000 fowl. Shanghai today reported two new infections, taking China’s tally to 18, according to data compiled by Bloomberg News from reports released by the national and provincial governments.

New bird flu strain seen adapting to mammals, humans -- A genetic analysis of the avian flu virus responsible for at least nine human deaths in China portrays a virus evolving to adapt to human cells, raising concern about its potential to spark a new global flu pandemic.  The collaborative study, appears in the current edition (April 11, 2013) of the journal Eurosurveillance. The group examined the genetic sequences of H7N9 isolates from four of the pathogen's human victims as well as samples derived from birds and the environs of a Shanghai market. "The human isolates, but not the avian and environmental ones, have a protein mutation that allows for efficient growth in human cells and that also allows them to grow at a temperature that corresponds to the upper respiratory tract of humans, which is lower than you find in birds," The findings, drawn from genetic sequences deposited by Chinese researchers into an international database, provide some of the first molecular clues about a worrisome new strain of bird flu, the first human cases of which were reported on March 31 by the Chinese Center for Disease Control and Prevention. So far, the new virus has sickened at least 33 people, killing nine. Although it is too early to predict its potential to cause a pandemic, signs that the virus is adapting to mammalian and, in particular, human hosts are unmistakable,

Fox Guarding the Hen House: Obama 'Caves to Poultry Industry,' Pushes for Self-Regulation - While President Obama's new budget proposal has drawn widespread criticism for its cuts to Medicare and Social Security, another lesser known provision within the austerity heavy plan has caused great alarm from food safety advocates—a cutback on food inspection, most notably in the meat and poultry industries.An ongoing pilot version of this self-regulation method has been conducted at 20 chicken and 5 turkey slaughter facilities since 1999 and have performed poorly, Food & Water Watch did its own analysis of the inspection documents from a group of the poultry plants participating in the pilot and we found that ‘quality defects,’ including visible fecal contamination, were being missed by company employees. Even the USDA's own analysis of the program revealed that Salmonella rates in the plants using the privatized model were higher in pilot plants than in comparably–sized plants receiving conventional inspection.

Salmon Confidential—How a Canadian Government Cover-Up Threatens Your Health, and the Entire Ecosystem - Many environmental experts have warned about the unsustainability of fish farms for a decade now, and we have documented those objections in many previous articles. Unfortunately nothing has yet been done to improve the system.  As usual, government agencies and environmental organizations around the world turned a blind eye to what was predicted to become an absolute disaster, and now the ramifications can be seen across the globe, including in British Columbia, Canada. Salmon Confidential is a fascinating documentary that draws back the curtain to reveal how the Canadian government is covering up the cause behind British Columbia’s rapidly dwindling wild salmon population. A summary of the film reads:1“When biologist Alexandra Morton discovers BC’s wild salmon are testing positive for dangerous European salmon viruses associated with salmon farming worldwide, a chain of events is set off by government to suppress the findings. Tracking viruses, Morton moves from courtrooms, into British Columbia’s most remote rivers, Vancouver grocery stores and sushi restaurants.  The film documents Morton’s journey as she attempts to overcome government and industry roadblocks thrown in her path and works to bring critical information to the public in time to save BC’s wild salmon.”

Taping of Farm Cruelty Is Becoming the Crime -  On one covert video, farm workers illegally burn the ankles of Tennessee walking horses with chemicals. Another captures workers in Wyoming punching and kicking pigs and flinging piglets into the air. And at one of the country’s largest egg suppliers, a video shows hens caged alongside rotting bird corpses, while workers burn and snap off the beaks of young chicks.Each video — all shot in the last two years by undercover animal rights activists — drew a swift response: Federal prosecutors in Tennessee charged the horse trainer and other workers, who have pleaded guilty, with violating the Horse Protection Act. Local authorities in Wyoming charged nine farm employees with cruelty to animals. And the egg supplier, which operates in Iowa and other states, lost one of its biggest customers, McDonald’s, which said the video played a part in its decision. But a dozen or so state legislatures have had a different reaction: They proposed or enacted bills that would make it illegal to covertly videotape livestock farms, or apply for a job at one without disclosing ties to animal rights groups. They have also drafted measures to require such videos to be given to the authorities almost immediately, which activists say would thwart any meaningful undercover investigation of large factory farms. Critics call them “Ag-Gag” bills. 

Animal Rights Activists Could Be Registered as Terrorists -Very few things are as vomit-inducing as videos of animals being treated inhumanely and with heartbreaking cruelty. But as hard as they are to watch, we know they exist for a very important purpose: to help animal activists in their bid to shut down cruel farm practices. But now there might be new legislation that will make it harder for activists to obtain these whistle-blowing videos and follow through with their investigations. A business advocacy group is lobbying for a new bill called The Animal and Ecological Terrorism Act, which prohibits filming or photographing of livestock farms to “defame the facility or its owners.” Violators of the act would be placed on a terrorist registry. Yeah, you heard that right. Animal activists, like the people who shed light on the Tennessee walking horse abuse and busted the Wyoming pig farmers, would be labeled terrorists.

Environmental change triggers rapid evolution - A University of Leeds-led study, published in the journal Ecology Letters, overturns the common assumption that evolution only occurs gradually over hundreds or thousands of years. Instead, researchers found significant genetically transmitted changes in laboratory populations of soil mites in just 15 generations, leading to a doubling of the age at which the mites reached adulthood and large changes in population size. The results have important implications in areas such as disease and pest control, conservation and fisheries management because they demonstrate that evolution can be a game-changer even in the short-term.  "This demonstrates that short-term ecological change and evolution are completely intertwined and cannot reasonably be considered separate. We found that populations evolve rapidly in response to environmental change and population management. This can have major consequences such as reducing harvesting yields or saving a population heading for extinction."

Calamity for Our Most Beneficent Insect - NYTimes Editorial Board: Every beekeeper, small or large, hobbyist or commercial, knows that honeybees are in trouble. Over the past decade, bee colonies have been dying in increasing numbers. Last year was especially bad. Perhaps as many as half the hives kept by commercial beekeepers died in 2012. The loss has created a crisis among fruit and vegetable growers, who depend on bees to pollinate their crops.Last year, researchers identified a virus as a major cause of the die-off; the latest suspect is a class of pesticides called neonicotinoids, which are used to protect common agricultural seeds, including corn. The insecticides are systemic, which means they persist throughout the life of the plant. Scientists have demonstrated that exposure to these chemicals damages bees’ brain function, including their ability to home in on the hive.  Bees are essential to modern agriculture. There is no replacing them, no substitute of any meaningful kind. The E.P.A. has sent a team to central California — where more than 1.6 million hives are needed every spring — for “discussions.” That is not remotely good enough. The agency must conduct an immediate analysis of neonicotinoids. The manufacturers’ bland assurances seem empty in the face of this long-term die-off of these beneficial creatures.

Monsanto's Dark History: 1901-2011 - Monsanto, best know today for its agricultural biotechnology GMO products, has a long and dirty history of polluting this country and others with some of the most toxic compounds known to humankind. From PCBs to Agent Orange to Roundup, we have many reasons to question the motives of this evil corporation that claims to be working to reduce environmental destruction and feed the world with its genetically engineered GMO food crops. Monsanto has been repeatedly fined and ruled against for, among many things: mislabeling containers of Roundup, failing to report health data to EPA, plus chemical spills and improper chemical deposition.

Monsanto’s Next Target: Democracy - More than 30 state legislatures are now debating GMO labeling bills. And consumers have broadened the fight beyond just labeling. Five counties and two cities in California and Washington have banned the growing of GE crops. In addition, given the near total absence of FDA regulation, 19 states have passed laws restricting GMOs.  How is the biotech industry fighting back? By attacking democracy.  Experts say the laws are on the side of consumers. But consumers will no doubt still have to defend democracy against an increasingly desperate, and aggressive, industry bent on protecting the highly profitable business of genetically engineered food.  Monsanto’s lobbyists are out in force in Washington, Vermont, Connecticut, and several dozen other states. They’re lobbying politicians behind the scenes and planting misleading articles in the press. Attacking pro-labeling anti-GMO proponents as anti-technology Luddites.  One of Monsanto’s major propaganda points, designed to discourage state officials from passing GMO labeling laws, is that state GMO labeling is unconstitutional. Monsanto has repeatedly stated that it will sue any state that dares to label. This threat of a lawsuit was enough to convince lawmakers in Vermont and Connecticut in 2012 to back off from labeling, even though there were sufficient votes, and overwhelming public sentiment, to pass these bills.

The Damaging Links Between Food, Fuel and Finance: A Growing Threat to Food Security - Just when you thought the unhealthy ties between food, fuel, and financial markets couldn’t get more perverse, we get the announcement that Vitol, the world’s largest independent oil trader, is entering the grain-trading business, hiring a team from Viterra, based in Toronto, to run the show. And lest we toss this off as just another corporate deal, Javier Blas in the Financial Times reminds us that Viterra has itself recently been bought by Glencore, perhaps the world’s greatest global commodity speculator. What could go wrong? For the world’s poor, plenty. They’ve already endured three food price spikes in the last six years, fueled in part by financial speculators gambling on agricultural, energy, and metals commodities as they fled the wreckage of the housing and stock market crashes. This corporate deal may not change a thing, but it is a powerful symbol of what’s wrong with our broken food system.

Subsidized Corn Destroying Global Bio-Diversity - In this video on the Real News Network, PERI Economist James Boyce discusses how industrialized agriculture in the United States endangers the wealth of genetic corn variation, and why hard-pressed small farmers in South America offer a potential counterweight.

US rice imports ‘contain harmful levels of lead’ -  Analysis of commercially available rice imported into the US has revealed it contains levels of lead far higher than regulations suggest are safe. Some samples exceeded the "provisional total tolerable intake" (PTTI) set by the US Food and Drug Administration (FDA) by a factor of 120. The report at the American Chemical Society Meeting adds to the already well-known issue of arsenic in rice. The FDA told the BBC it would review the research. Lead is known to be harmful to many organs and the central nervous system. It is a particular risk for young children, who suffer significant developmental problems if exposed to elevated lead levels. Because rice is grown in heavily irrigated conditions, it is more susceptible than other staple crops to environmental pollutants in irrigation water. Recent studies have highlighted the presence of arsenic in rice - prompting consumption advice from the UK's Food Standards Agency and more recently from the FDA. However, other heavy metals represent a risk as well.

Drought forecast: Bad to worse - Drought conditions in more than half of the United States have slipped into a pattern that climatologists say is uncomfortably similar to the most severe droughts in recent U.S. history, including the 1930s Dust Bowl and the widespread 1950s drought. The 2013 drought season is already off to a worse start than in 2012 or 2011 — a trend that scientists at the National Oceanic and Atmospheric Administration (NOAA) say is a good indicator, based on historical records, that the entire year will be drier than last year, even if spring and summer rainfall and temperatures remain the same. If rainfall decreases and temperatures rise, as climatologists are predicting will happen this year, the drought could be even more severe. The federal researchers also say there is less than a 20 percent chance the drought will end in the next six months.

Getting Serious About a Texas-Size Drought - The drought that has gripped much of Texas since the fall of 2010 shows few signs of abating soon. The latest forecasts say that parched West and South Texas will remain dry, and that the state is likely to see above-average temperatures this spring, increasing evaporation from already strained reservoirs. The conditions could lead to severe water restrictions in some parts of the state. The implications have finally sunk in among lawmakers and business leaders here, who like to boast about the economic appeal of Texas’s low taxes and relaxed regulatory environment: no water equals no business. In a state fabled for its everything-is-bigger mentality, the idea of conserving resources is beginning to take hold. They are even turning sewage into drinking water. The overwhelmingly conservative and tightfisted Texas House of Representatives recently voted to create a fund to finance water development and conservation projects and is considering allocating $2 billion to jump-start it. The State Senate is weighing a similar measure. Texas is also suing neighboring states to get more water. The United States Supreme Court is scheduled to hear arguments in two weeks in one of these cases, in which the authority that supplies water to Fort Worth and fast-growing surrounding communities is demanding more water from Oklahoma. Texas has accused New Mexico of siphoning off more than its share of water from the Rio Grande. The state is likewise arguing that under an international agreement, it is entitled to more water from Mexico, which has also been stricken by drought.

Britain 'running out of wheat' owing to bad weather: Britain will become a net importer of wheat for the first time in a decade this year because of bad weather, the National Farmers' Union has said. NFU president Peter Kendall said more than two million tonnes of wheat had been lost because of last year's poor summer. The prolonged cold weather would also hit this autumn's harvest, he said. But he said the shortage was unlikely to affect the price of bread because of the global nature of the market. Speaking on BBC Radio 4's Today programme, Mr Kendall said the average yield fell from 7.8 tonnes a hectare to 6.7 tonnes last summer. Looking ahead to the 2013 harvest, he said farmers had only managed to get three quarters of the planned wheat planted this year, so the UK was already 25% down on potential production.

Biofuels producer Ensus takes UK plant offline due to poor wheat quality - Biofuels producer Ensus is taking its bioethanol plant in northeast England offline due to a poor wheat harvest last year."We regretfully confirm that due to continuing adverse market conditions, we are having to temporarily pause production at our plant," a spokesman said. "At this stage, we don't know how long this pause will be, but we hope that market conditions can improve and that the plant will become operational again in the near future," he added. Ensus owns one of Europe's largest bio-refineries with the capacity to make about 400m to 450m litres of bioethanol a year from about 1m tonnes of feed wheat.

Ethanol Lobby Agitates for E15 Mandate - I also predicted that once the waiver was granted, the next step would be for the ethanol lobby to ask for an E15 mandate. Some people argued that this would never happen. After all, how could the EPA force consumers to purchase fuel that many automakers have said would void their warranties? In response, I remind people that the EPA recently required gasoline blenders to blend nonexistent volumes of cellulosic ethanol. So it could definitely happen. The ethanol lobby is now becoming more vocal in their calls for an E15 mandate. In a recent NPR story — EPA’s Push For More Ethanol Could Be Too Little, Too Late — chief ethanol lobbyist Bob Dinneen, who is President and CEO of the Renewable Fuels Association, continued to complain about the oil industry’s failure to embrace the ethanol industry:

Australia has lost farmland the size of Ukraine: Australia's volatile climate, which experts warned will produce increasing weather extremes, has already contributed to a loss in farmland the size of Ukraine, a leading analyst warned. Australia's Climate Commission warned earlier this week of a high risk that the heatwaves, drought, wild fires and cyclones which have reached at least part of the country over the past few months will become more severe."Records are broken from time to time, but record-breaking weather is becoming more common as the climate shifts," Tim Flannery, chief commissioner, said.Yet already Australia's farmland is on the decline, with more than 60m hectares (600,000 square kilometres) - an area the size of Germany and the UK combined, and equivalent to a 13% loss - falling out of production over the past two decades, Luke Mathews, at Commonwealth Bank of Australia, said. "Some of this decline is attributed to urban encroachment, but more is attributed to retired land because of poor productivity and environmental considerations," he said, flagging "limited water supplies" as a major land constraint.

NOAA: Area of land larger than Manhattan disappearing of Louisiana coast each year  - A portion of land larger than Manhattan is disappearing off the coast of Louisiana each year due to soil settling and a rise in global sea levels, NOAA says. The agency has released two maps demonstrating the coastal land loss that took place between 1932 and 2011. "Storm surge—the water from the ocean that is pushed toward the shore by the force of storm winds—takes advantage of the problems caused by subsidence and global sea level rise. Because much of the Louisiana coast is very low in elevation and gradually converting to open water, entire neighborhoods, roads, and other structures are vulnerable to even small storm events," the agency said in an article posted to NOAA's website.

Greenhouse Gases Make High Temps Hotter in China -  China, the world's largest producer of carbon dioxide, is directly feeling the man-made heat of global warming, scientists conclude in the first study to link the burning of fossil fuels to one country's rise in its daily temperature spikes. China emits more of the greenhouse gas than the next two biggest carbon polluters — the U.S. and India — combined. And its emissions keep soaring by about 10 percent per year. While other studies have linked averaged-out temperature increases in China and other countries to greenhouse gases, this research is the first to link the warmer daily hottest and coldest readings, or spikes. Those spikes, which often occur in late afternoon and the early morning, are what scientists say most affect people's health, plants and animals. People don't notice changes in averages, but they feel it when the daily high is hotter or when it doesn't cool off at night to let them recover from a sweltering day. The study by Chinese and Canadian researchers found that just because of greenhouse gases, daytime highs rose 0.9 degree Celsius (1.7 degrees Fahrenheit) in the 46 years up to 2007. At night it was even worse: Because of greenhouse gases, the daily lows went up about 1.7 degrees Celsius (3 degrees Fahrenheit).

Pakistan to be hardest hit by climate change: Dawn -  Pakistan will be amongst the countries hardest hit by climate change, said a leading daily, warning that a disaster of enormous proportions is silently evolving in the mountains up north. An editorial in the Dawn on Tuesday said that away from the din of politics and the immediacy of militant strife, a disaster of enormous proportions is silently evolving in the Hindu Kush-Himalayan mountains up north, one that could in time impact the length and breadth of Pakistan. "The peaks are home to some 15,000 glaciers which, as a result of rising temperatures, are retreating at an alarming rate of almost 40 to 60 metres a decade, leaving behind glacial lakes in their wake," it said. The daily warned that 52 such lakes, an inherently unstable phenomenon that can trigger devastating flash floods, have been classified as dangerous to human settlements. "The melting of the glaciers will also ultimately lead to a rise in sea levels, threatening coastal areas and cities such as Karachi," it said, while referring to a meeting to review the progress of a four-year project between the government and international organisations to deal with the fallout of climate change in Pakistan.

Tomatoes, Peppers, Strawberries Now Grow Well in Greenland's Arctic Valleys - (Reuters) - On the Arctic Circle, a chef is growing the kind of vegetables and herbs - potatoes, thyme, tomatoes, green peppers - more fitting for a suburban garden in a temperate zone than a land of Northern Lights, glaciers and musk oxen. Some Inuit hunters are finding reindeer fatter than ever thanks to more grazing on this frozen tundra, and for some, there is no longer a need to trek hours to find wild herbs. Welcome to climate change in Greenland, where locals say longer and warmer summers mean the country can grow the kind of crops unheard of years ago.

Oceans may explain slowdown in climate change: study - (Reuters) - Climate change could get worse quickly if huge amounts of extra heat absorbed by the oceans are released back into the air, scientists said after unveiling new research showing that oceans have helped mitigate the effects of warming since 2000. Heat-trapping gases are being emitted into the atmosphere faster than ever, and the 10 hottest years since records began have all taken place since 1998. But the rate at which the earth's surface is heating up has slowed somewhat since 2000, causing scientists to search for an explanation for the pause. Experts in France and Spain said on Sunday that the oceans took up more warmth from the air around 2000. That would help explain the slowdown in surface warming but would also suggest that the pause may be only temporary and brief. "Most of this excess energy was absorbed in the top 700 meters (2,300 ft) of the ocean at the onset of the warming pause, 65 percent of it in the tropical Pacific and Atlantic oceans," they wrote in the journal Nature Climate Change.

Arctic Sea Ice: The Death Spiral Continues - The story of the decade is the collapse of Arctic sea ice and its impact on our extreme weather (see “CryoSat-2 Confirms Sea Ice Volume Has Collapsed“).  That merits the latest monthly update of sea ice volume by creative tech guru Andy Lee Robinson showing that “death spiral” is the right visual metaphor: Many experts now say that if recent volume trends continue we will see a “near ice-free Arctic in summer” within a decade. And that may well usher in a permanent change toward extreme, prolonged weather events “such as drought, flooding, cold spells and heat waves.” It will also accelerate global warming in the region, which in turn will likely accelerate both the disintegration of the Greenland ice sheet as well as the release of the vast amounts of carbon currently locked in the permafrost, which in turn will likely add 0.4°F – 1.5°F to total global warming by 2100. For more on the death spiral, here’s Peter Sinclair’s latest video, featuring an interview with Walt Meier of the National Snow and Ice Data Center:

NOSEDIVE! - Calculated from March PIOMAS gridded data, source.  Region - all ice pack, Month - March.  Volume contribution for above and below 2m thick sea ice. 2m having been chosen because above this thickness growth is mainly compression and ridging, below 2m growth is mainly thermodynamic, so the 2m split represents a good proxy for young ice (<2m) and old ice (>2m). This also shows how the volume loss has previously been from thicker older ice. Conclusion; despite this year and the previous two having similar net volumes, the decline of the pack is continuing. What will happen in June when the Arctic Ocean melt starts in earnest with all that thinner ice? This extreme and abrupt loss of ice cover in 2007, following the extensive and sustained reduction in the oldest, thickest ice beginning in the late 1980s, is consistent with the premise that younger, thinner ice is likely to be more sensitive to melt and to area loss due to ridging and rafting, with a variety of implications for the basic nature of the Arctic Ocean... 

Neven: PIOMAS April 2013 - extra update - The Polar Science Center has released some extra PIOMAS gridded data that allows smart bunnies like Wipneus and Chris Reynolds to show how ice thickness is distributed around the Arctic. Here's a thickness distribution map made by Wipneus that shows the difference between March 2012 and March this year: It seems the situation has basically flip-flopped, with thicker ice now off the Siberian coast and thinner ice in the Beaufort and Chukchi Seas. This is most probably due to those big highs that caused a very strong Beaufort Gyre that pulled at the ice pack so hard it cracked all over the Beaufort Sea and beyond, but at the same time made the ice compact against the Siberian coast. This thicker ice along the Siberian coast is at a relatively low latitude and is bound to melt away anyhow, although it will be interesting to see when the Northern Sea Route opens this year.Chris has produced this thickness distribution map for March 2013, with next to that a table that shows the division between ice that is thinner than 2 metres and ice that is thicker than 2 metres since 1978:

Climate Change Costing Taxpayers Billions = Crop losses. Floods. Wildfires. Climate change and extreme weather are fundamentally changing the United States, and American taxpayers are paying a huge, and growing, cost. The U.S. Government Accountability Office warned in February that climate change is a "significant financial risk to the federal government." It threatens everything — not just federal lands and buildings, but food, flood and crop insurance, and disaster relief. And who pays for all of this? We do, the American taxpayers — a threat to the government's wallet is a threat to our own bottom line. Here are several examples of the escalating costs Americans are already bearing. Federal Crop Insurance payouts have risen drastically in the last decade, reaching $16 billion in 2012. Taxpayers subsidize the federal crop insurance program that was created during the 1930s Dust Bowl to protect farmers against crop losses. Today, we're experiencing another devastating drought, and federal crop insurance losses have tripled in the past three years to $16 billion in payouts for 2012. That's a cost of $51 a year for every man, woman and child in America. And these costs are likely to continue — the latest numbers from the U.S. Drought Monitor show nearly 67 percent of the contiguous U.S. is now experiencing some level of drought.

Shultz and Becker: Why We Support a Revenue-Neutral Carbon Tax - Americans like to compete on a level playing field. We think this idea should be applied to energy producers. They all should bear the full costs of the use of the energy they provide. Most of these costs are included in what it takes to produce the energy in the first place, but they vary greatly in the price imposed on society by the pollution they emit and its impact on human health and well-being, the air we breathe and the climate we create. We should identify these costs and see that they are attributed to the form of energy that causes them.  At the same time, we should seek out the many forms of subsidy that run through the entire energy enterprise and eliminate them. In their place we propose a measure that could go a long way toward leveling the playing field: a revenue-neutral tax on carbon, a major pollutant. A carbon tax would encourage producers and consumers to shift toward energy sources that emit less carbon—such as toward gas-fired power plants and away from coal-fired plants. We argue for revenue neutrality on the grounds that this tax should be exclusively for the purpose of leveling the playing field, not for financing some other government programs or for expanding the government sector. And revenue neutrality means that it will not have fiscal drag on economic growth.

Air pollution scourge underestimated, green energy can help - UN (Reuters) - Air pollution is an underestimated scourge that kills far more people than AIDS and malaria and a shift to cleaner energy could easily halve the toll by 2030, U.N. officials said on Tuesday. Investments in solar, wind or hydropower would benefit both human health and a drive by almost 200 nations to slow climate change, blamed mainly on a build-up of greenhouse gases in the atmosphere from use of fossil fuels, they said. "Air pollution is causing more deaths than HIV or malaria combined," Kandeh Yumkella, director general of the U.N. Industrial Development Organization, told a conference in Oslo trying to work out new U.N. development goals for 2030. Most victims from indoor pollution, caused by wood fires and primitive stoves in developing nations, were women and children. He suggested that new U.N. energy goals for 2030 should include halving the number of premature deaths caused by indoor and outdoor pollution. A 2012 World Health Organization (WHO) study found that 3.5 million people die early annually from indoor air pollution and 3.3 million from outdoor air pollution. Toxic particles shorten lives by causing diseases such as pneumonia or cancer. "The problem has been underestimated in the past," Maria Neira, the WHO's director of public health and environment, told Reuters. Smog is an acute problem from Beijing to Mexico City.

First phase of EPA furloughs begins April 21: The Environmental Protection Agency began notifying about 17,000 employees on Wednesday that the organization would implement its first phase of sequester furloughs starting April 21. In a notice to affected workers, the agency said it would impose four days of unpaid leave through June 15, whereupon it would assess whether more unpaid leave is necessary to achieve its cost-saving requirements under the government-wide spending cuts that took effect last month. An additional nine days of furloughs could be possible for affected workers between June 30 and the end of the fiscal year on Sept. 30, the memo said. The EPA issued notices on March 4 that employees could face a total of 13 furlough days, officially starting the clock on the 30-day notice that employees are entitled to before unpaid leave kicks in. The National Treasury Employees Union, which represents about 2,500 EPA workers, said it is negotiating with the agency to mitigate the impact of unpaid leave and provide employees with maximum flexibility.

EPA would get funding increase under president’s proposal: President Obama’s budget would provide $8.2 billion for the Environmental Protection Agency, a $252 million increase from the funding the agency has for fiscal 2013, but a 3.5 percent cut from the agency’s enacted 2012 spending plan. EPA Acting Administrator Bob Perciasepe said the budget represents an increase from the $7.9 billion the agency has for fiscal year 2013 after sequestered funds are subtracted. About $176 million is targeted at greenhouse gas emissions and their impact, including $20 million to study effects on human and ecosystem health, he said. The spending plan would “continue efforts to restore significant ecosystems” in places such as the Cheseapeake Bay, the Great Lakes and the Gulf Coast, according to the White House document. He also said the agency is budgeting $60 million to reduce the “reporting burden” on private industry by establishing interactive online systems for their use. For example, he said, the agency hopes to modernize the system that tracks the transport of hazardous waste, which still relies on millions of paper manifests.

Obama budget would increase U.S. clean-energy spending (Reuters) - President Barack Obama proposed a dramatic increase in clean-energy spending on Wednesday as he sought to expand U.S. government support for electric cars, wind power and other "green" technology despite persistent Republican criticism. The president would pay for the expansion in part by eliminating tax breaks and subsidies for oil, gas and coal industries. Previous efforts by Obama's fellow Democrats to repeal the $4 billion worth of fossil-fuel subsidies have fallen short. Obama's budget plan for fiscal 2014, which begins October 1, would boost clean-tech spending by 40 percent over current levels, marking one of the largest increases in a blueprint that otherwise would cut spending in a wide range of other programs, from environmental protection to retirement benefits. The president's budget proposal stands a slim chance of becoming law in its current form. Republicans who control the House of Representatives have criticized Obama's clean-energy initiatives as wasteful boondoggles, pointing to the high-profile bankruptcies of companies like solar-panel maker Solyndra that benefited from federal backing.

Four charts that show the U.S. spends too little on energy research - At his confirmation hearing this morning, Energy Secretary nominee Ernest Moniz told the Senate that the United States spends far too little on energy R&D. “We are underinvesting by a factor of three,” he said.Is that accurate? Many energy experts have, indeed, argued over the years that the U.S. government should do a lot more to invest in innovative new energy technologies — particularly if we want to address global warming. The specific dollar figures are often hotly debated. But it’s worth laying out the basic situation, in a few charts and graphs:

  • 1) U.S. energy R&D has been growing in recent years, though levels are still below their peak in the 1970s — and they’re set to drop in the years ahead:
  • 2) The Energy Department’s R&D program has a big focus on renewables and efficiency, but there’s also money for nuclear power and fossil fuels:
  • 3) We’re spending less on R&D to develop various clean-energy technologies than groups like the International Energy Agency have recommended:
  • 4) Federal energy R&D is lower than what a variety of experts have argued is necessary to tackle climate change:

Virtual Bitcoin Mining Is a Real-World Environmental Disaster -  Bitcoin is a medium of transaction created in 2009 by an anonymous programmer to facilitate anonymous digital transactions (there’s an excellent history here). In the recent speculative mania, the value of Bitcoins skyrocketed. Before Bitcoins can be traded, though, they need to be created. That's where "mining" comes in. Mining is a process in which powerful computers create Bitcoins by solving processor-intensive equations. The idea is to keep the supply of Bitcoins from multiplying too quickly. Bitcoin mining, like mining of precious metals, is supposed to be arduous. By design, the more miners there are, the more processing power is required to mint new coins. “Mining” Bitcoins takes so much processor power that it’s often done with specialized computers optimized for rapid repetitive calculations. So how much power can that take?, a site that tracks data on Bitcoin mining, estimates that in just the last 24 hours, miners used about $147,000 of electricity just to run their hardware, assuming an average price of 15 cents per kilowatt hour (a little higher than the U.S. average, lower than some high cost areas like California). That, of course, is in addition to the money devoted to buying and building the mining rigs. The site estimates the profits from the day of mining at about $681,000, based on the current value of Bitcoins. So mining, at least for the moment, is a lucrative business.

Obama budget hints sale of largest public utility: — The Obama administration’s 2014 budget is calling for a strategic review of the Tennessee Valley Authority, opening the possibility that the largest U.S. public utility could be sold. TVA officials seemed to have been caught off guard by the budget proposal released Wednesday. Board Chairman Bill Sansom and President and CEO Bill Johnson said the proposal was unexpected. “At this point we don’t know what the strategic review might include or what options might be explored,” Sansom says in a statement. “In the meantime, we will continue operating TVA in a sound financial manner in support of the people of the Tennessee Valley and the interests of the Federal Government.” Although TVA does not receive taxpayer appropriations, the utility’s expenditure of borrowed funds does count in the federal deficit.

Obama Budget Ponders Sale of Tennessee Valley Authority - President Barack Obama is considering the sale of all or part of the Tennessee Valley Authority (3015A), the largest publicly owned U.S. power company, in a deal that may raise as much as $35 billion as the administration seeks to reduce the national debt.A potential sale is part of a “strategic review” of the Knoxville, Tennessee-based nonprofit, which faces increasing capital costs, according to the administration’s fiscal 2014 budget proposal released yesterday. A sale may yield $30 billion to $35 billion in cash and reduced government debt obligations, The 80-year-old authority, created during the Great Depression to bring electricity to rural communities, will probably exceed its $30 billion debt cap to pay for needed infrastructure improvements and meet new environmental rules, according to the budget proposal. U.S. utilities face rising costs to replace aging power lines and generators and install pollution controls to meet stringent air-quality standards. “We expect potential buyers will have big concerns about the huge pension and asset retirement liabilities that TVA faces,” Miller said in an e-mail today. “That future uncertainty could depress the prices buyers are willing to pay.”

Turning off the Power to Run the Grid - Grid operator PJM last week released a report, spotted by Greentech Media, detailing the results of its demand-response programs after a new pricing rule was put in place last spring. Since last April, $8.7 million of revenue was generated in the seven months after the rule, called Order 745, went to affect–more than was made in the previous 41 months. The sharp uptick in participation shows that big energy users are willing to turn down non-essential power use to earn money and that utilities can rely on this “resource” in a significant way. Demand response is an arcane corner of the electricity grid, but the spread of the technology over the past few years has helped make the grid cleaner. EnerNOC, which manages demand-response programs, says its services have displaced the need for 80 power plants that provide peak power. And as more intermittent wind and solar generation comes onto the grid, it will become an even more important lever for smoothing out power fluctuations.

For the Price of the Iraq War, The U.S. Could Have a 100% Renewable Power System - Wind energy expert Paul Gipe reported this week that – for the amount spent on the Iraq war – the U.S. could be generating 40%-60% of its electricity with renewable energy: Disregarding the human cost, and disregarding our “other” war in Afghanistan, how much renewable energy could we have built with the money we spent? How far along the road toward the renewable energy transition could we have traveled? The answer: shockingly far. The war in Iraq has cost $1.7 trillion through fiscal year 2013, according to Brown University’s Watson Institute for International Studies. That’s trillion, with a “t”. Including future costs for veteran’s care, and so on, raises the cost to $2.2 trillion. Because the war was financed with debt, we should also include a charge for interest on the debt. The Iraq war’s share of cumulative interest on the US debt through 2053 will raise the total cost of the war to $3.9 trillion. To weigh what opportunities we lost, we’ll consider two conditions: the direct cost, and the direct cost plus interest.

82% of New US Electrical Capacity is Renewable Energy: During the first quarter of 2013, renewable energy accounted for 82% of new electrical generating capacity in the US, and 100% in March. The Federal Energy Regulatory Commission (FERC) says that 1546 megawatts (MW) of renewables came online, along with 340 MW of natural gas. No new coal, oil or nuclear capacity has been added this year so far. Six wind farms came online totaling 958 MW, 38 solar farms at 537 MM and 28 biomass plants added 46 MW. Four small hydro plants added 5.4 MW. The solar added is more than double that of the first quarter last year. Including hydro, renewable energy now accounts for almost 16% of US electrical generating capacity: hydro - 8.53%; wind - 5.18%; biomass - 1.30%; solar - 0.44%; and geothermal - 0.32%. This is more than nuclear (9.15%) and oil (3.54%) combined.

Portugal Generated 70% of Energy from Renewable Sources in First Quarter - REN, the Portuguese grid operator, has just released new figures that show that nearly three quarters of the country’s energy needs were met by renewable energy sources during the first three months of the year. Portugal was able to generate 70% of its electricity needs in the first quarter of 2013 due to a combination of favourable weather conditions and huge investment in wind and hydro-electric projects over recent years. Portugal’s hydroelectric generating capacity has increased by 312% over the last year, now accounting for 37% of Portugal’s total energy consumption, and wind energy rose 60% in the same timeframe, providing 27% of the nation’s energy demand The hugely increased contribution from renewable energy has meant that demand for fossil fuel sources have fallen. Coal-fired power stations now contribute 29% less electricity to the grid and natural gas-fired power stations contribute 44% less, compared to the first quarter of 2012. It is very likely that this reduction in fossil fuel use has led to a significant drop in carbon emissions.

Germany's 2012 power exports climb despite nuclear phase-out (Reuters) - Germany exported more electricity last year than it imported, data from the Federal Statistics Office showed on Tuesday, dispelling fears about possible power shortages due to its transition from nuclear to renewable energy. Europe's biggest power market imported some 43.8 terrawatt hours (TWh) of electricity and exported 66.6 TWh, resulting in a surplus of 22.8 TWh, figures based on information from the four biggest grid operators showed."The year 2012 saw the biggest surplus in the last four years," said the Statistics Office, adding it was nearly four times the 2011 surplus.Some experts had warned of possible power shortages after Chancellor Angela Merkel's decision in 2011 to accelerate Germany's nuclear phase-out and switch to renewable energy.

Fukushima tank springs major leak - Around 120 tons of contaminated water with an estimated 710 billion becquerels of radioactivity has probably leaked into the ground under the Fukushima No. 1 power plant, Tokyo Electric Power Co. revealed Saturday. “It is the largest amount of radioactive substances that has been leaked” since the crippled facility’s cold shutdown was declared in December 2011, Tepco official Masayuki Ono said. The utility, which announced the leak overnight, said Saturday morning that the water escaped from one of seven underground reservoir tanks at the No. 1 plant and that the remainder — an enormous 13,000 tons — is being pumped to other tanks nearby. Although the process is likely to be completed early this week, Tepco warned that up to 47 tons of the highly irradiated water may additionally leak out before the task is completed. As the tank will out of commission for some time while the incident is investigated, Tepco is also looking to secure a new storage facility for the radioactive water.

Fukushima springs new cistern leak - Tokyo Electric Power Co. had to halt the transfer of radioactive seawater from one leaking sunken reservoir to another at its stricken Fukushima No. 1 nuclear plant after it found a new cistern leak, the Nuclear Regulation Authority said Tuesday. Tepco had been moving the tainted water from reservoir No. 2 when water samples taken Tuesday morning from between waterproofing sheets of reservoir No. 1 showed salt concentrations had risen sharply from a day earlier. Tepco was also testing the water for radioactive substances. The current water level of the No. 1 reservoir was unclear because Tepco had been in the process of transferring water. There are seven sunken reservoirs at the Fukushima plant, whose surfaces are capped above ground, and three of them so far have been found to be leaky. On Saturday, Tepco announced that 120 tons of seawater containing about 710 billion becquerels of radioactivity had escaped from reservoir No. 2 and leaked into the ground.

‘Irreparable’ safety issues: All US nuclear reactors should be replaced, ‘Band-Aids’ won’t help - All 104 nuclear reactors currently operational in the US have irreparable safety issues and should be taken out of commission and replaced, former chairman of the US Nuclear Regulatory Commission, Gregory B. Jaczko said. The comments, made during the Carnegie International Nuclear Policy Conference, are “highly unusual” for a current or former member of the safety commission, according to The New York Times. Asked why he had suddenly decided to make the remarks, Jaczko implied that he had only recently arrived at these conclusions following the serious aftermath of Japan’s tsunami-stricken Fukushima Daichii nuclear facility. “I was just thinking about the issues more, and watching as the industry and the regulators and the whole nuclear safety community continues to try to figure out how to address these very, very difficult problems,” which were made more evident by the 2011 Fukushima nuclear accident in Japan, he said. “Continuing to put Band-Aid on Band-Aid is not going to fix the problem.” According to the former chairman, US reactors that received permission from the nuclear commission to operate for an additional 20 years past their initial 40-year licenses would not likely last long. He further rejected the commission’s proposal for a second 20-year extension, which would leave some American nuclear reactors operating for some 80 years.

Coal-mining jobs on the rise under Obama - Americans are burning less coal every year, but thousands more of them are making a living from mining it. The average number of coal-mining jobs under the Obama administration has been 15.3 percent higher than the average under George W. Bush, according to a new report [PDF] from the nonprofit Appalachian Voices. The report tries to debunk the claim made by coal-mining companies that Obama is waging war on them. The growth in coal-mining jobs in all of the leading coal-mining states is attributable, the group says, to a surge in exports and to a decline in mining efficiency as workers attempt to scour the last deposits from mines.

Study: The coal industry is in far more trouble than anyone realizes - Here’s some bleak news for the coal industry: As much as 65 percent of the U.S. coal fleet could find itself under threat in the years ahead, thanks to cheap natural gas and stricter air-pollution regulations. That’s according to a new peer-reviewed study by three researchers at Duke’s Nicholas School of the Environment, who take a detailed look at the costs of operating both coal-fired power plants and natural-gas plants around the United States. Their conclusion? Coal power is far more economically vulnerable than most analysts have realized to date. Here’s why: Cheap natural gas is crowding out coal: Already, a glut of cheap natural gas from shale deposits in Texas, Ohio, Pennsylvania, and elsewhere is upending the electricity sector. The researchers found that around 9 percent of the U.S. coal fleet has become uneconomical — it’s now cheaper to burn natural gas for electricity than to keep running those coal plants, which are now slated for retirement. The chart below sums up the ongoing shift quite vividly. Many coal plants are now operating at far lower capacity in 2012 than they were back in 2007:

Stop Paying the Polluters - The voices from the Climate Parliament join a growing crescendo of influential actors who are speaking out about the need to clean up our energy habits. During January’s World Economic Forum in Davos, Lord Nicholas Stern, author of a well-known report outlining the measures that the world should take to avoid runaway climate change, admitted that the planet is on track to warm by four degrees Celsius this century. Looking back, Stern said, his report could have been more insistent about the need to take determined action to avoid the catastrophic risks that this level of warming implies. Stern’s sentiment was echoed by Christine Lagarde, Managing Director of the International Monetary Fund, who pleaded in favor of stronger climate action to prevent future generations being “roasted, toasted, fried, and grilled.” And World Bank President Jim Yong Kim announced that his institution would prioritize the fight against climate change and focus on promoting, among other measures, the elimination of subsidies doled out to the fossil-fuel industry.

The Fossil Fuel Resistance - It got so hot in Australia in January that the weather service had to add two new colors to its charts. A few weeks later, at the other end of the planet, new data from the CryoSat-2 satellite showed 80 percent of Arctic sea ice has disappeared. We're not breaking records anymore; we're breaking the planet. In 50 years, no one will care about the fiscal cliff or the Euro crisis. They'll just ask, "So the Arctic melted, and then what did you do?" Here's the good news: We'll at least be able to say we fought. After decades of scant organized response to climate change, a powerful movement is quickly emerging around the country and around the world, building on the work of scattered front-line organizers who've been fighting the fossil-fuel industry for decades. It has no great charismatic leader and no central organization; it battles on a thousand fronts. But taken together, it's now big enough to matter, and it's growing fast.

Energy secretary nominee Ernest Moniz backs increased use of natural gas - — President Barack Obama’s choice to lead the Energy Department pledged to increase use of natural gas Tuesday as a way to combat climate change even as the nation seeks to boost domestic energy production. Ernest Moniz, a physics professor at the Massachusetts Institute of Technology, said “a stunning increase” in production of domestic natural gas in recent years was nothing less than a “revolution” that has led to reduced emissions of carbon dioxide and other gases that cause global warming. The natural gas boom also has led to a dramatic expansion of manufacturing and job creation, Moniz told the Senate Energy Committee. Even so, Moniz stopped short of endorsing widespread exports of natural gas, saying he wanted to study the issue further. A recent study commissioned by the Energy Department concluded that exporting natural gas would benefit the U.S. economy even if it led to higher domestic prices for the fuel.

Year-to-date natural gas use for electric power generation is down from 2012 - (EIA): Natural gas used to generate electricity so far this year is below the high level during the comparable 2012 period, when low natural gas prices led to significant displacement of coal by natural gas for power generation. In early 2013, coal recovered some market share as natural gas prices rose. By late March, wholesale natural gas prices at the Henry Hub trading center were back to $4 per million British thermal units (MMBtu). In response, electricity generators used 16% less natural gas this March compared with March 2012. In deciding whether to dispatch coal or natural gas for electricity, the price of fuel is critical. By late March, wholesale prices for natural gas had risen to $4 per MMBtu or more, a dollar or so higher than a year ago. Reasons for the increase included colder weather than a year ago; a tighter supply and demand balance for natural gas; and natural gas storage levels well below the year-ago level. In the last week of March, natural gas storage fell below its 5-year average volume for this time of year.

Judge rules administration overlooked fracking risks in California mineral leases -  (Reuters) - A federal judge has ruled the Obama administration broke the law when it issued oil leases in central California without fully weighing the environmental impact of "fracking," a setback for companies seeking to exploit the region's enormous energy resources. The decision, made public on Monday, effectively bars for the time being any drilling on two tracts of land comprising 2,500 acres leased for oil and gas development in 2011 by the Interior Department's Bureau of Land Management in Monterey County. The tracts lie atop a massive bed of sedimentary rock known as the Monterey Shale Formation, estimated by the Energy Department to contain more than 15 billion barrels of oil, equal to 64 percent of the total U.S. shale oil reserves. Most of that oil is not economically retrievable except by hydraulic fracturing, or fracking

Victory! Fracking foes in California win in court - Fracking opponents in California have won what may be their first victory in court, with a federal magistrate’s ruling that federal authorities broke the law when they leased land in Monterey and Fresno counties to oil drillers without studying the possible risks of hydraulic fracturing.The decision, made public Sunday, will probably delay fracking on four sites leased by the U.S. Bureau of Land Management in 2011. U.S. Magistrate Paul Grewal with the U.S. District Court in San Jose ruled that the bureau did not properly assess the threat that fracking could pose to water and wildlife before selling the leases, some of which lie within the Salinas River watershed. He made clear that he was not ruling on the merits of fracking itself.“Ultimately, BLM argues that the effects of fracking on the parcels at issue are largely unknown,” Grewal wrote, in a decision dated March 31. “The court agrees. But this is precisely why proper investigation was so crucial in this case.”

Fracking rule is ‘imminent’ - The Hill's E2-Wire: The Interior Department is on the cusp of releasing a controversial, heavily lobbied proposal to regulate oil-and-gas “fracking” on public lands. Outgoing Interior Secretary Ken Salazar told a House subcommittee Thursday that the draft regulations will surface soon. “The rule is imminent,” Salazar told an Appropriations Committee subpanel. “I expect that my successor will be announcing it in the very near future.” It’s Interior’s second swing at the plan after pulling back an earlier version in January. The measure will require disclosure of chemicals used in the hydraulic fracturing process, and also includes provisions on well integrity and management of “flowback” water.

Photographing fracking would be illegal under Indiana proposal - Indiana lawmakers are considering a bill that would make it illegal to photograph or videotape fracking, mining, clear-cutting forests or factory farming. Under Senate Bill 0373, anyone who sets foot on corporate property in order to document envionmental, animal welfare and health violations of the industries would face criminal penalties. The bill has passed the Senate and is on track to be approved in the House.

The Methane Hydrate Gas Boom? - Methane hydrate is the world’s largest natural gas resource. Japanese engineers recently became the first to produce methane hydrate from a well in the floor of the Pacific Ocean. NPR asks if this could become another natural gas boom? Related: What is Methane Hydrate?  More at NPR.

Environmental cost and economics of methane hydrates commercialization - Speculation is rampant that a new gas cornucopia is coming. After a successful Japanese experiment to extract natural gas from methane hydrates 1,000 meters below the surface and 50 miles off its shores, some are beginning to wonder if the “shale revolution” was just the beginning. But don’t hold your breath. There is no question that the world is awash in methane hydrates, which is methane gas trapped in lattice-like ice structures in ocean sediment and near permafrost. It is sometimes called “fire ice.” There is also no question that these hydrates are an enormous potential energy resource. According to the US Geological Survey, the amount of methane trapped in hydrates worldwide is at least 100,000 trillion cubic feet—this completely dwarfs the entire total of known US shale gas reserves, which is at 2,074 trillion cubic feet. There are two ways to release the methane gas from the hydrates: lowering the pressure or increasing the temperature. The Japanese experiment, run by the Japan Oil, Gas, and Metals National Corporation under contract for the Ministry of Economics, Trade, and Industry, used the depressurization technique. Their engineers drilled a well into a hydrate formation and pumped out water. The difference in pressure between the well and the hydrate deposits releases the methane. The depressurization technique is believed to produce the highest rates of recovery.But commercializing methane is a more complex matter beyond technical feasibility. There are two big questions: the economics and the environmental cost.

Crude awakening: Exxon’s Arkansas oil spill ain’t pretty [SLIDESHOW] - One week ago, residents of rural Mayflower, Ark., found a river of reeking, black oil flowing through their backyards and streets. ExxonMobil, the company that owns the ruptured pipeline, evacuated the neighborhood and quickly instated something like martial law, evicting wildlife rescue workers, threatening reporters with arrest, and even winning a temporary no-fly zone over the spill. Here’s what the company is hiding, care of the EPA’s on-site coordinator web page — which was locked down shortly after we retrieved these photos. (UPDATE: The page is unlocked again. Feel free to peruse the whole collection.)

The Exxon Oil Spill in Mayflower, Ark.: Slide Show of Annotated Photographs and Maps

In Arkansas, Exxon Is Threatening to Arrest Reporters But Otherwise Telling Nobody Nothing - A week after crude oil inundated an Arkansas neighborhood, on-site observers describe a Walking-Dead-like scene, reeking and empty but for men in Hazmat suits, where Exxon has imposed something like martial law - taking over every task from wildlife and environmental officials, enforcing a no-fly zone overseen only by an Exxon official, telling residents panicked about their sick kids and plummeting property values nothing at all, virtually banning media coverage of the damage and, today, threatening to arrest an InsideClimate News reporter for criminal trespass when she entered their Command Headquarters looking for information. Her evidently big mistake: Walking up to a table with a sign that said "Public Affairs." Update: More from on-site, up-close, or as close as relentlessly secretive Exxon officials would let them get.

Exxon acting like national guard under martial law in Mayflower, Arkansas, Pegasus tar sands dilbit spill cleanup - The first thing you notice when driving into Mayflower is the stench. Travelers can smell the fumes from Interstate 40, which runs through the town. Within town limits, the smell is putrid: Imagine wet asphalt on a hot summer’s day — times 10,000. At the local Harp’s grocery, something less than half a mile from the spill, the stink makes your eyes water and your nose burn. But the reek is only a hint at ExxonMobil’s presence here. Since thick black sludge first began oozing across backyards and into the streets, surprising many residents who say they didn’t even realize the pipeline was there, the company has instituted something like martial law. . Company workers wearing logoed shirts roam throughout the town. Local police guard the entrance to the neighborhood where the spill happened. .The oil company has also taken over wildlife rescue from a local organization; independent rescuers report that they are being forced to leave private property by ExxonMobil enforcers. (Casualties so far include oil-covered ducks, snakes, and nutria.) Reporters who accompanied Arkansas Attorney General Dustin McDaniel on a tour of the spill on Wednesday were asked to leave by Exxon representatives. Even the state Department of Environmental Quality refers reporters to the Exxon downstream media line for information.

14 Things You Need to Know About the Horrifying Arkansas Oil Spill =Within a week of the ExxonMobil tar sands oil pipeline burst in Mayflower, Arkansas, ExxonMobil was in charge of the clean-up, the U.S. government had established a no-fly zone over the area, some 40 residents were starting their second week of evacuation, ExxonMobil was threatening to arrest reporters trying to cover the spill, and several homeowners had filed a class action lawsuit seeking damages from the world's second-most-profitable corporation, which had helped keep the pipeline secret from terrorists.  Before March 29, even some people living next to ExxonMobil's Pegasus pipeline didn't know it was there. All that changed abruptly around 2:45 pm that Good Friday afternoon, when a resident of the suburban subdivision reported a fresh rivulet of diluted Wabasca heavy crude oil from Canada snaking across the lawn, pooling around children's yard toys, filling gutters, and flowing on down the street, to the nearest storm drain.

Exxon Didn't Know Its Pipeline Ruptured Until Called by Arkansas Authorities. Or Did It? Police transcripts show Exxon employees arrived on the scene an hour after the emergency was first reported by a resident dialing 911. As residents and local officials of Mayflower, Ark., were scrambling to evacuate homes and protect their treasured fishing lake from a river of heavy oil pouring through their town on Good Friday afternoon, ExxonMobil, the company responsible for the accident, didn't know what was happening. A 22-foot gash had opened up in its oil pipeline that cut through the Arkansas town, 450 miles from its headquarters in Houston, and the people were in a sudden uproar. In the emergency response, dispatchers called Exxon and informed them of the unfolding disaster, and company employees arrived on the scene an hour after the emergency was first reported to local authorities. That is the picture that emerges from transcripts of 911 police reports obtained by InsideClimate News from the Faulkner County Sheriff's Office.

Exxon Mobil Cleans Up Major Tar Sands Oil Spill with PAPER TOWELS - (The above is video shot by a local resident in Mayflower, Arkansas.) And take a look at these must-see pictures of the spill. No one is admitting how much oil was released.  Instead, the FAA declared a no fly zone around the spill area “effective immediately” and “until further notice.”  Approval for flights is only given by a Tom Suhrhoff, whose LinkedIn profile describes him as an aviation adviser for ExxonMobil.   In addition the air restrictions, at least one reporter has been threatened with arrest by Exxon officials for trying to interview an EPA representative at the cleanup command center. This is just like BP’s massive efforts to hide the extent and damage from the oil spill – even though their approach led to greater oil pollution – in order to avoid costs.

GOD’S PLAN: And Oil Shall Naturally Replenish Itself - Here’s another great example of why environmentalists are a bunch of ninnies whose knickers are so easily twisted you’d think they were wearing crotchless panties: A few days back a small amount of oil (tarsands diluted bitumen if you want to be specific) spilled out of an Exxon pipeline and into a small town in Arkansas that nobody’s never heard of before. A few thousand gallons covered some lawns and made a few sidewalks a bit slippery before GDP-boosting work crews arrived and cleaned everything up all nice and tidy. If Exxon Mobil hadn’t blatantly thumbed its nose at our democracy by usurping FAA authority in its shutdown of aviation traffic over Mayweather, we’d all have been able to see that this little leak was far less a kerfluffle than yesterday’s hailstorm in Texas.  Now, if these scuttlebutt-slinging enviros weren’t so busy driving their imported Volvo wagons or coal-burning electric contraptions from one pipeline-bashing rally to the next, or so deafened by the nasal contrivances of This American Life, they’d be learning the most important lesson of all:  IT’S ALL PART OF GOD’S PLAN.

Rewarding Exxon, Which We Love, and Never Mind That Little Problem In Arkansas, or That Spill in New Orleans, or That Ole Exxon Valdez Incident A While Back, or.... - This is a real story: ExxonMobil has been awarded the Green Cross for Safety award for "excellence in safety, security, health and environmental performance" from the so-called National Safety Council, whose board is made up of Exxon executives and representatives of other stellar corporate citizens like Dow Chemical, Exelon Nuclear, and DuPont. Irony lives.

Designer Protests and Vanity Arrests in DC - The Sierra Club has an image problem. Brune’s designer arrest can be partially interpreted as a craven attempt to efface the stain of the Club’s recent dalliance with Chesapeake Energy, one of the largest natural gas companies on the continent and a pioneer in the environmentally malign enterprise of hydraulic fracturing or “fracking”. Between 2007 and 2010, Chesapeake Energy secretly funneled nearly $30 million to the Sierra Club to advocate the virtues of natural gas as a so-called “bridge” fuel. Bridge to where is yet to be determined. By the time this subornment was disclosed, the funders of the environmental movement had turned decisively against fracking for gas and the even more malicious methods used to extract shale oil. The Sierra Club had to rehabilitate itself to stay in the good graces of the Pew Charitable Trusts and New York Mayor Michael Bloomberg, who had lavished $50 million on the Club’s sputtering Beyond Coal Campaign.

Biggest US rails to invest $450m in crude - The US’s two biggest railroads are ploughing more than $450m into boosting their capacity to the sudden boom in shale oil production. The chief executives of Union Pacific, operator of the biggest network, and BNSF, operator of the second largest, told the Financial Times the investments were justified because they believed that oil traffic would remain significant long term. Oil companies have invested heavily in oil-carrying tank cars and rail terminals, while several chemical manufacturers are building new, rail-linked facilities to exploit the US’s relatively cheap and plentiful new gas and oil supplies. The sharp rise in crude oil traffic by rail is one of the biggest changes in the US industry since deregulation in 1980 Matt Rose, BNSF’s chief executive, said the company expected to be handling 700,000 barrels a day by the end of this year compared with 525,000 at present and saw “a pathway” to “something over” 1m barrels a day. In January the company was handling about 150,000 barrels daily. Union Pacific said that its crude oil volumes so far this year are running at twice last year’s levels and that it carried 300,000 barrels a day in February. Many of the new oil-producing areas are cut off from the existing oil pipeline network. At 1m barrels a day, volumes on BNSF alone would equal around 40 per cent of the US’s daily pipeline imports and around a sixth of its seaborne crude imports.

Energy Prices Rise in Response to Seasonal and Global Economic Factors - Dallas Fed: The International Energy Agency (IEA) forecasts global oil demand to average 90.6 million barrels per day in 2013, up about 820,000 barrels per day from a year ago. This estimate is lower than previous IEA estimates of 2013 demand, a result of deterioration in the European economy, slower Chinese growth and sequestration in the U.S. Global oil production rose 90,000 barrels per day in February over January, according to the most recent IEA data. The increase in February supply, which totaled 90.8 million barrels per day, was due to increased production in the Organization of the Petroleum Exporting Countries (OPEC). Non-OPEC supply decreased slightly in February, but the IEA expects non-OPEC output to average 54.1 million barrels per day for the first quarter, 720,000 barrels per day higher than first quarter 2012. The IEA projects non-OPEC production in 2013 to rise by 1.1 million barrels per day to 54.5 million barrels per day mostly on higher output from North America, particularly Texas.

Obama's budget aims at oil industry tax breaks - In unveiling his $3.8 trillion spending plan for the government on Wednesday, President Barack Obama revived his attack on oil industry tax breaks and formally launched a plan to pay for alternative vehicle research with drilling dollars. While the tax plans have no chance of approval this year - lawmakers have rejected similar proposals many times before - they drew outrage from oil and gas industry leaders who said Obama is seeking to use the sector as a piggy bank. The fiscal 2014 budget proposal aims to raise $2.5 billion over the next decade by raising the royalty rates for oil and natural gas produced on federal lands and waters, with the revenue steered toward a new Energy Security Trust for research in alternative fuels and vehicles. American Petroleum Institute President Jack Gerard said the move is shortsighted, especially since a single sale of offshore drilling leases can net more than $1 billion just in bids to buy drilling rights - even before the royalty payments from oil and gas that might be produced on the acreage.

US government's bearish crude oil forecast - In spite of the Fed's ongoing monetary expansion, the US Department of Energy is projecting a moderate decline in crude prices over the next couple of years. Here is the key component of their rationale: EIA: - Non-OPEC supply growth, particularly in North America, is expected to keep pace with world liquid fuels consumption growth and contribute to modest declines in world crude oil prices.Based on the latest data from EIA, US oil inventories remain elevated while imports continue to decline.  EIA: - U.S. crude oil imports averaged over 7.7 million barrels per day last week, down by 211 thousand barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 7.8 million barrels per day, about 1.2 million barrels per day below the same four-week period last year.U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.3 million barrels from the previous week. At 388.9 million barrels, U.S. crude oil inventories are well above the upper limit of the average range for this time of year. Part of the government's assumption in forecasting declining oil prices is the stability of the US dollar.  And that assumption has been holding up well so far, as other major central banks also maintain highly accommodative policies (see post). Aside from geopolitical risks however, dollar strength remains a key factor that could derail the government's bearish forecast on crude prices.

Aging giant oil fields, not new discoveries are the key to future oil supply - With all the talk about new oil discoveries around the world and new techniques for extracting oil in such places as North Dakota and Texas, it would be easy to miss the main action in the oil supply story: Aging giant fields produce more than half of global oil supply and are already declining as group. Research suggests that their annual production decline rates are likely to accelerate. The most recent research on giant oil fields has been available since 2009 so it doesn’t attract media attention the way new discoveries hyped by oil company public relations departments do. And yet, that research is far more important to understanding our oil future. Here’s what the authors of “Giant oil field decline rates and their influence on world oil production” concluded: An evaluation of giant fields by date of peak shows that new technologies applied to those fields has kept their production higher for longer only to lead to more rapid declines later. As the world’s giant fields continue to age and more start to decline, we can therefore expect the annual decline in their rate of production to worsen. Land-based and offshore giants that went into decline in the last decade showed annual production declines on average above 10 percent.

Uncharted Territory: A Modern Peak Oil Theory - Peak oil theories have been around for decades. Marion King Hubbert accurately predicted a peak in U.S. oil production in 1956, in the first widely published peak oil theory. Since then, people have been predicting when demand would exceed supply and the dire economic consequences that will come along with it.  But what if the peak oil theory is completely wrong? What if scarcity of oil never becomes a problem and the eventual decline in oil usage is due to falling demand, not shrinking supplies? There's growing evidence that global oil supply is fairly abundant and consumers are using less oil. I'll outline why I think oil demand will peak by 2020 and why, eventually, alternative energy forms will bring the ultimate downfall for black gold. Over the past decade, a strange thing has taken place. Oil demand has declined in developed nations, almost across the board. U.S. demand peaked in 2005, Japan in 2003, and Germany way back in 1998. For Europe as a whole, the peak was in 2006.

Should The Last Few Years Have Updated Your Idea of Peak Oil? - Nate Hagens draws my attention to this recent interview with Dennis Meadows, lead author of the famous Limits to Growth series of books.  Meadows is very pessimistic.  I was particularly interested in his views on oil production and peak oil, in which he states positively that peak oil is in the past (which is very arguable at best, given that oil production is still making new monthly highs), and also that Oil production will be reduced approximately by half in the next 20 years, even with the exploitation of oil sands or shale oil. For oil production to halve over the next twenty years, it would have to decline on average by 3.5%/yr throughout that time (possibly some years by more, some years by less).  Above I have posted the average annual change in oil production 1965-2012 (with data from BP except for 2012 from EIA).  I have also added a linear trend line out to 2040.  Obviously, this is a rather rough time series and the linear fit is not particularly strong and the extrapolation not particularly stable.  But it's not clear that anything else will work much better - global oil production is a very complex process that we understand poorly.  In that situation, we are probably best sticking to very simple models and acknowledging their severe limitations.  At any rate, the straight line implies that peak oil (in the sense of "average growth is zero") was in about 2009.  The straight line also implies that we would not reach average growth being -3.5% until almost 2040.

Seven Years More Data in the Hubbert Model - On Monday, I objected to some statements by Dennis Meadows that oil production had clearly peaked in the past and would now decline by half within twenty years.  He dismissed various possibilities for higher oil production from low grade sources as irrelevant.  To make my objections, I pointed out by looking at average growth rates, that the last five years data had delayed one's idea of peak oil (in the sense of average growth being zero) by around five years, and thus we can't have a very clear idea of when peak oil is exactly. One objection I got in comments was that looking at average growth rates was a poor approach, and I should do something more sophisticated like look at the Hubbert model.  Fine; it happens that I did an extensive analysis of world production back at the Oil Drum in 2006.  Using the methodology of Hubbert Linearization, eg as exemplified by this picture:

Reports: Gazprom, Shell agree to develop Arctic oil fields despite environmental concerns -  Energy giants Gazprom and Royal Dutch Shell PLC have agreed to jointly develop offshore Arctic oil fields, Russian media reported Monday. The companies will develop the Severo-Vrangelevsky field in the Chukchi Sea and the Severo-Zapadny field in the Pechora Sea. Russian Energy Minister Sergei Donskoy was quoted by national media as saying Monday that Shell is likely to have a 33.3 percent stake in the fields. Russia is trying to assert jurisdiction over parts of the Arctic, which is believed to hold up to a quarter of the Earth’s undiscovered oil and gas. By speeding up the Arctic oil project, the Kremlin is strengthening its bid. However, environmentalists have warned that drilling in the Russian Arctic could have disastrous consequences because of a lack of technology and infrastructure to deal with a possible spill in a remote region known for huge icebergs and severe storms. The deal between Gazprom and Shell also envisages development of offshore oil fields in South Africa.

Targeting Iran’s Energy Sector Isn’t Working - Asian consumers are expected to help the Iranian oil sector recovery briefly this month. The  Iranian crude oil deliveries to Japan are expected to rebound, however, as some of the country's refineries return to service after maintenance shut them down last month. Sanctions are meant to starve Iran of the revenue it needs to support nuclear research programs.  U.S. Secretary of State John Kerry said last month that concerns over Iran's nuclear program meant pressure on its oil economy needs to continue. Despite the sanctions pressure, however, Iran remains at least attached to the proverbial cogs of the international oil sector. Countries like Japan and some members of the European Union can get a waiver from sanctions if they post "significant reductions" -- rather than a complete stoppage -- on the amount of crude oil they buy from Iran. Japan last month, as well as 10 members of the EU, qualified for a sanctions waiver. Yet Iran's crude oil exports for the month are expected to recover, albeit temporarily, to more than 1 million barrels per day.  Asian refiners are expected to drive that push. South Korea is expected to lead the pack in terms of increases, nearly tripling its May crude oil purchases. Taiwan, meanwhile, goes from naught to around 67,000 bpd, though China leads consumers of Iranian crude oil by leaps and bounds with an estimated 415,000 bpd for April. Analysts expect the increase to be short-lived and not indicative of an emerging trend, but they mark an increase nonetheless.

Iran Abandons Chinese Help, to Build World’s Highest Hydroelectric Plant Alone: Iran, pummeled by years of international sanctions, has had two energy goals. First, to preserve its dwindling international hydrocarbon market share, increasingly battered by years of U.S. and UN sanctions designed to slow down and halt its civilian nuclear energy program, which Washington and Tel Aviv have long insisted masks a covert program to develop a nuclear weapons program. The second, much less reported in the foreign press, is to diversify its indigenous energy infrastructure, so as to preserve its hydrocarbon assets for the long term. In pursuit of the latter goal, Iran is ramping up its hydroelectric program. Iran currently has 23 operational hydropower plants, with a combined electricity generating capacity of 8.2 gigawatts, 14 percent of the nation’s total generating capacity of 58.5 gigawatts. A further 4.8 gigawatts of capacity is under construction, with 12.7 gigawatts of hydro capacity is either undergoing feasibility study or in the early design stages.

China Exports Miss Forecasts as ‘Absurd’ Data Probed - China’s exports rose less than forecast for the first time in four months, fueling concerns about the outlook for trade as the government said it’s investigating reports of inflated figures.  Shipments abroad increased 10 percent in March from a year earlier, the customs administration said today in Beijing, while imports rose by an above-forecast 14.1 percent, leaving an unexpected trade deficit of $880 million. An “astounding” 92.9 percent jump in exports to Hong Kong, the most in 18 years, raises questions on data quality, researcher IHS Inc. said. The customs agency acknowledged concerns that the data may be overstated at a press briefing today while standing by its figures and saying the Hong Kong gains stem from different statistical methods. Sales to the U.S. and Europe both fell for the first time since November, leaving the world’s second- largest economy with weaker global demand to support a recovery.  “This 10 percent export growth is more real as it’s in line with other data” including power consumption, industrial production and transportation, Lu Ting, chief Greater China economist at Bank of America Corp. in Hong Kong, said in a note today. January and February’s “abnormally strong” gains were probably distorted by companies’ inflated reports, Lu said.

Fitch downgrades China’s credit rating - China’s sovereign credit rating has been cut by a major international agency for the first time since 1999 with Fitch raising concerns on Tuesday that the country’s rising debt problems will require a government bailout. Fitch downgraded China’s long-term local currency rating from AA- to A+, citing a number of “underlying structural weaknesses” in the Chinese economy, including low average incomes, lagging standards of governance, and a rapid expansion of credit. The agency also warned of the growing risks from the rise of shadow banking, and said that total credit in China may have reached 198 per cent of gross domestic product by the end of last year, up from 125 per cent in 2008. China has faced concerns over its debt levels since 2009 when state-owned banks unleashed a surge of loans to power the economy through the global financial crisis. The credit wave succeeded in keeping Chinese growth on track, but it led to bubbly housing prices and saddled local governments with mountains of loans that they are still struggling to repay. “Ultimately we think China’s debt problem is going to require sovereign resources to resolve and debt will migrate onto China’s sovereign balance sheet. We don’t yet know what form this will take – central bailouts of local governments or of banks, perhaps”,

Fitch Cuts China Yuan Debt Rating on Local Government Borrowing - Fitch Ratings Ltd. cut China’s long-term local-currency debt rating, citing rising risks to the country’s financial stability given the lack of transparency in the increased borrowing of local governments. Fitch lowered its assessment by one step to A+, the fifth- highest grade, the London-based company said in an e-mailed statement yesterday. It estimates total credit in China’s economy, including various forms of so-called shadow banking, may have reached 198 percent of gross domestic product at the end of 2012, up from 125 percent four years earlier. The ratio of credit to GDP “is not stabilizing anytime soon,” . “We are getting increasingly worried about the fact that we could have an asset-quality problem in the financial sector. One sector of borrowers that we are concerned with is the local governments.” The local governments may have had 12.85 trillion yuan ($2.1 trillion) in debt at the end of last year, equal to about 25 percent of GDP, up from 23.4 percent at end-2011, Fitch said. Former Finance Minister Xiang Huaicheng said April 6 that their combined debt may have exceeded 20 trillion yuan, almost double the figure given in a 2011 report by the National Audit Office.

The True Chinese Credit Bubble: 240% Of GDP And Soaring - Several months ago we pointed out something not fully grasped by the broader public: the Chinese corporate debt bubble is the largest of any developed and developing country, and at 151% of GDP (and rising rapidly) is the biggest in the world. What is better known is that corporate debt is just one part of the total debt picture, which also includes consumer loans, government debt and other "shadow debt" credit in the case of China. So how does China's true debt picture as a percentage of debt look? As the chart below from Goldman shows, in 2013 the total credit outstanding in China is expected to rise to a whopping 240% of GDP, and continue rising from there at an ever faster pace.

Michael Pettis Interview with Lauren Lyster: Decade of Slower Growth for China - Here is an interview of Michael Pettis by Lauren Lyster. Pettis says China faces a decade of slower growth. “I don’t think it’s either averting a disaster or heading for one,” Pettis says. “What I think we’re going to have is a decade or more of much, much lower growth.” According to Peter Schiff, CEO of Europacific Capital, there is “more capitalism in communist China than there is in America."...  “It’s definitely not more capitalist than the U.S.,” Pettis says of China. “It’s quite tough to run a small business or any kind of business for a variety of reasons. The big saving grace of my club and CD label is that we don’t ever expect to be profitable. It’s easy to be successful if you don’t have to earn anything.” Pollution in China is another concern we routinely hear about in Western media. A study from the Health Effects Institute, funded in part by the Environmental Protection Agency, found that Chinese pollution caused 1.2 million premature deaths in 2010, while the Financial Times reports “airpocalypse” has sent expats fleeing. Pettis says getting rid of pollution is a political question that will require a significant portion of the urban middle class getting upset about it.  Still, he notes, it’s likely to take many, many years to address the issue.

Pettis: China not headed for disaster  - Above is an extract of a video interview on the Daily Ticker with Michael Pettis, professor of finance at Peking University in Beijing, talking about the outlook for the Chinese economy. In the interview, Professor Pettis argues that China’s economy is neither “averting a disaster or heading for one“. Rather, China will have a “decade or more of much, much lower growth” as the economy rebalances away from unsustainable levels of government investment and exports towards greater reliance on internal consumption. The key thing that Pettis is watching with the Chinese economy is the growth rate of debt, which he notes reached its fastest ever level in late-2012 and early 2013. “When credit is growing very quickly you’ll get more GDP growth and when it’s slowing down you’ll get less”. Elsewhere in the interview (not shown in the above extract), Pettis states that he is not concerned about the recent reported outbreak of bird flu in China, noting there’s a better chance of dying of pneumonia in New York than of SARS in China. He also describes pollution in China as “absolutely terrible“, but that “every country, including the US goes through this process of very, very rapid investment-driven growth”.

China, Destroyer-of-Worlds - Kevin Drum asks what’s really going on with real interest rates. On one level its obvious, A Global Savings Glut Stupid. But, In theory, if the savings level is high, then interest rates will go down until it’s once again attractive to borrow all that money to invest in real-world production of goods and services. But that hasn’t happened, which means the real problem we’re facing is the mirror image of a global savings glut: namely, a global investment drought. For more than a decade now,  the appetite for real-world investment has remained anemic. This is a big question but I want to suggest that the answer might lie over here in this general direction somewhere: China has become the Jeff Bezos of Industrial Production. China at some points has had investment rates of in excess of 40% of GDP. For non-geeks it means that there is no investment strategy under which this is the profitable thing to do.  Its always hard to tell but on balance I think the Chinese government is aware of this, yet is willing to lose money on its capital investments in order to provide jobs for people moving to the city. China is using physical capital as a loss leader in order to grow cities that will produce network effects will in turn foster the human capital that really makes a country rich. In this way China has become like Amazon’s Jeff Bezos, a Destroyer-of-Worlds.1 You can’t win a physical capital accumulation battle against someone whose plan is to overinvest and lose money on the physical capital.

China May Start Yuan-Australian Dollar Direct Trading - —China may soon start direct trading between the yuan and the Australian dollar, bypassing the U.S. dollar when exchanging the units, to take advantage of growing financial and trading ties between two nations, two people with direct knowledge of the matter said on Sunday. The planned move is aimed at reducing transaction costs and is also part of Beijing's long-term effort to promote the yuan's status as a currency for international trade and finance. China Foreign Exchange Trade System, which is a unit of the country's central bank and oversees domestic foreign-exchange trading, has been conducting a test run of the planned direct trading of the two currencies in its system in recent weeks, suggesting a formal launch could be imminent, said one of the people. China introduced a yuan/Australian dollar exchange rate to its onshore currency market in November 2011, but trading of the pair has mostly been done indirectly through the U.S. dollar due to the absence of market makers. Among global currencies, only the U.S. dollar and Japanese yen are at present directly exchangeable with China's currency.

"Livid" Top Chinese Economists Call BOJ Decision "Monetary Blackmail", Demand "Currency War" Retaliation - The Chinese Central Bank has so far stoically endured the monthly injection of $85 billion in boiling hot money for the past seven months, lovingly delivered by the inhabitants of the Marriner Eccles building, even if it meant a proportionate hawkish response which has pushed the Shanghai Composite red for the year, and having to deal with a property market that is on the verge of another inflationary blow off top. But while the PBOC will grudgingly take this kind of monetary abuse from Bernanke, now that it has to deal with another de novo created $70+ billion in monthly central bank liquidity (poetically called Carry-O-QE by Deutsche's Jim Reid), this time coming from that loathed neighbor and one time invader across the East China Sea, China won't take it any more. As the SCMP reports, "Many of China's top economists are livid at what they view as an effective currency devaluation by Japan and are calling on the People's Bank of China to retaliate by weakening the yuan to defend itself in what they see as a new currency war."

Currency Wars vs. Currency Spillovers - From Steven Englander (Citibank), “Currency war, BoJ Style” (4/7, not online):Japan is likely to be labeled as a currency warrior by major Asian trading partners. However, the new BoJ policy has been endorsed by the Fed and IMF and is very G7 compliant, so the BoJ has cover for its policy agenda, despite the aggressiveness of its balance sheet expansion and negative implications for JPY. One can see why Japan’s trading partners might be annoyed. The Japanese yen has weakened substantially over the past few months. As is clear from many pronouncements by the Fed, IMF and G-7 (what Englander calls “FIG”), BoJ adoption of unconventional measures such as quantitative easing/credit easing, and extended guidance are not considered currency manipulation by these institutions. From a theoretical standpoint, it's easy to understand why. Consider the simplified central bank balance sheet. The BoJ has stated its intent to purchase government securities of longer maturity, and private securities (real estate trusts, etc.) with reserves. Since no purchases of foreign exchange are planned, it is hard to argue that the proposed measures constitutes manipulation in the conventional sense.

Japan's Stimulus Generates Ripples - The Japanese yen slid to its lowest level since April 2009, reeling from the stimulus measures unleashed by the country's central bank. Global investors have been storming out of the yen for months in anticipation of last week's move by the Bank of Japan, bringing the currency's decline to 29% against the dollar since late September. Now, another pressure point for the yen is emerging: Some Japanese investors are retreating from the yen-denominated domestic government-bond market, the main target of the Bank of Japan's expanded asset-purchase program, to snatch up higher yields elsewhere. Japanese investors are pouring money into the market for European sovereign debt, these investors and analysts said, sending yields on some countries' bonds to record lows. "It's evident that Japanese flow into foreign fixed income has picked up" since the Bank of Japan's decision on Thursday, "This is a historical shift that investors are trying to position themselves for," Financial markets around the world have begun to experience the ripple effects from the Bank of Japan's stimulus. Some analysts and traders said the Bank of Japan's actions could cause a recalibration of markets world-wide. Large outflows from Japan into other markets could boost prices of some assets, lowering yields. Market watchers are comparing the phenomenon with the "wall of money" the Federal Reserve put up in 2008 when it launched its own stimulus program. Like the Fed, the Bank of Japan is aiming to lower long-term interest rates to encourage investment and consumption. But the Bank of Japan's main goal is to combat deflation, which has had Japan's economy in a chokehold for 15 years.

Paul Krugman's new Japan - Paul Krugman's dream for Japan is finally coming true as BOJ embarks on a round of massive monetary expansion.  Paul Krugman (NYT): - Let it not be said that the scribblings of academic economists have no effect. Some of us have been urging the Bank of Japan to get truly aggressive and adventurous on monetary policy — and it’s happening!  And it only took 15 years.  Seriously, this is very good news. Japan is finally, finally making a real effort to escape from its deflation trap. We should all hope it succeeds. Indeed we should all hope that Japan's central bank can solve the nation's problems, which are ultimately structural in nature. Krugman is referring to the ongoing deflationary trend resulting from the burst of Japan's property bubble - as shown in the land price index below.Japan's monetary base has already expanded dramatically in the past three years and is now expected to grow to multiples of that. Markets have responded in a "textbook" fashion. The yen sold off sharply, while banks and property shares rallied.

QE on steroids in Japan - In January of this year I noted that the Japanese government was embarking on a stimulus programme and briefly enquired into whether it would likely work or not . The problem with Japan is that they seemed unable to get consumers to open their wallets for any sustained period of time. In 2009 when the Japanese government ramped up spending in response to the 2008 downturn the economy picked up briefly. However, once the government retracted its spending the economy fell back into a slump as consumers retreated back into their characteristically frugal state. In the meantime, however, attention has turned away from the fiscal stimulus and towards the latest round of Quantitative Easing that has been announced by the Japanese central bank. The bank last week promised to double the monetary base over the next two years. In response to this news market speculation has, as previously mentioned, driven the yen back to 2009 levels against the dollar. It had been stuck above this for the past few weeks. So far, so good; but the real question is: will the latest QE program have anything more than short-term effects on the strength of the yen? After all, the Bank of Japan started these QE programs back in 2001 and they have not met with much success. Sure, an announcement that they are doubling the monetary base may cause market speculators to sell the yen in the short-run, but can these effects be sustained or should we focus our attention on more fundamental issues?

Taking QE to a whole new level - The Bank of Japan is taking the concept of quantitative easing to a whole new level. Unlike the Fed who is only focused on treasuries and agency MBS securities, the BOJ is authorized to purchase ETFs and REITs in addition to JGBs. Reuters: - "The BOJ can buy whatever amount of ETFs and REITs it can. It can even buy government bonds more forcefully, as if it were to buy the entire amount in markets," Hamada said in an interview with Reuters.  "There are also other various measures, although the BOJ must also be mindful of the drawbacks." According to Credit Suisse, the BOJ's balance sheet as a proportion of the nation's GDP will far outstrip that of the other major central banks (excluding the SNB) within the next two years. This is uncharted territory - nothing of this magnitude has been tried before in a developed economy.  As a result, dollar/yen is at 99 (the yen is down some 25% over the past 6 months) and Japan's stock market just hit a 5-year high.

Counterparties: Yen and the art of business cycle maintenance -- It’s been five days since the Bank of Japan announced an “unprecedented degree of monetary easing” and the early verdict is positive: the Yen has fallen to a three-year low and Japan’s Nikkei stock index has hit a near five-year high. This monetary expansion, along with a huge fiscal stimulus, has made Japan the “most interesting story in global economics right now,” according to Neil Irwin. The BOJ’s new policy aims squarely at hitting a 2% inflation target “at the earliest possible time”, and aims to double Japan’s monetary base. A bit of context, from UBS analyst Syed Mansoor Mohi-uddin: the BOJ’s asset purchasing program will be nearly large as the Federal Reserve’s, in an economy less than half the size of America’s. Holders of Japanese equities are clear beneficiaries of this policy. Major exporters also stand to gain: Toyota could make $1,500 more per car thanks to improved profits on exports, according to Morgan Stanley estimates. Among the most vocal critics of Japan’s newfound monetary aggressiveness are its East Asian neighbors. Chinese economists have labelled the new measures “monetary blackmail” and a stimulus that “could spell doom for other nations in the region.” Last month, South Korea’s finance minister called the yen a “flashing a red light” for his country’s exports. Despite their fears, Citibank’s Steven Englander says that the Bank of Japan’s moves, endorsed by the Fed and the IMF, are “very G7 compliant,” providing the central bank with political cover. Moreover, says Menzie Chinn, a boost in Japan’s economic output will also have positive spillovers on Chinese and Korean economic growth. That should mitigate the impact of lost export competitiveness.

Japan's Kuroda: Easing may last more than 2 years -  Bank of Japan Gov. Haruhiko Kuroda said Friday that the central bank may extend its asset purchases and other easing longer than the two years planned if needed, according to reports from the region. "It is not appropriate to say that the monetary easing will only last for two years," rather it would continue "as long as it is necessary," Kyodo News quoted Kuroda as saying in a speech in Tokyo. Kuroda also said that while the Bank of Japan's massive bond buying could affect the debt market, he was confident the central bank could avoid such disturbance, Reuters quoted him as saying.

BoJ deflation war begets curious results - Japanese companies that borrow money from Mizuho Corporate Bank, one of the country’s largest lenders, received a small but unpleasant surprise this week when the bank decided to raise the rate of interest it charges on some of its loans. The move, which was mimicked by two smaller lenders, Shinsei and Aozora, sat oddly because it came just a few days after Japan’s monetary authorities announced a dramatic effort to make money cheaper and more abundant. In its most assertive attempt yet to stimulate the economy and end years of corrosive price declines, the Bank of Japan is doubling the amount of money in circulation by sharply increasing purchases of government bonds and other assets. The central bank’s new policy, which it began to implement on Monday, should have pushed the cost of borrowing down, not up, from what are already historically low levels.  Investors and many economists have welcomed what Haruhiko Kuroda, the BoJ’s recently appointed governor, calls a “new phase” of aggressive monetary easing. Yet the shift has also caught financial firms off guard and they are scrambling to adjust – with sometimes unforeseen consequences that could test the BoJ’s ability to execute its untested policy in real-world markets.

Why Abenomics will work-Joseph Stiglitz - Japanese Prime Minister Shinzo Abe’s program for his country’s economic recovery has led to a surge in domestic confidence, and on the share marker. But to what extent can “Abenomics” claim credit? Interestingly, a closer look at Japan’s performance over the past decade suggests little reason for persistent bearish sentiment. Indeed, in terms of growth of output per employed worker, Japan has done quite well since the turn of the century. With a shrinking labor force, the standard estimate for Japan in 2012 – that is, before Abenomics – had output per employed worker growing by 3.08 per cent year on year. That is considerably more robust than in the United States, where output per worker grew by just 0.37 per cent last year, and much stronger than in Germany, where it shrank by 0.25 per cent. Nonetheless, as many Japanese rightly sense, Abenomics can only help the country’s recovery. Abe is doing what many economists (including me) have been calling for in the US and Europe: a comprehensive program entailing monetary, fiscal, and structural policies.

Monetary Policy In A Liquidity Trap - Paul Krugman - I’ve made it clear that I very much approve of Japan’s new monetary aggressiveness. But I gather that some readers are confused – haven’t I been arguing that monetary policy is ineffective in a liquidity trap? The brief answer is that current policy is ineffective, but that you can still get traction if you can change investors’ beliefs about expected future monetary policy – which was the moral of my original Japan paper, lo these 15 years ago. But I thought it might be worthwhile to go over this again. So, at this point America and Japan (and core Europe) are all in liquidity traps: private demand is so weak that even at a zero short-term interest rate spending falls far short of what would be needed for full employment. And interest rates can’t go below zero (except trivially for very short periods), because investors always have the option of simply holding cash.  Well, the reason open-market operations usually work is that people are making a tradeoff between yield and liquidity – they hold money, which offers no interest, for the liquidity but limit their holdings because they pay a price in lost earnings. So if the central bank puts more money out there, people are holding more than they want, try to offload it, and drive rates down in the process. But if rates are zero, there is no cost to liquidity, and people are basically saturated with it; at the margin, they’re holding money simply as a store of value, essentially equivalent to short-term debt. And a central bank operation that swaps money for debt basically changes nothing. Ordinary monetary policy is ineffective.

“Giant Bet” Could Trigger “the Mother of All Debt Crises” in Japan: Neil Irwin - The yen has been weakening since late 2012 as Prime Minister Shinzo Abe campaigned on a platform to boost economic growth via massive fiscal and monetary stimulus. The trend continued after his election victory and accelerated in recent weeks after newly appointed Bank of Japan Governor Haruhiko Kuroda announced plans to double the BOJ’s monetary base by the end of 2014. Last week, Kuroda announced an aggressive program of bond buying and set an inflation target of 2% for Japan, which has been struggling with deflation and lackluster economic growth since the early 1990s. “The new government under Abe and Kuroda is trying to print money and really go for the fences,” says Washington Post columnist Neil Irwin. While Fed Vice Chairman Janet Yellen (among others) called the BOJ’s actions “very appropriate,” investing legends such as Bill Gross and George Soros (among others) have warned it could lead to ruin. Irwin is non-committal on how this plays out but is certainly aware of the risks Japan is taking. “It’s a giant bet,” he says of what’s being called Abe-nomics. “Is there a tipping point where their debts can become the mother of all debt crisis?”

Japan’s unfinished policy revolution - Haruhiko Kuroda, the new governor of the Bank of Japan, has launched a monetary policy revolution. He has ended two decades of caution, during which the BoJ declared itself helpless to end deflation. Prime Minister Shinzo Abe’s goal of 2 per cent inflation within two years is ambitious – and Mr Kuroda now has a bold policy to meet it. The question is whether the policy will work. My answer is: on its own, no. The government must follow up with radical structural reforms. On April 4, the Bank of Japan announced the launch of “quantitative and qualitative easing”. It promises to double the monetary base and to more than double the average maturity of the Japanese government bonds that it purchases.  Furthermore, says the BoJ, it “will continue with the quantitative and qualitative monetary easing as long as it is necessary”. This is not “helicopter money”, since the intention is to reverse the monetary expansion when the economy recovers. This is also not an outright purchase of foreign assets, as the Swiss National Bank has done. This is, instead, in the words of Gavyn Davies, “an outsize dose of internal balance sheet manipulation”, designed to encourage the financial sector to shift from holdings of JGBs and to raise the prices of real assets. Nevertheless, a weaker exchange rate is surely a desired consequence. Why might this work? First, by lowering the real exchange rate, it could increase Japan’s ability to export excess savings via a larger current account surplus. Second, by turning the real interest rate negative and also raising real wealth, the policy might raise investment and lower savings. Yet, at best, this would only work in the short run. At worst, it could destabilise inflation expectations so dangerously that it pushes Japan from deflation to ultra-high inflation, without stopping for long at any point in between. What, then, has to be done to make the shift in monetary policy work? The answer is to recognise that the underlying obstacle is structural: it lies in what is now a dysfunctional corporate sector.

Japan’s currency war has just begun - Global macro UBS analyst, Syed Mansoor Mohi-uddin, has a very neat little note out this morning summarising the revolution that has just taken hold of Japanese monetary policy: The first meeting of the Bank of Japan under Governor Kuroda has surpassed expectations. The central bank has effectively agreed to double its pace of JGB purchases to Y7.5trn a month. This will increase its bond holdings from Y90trn now under its Rinban and Asset Purchase Programmes to Y140trn by the end of 2013 and Y190trn by the end of 2014. In addition, the BoJ will combine its APP and Rinban operations into a single quantitative easing facility. It will also abandon its ‘bank notes rule’ that restricted its JGB holdings to the size of currency in circulation, and the BoJ will now buy bonds up to a maturity of 40 years. Overall, the BoJ will now target Japan’s monetary base rather than its overnight interest rate. This major shift – the BoJ will buy around $80bn a month of assets compared to the Federal Reserve’s $85bn a month of easing in an economy less than half the size of America’s – is reminiscent of 1995. In the year of the Kobe earthquake, the BoJ still reported into the Finance Ministry. It was only from 1998 that the central bank gained its operational independence and came under the sway of conservative governors. Kuroda, as the first outsider to run the central bank since then, is returning the institution to its pre-independence era. That means investors should expect more aggressively easing in future if Japan’s inflation numbers still are far away from the BoJ’s new 2% target.

Central banks move into riskier assets - Central bankers are putting cash into riskier assets and exotic currencies to compensate for ultra-low returns on US Treasuries, according to a poll of officials responsible for almost $7tn in reserves. The world’s central bankers together manage reserves worth $10.9tn, most of which is held by monetary authorities in Asia and the Middle East. The bulk of their reserves, usually accumulated from attempts to curb their currencies’ gains, are held in the form of US government debt as well as the bonds of safer eurozone sovereigns. But near-zero interest rates and large-scale money printing have cut returns on these assets to record lows. At the same time, the value of the dollar and other traditional reserve currencies has fallen, forcing central bankers to diversify or risk losses on investment portfolios. A poll of 60 central bankers responsible for reserves worth $6.7tn, conducted by trade journal Central Banking Publications and the Royal Bank of Scotland, sheds light on the secretive world of official sector investments. The response to the crisis by the major monetary authorities has had a profound impact, the poll found – more than four-fifths of respondents said the aggressive monetary easing of the Federal Reserve and the European Central Bank had altered their behaviour.

IMF chief says easy monetary policy should stay for now - The global economy will not gain much traction this year as Europe and Japan fail to recover, trailing other developed economies, International Monetary Fund managing director Christine Lagarde has said. "We do not expect global growth to be much higher this year than last," Lagarde said in the prepared text of a speech in New York six days before the IMF releases its latest forecasts for the world economy. "We are now seeing the emergence of a 'three-speed' global economy - those countries that are doing well, those that are on the mend and those that still have some distance to travel," she said. After some progress, the 17-country euro zone still has a lot of work to do, including cleaning up a banking system that is not lending enough money to the real economy, Lagarde said. Japan needs to rely more on monetary policy to boost its growth, she said, nevertheless welcoming last week's move by the country's central bank to embark on a programme of record monetary easing.

Japan, U.S. agree on Tokyo joining Trans-Pacific trade talks (Reuters) - Japan and the United States on Friday agreed on a deal paving the way for Tokyo to join talks on an Asia-Pacific free trade agreement, increasing the economic weight of the proposed pact and triggering a loud protest from U.S. automakers. The deal brings Japan closer to entering talks on the Trans-Pacific Partnership (TPP), which the United States, Canada, Mexico, Peru, Chile, Vietnam, Malaysia, Singapore, Brunei, Australia and New Zealand hope to finish this year. "I think Japan's national interests are protected under this U.S.-Japan agreement," Japanese Prime Minister Shinzo Abe told reporters on Friday after a meeting with Cabinet ministers. Abe, who took office in December, is making the regional free trade pact a keystone of his strategy to open Japan's economy and spur long-sought growth. He is pursuing the agreement, despite fierce opposition from Japan's politically powerful farm lobby, as part of a "third arrow" in his "Abenomics" policy triad, after fiscal spending and drastic monetary policy easing. President Barack Obama's administration sees the TPP as part of U.S. economic rebalancing toward Asia. "Having Japan in TPP and contributing to the high standards of TPP is good for the U.S., it's good for the Trans-Pacific Partnership as a whole and its very good for the multilateral trading system itself,"

Slow to arrive, but will Australian high speed rail be worth the wait? - Under the plan announced today, the 1,748 kilometre network – including 144 kilometres of tunnels – will be completed in stages, linking Brisbane, Sydney, Canberra and Melbourne. The Sydney to Canberra section would be completed in 2035. The last stage, linking the Gold Coast and Newcastle, will be finished in 2058. The analysis is the second phase of a strategic plan announced in 2010. The government says despite the large price tag, high speed rail is viable, estimating the network will attract 40% of intercity air passengers by 2065, with 83.6 million passengers expected per year. We put it to the experts: it's a long time to wait, and it will cost a lot. Is high speed rail worth it?

What the BRICS could do - What the world needs from the BRICS is not another development bank, but greater leadership on today’s great global issues. The BRICS countries are home to around half of the world’s population and the bulk of unexploited economic potential. If the international community fails to confront its most serious challenges – from the need for a sound global economic architecture to addressing climate change – they are the ones that will pay the highest price. Yet these countries have so far played a rather unimaginative and timid role in international forums such as the G-20 or the World Trade Organization. When they have asserted themselves, it has been largely in pursuit of narrow national interests. Do they really have nothing new to offer?  The global economy has operated so far under a set of ideas and institutions emanating from the advanced countries of the West. But these old powers have neither the legitimacy nor the power to sustain the global order into the future, while the new rising powers have yet to demonstrate which values they will articulate and promote. They have to develop their vision of a new global economy, beyond complaints about its asymmetric power structure. Unfortunately, it is not yet clear whether they have the inclination to rise above their immediate interests in order to address the world’s common challenges.

Egypt's descent into chaos - Egypt's cities are erupting in protests once again. Commentators have been focused on the nation's politics and the government's attempts to suppress certain freedoms. After all that's what usually makes for great news. The reality however is grounded in Egypt's deteriorating economic conditions. At this stage the Egyptian government is not hiding the fact that the nation is on the brink of a crisis. Reuters: - After two years of political turmoil, Egypt is struggling with an economic crisis and a high budget deficit. Foreign currency reserves are critically low, limiting its ability to import wheat and fuel.  An International Monetary Fund (IMF) delegation resumed long delayed talks with the government on Wednesday on a loan, which would throw Egypt a financial lifeline and potentially unlock a much larger amount in foreign aid and investment.  "The economic situation has become worrisome and quick measures are needed to restore (economic) activity," As the government runs out of foreign reserves, diesel shortages are becoming acute. FT: - Egypt imports up to 70 per cent of its diesel, which it uses to fuel cars, farm equipment and power plants. In addition, it subsidises diesel to the tune of at least $1.5bn a month, draining the country’s already perilously low hard currency reserves. A spate of shortages in recent weeks has raised questions about Egypt’s ability to keep the lights on, feed its people and prop up its moribund economy in the coming months.

The 1% Bug-Out Plan: Why Third-World Billionaires Are Buying Fortresses in London, New York and Miami - A recent article from Vanity Fair paints a curious picture of London’s well-heeled Knightsbridge, a neighborhood of quaint Victorian houses and elegant hotels serving high tea. Today, a ginormous complex of concrete and metal towers looms above; security is the watchword at One Hyde Park: high-tech panic rooms, bulletproof glass and “bowler-hatted guards trained by British Special Forces” offer residents the promise of perfect safety and privacy in luxurious surroundings.  Only, nobody really lives there. At night, the building is nearly pitch-dark despite the fact that most of the units have been sold.  The story of who bought these apartments and why reveals the complex dynamics of a tectonic economic shift that is creating a bumper crop of billionaires in the Third World as the austerity-strapped First World stagnates. This year, Forbes magazine’s annual list of billionaires included the first recorded in Angola, Nepal, Swaziland and Vietnam. Europe long boasted the most billionaires after the U.S. but the Asia-Pacific region has taken off and may soon leave Europe in the dust. Today it is home to 386 10-figure fortunes (a decade ago, there were only 61). The world’s wealthiest person is a Mexican telecom mogul, Carlos Slim.

Signs of a Canadian housing downturn are everywhere - Any hopes of a rebound in housing demand are slipping away and the signs of a significant real estate downturn are everywhere. National home sales declined 2.1% from January to February, according to the Canadian Real Estate Association, and actual activity came in 15.8% below levels in February, 2012. Almost 80% of local markets posted year-over-year declines in house sales while new listings dropped 60%; worst in Toronto, Vancouver, Montreal and Saskatoon. A real-estate correction of sorts is already under way in Vancouver and in Toronto’s overbuilt gleaming condominium market. But signs of another bust in the making point directly to the Greater Montreal area, which has as many individual homes for sale right now as Toronto and Vancouver combined — just under 32,000 — while at the same time, it has twice as many condominiums on the market than Toronto. Meanwhile, Quebec City posted a 30% decline in house sales year over year in March while Ottawa has not only seen its MLS inventory spike, its condo market has seen active listings jump by a whopping 40% year over year as prices fell 4% during the same period.

WTO cuts 2013 trade forecast, sees protectionist threat (Reuters) - The World Trade Organization slashed its forecast for trade growth in 2013 on Wednesday, saying it feared protectionism was on the increase. It cut its forecast for global trade growth in 2013 to 3.3 percent from 4.5 percent and said trade grew only 2.0 percent in 2012. That was the smallest annual rise since records began in 1981 and the second weakest figure on record after 2009, when trade shrank. Trade in commercial services also grew by only 2 percent in 2012, to $4.3 trillion. WTO Director General Pascal Lamy warned that 2013 could turn out even weaker than expected, especially because of risks from the euro crisis, and countries might try to restrict trade further in a desperate attempt to shore up domestic growth. "The threat of protectionism may be greater now than at any time since the start of the crisis, since other policies to restore growth have been tried and found wanting," he said.

World Recession Update - April 2013 - We have all the numbers in for quarter-on-quarter GDP growth for Q4-2012 from around the world. Since our last report in February "World plunges into recession", the percentage of countries with negative q-on-q GDP growth (1 and 2 consecutive quarters) have improved somewhat as more countries came into the sample and GDP's revised upwards. But we are still at worrying global recessionary levels (the blue and black dotted lines.) There is no doubt we are in the depths of a second global recession since the 2008 Great Recession, but amazingly the U.S seems to have skirted it (so far. An inspection of individual countries & trading bloc's gives one pause for some thought. Europe (25% of world GDP) and the G7 bloc (54% of GDP) are in "mild recessions" (only 1 quarter negative growth) whilst all of the "traditional recession" (at least 2 quarters negative growth) countries are isolated to Europe and make up only 9% of world GDP. Whilst the countries that are in "Expansion" make up 74.8% of world GDP, the GDP-weighted bloc shows we have tipped into "mild recession" in Q4-2012. The "non-trivial" economies that are of concern at the moment are France (4% of world GDP) , Germany (5.4%), Italy (3.2%), Spain (2.2%), UK (3.9%) and the U.S (25%) that appears on the brink.

Why Germany (Mistakenly) Thinks it Can Kill Its Export Markets Through Austerity and Still Prosperll - Yves Smith - I’ve mentioned repeatedly that Germany wants contradictory things: it wants to stop financing its trade partners (the periphery countries in Europe) and yet wants to continue to run large trade surpluses. I took this to be a sign of German wishful thinking, or just politicians figuring the incoherent strategy can still be maintained for the duration of their time in office. A post by Yanis Varoufakis show that the Germans at least have better delusions that I realized. Their plan for how to square the circle is to shift from exporting to the periphery and sell more to the rest of the world. That sounds lovely in concept but is rather disengaged from the state of play. The US is the importer of last resort. The deficit cutting plans underway are intended to reduce consumption, which should lower our trade deficit. On top of that, some manufacturers have been “reshoring” operations, in part because Chinese wage increases (due to a combination of increases in standards of living plus a moderately high level of inflation) have made operating in China less attractive than it used to be. And that’s before you get to the Japanese brute-forcing the yen from over 80 to a more viable 100 yen to the dollar.

The New York Times Thinks Bleeding Cyprus is “Strong Medicine” By William K. Black - I’m announcing the New York Times award for incompetence in macroeconomic reporting (IMR, pronounced like “screamer”).  I suggest that the paper offer as a prize to awardees a two hour lunch with Krugman in which he provides a remedial economics lecture.   Even the most casual reader of Paul Krugman’s columns would know that opposition to austerity has long been the dominant view among economists and that over the last five years events here and in Europe have again confirmed that view.  I do not, of course, insist that any NYT reporter agree with Krugman and the dominant view of economists.  The dominant view of economists and finance scholars on a wide range of issues has proved disastrously wrong.  The views of austerians, however, have proven consistently wrong.  Their predictions have routinely failed by massive margins.  What I do expect out of NYT reporters is critical thinking and refusing to accept as a purported “fact” that austerity in response to a Great Recession is a rational policy.  They should certainly not present such an assertion as a fact.  If they wish to argue in favor of austerity they should alert their readers that it is a minority view among economists and admit that its proponents have consistently been proven wrong – and then argue why they believe this time will be different.

Accounting regulations can change - One of the oft-heard criticisms of Modern Monetary Theory (MMT) is that the original developers (including myself) say one thing but know another. We say – there are no financial constraints on a currency issuing government but then, as if as an afterthought, admit that in the real world there are lots of constraints on government spending. On Christmas Day 2009 I wrote the following blog – On voluntary constraints that undermine public purpose. It renders such criticisms redundant. But in the light of the Cyprus schemozzle (putting it mildly), it is interesting to reflect on what could have been done to avoid the ugly consequences that will follow the “Bail-in” package. Even within the constraint of keeping Cyprus in the Eurozone, the authorities (in particular, the ECB) has the capacity to save that nation’s banking system and avoid destroying the nation’s economy. The fact they chose not to use that capacity is telling given the consequences that will now follow. They might have followed their American counterparts who in 2011 clearly knew how to reduce the damage of the crisis and operate as a central bank rather than as part of a vicious syndicate of unelected and unaccountable socio-paths (aka the Troika).

Depositors at Bank of Cyprus to wait until September for final tax - Bank of Cyprus depositors with more than 100,000 euros (130,000 dollars) in their accounts will have to wait until September to find out the final tax on their savings required as part of an international bailout, the country‘s central bank said Tuesday. Depositors have already lost 37.5 per cent of their savings, while another 22.5 per cent will remain frozen until officials at the central bank reveal the final levy. Various media reports in Cyprus suggest depositors with more than 100,000 euros with the bank will take a hit of 60 per cent. The Bank of Cyprus holds about a third of all deposits in Cyprus. An enforced loss of 60 per cent would have a severe impact on many local businesses and households.

Greek banks NBG and Eurobank face state rescue - Two of Greece's biggest banks risk being nationalised after admitting they were unlikely to raise enough cash from private investors and seeing their merger blocked by the country's international lenders. National Bank bought 84.3 percent of smaller rival Eurobank via a share swap in February, as Greek banks consolidated to survive a debt crisis that has pushed the country's economy into a six-year slump. But lenders fear the combined entity, with assets of about 170 billion euros (145.2 billion pounds), will be too big relative to Greece's 190 billion euro economy and make it difficult to sell in the future, prompting the state to halt their integration until a state bank support fund decides their future. Both banks told the central bank they are unlikely to raise a set portion of their planned share issues from the market, meaning they would fall under the control of the support fund, the Hellenic Financial Stability Fund (HFSF).

Greek unemployment hits 27 percent - A new record for unemployment in Greece. It was 27.2 percent of the workforce in January – up from 25.7 percent in December. The speed of the rise in the number of people out of work reflects the depth of the country’s recession after years of austerity – tax hikes and spending cuts – imposed under its international bailout. The jobless rate has almost tripled since the country’s debt crisis emerged in 2009. It was more than twice the eurozone’s average unemployment reading of 12 percent. Youth unemployment – among those aged between 15 and 24 – stood at 59.3 percent in January, up from 51 percent in the same month in 2012. “The first quarter will remain tough amid the deep recession, despite an improvement in the previous two months due to seasonal hirings,”

Greek Unemployment Soars By 1.5% In One Month, Hits Record 27.2% - There was much hope in the feudal states of Europe that the monthly December drop in Greek unemployment - the first in years - was the beginning of the end for local misery. Alas, it appears the Greek statistics office leaarned a thing or two from the BLS and it was all seasonal adjustments. As reported earlier today, things just got much worse again, with January unemployment surging by 1.7% in one month to a new all time record high 27.2%. More importantly, the number of employed people in Greece, which dropped to a new record low of 3.617,771 compared to 3,888,400 a year ago (and down 11,653 from December), is now nearly as much as the entire inactive population at 3,346,423 and far below the ranks of the unemployed (1,348,694 - an all time high as well) and inactive. Spread by gender, the unemployment rate for males was 23.9%, while a record 31.4% of eligible women had no job in January. Finally, youth unemployment once again hit a record high 59.3% in January, even as unemployment among those aged 65-74 has soared from 0.9% in 2008 to 6.9% in 2013.

30,000 Greek Households Lose Electricity Each Month -- Since the Greek government enacted the remarkable law that property taxes will be enforced via the electricity providers in the beleaguered country, an incredible 30,000 households per month have seen their power supply cut off. Ekathimerini reports that some 700,000 customers have now had their debts restructured (with payment plans) as part of the billing process; but what is perhaps incredible is that while the State has specifically banned 'disconnection' for not paying the property charges, the utility's computer system is unable to distinguish if payment is for electricity or property tax. There are apparently workarounds involving deposits for tax debts but the situation is set to deteriorate further this year due to the increase in electricity rates and expected further reductions in household incomes.

Record 2,564 Spanish Firms File For Bankruptcy In Q1, 45% Higher Than Year Ago - Perhaps the best measure to gauge the European recovery is by the soaring number of companies going bust, because only from this perspective is Europe finally "fixed." As Reuters reports citing a report by Axesor, a record 2,564 companies filed for "insolvency proceedings", a more palatable version of the word bankruptcy, in the first quarter - an increase of 10% from Q4 and up a whopping 45% from Q1 2012. The reasons given: "tight credit conditions and meager demand." Or in other words: no actual cash flow to fund demand for products and services. Obviously it will take some truly phenomenal massaging and manipulation to represent GDP as rising in this environment, but we are confident the Spanish authorities are already on it, and somehow the Spanish pension fund, already 97% filled with Spanish government bonds, will somehow have a finger in yet another completely unbelievable economic print which will fool most of the algos most of the time on flashing red Bloomberg headlines.

Spain’s youth rally against unemployment - Spanish youths have held mass protests in cities across Spain and near the country's embassies around the world against high unemployment and poor working conditions in troubled eurozone nation. Thousands marched in central Madrid on Sunday to highlight the issue which they say has forced many youth to go abroad to find work. Smaller protests were held in Barcelona and Zaragoza and in more than 30 other cities around the world - from Vancouver to Vienna, where young Spaniards have emigrated, in demonstrations organised by the grass-roots group Youth Without a Future. Spain is struggling through a double-dip recession sparked by the collapse of a decade-long building boom in 2008 that has driven its unemployment rate to 55 percent among those aged 16 to 24 and to a record 26 percent overall.

Spain's 2013 deficit to be 6 pct of GDP: Moody's - The credit ratings agency Moody's predicted on Tuesday that Spain's deficit for 2013 will stand at 6 percent of the country's gross domestic product (GDP). It is higher than the 4.5-percent deficit target required by the European Union (EU) for this year. Moody's made this prediction in a new report entitled "Spain: Despite Progress in Fiscal Consolidation in 2012, Deficit Targets Remain Elusive in 2013." It argues that the negative outlook of the country's bond rating is due to the "continued challenges it faces in meeting the deficit targets." Moody's appreciated the reforms carried out by the Spanish government in a context of economic recession, which resulted in deficit reductions in all sectors except in social security, while expecting this reduction to continue in the following months. The ratings agency pointed out that Spain's credibility in the public finance area is being undermined by "continued deviations from agreed budgetary targets" and "repeated revisions of budget deficit outcomes." Moody's said these are important reasons to keep the negative outlook of the Spain's government bond rating, currently at Baa3.

Portuguese Government Says Court Ruling Has ‘Negative Effects’ - The Portuguese government said a Constitutional Court decision to block planned cuts in salary payments to state workers and pensioners has “negative effects” for the country. “The government doesn’t agree with the Constitutional Court’s interpretation of the Constitution in its ruling about some norms of the 2013 budget,” Luis Marques Guedes, the secretary of state for the presidency of the council of ministers, said in Lisbon today. “The Constitutional Court’s decision places serious difficulties on the country to comply with the goals and budget targets it has to meet.” The government respects the court’s decision, he said. Guedes also said the court’s decision has an effect on the country’s international credibility and comes before an “important” European Union meeting in Dublin next week. Portugal has been seeking an agreement from its European partners to extend the maturities of its aid loans, he said. The ruling by Portugal’s highest court that the measures are unconstitutional means the government may need to find alternative savings to comply with the country’s 78 billion-euro ($101 billion) aid plan from the EU and the International Monetary Fund.

Portugal must stick to agreed budget targets to get loan extension (Reuters) - Portugal must stick to targets agreed with international lenders if it wants more time to repay bailout loans, the European Commission said in a statement on Sunday. Portugal's constitutional court on Friday rejected four out of nine contested austerity measures from this year's budget. The ruling deals a blow to government finances, but is unlikely to derail the bailed-out country's reforms. "Continued and determined implementation of the programme ... is a precondition for a decision on the lengthening of the maturities of the financial assistance to Portugal, which would facilitate Portugal's return to the financial markets and the attainment of the programme's objectives," it said. Portugal, like Ireland, is seeking an extension of the maturities of the emergency loans it is getting from the European Union beyond 2022 to smooth out its financing needs. EU finance ministers are to decide the details of the extension next Friday. The fiscal measures rejected by the court should deprive the state of some 900 million euros ($1.17 billion) in net revenues and savings, according to preliminary estimates by economists.

Portugal faces fresh cuts to spending - Portugal’s prime minister says the government will have to cut spending on health, education and social security to keep the country’s €78bn bailout programme on track. Mr Passos Coelho said he had no alternative after the court decision but to make extra spending cuts that would have a significant impact on the welfare state. The budgets of state-owned companies would also be cut, he said but the premier ruled out more tax rises on top of record increases introduced in January. “I have ordered ministries to cut expenditure to compensate for the effects of the court decision,” he said.Mr Passos Coelho also faces a difficult task to convince international lenders that new spending cuts will keep deficit-reduction plans on target.The decision by Mr Passos to cut spending on the welfare state is likely to intensify opposition pressure on the government to resign, potentially opening the way to an early general election.“We have to do everything possible to avoid a second bailout,” the prime minister said.

Portugal Seeks New Options for Budget - —Prime Minister Pedro Passos Coelho said he would look for fresh spending cuts to keep Portugal's €78 billion ($101 billion) international bailout program on track following a Constitutional Court decision that threw his government into crisis by striking down some of its planned austerity measures. "We can't deny that the court's decision will have very serious consequences to the country," he told a national television audience on Sunday. But he said his government "is committed to all the targets under the program and reaffirms it will fulfill its obligations." The European Commission, which along with the International Monetary Fund and the European Central Bank oversee the bailout, welcomed Mr. Passos Coelho's comments, but added that the full implementation of austerity measures will be a precondition for Portugal to get better bailout terms, including a much-needed extension of loan maturities. The court ruled on Friday that planned cuts in wages and pensions for public employees were discriminatory because they didn't apply to all income-earners, and also overturned a planned tax on unemployment and sickness benefits. As a result, the government must find new ways to raise as much as €1.3 billion of this year's budget.

Portugal's prime minister says deeper cuts coming after court ruling prohibits tax hikes - Despite two years of corrosive austerity measures since it needed an international financial rescue, Portugal's prime minister told his country Sunday to brace for even harder times after a court ruling forced his government to find more savings through steep spending cuts. Pedro Passos Coelho said in a somber televised address to the nation that his center-right government must slash public services because of a Constitutional Court decision to disallow some of its latest tax hikes. A new crackdown on public spending will focus on social security, education, health services and state-run companies, he said. That is likely to bring more layoffs as Portugal scrambles to restore its financial health after it needed a 78 billion euro ($101 billion) bailout in 2011. Portugal's worsening problems threaten to reignite the eurozone's financial crisis not long after Cyprus became the fifth member of the 17-nation bloc to require rescue. The Portuguese economy contracted 3.2 percent last year and is forecast to shrink 2.3 percent in 2013 for a third straight year of recession. The unemployment rate, currently at a record 17.5 percent, is forecast to climb to 18.5 percent in 2014.

Portugal Mulls Paying Workers in T-Bills - The Portuguese government is considering a plan to pay public workers and pensioners one month of their salary in treasury bills rather than cash after a high court ruled out wage cuts, a person familiar with the situation said Sunday.  The Portuguese government warned Saturday that the court's decision will put into question the country's ability to fulfill its €78 billion ($101 billion) international bailout program. Specifically, the court rejected plans to cut one of the 14 paychecks that public workers usually get each year and to slash 6.4% from pensions for retirees. By paying one month of salary in T-bills to public workers and pensioners, the government would save an estimated €1.1 billion in expenses, narrowing the budget gap significantly.

Portugal Considers Paying Public Workers In Treasury Bills Instead Of Cash - As reported late on Friday, the Portuguese constitutional court decided that several provisions of the country's 2013 budget were not constitutional. According to the high court, cuts in wages and pensions of public employees were unfair (there's that word again) because they targeted only the public sector. The court rejected plans to cut one of the 14 paychecks that public workers usually get each year and to slash 6.4% from pensions for retirees.  This coincided with the government warning that the court's decision would put into question the country's ability to fulfill its €78 billion international bailout program, which in turn would send bondholders of Portuguese sovereign debt scrambling for the exits as suddenly the country may find itself in the ECB's "dunce" corner, with Draghi preparing to pull a "Berlusconi" on a government which can't even whip its judicial branch in line. However, of more immediate concern is how will the government now plug a hole of up to €1.3 billion in its €5.3 billion 2013 budget. A solution has, luckily, presented itself: bypass the unconstitutional provisions by paying government workers not in cash, but in government bills!

Portuguese finding pain hard to endure as prime minister says more austerity is around corner  - Checking over her bank statement showing her monthly pension payment, Maria Luisa Cabral stared silently at the slip of paper. When she finally spoke, the 66-year-old former librarian's voice shook and tears welled. "That's about 10 percent less each month," she said. "I just feel really angry." Portugal's elderly have been hit hard by austerity. Taxes and cuts in previous years had already cut Cabral's income by 20 percent. This year, the government will take another bite out of pensions over 1,350 euros a month. Public outrage greeted this year's tax hikes, which even the finance minister conceded were "enormous." As well as hurting pensioners, the hikes are costing many workers the equivalent of more than a month's pay. "I've never seen so many people in such a precarious situation, lacking so many basic necessities," she said. That includes families living in homes with no electricity or natural gas for cooking because the supply has been cut off due to unpaid bills.

The Commission on Portugal: Is This for Real?: A quick note on Portugal. Let’s start from three facts:

  • Austerity did not work. Portugal is in a recessionary cycle. The economy will shrink by 2.3 per cent this year, more than twice as much as the previous government forecast (and the slowdown of exports to the rest of the eurozone is not helping).
  • Austerity is self defeating: the deficit-to-GDP ratio widened from 4.4 per cent in 2011 to 6.4 per cent last year, and is forecasted to be 5.5 per cent in 2013. Far above the target of 3 per cent that the government had agreed with the Troika. My guess is that it will be even larger than that.
  • The magic wand of confidence is not magic. The budgetary cuts did not boost private spending, and expectations remain gloomy. The Financial Times article cites the Portuguese daily Público writing “Portugal has entered a recessionary cycle. People have no reason to believe the future will be any better. The [adjustment] programme has failed and has to be changed.” So long for the confidence fairy…

Is this surprising? Not at all. .. Can anybody not blinded by ideological faith in expansionary fiscal contractions believe that austerity today is not self-defeating? And yet, today we were  given the opportunity to read the  statement by the European Commission on Portugal. ...

The ECB, OMT, and Moral Hazard - Paul Krugman - Back in 2011 and again in the summer of 2012, a number of economists pleaded with the European Central Bank to intervene in sovereign bond markets,  The objection from austerians was always that this would create moral hazard: it would let countries off the hook, and lead them to slack off on their belt-tightening. In the end, however, the prospect of imminent collapse concentrated the mind, the ECB did intervene or at least promise to intervene.And sure enough, there turns out to be a problem of moral hazard — but not the kind everyone warned about. Instead, the people who ended up being left (temporarily) off the hook were the austerians themselves, who took the narrowing of spreads — which was the result of the ECB’s new activism — and took it as proof that austerity was working. Francesco Saraceno marvels at the European Commission’s response to the Portuguese political crisis; the Commission praises the government’s determination to impose austerity no matter what the courts say, because austerity is producing “growing investor confidence in Portugal”. Say what? Well, pretty obviously they’re referring to the narrowing of interest rate spreads.The point is that this narrowing of spreads has nothing to do with austerity. As Paul De Grauwe points out, the amount by which a country’s interest rate spread against Germany has narrowed is fully explained by how big its spread was at the peak of the crisis — there is essentially no indication that policies mattered at all:

Portuguese Debt Crisis Brings New Trouble for Euro -Just weeks after European leaders tamped down a banking crisis in Cyprus, troubles in the euro zone have again reared their head, this time in Portugal.In an address to his beleaguered nation on Sunday, Prime Minister Pedro Passos Coelho warned that his government would be forced to cut spending more and that lives “will become more difficult” after a court on Friday struck down some of the austerity measures put in place after a bailout package two years ago. The renewed tension in Portugal raised the threat of further trouble elsewhere in the euro zone, where ailing members have struggled to rebuild economic growth after enduring wrenching spending cuts.

New Study on Consumer Protection and Financial Distress - The European Commission's Financial Services Users Group has published an impressive report and a position paper on financial distress and consumer protection, written by a Euro-think tank called London Economics. The title is a real mouthful: Study on means to protect consumers in financial difficulty: Personal bankruptcy, datio in solutum of mortgages, and restrictions on debt collection abusive practices. The paper does an admirable job of surveying the legal landscape of 18 European countries, concluding with some well-considered "best practices." This paper is a nice addition to the already impressive body of work in Europe analyzing existing legal regimes for treating consumer financial distress and identifying strenghts and weaknesses in their varying approaches. It is highly recommended reading for anyone interested in consumer policy, especially with respect to appropriate solutions to financial distress.

Germany’s account surplus jumps, no one is happy - EMU was supposed to produce economic stability. Yet, five years after the financial crisis, Europe is a cauldron of uncertainty. The sobering truth about the large current account surpluses heaped up by Germany and EMU’s other prime creditor country, the Netherlands, is that Europe’s monetary set-up has consistently produced much larger imbalances than those that caused the collapse of the Bretton Woods fixed exchange rate system 40 years ago. The record-breaking run of surpluses has propelled Germany’s net foreign assets to €1,000 billion for the first time, according to latest Bundesbank figures for end-September 2012. Not that Germany’s burgeoning foreign assets are generating any rejoicing in Germany. Quite the opposite.  In an astonishing turnaround in the balance sheet of Europe’s largest economy, nearly 90% of the country’s net foreign assets are held by the Bundesbank, in the form of its currency reserves (including gold) and, above all, the now-celebrated Target-2 loans to the European Central Bank (ECB), representing indirect claims on the weakest members of EMU

Total Fiasco: Germans are the Poorest, Cypriots the Second Richest in The Eurozone  - In March, six years after inception, the first ECB-organized Eurozone-wide household-wealth survey results were trickling out. But when the Bundesbank refused to publish the German data, insiders leaked the reason: too explosive for the current debt crisis and bailout environment because Italian households were far wealthier than German households. Shocking! And a red herring. The truth turned out to be far more shocking. Now the ECB has finally published the all-country report—and it’s far worse than feared. Italian median household wealth was indeed over three times larger than Germany’s. But that wasn’t the problem. The problem was Cyprus. Cypriot households (CY), as measured by both their median and average wealth, were the second richest in the Eurozone. Median household wealth—half the households had more, half less—of €266,900 was over five times Germany’s puny median of €51,400. Average household wealth reached a phenomenal €670,900 (that’s $872,000!), 3.4 times Germany’s €195,200, and just shy of Luxembourg’s €710,100. Rarefied levels of wealth achievable only by small countries with huge and murky banking centers, or lots of oil. Few countries in the world are in that elite club. And Germans (DE), based on median household wealth, were the poorest in the Eurozone.

Who's the eurozone's poorest, really? - The figures provided in this report incorporate the best judgement available at this time. Nonetheless, caveats remain. The data for Cyprus appear not to be comparable with those for other euro area countries in a number of dimensions and should therefore be interpreted with caution. However, once the above mentioned factors are accounted for, the net wealth figures for Cyprus appear less of an outlier… Yes, we can imagine why the ECB’s first Household Finance and Consumption Survey might have wanted to make that clear at the outset. (Survey methodology here.) Possibly because of headlines like this, landing after the German-financed bailout of Cyprus: ECB Data: Cypriots On Average Three-Times Richer Than Germans More broadly, maybe, because of the miasma of fear and indignation over wealthy citizens, broke governments, wealth taxes, and who’s bailing out whom, all these years into the eurozone crisis. The headline was based on this table from the HFCS (but the median should be the one occupying us): The FT’s ‘Cyprus ranks near top for household wealth’ is less frontal, the WSJ’s ‘Europe’s Poorest? Look North’ rather more so, but they both talk about ‘indignation’ in the northern creditor countries of Euroland. (The NYT’s ‘Germans Are Poor and Italians Are Frugal. Huh?‘ stands on its own.)

Crimes Against Math And Logic: ECB HFCS Wealth Study Edition - The Bundesbank released a study purporting to show that the Germans are well below average in household wealth in Europe (195K euros per household) and that the Cypriots are the 2nd richest (670K euros per household), despite the Germans having substantially higher GDP per head.   In general, it shows the South to be richer than expected and the North to be poorer. The study is here:  First, let’s break it down for basic macro-plausibility. According to their table 1.1, household size is 2.64 2.04 in Germany and and 2.76 in Cyprus.    So assets per capita are 95K in Germany and 252K euros in Cyprus.Taking the 81M person population in Germany and 800K in Cyprus and GDP of 2.5T for Germany and 20B for Cyprus, this tells us that:German assets, in aggregate, are worth 3.1x GDP and Cyprus assets are worth 9.68x GDP — an utterly implausible 3.01x more valuable per dollar of GDP than German assets. Some commentators note that the differences might be due to homeownership rates in the South (75-80%) vs Germany (44%). Um, not really. At some level, “homeownership rate” in all countries is 100% as SOMEONE owns the home.   And given the nature of residential real estate, that someone is almost always a domestic national and so should be showing up in the statistics (the mean, not the median)

Cyprus Faces Risk of Payments Freeeze, Budget Shortfall Looms -  Cyprus must pass a series of austerity measures to clinch a deal from international creditors or face a payments freeze due to a 80 million euro ($102.8 billion) budget shortfall, the country's finance minister said Monday. Finance Minister Harris Georgiadis said the eastern Mediterranean island must rush through parliament in coming weeks laws increasing taxes or cutting spending in a bid to seal the EUR10 billion loan deal from euro zone peers and the International Monetary Fund. "We are currently at a borderline point," he told reporters after addressing a parliamentary economics committee. "We cannot hold on with this situation for much more without the lending agreement." The country has promised spending cuts and tax increases equal to more than a tenth of its EUR17 billion a year economy through 2018 in order to meet budget targets its creditors set. Other measures include raising retirement ages for public and private-sector workers, cuts to health-care spending and raising 1.4 billion euros from privatizations over the next five years.

Cyprus committee halts probe into bank transfers: A parliamentary committee looking into who transferred money out of Cyprus before the island’s banking system was locked down in March suspended its probe on Tuesday, complaining of not being given all the data it had demanded from the central bank. The report it was given showed that 6,000 individuals and legal entities withdrew tens of millions of euros in cash from Cypriot banks and sent it abroad in the period from March 1-15. The head of the Cypriot Parliament’s ethics committee, which was due to look into a list detailing transfers of more than 100,000 euros from the two major banks – Bank of Cyprus and Cyprus Popular Bank – said the list fell short of what he had requested. “It was with great disappointment and anger that, when we opened the envelope, we realized it contained data for only 15 days even though we had asked for a year,” lawmaker Demetris Syllouris told reporters.

The eurozone’s second sovereign restructuring? - Please note the question-mark. Our colleagues at FT Brussels Blog got their hands on the draft debt sustainability analysis for the Cyprus bailout and bail-in — click for the full doc:  There’s a related document on who exactly pays for what. Considering the mess which the Troika and the Eurogroup made of Cyprus’ ability to pay back its debt, through the imposition of capital controls and the credit crunch that will be caused by the drastic restructuring of the island’s two biggest banks and their uninsured depositors, it is a grim read. The amount Cyprus had to find from depositors went up by €5bn in the nine or so days between the initial stupid idea and the deal they all eventually reached. Cyprus is a (roughly) €18bn economy. If you didn’t laugh you’d cry.

Finland, Children And Illegal Insider Trading - Henk Berkman at the University of Auckland et al have released a new study accepted for publication in the Journal of Finance where they have uncovered a new way to spot insider trading. The men researched over half a million stock market accounts in Finland from 1995 to 2010 on the Helsinki Exchange. The researchers chose Finland because it offered them unusual and extensive access to information about trades as well as information about individual investors. The researchers looked at the information in many different ways including investors’ personal information like their age. As the researchers were analyzing the data according to the age of the investor they found that the accounts belonging to young children did astonishingly better than any other age group. “We were very surprised when we first found this evidence,” Paul Koch said. “Again, we were not looking for the result we found. The group [of accounts belonging to children between the ages of zero and 10 years old] seemed to outperform all the others.”

Brain Drain: 120,000 Professionals Leave Greece Amid Crisis - More than 120,000 professionals have left Greece since the start of the country's financial crisis in 2010, according to a recent study by the University of Thessaloniki. Doctors, engineers, IT professionals and scientists have found it increasingly difficult to find work amid deep cuts to funding of health care and other publicly supported sectors. "The number of young scientists who emmigrate has reached 10 percent of the country's potential, and that's very high," Lambrianides said that the emmigrating professionals tend to leave for other European countries, settle in big cities and end up working in the private sector. She said half of them have multiple degrees from the world's top 100 universities. The study's release followed a spec of good economic news last week when government figures showed hirings in the private sector outpaced layoffs in March. Prime Minister Antonis Samaras said while the economy remains in "critical" condition, the news was a sign of recovery.

Ireland, Portugal May Get 7 More Years On Bailout Loans: Press - Ireland and Portugal's international lenders will propose that the countries be given seven more years to repay their bailout loans, the Irish Independent newspaper reported on Wednesday. The draft proposal from the troika - the European Commission, the European Central Bank and the IMF - will be presented to EU finance ministers at their meeting in Dublin later this week, the newspaper said. The plan is intended to help both countries return to the public debt markets later this year or in 2014. The current average maturity of the loans is about 12.5 years for Ireland and slightly longer for Portugal. Ministers are not expected to take a final decision on the plan at this week's meeting because it is scheduled as an "informal" gathering, Irish Finance Minister Michael Noonan said Tuesday. A final decision won't be taken until the Eurogroup meeting in May, he said. While Ireland is expected to win strong support for the loan extension, agreement on Portugal is likely to be conditioned upon its ability to find as much as E1.3 billion in alternative cuts in its 2013 budget.

Ireland and Portugal get 7 year loan repayment extension -  Following the release of the statement on the Cypriot bailout, Eurozone finance ministers, who hold talks today in Dublin, announced that the loan repayment for Ireland and Portugal would be extended. Eurogroup chief Jeroen Dijsselbloem confirmed that the Eurozone finance ministers agreed to give seven more years to Portugal and Ireland to repay their bailout loans amounting to 78 billion euros and 85 billion euros, respectively. He also informed that the maturity extension will most probably be approved at the upcoming Ecofin meeting, which kicks off later today. EU Commissioner Olli Rehn expressed hope that Ecofin would give the green light to the measure, which in his opinion is an important step on the road to exiting the rescue program.

Italian Bank Holdings Of Italian Debt Rise To All Time High - Wondering why the Italian bond market has been stable and "improving" in recent months, with yields relentlessly dropping as a mysterious bidder keeps waving it all in despite the complete political void in the government and what may be months of uncertainty for the country, and despite both PIMCO and BlackRock recently announcing they are taking a pass on the blue light special offered by BTPs? Simple. As the Bank of Italy reported earlier today, total holdings of Italian bonds by Italian banks hit an all time record of €351.6 billion in February.

Italy’s Debt to Rise to Record in 2013 as Recession Lingers  --Italy’s debt will reach a postwar record this year as the recession-hit country borrows to contribute to bailouts and pay arrears to suppliers. The public debt will rise to 130.4 percent of gross domestic product in 2013 from 127 percent last year, Prime Minister Mario Monti’s office said in a statement after his Cabinet reviewed its budget plan. The budget deficit will drop to 2.9 percent of GDP this year, putting Italy within the European Union’s 3 percent limit. “Many are suggesting we change strategy in the management of public finance,” Monti said at a press conference in Rome. “Discipline in public finances needs to be maintained in the years to come. Only if Italy stays out of the procedure for excessive deficit will it be able undertake actions needed for the country, like the recent payment of public administration debts.” The government forecasts that the euro region’s third- biggest economy will contract 1.3 percent this year, before expanding by the same amount next year and by 1.5 percent in 2015, Finance Minister Vittorio Grilli told reporters in Rome today.

Italians' spending power crumbles in recession - National statistics agency Istat released a series of alarming figures about the state of Italy's recession-hit economy on Tuesday, including data that showed Italians' spending power crumbled by almost 5% last year. Istat said households' spending power fell 4.8% in 2012 with respect to 2011, adding that the decline was even worse in the last quarter, when it was down 5.4% on the same period in the previous year. Factors include government tax hikes eating into disposal income and price rises outstripping increases in salaries to cause real incomes to fall. Last week, Istat said Italy's tax burden hit a record high of 52% in the fourth quarter of 2012, up 1.5% on the same period in 2011. The average burden for the whole of 2012 also reached a record of 44%, up 1.4% on 2011. On Tuesday, meanwhile, Istat said hourly wages rose 1.4% in February with respect to the same month in 2012. But with inflation at 1.9%, this meant that real incomes fell by 0.5%, as prices rose by more than salaries.

Italy and France Pose Grave Risks to Euro Zone, Report Says— The struggling economies of France and Italy are out of step with better-performing countries like Germany, raising the prospect of more trouble for the euro zone, the European Union’s top economics official warned Wednesday. France and Italy are among the nations in the beleaguered bloc that need to accelerate the policy changes needed to improve their competitiveness and help the euro zone exit a lingering economic crisis, said Olli Rehn, the European commissioner for economic and monetary affairs. The uneven performance of economies using the euro is one of the main reasons for the severity of a debt crisis in which some of the worst affected countries were able to borrow more than they could repay. A failure to address the problems in France could be particularly serious for the well-being of the common currency, Mr. Rehn said

French Industrial Production Rebounds on Cars, Aircraft - French industrial output rose more than economists forecast in February as production from car and aircraft factories increased and a refinery restarted. Production climbed 0.7 percent after a revised 0.8 percent decline in January, national statistics office Insee said in Paris today. Economists forecast a 0.2 percent increase, according to the median of 26 estimates in a Bloomberg News survey. Separate data showed production fell in both Italy and Spain in February. France’s economy remains under pressure from a domestic budget squeeze and weak euro-area demand at a time when President Francois Hollande is trying to revive economic growth and facing calls from his own ministers to ease austerity. At the same time, business confidence is weakening as Europe’s second-largest economy teeters on the brink of its third recession in four years. “This isn’t the beginning of the recovery,” “Confidence is dropping, even more so in services than industry. France is in recession and will stay there for at least several more months.” Today’s report showed that French industrial production was down 2.5 percent from a year earlier. In the quarter through February, manufacturing output, which excludes refineries, utilities and mines, fell 0.3 percent from the previous three months and declined 1.9 percent on the year.

France Has Its Own Currency Again -  Krugman - Joe Weisenthal draws our attention to a development that may surprise many people: French borrowing costs are plunging. (Don’t tell George Osborne — he thinks that low British rates are a unique personal achievement). Here’s the chart for French 10-years: But wait– wasn’t France supposed to be the next Italy, if not the next Greece? Well, Joe has what I agree is the right explanation: markets have concluded that the ECB will not, cannot, let France run out of money; without France there is no euro left. So for France the ECB is unambiguously willing to play a proper lender of last resort function, providing liquidity. And this means that in financial terms France has joined the club of advanced countries that have their own currencies and therefore can’t run out of money — a club all of whose members have very low borrowing costs, more or less independent of their debts and deficits.

Slovenia may become sixth euro nation to need aid as credit rating deteriorates rapidly - Slovenia's creditworthiness is deteriorating at the fastest pace in the world after Cyprus as investors speculate a banking crisis will force it to follow the island nation and become the sixth euro country to need aid.Credit-default swaps insuring Slovenian debt for five years soared as much as 66 percent to a six-month high of 414 basis points on March 28th from 250 on March 15th, the last trading day before Cyprus announced plans for its rescue.It's now up 34 per cent at 336 basis points, compared with a 45 per cent increase for Cyprus and 18 per cent for Portugal in the period.

Slovenia Rules Out Bailout - Slovenia insisted on Tuesday that it could avoid an international bailout as the Organisation for Economic Co-operation and Development warned Ljubljana to tackle more rapidly a “severe banking crisis” whose costs it might have underestimated. The OECD report came amid investor concerns that the 2m-strong country’s banking problems could make it the next eurozone state to require a bailout after last month’s mishandled rescue of Cyprus. The OECD said Slovenia should sell viable state-owned banks and allow others that were not viable to fail. It added that bank debtholders should take some losses to reduce the cost of banking sector resolution, and warned that Slovenia might have “significantly” underestimated the level of bad loans and need for new capital. But Yves Leterme, OECD deputy director-general, said while presenting the report that Slovenia was in no immediate need of rescue, noting that “the government ... has been able to meet its financial needs without difficulties so far”. Speaking in Brussels, Slovenia’s Alenka Bratusek, the newly-installed prime minister, said the country did not require an international rescue to shore up the teetering banking system.“We will solve our problems on our own,” she said, after a meeting with José Manuel Barroso, European Commission president.

Slovenia Set to Test Debt Appetite as Financing Pressure Mounts - Slovenia’s government failed to raise 100 million euros ($131 million) at a debt sale this week. Now it’s shooting for five times that amount next week. With bond yields approaching levels that prompted bailouts of other euro nations, the government will offer 500 million euros of 18-month Treasury bills on April 17. The International Monetary Fund estimates Slovenia will need to borrow about 3 billion euros this year to repay maturing debt, aid banks and finance the budget.The debt sale will test the willingness of investors abroad to finance Slovenia’s economy as a banking crisis strains the budget, government bonds plunge and soaring default risk threatens to make the country the euro region’s sixth bailout recipient after Cyprus last month. The largest local lenders are state owned and are struggling with rising bad debt. “Unless we see strong non-resident participation, this will be an orchestrated Pyrrhic victory, increasing pressure on Slovenia and thereby raising its chances to lose the international market access,” 

Spain and Slovenia told to reform - Spain and Slovenia have been given a stark warning by their eurozone partners to reform their economies rapidly or risk financial crisis. In a hard-hitting report on the countries facing macroeconomic imbalances, such as overvalued housing markets or hefty government debts, the European commission identified a total of 13 member states – including France, the Netherlands and Belgium – which it said should take urgent action to restore the health of their economies. The large number of countries involved underlined the growing scale of the eurozone crisis, which has been exacerbated by a deep recession in many of the single currency's 17 member states. Christine Lagarde, managing director of the International Monetary Fund, warned on Wednesday of the emergence of a "three-speed" global economy, lumping the eurozone and Japan in the slowest lane among countries that "still have some distance to travel". The European commission's harshest criticism was reserved for Spain and Slovenia, which were warned to agree reform proposals with Brussels next month or face potential sanctions under the EU's new "excessive imbalance procedure".

Greek deficit rises to 10% GDP -- GREECE'S public deficit effectively shot up to 10 per cent of output in 2012 owing to nearly 8 billion euros ($A10 billion) in state support to struggling banks, the statistics agency says. But the finance ministry quickly noted that bank support does not impact the deficit calculation under the EU-IMF recovery program, and that without it the deficit met the target set by Greece's creditors. "Eurostat methodology includes this in the deficit, but under the terms of the (recovery plan) it does not affect the deficit," a finance ministry source said. "According to provisional source data, the excessive deficit procedure deficit of the general government for 2012 is estimated at 19.4 billion euro (10.0 per cent of GDP)," the Hellenic statistical authority said.

Cyprus bailout swells to $30 billion - The cost of bailing out Cyprus has swollen to euro 23 billion ($30 billion), with the crisis-hit country having to take on the lion's share of the measures needed to avoid bankruptcy, according to a draft document by the country's international creditors. The draft document, obtained by The Associated Press Thursday, says the country will have to find 13 billion euros ($17 billion) — an increase on the 7 billion euro contribution agreed during the country's chaotic bailout talks last month. The money will be raised by imposing heavy losses on large bank deposits, levying additional taxes, privatizations and a part-sale of the central bank's gold reserves. "The sheer size of the increase has underlined the extent of the enormous challenges facing Cyprus itself,"

Price Tag On Cyprus Bailout Goes Up - It's going to cost more to bail out Cyprus than originally projected, with officials now saying the cost will be $30 billion instead of the original estimate of $23 billion."It's a fact the memorandum of November talked about 17.5 billion [euros] in financing needs. And it has emerged this figure has become 23 billion [euros]," government spokesman Christos Stylianides was quoted by the BBC as saying on Thursday. And a revised assessment of the Cyprus economy from the European Commission is particularly bleak. The island-nation's economy is projected to shrink by 12.5 percent, according to The New York Times.  That means Cyprus will need to raise nearly twice as much as first thought in order to keep its debt and deficit from spinning out of control and to meet the terms of an international bailout to the tune of $13.1 billion, the Times says.

Cyprus Needs Another $7.87 Billion - A 10 billion euros ($13 billion) bailout that hasn’t arrived yet won’t be enough to keep Cyprus’ economy from toppling, despite 7 billion euros ($9.19 billion) the government is raising, and it will have to come up with another 6 billion euros ($7.87 billion) somehow, a report prepared by its lenders has reportedly found. The document, according to the Associated Press, found that the bailout deal agreed upon by the government last month, which includes confiscating up to 80 percent of bank deposits over 100,000 euros ($130,000) was such a rush job that it severely underestimated how bad off the country’s finances were. Cyprus will now have to sell 400 million euros ($525.1 million) in gold reserves, renegotiate terms of a loan with Russia and Bank of Cyprus creditors, along with possibility that holders of 1 billion euros ($1.3 billion) in bonds will be forced to a debt swap with a lower return, facing big losses. The Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) is putting up the rescue package but said that the expected cost of recovery is now about 23 billion euros ($30.2 billion) including the bailout and measures Cyprus has already planned.

Troika Demands Another €6 Billion from Cyprus, Making “Rescue” Bigger Than GDP - Yves Smith - Nothing like dramatic proof that austerity is a failure. Less than one month forcing Cyprus to take a “bailout” (which in reality was paid for entirely by the Cypriots) under the threat of effectively throwing them out of the Eurozone, a leaked Debt Sustainability Report shows that that the Troika will demand another €6 billion from Cyprus, increasing the total cost from €17 to €23 billion. From the Guardian: Cypriot politicians have reacted with fury to news that the crisis-hit country will be forced to find an extra €6bn (£5bn) to contribute to its own bailout, much of which is expected to come from savers at its struggling banks. A leaked draft of the updated rescue plan, which emerged late on Wednesday night, revealed that the total bill for the bailout has risen to €23bn, from an original estimate of €17bn, less than a month after the deal was agreed – and the entire extra cost will be imposed on Nicosia. The worst is, as Pawel Morski demonstrated in an impressive shred of the Debt Sustainability Report is that it is ludicrously optimistic in terms of how the economy will fare with Germany having decided to kill its international banking sector (this while the EU is funding advertising for Bulgaria, which is low tax jurisdiction, the very sin Cyprus was guilty of):

The Real Cyprus Template (the one you’re not supposed to notice) - Longtime correspondent David P. (proprietor of Market Daily Briefing) charted some very interesting data that enables us to follow the money--specifically, Eurozone money in the "foreign deposit sources" (deposits in Cyprus banks that originated from outside Cyprus). It appears the key preliminary step of the Real Cyprus Template is that money-center banks in Germany and other "core" Eurozone nations pull their money out of the soon-to-implode "periphery" nation's banks before the banking crisis is announced. As David observed, "I think this explains a lot about something that has always puzzled me: why the delay in resolving Cyprus after the Greek haircut?" Here is David's explanation and two key charts:

Cyprus goes from bad to worse by the day; so does Portugal - On cue, Angela Merkel's Christian Democrat base in the Bundestag has warned that there can be no increase in the EU-IMF rescue package for Cyprus. The Cypriot people alone must carry the extra cost of up to €5.5bn beyond what was already agreed in the €17.5bn deal in March. "Should that not be possible, the assent of the German Bundestag next week is out of the question," said Christian von Stetten, a key member of the finance committee. "The escalating gap in funding is huge and confirms my doubts in the finance framework prepared by the Troika and the Republic of Cyprus. It is going the way of Greece. Ever more funding gaps keep coming to light," he said. So we have a stand-off yet again. Cypriot president Nicos Anastasiades says the country needs "extra assistance", and indeed it does since the extra demands on Cyprus are a further 28pc of GDP. If the eurozone refuses to offer any further help, there must surely be a greater temptation to withdraw from the euro and default on sovereign debt in a classic restructuring deal with the IMF. That is what the IMF is there to do. Such restructurings have been done countless times across the world over the last 50 years. It is traumatic, but countries usually recover after a couple of years. The crucial point for the Cypriot people is that the cost-benefit calculus is moving in that direction. Whether they have understood this is another matter. They may in due course as the ghastly reality of Troika policy hits them.

Portugal’s elder statesman calls for ‘Argentine-style’ default - Portugal's leading elder statesman has called on the country to copy Argentina and default on its debt to avert economic collapse, a move that would lead to near certain ejection from the euro. Mario Soares, who steered the country to democracy after the Salazar dictatorship, said all political forces should unite to “bring down the government” and repudiate the austerity policies of the EU-IMF Troika. “Portugal will never be able to pay its debts, however much it impoverishes itself. If you can’t pay, the only solution is not to pay. When Argentina was in crisis it didn’t pay. Did anything happen? No, nothing happened," he told Antena 1. The former socialist premier and president said the Portuguese government has become a servant of German Chancellor Angela Merkel, meekly doing whatever it is told. “In their eagerness to do the bidding of Senhora Merkel, they have sold everything and ruined this country. In two years this government has destroyed Portugal,” he said.

Cockroach Ideas and Weak Arguments - Helene Mees in a Project Syndicate Comment weighs into the dispute between Paul Krugman and the Commission officials, siding with Rehn and his people.  Mees’ criticism of Krugman is two-sided. First, she argues, Krugman omits to say that the OMTs program is subject to heavy conditionality, and that the signature of the fiscal compact was a necessary precondition for the adoption of the program. I don’t get it. The ECB is very vocal on austerity and on structural reforms, and it is clear that the OMTs program was adopted only at the very last minute, facing the perspective of eurozone collapse. A number of economists, including myself, welcomed the OMTs while criticizing the heavy conditionality attached to it. . The second criticism is that the imbalances between core and periphery denote structural problems of the eurozone periphery. Ok, agreed. So? Does this mean that rebalancing needs to fall only on the shoulders of the periphery? Does the excess savings of the core stop being an imbalance, only because the periphery loses competitiveness? And more fundamentally, does excess consumption in the periphery prove that export-led growth is a viable model for the second largest economy of the world? Once again, pointing out at the imbalances vindicates Krugman’s point, rather than refuting it. Finally, Mees argues that increasing spending in peripheral countries would only benefit the non-tradable sector and deepen the imbalances; she adds that, being the trade deficit mostly with non-EMU countries, the only way to rebalance is boosting competitiveness through internal devaluation.

Eurointelligence Founder Wolfgang Münchau, Once a Staunch Euro Supporter, Now Welcomes the Anti-Euro Party "Alternative for Germany" - Things have now gone full circle. Wolfgang Münchau, a staunch euro supporter now realizes the political hopelessness of it all. In an article in Der Spiegel, Münchau shows he is ready to throw in the towel. Via Mish-modified Google Translation ...  On Tuesday, George Soros recommended to SPIEGEL ONLINE that either Germany should accept the Euro-bonds or exit from the euro. Soros says that it would be better for Germany to leaving the euro than Spain or Italy. If the Southern states leave the euro, then there will be chaos. One can certainly make the necessary adjustment within the monetary union, but that requires an almost total centralization of all economic policies. Eurobonds would be only the beginning. This is not a realistic political opportunity. If we reject this path, you should also be honest and say: this is an end to the monetary union. I welcome the establishment of the anti-euro party "alternative for Germany". I do not share their position. But the position of AfD is coherent. In contrast, the position of the CDU and FDP, pro-euro but against eurobonds is inherently contradictory.  Margaret Thatcher was also consistent with respect to Europe. She had a sure instinct for both the economic and political power for the future development in the euro zone. For that I pay tribute with respect.

Banks Resorting to Old Tricks to Reduce Capital Levels -  Yves Smith - Wow, did I miss it? Didn’t we have a crisis just a bit over four years ago? And wasn’t one of the big drivers the fact that banks were overlevered and took on too much risk? Well, not only do we seem to be rerunning that playbook, banks are using strategies right under regulators’s eyes last time around to create phony capital. Worse, are pulling the exact same tricks they did last time around. Worse, regulators seem to be doing nothing to stop it.  As the New York Times reports: Banks have been shedding risky assets to show regulators that they are not as vulnerable as they were during the financial crisis. In some cases, however, the assets don’t actually move — the bank just shifts the risk to another institution. This trading sleight of hand has been around Wall Street for a while. But as regulators press for banks to be safer, demand for these maneuvers — known as capital relief trades or regulatory capital trades — has been growing, especially in Europe. Rather than selling the assets, potentially at a loss, the banks transfer a slice of the risk associated with the assets, usually loans. The buyers are typically hedge funds, whose investors are often pensions that manage the life savings of schoolteachers and city workers. The buyers agree to cover a percentage of losses on these assets for a fee, sometimes 15 percent a year or more. The loans then look less worrisome — at least to the bank and its regulator. As a result, the bank does not need to hold as much capital, potentially improving profitability.

Hollande seeks to ‘eradicate’ tax havens - François Hollande, admitting he had been “wounded” by a scandal over a minister’s Swiss bank account, tried to staunch the crisis by calling for the eradication of tax havens. The French president also promised to introduce new disclosure rules for banks, lawmakers and senior public servants. Mr Hollande’s attempt to regain the initiative received an unexpected boost when Bernard Arnault, head of the luxury group LVMH and France’s richest man, announced that he was withdrawing his application for Belgian citizenship. Mr Arnault said the government was “going in the right direction”. Appearing at a brief press conference, Mr Hollande said he had been “wounded, shocked and bruised” by the scandal that erupted when Jérôme Cahuzac, budget minister until last month, admitted that he had repeatedly lied about holding a secret Swiss account. The president acknowledged that the affair undermined his election pledge to lead an “exemplary” administration. But he brushed aside calls for a reshuffle, saying instead he would push to “eradicate tax havens in Europe and the world” and stiffen controls over corruption among senior officials. French banks would have to publish annually a full list of their subsidiaries and activities worldwide to make it impossible “for a bank to hide transactions carried out in a tax haven”. France would establish a list of tax havens and “would not hesitate” to label as a tax haven any country that did not co-operate fully on providing details of the income and wealth held abroad by French citizens.

Tobin Tax is madness for Europe, and economic war against Britain - France's experiment with the Tobin Tax has proved a spectacular flop. Its finance ministry admits that the scattershot levy on financial transactions has raised just a third of the money expected since August.Total takings will be a paltry €800m in 2013, but that overlooks the much greater damage inflicted on French finance, industry and the government's own tax base. "France is shooting itself in the foot," said Paul-Henri de La Porte du Theil, head of French finance industry AFG. Jean-Yves Hocher from Crédit Agricole said it would cost his company €17bn. One French banker told Les Echos that the tax was "a weapon of mass destruction that is going to ruin our financial sector". The Bourse de Paris and the nexus of French funds in Paris was already in slow decline even before this act of idiocy. Le Figaro fears that the entire industry will now whither on the vine. Nobody seems to be listening to warnings, even when they come from Maya Atig, the soft-spoken director of French debt agency. She said any revenue from the tax would merely offset “the extra costs that we might have to pay” as liquidity drains away and yield spreads rise. Instantly proving her right, Denmark's €110bn pension fund ATP said it is no longer accepting French bonds as collateral. Italy has not done much better since it launched its Tobin tax. Undaunted, 11 EMU states, including Germany, will press ahead together in 2014, to the delight of Singapore or New York. "Sheer madness," said Prime Minister David Cameron.

Industrial production bounces back - The February induistrial production figures, showing a rise of 1% in overall production and 0.8% in manufacturing, show that this part of the economy is not dead yet, and may not be the drag on Q1 GDP that was feared. Specifically, overall industrial production showed a rise of 0.3% in the latest three months compared with the previous three, while manufacturing was down by a modest 0.2%. The figures are consistent with a small rise in Q1 GDP. More here. The trade figures were, however, disappointing, showing a widening of the trade deficit in goods and services from £2.5 billion in January to £3.6 billion in February, as exports fell and imports rose. There isn't, however, much of a trend evident in the numbers. Exports continue to disappoint, however. EU exports are down by 5.2% on a year ago but non-EU exports are up by only 0.6%. More here.

Cutting welfare is not the same as reforming it - We always knew the coalition’s benefit reforms would have a major impact on local economies. Pity the small businessman trying to stay afloat in Blackpool. But the big national issue is whether the welfare changes can justify the medium-term pain. The government argues that these are not just cuts but reforms of a welfare system that disincentivises work for too many. Ministers stress that objective at every opportunity: they present their plans in terms of “making work pay” – as, by the way, does the opposition. This type of political framing is attractive to the right (benefits are too high) and the left (wages are too low). It suggests that much expenditure is wasteful. But that is wishful thinking. The problem for both parties is that work already pays for the great majority of claimants. As a result of successive reforms since the early 1990s, work incentives in the UK benefits system are pretty strong for almost all people. Given the priority that governments of different political persuasions have given this issue, the popular notion that people do better on benefits would imply policy failure on a colossal scale. Indeed, in 2010, a lone parent moving into work at the national minimum wage would have enjoyed an income gain of 45 per cent, a single person of 66 per cent. Largely as a result of successive reforms, UK benefit expenditure levels are low by international standards and there are fewer people out of work than in the last major downturn. So when politicians present every cut to benefit spending as a much-needed reform, we should be sceptical.

Millions will answer call for general strike, says union boss - Millions of workers would join the first general strike since 1926 in a fightback against the Coalition’s spending cuts, a union leader has said. Mark Serwotka, head of the PCS union, said there “definitely” were discussions about “generalised strike action”, which would send a message to the Government that workers are not prepared simply to “accept their lot”. Unions were co-ordinating as they attempted to fight back against cuts to pay, jobs and pensions in the public sector, he said. After months of speculation, Mr Serwotka was the first trade union leader to confirm that there were active discussions. He warned that the industrial action planned to bring tens of thousands of tax officials out on strike on Monday would be followed by further action in Whitehall over the next two months. Unite, Britain’s biggest union, is understood to be leading calls for a “super-strike” in protest against the Government cuts.

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