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

Saturday, May 4, 2013

week ending May 4

U.S. Fed balance sheet shrinks in latest week | Reuters: (Reuters) - The U.S. Federal Reserve's balance sheet declined in the latest week on reduced holdings of U.S. mortgage-backed securities, Fed data released on Thursday showed. The Fed's balance sheet - a broad gauge of its lending to the financial system - stood at $3.274 trillion on May 1, down from $3.276 trillion on April 24. The Fed's holdings of Treasuries rose to $1.848 trillion as of Wednesday, May 1, versus $1.836 trillion the previous week. The Fed's overnight direct loans to credit-worthy banks via its discount window averaged $10 million a day during the week versus $17 million a day the previous week. The Fed's ownership of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and the Government National Mortgage Association (Ginnie Mae) fell to $1.122 trillion from $1.136 trillion the previous week. The Fed's holdings of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Bank system totaled $72.05 billion, unchanged on the previous week.

FRB: H.4.1 Release-- Factors Affecting Reserve Balances -- Thursday, May 02, 2013: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Undoing central bank balance sheet expansions - A common question about the recent large expansions in balance sheets among central bank in advanced economies is about the exit strategy. How easy will it be for central banks to go back to balance sheets of a size consistent with historical levels? Because the expansion of balance sheets represents a fairly unique historical experiment, it some times generates a debate and, at a minimum, uncertainty about how the process will work. While it might not be an example for all advanced economies it is useful to point out that some central banks, such as Japan and Sweden have seen large declines in the size of their balance sheet in recent episodes without any disturbance to the financial sector or interest rates. As an example, below is a picture borrowed from the Riksbank on the evolution of its balance sheet in comparison to the ECB and US Federal Reserve. The central bank of Sweden increased its balance sheet by a factor of 4 (from 5% of GDP to more than 20) in the Fall of 2008 mostly through an increase in loans to commercial banks. After the 2010 Summer, loans have been repaid at a very fast pace and we have witnessed over a very short period of time, just a couple of months, a reduction in the central bank balance sheet of more than 50%.

Why The Fed's Buy-And-Hold (No Sales) Exit Is Not Feasible - In the past months and right after implementing Quantitative Easing Unlimited Edition, the Fed began surfacing the idea that an exit strategy is at the door. With the latest releases of weak activity data worldwide, the idea was put back in the closet. However, a few analysts have already discussed the implications of the smoothest of all exit strategies: An exit without asset sales; a buy & hold exit. We have no doubt that as soon as allowed, the idea will resurface again. Underlying all official discussions is the notion that an exit strategy is a “stock”, rather than a flow problem, that the Fed can make decisions independently of the fiscal situation of the US and that international coordination can be ignored. This is logically inconsistent as we address below...

Fed Maintains QE Pace, Prepared to Alter as Economy Evolves - The Federal Reserve said it will keep buying bonds at a pace of $85 billion a month and is ready to raise or lower that level as economic conditions evolve. “The committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes,” the Federal Open Market Committee said today at the conclusion of a two-day meeting in Washington.  Chairman Ben S. Bernanke is pressing on with his effort to boost employment as 11.7 million Americans remain jobless almost four years into the expansion. Today’s statement highlights the option to boost purchases in response to data showing economic growth is slowing, in contrast with discussion of the timing of a reduction in the pace of buying at the Fed’s March meeting. “The statement gives them flexibility on the upside and the downside,” “The whole debate had centered on when to taper off. Given some of the latest data, the Fed could be more aggressive in its policy.”

Federal Open Market Committee May 1 Statement: Full Text - The following is a reformatted version of the full text of the statement released today by the Federal Reserve in Washington:

Fed Watch: FOMC Leaves Policy Unchanged - The FOMC concluded their two-day meeting by holding policy constant, as expected. The assessment of the economy was largely unchanged. Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable. Notably, recent data has had little impact on the Fed's economic outlook. This includes the last employment report as well. The inclusion of the term "on balance" was clearly intended to downplay the March numbers.  My interpretation is that the Fed is attempting to move away from being pulled this way and that by the monthly fluctuations of the data and instead focus on the underlying trend; presumably, it is that trend that should be guiding policy decisions. Of course, one could argue that that underlying trend should induce them to additional action, but that is neither here nor there at this point. From their perspective, policy is appropriate given that trend.

Fed holds steady on stimulus, worried by fiscal drag - (Reuters) - The U.S. Federal Reserve said on Wednesday it will continue buying $85 billion in bonds each month to keep interest rates low and spur growth, and added it would step up purchases if needed to protect the economy. Expressing concern about a drag from Washington's belt-tightening, the Fed described the economy as expanding moderately in a statement that largely mirrored its last policy announcement in March. Fed officials cited continued improvement in labor market conditions and did not change their description of inflation, saying it should remain at or below the central bank's 2 percent target. But policymakers reiterated that unemployment is still too high and restated their intention to keep buying assets until the outlook for jobs improves substantially. "Fiscal policy is restraining economic growth," the U.S. central bank's Federal Open Market Committee said in its policy statement at the close of its two-day meeting. "The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation."

Redacted Version of the May 2013 FOMC Statement

Parsing the Fed: How the Statement Changed - The following tool compares the latest statement with its immediate predecessor and highlights where policy makers have updated their language. This is the May statement compared with March.

FOMC Statement: "fiscal policy is restraining economic growth", "prepared to increase or reduce the pace of its purchases" - The key changes:
1) "fiscal policy is restraining economic growth."
2) "The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes."
The FOMC is clearly signaling that fiscal policy is hurting the economy ...FOMC Statement:

Federal Reserve ponders possibility of increasing stimulus - The Federal Reserve on Wednesday broached the possibility of increasing its massive stimulus program if the economy weakens, suggesting it remains uncertain about the fate of the recovery. The Fed has been purchasing $85 billion in bonds a month in an effort to keep long-term interest rates low and stoke demand. The program is tied to improvement in the labor market, and officials had begun talking about tapering it off after several strong months of job growth this year.But after its two-day policy-setting meeting wrapped up Wednesday, the central bank explicitly stated for the first time that it could increase, as well as reduce, bond purchases “as the outlook for the labor market or inflation changes.” The Fed kept its benchmark interest rate unchanged near zero. It has pledged not to raise rates at least until unemployment falls below 6.5 percent or inflation hits 2.5 percent. “With appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline,” officials said in a statement.

Fed Open to Expanding QE as It Counters Talk of Tapering - Facing the risk of a fourth straight summertime slowdown, Federal Reserve officials raised the prospect of increasing the monthly pace of bond buying above $85 billion to guard against any slump in growth or employment. The Fed’s statement yesterday that it’s “prepared to increase or reduce the pace of its purchases” was a signal that its $3.32 trillion balance sheet is a flexible tool for monetary policy that can be adjusted up or down, like interest rates. The statement, released in Washington, countered discussion of the timing of a reduction in purchases at the Fed’s March meeting. “There is more uncertainty so they probably wanted to correct a single-minded focus on tapering,”

FOMC Statement Post-Mortem - Goldman Sachs saw no major surprises in the May FOMC statement, which, as we noted in the redline, was very little changed from the March statement. The most notable change, however, introduced additional flexibility around purchases, noting that "the Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes." The slightly more aggressive nod towards fiscal policy "restraining" growth as opposed to "becoming restrictive" is perhaps yet another plea for some help from Washington - for, as we noted earlier, "the ability of a central bank, exclusively, without the rest of Washington doing any bit of the task, to turn an economy from a modest recovery to a robust one is an experiment that is untested - and will not prove to be successful."

Fed Watch: Just a Few Weeks Makes a World of Difference - The minutes of the last FOMC meeting, concluded on March 20, included this passage: 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. Two members indicated that purchases might well continue at the current pace at least through the end of the year.The center of the FOMC appeared to be shifting toward agreement that large scale asset purchase program would likely be wrapped up by year end. Of course, they included a caveat:It was also noted that were the outlook to deteriorate, the pace of purchases could be increased.Since the last FOMC meeting, it has become clear that the economy continues along a suboptimal path, as illustrated by the disappointing 2.5 percent GDP growth for the first quarter; just a few weeks ago, Macroeconomic Advisors was anticipating a 3.6 percent growth rate. In addition, both employment and manufacturing reports have been less than impressive (see Calculated Risk for his take on today's Dallas Fed numbers and the implications for the ISM report). Moreover, fiscal austerity continues to bite:

Treasury and MBS Markets as QE Continues -In February, in response to questions by the House Financial Services Committee, Fed Chairman Ben Bernanke said that the asset purchase programs have not disrupted the markets for longer-term Treasuries or for mortgage-backed securities. The New York Fed followed up on this in the latest Survey of Primary Dealers, from March 2013. Primary dealers are trading counterparties of the New York Fed, and play an important role in implementing the asset purchase program. They are obligated to participate in open market operations and to provide the New York Fed's trading desk with market information and analysis. The primary dealers are surveyed each month to help the FOMC evaluate market expectations about the outlook for the economic and financial conditions and monetary policy.  One question from the survey asked: How would you rate market functioning in longer-term Treasury and agency MBS securities markets today relative to the worst and best conditions you have seen since the beginning of 2009?  Here is a tabulation of the responses: Most of the dealers agree that conditions in the Treasury market are relatively good. Fifteen out of the 21 dealers rate conditions at 4 or 5 on a five-point scale. In the agency MBS market, conditions are a bit more iffy, though 4 is still the modal response. It looks like most of the dealers agree with Bernanke.

Jobs Report Keeps Tapering on Fed’s Table - The Federal Reserve isn’t likely to do much of anything until the economic outlook becomes clearer, but April’s stronger-than-expected jobs report at least keeps tapering its bond purchases on the table. Fed officials have had discussions in recent months over slowing their bond purchases. Some have argued that an improving economy could lead the central bank to shrink the size of its bond-buying stimulus later in the year, as a prelude to ending it altogether. The tapering faction was notable in that it included central bankers on both the hawkish and dovish ends of the scale. The tapering tribe has had to endure more than a few white-knuckle moments over recent months as incoming job-market data suggested an unexpected renewal of hiring weakness, of a type that could keep the Fed buying bonds for longer than once thought. Based on the comments of central bankers and the outcome of the Fed’s policy meeting earlier this week, policymakers had largely been keeping any anxiety to themselves.

Why Not Target a 3% Unemployment Rate? - When will the job market revive and get back to something close to normal? Not any time soon. The consensus expectation for April’s job report is for nonfarm payrolls to rise by 140,000 and the unemployment rate to remain at 7.6 percent, according to a Bloomberg News survey. A safe bet is that the unemployment rate won’t breach 6.5 percent, one signal for it to start tightening monetary policy, until 2014, if not later. Sad to say, the Fed considers 5.2 percent to 6 percent the economy’s long-run normal rate of unemployment. Achieving that rate would be a vast improvement over today. Still, once upon a time and not all that long ago, America’s elites strived for full employment, a catchphrase now relegated to economic history. Full employment was once defined as somewhere between 1 percent and 2 percent, a figure that reflects the normal ebb and flow of the workforce as people leave jobs seeking better opportunities. In the U.S. a full-employment economy more realistically is closer to the 3 percent to 4 percent mark, a level reached only a handful of times during the past half-century, in the 1950s, the latter part of the 60s and during the heady years of the boom in the 90s.

Is Monetary Policy Capable of Offseting Fiscal Austerity? - Beckworth - Mike Konczal has a new article where he claims there is a great natural experiment unfolding in the U.S. economy, one that Ramesh Ponnuru and I proposed back in 2011: We rarely get to see a major, nationwide economic experiment at work, but so far 2013 has been one of those experiments — specifically, an experiment to try and do exactly what Beckworth and Ponnuru proposed. If you look at macroeconomic policy since last fall, there have been two big moves. The Federal Reserve has committed to much bolder action in adopting the Evans Rule and QE3. At the same time, the country has entered a period of fiscal austerity. Was the Fed action enough to offset the contraction? It’s still very early, and economists will probably debate this for a generation, but, especially after the stagnating GDP report yesterday, it looks as though fiscal policy is the winner. So Mike Konczal's assessment of this experiment is that monetary policy has not been able to offset fiscal austerity. Paul Krugman agrees as do other observers who question the effectiveness of monetary policy in a liquidity trap. I agree that there is an interesting experiment going on, but Konczal and Krugman (K&K) oversell what it means and ignore other recent developments that shed light on the efficacy of monetary policy.

Can the Fed offset contractionary fiscal policy? - MIKE KONCZAL writes that 2013 is shaping up to be a grand experiment, testing an important macroeconomic proposition: that expansionary monetary policy can offset fiscal cuts. In the second half of last year, the Federal Reserve began shifting its policy framework to provide more accommodation to the American economy. And from the beginning of this year, the pace of fiscal consolidation has quickened. Mr Konczal reckons that recent data show that fiscal policy is "winning": The first is inflation expectations, as calculated by the Federal Reserve Bank of Cleveland. One-year inflation expectations initially bumped up for December 2012, which many commentators viewed as a positive sign for the new Fed policy. However, in 2013, it has fallen back down, to an average rate lower than that of 2012... You can also look at long-term interest rates as a sign of how well the economy is doing. An increase in interest rates would signal inflation, higher expected growth and less demand for safe assets. Here, too, there was an initial boost after the December announcement, but as 2013 has continued, interest rates have dropped back down. Growth in GDP, as noted from yesterday, has also come in below expectations, with government spending a main culprit.

The great economic experiment of 2013: Ben Bernanke vs. austerity - In late 2011, the economist David Beckworth and the writer Ramesh Ponnuru wrote an editorial in the New Republic on how “both liberals and conservatives are wrong about how to fix the economy.” How were they wrong? Conservatives were wrong because, contrary to common belief on the right, the Federal Reserve wasn’t in fact doing enough to boost the economy. Liberals, however, were wrong in opposing austerity and calling for more fiscal stimulus in the form of stimulus spending or temporary tax cuts. In Beckworth and Ponnuru’s view, the Federal Reserve still had plenty of room to boost the economy. Not only would fiscal tightening be good over the long haul, but it would force the Fed to act. And they argued that as long as the Fed is working to offset austerity, the country “won’t suffer from spending cuts.”We rarely get to see a major, nationwide economic experiment at work, but so far 2013 has been one of those experiments — specifically, an experiment to try and do exactly what Beckworth and Ponnuru proposed. If you look at macroeconomic policy since last fall, there have been two big moves. The Federal Reserve has committed to much bolder action in adopting the Evans Rule and QE3. At the same time, the country has entered a period of fiscal austerity. Was the Fed action enough to offset the contraction? It’s still very early, and economists will probably debate this for a generation, but, especially after the stagnating GDP report yesterday, it looks as though fiscal policy is the winner.

Counterparties: Central banks vs austerity - Both the Federal Reserve and the European Central Bank will meet this week, and they’re expected to continue their current policy, which Bloomberg describes as “flooding the world with cash.” Bloomberg also cites an estimate from Barclays that central banks will buy $2.5 trillion in assets this year – more than twice the amount purchased in 2012. This week, the ECB may lower interest rates to 0.5%, although it’s far from a done deal, according to Reuters. The Fed, Jon Hilsenrath reports, is likely to keep its rates at their current level. There are a number of voices concerned that fiscal policy (read: austerity) has made monetary policy less effective. Mike Konczal writes: The Federal Reserve has committed to much bolder action in adopting the Evans Rule and QE3. At the same time, the country has entered a period of fiscal austerity. Was the Fed action enough to offset the contraction? It’s still very early, and economists will probably debate this for a generation, but, especially after the stagnating GDP report yesterday, it looks as though fiscal policy is the winner. Paul Krugman largely agrees, saying that, “as a practical matter the Fed — while it should be doing more — can’t make up for contractionary fiscal policy in the face of a depressed economy.”There are still those who believe in the power of the central bank. Economist David Beckworth — who proposed back in 2011 that the Fed do exactly what it has been doing over the past six months — says Konczal and Krugman undersell how well monetary policy has worked. He points to nominal GDP, which has been steadily growing since austerity measures began in 2010 (though slower than before the crisis).

Nominal GDP Targeting is Left, Right? - The recent surge in interest in Nominal GDP Targeting, as an alternative to money targeting or inflation targeting if the central bank is to commit to a nominal target of some sort, has prompted some pushback.   This is not surprising.  But one of the responses is most peculiar.  This is the allegation (1) that the surge comes from liberals opportunistically adopting an idea that was originally proposed by conservatives, and (2) that they will not stick with this “fad” in the longer run because it is only designed to fit current circumstances of high unemployment and low output.   Remarkably, every component of this argument is wrong.  have in mind, especially, the views of Benn Steil and Dinah Walker of the Council on Foreign Relations, as expressed in “Why  Nominal GDP Targeting is a Fad“:   NGDP targeting having once been the intellectual stomping ground of economists on the right (notably Scott Sumner), its newest supporters come overwhelmingly from the left (such as Christy Romer)…. We think the rage will be short-lived. The reason is that NGDP targeting’s newest supporters are bad-weather fans. That is, they like it now, when NGDP is well below its 2007 “trend” line, meaning that the policy implies extended and more aggressive monetary loosening. But what happens when NGDP goes above its target, as it eventually will? NGDP targeting then requires tightening….”

Pushback - Despite my enthusiasm about what today's employment report means, Josh Barro says it does not vindicate the Market Monetarist's view.  Moreover, he believes we probably should not expect our view to ever be fully vindicated for political economy reasons:  Mike Konczal, meanwhile, pushes back on my response to his post that the Fed needs to adjust its pressure on the gas pedal: We don’t often get a serious shift in expectations. That’s why I’m not sure how much the “gas pedal” from David Beckworth’s response is at play. Beckworth notes that the purchases in QE3 don’t automatically react to turbulence in the economy, and hopes that the Federal Reserve will buy more if the economy gets weaker. But if the expectations of where the Fed wants to end up are the real limiting factor for a robust recovery, why would a small change in purchases matter? This is partially why Greg Ip said the FOMC statement this week was “asymmetric,” even though the Fed said it might “increase or reduce” purchases: an increase is a small move, but a reduction is a genuine retrenchment. If the public understood that the dollar size of the Fed's asset purchases were also conditional, then Fed policy should have a more meaningful effect on expectations. We may never know, however, if Josh Barro is correct about the political economy limits of monetary  policy

Former Fed Governor Warsh Admits "There Is No Plan B" - At the very crux of the financial crisis, former Fed governor Kevin Warsh notes, "experimental extreme monetary policy," had the "right risk-reward", but, he warns, in this excellent (and somewhat chilling) discussion at the Milken Institute, "we left a financial crisis more than for years ago." and since then the Fed has "over-promised and under-delivered." The Fed has "enabled" Washington to do nothing, since the politicians expect the same "rabbit out of the hat" rescue that occurred in the darkest days of the financial crisis. This means no growth strategies ("the mix of policies has to be right") will occur. Since the financial crisis, Washington has done its level best to focus on GDP in the next quarter, or perhaps the election, and precious little beyond that short-term horizon. Warsh concludes, "There Is No Plan B." The Fed has fewer degrees of freedom and the rest of Washington is not coming to the rescue; and furthermore "the ability of a central bank, exclusively, without the rest of Washington doing any bit of the task, to turn an economy from a modest recovery to a robust one is an experiment that is untested - and will not prove to be successful."

Counterintuitive insights that are only now making the mainstream now - Izabella Kaminska - Here’s a small tally of points we’ve been making for a while.

  • 1) Because of the safe asset problem there is a diminishing return — or even negative return — to QE at some point. In fact, rather than being inflationary, it becomes deflationary.
  • 2) Interest on reserve policy is actually designed to counteract this deflationary — and negative rate inducing — effect. In fact, IOER, or the ability to hold reserves at the central bank for no negative interest cost, shows that central banks are effectively supporting short-term rates rather than depressing them. If not for the ability to hold reserves at the central bank, then rates could very well be negative.
  • 3) The crisis is in many ways a deposit crisis not a debt crisis. There are simply too many deposits seeking principal protection and not enough safe assets to protect against capital destruction by negative rates.
  • 4) Negative rates are a function of global abundance (brought on by technological advances), and a trend that cannot be stopped even by the strongest central bank — unless society regresses backwards (like many goldbugs would seemingly desire).
  • 5) Central banks taking charge of digital money and issuing it directly to consumers is one way to ensure deposits can always be protected from negativity.
  • 6) Value in the capital system, and our definition of growth, is very likely being transformed as a result.
  • 7) Greater efficiency and abundance may also eventually lead to the end of arbitrage.

Is Quantitative Easing Becoming Quantitative Exhaustion? - Milken Institute - Moderator: David Zervos, Chief Market Strategist, Jefferies LLC , Among the monetary measures central banks have taken to address the lingering impact of the 2008 financial rupture, keeping interest rates artificially low has been a primary aim. The term "financial repression" has become associated with that policy. Such measures were launched in the hope of not only stimulating economic activity but to ease the pressure of servicing onerous public debt. Concern is growing, however, that quantitative easing has distorted markets by interfering with the proper pricing of risk and, by extension, obscuring the true cost of capital. Our panel of experts will explore the possible effects of sustained QE and the quest for financial stability. For instance, are bubbles inflating? Will these effects be similar or will they vary from market to market? What costs will long-tem financial repression impose on the Federal Reserve and other central banks? What tools can be employed as alternatives? Speakers:

  • James McCaughan , CEO, Principal Global Investors
  • Cliff Noreen, President, Babson Capital Management LLC
  • Tad Rivelle, Chief Investment Officer, Fixed Income, TCW
  • Aram Shishmanian, CEO, World Gold Council
  • Kevin Warsh, Distinguished Visiting Fellow, Hoover Institution; Former Member, Federal Reserve Board of Governors 

The Costs and Benefits of QE - I’m here at the Milken Institute’s Global Conference, where tomorrow (Tues) I’ll be joining a panel on tax reform, I stopped by a session today on the Federal Reserve’s quantitative easing (QE: large-scale asset purchases—LSAPs—by the Fed in order to bring down longer term interest rates) wherein all five panelists where in intense agreement that the Fed was making a big mistake. Here, as in the debt debate, one often hears economists holding forth with a level of confidence than goes well beyond the data. The panel’s rap was that the Fed’s actions to fight the Great Recession were appropriate from 2008-10, but the expansion of their balance sheet since then–$85 billion a month in bond purchases, including Treasuries and MBS—was creating too much risk for too little reward. The thing is, beyond a general—and understandable—nervousness about the Fed going deeper into unchartered territory, they really failed to make a case for their curiously qualitative cost/benefit analysis.  There was, for example, no evaluation of Fed Chairman Bernanke’s case that QE has significantly lowered longer term rates, including those on mortgages, and has thus contributed to growth and jobs.

Gross Says Central-Bank Policies Impose ’Haircuts’ on Investors - Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said global central bank debt purchase programs and almost-zero interest rates are bolstering economic growth and asset prices at a cost to savers and investors. “It has been the objective of the Fed over the past few years to make even more innovative forms of money by supporting stock and bond prices at a cost at an ever ascending scale,” Gross wrote in his monthly investment outlook posted on Newport Beach, California-based Pimco’s website today. “Current policies come with cost, even as they magically float asset prices higher. Negative real interest rates, inflation, currency devaluation, capital controls and outright default” are among the costs, or ”haircuts” from global central banks’ unprecedented monetary stimulus. The Fed’s efforts to keep long-term interest rates low and holding its target rate at almost zero for more than four years has caused savers to suffer in what Gross has dubbed in the past “financial repression,” given low returns on bank deposits and fixed-income securities. Central-bank efforts to reflate their economies after the financial crisis have devalued the purchasing power of currencies and investment portfolios, Gross said. 

The Irresponsibles: The Bubble In Financial Assets Paper and Bernanke’s Policy Errors - Here is the failure of the Fed as monetary policy and regulator with greatly expanded portfolio in one picture assuming that one remembers that stocks have risen back to all time highs. The Fed has been stuffing its expanding Balance Sheet into the reserves of the Too Big To Fail Banks, where they and their Wall Street cronies use the funds to game the markets for financial paper and real goods. If your goal is to support the one percent at all costs, then creating new bubbles in financial paper that they own makes perfect sense. And as regulator the Fed promotes a lack of transparency, of financial secretiveness, of cronyism, and laissez-faire corruption that is deadly to healthy markets. Reform is the only viable response. And that is best measured by the levels of transparency and accountability. But the public is no longer heard in the halls of a Congress and a White House dominated by special interest money. And so things become increasingly unsustainable.

The Fed's QE Exit Will More Than Quadruple Interest Costs For The US - With the Fed now openly warning that there may actually come a time when the 'flow' stops; the most recent Treasury Borrowing Advisory Committee (TBAC) report has some concerning statistics for those change-ridden hopers who see a smooth Fed exit, deficit-reduction, and blue skies ahead.  While they are careful not shout 'sell' in a crowded bond market; hidden deep in the 126 page presentation are two charts that bear significant attention. The first shows what TBAC expects (given the market's expectations) to happen to interest rates in the US as the Fed 'exits' its QE program (taper, unwind, hold) - the result, the weighted-average cost of financing for the US government will almost triple from around 1.6% to around 4.3% over the next ten years. But more problematic is that even with CBO's rather conservative estimates of the growth in US debt over the next decade the USD cost of financing will explode from around $205bn (based on TBAC data) to over $855bn. Still convinced the Fed can exit smoothly?

Columbia Economist Dr. Jeffrey Sachs speaks candidly on monetary reform - Full version of the recent Sachs speech, this with video, not just audio.

Fed faces calls for radical reform - A senior Republican congressman has called for everything from the gold standard to a price level target to be on the table in a 100th anniversary review of the Federal Reserve’s mandate. Kevin Brady, who chairs the joint economic committee, wants Congress to appoint a bipartisan commission that could lead to a radical change in the mandate of the world’s largest and most important central bank. By setting up a process that has a chance of passing Congress, Mr Brady’s bill marks one of the most serious bids to revamp the Fed for years, on the centenary of its founding legislation in 1913. “This isn’t an ‘End the Fed’ gambit – just the opposite,” Mr Brady told the Financial Times in an interview. “We want a very thoughtful, very constructive analysis of the last 100 years. When the house isn’t on fire we want a discussion of what role the fire department should play.” The proposed Centennial Monetary Commission would have instructions to look at more aggressive mandates to fight unemployment, such as a target level for nominal gross domestic product, as well as more conservative regimes such as an inflation-only objective. That could make the idea acceptable to Democrats. Previous Republican proposals – such as ex-presidential candidate Ron Paul’s demand to “audit” the Fed and Mr Brady’s own bill to give the Fed an inflation-only mandate – have won only partisan support. Mr Brady and other Republicans worry that the Fed’s aggressive programme of asset purchases, carried out to meet its current dual mandate of maximum employment and stable prices, could lead to inflation or financial stability problems in the future.

Monetary Policy and the Exchange Rate at the ZLB - The descent of interest rates to near zero in the advanced economies has prompted something of a rethink of how monetary policy can affect exchange rates. I think that there is now accumulating evidence that quantitative easing/credit easing moves by central banks can have an impact on exchange rates, even if short term rates do not move. That point has been most recently documented in an important paper by Reuven Glick and Sylvain Leduc, entitled: “The Effects of Unconventional and Conventional U.S. Monetary Policy on the Dollar”: We document that the U.S. dollar depreciated significantly following both conventional and unconventional monetary policy surprises. Looking first at the effects of unconventional monetary policy since the end of 2008, we find that a one standard deviation surprise easing in unconventional policy leads to a roughly 40 basis point decline in the value of the dollar within 60 minutes. In turn, we find that in the conventional policy period the dollar depreciated in response to federal funds rate easing surprises, with a one standard deviation surprise easing leading to about a 6 basis point decline in the value of the dollar in the hour after announcements.

Fed Watch: What About Inflation? - I find Binyamin Applelbaum's Fed preview to be rather depressing and distressing. Appelbaum begins with a solid insight - reducing the unemployment rate is not the same as maximizing employment: The Federal Reserve is making modest progress in its push to reduce the unemployment rate. But that is not the jobs goal Congress actually established for the Fed. The central bank is supposed to be maximizing employment. And on that front, it is not making progress.. But are Fed officials ready to do more? No: There is little sign, however, that Fed officials are considering an expansion of their four-year-old stimulus campaign as the Fed’s policy-making committee prepares to convene Tuesday and Wednesday in Washington. Applelbaum notes that the recent flow of data has forced monetary policymakers to back away from talk of ending large scale assets purchases. But among the reasons to avoid expansion of the program we find this: Another reason the Fed is not embracing new measures is that it already has tied the duration of low interest rates to the unemployment rate. The Fed said in December that it intended to hold interest rates near zero at least as long as the unemployment rate remained above 6.5 percent, provided that inflation remained under control. The theory is that the economy will get as much stimulus as it needs. But what if the inflation rate is persistently below the target? Or, worse, trending lower? Clearly then the economy is not getting the stimulus it needs. If we are missing on both targets, then the economy needs more stimulus. And while we can debate the efficacy of monetary policy in influencing the pace of employment growth, surely monetary policy can influence the inflation rate. Correct? The distressing part of this article is that it reads as if the Fed has given up not only on its ability to influence the pace of employment growth, but also on its ability to influence the inflation rate. Or, possibly worse, that the Fed is simply no longer concerned with the inflation rate now that the obvious threat of deflation has passed. This again feeds suspicion that the Fed's 2 percent target is really an upper bound.

The Vampire Theory of Inflation - The FOMC issued an opaque statement yesterday observing that the economy is continuing to expand at “a moderate pace,” though unemployment remains too high while inflation is falling. The statement attributes the weakness of the recovery, at least in part, to fiscal tightening, perhaps suggesting that the Fed would not, under these circumstances, tighten monetary policy if fiscal policy were eased.  ousehold spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable. Notice despite the neutral, matter-of-fact tone of the statement, there are two factually inaccurate, or at least misleading, assertions about inflation. First, while the assertion “inflation has been running somewhat below the Committee’s longer-run objective,” is not objectively false, the assertion ignores the steady downward trend in inflation for the past year, while sewing confusion with a gratuitous diversionary reference to “temporary variations that largely reflect fluctuations in energy prices.” By almost any measure, inflation is now running closer to 1% than to the Fed’s own 2% target.

PCE Price Index Update: The Disinflationary Trend Continues - The April Personal Income and Outlays report for March was published today by the Bureau of Economic Analysis. The latest Headline PCE price index year-over-year (YoY) rate of 0.97% is a decrease from last month's adjusted 1.34%. The Core PCE index of 1.13% is decrease from the previous month's adjusted 1.29%. The current disinflationary trend in core PCE must certainly be troublesome to the Fed. After years of ZIRP and waves of QE, this closely watched indicator has been consistently moving in the wrong direction for the past year. It has contracted month-over-month for nine of the last 12 months since its interim high of 1.96% in March of 2012. The first chart shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. I've also included an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. I've highlighted 2 to 2.5 percent range. Two percent had generally been understood to be the Fed's target for core inflation. However, the December 12 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place. I've calculated the index data to two decimal points to highlight the change more accurately. For a long-term perspective, here are the same two metrics spanning five decades

Inflation Remains Below Fed Target - The Federal Reserve reportedly wants consumer inflation of about 2 percent per year, as measured by the personal consumption expenditures price index, affectionately known as the PCE. By that standard, Fed policy appears too tight, despite near-zero rates and ongoing QE: Over the past year, the headline PCE (dashed blue line) has increased only 1.0 percent, and the core PCE (orange line) is up only 1.1 percent. The core PCE strips out often-volatile food and energy prices not, as some wags would have it, because economists don’t drive, eat, or heat their homes, but because the resulting series appears to be a better predictor of future inflation trends (i.e., less noise, more signal). At the moment, both measures are close together — and far below the Fed’s alleged target.

Tame Inflation to Keep Fed on Course - With inflation now lower than the Fed wants, officials are likely to conclude their policies show no sign of overheating the economy. That allows them to maintain their $85 billion-a-month bond-buying program ...  Several Fed officials have changed the way they are talking about inflation. In a late March speech, New York Fed President William Dudley described inflation as "below" the Fed target. In mid-April, after new inflation data emerged, he described it as "well below" target, the kind of subtle change central-bank officials often deploy after careful deliberation. "If inflation is lower and continues to go lower than our target, that would be another reason potentially for not pulling back on our program," said Eric Rosengren, president of the Boston Fed, in an interview this month. [James Bullard, president of the Federal Reserve Bank of St. Louis] said he would consider supporting an increase in bond purchases if inflation fell much further

Ebbing Inflation Means More Easy Money - Slowing inflation is giving central bankers scope to provide the world economy with more liquidity and lower interest rates for longer, all in the name of price stability. European Central Bank President Mario Draghi may cut his benchmark rate to a record low as soon as this week as ebbing price pressures let him deliver more stimulus to the euro area’s recession-riddled economy. Federal Reserve Chairman Ben S. Bernanke at a policy meeting that starts tomorrow might have more room to press on with asset purchases as the argument against that strategy is undercut by waning inflation risks. Their counterparts from New Zealand to Canada also have more reason to keep policy loose. The odds of disinflation are mounting as the world economy slows anew and commodity prices slide, defying forecasts that easy money would trigger an acceleration of prices. More than half of the world economy, including the U.S. and the euro area, instead confronts inflation below the central banks’ desired levels

Two Measures of Inflation: New Update - I've updated the accompanying charts with the latest Personal Consumption Expenditures price index from the Bureau of Economic Analysis, released yesterday. The annualized rate of change is calculated to two decimal places for more precision in the side-by-side comparison with the Consumer Price Index.  The BEA's Personal Consumption Expenditures Chain-type Price Index for March shows core inflation well below the Federal Reserve's 2% long-term target at 1.13%. The Core Consumer Price Index, also data through March, is significantly higher at 1.89%. The Fed is on record as using PCE as its primary inflation gauge.  The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate.  [Source]  Elsewhere the Fed stresses the importance of longer-term inflation patterns, the likelihood of persistence and the importance of "core" inflation (less food and energy).In the shorter term, however, the Fed has raised the top range of its inflation target by half a percent.  This close-up comparison gives us clues as to why the Federal Reserve prefers Core PCE over Core CPI as an indicator of its success in managing inflation: Core PCE is lower than Core CPI and less volatile. Given the Fed's twin mandates of price stability and maximizing employment, it's not surprising that in the past the less volatile Core PCE has been their metric of choice. On the other hand, the disinflationary trend of late give PCE additional significance as support for a sustained policy of quantitative easing.

Inflation Nation Not - Paul Krugman - Hey, does anyone remember the great inflation panic of 2011? All the usual suspects were issuing dire warnings about soaring inflation, and ridiculing the Fed for focusing on core inflation rather than headline changes. So, how’s it going? Actually, at this point the Fed is worried that inflation is too low.

Not Enough Inflation, by Paul Krugman -  Ever since the financial crisis struck, and the Federal Reserve began “printing money” in an attempt to contain the damage, there have been dire warnings about inflation... It’s not hard to see where inflation fears were coming from. In its efforts to prop up the economy, the Fed has bought more than $2 trillion of stuff — private debts, housing agency debts, government bonds. It has paid for these purchases by crediting funds to the reserves of private banks, which isn’t exactly printing money, but is close enough for government work. Here comes hyperinflation!  So all those inflation fears were wrong, and those who fanned those fears proved, in case you were wondering, that their economic doctrine is completely wrong — not that any of them will ever admit such a thing.  And, at this point, inflation — at barely above 1 percent by the Fed’s favored measure — is dangerously low.  Why is low inflation a problem? One answer is that it discourages borrowing and spending and encourages sitting on cash. Since our biggest economic problem is an overall lack of demand, falling inflation makes that problem worse.

The Trouble with Low Inflation - Jared Bernstein - The Fed announced today that they’ll continue to be the only ones in town trying to do something about the stubbornly high unemployment rate:The Federal Reserve said Wednesday that its stimulus campaign would press forward at the same pace it has maintained since December, putting to rest for now any suggestion that it was leaning toward doing less. Another symptom of our demand-weak economy, along with high unemployment and weaker job creation, is the recent deceleration in price growth, shown in the figure below.The Fed’s “…statement also noted that the pace of inflation had slackened, a potential sign of economic weakness, but it showed little concern about that trend.”Me, I’m pretty concerned about that trend.  On the one hand, lower price growth means higher real wages, all else equal, and that’s important as slower nominal wage growth is another problem right now.But on the other hand, low inflation is problematic in ways that are less obvious than the real wage story above.  First off, faster inflation means lower real interest rates, and since the Fed’s already at zero (and can’t go lower), a bit more inflation would help in that regard.  I’d bet we’d see more investment bucks move of the sidelines if that trend in the figure were to reverse course.  Higher inflation also chips away at nominal debt burdens and thus hastens deleveraging.

The core CPI-PCE inflation gap - Barclays economists write that the gap between core CPI and core PCE in the United States has widened to its largest in about a decade. They have an interesting note explaining some of the reasons why, though not all of them are clear and right now this is mainly an academic issue: There are several reasons for this widening gap. The most important factor is financial services inflation, which has a much larger weight in the core PCE price index (8.5%) than in the core CPI (0.3%). In part, this is because the PCE price index attempts to measure the imputed cost of free banking services provided to customers, such as check clearing and electronic fund transfers. The BEA estimates this in part as the difference between the rates banks pay to customers on deposits and a reference or “safe” rate.  In contrast, the CPI measures only out-of-pocket expenses such as those for checking accounts, and these types of fees have been rising in recent months, rather than showing the deflation embedded in the BEA figures.  Another major factor is airline fares, which have been rising in the CPI but falling in the PCE price index (Figure 3). The CPI measure is based on consumer out-of-pocket spending on airfares, whereas the PCE measure is based on the PPI for airline fares, which relies on average revenue per passenger data.

Q1 2012 GDP Details: Single Family investment increases, Commercial Investment very Low - The BEA released the underlying details for the Q1 advance GDP report today. The first graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes). A few key points:
1) Usually the most important components are investment in single family structures followed by home improvement. However home improvement has been the top category for eighteen consecutive quarters, but that is about to change. Investment in single family structures should be the top category again by Q2 or Q3.
2) Even though investment in single family structures has increased significantly from the bottom, single family investment is still very low - and still below the bottom for previous recessions. I expect further increases over the next few years.
3) Look at the contribution from Brokers' commissions. This is the category related to existing home sales (this is the contribution to GDP from existing home sales). If existing home sales are flat, or even decline due to fewer foreclosures, this will have little impact on residential investment.The second graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased slightly, but from a very low level.

US GDP Overview Pt II: Personal Spending -- We're Still Spending, Just Not As Much As Before - (8 charts) Let's continue our look at the US economy by looking at personal spending.Overall, real personal consumption expenditures (PCEs) have been increasing for the duration of the recovery. They are now at higher levels that those we saw in the previous expansion. Let's break these down into their components starting with the largest and moving to the smallest. Service spending accounts for about 65% of total PCEs. Notice that this part of PCEs has been increasing at a consistent rate for the duration of the recovery as well. Spending on non-durable goods (about 21% of PCEs) has also been increasing, but this level of spending has been increasing at a far slower rate starting in 1Q11. Spending on durables has been very strong. Also note the importance of this spending: durables typically require some type of financing. Hence, people don't take these obligations on unless they're confident they can make the payments for the the entire length of the obligation. Above is the chart for total truck and auto sales. After cratering in response to the recession, we see this number claw its way back to the levels seen for a majority of the 1990s expansion. Real retail sales are now at higher levels than those of the preceding expansion. However, the rate of growth has not been consistent. There are several periods that show little to no growth -- a description which applies to the last 4-5 months. The above data shows that consumers are still spending -- and spending at rates higher than those of the previous recovery.

Business Investment Rebounds Even as Recovery Drags - THE economic recovery from the recession that officially ended in 2009 has been extremely disappointing for American consumers. But for business, it has been the best recovery in decades. The government’s estimate of first-quarter gross domestic product last week indicated the overall economy was only 8.3 percent higher than it was in the second quarter of 2009, the quarter the recession ended. That is significantly weaker than the recoveries that followed the recessions that ended in 1982, 1991 or 2001. After this much time, the economy had grown at least 11.4 percent (after the 2001 downturn) and as much as 21.3 percent (following the 1982 low). That subpar performance can be traced to two of the three pillars of the American economy — consumers and the government. But the third, business, has made an impressive bounceback. The accompanying charts cut the economy into three sectors, and show how each of them performed in comparable periods after the previous recessions, as well as this one. All start at the level during the quarter that the National Bureau of Economic Research determined the downturn ended. Together, the three exclude only two contributors to G.D.P. growth — changes in the trade balance and in business inventories.

Government Spending Cuts Contribute to Slower Growth - As chief executive of a small Michigan military contractor, he had already cut his work force by one-third. But it was not enough. And if the government spending cuts mandated by Congress continue, he said, more people will go in the coming months.  The squeeze Mr. Kelly is facing is one reason markets are jittery about what the Labor Department’s latest report on unemployment and job creation will reveal about the economy on Friday. After a strong start to the year, several economic indicators beginning in March have pointed to much slower growth, largely because of the fiscal headwinds from Washington, economists say.  Job cuts like the kind at Nanocerox remain the exception, rather than the rule. On Thursday, the government said weekly unemployment claims were at a five-year low.  The problem is that companies have not been hiring. This week, a survey of private sector hiring in April came in well below expectations, while indications for everything from retail sales to manufacturing have also been soft recently.  Whatever the data ultimately show for April, economists like Diane Swonk, chief economist for Mesirow Financial in Chicago, say the economy would be showing much more momentum if it were not for the combination of higher payroll taxes that went into effect in January, as well as the process of automatic spending cuts known as sequestration that began to bite last month.

Marginal increments of military spending track gdp better than well-being or actual economic performance - Perhaps you have seen reports such as this: The report showed gross domestic product grew at an annual rate of 2.5 percent during the first three months of the year — significantly slower than most economists had expected. The culprit? A surprising 11.5 percent annualized drop-off in military spending. In other words, much of the “missing” gdp — whatever its long-term geopolitical value for foreigners — was not creating actual, consumer-relevant value for the United States.  Putting back that military spending would pump the gdp number back up, but that is distinct from the economy improving.  Fetishizing gdp makes the least sense when it comes to military spending, and it is remarkable how few media accounts recognize this point in even a partial fashion.

Pimco’s El-Erian: 50-50 Chance of Genuine Growth in U.S. - The chances that the U.S. will achieve genuine growth right now are 50-50, said Mohammad El-Erian, chief executive of Pimco, a global investment management firm based in Newport Beach, Calif. Speaking at the Milken Global Conference in Los Angeles Monday, Mr. El-Erian said the key is that the Federal Reserve eventually needs to let markets work on their own, without government assistance. Further, concerns remain that resources are being misallocated and that there are market bubbles forming, he said. “The excitement in the marketplace is being accompanied by anxiety,” Mr. El-Erian said. Mr. El-Erian echoed many of the sentiments voiced on a panel at the conference, as economists and financial-industry executives said it was time for both the U.S. and other nations to start letting the markets run on their own and wean them from intense government involvement. In particular, countries in the euro zone need to start loosening the reins on markets if the region is to survive, they said. Many afflicted countries, such as Spain and Italy, are dragging down stronger performers like the U.K. and Germany. Some markets are suffering from delusions as they continue to lean heavily on aid from other nations. “I think markets in Europe must be inhabited by glue sniffers,” said Willem Buiter, chief economist at Citigroup.

Here’s Why Everybody Is Wrong About The Second Quarter Being Weak - The all knowing punditocracy will need a total collapse in May and June in order to be correct, based on first time unemployment claims and real time Federal Withholding Tax data. That, ladies and gentlemen, is simply not on the radar, at least not in the available real-time data. At this moment the economy is melting up, not down. The following excerpt from the Wall Street Examiner Professional Edition Treasury Update illustrates why the pundits are probably wrong (… again… as usual… What else is new?) The 4 week average of the 11 weekdays (half month) total of withholding taxes was up 12.6% in nominal terms versus the corresponding period a year ago [as of April 23]. That’s an increase from +12.1% last week. The tax rate change at the beginning of the year appeared to result in a 6.5% increase in withholding tax collections. (Withholding taxes in Q1 accurately foreshadowed GDP growth for that quarter). That suggests that the net gain not attributable to tax rate changes is around 6.1% year over year. Part of that is inflation and part is an increase in economic activity Changes in average weekly compensation fluctuate wildly, so getting a handle on the real rate of gain becomes little more than swag as the month goes on until the next BLS employment data release. The  BLS figures for March showed a year to year increase of 1.9%.  Average weekly compensation gains each month, while volatile, have been averaging near a 2% annual rate. That would mean that real gains for the past 4 weeks were near 4.1%. I’m skeptical about this number. Still, there’s no clear evidence of economic weakening in this data. The uptrend has been remarkably stable dating back to May 2012. The second quarter is off to a good start., contrary to the conventional wisdom.

The studies behind austerity are weak. The study behind ‘uncertainty’ is worse.: You’ve heard about all the problems with Reinhart and Rogoff. But how about the problems with Baker, Bloom and Davis? On Sunday, Bill McNabb, Chairman and CEO of Vanguard, published an op-ed in the Wall Street Journal arguing that “since 2011 the rise in overall policy uncertainty has created a $261 billion cumulative drag on the economy (the equivalent of more than $800 per person in the country).” This is proof, McNabb says, that “developing a credible, long-term solution to the country’s staggering debt is the biggest collective challenge right now.” Specifically, the policy uncertainty McNabb is looking at comes from “the debt-ceiling debacle in August 2011, the congressional supercommittee failure in November 2011, and the fiscal-cliff crisis at the end of 2012.” There’s no doubt that these episodes hurt the economy. But the Vanguard study. McNabb says, is based on the “invaluable work” of Stanford University’s Nicholas Bloom and Scott Baker and the University of Chicago’s Steven Davis. The Bloom, Baker and Davis measure of policy uncertainty gets a lot of attention — but it’s shot through with holes.

The Story of Our Time, by Paul Krugman -   Let’s start with what may be the most crucial thing to understand: the economy is not like an individual family.  Families earn what they can, and spend as much as they think prudent; spending and earning opportunities are two different things. In the economy as a whole, however, income and spending are interdependent: my spending is your income, and your spending is my income. If both of us slash spending at the same time, both of our incomes will fall too.  And that’s what happened after the financial crisis of 2008. Many people suddenly cut spending, either because they chose to or because their creditors forced them to; meanwhile, not many people were able or willing to spend more. The result was a plunge in incomes that also caused a plunge in employment, creating the depression that persists to this day.  Why did spending plunge? Mainly because of a burst housing bubble and an overhang of private-sector debt — but if you ask me, people talk too much about what went wrong during the boom years and not enough about what we should be doing now. For no matter how lurid the excesses of the past, there’s no good reason that we should pay for them with year after year of mass unemployment.  So what could we do to reduce unemployment? The answer is, this is a time for above-normal government spending, to sustain the economy until the private sector is willing to spend again. The crucial point is that under current conditions, the government is not, repeat not, in competition with the private sector. Government spending doesn’t divert resources away from private uses; it puts unemployed resources to work. Government borrowing doesn’t crowd out private investment; it mobilizes funds that would otherwise go unused.

“Yes, the government must pay its bills in the long run.” (Every few centuries?) Questions for Krugman. - I’d like to push back on Paul Krugman a bit, on this bit in particular: Yes, the government must pay its bills in the long run. You hear this from him a lot. And I want to ask him: Paul, are you letting yourself be sucked into the very syndrome that you so bemoan and berate? Are you saying this because you feel the need to cast yourself as being sensible, responsible, moderate, and somewhat centrist — in short, as a Very Serious Person? I ask because over four centuries and two centuries respectively (six hundred years combined), the U.K. and the U.S. governments have paid off their debts exactly once: the U.S. in 1836. This happy event was followed, in 1837, by one of the most catastrophic depressions in either country’s centuries-long history. Likewise, the one other time that the U.S. got close to paying off its debt (the U.K. never has), in 1893, a disastrous depression followed immediately thereon. Every depression in U.S. history has been preceded by a major decline in nominal Federal debt. It’s not a sufficient condition for, or reliable predictor of, depression (many declines have not been followed by depressions), but it does seem to be a necessary condition.So we haven’t had to pay off our debt, and the one time we did (plus one time we got close), we were not happy with what ensued. From that history, how can you conclude that, now, “the government must pay its bills in the long run”?

U.S. Sees First Debt Reduction Since 2007 as Revenue Rises - The U.S. Treasury Department projected it will reduce government debt this quarter for the first time in six years as tax receipts exceed forecasts and spending diminishes. The pay-down in net marketable debt was estimated at $35 billion in the April-June period, compared with a projection three months ago for net borrowing of $103 billion, the department said in a statement today in Washington. Treasury officials also see net borrowing of $223 billion in the quarter starting July 1. The estimates set the stage for the department’s quarterly refunding announcement on May 1, when debt issuance plans will be released.A sustained economic expansion and across-the-board spending cuts known as sequestration may help deliver the first net decline in debt since 2007, when the government lowered borrowing by $139 billion before the global financial crisis spawned the worst recession since the 1930s. While the economy’s strength is helping boost tax revenue, total U.S. public debt outstanding is approaching $17 trillion.

US expects first cut in debt since 2007 - The US Treasury expects to pay down debt in the second quarter of 2013 as the budget deficit that has dominated national politics starts to shrink. The forecast of a quarter of net debt repayment for the first time since 2007 shows how tax increases, a cyclical recovery in tax revenues and a squeeze on spending are ratcheting down the budget deficit. Ahead of an announcement on Wednesday on the details of its quarterly borrowing schedule, the Treasury said it expects to repay a net $35bn in the second quarter, compared with a February estimate that it would have to borrow $103bn. “The decrease in borrowing relates primarily to higher receipts, lower outlays, and changes in cash balance assumptions,” said the Treasury. The second quarter is always the best for government cash flow because tax returns are due in April. The Treasury expects to issue $223bn of debt again in the third quarter. But the return to one quarter a year of debt repayment highlights how aggressively the US has cut the deficit this year, despite concerns about growth and political wrangling over tax and spending decisions.

U.S. to pay off debt for first time in six years - The U.S. Treasury expects to pay off $35 billion of debt in the third fiscal quarter, compared to an earlier projection, given in February, that it would have to borrow $103 billion, the government said Monday. This will be the first quarter that Treasury has paid off debt since April - June 2007. In a statement, Treasury said the changed projection related to higher receipts and lower outlays. For the fourth fiscal quarter, which begins in July, the government expects to borrow $223 billion. This assumes quarter-end cash balances of $75 billion on June 30 and $80 billion on September 30.

Treasury Yield Snapshot: 10-Year Yield at its 2013 Closing Low -  I've updated the charts below through today's close. The S&P 500 is now up 12.02% for 2013 at its all-time closing high. The yield on the 10-year note closed at 1.66%, its lowest close of 2013 (the same as yesterday). Equities and Treasuries are not seeing eye-to-eye. The latest Freddie Mac Weekly Primary Mortgage Market Survey puts the 30-year fixed at 3.35%, down from its interim high of 3.63% in mid-March and a mere 4 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.

U.S. Sees Floating-Rate Note by 1Q 2014, Lower Coupon Sizes - The U.S. Treasury Department said it plans to sell a floating-rate security as early as the fourth quarter this year and signaled it may decide to “gradually” reduce the supply of notes and bonds at auction. In its quarterly refunding statement today, the Treasury said a final rule on the floating-rate note auction is planned for coming months, with a first sale estimated to occur either in the fourth quarter this year or the first quarter of 2014. The department said it will use the weekly high rate of 13-week Treasury bill auctions as the index for the notes. With a budget deficit of more than $1 trillion last year, the Treasury needs to expand its base of investors. So-called floaters may appeal to those who are seeking to protect themselves from a possible increase in interest rates or faster inflation stemming from the Federal Reserve’s unprecedented monetary stimulus. “The floaters are being tailored to its audience and also to make it easier to transition into the product,”U.S. Treasury Could Clip Coupons, Help Fed - The Treasury Department could start to issue fewer notes and bonds if higher tax receipts and a stronger economy continue to boost revenues. That could be good news for the Federal Reserve’s efforts to keep interest rates low through a massive bond-buying program. Already, the Treasury has cut issuance of bills — short-term securities with maturities ranging from a few days to a year — as April tax payments elevate government income. The department is watching closely to see if that trend continues and its borrowing needs fall. “Depending on how the fiscal situation develops, Treasury may decide to gradually decrease coupon auction sizes,” Assistant Secretary for Financial Markets Matthew Rutherford said Wednesday. Coupon auctions include notes, with maturities ranging from two to 10 years, and bonds, which mature in 30 years.

Debt and Growth: A Response to Reinhart and Rogoff - Earlier this month, we posted a working paper, co-written with Thomas Herndon, finding fault with this conclusion. We identified a spreadsheet coding error — which Ms. Reinhart and Mr. Rogoff promptly acknowledged — that affected their calculations of growth rates for big economies since World War II. We also asserted that the two of them erred by omitting some data and improperly weighting other statistics. In an Op-Ed essay and appendix last week, Ms. Reinhart and Mr. Rogoff denied those accusations.  They referred to this debate as an “academic kerfuffle,” but we believe the debate has been constructive, because it has brought greater clarity over the ideas shaping austerity policies in both the United States and Europe.  The most important insight for anyone following this debate, and one that Ms. Reinhart and Mr. Rogoff acknowledge, is that there is no evidence supporting the claim that countries will consistently experience a sharp decline in economic growth once public debt levels exceed 90 percent of G.D.P. Although the two of them partly backed away from that claim in a 2012 paper in The Journal of Economic Perspectives, they have now done so more definitively, saying the 90 percent figure is not “a magic threshold that transforms outcomes, as conservative politicians have suggested.”  However, Ms. Reinhart and Mr. Rogoff stubbornly maintain that “growth is about 1 percentage point lower when debt is 90 percent or more of gross domestic product,” a core finding of their 2010 paper. There are serious problems with this claim. The most obvious is that the median growth figures they reported in the 2010 paper are distorted by the same coding error and partial exclusion of data from Australia, Canada and New Zealand that tainted their average growth figures.

When does +2.2% = -0.1%? er, never? - More negative space from Greg Mankiw's Blog ("Stevenson-Wolfers on Reinhart-Rogoff"): They write:In the end, all the corrections advocated by the critics shift the average GDP growth for very-high-debt nations to 2.2 percent, from a negative 0.1 percent in Reinhart and Rogoff’s original work. The finding remains that economic growth is lower in very-high-debt countries (see chart). It has been disappointing to watch those on the left seize on the embarrassing Excel errors but ignore this bigger picture. But still, isn't there a big difference between +2.2% and -0.1% growth? With +2.2% growth income will double in 30 years or so. With -0.1% growth income will never double. Plus, there is still the issue of causality: does slow growth cause debt or does debt cause slow growth?

Reinhart and Rogoff aren’t the problem. The Republican Party is.: It’s true that Reinhart and Rogoff’s initial paper was technically flawed. And it’s also true that Reinhart and Rogoff were happy to be feted as tribunes of austerity even as their paper made more careful claims. But the debate between them and their detractors has covered up the more important fissures that separate both them and their detractors from the Republicans in Congress. The real debate right now is with a Republican Party that won’t permit any more stimulus, won’t permit any more deficit reduction if it includes tax revenues, and won’t even permit the federal government to make it easier for people to refinance their homes. That’s a position that often gets called “austerity,” and so cloaks itself in the work of more serious deficit hawks, but it’s actually something very different, and much less coherent. And it’s not the position of Reinhart and Rogoff, or Krugman, or even Joe Scarborough. In fact, it’s not even obviously bridgeable with the positions of Reinhart, Rogoff and Krugman.

Another Take on Reinhart-Rogoff Controversy -  The updated charts below incorporate last Friday’s release of the first quarter GDP data.  They continue to tell the story of a weak recovery which, in my view, is largely due to ineffective government policy interventions.  There is, of course, an alternative view: that the recovery is weak because the recession and the financial crisis were severe. This alternative is based on research by Carmen Reinhart and Kenneth Rogoff claiming that weak recoveries typically follow deep recessions and financial crises. That claim is frequently cited by government officials as the reason why policy has not been the problem.   To be sure this is not the widely-cited research by Reinhart and Rogoff on the debt-growth nexus which has generated so much controversy recently (including a parody on the Colbert Report), but it's quite related from a policy perspective and equally controversial. 

Make ‘em Prove the Causality before They Cause Any More Suffering: Part One -OK, austerity has always been about the causality. The people who are trying their best to get us to cut more and more spending, somewhat less than their best to get us to raise taxes, and who are doing nothing to fix our fraud-laden financial system, or the worst period of dis-employment we’ve experienced since the Great Depression, have been making other people (never themselves) suffer, because they believe the theory that excessive public debt hurts economic growth, and that to get rid of it we must follow a plan of long-term deficit reduction. And I’m being very charitable when I opine that they believe in this theory, because the alternative is that they don’t believe it, but are just using it as an excuse to make other people suffer, and widen the wealth gap between themselves and the rest of the population.Either way it’s important for the rest of us to demand that before we do anything more based on that theory, they should be forced to prove that it is the best theory out there about the causal relationship between public debt and economy growth. Actually, we should have made them prove that before we allowed Congress and President Obama to start playing austerity games with us way back in 2009 – 2010, because there’s been a lot of water under the bridge since then, including continuing very high disemployment, thousands and thousands of people dying due to lack of health insurance, suicide, depression-related illnesses, crime that need not have occurred, and all the effects of hopelessness that afflict the poor and the middle class during bad economic times. And now, our wonderful leaders have managed to inflict the sequestration upon us, while planning to inflict entitlement cuts on the old and the sick.

Austerity is not the only answer to a debt problem -- Reinhart and Rogoff - The recent debate about the global economy has taken a distressingly simplistic turn. Some now argue that just because one cannot definitely prove very high debt is bad for growth (though the weight of the results still say it is), then high debt is not a problem. Looking beyond the recent public debate about the literature on debt – we have already discussed our results on debt and growth in that context – the debate needs to be reconnected to the facts. Let us start with one: the ratios of debt to gross domestic product are at historically high levels in many countries, many rising above previous wartime peaks. This is before adding in concerns over contingent liabilities on private sector balance sheets and underfunded old-age security and pension programmes. To be clear, no one should be arguing to stabilise debt, much less bring it down, until growth is more solidly entrenched – if there remains a choice, that is. Faced with, at best, haphazard access to international capital markets and high borrowing costs, periphery countries in Europe face more limited alternatives. Nevertheless, given current debt levels, enhanced stimulus should only be taken selectively and with due caution. A higher borrowing trajectory is warranted, given weak demand and low interest rates, where governments can identify high-return infrastructure projects. Borrowing to finance productive infrastructure raises long-run potential growth, ultimately pulling debt ratios lower. We have argued this consistently since the outset of the crisis. Ultra-Keynesians would go further and abandon any pretence of concern about longer-term debt reduction. This position has been in the rhetorical ascendancy in recent months, with new signs of weaker growth. It throws caution to the wind on debt and, to quote Star Trek, pushes governments to “go where no man has gone before”. The basic rationale is that low interest rates make borrowing a free lunch. Unfortunately, ultra-Keynesians are too dismissive of the risk of a rise in real interest rates. No one fully understands why rates have fallen so far so fast, and therefore no one can be sure for how long their current low level will be sustained.  Debt is a slow-moving variable that cannot – and in general should not – be brought down too quickly. But interest rates can change rapidly.

Those Ultra-Keynesians at the National Review and the Wall Street Oped Pages - Ken Rogoff and Carmen Reinhart make this strange claim:  Unfortunately, ultra-Keynesians are too dismissive of the risk of a rise in real interest rates. .No one fully understands why [real interest] rates have fallen so far so fast, and therefore no one can be sure for how long their current low level will be sustained...Economists simply have little idea how long it will be until rates begin to rise. If one accepts that maybe, just maybe, a significant rise in interest rates in the next decade might be a possibility, then plans for an unlimited open-ended surge in debt should give one pause. Jonathan Portes appropriately responds to this idiocy:  Leave aside the silly straw man (repeated elsewhere) that "ultra-Keynesians" want an "unlimited open-ended surge in debt." Who are these "ultras"? Not Martin Wolf and Simon Wren-Lewis in the UK, or Paul Krugman and Brad Delong in the US. And, as Reinhart and Rogoff know perfectly well, of course we think (and hope!) that real interest rates will rise at some stage, when demand and confidence returns and the private sector wants to invest.

More Straw - Paul Krugman - The Reinhart-Rogoff rehabilitation tour has been really depressing. They seem addicted to the notion that they can end the discussion by arguing with straw men. I noted one example in their Times piece, in which they tried to rebut the reverse-causation argument by associating it with a claim — that it’s all about the business cycle — that, as far as I know, nobody has made.  Now they have another piece, this time in the FT, and as Jonathan Portes points out, it attacks two more straw men.  First, it goes after “ultra-Keynesians” who believe that interest rates will never rise; as Portes says, he can’t think who fits that description.  Then, as a supposed argument against … somebody … they point out that Keynes was worried about how to pay for World War II. Um, who exactly doesn’t think that budget deficits are an issue in a more-than-full-employment economy fighting total war? If the defense of their past work rests on pretending that it’s all an argument with some imaginary economist who believes that we will be in a liquidity trap for ever and ever, and in addition tells stories about debt and growth that bear no resemblance to any of the arguments I’ve heard — well, then they have no defense at all.

American Austerity, An Update - Paul Krugman - There is some tendency among economic commentators to think that austerity policies in a deeply depressed economy are mainly a European thing. But the truth is that federal stimulus is years behind us, while state and local governments have cut back, so the overall story is one of fiscal contraction that’s smaller than in Europe, but not by that much. To see what’s going on, you need to do two things. First, you should include state and local; second, you shouldn’t divide by GDP, because a depressed GDP can cause the spending/GDP ratio to rise even if spending falls. So it’s useful to look at the ratio of overall government expenditure to potential GDP — what the economy would be producing if it were at full employment; CBO provides standard estimates of this number. And here’s what we see:Spending is down to what it was before the recession, and also significantly lower than it was under Reagan. Bear in mind that in the years since the recession began we’ve seen a significant number of boomers reach retirement age, which would ordinarily have led to rising spending, not to mention the effects of rising health care costs. Bear in mind also that the private sector is still deleveraging, which means that government should be spending more to help sustain the economy. So this is actually a picture of very bad policy.

Democrats ask: What debt crisis? - Call them the debt crisis dissenters. The two parties are miles apart on how to cut the deficit and national debt: Republicans want to slash spending even more. Democrats want to raise revenue. And then there are the other Democrats — the ones who reject the entire premise of the current high-stakes fiscal fight. There’s no short-term deficit problem, they say, and there isn’t even an urgent debt crisis that requires immediate attention. This group could make it even harder for President Barack Obama to strike a grand bargain because they increasingly see no immediate need for either new spending cuts or significantly more revenue, both of which they say could further slow the economy. These Democrats and their intellectual allies once occupied the political fringes, pushed aside by more moderate members who supported both immediate spending cuts and long-term entitlement reforms along with higher taxes. But aided by a pile of recent data suggesting the deficit is already shrinking significantly and current spending cuts are slowing the economy, more Democrats such as Virginia Sen. Tim Kaine and Maryland Rep. Chris Van Hollen are coming around to the point of view that fiscal austerity, in all its forms, is more the problem than the solution.

What Debt Crisis, Indeed? Things that Make You Go Hmmmmm… - OK, I know that what’s happening in the debt debate is more complicated than a grad student found some mistakes in a spreadsheet and the spell that had bewitched the nation was broken.  But that’s kinda what seems to be happening. This Politico piece tells of some Democrats coming around to the view that “[t]here’s no short-term deficit problem…and there isn’t even an urgent  debt crisis that requires immediate attention.”…aided by a pile of recent data suggesting the deficit is already shrinking  significantly and current spending cuts are slowing the economy, more Democrats…are coming  around to the point of view that fiscal austerity, in all its forms, is more the  problem than the solution. This group got a huge boost this month with the very public demolition of a  sacred text of the austerity movement, the 2010 paper by a pair of Harvard  professors arguing that once debt exceeds 90 percent of a country’s gross  domestic product, it crushes economic growth.

Are Democrats Moving Away from "Debt Crisis" Rhetoric?: Deficit reduction has been Washington’s obsession for the past two years, and the main approach of both parties is austerity—any combination of policies that raises government revenue and reduces its expenditures. On one side is the Republican Party, which wants to lower the debt and, eventually, balance the budget with large cuts to existing social services, from Medicaid—a health-care program for the poor—to food stamps, unemployment insurance, and other key services for low-income Americans. If this is full austerity, then you could call the Democratic approach austerity “light.” Like Republicans, most Democrats—including President Obama—want cuts to federal spending. But they reduce spending with cuts to Medicare—through adjusted payments to hospitals, manufacturers, and doctors—and defense spending. In addition, Democrats want higher taxes on the wealthiest Americans to “balance” these cuts and spread the burden across income groups. But if a recent story from Politico is any indication, the political consensus around debt has begun to unravel. To wit, lawmakers like Virginia Senator Tim Kaine, a moderate Democrat representing a purple state, have all but denounced austerity as pointless and harmful:

Obama’s manoeuvres all lead back to impasse - Barack Obama has not yet clocked up 100 days – he hits that milestone on Wednesday. Yet there is already an air of resignation about how the next four years are likely to play out. A large share of it comes from the realisation that the Republican party is not for turning after all – at least, not on anything other than immigration. Democratic spirits were boosted at the start of this year with the deal to avert the fiscal cliff, in which Mr Obama finally got Republicans to agree to a tax rise. It may have been modest. The top rate went from 35 per cent to 39.6 per cent and the threshold was doubled to $400,000. But people thought the dam had broken. If Republican purists could permit one transgression, more would surely follow. That now looks to have been a colossal misreading of the Republican mood and of the fact that the tactical advantage was swinging back to them. They still have it. In exchange for agreeing to the January 2 tax increase, Republicans held John Boehner, the speaker of the House of Representatives, to an implicit bargain: “Never again,” in the words of one lawmaker. Moreover, revenge was written into the fiscal cliff deal. Democrats blithely assumed that the March 1 trigger of $1,200bn in across-the-board spending cuts would be averted at the last minute. Sure enough, sequestration went ahead. Far from being unimaginable, as sequestration was intended to be, it is already normal.

Sequester hysterics obscure the reality of Obama's budget plan - Dean Baker  - The big talk in Washington, DC this month is the sequester. These cuts account for roughly 8% of most discretionary spending, both military and domestic. While the cuts became effective at the start of March, many will first begin to feel the pinch this month, since government contracts generally require 30 days' notice for leaves or furloughs. This means that cuts in areas like airport security, food quality and air traffic control are just now taking effect.  The Democrats have been yelling loudly about the damage that these cuts will inflict on specific programs and the economy as a whole – and they do have a case. The cuts will whittle spending in a wide variety of areas, and some, like those to airport security and food inspections, will have an immediate impact. Until Congress passed a hurried law enabling the FAA to shuffle its budget to avoid furloughs, we were seeing longer lines at airports. And we may still be more likely to find ourselves eating contaminated meat. Other cuts, such as reductions in spending on infrastructure maintenance and medical research, will only be felt over the long term, as the quality of roads, rails and medical programs gradually worsens.  In addition, the reduction in spending at a time when the economy is already weak will further slow down growth and weaken job creation.For some bizarre reason, prior to the release of the report, many economists made bold claims about how the economy had turned the corner and the recovery was picking up steam. It's not clear what these folks had been smoking.

Fixing Sequestration (for the rich only) by Linda Beale - Once again, Congress has demonstrated that it notices mostly what affects rich people and can’t quite identify with ordinary Americans.  And that it will not pass either spending laws or tax laws (which include a wealth of spending laws through the tax expenditure mechanism) that equitably deal with the misallocation of resources between the wealthy few and the rest of us.  Tax policies operate for the high and mighty:  once again, inequality is the real characteristic that matters. The sequestration–a response to the GOP-led desire for austerity, shrinking government, and otherwise ensuring that rich people and major businesses don’t have to pay much in taxes–was ridiculous from the outset because it cut programs across the board, at a time of significant unemployment, without prioritizing programs that support the safety net or ensure education (like Head Start) or protect critical infrastructure or other needs.  The only reasons it made some sense was that (1) it would finally lead to some cuts in our engorged military spending and (2) it should have permitted Congress to develop enough spine to refuse to make the Bush tax cuts permanent for anybody but those ordinary Americans making $100,000 or less.The reductions caused by the sequester affected the ease with which rich people can get on a plane and fly to their business and vacation destinations!  Such suffering.  So incomprehensible how we could allow it.  The Senate swiftly moves into action–this was something they hadn’t anticipated–that the sequester could actually bother some of their own class.  Suddenly, They acted.  In just a short time last night, with unanimous consent, the Senate voted to “let the FAA transfer some money from the Transportation Department to pay air traffic controllers.”  See: Senate fixes the (part of the) sequesteration (that affects rich people)!,

Sequestration 101: If a Budget Cut Doesn't Impact the Wealthy, Congress Won't Fix It -  Americans are fond of saying that they want to slash government spending in the abstract, but loath to point to specific programs that they actually want to cut. With sequestration, this ambivalence has come home to roost. Because the automatic spending cuts known as sequestration affect all programs evenly, the ones that touch middle-class Americans, not just the poor, have suffered equally. We haven’t just learned a lesson about the effects of budget cutting, though. We’ve also been able to see the priorities of Congress in stark relief. The flight delays, a result of furloughs at the Federal Aviation Administration, were not the first effects of sequestration. Those were visited on the poor. Yet the FAA was the only agency that saw swift and bipartisan action. After Congress was flooded with calls from angry travelers—not to mention, as lawmakers started down flight delays for their own flights home for recess—the Senate and House each passed a bill with overwhelming support within forty-eight hours. When’s the last time you remember that happening for any other issue?

Meals On Wheels Sequestration Cuts Taking Effect: McCormick is 70 years old and living alone in a one-bedroom apartment in a six-story building. The parking lots are barren and the hallways are dingy with torn carpets. He's lived here since 2005, and for most of that time he has benefited from food charity every week day -- not left at his door anonymously, but brought to him by Meals On Wheels volunteers. Since 1972 the Administration on Aging has provided federal funding for senior nutrition, and today volunteers from some 5,000 Meals On Wheels affiliates across the country distribute a million meals a day. But federal funding for senior nutrition has been reduced by budget cuts known as sequestration, meaning less food for old people here and elsewhere. The White House has said the cuts would mean 4 million fewer meals for seniors this year, while the Meals On Wheels Association of America put the loss at 19 million meals. In general, the federal government subsidizes only a portion of the cost of every meal, so whether individual seniors will stop receiving food really depends on the circumstances of whatever local agency serves them.

The Democrats have lost on sequestration: That’s the simple reality of Friday’s vote to ease the pain for the Federal Aviation Administration.Recall the Democrats’ original theory of the case: Sequestration was supposed to be so threatening that Republicans would agree to a budget deal that included tax increases rather than permit it to happen. That theory was wrong. The follow-up theory was that the actual pain caused by sequestration would be so great that it would, in a matter of months, push the two sides to agree to a deal. Democrats just proved that theory wrong, too. In effect, what Democrats said Friday was that in any case where the political pain caused by sequestration becomes unbearable, they will agree to cancel that particular piece of the bill while leaving the rest of the law untouched. The result is that sequestration is no longer particularly politically threatening, but it’s even more unbalanced: Cuts to programs used by the politically powerful will be addressed, but cuts to programs that affects the politically powerless will persist. It’s worth saying this clearly: The pain of sequestration will be concentrated on those who lack political power.

Should a balanced budget plan be the GOP price for debt hike? No -- From The Hill: Conservative groups are vowing to force lawmakers to adopt a balanced budget plan before passing any increase in the nation’s debt ceiling. The Club for Growth and Heritage Action said that establishing a path to a balanced budget within 10 years will be their demand in the looming fight between congressional Republicans and President Obama

  • 1. This may make for great politics, but there isn’t a strong economic/fiscal/financial reason to balance the budget in ten years — even before the Reinhart-Rogoff controversy.
  • 2. As we already saw with the House GOP attempt, the BB-in-10 approach forces some odd contortions and unlikely assumptions from policymakers to get the numbers to work.
  • 3. If GOPers are going make the debt ceiling an issue — and I am not a big fan of the strategy — why not link it to pro-growth policies like business tax reform since faster growth is a great way to reduce a nation’s debt burden.
  • 4. The US labor market is a shambles, and a balanced budget is no fix. So why spend so much political capital on it? How about some focus on ideas to help the long-term unemployed?

Republican Bill Could Eliminate Most Economic Statistics - A new bill meant to target what some on the right consider “intrusive” Census surveys could have the effect of making it impossible for the Federal Government from gathering the data behind most of the well-known economic statistics:A group of Republicans are cooking up legislation that could give President Barack Obama an unintentional assist with disagreeable unemployment numbers — by eliminating the key economic statistic altogether.The bill, introduced last week by Rep. Jeff Duncan (R-S.C.), would bar the U.S. Census Bureau from conducting nearly all surveys except for a decennial population count. Such a step that would end the government’s ability to provide reliable estimates of the employment rate. Indeed, the government would not be able to produce any of the major economic indices that move markets every month, said multiple statistics experts, who were aghast at the proposal.“They simply wouldn’t exist. We won’t have an unemployment rate,” “I don’t know how the market reacts if there is suddenly no unemployment rate at the start of the month,” Prewitt said. “How does the market react if we don’t have a GDP [gross domestic product]?”

A new GOP bill would prevent the government from collecting economic data -Rep. Jeff Duncan (R-S.C.) is rolling out the Census Reform Act this week. The bill would abolish the Current Population Survey, which is used to compute the unemployment rate and labor force participation rate. We wouldn’t have an unemployment rate if Duncan and his cosponsors get their way.That means no CPS, but also no Economic Census, which tracks the state of every economic industry every five years; no Census of Governments, another quinquennial survey tracking state and local governments; and no economic indicators on everything from home ownership rates to international trade figures. It also means no more American Community Survey, the largest between-Census survey the bureau conducts, which provides more accurate poverty, income, education, health coverage and other statistics than the Currency Population Survey can. What’s more, it means that all the surveys the Census conducts for other government agencies will be done with. That includes the National Crime Victimization Survey, one of the best data sources we have on crime rates; the American Housing Survey that the Census conducts for HUD; the National Survey of Fishing, Hunting, & Wildlife conducted for the Department of the Interior; the Annual Survey of Jails; and various other data it provides to the Departments of Education, Transportation, Justice and more.

“Homeland Security” Spending Overtakes New Deal  - The only thing we have to fear is fear itself and we are apparently very afraid. The ever mutating concept of “homeland security” has garnered more public funds since 9/11 than President Franklin Roosevelt’s New Deal. Pretty amazing, who knew fighting phantoms could be so expensive?  For decades, the Department of Defense has met this definition to a T.  Since 2003, however, it hasn’t been alone.  The Department of Homeland Security (DHS), which celebrates its 10th birthday this March, has grown into a miniature Pentagon. It’s supposed to be the actual “defense” department — since the Pentagon is essentially a Department of Offense — and it’s rife with all the same issues and defects that critics of the military-industrial complex have decried for decades.  In other words, “homeland security” has become another obese boondoggle. But here’s the strange thing: unlike the Pentagon, this monstrosity draws no attention whatsoever — even though, by our calculations, this country has spent a jaw-dropping $791 billion on “homeland security” since 9/11. To give you a sense of just how big that is, Washington spent an inflation-adjusted $500 billion on the entire New Deal.

Abrams Tank Pushed By Congress Despite Army - Built to dominate the enemy in combat, the Army's hulking Abrams tank is proving equally hard to beat in a budget battle. Lawmakers from both parties have devoted nearly half a billion dollars in taxpayer money over the past two years to build improved versions of the 70-ton Abrams. But senior Army officials have said repeatedly, "No thanks." It's the inverse of the federal budget world these days, in which automatic spending cuts are leaving sought-after pet programs struggling or unpaid altogether. Republicans and Democrats for years have fought so bitterly that lawmaking in Washington ground to a near-halt. Yet in the case of the Abrams tank, there's a bipartisan push to spend an extra $436 million on a weapon the experts explicitly say is not needed. "If we had our choice, we would use that money in a different way," Gen. Ray Odierno, the Army's chief of staff, told The Associated Press this past week.

Real debt fix can't exempt middle class - CBO chief - As head of the Congressional Budget Office, Doug Elmendorf has a knack for telling everyone on Capitol Hill exactly what they don't want to hear. Take the broadly defined middle class. All politicians swear to protect those in it from higher taxes and lower benefits. But that promise may be hard to keep if lawmakers are serious about curbing growth in the national debt over the long run. "Putting the debt on a sustainable path will ultimately require increases in taxes or cuts in government benefits or services for people who consider themselves to be in the middle class," Elmendorf said in a presentation at Harvard University last week. That's hardly the first time Elmendorf has said so, and it probably won't be the last. It's among the points that get lost in the hyper-partisan debate over debt . That debate, of course, has been lurching from one political extreme (Cut now! Debt will kill us!) to the other (Don't cut anything! Debt isn't a problem!).

Obama Budget Plan Results In ‘Back Door’ Tax Increase For Middle-Class Households: Analysis: For those looking to put the woes of Tax Day behind them, we have some bad news: It’s probably only going to get worse. President Obama’s budget proposal, released earlier this month, includes a provision that would steadily boost taxes for middle-class households over the next 10 years, according to an analysis from the nonpartisan Tax Policy Center….Adjustments in income tax brackets are currently tied to the headline inflation measure. By tying the definition of income tax brackets to a different measure of inflation, called the chained consumer price index, Obama’s budget creates a “back door” tax increase, Joseph Rosenberg, a research associate at the Tax Policy Center, told The Huffington Post. With Obama’s budget change, taxpayers would move into higher income tax brackets and face higher tax rates more quickly than they would have before, Rosenberg said. Since growth in real wages tends to outpace inflation, Americans will have to pay more in taxes before their money is worth more.

The Geographic Distribution of the Mortgage Interest Deduction - Pew - With changes to federal tax expenditures under consideration, data showing the current geographic distribution of the mortgage interest deduction — one of the largest tax expenditures — are key to understanding how federal tax decisions would affect the states. These maps show that mortgage interest claim rates and average deductions vary widely both across and within states. The percentage of all tax filers who claimed the mortgage interest deduction—the claim rate—ranged from nearly 37 percent in Maryland to 15 percent in West Virginia.

Yet Another Proposal To Raise My Own Taxes - In chapter 7 of White House Burning, we proposed to eliminate or scale back a number of tax breaks that I benefit from directly, including the employer health care exclusion, the deduction for charitable contributions, and, most importantly, tax preferences for investment income. We did not, however, go after tax breaks for retirement savings, on the grounds that Americans already don’t save enough for retirement. Well, in my latest Atlantic column, I’m going after that one, too. I changed my mind in part for the usual reason—the dollar value of tax expenditures is heavily skewed toward the rich. But the other reason is that the evidence indicates that this particular subsidy doesn’t even do what it’s supposed to do: increase retirement savings. Instead, we should take at least some of the money we currently waste on tax preferences for 401(k)s and IRAs and use to shore up Social Security, the one part of the retirement “system” that actually works for ordinary Americans.Of course, this isn’t going to happen anytime soon. President Obama proposed capping tax-advantaged retirement accounts at $3.4 million, which is a step in the right direction. ($150,000 would be a better limit, since most people reach retirement with far less in their 401(k) accounts.)* But even that was attacked by the asset management industry as theft from the elderly.

Apple avoids potential $9bn tax bill - Apple will avoid a potential tax bill of up to $9bn by using the proceeds from its $17bn blockbuster bond issue to pay shareholders rather than bringing back cash from abroad. The technology group would have paid as much as 35 per cent in tax to bring that amount of cash back into the US, according to lawyers and accountants. Apple, which has $100bn worth of offshore cash compared with just $45bn in the US, last month announced it would partly fund a record-breaking $55bn share buyback programme by using money raised in the corporate bond market. The company will also save around $100m a year from using the debt rather than straight cash. Although the company’s $17bn borrowing from the corporate bond market this week will cost it around $310m a year in interest payments, it will regain about a third of that due to tax deductions. “There is a huge tax saving for Apple in borrowing the money rather than bringing it back to the US,”  “The company will keep getting that $100m or so tax credit every single year.”

Financial Media Celebrates Apple’s Tax Evasion Bond Deal - Yves Smith -- As is par for the course, the financial media is telling a story about a major US company from the perspective of the investing classes, rather than the broader public. The poster child is the New York Times’ Dealbook, in a story titled “To Satisfy Its Investors, Cash-Rich Apple Borrows Money.” It third paragraph reads: Apple’s return to the debt markets raises a riddle: Why would a company with so much cash even bother to issue debt? A full seven paragraphs later, the article gets around to the last, and arguably the most important reason: By raising cheap debt for the shareholder payout, Apple also avoids a potentially big tax hit. About two-thirds of Apple’s cash — about $102 billion — sits overseas in lower-tax jurisdictions. If it returned some of that cash to the United States to reward its investors, it could have significant tax consequences for the company. In some ways, the bond issue is a response to that tax situation. “In some ways” is an understatement. A simple Google search shows stories going back several years of how Apple has been pushing for a tax holiday so it can repatriate its overseas stash. One example is a February 2011 report from electronista, Demands come despite federal budgetary crisisApple, Cisco, Pfizer and Duke Energy are specifically named as lobbying politicians for a tax “holiday” in regards to repatriated cash. Whereas the companies would normally be obligated to pay 35 percent, their goal is allegedly to pay just 5 percent.

A New Way to Address the International Tax Mess - There may be no more vexing challenge in the Revenue Code than the taxation of foreign transactions of multinational companies. Most everyone agrees that the current system is a mess. And corporate tax reform is impossible without addressing international issues. Yet, this corner of the tax law is not only immensely complex but most proposed solutions inevitably run into massive political and policy roadblocks. In an attempt to surmount those hurdles, two highly-respected international tax economists have proposed an intriguing solution—a corporate minimum tax that allows firms to immediately expense the costs of their foreign investments instead of depreciating them over a period of years.The proposal was devised by Rosanne Altshuler of Rutgers University (a former director of the Tax Policy Center) and Harry Grubert, a career economist at the Treasury Dept. While Grubert works for the Treasury, the proposal in no way represents the views of the Treasury or the Obama Administration which, in fact, has proposed its own, quite different international tax plans.

Matt Taibbi Discusses the Market Rigging in the Swaps and LIBOR Markets By the Banks (podcast) Derivatives and many real world calculations of risk and price are based on a relatively few published data, such as LIBOR. Similarly, the 'spot' price of gold and silver is based in large part on the front month contract for gold and silver on the Comex. And those prices in turn have enormous leverage over the price of mining stocks. Some have pointed to the 'physical market' in London for metals at the LBMA as the true price market for physical bullion, with their AM and PM 'price fix.'  And while it is true that the LBMA is a market dominated by insiders, with less disclosure than many exchanges,  it has come out that even on the LBMA the price is largely based on paper trading with leverage approaching 100 to 1.   And LBMA is heavily interconnected with the Comex. Since those making markets on the Comex in metal futures deliver a very small percentage of the actual gold and silver that is traded on paper, and much of that is settled for cash, the opportunity for price rigging is significant, hugely so.

High-frequency traders face speed limits - High-frequency traders are facing "speed limits" for the first time on a major trading platform, under a proposal that is being touted as a template for a regulatory clampdown on computer-driven activity. EBS, one of the two dominant trading platforms in the foreign exchange market, is suggesting scrapping the principle of "first in, first out" trading, which it says gives an unfair advantage to the fastest computers and has led to an arms race of spending on technology. Instead, under the plan, incoming orders would be batched together and dealt with in a random order. "It is a technology arms race to the bottom, and a huge tax on the industry, since people are having to make significant investments in speed without any connection to their trading strategy," said Gil Mandelzis, EBS chief executive. "Speed has little to do with why many participants come to our markets. These are serious players who come to the market to exchange risk; they do not come to race." High-frequency trading, or HFT, has triggered controversy across financial markets, with many large investors complaining that it has increased the complexity of doing business. Algorithms compete for microsecond advantages to get to the top of the trading book, and even the physical position of computer servers can make a difference because of the time it takes for orders to reach exchanges. Proponents argue HFT improves the efficiency of markets and narrows transaction costs.

At $72.8 Trillion, Presenting The Bank With The Biggest Derivative Exposure In The World (Hint: Not JPMorgan) - Moments ago the market jeered the announcement of DB's 10% equity dilution, promptly followed by cheering its early earnings announcement which was a "beat" on the topline, despite some weakness in sales and trading and an increase in bad debt provisions (which at €354MM on total loans of €399.9 BN net of a tiny €4.863 BN in loan loss allowance will have to go higher. Much higher). Ironically both events are complete noise in the grand scheme of things. Because something far more interesting can be found on page 87 of the company's 2012 financial report. The thing in question is the company's self-reported total gross notional derivative exposure. And while the vast majority of readers may be left with the impression that JPMorgan's mindboggling $69.5 trillion in gross notional derivative exposure as of Q4 2012 may be the largest in the world, they would be surprised to learn that that is not the case. In fact, the bank with the single largest derivative exposure is not located in the US at all, but in the heart of Europe, and its name, as some may have guessed by now, is Deutsche Bank.  The amount in question? €55,605,039,000,000. Which, converted into USD at the current EURUSD exchange rate amounts to $72,842,601,090,000....  Or roughly $3 trillion more than JPMorgan's.

Banks Have Become “Too Big To Fail” Again. Uh-Oh. - Simon Johnson - There are two competing narratives about recent financial-reform efforts and the dangers that very large banks now pose around the world. One narrative is wrong; the other is scary. At the center of the first narrative, preferred by financial-sector executives, is the view that all necessary reforms have already been adopted (or soon will be). Banks have less debt relative to their equity levels than they had in 2007. Proponents of this view also claim that the megabanks are managing risk better than they did before the global financial crisis erupted in 2008. In the second narrative, the world’s largest banks remain too big to manage and have strong incentives to engage in precisely the kind of excessive risk-taking that can bring down economies. Last year’s “London Whale” trading losses at JPMorgan Chase are a case in point. And, according to this narrative’s advocates, almost all big banks display symptoms of chronic mismanagement.

Two Senators Try to Slam the Door on Bank Bailouts - THERE’S a lot to like, if you’re a taxpayer, in the new bipartisan bill from two concerned senators hoping to end the peril of big bank bailouts. But if you’re a large and powerful financial institution that’s too big to fail, you won’t like this bill one bit. The legislation, called the Terminating Bailouts for Taxpayer Fairness Act, emerged last Wednesday; its co-sponsors are Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican. It is a smart, simple and tough piece of work that would protect taxpayers from costly rescues in the future. This means that the bill will come under fierce attack from the big banks that almost wrecked our economy and stand to lose the most if it becomes law. For starters, the bill would create an entirely new, transparent and ungameable set of capital rules for the nation’s banks — in other words, a meaningful rainy-day fund. Enormous institutions, like JPMorgan Chase and Citibank, would have to hold common stockholder equity of at least 15 percent of their consolidated assets to protect against large losses. That’s almost double the 8 percent of risk-weighted assets required under the capital rules established by Basel III, the latest version of the byzantine international system created by regulators and central bankers.This change, by itself, would eliminate a raft of problems posed by the risk-weighted Basel approach. Under those rules, banks must hold lesser or greater amounts of capital against assets, depending on the supposed risks they pose.

S&P On Brown Vitter - The regulation proposed by Senators David Vitter (R-LA) and Sherrod Brown (D-OH) intended to end 'Too Big To Fail' was obviously going to make Wall Street nervous — but we didn't expect Standard and Poor's to call it the end of the world. S&P estimates that banks would have to raise cashed between $1.2 trillion and $160 billion depending on their size. Additionally, they say, the Brown Vitter measure would hurt shareholders, make banks less competitive internationally, and possibly send us into another recession. The banks may even have to break up. From S&P's report: We would be most concerned about the impact on the economy because it appears banks would need to build significantly more capital, which would likely impede their ability to extend credit. In addition, the proposal does not appear to be comprehensive--it focuses primarily on capital and does not address liquidity. Under our methodology, we would potentially no longer factor in government support if we believed that once large banks are broken up, we would not classify these banks as having high systemic importance. Clearly, if enacted, a transition period will be required as many moving parts in this legislation are absorbed by management teams and investors alike.

How Wall Street Is Fighting Brown-Vitter -- I've never met Kate (Bruns) Bernard, but she sure sends me a lot of e-mail. More than any other actual human in my in-box, I'd guess, with the possible exception of my mother. Kate Bernard e-mails me a lot not because she's nice (though she may well be!), but because she works for Hamilton Place Strategies, a D.C.-based "policy and communications consulting firm" that works on behalf of big financial institutions and Wall Street trade organizations like the Financial Services Forum. Recently, her firm has been very busy trying to defend big banks against a bill introduced by Senators Sherrod Brown and David Vitter that would make it harder for them to do business. And so, every time someone of note goes on TV, writes an op-ed, or conducts a study that purports to show how great big banks are, and how little reforming they need, it's her job to send it to me. The Brown-Vitter bill is only a week old, but it's already getting the kind of scorn that Wall Street typically reserves for Senator Elizabeth Warren. It's a bill that would impose tough capital requirements on U.S. banks, requiring them to hold bigger cushions against losses and lessening the likelihood that they could undergo a 2008-style collapse. Banks with more than $500 billion in assets would be required to have a 15 percent equity cushion, and other banks would need 10 percent.

How a Much-Heralded Bank Reform Proposal Could Actually Blow Up the American Economy - Lynn Parramore: Loud criticisms of Brown-Vitter are coming from predictable sources like corporate law firm DavisPolk. But, as ProPublica’s Jesse Eisinger has pointed out, they aren’t too convincing. Warning that higher capital requirements could cause credit to dry up, Great Depression-style, as banks scramble to meet them, or the howl that the bill would make U.S. banks less competitive are so much hot air. That’s just the banking industry and its supporters crying wolf again. So if the banking industry hates the bill, what’s not to love? The real problem is not what the bailout bill does; it’s what it doesn’t do. Or, more specifically, who and what it leaves out. If we recall the financial crisis of 2007-'08, the threat of large financial institutions collapsing and causing havoc across the economic system was real and very scary. The U.S. Financial Crisis Inquiry Commission reported in 2011 that risky and reckless activity, coupled with breakdown in governance, had compromised the global economy. Commercial megabanks like Citigroup, Bank of America and JPMorgan (though it doesn’t like to admit it) were over-extended and posed enormous risk. But there were other financial institutions that were NOT commercial banks that were also extremely dangerous. Remember Lehman Brothers? It was an investment bank, rather than a commercial bank, and it would not be covered under Brown-Vitter. So was Bear Stearns. Does the name AIG ring a bell? Astonishingly, the bill asks nothing new of the giant insurer that we actually did bail out in 2008 to avoid complete meltdown. Giant hedge funds like Long Term Capital Management, which nearly went belly-up in the late 1990s and got a bailout, would also escape the requirements.

The Case for Megabanks Fails - Simon Johnson - On April 30, the law firm Davis Polk & Wardwell issued “Brown-Vitter Bill: Commentary and Analysis,” confronting head-on the proposal from Senators Sherrod Brown, Democrat of Ohio, and David Vitter, Republican of Louisiana, that would require bigger banks to fund themselves with more equity (and less debt, relative to their total balance sheet). The Davis Polk document, well written and with clear footnotes to its sources, provides transparency and style, a great improvement over most pro-megabank writing that I have reviewed here over the years. On substance, however, Davis Polk is completely wrong. On key points of law, the Davis Polk analysis is less than complete. This might seem surprising, given that Davis Polk is one of the country’s best-known law firms, but if it accurately described the full legal situation, all is lost for its case. The heart of the problem is cross-border resolution, in other words, the ability of the Federal Deposit Insurance Corporation to manage the government-supervised approach to handling the failure of a global megabank.

Fed weighs tighter cap on bank leverage - Federal Reserve officials are weighing a stricter cap on bank leverage , a move that would respond to increasing demands to constrain the riskiness of large lenders. According to people familiar with the matter, Fed officials have discussed increasing the amount of equity capital banks are required to hold, setting the bar higher than the 3 per cent of assets level agreed internationally. The move is being considered amid growing scepticism about the Basel III capital accords, which impose higher capital requirements on banks around the world but allow them to vary the amount depending on the riskiness of individual assets. Officials are concerned that some banks are gaming the system. However, critics of a higher leverage ratio argue that it is a blunt tool that makes no distinction between safe securities, such as US Treasuries, and risky assets such as leveraged loans, and could result in banks taking on more risk. In Congress, a proposal to impose a 15 per cent leverage ratio on the largest banks has secured bipartisan support. Analysts calculate it would require the likes of JPMorgan Chase and Bank of America to forego dividends for years to retain a total of $1.2tn of equity. Few regulators want to go so far, with many believing it would harm the financial sector and curb lending. Any increase would also reduce profitability.

Banks Feel Heat on Capital - Federal regulators, concerned that large U.S. banks remain a risk to the financial system, are pushing very large banks to hold higher levels of capital. This additional capital could likely include a minimum amount of unsecured long-term debt that would place a greater burden on creditors, rather than taxpayers, in the event of a bank's demise. The push is part of a broader effort by the Federal Reserve and other regulators to force banks to shrink voluntarily by making it expensive and onerous to be big and complex. Regulators are trying to head off more aggressive measures on Capitol Hill to cap bank size or break up institutions. The Fed and Federal Deposit Insurance Corp. are considering requiring certain large, complex banks to maintain a minimum level of unsecured long-term debt, according to people familiar with the discussions. There is growing momentum behind requiring such a move, which regulators consider key to ensuring that creditors bear any losses if a firm collapses, these people said. Regulators also see a benefit in having banks issue such debt since it would reduce reliance on volatile short-term funding markets. Such long-term debt could be expensive for banks to issue, since it would have to carry a higher interest rate to reflect the risk that creditors take in assuming an unsecured position.

Fed eyes enhanced capital requirements - A Federal Reserve governor called for higher bank capital requirements as a way of curbing risks in the financial system, adding to the pressure for new restrictions on the biggest lenders. Daniel Tarullo, who oversees regulation for the Fed, said on Friday that international rules requiring banks to hold a minimum amount of equity capital against their assets “may have been set too low”.As the Financial Times reported earlier this week, Fed officials are considering going further. Mr Tarullo said he might use US rules “to set a higher leverage ratio for the largest firms”. In a speech in Washington, Mr Tarullo also floated a new idea of additional capital requirements above and beyond the levels agreed by international regulators in the Basel III deal. The speech by Mr Tarullo comes amid a surge of enthusiasm in Washington to go further in imposing new restrictions on the biggest banks such as JPMorgan Chase, Bank of America and Citigroup, even as the industry is struggling to adapt to existing post-crisis rules.

Desperately Seeking $11.2 Trillion In Collateral, Or How "Modern Money" Really Works - Over a year ago, we first explained what one of the key terminal problems affecting the modern financial system is: namely the increasing scarcity and disappearance of money-good assets ("safe" or otherwise) which due to the way "modern" finance is structured, where a set universe of assets forms what is known as "high-quality collateral" backstopping trillions of rehypothecated shadow liabilities all of which have negligible margin requirements (and thus provide virtually unlimited leverage) until times turn rough and there is a scramble for collateral, has become perhaps the most critical, and missing, lynchpin of financial stability. Not surprisingly, recent attempts to replenish assets (read collateral) backing shadow money, most recently via attempted Basel III regulations, failed miserably as it became clear it would be impossible to procure the just $1-$2.5 trillion in collateral needed according to regulatory requirements. The reason why this is a big problem is that as the Matt Zames-headed Treasury Borrowing Advisory Committee (TBAC) showed today as part of the appendix to the quarterly refunding presentation, total demand for "High Qualty Collateral" (HQC) would and could be as high as $11.2 trillion under stressed market conditions.

Sober Look: A slowdown in US lending or a ramp up in shadow banking?: We've received a number of emails pointing to what looks like a slowdown in lending by US-chartered banks. The amount of loans and leases on balance sheets of US banks has stopped growing. As in 2009 and 2011, some people are upset to see record levels of bank excess reserves that are not being turned into loans. These are deposits at the Fed earning 25bp and people are asking why banks are not lending more of this capital out. But what exactly caused the loan growth on banks' balance sheets to stall? More precisely, what types of loan balances are no longer growing? It turns out that while commercial and industrial loans continue to grow - in fact accelerating - the growth in retail mortgage balances has stalled. And that's the explanation for the flat-lining of the overall loan balances (the first chart above).The real answer however has to do with the wonderful world of "shadow banking". Why would banks want to keep all these mortgages on their books when they can blow them out to Freddie and Fannie, who in turn sell them to the market in the form of agency MBS (mortgage backed securities). And who are the buyers? The usual suspects of course - insurance firms, mutual funds, etc., and of course the biggest buyer of them all - the Fed. In fact the holdings of MBS on Fed's balance sheet just hit a record. Mortgages are simply making their way from banks' balance sheets onto the Fed's balance sheet in the form of MBS.

Banks Criticize Strict Controls for Foreign Bets - Wall Street bankers and some of the world’s top finance ministers are waging a bitter international campaign to block Washington financial regulators from extending their policing powers far beyond the nation’s shores. The effort — centered on oversight of the $700 trillion marketplace of the financial instruments known as derivatives — is just one front in the battle still being waged nearly three years after Congress passed the Dodd-Frank law, which revamped financial regulations in the United States in hopes of curtailing the risky trading practices blamed for the global financial crisis in 2008. Industry players have spent tens of millions of dollars to avert, delay or weaken new rules that are being drafted as part of the law. Members of Congress from both parties have joined in the effort, directed at an obscure but increasingly powerful agency, the Commodity Futures Trading Commission, which has written and must approve some of the most contentious provisions. Banks and overseas regulators are resisting an agency proposal, intended to go into full effect as early as mid-July, that would require overseas offices of American-based banks, foreign institutions and hedge funds to turn over information on foreign trades if they involve United States customers, or are guaranteed by a financial institution with American ties, requirements that the industry calls redundant and excessive.

High-Speed Traders Exploit Loophole - High-speed traders are using a hidden facet of the Chicago Mercantile Exchange's CME +0.03%computer system to trade on the direction of the futures market before other investors get the same information. Using powerful computers, high-speed traders are trying to profit from their ability to detect when their own orders for certain commodities are executed a fraction of a second before the rest of the market sees that data, traders say. The advantage often is just one to 10 milliseconds, according to people familiar with the matter and trading records reviewed by The Wall Street Journal. But that is plenty of time for computer-driven traders, who say they can structure their orders so that the confirmations tip which direction prices for crude oil, corn and other commodities are moving. A millisecond is one-thousandth of a second. The ability to exploit such small time gaps raises questions about transparency and fairness amid the computer-driven, rapid-fire trading that increasingly grips Wall Street and confounds regulators. The Chicago Mercantile Exchange, a unit of CME Group Inc., is the largest U.S. futures exchange, handling 12.5 million contracts a day on average in the first quarter, High-frequency trading generated about 61% of all futures-market volume, up from 47% in 2008, according to Tabb Group.

Big Commodity Traders Pocketed $250 Billion Profit - Real News Network - New FT investigation says big commodity traders earned more profit than banks or auto..

In Contrast to CFTC, SEC Cross-Border Derivatives Proposal Takes an Outcome-Based Approach - Today, the Securities and Exchange Commission (SEC) announced that it will be proposing new rules relating to how U.S. regulation under Title VII of the Dodd-Frank Act will apply to cross-border derivatives transactions. In so doing, a significant difference seems to have emerged between how the SEC and the the Commodity Futures Trading Commission (CFTC) will go about regulating cross-border derivatives. A major component of the SEC's and CFTC's rules is to allow certain foreign firms that trade swaps in the U.S. to be exempt from the agencies' respective regulations. The basic reason being that foreign firms may already be subject to comparable regulation in their home country such that compliance with U.S. rules would be unnecessary to protect U.S. participants or markets.  In other words, the SEC and CFTC will permit foreign firms to substitute compliance with their home country's regulation for their own.

Wall Street Is A Rentier Rip-Off: Index Funds Beat 99.6% Of Managers Over Ten Years - It may seem uncharitable to note that only 0.4% - that's 4/10th of 1% - of mutual fund managers outperform a plain-vanilla S&P 500 index fund over 10 years, but that is being generous: by other measures, it's an infinitesimal 1/10th of 1%. So what do we get for investing our capital in mutual funds and hedge funds? The warm and fuzzy feeling that we've contributed the liquidity needed to grease a monumental skimming operation. Ten out of 10,000 is simply signal noise; in effect, nobody beats an index fund. The entire financial management industry is a rentier arrangement: they skim immense profits and return no productive yield at all.

Currency is Equity, Equity is Currency - This is utterly brilliant: Twitter / izakaminska: Why equity is a type of privately issued currencySteve Randy Waldman has been here before, with the idea that currency issued by government (ultimately through deficit spending) is “equity” in government, or in America. But this reverses it beautifully, with the notion that private equity issuance is also currency issuance. Google stock is currency. I won’t recap the argument here; you really need to read it. Just some thoughts: I think different words might help make it clearer. I would say that there are many units of exchange in the world —  dollar bills, t-bills, stock shares, etc. Financial assets. They have various characteristics, a key one being limits on what they can be exchanged for. In general when we say “currency” we mean physical tokens that can be exchanged for (small quantities of) real goods. But we confuse things by not realizing that “currency” is a somewhat vaguely defined subset of “units of exchange.”

Wealthiest Americans Only Winners in Recovery, Pew Says - The U.S. economy has recovered for households with net worth of $500,000 or more, a new study shows. The recession continues for almost everyone else. Wealthy households boosted their net worth by 21.2 percent in the aftermath of the recession, according to the study released today by the Pew Research Center. The rest of America lost 4.9 percent of household wealth from 2009 to 2011.  Pew attributed the disparity to gains during that period in the stock and bond markets, benefiting affluent households, while the housing market’s decline hit others harder. The report underscores the nation’s growing income inequality, with the top 13 percent of households recovering their losses from the 18- month recession that ended in June 2009, and the rest of the country continuing to hemorrhage wealth.  “The results are entirely sensible, but depressing,” said Richard Fry, a Pew senior research associate and co-author of the study by the Washington-based organization. “It’s a stark story of two Americas.”

The Great American Wealth Transfer to the Super Rich - The rich get richer and the rest of us get the economic shaft.  That is the theme of this so called economic recovery since 2009.  A new Pew Research report, A Rise in Wealth for the Wealthy; Declines for the Lower 93%, analyzes newly released Census data on wealth.  What they found is the rich got richer and the rest of us got poorer.  The great American wealth transfer continues. During the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%. How did the rich get richer and the poor get poorer?  Most households in the United States are dependent upon wages and salaries as their source of income.  Their largest investment is usually a home.  The super rich, on the other hand, are heavily invested into stocks, bonds, and other financial instruments.  As a percentage of their wealth, the home is only a fraction. Even though the housing bubble and resulting collapse is over, millions lost equity in their home as well as their jobs.  Many had their retirement in 401ks wiped out.  The super rich on the other hand rode the Wall Street recovery to even more riches.  The upper 7% by wealth now have 24 times more money than the bottom 93%.  In 2009 that ratio was 18 times more for the super rich than the vast majority of Americans.  This in a sad day for America.  Economic equality is simply disappearing from the landscape.

Recession and Austerity Good for the Rich - Yves Smith - This Real News Network interview with James Henry gives yet another vantage on our have versus have-not economy. Henry comments on a new Pew study that found that in the early stages of the “recovery,” from 2009 to 2011, the net worth of the top 7% in the US increased while those of the rest of the public fell. And it continues to be striking how much those at the top are divorced from the rest of the population. For instance, I’d hazard that the reason so many economists over-estimated last quarter’s GDP growth was that they don’t have enough contact with the people who are struggling. The folks at the top of the heap are doing just fine, so that must be true generally, right? But you can see more signs of stress even in the more insulated parts of New York City. Retail vacancies are up, even on the well-trafficked shopping streets, the worst since the post-2009 period. More restaurants seem to be taking a hit too, which suggests that non-expense-account diners are cutting back. And if ZIRP-supported NYC is looking a bit less robust, how well can the rest of the country be faring?

The Rise of the Corporate State - The middle class is dying. Chart after chart, story after story, poll after poll, all show that the claim that we are a middle class nation are hollow fiction. This column by Charles Blow in the New York Times sums up one recent poll:  An Allstate/National Journal Heartland Monitor poll released Thursday found that while most Americans (56 percent) hold out hope that they‘ll be in a higher class at some point, even more Americans (59 percent) are worried about falling out of their current class over the next few years. In fact, more than eight in 10 Americans believe that more people have fallen out of the middle class than moved into it in the past few years. The poll results are ugly. People know things are bad, they know they are screwed, and they are coming to the realization that the problem is the giant corporations and their rapacious executives. A majority of people polled, 54%, believe that the actions of corporate CEOs have made things worse for the middle class. A majority of people who self-identify as middle class have figured this out as well. P. 15, item 40. Similar majorities also see that financial institutions have made things worse. It’s a short step from here to figuring out that these CEOs aren’t acting in a vacuum. They are motivated in large part by the demands of the richest Americans, the owners and controlling shareholders of these corporations. We are an oligarchy.

CEO Pay 1,795-to-1 Multiple of Wages Skirts U.S. Law - Former fashion jewelry saleswoman Rebecca Gonzales and former Chief Executive Officer Ron Johnson have one thing in common: J.C. Penney Co. (JCP) no longer employs either. The similarity ends there. Johnson, 54, got a compensation package worth 1,795 times the average wage and benefits of a U.S. department store worker when he was hired in November 2011, according to data compiled by Bloomberg. Gonzales’s hourly wage was $8.30 that year. Across the Standard & Poor’s 500 Index of companies, the average multiple of CEO compensation to that of rank-and-file workers is 204, up 20 percent since 2009, the data show. The numbers are based on industry-specific estimates for worker compensation. Almost three years after Congress ordered public companies to reveal actual CEO-to-worker pay ratios under the Dodd-Frank law, the numbers remain unknown. As the Occupy Wall Street movement and 2012 election made income inequality a social flashpoint, mandatory disclosure of the ratios remained bottled up at the Securities and Exchange Commission, which hasn’t yet drawn up the rules to implement it. Some of America’s biggest companies are lobbying against the requirement. “It’s a simple piece of information shareholders ought to have,”

Companies Feel Pinch on Europe Sales - Hiding behind the profit gains of America's biggest companies is a worrying slowdown in sales growth. U.S. companies ranging from IBM to United Technologies have missed revenue forecasts, hurt by a combination of Europe's malaise, a stronger dollar and sluggish consumer spending. With earnings reports in from more than half the companies in the Standard & Poor's 500-stock index, first-quarter revenue for the group is expected to shrink 0.3% from a year earlier, according to Thomson Reuters. That would cut short the sales improvement reported at the end of last year and mark the third quarter out of the past four in which revenues have failed to grow by 1% or more. The sales figures are a troubling sign that business and consumer demand remain weak nearly four years after the recession. One big problem for U.S. companies is Europe. Executives weren't expecting much from the region last quarter. But many found conditions tougher than anticipated. And some of them are increasingly worried that while Southern Europe's hardest-hit countries may be bottoming out, there is room left for the bigger economies like France and Germany to deteriorate.

Corporate Euthanasia - We’ve designed corporations to have a potentially infinite life (which wasn’t their original design). That’s fine as long as a company is profitable and useful. But many (all?) companies eventually become obsolete, organizationally senile, or even dangerous to society. Most of us can recognize when it happens, but the executives often extend the life of the corporation past its usefulness. They slowly drain the cash reserves, swallow poison pills to prevent takeover, fight endless legal battles, and repeatedly reorganize in bankruptcy. Until one day they enter a bankruptcy that they cannot escape. Until that day the executives have preserved their compensation and careers, though the shareholders long since saw their value depleted. Most technology firms eventually fail because they become obsolete. Large firms have a bad habit of crushing internal innovation either because it threatens their legacy product or because of bureaucratic incompetence. The huge cash reserves built up by the firm are gradually squandered on executive empires, corporate campuses, overpriced stock buybacks, and fruitless acquisitions. Rather than recognize their profits, pay taxes on it, and disperse dividends they waste the money.

Mary Jo White About to Get Off to a Bad Start - Yves Smith - Your humble blogger was surprised when Obama nominated Mary Jo White to head the SEC, since her reputation as a tough prosecutor is at odds with Obama’s well established pattern of catering to banks (the fact that he gives them only 97% of what they want is nevertheless offensive enough to their tender sensibilities). I surmised that there had to be an angle here, and I figured he was up to one of his old 11 dimensional chess tricks. Now I’m not as put off as many are by her picking people who’ve been effective on behalf of corporations to be on her team. Sadly, just as Willie Sutton robbed banks because that’s where the money was, you pretty much have to go to Corporate America to find people who could wrestle them to a standstill (Barofsky himself being a possible exception). Now that does not mean that they will, by a long shot.  White’s first move looks to be to approves something so rancid that outgoing SEC chairman Mary Shapiro refused to touch it, concerned that it would taint her legacy. From Bloomberg: U.S. Securities and Exchange Commission chairman Mary Jo White is pushing to adopt a rule allowing hedge funds to advertise in a move consumer advocates say could fail to protect unsophisticated investors, according to two people familiar with the matter.

Jeffrey Sachs: Banking Abuses ‘Can’t Get More in Your Face’ - When the Columbia University professor Jeffrey Sachs unloaded at a Philadelphia Fed conference in April, telling attendees that most of the daily business of Wall Street is “prima facie criminal behavior,” he set off a small storm, but not exactly in the way one might think.MoneyBeat caught up with Professor Sachs, who talked about the reaction to his appearance, the lack of Wall Street prosecution, the effects of big money on the political system, and the shortfalls of Dodd-Frank and regulatory reform.When I really started to count in fact and keep track of the number of lawsuits, and the number of settlements, and it’s amazing actually how many there are, of course. Libor, Abacus, other financial fraud scandals, money laundering, insider trading. The list is actually extraordinary. The frequency of new cases, new settlements, new SEC charges, is stunning. And the lack of any apparent remorse from leaders of the industry.

Jeff Sachs: The Movie - "But what it's led to is this sense of impunity that is really stunning and you feel it on the individual level right now. And it's very very unhealthy, I have waited for four years, five years now to see one figure on Wall Street speak in a moral language.  And I've have not seen it once. And that is shocking to me. And if they won't, I've waited for a judge, for our president, for somebody, and it hasn't happened. And by the way it's not going to happen any time soon, it seems."

Cracking Down on Predatory Lending - Federal banking regulators are clamping down on the small but growing number of banks that emulate the predatory practices of storefront payday lenders. The Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency last week proposed solid new guidelines for the banks they oversee. The Federal Reserve, which oversees other banks that do this, needs to pick up this same theme and follow suit. Payday lenders market themselves as a convenient borrowing option for people who need small loans that they can quickly repay, customarily in two weeks. In truth, the industry business model relies on the fact that most people cannot afford to repay the original loan, which means they end up saddled with long-term debts carrying interest rates of 400 percent or more.  The banking version of payday lending, called deposit advance, is no better than its storefront cousin. For starters, the advance loan can carry an interest rate of over 300 percent. There is no fixed due date for repayment. Instead, the bank repays itself from an electronic deposit into the borrower’s account. A new study from by the Consumer Financial Protection Bureau says these transactions are anything but harmless, one-time deals. Three-fourths of the loan fees are generated by consumers who borrow more than 10 times in a 12-month period. Overdraft fees deplete the borrowers’ meager resources, causing them to borrow again and again — and pushing them deeper into the debt trap.

JPMorgan Caught in Swirl of Regulatory Woes - Government investigators have found that JPMorgan Chase devised “manipulative schemes” that transformed “money-losing power plants into powerful profit centers,” and that one of its most senior executives gave “false and misleading statements” under oath. The findings appear in a confidential government document, reviewed by The New York Times, that was sent to the bank in March, warning of a potential crackdown by the regulator of the nation’s energy markets. The possible action comes amid showdowns with other agencies. One of the bank’s chief regulators, the Office of the Comptroller of the Currency, is weighing new enforcement actions against JPMorgan over the way the bank collected credit card debt and its possible failure to alert authorities to suspicions about Bernard L. Madoff, according to people who were not authorized to discuss the cases publicly

JPMorgan's Jamie Dimon in Hot Swampy Water Again - Jamie Dimon, one of Wall Street’s biggest swinging dicks is once again swimming in a regulatory swamp land. Despite the unbelievable hubris and blatant disregard for the law, he’s probably not going to suffer much more than a little embarrassment – nearly impossible for a sociopath. JPMorgan stock took a nose dive today in comparison to other bank stocks and the market at large due to news of “better-than-expected” job growth. Who knows why traders do what they do, but it appears that they may have been reacting to a no-holds-barred article in New York Times (NYT), speculating that Dimon’s bank is far from out of the woods with OCC regulators. The NYT points to a private copy of a report from the Federal Energy Regulatory Commission (FERC) accusing JPMorgan of manipulating energy markets – think ENRON, in Michigan and California. It also accuses Blythe Masters, head of global commodities at the bank, of lying under oath about her knowledge of the manipulation. Masters is the mathematical brain behind a few of Wall Street’s great ideas, such as credit default swaps:

Counterparties: Masters of overcharging - JP Morgan may be going back to banking basics. Instead of losing billions in arcane, illiquid credit instruments, the bank’s latest scandal is a classic: overcharging unwitting customers. Jessica Silver-Greenberg and Ben Protess report that JP Morgan is in some very hot water with the Federal Energy Regulatory Commission (FERC). According to an agency memo, the bank turned “money-losing power plants into powerful profit centers”.Under other circumstances, that’d be just another win for JP Morgan’s booming commodities division. The problem is that JP Morgan’s success came through allegedly duping California and Michigan state officials into overpaying for energy by $83 million. These same allegations were included in Joshua Rosner’s comprehensive review of the bank’s regulatory lapses published in March.When confronted by regulators, Blythe Masters, the bank’s head of commodities, made “false and misleading statements”,  FERC says. The traders working for Masters “planned and executed a systematic cover-up” of the trades,” and an email from Masters instructed an internal document to be rewritten. Importantly, the agency plans to hold both JP Morgan and individuals at the bank liable for any infractions. Additionally, the WSJ, relying on a separate confidential regulatory document, reports that the usually tame-to-a-fault Office of the Comptroller of the Currency is planning to punish the bank for its consumer debt collection practices.

CFPB Finally Fixes the “Anti-Housewife” Rule - Just in time for Mother’s Day, the Consumer Financial Protection Bureau reversed an unpopular rule that some women’s advocacy groups called “insulting”— although it still took the agency almost a year to do it. On Monday, the CFPB updated existing regulations so it will be easier for stay-at-home spouses to get credit cards. Intended to keep credit card companies from giving people more credit than they could handle and letting them plunge into debt, the rule is an object lesson in the law of unintended consequences. It stipulated that issuers would have to take into account the applicant’s individual income rather than household income. Sounds logical…until you realize that it renders every stay-at-home parent who isn’t paid for dishes-and-diaper duty basically uncreditworthy. This ill-considered rule was part of an amendment to the Truth in Lending Act’s Regulation Z, a CARD Act-era regulation the CFPB inherited from the FDIC. According to the CFPB’s own calculations, more than 16 million Americans, or one in three married couples, could have been affected.

Latest D.C.-Wall Street Brainstorm -- Bailouts With Your Bank Deposits: Think your federally insured bank deposits are safe? Think again. The geniuses that are supposed to be protecting your money have dreamed up a scary idea to use your money to help fund the next bailout. This is not some paranoid conspiracy theory. In December, the U.S. Federal Deposit Insurance Corp., (which is supposed to insure your money in the bank), and the Bank of England proposed using your bank deposits to defray the costs of rescuing a too big to fail bank when it gets in trouble. Wall Street hates the term "bailout," so they've came up with a more innocuous term: "resolution." The report, "Resolving Globally Active, Systematically Important Financial Institutions," is linked here. "In all likelihood [in a bank collapse]," the report's authors write, "shareholders would lose all value and unsecured creditors [including depositors] should thus expect that their claims would be written down to reflect any losses that shareholders did not cover." People who trusted the bank and put their money there would not get their money back under this proposal. Instead their deposits would be turned into shares in the newly resuscitated bank. A version of this already happened as a result of the Cyprus financial crisis. Now FDIC/BOE have proposed a similar approach for the U.S. and England the next time the big bankers fail. Inside the Washington-Wall Street bubble, that's not an "if." It's a "when."

Unofficial Problem Bank list declines to 775 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Apr 26, 2013.  The FDIC, as anticipated, released its enforcement actions through March 2013 and closed a couple banks this week. This led to many changes to the Unofficial Problem Bank List, which had 12 removals and six additions. After changes, the list holds 775 institutions with assets of $285.3 billion. A year ago, the list held 930 institutions with assets of $361.7 billion.    With it being the last Friday of the month, the list had a net decline of 16 institutions and $4.7 billion of assets this April. Notable this month were six removals because of failure as one has to go back to July 2012 to find six or more failures in a month. Also, as noted in the April 5th posting, the cumulative number of removals since the list was first published from action termination now total 356, which is only one shy of the 357 removals because of failure.

OCC Misses Another Conflict of Interest: Foreclosure Review Outreach/Payment Processor Rust Consulting Owned By Residential Real Estate Player Apollo, Being Sold to VC Arm of Citigroup - Yves Smith - It appears that the Office of the Comptroller of the Currency and the Fed dropped the ball yet again on vetting firms involved in the Orwellianly-named Independent Foreclosure Review (IFR) for conflicts of interest. Rust Consulting, a firm that has been central in the Independent Foreclosure Reviews virtually from their onset, was the firm that servicers engaged to handle the initial mailings to borrowers eligible for a review. The assumption of the authorities appears to have been that Rust was merely doing such low level stuff that it didn’t need to be checked; when I called the OCC to ask if the firm had been screened for conflicts of interest, the PR staffer who returned my call reacted as if the question was off-base (he said he’d get back to me with an answer the following day and never did). But as both unhappy Congressmen and even more unhappy homeowners have found, Rust is playing a substantive review in the IFR, and one that has not stood up well to close scrutiny. Now it is bad enough that its independence is already subject to question, in that, like the “independent” consultants, it was hired by and paid for by the servicers. But it is even more troubling that its owners have deep ties and involvement in the residential real estate business, and Rust’s parent is being sold to the venture capital arm of Citigroup, which is also subject to the IFR.

Transcript: Yves Smith Interview Harry Shearer - Listen to the podcast here. A link to Yves’ IFR e-book is here.

Foreclosure Settlement Checks Significantly Smaller Than Regulators Forecasted: Homeowners - Adam Crain reckoned he was due $125,000. That amount would come as compensation for losing his Oak Harbor, Wash., home to foreclosure while he was serving aboard a naval vessel in the Middle East. He calculated that sum using a table distributed by federal regulators as part of a $9.2 billion settlement with mortgage companies over a wave of improper foreclosures. Federal law offers special protections from foreclosure to military personnel, especially those receiving hazard pay, as Crain was at the time.  But last week, when Crain opened the envelope and removed his check, he was horrified by the amount his bank, Wells Fargo, had determined he was due: Eight hundred dollars was all he received. Two weeks after the first payments began going out as part of the settlement struck in January with mortgage companies, homeowners who suffered improper foreclosures are describing a new injury. Many say they are being denied their rightful compensation under the terms of the deal.

Turns out much-hyped settlement still allows banks to steal homes - David Dayen - The absolute least Americans can hope for from a major government settlement with a large industry over well-documented crimes is that the industry wouldn’t, after signing the settlement, just continue to commit the same crimes day after day. After all, following the tobacco industry settlement, cigarette makers did manage to stop advertising to teenagers that their product had no medical side effects. But new evidence reveals the nation’s largest banks have apparently continued to fabricate documents, rip off customers and illegally kick people out of their homes, even after inking a series of settlements over the same abuses. And the worst part of it all is that the main settlement over foreclosure fraud was so weakly written that it actually allows such criminal conduct to occur, at least up to a certain threshold. Potentially hundreds of thousands of homes could be effectively stolen by the big banks without any sanctions.

Obama to replace DeMarco at FHFA with Mel Watt, according to an AP story today.  Congressman Watt of North Carolina was a moving force behind Miller-Watt-Frank, the mortgage reform legislation that eventually found its way into Dodd-Frank financial reform.  Given that our all-but-nationalized housing finance system is directed by this somewhat obscure agency, the occupant of this post can have a huge influence on the future direction of credit, housing and the economy.  If he is confirmed, Watt can be expected to make major changes to Fannie and Freddie policies, for example on principal write-downs and cracking down on mortgage servicer errors and abuses.   Perhaps he could also begin to envision a more rational future assignment of the public and private roles in financing homes, in which public subsidy serves a public purpose and private capital carries the burden of its own credit risk.

Counterparties: Neither a champion nor a frustration - One day after a downright cheery report on the housing market, Barack Obama has moved to replace the widely-criticized head of the FHFA. Mel Watt, a Democrat and longtime presence on the House Financial Services Committee, has been nominated to replace Ed DeMarco, who’s been acting head of the agency that regulates Fannie Mae and Freddie Mac since 2009. This wasn’t entirely unexpected — the trial balloon for Watt’s candidacy has been afloat since March. (It was reportedly down to Watt and economist Mark Zandi.) As head of the agency, DeMarco has been pilloried by critics for opposing principal reductions for struggling homeowners, a method that’s long been championed by housing reformers, the Obama administration and the Federal Reserve. Just today, the Congressional Budget reported that a even small-scale principal forgiveness program could save the US government billions. As Felix wrote last July, DeMarco has seemed to oppose principal reductions on principle, arguing that slashing homeowners’ mortgage debt would be tantamount to a nation-wide breach of contract. (DeMarco has also suggested all this would end up costing taxpayers.)Watt has publicly supported principal reductions, but his record isn’t terribly easy to categorize: As Nick Timiraos notes, while he pressed for support for low income borrowers, he also voted against pay cuts for Fannie and Freddie execs. Watt, who represents the Charlotte region, counts financial firms (hello, BofA) as some of his larger donors, but one consumer advocate says Watt has been “He is neither a champion nor a source of frustration”.

Fannie Mae, Freddie Mac: Mortgage Serious Delinquency rates declined in March - Fannie Mae reported that the Single-Family Serious Delinquency rate declined in March to 3.02% from 3.13% in February. The serious delinquency rate is down from 3.67% in March 2012, and this is the lowest level since February 2009.  The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.  Freddie Mac reported that the Single-Family serious delinquency rate declined in March to 3.03% from 3.15% in February. Freddie's rate is down from 3.51% in March 2012, and this is the lowest level since June 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".  Although this indicates some progress, the "normal" serious delinquency rate is under 1%. 

U.S. Homeownership Rate Falls to Lowest Since 1995 -  The U.S. homeownership rate fell to the lowest in almost 18 years, reflecting rising demand for rentals and investor purchases in the housing market. The share of Americans who own their homes was 65 percent in the first quarter, down from 65.4 percent a year earlier and the lowest level since the third quarter of 1995, the Census Bureau reported today. The vacancy rate for rented homes dropped to 8.6 percent from 8.8 percent a year earlier, while vacancies for owner-occupied houses fell to 2.1 percent from 2.2 percent.Investors are buying single-family homes and renting them out to capitalize on demand among families unable to qualify for a mortgage. Their purchases, many made with cash, are helping to support the housing recovery and pushing up prices. Home values in 20 cities increased 9.3 percent in February from a year earlier, the most since May 2006, according to the S&P/Case- Shiller (SPCS20Y%) index released today. “Credit conditions are still tight and investors are taking advantage, in the interim, of favorable yields,”

HVS: Q1 2013 Homeownership and Vacancy Rates - The Census Bureau released the Housing Vacancies and Homeownership report for Q1 2013 this morning.  This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey. This survey might show the trend, but I wouldn't rely on the absolute numbers.  The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply, or rely on the homeownership rate, except as a guide to the trend.The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate decreased to 65.0%, down from 65.4% in Q4.  I'd put more weight on the decennial Census numbers and that suggests the actual homeownership rate is probably in the 64% to 65% range. The HVS homeowner vacancy rate was increased to 2.1% in Q1 from 1.9% in Q4.   The homeowner vacancy rate has peaked and is now generally declining, although it isn't really clear what this means. The rental vacancy rate declined in Q4 to 8.6%, from 8.7% in Q4. I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the overall trend in the rental vacancy rate - and Reis reported that the rental vacancy rate has fallen to the lowest level since 2001.

Freddie Mac: Mortgage Rates decrease in latest Survey, 15-Year at All-Time Low - From Freddie Mac today: Mortgage Rates Keep Pushing Lower  Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates moving lower for the fifth consecutive week amid the weaker than expected first quarter economic growth advance estimate. The 30-year fixed-rate mortgage at 3.35 percent is hovering just above its all-time record low of 3.31 percent set the week of November 21, 2012. The 15-year fixed-rate mortgage set a new all-time record low this week at 2.56 percent, eclipsing the record set last week. 30-year fixed-rate mortgage (FRM) averaged 3.35 percent with an average 0.7 point for the week ending May 2, 2013, down from last week when it averaged 3.40 percent. Last year at this time, the 30-year FRM averaged 3.84 percent.  15-year FRM this week averaged 2.56 percent with an average 0.7 point, down from last week when it averaged 2.61 percent. A year ago at this time, the 15-year FRM averaged 3.07 percent.

Existing Home Inventory is up 12.1% year-to-date on April 29th - Weekly Update: One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I'm tracking inventory weekly this year.   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 Realtor (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.

MBA: Refinance Mortgage Applications Increase, Purchase Applications Decrease - From the MBA: Mortgage Refinance Applications Increase in Latest MBA Weekly Survey The Refinance Index increased 3 percent from the previous week and is at its highest level since the week ending January 18, 2013. The seasonally adjusted Purchase Index decreased 1.4 percent from one week earlier. The HARP share of refinance applications increased from 32 percent last week to 34 percent this week, the highest level since MBA began tracking HARP applications in February 2012. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.60 percent, the lowest rate since December 2012, from 3.65 percent, with points decreasing to 0.30 from 0.41 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. There has been a sustained refinance boom for over a year. According to the MBA, the HARP program is contributing significantly to the current level of refis and is at the highest percentage of refinances since the MBA started tracking HARP.  The second graph shows the MBA mortgage purchase index.  The 4-week average of the purchase index has generally been trending up over the last year, and even with the slight decline in the weekly index, the 4-week average of the purchase index is at the highest level since May 2010

LPS Home Price Index Rises; 9 of The Top 10 Metro Areas in CA: Lender Processing Services, Inc. (LPS) said Monday that its Home Price Index (HPI) for February was up 1.0 percent to $210 from the end-of-January Index of $208. The February 2013 index is 7.03 percent higher than the $196 HPI at the end of February 2012 but remains well below the peak HPI of $265 in June 2016. The LPS HPI is based on a repeat sales analysis of home prices as of their transaction dates for each of more than 15,500 ZIP codes. It represents the price of non-distressed sales by taking into account price discounts for sales of foreclosed homes and short sales.States with the largest month over month increases in HPI were California and Washington State which were both up 2.2 percent, Nevada with a 1.8 percent increase and Hawaii and Illinois up 1.6 percent and 1.4 percent respectively rounded out the top five states. Connecticut was the only state where the HPI declined; it was down 0.3 percent. Other states with small but positive month-over-month changes were Vermont and Rhode Island (0.2 percent each), and Oklahoma (0.3 percent). The top three metropolitan areas with the largest increases compared to January were in California; San Jose (3.2 percent), San Francisco (2.8 percent), Vallejo and (2.6 percent). Number four was Seattle at 2.5 percent, but the remainder of the top five metro areas were also California cities.

Home Prices in 20 U.S. Cities Climb by Most Since May 2006 - Residential real-estate prices increased in February by the most since May 2006, showing the U.S. housing market is strengthening. The S&P/Case-Shiller index of property values in 20 cities rose 9.3 percent from February 2012, more than forecast, after advancing 8.1 percent in the year ended in January, the group said today in New York. The increase exceeded the 9 percent median forecast in a Bloomberg survey. Compared with the prior month, prices rose the most since October 2005.Further price gains may help alleviate a lack of housing inventory by encouraging more homeowners to put their properties on the market. At the same time, mortgage rates close to all- time lows and an improving labor market are providing a boost for residential real estate, which is a source of strength for the expansion. “The recent run up in prices probably has a lot to do with the lack of supply,” . “The more attention that home price gains get, more and more people will realize it’s a good time to sell their home.” Estimates for the year-over-year price change ranged from increases of 8.5 percent to 9.3 percent, according to the 27 economists surveyed. The Case-Shiller index is based on a three- month average, which means the February figure was influenced by transactions in January and December.

US Home Prices Up 9.3 Pct, Most in Nearly 7 Years - U.S. home prices rose 9.3 percent in February compared with a year ago, the most in nearly seven years. The gains were driven by a growing number of buyers who bid on a limited supply of homes. The Standard & Poor’s/Case-Shiller 20-city home price index increased from an 8.1 percent year-over-year gain in January. And annual prices rose in February in all 20 cities for the second month in a row. Phoenix led all cities with an annual gain of 23 percent in February. Prices jumped nearly 19 percent in San Francisco. In Las Vegas, home prices increased 17.6 percent and in Atlanta they rose 16.5 percent. Eleven of the 20 cities reported price gains in February compared with January. Those monthly numbers are not seasonally adjusted and reflect the slower winter buying period. The index covers roughly half of U.S. homes. It measures prices compared with those in January 2000 and creates a three-month moving average. The February figures are the latest available.

Case-Shiller: Comp 20 House Prices increased 9.3% year-over-year in February - S&P/Case-Shiller released the monthly Home Price Indices for February ("February" is a 3 month average of December, January and February). This release includes prices for 20 individual cities, and two composite indices (for 10 cities and 20 cities). Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.  From S&P: Home Prices Rise in February 2013 According to the S&P/Case-Shiller Home Price Indices Data through February 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices ... showed average home prices increased 8.6% and 9.3% for the 10- and 20-City Composites in the 12 months ending in February 2013. The 10- and 20-City Composites rose 0.4% and 0.3% from January to February.
Phoenix, San Francisco, Las Vegas and Atlanta were the four cities with the highest year-over-year price increases. Atlanta recovered from a wave of foreclosures in 2012 while the other three were among the hardest hit in the housing collapse. At the other end of the rankings, three older cities – New York, Boston and Chicago – saw the smallest year-over-year price improvements.  The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000). The second graph shows the Year over year change in both indices.

Case-Shiller Reports Soaring Home Prices for February 2013 - The February 2013 S&P Case Shiller home price index shows a 9.3% price increase from a year ago for over 20 metropolitan housing markets and a 8.6% change for the top 10 housing markets from February 2012. This is the highest yearly gain since May 2006. Let the housing bubble return! Not seasonally adjusted home prices are now comparable to September 2003 levels for the composite-20 and November 2003 for the composite-10. Below is the yearly percent change in the composite-10 and composite-20 Case-Shiller Indices, not seasonally adjusted. Below are all of the composite-20 index cities yearly price percentage change, using the seasonally adjusted data. All city home prices are now in positive territory gains and the last time this happened for two months in a row was early 2005. Phoenix continues to soar, up 23% from a year ago and Las Vegas, ground zero for the housing bubble, is up 17.6%. San Francisco is now up 19.0%, back to it's have and have not housing market where one needs to be a millionaire to own a home. S&P reports Atlanta and Dallas had the highest annual growth rates in the history of their respective indices, Atlanta 1992 and Dallas 2001, S&P reports the not seasonally adjusted data for their headlines. Housing is highly cyclical. Spring and early Summer are when most sales occur. See the bottom of this article for their reasoning. For the month, the not seasonally adjusted composite-20 percentage change was 0.4% whereas the seasonally adjusted change for the composite-20 was 1.2%. The monthly not seasonally adjusted composite-10 percentage change was 0.3%, whereas the seasonally adjusted composite-10 showed a 1.2% increase. This is winter, the bottom of the house buying season, which explains the not seasonally adjusted and seasonal indexes differences. The below graph shows the composite-10 and composite-20 city home prices indexes, seasonally adjusted. Prices are normalized to the year 2000. The index value of 150 means single family housing prices have appreciated, or increased 50% since 2000 in that particular region. Case-Shiller indices are not adjusted for inflation.

Case-Shiller Composite Rises 0.3% In February, Back To September 2010 Levels - If there is one admirable thing about the Case Shiller Home Price Index report (which sadly shows data for February so a nearly three month delay) is that even according to its authors, it is the Non-Seasonally Adjusted number that is representative of what is going on in housing. And, as the chart below shows, very little is going on as the broader price level continues to undulate in a very tight range with little real moves to the up or downside.

Fed Mortgage Subsidy Drives Buying Panic In Existing Homes To Bubble Levels -The NAR Pending Home Sales data for March is a measure of current sales as of the date of the contract. It’s the closest thing we have to a real time measure of sales activity in the existing home market. The NAR’s “Existing Home Sales” represents the closing, that is the cash settlement of the sale reflected in Pending Home Sales, usually two months later on average. Existing sales represent historical data that’s two months old, plus the lag of the release, which is another month, so the NAR’s existing home sales data is 3 months stale. The release of that data simply confirms what we already knew from the pending home sales data. People who pretend to predict existing home sales are pulling your chain. The data is already out there. In fact, the local multiple listing services publish sales information, including contract prices, for local Realtor board members virtually in real time. Many organizations have access to real time price and volume data. They just don’t make it generally available to the public. Pundits who have access to that data and pretend to be able to predict volume and price changes are lying cheats. They have the data in front of their faces.

A Look at Case-Shiller, by Metro AreaHome prices extended a winning streak of year-over-year gains, according to the S&P/Case-Shiller indexes. The composite 20-city home price index, a key gauge of U.S. home prices, was up 9.3% in February from a year earlier. All 20 cities posted year-over-year gains for January and February, the first time that has happened since 2006. Prices in the 20-city index were 0.3% higher than the prior month even amid the slower winter selling season. Adjusted for seasonal variations, prices were 1.2% higher month-over-month. Even with the slower winter season, 11 cities posted monthly increases. On an adjusted basis, no city reported a monthly decline. Economists see rising home prices as an important economic drive. Higher home prices “will be a powerful positive fundamental not only for housing but presumably helpful for consumer spending as well for two reasons. First, people may spend a little more because they feel wealthier — though the wealth effect from home values will probably be much less potent than historically after households suffered through a bust. Second, more households will escape negative equity, allowing them to move, refinance, or perhaps get better access to credit,” said Stephen Stanley of Pierpont Securities. Read the full S&P/Case-Shiller release.

Real House Prices, Price-to-Rent Ratio, City Prices relative to 2000 - Case-Shiller, CoreLogic and others report nominal house prices, and it is also useful to look at house prices in real terms (adjusted for inflation) and as a price-to-rent ratio. The first graph shows the quarterly Case-Shiller National Index SA (through Q4 2012), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through February) in nominal terms as reported. In nominal terms, the Case-Shiller National index (SA) is back to Q2 2003 levels (and also back up to Q3 2010), and the Case-Shiller Composite 20 Index (SA) is back to November 2003 levels, and the CoreLogic index (NSA) is back to January 2004. The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices. In real terms, the National index is back to October 1999 levels, the Composite 20 index is back to January 2001, and the CoreLogic index back to February 2001. In real terms, most of the appreciation in the last decade is gone. This graph shows the price to rent ratio (January 1998 = 1.0). On a price-to-rent basis, the Case-Shiller National index is back to Q4 1999 levels, the Composite 20 index is back to January 2001 levels, and the CoreLogic index is back to February 2001. In real terms - and as a price-to-rent ratio - prices are mostly back to early 2000 levels.

Counterparties: Underwater and over-bought - What’s driving the housing recovery? Earlier this week we got some bullish housing news from Case-Shiller: home prices rose in February at the fastest rate since 2006. Nationally, home prices were 9.3% higher than they were in February 2012, while prices in Atlanta, Detroit, Las Vegas, Phoenix, and San Francisco all rose more than 15%. Those cities are in the five worst-off states in the nation when it comes to underwater mortgages, according to Fannie Mae: all of them have more than 30% of their mortgages worth more than the house in question.  And while serious delinquency rates are declining, they are still more than three times what is considered normal.So what’s going on? One answer is that investors are snatching up homes. Blackstone is just one of a several Wall Street investors who believe that the recovery is real. Its global head of real estate told the LA Times that the key to recent price increases is that there weren’t enough homes built during the recession. That’s certainly the case in Phoenix, the subject of Susan Burfield’s recent Businessweek cover story.  A mid-March story in the LA Times described Blackstone’s strategy:These firms say they’ve invented a new investment strategy that also serves the public good by fueling the housing recovery and sprucing up homes. Today, some of the early purveyors of this strategy are already pulling out after realizing that it’s more expensive to be a landlord than they originally thought.  Homeownership rates are now at the lowest they’ve been since 1995. According to Capital Economics, that statistic suggests that investors are “still the dominant force behind [the] housing rebound”. As a result, says Bill McBride, “This investor buying is making it very difficult for first time buyers to find a home, and this is probably keeping some potential buyers as renters – and maybe pushing up some buyers to higher price points just to buy.”

The Second U.S. Housing Bubble Continues to Inflate - After we had first announced that a new housing bubble had taken root in the U.S. economy beginning in July 2012, we soon followed up with additional analysis that suggested that it had perhaps begun to decelerate to a more sustainable level after December 2012. Recently revised data from the U.S. Census Bureau for the median sale prices of new homes in the United States through March 2013 now confirms that there has been no slowdown in the rapid inflation of new home sale prices observed since July 2012.  Since 1967, there is only one period of rapid price escalation that even comes close to matching the current trend for median new home prices in the United States: the initial inflation phase of the first U.S. housing bubble, which ran from November 2001 through September 2005 - approximately the time at which the Federal Funds Rate began to converge with the level that would apply if the Federal Reserve had been following the Taylor Rule. What is more remarkable however is that the trailing twelve-month average of median new home sale prices through February 2013 has now exceeded the peak value set at the height of the inflation phase of the first U.S. housing bubble. The previous record for this figure was set in March 2007 at $245,842. In February 2013, the trailing year average of median new home sale prices is now $246,167 and the preliminary data for March 2013 has it increasing further to $246,767.

Builders hold lotteries for eager new homebuyers O'Brien Homes started holding a monthly housing lottery for its 228-unit development called Fusion in Sunnyvale, Calf., after seeing throngs of prospective buyers camp out at the openings of other new condo complexes in the area.Each month, as new sections of the development came under construction, roughly 50 buyers would show up at O'Brien Homes' sales office hoping to be picked for one of the 10 or so sites available. The participants were already pre-qualified for a mortgage and had their down payment in place. After being assigned a number, they crossed their fingers and waited for each bingo ball to be plucked from the tumbler. "Some people would come back month after month," said Frimel. "It got very frustrating for them."Adding to that frustration was that home prices rose virtually every time a new group of homes went on sale. The two-, three- and four-bedroom homes started out between $420,000 and $620,000. The last grouping went for $555,000 to $815,000, a 32% increase.

Today’s Dream House May Not Be Tomorrow’s, by Robert Shiller -  Economic and demographic changes may severely impair the value of a home when it’s time to sell, a decade or more in the future.  Will social and economic shifts tilt demand toward new designs and types of communities —even toward renting rather than an outright purchase?   An ever-changing economy requires constant geographical repositioning. In the 19th century, for example, housing was often built near factories and warehouses, with apartments or houses containing numerous small rooms intended to accommodate many people per structure. In those days, before air-conditioning, these buildings often had large porches for access to cooling breezes.  Early in the 20th century, many houses were built around streetcar routes. Then, when the Interstate Highway System started in the 1950s, suburbs bloomed along the path of superhighways. With cheaper cars and relatively cheap gasoline (despite spikes in the 1970s and after 2005), housing developments became more dispersed. A culture that prized privacy and individuality left many neighborhoods without sidewalks or nearby community gathering places. Houses were cheaper to build this way, and they grew larger.  In the last century, shifts like these helped explain why inflation-corrected prices for existing homes typically changed by plus or minus 15 percent in a decade, even without national bubbles.

Pending Home Sales index increases in March - From the NAR: March Pending Home Sales Improve but Overall Pace Leveling The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 1.5 percent to 105.7 in March from a downwardly revised 104.1 in February, and is 7.0 percent above March 2012 when it was 98.8. Pending sales have been above year-ago levels for the past 23 months; the data reflect contracts but not closings. Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in April and May. As I've noted several times, with limited inventory at the low end and fewer foreclosures, we might see flat or even declining existing home sales. The key is that the number of conventional sales is increasing while foreclosures and short sales decline - and that is a sign of an improving market, even if total sales decline.

Government Cutbacks Drag Down Construction Spending - Sharp declines in government spending dragged down overall U.S. construction, likely reflecting across-the-board budget cuts from Washington that took hold in March. U.S. construction spending dropped 1.7% to a seasonally adjusted annual rate of $856.72 billion during the month, the Commerce Department said Wednesday. Still, spending was up 4.8% from a year earlier. The results were against expectations. Economists surveyed by Dow Jones Newswires had forecast a 0.7% increase.

Residential Construction Spending increased in March, Non-Residential and Public Spending Decreased - The Census Bureau reported that overall construction spending decreased in March: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during March 2013 was estimated at a seasonally adjusted annual rate of $856.7 billion, 1.7 percent below the revised February estimate of $871.2 billion. The March figure is 4.8 percent above the March 2012 estimate of $817.8 billion. Both private construction and public construction spending decreased (residential increased, non-residential decreased):  Spending on private construction was at a seasonally adjusted annual rate of $598.4 billion, 0.6 percent below the revised February estimate of $602.0 billion. Residential construction was at a seasonally adjusted annual rate of $294.9 billion in March, 0.4 percent above the revised February estimate of $293.8 billion. Nonresidential construction was at a seasonally adjusted annual rate of $303.5 billion in March, 1.5 percent below the revised February estimate of $308.2 billion.This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted. Private residential spending is 56% below the peak in early 2006, and up 33% from the post-bubble low. Non-residential spending is 27% below the peak in January 2008, and up about 34% from the recent low. Public construction spending is now 21% below the peak in March 2009 and at the lowest level since 2006 (not inflation adjusted).  The second graph shows the year-over-year change in construction spending.

Are we purging the poorest? - In cities across America over the last two decades, high-rise public-housing projects, riddled with crime and poverty, have been torn down. In their places, developers have constructed lower-rise, mixed-use buildings. Crime has dropped, neighborhoods have gentrified, and many observers have lauded the overall approach. But urban historian Lawrence J. Vale of MIT does not agree that the downsizing of public housing has been an obvious success. Take Chicago, where the last of the Cabrini-Green high-rises was torn down in 2011, ending a dismantling that commenced in 1993. Those buildings have been replaced by lower-density residences. But where 3,600 apartments were once located, there are now just 400 units constructed for ex-Cabrini residents. Other Cabrini-Green occupants were given vouchers to help subsidize their housing costs, but their whereabouts have not been extensively tracked. “There is a contradiction in saying to people, ‘You’re living in a terrible place, and we’re going to put massive investment into it to make it as safe and attractive as possible, but by the way, the vast majority of you are not going to be able to live here again once we do so,’” Vale says. “And there is relatively little effort to truly follow through on what the life trajectory is for those who go elsewhere and don’t have an opportunity to return to the redeveloped housing.”

Consumer Confidence Rebounds - U.S. consumer confidence bounced back this month from its March drop, according to a report released Tuesday. The Conference Board, a private research group, said its index of consumer confidence increased to 68.1 in April from a revised March reading of 61.9, which was first reported as 59.7. The April index is the highest since November 2012 and stands just above the 68.0 reading in February. Economists surveyed by Dow Jones Newswires had expected the index to increase but only to 62.0. Consumer expectations for economic activity over the next six months increased almost 10 points to 73.3 from a revised 63.7 (originally put at 60.9).

Consumer Confidence Jumps as U.S. Home Values Rebound: Economy - Consumer confidence unexpectedly jumped in April, and the rebound in home values accelerated earlier this year, showing the recovery in residential real estate is buttressing the U.S. economy. The Conference Board’s sentiment index climbed to 68.1, exceeding the highest estimate in a Bloomberg survey of economists, data from the New York-based private research group showed today. The S&P/Case-Shiller index of home prices in 20 cities rose 9.3 percent in February from the same month in 2012, the biggest year-to-year advance since 2006.Rising home and stock prices are helping repair finances left in tatters by the recession, leading to gains in sentiment that may limit any slowdown in household spending, the biggest part of the economy. For now, an increase in the payroll tax and cuts in federal outlays may be starting to pinch, prompting a slackening in manufacturing that is restraining growth.

Consumer Confidence Beats Expectations, But Remains at Recession Levels - The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through April 18. The 68.1 reading was well above the consensus estimate of 61.0 reported by Today's number is a bounce off March's 59.7 back to essentially the February level of 68.0. In fact, the last five months have seen a regular month-over-month oscillation since December: 66.7, 58.4, 68.0, 59.7, 68.1. Here is an excerpt from the Conference Board report. Consumers' assessment of current conditions improved moderately in April. Those saying business conditions are "good" increased to 17.2 percent from 16.4 percent, while those stating business conditions are "bad" decreased to 28.1 percent from 29.1 percent. Consumers' assessment of the labor market was mixed. Those claiming jobs are "plentiful" edged up to 9.8 percent from 9.5 percent, however those claiming jobs are "hard to get" increased to 37.1 percent from 35.4 percent.  Consumers were considerably more upbeat about the short-term outlook. The percentage of consumers expecting business conditions to improve over the next six months increased to 16.9 percent from 15.0 percent, while those anticipating business conditions to worsen decreased to 15.1 percent from 17.7 percent.  [press release] The table here shows the average consumer confidence levels for each of the five recessions during the history of this monthly data series, which dates from June 1977. The latest number continues to reflect a recessionary mindset. It is a little over a point below the average confidence of recession months

Americans Most Upbeat in Five Years as Firings Slow: Economy - Consumer sentiment climbed last week to the highest level in more than five years and claims for jobless benefits unexpectedly dropped, indicating the U.S. economic expansion is making progress. The Bloomberg Consumer Comfort Index improved to minus 28.9 in the week ended April 28 from minus 29.9, a report showed today. The number of applications for unemployment insurance payments fell by 18,000 to 324,000 in the week ended April 27, according to Labor Department figures in Washington. The confidence reading was the highest and claims were the lowest since January 2008, a month after the last recession began. The gain in sentiment is being driven by high-income earners as rising home and stock values bolster household wealth. While those at the other end of the pay scale are being helped by easing fuel costs and fewer job dismissals, a boost in the payroll tax that took effect in January is curbing total household purchases and economic growth this quarter. Employers “don’t see this slowdown as deep or persistent enough to justify firing,” said Dean Maki, chief U.S. economist for Barclays Plc in New York. “Consumers may not feel worse, but they simply have less money to spend. In this case, the loss of income from the tax increases is going to dominate in the second quarter.”

Vital Signs Chart: Volatile Consumer Confidence - Consumer confidence rebounded in April. The Conference Board’s index rose 6.2 points from March’s level to 68.1, driven mostly by stronger expectations for later this year. The figure has been volatile in recent months amid Washington’s budget battles and higher gasoline prices early in the year. One worry: Consumers reported being less optimistic about finding jobs now.

Personal Income increased 0.2% in March, Core PCE prices up 1.1% year-over-year - The BEA released the Personal Income and Outlays report for March:  Personal income increased $30.9 billion, or 0.2 percent ... in March, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $21.0 billion, or 0.2 percent....Real PCE -- PCE adjusted to remove price changes -- increased 0.3 percent in March, the same increase as in February. ... PCE price index -- The price index for PCE decreased 0.1 percent in March, in contrast to an increase of 0.4 percent in February. The PCE price index, excluding food and energy, increased less than 0.1 percent, compared with an increase of 0.1 percent...Personal saving -- DPI less personal outlays -- was $329.1 billion in March, compared with $330.9 billion in February. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 2.7 percent in March, the same as in February. The following graph shows real Personal Consumption Expenditures (PCE) through March (2005 dollars).

Real Disposable Income Per Capita: Up Only 0.34% Year-over-Year - Earlier today I posted my latest Big Four update featuring today's release of the January data Real Personal Income Less Transfer Payments. Now let's take a closer look at a somewhat different calculation of incomes: "Real" Disposable Personal Income Per Capita. The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. The 0.12 percent nominal month-over-month increase is a return to a more normal trend after the oscillation during the November-to-February caused by year-end 2012 tax management strategies. The real MoM change was 0.25 percent, thanks to the disinflationary trend in the PCE price index used to deflate the series (more on that topic here). The BEA uses the average dollar value in 2005 for inflation adjustment. But the 2005 peg is arbitrary and unintuitive. For a more natural comparison, let's compare the nominal and real growth in per capita disposable income since 2000. Do you recall what you we're doing on New Year's Eve at the turn of the millennium? Nominal disposable income is up 51.0% since then. But the real purchasing power of those dollars is up only 14.9%. Year-over-year disposable per-capita income is up 1.32%. But if we adjust for inflation, its only up 0.34%.

Consumer spending and personal income climb in March --- Consumers spent more in March even as their income rose less than analysts had projected, a mixed economic message to start a week that will end with the latest government unemployment report. Consumer spending was up 0.2% last month, down from February's 0.7% rise, the Commerce Department said Monday. But spending still was up, an unexpected improvement. The median estimate of economists surveyed by Bloomberg News was that spending would be flat. The March increase in spending came despite personal income's rising just 0.2%., less than the 0.4% estimated by economists. Consumers increased their spending without raiding their savings. The savings rate was 2.7% in March, the same as the previous month.

Spending On Services Jumps By Most Ever As Incomes Disappoint, Savings Rate Near Five Year Lows - Despite expectations that following several months of subpar income growth offset by rampaging spending and thus a plunging savings rate, March incomes would rise by 0.4%, while spending would be flat, this did not happen, and instead both spending and incomes rose by the same amount, or 0.2% in the past month. Worse, when adjusting for inflation, real disposable income rose just 1.1% compared to last March, and just barely above the 0% breakeven. On the other side, real spending was up 2.2% Y/Y just barely above the 2% recessionary threshold. And even that number is misleading as spending on Total Goods (including durable, already known as being quite abysmal, and non-durable), dropped by $32.8 billion in nominal dollars. What was the offset? Why a massive surge in consumption expenditures on services, which rose by $53.8 billion, which absent the spending aberation for September 11, 2001, which was reversed in the following month, was the biggest monthly increase on record! What drove this record services spending spree is anyone's guess

March Spending Driven By Surge In Services -- The latest personal income and expenditure report for March was of particularly interesting reading. However, as opposed to the mainstream headlines that immediately reported that despite higher payroll taxes consumers were still spending, and therefore a sign of a strong economy, it was where they were spending that was most telling. As I searched the various headlines, and read several of the economic releases, I came across only one analysis that questioned the headline report.  Tyler Durden at Zero Hedge: On the other side, real spending was up 2.2% Y/Y just barely above the 2% recessionary threshold. And even that number is misleading as spending on Total Goods (including durable, already known as being quite abysmal, and non-durable), dropped by $32.8 billion in nominal dollars. What was the offset? Why a massive surge in consumption expenditures on services, which rose by $53.8 billion, which absent the spending aberration for September 11, 2001, which was reversed in the following month, was the biggest monthly increase on record! What drove this record services spending spree is anyone's guess."  Tyler is correct and the chart of the monthly dollar change in services spending shows it to be the largest single monthly increase since January 2002. However, we don't have to "guess" at where the dollars were spent - all we have to do is dig down into the report.

Analysis: Weak Pattern in Income, but Consumers Still Spending - More figures that indicate disappointing growth for the economy. Mike Englund, Chief Economist for Action Economics, dives into the Personal Income and Spending reports with the Wall Street Journal’s Mathew Passy.

Vital Signs Chart: Consumer Spending - Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose a seasonally adjusted 0.3% from the prior month after adjusting for inflation. Consumers have slowed saving to offset higher payroll taxes since Jan. 1. A recent decline in gasoline prices, along with other downward pressure on inflation, also is propping up consumers despite slow wage gains.

Good news and bad news on personal saving - Yesterday's personal income and spending report is one of two data points in addition to the monthly jobs report that I think are especially important this week (the other being vehicle sales).  Personal spending is important because it is one of the 4 coincident indicators thought especially important in dating recessions and expansions, when normed for inflation and transfer payments. It rose im March for the second month in a row: Note that the big December - January spike and decline were about the timing of payments like bonuses to minimize the implications of increases in tax rates. Leaving that anomaly aside, it's clear that real personal income is higher than at any point last year. This confirms that no recession has begun yet.  In the longer term, however, the biggest concern is the personal savings rate. With the increase in payroll taxes in January, what would the consumer do? After three months, we have our answer: the consumer continued to spend, by saving less. Below is the personal savings rate, calculated quarterly, and the result isn't pretty:We now have a savings rate as low as what we had prior to the 2001 and 2008 recessions. It's true that we can go on this way for awhile, but there is no more maneuvering room. When consumers ultimately decide to save more and spend relatively less, that's when a recession happens.

Vital Signs Chart: Consumers Saving Less - Consumers are saving less. The nation’s personal-saving rate fell to 2.6% in the first quarter, down from 4.7% in the final three months of 2012. Higher payroll taxes since the start of the year and higher gasoline prices have taken a bite out of consumers’ disposable incomes. The saving rate — what’s left after spending and taxes — is the lowest since late 2007, before the recession started.

Restaurant Index increased in March - (graph) From the National Restaurant Association: Positive same-store sales push RPI above 100 in March Buoyed by positive sales results and a more optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) rose above 100 in March. The RPI stood at 100.6 in March, up 0.7 percent from February’s level of 99.9. March represented the second time in the last three months that the RPI stood above 100, which signifies expansion in the index of key industry indicators. The Current Situation Index stood at 99.8 in March – up 1.5 percent from February’s level. After reporting a same-store sales decline for the first time in 21 months, restaurant operators bounced back in March with a modest net gain. ... While overall sales were positive in March, restaurant operators reported a net decline in customer traffic for the fourth consecutive month. Despite the mixed sales and traffic results, restaurant operators reported an increase in capital spending activity.

Weekly Gasoline Update: Ninth Week of Falling Prices - It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Gasoline prices fell again last week. Rounded to the penny, the average for Regular dropped two cents and Premium one cents. This is the ninth week of declines after eleven weeks of price rises. Since their interim high in late February, Regular and Premium are both down 26 cents. According to, one state, Hawaii is averaging above $4.00 per gallon, unchanged from last week. Two states, Illinois and Alaska, are in the 3.90-4.00 range, up from no states last week. In March 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.

Trade Deficit declined in March to $38.8 Billion - The Department of Commerce reported[T]otal March exports of $184.3 billion and imports of $223.1 billion resulted in a goods and services deficit of $38.8 billion, down from $43.6 billion in February, revised. March exports were $1.7 billion less than February exports of $186.0 billion. March imports were $6.5 billion less than February imports of $229.6 billion. The trade deficit was lower than the consensus forecast of $42.4 billion. The first graph shows the monthly U.S. exports and imports in dollars through March 2013.Exports declined slightly in March, and imports declined even more, so the deficit declined. Exports are 11% above the pre-recession peak and unchanged compared to March 2012; imports are 4% below the pre-recession peak, and down 6% compared to March 2012. The second graph shows the U.S. trade deficit, with and without petroleum, through March. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. Oil averaged $96.95 in March, up from $95.96 per barrel in February, but down from $107.95 in March 2012. Oil import prices should start falling in April. The trade deficit with the euro area was $8.3 billion in March, down slightly from $8.8 billion in March 2012. The trade deficit with China decreased to $17.9 billion in March, up from $21.7 billion in March 2012. Note: The decline in the trade deficit with China was related to the timing of the Chinese New Year

Trade Deficit Drops by 11% in March 2013 - The U.S. March 2013 monthly trade deficit decreased 11% to $38.8 billion.  U.S. exports decreased $1.7 billion or -0.9%.  Imports declined by $6.5 billion, a -2.8% decrease.  Expect an upward revision on the trade component to Q1 GDP, assuming prices were stable. This month's trade deficit gives an annualized -4.6% change from Q1.  The Q1 GDP report gives a +15.7% annualized increase in the trade deficit.  While price indexes and other adjustments have not been applied, it's a safe bet to assume the trade components to GDP will be revised upward and thus Q1 GDP would be revised higher in the trade components. Below are the goods import monthly changes, seasonally adjusted.  On a Census basis, overall imports decreased by -$6.208 billion as crude oil imports plunged by -$1.919 billion.   Computer imports plunged by -$1.134 billion and toys, sporting goods, games dropped another monthly -$1.044 billion.

  • Industrial supplies and materials: -$1.417 billion
  • Capital goods: -$1.505 billion
  • Foods, feeds, and beverages: +$0.010 billion
  • Automotive vehicles, parts, and engines: -$0.771 billion
  • Consumer goods: -$3,406 billion
  • Other goods: +$0.880 billion

Below is the list of good export monthly changes, seasonally adjusted, by end use and on a Census accounting basis, which overall decreased by -$2.032 billion.  Petroleum exports were the culprit, with a -$1.597 billion decline, although other fuels and non-monetary gold helped reduce the overall decline in industrial supplies and materials.   Soy bean exports declined by -$517 million.  Generally speaking declines were across the board in exports.

  • Automotive vehicles, parts, and engines: -$0.331 billion
  • Industrial supplies and materials: -$0.288 billion
  • Foods, feeds, and beverages: -$1.052 billion
  • Capital goods: -$0.269 billion
  • Consumer goods: -$0.260 billion
  • Other goods: +$0.169 billion

Enjoy Shrinking Trade Gap. It Won’t Last - The Commerce Department found some of the first-quarter’s missing growth in a few shipping crates and cargo holds. The U.S. trade deficit last quarter was not as bad as estimated in Commerce’s first look at gross domestic product. The March trade gap narrowed to $38.8 billion, less than the $42.1 billion expected and the smallest gap since December. After adjusting for prices, net exports subtracted just 0.2 percentage point from GDP growth rather than the half-point reported a week ago when Commerce said first-quarter economic activity grew at a disappointing 2.5% annual rate. (The problem is that data show other sectors, especially construction, likely subtracted from growth.)

AAR: Rail Traffic "mixed" in April - From the Association of American Railroads (AAR): AAR Reports Mixed Rail Traffic for April, and Week Ending April 27 Intermodal traffic in April 2013 totaled 962,019 containers and trailers, up 1.6 percent (15,053 units) compared with April 2012. April’s weekly average of trailers and containers, 240,505, was the highest for any April in history. Carloads originated in April 2013 totaled 1,108,722, down 0.4 percent (4,640 carloads) compared with the same month last year.  “Coal and grain carloads remain depressed, but by and large rail traffic in April was consistent with an economy that’s continuing to grow, albeit slowly,”This graph from the Rail Time Indicators report shows U.S. average weekly rail carloads (NSA).  Green is 2013. U.S. rail carloads of petroleum and petroleum products were up 46.4% (17,524 carloads) in April 2013 over April 2012. ... Carloads of crushed stone, gravel, and sand were up 11.5% (8,959 carloads) in April 2013 over April 2012. Industrial sand is part of this category, and frac sand is a type of industrial sand. Other commodities showing carload gains in April 2013 over April 2012 include coke (up 1,359 carloads, or 10.1%), lumber and wood products (up 1,093 carloads, or 8.4%), and food products (up 835 carloads, or 3.3%).  Note that building related commodities were up. The second graph is for intermodal traffic (using intermodal or shipping containers):

April Caps Off Continuing Weak Rail Trends - April rail trends finished with a whimper as intermodal rail traffic came in at 1.6% on a year over year basis.  This continues a series of weakening data points as the Q2 period begins.  After a very healthy 3 month average reading of 5.3% in Q1, the second quarter is off to a very sluggish start with a 0.38% average reading.  The most recent reading brings the 12 week trailing average to 3.54% which is the weakest reading since January. Here’s more from AAR:U.S. monthly rail traffic showed mixed results in April 2013, and traffic was also mixed for the week ending April 27, 2013.Intermodal traffic in April 2013 totaled 962,019 containers and trailers, up 1.6 percent (15,053 units) compared with April 2012. April’s weekly average of trailers and containers, 240,505, was the highest for any April in history.Carloads originated in April 2013 totaled 1,108,722, down 0.4 percent (4,640 carloads) compared with the same month last year.

Sharp Contraction in Texas-Area Manufacturing - Business activity among Texas-area manufacturers fell sharply into contraction this month, according to a report released Monday by the Federal Reserve Bank of Dallas. The bank said its general business activity index plunged to -15.6 in April after it increased to a year-high of 7.4 in March from 2.2 in February. The April reading is the lowest since July 2012, the report said. Readings below 0 indicate contraction, and positive numbers indicate expanding activity.

Dallas Fed: Regional Manufacturing Activity "stalls" in April - This is the last of the regional manufacturing surveys for April. From the Dallas Fed: Growth in Texas Manufacturing Activity Stalls  The production index, a key measure of state manufacturing conditions, fell from 9.9 to -0.5. The near-zero reading indicates output was little changed from March levels. Ebbing growth in manufacturing activity was reflected in other survey measures as well. The capacity utilization index came in at 2.7, down from 5.5, and the shipments index fell to zero after rising to 10.6 in March. The new orders index fell nearly 14 points to -4.9, posting its first negative reading this year. Perceptions of broader business conditions worsened in April. The general business activity index plummeted from 7.4 to -15.6, reaching its lowest level since July 2012. Labor market indicators remained mixed. The employment index has been in positive territory so far in 2013 and moved up to 6.3 in April. ... The hours worked index pushed further negative, from -2.4 to -6.5.

Factories in U.S. Boost Sales Projections for 2013, ISM Says -  Manufacturers in the U.S. are more optimistic about sales and spending this year than they were at the end of 2012, while service providers were less upbeat, according to a semiannual survey by the Institute for Supply Management. Purchasing managers at factories anticipate sales will grow 4.8 percent in 2013, up from the 4.6 percent they forecast in December, and business investment will rise 9.1 percent, more than the prior projection of 7.6 percent, the Tempe, Arizona- based group’s survey showed today. By contrast, service providers estimate revenue growth of 3.5 percent this year, less than their December forecast of 4.3 percent, the ISM said. “With 17 out of 18 industries within the manufacturing sector predicting growth in 2013 over 2012, U.S. manufacturing continues to demonstrate its broad-based strength, efficiency and leadership in the world economy,” Bradley Holcomb, chairman of the group’s factory committee, said in a statement. According to ISM’s survey, purchasing managers at service providers projected a 3.6 percent increase in 2013 capital spending, down from a 7 percent gain.

Chicago PMI slumps to 3.5-year low in April - -- Chicago PMI slumped to a three-and-a-half year low of 49.0 in April, down from 52.4 in March and at a reading indicating contraction. Economists polled by MarketWatch had expected a 52.5 reading. Order backlogs were particularly weak, falling to 40.6 from 45.0. The Chicago PMI is the last of the regional manufacturing indexes to be released before the national Institute for Supply Management manufacturing index for April

Welcome Back Recession: Chicago PMI Implodes To 49, First Sub-50 Print Since September 2009 -- Total collapse. That is the only way to explain what just happened with the Chicago PMI which imploded from 52.4, and printed at a contractionary 49: the first sub-50 headline print since September 2009. But that's not all: Deliveries, Prices Paid and Production all hit their lowest since 2009; Backlogs posted their tenth month of contraction in the past 12 months. And what's worst for the Department of Making Shit Up, Employment plunged from 551. to 48.7, its third month over month decline. Actually another way to phrase it: complete disaster.

ISM Manufacturing index declines in April to 50.7 - The ISM manufacturing index indicated expansion in April. The PMI was at 50.7% in April, down from 51.3% in March. The employment index was at 50.2%, down from 54.2%, and the new orders index was at 52.3%, up from 51.4% in March. From the Institute for Supply Management: April 2013 Manufacturing ISM Report On Business® Economic activity in the manufacturing sector expanded in April for the fifth consecutive month, and the overall economy grew for the 47th consecutive month,  "The PMI™ registered 50.7 percent, a decrease of 0.6 percentage point from March's reading of 51.3 percent, indicating expansion in manufacturing for the fifth consecutive month, but at the lowest rate of the year. The New Orders Index increased in April by 0.9 percentage point to 52.3 percent, and the Production Index increased by 1.3 percentage points to 53.5 percent. The Employment Index registered 50.2 percent, a decrease of 4 percentage points compared to March's reading of 54.2 percent. The Prices Index registered 50 percent, decreasing 4.5 percentage points from March, indicating that overall raw materials prices remained unchanged from last month. Here is a long term graph of the ISM manufacturing index. This was below expectations of 51.0% and suggests manufacturing expanded at a slower pace in April

ISM Manufacturing Index Expands, But Less Than Expected - Today the Institute for Supply Management published its February Manufacturing Report. The latest headline PMI at 50.7 percent is the fifth month above 50 after one month below. However today's number was below the consensus of 51.0 percent. Here is the key analysis from the report: Manufacturing expanded in April as the PMI™ registered 50.7 percent, a decrease of 0.6 percentage point when compared to March's reading of 51.3 percent. This month's reading reflects the fifth consecutive month of growth in the manufacturing sector. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.  A PMI™ in excess of 42.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the April PMI™ indicates growth for the 47th consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the fifth consecutive month. Holcomb stated, "The past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through April (52.3 percent) corresponds to a 3.2 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI™ for April (50.7 percent) is annualized, it corresponds to a 2.7 percent increase in real GDP annually."

Manufacturing in U.S. Expands at Slowest Pace This Year - Manufacturing expanded in April at the slowest pace this year and companies took on the fewest workers in seven months, adding to evidence of a slowdown in the world’s largest economy. The Institute for Supply Management’s factory index fell to 50.7 from the prior period’s 51.3, the Tempe, Arizona-based group said today. Fifty is the dividing line between growth and contraction. The ADP Research Institute said private payrolls rose 119,000 last month, the least since September, while another report showed construction outlays slumped in March. Factories are pulling back as the need to rebuild inventories wanes, across-the-board federal budget cuts take hold and higher payroll taxes restrain consumer spending. Federal Reserve policy makers said today at the conclusion of their two-day meeting that they will continue to pursue record stimulus in an attempt to bolster the economy and job market. 

ISM Manufacturing Index Barely Breaks Even - PMI 50.7% for April 2013 - The April 2013 ISM Manufacturing Survey shows PMI slid by -0.6 percentage points to 50.7%.  This is expansion but much slower.   Expansion has occurred for the 5th month in a row., although this is the lowest PMI of 2013.  Overall the report implies a stagnant manufacturing sector, ho hum, and not much to write home about. This month's ISM report comments from manufacturing survey responders were diverse.  Some said business is flat, computers noted the lack of defense spending and one mentioned the insecure situation with North Korea affecting their South Korean business.  New Orders did pick up slightly, a 0.9 percentage point increase to 52.3%.  That's better at least than a decline in terms of future growth, although fairly flat.  New Orders inflection point, where contraction turns into expansion for the long term, isn't exactly 50%, it is 52.3% for new orders, which implies manufacturing new orders are really flat lined. A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders. The Census reported manufactured March durable goods new orders growth was -5.7%, where factory orders, or all of manufacturing data, will be out May 3rd.  The ISM claims the Census and their survey are consistent with each other.  To wit, below is a graph of manufacturing new orders percent change from one year ago (blue, scale on right), against ISM's manufacturing new orders index (maroon, scale on left) to the last release data available for the Census manufacturing statistics.  Here we do see a consistent pattern between the two.

Manufacturing ISM Drops To Lowest Since December, Employment Slide Biggest Since 2008 -- Those expecting a complete collapse in the Manufacturing ISM, on par with yesterday's slide in the Chicago PMI, will have to wait some more before the complete devastation in the US manufacturing sector sends stocks into the stratosphere. Moments ago the ISM Manufacturing report for April was released, printing at a headline of 50.7, down from 51.3 and the lowest print since December 2012. The good news: it was still above 50 and beat expectations of a 50.6 print by the smallest amount possible. The bad news: it is sliding fast. The worst news: the Employment Indicator, which came at 50.2, down 4 on the month, was the lowest since November, tied with the biggest sequential drop since 2008 in absolute terms, and the biggest drop in percentage terms since the Great Financial Crisis. Judging by the stock market response, the news is not as bad as needed to send the S&P to over 1600, at least not just yet (but the biggest 3-month drop in construction spending in 26 months may be bad enough to get us there).

Vital Signs Chart: Slowing Factory Employment - Manufacturing employment barely expanded in April. The Institute for Supply Management’s gauge of factory-sector employment fell to 50.2 last month, down four points from March and putting it just above the dividing line between expansion and contraction. The overall ISM index tracking conditions across U.S. manufacturers fell to 50.7 from 51.3.

ISM Non-Manufacturing Index indicates slower expansion in April - The April ISM Non-manufacturing index was at 53.1%, down from 54.4% in March. The employment index decreased in April to 52.0%, down from 53.3% in March. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: April 2013 Non-Manufacturing ISM Report On Business®  "The NMI™ registered 53.1 percent in April, 1.3 percentage points lower than the 54.4 percent registered in March. This indicates continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 55 percent, which is 1.5 percentage points lower than the 56.5 percent reported in March, reflecting growth for the 45th consecutive month. The New Orders Index decreased by 0.1 percentage point to 54.5 percent, and the Employment Index decreased 1.3 percentage points to 52 percent, indicating growth in employment for the ninth consecutive month. The Prices Index decreased 4.7 percentage points to 51.2 percent, indicating prices increased at a slower rate in April when compared to March. This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. This was below the consensus forecast of 54.0% and indicates slower expansion in April than in March

ISM Non-Manufacturing Business Report: Slower Growth in April - Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 53.1 percent, signaling slower growth than last month's 54.4 percent. The consensus was for 54.0 percent. Here is the report summary: The NMI™ registered 53.1 percent in April, 1.3 percentage points lower than the 54.4 percent registered in March. This indicates continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 55 percent, which is 1.5 percentage points lower than the 56.5 percent reported in March, reflecting growth for the 45th consecutive month. The New Orders Index decreased by 0.1 percentage point to 54.5 percent, and the Employment Index decreased 1.3 percentage points to 52 percent, indicating growth in employment for the ninth consecutive month. The Prices Index decreased 4.7 percentage points to 51.2 percent, indicating prices increased at a slower rate in April when compared to March. According to the NMI™, 14 non-manufacturing industries reported growth in April. Respondents' comments remain mostly positive about business conditions. Cost management and revenue pressures are areas of concern for many of the respective companies.

Non-Manufacturing ISM, Factory Orders Both Miss Expectations, Drop To 2012 Levels - And now for the glass half empty part. Following the better than expected jobs report, driven by women job additions and low-paying jobs, we got the non-manufacturing ISM and Factory Orders both of which missed expectations. The ISM dropped from 54.4 to 53.1, below expectations of 54.0, and the lowest since July 2012, with the employment number dropping from 53.3 to 52. Since this number focuses on services, one has trouble footing this with what the BLS said was a jump in jobs in Services sector but one can't have anything. Elsewhere, factory orders dropped 4%, down from a downward revised 1.9% (was +3%), and below expectations of -2.9%, with March durable goods revised even lower from -5.7% to -5.8%. This was the biggest Factory Goods drop since August 2012. Of course, as Joe LaVorgna just said on a TV, it is best to just "ignore" all data that is missing expectations, or not complying with the narrative.

The Myth of the Manufacturing ‘Renaissance’ - Morgan Stanley has firmly joined the “Where’s the beef?” crowd when it comes to America’s supposed factory renaissance. In a 125-page “blue paper,” the bank concludes there’s “little real evidence” of a revival. Some domestic producers will certainly benefit from the dual force of breakthroughs in domestic energy production and rising costs in China. But not so fast, says the bank. “Outside of the chemicals sector, low natural gas prices will likely have limited ramifications on capacity decisions.” Here’s why: In the larger scheme of things, labor and energy make up a relatively small slice of the costs for most U.S. manufacturers. Much more important is raw material and component purchases. Transportation costs are big and the bank acknowledges more U.S. companies are increasingly looking for ways to shorten their supply lines. But that could easily mean moving production from China to Mexico — or vice versa, if enough end customers for a given product are in China. As part of their research, the bank surveyed 266 manufacturers in seven industries about how they saw their production footprint changing over the next five years, compared to the last five. “Our survey work indicates that larger manufacturers expect to allocate a stable proportion of global capex budgets to the U.S. over the next five years,” the report says, noting that the current level of U.S. investment in manufacturing is “still at depressed levels.”

No Manufacturing ‘Renaissance’ Because Decline Is Overblown - The libertarian Cato Institute yesterday released its own response to the “Is it a U.S. manufacturing renaissance or not?” question. The debate has been sparked mainly by falling U.S. energy prices and rising wages in China, along with a string of U.S. companies noisily announcing they were moving some production back to the U.S. from overseas. The problem is that there isn’t yet any proof of a deeper structural change in the economic numbers. High-profile reshoring is happening here and there, but not enough to suggest a structural change, say most economists. Cato’s take is quite different: There isn’t a renaissance, says economist Daniel J. Ikenson, because there was never a decline in the first place. “With the exception of a handful of post-WWII recession years, U.S. manufacturing has achieved new records, year after year, with respect to output, value-added, return on investment, exports, imports, profits (usually), and numerous other metrics appropriate for evaluating the performance of the sector,” he writes.

U.S. Light Vehicle Sales decreased to 14.9 million annual rate in April - Based on an estimate from AutoData Corp, light vehicle sales were at a 14.92 million SAAR in April. That is up 6% from April 2012, and down 2% from the sales rate last month.This was below the consensus forecast of 15.3 million SAAR (seasonally adjusted annual rate).This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for April (red, light vehicle sales of 14.92 million SAAR from AutoData).This was the lowest sales rate in six months.     After three consecutive years of double digit auto sales growth, the growth rate will probably slow in 2013 - but this will still be another positive year for the auto industry. The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Auto sales lowest in 5 months - Last weekend I said that the two important data releases this week, in addition to tomorrow's jobs report, would be the personal savings rate and auto sales. We now know that both came in relatively poor.  For the second month in a row, March had the lowest savings rate since before the 2008 recession. This tells us that conumers in the aggregate have little room left before being tapped out. Yesterday's auto sales report told us that consumers have pulled back at least a little on purchasing durable goods. This isn't fatal: similar pullbacks occurrred in both 2011 and 2012 (shown in red in the below graph of light vehicle sales)(note the graph does not include yesterday's 14.92 annualized data point): Typically before recessions vehicle sales have declined by about 10%. This is only a 4% decline.  But the situation is deteriorating. One of the other metrics I found that has been very consistent is that prior to recessions, YoY retail sales growth grows less than YoY PCE growth. Real retail sales are much more volatile than pce's as this graph below (subtracting YoY PCE growth from YoY real retail sales growth through 1997) shows, in a very specific and non-random way:

The mother of invention - I thought I’d quickly highlight a point made recently by two great posts. First, here’s J.W. Mason: There is increasing recognition in the mainstream of the importance of hysteresis — the negative effects on economic potential of prolonged unemployment. There’s little or no discussion of anti-hysteresis — the possibility that inflationary booms have long-term positive effects on aggregate supply. But I think it would be easy to defend the argument that a disproportionate share of innovation, new investment and laborforce broadening happens in periods when demand is persistently pushing against potential. In either case, the conventional relationship between demand and supply is reversed — in a world where (anti-)hysteresis is important, “excessive” demand may lead to only temporarily higher inflation but permanently higher employment and output, Now, from the blog direct economic democracy: Of course we COULD choose to have just a few in the owning class and have everyone else rioting. BUT the owning class would get no benefit at all by keeping itself select. In fact that would make each member of the owning class less rich because the market would be smaller. Technological innovations have very high development costs relative to the unit cost of the product. A product such as a new medicine or an innovative electronic gadget becomes dramatically cheaper to produce per unit item if the development costs are spread across many more units sold. Imagine if we lived in a world with greater disparities of wealth than we do now. Imagine if the market for the latest medicine or electronic gadget was 1/10000th the current size. Those few who could still afford such items would have to pay massively more to cover the development costs. That dynamic works in the opposite direction too.

What Changes in Federal Policy Might Spur Innovation? - CBO slide show

Skilled work - Watch an active construction site for a few minutes and you will see some amazing examples of skilled work and deft problem solving. That was true today in Ann Arbor where I happened to see one complicated step in the construction of a new wing of a five-storey building. The problem was this. A fifty-foot girder was lifted by crane to its intended location within the vertical steel frame. Already I was impressed with the skill of the crane operator, who deftly maneuvered the beam into position where two steel workers were waiting on the existing beam. The crane suspended the beam in place and the steel workers bolted the near end to the frame. So far so good. But the far end was to attach to an isolated vertical beam fifty feet away, and I couldn't picture how that end would be attached. The steel worker answered that question quickly. He scuttled the length of the beam to the isolated vertical while the beam was suspended by the crane cable and the attached end. But now the resistance of the material world intervened -- the beam was a little too long to fit. The worker used two crow bars he'd brought with him to lever it into place -- no good. It was just half an inch too long given the position of the vertical. So are we stymied? Need to send it back? No. The worker stood up on the beam and started gently rocking the vertical. After two or three oscillations he was able to lever the beam into place, and quickly bolted it down.

Outrageous Economic Shorts - There Is No STEM Worker Shortage - We've proved many a time there is no skilled worker shortage in the United States.  Now two top researchers proved it once again.  Problem is, more skilled workers is a corporate cheap labor demand so does anyone thing Congress would listen to actual facts? Our examination of the IT labor market, guestworker flows, and the STEM education pipeline finds consistent and clear trends suggesting that the United States has more than a sufficient supply of workers available to work in STEM occupations:

  • The flow of U.S. students (citizens and permanent residents) into STEM fields has been strong over the past decade, and the number of U.S. graduates with STEM majors appears to be responsive to changes in employment levels and wages.
  • For every two students that U.S. colleges graduate with STEM degrees, only one is hired into a STEM job.
  • In computer and information science and in engineering, U.S. colleges graduate 50 percent more students than are hired into those fields each year; of the computer science graduates not entering the IT workforce, 32 percent say it is because IT jobs are unavailable, and 53 percent say they found better job opportunities outside of IT occupations. These responses suggest that the supply of graduates is substantially larger than the demand for them in industry.

More services means longer recoveries - As shown below, the four longest recoveries in recent history, as measured by the number of months it took until the economy recovered all of the jobs lost during the recession, also have been the four most recent recoveries—those that followed the recessions of 1981, 1990, 2001, and 2007. Why is it taking longer and longer for the U.S. economy to recover from recessions? We argue that the shift from being a goods-producing, manufacturing-based economy to a service economy — what some have termed “deindustrialization” — is causing the pace of economic recoveries to slow. As is typical of economies recovering from the bursting of an asset bubble and a financial crisis, the recovery from the 2007 recession would be longer than usual. But our research suggests that the rise of the service sector has made it even longer than in the past. For example, the recovery from the 2007 recession will last about one year longer than it would have half a century ago.

Weekly Initial Unemployment Claims decline to 324,000 - The DOL reports: In the week ending April 27, the advance figure for seasonally adjusted initial claims was 324,000, a decrease of 18,000 from the previous week's revised figure of 342,000. The 4-week moving average was 342,250, a decrease of 16,000 from the previous week's revised average of 358,250. The previous week was revised up from 339,000. The following graph shows the 4-week moving average of weekly claims since January 2000. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 342,250. Weekly claims were the lowest since 2008, and the 4-week average is just above the low for the year. Claims were below the 345,000 consensus forecast.

Lowest New Unemployment Claims Since January 2008 - The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 324,000 new claims number was a 18,000 decline from the previous week's upwardly revised 342,000. This is the lowest level since January 2008. The less volatile and closely watched four-week moving average, which is usually a better indicator of the recent trend, declined by 16,000 to 342,250. Here is the official statement from the Department of Labor: In the week ending April 27, the advance figure for seasonally adjusted initial claims was 324,000, a decrease of 18,000 from the previous week's revised figure of 342,000. The 4-week moving average was 342,250, a decrease of 16,000 from the previous week's revised average of 358,250.  The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending April 20, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending April 20 was 3,019,000, an increase of 12,000 from the preceding week's revised level of 3,007,000. The 4-week moving average was 3,055,500, a decrease of 18,000 from the preceding week's revised average of 3,073,500.  Here is a close look at the data over the past few years (with a callout for the several months), which gives a clearer sense of the overall trend in relation to the last recession and the trend in recent weeks.

Survey: Private Employers Add Just 119,000 Jobs in April - A survey shows U.S. companies added the fewest jobs in seven months, indicating that government spending cuts and higher taxes may be weighing on the economy. Payroll processor ADP says private employers added just 119,000 jobs last month. And March’s hiring was slower than first thought: the survey shows just 131,000 added, down from an initial estimate of 158,000. Manufacturers cut 10,000 jobs, while construction firms added 15,000. The ADP report is derived from payroll data and tracks private employment each month. It has diverged at times from the government’s more comprehensive monthly jobs report, which will be released Friday. In March, the government said employers added 88,000 jobs, much lower than ADP’s figure.

ADP: Private Employment increased 119,000 in April -- From ADP: Private sector employment increased by 119,000 jobs from March to April, according to the April ADP National Employment Report®, which is produced by ADP® ... in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. The March report, which reported job gains of 158,000, was revised downward to 131,000 jobs.... Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth appears to be slowing in response to very significant fiscal headwinds. Tax increases and government spending cuts are beginning to hit the job market. Job growth has slowed across all industries and most significantly among companies that employ between 20 and 499 workers.” This was below the consensus forecast for 155,000 private sector jobs added in the ADP report. Note: ADP hasn't been very useful in predicting the BLS report

ADP Employment Report - A Lousy 119,000 Additional Private Sector Jobs for April 2013 - ADP's proprietary private payrolls jobs report shows a gained of 119,000 private sector jobs for April 2013.  ADP revised their March job figures down by 27,000 to 131 thousand.  February's tally was revised down by 39,000 to a total of 198 thousand private sector jobs gained for the month.  This is the weakest monthly ADP reported private sector job growth since August 2012.  This report does not include government, or public jobs.  Most of the jobs gains were in the service sector and this month services added 113,000 private sector jobs.  The goods sector added only 6,000 jobs  Professional/business services jobs grew by 20,000.  Trade/transportation/utilities showed strong growth again with 29,000 jobs.  Financial activities payrolls increased by 7,000. Construction work added 15,000 jobs.   Manufacturing was a disaster, with a loss of 10,000 jobs, the worst losses since September 2012 as well as the first decline for manufacturing jobs in three months.  Graphed below are the month job gains or losses for the five areas ADP covers, manufacturing (maroon), construction (blue), professional & business (red), trade, transportation & utilities (green) and financial services (orange). 

Payrolls in U.S. Rise 165,000 as Unemployment Rate Drops - American employers took on more workers than forecast in April and the jobless rate unexpectedly fell to a four-year low of 7.5 percent, reflecting confidence in the outlook for the world’s biggest economy.Payrolls expanded by 165,000 following a revised 138,000 increase in March that was larger than first estimated, Labor Department figures showed today in Washington. Revisions added a total of 114,000 jobs to the counts for February and March. Stocks rallied, sending the Dow Jones Industrial Average above 15,000 for the first time, as the report bolstered expectations that the almost four-year economic expansion will overcome a second-quarter slowdown. Hiring advanced even as employers witnessed the onset of planned government spending reductions that the Federal Reserve said are hindering growth.

April Employment Report: 165,000 Jobs, 7.5% Unemployment Rate - From the BLSTotal nonfarm payroll employment rose by 165,000 in April, and the unemployment rate was little changed at 7.5 percent, the U.S. Bureau of Labor Statistics reported today. ....The change in total nonfarm payroll employment for February was revised from +268,000 to +332,000, and the change for March was revised from +88,000 to +138,000. With these revisions, employment gains in February and March combined were 114,000 higher than previously reported. The headline number was somewhat above expectations of 153,000 payroll jobs added.  Also employment for February and March were revised higher.This graph is ex-Census meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes. The second graph shows the unemployment rate. The unemployment rate decreased to 7.5% in April from 7.6% in March. The unemployment rate is from the household report and the household report showed a sharp increase in employment, and that meant a lower unemployment rate. The third graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate was unchanged at 63.3% in April (blue line). This is the percentage of the working age population in the labor force.  The Employment-Population ratio increased to 58.6% in April (black line) from 58.5% in March. I'll post the 25 to 54 age group employment-population ratio graph later. The fourth graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions.

165K New Jobs Added, And Unemployment Rate Falls to 7.5% - Here is the lead paragraph from the Employment Situation Summary released this morning by the Bureau of Labor Statistics, with the bold bracketed text added by me: Total nonfarm payroll employment rose by 165,000 in April, and the unemployment rate was little changed at 7.5 percent, the U.S. Bureau of Labor Statistics reported today [a decrease from 7.6 percent last month]. Employment increased in professional and business services, food services and drinking places, retail trade, and health care.  Today's nonfarm number was higher than the consensus, which was for 155K new nonfarm jobs, and the unemployment rate is lower than the forecast that it would remain unchanged at 7.6 percent. The number for the previous month was revised upward to from 88K to 138K. The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948. Unemployment is usually a lagging indicator that moves inversely with equity prices (top chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982.  The second chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. The latest number is 3.0% — down from 3.1% last month. This measure gives an alternative perspective on the relative severity of economic conditions. As we readily see, this metric remains higher than the peak in 1983, which came six months after the broader measure topped out at 10.8%.

The Employment Situation -  (7 graphs) By recent norms this was an unusual employment report in that the data worked the way we would like to see. In the household survey the unemployment rate fell to 7.5% because the labor force rose by 210,000 while employment increased a larger 293,00 so the number of unemployed fell by -83,000. The payroll employment was within the range of recently reported data while the household survey showed a very large employment increase. But on a year over year basis the payroll numbers are showing significant weakness. I In contrast to last month when the headline numbers overstated the weakness, this month the headline numbers are over stating the strength. The workweek fell from 34.6 to 34.4 hours. As a consequence the index of aggregate hours worked fell -0.4%, offsetting last months 0.4% increase. Moreover, average hourly earnings were weak. They rose from $23.83 to $23.87, or only 0.01%. w The combination of weak wage growth and a shorter workweek meant that average weekly wages fell from $824.53 to $821.13. This measures accounts for some 80% of the labor force and implies that consumer spending growth will continue to depend heavily on upper income spending.

April Jobs Report Comes in Better Than Expected - Payrolls increased by 165,000 last month and the unemployment rate ticked down to 7.5%, in a jobs report that painted a considerably brighter picture than last month’s version.  In fact, the disappointing 88,000 payroll gain for March was revised up in today’s report to 138,000, and in February, new revisions show a large increase of 332,000 jobs. That means employers added 114,000 more jobs in February and March than we thought, bringing the monthly average payroll gains over the past three months to a healthy 212,000 per month.  Job growth at that pace, if it persists, should be enough to gradually, albeit slowly, bring down the unemployment rate.  In fact, the decline in the jobless rate from 7.6% in March to 7.5% in April was due not to a shrinking labor force (i.e., people giving up looking for work) but to more people getting jobs. Those looking for losses in sequester-sensitive industries could see some evidence in the report, as construction (down 6,000), government (down 11,000), and manufacturing (zero jobs added) all came in weak.  Thus, all of the job gains last month came from private, service producing industries.  Also, in signs that labor demand is still not strong enough, wage growth remains subdued, up 1.9% over the past year, and average weekly hours ticked down last month.

Economy Adds 165,000 Jobs in April, Unemployment Drops to 7.5 Percent - The April jobs numbers came in somewhat better than expected with the Labor Department reporting 165,000 new jobs. Job growth for the prior two months was revised up by 114,000, bringing average job growth for the last three months to 212,000. The unemployment rate edged downward to 7.5 percent, the lowest level since December of 2008. While the total jobs number was somewhat better than the consensus prediction, the composition was disturbing. More than a fifth of the added jobs (34,600) were in employment services. Restaurant employment accounted for 38,000 jobs and the retail sector added 29,300. These three sectors accounted for more than half of April job growth. Health care added 19,000 jobs, a bit less than its 25,000 average over the last year. In addition to the unbalanced nature of the job growth, there was 0.2 hour decline in the length of the average workweek. This led to 0.4 percentage point drop in the index of average weekly hours, equaling the largest declines since the recovery began. The job losers were led by the government sector, with the federal government shedding 8,000 jobs, 3,500 of which were in the Postal Service. State and local governments lost 3,000 jobs, bringing their job loss over the last year to 224,000. Construction shed 6,000 jobs, all in the non-residential sector. This reflects less public building as reported in the March construction data. Manufacturing employment was flat in April for the second consecutive month. There is clearly little momentum in this sector right now. ...

US Unemployment Rate Falls to 7.5 Percent, Strong Upward Revisions for Job Growth - The report on the U.S. employment situation for April released today by the Bureau of Labor Statistics contained some good news, with the unemployment rate falling to 7.5 percent, its lowest since late 2008. Payroll jobs rose by a better than expected 165,000, and upward revisions to previous months made job market performance for the late winter look much better than previously reported. Certainly, weak spots remain in the employment situation, but on the whole, the report was stronger than expected. Although the decrease in the unemployment rate was less than a full percentage point, it was a “good” decrease in that the absolute numbers of unemployed workers fell while both the number of employed workers and the size of the labor force increased. That contrasts with the less favorable situation in March, when the unemployment rate fell only because the labor force decreased faster than the number of workers with jobs. The number of employed workers, as measured by the household survey, increased by 293,000 from March to April. That number differs from the job gain of 165,000 reported in the separate payroll survey partly because of differences in methodology and partly because the payroll survey excludes farm workers and the self-employed. The BLS also publishes a broader measure of employment stress known as U-6. The numerator of U-6 includes discouraged workers and involuntary part-time workers along with those counted as unemployed according to the standard measure. The denominator includes people who are marginally attached to the labor force along with those counted in the labor force according to the standard measure. U-6 increased slightly in April, from 13.8 to 13.9 percent, although it remains near its low for the recovery.

April Payrolls Rebound - As for today’s release, let’s consider the numbers du jour, albeit with the standard caveat on these pages that it’s only one report and it must be considered in broader context. Then again, every thousand-mile journey begins with a first step and at the moment that means looking at everyone’s favorite news item on this Friday.  The main takeaway is that the pace of jobs creation in the private sector, although lower relative to the high points in recent months, remains more or less middling by the standard of the last two years. More importantly, the rolling one-year percentage change for private payrolls continues to rise at roughly 1.9% to 2.0%, which implies that economic growth generally is poised for more of the same in the near term: moderate growth. There are still plenty of risks to consider, including the ongoing struggles in the Eurozone to right its ailing economy. The recent downturn in inflation expectations via the Treasuries market isn’t helpful either. But for now, at least, there are no ominous signs in the labor market that the pace of payrolls growth is about to fall off a cliff.  Yes, today’s report could be revised away. One reason for thinking it won’t be: initial jobless claims dropped to a new five-year low last week.

Jobs +165,000, Part-Time Employment +441,000; Unemployment Rate 7.5%; Dow Tops 15,000 - The establishment survey showed a gain of 165,000 a reasonably good but not spectacular print. In contrast, the household survey showed a huge gain of 293,000 jobs. Once again we see a huge surge in involuntary part-time employment of 278,000. Voluntary part-time employment rose by another 163,000. Voluntary plus involuntary part-time employment rose by a whopping 441,000 jobs. Take away part-time jobs and there is not all that much to brag about. Indeed, full-time employment fell once again, this month by 148,000.   The civilian labor force rose by 210,000 for a change, thus the actual number of unemployed only fell by 83,000 (293,000 - 210,000), enough to lower the unemployment rate 0.1 percentage points to 7.5%.  The Participation Rate was flat at 63.3%, a low dating back to 1979. April BLS Jobs Report at a Glance:

  • Payrolls +165,000 - Establishment Survey
  • US Employment +293,000 - Household Survey
  • US Unemployment -83,000 - Household Survey
  • Involuntary Part-Time Work +278,000 - Household Survey;
  • Voluntary Part-Time Work +163,000 - Household Survey
  • Baseline Unemployment Rate -0.1 - Household Survey
  • U-6 unemployment +0.1 to 13.9% - Household Survey
  • The Civilian Labor Force +210,000 - Household Survey
  • Not in Labor Force -31,000 - Household Survey
  • Participation Rate +0.0 at 63.3 - Household Survey

April Payrolls +165,000, 7.5% Unemployment Rate, Participation Rate Flat At 1979 Levels -  Following the March NFP disappointment, it was only reasonable to expect a modest beat in this month's data which came at +165,000, on expectations of +140,000, and following a revision to the March number from 88K to 138K. The unemployment rate declined from 7.6% to 7.5% beating, expectations of an unchanged print. The flipside, as always, is that the labor participation rate remained flat, at 63.3%, once again the lowest since 1979. From the report: The unemployment rate, at 7.5 percent, changed little in April but has declined by 0.4 percentage point since January. The number of unemployed persons, at 11.7 million, was also little changed over the month; however, unemployment has decreased by 673,000 since January. (See table A-1.) Among the major worker groups, the unemployment rate for adult women (6.7 percent) declined in April, while the rates for adult men (7.1 percent), teenagers (24.1 percent), whites (6.7 percent), blacks (13.2 percent), and Hispanics (9.0 percent) showed little or no change. The jobless rate for Asians was 5.1 percent (not seasonally adjusted), little changed from a year earlier. (See tables A-1, A-2, and A-3.)

Unemployment Not Impressive for April 2013 - The BLS employment report shows the official unemployment rate ticked down 0.1 percentage point to 7.5%,and the current population survey statistics are a mixed bag of strange.   More people were employed, yet the number of people stuck in part-time jobs continues to increase.  The labor participation rate stayed at the same May 1979 record low.   U-6, a broader measure of unemployment, ticked up 0.1 percentage point to 13.9%.  This article overviews and graphs the statistics from the Current Population Survey of the employment report.   Below is a graph of the official unemployment rate. The labor participation rate stayed the same and is 63.3%, mentioned above.   The labor participation rate is at artificial lows, where people needing a job are not being counted.  Maintaining a record low labor participation rate means that those who dropped out of the labor force are staying out of the labor force.  For those claiming the low labor participation rate is just people retired, we proved that false by analyzing labor participation rates by age. The number of employed people now numbers 143,579,000, a 293,000 monthly increase.  We describe here why you shouldn't use the CPS figures on a month to month basis to determine actual job growth.  These are people employed, not actual jobs.   In terms of labor flows, the employed has been static for the last seven months, a increase of of 251,000 employed since October 2012 and 302 thousand since November 2012.  From a year ago the employed have risen 1.645 million, but bear in mind the noninstitutional population has also increased by 2.391 million during the same time period.  This gives the impression for the last six months adding employed people has slowed significantly from the previous.  The statistics from the CPS do generally vary widely from month to month.   Below is a graph of the Current Population Survey employed.

The BLS Jobs Report Covering April 2013: Lowest Labor Force Participation since 1978/9, weekly hours and wages down - In seasonally adjusted terms, 165,000 jobs and unemployment dropping to 7.5% are OK, but not great results. At that job creation rate and taking population growth into account, it would take about 2 years to reduce by one million those currently unemployed. The BLS estimates current unemployment at 11.815 million. I calculate it at 20.542 million. So perhaps I should not say OK but rather next to nothing is being done to address the jobs situation.  In unadjusted terms, April was a good month, but then it should be. It is in the heart of the spring hiring season. Employment grew by 1,026,000, and 878,000 of that was full time employment. Even so, 2013 is shaping up to be worse than 2012 for employment and similar to the first half of 2012 for jobs.. The jobs being created are mostly of poor quality. 19.5% of them are part time. Weekly hours and wages declined last month. And the BLS continues to underestimate the number of those without jobs by between 9 to 9.5 million.In April, the potential labor force as measured by the civilian non-institutional population over 16 increased 180,000 from 244.995 million to 245.175 million. Multiplying this by the seasonally adjusted employment ratio for April (58.6%) gives a rough estimate of the number of jobs needed to keep up with population growth: .586(180,000) = 105,000. Seasonally adjusted (trend line), the labor force increased 210,000 from 155.028 million to 155.238 million. Unadjusted (actual), the labor force grew 227,000 from 154.512 million to 154.739 million.  The labor force participation rate, that is the ratio between the labor force as measured by the BLS and the potential labor force (NIP) remained unchanged from March both adjusted and unadjusted. Seasonally unadjusted, it was 63.3%. This is the lowest participation rate since May 1979, that is 34 years ago. Unadjusted, it was 63.1%, the lowest participation rate since May 1978 (35 years ago).

Not swooning, not soaring - The better-than-expected jobs report for April has soothed fears that the economy was swooning, as it has in the spring or summer of each of the last three years. The relief sent the Dow Jones Industrial Average over 15,000 and the S&P 500 over 1,600 for the first time. Non-farm payroll jobs rose 165,000 in April from March, and the two prior months were revised up by a hefty 114,000. The unemployment rate fell from 7.6% to 7.5%, the lowest since December, 2008. It also fell for the right reasons: more people working rather than fewer people looking for work. The household survey, which often yields different (and less reliable) results from the payroll survey, showed the number of employed people rose 293,000. Combined with last week’s sharp, and unexpected, decline in first time claims for unemployment benefits and the stubborn optimism of equity investors, the April jobs report strongly suggests the recovery has not stalled. But I would not take great comfort in this report. First, even with the revisions, job creation has clearly decelerated; the gains in March and April are both below the six-month average of 208,000. The economy’s recent hiccup was not some statistical artifact of the March employment report: it has showed up in retail sales, industrial production, and housing starts, and has continued into April with automobile sales and manufacturing activity. Moreover, the slowdown is global, with manufacturing activity stalling even in former stalwarts like China and Germany.

Where The Jobs Were In April - For those lucky enough to not be male and aged 25-54, and having been able to get a job in April, the following chart is redundant. For everyone else, curious which industries were adding jobs in April, here is the full breakdown. With the bulk of job additions in such "high paying" sectors as leisure and hospitality, temp help and retail, one can see why corporate revenues are going nowhere fast.

Understanding the painfully slow jobs recovery - Today’s jobs report was a solid one, and shows that the recovery, while not exactly strong, is at least not slowing down: Neil Irwin calls it “amazingly consistent”. Whether you look at the past 1 month, 12 months, 24 months, or 36 months, you’ll see the same thing: average payrolls growth of roughly 170,000 jobs per month. That’s not enough to bring unemployment down very quickly, given the natural growth in the workforce. But unemployment is coming down slowly. And at the rate we’re going, at some point in the second half of 2014 we should see total payrolls reach their pre-crisis levels, and the headline unemployment rate hit the key 6.5% level. There’s a real human cost to the fact that unemployment is coming down so slowly, but there are lots of reasons why it’s very hard to bring it down more quickly. First and foremost, of course, is the fact that US GDP growth is mediocre, coming in at less than 2% per year over the past few years. That’s not the kind of V-shaped recovery which creates jobs. Calculated Risk’s justly-famous jobs chart shows just how bad the recession was for employment, and just how painfully slowly we’re scratching our way back: we’re more than five years into this jobs recession, and we’re still at the worst levels seen in the wake of the dot-com bust.

Broader Unemployment Rate Ticks Up - The unemployment rate dropped for all the right reasons in April, but a broader rate that includes underemployed and discouraged workers rose, underlining concerns about the types of jobs being created. The drop in the main unemployment rate was driven by a jump in the number of people who count as employed, even as the number of unemployed declined. The unemployment rate is based on the number of unemployed — people who are without jobs, who are available to work and who have actively sought work in the prior four weeks. The unemployment rate is calculated by dividing the number of unemployed by the total number of people in the labor force. This month the number of unemployed dropped by more than 80,000, even as more people entered the labor force. Meanwhile, the number of employed workers jumped by 293,000. The total labor force increased by 210,000, leaving the labor force participation rate unchanged at 63.3%. But there was an area of concern in the report as a broader rate, known as the “U-6″ for its data classification by the Labor Department, increased to 13.9% from 13.8% a month earlier. That includes everyone in the official rate plus “marginally attached workers” — those who are neither working nor looking for work, but say they want a job and have looked for work recently; and people who are employed part-time for economic reasons, meaning they want full-time work but took a part-time schedule instead because that’s all they could find. In April, the rate ticked up as the number of workers who are part-time but want full-time work increased. That came even as the numbers of hours worked also dropped this month for all workers. This raises the question about the kinds of jobs being created, and whether they can support a faster recovery. To be sure, a 278,000 jump in the part-time for economic reasons category followed a big drop the month before. But there still are nearly 8 million people in the U.S. who want a better job, while more than 11.5 million remain unemployed.

Part-time Nation: Was the April jobs report really the Obamacare jobs report? - US job growth in April beat economist expectations as nonfarm payrolls rose 165,000, and the jobless rate fell to a four-year low of 7.5%. But the report contained worrisome signs that President Obama’s health care reform law is hurting full-time, high-wage employment. While the American economy added 293,000 jobs last month, according to the separate household survey, the number of persons employed part time for economic reasons — “involuntary part-time workers” as the Labor Department calls them – increased by almost as much, by 278,000 to 7.9 million. These folks were working part time because a) their hours had been cut back or b) they were unable to find a full-time job. At the same time, the U-6 unemployment rate — a broader measure of joblessness that includes discouraged workers and part-timers who want a full-time gig – rose from 13.8% to 13.9%. What’s more, there wasa  0.2 hour decline in the length of the average workweek. This led to 0.4 percentage point drop in the index of average weekly hours, “equaling the largest declines since the recovery began,” notes economist Dean Baker of Center for Economic and Policy Research. Let’s see, more part timers and fewer hours worked. Economist Douglas Holtz-Eakin says what we’re all thinking: “This is not good news as it reflects the reliance on part-time work. … the decline in hours and rise of part-time work is troubling in light of anecdotal reports of the impact of the Affordable Care Act.” Anecdotal reports like this one from the Los Angeles Times: “Consider the city of Long Beach. It is limiting most of its 1,600 part-time employees to fewer than 27 hours a week, on average. City officials say that without cutting payroll hours, new health benefits would cost up to $2 million more next year, and that extra expense would trigger layoffs and cutbacks in city services.”

Jobs Report: Economy Avoids ‘Spring Swoon’ As Unemployment Rate Falls - The Labor Department announced this morning that the U.S. economy added 165,000 new jobs and that the unemployment rate fell slightly to 7.5%.  More important, the previous two months of employment gains were revised upwards: February job growth was estimated to be 332,000 rather than 268,000, and March job growth was revised from 88,000 to 138,000. In other words, there are 279,000 more jobs in the economy this month that we had previously thought. The report showed strength in other ways as well. Average hourly earnings rose last month by four cents to $23.87, which brings the increase so far this year to 1.9%, more than enough to keep pace with inflation. On the other hand the average length of the work week decreased by 0.2 hours, indicating that while employers have hired more, this may be eating into the hours of the already employed. The politically inclined will surely be parsing today’s report for effects of the so-called “sequester” as well as the various tax increases that have gone into effect this year. Conservatives will likely point out that there isn’t much evidence in this month’s numbers that government cuts are worsening the employment picture, as government employment remained steady. That being said, most of the sequester is taking the form of furloughs rather than outright job cuts, and the effects of those changes could be more visible in data like retail sales, which have recently shown weakness. In the end, this month’s jobs report was basically more of the same. Over the long run, you’re not going to get all-out job growth unless you see corresponding increases in economic output. And for now, economic growth is hanging tough at 2% or so. And over the past 12 months, we’ve seen average monthly job growth at 168,000, which is about what you’d expect given that kind of GDP growth. These kind of figures are above what is needed to keep ahead of population growth, but only slightly.

Steady path to disappointment - The report was encouraging: revisions to recent figures showed that February was among the best months of the recovery for job growth. Recent worries over another spring slowdown in hiring look a bit overstated. But it's important to keep things in perspective. The blue line shows the year-on-year rate of employment growth. New revisions do little more than keep the present growth rate on the track its followed for the past two years. And that track is consistent with only a very slow decline in the rate of unemployment (the red line), which the Fed reckons will return to something like the normal rate by late 2015, if we're lucky. America needs the red line to fall faster. But that will take an upward shift in the blue line.

Keeping Up, Not Getting Ahead - The American economy continues to add jobs in proportion to population growth. Nothing less, nothing more. The share of American adults with jobs has barely changed since 2010, hovering between 58.2 percent and 58.7 percent. This employment-to-population ratio stood at 58.6 percent in April. That is about four percentage points lower than the employment rate before the recession, a difference of roughly 10 million jobs. In other words, the United States economy is not getting any closer to recreating the jobs lost during the recession. Source: Bureau of Labor Statistics This lack of progress has been obscured by the steady decline of the high-profile unemployment rate, which continued in April. But the unemployment rate is easily misunderstood. The government counts as unemployed only those who are actively looking for new jobs. As people have given up, the unemployment rate has declined – not because more people are working, but because more people have stopped looking for work. The share of adults looking for work peaked at 6.4 percent of the population in 2010. It fell to 4.7 percent in April. But recall that over the same period, the share of adults with jobs did not change. What grew instead is the share of adults no longer counted as part of the labor force. (The unemployment rate also uses a different denominator than the employment rate: Workers plus searchers, rather than the entire population. For the sake of consistency and clarity, the figures in the previous paragraph show “unemployment” as a share of the entire population.) And the decline of labor force participation – the technical term for the share of adults working or searching – is primarily the result of a bad economy.

Jobs Report, Good News, Less Good News, and a Warning - Now that I’ve had a chance to calm down—these early morning releases get me all atwitter—here are three observations from this morning’s jobs report: Good news: First, April’s payroll number along with the upward revisions of the prior two months should dispel, at least for now, the idea that there’s some kind of spring swoon taking place in the job market. Less Good News: Second, the underlying rate of job growth along with the very gradual slide in the jobless rate are consistent with an economy that’s reliably slogging along at about 2%.  That’s neither terrible nor great.  With better policy, we’d be doing better.  There’s a cost to the slog (read on). Warning: Third, as I stressed yesterday, the signal as to what’s really going on in the real economy is hard to pull out of these monthly reports (note that both of the revisions to Feb and Mar were within the 100K confidence interval I mentioned in yesterday’s post).  Analysts should compare how they feel about the US economy today with how they felt a month ago—big difference, right?  Yet, actual underlying conditions haven’t changed that much.  Those of us in the business of interpreting monthly reports must not forget that we’re taking the temperature of a complicated patient with a not-so-accurate thermometer.

April employment: a good report with crappy leading internals - I dubbed last month's report "the best awful employment report I've ever seen." This month was somewhat the reverse. The headline jobs number slightly beat expectations at 165,000, and the unemployment rate declined -0.1% to 7.5%. (BTW, a long long time ago the Pied Piper of Doom said he'd consider an unemployment rate of under 8% an actual recovery. I must've missed the celebration.).  Anyway, while the headline jobs number and unemployment rate sketch out where the economy is. As usual for me, let's look first at the more leading numbers in the report which tell us about where the economy is likely to be a few months from now - and that's where the problem comes in:

  • The good news is that temporary jobs - a leading indicator for jobs overall - increased by 31,000. The bad news is that all of the other leading components of the report were unchanged or weakened.
  • construction jobs declined -6,000
  • the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - rose 10,000 from 2,464,000 to 2,474,000. Nevertheless, both March and April have been near a new post-recession low.
  • the average manufacturing workweek declined -0.1 hour from 40.8 hours to 40.7 hours. This is one of the 10 components of the LEI and will affect that number
  • manufacturing jobs were unchanged.

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

Dark side to jobs report: Big drop in hours worked: Shorter work week equivalent to 500,000 jobs lost. — The April employment report exceeded expectations, with 165,000 jobs created and a welcome drop in the unemployment rate to 7.5%. But there was a dark side to the report: Total hours worked fell sharply, and the total amount of money earned by U.S. workers actually declined from the month before. “Aggregate weekly hours” is an obscure series of data in the jobs report, but it’s vital to understanding how strong the economy is performing. As the name implies, it measures the total number of hours worked, which is what matters for sizing up overall growth in the economy. Usually, we focus just on the number of new jobs created and the unemployment rate, but the number of hours we work matters just as much, if not more, to our economic well-being. Think of it this way: If companies had hired all 12 million unemployed people in April, but had cut everyone’s hours in half, the unemployment rate would have fallen to zero, but we’d be much worse off. Our paychecks would be much smaller, and the economy would contract violently. In April, companies hired 165,000 more workers, but they cut everyone’s hours (on average) by 12 minutes. That doesn’t sound like much of a decline, but spread out over the 135 million-strong work force, the decline in hours worked is the equivalent of firing more than 500,000 workers while keeping hours steady.

Spring Swoon Alive and Well in Manufacturing -The surprisingly positive April employment figures likely didn’t mean the local factory added a shift last month. The manufacturing sector failed to add any jobs last month after a meager 2,000 increase in March payrolls, a black spot on the otherwise rosy jobs report. Those numbers add to other economic data showing that demand for factory goods is falling and the sector is seeing a broad slowdown this spring. And that spring swoon could turn into a summer slide. The auto industry, rebounding from bankruptcies during the financial crisis, has been a main driver of manufacturing growth, accounting for a third of all new jobs in the industry since the recession ended. But with car sales slowing and dealer inventories climbing, the auto industry growth is likely to ease. “Of particular concern for the overall economy is auto manufacturing, which appears to be ripe for a correction in the months ahead,” said Scott Anderson, chief economist for Bank of the West. Vehicle sales peaked in November and have fallen in four of the past five months but auto production continued at double-digit year-on-year rates through March, he said. That disconnect could result in longer summer shutdowns or slow down at some factories, robbing manufacturing of one of its growth engines.

Little Sequester Effect Seen in Employment Report - Government cutbacks may soon weigh on America’s job market, but so far signs of a drag are few. The Labor Department in its monthly snapshot of the U.S. jobs picture on Friday said government jobs shrank by 11,000, slightly less than the 16,000 jobs lost in March. The number of unemployed government workers has actually dropped to 715,000 from 786,000 in April 2012, lowering their unemployment rate to 3.3% from 3.7%. Roughly three-quarters of the decline in government jobs in April came from the federal government. For months, economists have worried federal budget cutbacks — the “sequester,” in Washington lingo — could weigh on the job market and broader economy. Cutbacks kicked off March 1, but furloughs of government workers began in April — and while those furloughs don’t mean lost jobs, they could keep government employers from hiring. Beyond government jobs, federal cutbacks mean fewer government contracts for firms in the private-sector like, say, those in the defense industry.

Jobs Report: Winners and Losers - Here are some highlights from the Labor Department’s snapshot of the U.S. jobs market in April.

  • REVISIONS: The 165,000 improvement in April payrolls looks a lot better with February and March numbers revised up by a total of 114,000. February’s gain of 332,000 is the largest one month advance since May 2010.
  • RATE FALLS: The unemployment rate’s decline to 7.5% shows more workers found jobs in April—not that the workforce shrank. The rate has declined from 8.1% a year ago, but often, monthly drops were the result of the number of people seeking jobs falling. In April, the labor-force participation rate held steady at 63.3%. Still, 11.6 million workers who want a job can’t find one.
  • Fed:  April’s modest payroll improvement and the prior months upward revisions would seem to rule out the Federal Reserve ramping up stimulus measures. Earlier this week central bank officials said they were “prepared to increase or reduce” the pace of bond buying. Still, the unemployment rate remains well above the 6.5% threshold for the Fed to raise benchmark interest rates.
  • FACTORY WORKERS: The manufacturing sector gained no jobs in April after adding only 2,000 the prior months—the latest signs that a spring slowdown is at least occurring in that field.
  • SEQUESTER: Government jobs declined by 11,000 including 8,000 fewer federal workers. That may reflect across-the-board federal budget cuts that began in March– however, public employment has been trending down, falling by 89,000 from a year ago.

The Old vs. the Young - The Great Recession has been a disaster for the employment prospects of the young. Almost one in four teenagers looking for a job still can’t find one. Americans 16 to 24 years old suffered the sharpest drop in employment between 2008 and 2010, and jobs for young workers have barely ticked up since then. Today, only 45 percent of young Americans in that age group have a job, almost 6 percentage points less than when the recession started in December 2007. The story is quite different at the other end of the life cycle. Eighteen percent of Americans of retirement age hold a job, some 2 percentage points more than when the recession started. The employment rate of these elderly workers is at its highest since May 1965 — before the enactment of Medicare. They are filling the largest share of jobs since 1956. So what’s going on? Older Americans may have a more pressing need for a job. The homes of many are probably still underwater. Though the stock market has recovered the ground lost during the downturn, interest rates remain near all-time lows — crimping the elderly’s income from savings.

The Big Problem Is Long-Term Unemployment - Short-term unemployment in the United States has fallen below where it was in late 2007, before the Great Recession began. And medium-term unemployment is not much above the pre-downturn level. But long-term unemployment remains stubbornly high, although the current figure, 4.1 percent, at least has dipped below what had been (before the Great Recession) the post World War II high of 4.2 percent reached in early 1983. More than half of the unemployed workers have been out of work for at least 15 weeks. There are still 4.4 million workers who have been unemployed for at least six months. That is down from the peak of 6.7 million, but it is still very high. And that number does not include people who have given up looking for work. Fed policy is not well suited to deal with this problem. But it does not look as if fiscal policy, which would have a chance, will be used anytime soon.

Comparing Jobs in Recessions and Recoveries - For the 31st consecutive month, the country added jobs: 165,000 nonfarm payroll jobs in April, to be more precise. But employment still has a long way to go before returning to its prerecession level. The chart above shows economic job changes in this last recession and recovery compared with other recent ones; the red line represents the current cycle. Since the downturn began in December 2007, the economy has had a net decline of about 1.9 percent in its nonfarm payroll jobs. And that does not account for the fact that the working-age population has continued to grow, meaning that if the economy were healthy there should be more jobs today than there were before the recession. Let’s assume we eventually return to prerecession employment levels while absorbing all the new people who enter the labor force each month. To get there within seven years, we need job creation averaging 208,000 jobs per month, which was the average monthly rate for the best year of job growth in the 2000s, according to the Hamilton Project at the Brookings Institution. There are now 11.7 million workers looking for work who cannot find it. The tally of those who are underemployed — that is, adding in those workers who are part-time but want to be employed full time, and workers who want to work but are not looking — brings the total up to 21.9 million.

The Missing Construction Workers - While the number of housing starts has surged – nearly doubling in the last two years – employment in residential construction has barely budged. And construction employment tracked down ever so slightly to 5.79 million workers in April, according to the preliminary data.  Over time that should lead to rising employment in the sector, especially given pent-up demand for projects. But not yet. Construction employment is starting to turn up, but from a very low level: There are about as many construction workers now as there were in 1997. And construction employment in the residential sector remains essentially flat, gaining about 2.5 percent in the last year.  There seem to be a few components to the answer. The first is that housing starts tend to tell us where the market for construction workers is going, not where it is right now. So even as starts have surged as builders have begun new projects, the overall number of units under construction remains relatively low – meaning relatively few available jobs. (See Trulia’s chief economist, Jed Kolko, on this point.) Second, it seems that builders in some markets may be having trouble recruiting skilled workers, as my colleague Catherine Rampell recently reported. That has not yet led to much of a surge in compensation in the sector, as you might expect. But perhaps the businesses are paying workers under the table, or making do with fewer of them, in part by increasing their hours.

Number of the Week: Great Month for Women? Not So Fast - 71%: The share of last month’s job gains that went to women. The economy added 165,000 jobs in April, according to the Labor Department’s preliminary estimate on Friday. Most of those jobs — 117,000 — went to women. Specifically, young women. The government doesn’t break down payroll data by age, but separate data based on a survey of individual households provides more detail. That survey, which counts employed workers rather than jobs, found that there were close to 200,000 more women working in April than in March, while the number of employed men actually fell slightly. Women of nearly all ages posted modest job gains, but the majority of the growth came among women between ages 20 and 24. (Teenagers of both sexes lost jobs.) Don’t get jealous of young women just yet, though. Their unemployment rate is 12.3%, which is actually a hair worse than it was a year ago, though it’s better than the 14% unemployment rate faced by their male counterparts.

Employment Report Comments and more Graphs - Total nonfarm employment is up 2.077 million over the last year, and up 783 thousand so far in 2013 (a 2.35 million annual pace). Private employment is up 2.166 million over the last year, and up 813 thousand so far in 2013 (a 2.44 million annual pace). This is the strongest pace for private sector job growth since 1999! Of course public payrolls are continuing to shrink (four years of declining public payrolls now), and that is one reason job growth is sluggish. And on construction employment: Construction employment is up 154 thousand over the last year, and up 79 thousand so far in 2013 (a 237 thousand annual pace). A few more graphs ... Since the participation rate declined recently due to cyclical (recession) and demographic (aging population) reasons, an important graph is the employment-population ratio for the key working age group: 25 to 54 years old. In the earlier period the employment-population ratio for this group was trending up as women joined the labor force. The ratio has been mostly moving sideways since the early '90s, with ups and downs related to the business cycle. This ratio should probably move close to 80% as the economy recovers. The ratio was unchanged at 75.9% in April. The participation rate for this group was also unchanged at 81.1% in April. The decline in the participation rate for this age group is probably mostly due to economic weakness, whereas most of the decline in the overall participation rate is probably due to demographics. This graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at maximum job losses. The number of part time workers increased in April to 7.92 million from 7.64 million in March. These workers are included in the alternate measure of labor underutilization (U-6) that increased slightly to 13.9% in April. Unemployed over 26 Weeks This graph shows the number of workers unemployed for 27 weeks or more. According to the BLS, there are 4.35 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 4.61 million in March. This is trending down, but is still very high. This is the fewest long term unemployed since June 2009. Long term unemployment remains one of the key labor problems in the US.This graph shows total state and government payroll employment since January 2007. State and local governments lost jobs for four straight years

Where Have All the Jobs Gone? -THOUGH yesterday’s employment report revealed a slowly improving job market, the jobless rate is still elevated, at 7.5 percent, with 11.7 million people looking for work, including 4.4 million who have been doing so for at least half a year. About eight million more were stuck in underemployment (“involuntary” part-timers) last month, unable to find the hours of work they sought. These measures persist amid an economic expansion continuing since mid-2009, a roaring stock market and a housing market that’s now reliably in recovery. While the high jobless numbers are partly a legacy of the Great Recession, the fact is that our economy has generated too few jobs for most of the last 30 years and is likely to continue to do so. The only viable response is a return to an idea that once animated domestic policy making: full employment, the notion that everyone who wants to work should be able to find a job, and if the market isn’t up to the task, then the government must fill the gap.

Graphs for Duration of Unemployment, Unemployment by Education and Diffusion Indexes - 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. All three other categories remain elevated. The long term unemployed is at 2.8% of the labor force - the lowest since May 2009 - however the number (and percent) of long term unemployed remains a serious problem. Unemployment by Education This graph shows the unemployment rate by four levels of education (all groups are 25 years and older). Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down. Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment (all four categories are only gradually declining). Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed".The BLS diffusion index for total private employment was at 53.9 in April, down from 56.2 in March. For manufacturing, the diffusion index decreased to 44.4, down from 51.9 in March. 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.

175,000 jobs a month won’t make us whole until 2020 - Since late 2010, the U.S. economy has been adding an average of around 175,000 jobs per month. Because this pace has persisted for so long, there is a real danger that it’s beginning to be considered the “new normal,” the pace of growth people assume is the best the economy can do. It’s important to demonstrate just what this rate of job-growth implies for restoring the U.S. labor market to even conservative standards of health.As of March, I estimate that the U.S. economy needs 8.8 million jobs to get back to the labor market health that we had in December 2007. This estimate takes into account both how far we are below the Dec. 2007 jobs level (we’re still 2.8 million jobs short of what we had before the Great Recession hit) and the number of jobs we should have added since Dec. 2007 just to keep up with growth in the potential labor force (6 million jobs). Conceptually, this measure is what it would take to restore the labor market to the Dec. 2007 unemployment rate (5.0 percent) at today’s “structural” labor force participation rate, meaning it fully takes into account the fact that demographic shifts since 2007—like baby boomers hitting retirement age—and other “non-cyclical” factors mean that a somewhat lower share of the overall population should be seen as potential workers today than in 2007.1

Bipartisan Agreement: Blame Washington - Partisans on both sides focused on the negative in the better-than-expected jobs report, with the left blaming sequestration and the right citing regulation.

Was the Journal Wrong About Labor Force Participation? - In the Outlook column in today’s Wall Street Journal, I argued that the historic decline in the workforce participation — that is, the share of the population that’s working or looking for work — is more about demographics than about discouraged job seekers abandoning their job searches. Jim Tankersley of the Washington Post has a thoughtful critique of the column, and he generously invited me to respond. The crux of Mr. Tankersley’s argument is that by focusing on the post-2007 decline in participation, I pay too little attention to the much larger decline that began in about 2000. Even worse, that decline came after some 50 years of steady growth. Mr. Tankersley estimates that had the previous upward path continued, the U.S. would have some 7 million more workers today than it actually does, “and 7 million lost workers means a lot of lost growth for the economy — and a much more alarming implied unemployment rate.”As it happens, I agree with most of this. So much so that I dedicated a whole column to the worrying downward trend just last October. Part of the point of today’s column was to help distinguish the parts of the decline that are due to the weak economy (“cyclical” in economist-speak) and which parts are due to longer-run “structural” trends. Mr. Tankersley says my column is overly comforting in its conclusion, but I don’t see it that way –in many ways, saying the decline is the result of structural rather than cyclical factors is profoundly discomfiting, since it implies the trends won’t reverse when the economy rebounds.

The missing workers: how many are there and who are they? - Jim Tankersley at the Washington Post and Ben Casselman at the Wall Street Journal are in a “wonkfeud” about labor force participation. It started when Casselman estimated that there are currently around 3 million “missing workers” in the US (workers who are not in the labor force but who would be if job opportunities were strong). Tankersley did not dispute that figure, but pointed out that because it only counts workers who are missing due to the weak labor market in the Great Recession and its aftermath, it is a substantial undercount of the total number of missing workers because labor force participation was also weak in the decade leading up to the Great Recession. To Tankersley’s point I will just add that while I don’t have an estimate of the number of missing workers from the 2000-2007 business cycle, it was indeed the weakest full business cycle in terms of job growth in at least three generations, and the labor market had not yet come close to regaining the health of the late 1990s before the Great Recession began at the end of 2007.  The main point I want to make, though, is that even if you only count the number of missing workers due to the weak labor market of the Great Recession and its aftermath, it’s very likely that Casselman’s 3 million figure is a substantial underestimate. A recent paper (pdf) on labor force participation by the Boston Federal Reserve Board unearths an excellent resource for getting to the bottom of how much of the decline in labor force participation since the start of the Great Recession is due to cyclical factors (i.e. the result of a lack of job opportunities) and how much is due to structural factors (e.g. things like baby boomers hitting retirement age).

The True Workforce Participation Rate and Employment to Workforce Ratio Signal a Growing Economy: We investigate the employment situation in respect to economic-capable persons 16 to 64 year old, from which we derive a workforce participation rate and an employment-workforce ratio that paints a picture of a growing economy showing no signs of recession. This is in contrast to the official Civilian Labor Force Participation Rate and the Civilian Employment-Population Ratio which do not project encouraging prospects for the economy. Franz Lischka in his article US Economy: Below Stall Speed or Already Above Potential? discusses economic growth in relation to expected demographic changes, which inspired us to investigate the true employment situation based on economic-capable persons only. Let's have a look at the civilian labor force participation rate and the employment-population ratio as published by the Bureau of Labor Statistics (BLS). It is obvious that the civilian labor force participation rate graph looks discouraging for the U.S. economy. This graph is based on a labor force defined as the number of over 16 years old persons minus farm employees, persons in education, disabled persons, and other unknown criteria. The civilian employment to population ratio graph below is equally depressing, but this graph is biased by an increase in the retired population due to demographics as discussed by Lischka.

The vanishing US labor force: New study suggests jobless rate is misleadingly low - It’s one of the biggest questions in economics right now: To what extent is the big and sustained plunge in America’s labor force participation rate — from 66% pre-recession to 63.3% now – attributable to demographics (such as an aging population) vs. cyclical factors (a weak demand economy). If it is the former, then the 7.6% unemployment rate is an OK gauge of the current health of the US labor market — could be better but improving. But if it’s the latter, then the “real” unemployment rate — one taking into account millions of discouraged job-market dropouts — is markedly higher. The WaPo’s Jim Tankersley: “By misreading the trends in participation now, policymakers might gain a false sense of security about the state of American job creation.” With all that in mind, Labor Force Participation and Monetary Policy in the Wake of the Great Recession, a new study from Boston Fed economists Christopher Erceg and Andrew Levin, has a worrisome finding: Our paper provides compelling empirical evidence that cyclical factors account for the bulk of the recent decline in the labor force participation rate (henceforth LFPR). … More specifically, our analysis of state-level employment data indicates that cyclical factors can fully account for the post-2007 decline of 2 percentage points in the LFPR for prime-age adults (that is, 25 to 54 years old).

What happens to workers who drop out of the labor force? - In spite of some improvements in the US job markets, labor force participation continues to decline. The seasonality is driven by higher labor demand during warmer months (construction for example) or student summer jobs. >The traditional explanation of course is that people are discouraged by the lack of job opportunities and are simply "dropping out" of the labor force after having exhausted their unemployment benefits. But that's easier said than done. Most people need some sort of income to survive - so where does that income come from? A portion of the decline can be explained by households with two incomes going to one. But that's by no means all of it. Let's explore some recent trends that may explain what's really going on.

Statistical Discrimination Against the Long-Term Unemployed - I've read good pieces in the past 24 hours from Felix Salmon, Paul Krugman, and Megan McArdle on the plight of the long-term unemployed all inspired by Rand Ghayad's excellent field experiment showing that employers discriminate against the resumes of the long-term jobless even when they're otherwise identical. I've seen a bunch of people with varying political perspectives engage in various forms of theoretical or rhetorical overreach in order to explain this, but I think it's a pretty basic case of statistical discrimination. Suppose you had to hire one of two candidates for a job, and you had to base the decision solely on a resume. No interview allowed. The resumes are identical, but one person lost her job in a mass layoff event last week, while the other lost her job in a mass layoff event a year ago. Who are you going to hire? If you're smart, you hire the woman who lost her job last week. You're being asked to make a decision based on very little information. By discriminating against the long-term unemployed candidate, you can in effect "outsource" your decision-making. Most likely this woman has interviewed for several jobs since being laid off. If she's still unemployed, there's probably something wrong with her. What? You don't know. You don't have any evidence. But faced with the need to decide under conditions of severe uncertainty it's a sound heuristic.

For the unemployed, no reprieve on budget cuts - Starting this week, many in California collecting federal unemployment benefits will get about 17.7% less than they got last week, thanks to Washington's across-the-board budget cuts. Those cuts -- the so-called sequester -- require that states pay out less on federal extensions of benefits, and the reduction is retroactive to March 1, when the sequester went into effect. Federally extended benefits, which may last for up to 47 weeks, kick in after a jobless worker has exhausted state unemployment benefits, which last up to 26 weeks.  Nationwide, the cuts will affect an estimated 3.8 million people through Sept. 30, the end of the fiscal year.  Just how much a recipient's benefits will be cut depends on how quickly a state implements the change.  "In the best case scenario, where the states implemented the cuts right away, the average worker will receive about $31 less each week (10.7% less) in benefits from her $294 weekly check,"

Trend and Nonlinear Cyclical Employment Dynamics - How much of the US employment shortfall is due to trend factors? One of the central puzzles following the financial crisis and the ensuing Great Recession has been the sluggish growth in employment during the recovery which began in June 2009, given the growth rate of output (the growth rate of output is understandably low, given our knowledge of recoveries in the wake of balance sheet/financial crises). Our analysis is related to the issue of whether structural unemployment has risen in the wake of the Great Recession. In a new paper coauthored by Laurent Ferrara and Valérie Mignon, we estimate a log-levels version of Okun’s law, so that we can specify a decomposition of employment between trend and cyclical factors. Following up on intuition laid out here and here, we implement an error correction model with nonlinear short run dynamics. While it is possible to interpret the trend factors as structural in nature, it is also possible to view our trend component in a purely statistical context.

Should the Unemployed Move to North Dakota? - Living in Minnesota, one hears stories about the economic activity happening in the Bakken formation in western North Dakota and eastern Montana. Stories about people who are paid to drive to work from an hour or more away, because there's not enough housing nearby. Stories about school bus drivers who triple their salary by moving to that area and driving a shuttle to get workers to work sites. With national unemployment remaining stubbornly high, what are the actual job numbers for this area? Should many more of the unemployed be moving to North Dakota? In a short "Beyond the Numbers" briefing paper, Paul Ferree and Peter W. Smith of the Bureau of Labor Statistics review some of the numbers in "Employment and wage changes in oil-producing counties in the Bakken Formation, 2007–2011." "From 2007 to 2011, employment in these counties grew from 77,937 jobs to 105,891 jobs, an increase of 35.9 percent. Total wages paid in these counties more than doubled over the same period: in 2007, workers in these counties earned about $2.6 billion, and in 2011 they earned $5.4 billion. Their average annual pay increased from $33,040 to $50,553 for an increase of 53.1 percent. Over the same period, national employment decreased by 4.4 percent, while average annual pay increased by 8.1 percent from $44,458 in 2007 to $48,043 in 2011.". It's interesting to note that while jobs in mining almost tripled in this time, jobs in "Professional and Technical Services" and in "Transportation and warehousing" actually more than tripled. Also, the gain in wages for mining jobs was actually below the average wage gain for this area, while wages in the "Real estate and rental and leasing" area doubled in this time.

When Your Boss Steals Your Wages – The Invisible Epidemic That’s Sweeping America - Lynn Parramore - Imagine you’ve just landed a job with a big-time retailer. Your task is to load and unload boxes from trucks and containers. It’s back-breaking work. You toil 12 to 16 hours a day, often without a lunch break. Sweat drenches your clothes in the 90-degree heat, but you keep going: your kids need their dinner. One day, your supervisor tells you that instead of being paid an hourly wage, you will now get paid for the number of containers you load or unload. This will be great for you, your supervisor says: More money!  But you open your next paycheck to find it shrunken to the point that you are no longer even making minimum wage. You complain to your supervisor, who promptly sends you home without pay for the day. If you pipe up again, you’ll be looking for another job. Everardo Carrillo says that's just what happened to him and other low-wage employees who worked at a Southern California warehouse run by a Walmart contractor. Carrillo and his fellow workers have launched a multi-class-action lawsuit for massive wage theft (Everardo Carrillo et al. v. Schneider Logistics) in a case that’s finally bringing national attention to an invisible epidemic. (Walmart, despite its claims that it has no responsibility for what its contractors do, has been named a defendant.) What happened to Carrillo happens every day in America. And it could happen to you.

A note about average wages, median wages, and household income - Yesterday marked the quarterly release of the Employment Cost Index, which measured +0.3% in the first quarter of 2013. One of the virtues of this index is that it measures median (i.e., 50th percentile) wages rather than average, or mean wages as does the monthly report on average hourly earnings (which will be updated on Friday with the employment report). Mean wages can be distorted by extravagant payments to those at the top. Median wages aren't.  For a long time after the recession, YoY average wages were running significantly higher than median wages. No more. Both are running between +1.5% to +2.0% YoY:That's good news up to a point, and in particular that YoY changes in neither mean nor median wages are no longer decelerating to zero. So at least we seem to have avoided the spectre of an actual decline in nominal wages. The bad news is that even with 2% inflation, workers are actually losing money (as they did during 2011 and 2012). This is simply not sustainable. At some point the superlow interest rates that are fueling massive refinancing of debt by American households are going to end, and then we are not going to make any economic progress at all without significantly increases wages.

The Unluckiest Generation: What Will Become of Millennials? - This so-called millennial cohort, the largest generation in American history, landed in the cradle during an awful recession, learned to walk during the Reagan recovery, came of age in the booming 1990s, and entered the labor market after the Sept. 11 attacks and before the Great Recession, the two tragedies of the early 21st century. They've survived an eventful few decades. Yet nothing in those vertiginous 30 years could have prepared them for the economic sledgehammer that followed the collapse of the housing market in 2007-08. And the aftereffects, economists fear, may dog them for the rest of their working lives. Generation Y is the most educated in American history, but its education came at a price. Average debt for graduates of public universities doubled between 1996 and 2006. Students chose to take it on because they expected to find a job that paid it off; instead, they found themselves stranded in the worst economy in 80 years. Young people who skipped college altogether have faced something worse: depressed wages in a global economy that finds it easier than ever to replace jobs with technology or to move them overseas.

Better jobs reports don’t help this lost generation of unemployed young adults - Economic number-cruncher types expected things to be same in April as in March, but the 7.5% unemployment rate announced Friday is a tad better than forecasted. In fact, the unemployment rate has been heading down steadily since it topped 10% in October 2009. In all, 165,000 jobs were added in April, and February and March saw an upward revision of 114,000 of past published totals. No, we're not back in happy-go-lucky days, but there's certainly a case to be made that things are headed in the right direction. But there are two glaring problems with this view of things: some Americans are so dejected that they are simply dropping out of the job search (and thus disappear from the statistics), as Guardian economics guru Heidi Moore pointed out last month. It's not exactly an economic victory when job-seekers are giving up. Equally problematic is the persistently high unemployment rate for young people. For many subsets of the population, there's been a marked improvement from a year ago, but not for African Americans; nor for the young. The figures for the 20-24 age group have been especially dispiriting. The seasonally adjust unemployment rate for these young people is currently 13.1%, almost the same as last April. Consider that that is a worse unemployment rate than for those without high school diplomas (11.6%), and that the effective youth unemployment rate, which is adjusted for those who have given up looking for work, is several percentage points higher still. And combining those two subsets, more than one in five (20.4%) of 18-29-year-old African Americans is without a job.

Long-Term Unemployment Is Turning Jobless Into Pariahs - Bloomberg: Long-term unemployment is one of the most vexing problems the U.S. faces, and today’s jobs report shows all-too-meager progress in fixing it.  The U.S. created 165,000 new jobs in April, pushing down the unemployment rate to 7.5 percent from March’s 7.6 percent. But as of the end of April, 4.4 million Americans, or 37 percent of the unemployed, had been without a job for 27 weeks or longer, barely better than March’s 39 percent. The U.S. can’t afford to write off more than 4 million people who would like to work but haven’t for more than six months.  Long-term joblessness peaked in April 2010 at 6.7 million, so the picture might seem to be improving. Hidden within that number is this troubling fact: The average unemployed person has been out of work for 36.5 weeks. That’s not much better than the December 2011 duration of 40.7 weeks, which was the longest since World War II. Long-term unemployment at the start of the recession in December 2007 was 1.3 million people, and the average duration was 16.6 weeks.  Terrible things happen to people when they are out of work for long periods, numerous studies show. Beyond a sharp drop in income, long-term unemployment is associated with higher rates of suicide, cancer (especially among men) and divorce. The children of the long-term unemployed also show an increased probability of having to repeat a grade in school.

Well‐Being and Income: Is There Any Evidence of Satiation? - Many scholars have argued that once “basic needs” have been met, higher income is no longer associated with higher in subjective well-being. We assess the validity of this claim in comparisons of both rich and poor countries, and also of rich and poor people within a country. Analyzing multiple datasets, multiple definitions of “basic needs” and multiple questions about well-being, we find no support for this claim. The relationship between well-being and income is roughly linear-log and does not diminish as incomes rise. If there is a satiation point, we are yet to reach it.

Wealth Gap Among Races Widened Since Recession - Millions of Americans suffered a loss of wealth during the recession and the sluggish recovery that followed. But the last half-decade has proved far worse for black and Hispanic families than for white families, starkly widening the already large gulf in wealth between non-Hispanic white Americans and most minority groups, according to a new study from the Urban Institute. .. The study found that the racial wealth gap yawned during the recession, even as the income gap between white Americans and nonwhite Americans remained stable. As of 2010, white families, on average, earned about $2 for every $1 that black and Hispanic families earned, a ratio that has remained roughly constant for the last 30 years. But when it comes to wealth — as measured by assets, like cash savings, homes and retirement accounts, minus debts, like mortgages and credit card balances — white families have far outpaced black and Hispanic ones. Before the recession, non-Hispanic white families, on average, were about four times as wealthy as nonwhite families, according to the Urban Institute’s analysis of Federal Reserve data. By 2010, whites were about six times as wealthy. The dollar value of that gap has grown, as well. By the most recent data, the average white family had about $632,000 in wealth, versus $98,000 for black families and $110,000 for Hispanic families.

The Bottom 90 Percent Of The Country Is Systematically Getting Poorer -- The mainstream media is not telling you this, but the truth is that most Americans are steadily getting poorer.  The middle class is being absolutely eviscerated, and poverty is soaring to unprecedented heights.  The fact that 90 percent of the population is constantly sliding downhill is not good for our society.  The United States is supposed to be a land of opportunity with a vibrant free market system that enables average people to make better lives for themselves.  Unfortunately, free enterprise is being strangled to death in the United States today.  Entrepreneurs and small business are being pounded into oblivion by rules, regulations, red tape and oppressive levels of taxation.  At the same time, millions of jobs have been shipped out of the United States by corporate giants and sent to countries where it is legal to pay slave labor wages.  All of this has happened under both Democrats and Republicans.  Meanwhile, wealth and power continue to become even more heavily concentrated in the hands of big government and big corporations. 

The cost of hand-to-mouth living - A few weeks ago, when I was chatting with the head of one of America’s largest food and drink companies, he made a revealing comment about data flows. Like most consumer groups, this particular company is currently spending a lot of money to monitor its customers with big data. But it is not simply watching what they do or do not buy. These days it is increasingly scrutinising the micro-level details of pay and benefit cycles in every district in America. The reason? Before 2007, this executive said, consumer spending on food and drink was fairly stable during the month in most US cities. But since 2007, spending patterns have become extremely volatile. More and more consumers appear to be living hand-to-mouth, buying goods only when their pay checks, food stamps or benefit money arrive. And this change has not simply occurred in the poorest areas: even middle-class districts are prone to these swings. Hence the need to study local pay and benefit cycles. “We see a pronounced difference between how people are shopping today and before the recession,” the executive explained. “Consumers are living pay check by pay check, and they tend to spend accordingly. Then you have 50 million people on food stamps and that has cycles too. So for our business it has become critical to understand the cycle – when pay [and benefit] checks are arriving.”

Budget Cuts Devastate Meals On Wheels: Enrollment Slashed, Services Cancelled - Congress recently passed a bill to undo furloughs at the Federal Aviation Administration (FAA) caused by sequestration, but it left cuts to many other programs intact, including Meals on Wheels. The program brings hot meals to homebound seniors and adults with disabilities, thus providing them with nutrition and helping many of them live independently.  Directors of Meals on Wheels programs across the country spoke with ThinkProgress about how they are coping with decreased funding. Some, like Meals on Wheels of Western Broome in New York, are private nonprofits that don’t rely on government funding and will therefore be shielded. But by and large, the heads of these programs described facing deep cuts after having already slimmed down in response to lean times over the past few years.

House GOP Plans Even Deeper Food Stamp Cuts -  Lost in the shuffle of last year’s big fiscal cliff deal was the deal that didn’t happen on a new farm bill. One of the major points of contention was funding for food stamps through the Supplemental Nutritional Assistance Program, run by the US Department of Agriculture. Republicans in the House proposed steep cuts: $16.5 billion over the next decade, which would eliminate food assistance to as many as 3 million low-income Americans. The Senate countered with a farm bill cutting $4.5 billion from SNAP over the same time period. There was simply no deal to be had on the farm bill, and so Congress passed a simple extension until September 30. Now Congress has to start over—all prior versions of the farm are dead, since there’s a new Congress. And this time around Republicans are only going to increase, not moderate, their demands for steep food stamp cuts. Representative Frank Lucas, the chair of the House Agriculture Committee, told the Capital Press this weekend that the new House farm bill will mandate $20 billion in SNAP cuts over the next ten years.

The Ghetto Is Public Policy - I spent the last week interviewing men and women, and the children of men and women, who bought their homes on contract in Chicago during the 1950s. Contract buying sprang up in Chicago after the federal government effectively refused to insure mortgages for the vast majority of black homeowners, even as it was insuring the mortgages of white homeowners, and encouraged banks to redline black and integrated neighborhoods. The import of mid-20th century housing policy -- along with private actions (riots, block-busting, contract lending, covenants) -- has been devastating for African Americans. Buying on contract meant that you made a down-payment to a speculator. The speculator kept the deed and only turned it over to you after you'd paid the full value of the house -- a value determined by the speculator. In the meantime, you were responsible for monthly payments, keeping the house up, and taking care of any problems springing from inspection. If you missed one payment, the speculator could move to evict you and keep all the payments you'd made. Building up equity was impossible, unless -- through some Herculean effort -- you managed to pay off the entire contract. Very few people did this. The system was set up to keep them from doing it, and allow speculators to get rich through a cycle of evicting and flipping.

Mapping Unwed Motherhood - Rates of out-of-wedlock births vary tremendously by demographics like age and education. Among women 20 to 24 years old, for example, 62 percent of those who gave birth in the previous 12 months were unmarried. Among those 35 to 39, the share was 17 percent. The rate of births out of marriage were also lower for women with higher income and more education. The numbers varied by race as well. Among black women who had a birth in the last year, more than two-thirds (68 percent) were not married. The share for Asians was 11 percent; for non-Hispanic whites, 26 percent; and for Hispanics, 43 percent. Here’s a map showing the rates by state/district: Washington, D.C. had the highest percentage of women with a birth in the previous year who were unmarried (51 percent), followed closely by Louisiana (49 percent), Mississippi (48 percent) and New Mexico (48 percent). The states with the lowest percentages were Utah (15 percent) and New Hampshire (20 percent). The metro areas with the highest rates of births to unmarried women were Flagstaff, Ariz. (74.6 percent); Greenville, N.C. (69.4 percent); Lima, Ohio (67.5 percent); Myrtle Beach-North Myrtle Beach-Conway, S.C. (67.4 percent); Danville, Va. (67.3 percent). At the other end of the spectrum were Provo-Orem, Utah (8.2 percent); Kennewick-Pasco-Richland, Wash.(12.2 percent); Bremerton-Silverdale, Wash. (12.5 percent); and Lake Havasu City-Kingman, Ariz. (12.7 percent).

Why We Still Have a Massive Homelessness Problem (Hard Times USA) - Most people would agree that the Federal government has abandoned any pretense of its responsibility to “ensure safe, decent and affordable” (Housing Act, 1937) housing for the poorest people in our country as it committed to do in 1937 when what is now HUD was formed. After years of funding cuts, neglect and demolitions, the 1998 Congress went so far as to say “the federal government can not be held accountable to ensure housing for even a majority of its citizens” (Quality Housing and Work Responsibility Act, 1998). While they may have ignored their legislative mandate from 1937, they have with great conviction, adhered to the 1998 (lack of) responsibility. Year after year we hear of yet another series of funding cuts, of Section 8 units being converted to market rate, of additional Public Housing units being demolished with no intention of ever replacing them, and of yet even more tightening of eligibility criteria so as to exclude people from even being able to apply for housing assistance. Couple this with the loss of factory jobs through corporate tax credits for relocation overseas, ever shrinking time limits on welfare assistance, foreclosures, the rising cost of healthcare and the increasing disparity between rich and poor, absolutely, no wonder that homelessness has stayed with us for the past 30 years. In fact, it would be a miracle if it hadn’t.

Suicide Rates Rise Sharply in U.S. - Suicide rates among middle-aged Americans have risen sharply in the past decade, prompting concern that a generation of baby boomers who have faced years of economic worry and easy access to prescription painkillers may be particularly vulnerable to self-inflicted harm. More people now die of suicide than in car accidents, according to the Centers for Disease Control and Prevention, which published the findings in Friday’s issue of its Morbidity and Mortality Weekly Report. In 2010 there were 33,687 deaths from motor vehicle crashes and 38,364 suicides. Suicide has typically been viewed as a problem of teenagers and the elderly, and the surge in suicide rates among middle-aged Americans is surprising. From 1999 to 2010, the suicide rate among Americans ages 35 to 64 rose by nearly 30 percent, to 17.6 deaths per 100,000 people, up from 13.7. Although suicide rates are growing among both middle-aged men and women, far more men take their own lives. The suicide rate for middle-aged men was 27.3 deaths per 100,000, while for women it was 8.1 deaths per 100,000. The most pronounced increases were seen among men in their 50s, a group in which suicide rates jumped by nearly 50 percent, to about 30 per 100,000. For women, the largest increase was seen in those ages 60 to 64, among whom rates increased by nearly 60 percent, to 7.0 per 100,000.

Suicide Rate Rises as Economy Stresses Middle-Age America - More middle-aged Americans are killing themselves, and the economy may be the reason, according to a government report. The annual suicide rate of people 35 to 64 years old rose 28 percent from 1999 to 2010, more than any other age group, the U.S. Centers for Disease Control and Prevention said in the report today. The working-age group probably is more affected by the economic downturn in the past half-decade than the young or old, and that may be driving suicide rates higher. ``The suicide rate started accelerating in 2008, 2009 and 2010 -- someone might still be working, but their house is underwater, or they’re working but they’re working part-time,'' Eric Caine, the director of the CDC’s Injury Control Research Center for Suicide Prevention, said by telephone. ``These things ripple into families. There’s an economic stress.'' The increase in middle-age suicides puts a new focus on that group, as opposed to young or old people who typically have been seen as higher risk, the Atlanta-based CDC said. In addition to the economic downturn and related financial crisis, the growing availability of prescription opioid drugs -- such as oxycodone and hydrocodone -- may be a contributing factor.

The United States of Sequestration - Starting March 1, federal programs and their state and local beneficiaries began grappling with $85.4 billion in cuts mandated by the Budget Control Act of 2011. Some programs have been spared—Congress voted to restore tuition assistance for members of the armed services and, just last week, restored funding to the Federal Aviation Administration to forestall flight-delaying furloughs. But for the most part, the cuts have remained intact. Six weeks in, we took a look at how sequestration is has impacted 50 states, from canceled festivals to shuttered Head Start programs to massive layoffs.

CA, Local Government Debt Between $648B and $1.1T -  The total debt burden of California governments sits somewhere between $648 billion and $1.1 trillion, depending upon how pension liabilities are calculated. That’s what a new study by the California Public Policy Center has determined after reviewing all outstanding budgets and pension liabilities for California’s state, local and school governments. The best-case scenario, drawing upon the official statistics published by the various governments, places the debt at $648 billion and assumes a 7 percent return on investments when calculating pension-funding formulas. In a worst-case scenario, where pension investments earn 4.5 percent, the cumulative debt for California governments climbs to $1.1 trillion. Governor Brown famously described the state’s $27.8 billion long-term debt as the “Wall of Debt”, but the state-level Wall represents just a fraction of the overall long-term debt carried by governments throughout the state. Combined, governments have $383 billion in debts – not including the pension liabilities.

New York City to Double Number of Storm Evacuation Zones -  The Bloomberg administration announced on Friday that it would double to six the number of evacuation zones along New York City’s coast and expand them to include an additional 640,000 residents, saying that the new map would provide more flexibility when major storms hit.The changes to the city’s coastal storm plan were the most visible initiative to emerge from a report on the response to Hurricane Sandy prepared at Mayor Michael R. Bloomberg’s request. The report repeatedly praises city agencies and their state and federal counterparts, and acknowledges few if any significant missteps as government officials scrambled to respond to and recover from the severity of Hurricane Sandy, which killed 43 city residents and damaged thousands of homes.

Modern-day debtors’ prison alleged in Ohio - Several courts in Ohio are illegally jailing people because they are too poor to pay their debts and often deny defendants a hearing to determine if they're financially capable of paying what they owe, according to an investigation released Thursday by the Ohio chapter of the American Civil Liberties Union. The ACLU likens the problem to modern-day debtors' prisons. Jailing people for debt pushes poor defendants farther into poverty and costs counties more than the actual debt because of the cost of arresting and incarcerating individuals, the report said. "The use of debtors' prison is an outdated and destructive practice that has wreaked havoc upon the lives of those profiled in this report and thousands of others throughout Ohio," the report said.

Kids Don't Try This At Home or School or Anywhere Else, Especially If You're Black - Kiera Wilmot, 16, a good student at Bartow High School in Florida, was curious to see what would happen if she mixed household chemicals in a water bottle. What happened: it made a small explosion that blew the bottle top off - no damage, nobody hurt - after which she was arrested, handcuffed, charged with a felony for which she will be tried as an adult, and expelled from school. School officials argued "actions have consequences." Nerdy critics argued science isn't a crime, and began tweeting about all the things they accidentally blew up when they were in high school.

Hundreds of Chicago Students Walk Out of Standardized Test -Hundreds of Chicago students are taking up the mantle in the fight against the role of standardized tests in public school closures as they walked out of a state exam Wednesday. Their message: "We are over-tested, under-resourced and fed up!"Over 300 students from over 25 different Chicago public schools boycotted the second day of a state-wide standardized test. Ahead of a school board meeting, at which the demonstrators were banned from speaking, the students rallied outside the district headquarters carrying placards and forming a human chain. "We're just trying to make a statement that tests should not determine our future or the future of our schools," "We are Chicago students and we are here to save our schools!" He writes: Mayor Emanuel and his Board of Education want to close 54 grammar schools around the city, all of which are in black and Latino communities: this is racist. These schools are also being judged based on assessments and tests given throughout the year: this is foolish. These school closings will leave neighborhoods dismantled, parents lost, students unaccounted for, and more importantly, will put children in harmful situations: this is dangerous.

How to End Over-Testing in Schools: Kids Should Answer Only Half the Questions -In short, the misuse of standardized tests is not just bad for students’ psychological and emotional well-being; it’s bad for the students’ actual education too. And the same is true for other ways schools have allowed the numbers to dictate their curricula, like pressuring high school students into Advanced Placement classes for which they’re not prepared, or cutting back on courses that produce no standardized testing payoff. So, back to the present. How can parents end this mess overnight? Exercising the available “opt out” strategies is a great start, but there’s a more powerful – and more empowering – option available. A critical mass of parents, especially those of high-performing students, could simply instruct their children to answer no more than half the questions on selected standardized tests. This communicates a profound message to the schools: “If you allow the numbers to dictate the curriculum, we will not cooperate with you in meeting your numerical targets.”

Walmart heirs ‘invest’ $8 million in StudentsFirst’s school privatization agenda - The Walton Family Foundation is donating $8 million over two years. Sorry, not donating. "Investing."  Think about that for a minute. When the Walmart heirs take a break from paying workers so little they qualify for food stamps and refusing to pay Bangladeshi contractors enough to have fire extinguishers in their factories, their philanthropic agenda is right in line with the Michelle Rhee education policy agenda. This isn't a first, either; $8 million over two years represents an increase in the Walmart investment in StudentsFirst, but the Waltons have already been a substantial source of money, giving $3 million to StudentsFirst since late 2010. StudentsFirst is also only one of many corporate education policy groups the Waltons have backed to the tune of $1 billion so far. Just what might a family whose vast wealth comes from low-wage labor and fierce anti-unionism like so much about so-called education reform? There's the obvious effort to bust teachers unions. But there's more than that. As I wrote last year: Education is a labor issue because it's how we train children to someday be workers, determining many of the conditions under which young adults enter the workforce. It's a labor issue because school funding represents an investment, or a failure to invest, in the mass of people. Abandoning them as children, whether by underfunding the schools they attend or putting corporate profits first, is basically a guarantee they'll face worse as adults.

Education and Wealth - You want my advice, you should read this essay by Sean Reardon in this AMs NYT on education and wealth.  He covers a lot of ground, but the theme that resonated most with me is one I’ve stressed often in these parts regarding the growing evidence of linkages between increased income inequality and diminished opportunities.  A prominent channel through which this occurs is, of course, education. It’s not just that rich kids do better in school than poor kids. What is news is that in the United States over the last few decades these differences in educational success between high- and lower-income students have grown substantially. Moreover, these growing differences show up in college access and completion.…the proportion of students from upper-income families who earn a bachelor’s degree has increased by 18 percentage points over a 20-year period, while the completion rate of poor students has grown by only 4 points.…15 percent of high-income students from the high school class of 2004 enrolled in a highly selective college or university, while fewer than 5 percent of middle-income and 2 percent of low-income students did. How, though, do these developments link up with inequality?  As Reardon sees it “the academic gap is widening because rich students are increasingly entering kindergarten much better prepared to succeed in school than middle-class students. This difference in preparation persists through elementary and high school.”

The Value of a Community College - Technical degree holders from [a] state’s community colleges often earn more their first year out than those who studied the same field at a four-year university. Take graduates in health professions from Dyersburg State Community College. They not only finish two years earlier than their counterparts at the University of Tennessee at Knoxville, but they also earn $5,300 more, on average, in their first year after graduation. In Virginia, graduates with technical degrees from community colleges make $20,000 more in the first year after college than do graduates in several fields who get bachelor’s degrees. Yet high-school seniors are regularly told that community colleges are for students who can’t hack it on a four-year campus. It’s true that those with bachelor’s degrees typically earn more over a lifetime than those with a two-year degree, but that’s little consolation to those who are discouraged from going to community colleges and end up dropping out of a four-year school without a degree. From Jay Selingo writing at the WSJ, he has a book coming out, College Unbound, that looks promising.

The Diploma’s Vanishing Value - May 1 is fast approaching, and with it the deadline for high-school seniors to commit to a college. At kitchen tables across the country, anxious students and their parents are asking: Does it really matter where I go to school? When it comes to lifetime earnings, we've been told, a bachelor's degree pays off six times more than a high-school diploma. The credential is all that matters, not where it's from—a view now widely accepted. That's one reason why college enrollment jumped by a third last decade and why for-profit schools that make getting a diploma ultraconvenient now enroll 1 in 10 college students. With unemployment among college graduates at historic highs and outstanding student-loan debt at $1 trillion, the question families should be asking is whether it's worth borrowing tens of thousands of dollars for a degree from Podunk U. if it's just a ticket to a barista's job at Starbucks. When it comes to calculating the return on your investment, where you go to school does matter to your bank account later in life. Not surprisingly, research has found that a degree from a name-brand elite college, whether it's Harvard, Stanford or Amherst, carries a premium for earnings.  For everyone else, the statistics show that choosing just any college, at any cost for a credential, may no longer be worth it.

Low-income students can get into selective colleges - Each April, the tables are turned in admissions offices of selective U.S. colleges as their role shifts from the pursued to the pursuer. Prestigious colleges nationwide compete for high-achieving high school seniors with multiple college offers who must confirm a choice by May 1. Unfortunately, few low-income students are in that lucky group. A National Bureau of Economic Research working paper estimates that there are 25,000 to 35,000 exceptionally promising low-income students — a far greater number than previously believed — with an A-minus or better high school GPA and scoring at the 90th percentile or above on the SAT or ACT. Yet only 8 percent of this group has even applied this year to the selective colleges that would challenge them academically. So the vast majority of the exceptional students in this study by Caroline Hoxby and Christopher Avery are falling through the cracks.

College loan debtors and delinquents increasing -- It is adding up to be an economic crisis. The number of college loan debtors and delinquents is increasing. Two out of five people with student loans will be delinquent on payments, and the penalties can prevent graduates from getting on their feet. 14 million people under the age of thirty have student loans to pay off. When asked what a kid can do to actually get his life financially on the right track while paying off student loans, Dennis Fagan of Fagan Associates said, "It's difficult. You have one trillion dollars in total student loan debt, 3.5 billion of which went bad in the first quarter according to the federal reserve, which was more than credit card delinquency." The problem goes farther than just a student. For private loans, parents who co-sign can also be held responsible for that debt. The possibility that a student loan debt crisis can hurt the economy cannot be ignored. One outcome to the equation may be a slow-down in the housing market. "Someone with $100,000 in debt might be paying $1,000 for student loans," Fagan said. "They might not be able to afford a home or afford the type of home they would afford otherwise."

Student Loan Bubble Cracks With Pulled Sallie Mae Bond Deal - In 2007 a small number of French hedge funds imploded over sudden losses stemming from highly leveraged bets made on the unstoppable subprime mortgage market. At the time, a few saw the writing on the wall; but many simply wrote it off as just another over-levered hedge fund and the subprime mortgage market was 'fine'. Fast forward six years and as we have discussed numerous times (most recently here and here) there is a bubble, potentially far bigger than subprime, in student loan debt. As one of the last remaining outlets for state-sanction credit creation, this is a big deal; but, of course, the popping of the bubble (or even a slight leak) is eschewed since there is so much 'reach for yield' and the Fed's got your back. That is until this week. As WSJ reports, Sallie Mae (SLM), the nation's largest non-government student lender just cancelled a $225 million debt offering as investors  decided they simply were not getting paid enough for risk - amid rising student loan defaults. Simply put, there's a limit to what investors will tolerate.

Loans Borrowed Against Pensions Squeeze Retirees - To retirees, the offers can sound like the answer to every money worry: convert tomorrow’s pension checks into today’s hard cash. But these offers, known as pension advances, are having devastating financial consequences for a growing number of older Americans, threatening their retirement savings and plunging them further into debt. The advances, federal and state authorities say, are not advances at all, but carefully disguised loans that require borrowers to sign over all or part of their monthly pension checks. They carry interest rates that are often many times higher than those on credit cards. In lean economic times, people with public pensions — military veterans, teachers, firefighters, police officers and others — are being courted particularly aggressively by pension-advance companies, which operate largely outside of state and federal banking regulations, but are now drawing scrutiny from Congress and the Consumer Financial Protection Bureau. The pitches come mostly via the Web or ads in local circulars. “Convert your pension into CASH,” LumpSum Pension Advance, of Irvine, Calif., says on its Web site. Another ad on that Web site is directed at military veterans: “You’ve put your life on the line for Americans to protect our way of life. You deserve to do something important for yourself.”

Washington's Backward Retirement Policy: So Wrong, and Yet So Easy to Fix - The latest projection by the Social Security Board of Trustees is that the trust funds will be exhausted in 2033. At that point, payouts will be limited to the amount brought in by payroll taxes--which means that everyone's benefits will fall by about 25 percent. This looming threat is often cited as a reason why we need to "reform" Social Security, which is code for cutting benefits. Most recently, President Barack Obama proposed changing the calculation of cost-of-living adjustments, which amounts to a progressively larger benefit cut as you get older. The problem, however, is that Social Security is the only significant source of income for many older Americans, and its net benefits are falling anyway due to increasing taxes and higher Medicare premiums (which are deducted from Social Security).Against this backdrop, it's a mistake to look at Social Security in isolation. We have to look at our overall retirement security "policy." And when we do that, it's obvious that we're throwing billions of dollars away.That money is being wasted on tax subsidies for "private" retirement accounts such as 401(k)s and IRAs. In 2012, these subsidies added up to $199 billion, or about 1.3 percent of GDP. (See Toder, Harris, and Lim, Table 5.) The motivation to protect these accounts isn't totally crazy. Since we want people to save for retirement, we offer tax breaks for doing so.

It's a 401(k) world and it sucks.: I like the metaphor in Tom Friedman's latest column, arguing that we now live in a 401(k) world. But I wish he'd spelled it out in greater detail, because the problem with living in a 401(k) world is that Planet 401(k) is a pretty sucky planet. Here's the essential shape of 401(k) as a backbone of the retirement system:

  • — Poor people get absolutely nothing.
  • — Wealthy people who would have had large savings anyway get a nice tax cut that offers no meaningful incentive effect.
  • — For people in the middle, the quantity of subsidy you receive is linked to the marginal tax rate you pay—in other words, it's inverse to need.
  • — A small minority of middle-class people manage to file the paperwork to save an adequate amount and then select a prudent low-fee, broadly diversified fund as their savings vehicle.
  • — Most middle-class savers end up either undersaving, overtrading, investing in excessively high-fee vehicles or some combination of the three.
  • — A small number of highly compensated folks now have lucrative careers offering bad investment products to a middle-class mass market based on their ability to swindle people.

Is the Chained CPI the Right Fix for Social Security? - One of the most controversial elements of President Obama’s 2014 budget is the proposal to reduce future cost-of-living adjustments to Social Security benefits by changing the inflation index. The Social Security Administration now bases inflation adjustments to on the consumer price index for urban wage earners and clerical workers (CPI-W), a close cousin of the more widely publicized CPI for all urban consumers (CPI-U). The administration proposal would instead use a relatively new index called the chained CPI, or C-CPI-U, which, in the past, has increased slightly less rapidly. Predictably, deficit hawks love the idea, while seniors and those who defend their interests hate it. Suppose, though, that we set ideology and interest group politics aside to look at the underlying economics of the issue. On those terms, is the switch to the chained CPI the right fix for Social Security? Before we start fixing something, we should be sure we know what is broken. Is a flawed method of inflation adjustment really a major problem? Would fixing it, in isolation, really improve the functioning of the Social Security system as a whole? Or is it just an attempt to disguise an unpalatable cut in benefits as a minor technical correction? If what we really want is an across the board cut, why?

Medicaid Expansion: Oregon study shows benefits, mostly. - By now, you're probably familiar with the controversy over the Medicaid expansion. Under Obamacare, the federal government will provide states with money to expand eligilibty for the program, so that anybody with an income at or just above the poverty line can enroll. But states have the option to decline the money. Many states seem likely to do that, at least for the short term. Among them are Florida and Texas, two large states with large numbers of uninsured residents. Several million Americans—nearly 2 million in Texas alone—will lose out on health insurance unless officials in those states have a change of heart. The common element in states declining to participate is that they are all states in which Republicans have leverage: Either a Republican governor or a Republican-controlled house of the legislature, or both, opposes the expansion. And one reason, obviously, is cost: These officials don’t want their states paying more for Medicaid, even if the amounts are minimal and they’d come out ahead because of savings elsewhere in their budgets. But Republicans and their allies frequently make another argument—that the program doesn’t do much good. Some go farther, and argue that people on Medicaid actually end up worse off than people with no insurance at all.1

Oregon and Medicaid and Evidence and CHILL, PEOPLE! - First of all, we’re somewhat annoyed that the NEJM sent out press releases and the study to journalists, but not people like us, because we now have to rebut the gazillion stories that have already been written on a study I just found out about an hour ago. Maybe they should let some knowledgeable people see it early, too. Or just wait until it goes live to tell everyone. But we digress. Let’s get into it. To recap: Oregon ran an RCT of Medicaid, because of a lack of funds to expand it fully. Early results showed some promising evidence that Medicaid improved process measures, self-reported health, and enhanced financial protection. This update, at 2 years, was intended to give us some harder outcomes. The results are “mixed”: We found no significant effect of Medicaid coverage on the prevalence or diagnosis of hypertension or high cholesterol levels or on the use of medication for these conditions. Medicaid coverage significantly increased the probability of a diagnosis of diabetes and the use of diabetes medication, but we observed no significant effect on average glycated hemoglobin levels or on the percentage of participants with levels of 6.5% or higher. Medicaid coverage decreased the probability of a positive screening for depression (−9.15 percentage points; 95% confidence interval, −16.70 to −1.60; P = 0.02), increased the use of many preventive services, and nearly eliminated catastrophic out-of-pocket medical expenditures.

What the Oregon Health Study Can’t Tell - The Oregon Health Study — one of the most important public-policy studies of the last decade — released a new round of results on Wednesday, showing that Medicaid coverage does not seem to make low-income adults much healthier, judging by biometric data. At least, that is one fair way to interpret the results, and it is basically the way the authors put it at the top of their new paper. But here is another good way to put it: The Oregon Health Study released a new round of results on Wednesday, showing that Medicaid coverage does not seem to improve low-income adults’ blood pressure, blood sugar or weight in a two-year time frame. It says nothing about the chance of diagnosis of, eventual health outcomes for or costs associated with any form of cancer, Alzheimer’s, Parkinson’s or dozens of other debilitating medical conditions. It also says nothing about health results outside of a two-year time frame. It does tell us that Medicaid coverage increases the chance that diabetes will be diagnosed in a low-income adult. It also tells us that diabetes in these low-income adults does not seem to improve much within the first 24 months or so, judging by blood-sugar tests. But the study is silent on whether Medicaid might reduce the amputation rate.  The study presents strong evidence that Medicaid recipients spend more on health care, and not just because of pent-up demand: they just seem to spend more, full stop. But it does not say anything about whether Medicaid coverage might reduce spending on avoidable but high-cost procedures, like treatment for advanced cervical cancer that was never caught with a Pap smear.

Medicaid, Austin Frakt, Aaron Carroll and Kevin Drum are Good for the USA -  An important study of the effect of Medicaid on health was published in the New England Journal of Medicine.  The study was based on a genuine experiment where some people were given Medicaid and other people weren't based on a lottery.  Unfortunately, the results were communicated with a NEJM  press release and not just the published article.  The results as received by the press is that Medicaid did not cause significant effect on recipients' health (except for significantly lower depression) which was interpreted as the study providing evidence that Medicaid does not improve health. This means that somehow someone rejected the alternative. Hero bloggers Austin Frakt and Aaron Carroll try to get valid use of statistics boots on before the error runs around the world.  Read their important post.  Then read Kevin Drum's important post where he links to their important post and also presents, you know, the data people are arguing about.  The damage is done and can't be fully undone, but I hope that this will be a case in which the medium of blogging undoes some of the damage due to publication by press release.  The actual authors in the actual article  explain the issues very well (read the quote in the Frakt and Carroll post). The NEJM makes only an abstract of the article available for free to non journalists such as us.

How Medicaid affects adult health, MIT News: Enrollment in Medicaid helps lower-income Americans overcome depression, get proper treatment for diabetes, and avoid catastrophic medical bills, but does not appear to reduce the prevalence of diabetes, high blood pressure and high cholesterol, according to a new study with a unique approach to analyzing one of America’s major health-insurance programs. The study, a randomized evaluation comparing health outcomes among more than 12,000 people in Oregon, employs the same research approach as a clinical trial, but applies it in a way that provides a window into the health outcomes of poor Americans who have been given the opportunity to get health insurance. “What we found was that Medicaid significantly increased the probability of being diagnosed with diabetes, and being on diabetes medication,”  “We find decreases in rates of depression, and we continue to find reduced financial hardship. However, we were unable to detect a decline in the incidence of diabetes, high blood pressure, or high cholesterol.”

Cancer Clinics: Congress Should Have Restored Our Sequester Cuts Before Addressing Airport Delays: This past week, Congress approved a measure to restore funding to the Federal Aviation Administration (FAA) after sequester cuts to the national transportation agency disrupted airline travel across the country — but they haven’t taken similar steps to provide relief for other programs that are struggling as a result of sequestration. Now, employees at cancer clinics are sharply criticizing that move, pointing out that lawmakers should have prioritized their funding before working to alleviate airport delays. After automatic budget cuts slashed their funding, cancer clinics have been forced to delay chemotherapy treatment for their patients. Some clinics may actually have to close their doors altogether if the sequester cuts are not reversed. As several cancer doctors told the Hill, they suspect they may not have been at the top at Congress’ list because reduced access to chemotherapy doesn’t personally inconvenience lawmakers in the same way that airport delays do: “I would invite anyone in Washington to come look my patients in the eye and tell them that waiting for a flight is a bigger problem than traveling farther and waiting longer for chemotherapy,” said William Nibley, a doctor at Utah Cancer Specialists in Salt Lake City

Medicare releases a 1,424-page rule that’s actually really interesting! - It’s one of the first things you’ll learn as a health policy wonk in Washington: Medicare releases its most important, most crucial regulations around 5 p.m. on Friday, dashing happy hour hopes across the city.Last Friday was no exception. Medicare released a 1,424-page rule that tells Medicare hospitals what they will get paid in 2014. The table of contents alone stretches on for 37 pages.Still, if you want to understand how the country’s largest health insurance plan wants to change how it pays for health care, this is the exact place to look.Overall, hospitals seemed pretty happy with the top line number: a 0.8 percent increase in their payments next year. That works out to about $27 million more going to the Medicare program in 2014 than will in 2013. That’s significant when you consider that Medicare costs grew at half that rate — by 0.4 percent — in 2012.

ObamaCare Clusterfuck: New 3-page eligibility form may screw states that are farthest ahead on their exchange software - Obama's big public relations push screws the states that took ObamaCare most seriously, and have done the most work: [T]he decision [for the shorter forms] could pose problems for states that are already far along in developing their exchange IT systems, according to the executive director of one state-run exchange. Kevin Counihan, CEO of the Connecticut Health Insurance Exchange, said the change announced Tuesday came after his exchange has already completed coding required for system integration based on the original, 21-page application. The state exchange's IT system may not recognize data from the new form.

Why Insurance Exchanges Won’t Work: People Don’t Like Choosing Insurance - One of the big reasons I’m so pessimistic about the new health insurance exchanges created under the Affordable Care Act is the principle behind them. The idea is that everyone will be well- informed dedicated shoppers who will know how to select the best plan to fit their needs, which will reduce cost for everyone. Aflac’s 2013 WorkForces Report shows how deeply misguided this assumption is in reality. Two numbers from the report really stick out. The survey found 54 percent of workers would prefer not to be more in control over their health insurance expenses and options because they will not have the time or knowledge to effectively manage it. This is completely understandable. Selecting the best insurance plan requires not only significant knowledge about every component of insurance, but also the ability to accurately predict the likelihood of future medical needs. The other important number is 89 percent, that is the number of workers who choose to stick with the same plan year after year. This is in large part because many find the process so daunting. A market where very few have the knowledge of what is the best bargain and where almost no one ever even tries to shop around simply can’t be effective. Looking at other countries where there is a “market” for health insurance indicates this will be a real problem. In Switzerland almost no one ever changes plans even though standardization makes it much easier to comparison shop than it will be here under Obamacare.

South Carolina House passes bill making ‘Obamacare’ implementation a crime - The South Carolina state House passed a bill Wednesday that declares President Obama’s Patient Protection and Affordable Care Act to be “null and void,” and criminalizes its implementation.  The state’s Freedom of Health Care Protection Act intends to “prohibit certain individuals from enforcing or attempting to enforce such unconstitutional laws; and to establish criminal penalties and civil liability for violating this article.” The measure permits the state Attorney General, with reasonable cause, “to restrain by temporary restraining order, temporary injunction, or permanent injunction” any person who is believed to be causing harm to any person or business with the implementation of Obamacare. Earlier this year in her state of the state address, Gov. Nikki Haley said that South Carolina does not want and cannot afford the president’s plan, “not now, not ever.”

Poll: 42 percent of Americans unsure if Obamacare is still law: If you want to know what a challenge the Obama administration faces in implementing its signature health-care law, this statistic might help: Fewer than six in 10 Americans know that the Obamacare law is still on the books. Seven percent think the Supreme Court struck it down; 12 percent say Congress repealed Obamacare.This comes from the Kaiser Family Foundation, which is out with a poll Tuesday morning looking at how much Americans know about the health-care overhaul—before a deluge of public outreach, set to begin this summer, kicks off. The short answer is: They do not know a lot. Most Americans likely to access new health care programs under the Affordable Care Act—either through subsidized private insurance or the Medicaid expansion—say they don’t have enough information to understand “how it [the health law] will impact you and your family.”This poll does, however, show greater awareness than separate research conducted last winter by Enroll America, a new non-profit that’s leading much of the outreach effort. It found that 78 percent of Americans likely to gain access to health coverage had no idea that such programs would roll out in 2014.

WSJ Pushes Myth That Congress Is Trying To Exempt Itself From Health Care Law - A Wall Street Journal editorial advanced the myth that Congress is trying to exempt itself from President Obama's health care law. In fact, Congress is attempting to fix an error in the law that prevents the government from making its normal contribution to staffers' health insurance. Basing its editorial on an April 24 Politico article, the Journal wrote that "Congressional leaders were in hush-hush talks to exempt themselves and their staff from the wonders of ObamaCare." The editorial, headlined "Exempting Congress From ObamaCare," continued: Congress will eventually find some way to protect itself, but its subterranean scrambling to do so exposes one of ObamaCare's greatest deceits: That if you like the insurance you have, you'll be able to keep it. Even the people who wrote the law don't believe it.

Health Coverage Worthy of a Senator - To promote economic efficiency and the goal of universal health coverage, perhaps members of Congress should not be required to enroll in the new insurance exchanges.  The Affordable Care Act of 2010 seeks to invigorate the nongroup health insurance market – that is, health insurance that people can buy without going through an employer – by creating and subsidizing insurance exchanges similar to the one created by Massachusetts in 2007. In addition, the law seeks to make health insurance affordable for middle-class families by having the federal government pay part of premiums and out-of-pocket costs, but only for people buying nongroup health insurance through the new exchanges. A provision of the law known as the Grassley amendment requires members of Congress and their staffs to obtain their own health insurance through the exchanges. The amendment gives the authors of the law, and the authors of future tweaks of the law, a personal stake in the success of the plans to be provided through the new exchanges. Because members of Congress are accustomed to high-quality medical care provided to them through federal employee benefit programs, one might expect that they would push for top quality care to be delivered through the exchanges too. That is one reason why an (ultimately unfounded) report that the Grassley amendment might be reversed prompted so much outrage.

Actually Obama, Your Health Care Law Will Not Stop Medical Bankruptcy - During a rare press conference President Obama defended the Affordable Care Act by saying “in a country as wealthy as ours nobody should go bankrupt if they get sick.” The problem is the Obamacare will not even come close to eliminating medical bankruptcy. Even under the law, people who buy insurance on the new exchange will face out of pocket limits they may not able to afford. For a family plan the annual out of pocket limit will be over $12,000. This is a financial burden many families simply can’t afford, especially while dealing with all the other expenses normally faced when taking care of a very sick family member. The vast majority of people who filed for bankruptcy because of health problems had insurance. The problem is that their private insurance was insufficient. The bronze plans required under Obamacare with their incredibly low actuarial values and high out of pocket limits will not stop this problem

Why Are People with Health Insurance Going Bankrupt? - Paul Jay of the Real News Network interviews Dr. Margaret Flowers, a pediatrician from Baltimore who advocates for a national single payer health system, Medicare for all, and Kevin Zeese, co-director of It’s Our Economy, an organization that advocates for democratizing the economy.

Heart-Attack Risk Starts Younger - Do you know how old your kids' arteries are? It's a potentially important question as scientists increasingly uncover links between healthy habits in childhood and risk for heart disease later in life. And there are growing concerns about the cardiovascular health of millions of children in the U.S. who are considered obese or overweight. A new study suggests there is a simple way to assess a child's arterial health with a calculation based on an often-overlooked component of cholesterol: triglycerides. The calculation is the ratio of triglycerides to HDL, or good cholesterol. It can be easily determined from a standard cholesterol blood test. In the study, based on nearly 900 children and young adults, researchers at Cincinnati Children's Hospital Medical Center found that the higher the ratio, the greater the likelihood a child would have stiff and damaged arteries. "We are demonstrating vascular changes in supposedly healthy adolescents," "Stiff vessels make your heart work harder. It isn't good for you." The study was published in the journal Pediatrics in April. The problem is also called hardening of the arteries. In adults it typically arises from a combination of aging and the cumulative impact of blood pressure, cholesterol and other assaults on the walls of blood vessels over decades of life. It carries heightened risk for heart attacks, strokes and sudden death.

You are a Guinea Pig - A hidden epidemic is poisoning America.  The toxins are in the air we breathe and the water we drink, in the walls of our homes and the furniture within them.  We can’t escape it in our cars.  It’s in cities and suburbs.  It afflicts rich and poor, young and old.  And there’s a reason why you’ve never read about it in the newspaper or seen a report on the nightly news: it has no name -- and no antidote.    The culprit behind this silent killer is lead.  And vinyl.  And formaldehyde.  And asbestos.  And Bisphenol A.  And polychlorinated biphenyls (PCBs).  And thousands more innovations brought to us by the industries that once promised “better living through chemistry,” but instead produced a toxic stew that has made every American a guinea pig and has turned the United States into one grand unnatural experiment. Today, we are all unwitting subjects in the largest set of drug trials ever. Without our knowledge or consent, we are testing thousands of suspected toxic chemicals and compounds, as well as new substances whose safety is largely unproven and whose effects on human beings are all but unknown. The Centers for Disease Control (CDC) itself has begun monitoring our bodies for 151 potentially dangerous chemicals, detailing the variety of pollutants we store in our bones, muscle, blood, and fat.  None of the companies introducing these new chemicals has even bothered to tell us we’re part of their experiment.  None of them has asked us to sign consent forms or explained that they have little idea what the long-term side effects of the chemicals they’ve put in our environment -- and so our bodies -- could be.  Nor do they have any clue as to what the synergistic effects of combining so many novel chemicals inside a human body in unknown quantities might produce.

U.S. to Delete Data on Life-Threatening Mistakes From Website - Two years ago, over objections from the hospital industry, the U.S. announced it would add data about “potentially life-threatening” mistakes made in hospitals to a website people can search to check on safety performance. Now the Centers for Medicare and Medicaid Services is planning to strip the site of the eight hospital-acquired conditions, which include infections and mismatched blood transfusions, while it comes up with a different set. The agency said it’s taking the step because some of the eight are redundant and because an advisory panel created by the 2010 Affordable Care Act recommended regulators use other gauges. The decision to pull the measures is a retreat from a commitment to transparency, according to organizations representing employers that help pay for health insurance.

Parasite ‘resistant to malaria drug’ - New drug-resistant strains of the parasite that causes malaria have been identified by scientists. Researchers found parasites in western Cambodia that are genetically different from other strains around the world. These organisms are able to withstand treatment by artemisinin - a frontline drug in the fight against malaria. Reports of drug resistance in the area first emerged in 2008. The problem has since spread to other parts of South East Asia. The study is published in the journal Nature Genetics.

Hong Kong Steps Up Bird-Flu Measures - Hong Kong immigration and hospital officials are stepping up efforts to fend off the spread of H7N9 bird flu, which surfaced outside China for the first time last week, as floods of mainland Chinese tourists descend on Hong Kong for the Labor Day holiday. The government is deploying greater manpower at the border at the mainland Chinese city of Shenzhen, one of the busiest border crossings in the world, to screen travelers for elevated body temperatures, and tour operators are being urged to monitor the condition of individual tourists. Some 4.2 million people are expected to cross Hong Kong's borders during the holiday, which runs from April 27 to May 1, most crossing via Shenzhen. Hong Kong has long been ground zero in the fight against infectious disease. In 1997, after bird flu first jumped the species barrier, Hong Kong was the first city to be badly affected. The densely populated city was ravaged by severe acute respiratory syndrome in the 2003 outbreak that killed 299 people locally and affected whole apartment blocks.

Bird Flue Death Toll Rises In China - CCTV video

Mad cow infected blood ‘to kill 1,000’ - Up to 1,000 people could die of the human form of “mad cow” disease through infected blood given to them in British hospitals, ministers have been told. Government experts believe there is still a risk of people contracting variant Creutzfeldt-Jakob Disease (vCJD) through blood transfusions, as about 30,000 Britons are likely to be carrying the brain-wasting illness in a dormant form — double the previous estimate. They warn the current total death toll of 176 from vCJD could rise more than five-fold as the infection has not been wiped out of the blood supply like it has been in the food chain. Frank Dobson, a former health secretary, tonight urged ministers to develop a nationwide screening programme for blood donors to stop future infections of vCJD, which has the potential to cause “horrendous deaths”. People are no longer in danger of getting vCJD from eating British beef, after ministers ordered the slaughter of millions of cows when the “mad cow” disease scandal broke in 1989. However, the Government acknowledges that one in 2,000 Britons – or approximately 30,000 people- are already “silent” carriers of infectious proteins that lead some people to develop vCJD.

Glyphosate’s Suppression of Cytochrome P450 Enzymes and Amino Acid Biosynthesis by the Gut Microbiome: Pathways to Modern Diseases - Abstract: Glyphosate, the active ingredient in Roundup®, is the most popular herbicide used worldwide. The industry asserts it is minimally toxic to humans, but here we argue otherwise. Residues are found in the main foods of the Western diet, comprised primarily of sugar, corn, soy and wheat. Glyphosate's inhibition of cytochrome P450 (CYP) enzymes is an overlooked component of its toxicity to mammals. CYP enzymes play crucial roles in biology, one of which is to detoxify xenobiotics. Thus, glyphosate enhances the damaging effects of other food borne chemical residues and environmental toxins. Negative impact on the body is insidious and manifests slowly over time as inflammation damages cellular systems throughout the body. Here, we show how interference with CYP enzymes acts synergistically with disruption of the biosynthesis of aromatic amino acids by gut bacteria, as well as impairment in serum sulfate transport. Consequences are most of the diseases and conditions associated with a Western diet, which include gastrointestinal disorders, obesity, diabetes, heart disease, depression, autism, infertility, cancer and Alzheimer’s disease. We explain the documented effects of glyphosate and its ability to induce disease, and we show that glyphosate is the “textbook example” of exogenous semiotic entropy: the disruption of homeostasis by environmental toxins.

Roundup, An Herbicide, Could Be Linked To Parkinson’s, Cancer And Other Health Issues, Study Shows (Reuters) - Heavy use of the world's most popular herbicide, Roundup, could be linked to a range of health problems and diseases, including Parkinson's, infertility and cancers, according to a new study. The peer-reviewed report, published last week in the scientific journal Entropy, said evidence indicates that residues of "glyphosate," the chief ingredient in Roundup weed killer, which is sprayed over millions of acres of crops, has been found in food. Those residues enhance the damaging effects of other food-borne chemical residues and toxins in the environment to disrupt normal body functions and induce disease, according to the report, "Negative impact on the body is insidious and manifests slowly over time as inflammation damages cellular systems throughout the body," the study says. We "have hit upon something very important that needs to be taken seriously and further investigated," Seneff said. Environmentalists, consumer groups and plant scientists from several countries have warned that heavy use of glyphosate is causing problems for plants, people and animals.The EPA is conducting a standard registration review of glyphosate and has set a deadline of 2015 for determining if glyphosate use should be limited. The study is among many comments submitted to the agency.

It’s Time for the Religious to Do Some Due Diligence. Reuters and Roundup. - I’m only one person and don’t have time to take on every sensationalist anti-GM/Monsanto story, popular as they are. But, what made this a bigger story was the fact that Reuters featured it.  Huff-Post’s article began like this:  – Heavy use of the world’s most popular herbicide, Roundup, could be linked to a range of health problems and diseases, including Parkinson’s, infertility and cancers, according to a new study. “Negative impact on the body is insidious and manifests slowly over time as inflammation damages cellular systems throughout the body,” the study says.  Now it doesn’t take much of a scientist to look at that and quickly have a multitude of red flags go off. Too general. Too unprovable. Goes against all the information out there to date.  Kudos to Keith Kloor, with the Discover Magazine Blog, “Collide-A-Scape”, who wrote this must-read rebuttal to the story, “When Media Uncritically Cover Pseudoscience“. As I’ve previously discussed, the really clever GMO opponents put a veneer of science on their propaganda. One recent example that an anti-GMO website approvingly pointed to was so obviously absurd that I was sure it would be ignored by media. The paper is by two authors with dubious credentials and is such a mashup of pseudoscience and gibberish that actual scientists have been unable to make sense of it. As one of them also noted, the paper is published in a “low-tier pay-for-play journal.” There is much more of interest in Kloor’s coverage, so please read it.

A comparative evaluation of the regulation of GM crops or products containing dsRNA and suggested improvements to risk assessments -- Abstract: Changing the nature, kind and quantity of particular regulatory-RNA molecules through genetic engineering can create biosafety risks. While some genetically modified organisms (GMOs) are intended to produce new regulatory-RNA molecules, these may also arise in other GMOs not intended to express them. To characterise, assess and then mitigate the potential adverse effects arising from changes to RNA requires changing current approaches to food or environmental risk assessments of GMOs. We document risk assessment advice offered to government regulators in Australia, New Zealand and Brazil during official risk evaluations of GM plants for use as human food or for release into the environment (whether for field trials or commercial release), how the regulator considered those risks, and what that experience teaches us about the GMO risk assessment framework. We also suggest improvements to the process.

A Hard Look at 3 Myths about Genetically Modified Crops -  In the pitched debate over genetically modified (GM) foods and crops, it can be hard to see where scientific evidence ends and dogma and speculation begin. In the nearly 20 years since they were first commercialized, GM crop technologies have seen dramatic uptake. Advocates say that they have increased agricultural production by more than US$98 billion and saved an estimated 473 million kilograms of pesticides from being sprayed. But critics question their environmental, social and economic impacts. Researchers, farmers, activists and GM seed companies all stridently promote their views, but the scientific data are often inconclusive or contradictory. Complicated truths have long been obscured by the fierce rhetoric. “The two sides speak different languages and have different opinions on what evidence and issues matter,”. Here, Nature takes a look at three pressing questions: are GM crops fuelling the rise of herbicide-resistant ‘superweeds’? Are they driving farmers in India to suicide? And are the foreign transgenes in GM crops spreading into other plants? These controversial case studies show how blame shifts, myths are spread and cultural insensitivities can inflame debate.

USDA Ruffles Feathers With New Poultry Inspection Policy - The Obama administration is on the verge of dramatically scaling back the US Department of Agriculture's oversight of the nation's largest chicken and turkey slaughterhouses—while also allowing companies to speed up their kill lines. Currently, each factory-scale slaughterhouse has four USDA inspectors overseeing kill lines churning out up to 140 birds every minute. Under the USDA's new plan, a single federal inspector would oversee lines killing as many as 175 birds per minute. That would mean there are three fewer inspectors for a production line running 25 percent faster. (The line rates at turkey slaughterhouses are, for obvious reasons, slower, but would also be sped up under the new rules). After the idea was floated last year, it was met by massive pushback from food safety and worker advocates, who argued that the combination of more speed and fewer inspectors would lead to dangerous conditions for both consumers and workers. Since then, the proposal has been caught in the federal rulemaking process. But on April 10, the administration released a prospective USDA budget indicating that the agency plans to implement the new rules by September 2014. And in testimony before the House Appropriations Subcommittee on Agriculture on April 16, Vilsack said the rules would be finalized "very soon," declaring that the plan "will allow the poultry industry to continue to be profitable, and allow us [the USDA] to save some money as well."

A Win for the Bees: EU Votes to Ban Bee-Harming Pesticides - In a historic vote on Monday the European Union banned the use of bee-harming pesticides across the continent for a minimum of two years, garnering praise from environmental groups who have said that the population of the vital pollinators, along with the global food supply are in grave danger, due to the widespread use of the chemicals.The vote is the first of its kind and suspends three of the world's most widely-used pesticides—known as neonicotinoids. However, critics have said the two year suspension is not enough, meaning bees are not safe until the chemicals are banned permanently. Though the vote did not reach the required majority under EU voting rules, the hung vote moves to the European commission (EC) who will implement the ban. "It's done," an EC source told the Guardian.The Pesticide Action Network reports: Despite pesticide industry influence, a majority of countries voted to place a two year restriction on three neonicotinoid products linked to a wide-range of harms to honey bees: clothianidin, imidacloprid and thiamethoxam. The EU vote comes after significant findings by the European Food Safety Agency that these pesticides pose an unacceptable risk to bees and their use should be restricted. Along with habitat loss and pathogens, a growing body of science points to neonicotinoid pesticides as a key factor in drastically declining bee populations.

Canada wrestles with bee-killing crop pesticides - Canadians beekeepers, farmers and regulators are wrestling with how to protect bees from popular pesticides that were partially banned in Europe this week. The European Commission announced Monday that it would go ahead with a partial two-year ban on three kinds of neonicotinoid pesticides that have been linked to bee deaths. The pesticides are used to coat most commercial corn seeds and protect them from pests such as seed-eating insects. Canadian government scientists have found evidence that neonicotinoid pesticides were linked to mass bee deaths during the spring corn planting in Ontario and Quebec in 2012, Health Canada's Pest Management Regulatory Agency confirmed in a report. That has some people, such as Dan Davidson, president of the Ontario Beekepers' Association, calling for the use of the neonicotinoid pesticides to be restricted in Canada also. "I think the best for beekeepers would be a ban," he told CBC's The Current. "We have to call for replacement of these chemicals. We won't be able to keep going on if they continue to be used at the rates they're being used now."

Study Finds No Single Cause of Honeybee Deaths - The devastation of American honeybee colonies is the result of a complex stew of factors, including pesticides, parasites, poor nutrition and a lack of genetic diversity, according to a comprehensive federal study published on Thursday. The problems affect pollination of American agricultural products worth tens of billions of dollars a year. The report does not place more weight on one factor over another, and recommends a range of actions and further research. Honeybees are used to pollinate hundreds of crops, from almonds to strawberries to soybeans. Since 2006, millions of bees have been dying in a phenomenon known as colony collapse disorder. The cause or causes have been the subject of much study and speculation. The federal report appears the same week that European officials took steps toward banning a class of pesticides known as neonicotinoids, derived from nicotine, that they consider a critical factor in the mass deaths of bees there. But officials in the United States Department of Agriculture, the Environmental Protection Agency and others involved in the bee study said that there was not enough evidence to support a ban on one group of pesticides, and that the costs of such action might exceed the benefits. “At E.P.A. we let science drive the outcome of decision making,” "There are non-trivial costs to society if we get this wrong. There are meaningful benefits from these pesticides to farmers and to consumers, as well as for affordable food.”

The Case for Precaution: Plan Bee - The EPA has it wrong and the EU has it right.  Here’s the problem: colony collapse disorder (CCD), which has ravaged honeybee populations in several parts of the world, has taken a turn for the worse.  About half the US stock of domesticated bees failed to survive this past winter, and growers who depend on these bees to pollinate their crops are worried that this essential work won’t get done.  The toll on wild bees is unknown at this point. In response, the European Union has instituted a two-year ban on neonicotinoids, a class of insecticides widely used in agriculture, while they continue to study the situation.  In the US, the Environmental Protection Administration has just issued a report in which they say that there are many potential causes of the bee die-offs with possible interactions between them, and not enough is known about neonicotinoids to take action.From what I have read, the EPA is scientifically wise and policy foolish.  We really don’t know for sure to what extent, if any, neonicotinoids are responsible for CCD, although their persistence and effects logically suggest they should be bad for bees.  More research is certainly needed.  But this is a classic example of the relevance of the precautionary principle, properly understood.

New Paper Links Food Price Inflation to the Power of “Agro-Trader Nexus” (ie, Monsantos + Cargills) - Yves Smith - Joseph Baines’s new article, “Food Price Inflation as Redistribution: Towards a New Analysis of Corporate Power in the World Food System” is a must read if you care to understand how major corporations exercise hidden influence on our daily lives. The paper is so chock full of information and history that a summary does not do justice to its arguments, so I hope you’ll read it in full.  Baines argues that the change in dominant players and in pricing dynamics are linked, and reflect the rise of a new constellation: My main contention is that since the late 1990s the dominant grain traders have forged close linkages with major agribusinesses. These links have given rise to a power constellation that I call the Agro-Trader nexus. The nexus’s main impact on the world food system since the early 2000s comes in the form of its facilitation and championing of the wasteful absorption of grain and oilseeds into the heavily subsidised first- generation biofuels sector. The soaring production of biofuels has contributed to a dramatic upswing in accumulation for the firms of the Agro-Trader nexus. However, the biofuels boom has been less beneficial for other firms operating in food supply chains and it has pushed millions of people into conditions of acute undernourishment. These are the major types of players that Baines identifies in this Alien v. Predator struggle for dominance:

World Grain Harvest Seen Jumping 7% by IGC on Corn Crop Surge - The world harvest of wheat and coarse grains such as corn is predicted to jump 7 percent in the 2013-14 season on increased planting and better yields, the International Grains Council said. Output may rise to 1.91 billion metric tons from an estimated 1.78 billion tons in 2012-13, the London-based IGC wrote in its monthly grain market report today. Increased production will rebuild stocks depleted this season, it said. Drought in the U.S. as well as in Ukraine and Russia hurt corn and wheat production last year. This year, U.S. farmers will sow the most acres of corn in 77 years, the U.S. Department of Agriculture reported in March. For corn, “output is forecast to increase 10 percent year- on-year, with harvested area and average yields both projected to be higher,” the IGC wrote. “Closing stocks will be very tight at the end of 2012-13, but are set to increase sharply, rising to above-average levels in 2013-14.” 

Drought eases in many places, fields turn to mud  - As spring rains soaked the central United States and helped conquer the historic drought, a new problem has sprouted: The fields have turned to mud. The weekly drought monitor report, released Thursday by National Drought Mitigation Center in Lincoln, Neb., showed the heavy rains that also caused some flooding in the last week brought drought relief to the upper Midwest, western Corn Belt and central portions of the Plains. Farmers may be thankful the land is no longer parched, but it's too wet to plant in corn country and freezing temperatures and lingering snow have ruined the winter wheat crop. "Right now, we're wishing it would dry up so we can get in the field," said 74-year-old Iowa farmer Jerry Main, who plants corn and soybeans on about 500 acres in the southeast part of the state. He's measured more than 9 inches of rain since April 18 — and farmers in his area prefer to plant corn by May 10 — at the latest.

Oregon Legislation Aims to Criminalize Environmental Civil Disobedience - If you lie down in the road or sit in a tree to stop the clear cutting of old growth forests, you may be an "environmental terrorist," an Oregon lawmaker charges. The ACLU of Oregon is sounding the alarm over the state bills touted as targeting "environmental terrorism" but that the rights organization says would "effectively criminalize civil disobedience for one particular group." The bills in question, House Bill 2595 and House Bill 2596 were passed on Monday with overwhelming support. HB 2595 criminalizes any act that "intentionally hinders, impairs or obstructs, or attempts to hinder, impair or obstruct, the performance of the forest practice," and  Makes first conviction subject to maximum penalty of one year's imprisonment, $6,250 fine, or both. Makes second or subsequent conviction subject to maximum penalty of 18 months' imprisonment, $125,000 fine, or both. Requires mandatory minimum term of 13 months' imprisonment and mandatory minimum fine of $25,000 for second or subsequent conviction.

Tennessee Republican attacks ‘disgusting’ Humane Society over ‘tape and rape’ - Tennessee state Rep. Andy Holt (R-Dresden) described the Humane Society as radicals and accused them of promoting rape-like tactics against farmers, according to emails released Friday.  Holt, who sponsored the bill in that would criminalize activists who exposed animal abuse on factory farms the Tennessee House, was apparently not too pleased to have received the correspondence. “I am extremely pleased that we were able to pass HB 1191 today to help protect livestock in Tennessee from suffering months of needless investigation that propagandist groups of radical animal activists, like your fraudulent and reprehensibly disgusting organization of maligned animal abuse profiteering corporatists, who are intent on using animals the same way human-traffickers use 17 year old women,” he replied.

ActionAid: Food Used to Fuel Cars in G8 Nations Would Feed 441 Million  - ActionAid and other charities are meeting in the UK in June during the G8 summit, where they will ask David Cameron to take the lead in ending policies which use food for fuel. According to the group, 441 million people could be fed each year with the amount of food crops that are consumed as fuel by the G8 nations. As you can see in the chart, the U.S. is the culprit responsible for 76 percent of the G8′s farmland being diverted to fuel.  An important aspect of the trend is that in sub-Saharan Africa, six million hectares of land are now under the control of European companies planning to make money from Europe’s biofuel policies. The biggest investors of biofuels in sub-Saharan Africa (SSA) are from the UK (30 projects), Italy (18) and Germany (8). According to a report prepared for the G20 group of the world’s leading nations by the World Bank, the OECD, WTO, IFPRI, IMF and five UN agencies,“food prices are substantially higher than they would be if no biofuels were produced”.

The US Food Aid Debate: Major Reform on the Horizon? - US policy makers, lobbyists and development organizations are in throes of debate over the Obama administration’s proposal to reform US food aid. The proposal, incorporated in the President’s 2014 budget, calls for a shift of some $1.4 billion of the food aid budget from Title II of the Food for Peace Act situated in the Farm Bill (and thus part of the US Department of Agriculture budget) to various development and emergency accounts controlled by USAID. It also would allow up to 45% of that shifted budget to be spent on foods purchased locally in developing countries. For nearly 60 years, US food aid policy required that the aid be sourced from foods grown and packaged in the US. And it required that majority of that aid be transported on US flag ships. There was nothing particularly surprising about this policy: food aid originally served as a mechanism to dispose of surplus food.  As I outline in my recent book on the politics of food aid, food surpluses didn’t last, and a number of donors – the European Commission, Canada and Australia – untied their food aid at various points in the past 15 years. Untied food assistance allows the donor to provide funds to either purchase food closer to the source of hunger, a practice known as local and regional purchase, or to provide cash or vouchers to those in need so that they can purchase their own food on local markets.

NASA: Warming Climate Likely Means More Floods, Droughts -The Earth's wettest regions are likely to get wetter while the most arid will get drier due to warming of the atmosphere caused by increased levels of carbon dioxide, according to a new NASA analysis of more than a dozen climate models. Scientists ran simulations of 14 different models, starting with CO2 concentrations at about 280 parts per million, which is similar to preindustrial levels but well below the 400 parts per million today. The amount of carbon dioxide was then bumped up by 1 percent per year, an increase that is consistent with a "business as usual" trajectory described by the U.N. Intergovernmental Panel on Climate Change, or IPCC, NASA says.You can see a video of a composite of the simulations here. Taken as a whole, they show that for every 1 degree Fahrenheit of CO2 warming, heavy rainfall increases by about 4 percent. Total global rainfall remains unchanged because the more frequent occurrence of heavy rainfall in some areas is offset by less frequent moderate rainfall elsewhere, according to the study set for publication in the peer-reviewed Geographical Research Letters.

Hurricane Sandy's Untold Filthy Legacy: Sewage - Hurricane Sandy was one of the largest storm to hit the northeast U.S. in recorded history, killing 159, knocking out power to millions, and causing $70 billion in damage in eight states. Sandy also put the vulnerability of critical infrastructure in stark relief by paralyzing subways, trains, road and air traffic, flooding hospitals, crippling electrical substations, and shutting down power and water to tens of millions of people. But one of the larger infrastructure failures is less appreciated: sewage overflow.Six months after Sandy, data from the eight hardest hit states shows that 11 billion gallons of untreated and partially treated sewage flowed into rivers, bays, canals, and in some cases, city streets, largely as a result of record storm-surge flooding that swamped the region’s major sewage treatment facilities. To put that in perspective, 11 billion gallons is equal to New York’s Central Park stacked 41 feet high with sewage, or more than 50 times the BP Deepwater Horizon oil spill. The vast majority of that sewage flowed into the waters of New York City and northern New Jersey in the days and weeks during and after the storm.

    Furloughs in forecast for NOAA workers in time for hurricane season - National Oceanic and Atmospheric Administration offices across the nation may soon have more cloudy days as the forced government spending cuts cause the agency to ask thousands of employees to take unpaid days off. Proposed four-day furloughs would affect nearly 12,000 people, which includes workers at the Miami-based National Hurricane Center, from July 1 to September 30, in time for what is expected to be an active hurricane season. NOAA oversees the National Weather Service, the National Marine Fisheries Service, the National Hurricane Center and other offices that provide forecasts, severe weather alerts and other important information to the public.

    NOAA: In 2012, Waters Off Northeast U.S. Coast Were Warmest In 150 Years -  A new “Ecosystem Advisory” from NOAA’s Northeast Fisheries Science Center (NEFSC) reports, “Sea surface temperatures in the Northeast Shelf Large Marine Ecosystem during 2012 were the highest recorded in 150 years.”The Ecosystem extends from Cape Hatteras, N.C. to the Gulf of Maine. The temperature record is “based on both contemporary satellite remote-sensing data and long-term ship-board measurements.” In 2012, sea surface temperature (SST) for the region was nearly  3°F above the average for the past three decades: The advisory reports on conditions in the second half of 2012.Sea surface temperature for the Northeast Shelf Ecosystem reached a record high of 14 degrees Celsius (57.2°F) in 2012, exceeding the previous record high in 1951. Average SST has typically been lower than 12.4 C (54.3 F) over the past three decades. … The temperature increase in 2012 was the highest jump in temperature seen in the time series and one of only five times temperature has changed by more than 1 C (1.8 F).No doubt it was purely coincidental that six months ago, in the fall of 2012, the Northeast was hit by the “largest hurricane in Atlantic history measured by diameter of gale force winds (1,040mi).” Or not.

    World went on warming in 2012 – WMO Last year was among the ten warmest years since records began more than 160 years ago, the World Meteorological Organisation says. The WMO says 2012 was the ninth warmest year recorded since 1850, and the 27th consecutive year in which the global land and ocean temperatures were above the 1961-1990 average. The WMO Secretary-General Michel Jarraud said the continuing warming was cause for worry, and that it was on track to continue. The assessment comes in the WMO’s Statement on the status of the global climate in 2012, the latest in an annual series providing information about temperatures, precipitation, extreme events, tropical cyclones, and sea ice extent. It estimates the 2012 global land and ocean surface temperature during January-December 2012 at 0.45°C (±0.11°C) above the 1961-1990 average of 14.0°C. The years 2001-2012 were all among the top 13 warmest years on record. The warming in 2012 happened despite the cooling influence of La Niña, a periodic upswelling of cold water off the west coast of South America which with its twin El Niño can affect weather patterns thousands of miles away. One of the effects of a La Niña episode can be to keep global average temperatures down.

    Why is Reuters puzzled by global warming's acceleration?   The rate of heat building up on Earth over the past decade is equivalent to detonating about 4 Hiroshima atomic bombs per second. Take a moment to visualize 4 atomic bomb detonations happening every single second. That's the global warming that we're frequently told isn't happening. There are periods when the ocean heats up more quickly than the surface, and other periods when the surface heats up more quickly than the oceans. Right now we're in a period of fast ocean warming and overall, global warming is continuing at a very fast pace. The confusion on this subject lies in the fact that only about 2 percent of global warming is used in heating air, whereas about 90 percent of global warming goes into heating the oceans (the rest heats ice and land masses). But humans live at the Earth's surface, and thus we tend to focus on surface temperatures. Over the past 10–15 years, Earth's surface temperature has continued to rise, but slowly. At the same time, the warming of the oceans – and the warming of the Earth as a whole – has accelerated. This was the conclusion of a scientific paper I co-authored last year, in which our team found more overall global warming (of the oceans, air, land, and ice combined) over the past 15 years than during the prior 15 years. Just recently, another paper published in the journal Geophysical Research Letters found that the warming of the oceans since the turn of the century has been the most sustained in the past 50 years. They also found that, consistent with my team's research, about 30% of overall global warming has gone into the deep oceans below 700 meters due to changing wind patterns and ocean currents. This accelerated deep ocean warming is also unprecedented in the past 50 years.

    NSIDC: Earliest satellite maps of Antarctic and Arctic sea ice - While the modern satellite data record for sea ice begins in late 1978, some data are available from earlier satellite programs. NSIDC has been involved in a project to map sea ice extent using visible and infrared band data from NASA’s Nimbus 1, 2, and 3 spacecraft, which were launched in 1964, 1966, and 1969. Analysis of the Nimbus data has revealed Antarctic sea ice extents that are significantly larger and smaller than seen in the modern 1979–2012 satellite passive microwave record. The September 1964 average ice extent for the Antarctic is 19.7 ± 0.3 million square kilometers (7.6 million ± 0.1 square miles. This is more than 250,000 square kilometers (97,000 square miles) greater than the 19.44 million square kilometers (7.51 million square miles) seen in 2012, the record maximum in the modern data record. However, in August 1966 the maximum sea ice extent fell to 15.9 ± 0.3 million square kilometers (6.1 ± 0.1 million square miles). This is more than 1.5 million square kilometers (579,000 square miles) below the passive microwave record low September of 17.5 million square kilometers (6.76 million square miles) set in 1986.

    White House warned on imminent Arctic ice death spiral - Senior US government officials are to be briefed at the White House this week on the danger of an ice-free Arctic in the summer within two years.  The meeting is bringing together NASA's acting chief scientist, Gale Allen, the director of the US National Science Foundation, Cora Marett, as well as representatives from the US Department of Homeland Security and the Pentagon.  This is the latest indication that US officials are increasingly concerned about the international and domestic security implications of climate change.  Senior scientists advising the US government at the meeting include 10 Arctic specialists, including marine scientist Prof Carlos Duarte, director of the Oceans Institute at the University of Western Australia.  In early April, Duarte warned that the Arctic summer sea ice was melting at a rate faster than predicted by conventional climate models, and could be ice free as early as 2015 – rather than toward the end of the century, as the UN Intergovernmental Panel on Climate Change (IPCC) projected in 2007.

    Carbon dioxide now at highest level in 5 million years: For the first time in roughly 5 million years, the amount of carbon dioxide in the Earth's atmosphere could top 400 parts per million in the Northern Hemisphere next month. Human ancestors were just learning how to walk on two feet about that time, in a world that was much warmer than the one we walk on today. Carbon dioxide is the greenhouse gas that is responsible for 63% of the warming attributable to all greenhouse gases, according to the National Oceanic and Atmospheric Administration's Earth System Research Lab. This latest report comes from the Scripps Institution of Oceanography, keepers of the famed "Keeling Curve," the longest continuous record of carbon dioxide measurements on the planet. The measurements were begun in 1958 by Scripps climate scientist Charles Keeling and taken near the top of Mauna Loa on the Big Island of Hawaii. When Keeling first began his measurements, the amount of carbon dioxide (also known as CO2) was 316 parts per million (ppm). As of Tuesday, the reading was 398.44 ppm as measured at Mauna Loa.

    Global carbon dioxide levels set to pass 400ppm milestone - The concentration of carbon dioxide in the atmosphere has reached 399.72 parts per million (ppm) and is likely to pass the symbolically important 400ppm level for the first time in the next few days. Readings at the US government's Earth Systems Research laboratory in Hawaii, are not expected to reach their 2013 peak until mid May, but were recorded at a daily average of 399.72ppm on 25 April. The weekly average stood at 398.5 on Monday. Hourly readings above 400ppm have been recorded six times in the last week, and on occasion, at observatories in the high Arctic. But the Mauna Loa station, sited at 3,400m and far away from major pollution sources in the Pacific Ocean, has been monitoring levels for more than 50 years and is considered the gold standard. "I wish it weren't true but it looks like the world is going to blow through the 400ppm level without losing a beat. At this pace we'll hit 450ppm within a few decades," said Ralph Keeling, a geologist with the Scripps Institution of Oceanography which operates the Hawaiian observatory.

    Climate chief warns of 'urgency' as CO2 levels rise: The UN's climate chief called for urgency Monday as she opened a new round of global talks amid warnings that Earth-warming carbon dioxide levels were approaching a symbolic threshold never seen in human history. Ads by Google Data from the Mauna Loa Observatory in Hawaii have shown the concentration of CO2 in the atmosphere to be at 399.72 parts per million (ppm), Christiana Figueres told climate negotiators in Bonn. "We are just about to cross the 400 ppm threshold," she said in a prepared speech that stressed "a heightened sense of urgency". The Intergovernmental Panel on Climate Change (IPCC), which informs policy makers on the science of global warming, has said the atmospheric CO2 level must be limited to 400 ppm for Earth's average temperature rise to be contained at between two and 2.4 degrees Celsius (3.6 and 4.3 degrees Fahrenheit). The talks in Bonn are the first since negotiations in Qatar last December set down a two-track process for tackling greenhouse gas emissions. The main goal is a new climate treaty that will be concluded by 2015 and take effect by 2020.

    It’s easy to keep U.S. carbon emissions flat. Sadly, that’s not enough.: It would be fairly straightforward for the United States to keep its carbon dioxide emissions from rising between now and 2040. All Congress would have to do is keep most current energy policies in place. That’s according to a new analysis out today from the Energy Information Administration (EIA). The agency tries to project U.S. emissions in an “extended policies” scenario — in which all current energy policies are made permanent — and found that emissions would be 6 percent lower by 2040 than if those policies were allowed to sunset. Now here’s the gloomy news. As Joe Romm points out at Climate Progress, the United States would get nowhere near its climate-change goals if emissions simply flat-lined between now and 2040. The Obama administration, after all, has set a goal of cutting greenhouse-gas emissions 17 percent by 2020 and 83 percent by 2050. That’s in line with what the IPCC has recommended the U.S. do to do its part for limiting global warming below 2°C. But the EIA’s “extended policies” scenario won’t get us anywhere close, even if emissions stayed flat:

    The Climate Crisis in Three Easy Charts - from naked capitalism - Climate catastrophe will usher in a new geologic era. Long-scale earth history is divided into Eons, then Eras, then Periods. But in fact, prior to the Cambrian Period, when life on earth exploded in number and variety, earth history is the story of non-life or small single- or multi-celled life. And starting with the Cambrian period, there’s just one “eon” anyway. It’s eras and periods we care about.  So let’s start there, with the Cambrian Period and the flourishing of life on earth. Consider the chart below: The divisions across the top are geologic periods, starting with the Cambrian (“Cm”), the period of “visible life”‘ — meaning a proliferation of hardshelled species. It’s the big explosion of life on earth. The numbers across the bottom are millions of years ago. The spikes show extinction events, with the percentage of marine species going extinct expressed on the vertical or Y axis. Great question — where does man fit in? Answer: We come in very late. First, notice the last three geologic “periods” at the top-right in the chart above. The period marked “K” is the Cretaceous, the period at the end of the Mesozoic Era. The next period (“Pg”) is the Paleogene, the one that marks the start of the Cenozoic (new life) Era. The period after that (“N”) is the Neogene, which ended just 2 million years ago. The period after that, not shown, is the Quarternary Period, our current one. The Neogene-Quarternary boundary is the start of the time of great glaciers, and the best way to show that is with the chart below, showing earth temperatures mapped across the geologic periods (at the left end) and geologic epochs (the rest of the chart). But before we look at the rest of the X axis, notice that in the left-most part of the chart, the Y axis shows a huge change in global temperature relative to pre-Industrial norms. Looks like a monster spike, especially the first one, doesn’t it? The Cambrian temperature spike is 6–8°C (about 11–14°F) higher than pre-Industrial levels.  It’s also the temperature we’re headed for by 2100.

    Our infrastructure isn’t ready for climate change - Recently, the American Society of Civil Engineers released its latest Report Card for America’s Infrastructure, a measure of the condition, capacity, and maintenance of the nation’s vital systems, accounting for their ability to meet future needs and ensure public safety and health. How did we fare? D+. That composite grade includes things like our energy systems (D+), drinking water systems (D), waterways and levees (D-), roads (D), schools, (D), transit (D) and on and on. The brightest spot was a B- for how we deal with solid waste. This discouraging assessment appeared on the heels of news documenting how climate change is affecting us now: 2012 shattered the record as the hottest year ever recorded in the U.S. Global warming shares some of the blame for last summer’s drought that impacted nearly two-thirds of the lower 48 states, and for the unprecedented intense heat of the Australian “angry summer.” Satellite observations confirmed that in September 2012, Arctic sea ice levels were by far the lowest ever recorded, covering about half the area of 30 years ago. Yet another scientific report, this time from the U.K. Met Office, demonstrated that natural influences in the past decades lean more toward cooling, but humans have emitted enough greenhouse gases to warm the planet anyway.

    General Motors urges Obama and Congress to unite on climate change - General Motors called on Barack Obama and Congress to work together on climate change on Wednesday, saying the effort would be good for business.GM, which makes the plug-in Chevy Volt, was the first of the big three car makers to sign on to a new push from the business world for greater action on global warming from Washington, the Climate Declaration. "We want to be a change agent in the auto industry," Mike Robinson, GM vice-president of sustainability and global regulatory affairs, said in a statement. The declaration, now endorsed by 40 companies, was launched in Washington last month with the aim of capitalising on public concern about climate change after Hurricane Sandy and Obama's re-election in the hope of pushing a climate law through Congress. More than half of Americans now blame climate change for the extreme weather of recent years, acccording to a study released on Wednesday by the Yale Project on Climate Change.

    Adapt faster to changing climate, Europe warned -  Cities around Europe may have to erect flood barriers similar to the Thames Barrier that protects London from sea surges, as climate change takes hold and leads to the danger of much more destructive storms, floods, heavy rainfall and higher sea levels, Europe's environmental watchdog has warned. The effects of climate change will be so far-reaching across the continent that vineyards may have to plant new grape varieties, farmers may have to cultivate new crops and water suppliers look to technology such as desalination in order to cope with the probable effects of more extreme weather. Buildings and infrastructure such as transport, energy and communication networks will also have to be changed. The warnings come in a report from the European Environment Agency, called Adaptation in Europe. The research found that half of the 32 member countries of the EEA still lack plans to adapt to the effects of global warming, although others have begun to take action.

    Saudi Arabia blocks climate change from UN poverty goals - Saudi Arabia is leading calls for climate change to be omitted from the UN’s 2015 Sustainable Development Goals (SDGs). At an SDG meeting in New York last week attended by over 70 nations the Saudis, together with fellow oil producers Venezuela and the UAE called for discussions of climate change to be separated from those on energy. The three nations feature in the top seven of proven oil reserves worldwide, and have opposed targets to encourage clean energy over fossil fuels, despite evidence that climate change will exacerbate global hunger and poverty. “Saudi Arabia don’t want climate change in the same session yet alone the same day as energy. They don’t really want it in there at all,” Stakeholder Forum’s Farooq Ullah, who attended the meeting, told RTCC. “They oppose climate and energy being associated with one another and say energy [targets] should only deal with energy access, which clearly indicates they don’t want to set goals around the sustainability of the source of energy,” he added.

    Biologist Paul Ehrlich gives dire prediction for global civilization - Ehrlich, who paced back and forth across the stage, ignoring the podium, started by saying, “I believe and all of my colleagues believe that we are on a straightforward course to a collapse of our civilization.” He cited signs, such as diminishing returns from natural resources, that he said were recognizable from studying the collapse of other civilizations throughout history. The problem can be traced to our evolution, said Ehrlich. “We’re a small-group animal, both genetically and culturally. We have evolved to relate to groups of somewhere between 50 and 150 people,” he said. “And now suddenly we’re trying to live in a group not of 150 or 100 people, but of seven billion people, somewhat over seven billion people at the moment, and that is presenting us with a whole array of problems.” Those problems include an inability to recognize gradual, large-scale changes in our environment as dangerous. “Another thing that’s related to that, that’s presenting us with a whole array of problems, is that most of our evolution going on now is cultural evolution,” Ehrlich went on. “And the problem is cultural evolution has not gone on at the same rate in every area of human endeavor. Where has it gone on most rapidly? It’s gone on most rapidly in the area of technology.” In contrast, our cultural evolution has not progressed much at all in terms of ethics, said Ehrlich.

    Dem resolution warns climate change could push women to ‘transactional sex’ - The Hill's Floor Action: Several House Democrats are calling on Congress to recognize that climate change is hurting women more than men, and could even drive poor women to "transactional sex" for survival. The resolution, from Rep. Barbara Lee (D-Calif.) and a dozen other Democrats, says the results of climate change include drought and reduced agricultural output. It says these changes can be particularly harmful for women. "[F]ood insecure women with limited socioeconomic resources may be vulnerable to situations such as sex work, transactional sex, and early marriage that put them at risk for HIV, STIs, unplanned pregnancy, and poor reproductive health," it says. Climate change could also add "workload and stresses" on female farmers, which the resolution says produce 60 to 80 percent of the food in developing countries.

    U.S. Lawmaker Proposes New Criteria for Choosing NSF Grants - The new chair of the House of Representatives science committee has drafted a bill that, in effect, would replace peer review at the National Science Foundation (NSF) with a set of funding criteria chosen by Congress. For good measure, it would also set in motion a process to determine whether the same criteria should be adopted by every other federal science agency. The legislation, being worked up by Representative Lamar Smith (R-TX), represents the latest—and bluntest—attack on NSF by congressional Republicans seeking to halt what they believe is frivolous and wasteful research being funded in the social sciences. Last month, Senator Tom Coburn (R-OK) successfully attached language to a 2013 spending bill that prohibits NSF from funding any political science research for the rest of the fiscal year unless its director certifies that it pertains to economic development or national security. Smith's draft bill, called the "High Quality Research Act," would apply similar language to NSF's entire research portfolio across all the disciplines that it supports.

    The Republican War on Social Science - Posey and fellow Republicans on the Science, Space, and Technology Committee wanted Holdren to explain why the National Science Foundation was wasting so much money from an asked-for budget of $7.6 billion. Posey read off titles of NSF-funded research projects. “ ‘Picturing Animals in National Geographic for the years 1988 to 2008’ costing $227,000,” said Posey. “ ‘Kinship, Women's Labor and China's Economic Performance in the 17th to 21st Centuries’ costing $267,000. ‘Regulating Accountability and Transparency in China's Dairy Industry.’ … I mean, it's just hard to conceive how those are important to our national security or our national interest.” Holdren wasn’t moved, but he’d heard this before—and he’d hear it again. After the hearing, committee chairman Lamar Smith of Texas sent a letter to the NSF asking what the “intellectual merit” of this research was. Shortly thereafter, as first reported by Science magazine, Smith was drafting legislation that would require the NSF to prove that grants wouldn’t embarrass anybody. Was the research “in the interests of the United States to advance the national health, prosperity, or welfare, and to secure the national defense by promoting the progress of science?” Could the NSF say that it was “the finest quality, is groundbreaking, and answers questions or solves problems that are of utmost importance to society at large?”

    The war on science takes a turn -  Just in recent months we've seen a GOP member of the House Science Committee describe cosmology, biology, and geology as being, quite literally, "lies straight from the pit of Hell." We've seen Sen. Marco Rubio (R-Fla.) boast, "I'm not a scientist, man." We've seen Louisiana Gov. Bobby Jindal (R) endorse creationism lessons in public school science classes. And it's getting worse. The Huffington Post reported yesterday that Rep. Lamar Smith (R-Texas) and other Republicans on the House Science Committee "are making an unprecedented move to require oversight of the scientific research process, pushing a bill that would in effect politicize decisions made by the National Science Foundation." It's against this backdrop that President Obama, a week after hosting the White House Science Fair, spoke yesterday at the National Academy of Sciences, in celebration of the NAS's 150th anniversary. The video of the president's remarks is above.

    Renewable Energy Wins Republicans Backing Oil-Gas Benefit - Renewable energy developers may win some tax benefits from Congress that only oil and gas companies can enjoy right now. A bipartisan bill introduced in the Senate last week would allow renewable and clean energy-related companies to structure their businesses as master limited partnerships -- avoiding double taxation while also trading ownership interests on the market, similar to corporate stock, Bloomberg BNA reported. This treatment -- available to oil and gas projects and a limited number of traditional fossil fuel-related industries -- gives them access to private capital at a much lower cost than investors in other energy projects, said Senator Chris Coons, the Delaware Democrat who sponsored the bill. “That starves a growing and vital part of our domestic energy sector of the capital that it needs to grow,” said Coons, a member of the Senate Energy and Natural Resources Committee. “That just doesn’t make any sense.”

    The Villain of Building Energy Efficiency: Triple-Net Leases. Not Picking the Low-Hanging Fruit - An old friend runs his family’s commercial real-estate business; they own and operate half a dozen or so pretty large properties (and just bought another) — a mall, office buildings, mixed use. I was really curious to talk to him about why commercial property owners don’t invest more in energy efficiency. By all accounts there’s great ROI in doing so — serious low-hanging fruit. Here from a McKinsey report (PDF; see page 15) showing how much it costs to save (not buy/pay for) a million BTUs of energy, by instead investing in energy efficiency: So it sure seems like there’s money to be picked up. Why don’t building owners do it? The short answer my friend and I came to? Triple-net leases — the ubiquitous standard in the commercial real-estate industry. In these leases tenants pay per-square-foot rent, plus their pro-rata share (by square feet) of the building’s 1) taxes, 2) insurance, and 3) repairs, maintenance, and energy expenses.  Notice what is not included: the cost of improvements — for instance improvements to increase energy efficiency. So the owner gets all the costs, right up front. And the benefits go mostly or completely to the tenants, in the form of lower energy bills.

    The Key to Running the World on Solar Power: Perhaps the biggest shortcoming of solar and wind power is their intermittency. In locations like Hawaii, where I live, wind and solar power are already competitive on price. My fossil-fuel supplied electricity typically costs above 40 cents a kilowatt-hour, and wind and solar power can compete with that. But since they can’t supply power that is available on demand (firm power) they must be backed up by power sources that can provide power when the sun isn’t shining and the wind isn’t blowing. This scenario could change dramatically if cost-effective energy storage solutions were developed. I consider this to be the most important unresolved problem in the energy business. A company that develops a way to efficiently and economically store intermittent energy for on-demand use will be a game-changer.

    US electricity giant rejects privatisation plan - The head of the Tennessee Valley Authority, the US government-owned electric company and a pillar of Franklin D. Roosevelt’s New Deal, has rejected an Obama administration plan to explore privatisation. In his budget proposal to Congress this month, President Barack Obama launched a strategic review of the authority and said it might be necessary to privatise the TVA since the company’s “anticipated capital needs are likely to quickly exceed [its] $30bn statutory cap on indebtedness”. But in an interview with the Financial Times, Bill Johnson, who took over as chief executive of the TVA in January, said the authority “isn’t broke” and could fund the investment it needed while staying in the public sector. His comments reflect an upsurge of support, led by typically pro-privatisation Republicans from Tennessee, for retaining government ownership of one of the largest electricity companies in the US. At the end of last year the TVA had bond debts of $24.5bn that count towards the $30bn limit, and a further $2.8bn in alternative financing such as leases. Its investment plan last year envisaged capital spending of $25bn over the next decade. However, Mr Johnson said that while the decision on privatisation was for the government, he was confident the authority could stay inside its borrowing limit by cutting costs and reining in its spending plans if necessary.

    UK Ministry of Defense Deems Wind Towers a National Security Threat - While the U.S. created the “Department of Homeland Security,” Washington’s less prosperous European allies have been forced to seek solutions to indigenous defense largely by themselves beyond NATO. European democracies have scrambled to define both national and European Union security issues, particularly since the global economic downturn, which began in 2008, forcing hard choices amongst European defense ministries. Furthermore, many European nations now have significant post-colonial immigration populations, ramping up security concerns, from both indigenous citizens and ongoing concerns of foreign aggression. Defending the United Kingdom’s territorial, maritime and aerial space is the primary mission of Britain’s Ministry of Defense. A laudable objective, but, in a time of declining MOD revenues amid energy imports, perhaps, a wind farm too far? The MOD has come out against two proposed 115 foot wind power towers in Cornwall, which they assert are so big they could look like planes on monitoring equipment. The MOD assert that the wind towers green energy devices could confuse computer systems designed to protect the UK and identify the turbines as a threat, triggering the MOD to send in fighter aircraft to investigate, and while the RAF was preoccupied, allowing real enemies to sneak into British airspace, and accordingly, are against their construction.

    Trillion-euro shortfall facing EU energy sector - Investment totalling a trillion euros (£846bn) is required before the end of this decade if the European Union is to stave off an energy crisis. That is the conclusion of an eight-month inquiry by the House of Lords into the EU power sector. The Lords report says that a muddled Brussels energy policy is putting off big investors. The Lords EU sub-committee on agriculture, fisheries, environment and energy took evidence from a range of parties including the European Commission, power companies and environmental campaigners. Money on hold Their report says that there is an urgent need for investment in low carbon, interconnected and innovative energy systems. The committee agreed with the European Commission estimate that to achieve secure, green and cheap energy by 2020, a trillion euros will need to be spent on infrastructure. The money is there from institutional investors for these energy projects, say the Lords. But the lack of a clear policy about how to deliver secure and affordable power is holding them back.

    Radioactive Water Imperils Fukushima Plant - Two years after a triple meltdown that grew into the world’s second worst nuclear disaster, the Fukushima Daiichi nuclear power plant is faced with a new crisis: a flood of highly radioactive wastewater that workers are struggling to contain. Groundwater is pouring into the plant’s ravaged reactor buildings at a rate of almost 75 gallons a minute. It becomes highly contaminated there, before being pumped out to keep from swamping a critical cooling system. A small army of workers has struggled to contain the continuous flow of radioactive wastewater, relying on hulking gray and silver storage tanks sprawling over 42 acres of parking lots and lawns. The tanks hold the equivalent of 112 Olympic-size pools. But even they are not enough to handle the tons of strontium-laced water at the plant — a reflection of the scale of the 2011 disaster and, in critics’ view, ad hoc decision making by the company that runs the plant and the regulators who oversee it. In a sign of the sheer size of the problem, the operator of the plant, Tokyo Electric Power Company, or Tepco, plans to chop down a small forest on its southern edge to make room for hundreds more tanks, a task that became more urgent when underground pits built to handle the overflow sprang leaks in recent weeks.

    Carbon bubble makes Australia's coal industry ripe 'for financial implosion' - Australia's huge coal industry is a speculative bubble ripe for financial implosion if the world's governments fulfil their agreement to act on climate change, according to a new report. The warning that much of the nation's coal reserves will become worthless as the world hits carbon emission limits comes after banking giant Citi also warned Australian investors that fossil fuel companies could do little to avoid the future loss of value. Australia is already the globe's biggest coal exporter and "mega-mine" plans in Queensland for more extraction are identified as the world's second biggest "carbon bomb" threatening runaway global warming. "Investments in Australian coal rest on a speculative bubble of climate denial, indifference or dreaming," said John Connor, one of the new report's authors and CEO of The Climate Institute, an independent research organisation based in Sydney. "Investors, governments and even some coal companies say they take climate change seriously, but this report shows they do not or are taking risky gambles."

    Are Methane Hydrates Really Going to Change Geopolitics? - The right way to understand the potential of unconventional fuels like methane hydrates and tight oil is to closely examine their production rates and their prices. If these fuels can be produced at large scales and profitable prices, they very well might influence geopolitics and economics in the ways that Mann speculates. If they cannot, then it truly doesn't matter how much of those resources may exist underground and in the ocean floor.If Mann's data on methane hydrates is correct, then Japan's experiment so far has taken 10 years and $700 million to produce four million cubic feet of gas, which is worth about $16,000 at today's U.S. gas prices, or about $50,000 at today's prices for imported LNG in Japan. At this point, it is an enormously expensive experimental pilot project, and nothing more. We do not yet know when it might be able to recover commercial volumes of gas, or at what rate, or at what price. We have no reason to believe that if commercial quantities are recoverable by 2018 as Japan hopes--which seems incredibly optimistic--that the price of that gas will be competitive with imported LNG. At the same time, we have numerous forecasts projecting that renewables like wind and solar will be competitive with fossil-fueled grid power in most of the developed world by 2020, including much of Asia. For example, a recent report by Citigroup, and another by researchers at Stanford University, among many others.

    Pipeline slurry spills threaten wetlands -  A series of pipeline-construction spills by one company has the Ohio EPA demanding answers and environmental-advocacy groups warning that this is one more activity tied to fracking that is endangering streams and wetlands. Ohio Environmental Protection Agency officials call the spills “ inadvertent returns.” They involve a lubricant made of clay and water that sometimes gushes unexpectedly from the ground when builders drill tunnels to install natural-gas pipelines. Ohio EPA records show that Denver-based MarkWest Energy had four spills between Sept. 17 and Feb. 9, polluting streams and wetlands in Harrison and Belmont counties. The Harrison County spills included one late last summer affecting Brushy Fork near Cadiz, and a Nov. 4 spill near Cadiz that fouled 1 1/2 miles of Boggs Fork and a nearby wetland and took more than three months to clean up. “I find the repeated nature and magnitude of these releases unacceptable,” Scott Nally, the Ohio EPA’s director, wrote to the company on March 8. As Ohio EPA officials and the company discussed possible fines and methods for preventing more mishaps, MarkWest reported two additional spills, on March 9 and March 27.

    EPA Revises Fracking Impact Results, Evoking Mixed Responses From Environmentalists: The Environmental Protection Agency has dramatically lowered its estimate of how much of a potent heat-trapping gas leaks during natural gas production, in a shift with major implications for a debate that has divided environmentalists: Does the recent boom in fracking help or hurt the fight against climate change? Oil and gas drilling companies had pushed for the change, but there have been differing scientific estimates of the amount of methane that leaks from wells, pipelines and other facilities during production and delivery. Methane is the main component of natural gas. The new EPA data is "kind of an earthquake" in the debate over drilling, said Michael Shellenberger, the president of the Breakthrough Institute, an environmental group based in Oakland, Calif. "This is great news for anybody concerned about the climate and strong proof that existing technologies can be deployed to reduce methane leaks." The scope of the EPA's revision was vast. In a mid-April report on greenhouse emissions, the agency now says that tighter pollution controls instituted by the industry resulted in an average annual decrease of 41.6 million metric tons of methane emissions from 1990 through 2010, or more than 850 million metric tons overall. That's about a 20 percent reduction from previous estimates. The agency converts the methane emissions into their equivalent in carbon dioxide, following standard scientific practice. The EPA revisions came even though natural gas production has grown by nearly 40 percent since 1990.

    Survey Shows Fracking Communities Suffer from Stress Due to Fear of Exploitation - In a new survey, 76 percent of people living near fracking sites in Pennsylvania reported stress, which they attributed to lack of trust and feeling taken advantage of. Survey respondents attribute several dozen health concerns and stressors to the Marcellus Shale developments in their area, according to a long-term analysis by University of Pittsburgh Graduate School of Public Health researchers.  Reported health impacts persist and increase over time, even after the initial drilling activity subsides, they note. The study, which will be published in the May issue of the International Journal of Occupational and Environmental Health, did not include clinical examinations of the participants’ physical health or any environmental tests. Researchers surveyed those who believe their health has been affected by hydraulic fracturing activities for self-reported symptoms and stressors. The most commonly cited concern was stress. Among the leading causes of stress reported by the participants were feelings of being taken advantage of, having their concerns and complaints ignored, and being denied information or misled.

    Hydrofracking Could Strain Western Water Resources, Study Finds - The rapid expansion of hydraulic fracturing to retrieve once-inaccessible reservoirs of oil and gas could put pressure on already-stressed water resources from the suburbs of Fort Worth to western Colorado, according to a new report from a nonprofit group that advises investors about companies’ environmental risks. .“Given projected sharp increases” in the production of oil and gas by the technique commonly known as fracking, the report from the group Ceres said, “and the intense nature of local water demands, competition and conflicts over water should be a growing concern for companies, policy makers and investors.” The overall amount of water used for fracking, even in states like Colorado and Texas that have been through severe droughts in recent years, is still small: in many cases 1 percent or even as little as a tenth of 1 percent of overall consumption, far less than agricultural or municipal uses. But those figures mask more significant local effects, the report’s author, Monika Freyman, said in an interview. “You have to look at a county-by-county scale to capture the intense and short-term impact on water supplies,” she said. “The whole drilling and fracking process is a well-orchestrated, moment-by-moment process” requiring that one million to five million gallons of water are available for a brief period, she added. “They need an intense amount of water for a few days, and that’s it.”

    Three Fracking Moratorium Bills Win Key Vote in California Legislature — Three bills that would halt fracking in California won key votes last night, passing the Assembly Natural Resources Committee despite intense pressure from the oil industry. Richard Bloom’s A.B. 1301, Holly Mitchell’s A.B. 1323 and Adrin Nazarian’s A.B. 649 would place a moratorium on fracking while threats posed by the controversial practice to California’s environment and public health are studied. Oil and gas wells have been fracked in at least nine California counties without fracking-specific regulation or even monitoring by state oil and gas officials. Fracking, also known as hydraulic fracturing, employs huge volumes of water mixed with sand and toxic chemicals — including known carcinogens — to blast open rock formations and release previously inaccessible fossil fuels. A.B. 1301 — sponsored by the Center for Biological Diversity, Food & Water Watch and Clean Water Action — is supported by the California Nurses Association, Breast Cancer Action, Family Farm Defenders and more than 100 other health, labor, environmental and social justice organizations.

    Appeals court says NY towns can ban fracking - A mid-level appeals court said New York’s local governments can ban hydraulic fracturing and shale-gas drilling within their borders, delivering a blow to the natural-gas industry and pro-drilling landowners who sought to have such bans overturned. The state Appellate Division ruled unanimously Thursday in favor of the Tompkins County town of Dryden and the Otsego County town of Middlefield, which both passed zoning laws that prohibit natural-gas drilling. The rulings upheld decisions last year from a lower court. “I’m very proud of the town for being able to take a lead on this issue and say that, ‘Yes, local government matters. The people supporting the local government matter,’” Dryden Town Supervisor Mary Ann Sumner said. “And it’s nice to have that affirmed by the court.” The court decisions could have widespread ramifications if New York allows high-volume hydrofracking within its borders. The state has had a de facto moratorium on large-scale fracking for close to five years as it completes various layers of environmental and health reviews of the technique.

    Shale Gas Review: NY Appellate Court upholds Home Rule fracking ban Landmark case critically linked to Marcellus development - New York’s anti-fracking movement scored a critical victory today in a landmark case testing the right of local governments to ban fracking. In a much-anticipated decision, the state’s Third Appellate Division upheld a ruling  giving local governments authority to ban the controversial practice of unconventional drilling and well-stimulation techniques – including high volume hydraulic fracturing -- to extract petroleum from bedrock. Today’s ruling comes after the shale gas industry appeal of a February, 2012 decision by a lower court favoring the right of local governments to ban drilling. The appeal was based on an argument that legislation amending the Oil Gas and Solutions Minding Law gave the state, not local governments, exclusive jurisdiction over wells. In today’s appellate court ruling, the three-judge panel unanimously agreed that the oil and gas law did not reflect legislative intent to “pre-empt a municipality’s power to enact a local zoning ordinance banning all activities related to the exploration for, and the production or storage of, natural gas and petroleum within its borders.”

    Josh Fox’s Gasland Part II Faces Aggressive Oil and Gas Public Relations Campaign - “It’s coming,” a baritone voice warns as images of a fiery hellscape flash across the screen. “Lies. Deception,” someone whispers, just before the narrator launches into a diatribe about Josh Fox’s new documentary, Gasland Part II, in a youtube clip whose esthetic falls somewhere between b-horror movie and election season attack ad. It’s the sort of video that might be campy if it wasn’t made with an actual budget.  Posted last November under the account energyforamerica, the faux trailer is one of the first hits in a Gasland 2 youtube search.“I think it’s kinda unprecedented,” Mr. Fox said after the mock trailer appeared on youtube five months ago. “I don’t know of any other trailer that has attacked a film before even the actual trailer of the film has come out.”

    Fracking’s coming boom - Unlimited export of U.S. natural gas would have enormous implications on the future of the nation’s economy, environment and domestic energy choices. Yet a burgeoning chorus in Congress, on both sides of the aisle, is calling for the swift approval of 19 liquid natural gas (LNG) export permits.  The acceptance of these permits would unleash an unprecedented frenzy of domestic high-volume hydraulic fracturing, or fracking, just to meet daily production rates under decades-long contractual obligations. If accepted, the total of the permits currently under review by the Department of Energy for LNG export would be equal to 28.54 billion cubic feet (Bcf) per day, approximately 45 percent of what the U.S. is projected to consume daily in 2013, according to the U.S. Energy Administration. Congressional supporters of unlimited exports argue that turning the U.S. into a major net exporter of LNG would not only boost our economy and create jobs, but also — seeming to defy the basic tenets of supply and demand — sustain low domestic natural gas prices, increase our energy security and propel us to energy independence. Some have even contended that such exports would smooth out boom-and-bust cycles and stabilize the price of natural gas.

    Faster Drilling, Diminishing Returns In Shale Plays Nationwide? - Today’s shale gas boom has brought a surge of drilling across the US, driving natural gas prices to historic lows over the past couple of years. But, according to David Hughes, geoscientist and fellow at the Post Carbon Institute, in the future, we can expect at least the same frenzied rate of drilling – but less and less oil and gas from each well on average. “It’s been a game changer,” Mr. Hughes said of the shale gas boom at a talk last week in Maryland, “but I would say a temporary game changer.” After crunching data from hundreds of thousands of oil and gas wells across the U.S., Mr. Hughes found that just five of the country’s 30 best shale plays have been responsible for 80 percent of domestic shale gas production: the Haynesville shale in Louisiana; the Barnett shale in Texas’s Fort Worth region; the Marcellus shale, which underlies New York, Pennsylvania, and parts of Maryland and West Virginia; the Fayetteville shale in Arkansas; and Oklahoma’s Woodford shale. When it comes to natural gas, all of the other plays pale in comparison to these five regions.But the data reveals that in four of these top five shale-gas plays, drillers have been less and less successful in hitting the next big strike-it-rich well. Average well productivity in four of the five best American shale plays has been falling since 2010, Hughes found. The exception, at least for now, is the Marcellus.

    Getting Japan to guzzle American natural gas - Japanese Prime Minister Shinzo Abe expected a sharp debate at home when he said his country wanted to join the Trans-Pacific Partnership. He may not have anticipated a sharp debate in the U.S.Why so? Because Japan’s nontariff barriers ― protecting major sectors of the economy, including services, agriculture and selected manufactures ― start from much higher levels than equivalent U.S. barriers, and the TPP aims to reduce them all, preferably to zero. Japan’s inclusion in the trade pact will boost American exports, create American jobs and make both economies more efficient, now and well into the future.  Few sectors stand to gain so much as the growing U.S. liquefied-natural-gas industry. Japan’s membership in the TPP, coupled with long-term U.S. supply assurances, will deliver exponential LNG export growth to a huge market hungry for alternative energy supplies. The timing couldn’t be better: Right now, America’s competitive advantage in exploration and extraction is unrivaled.  Japan, the world’s third-largest economy, is also the single-largest buyer of natural gas. Given the country’s indefinite moratorium on expanding the nuclear-energy program, Japan’s reliance on natural gas is sure to increase. In fact, Japan faces the prospect of replacing some 12,000 megawatts of nuclear-generating capacity. The total dearth of natural-gas resources means that Japan must rely heavily on LNG imports as an alternative source of clean power.

    MPs Warned not to Expect Shale Gas Boom in the UK - The UK Energy and Climate Change Committee released a report on Friday that warned MP’s not to expect a dramatic fall in domestic gas prices similar to the US, whose shale gas boom saw prices plummet, just because fracking is starting to occur in the UK. “Differences in geology, public attitudes, regulations and technological uncertainties” make it unlikely that the UK will experience its own boom. This could prove quite a blow to the Chancellor George Osborne, who has been an avid supporter of the UK shale gas industry, offering encouragement through tax breaks, and claiming that shale gas will provide a cheap, secure way of meeting the country’s energy needs in the future.  Tim Yeo, the committee chairman, stated that “it is still too soon to call whether shale gas will provide the silver bullet needed to solve our energy problems. Ministers should be careful, though, not to base energy policy on an assumption that gas prices will fall in future as a result of shale gas production. Rising global demand for gas, particularly from Asia, could limit any potential price reductions.”

    Exxon Mobil Begins Production at Kearl Oil Sands - Exxon Mobil Corp. (XOM), the world’s largest company by market value, began production at its Kearl oil sands project in Alberta, which is projected to produce 4.6 billion barrels of recoverable oil in the next 40 years. The project will produce 110,000 barrels per day later this year and that’s expected to double by late 2015, the company said in a statement. The Kearl site is 46 miles (75 km) northeast of Fort McMurray, Alberta, and is operated by Imperial (IMO) Oil Ltd., which is 70 percent owned by Exxon Mobil.  “Kearl is a historic development for Imperial,” . “Kearl is the largest project we’ve ever undertaken and the beginning of a period of substantial growth for the company that will see us double production to more than 600,000 barrels per day by about 2020.”  The C$12.9 billion Kearl project has been beset by equipment transport and weather delays, along with rising costs. In February, Imperial raised its estimate for initial costs due to “harsh weather” and issues delivering equipment to the site near the Saskatchewan border. Montana residents protested the truck traffic that made its way through the state en route to Alberta.

    Scientist Roy Spencer is wrong: fossil fuels are expensive -- Recently, the International Monetary Fund (IMF) put together a report (PDF) quantifying global fossil fuel subsidies, including indirect costs from climate change damages. They estimated that $480 billion is spent annually on direct fossil fuel subsidies, mostly in developing countries, while an additional $1.4 trillion is spent on indirect subsidies. These include about $800 billion per year in climate change subsidies, and that may be a very conservative estimate. As an example of these climate costs, consider the 2010 record Russian heat wave. Research has shown that human-caused global warming probably made this heat wave more intense than it otherwise would have been. The heat wave and associated drought crippled the Russian wheat crop that year, which led to a huge increase in global wheat prices. The carbon emissions from fossil fuels likely contributed to that damage.  However, for countries without a price on those carbon emissions (like the USA), consumers did not directly pay for those costs when they bought their coal powered electricity and gasoline, for example. So this fossil fuel energy seemed cheap to folks like Roy Spencer. But those costs didn't disappear. Everyone who paid higher food prices had to pick up the tab.

    We Wish -  Kunstler -   Wishful thinking now runs so thick and deep across the USA that our hopes for a credible future are being drowned in a tidal wave of yellow smiley-face stories recklessly issued by institutions that ought to know better. A case in point is the Charles C. Mann's tragically dumb cover story in the current Atlantic magazine -- "We Will Never Run Out of Oil" * -- setting out in great detail the entire panoply of techno-narcissistic "solutions" to our energy predicament. Another case in point was senior financial writer Joe Nocera's moronic op-ed in last week's New York Times beating the drum for American "energy independence."   You could call these two examples mendacious if it weren't so predictable that a desperate society would do everything possible to defend its sunk costs, including the making up of fairy tales to justify its wishes. Instead, they're merely tragic because the zeitgeist now requires once-honorable forums of a free press to indulge in self-esteem building rather than truth-telling. It also represents a culmination of the political correctness disease that has terminally disabled the professional thinking class for the last three decades, since this feel-good propaganda comes from the supposedly progressive organs of the media -- and, of course, the cornucopian view has been a staple of the idiot right wing media forever. We have become a nation incapable of thinking, or at least of constructing a consensus that jibes with reality. In not a very few years, the American public will be so disappointed and demoralized by broken promises like these that they will turn the nation upside down and inside out, probably with violence and bloodshed.

    Crude Inventories Surge To Record High As Energy Demand Collapses -- A month ago we highlighted the somewhat stunning reality of the real economy via the EIA's detailed energy supply and demand data. The key takeaway was  that we hoped this did not represent the true state of the economy since the data was so dismal. Fast forward to today and the DOE just released a much higher than expected build in crude inventories that took the stuffed-channel of oil products to all-time highs. The 395.3 million barrels is higher than the previous record in July 1990. There appears to be a number of factors at play - none of which are positive. There is a surge in supply due to the incessant harvesting of shale oil (which could have its own problems as we noted here). Second, we suspect there is a degree of 'channel-stuffing' occurring - if we pump it, they will buy - as producers and transporters are desperate to keep active and show incremental business (despite fading railcar loadings). But perhaps most important, as EIA data has shown, there has been a collapse in end demand for crude products not seen since the 1990s. Today's surge in inventories appears to confirm demand remains subdued at best.

    The U.S. Has Much, Much More Gas and Oil Than We Thought - The United States has double the amount of oil and three times the amount of natural gas than previously thought, stored deep under the states of North Dakota, South Dakota, and Montana, according to new data the Obama administration released Tuesday. In announcing the new data in a conference call, Interior Secretary Sally Jewell also said the administration will release within weeks draft rules to regulate hydraulic fracturing, technology that has come under scrutiny for its environmental impact but that is essential to developing all of this energy. “These world-class formations contain even more energy-resource potential than previously understood, which is important information as we continue to reduce our nation’s dependence on foreign sources of oil,” Jewell said in a statement. The formations, called Bakken and Three Forks, span much of western North Dakota, the northern tip of South Dakota and the northeastern tip of Montana. The last time the United States Geological Survey assessed this area for its oil and gas reserves was in 2008. But that assessment did not include the Three Forks formation, which explains the substantial increase in the estimates.

    Study Doubles Estimate of Region’s Recoverable Crude Oil - An oil-rich region of the north-central United States holds more than twice the recoverable crude supplies estimated just five years ago, a government study released Tuesday said. The Bakken Formation and Three Forks Formation — which span parts of Montana, North Dakota and South Dakota — together hold about 7.4 billion barrels of undiscovered, technically recoverable oil, it said. That is more than double the 2008 estimate from the United States Geological Survey, and officials called it a building block to energy independence. Officials said the jump in reserves was chiefly related to production now thought to be accessible in the Three Forks Formation, in the southern edge of North Dakota, which was not tallied in the previous study.

    Natural resource scarcity is real: Peak oil still matters. - Something I've noticed lately is a huge surge in commentary, generally from conservatives, lauding the boom in "unconventional" oil finds as completely debunking the fashionable "peak oil" concerns of the mid-aughts. The boom in U.S. fossil fuel production is a pretty big deal that's created a passel of jobs and transformed some local economies, but look at those oil price charts above. The gap between the blue line (West Texas Intermediate oil) and the red line (Brent Crude oil) is a good sign of the market impact of growing North American production.  But the level at which prices have stabilized is still way higher than it was 10 years ago. And it continues to be the case that the U.S. is mired in slow growth, the U.K. and Japan are having zero growth, and Western Europe is in depression conditions, all of which ways commodity prices down. Long story short, we're in nothing like the peak oil nightmare that a naive forward projection of the 2003-08 hockey stick would have led you to expect. But we've hardly conquered oil scarcity either. New discoveries are having trouble keeping pace with rising car ownership in Asia and declining production from many established oil sources. Meanwhile, unconventional oil is coming onto the market in part because oil is scarce and expensive, which makes it profitable to extract hard-to-extract oil.

    Alaska North Slope Oil Output Fell 5.8% in April, State Reports - Oil production from Alaska’s North Slope dropped 5.8 percent in April, a faster pace than its March decline, as a problem at BP Plc (BP/)’s Central Gas Facility curtailed crude output at Prudhoe Bay. North Slope production dropped to 546,087 barrels a day last month, down from 579,441 a year earlier, according to data on the website of the Alaska Revenue Department’s tax division. An injection compressor system at the gas facility shut down April 22 for about 48 hours, Dawn Patience, a BP spokeswoman in Anchorage, Alaska, said in a telephone interview today. The gas is used to enhance oil recovery at Prudhoe Bay, Patience said. Alaska’s North Slope has been yielding less oil every year since 2002 as output from wells naturally declines and isn’t replaced. March output decreased 4.9 percent from the year before. The shrinking supply has boosted foreign crude imports to the U.S. West Coast and prompted Flint Hills Resources LLC to shut a crude unit at the North Pole refinery last year because of rising oil prices.

    The only true metric of energy abundance: The rate of flow - Okay, I'm going to give you the shortest course ever in energy abundance: Energy abundance depends entirely on the RATE of energy flow. Let me say it again: Energy abundance depends entirely on the RATE of energy flow. Now, here is what it does NOT depend on: supposed, but often unverified, fossil fuel reserves in the ground; hypothetical, sketchy, guesstimated, undeveloped, undiscovered resources imagined to be in the ground by governments or by energy companies and often deceptively referred to as "reserves"*; claims about future technological breakthroughs; mere public relations puffery about abundance in the face of record high average oil prices. Why is the rate of flow the key metric? Because in order to function the global economy depends entirely on continuous, high-quality energy inputs. We cannot shut down the world's electric generating plants for six months or even three months without crashing world society into a state of irretrievable chaos and decline. We cannot shut down the world's shipping fleet for even a few weeks without doing irreparable harm. Modern global society has become like a shark. It either keeps barreling forward or it dies.

    Oil Supply and Demand to 2025 - Yesterday, we took a look at what 7%ish growth in China's oil demand would do if continued to 2025 - adding about another 15 million barrels/day (mb/d) to global oil demand.  Today, let's complete the exercise by looking at the other areas of the world where oil demand is growing rapidly, as well as the trends in supply (all data from BP).  We will see that things don't add upFirstly, here are the developing regions of the world where oil demand was not squelched by the 2005-2008 oil price shock, or the 2008 financial crisis:It's easier to see the trends in the individual regions if we show them as separate lines, rather than stacked on top of each other: Clearly, China is the most important in terms of both level and growth in oil demand, and the Middle East is second. Now, let's look at the growth rates (in each case, over the decade prior to the year on the x-axis):In some cases the growth rate has been dropping on the whole (Asia outside of China), while in others it's rising (the Middle East, boosted by high oil prices). Regardless, in each case we'll use the growth rate for the latest available decade (2001-2011), and calculate the incremental demand that each region would require if that growth rate continued to 2025. That looks like this: There's about 30mb/d of incremental demand overall, with China accounting for about half of it. I stress that this is an extrapolation of the recent trend, not a forecast of what will happen. In fact, as we'll see, this very likely can't happen.

    Risky Business - If all goes well for the Texas oil company Anadarko, it will be operating in fresh locations here by December, after it has picked up its new ultra-deepwater drilling ship ( called the Noble Bob Douglas) from a South Korean shipyard. However, any New Zealander who might have wanted to protest against this next phase of Anadarko’s activities off our coastline have just had their right to do so severely restricted by Energy Minister Simon Bridges, and without the regulations involved being subjected to parliamentary scrutiny, or vetted for compatability with our Bill of Rights. From June of this year, those who damage or ‘interfere’ with offshore oil and mining operations will face a year in jail or a $50,000 fine, while fines of $10,000 will apply to those individuals who come within a 500 metre ‘no go’ zone, and fines of up to $100,000 will be levied on organisations that support such actions.  Anadarko is the main corporate beneficiary of these regulations. Company spokesmen indicated last year that Anadarko would be drilling in November or December 2013 off the Oamaru coast and later off the coast of Taranaki. Moreover, out of 12 offshore blocks located in deep sea conditions ( ie, at greater than 200 meters depth) that the Government put up for tender in its last bidding round, only four were awarded. Two of these, the PEG1 and PEG2 permits in the Pegasus Basin – whiuch is an area that stretches from off the Wairarapa coastline to east of Marlborough – were awarded to Anadarko New Zealand, a wholly-owned subsidiary of Anadarko Petroleum Corporation, whose corporate headquarters are located just north of Houston, Texas.

    FBI Report Implicates Saudi Government in 9/11  - Contrary to the official narrative, 9/11 was state-sponsored terror.  The only question is which state sponsored it. A 9/11 Commissioner and Co-Chair of the Congressional Inquiry into 9/11 say in sworn declarations that the Saudi government is linked to the 9/11 attacks. This week, the Miami Herald provided more evidence of a Saudi link: A Saudi family who “fled” their Sarasota area home weeks before 9/11 had “many connections” to “individuals associated with the terrorist attacks on 9/11/2001,” according to newly released FBI records. One partially declassified document, marked “secret,” lists three of those individuals and ties them to the Venice, Fla., flight school where suicide hijackers Mohamed Atta and Marwan al-Shehhi trained. Accomplice Ziad Jarrah took flying lessons at another school a block away. Atta and al-Shehhi were at the controls of the jetliners that slammed into the twin towers of New York’s World Trade Center, killing nearly 3,000 people. Jarrah was the hijacker-pilot of United Airlines Flight 93, which crashed in a field in rural Pennsylvania.

    The U.S. Is Supporting the Most Violent Muslim Terrorists In Order to Wage War for Oil  - Sunni Muslims commit more terrorist acts worldwide than any other group.  For example, the National Counterterrorism Center’s 2011 Report on Terrorism found that: Sunni extremists accounted for the greatest number of terrorist attacks and fatalities for the third consecutive year.   More than 5,700 incidents were attributed to Sunni extremists, accounting for nearly 56 percent of all attacks and about 70 percent of all fatalities. Among this perpetrator group, al-Qa‘ida (AQ) and its affiliates were responsible for at least 688 attacks that resulted in almost 2,000 deaths, while the Taliban in Afghanistan and Pakistan conducted over 800 attacks that resulted in nearly 1,900 deaths.  Secular, political, and anarchist groups were the next largest category of perpetrators, conducting 2,283 attacks with 1,926 fatalities, a drop of 5 percent and 9 percent, respectively, from 2010. Saudi Arabia is the center of the Sunni branch of Islam.  It is also the center of the most violent and radical sect of Islam … the “Wahhabis” (also called “Salafis”).   But the U.S. has long supported the Madrassa schools within Saudi Arabia which teach radical Wahabi beliefs.

    Saudi will raise crude output to 15m bpd - prince - Saudi Arabia wants to raise its crude oil production capacity from its current 12.5m barrels per day to 15m barrels per day by 2020, a prince in the kingdom was quoted as saying. Prince Turki Al Faisal, a former intelligence head, said that the increase would allow for the Gulf country to export up to 10m barrels per day. Prince Turki was speaking at an event at Harvard University on April 25, although a transcript of his comments were only published this week. Saudi Arabia has about one-fifth of the world's proven oil reserves and is the largest oil producer and exporter of total petroleum liquids in the world. The kingdom has the largest spare capacity, which it has used to help stabilise the global oil market and invest in the development of the country's infrastructure, in addition to providing financial aid to neighbouring countries. However, in a report last year, Citigroup said the kingdom could become an oil importer by 2030 if the country's oil consumption grows in line with peak power demand.

    Rift emerges over Saudi oil policy - A rare public dispute over oil policy in Saudi Arabia emerged on Tuesday as the kingdom’s oil minister and a senior member of its royal family disagreed over long-term production targets for the world’s largest crude exporter. "Saudi Arabia's national production management scheme is set to increase total capacity to 15 million barrels per day and have an export potential of 10 [million] barrels per day by 2020," Prince Faisal, a former Saudi ambassador to the U.S. and U.K. . . . The prince clarified his position in an email Tuesday. "Saudi consumption may reach five million barrels of oil by then [2020], hence the production capacity of fifteen million barrels," is required to maintain country's export potential, he said. Saudi Arabia would be lucky to go past production of 9 million barrels a day by 2020 and, "we don't see anything like 15 million barrels a day before 2030, 2040," said Mr. Naimi in an appearance at the Center for Strategic and International Studies in Washington DC Tuesday . . . Aramco's Chief Executive Khalid al-Falih ruled out increasing Saudi production capacity to 15 million barrels a day in 2011, despite acknowledging that domestic use of crude would rise and thus limit exports, because he said expansion plans in other producing countries such as Iraq and Brazil should be enough to satisfy world markets.

    Deep thoughts on civilisation from Jeremy “Hari Seldon” Grantham - If you submit to theoretical physicist Geoffrey West’s urban development theories, then you’ve probably aware of the idea that humanity is set to face a critical crunch point soon enough (if not already). And by crunch point, we mean — either humanity throws everything it’s got at speeding up technology to ensure its resource consumption-to-population footprint becomes manageable, or we wither away. Well, this is the sort of stuff deep thinker Jeremy Grantham of GMO seems to be contemplating at the moment as well. In fact, Grantham is out with one of his deepest notes yet, entitled “The race of our lives”. The key points are:

    1. 1) We are facing a critical inflection point not just a financial crisis, and if we don’t make the leap, it could be bye bye human civilisation.
    2. 2) We need to do everything we can to ensure the technological leap, which is needed to sustain us, happens. And this can happen if we get our act together.
    3. 3) There are vested interests who are mindful to defend the status quo, rather than progress forward. And many people prefer to burry their heads in the sand.
    4. 4) The race is going to be very close.

    The future of business: what are the alternatives to capitalism? - It’s generally agreed that capitalism has three key principles; the majority of “the means of production” (land, resources, capital) are concentrated in private hands; the majority of us work for a wage (ie for other people); and markets are used to mediate between producer and consumer (set prices, etc).I’ve blogged elsewhere about the problems of the first two, not least of which is an addiction to growth. Put simply, it seems that capitalism cannot be compatible with continued exponential growth on a finite planet. In any case, its no longer heresy to point out that capitalism has serious flaws. Indeed, mainstream commentators are questioning growth-obsessed capitalist economics and calling up Karl Marx from his grave.  Both Marx on the left and Schumpeter on the right long ago predicted the end of capitalism. And recently fund manager Jeremy Grantham said: “Capitalism… is totally ill-equipped to deal with a small handful of issues. Unfortunately, they are the issues that are absolutely central to our long-term wellbeing and even survival.”

    China Oil Demand Rose 1.9% in March Versus a Year Ago : China's apparent oil demand* in March rose by 1.9% to an average 9.77 million barrels per day (b/d) or 41.31 million metric tons (mt), a just-released Platts analysis of Chinese government data showed. This followed a matching year-over-year rise of 1.9% in February to an average 10.19 million b/d. Apparent demand for oil in March was down 4.2% from February and was the lowest since October, when apparent demand averaged 9.76 million b/d. Refinery runs, or capacity utilization, fell 2.3% in March versus February to an average of 9.65 million b/d, but were up 5.5% compared to March 2012, according to data released April 15 by China’s National Bureau of Statistics (NBS). “China’s oil refineries in March operated at lower-than-recent utilization rates as they entered seasonal maintenance periods, which will typically extend through the second quarter,” said Song Yen Ling, Platts senior writer, China. “However, this year’s refinery turnarounds are on a larger scale than usual, given that many major units were scheduled for broader maintenance or key upgrades in calendar year 2013.”

    Extrapolating China's Oil Consumption: Here is a graph of China's oil consumption according to two data sources. The annual data run 1965-2011 (2012 is not available yet): This has obviously grown hugely. If we look at the average growth rates over the prior decade at each year, that looks as follows (blue curve, left scale): Growth has been stable in a band between 6% and 8% for several decades, with 7.2% being the figure for the latest decade available. The red curve on the right scale shows real oil prices over the same time period, demonstrating that Chinese oil consumption growth going back into the eighties is not at all price sensitive. If we note that Chinese population is four times larger than the US population, and 2011 US consumption was almost 19mbd, we see that Chinese per-capita consumption is still only something like 1/8 of that of the US. So there's a lot of room to grow still. Also, China is in the middle of building an expressway system that will be substantially larger than the US freeway system. If, then, Chinese consumption were to continue to grow around 7% out through 2025, it would look like this:That's another 15mbd in the next thirteen years or so.  Just for China.  If you compare this to things like the extra 4mbd you might hope for from tar sands in this time frame, or the 2mbd that global crude supply has increased since 2005, you can see that this is going to stress the global oil system a lot.

    China And The Future Of World Oil Markets - One of the major factors that has been driving the price of oil in recent years, outside of political issues in the Middle East, has been China’s increasing demand for oil, something which has been an important by product of the nation’s increased industrialization and the acquisition of wealth by average citizens. The chart above was developed by Stuart Staniford and projects Chinese demand for oil through 2025 with the assumption that demand will continue to grow at the same 7% rate it’s been averaging in the past. His commentary follows: That’s another 15mbd in the next thirteen years or so.  Just for China.  If you compare this to things like the extra 4mbd you might hope for from tar sands in this time frame, or the 2mbd that global crude supply has increased since 2005, you can see that this is going to stress the global oil system a lot.  Either the global crude supply is going to grow a lot faster than it has been, or OECD oil consumers are going to have to consume a great deal less than they are now, or China (and other rapidly growing consumers) are going to have to slow down a lot:  Kevin Drum comments: Shale oil and tar sands are simply nowhere near big enough to keep up with this. From a climate change perspective, that’s a good thing. From a global economic perspective, it’s not so good. It means that demand for oil is now permanently pushing up against supply, and will be moderated in the future primarily by oil price spikes produced when economic expansions drive oil demand above supply constraints, thus producing global recessions

    China struggles to tap its shale gas - The U.S. Energy Information Administration has estimated that China’s technically recoverable shale gas resources could be 50 percent bigger than those in the United States, where shale has transformed the energy sector. That has sparked hopes that unlocking those resources could help meet China’s relentlessly growing energy demand and ease its reliance on heavily polluting coal-fired power plants. But progress on China’s shale frontier has been slow. About 60 shale exploration wells have been drilled over the past two years, according to the consulting firm IHS CERA, about as many as are drilled in North Dakota every 10 days. And there has been no Chinese shale production. China’s shale gas deposits may be large, but they are remote, and in most places, there is not enough water to provide for the hydraulic fracturing, or fracking, technique used to create cracks that unlock gas trapped in the rock. More important, oil experts say, burrowing through China’s regulatory layers is no small feat. In the United States, independent oil companies bought mineral rights owned by private individuals, then pushed ahead with drilling and production. In China, lumbering state companies dominate the landscape, and mineral rights are owned by the state — although which state bureaucracy is in charge of regulation has been a matter of dispute.

    Could fracking solve China's energy problems? - China is an oil-devouring behemoth that is almost entirely dependent on other countries for its energy needs. Also, China is fortunate enough to have massive amounts of shale gas reserves — natural gas that is trapped in sedimentary rock. Sounds like an easy solution, right? Not really. If it were, China would be tapping that rock. The U.S. Energy Information Administration estimates that China may have as much as 1,275 trillion cubic feet of shale gas reserves — 50 percent more than the U.S., which has already extracted enough natural gas from shale to put it on a path to energy independence. Unlocking those resources would help China meet its enormous energy demands, while allowing it to cut down on coal — one of the main causes of the deadly, off-the-charts pollution clogging up the country. But progress toward natural gas production has barely budged. So far only 60 shale exploration wells have been set up, compared to about 200,000 in the U.S. And production remains at zero. So what gives? According to the the Washington Post, there are a complicated mix of "below the ground" and "above the ground" challenges. One below-the-ground problem is the Tarim Basin in Xinjiang. Though it's believed to hold more than a third of China's shale gas resources, the area lacks the water supplies needed for hydraulic fracturing, or fracking — the method used to extract natural gas from shale. China also lacks the pipeline infrastructure to transport the gas to factories and power plants.

    China arrests 900 over meat safety - More than 900 people have been arrested in China for selling fake or tainted meat in the last three months, state media say. Officials say they uncovered almost 400 such cases and seized more than 20,000 tonnes of fake meat. In one case, the suspects made fake mutton from foxes, mink and rats after adding chemicals, state media said. The report is the latest in a series of cases highlighting food safety issues in China. In the latest case, examples of wrongdoing included suspects using a hydrogen peroxide solution to process chicken claws or injecting water into meat to increase its weight. State news agency Xinhua reported the arrests as a part of a national crackdown that will now focus on dairy products. It also quoted an official as saying that China had "deep-seated food safety problems" that needed to be resolved.

    The Real Reason to Worry About China - The world is worried about China, but not for the right reasons. Global financial markets were roiled after the world’s second largest economy notched only a 7.7% boost to GDP in the first quarter — a drool-worthy performance for most nations, but a disappointment for a country that routinely jumped 10% or more over the past three decades. Economists are busily debating the usual: Will China have a hard or soft landing? Will the government step in and stimulate growth? Those questions miss the bigger picture. The reality is that China is unlikely to witness those astronomical growth rates, at least for some time. We may never see them again. The recent slowdown is not a temporary cyclical blip or solely the knockoff effect of the tepid global recovery. China’s growth model is broken and can’t be so easily fixed. Since the start of capitalist reforms in the 1980s, China excelled by throwing tons of resources into a modernizing economy — mountains of cash to build factories, roads and apartment towers, and millions of poor people into making iPads, blue jeans and cars. Under China’s “state capitalism,” bureaucrats often directed the cash into massive infrastructure projects or favored industries. However, this growth engine can’t keep purring indefinitely. The pools of idle labor that filled Foxconn’s assembly lines are drying up — China’s one-child policy made sure of that, by aging the population more rapidly. The workforce has already started to shrink. Even more worrying, the state-led, investment-obsessed system spawns too much debt and too many factories, leading to wasted resources and a debased financial sector.

    The Reliability of China's Economic Data - There have long been concerns about the reliability of published macroeconomic data for China. About 3 months ago, the U.S. - China Economic and Security Review Commission published a timely report, titled, "The Reliability of China's Economic Data - An Analysis of National Output". The report certainly makes interesting reading.  Here are a few quotes form the report in question:

    • "China’s statistical work has improved markedly since the 1980s. Nonetheless, there is substantial evidence that China’s national output figures continue to be less reliable than in the United States and Europe. External and internal consistency checks reveal irregularities."
    • "There is evidence of political manipulation [of the data] at the local level, and to some degree, also in the central government."
    • "National aggregate GDP should be equal to the sum of GDP of each province in China. However, there is a serious discrepancy between nominal GDP at the provincial and national level."

            Feedback Loops And The Unsustainability Of China's 'Moderate' Growth - With last night's China PMI disappointing expectations and eking out a just-expansionary miasma of hope for the growth enthusiasts, the very real question of global growth sustainability (while not on US equity market participants' minds) is coming to the fore. As Michael Pettis notes, Martin Wolf's recent perspective that it may be useful to think about Japan as a model for understanding the adjustment process in China since the Japanese model shows how risky it is to shift to a slow-growth model. While expectations for a 'relatively moderate' slowdown are common (at rates considered rapid for most economies); Pettis asks rhetorically, if part of the explanation for China’s spectacular growth of the past three decades has to do with the positive feedback loops that are so typical of developing countries with fragile and unsophisticated financial systems, then a moderate slowdown in growth may be an impossible target to achieve. Once growth starts to slow, the self-reinforcing impact on urbanization, on credit growth, on financial distress, and on expectations may force growth rates to drop far more sharply than any 'plausible' analysis would suggest.

            China Manufacturing Weakens - WSJ - A gauge of China's manufacturing activity showed fresh signs of weakness in April, undercutting hopes of a stronger upturn in demand from the world's second-largest economy. The official Purchasing Managers' Index came in at 50.6 in April, below expectations of a reading in line with the 50.9 recorded in March. The data, announced Wednesday by the China Federation of Logistics and Purchasing, was still in expansionary territory, giving some cause for cheer. A reading above 50 shows expansion while anything below that denotes contraction. But it suggested that the upturn in momentum that began in the fourth quarter, after weaker growth for much of last year, is still fragile as China grapples with a sluggish global economy and less-than-robust demand at home. "The slight fall in the PMI reading for April shows that the economic recovery is still not on a solid foundation," the CFLP said in a statement. The tepid PMI figure follows unexpectedly weak economic growth of 7.7% year-on-year in the first quarter, down from a 7.9% rise in the final three months of last year. It also followed an anemic 8.9% gain in industrial output in March, down from 9.9% in February, while profits in the industrial sector were surprisingly soft in March, rising just 5.3% after a 17.2% advance in January-February. And it came on the heels of a weak "flash" or preliminary reading of the HSBC PMI, a competing measure of manufacturing activity, which showed a drop to 50.5 in April from 51.6 in March.

            China Manufacturing Gauge Falls in Sign of Further Slowdown - China’s manufacturing expanded at a weaker pace in April in a sign that the slowdown in the world’s second-largest economy is extending into the second quarter. The Purchasing Managers’ Index was at 50.6, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. That compared with the 50.7 median forecast of 31 analysts in a Bloomberg News survey and a March reading of 50.9. Readings above 50 signal expansion. Australian stocks fell and copper declined as the report increased concern that demand from China for commodities will slow. The figures add to data showing growth in industrial companies’ profits decelerated in March and Aluminum Corp. of China Ltd., the nation’s biggest producer of the lightweight metal, having a sixth straight quarterly loss. “The debate about growth -- and just how much we should worry about this weak recovery -- is likely to build in Beijing,” 

            Oz manufacturing PMI signals full blown crisis - There are some days I get a little kick out schadenfreude but this in not one of them. Today’s AiG manufacturing PMI is a disaster:n Manufacturing activity contracted significantly in April as conditions weakened amid a strong Australian dollar, intense import competition, high energy costs and weak local confidence.

            • The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) fell 7.7 points to 36.7 on a seasonally adjusted basis. (Readings below 50 indicate a contraction in activity with the distance from 50 indicative of the strength of the decrease.)
            • This is the lowest level the Australian PMI® has recorded since May 2009, with many of the key sub-indexes also dropping to levels not seen since 2009. The three-month moving average in April fell to 42.2 points from 43.4 points in March.

            Here’s the headline chart:

            Australia Manufacturing Collapses as Commodity Supercycle Stalls - Australia fundamentals deteriorate rapidly as evidenced by a collapse in the PMI Manufacturing Index in April.  Key Findings:

            • Manufacturing activity contracted significantly in April as conditions weakened amid a strong Australian dollar, intense import competition, high energy costs and weak local confidence.
            • The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) fell 7.7 points to 36.7 on a seasonally adjusted basis.
            • This is the lowest level the Australian PMI® has recorded since May 2009, with many of the key sub-indexes also dropping to levels not seen since 2009.
            • Contractions in activity were recorded in seven out of the eight manufacturing sub-sectors.
            • Sharp declines in production, new orders and employment were recorded in April, while finished stocks and deliveries declined as well, albeit at a more moderate pace.
            • Capacity utilization in the manufacturing sector fell 2.4 points to 68.6 (the lowest level since June 2009), consistent with the overall drop in activity in the sector.
            • Exports continued to contract for the ninth consecutive month, as the exports sub-index fell to 24.5 in April. This was the lowest reading in the history of this sub-index (commencing in 2004).

            Global Manufacturing Stagnates; Global Recession Will Follow - The JPMorgan Global Manufacturing PMI shows Global manufacturing growth slows to near-stagnation.  At 50.5 in April, the JPMorgan Global Manufacturing PMI™ – a composite index* produced by JPMorgan and Markit in association with ISM and IFPSM – signalled expansion for the fourth straight month. The rate of expansion decelerated slightly during April, meaning that growth so far in 2013 has remained, at best, only marginal. Japan, South Korea, Indonesia and Vietnam were the only nations to report a faster rate of improvement in operating conditions during April. Europe remained the main drag on the global aggregate, with the euro area contracting at the sharpest pace in the year-to-date and the UK stagnating. The US PMI fell sharply to signal the slowest growth for six months. There was further stagnation in neighbouring Canada, while Mexico expanded at the weakest pace in 20 months in Mexico. Growth of manufacturing also slowed to near-stagnation in China, Russia, India and Brazil.

            Year of the yuan: China's explosive currency goes global - The Reserve Bank of Australia announced in April it will transfer 5 percent of its foreign currency reserves ($2.1 billion) into Chinese bonds, deepening ties with its Pacific neighbor and biggest trade partner, and reflecting a global shift to the yuan. The move is an “important milestone in deepening our financial and economic linkages with China,” Australia’s Treasurer Wayne Swan said in an emailed statement to Bloomberg. China and Australia are major trading partners, so an investment in Chinese currency reserves will benefit transactions between the two countries. Now, they can conduct business transactions directly from yuan to Australian dollar, cutting out the middle man, the US dollar or euro.

            China Crosses 'Line Of Actual Control' With Stealth Invasion Of India -  Whether this is just a 'misunderstanding' or a land-grab to make up for Japan's Senkaku actions, the Indians are claiming that a platoon of Chinese soldiers have crossed the so-called 'Line of Actual Control' in the Indian-held Ladakh region. They have remained there for two weeks and even as India complains, the Chinese deny, saying that they are "firmly opposed to any acts that involve crossing the Line of Actual Control and sabotaging the status quo." Indian officials fear that if they react with force, the face-off could escalate into a battle. But doing nothing would leave a Chinese outpost deep in territory India has ruled since independence. "If they have come 19 kilometers into India, it is not a minor LAC violation. It is a deliberate military operation. And even as India protests, more tents have come up," said one analyst but the Indians are rattling other sabres. China is India's biggest trading partner, with bilateral trade heavily skewed in China's favor, crossing $75 billion in 2011. Politicians are demanding Chinese imports are banned, "the Chinese have to learn that such aggression cannot be delinked from trade." Most are baffled by Beijing's motives, since its actions could force India to move closer to Beijing's biggest rival, the United States; though perhaps bringing that closer is just the point.

            China’s ruthless foreign policy is changing the world in dangerous ways - Are we witnessing the end of the “American age”? It depends whom you ask. But one thing is certain: Thanks to the near-bankruptcy of the American welfare state, Washington is losing both the means and desire to project power across the world. Inevitably, nations with deeper pockets — China, most notably — will fill the void. This process already is underway in many parts of the world. That includes large swathes of Central Asia, where Beijing’s billions are beginning to revolutionize regional infrastructure and alliances — in dazzling but potentially dangerous ways. Analyzing Beijing’s foreign policy is a relatively simple exercise. That’s because, unlike the United States and other Western nations, China doesn’t even pretend to operate on any other principle except naked self-interest. 

            Don’t mention the debt - TO REVIVE Japan’s economy Shinzo Abe, its prime minister, has loosed three arrows. Temporary fiscal stimulus, monetary easing and structural reform together make up the strategy known as “Abenomics”. But many reckon there needs to be a fourth dart in the quiver: fiscal consolidation over the longer term to tackle the country’s vast public debt, which is expected to approach 240% of GDP next year (see chart). The first arrow means spending an extra {Yen}10.3 trillion of stimulus on areas such as public works, reconstruction of the Tohoku region hit by the earthquake and tsunami in 2011, and other projects. This spending makes the debt problem worse in the immediate future and the 3.2% target well-nigh impossible to achieve. On the other hand it should boost economic activity, which would both lift tax revenues and make it easier to raise the consumption tax.

            Japan's Enormous Government Debt - Since Japan's bubble economy burst in the early 1990s, large budget deficits are one policy that the government has used in an attempt to stimulate the moribund economy. Japan's budget deficits have been at least 5% of GDP since the late 1990s, and more like 9-10% of GDP in the last five years. The OECD discusses Japan's budget deficits, and the rest of its economic situation, in the just-published OECD Economic Surveys JAPAN.  The "Overview" for the study is available here; the entire report can be read for free via a clunky on-line browser here.  In terms of gross government debt, Japan is the world leader. This chart shows the five countries with largest ratios of gross debt/GDP. Japan has been the clear leader since about 2000, although Greece has been making a run at the top spot in the last few years.However, most economists tend to focus on net government debt, which subtracts out debt that the government owes to itself. (For example, in the U.S. context, net debt doesn't count debt held by the Social Security trust fund.) Thus, net debt focuses on how much the government has borrowed in global capital markets. By this measure, Italy was the world debt leader through the 1990s and into the early 2000s, but since then, Japan and Greece have been battling it out for the lead.

            Bank of Japan minutes show agreement to go bold -  Minutes from the Bank of Japan's milestone policy meeting on April 3-4, released Thursday, showed the central bank's board members agreed that the public saw its actions as "insufficient" up to that point. Instead, the minuted showed, they felt "it was necessary for the bank to enter a new phase of monetary easing, both in terms of quantity and quality" and end a previous, incremental approach. The meeting -- the first led by newly installed Gov. Haruhiko Kuroda -- unveiled a fresh round of aggressive monetary easing, including expanding its government-bond purchases, and buying longer-term debt. The Bank of Japan also reaffirmed its target of achieving 2% consumer inflation within two years. Still, the minutes showed one member, unnamed in the minutes per bank policy, said meeting the target remained uncertain, and specifying a two-year window "entailed a high risk." In terms of global economic outlook, the members agreed that the U.S. was on a "moderate recovery trend," while the euro zone "continued to recede slowly." They also held a consensus that "the Chinese economy had been stabilizing in reflection of firm domestic emand," though some members "expressed the view that full-fledged recovery had not yet materialized."

            Will Abe address Japan's number one problem after all? -   First Abe surprised me by actually following through with his monetary policy promises; he appointed Haruhiko Kuroda to the BOJ, and together they are embarking on the most ambitious attempt at "reflation" ever tried by a central bank. It remains to be seen if this will actually work, of course; Japan remains mired in deflation even after the announcement, casting further doubt on the effectiveness of the "expectations channel" of monetary policy. But Abe is trying, and that is the important thing. Now, Abe is talking about an issue that I think is far more important than monetary policy - and one which I had even less hope that he would address. I'm referring to the status of women in the Japanese economy. One of the essential things that differentiates Japan's economy from ours is that in Japan, women still form an economic underclass. Japan's labor market has an infamous "two-tiered" structure, in which there are two kinds of workers: "Real workers" and "contract workers". The former have (theoretically) lifetime employment guarantees, guaranteed yearly raises, bonuses, and full benefits, with the possibility of promotion to top management. The latter have low, stagnant salaries, few benefits, few guarantees, and little if any possibility of promotion. The former are mostly men. The latter are mostly women.

            Australia's turn to enter the currency war? - A major casualty of China's slowdown (discussed here) has been one of its key natural resources supplier, Australia. Many Australians feel misled by all the projections of China's growing demand, believing that China will continue beating its yearly 8% growth projections. The Australian: - China outperformed for a decade its own government's 8 per cent growth target, which was lowered to 7.5 per cent for last year and this year.  And Australia's budget planners were confident China's economy would keep surpassing the official target.  They forecast that China's economic growth, the core driver for Australian commodity sales and thus of our formerly burgeoning terms of trade, would bottom out at 8.5 per cent last year, rebounding higher this year. The current budget also was based on 2012 growth reaching 6.25 per cent in India and 2.25 per cent in Japan.  But China's growth for last year ended up at 7.8 per cent, India's at 4.5 per cent and Japan's at 2 per cent. The forecasts were thus overestimated by 8.3 per cent, 28.1 per cent and 8.9 per cent respectively.  China is Australia's top export buyer, Japan the second and India the fourth. So these outcomes had a big impact on budgeted receipts.

            Political Corruption and the “Free Trade” Racket - Dean Baker - In polite circles in the United States’ support for free trade is a bit like proper bathing habits. It is taken for granted. Only the hopelessly crude and unwashed would not support free trade. There is some ground for this attitude. Certainly the United States has benefited enormously by being able to buy a wide range of items at lower cost from other countries. However this doesn’t mean that most people in the country have always benefited from every opening to greater trade. And it certainly doesn’t mean that the country will benefit from everything that those in power label as “free trade.” That is the story we are seeing now as the Obama administration is pursuing two major “free trade” agreements that in fact have very little to do with free trade and are likely to hurt those without the money and power to be part of the game. The deals in questions, the Trans-Pacific Partnership (TPP) and the U.S.–European Union “Free Trade” Agreement are both being pushed as major openings to trade that will increase growth and create jobs. In fact, eliminating trade restrictions is a relatively small part of both agreements, since most tariffs and quotas have already been sharply reduced or eliminated. Rather, these deals are about securing regulatory gains for major corporate interests. In some cases, such as increased patent and copyright protection, these deals are 180 degrees at odds with free trade. They are about increasing protectionist barriers.

            Secret “Free Trade” Negotiations Will Gut Regulations, Further Enrich Multinationals and Big Financial Firms - Yves Smith - It’s a sign of the times that a reputable economist, Dean Baker, can use the word “corruption” in the headline of an article describing two major trade deals under negotiation and no one bats an eye. By way of background, the Administration is taking the unusual step of trying to negotiate two major trade deals in the same timeframe.  The Trans-Pacific Partnership and the US-European Union “Free Trade” Agreement are both inaccurately depicted as being helpful to ordinary Americans by virtue of liberalizing trade. Instead, the have perilous little to do with trade. They are both intended to make the world more lucrative for major corporations by weakening regulations and by strengthening intellectual property laws. One of the most disturbing aspects of both negotiations is that they are being held in secret….secret, that is, if you are anybody other that a big US multinational who has a stake in the outcome. Baker describes in scathing terms why these types of deals are bad policy: …these deals are about securing regulatory gains for major corporate interests. In some cases, such as increased patent and copyright protection, these deals are 180 degrees at odds with free trade. They are about increasing protectionist barriers. All the arguments that trade economists make against tariffs and quotas apply to patent and copyright protection. The main difference is the order of magnitude. Tariffs and quotas might raise the price of various items by 20 or 30 percent. By contrast, patent and copyright protection is likely to raise the price of protected items 2,000 percent or even 20,000 percent above the free market price. Drugs that would sell for a few dollars per prescription in a free market would sell for hundreds or even thousands of dollars when the government gives a drug company a patent monopoly…

            We Are All Free Traders Now - Paul Krugman wonders why the Great Recession hasn't set off a round of tit-for-tat protectionism: Why aren’t politicians — even conservative politicians — looking at the situation and saying, hmm, a tariff won’t increase the deficit, it won’t involve debasing the currency, but it could clearly help create jobs?.. the United States has to know that a protectionist response would break up the whole world trading system we’ve spent almost 80 years building. So here’s a thought: maybe the secret of our protectionist non-surge isn’t macroeconomics; it’s institutions. I agree that institutions play a role here. Inertia is a powerful thing, and there's not much question that free-ish trade is now a well-established status quo in most of the world. I don't think that really explains things, though. If it were truly just institutional inertia at work here, you'd expect to see lots of politicians calling for protectionism but not getting anywhere. The demagogues would do their demogoguing, but fealty to the status quo would be too powerful for them to have any impact.No, the answer is simpler: the trade economists have won. They've spent decades beating into us that free trade is a net positive for everyone, and by now we're all convinced. In the world of ideas, this has been one of the 20th century's most complete victories.

            Emerging Asia: At Risk of the “Middle-Income Trap”?- iMFdirect - Emerging economies in Asia have weathered the global financial crisis relatively unscathed and appear to be on track for continued strong growth this year and the next. Perhaps because the region has been doing rather well, policymakers’ concerns have increasingly shifted towards medium-term risks: could growth and fast convergence to living standards in advanced economies—come to an end?  In fact, while the economic performance of emerging economies in Asia remains undoubtedly strong in international comparison, it has already shown signs of gradual weakening. Both China and India have shown a declining growth trend since the global financial crisis: growth in China has slowed from a rate of over 10 percent in the 2000s to between 8 and 9 percent in the past two years, while growth in India has slowed from around 8 to 6 percent during the same period. There has been no such trend slowdown in ASEAN-4 economies, such as Indonesia, Malaysia, Philippines, and Thailand, but there growth was lower to start with and—with the notable exception of the Philippines—remains significantly below pre-Asian crisis rates.So what are the risks of a sharper, sustained growth slowdown that would prevent emerging economies in Asia  from rising to the high-income levels of advanced economies?

            IMF Calls for Preemptive Austerity in Asia --In Europe, the debate of late has been about whether there’s been too much austerity. In relatively healthy Asia, the talk is that there isn’t enough. In its latest assessment of Asia’s economic prospects, the International Monetary Fund tells the fast-growth economies of Asia that now is the time to start paring deficits, raising and broadening taxes, and saving money for a rainy day.The IMF notes that governments in Asia have been spending more than they used to, even though most economies in the region are at full capacity with plenty of jobs and little excess capacity. In IMF-wonk speak, the report tells Asia’s policy makers it’s time for “rebuilding fiscal space.”

            Rethinking Macroeconomic Policy - Olivier Blanchard  - The IMF has just hosted a second conference devoted to rethinking macroeconomic policy in the wake of the crisis. After two days of fascinating presentations and discussions, I am certain of one thing:  this is unlikely to be our last conference on the subject.  Rethinking and reforms are both taking place.  But we still do not know the final destination, be it for the redefinition of monetary policy, or the contours of financial regulation, or the role of macroprudential tools. We have a general sense of direction, but we are largely navigating by sight.  I shall take six examples, inspired by the conference.  More thoughts are given in this recent paper.

            The Lethal Lemons on the Road to Bangladesh By William K. Black - I wrote yesterday about the “control frauds” (in which the person controlling a seemingly legitimate entity uses it as a “weapon” to defraud) that target purchasers of bad quality goods (“lemons”) and employees.  The example I used to explain these concepts was the collapse of the building housing garment factories in Bangladesh.  As I write, there are terrible reports indicating that the death toll is far greater than currently reported.  Again, the initial reports from a disaster often prove inaccurate in important ways so I urge caution and the need to confirm whether the newer reports are accurate. The higher death toll is not what prompts this article.  I write to discuss the intersection of control fraud, austerity, globalization, labor “reform,” and economic development.

            About Those Costly Rescues in Bangladesh: According to this account, rescuers are still scouring the rubble of what used to be several garment factories in Bangladesh, where hundreds are believed to be still entombed. Large amounts of time and materiel are being devoted to the task, which will no doubt disturb those six-figure American journalists who think that too many resources are being spent on saving lives. After all, in a poor country officials could just write off the handful of survivors and spend the money on promoting new sweatshops to replace the old. That’s a tradeoff we think they should be happy to accept. Seriously, it is often noted that much more is spent per life saved to rescue someone after a disaster than to take precautions beforehand. Economists justify low investment in precaution by saying that, actually, two different goods are involved, “statistical lives” of workers who might be saved if safety conditions were improved and “identified lives” of those who can be seen to be in imminent danger. A lower price for the first is compatible with a higher price for the second.

            Global Inequality - Those economies relatively rich at the start of the twentieth century have by and large seen their material wealth and prosperity explode. Those nations and economies that were relatively poor have grown richer, but for the most part slowly. The relative gulf between rich and poor economies has grown steadily over the past century. Today it is larger than at any time in humanity’s previous experience... This glass can be viewed either as half empty or as half full. The glass is half empty: we live today in a world that is nearly the most unequal world ever. Only the world of the 1970s and 1980s—with standards of living in China greatly depressed by the legacy of Mao, his Great Leap Forward, and his Cultural Revolution and with standards of living in India depressed to a lesser extent by the License Raj of the Nehru Dynasty—was more unequal than ours is, even today. The glass is half full: most of the world has already made the transition to sustained economic growth; most people live in economies that (while far poorer than the leading-edge post-industrial nations of the world’s economic core) have successfully climbed onto the escalator of economic growth and thus the escalator to modernity. The economic transformation of most of the world is less than a century behind the of the leading-edge economies...

            Is It Crazy to Think We Can Eradicate Poverty? - At a news conference during the spring meetings of the International Monetary Fund and the World Bank in late April, Jim Yong Kim held up a piece of paper with the year “2030” scribbled on it in pen. “This is it,” said Kim, the genial American physician who took over as president of the World Bank last summer. “This is the global target to end poverty.”It sounds like the sort of airy, ambitious goal that is greeted by standing ovations but is ultimately unlikely to ever materialize. Development experts don’t see it that way, though. The end of extreme poverty might very well be within reach. “It’s not by any means pie-in-the-sky,” says Scott Morris, who formerly managed the Obama administration’s relations with development institutions. When I asked Jeffrey Sachs, the development economist, if the target seemed feasible, he said, “I absolutely believe so.”  “In many ways, it’s a very modest goal.”  In part, this is because the bar is set very low. The World Bank aims to raise just about everyone on Earth above the $1.25-a-day income threshold. In Zambia, an average person living in such dire poverty might be able to afford, on a given day, two or three plates of cornmeal porridge, a tomato, a mango, a spoonful each of oil and sugar, a bit of chicken or fish, maybe a handful of nuts. But he would have just pocket change to spend on transportation, housing, education and everything else. The 1.2 billion people living in such extreme poverty

            Egypt's economic woes becoming acute - The Washington Post recently published a story on Egypt's growing black market, which is rapidly replacing the "official" economy. WP: - Egypt’s rapidly expanding black market for fuel — and for foodstuffs, other commodities and U.S. dollars — may be the most tangible illustration of just how badly the economy of this vast Arab nation is failing, two years after the fall of Hosni Mubarak.  The prices of most basic goods, like fuel and flour, have been fixed for decades, with Egypt pouring roughly a quarter of its GDP into a bloated and deeply inefficient national subsidy system each year.As foreign reserves run dangerously low, access to fuel is becoming particularly critical. To prevent a complete economic collapse in Egypt, Libya has stepped in to give support until the long-awaited IMF loan is put in place. Libya is in effect providing an interest-free oil loan for a year as a stop-gap measure. Reuters: - Libya will soon start shipping oil to neighboring Egypt on soft credit terms, two senior Libyan officials said, as Cairo struggles to pay for energy imports and avoid fuel shortages.  The officials told Reuters that Tripoli would supply Cairo with $1.2 billion worth of crude at world prices but on interest free credit for a year, with the first cargo expected to arrive next month.

            Mexico’s Record Foreclosures Impeding Home Ownership - San Mateo’s deserted homes are evidence of the exodus from commuter towns that sprang up across Mexico during the last six- year presidential administration as a record 3 million government-backed mortgages and housing credits helped turn builders into billionaires. Now, with foreclosures at a record, President Enrique Pena Nieto’s five-month-old government is trying to reverse course on urban sprawl by shifting subsidies to encourage apartment development in cities. Builders that specialized in the old strategy are struggling to adapt. Homebuilder Defaults Urbi Desarrollos Urbanos SAB (URBI*), based in Mexicali, and Mexico City-based Corp. Geo SAB defaulted on bond payments last month, and both say they’re considering restructuring debt. Urbi’s cash and cash equivalents fell 95 percent to 116 million pesos ($9.5 million) in the first quarter from the end of 2012, while Geo’s cash fell 84 percent to 371.4 million pesos. Homex, Mexico’s biggest homebuilding company by revenue, sold its stakes in two prisons to avoid following peers into default. Its cash plummeted 86 percent to 322.7 million pesos as of March 31 from the end of last year. 

            Putin Purse Tightening Hobbles Medvedev in Race to Deadline -  President Vladimir Putin rejected calls for fiscal stimulus, limiting Prime Minister Dmitry Medvedev’s options as he races to meet a deadline for submitting a plan to revitalize Russia’s economy. First Deputy Premier Igor Shuvalov said Putin dismissed proposals to aid flagging growth by boosting federal spending at a meeting with officials last week. That means any measures the government takes are unlikely to have a “significant impact” on growth this year, Shuvalov said in an interview in Moscow. Putin is facing the weakest economy of his nine years in the Kremlin as he scales back pre-election outlays and Europe’s debt crisis curbs exports. Putin, 60, told Medvedev’s government last week to settle differences among officials and submit a revival plan by May 15, pointing to “alarming signals” that Economy Ministry Andrei Belousov warned may presage a recession later this year.

            Iceland Party Ousted During Bank Crisis Starts Coalition Talks - The party ousted from government in 2009 after presiding over Iceland’s financial meltdown emerged as the biggest winner in the weekend’s parliamentary elections as talks start to form a ruling coalition.  The Independence Party, whose former leader and Prime Minister Geir H. Haarde was tried in court last year for economic mismanagement, won 26.7 percent of votes in the April 27 parliamentary elections. The Progressive Party -- a coalition partner of the Independents before Iceland’s banking collapse -- won 24.4 percent. The Social Democrats of Prime Minister Johanna Sigurdardottirsaw backing plunge by 16.9 percentage points to 12.9 percent. Together with their coalition partner, the Left Green Party, they garnered just 23.8 percent support.  Though Sigurdardottir’s government had won praise from the International Monetary Fund for its crisis management policies, which included capital controls and burden sharing for creditors, voters responded to opposition pledges to raise their standard of living. Unemployment (ICUNEMRT), though well below a crisis peak of 9.3 percent, is still more than five times 2007 levels. The winning parties said they will now start talks to form a government as soon as possible.

            Italy’s three-party coalition sworn in - Italy’s new government has been sworn in, ending two months of political deadlock, after politicians agreed on Saturday to form a three-party coalition, which will also include technocrats in key positions. The government, under prime minister Enrico Letta was sworn in on Sunday morning by Giorgio Napolitano, the 87-year-old head of state who applied intense pressure on the parties to bury their differences since elections in late February returned a highly divided parliament. Mr Letta is to lay out his government’s programme of institutional and economic reforms to parliament on Monday, ahead of confidence votes in both chambers which, on paper, the coalition should win comfortably. The most immediate issue he has to resolve to keep his disparate government together is Silvio Berlusconi’s demand for an abolition of an unpopular housing tax imposed last year and restitution of amounts already paid, totalling some €8bn. Renato Brunetta, leader of their People of Liberty in the lower house, raised the stakes on Sunday by warning that the party would not support the government in the confidence vote unless Mr Letta laid out such commitments. Mr Letta, a moderate from the Democratic party’s Catholic wing, announced the coalition deal after more than two days of talks with the centre-right People of Liberty, led by former prime minister Mr Berlusconi.

            The Monster Club - Beppe Grillo - It’s official. A banker in charge of the Economy, Saccomanni, so that he can save the banks. Alfano, a talking mannequin, with two positions, Under-secretary in the office of the President of the Council and Under-secretary in the Ministry of Home Affairs. Enrico Letta, Captain Findus, the defrosted stock-fish, the nephew of his uncle, the one that Goldman Sachs loves the most, in the role of President of the Council. Lupi, Fantozzi’s niece, gets the Ministry of Transport and the Ministry of Infrastructure where there are so many tenders flying around as well as the TAV in Val di Susa. Mauro, a philosopher from the “Communion and Liberation” movement, gets the Ministry of Defence with the F-35s. A lady who studied at the Classical High School, Ms Lorenzin, gets the Ministry of Health, she will read Leopardi ("Always dear to me was this solitary hill") and Carducci in the hospital wards. Franceschini gets to talk to Parliament. De Girolamo, the PDL wife of the PDminusL man Mr Boccia, gets control of Agricultural Policy, the mess up within the stitch up. Quagliarello gets Institutional Reform, the guy that said "Eluana is not dead, she’s been killed“ and I’ve said everything. Ms Bonino gets Foreign Affairs, the Radical closest to the psycho dwarf, the liberal, liberalist and libertarian, the internationalist and frequenter of Bildeberg. The UDC guy, Giampiero D'Alia gets the Public Administration, he’s the author of an amendment that compels Internet Service Providers to black out websites, blogs and social media stuff in response to a request by the Ministry of Home Affairs, even this blog. He’s a German canoeist (when are we going to get a New Zealand rugby player?), and Zanonato, "the man of the left-wing wall" gets Economic Development

            Bundesbank Looks to Undermine Italy - Another chapter in the Italy political story comes to a close as a government is formed, for how long who knows, but a familiar figure appears to be playing puppet master: Italian center-left politician Enrico Letta named a coalition government on Saturday, making one of Silvio Berlusconi’s closest allies deputy prime minister and ending two months of damaging political stalemate. Letta has said his priorities would be the economy, unemployment and restoring faith in Italy’s discredited political institutions as well as trying to turn Europe away from austerity to focus more on growth and investment. An inconclusive general election in February left Italy, the euro zone’s third-largest economy, without effective government, threatening investor confidence and holding up efforts to end a recession set to become the longest since World War Two. The anti-establishment 5-Star Movement has refused to join a government which party leader Beppe Grillo said “bordered on incestuous” given the relationship between Letta and his uncle Gianni Letta, Berlusconi’s long-time chief of staff.

            Bundesbank declares ‘war’ on Mario Draghi bond bail-out at Germany’s top court - Germany’s Bundesbank has issued a devastating attack on the bond rescue policies of the European Central Bank, rendering the eurozone’s key crisis measure almost unworkable. The hardline central bank - known as the temple of monetary orthodoxy - told Germany’s top court that the ECB’s pledge to shore up Italian and Spanish debt entails huge risks and violates fundamental principles. “It is not the duty of the ECB to rescue states in crisis,” it wrote in a 29-page document leaked to Handelsblatt. The Bundesbank unleashed a point by point assault on every claim made by ECB chief Mario Draghi to justify emergency rescue policies - or Outright Monetary Transactions (OMT) - unveiled last summer to stop Spain’s debt crisis spiralling out of control. The Draghi plan mobilized the ECB as lender of last resort and led to a spectacular fall in borrowing costs across the EMU periphery, buying nine months of financial calm. The credibility of the pledge rests entirely on German consent. Analysts say the crisis could erupt again at any moment if that is called into question. “The report borders on economic warfare,” said Harvinder Sian from RBS. “We think there is going to be fear and dread in the market that the court will reject OMT.”

            Germany's Perspective: "How Europe's Crisis Countries Hide their Wealth" - After reading the Spiegel article below, which reveals so much about German thinking, it becomes very clear that not only is Cyprus the "benchmark", but that the second some other PIIG country runs into trouble again, and its soaring non-performing loans inevitably demand a liability "resolution" a la Cyprus, it will be Germany once again at the helm, demanding more of the same equity, unsecured debt and ultimately depositor impairment. As the following punchline from Spiegel summarizes, "It would be more sensible -- and fairer -- for the crisis-ridden countries to exercise their own power to reduce their debts, namely by reaching for the assets of their citizens more than they have so far. As the most recent ECB study shows, there is certainly enough money available to do this." And that is the crux of the wealth-disparity demand of the European Disunion.

            Greens and SPD close ranks in battle against Angela Merkel - Germany’s main centre-left opposition parties closed ranks over the weekend in their uphill battle against Angela Merkel, with the Greens signalling a decisive shift to the left. During a three-day party congress in Berlin five months before national elections, the Greens positioned themselves to the left of the Social Democrats (SPD) with calls for higher income tax and a property levy on the rich. The party pledged to raise the top rate of income tax from 45 to 49 per cent, and to levy a 1.5 per cent tax on property worth more than €1m, aiming to raise €100bn over 10 years. Making the first appearance by a Social Democrat leader at a Green congress, Sigmar Gabriel, the party’s national chairman, delivered a passionate plea to the Greens to stop flirting with Ms Merkel’s conservatives. He said only an SPD-Green coalition could take on the financial markets, which he blamed for the recent economic turmoil in Europe.

            Euro-Area Economic Confidence Falls More Than Forecast - Economic confidence in the euro area decreased more than economists forecast in April as the 17- nation currency bloc struggled to emerge from a recession and the bailout of Cyprus renewed debt-crisis concerns. An index of executive and consumer sentiment dropped to 88.6 from a revised 90.1 in March, the European Commission in Brussels said today. That’s the lowest since December. Economists had forecast a decline to 89.3, according to the median of 26 estimates in a Bloomberg News survey. Business confidence and investor sentiment in Germany, Europe’s largest economy, dropped more than expected in April. European Central Bank President Mario Draghi said on April 19 that the economic situation in the bloc hadn’t improved since the beginning of the month. At the same time, Draghi expects the economy to recover from a recession later this year and economists forecast growth in the second quarter, a separate Bloomberg survey shows. Today’s survey “supports other evidence that the euro zone is experiencing its longest recession on record,” . It’s “more bad news that might encourage the ECB to announce more policy support at its meeting this week.”

            Eurozone business confidence at five-month low - Eurozone business confidence fell to a five-month low in April, bolstering the case for an interest-rate cut by the European Central Bank at this week’s monetary policy meeting. The European Commission’s economic sentiment indicator dropped 1.5 points in April to 88.6, as managers’ expectations of activity in both the manufacturing and services sectors fell sharply. The services sector suffered a 4.1-point drop, while industry fell 1.5 points. Depressed business morale could force Mario Draghi, ECB president, to cut rates further in a desperate attempt to boost lending to companies and reignite economic growth, which has been battered by the worst economic crisis since the Great Depression of the 1930s. “The April round of surveys was weak, and most likely disappointed the ECB. We think this will have implications for the central bank’s policy,” “We think the ECB will decide to remain on hold on Thursday and cut in June. But this is a very close call and the risk of a move already this week is high, just short of 50 per cent,” he added.

            Eurogloom - charts - Some stagnant stats out of Eurostat on Tuesday…. Euro area unemployment rate at 12.1% EU27 at 10.9%. Here’s the damage, broken down…  Is Europe generally stuck at home, binging, boozing, smoking fags and generally going nowwhere? Answer: yes. Euro area annual inflation down to 1.2%

            OECD Fears Euro-Zone May Snatch Defeat From Jaws of Victory - The euro zone is at risk of snatching defeat from the jaws of victory by abandoning efforts to cut budget deficits and fix long-standing economic problems, the Organization for Economic Cooperation and Development‘s chief economist warned Monday. In an interview with the Wall Street Journal, Carlo Pier Padoan said euro-zone governments are close to stabilizing and even cutting their debts relative to economic output. But he warned that governments facing resistance from voters as unemployment rates rise may halt their fiscal consolidations before they achieve that “remarkable result.” “There is a risk that reform fatigue increases significantly, with governments facing very strong social resistance, and that happens at the wrong moment, because we are almost there,” Mr. Padoan said. “Our message is, we have done a lot in Europe, let’s not waste it.” Mr. Padoan’s comments come as a growing number of European leaders are easing the austerity programs that have dominated policy across the continent in recent years, focusing instead on measures to promote growth.

            European Leaders’ Softening on Austerity May Accelerate - Europe may accelerate a shift away from its austerity-first agenda this week as the new Italian government changes course and a German-Spanish investment pact underscores a renewed focus on combating record unemployment. Yesterday’s swearing in of Italian Prime Minister Enrico Letta ends a political deadlock nine weeks after voters rejected the country’s budget-cutting course. German Finance Minister Wolfgang Schaeuble, a champion of austerity, will travel to Spain today to unveil a plan aimed at spurring investment in Spanish companies. Later this week, the European Central Bank may also cut interest rates at a meeting. “You have to react to economic developments -- we do so in Germany,” Schaeuble told members of Chancellor Angela Merkel’s Christian Democratic Union in Berlin last week. “We are not bureaucratic; we are not stupid.”

            EU Social Affairs Commissioner: Wages in Germany Must Increase - SPIEGEL - Wages in Germany must increase and the government should establish a nationwide minimum wage, says EU Social Affairs Commissioner László Andor. In an interview with a German daily, he calls for a radical change in policy in the euro crisis and argues for a shift away from the country's export model. European Union Social Affairs Commissioner László Andor is calling on Germany and other euro-zone donor countries to change course in combating the European debt crisis. Austerity in Southern Europe alone will not fix the problem, Andor told the German daily Süddeutsche Zeitung in an interview published Monday -- the north also needs to spend more. He suggests shifting the focus from reforms, austerity and consolidation of national budgets toward economic stimulus. "Saving alone does not create growth. That requires additional investment and demand," said Andor.

            Greek parliament passes bill to lay off 15,000 - The Greek Parliament late Sunday passed a bill that will see 15,000 civil servants lose their jobs by the end of next year, according to media reports. The layoffs are part of a new set of measures that the country must undertake in order to get secure aid from the troika of international lenders. Euro-zone officials will meet in Brussels on Monday and are expected to grant their approval to the release of €2.8 billion ($3.65 billion in loans). The money was originally due in March, but stalled negotiations over civil servant cuts kept it from going through. The layoffs will come in two stages, with 4,000 to go by the end of 2013 and 11,000 more by the end of next year. The bill was backed by the three-way coalition government, but also contains such measures easier terms for those who owe money to Greek tax offices and social-security funds and a 15% cut on a controversial property tax introduced in late 2011

            Greeks Unpaid Taxes Soar $1.04 Billion - The onslaught of continuing big tax hikes in Greece has backfired again with the Finance Ministry reporting overdue payments from citizens jumped 800 million euros ($1.04 billion) in March, bringing the total outstanding to more than 2.17 billion euros ($2.82 billion) as many people can’t afford a doubled property tax being put in electric bills under threat of having power turned off for non-payment. The startling jump in one month was said to be not only because of problems taxpayers face but because many had been waiting to hear about the new installment schemes for debts to the state, which have only just been announced. Tax collection in March fetched no more than 746 million euros ($972.07 million,) while the fresh arrears of 800 million brought the total amount of debts to the state from all sectors to 57.2 billion euros ($74.53 billion.) This includes 9 billion euros ($11.72 billion) in the old debts of bankrupt companies and taxpayers, while another 3.67 billion euros ($4.78 billion) concerns old debts of state corporations and utilities, municipal enterprises and other corporations in the broader public sector.

            Greece suffers more misery as retails sales slump by nearly a third - Barely a day after securing more international aid in exchange for yet more draconian reforms, Greece got a bitter taste of the price of austerity on Tuesday, when statistics showed that retail sales had shrunk by more than 30% over the past three years. The impact of spending and budget cuts on private consumption has had a devastating effect on commerce, the engine of the Greek economy, according to the debt-stricken country's statistics agency, Elstat. With some 27.5% of Greeks officially unemployed – a eurozone record – retail sales dropped by 14.4% year on year in February, following a slump of 16.8% in January. "The economy is in freefall. Not since the second world war has the situation been as bad," said Prof Valia Saranitou, at the national confederation of Greek commerce (ESEE). "An unprecedented 150,000 small and medium-sized businesses have closed in an economy that works on internal demand," she told the Guardian, adding that Greece's widely praised exports rebound had been grossly exaggerated.

            Cyprus crisis: Oligarchs escape as crisis hits middle class - Although Russian savers of all descriptions, from private individuals and small businesses to corporations and institutions, have suffered in the Cypriot financial crisis, the effect is seen most starkly among the thousands of Russians actually living on the Mediterranean island. Here, it’s not oligarchs but middle-class entrepreneurs who have been devastated by the crisis, and the EU-imposed “haircut” on deposits of more than $130,000. “My business is more dead than alive,” says Anton, the 32-year-old owner of a foodstuffs distribution network in Limassol. “I was rash enough to keep all the company’s money in the Bank of Cyprus.” It’s an all-too-common tale from middle-class Russians living and working in Cyprus, of whom there are 30,000 to 50,000 – mostly businesspeople, executives, and the Russian wives and girlfriends of Cypriot nationals. The seizure of deposits has hardly touched Russian oligarchs: Thanks to the intricate structure of holdings registered in Pacific and Caribbean tax havens and ingenious schemes of share distribution, the oligarchs’ money accounted for an insignificant share of deposits held in Cyprus banks. Instead, it’s small and medium-sized businesses that were most often caught out.

            Would a Euro Area Banking Union Have Saved Cyprus? - Whether a euro area banking union would have saved Cyprus from its recent TROIKA (of European Commission, European Central Bank and IMF) tragic treatment is a very interesting question. If it would, then clearly a move towards a banking union, as part of the construction of a political union should be a major component of the reconstruction of the euro area. As we argued in our March 2013 blog, the European Union (EU) summit meeting, 28th/29th June 2012, took a number of decisions in terms of a possible euro area banking union. The most relevant decision was the creation of banking supervision by the European Central Bank (ECB), banking licence for the European Stability Mechanism (ESM), and financial assistance by the ESM to governments, members of the euro area, when in financial difficulty. The banking supervision, however, will not come into full operation before 2014. ESM member states would then be able to apply for an ESM bailout when they are in financial difficulty or their financial sector is a threat to stability and in need of recapitalization. This is exactly the problem with the recent Cyprus problem, as we now elaborate.

            Spain: Running from the Bulls? - There have been three recent developments in Spain: the new record high unemployment, the earnings reports of several large banks, and the government’s new fiscal forecasts and strategy.   Spanish 10-year yields continued to trend lower over the course of the week.  Given that the Outright Market Transaction scheme of the ECB’s , (which the Bundesbank opposed at the time and reportedly wrote a note to the Germany constitutional court trying to persuade it for a upcoming ruling), has not been implemented, the decline in Spanish yields is impressive.   The Spanish economy remains in dire straits.  Unemployment has continued to rise and in Q1 stands at a record high  of 27.2% after 26% in Q4 12.    More than 100k people are losing their jobs a month.  Spain has the second highest unemployment rate in the euro area behind Greece.   This is part a function of what is happening in Spain, but is also a larger issue.  Core countries like France and the Netherlands has also reported deteriorating labor market conditions and rising unemployment.   One response has been large scale emigration of the 16-30 year old cohort to 260k last year.  A brain drain and exportation of skilled workers has a desultory impact on the hopes of  a longer-term vibrancy of the Spanish economy

            Spain's economy shrinks for seventh straight quarter (Reuters) - Spain fell deeper into recession in the first three months of the year, the seventh straight quarter it has seen its economy shrink, data showed on Tuesday. Rising exports and weaker imports, reported separately, provided some relief by cutting the trade deficit. The data showing further contraction will add to a Europe-wide debate about whether countries should tone down austerity programs intended to cut debt in favor of more growth-focused policies, particularly given concern about rising unemployment. Euro zone member Spain's jobless rate is 27.2 percent. The National Statistics Institute said Spain's gross domestic product contracted - on a preliminary reading - 0.5 percent in the first quarter from the last three months of 2012, mainly because of sliding domestic demand.

            Bad Economy Sends Spaniards Packing for Latin America --  Spain's economy had surged for much of the past few decades, luring Latin Americans in droves to brave migration overseas for a better life in what many of them consider "la Madre Patria." But now, with Spain in the doldrums, the Latin American influx there is waning, and many Spaniards are doing what Javier Rodriguez did: coming to the Americas, where economic indicators point admirably upward, not down. "I know people from Spain who are going to come here to try to open a business because it is so hard to get financing [in Spain]. There's a liquidity shortage," Rodriguez says. Today, Spain wants even closer ties. "We need more Ibero-America," Spanish King Juan Carlos said in November at a summit in the Andalusian town of Cadiz, using the term describing the centuries-old links between the Iberian Peninsula and huge swath of lands in the Americas once called New Spain.

            S&P Predicts 20% Drop in Spain's Housing Prices Over Next 4 Years; Bad Bank to Dump Distressed Properties on Market - Spain's "bad bank", Sareb to speed up distressed property sales in an ambitious new timetable for liquidation.  The bad bank is hoping to sell almost 42,000 housing units in the next five years. This is about half of the properties in its €50 billion (£42.5 billion approximately) portfolio.However, falling house prices and a desire among buyers for modern properties in prime locations could hamper these plans for swift sale. Already the value of assets is being slashed by Sareb to clear their books, but attracting investors is proving to be no easy task.Courtesy of Mish-Modified google translate from El Economista, please consider S&P predicts that housing in Spain fall by 20% over the next four yearsThe credit rating agency Standard & Poor's does not see "signs of improvement" in the Spanish property market given the "precarious economic conditions and the heavy weight of the 'stock' of unsold homes," and anticipates that home prices will fall 20% over the next four years. "We see little chance of that Spanish households become more solvent, as prices continue to fall, the purchasing power continues to decline and interest rates are stabilizing. This should keep demand very depressed," said S&P in a report on the European property market.

            Europe bleeds out - IT IS a car crash of a data release. One simply can't look away. Hard to know precisely which part of the euro area's latest unemployment report is the most grimly compelling. The overall rate, at 12.1%? In the spring of 2010 unemployment rates in America and the euro zone were effectively the same at about 10%. There is now a gap of 4.5 percentage points. Total unemployment? In the first three years of the downturn America did far worse than the euro area, adding some 7.5m workers to the unemployment rolls to Europe's 4.7m. Since then total unemployment in the euro area has risen by another 3.2m while America reduced the ranks of the jobless by 3.5m. The euro area now has some 19.2m unemployed workers. Individual country numbers inspire their own brand of horror. Greek joblessness topped 27% in January (the most recent month for which data there are available), while Spanish employment has risen to 26.7%. Joblessness in France rose by slightly more in the year to March than it did in Italy. And did you know that Dutch unemployment rose by 1.4 percentage points over the past year? German unemployment, of course, has held steady at 5.4% since last summer.

            PIIGS Unemployment - The latest data on unemployment is above (through March, but only through Jan for Greece).  Things have improved slightly in Ireland and have been stable (but bad) for a month or two in Italy and Portugal.  However, Greece and Spain continue to compete for the "Worst developed country to live in" award.  Or possibly, "Most compelling reason never to join a currency union". When I was young and living in the UK, I was vaguely pro-Europe, like most other youngish lefties.  My grandparents were bitterly opposed to losing the pound, out of unthinking knee-jerk conservative resistance to change, as I saw it.  I now see that unthinking knee-jerk conservatism can be the right instinct at times.

            Spain Is Beyond Doomed: The 2 Scariest Unemployment Charts Ever - Spain is in a great depression, and it is one of the most terrifying things I have ever seen. Five years after its housing boom turned to bust, Spanish unemployment hit a record high of 27.2 percent in the first quarter of 2013. It's almost too horrible to comprehend, but 19.5 percent of the total workforce has not had a job in the past six months; 15.3 percent have not in the past year; and 9.2 percent have not in the past two years. You can see this 1930s-style catastrophe in the chart below from the National Statistics Institute. (Note: The "already found work" category refers to people who did not have a job at the time of the survey, but did have a job lined up). But the real story of the Spanish depression has been the story of the indignados: the mostly young, long-term unemployed. It's a bit hard to see just how dramatic it's been in the chart above, so I converted it to a line chart below. Almost all of the increase in unemployment since 2010 has been due to the increase in long-term unemployment of two years or more.

            European Unemployment Sets Another Record The euro zone jobless rate rose to a record 12.1 percent in March, a sharp reminder that unemployment remains among the region’s biggest problems. The unemployment rate in the 17-nation currency union ticked up by one-tenth of a percentage point from February, when the previous record was set, Eurostat, the statistical agency of the European Union, reported from Luxembourg. A year earlier, the rate was 11 percent. A separate report Tuesday from Eurostat showed that inflation dropped sharply, well below the European Central Bank’s target rate of 2 percent a year. The annualized rate of inflation for consumer prices was 1.2 percent in April 2013, down from March, when it was 1.7 percent. The reports, along with other recent data that suggested that the economy was healing more slowly than many had hoped, could prompt the European Central Bank to take action at its policy meeting on Thursday. The central bank could cut its key interest-rate target, already at a record low of 0.75 percent, by a quarter point, economists said, though the impact of such a move would probably be slight because banks remain less than eager to lend.

            Europe’s Depression Worsens - Of course you only have to look at the latest employment figures from EuroStat to understand that nothing is getting any better for the south Europeans: The euro area1 (EA17) seasonally-adjusted unemployment rate3 was 12.1% in March 2013, up from 12.0% in February4. The EU271 unemployment rate was 10.9%, stable compared with February. In both zones, rates have risen markedly compared with March 2012, when they were 11.0% and 10.3% respectively. These figures are published by Eurostat, the statistical office of the European Union. Eurostat estimates that 26.521 million men and women in the EU27, of whom 19.211 million were in the euro area, were unemployed in March 2013. Compared with February 2013, the number of persons unemployed increased by 69 000 in the EU27 and by 62 000 in the euro area. Compared with March 2012, unemployment rose by 1.814 million in the EU27 and by 1.723 million in the euro area. Among the Member States, the lowest unemployment rates were recorded in Austria (4.7%), Germany (5.4%) and Luxembourg (5.7%), and the highest in Greece (27.2% in January), Spain (26.7%) and Portugal (17.5%). Compared with a year ago, the unemployment rate increased in nineteen Member States and fell in eight. The highest increases were registered in Greece (21.5% to 27.2% between January 2012 and January 2013), Cyprus (10.7% to 14.2%), Spain (24.1% to 26.7%) and Portugal (15.1% to 17.5%). The largest decreases were observed in Latvia (15.6% to 14.3% between the fourth quarters of 2011 and 2012), Estonia (10.6% to 9.4% between February 2012 and February 2013) and Ireland (15.0% to 14.1%).

            Europe's Scariest Chart Leaves 1 in 4 Young People Unemployed - European unemployment just broke above 12% for the first time ever and European youth unemployment remains miserably above 24%. And while 1-in-4 under-25s unemployed is a bad enough statistic in terms of likely emergence of social unrest, the individual countries are in general deteriorating once again at a faster rate. French youth unemployment has risen for 13 months in a row to a record 26.5%; Spain (at 57.2% of under-25s unemployed) is catching up fast to Greece's stunning 59.1%; but perhaps the most concerning for the broader economies is the fact that Italy's youth unemployment has now topped that of Portugal at 38.4%. The only nation to see a drop in its youth unemployment was Ireland - which fell back modestly to January levels. Not a rosy picture, but then again, it doesn't matter...

            The Italian Miracle - Paul Krugman - Italy is a mess. Yes, it has a prime minster, finally; but the chances of serious economic reform are minimal, the willingness to persist in ever-harsher austerity — which the Rehns of this world tell us is essential — is evaporating. It’s all bad. But a funny thing is happening: What’s going on here? I think that we’re seeing strong evidence for the De Grauwe view that soaring rates in the European periphery had relatively little to do with solvency concerns, and were instead a case of market panic made possible by the fact that countries that joined the euro no longer had a lender of last resort, and were subject to potential liquidity crises. What’s happened now is that the ECB sounds increasingly willing to act as the necessary lender, and that in general the softening of austerity rhetoric makes it seem less likely that Italy will be forced into default by sheer shortage of cash. Hence, falling yields and much-reduced pressure.

            Moody's downgrades Slovenia to 'junk' bond rating -- Moody's Investors Service cut Slovenia's government bond rating by two notches to Ba1, its highest "junk" bond rating, from Baa2 on Tuesday and said the outlook for the rating remains negative. The ratings firm cited three factors: the health of the country's banking sector, the marked deterioration of the government's finances, and uncertain funding prospects that heighten the probability that external assistance will be needed. The government had been seeking to raise cash through a bond sale, but called it off earlier Tuesday ahead of the ratings announcement.

            'There will be more wealth confiscation, without a doubt' - European politicians will take the "easy option" of taking money from the rich rather than raising taxes and cutting spending to deal with the continent's debt problem, Lars Christensen, the head of Saxo Bank, said. Asked if the raid on uninsured savings in Cyprus would be repeated, he told City AM: "There will be future bail-ins [loss of deposits] and other types of confiscation of wealth in the eurozone, without a doubt. "There's no other realistic way forward if politicians continue to fail to deal with the basic indebtedness problem across Europe. They will either have to raise taxes and cut spending, or politicians will take the easier route and take money from the rich." Earlier this week savers at Bank of Cyprus saw 37.5pc of their balances above €100,000 converted into shares, with a further 22.5pc at risk and 30pc frozen.  Following the Cyprus deal, several senior German economists proposed that wealth taxes be used to fund future bail-outs in the eurozone, with British owners of holiday homes potentially in the line of fire.

            OECD forecasts 3.3% deficit for Italy in 2013 - The OECD forecast in a report on Thursday that Italy's deficit-to-gross-domestic-product ratio will be 3.3% this year. This is above the Italian government's deficit-GDP-ratio forecast of 2.9% and above the 3% threshold allowed by the European Union. Economy Minister Fabrizio Saccomanni said the OECD's figures did not take account of the positive effect of the government's plan to repay 40 billion euros that the public sector owes private firms over the next 12 months. Saccomanni added that he was still confident the European Commission would soon end its excessive-deficit procedure against Italy. "By the end of May, or at the start of June at the latest, the procedure should be closed," said Saccomanni, who added that this would be an important signal for the financial markets. The OECD forecast Italy's deficit-GDP ratio will be 3.8% next year, compared to 1.8% predicted by the Italian government.

            There is No Debt Crisis In Europe - As much I criticize the Fed for its shortcomings, it pales in comparison to the failures of the ECB. Under its watch, aggregate nominal income and broad money growth has faltered in the Eurozone. This, in turn, has created an economic crisis. Note that causality runs from a weakened economy allowed by the ECB to a debt and financial crisis in the Eurozone, not the other way around. This is a point Ramesh Ponnuru and I have stressed before: [Observers] tend to think of Europe’s current crisis as the result of overspending welfare states. And these states would indeed be better off with lower spending levels and less regulated labor markets. But many of the nations swept up in the euro-zone crisis, such as Spain and France, had spending and tax revenues well aligned before it hit. The true problem has again been monetary. Europe has for a decade had a monetary policy well suited to the circumstances of Germany but not to those of the rest of the euro zone and especially its periphery. Nominal income in Germany has stayed on a fairly steady trend line. In the periphery, however, it first went way up and then crashed. For the euro zone as a whole, nominal spending has fallen far below its previous trend—and has been continuing to fall farther away from it. Monetary policy therefore remains very tight in the euro zone overall. One effect of that drop-off, in Europe and in the U.S., has been to make debt burdens more onerous

            Which way for the ECB? -Ahead of the ECB meeting, the debate on the right course for euro area macroeconomic policies has re-emerged. An interesting new feature of the debate is about differentiating monetary policy to better cater for different conditions in different countries of the euro area. So should there be more differentiation of monetary policy across countries and how much can monetary policy achieve? Monetary policy first and foremost needs to look at the euro area aggregate. Inflation as well as core inflation in the euro area in April is at 1.2% and the 2-year-ahead market based inflation forecasts are below 1.5%. The output gap of the euro area for 2013 as of the February forecast of the European Commission stands at almost 3% suggesting significant slack in the euro area economy. The area wide economic indicators therefore clearly signal that the euro area is in a recession and that inflation is well below the envisaged 2%. For the area as a whole, more expansionary macroeconomic policies thus seem warranted. Turning next to the individual countries of the euro area, the weak economy in the South of Europe is particularly worrisome. Yet, even the strongest countries of the euro area including Germany currently record a negative output gap. Inflation in Germany is below 2% at 1.8% in March and therefore almost at March euro area average of 1.7. So in absolute levels, Germany also appears to enter a recession and the low inflation rate would warrant a further stimulus to the German economy.

            What the ECB can and cannot do to heal the eurozone - Gavyn Davies - Real GDP in the eurozone seems to be declining at a 2 per cent annualised rate in the current quarter, and the pivotal German economy is showing worrying signs of being dragged into the mire with the troubled south (see this earlier blog). Markets are in one of those periods (which usually prove temporary) where they interpret bad economic news as being good news for asset prices, because weaker growth will result in easier policy from the central banks. In the eurozone, expectations are high that the European Central Bank will deliver lower interest rates on Thursday, and specific measures designed to address the provision of liquidity to small and medium sized enterprises (SMEs) in the south seem probable.But a more radical easing in monetary conditions may prove necessary to drag the economy out of recession, and prevent inflation from falling further below the target, which is defined as “below but close to 2 per cent”. In March, the ECB staff forecast for inflation in 2014 was 0.6-2.0 per cent, which seems barely consistent with the mandate, especially as the recession shows no sign of ending and fiscal policy is still being tightened. Any other major central bank would be urgently reviewing its options for aggressive easing, and the markets could become very disillusioned if they sense that the ECB is unwilling to do the same.So what, realistically, can the ECB do? The following table gives a fairly comprehensive list of the options which are definitely available within the mandate [A], those which might be available if the ECB chose to interpret its mandate more widely [B], and those which are clearly unavailable under any circumstances [C]:

            George Soros Comment On Hans-Werner Sinn: Hans-Werner Sinn has deliberately distorted and obfuscated my argument. I was arguing that the current state of integration within the eurozone is inadequate: the euro will work only if the bulk of the national debts are financed by Eurobonds and the banking system is regulated by institutions that create a level playing field within the eurozone. Allowing the bulk of outstanding national debts to be converted into Eurobonds would work wonders. It would greatly facilitate the creation of an effective banking union, and it would allow member states to undertake their own structural reforms in a more benign environment. Countries that fail to implement the necessary reforms would become permanent pockets of poverty and dependency, much like Italy’s Mezzogiorno region today. If Germany and other creditor countries are unwilling to accept the contingent liabilities that Eurobonds entail, as they are today, they should step aside, leave the euro by amicable agreement, and allow the rest of the eurozone to issue Eurobonds. The bonds would compare favorably with the government bonds of countries like the United States, the United Kingdom, and Japan, because the euro would depreciate, the shrunken eurozone would become competitive even with Germany, and its debt burden would fall as its economy grew.

            The Beatings Must Continue - Paul Krugman  -It’s almost exactly three years since the Paris-based OECD gave what may have been the worst advice of any major international organization — worse than the European Commission, worse than the ECB. Not only did it join in the demand for fiscal austerity, it also demanded that the US start raising interest rates rapidly, so as to head off the threat of inflation — even though its own models showed no such threat. So here we are three years later. No inflation takeoff in America (and the Fed trying to find ways to boost demand at a zero rate); austerity economics has crashed and burned; the latest numbers from Eurostat look like this: And what is the OECD’s chief economist (still the same person) saying? The euro zone is at risk of snatching defeat from the jaws of victory by abandoning efforts to cut budget deficits and fix long-standing economic problems, the Organization for Economic Cooperation and Development‘s chief economist warned Monday. Mr. Padoan said the growing perception that austerity has been futile is incorrect. “Fiscal consolidation is producing results, the pain is producing results,” he said.

            The economic winter continues - EUROPE has just endured a seemingly endless winter, so it seems apt that the spring economic forecasts from the European Commission have a chilly feel to them. Three months after the commission's previous stab at the future, the outlook has cooled yet again. Small wonder that the European Central Bank acted yesterday to cut its main policy rate to 0.5%, though this overdue move will do little to warm the euro zone’s frigid economy. In February the commission had expected a decline this year in euro-wide GDP of 0.3% followed by growth of 1.4% in 2014. Now it thinks the drop in output in 2013 will be 0.4% and that growth next year will be 1.2%. The outlook has darkened in the northern core economies of the single-currency club as well as in the southern periphery. The Dutch economy for example will shrink by 0.8% this year rather than the 0.6% predicted in February. And French GDP will fall in 2013 by 0.1% (rather than rising by 0.1%).

            EU cuts growth forecasts for 2013 - Amid a worsening economic backdrop, the European Commission on Friday cut its growth forecasts for the 17-nation euro area, saying it now expects gross domestic product will shrink 0.4% this year, versus prior expectations for a drop of 0.3%. Growth fell 0.6% in 2012, which would make for two years of back-to-back contraction for the region after this year. In its latest foreast, the EU said external demand will be a main driver to help bring the region out of contraction, while domestic investment and consumption will be a driver for 2014. But it said the labor market remains a serious concern, forecasting an 11.1% overall unemployment rate for the 17-nation region, and 12.2% in the euro zone. The forecasts come a day after rate cuts by the European Central Bank. For 2014, growth is expected to rebound 1.6% in the 17-nation region

            EU Predicts Eurozone Recession to Continue in 2013 — Europe will take longer to recover from its economic crisis as it tackles a worse-than-expected recession in the eurozone and unemployment at record levels, the European Union warned Friday. In its spring economic forecast, the EU said that gross domestic product in the 17 member countries that use the euro will shrink by 0.4 percent this year, better than the 0.6 percent contraction in 2012 but 0.1 percentage points worse than the EU had forecast back in February. The report also had bad news for the wider 27-country EU: it now expects the region’s economy to shrink by 0.1 percent in 2013, against a forecast of 0.1 percent growth in February. “Grappling with the aftermath of a profound financial and economic crisis, the EU economy is set to pick up speed only very slowly in the course of this year,” the report said. The grim outlook even forced EU Commissioner Olli Rehn to raise the specter that France, the bloc’s second biggest economy, may be given two extra years to bring its deficit within the target 3 percent of gross domestic product needed for a sustainable future.

            Debt-crippled Holland falls victim to EMU blunders as property slump deepens - The eurozone’s slow suffocation is going Dutch. Each extra month of slump caused by Europe’s negligent authorities is pushing Holland closer to a debt-deflation trap.The coalition of Mark Rutte has belatedly woken up to the danger. Last month it retreated from pro-cyclical tightening, delaying €4.3bn in budget austerity. By then Mr Rutte’s totemic worship of EU deficit targets had invited the ridicule of the official Bureau for Economic Policy Analysis (CPB), which said Dutch leaders did not seem to understand how private credit busts interact with fiscal cuts to create havoc. “The Dutch government’s inability to acknowledge the damage done by austerity despite mounting evidence is a case of 'cognitive dissonance’,” it told the Financial Times. Yet this is not at root a case of botched fiscal policy. It is a case of misaligned monetary policy. The Netherlands offers a salutary lesson of what can happen to a rich sophisticated economy caught in a post-bubble crunch once it has lost control of its currency, central bank and monetary levers. This would have happened to Britain without the Bank of England, and the US without the Fed. The Dutch crisis has crept up quietly, though hedge funds have been nibbling for months. Most people lump the Netherlands together with Germany, Finland and Austria, the hardline AAA fist-thumpers who dictate terms to others.

            May Day ostriches - Beppe Grillo - May Day used to be the festival of the workers. Now it’s the festival of the unemployed and the big concert in Rome. Once upon a time there was "panem et circences“ {bread and circuses}, now we’ve only got the “circences”, but just once a year, and in pride of place, instead of Caligula or Diocletian, there’s the top brass of the Triple Trade Union. Companies are closing down every minute, and the "official" figure for youth unemployment has reached 38.4%. Italy has become a nation of people who have been laid off, of “exited” people, of unemployed people, of “precarious workers” and of emigrants. In the past, the youngsters from the South used to emigrate to the North, to Milan, Turin, and Bologna. Now it’s the the youngsters from the South and from the North who are emigrating abroad all together. Graduates and those with diplomas. Blood and intelligence are being poured out. After Romania, Italy has the second highest number of emigrants in all of Europe. The country has nothing to support it. Just chitter-chatter and mess ups. The tax revenue and the “Irpef” income tax are collapsing because of the disappearance of companies and employees. The volume of traffic on the roads has dropped by 34% in a year. The “autogrill” service stations on the motorways are deserted. Italy is grinding to a halt like a massive machine suffering from rust, one piece after another, until it’s stopped moving. Four million public employees, 19 million pensioners, half a million people living on politics, these are numbers that cannot be kept going by a country that has had no development for 15 years, with a GDP that has been in free fall starting well before the crisis of 2008.

            The lost generation - Economist video - NEARLY a quarter of the world's young people are economically inactive - not in employment, education or training. Failing to employ the young today damages growth now and in the future

            France back in hedge funds' sights as economy stutters (Reuters) - Hedge funds are restoring bets that French bond prices will fall, speculating the country's gamble on increasing public spending to boost economic growth will fail. Funds have already been burnt on the trade. Last year, the European Central Bank's promise to buy government bonds to restore confidence in the euro zone sent yields on French 10-year bonds tumbling by more than a third. But that is not putting some off from trying again. With President Hollande's approval ratings at the lowest of any modern French leader and March jobless claims at an all-time high, some funds think the country's bond yields should trade closer to those of Italy and Spain than Germany. "The most interesting bet to make in Europe is in France. I still feel in France that the risks are really underpriced,"

            Germany accuses France of being 'Europe's biggest problem child' - A scathing German assessment of France's economic weakness – in which the country is labelled "Europe's biggest problem child" – has reopened divisions between Europe's two biggest powers. A leaked internal briefing from Angela Merkel's coalition partners refers to President Francois Hollande as "meandering" and draws attention to France's "highly regulated labour market and highly developed social security system".  Details of the briefing note were published alongside an internal assessment from the German economics ministry, which listed the French economy's failings.  The ministry's paper said: "French industry is increasingly losing its competitiveness. The relocation of companies abroad continues. Profitability is meagre."  Relations between France and Germany are chilly after Mr Hollande's Socialist party accused Mrs Merkel of "egotistical intransigence" and called for "democratic confrontation" with Berlin.

            Germany will think twice before saving France next time - Their interests have become incompatible under monetary union. The currency that was supposed to bind them is turning them into enemies, as this newspaper long warned. The latest argument gaining traction – advanced by Prof Bernd Lücke and the German eurosceptic party AfD among others – is that the only way to save the Franco-German relationship and therefore the EU is to break up the euro before it does more damage. Interesting twist. In the thirty or so years that I have been following EU affairs – or is it nearer 35 years now since I studied in French literature in Paris, and German philosophy in Mainz – I have never seen ties between Europe’s two great land states reduced so low. The French Socialist Party crossed a line by lashing out at Chancellor Angela Merkel in person. It is one thing to protest “German austerity”, it is quite another to rebuke the “selfish intransigence of Mrs Merkel, who thinks of nothing but the deposits of German savers, the trade balance recorded by Berlin and her electoral future”. There is no justification for such an ad hominem attack. German policy is indeed destructive, but that is structural. It is built into the mechanisms of EMU and the anthropological make-up of the enterprise.

            Draghi will act to avoid deflationary spiral - The ECB will have no choice but to ease monetary policy and possibly prepare for more drastic actions. The Eurozone is facing a growing risk of deflation - similar to Japan. Once the inflation rate in Japan fell below 1%, the external shock of the Asian currency crisis (late 90s) sent Japan into a deflationary spiral - something the nation is still dealing with today. The Eurozone may end up facing a similar scenario.Danske Bank: - Europe is heading into a deflationary scenario if they don’t do anything to boost the money supply. This already looks very similar to what happened in Japan in 1996 and 1997.”Growth in consumer lending has come to a crawl as bank deleveraging continues. With retail credit growth curtailed, corporations have no pricing power. Signs of deflationary pressures are already in place.
            Reuters: - EU leaders are already trying to shift away from the budget cuts that have dominated the response to the debt crisis since 2009, and the data will raise the specter of deflation as companies slash prices to entice shoppers.

            ECB Cuts Benchmark Interest Rate to 0.5 Percent -- The European Central Bank has cut its benchmark interest rate to a new record low to stimulate the lagging economy in the 17 countries that use the euro. The bank’s rate-setting council lowered the refinancing rate a quarter-point to 0.5 percent at a meeting in Bratislava, Slovakia. The move comes amid fears the eurozone economy may not recover later in the year from its recession. In theory, a cut helps companies by lowering borrowing costs for banks that have borrowed from the ECB so they could loan more. It also signals the ECB’s willingness to support the economy. Economists, however, warn this cut may not have much direct effect since banks are not passing on low rates in indebted countries that need help the most.

            ECB Cuts Refinancing And Marginal Lending Rates By 25 bps And 50 bps, Respectively - While the ECB's refinancing rate cut of 25 bps was very much expected, and just took place pushing the main refi rate to a record low 0.50% (because more liquidity is just what Europe's collapsing economy needs), what was unanticipated was that the Marginal Lending Facility (which last time we checked was used by pretty much nobody) was also cut, from 1.5% to 1.0%. The deposit rate, at 0.00%, was obviously left unchanged.

            The ECB's rate cut: Better late than never - The European Central Bank’s governing council today decided to lower its main interest rate, from 0.75% to 0.5%. The quarter-point cut was the first move since last July. It is better than nothing but will do little to kickstart the moribund euro-zone economy.  The decision came as fresh signs of weakness emerged in the euro area, which has been in recession since late 2011. Figures out this week showed that unemployment rose in March to 12.1%, a new record. That overall figure masks big differences between the core countries in northern Europe and the stressed economies in the south. In Germany the jobless rate stayed at 5.4% whereas in Spain it rose still higher, to 26.7%. Hopes for a recovery in the first half of 2013 have been postponed to later this year. Today’s manufacturing survey from Markit, a research firm, showed the downturn deepening in April; the euro-zone PMI stood at 46.7 in April, a four-month low (any level below 50 indicates contraction). The supposed powerhouse of the European economy is looking distinctly underpowered: Germany’s PMI stood at 48.1.

            Euro Falls as Draghi Open to Negative Rates; Dollar Strengthens  - The euro fell for the first time in five days against the dollar after European Central Bank President Mario Draghi said policy makers may take the unprecedented step of charging banks to hold excess reserves.  The single currency dropped against all except one of its 16 most-traded peers as the ECB cut its main refinancing rate and Draghi said policy makers had an open mind on a negative deposit rate. The dollar rose the most in almost two weeks versus the yen after number of Americans filing claims for jobless benefits unexpectedly dropped to a five-year low. Sweden’s krona weakened as manufacturing in the nation shrank.  A deposit rate below zero “would be a potential game- changer for the ECB,” “It would compel banks to flood the financial system over there with euros, which would inherently put downward pressure on the single currency.”

            Neil Macdonald: The 'monarchs of money' and the war on savers - Quietly, without much public fuss or discussion, a new ruling class has risen in the richer nations. These men and women are unelected and tend to shun the publicity hogged by the politicians with whom they co-exist. They are the world's central bankers. Every six weeks or so, they gather in Basel, Switzerland, for secret discussions and, to an extent at least, they act in concert. The decisions that emerge from those meetings affect the entire world. And yet the broad public has a dim understanding, if any, of the job they do. In fact, these individuals now wield at least as much influence over the lives of ordinary citizens as prime ministers and presidents. The tool they have used to change the world so profoundly is one they alone possess: creating money out of thin air. There is an economic term for this: quantitative easing. More colloquially, it's called printing money. 

            Why Inflation is not falling - There has been considerable interest in the recent IMF study that found that the responsiveness of inflation to the output gap (or equivalent measure) falls at low levels of inflation. But if the econometrics is right (and Nick Rowe has some cautionary tales here), what is the explanation for this? I start with two standard stories, but then suggest other possibilities that are specific to current financial conditions. One standard explanation which the paper itself gives is based on the menu cost model of price inertia. The idea is that firms do not change their prices that often because there are costs to making any change (which economists call menu costs, perhaps betraying how often they spend in restaurants rather than buying food in supermarkets), and that often this cost might be higher than any benefit to profits in making a change. If you derive the aggregate relationship between inflation and the output gap from a model of this kind, the coefficient on the output gap will depend on how frequently prices are changed. So if price changes become more infrequent at low levels of inflation, the sensitivity of inflation to the output gap will fall. Another quite plausible story which has solid empirical backing is that workers particularly resist nominal wage cuts. That actually implies an asymmetry in response rather than a general reduction in sensitivity (if the output gap was positive workers would happily see wages rise), but it will affect the average response in an econometric study that does not allow for asymmetry, and in current circumstances it is an entirely appropriate story.

            Regulators Blame Libor Fixing On The Sex, Drugs, And Lavish Perks Of London Banking - A number of major banks, mostly in London, were caught last summer in a whirlwind scandal for manipulating an obscure interest rate, the Libor.  There were customary embarrassing instant messages and e-mails released in the complaint, and banks paid out billion dollar fines, but it was still hard to get people to pay attention to such an obscure number. The scandal just wasn't quite salacious enough.  But now it seems that element has arrived. Regulators suspect that London's high-flying banking culture led to an attitude that welcomed deceitful, conspiratorial behavior between traders and brokers, the WSJ reports. Traders and brokers are bonded together because brokers make handsome commissions from executing trades. It's a "symbiotic" relationship, the Journal points out, and in London the rules about "trading favors" are looser than they are in NYC. Banks could easily spend $50,000 on a single trader.  This, regulators say, created the perfect environment for something like the Libor scandal. In order to get traders to work with them, brokers allegedly gave traders early access to lucrative trades, bought entire trading desks lunch, flew them off to Vegas, procured cocaine and prostitutes for traders, and dropped straight cash at strip clubs.

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