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

Saturday, May 11, 2013

week ending May 11

Fed Balance Sheet Rises Above $3.3 Trillion, Again a Record - The Federal Reserve's balance sheet expanded again this week, hitting a new record as the central bank continues its bond-buying program. The Fed's asset holdings in the week ended Wednesday increaaed by $7.42 billion from a week earlier to $3.325 trillion, the central bank said in a weekly report released Thursday. Holdings of U.S. Treasury securities increased by $6.35 billion in the past week to $1.854 trillion while mortgage-backed securities rose by $17 million to $1.122 trillion. The Fed is buying an average of $85 billion a month in Treasury and mortgage bonds as part of a program to stimulate economic growth. Central bank officials last week affirmed that pace and said they could increase or decrease purchases depending on inflation and the jobs market. The Fed's portfolio has more than tripled since the financial crisis thanks to programs intended to keep interest rates low. Meanwhile, the report showed total borrowing from the Fed's discount lending window was $41 million on Wednesday, the same from a week earlier.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--May 9, 2013: Federal Reserve statistical release

Don't Worry! Fed QE No Big Concern: Blackstone CEO: The Federal Reserve's $3 trillion-plus balance sheet is not too big when compared with the entire banking system, Blackstone boss Steve Schwarzman told CNBC on Thursday. That's why he's not that concerned about the central bank's massive bond-buying program, he said.  "When the [financial] crisis started, the U.S. Fed was only about $800 billion," Schwarzman said in a "Squawk Box" interview. "Citibank was about four and a half times the size of our entire central bank. That seems a bit odd to me. "The idea that the central bank is now at [about] $3 trillion and Citibank is down to around $2.4 trillion still doesn't seem like the central bank is massively scaled to the size of the U.S. banking system in toto," he added.

Economists: Fed Will Taper Bond Purchases This Year - More than half of the 49 economists who participated in the latest Wall Street Journal forecasting survey believe the Federal Reserve will begin to reduce its monthly bond purchases by the end of the year. Of those who responded to the question, 30% predict the Fed will start reducing the amount of bonds it purchases in the third quarter of this year, while 25% said the Fed would slow its purchases in the fourth quarter. For those economists who believe the Fed will stick to its current pace until next year, most — 30% of all those surveyed — say the Fed will slow down during the first three months of 2014. Full results of the May forecasting survey will be released Sunday.

Wall Street sees Fed buying $1.25 trillion of assets in stimulus (Reuters) - Wall Street is looking for the Federal Reserve to buy a total of $1.25 trillion of assets under its latest debt purchase program intended to stimulate the economy, according to a Reuters poll conducted on Friday. The median of forecasts from economists at 15 U.S. primary dealers - the large financial institutions that deal directly with the Fed - was for the central bank to buy $1.25 trillion of assets, which was up from a median of $1 trillion in a similar poll conducted on March 8. The forecasts for the size of Fed purchases in the latest round of stimulus mostly ranged from $885 billion to $1.6 trillion. The Fed bought a total of $2.3 trillion in mortgage and government debt in two prior rounds of quantitative easing in the wake of the financial crisis that hit in 2007. Eleven of the 15 dealers expect the Fed to continue the latest stimulus program, known as QE3, into 2014, while four expect the Fed to end the program late this year.

What Is The Fed Thinking? - The Federal Reserve is trying to figure out its next move. Monetary policymakers have promised to continue monthly purchases of $85 billion in mortgage and U.S. Treasury securities. But after their latest meeting they added an important, yet little-noticed, point: The Fed "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.” It's a curious sentence, because several Fed officials have already come forward to explain how the Fed would exit its bond-buying program. An increase hasn’t been on the table. Observers expect that, given steady progress on unemployment and tame inflation, the Fed will reduce bond purchases over the course of several meetings, beginning in the fourth quarter. It will probably hit pause after that -- and wait for the unemployment rate to fall below 6.5 percent, consistent with its "Evans rule" commitment. Then the Fed can begin to raise its policy rate as well -- in 2015, as it has indicated. Recent data have complicated the Fed's decision. Hiring seemed to slow at the start of the year. That caused concern -- but the figures have been revised upward. Growth in gross domestic product has been bumpy and generally slower than the Fed had hoped. Inflation is slightly, but persistently, below the Fed's target. What else is the Fed watching? What news and what sorts of numbers will convince its members that they can withdraw stimulus -- or that they need to extend or even boost their injections?

Fed’s Plosser: Costs of Bond Buying Outweigh Benefits - Philadelphia Fed President Charles Plosser said Thursday the “costs outweigh the benefits” of the Fed’s bond buying program and he was “dubious” that it helping to spur the employment market. I’ve never felt the Fed’s asset purchases were “that effective,” he said in an interview on Bloomberg TV. “We have seen a lot of restructuring of financial deals and debt restructuring and so forth, but the transition and transmission into the labor market has been much more dubious,” he said. Mr. Plosser said he would like to see the Fed begin to ease its pace of purchases but there’s not much historical evidence for the Fed to go by in unwinding its massive quantitative easing program. “There is not much historical evidence or academic theory for us to go on in this instance. There are episodes in Japan and other places where they have tried quantitative easing, but not on the scale we have been doing it. It is uncharted territory.” However, he said it is pretty clear “we know and have the tools of what to do.” “The question is will we be able to execute them and will the market be patient enough do it in a smooth way.”

Fed Maps Exit From Stimulus - Federal Reserve officials have mapped out a strategy for winding down an unprecedented $85 billion-a-month bond-buying program meant to spur the economy—an effort to preserve flexibility and manage highly unpredictable market expectations. Officials say they plan to reduce the amount of bonds they buy in careful and potentially halting steps, varying their purchases as their confidence about the job market and inflation evolves. The timing on when to start is still being debated. The Fed's strategy for how and when to wind down the program is of intense interest in financial markets. While the strategy being debated leaves the Fed plenty of flexibility, it might not be the clear and steady path markets expect based on past experience. Officials are focusing on clarifying the strategy so markets don't overreact about their next moves. For example, officials want to avoid creating expectations that their retreat will be a steady, uniform process like their approach from 2003 to 2006, when they raised short-term interest rates in a series of quarter-percentage-point increments over 17 straight policy meetings. "I don't want to go from wild turkey to cold turkey,"

The Trapdoors at the Fed’s Exit by Nouriel Roubini - The ongoing weakness of America’s economy – where deleveraging in the private and public sectors continues apace – has led to stubbornly high unemployment and sub-par growth. The effects of fiscal austerity – a sharp rise in taxes and a sharp fall in government spending since the beginning of the year – are undermining economic performance even more. Indeed, recent data have effectively silenced hints by some Federal Reserve officials that the Fed should begin exiting from its current third (and indefinite) round of quantitative easing (QE3). Given slow growth, high unemployment (which has fallen only because discouraged workers are leaving the labor force), and inflation well below the Fed’s target, this is no time to start constraining liquidity. The problem is that the Fed’s liquidity injections are not creating credit for the real economy, but rather boosting leverage and risk-taking in financial markets. The issuance of risky junk bonds under loose covenants and with excessively low interest rates is increasing; the stock market is reaching new highs, despite the growth slowdown; and money is flowing to high-yielding emerging markets.

Martin Feldstein: The Federal Reserve's Policy Dead End - The Federal Reserve recently announced that it will increase or decrease the size of its monthly bond-buying program in response to changing economic conditions. This amounts to a policy of fine-tuning its quantitative-easing program, a puzzling strategy since the evidence suggests that the program has done little to raise economic growth while saddling the Fed with an enormous balance sheet. Quantitative easing, or what the Fed prefers to call long-term asset purchases, is supposed to stimulate the economy by increasing share prices, leading to higher household wealth and therefore to increased consumer spending. Fed Chairman Ben Bernanke has described this as the "portfolio-balance" effect of the Fed's purchase of long-term government securities instead of the traditional open-market operations that were restricted to buying and selling short-term government obligations. But despite the Fed's current purchases of $85 billion a month and an accumulation of more than $2 trillion of long-term assets, the economy is limping along with per capita gross domestic product rising at less than 1% a year. Although it is impossible to know what would happen without the central bank's asset purchases, the data imply that very little increase in GDP can be attributed to the so-called portfolio-balance effect of the Fed's actions.

Fed’s Fisher Would Taper MBS Purchases First - Should the Federal Reserve opt to taper its bond buying program, it would be best to start with mortgage-backed securities, the head of the Dallas Federal Reserve bank said Wednesday. “My own personal preference … would be in the mortgage-backed securities,” Richard Fisher said in an interview on CNBC when asked if he would begin with those securities or Treasurys. Mr. Fisher, who isn’t a voting member of the central bank’s policy-setting committee, also reiterated that inflation is still not a concern and again pointed blame for the lack of job creation at “fiscal authorities” and the lack of clarity on a range of issue, including taxes, health care and regulation. “The fault lies with the fiscal authorities, and until they get their act together — give us some certainty — I don’t think you’re going to see the kind of growth we would like to see.” The U.S., he said, nonetheless is “the best-looking horse in the glue factory.”

Is the Fed able to offset “austerity”? - David Beckworth serves up another very good blog post and directs us to this graph of nominal gdp; it seems aggregate demand has been recovering steadily:  Scott Sumner directs us to Marcus Nunes, but here is a quotation from Scott: In 1937 real government purchases recoiled 4.2% and the economy tanked. In 2012 real government purchases were 4.8% below the 2010 level and the recovery is slow! Surely something is going on that´s making comparable ‘fiscal austerity’ so much less damning in 2012 than in 1937. And that ‘something’ is monetary policy. Here are further remarks from Scott.

The Infallible Fed At The Verge Of (Not) Admitting Failure - “Labor market conditions are affected by a wide variety of factors outside a central bank’s control,” admitted Richmond Fed President Jeffrey Lacker a few hours after the employment report bounced around the world. Yet for years, the Fed has proclaimed that the heroic motivation for its selfless money-printing mania (QE) and bold zero-interest-rate policies (ZIRP) was the deep desire to improve the unemployment fiasco for average Americans. So the employment report was mixed in the manner befitting these crazy times: 165,000 jobs were “created” in April. March was revised up from a super-lousy 88,000 to a still lousy 138,000; February was revised up from 268,000 to 332,000. The unemployment rate dropped to 7.5%, from 7.6%, the lowest since 2008 – and so we’re excited and go into the weekend celebrating. There’s nothing like a “better-than expected” though very lousy headline number to amplify the power of the money-printing machines. But there were some big fat flies in the ointment. Hours worked dropped to 34.4 from 34.6 in March, the worst so far this year. And average weekly incomes declined – the bane of economic growth. That persistent trend has hollowed out the middle class and impoverished the lower classes. Falling real incomes is a serious long-term problem in the US.

When Will the Fed's Easing Measures End? The Unemployment Rate is the Key: The Federal Reserve's is expected to extend its easing measures until the job market improves "substantially", the stated goal is a decline of the unemployment rate to 6.5%. One can use the unemployment rate model to provide an estimate of the future unemployment rate (UER). This model suggests that the unemployment rate will decline to 7% by the end of 2013, and to 6.5% by the middle of 2014; the implication being that the Fed could abandon its easing measures fairly soon, which should affect bond and stock prices adversely. Additionally, reaching the Fed's UER target level early will also bring the onset of the next recession nearer. After the target level of 6.5% is reached, the model shows that it is possible that the lowest level of the unemployment rate will be about 6% in the middle of 2015, and could then rise to about 6.5% again by the second quarter of 2016, with a recession starting then. The growth of the unemployment rate (UERg) has been negative since the end of September 2010, for 140 weeks so far, and the current level of UERg is -8.4%. The unemployment rate must continue to decline further while UERg is negative. Only when UERg becomes positive again, which usually signals a recession start, will the unemployment rate increase again. (The criteria for the model to signal the start and end of recessions are given in the original article.) By relating the typical growth rate pattern of the UER which prevailed during previous in-between recessions periods to the present period we can attempt a forecast.

Goldman Caves: "The Unemployment Rate Is An Inappropriate Measure Of The Labor Market" - The second half of 2012 saw a significant shift in US monetary policy from calendar-based guidance to outcome-based guidance and the adoption of a 6.5% unemployment rate as a threshold for 'tapering'. With Friday's better-than-expected payrolls data and another tick lower in the critical-to-liquidity unemployment rate, it seems Goldman Sachs (and others) are waking up to the facts that we have been vociferous about: the shift of jobless individuals from unemployment into inactivity (the participation rate dilemma) is making the unemployment rate a less appropriate measure of broad labor market conditions. This has important implications for Fed policy because it implies that the committee might still be quite far from reaching the jobs side of its mandate even once the unemployment rate is back at 6%. After all, the Federal Reserve Act calls for 'maximum employment', not 'minimum unemployment'.

Central Banks Keep Easing After Cuts Fail to Spur Growth - Global central bankers are poised to ease monetary policy even further after a wave of interest-rate cuts from India to Poland. As Group of Seven finance chiefs gather in the U.K. today with monetary policy on their agenda, economists at Morgan Stanley and Credit Suisse Group AG are among those predicting policy makers will keep deploying stimulus amid weak global growth, slowing inflation and the need to thwart currency gains. “Most central banks in our coverage universe still have a bias to ease,” Morgan Stanley economists led by London-based Joachim Fels said in a report to clients yesterday. “Given this disposition, it doesn’t take much in terms of downside surprises in growth or inflation to tip the balance for more central banks to pull the trigger for more easing.” South Korea’s rate cut yesterday was the 511th reduction worldwide since June 2007, according to Bank of America Corp.’s tally, done before Vietnam and Sri Lanka today said they’re lowering their policy rates. While the liquidity has sent stock markets surging, it has yet to prove as effective in generating economic growth.

Bankers Warn Fed of Farm, Student Loan Bubbles Echoing Subprime - A group of bankers that advises the Federal Reserve’s Board of Governors has warned that farmland prices are inflating “a bubble” and growth in student-loan debt has “parallels to the housing crisis.” The concerns of the Federal Advisory Council, made up of 12 bankers who meet quarterly to advise the Fed, are outlined in meeting minutes obtained by Bloomberg through a Freedom of Information Act request. Their alarm adds to a debate on the Federal Open Market Committee about whether the benefits from their monthly purchases of $85 billion in bonds outweigh the risk of financial instability. While Chairman Ben S. Bernanke has argued the program is worth pursuing, Fed Governor Jeremy Stein and Kansas City Fed President Esther George are among those who have voiced concerns that an extended period of low interest rates is heightening the risk of asset bubbles.

Banks Warn Bernanke Of The First Two Bubbles: Student Loans And Farmland - A panel of bankers warned the Fed in February that their extreme monetary policy is forcing institutions to "accept greater credit-risk" than "makes sense" and student debt and farmland prices are in a bubble. We first started to explain the bubble in student debt over two years ago and since then the bubble has become larger (and the underlying structure much more fragile as delinquencies soar). Farmland rose in price over 16% last year (according to the Chicago Fed) and has surged 8% per annum over the past decade. Credit risk is now at levels associated with the CDO-driven liquidity excess of 2006. "Further accommodation is not warranted," the minutes of this meeting show - uncovered by Bloomberg via the FOIA. The comments should cause Bernanke and his merry men to pause for breath but of course it is likely what he wanted all along. "Growth in student debt... has parallels to the housing crisis," and "agricultural land prices are veering further from what makes sense," are just two of the bankers' comments, adding that this "will ultimately result in higher loan losses,"

Experts See Risk of a Housing Bubble Resulting from Fed Policies - A majority of real estate experts responding to a recent Zillow survey expressed some concern that the Federal Reserve’s current policies could lead to another housing bubble. Only 4 percent of respondents are not at all worried about a bubble resulting from the Fed’s monetary policy that is keeping mortgage rates down. However, 48 percent see the Fed’s policies as “a little risky,” and the remaining 48 percent categorized the risk as “moderate to high risk.” “How the Federal Reserve handles the eventual winding down of its policy of quantitative easing will be critical in determining if the current period of rapid appreciation is a benign bounce off the bottom or a more dangerous bubble being re-inflated,” said Stan Humphries, chief economist at Zillow. The more than 100 survey respondents expect home prices to continue their upward trajectory this year and over the next few years. However, the general consensus is that price increases will slow after the next year or so. Experts expect prices to end this year 5.4 percent higher than their level at the start of the year. After ending 2012 at $156,800, the median price would end this year at $165,280, according to this forecast.

Hugely Negative Real Interest Rates Fuel Yet Another Housing Bubble; A Word About "Inflation" and Treasury Yields - It's easy to spot a Fed-sponsored housing bubble if you look in the right places. The best place to start is an analysis of price inflation as measured by the BLS as compared to a CPI-variant that takes actual housing prices into consideration instead of rent. This is a followup to my post Dissecting the Fed-Sponsored Housing Bubble; HPI-CPI Revisited; Real Housing Prices; Price Inflation Higher than Fed Admits. Data for the following charts is courtesy of Lender Processing Services(LPS), Specifically the LPS Home Price Index (HPI). The charts were produced by Doug Short at Advisor Perspectives. Anecdotes on the charts in light blue are by me. The CPI does not track home prices per se, rather the CPI uses a concept called "Owners' Equivalent Rent" (OER) as a proxy for home prices. The BLS determines OER from a measure of actual rental prices and also by asking homeowners the question “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?” If you find that preposterous, I am sure you are not the only one. Regardless, rental prices are simply not a valid measure of home prices.

Is The Fed Blowing Bubbles? - The ongoing weakness of the American economy has led to stubbornly high unemployment and sub-par growth.  Indeed, recent data have effectively silenced hints by some Federal Reserve officials that the Fed should begin exiting from its current third (and indefinite) round of quantitative easing . Given slow growth, high unemployment (which has fallen only because discouraged workers are leaving the labor force), and inflation well below the Fed’s target, this is no time to start constraining liquidity. The problem is that the Fed’s liquidity injections are not creating credit for the real economy, but rather boosting leverage and risk-taking in financial markets. The issuance of risky junk bonds under loose covenants and with excessively low interest rates is increasing; the stock market is reaching new highs, despite the growth slowdown; and money is flowing to high-yielding emerging markets.It may be too soon to say that many risky assets have reached bubble levels, and that leverage and risk-taking in financial markets is becoming excessive. But the reality is that credit and asset/equity bubbles are likely to form in the next two years, owing to loose U.S. monetary policy. The Fed has signaled that QE3 will continue until the labor market has improved sufficiently (likely in early 2014), with the interest rate at 0 percent until unemployment has fallen at least to 6.5 percent (most likely no earlier than the beginning of 2015)

Bernanke, Blower of Bubbles?, by Paul Krugman -  Bubbles can be bad for your financial health — and bad for the health of the economy, too. The dot-com bubble of the late 1990s left behind many vacant buildings and many more failed dreams. When the housing bubble of the next decade burst, the result was the greatest economic crisis since the 1930s — a crisis from which we have yet to emerge.   And there’s a lot of bubble talk out there right now. Much of it is about an alleged bond bubble that is supposedly keeping bond prices unrealistically high and interest rates — which move in the opposite direction from bond prices — unrealistically low. So do we have a major bond and/or stock bubble? On bonds, I’d say definitely not. On stocks, probably not, although I’m not as certain.  Why, then, all the talk of a bond bubble? Partly it reflects the correct observation that interest rates are very low by historical standards. What you need to bear in mind, however, is that the usual rules about what constitutes a reasonable level of interest rates don’t apply.  There’s also, one has to say, an element of wishful thinking here. For whatever reason, many people in the financial industry have developed a deep hatred for Ben Bernanke, the Fed chairman, and everything he does; they want his easy-money policies ended, and they also want to see those policies fail in some spectacular fashion. As it turns out, however, dislike for bearded Princeton professors is not a good basis for investment strategy.

Ben Bernanke, Enabler of America’s Fiscal Dysfunction -- Federal Reserve chairman Ben Bernanke doesn’t get much respect. PIMCO’s Bill Gross, who oversees some of the country’s biggest bond portfolios, has warned that Bernanke risks rousing inflationary dragons.  NYU professor Nouriel Roubini, who correctly anticipated the 2008 financial crisis, has argued that Bernanke’s policies are failing to help the economy and are instead fueling a stock market bubble that will end in a financial crisis. Even experts who are sympathetic have been cutting at times. New York Times columnist Paul Krugman has acknowledged that the Fed chairman is a fine economist.  But his long-running disputes with Bernanke – known in some quarters as the Battle of the Beards – have included charges that Bernanke was assimilated by the Fed Borg, a reference to Star Trek’s collective alien intelligence that overwhelms individuality and personal will. Renowned investor and business magnate Warren Buffett has described Bernanke as “a gutsy guy,” but he has also criticized the Fed’s policies as brutal toward retirees, who depend on interest payments from their investments. Indeed, Bernanke himself acknowledged as much in a 2011 press conference: ”We are quite aware that very low interest rates, particularly for a protracted period, do have costs for a lot of people. They have costs for savers. We have complaints from banks that their net interest margins are affected by low interest rates. Pension funds will be affected if low interest rates for a protracted period require them to make larger contributions. So we are aware of those concerns, and we take them very seriously.”

I Am Become Ben, Destroyer of Worlds - Paul Krugman - Joe Wiesenthal reports on Bernanke rage among hedge funders, and sure enough, here’s Paul Singer declaring not just that he dislikes Bernanke’s policies but that BB is destroying the very fabric of society. I still don’t have this rage entirely figured out. In substantive terms, it’s really hard to justify. After all, the Fed is normally expected to cut rates when unemployment is high and inflation low; with unemployment high and inflation running below the Fed’s target, easy money is just what the textbook says you should be doing (and quantitative easing is just an attempt to get some traction with normal policy rates up against the zero lower bound). It’s the economic situation — an economy so depressed by private sector deleveraging that conventional monetary policy has reached its limit — that’s radical here, not the Fed’s response.

Counterparties: Well Fed critics - At a conference in Chicago today, Ben Bernanke seemed like he was talking directly to his critics. In a speech on monitoring the financial system, Bernanke’s message was, essentially: we’re keeping an eye on things. (Shadow banking, in particular, is still a risk, he warned.) Bernanke’s speech comes on the heels of this year’s Ira Sohn conference in New York, where, as Joe Weisenthal and Reuters both noted, one of the major themes among hedge fund bigwigs was “Bernanke hate”. Stanley Druckenmiller, a former protege of George Soros, told the crowd that the Fed “is running the most inappropriate monetary policy in the history of the developed world”. Paul Singer worries that the “cessation of money printing will cause an instant Depression” and says the Fed’s much-discussed end of quantitative easing will be difficult to impossible. And prominent economist Martin Feldstein, a former Reagan econ adviser, wrote Thursday that the Fed’s quantitative easing program has loaded up the Fed’s balance sheet but hasn’t helped the economy in any significant way. Why all the anti-Bernanke comments and talk of Fed-induced bubbles? Ryan Avent cites a few factors, including recent (nominal) stock market highs and a February speech, in which new Fed governor Jeremy Stein warned of a number of possible financial market bubbles. Paul Krugman thinks the Fed bashing may be just be self-interest — hedge fund managers are paid as a percentage of their overall profits, and the industry certainly has been terrible in that regard of late. Weisenthal says “anti-inflation is kind of a nostalgia trip” for old American hedge fund managers stuck in the mentality of the 1980s.

What Would the "Financial Instability" Argument Look Like For Any Other Industry? - It’s becoming a surprisingly influential argument given that it hasn’t been well presented or argued, much less vetted and challenged. What is it? The argument that we should raise interest rates or otherwise contract monetary policy in order to preserve “financial stability.” Nick Rowe argues that this idea “may be influential. And that idea is horribly wrong.” Here’s one version of the argument, from a recent speech by Narayana Kocherlakota: “On the one hand, raising the real interest rate will definitely lead to lower employment and prices. On the other hand, raising the real interest rate may reduce the risk of a financial crisis—a crisis which could give rise to a much larger fall in employment and prices. Thus, the Committee has to weigh the certainty of a costly deviation from its dual mandate objectives against the benefit of reducing the probability of an even larger deviation from those objectives.” Tim Duy and Ryan Avent commented on this speech, which essentially argued that that raising rates would certainly cause a problem, but rates at their current value could cause even bigger problems. Let’s be clear on the terms: should we risk another immediate recession (“lower employment and prices”) to preserve a thing called “financial stability?” Five immediate problems jump out from this argument. Nick Rowe emphasized tackling this on an abstract level; I’m going to focus on practical stuff.

Stability through instability - THIS spring, the economics commentariat is discussing the relationship between monetary policy and financial stability. The concern that loose monetary policy might lead to financial excess is not a new one; some on Wall Street began complaining about Ben Bernanke's bubbles back before the recession ended. The new energy behind the argument can be attributed to two factors. First, equities are touching new nominal highs even as as bond yields plumb ever lower depths. And second, Jeremy Stein, a new addition to the Federal Reserve Board of Governors, has been making speeches that provide an intellectual skeleton to which the more gut-driven critics of excess can cling. We can very briefly sum up these sorts of arguments as follows. Easy monetary policy, and especially unconventional policy that lowers rates all along the yield curve, generates a sort of unnatural pressure for financial risk-taking. Regulatory tools may be able to rein in some of that excess, but the only way to make sure you've gotten all the bubbles that might be hiding in the cracks is to raise interest rates. Tighter monetary policy might have a cost, but if it prevents financial excess it may avoid even greater costs. You can read some very nice recent responses to these points here and here. I have commented on this line of thinking in the past (see the first link above and this). But I'll just make two additional comments.

The link between interest rates and financial instability is asymmetric information -- Mike Konczal, Nick Rowe, and Brad DeLong are deeply disturbed by FOMC members who are concerned that low interest rates feed financial instability. Mike Konczal concludes his analysis of the arguments in favor of raising interest rates: It’s hard not to read the financial stability arguments as saying “look, we can’t trust the financial sector to accomplish its most basic goals.” If true, that’s a very significant problem that should cause everyone a lot of concern. It should make us ask why we even have a financial system if we can’t expect it to function, or function only by put the entire economy at risk. Well, precisely. What did the crises of 2007-08 mean if not that our financial structure is fundamentally flawed. Theoretically raising interest rates can have two effects (and a range of combinations between them that I won’t address). In the absence of asymmetric information, raising interest rates allows fewer projects to be funded and this reduces economic activity and employment. (I think this story is consistent with Nick Rowe’s view of monetary policy as acting through spending, though he would include a multiplier effect.)  In the presence of asymmetric information, however, we can have a very different outcome due to adverse selection.  An increase in interest rates can result in an increase in the number of projects funded, as “bad” borrowers prefer to get money that there is a high probability that they won’t be able to pay back now and incur the likely costs of default later. Of course, in a world with perfect information the lenders wouldn’t participate in this scheme, so we need an environment where lenders are misinformed. Theoretically, when lenders realize how bad loan origination methods are, the whole market can collapse. This is the “lemons” problem.

Warren Buffett sees ‘brutal’ damage for savers from central bank money printing - Veteran investor Warren Buffett has warned that savers and bondholders are suffering a "brutal" erosion of their money as the US Federal Reserve and other central banks force yields to historic lows. "I feel sorry for people that have clung to fixed-dollar investments," he told investors at Berkshire Hathaway's annual meeting in Nebraska, an event akin to a rock concert. Mr Buffett defended the emergency stimulus of Fed chairman Ben Bernanke, saying the "consequences would have been terrible" if the authorities had failed to act, but those nearing pension age have paid the price. Many are trapped in such assets through pension funds. "Bernanke had tough choices to make, but he decided to step on the gas pedal, in terms of monetary policy, and he brought down rates to virtually unheard of levels, and kept them there. And he's still got his foot on the pedal and that really does hurt savers. It has made it extremely difficult for all kinds of people who live on fixed-income investments," he told CNBC. Mr Buffett said those who parked their money in cash equivalents or short-term US Treasuries had missed the party over the last nine months as Wall Street rocketed to all-time highs. "It is brutal. I don't know what I would do if I were in that position," he said.

Weighing In on the Recent Discrepancy in the Inflation Statistics - Atlanta Fed's macroblog - Recently, there has been a divergence between inflation as measured by the Consumer Price Index (CPI) and the preferred inflation measure of the Federal Open Market Committee (FOMC), which is the price index for personal consumption expenditures (PCE). That divergence is fairly evident in the “core” measures of these two price statistics shown in the chart below. This strikes us (and others, like Reuters’ Alister Bull) as a pretty significant development. The core CPI is telling us that the underlying inflation trend is still holding reasonably close to the FOMC’s longer-term target of 2 percent. But the behavior of the core PCE is rather reminiscent of 2010, when the inflation statistics slid to uncomfortably low levels—a contributing factor to the FOMC’s adoption of QE2. Which of these inflation statistics are we to believe? Part of the divergence between the two inflation measures is due to rents. Rents are rising at a good pace right now, and since it’s pretty clear that the CPI over-weights their influence, we might be inclined to dismiss some part of the CPI’s more elevated signal. But then there are all those “non-market” components that have been pulling the PCE inflation measure lower—and these aren’t in the CPI. These are components of the PCE price index for which there are no clearly observable transaction prices. They include the “cost” of services provided to households by nonprofit organizations, or the benefits households receive that can only be imputed. Since we can’t really observe the price of these things, we’d probably be inclined to dismiss their influence on PCE the inflation measure. But we’ve done the math, and the impact of these two influences accounts for only about a third of the recent gap between the core PCE and the core CPI inflation measures. Most of the disagreement between the two inflation estimates is coming from elsewhere.

Core PCE measure gives the Fed green light to proceed with its program - The two major US core inflation indices have diverged. The explanation for this divergence has to do with the difference in relative importance of housing in the indices. And recent increases in the cost of shelter accentuated these differences.  DB: - Shelter prices have been rising at an annual rate of 2.2% in the PCE, well above the overall level of inflation measured by the index. But housing accounts for a much greater share of the core CPI index – around 42% – relative to the 15% share of the core PCE index. The weight effect of housing alone explains around 50 basis points of the annualized inflation differential between the core index, virtually the entire excess amount of observed CPI inflation. The weighting effect of housing prices in core inflation is exaggerated by factor that has little to do with housing. The relative importance of “core” components of CPI inflation has dropped by about 2 percentage points since 2010, while remaining steady in PCE inflation. This has the effect of increasing the relative importance of housing prices in core CPI.

Fed Watch: When Will The Divergence Between PCE and CPI Matter? - The divergence between PCE and CPI measures of inflation remains in the headlines. Pedro da Costa at Reuters sees a test of the Fed's credibility at hand: With the inflation rate about half of the Federal Reserve's 2.0 percent target, the central bank is facing a major test and some experts wonder whether it will eventually need to ramp up its already aggressive bond buying program. The challenge for policymakers is that they are clearly falling short of their dual mandate and that should open the door for additional asset purchases. But, but, but...I think that additional asset purchases is just about the last thing they want to do right now. We will see if their thinking evolved much at the last FOMC meeting, but the minutes of the March meeting clearly indicate that a large contingent of FOMC members are looking to end the asset purchase program by the end of this year. Take ongoing improvements in labor markets, add in concerns about financial stability, mix in some cost-benefit analysis about the efficacy of additional QE, and top-off with a dash of improving housing markets, bake at 350 for 40 minutes, and you get monetary policymakers hesitant to push the QE lever any further. My sense is that policymakers will thus try to find reasons to dismiss falling PCE inflation as a non-issue. Philadelphia Federal Reserve President Charles Plosser had this to add, via the Wall Street Journal: Inflation expectations “look pretty well anchored,” and it’s likely that price pressures as measured by the personal consumption expenditures price index will drift back up to 2% over time and reconverge with the consumer price index, he said.

Fed’s Plosser: Slow Inflation Not Yet a Problem - Inflation hasn’t yet cooled enough for the Federal Reserve to weigh boosting its monetary policy stimulus, but that could change, a central bank official said Thursday. As of right now, “I’m not concerned” about inflation drifting too far under the central bank’s price target of 2%, Federal Reserve Bank of Philadelphia President Charles Plosser said in response to reporter’s questions at a conference here. Inflation expectations “look pretty well anchored,” and it’s likely that price pressures as measured by the personal consumption expenditures price index will drift back up to 2% over time and reconverge with the consumer price index, he said.

Fed Officials Shrug Off Waning Inflation - WSJ - Federal Reserve officials are so far content to shrug off ebbing inflation because expectations of future price gains have remained stable. But some of the officials, even those who are unhappy with the current level of stimulus the central bank is providing, say that if expectations were to start falling in a notable fashion, there could be room for the Fed to provide more stimulus to the economy. At issue for the Fed is the distance between its 2% inflation target and the personal consumption expenditures price index, which is the central bank’s preferred measure of inflation. Officials don’t want prices to breach that number for any length of time, and they don’t want price gains to fall much under that mark either, given that the lower inflation goes, the closer outright deflation becomes.

Fed’s Evans: Low Inflation to Persist for Years - U.S. inflation, now running about 1.5%, is below the Federal Reserve‘s long-term objective and should stay that way for years, although it’s too soon for the central bank to react with a policy shift, the president of the Chicago Fed said Thursday. “Inflation is low, and it’s lower than our long-run objective,” Mr. Evens said in an interview on Bloomberg Television, adding that he would like to see inflation closer to 2% but expects it to stay below 2% for several more years. Inflation, he said, “can be too low” when the central bank’s objective is 2%.Asked if low inflation should prompt a policy response from the Fed, Mr. Evans said “I think it’s way too early to think like that.” In the debate over how the Fed might exit from the asset purchase program, Mr. Evans, a voting member of the policy-setting Federal Open Market Committee, said he remains “open minded [and] I’m listening to my colleagues.”

Should The Inflation Target be 4.3%? - I’m quite tongue-in-cheek in asking that question, but nevertheless: I present for your delectation what at first blush seems like a revealing bit of chart porn (hat tip: Zero Hedge): You could flip this upside down and replace “Earning Yield” with “PE ratio.” The data displays a remarkably regular relationship. Equity investors seem to be most optimistic about future economic (or at least earnings) growth when the inflation rate is 4.3%. (It would be interesting to see: did this relationship hold, albeit with the inevitable noise from smaller samples, in shorter sub-periods — and if so, which sub-periods? In particular curious: did it hold equally pre- and post-1971?) Can we draw any conclusion from this? i.e.:

  • • Market conditions that are most conducive to economic growth are revealed by a 4.3% inflation rate.
  • • Equity investors display the most “irrational exuberance” when the inflation rate is 4.3%.

US GDP Overview: Gross Investment: Total investment peaked at high levels before the last recession, only to drop substantially during the recession. Since then, we see a strong uptrend, with total investment now at the level of the peak from the 1990s expansion. It should come as no surprise that residential investment has cratered after the housing bubble, falling from a little under $800 billion to a little above $300 billion. Also note that the overall trend of residential investment has been rising for about a year now. In contrast, we see that non-residential investment is actually doing very well. It has been consistently rising for nearly three years and is almost at levels seen at the peak of the last expansion. And finally, also note that equipment and software investment is now higher than it was at the end of the last recession. This area of investment has also been growing solidly for the last three years. With the exception of the residential investment situation, overall investment has bounced back to fairly decent levels.

The Latest Contribution To US GDP: Promises... No Really  -- Sadly, we are not making this up: as part of the BEA's latest revision to the way it calculates GDP, the government will no longer count the amount of pension funding that is actually allocated to retirement accounts (counted as wages in the GDP calculation): i.e., an actual cash outlay. Instead, what the Bureau of Economic Analysis will count are corporate promises of how much companies will (may? might?) pay... eventually. The bigger the lie and the promise, the higher the GDP. And presto.

The March 2013 Crash for U.S.-China Trade - Yesterday, we found that the number of announced dividend cuts in the month of April 2013 was consistent with recessionary conditions being present in the U.S. economy.  Today, we're going to use international trade data to see if there's more to that story.  To do that, we'll be taking advantage of our observation that when a nation's economy is expanding, it will typically import an increasing level of goods from other nations, which we see in the form of a positive year-over-year growth rate for its imports. Conversely, if a nation's economy is contracting, we'll see it show up in the form of a negative growth rate for the goods it imports from beyond its borders.  Here, we'll use the international trade data provided by the U.S. Census Bureau for the value of trade between the world's two largest economies: the U.S. and China. Our first chart measures the year-over-year growth rates in the value of trade between the world's two largest economies after adjusting for the changing relative value of each nation's currency with respect to each other through March 2013, the most recent month at this writing for which we have data

Update: Recovery Measures - By request, here is an update to four key indicators used by the NBER for business cycle dating: GDP, Employment, Industrial production and real personal income less transfer payments.  The following graphs are all constructed as a percent of the peak in each indicator. This shows when the indicator has bottomed - and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%. This graph is for real GDP through Q1 2013.Real GDP returned to the pre-recession peak in Q4 2011, and has hit new post-recession highs for six consecutive quarters.This graph shows real personal income less transfer payments as a percent of the previous peak through the March report. This measure was off 11.2% at the trough in October 2009. Real personal income less transfer payments returned to the pre-recession peak in December, but that was due to a one time surge in income as some high income earners accelerated earnings to avoid higher taxes in 2013. Real personal income less transfer payments declined sharply in January, and were 3.3% below the previous peak in March.The third graph is for industrial production through March 2013. Industrial production was off over 17% at the trough in June 2009, and has been one of the stronger performing sectors during the recovery. However industrial production is still 1.3% below the pre-recession peak.The final graph is for employment and is through April 2013. Payroll employment is still 1.9% below the pre-recession peak and will probably be back to pre-recession levels in 2014.

An updated look at the long leading indicators: These are the four long leading indicators Prof. Geoffrey Moore identified in the 1990's just before he founded ECRI. Each of these tends to peak more than one year before the economy as a whole does, and in particular before industrial production, spending, and payrolls turn. In the graphs below, the last 5 years for each indicator - housing permits, corporate profits, real M2 money supply, and yields on BAA corporate bonds (inverted) are shown in blue, with the last 18 months highlighted in red. Here are housing permits:These started rising about two years ago and have remained in a strong uptrend over the last 18 months, Next, here are corporate profits after taxes. The first quarter of this year hasn't been added yet, but since we are mainly concerned with 12+ months ago, the relevant trend still shows: Corporate profits have risen to all time highs. Next, here is real M2 money supply: Real money supply has also been rising sharply over most of the last few years with several exceptions. Because recessions have occured when real M2 has slipped below +2.5%, here is the YoY% growth in real M2 minus 2.5%: Real M2 did fall into the recession warning area in 2010 and early 2011, but that signal is now waning. The last of Moore's four indicators is inverted yield on corporate bonds: Here again the rising signal is unambiguously positive. In summary all four long leading indicators signal that, left to its own devices (i.e., without idiotic austerity imposed by Washington), the economy and with it payrolls and consumer spending, should continue to be positive this year.

Fed Watch: Consistency of the Underlying Trends -- Calculated Risk comments on this morning's JOLTS report: Not much changes month-to-month in this report - and the data is noisy month-to-month, but the general trend suggests a gradually improving labor market.This observation extends far beyond just the JOLTS report to virtually the entire set of labor market data.  While we often get caught up in the month-to-month gyrations of various employment reports, the underlying trend of those data have been remarkable consistent: General, consistent improvement is evident across an array of indicators. The pace of that improvement, however, consistently falls short of what is necessary to rapidly alleviate excessively high levels of underemployment, counter demographic trends impacting labor force participation, or induce significantly higher wage growth. And you can find that generally steady pace of improvement in other indicators as well. For example: In short, it looks as if monetary policymakers have put a bottom under the economy but are unable to accelerate the pace of recovery. Whether the lack of acceleration is attributable to shortfalls on the monetary side of policy (insufficient quantitative easing, unwillingness to allow inflation expectations to drift higher, etc) or lack of cooperation of fiscal authorities (there seems to be no reason to hasten the pace of deficit reduction) remains a matter of debate. I tend to believe that the economy needs additional monetary and fiscal support, in part because I tend to worry that we will not lift off the zero lower bound in this recovery, setting the stage for even larger policy challenges in the next recession. In any event, regardless of where you think policy should be, right now it looks to be accomplishing something of a minimum by setting a floor for activity.

Moody’s Analytics Sees Stronger Fiscal Headwinds This Summer - New data from Moody’s Analytics Chief Economist Mark Zandi indicates fiscal headwinds will intensify this summer but growth will accelerate into next year as fiscal pressures moderate. Moody’s expects real U.S. gross domestic product to advance close to 2% in 2013, with about two million net jobs created, about the same as in 2012 and 2011. The report notes job growth is steady at around 175,000 per month, with most industries and regions experiencing gains. It says nominal wages are growing near the inflation rate, keeping real compensation steady. But it also says demographic and structural issues have lowered prospects for employment growth in the medium term.

Deficit Reduction Is Seen by Economists as Impeding Recovery - The nation’s unemployment rate would probably be nearly a point lower, roughly 6.5 percent, and economic growth almost two points higher this year if Washington had not cut spending and raised taxes as it has since 2011, according to private-sector and government economists.After two years in which President Obama and Republicans in Congress have fought to a draw over their clashing approaches to job creation and budget deficits, the consensus about the result is clear: Immediate deficit reduction is a drag on full economic recovery. Hardly a day goes by when either government analysts or the macroeconomists and financial forecasters who advise investors and businesses do not report on the latest signs of economic growth — in housing, consumer spending, business investment. And then they add that things would be better but for the fiscal policy out of Washington. Tax increases and especially spending cuts, these critics say, take money from an economy that still needs some stimulus now, and is getting it only through the expansionary monetary policy of the Federal Reserve. “Fiscal tightening is hurting,” Ian Shepherdson, chief economist of Pantheon Macroeconomic Advisors, wrote to clients recently. The investment bank Jefferies wrote of “ongoing fiscal mismanagement” in its midyear report on Tuesday, and noted that while the recovery and expansion would be four years old next month, reduced government spending “has detracted from growth in five of past seven quarters.”

Deficit Reduction Is Ruining America -  It’s official: The spending cuts of 2011 and 2012, pushed by Republicans as necessary given our deficits, have damaged the recovery and kept more people out of work. According to The New York Times, “The nation’s unemployment rate would probably be nearly a point lower, roughly 6.5 percent, and economic growth almost two points higher this year if Washington had not cut spending and raised taxes as it has since 2011.” That period, the Times notes, “coincides with the time that Mr. Obama and Congressional Republicans have shared governance since Republicans took control of the House in 2011, promising an immediate $100 billion in spending cuts.” And while we didn’t see that level of austerity at the time, the budget compromises of the last year will lower annual discretionary spending to its lowest levels in fifty years. To put that it slightly different terms, if not for two years of deficit reduction, 1.5 million more Americans would be employed, and the economy would be growing fast enough to lower joblessness at a steady clip. And this is to say nothing of the ongoing austerity on the state level, which has had a nearly equal effect on economic growth.

Graphs of the Day: Your Economy on Austerity - From today’s NYT:  Next question?

Treasury Yield Snapshot: 10-Year Yield Up 15 Basis Points from Last Thursday -  I've updated the charts below through today's close. The S&P 500 is now up 14.06% for 2013, fractionally below its all-time closing high set yesterday. The yield on the 10-year note closed at 1.81%, up 15 bps from its interim low of 1.66% five sessions ago. The latest Freddie Mac Weekly Primary Mortgage Market Survey puts the 30-year fixed at 3.42%, down from its interim high of 3.63% in mid-March but up seven basis points from last week. The all-time low was 3.31%, which dates from the third week in November of last year.  Here is a snapshot of selected yields and the 30-year fixed mortgage starting shortly before the Fed announced Operation Twist. For a eye-opening context on the 30-year fixed, here is the complete Freddie Mac survey data from the Fed's repository. Many first-wave boomers (my household included) were buying homes in the early 1980s. At its peak in October 1981, the 30-year fixed was at 18.63 percent.

The Penny Game - This demonstration will work well in the classroom or barroom. There are five levels, the first is designed for someone who knows nothing about sector balances, each level adds a new variable and complexity. You’ll need three rolls of pennies and three people. One person is the “Government US”, the second is the “Private Sector US”, and the third is the “Foreign Sector.” For the sake of simplicity, G=Government, P=Private Sector, F=Foreign Sector. The game starts with G having all the money. Why? Because the United States has a monopoly issuing the dollar, or in this case the penny. So, to begin with G buys goods and services from the private sector P, like paying the brave men and women in the armed forces, teachers, buying airplanes, ships, tanks, research, roads, all the things to serve the public purpose. Now some of these purchases go directly to the F, like humanitarian aid, or goods or services that are not available domestically or are cheaper oversees (or politically prudent). For this example, let’s crack open the penny rolls and capitalize the game (our country), and spend 100 to the (P)rivate sector, 10 to (F)oreign sector, and 40 remains with (G)overnment.

The Layman’s Case Against AusterityStephanie Kelton - Steve Kraske of The Kansas City Star recently interviewed me for a piece about austerity.  The story ran in today’s paper. It doesn’t provide much depth (unlike bloggers, journalists have strict space constraints!), so I followed up with a few comments on the Star’s website.  I thought I’d share them here, since I’m always trying to improve the way I communicate these ideas with non-economists.  So here’s my best effort to make the anti-austerity case in simple terms.

  • 1. When we allow our economy to operate below full employment (as now), we are sacrificing trillions of dollars in lost output and income each year. We can never go back and recover it.  It is gone forever.  You’ve seen the debt clock?  Here’s the lost output clock.
  • 2. Capitalism runs on sales. In survey after survey, we find that the Number One reason businesses are slow to hire and invest in new plant & equipment is a lack of demand for the things they produce.  Businesses hire and invest when they’re swamped with customers.  See this story in The Wall Street Journal.
  • 3. The two decades after WWII certainly aren’t the only time that robust growth reduced the DEBT/GDP ratio.  During the late 1990s and early 2000s, the economy grew at an above average clip.  Unemployment fell to 3.7%.  Inflation remained modest.  There was a job vacancy for every job seeker in America — genuine full employment.

Naive Fiscal Cynicism - Paul Krugman - Expansionary austerity has been refuted and even the IMF sayis that short-run multipliers are big. The 90 percent red line on debt was an artifact of fuzzy math. The bond vigilantes remain invisible, and the confidence fairy refuses to make an appearance. Clearly, austerian economics has imploded (and some prominent austerians seem to be personally imploding too).   Yet the orthodox response to the austerian response seems to be at most that we should slow the pace of fiscal consolidation. Why this refusal to follow through? One answer is sheer human unwillingness to admit gross error; “we may have been a bit overenthusiastic” is an easier thing to say than “whoops — we did exactly the wrong thing, and killed the economy”.  But my read of the discussion is that there’s also something else going on — an attitude that passes for realism, but is in fact sheer fantasy. The line, which you see in discussion all the time, goes something like this: “OK, I see that in principle you might want to stimulate now, and pay for it later. But we all know that stimulus programs, once introduced on an alleged temporary basis, never actually go away; and the reality is that governments never pay down debt in good times.” I see the appeal of this line; it sounds like knowing, worldly-wide cynicism. But if you look even briefly at the actual history, it turns out to bear no resemblance to reality.

The Chutzpah Caucus, by Paul Krugman - At this point the economic case for austerity — for slashing government spending even in the face of a weak economy — has collapsed. Claims that spending cuts would actually boost employment by promoting confidence have fallen apart. Claims that there is some kind of red line of debt that countries dare not cross have turned out to rest on fuzzy and to some extent just plain erroneous math. Predictions of fiscal crisis keep not coming true; predictions of disaster from harsh austerity policies have proved all too accurate.  Yet calls for a reversal of the destructive turn toward austerity are still having a hard time getting through. Partly that reflects vested interests, for austerity policies serve the interests of wealthy creditors; partly it reflects the unwillingness of influential people to admit being wrong. But there is, I believe, a further obstacle to change: widespread, deep-seated cynicism about the ability of democratic governments, once engaged in stimulus, to change course in the future.

The Seen and Unseen: Structural Budget Deficits Edition - On Friday I discussed the cyclically-adjusted U.S. budget deficit and asked any Keynesian to reconcile its decline with the steady growth of aggregate demand. Robert Waldman graciously replied, but he really didn't answer my question. His response focused on the pace of the recovery and changes in the overall budget balance. My question was about the structural budget balance. This distinction is an important one. The structural budget balance is the best way to gauge the stance of fiscal policy, as noted by Paul Krugman: [M]easuring austerity is tricky. You can’t just use budget surpluses or deficits, because these are affected by the state of the economy. You can — and I often have — use “cyclically adjusted” budget balances, which are supposed to take account of this effect. This is better; however, these numbers depend on estimates of potential output, which themselves seem to be affected by business cycle developments. So the best measure, arguably, would look directly at policy changes. And it turns out that the IMF Fiscal Monitor provides us with those estimates, as a share of potential GDP...  Here is the IMF's cyclically-adjusted or structural budget balance for the United States

U.S. Posts Biggest Monthly Surplus in 5 Years -- The U.S. government posted its biggest monthly budget surplus in five years as record revenues bolster federal finances and push off a drop-dead date for the debt ceiling. The budget surplus was $112.89 billion in April, compared with $59.12 billion a year earlier. Economists surveyed by Dow Jones Newswires had forecast a $106.5 billion surplus for the month. The federal government has historically run a budget surplus in April, when many Americans file their tax returns. The April surpluses disappeared in the years following the financial crisis but are now getting bigger, underscoring a shift in federal accounts. The government is expected to run a full-year deficit of $845 billion for fiscal 2013, which ends Sept. 30, according to Congressional Budget Office estimates. That would be the first deficit in five years below $1 trillion. Spending is down a little. But the big reason for a narrowing deficit is higher revenue. Federal receipts reached $1.603 trillion through the first seven months of the fiscal year, the highest level on record for that period, a Treasury official said. Higher payroll taxes, higher tax rates for households making more than $450,000 and improved wages have boosted receipts. Also, many bonus and dividend payments were moved up to December to avoid higher taxes, possibly distorting figures through the first part of the fiscal year.

The Dwindling Deficit - Paul Krugman - Bad news for Dr. Evil fans: the days of a ONE TRILLION DOLLAR deficit are over. In fact, the deficit is falling fast.  Some readers may recall the ridicule heaped on the people at the Center on Budget and Policy Priorities when they produced estimates suggesting that any notion of a debt/deficit crisis was all wrong. It’s turning out, however, that they were probably overestimating debt growth. The deficit is fading, and debt as a medium-term (meaning up to 10 years) issue has largely gone away.  This is not good news — or not unambiguously good news, at any rate. A deficit falling to probably less than 5 percent of GDP this year and well below that next year is MUCH TOO LOW for an economy whose private sector is still engaged in a vicious circle of deleveraging.Oh, by the way, it is now 26 months since Bowles and Simpson predicted a US fiscal crisis within two years.

Falling Deficit Alters Debate -   Rising government revenue from tax collections and bailout paybacks are shrinking the federal deficit faster than expected, delaying the point when the government will reach the so-called debt ceiling and altering the budget debate in Washington. The improving financial picture got brighter Thursday when mortgage-finance giant Fannie Mae —which received a big dose of taxpayer aid during the financial crisis—said it would pay the U.S. government $59.4 billion in dividends at the end of June. That sum, as well as $7 billion and possibly more from fellow mortgage-finance firm Freddie Mac will flow straight into the federal coffers.  At the same time, steadily if historically slow economic growth and changes in tax laws that raised rates in January have pushed other government revenue up. The Congressional Budget Office now calculates the federal deficit through the first seven months of the fiscal year that began in October is $231 billion less than the deficit was at this time a year ago, thanks in part to an estimated 16% increase in tax revenue.  The debt ceiling is estimated to be reached May 19—though the Treasury Department likely would have been able to take emergency steps to continue paying bills until July or August. Now, thanks to the improved fiscal picture, analysts at Goldman Sachs Group Inc. GS and other firms believe the Treasury Department can maneuver until September or October without congressional help. The Treasury Department so far has declined to provide its own forecast.

The Fix the Debt Fix Is Still In - Paul Krugman - So, Bill Clinton says that I’m right in the short run while Simpson-Bowles are right in the long run; he’s half right. But what’s interesting is to see the Peterson juggernaut still rolling along despite the enormous intellectual hit the cause has received. And there are some truly disturbing things about the double standards still applied to Peterson-backed deficit scoldery. Ezra Klein noted a while back that reporters don’t think the usual rules about even trying to seem neutral don’t apply when the deficit scolds are concerned, that On this one issue, reporters are permitted to openly cheer a particular set of highly controversial policy solutions.  . Alec MacGillis reports on the lavish rewards for college students participating in It’s Up To Us, yet another tentacle of the deficit-scold octopus, this time mobilizing the young. If you read the front organization’s site, it seems to imply that universities — not just individual student organizations — are involved, and my understanding is that it looks that way at some of the schools too; in effect, political advocacy is being masked as general public service, because of course promoting Simpson-Bowles is the patriotic thing to do, right?

Fed Watch: When Deficits Become a Problem - L. Randall Wray (ht FTAlphaville) thinks that Paul Krugman has made the leap to MMT by acknowledging the ability of the central bank to control interest rates. Wray sees that Krugman was faced with an intellectual roadblock to MMT: Wray argues that ultimately the central bank does not need to fear the bond vigilantes because the Treasury need not issue long-term debt and can instead issue only short term debt. The Fed is assumed to have complete control over rates on short term debt: Actually, I would go one step further than Wray and argue that the Fed's expectations tools coupled with large-scale asset purchases allows them to influence the entire yield curve. Wray then explains that this means the danger is not the vigilantes, but the Federal Reserve: The real danger is not that the Vigilantes go all vigilant on Uncle Sam, but rather that the Fed decides to do a Volcker (raise the overnight rate to 20%).  But I don't see anything inconsistent between the Krugman of the past and that of today. The crowding out argument is a simply a bit more nuanced than in Wray's description. Wray seems to want to overlook the inflation part of Krugman's position. Specifically that in a more "normal" ISLM world, which I would interpret as near potential output, then additional government spending would tend to increase interest rates and crowd out private spending or - and this is an important or - that the Federal Reserve could accommodate the increased government spending and hold interest rates low, but that the end result would be higher inflation.

Whoa! Is the US on the verge of running a budget surplus? - The US government ran a surplus of $112 billion in April 2013, according to the Congressional Budget Office, $52 billion more than a year ago. Now, April is usually a good month for the treasury thanks to income tax payments. Still, the surpluses recorded in April 2012 and 2013 were the first seen in that month since 2008. More good news: Revenue for the first seven months of the fiscal year is up 16%, or $220 billion, from the year-ago period. To the number crunchers at Potomac Research, the combo of those surging revenues and the sequestration spending cuts points to a stunning possibility: … official forecasters will have to radically alter their projections this summer.  The CBO forecast of $845 billion in red ink this year, 5.3% of GDP, is hopelessly outdated; the deficit will fall well below 5% of GDP, perhaps to about $700 billion.  Then the improvement really takes hold – instead of the official forecast of a $616 billion deficit in fiscal 2014, we’d anticipate something like $500 billion, close to 3% of GDP.  And in fiscal 2015, the deficit could drop below 2% of GDP, perhaps to $300 billion. Call us crazy, but if the economy finally lifts off in 2014-2015, with GDP growth in the 4% neighborhood — with the sequester still in place – a surplus by fiscal 2015 is not totally out of the question.

Looking ahead on the FY2014 budget - Given how broken the budget process has been of late, it’s worth a reminder on what a normal spring budget season should look like. Each year, Congress is supposed to develop a joint budget resolution that sets limits on spending, particularly appropriations, as well as targets for federal revenue. After the Office of Management and Budget publishes the president’s budget request in early February, the House and Senate Budget Committees draft and mark-up budget resolutions, which then go to their respective chamber floors for votes (assuming they make it out of committee markup). If adopted in both chambers, a conference committee is then convened between the two bodies to resolve differences between their budget resolutions. (While this notionally is supposed to take place by April 15, it often takes longer.) If a joint budget resolution is agreed to, the appropriations committees take up their work on the twelve appropriations subcommittees bills based on the budget resolution’s topline numbers. If a joint budget resolution is not passed, government appropriations are typically funded at roughly the previous years’ appropriations levels, either as an omnibus budget or a hodgepodge of continuing resolutions for the twelve appropriations. For a few years now, our government has been funded by a series of continuing resolutions, the most recent of which funds operations through September 30, 2013 (the end of FY2013).

Lessons can be learned from Reinhart-Rogoff error - Larry Summers - The economics commentariat and no small part of the political debate have been consumed recently with the controversy surrounding the work of my Harvard colleagues (and friends) Carmen Reinhart and Ken Rogoff. Their work had been widely interpreted as establishing that economic growth was likely to stagnate in a country once its government debt-to-GDP ratio exceeded 90 percent. Scholars at the University of Massachusetts have demonstrated, and Reinhart and Rogoff have acknowledged, that they made a coding error that resulted in their omitting some relevant data in forming their results and that using updated data for several countries reduces substantially the strength of some of the statistical patterns Reinhart and Rogoff had asserted. Issues have also arisen regarding how they weighted observations in forming the averages on which they base their conclusions. Many have asserted that these questions undermine the claims of austerity advocates around the world that deficits should be quickly reduced. Some have gone so far as to blame Reinhart and Rogoff for the unemployment of millions, asserting that they were crucial intellectual ammunition for austerity policies. Others believe that even after reanalysis, the data support the view that deficit and debt-burden reduction is important in most of the industrialized world. Still others think the controversy calls into question the usefulness of statistical research on economic policy.

Larry Summers Says that Reinhart-Rogoff Type Mistakes Are “Distressingly Common” Then Goes on to Prove His Point - Larry Summers weighed in on the famous Reinhart-Rogoff Excel spreadsheet error in a Washington Post column this morning. His first big lesson from the debate is: "Anyone close to the process of economic research will recognize that data errors like the ones they made are distressingly common." Summers immediately demonstrates the truth of this assertion as he tries to make a second point about inferring the future based on statistical regularities from the past. "Trillions of dollars have been lost and millions of people have become unemployed because the lesson learned from 60 years of experience between 1945 and 2005 was that 'American house prices in aggregate always go up.' This was no data problem or misanalysis. It was a data regularity until it wasn’t. The extrapolation from past experience to future outlook is always deeply problematic and needs to be done with great care." The problem with Summers story is that American house prices in aggregate did not always go up. In fact, for the century from 1896 to 1996 they just kept pace with the overall rate of inflation. Here's the story using government data from 1953. (Robert Shiller constructed a series going back to 1896 from a variety of data sources.)

The case for budget 'austerity' has proved to be a joke, but the US and Europe still won't change course | Dean Baker -- It appears that the Reinhart-Rogoff battles over their faulty data about government debt have flamed out. Even the inventors of the 90% debt cliff are now anxious to portray themselves of cautious supporters of expansionary fiscal policy. This should mean that sober policy types everywhere can turn to the immediate problem of reducing unemployment with more expansionary fiscal policy. Unfortunately, this does not appear likely to happen. Even though the case against fiscal policy has been blown to smithereens, there is little impulse in the United States or Europe to change course. The counter-argument appears to have two sides. First, growth has picked up so that we don't really need it. Second, we really wouldn't know what to spend money on in any case.  Neither of these arguments deserves to be taken seriously on its merits. But they nonetheless must be taken seriously because of the prominence of the people who say them.  The argument that the economy is picking up in the United States stems from the April jobs report that showed a slightly better than projected 165,000 jobs added. (In the United Kingdom, celebrations broke out over the fact that GDP grew at a 1.2% percent annual rate in the first quarter). These reports provide a rather flimsy basis for optimism.

House GOP Debt Ceiling Bill Is Waste, Fraud And Abuse - The legislation is the Full Faith and Credit Act, a bill that supposedly would make payments to federal bond holders the priority if the federal debt ceiling isn't raised and the government doesn't have enough cash to pay all its bills when they come due. The legislation would allow the Treasury to borrow more than allowed by the statutory debt ceiling to make these payments. Why is this waste? Because there's absolutely no chance it will ever become law. Not only will the bill never be taken up by the Senate, it will be vetoed by the president if it somehow manages to be adopted by Congress and is sent to the White House. As a result, the hundreds of thousands of dollars that have already and will continue to be spent by the House to adopt this legislation is, to use the polite term, wasteful. It's also fraudulent because the legislation won't work as planned. The the agency that actually pays the government's bills -- the Federal Reserve -- has said repeatedly over the years during both Democratic and Republican administrations that it has no ability to prioritize payments and must simply pay checks in the order in which they are presented.Abusive is the easiest of the three. The bill is an under-the radar way to increase the federal debt ceiling without actually voting to do that. Add to that the fact that the bill would mean that the government would be in technical default on contracts and other non-bond obligations if Treasuries were made first in line and the extent of the abuse being perpetrated becomes larger and more obvious.

Boehner Accidentally Explains Why His Deficit Position Is Phony -    Yesterday, in an interview with Bloomberg Television, House Speaker John Boehner warned that the U.S. government must balance its budget. After all, he said: We have spent more than what we have brought into this government for 55 of the last 60 years. There’s no business in America that could survive like this. No household in America that could do this. And this government can’t do this. It’s hard to think of better evidence for the sustainability of budget deficits than the fact that we have run them for 55 of the last 60 years. If our fiscal practices haven’t caught up to us after 60 years, when will they? Of course, budget deficits work because the government is different from a household. A government does not have a life cycle, does not ever expect to stop generating income to support itself, and, therefore, does not ever have to retire its debt. It must keep its debts at a manageable size relative to the economy, which the U.S. has done over that 60 year period. If the economy is growing over the long term, that means the government can run a deficit and grow the debt every year -- sustainably. Boehner is right that no household could keep borrowing like that. He’s not quite right about a business though. Look at the accompanying chart. The orange bars show the net debts of Wal-Mart Stores, Inc. They have soared -- up 5,760 percent since 1987. By comparison, the roughly 600 percent rise in the U.S. public debt over the same period looks restrained. Is Wal-Mart mad? How long can it go on just borrowing and borrowing and borrowing?

Chaos governing - In today’s exercise in Fiscal Fraudulence, Republicans are making it clear they’ve decided they don’t want to enter into budget negotiations with Democrats until the debt ceiling deadline gets a good deal closer. ”The debt limit is the backstop,” Paul Ryan says. “I’d like to go through regular order and get something done sooner rather than later. But we need to get a down payment on the debt. We need entitlement reform.” In other words, Republicans know they don’t have the leverage to force spending cuts or tax reform right now — in standard budget negotiations – without agreeing to the increased revenues from the rich Obama and Democrats will insist on as conditions for any deficit reduction deal. So they would rather do nothing and wait until they can use the threat of default to game the process in their favor.This is the GOP strategy, explicitly and openly. Brian Beutler aptly sums up the dynamic: It really all comes down to the fact that Republicans can’t negotiate budget policy without the threat of a debt default looming over the whole process…Republicans don’t want to go to conference unconditionally because they’re concerned their position won’t hold politically and they’ll ultimately be forced to swallow a compromise that includes tax increases — unless the whole process gets swallowed by another debt limit fight.

House Approves Prioritizing Payments on Debt - WSJ - House lawmakers voted Thursday to approve a bill that would direct the Treasury to make payments to holders of U.S. debt and benefits to social security recipients before spending any other public funds in the event the debt ceiling is reached. The bill was narrowly adopted by a vote of 221-207 solely with Republican support. Every Democrat who voted opposed the bill, and eight GOP lawmakers joined them in voting against it.

Republicans Passed A Debt Ceiling Bill That Democrats Think Is The Dumbest Idea Ever : Republicans in the House of Representatives passed a debt prioritization bill on Thursday that one leading Democrat called one of the worst ideas that has ever been brought for consideration in the House. The bill, which passed the House by a 221-207 vote, has already earned House Speaker John Boehner a fair amount of political criticism. The bill would prioritize the nation's payments once the debt ceiling is reached. It would direct the U.S. Treasury to pay bondholders to avoid immediate default. The idea, according to Republicans, is to make sure that the U.S. would keep paying certain obligations in case President Barack Obama and Congress cannot agree to lift the debt limit later this year. Democrats have said that the strategy would force the U.S. to pay China before its own troops, something that Boehner acknowledged in a recent interview with Bloomberg TV. Rep. Chris Van Hollen (D-Md.), the ranking member of the House Budget Committee, said the bill is one of the worst he's ever seen in the U.S. House of Representatives.

Are Republicans really gunning for another debt-limit showdown? - The federal debt limit is set to kick back into effect next weekend after a three-month hiatus, marking the start of a political game of chicken likely to culminate in the fall, when Congress will have to give President Obama a higher limit or risk a federal default. Which raises the perennial question: How far are congressional Republicans willing to push this? Many Democrats predict Republicans will fold like a cheap suit as the deadline approaches, eager to avoid the disaster of 2011, when the last debt-limit showdown sent congressional approval ratings plummeting into single digits. GOP lawmakers pretty much caved in January, when the House voted without much fuss to suspend enforcement of the debt limit until May 19. “There is no doubt in our minds that no Republican leader wants to default,” said House Minority Whip Steny Hoyer (D-Md.). “If we default” or if the U.S. credit rating is downgraded again, “I think they’re going to pay a hellacious price for their fiscal irresponsibility.” For now, House Speaker John A. Boehner and Senate Minority Leader Mitch McConnell are talking tough, vowing to block a debt-limit increase unless Obama agrees to cuts and reforms that they say are necessary to put the nation on a path to a balanced budget. “It’s extremely unlikely that any Republican is going to raise the debt ceiling without doing something about the debt,” McConnell said Tuesday.

Heritage Assesses the Ever-Expanding Ever-Centralizing Federal Government Sector - In a graphically interesting discussion of the April employment situation release, James Sherk and Salim Furth write: State and local governments avoided the massive job losses of 2008 and 2009 that affected the private sector—these governments even grew slightly during the recession. But they have been gradually downsizing ever since. The federal government, by contrast, has expanded rapidly since the recession began. Federal employment, excluding the U.S. Postal Service,[2] peaked in 2011 at 13 percent above 2008 levels. At the same time, the private sector was still mired in the slow recovery, 5.5 percent below 2008 levels. Since 2011, federal expansion has stopped, and a fifth of the recession-era expansion has been reversed.  Now, it is interesting to observe that should one not exclude postal workers (after all, many other Federal workers are distributed throughout the nation, just like postal workers), then the picture changes somewhat, as shown in Figure 2.In other words, Federal employment is essentially back to levels of 2007M12

Will the Slowdown in Health Cost Growth Change the Budget Debate? - Upon these three facts everyone agrees:  1) After a long period of explosive increases, health cost growth has slowed markedly in recent years. 2) A share of the slowdown is partially, but not entirely, due to the recent economic slump.  3) If future medical costs continue to grow at their current low rate the federal budget will be in much better shape than most analysts thought. However, the best health economists in the country are deeply divided about #2. And the implications of this disagreement are profound. If the recession was the major driver of lower health cost growth, there is a good chance that medical spending will bump up again as the economy improves, once again putting great pressure on the deficit. But if the slump was only a small part of a broader secular trend, the U.S. may have found the key to solving its long-term budget problems. Keep in mind that all health care costs are growing more slowly, not just government-funded programs such as Medicare and Medicaid. But since TaxVox focuses its attention on fiscal issues, I’ll concentrate on the budget effects.

Shrinking Budget Forces Army Into New Battlefield - The 1st Infantry Division's 2nd Brigade is supposed to represent the Army's new model—small and nimble. Lt. Col. Jason Wolter, a battalion commander in the brigade, said, half joking, he would conduct overseas training missions this year with "just the uniform on my back." Yet, the brigade landed here at the National Training Center ready for a full ground-war assault: 58 Abrams Tanks, each weighing 68 tons, along with 115 of the 33-ton Bradley Fighting Vehicles, a clutch of Humvees and a small fleet of drones.  The apparent contradiction illustrates the Army's dilemma. As it prepares for peacetime budget cuts, the Army must shrink. But Pentagon officials say reducing ground forces too much would leave the U.S. vulnerable to threats by such countries as North Korea or Iran. That means continuing to train with tanks, heavy weaponry and big formations—and, in the view of some military analysts, pulling the Army back to its roots and away from its promised future.

We are governed by outright morons - The entire purpose of "sequestration" was to be cuts enforced without choice. The mechanism was meant to be so abominable that not even the human clusterf--ks that are our current Congress could stomach them; they were meant to be such a severe and absurdist outcome that surely, surely o surely, some group of non-imbicilic representatives would look around in horror, surgically remove the talking points from their lower intestines, and for one brief shining budgetary moment have a negotiation on how government will be funded in the coming few years that was not predicated on simply burning the whole thing down and calling it Freedum. That was the point. No "choice" was involved, or allowed; all the very important government programs would be cut exactly equally, and that would, of necessity, mean that the government would be doing exactly N percent less by definition. This was apparent even to a schoolchild. It was apparent even to media pundits, a class which generally understands slightly less than the average schoolchild. It was apparent even to that groundhog that predicts the weather, and that groundhog wrote his senior thesis on exactly this point—expect publication in the June edition of S--t Even Large Rodents Know Quarterly.

Jack Lew’s Nose is Getting So Long He Needs a Hacksaw: Tries Blaming Sequester, Which He Helped Devise, on “Washington” -Yves Smith - Jack Lew really needs to get better at lying in public. So far, he’s making a hash of it. A Reuters story reports on Lew telling a series of whoppers: Dysfunction in Washington is one of the biggest drags on the U.S. economy, undermining confidence and crimping growth, Treasury Secretary Jack Lew said on Tuesday. “One of the most significant speed bumps for growth is coming straight from Washington, where some political leaders continue to generate one manufactured crisis after the next,” Lew said. There’s actually a lot to unpack here. First is the embedded claim that the economy was on a strong trajectory (“speed bumps”). In fact, ERCI in an admittedly contested call pegged the economy as going into a recession in 2012 and has not backed down, insisting that some indicators are consistent with a recession and expects others to confirm it when data is revised. Commenting on ECRI’s view in March, Henry Blodget indicated that regardless of whether you agree with ECRI, we are still in a “crappy economy”.  Put it another way: it’s hard to characterize an economy that isn’t generating enough jobs to absorb the entry of new prospective workers into the economy as in good health. It’s hardly any secret that the reason the headline unemployment numbers aren’t worse is that so many people have given up looking for work or are underemployed.

Tax Reform: As Usual, We’re Going About it All Wrong - To state the glaringly obvious, lobbyists are paid to steer the debate and ultimately the legislation their clients’ way, and they’re not bound by facts or logic or what’s best for most people.  It’s about as likely that something called a “jobs” bill will generate jobs as drinking a particular beer will lead your super-hot downstairs neighbor to unexpectedly drop by to party with you. I’m increasingly convinced that linking taxes to growth, investment, and jobs the way we typically do is generally misguided and incentivizes beer-party scenarios: tweak the code and your [nation/state/city] will have more jobs than it knows what to do with! There’s a long and deep academic literature examining the responsiveness of labor supply, investment, income growth, and job creation to changes in the tax code, and that literature has led some economists, as opposed to many lobbyists, to embrace the mantle of small responders, i.e., particularly regarding tax changes, we believe the evidence points you toward smaller elasticities with regard to the variables above.* There’s no better example than taxes on capital gains.  Ever since I’ve been in this business, and until I leave it, people have and will continue to argue that lower taxes on capital gains will boost investment, productivity, and jobs.  And yet, there’s virtually no evidence.

Kevin Brady's misleading Wall St. Journal op-ed - Today's Wall Street Journal features an op-ed by Kevin Brady, right-wing Texas Republican who chairs the notorious "Joint Economic Committee" that has been a notorious producer of anti-tax propaganda-driven studies over the years of Republican hegemony in the House.  See "Tax Reform Needs Accurate Tax Tables", Wall Street Journal (May 6, 2013), at A15. The op-ed spends a lot of time denouncing information about tax rates.  It suggests that the entire US tax system is far too progressive in nature, because "one of the most salient characteristics of the U.S. tax code [is] the decreasing share of taxes paid by the bottom 50% of taxapyers and the increasing share of taxes paid by the upper 1%."  Of course, Brady mentions nothing about the accelerated growth of inequality of income in that same period, resulting in the upper 1% controlling so much more of the U.S.'s wealth and income compared to that bottom 50%.  In fact, the upper group pays less than it should given the enormously increased bite of wealth and income, a fact that Brady conveniently overlooks. The op-ed also talks only about the income tax rates, thus appearing to suggest that the income tax is the only relevant portion of the U.S. tax system and that rates, rather than base, are the most significant factor.  In fact, there are a range of taxes--income, estate, payroll, excise/sales taxes.  Regrettably, the income, estate and payroll taxes are much too lenient on the highest paid groups. 

Senate Bill Lets States Tax Internet Purchases - Attention online shoppers: The days of tax-free shopping on the Internet may soon end for many of you. The Senate is scheduled to vote Monday on a bill that would empower states to collect sales taxes for purchases made over the Internet. The measure is expected to pass because it has already survived three procedural votes. But it faces opposition in the House, where some Republicans regard it as a tax increase. A broad coalition of retailers is lobbying in favor of it. Under current law, states can only require retailers to collect sales taxes if the store has a physical presence in the state. As a result, many online sales are tax-free, giving Internet retailers an advantage over brick-and-mortar stores. The bill would empower states to require businesses to collect taxes for products they sell on the Internet, in catalogs and through radio and TV ads. Under the legislation, the sales taxes would be sent to the states where a shopper lives.

Senate Passes Online Sales Tax Bill - As previewed previously, one half of the hurdle to enforce a universal online US sales tax has now been crossed, with the Senate voting moments ago to pass a Wal-Mart backed bill 69-27 allowing states to collect taxes on out of state Internet and catalog sales. The bill would end the era of tax-free Internet shopping. During the debate, senators offered examples of consumers who examine products in stores and then shop online to avoid paying sales tax. The pretext? Why fairness of course.  “This bill is about fairness,” said Senator Mike Enzi, a Wyoming Republican and co-sponsor of the measure. “It’s about leveling the playing field between the brick-and-mortar and online companies.”

Apple Dodges Enough Taxes to Cover Much of the Sequester - The scheme that Apple cooked up this week to finance a $55 billion stock buyback for its shareholders was orchestrated to avoid paying $9.2 billion in taxes, Bloomberg reported Friday. That $9.2 billion tax bill that Apple dodged would have been enough to make unnecessary all of the major budget cuts we’ve been writing about this week as part of our “Repeal the Sequester” campaign. With $9.2 billion, the federal government could have (based on lists compiled by The Washington Post’s Wonkblog and Think Progress):

Time to End the Tax Havens - Jeffrey Sachs - In recent weeks, citizens in many countries suffering from government budget cutbacks have been learning more and more about one of the biggest and most dangerous scams in the world: the global web of tax havens that U.S. and European politicians and bankers have nurtured over the years. The only real purpose of these havens is to facilitate tax evasion, money laundering, bribery, and lack of accountability for environmental and social calamities inflicted by international companies.  Now, a new analysis by a group of international organizations throws this system into sharp relief. Figures from the Enough Food for Everyone IF campaign -- supported by almost 200 organizations including Actionaid, Christian Aid, Oxfam, and Save the Children -- are revealing more about the extent of these havens. There are trillions of dollars tied up in the tax havens, with massive worldwide evasion of tax payments that undermines the budgets of rich and poor countries alike. The IF campaign makes a basic point: poverty can be fought, and austerity overcome, IF taxes are properly paid by those who owe them. Ending the tax havens and their financial secrecy is therefore urgent.

World’s Wealthiest Gain $45 Billion as Dow Reaches 15,000 - The world’s 200 richest people added $44.6 billion to their collective net worth this week as the Dow Jones Industrial Average reached 15,000 for the first time. Alisher Usmanov, 59, whose fortune rose $61.2 million during the week, according to the Bloomberg Billionaires Index, said in an interview at Bloomberg’s Moscow offices that he recently spent about $100 million buying Apple Inc (AAPL). shares in anticipation they will rise.Warren Buffett, the chairman of Berkshire Hathaway Inc. (BRK/A), is planning to expand his insurance operations after hiring four executives from American International Group Inc. “We would like to get into the commercial-insurance business very big time,” Buffett, 82, said yesterday in an interview with Bloomberg. “We hired them because they’re very good at the commercial insurance business.”

How Class Works - Richard Wolff Examines Class - YouTube: Richard Wolff is an economist who has studied class issues for more than 40 years. In this animation and audio presentation, Wolff explains what class is all about and applies that understanding to the foreclosure crisis of 2007--2011. He argues that class concerns the "way our society splits up the output [and] leaves those who get the profits in the position of deciding and figuring out what to do with them... We all live with the results of what a really tiny minority in our society decides to do with the profits everybody produces." As you watch and listen, consider what we know from research about disease and illness patterns among groups with lower income, more stress, and less control of their lives. Consider how investment decisions in neighborhoods, over transportation, school facilities, parks, location of grocery stores, quality of affordable housing, etc. influenced by powerful interests, affect the quality of life for large segments of the population.

Dodd-Frank is finally being implemented. Will that be enough - In early 2010, during the debate over the construction of the financial reform bill that would become Dodd-Frank, Rep. Keith Ellison (D-Minn.) received a curious letter from then- Treasury Secretary Tim Geithner. Everyone thought that increasing the amount of capital banks were required to hold would be an essential part of financial reform–the question was how to do it. Ellison had written the Treasury department to ask whether Congress should write a specific leverage ratio into the bill itself. Geithner responded that “[p]lacing fixed, numerical capital requirements in statute will produce an ossified safety and soundness framework.” Even worse, Congress writing a specific requirement into the bill would remove the flexibility that Treasury and banking regulators would need to negotiate in the then upcoming Basel III agreements. Leave it to the regulators, said Geithner, which is what Congress did. It’s been three years since then and regulators are now implementing the new capital rules. However, the capital requirements are coming under increasing criticism, both for the level of capital and the way banks are allowed to calculate it. And one group in particular is demanding more action: members of the Congress who left it to the regulators in the first place.

NY Fed Warns of Continued Risk to Financial System - WSJ - The Federal Reserve Bank of New York said in a paper released Tuesday that a key short-term funding market remains vulnerable to destabilizing runs that can threaten the broader health of the financial system. “Limited tools are available to mitigate the risk of pre-default fire sales,” the paper’s authors warned. What’s more, “no established tools currently exist to mitigate the risk of post-default sales.” The paper was written by Brian Begalle, Antoine Martin, James McAndrews and Susan McLaughlin. Mr. McAndrews is the bank’s director of research. The report comes as part of the New York Fed’s long-running effort to deal with the risks created by what’s called the tri-party repo market, which allows banks and other firms to finance their trading positions by borrowing and lending securities to one another.

Bernanke: "Monitoring the Financial System" - From Fed Chairman Ben Bernanke: Monitoring the Financial System - Ongoing monitoring of the financial system is vital to the macroprudential approach to regulation. Systemic risks can only be defused if they are first identified. That said, it is reasonable to ask whether systemic risks can in fact be reliably identified in advance; after all, neither the Federal Reserve nor economists in general predicted the past crisis. To respond to this point, I will distinguish, as I have elsewhere, between triggers and vulnerabilities. The triggers of any crisis are the particular events that touch off the crisis--the proximate causes, if you will. For the 2007-09 crisis, a prominent trigger was the losses suffered by holders of subprime mortgages. In contrast, the vulnerabilities associated with a crisis are preexisting features of the financial system that amplify and propagate the initial shocks. Examples of vulnerabilities include high levels of leverage, maturity transformation, interconnectedness, and complexity, all of which have the potential to magnify shocks to the financial system. Absent vulnerabilities, triggers might produce sizable losses to certain firms, investors, or asset classes but would generally not lead to full-blown financial crises;

Bernanke Warns of Continued Financial Vulnerabilities - The U.S. financial system still faces a number of vulnerabilities five years after the onset of the financial crisis, pushing regulators to broaden their oversight over all facets of financial markets and firms, Federal Reserve Chairman Ben Bernanke said Friday. Mr. Bernanke, speaking in Chicago, cited a number of risks that remain despite the wide-ranging efforts of lawmakers and regulators to overhaul financial markets in the wake of the 2008 financial crisis. Runs on money-market funds remain a risk, Mr. Bernanke said, and firms’ reliance on short-term wholesale funding markets remains a concern. “While the shadow banking sector is smaller today than before the crisis and some of its least stable components have either disappeared or been reformed, regulators and the private sector need to address remaining vulnerabilities,” Mr. Bernanke said at a conference held by the Federal Reserve Bank of Chicago.

The Cost of (Equity) Capital - For years, the world’s largest banks have been up in arms over threats by regulators to increase their (equity) capital requirements. Making banks hold more capital, they argue, will force them to reduce lending and will increase their cost of funding, making credit more expensive throughout the economy. One of the chief defenders of the megabanks has been Josef Ackermann, CEO of Deutsche Bank until last year and also chair of the Institute of International Finance, which claimed that higher capital requirements would reduce economic output by a whopping 3.2 percent. Anat Admati and Martin Hellwig have been tirelessly debunking the myth that higher capital levels will force banks to curtail lending and torpedo the global economy, most recently in their excellent new book, The Banker’s New Clothes. Some of the arguments against higher capital requirements are simply incoherent, like the idea that banks would be forced to set aside capital instead of lending it. Some contradict basic principles of corporate finance, like the idea that adding more equity capital increases banks’ cost of funding.* Yes, equity is usually more expensive than debt (meaning that investors demand a higher expected rate of return) because it is riskier (the range of possible outcomes is greater). But as you add equity, both the debt and the equity become less risky (since the firm is less leveraged), which reduces the cost of debt and the cost of equity

The equivalence of debt and equity - Much is being made at the moment of the idea that banks should have more capital. Predictably, there is huge confusion about what this actually means, and the usual suspects are once again mixing up deposits and capital (deposits are debt) and claiming that QE recapitalises banks (no it doesn't, but it does provide them with liquidity). I don't want to explain the difference again here, but if anyone is still unclear about what "capital" consists of for a bank, read this. Predictably, banks and other financial institutions are fighting back. Concerns are being expressed about the effect on competition of EU's proposal for money market funds (MMFs) to have capital and liquidity reserves. And banks worried about their return on equity (already shot to pieces) claim that raising more capital would be a) unacceptable to their shareholders b) hugely expensive c) impossible anyway. Meanwhile, Anat Admati and Martin Hellwig, in their book "The Bankers' New Clothes", claim that the banks' arguments are specious: banks in the past have been much more highly capitalised, the Modigliani-Miller model shows that (apart from tax considerations) equity is no more expensive than debt, capital can always be raised if the price is right. This is yet another argument that could run for years and become increasingly political. Personally, I'm not going to take sides. I think they're all missing the point.

Market Insight: Support grows for higher bank capital ratios - If the effectiveness of the clean-up in high finance could be measured by the volume of legislation and regulation, a repeat of the financial crisis could safely be ruled out. Too bad that this is far from being the case. Much reformist zeal has been either misdirected or diluted because policy makers with short electoral time horizons remain intellectually and financially in thrall to the banks and their lobbyists. Nowhere more so than in the debate on capital adequacy, where the requirements of the Basel III regime have fallen well short of what is needed to prevent a systemic catastrophe. Yet there are signs of an incipient change in climate. One interesting development is the bipartisan draft legislation advanced by US senators David Vitter and Sherrod Brown, which seeks to end the “too big to fail” problem. They want banks with assets of more than $500bn to have a minimum equity capital of 15 per cent – far above the level required by Basel. They also want the subsidiaries of large bank holding companies to be separately capitalised, while restricting the ability to move assets or liabilities from non-banking affiliates back into the holding bank structure. This is to ensure that the government safety net does not extend to non-bank parts of big banking groups. The proposals have little support in the House of Representatives but tap into a powerful vein of popular feeling across the country, reflecting anger at the privileged position of big banks that are not only too big and too interconnected to fail; they are also, according to Eric Holder, the US attorney-general, too big to jail. Whatever the legislative outcome, this initiative has the potential to alter the terms of the debate.

Big Banks Push Back Against Tighter Rules - The nation's biggest banks are going on the offensive to fend off growing efforts in Washington to rein them in. The banks have hired longtime, influential Washington hands to deflect regulatory and political pressure to strengthen their finances and to sell assets. Regulators and some lawmakers have raised concern that large banks remain "too big to fail" and could require another government bailout in the event of a new financial meltdown. The effort by banks marks a lobbying turning point for the industry, which adopted a mostly low-profile stance to new regulations in the wake of the financial crisis. It also comes as banks such as Morgan Stanley, Bank of America Corp. and Goldman Sachs Group Inc. are shedding lucrative assets that would have required them to hold more capital to compensate for their risk. While the banks are joining forces, much of the work is being coordinated through trade groups. Several banks and the Financial Services Forum, a top trade association, have hired Tony Fratto, a former Bush administration official, to provide what they call a "rapid response" to criticism that banks remain too large. The too big to fail notion implies that the government would have to step in and provide funding to institutions whose failure could disrupt the financial system, as it did during the 2008 financial crisis.

Regulators ‘Fine Tuning’ Bank Capital Rules - U.S. banking regulators must give serious thought on whether to go further with capital requirements for the biggest banks as they finalize rules over the next two months, Comptroller of the Currency Thomas Curry said Thursday. Mr. Curry said there were active discussions about whether to make changes to the leverage ratios for major banks, as well as a proposal to force certain firms to hold minimum amounts of long-term unsecured debt. He said regulators continue “fine tuning” the proposed capital rules, which officials have said they hope to finish by late June. There has been a growing sense among banking regulators that they should go further in addressing the risks posed by the largest financial institutions. While the 2010 Dodd-Frank law specifically states that no taxpayer funds can be used to bail out a major bank, as occurred during the 2008 financial crisis, there is a widespread belief that some Wall Street firms still pose a systemic risk to the broader economy.

Brown-Vitter Will Not and Cannot Work but it is Criminogenic - William K. Black - Senators Sherrod Brown (D-OH) and David Vitter (R-LA) have introduced a bill entitled “Terminating Bailouts for Taxpayer Fairness Act of 2013.”  It is a miracle of modern staffing that Vitter, who loves polluters as much as his prostitutes, was able to pull himself away from demanding that President Obama’s nominee to run the EPA answer over 600 questions and join Brown in proposing the bill.  Under Obama, bipartisan bills have a dismal fate because the Democrats negotiate away key elements necessary to create a good bill and add provisions that make parts of the bill harmful – just to pick up a few token co-sponsors – and then the Republicans kill good parts of the bill anyway and try to enact the bad parts. Brown-Vitter (BV) exemplifies all three problems.  It would fail to achieve its desirable goals even if it became law.  It would help the largest fraudulent banks continue to cripple effective examination.  The Republicans will kill the well-meaning parts of the bill and try to enact the bad parts of the bill that are so bad that they are criminogenic.One of the most essential actions we need to take is to eliminate systemically dangerous institutions (SDIs) (the rough dividing line is any bank with > $50B in liabilities).  Dodd-Frank did nothing effective to end SDIs.  So BV could be a sensible, even vital reform if it were drafted to end SDIs and if it were enacted.  It was not drafted to end SDIs and it will be weakened before it is killed. BV’s harmful provisions, by contrast, will likely be made worse by amendments.  Those harmful provisions may become law.

No Lehman Moments as Biggest Banks Deemed Too Big to Fail There may be no government action more universally reviled in the U.S. than bank bailouts. Republicans and Democrats, financial industry lobbyists and watchdogs, Wall Street executives and President Barack Obama say taxpayers should never again rescue a failing bank.  To make sure a future crisis won’t force governments to intervene, international regulators are requiring the biggest banks to borrow less. Three years ago, U.S. lawmakers passed the Dodd-Frank Wall Street Reform and Consumer Protection Act -- with provisions to liquidate a collapsing financial institution and end the perception that some banks are too big to fail. “Because of this reform, the American people will never again be asked to foot the bill for Wall Street’s mistakes,” Obama said on July 15, 2010. “There will be no more taxpayer-funded bailouts -- period.” Investors, it turns out, don’t believe that, Bloomberg Markets magazine will report in its June issue. The people who lend money to the largest banks are betting that Uncle Sam will toss a lifeline to a giant should it stumble, according to a study by Deniz Anginer, a World Bank financial economist.  These six banks -- Bank of America Corp. (BAC), Citigroup Inc. (C), Goldman Sachs Group Inc., (GS) JPMorgan Chase & Co. (JPM), Morgan Stanley (MS) and Wells Fargo & Co (WFC). -- have also benefited from tax breaks and Federal Reserve largesse since the end of 2008 in the form of additional income from the central bank’s mortgage-bond purchases and the interest it pays for bank deposits.

Uncertainty, Liquidity Hoarding, and Financial Crises - NY Fed - As early as fall 2007, following the collapse of the market for asset-backed commercial paper, European banks reported an inability to borrow in the interbank market. At the same time, interbank borrowing rates reached record-high levels. Furthermore, there was a dramatic change in markets for the sale of repurchase agreements (repos)—a major source of funding for financial institutions that borrow money in exchange for securities, agreeing to buy them back at a later date. These markets, which are typically highly liquid, shrank dramatically and experienced unprecedented high “haircuts”—markdowns in the market value of collateral being used for the loans—in all asset classes, including nonsubprime-related classes (Gorton and Metrick offer interesting papers on repo runs and haircuts). Difficulty obtaining liquidity in the interbank market was subsequently experienced in many countries. As a result, central bank borrowing facilities became an essential source of liquidity for financial institutions. This post draws upon my paper with Douglas Gale, “Liquidity Hoarding,” to discuss this practice by banks during times of increased uncertainty about future liquidity needs and its consequences for the efficient transfer of liquidity in the interbank market.

Markets may ease the expected "collateral scarcity" problem - In the past couple of years we've seen a great deal of focus on the so-called "collateral scarcity" problem. The new regulatory regime is expected to create incremental demand for high quality collateral such as treasuries, Bunds, etc. This increase will come from Basel III liquidity rules for banks and new derivatives regulation as it pertains to margin requirements. Some of the new regulations combined with central bank activities are also expected to limit the supply. What makes tracking collateral tricky is that securities such as treasuries are often lent out multiple times. If someone posts treasuries as collateral on a loan, the collateral holder will generally have the ability to use these same securities as collateral for another loan from someone else and so on. That chain acts to provide collateral movement through the financial system to facilitate secured lending such as repo. And given the recent move toward secured lending (see post), access to quality collateral is paramount. As the attached paper discusses, there is going to be plenty of quality collateral supply in the coming years with governments pushing out more debt into the markets.

Your Retirement for a Bottle of Champagne – How Wall Street Fraudsters Ripped You Off, Again - Lynn Parramore - The LIBOR price-fixing scam has cost at least $110 million — in the state of Oregon alone! Just as you’re struggling to finance a summer vacation, or simply to pay the freaking rent, how would you like to open your wallet and hand over a wad of cash to a gang of international con artists who commit fraud as casually as they order a five-course dinner? To recap: Bank hustlers manipulated the world’s most important set of benchmark interest rates and thereby impacted the prices of upward of $500 trillion worth of financial instruments. The LIBOR scam devastated state and municipal budgets, squeezed pension yields and ripped off bank shareholders. In a case of jaw-dropping fraud, greedy traders rigged up the benchmark so that they could cash in on bets on derivatives, while banks submitted fake numbers to make themselves look financially healthier. One Barclays official was fond of fudging numbers in exchange for champagne. That’s right. A bottle of bubbly for a scam that screwed your grandma on her retirement savings. Retail bank certificates of deposit, you see, are very popular with senior citizens, and they are priced based on LIBOR benchmarks.That alone could cause Grandma’s income to drop by as much as 2 percent. It ain’t like she didn’t need the money! That’s not even counting what happened to her pension — or yours.

Wall Street Hiring More Ex-Government Prostitutes Officials to Assure it Gets its Way - Ben White at Politico (hat tip Paul Tioxon) provided an update on the revolving door, Wall Street edition. It’s so mind-numbingly common for a government figure to land a job with some Big Financial Firm You Heard Of that it’s hard to keep track. Most of us notice only the really high profile examples, such as former SEC chairman Mary Shapiro taking a board seat at financial-services heavyweight General Electric.  But White tells us that a shift is underway. Major banks have intensified their search for, um, talent, as in the Washington DC insider kind. The reason for their fondness for this type is, natch, an even keener interest than before in making sure that no regulation that could interfere with their imperial right to profit goes anywhere. And it appears this change in degree is a change of kind.  As White reports: Two of the biggest blue-chip firms in the industry, Goldman Sachs and Morgan Stanley, will soon have top-level executives with the ear of the CEO who once occupied senior jobs in the White House and the U.S. Treasury. Other banks including Citigroup, Credit Suisse and JPMorgan Chase also have staffed up with former political and regulatory officials

Obama’s Patronage System: Pritzker Nomination for Commerce Department, Limp-Wristed Dodd Frank - Yves Smith - The consternation at the not-exactly-a-surprise nomination of billionaire Penny Pritzker to be Commerce Secretary, is sadly much less than is warranted. That suggests that the Forbes 400 member will survive her confirmation hearings. And in a telling bit of synchronicity, last week some fauxgressives set about amplifying an article in the Nation that big bank lobbying efforts were the reason Dodd Frank was amounting to very little. As we’ll discuss, both reflect how much Obama supports the interests of the FIRE sector (finance, insurance, and real estate). Dodd Frank is failing because it was designed to fail; the banks getting to have as much influence over it as they have is a feature, not a bug.  The basic facts of the Pritzker nomination haven’t improved since her name was first mooted in 2008, when she withdrew her name out of concern that she had too much baggage to win approval. Yet the tone of the latest New York Times story on her nomination sounds cautiously optimistic, even though if anything the facts are worse this time around.

Obama Did It For the Money - The love fest between Barack Obama and his top fundraiser Penny Pritzker that has led to her being nominated as Commerce secretary would not be so unseemly if they both just confessed that they did it for the money. Her money, not his, financed his rise to the White House from less promising days back in Chicago.  “Without Penny Pritzker, it is unlikely that Barack Obama ever would have been elected to the United States Senate or the presidency,” according to a gushing New York Times report last year that read like the soaring jacket copy of a steamy romance novel. “When she first backed him during his 2004 Senate run, she was No. 152 on the Forbes list of the wealthiest Americans. He was a long-shot candidate who needed her support and imprimatur. Mr. Obama and Ms. Pritzker grew close, sometimes spending weekends with their families at her summer home.” But don’t sell the lady short; she wasn’t swept along on some kind of celebrity joyride. Pritzker, the billionaire heir to part of the Hyatt Hotels fortune, has long been first off an avaricious capitalist, and if she backed Obama, it wasn’t for his looks. Never one to rest on the laurels of her immense inherited wealth, Pritzker has always wanted more. That’s what drove her to run Superior Bank into the subprime housing swamp that drowned the institution’s homeowners and depositors alike before she emerged richer than before.

House Moves To Gut Derivatives Regulations Again -- Noted Wall Street ski buddy and House Financial Services Chairman Jeb Hensarling is moving to re-deregulate derivatives by gutting the Dodd-Frank Act. Apparently one financial crisis this century is not enough for Hensarling and friends as the House today is marking up a slew of bills to help Wall Street avoid derivatives oversight.  The Committee on Financial Services will meet in open session to mark up the following measures:

  • H.R. 701, to amend a provision of the Securities Act of 1933 directing the Securities and Exchange Commission to add a particular class of securities to those exempted under such Act to provide a deadline for such action
  • H.R. 801, the “Holding Company Registration Threshold Equalization Act of 2013″
  • H.R. 742, the “Swap Data Repository and Clearinghouse Indemnification Correction Act of 2013″
  • H.R. 1341, the “Financial Competitive Act of 2013″
  • H.R. 634, the “Business Risk Mitigation and Price Stabilization Act of 2013″
  • H.R. 677, the “Inter-Affiliate Swap Clarification Act”
  • H.R. 992, the “Swaps Regulatory Improvement Act”
  • H.R. 1256, the “Swap Jurisdiction Certainty Act”
  • H.R. 1062, the “SEC Regulatory Accountability Act”

Even the Wall Street friendly White House opposes these changes as Treasury Secretary and Citigroup alumnus Jack Lew wrote a letter to the committee opposing the deregulation effort.

Congress Moves To Weaken Dodd-Frank Reforms That Officials Want Strengthened - The House Financial Services Committee advanced a package of bills Tuesday that would weaken major regulations included in the 2010 Dodd-Frank Wall Street Reform Act, doing so over the objections of the Obama Administration with bipartisan support.  The legislative package, which has been criticized by both current Treasury Secretary Jack Lew and his predecessor, consisted of six bills that would weaken the regulation of derivatives. Derivatives are the the financial instruments that were at the “center of the storm” that caused the financial crisis, according to the Financial Crisis Inquiry Commission. Nevertheless, those regulations have emerged as a key target for opponents of reform and the financial industry. One of the most significant rules the package would weaken is the so-called “push-out” provision that would limit derivatives trading at banks and financial institutions that are insured by the federal government. But rather than weaken the push-out rules, Congress should be making them even stronger, former Federal Deposit Insurance Commission chair Sheila Bair told Bloomberg

The Price of Safety: Why Cheap Regulation Creates Expensive Crises - When you get on a plane, you would prefer that it not catch fire in mid-air, right? You would feel better knowing that someone had checked out the plane's designs to make sure that it wouldn't spontaneously combust, yes?  Well, that's not what happened with the Boeing 787 "Dreamliner." Instead, as reported in The Wall Street Journal: "Only about two dozen FAA officials were assigned to oversee certification of the 787. FAA manager Steve Boyd told the NTSB last month that the team started with scant knowledge of the plane's advanced battery technology. Then it allowed FAA-designated industry experts from Boeing and its suppliers to run all tests and conduct final safety reviews 'with confidence that they [would] make the right call,' he said." This should sound familiar. There is perhaps no area in which increasing complexity outruns regulatory capacity more than in the financial services industry. Prior to the financial crisis, regulatory changes allowed large, supposedly sophisticated banks to calculate their own capital requirements using their own risk management systems--the thinking being that they understood the risks they faced much better than any poor federal bureaucrat could hope to. Even today, after those banks blew up the financial system, it is conventional wisdom in many circles that the only people who can understand derivatives -- and who therefore should be allowed to weigh in on derivatives regulation -- are Wall Street traders (and their lawyers).

The Hollowing Out of Government - Robert Reich - The West, Texas chemical and fertilizer plant where at least 15 were killed and more than 200 injured a few weeks ago hadn’t been fully inspected by the Occupational Safety and Health Administration since 1985. OSHA and its state partners have a total of 2,200 inspectors charged with ensuring the safety of over more than 8 million workplaces employing 130 million workers. That comes to about one inspector for every 59,000 American workers. There’s no way it can do its job with so few resources, but OSHA has been systematically hollowed out for the years under Republican administrations and congresses that have despised the agency since its inception. In effect, much of our nation’s worker safety laws and rules have been quietly repealed because there aren’t enough inspectors to enforce them.

JP Morgan: A New Type of Dirty Energy - As US power plants lose money, a bit of market manipulation goes a long way … ask JPMorgan Chase. The banking giant is accused of manipulating energy prices in Michigan and California to make money-losing power plants appear more profitable to investors—and now it faces penalties from the Federal Energy Regulatory Commission (FERC), which regulates the sale of electricity. Detailed in a New York Times report, JPMorgan Chase is accused of selling electricity to authorities in California and Michigan between 2010 and 2011 at prices calculated to appear falsely attractive.  How much did these two US states pay for this manipulation: $83 million—that’s in excess of what they would have paid normally. The scandal heated up in November, when FERC imposed a temporary, 6-month ban on JPMorgan’s ability to trade physical power at market-based rates, beginning in April this year.   JPMorgan blew off the ban with a shrug.  Word on the street is that FERC is getting a bit more serious these days, and no longer willing to turn a blind eye to this brand of market manipulation. This time, it may not be just a slap on the wrist for this banking big boy. At least, the general consensus among analysts is that JPMorgan Chase could be hit with a pretty stiff fine.

48 Damning Pieces of Evidence From the JPMorgan Whale Trade Investigation - The Senate Permanent Subcommittee on Investigations recently produced a 301-page report on JPMorgan Chase's (NYSE: JPM ) "London Whale Trade" fiasco. The Committee's findings should be extremely troubling to investors, politicians, regulators, and concerned citizens alike. Quoting directly from the report, here's what the investigation revealed specifically: Over the first three months of 2012, JPMorgan's Chief Investment Office,

  • used its Synthetic Credit Portfolio (SCP) to engage in high risk derivatives trading;
  • mismarked the SCP book to hide hundreds of millions of dollars of losses;
  • disregarded multiple internal indicators of increasing risk;
  • manipulated models;
  • dodged Office of the Comptroller of the Currency (OCC) oversight;
  • and misinformed investors, regulators, and the public about the nature of its risky derivatives trading.
  • exposed not only the high risk activities and troubling misconduct at JPMorgan Chase, but also broader, systemic problems related to the valuation, risk analysis, disclosure, and oversight of synthetic credit derivatives held by U.S. financial institutions.

This feels like a pretty damning portrayal of a bank whose balance sheet, according to a recent research report, is "almost one-ninth the size of the United States economy." The size of just the Chief Investment Office Portfolio alone -- which was the primary subject of this investigation -- would make it the 7th largest bank in the country.We believe the Subcommittee's painstaking investigation warrants further consideration. Below, we identify some of the most outrageous findings from the report, organized by category.

Treasury Secretary Jack Lew Holds a Closed Door Meeting With Jamie Dimon and Hedge Fund Titans - The guidance for last Thursday noted that Secretary Lew would be departing Washington for New York in the afternoon “where he will attend a roundtable with business leaders hosted by the Council on Foreign Relations (CFR) to discuss the state of the U.S. and global economies. This meeting is closed press.” The words “closed press” together with the words Jack Lew and New York apparently caused curiosity at the international wire service, Reuters. The media outlet learned that Lew would be having dinner with Jamie Dimon, Chairman and CEO of JPMorgan Chase, along with an assortment of hedge fund kingpins. Dimon is in serious hot water with his regulators. The firm that he heads has incurred over $16 billion in legal expenses over the past three years attempting to ward off lawsuits and investigations covering a breathtaking sweep of alleged wrongdoing. Also sitting down to break bread with Lew last Thursday evening was hedge fund billionaire John Paulson, according to Reuters. John Paulson is the hedge fund manager who made over $1 billion betting against (shorting) a Goldman Sachs investment called Abacus 2007-AC1 – a deal he helped Goldman structure to fail — while investors in the deal lost the same amount.

ISS on J.P. Morgan: London Whale ‘Unveiled Multiple Points of Failure’ -Institutional Shareholder Services has dealt the latest blow to J.P. Morgan recommending shareholders vote against keeping Jamie Dimon as both chairman and chief executive. The influential proxy adviser also told shareholders late Friday that the members of the board’s risk committee should not get their votes for re-election because of the London Whale trading disaster. J.P. Morgan, in response, said it strongly endorses the re-election of its current directors and disagreed with ISS’s position, pointing to a review that concluded the trading losses weren’t the risk committee’s fault. J.P. Morgan also got Warren Buffett on its side, who again defended Dimon Monday. ISS said shareholders should withhold support from the risk committee comprised of David Cote, the CEO of industrial giant Honeywell HON +1.12%, James Crown, the president of investment firm Crown & Co., and Ellen Futter, president of the Museum of Natural History. Last year both Cote and Crown got 97% support while Futter got 86%.

Counterparites: Split personalities - Institutional Shareholder Services’ message is clear: no one man should have all that power. More specifically, ISS has declared Jamie Dimon shouldn’t be JP Morgan’s chairman and CEO. The firm, which advises shareholders on corporate voting, is also recommending that its clients not support the reelection of three of the bank’s directors. Each of those directors — David Cote, James Crown and Ellen Futter — sits on the bank’s risk committee. The proposal to split the roles of chairman and CEO is non-binding; the re-election of board members is binding. It’s unclear whether either measure will pass.The risk committee, whose oversight failed spectacularly prior to and during last year’s $6.2 billion trading loss, has no members who have worked at a bank or as financial risk managers. ISS called the committee members’ “lack of robust industry-specific experience” odd, particularly compared to their counterparts at JPM’s competitors.The WSJ’s Francesco Guerrera wrote last month that the era of the “imperial chief executive” might be winding down on Wall Street. The trend goes beyond finance. Boeing and GE faced (and defeated) proposals to split the roles of chairman and CEO this year. With shareholders demanding more scrutiny of management, the “current Wall Street incumbents are likely to be the last ones to hold a dual role”.

Bill Gross Tweets "Bond Bull Market Dead" Even As PIMCO Loads Up On Most Government Bonds In Three Years - The blue line in the chart below? That's the total holdings of Government (cash and derivative) securities of PIMCO's flagship $293 billion Total Return Fund. At a net exposure of 40% of total fund AUM, or roughly $117, PIMCO has not been more bullish on Treasury and Agency securities since July 2010, when Gross was selling into the QE2 Jackson Hole preannouncement panic. If also is the first time since the summer of 2010 that the fund holds substantially more government-related securities than MBS. Why is this notable? Because moments ago, Gross used his now favorite public service distribution medium, twitter, to announced that "The secular 30-yr bull market in bonds likely ended 4/29/2013." Uhm. No.

Short-term bond funds - the new cash equivalent -  As discussed earlier (see post) the ongoing reallocation out of money market funds combined with the Fed's monetary expansion has resulted in fund flows into short-term bond funds as a cash substitute. The AUM of short-term (non-government) bond funds hit another record recently with no signs of slowdown.As these funds deploy all this new capital however, they are finding it more difficult to find quality bonds that meet their criteria. The longer duration income funds actually started putting some money into equities, which they are usually allowed under the prospectus.  WSJ: -  The $15.4-billion Loomis Sayles Strategic Income fund has ratcheted up its stock and preferred-stock allocation to more than 19%, from 5% in mid-2011. Co-portfolio manager Matt Eagan said that the fund's managers decided most bonds were so overpriced that it was worth taking on some stock risk to avoid pain in bonds.  The shorter duration bond funds typically don't invest in equities, yet they are facing the same problems - it's difficult to generate even mediocre returns in higher rated bond markets. And often there aren't even enough bonds for sale (dealers don't hold much inventory and institutions don't want to part with their bonds). The solution is simple - these funds are migrating down the quality spectrum.

US junk debt yield hits historic low - The average yield on US junk-rated debt fell below 5 per cent for the first time on Monday, setting yet another milestone in a multiyear rally and illustrating the massive demand for fixed income returns as central banks suppress interest rates. Junk bonds and equities often move in tandem, and with the S&P 500 rising above 1,600 points for the first time and sitting on a double digit gain this year, speculative rated corporate bonds are also on a tear. In the space of five months, the average yield on US junk debt has tumbled from above 6 per cent, a journey that some warn is too fast and has driven the asset class well beyond its true fundamentals. While investment grade bonds are rated on the basis of an investor being repaid their principal with interest, the assumption behind junk debt is that the company will at some point default in the future. With corporate default rates below historical averages, investors are willing to overlook the weaker credit quality in exchange for higher returns on the securities, analysts said. “Investors are looking at a world of getting a hair breadth of less than 5 per cent for a bond that has an expectation of defaulting at some point in the future,”

Let's get real about the stock market - As reported by the financial press, the stock market continues to hit fresh record-high levels in many advanced economies. The Dow Jones passed the 15,000 mark, the Nikkei just went over 14,000, and the DAX just went above its previous record. It seems to be the time to talk about bubbles in asset prices - an important issue given how these bubbles have dominated the last business cycles in these economies. Except that we are looking at the wrong numbers.   These are nominal values and as we were told in the first economics lesson, we need to look at real variables and not nominal ones.  Asset prices are not supposed to stay constant (in real terms). In many cases its appreciation will reflect real growth in the economy, earnings and/or the expected return that these assets should provide in equilibrium. No need to look for data that provides a better benchmark than just nominal indices. Robert Shiller provides all the necessary data in his web site. Adjusting for inflation is easy and below is a chart with the real price of the S&P500 index where the CPI has been used to convert nominal into real variables.

Stock Markets Rise, but Half of Americans Don’t Benefit - The stock market has been doing well, reaching new nominal highs in recent weeks. Economists have been arguing that such equity gains make people feel richer, which might encourage consumers to pick up their spending despite their stagnant wages and recent tax increases. One possible problem with this hopeful story: the share of Americans who actually have money invested in stocks has been falling in recent years. In its annual Economy and Finance survey, conducted April 4-14, Gallup found that 52 percent of Americans said they (personally or jointly with a spouse) owned stock outright or as part of a mutual fund or self-directed retirement account. That’s not statistically different from the share last year (53 percent), but is down substantially from pre-recession levels. It’s also the lowest recorded share since Gallup started asking this question in 1998.

Corporate Profits as a Share of GDP (graph) Note these are corporate profits after taxes.

An Enormous Corporate Colonization Project Is Underway -- And the American Economy Will Never Be the Same  - A corporate world order is emerging, and like any parasite, it is slowly killing off its host. Unfortunately, the "host" happens to be the planet, and all life upon and within it. So, while the extinction of the species will be the end result of passively accepting a corporate-driven world, on the other hand, it’s very profitable for those corporations and their shareholders. The Transatlantic Trade and Investment Partnership (TTIP) is the latest corporate-driven agenda in what is commonly called a “free trade agreement,” but which really amounts to ‘cosmopolitical corporate consolidation’: large corporations dictating and directing the policies of states – both nationally and internationally – into constructing structures which facilitate regional and global consolidation of financial, economic, and political power into the hands of relatively few large corporations. Such agreements have little to do with actual ‘trade,’ and everything to do with expanding the rights and powers of large corporations. Corporations have become powerful economic and political entities – competing in size and wealth with the world’s largest national economies – and thus have taken on a distinctly ‘cosmopolitical’ nature. Acting through industry associations, lobby groups, think tanks and foundations, cosmopolitical corporations are engineering large projects aimed at transnational economic and political consolidation of power... into their hands. With the construction of “a European-American free-trade zone” as “an ambitious project,” we are witnessing the advancement of a new and unprecedented global project of transatlantic corporate colonization.

Markets erode moral values - Researchers from the Universities of Bamberg and Bonn present causal evidence on how markets affect moral values Many people express objections against child labor, exploitation of the workforce or meat production involving cruelty against animals. At the same time, however, people ignore their own moral standards when acting as market participants, searching for the cheapest electronics, fashion or food. Thus, markets reduce moral concerns. This is the main result of an experiment conducted by economists from the Universities of Bonn and Bamberg. The results are presented in the latest issue of the renowned journal "Science". Prof. Dr. Armin Falk from the University of Bonn and Prof. Dr. Nora Szech from the University of Bamberg, both economists, have shown in an experiment that markets erode moral concerns. In comparison to non-market decisions, moral standards are significantly lower if people participate in markets.

As lenders look for ways to deploy capital, small businesses benefit - US corporations are enjoying some of the lowest borrowing costs in history. Even the more leveraged (high debt to earnings ratio) large and middle market companies are "fighting off" lenders willing to provide cheap credit. Junk loans now yield 3-5% and spreads are continuing to tighten.Existing loans are being "repriced" (converted) into debt with lower rates and looser covenants.LCD: - Falling new-issue spreads spurred a new round of opportunistic deal flow. In April, issuers cuts spreads on $36.7 billion of institutional loans, up from $24.7 billion in March. In all, issuers have now repriced $155.7 billion of loans, or 28% of the S&P/LSTA Index, by 115 bps on average.And a great deal of this demand is coming from shadow banking - Business Development Corporations (BDCs), CLOs, and even credit hedge funds (see story). How can US chartered banks (under regulatory pressure) possibly compete when credit for large and mid-market firms is so readily available and so cheap? One way is to expand lending into smaller business space, where sanity still prevails with respect to rates and leverage levels. And that's exactly what banks have been doing. The latest data from the Fed shows banks easing on underwriting standards for small company loans...

US regulators eye Bitcoin supervision - Senior officials at a top US financial regulator are discussing whether Bitcoin, the controversial cyber-currency, might fall under their regulatory remit. Bitcoin “is for sure something we need to explore”, Bart Chilton, one of the five commissioners at the Commodity Futures Trading Commission (CFTC) told the Financial Times. A person familiar with the CFTC’s thinking said that the regulator is “seriously” examining the issue. Said Mr Chilton: “It’s not monopoly money we’re talking about here – real people can have real risk in these instruments, and we need to ensure that we protect markets and consumers, even in what at first blush appear to be ‘out there’ transactions.” Four-year-old Bitcoin is attracting the interest of regulators amid volatile booms and busts in the value of the cyber-currency and fresh media interest. Intensified regulatory scrutiny could pose challenges for proponents of Bitcoin, who have praised the currency for its independence from traditional authorities. In March, a branch of the US Treasury department said that all firms that exchange or transfer the virtual currency will be considered “money services businesses”.

New York State Investigating Pension-Advance Firms  - New York’s top banking regulator has begun an investigation into pension advance firms, the lenders that woo retirees to sign over their monthly pension checks in return for cash. The regulator, the Department of Financial Services, sent subpoenas to 10 companies in the business on Tuesday. Federal and state authorities say that such advances are actually loans that require customers to sign over all or a portion of their monthly pension checks in exchange for a lump-sum payment. The high-cost loans, the authorities say, threaten to erode the retirement savings of a growing number of older Americans, thrusting retirees deep into debt.Benjamin M. Lawsky, who heads the agency, calls the pension advances, which were the subject of an article in The New York Times, “nothing more than payday loans in sheep’s clothing.” The agency took the action at the urging of the office of New York Gov. Andrew M. Cuomo. The Times’s review of more than two dozen loan contracts found that the loans, once fees were factored in, could come with effective interest rates from 27 to 106 percent — critical information that was not disclosed either in the ads or the contracts.

Fed Survey: Banks eased lending standards, "experienced stronger demand" - From the Federal Reserve: The April 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices The April 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the supply of, and demand for, bank loans to businesses and households over the past three months. This summary is based on responses from 68 domestic banks and 21 U.S. branches and agencies of foreign banks. In the April survey, domestic banks, on balance, reported having eased their lending standards and having experienced stronger demand in several loan categories over the past three months. The survey results generally indicated that banks’ policies regarding lending to businesses eased over the past three months and demand increased, on balance. In particular, a relatively large fraction of domestic respondents reported having eased standards on C&I loans, and moderate to large net fractions of such respondents reportedly eased many terms on C&I loans to firms of all sizes. ...

Why the Megabank Meltdown May Not Be Done Yet - Ever since the demise of Bear Stearns in the spring of 2008, rapidly followed by the collapse of Lehman Brothers and the sale of Merrill Lynch that autumn, debate has swirled around the future of the banking industry. Are its major institutions – behemoths like JPMorgan, Bank of America and Citigroup – too big to fail? Too big to manage? Still able to generate enough in profits? In spite of the furious debate in Congress and elsewhere about the first two questions, it is likely to be the third that proves the most transformative.  In the aftermath of the crisis, ROE levels now hover in the low teens, at best, for many players – and a new report from Boston Consulting Group suggests that in the future, ROEs may languish in the range of 7 percent to 10 percent. That is very far below the levels that veteran bankers have viewed as being the bare minimum in order for the banks to attract and retain investment capital. BCG paints a gloomy but probably accurate portrait of the future for financial firms engaged in the capital markets and investment banking. For all the public outrage about their activities in the years leading up to the crisis (and their lobbying against new regulations aimed at preventing a repetition of those events), banks have struggled to return to their glory days. Profits may be high, but employment levels are falling along with the crucial ROE levels.

Unofficial Problem Bank list declines to 773 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for May 3, 2013.  Changes and comments from surferdude808:  Unlike last week, this week was a quiet one for the Unofficial Problem Bank List with only two removals. After removal, the list now holds 773 institutions with assets of $284.9 billion. A year ago, the list held 925 institutions with assets of $361 billion. Actions were terminated against Coatesville Savings Bank, Coatesville, PA ($199 million) and Choice Bank, Oshkosh, WI ($190 million Ticker: CBKW). Next week should be a quiet one as well unless the FDIC cranks up the closing machine like it did last week.

California Attorney General Sues JP Morgan Over Debt Collection Abuses, Including Sewer Service, Robosigining - Yves Smith - California Attorney General Kamala Harris is on a roll. There’s been a fair bit of media coverage about abusive debt collection practices, particularly in credit cards, but at least until Harris filed a suit on Thursday against bank miscreant JP Morgan, surprisingly little action.  Because the amounts are usually much smaller than in mortgages, banks have incentives to play fast and loose if they think they can wring some extra blood out of the turnip of an overextended consumer. But the result often goes well beyond just improperly submitting information to the court. JP Morgan and other banks have been accused of trying to collect on debt where they have the amounts wrong, where the debt was discharged in bankruptcy, or where the consumer was never notified an action was underway. And when the debt is sold to debt collectors, the same problems with inaccuracy of information, invalidity of the debt, and abuse of the legal system multiply.  Chase had its dirty laundry aired in public by whistleblower Linda Almonte, who filed an SEC suit in 2010, settled, and then decided to break her confidentiality agreement in 2012. She was an important contributor to an American Banker story that also revealed that the OCC had been investigating. As we wrote: Handling these accounts involved using three different computer systems that communicated reasonably well on current borrowers but not with delinquent or defaulted ones. As a result, the operation had involved a high level of manual checks to make sure the amounts borrowers owed were accurate before they were sent off to collection...Linda Almonte, who was a process specialist who had worked at WaMu, joined in 2009 and was fired, as she charged in a wrongful termination lawsuit, for refusing to send files to collection that has obvious problems in them. Almonte filed a whistleblower complaint with the SEC in 2010 (see an Abigail Field story for more detail).

N.Y. Plans Homeowner Enforcement Against Financial Firms - New York Attorney General Eric Schneiderman said he will announce new enforcement actions against major financial institutions as part of his effort to “protect New York homeowners” after calling the first such lawsuit last year a “template” for future litigation. In October, Schneiderman sued JPMorgan Chase & Co., alleging that Bear Stearns, which JPMorgan took over in 2008, deceived mortgage-bond investors about defective loans backing securities they bought, leading to “monumental losses.” He said the case would be a model for future actions against banks that issued mortgage bonds during the real estate boom. He sued Credit Suisse Group AG on similar grounds the next month.“We do expect this to be a matter of very significant liability, and there are others to come that will also reflect the same quantum of damages,” Schneiderman said last year. “We’re looking at tens of billions of dollars, not just by one institution, but by quite a few.”The situation “reflects a sea-change against climate policy,” said European Green Party Co-Chair Reinhard Buetikofer, who supported the plan. The effort to limit carbon gases “is not being perceived as an opportunity by industry but rather a burden,” he said, adding that the decision “destroyed the foundation of common European climate policy.”

2 Big Banks Face Suits in Mortgage Pact Abuses - New York’s top prosecutor plans to sue two mortgage titans, Bank of America and Wells Fargo, over claims that they breached the terms of a multibillion-dollar settlement intended to end foreclosure abuses. On Monday, Eric T. Schneiderman, New York’s attorney general and top prosecutor, said that the lenders violated the terms of the National Mortgage Settlement, a sweeping $26 billion pact brokered last year between five of the nation’s biggest banks and 49 state attorneys general. The agreement came during a national outcry over potentially widespread foreclosure abuses like shoddy paperwork, erroneous fees and wrongful evictions.Mr. Schneiderman says that Bank of America and Wells Fargo did not follow guidelines dictating how the banks field and process requests from homeowners trying to modify their mortgages.

Schneiderman to Sue Big Banks: Monitor Has Known for Months That Banks Are Flagrantly Violating Mortgage Settlement -- Yesterday, New York State Attorney General Eric Schneiderman said his office would bring suit against Bank of America and Wells Fargo for “flagrant” violations of last year’s National Mortgage Settlement – a deal signed onto by 49 state attorneys general which promised to reform the shady mortgage servicing practices of five of the largest mortgage lenders in the U.S. The question that arises is why the Monitor of the National Mortgage Settlement had not already brought a lawsuit in Federal Court to stop the violations. During his press conference yesterday announcing the lawsuit, Schneiderman said his office has logged 210 complaints against Wells Fargo for violations of the settlement and 129 involving Bank of America. Those figures, however, are dwarfed by the findings of Joseph A. Smith, Jr., the man put in charge of monitoring the settlement and bringing enforcement actions to the Federal District Court in Washington, D.C. when serial violations occur. In his February 13, 2013 report, Smith reported receiving 5,763 complaints from consumers from May 2012 through February 1, 2013 and 600 complaints from advocates such as legal aid attorneys. Even more troubling, the pace of complaints had skyrocketed by 34 percent, rising from an average of 550 per month to 830 complaints per month more recently.

Is Schneiderman’s Plan to Sue Bank of America and Wells Over Mortgage Settlement Violations a Wet Noodle Lashing? -- Abigail Field - When the National Mortgage Settlement was announced, I called it an enforcement fraud because every major law enforcement entity in the country signed off on letting banks overcharge people, use fake documents and otherwise abuse homeowners with impunity, so long as they didn’t do it too many people for six straight months. Pigs could get fat, hogs would get slaughtered. (The legalese is in the settlement is “threshold error rate.”) Or not; the maximum penalty for six months of too many violations was $1 million. Hard to see a deterrent effect of any kind in $1 million when the enforcement population is five of our biggest banks.  And when this deal was done, it had Eric Schneiderman’s signature on it, something he gave for a task force that was obviously staffed to fail, as I noted at the time. But now it seems he’s got buyer’s remorse. Now that that A.G. Schneiderman’s learned that Bank of America and Wells Fargo have failed to service 339 New Yorkers according to the standards dictated by the Settlement, he’s served notice he intends to sue. Not for money; for “equitable relief.” Though I’ve not seen a filing, I imagine if he actually will seek an injunction to get Wells and BofA to start complying with (specific performance of) the four servicing standards Schneiderman is targeting in his press release:

BofA: Schneiderman Has No Rights to Sue - Bank of America is pushing back against New York Attorney General Eric Schneiderman, who threatened to sue the bank over alleged violations of last year’s $25 billion mortgage settlement. In a letter to Schneiderman this week, lawyers for the bank said the attorney general can’t sue until the bank has been given time to cure any of the alleged violations. “Bank of America has not committed any potential violations…let alone failed to cure those potential violations,” wrote attorneys from the New York law firm Wachtell, Lipton, Rosen & Katz. Schneiderman on Monday announced his intention to sue Bank of America, the second-largest U.S. bank by assets, and Wells Fargo & Co. (WFC) for allegedly violating rules over giving fair and timely service to homeowners seeking relief under the settlement. Schneiderman said his office found 339 violations, 129 of which he said were from Bank of America. “As our letter to the monitor makes clear, we have the right to bring a suit against parties that violate the servicing standards and will do so,” said Damien LaVera, a spokesman for the attorney general. The national mortgage settlement was made between the five largest mortgage servicers and 49 state attorneys general last year.

NYAG’s Standing to Sue BofA - NY AG Eric Schneiderman’s suit to bring meaning to the servicing standards of the National Mortgage Enforcement Fraud rises and falls on how the D.C. Circuit interprets two provisions of the Consent Judgment. In my last post, I explained that one provision–the one sentence section II–seems to require the banks to comply to the letter of the servicing standards in Exhibit A, notwithstanding the elaborate metrics/monitoring process that institutionalizes banks’ right to violate the standards so long as they don’t do it too often. If it doesn’t Schneiderman has no suit.  But even if it does require perfect compliance, the AG has one more argument he has to win. I didn’t explain that properly last post. Here’s the key part: “3. Enforcement Action. In the event of an action to enforce the obligations of Servicer and to seek remedies for an uncured Potential Violation for which Servicer’s time to cure has expired, the sole relief available in such an action will be:

  • (a) Equitable Relief….
  • (b) Civil Penalties….”

More Foreclosure Settlement Fiascoes: Rust Consulting Underpays Some Harmed Borrowers - Yves Smith - Rust Consulting, which handled the borrower mailings during the Independent Foreclosure Review and is now acting as paying agent, continues to screw up in every way imaginable.  Recall that Rust and the servicers were criticized by the GAO for producing borrowers outreach letters that were written well over the head of the average American and were deemed by the GAO to have made inadequate efforts to reach borrowers eligible for a review. After the settlement was reached in embarrassing haste and payments were determined in an arbitrary manner, Rust sent out checks that in many instances bounced. Rust also has made it cumbersome for recipients to provide current addresses (readers have reported receiving changing instructions, and apparently taking their lead from servicers, not processing completed forms). And we’ve wondered whether this incompetence is by design, since Rust’s current owner, private equity powerhouse Apollo, has deep ties to the residential real estate industry, and the firm is being sold to the venture capital arm of Citigroup. The latest blunder: Rust sent out checks that were too small to some eligible borrowers. The Fed put out a press release with the not-exactly-forthcoming headline “Federal Reserve provides additional information on borrowers whose mortgages were serviced by Goldman Sachs and Morgan Stanley

Fed says some were underpaid in U.S. foreclosure settlement (Reuters) - A multi-bank settlement with regulators over past foreclosure abuses ran into new problems when some borrowers received smaller checks than they should have, the Federal Reserve said on Wednesday. Some 4.2 million people are receiving checks as part of the deal mortgage servicers reached with the Office of the Comptroller of the Currency (OCC) and the Fed to settle allegations they improperly foreclosed on borrowers and made other processing mistakes during the U.S. housing crisis. The amounts of the checks were determined based on rubrics approved by regulators. But the Fed said it became aware on Tuesday that some consumers whose loans were serviced by units of Goldman Sachs or Morgan Stanley had received checks for less than they amount they should have received. About 96,000 people received the wrong amounts, the Fed said. Rust Consulting, the firm chosen to manage the checks, will send an additional payment to those borrowers on May 17, the Fed said. "This is the worst settlement I have seen in my life, and it should be reopened," Representative Elijah Cummings, a Maryland Democrat, said in a statement.

Treasury Secretary Jack Lew’s Infamous Ugland House Ties Pop Up Again in Foreclosure Check Scandal - That shady offshore tax haven known as Ugland House in the Cayman Islands strikes again. After consuming a chunk of Jack Lew’s Senate confirmation hearing, with Senators grilling Lew on why he owned an investment housed in this offshore tax dodge while working for the Obama administration, the Cayman Islands’ address has surfaced once again in the foreclosure settlement scandal. On April 30 of this year, just 18 days after the first wave of checks from the Federal government’s settlement of the so-called Independent Foreclosure Review began arriving in the mail – and bouncing – Citigroup Venture Capital International (CVCI), Lew’s former Ugland House investment, bought a large stake in the company that was mailing the checks, SourceHOV, parent of Rust Consulting. As reported by Naked Capitalism, the ownership stake was made despite Citigroup being one of the banks in the foreclosure settlement. After correcting the humiliating problem of bouncing foreclosure victims’ checks, Rust Consulting came under fire yesterday for paying out 96,000 checks on behalf of claims against Goldman Sachs and Morgan Stanley with erroneous amounts that undervalued the claim. The Federal Reserve said in a statement: “The checks were for amounts that were smaller than the amounts that the Federal Reserve had specifically instructed Rust to send those borrowers.”

Jon Stewart Disses OCC and Independent Foreclosure Review from Yves Smith - Jon Stewart piled on to the widespread criticism of the Independent Foreclosure Review fiasco. He gives a decent short form description of MERS and highlights the lack of independence of the consultants. My only quibble is he also describes the settlement amount as $9 billion, which is technically accurate but misleading (the cash portion was only $3.6 billion and as Senator Merkley pointed out, the non-cash portion could be satisfied with as little as $12 million in principal reductions). But overall, this segment was effective in keeping the hot lights on the IFR mess.Federal judge questions constitutionality of Colorado foreclosure law - A federal judge on Monday made the rare move to stop the foreclosure auction of an Aurora woman's house in a case that squarely takes on the constitutionality of Colorado's foreclosure laws. U.S. District Judge William Martinez issued a preliminary injunction against the sale of Lisa Kay Brumfiel's four-bedroom home, scheduled for Wednesday in Arapahoe County, until the judge can decide whether parts of state law are unfair to homeowners facing the loss of their house. At issue is a provision in state law that allows lawyers to assert that their client, typically a bank, has the right to foreclose on a property even though they might not have the original mortgage paperwork to prove it. What makes the case compelling isn't just that a federal judge was persuaded to step into an issue involving state law — extremely difficult to do — but the plaintiff in the case is a part-time saleswoman who has taken on the battle without a lawyer.

Quelle Surprise! Banks Whining About Cost of Breaking New California Homeowner Bill of Rights - Yves Smith - During the protracted negotiations over what was to become the 49 state/Federal mortgage settlement, New York attorney general Eric Schneiderman was hailed as a progressive leader and California’s Kamala Harris was characterized as an opportunist.  Turns out the opportunist cut a much better deal for her constituents than the supposed true believer. Admittedly, Schneiderman laid the groundwork by forming a group seeking tougher terms from the banks than the Administration and the putative leader of the AGs, Iowa’s Tom Miller. But as readers know all too well, Schneiderman torpedoed his group by taking a deal with the Administration to be a co-chair of an obviously toothless mortgage task force. Harris insisted on cutting her own deal for California, which included having her own settlement monitor, and installed the able and knowledgeable Professor Katie Porter.  Harris then further stymied one of the key aims of the deal, which was to institutionalize lax mortgage servicing standards (they include “drive a truck through them” permitted error rates and laughably low penalties) by pushing for, and getting passed, a Homeowner Bill of Rights.  One amusing contrast between the State/Federal settlement and the California Homeowner Bill of Rights: both called for an end to dual tracking, the process by which banks move forward with the foreclosure process even if the borrower has asked for a mod and the application/evaluation/approval process is underway. Porter found in late 2012 that servicers were still dual tracking; we also had a whistleblower report in 2013 that the practice was alive and well at Bank of America. Even the national settlement monitor Joseph Smith ‘fessed up that gambling in Casablanca dual tracking continues:The California bill, however, gives homeowners a potent weapon: loser pays legal fees. And banks (well, in this case, a bank-friendly attorney) are howling like stuck pigs that they might have to pay when homeowners catch them breaking the law.

MBA: Mortgage Delinquency Rates increase in Q1, Foreclosure Inventory Down Sharply - From the MBA: Mortgage Delinquency Rates Increase, But Foreclosure Inventory Rate Down Sharply The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 7.25 percent of all loans outstanding at the end of the first quarter of 2013, an increase of 16 basis points from the previous quarter, but down 15 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. ...The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans on which foreclosure actions were started during the first quarter was unchanged at 0.70 percent, the lowest level since the second quarter of 2007, and was down 26 basis points from one year ago. The percentage of loans in the foreclosure process at the end of the first quarter was 3.55 percent, the lowest level since 2008, down 19 basis points from the fourth quarter and 84 basis points lower than one year ago. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 6.39 percent, a decrease of 39 basis points from last quarter, and a decrease of 105 basis points from the first quarter of last year.This graph shows the percent of loans delinquent by days past due.Loans 30 days delinquent increased to 3.21% from 3.04% in Q4. This is just above the long term average.  This is seasonally adjusted, and as Fratantoni noted the seasonal adjustment is difficult right now.  Not Seasonally Adjusted basis (NSA) the 30 day delinquency rate declined in Q1 to 2.86% from 3.21%.This graph is from the MBA and shows the percent of loans in the foreclosure process by state. Posted with permission. The top states are Florida (11.43% in foreclosure down from 12.15% in Q4), New Jersey (9.00% up from 8.85%), New York (6.18% down from 6.34%), and Illinois (5.89% down from 6.33%).  Nevada is the only non-judicial state in the top 10, and this is partially due to state laws that slow foreclosures.For judicial foreclosure states, it appears foreclosure inventory peaked in Q2 2012 (foreclosure inventory is the number of mortgages in the foreclosure process).  Foreclosure inventory in the judicial states has declined for three consecutive quarters.  This was three years after the peak in foreclosure inventories for non-judicial states.

Mortgage delinquency rate rises as foreclosure inventory subsides: MBA - The delinquency rate for mortgages on one-to-four unit residential properties grew 16 basis points from the fourth quarter of 2012 to the first quarter of 2013 even as the nation’s foreclosure inventory rate dropped to 3.55%, the Mortgage Bankers Association said Thursday. Mortgages in this category reached a seasonally adjusted delinquency rate of 7.25% of all loans outstanding in the first quarter – a rate that is still down 15 basis points from a year ago, MBA concluded in its National Delinquency Survey. The trade group’s delinquency rate includes mortgages that are at least one payment past due, but not those in the process of foreclosure. The percentage of loans experiencing the start of a foreclosure action remained unchanged in 1Q at 0.70% — the lowest level reached since the second quarter of 2007 and a 26 basis point drop from a year ago. By the end of the third quarter, 3.55% of loans were in the foreclosure process, down 19 basis points from the fourth quarter and 84 basis points from the same period of 2012, MBA said. Meanwhile, the percentage of loans 90 days or more past due or moving through the foreclosure process hit 6.39%, a decline of 39 basis points from the previous quarter and a drop of 105 basis points from the first quarter of 2012. The combined percentage of loans at least one payment late or in foreclosure fell to its lowest level in four years, reaching 10.30% — a 95 basis point drop from the fourth quarter and 103 basis points lower than 1Q of 2012.

LPS: New Problem Loans at Lowest Rate in 6 Years; Negative Equity Drops - LPS released their Mortgage Monitor report for March today. According to LPS, 6.59% of mortgages were delinquent in March, down from 6.80% in February.  LPS reports that 3.37% of mortgages were in the foreclosure process, down from 4.19% in March 2012.  This gives a total of 9.96% delinquent or in foreclosure. It breaks down as:
• 1,842,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,466,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,689,000 loans in foreclosure process.
For a total of ​​4,997,000 loans delinquent or in foreclosure in March. This is down from 5,589,000 in March 2012.The first graph from LPS shows the number of non-current loans by delinquency bucket (30-60 days, 60-90 days, 90+ days, and in-foreclosure). The number of problem loans fell below 5 million for the first time since 2008. Also note that short term delinquencies are close to normal - and LPS reports new problem loans are at the lowest level in 6 years - but there still 3 million loans that are 90+ days delinquent or in-foreclosure. This is still very high.

Nearly a third of county foreclosures three years old or older - Nearly a third of Palm Beach County’s foreclosure cases are three-years-old or older, a timeframe that far exceeds a state goal of finishing civil proceedings within 18 months, according to a new report on Florida’s courts. The Foreclosure Initiative Workgroup, which issued the report, was formed in January to find the barriers to faster foreclosures and to make recommendations on how to streamline the process. Composed of judges and court administrators, the group looked at staffing levels, the number of reopened foreclosure cases and the age of pending cases. A Florida court rule sets a time standard of 18 months to finish a jury case and 12 months for non-jury cases. More than half of Palm Beach County foreclosure cases — 51 percent — have been in the system two or more years, the report found. Statewide, nearly 42 percent of foreclosures have been pending for more than two years. “Delays are created in the processing of other types of civil cases when court resources are redirected to foreclosure cases,” the report notes. But judges have limited power over the two “fundamental” barriers to processing cases faster — banks delaying moving cases forward and paperwork and procedural problems that continue to exist. 

Lawler: Table of Distressed Sales and Cash buyers for Selected Cities in April - Economist Tom Lawler sent me the preliminary table below of short sales, foreclosures and cash buyers for several selected cities in April.   Look at the two columns in the table for Total "Distressed" Share. In every area that has reported distressed sales so far, the share of distressed sales is down year-over-year - and down significantly in some areas.   Also there has been a decline in foreclosure sales in all of these cities.  Also there has been a shift from foreclosures to short sales. In all of these areas - except Minneapolis- short sales now out number foreclosures. Tom Lawler writes: Note that in Vegas the foreclosure sales share last month way down from a year, and the total “distressed” sales share in down a lot as well, but the all-cash share of sales was higher, which appears to imply sharply higher purchases of non-foreclosure and even non-distressed homes by institutional and other investors. While the “all-cash” share of sales last month was down a bit from a year ago in Phoenix, the drop was significantly lower than the decline in distressed sales – again apparently reflecting sharply higher non-foreclosure and non-distressed home purchases by institutional and other investors.

Freddie Mac on Q1: $4.6 Billion Net Income, No Treasury Draw, REO Declines - From Freddie Mac: Freddie Mac Reports Net Income of $4.6 BILLION; Freddie Mac today reported net income of $4.6 billion for the first quarter of 2013, compared to net income of $4.5 billion for the fourth quarter of 2012. ...On Real Estate Owned (REO), Freddie acquired 17,882 properties in Q1 2013, and disposed of 18,895 and the total REO fell to 47,974 at the end of Q1.  This graph shows REO inventory for Freddie. From Freddie: In 1Q13, REO dispositions continued to exceed the volume of REO acquisitions. The volume of our single-family REO acquisitions in recent periods has been significantly affected by the length of the foreclosure process and a high volume of foreclosure alternatives, which result in fewer loans proceeding to foreclosure, and thus fewer properties transitioning to REO.The North Central region comprised 42 percent of our REO property inventory at March 31, 2013. This region generally has experienced more challenging economic conditions, and includes a number of states with longer foreclosure timelines due to the local laws and foreclosure process in the region.

Existing Home Inventory is up 12.2% year-to-date on May 6th - 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 in 2013.   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 (the most recent data was for March).  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: Mortgage Applications Increase, Purchase index at highest level since May 2010 - From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey - The Refinance Index increased 8 percent from the previous week to the highest level since December 2012. The gain in the Refinance Index was due to increases in both the conventional and government refinance indices of 8.8 percent and 5.7 percent respectively. The seasonally adjusted Purchase Index increased 2 percent from one week earlier to the highest level since May 2010. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.59 percent, the lowest rate since December 2012, from 3.60 percent, with points increasing to 0.33 from 0.30 (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. This was the highest level for the refinance index since last December. 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 the purchase index - and the 4-week average of the purchase index - are at the highest level since May 2010

Vital Signs Chart: Mortgage Applications at Three-Year High - Home mortgage activity is growing. The Mortgage Bankers Association’s index of mortgages to buy a house rose 2.4% last week to its highest level since May 2010 and has soared 30% this year. The applications remain far below their prerecession levels, but the recent increases suggest mortgage-dependent home buyers are joining investors in fueling a housing recovery.

Vital Signs Chart: Mortgage Rates Back Near All-Time Lows - Mortgage rates dropped again last week, extending their monthlong decline after edging up in March. The rate on a 30-year fixed mortgage stands at 3.35%, near the low of 3.31% reached last November. The Federal Reserve is continuing to buy mortgage securities to spur the economy, helping to lower borrowing rates and making homes more affordable.

Survey: US Home Prices Up 10.5 Pct. in Past Year - A survey shows U.S. home prices rose 10.5 percent in March compared with a year ago, the biggest gain since March 2006. Core Logic, a real estate data provider, said Tuesday that annual home prices have now increased for 13 straight months. Prices are rising in part because more buyers are bidding on a limited supply of homes for sale. Prices increased in 46 states over the past year — 11 of them posting double-digit gains. And when excluding distressed sales, which include foreclosures and short sales, prices rose in every state. A short sale is when a home sells for less than what is owed on the mortgage. Nevada led all states with a 22.2 percent annual gain. It was followed by California (17.2 percent), Arizona (16.8 percent), Idaho (14.5 percent) and Oregon (14.3 percent).

CoreLogic: House Prices up 10.5% Year-over-year in March - This CoreLogic House Price Index report is for March. The recent Case-Shiller index release was for February. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic Home Price Index Rises by 10.5 Percent Year Over Year in March Home prices nationwide, including distressed sales, increased 10.5 percent on a year-over-year basis in March 2013 compared to March 2012. This change represents the biggest year-over-year increase since March 2006 and the 13th consecutive monthly increase in home prices nationally. On a month-over-month basis, including distressed sales, home prices increased by 1.9 percent in March 2013 compared to February 2013.  Excluding distressed sales, home prices increased on a year-over-year basis by 10.7 percent in March 2013 compared to March 2012. On a month-over-month basis, excluding distressed sales, home prices increased 2.4 percent in March 2013 compared to February 2013. This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was up 1.9% in March, and is up 10.5% over the last year.  The index is off 25.1% from the peak - and is up 11.9% from the post-bubble low set in February 2012. The second graph is from CoreLogic. The year-over-year comparison has been positive for thirteen consecutive months suggesting house prices bottomed early in 2012 on a national basis (the bump in 2010 was related to the tax credit).

For the first time in seven years, both CoreLogic home price indexes posted double-digit annual gains in March -- CoreLogic reported today that its repeat-sales Home Price Index (HPI), based on sale prices for the same homes over time, posted a 10.5% year-over-year gain in March (including distressed sales). That was the largest annual increase in home prices since March 2006 – six years ago (see blue line in chart). March was the thirteenth consecutive month starting last March that national home prices increased year-over-year. The last time there were 13 back-to-back monthly increases in year-over-year home prices was in 2005-2006. Excluding distressed sales, CoreLogic reported that national home prices increased annually by 10.7% in March (see red line), the largest annual home price appreciation since February 2006. March was the first month since March 2006, six years ago, that both CoreLogic home price indexes posted annual gains above 10%. At the state level, there were 11 states that posted double-digit gains in February home prices: Nevada (22.2%), California (17.2%), Arizona (16.8%), Idaho (14.5%), Oregon (14.3%), Hawaii (13.4%), Georgia (12.1%), Washington (11.6%), Utah (11.5%), Colorado (10.4%) and Massachusetts (10.4%) and only four states posted annual declines in home prices: Delaware (-3.7%), Alabama (-3.1%), Illinois (-1.8%) and West Virginia (-0.3%).

Trulia: Asking House Prices increased in April, "Rent growth has slowed" - Press Release: Asking Home Prices Soared 8.3 Percent Year-Over-Year Nationwide, While Rents Rose Only 2.4 Percent With the Spring house hunting season well underway, asking home prices rose 8.3 percent nationally year-over-year (Y-o-Y) in April. This time last year, asking prices fell 1.6 percent Y-o-Y. Seasonally adjusted, asking prices rose 1.3 percent month-over-month and 4.3 percent quarter-over-quarter. Regionally, asking prices were higher than one year ago in 95 of the 100 largest metros. Strong job growth and the housing recovery go hand-in-hand. Nationally, job growth increased 1.5 percent Y-o-Y in March. In San Jose, Orange County, San Francisco, and Phoenix – where asking prices rose more than 18 percent Y-o-Y – job growth was well above the national average. Rents rose 2.4 percent Y-o-Y nationally, but rent growth has slowed. In 19 of the 25 largest rental markets, rent gains Y-o-Y was slower in April than in January. In some markets, rents and prices are moving in the opposite direction, or nearly so: the four metros with the slowest rent growth or even declines – San Francisco, Las Vegas, Sacramento, and Seattle – all had price gains of more than 15 percent Y-o-Y.

Las Vegas Housing: 8% Of Single Family Homes Vacant, Yet New Construction Permits Up 50% -  If there is any market that demonstrates the complete and total misallocation of capital that results from Banana Ben Bernanke’s money printing and artificially low interest rate policy, it the latest phony American housing bubble. With a record numbers of citizens on the food stamp electronic breadline, with unemployment stubbornly high no matter what data you use, billionaire financial oligarchs are running around bidding up “homes for rent” and pricing out the random average person that actually has the capacity or desire to bid. I just read an excellent article that demonstrates the degree of insanity that has now been unleashed upon the streets of Las Vegas. As the title of the post mentions, a study from the University of Nevada at Las Vegas show some 40,000 homes are vacant, or 8% of the metropolitan area’s single-family housing stock. So it would seem that this would provide plenty of good deals for investors right? Certainly there doesn’t seem to be a need for new home construction. Well think again! In their QE-forever induced delirium, homebuilders have gone Chinese and in Las Vegas “permits for new home construction are up 50 percent, twice the national average.”

Housing Market: Where are the ‘Missing Households’? - Over the six years from the peak of the housing bubble (2006) through 2011 the make-up of the housing market changed. Renter occupied households increased, owner occupied households decreased and the number of households increased far less than the rate of population growth. Real estate market expert, Robert Dietz, economist with the National Association of Home Builders (NAHB), calls the failure of household growth to keep up with population growth a case of "missing households". Deitz provides the following graph to illustrate the changes in the residential housing market 2006-2011.It is clear that home ownership has declined very slightly from 2006 to 2011. Renting has significantly increased. But no data was shown about the number of households. To look at that further data is needed from the U.S. Census Bureau, which Econintersect has obtained from the Current Population Survey/Housing Vacancy Survey, Series H-111. Relevant data is shown in the following table, with population estimates also from the Census Bureau. Normalized for population growth the number of households is the same as twelve years ago. What is missing? Home owners. The distribution of households has shifted significantly to renting. The referenced articles are looking for a phantom that does not appear to have any potential for making an appearance.

The Long and the Short of Household Formation - FRB Working Papers - One of the drivers of housing demand is the rate of new household formation, which has been well below trend in recent years, leading to persistent weakness in the housing market. This paper studies the determinants of household formation in the United States, including demographic and behavioral changes, and how they evolve over the long and short runs. There are three main findings: First, because older adults tend to live in smaller households, the aging of the U.S. population over the past 30 years has reduced the average household size, or equivalently, pushed up the headship rate and household formation. Second, after stripping out the effects of the aging population, the residual behavioral component of the headship rate has declined over time, thanks largely to rising housing costs. This shift has reduced household formation, all else equal. Finally, the short-run dynamics of headship and household formation reflect the effects of the business cycle. In particular, I find that poor labor market outcomes have played an important role in depressing the headship rate in recent years. Consequently, household formation could increase substantially as the labor market recovers and the headship rate returns to trend.

Homeownership Linked to Higher Unemployment - Dartmouth College’s David Blanchflower (best known for being the Bank of England member who first pressed for interest rate cuts after the onset of the financial crisis) and Andrew Oswald of the University of Warwick find that a doubling of the rate of home ownership in any U.S. state is followed in the longer run by more than a doubling of the unemployment rate. The authors stress that they are not arguing that the owners themselves are disproportionately unemployed. They suggest that lower levels of labor mobility, greater commuting times and fewer new businesses all combine to hurt the labor market.Five of the states with the largest increase in homeownership since 1950 — Alabama, Georgia, Mississippi, South Carolina and West Virginia — saw a rise in the jobless rate of 6.3 percentage points between 1950 and 2010. Those with the lowest increase in homeownership — California, North Dakota, Oregon, Washington and Wisconsin — saw a rise in unemployment of 3.5 percentage points over the same time period.

Challenge to Dogma on Owning a Home - Homeownership is a good thing, for the individual and for society. Or so American governments, whether Republican or Democrat, have long believed. The benefits have been cited repeatedly in justifying the existence and expansion of the tax breaks given to home buyers.  But maybe it isn’t nearly as good as had been thought.  A new study by two economists concludes that rising levels of homeownership in a state “are a precursor to eventual sharp rises in unemployment in that state.” As more homes are owned, in other words, fewer people have jobs.  The study, by David G. Blanchflower of Dartmouth and Andrew J. Oswald of the University of Warwick in England, does not argue that homeowners are more likely to lose jobs than are renters. But it does argue that areas with high and rising levels of homeownership are more likely to be inhospitable to innovation and job creation and to have less labor mobility and longer commutes to work.  “We find that a high rate of homeownership slowly decimates the labor market,” Professor Oswald said.

Housing Starts and the Unemployment Rate - By request, here is an update to a graph that I've been posting for several years.  This shows single family housing starts (through March 2013) and the unemployment rate (inverted) through April. Note: there are many other factors impacting unemployment, but housing is a key sector. You can see both the correlation and the lag. The lag is usually about 12 to 18 months, with peak correlation at a lag of 16 months for single unit starts. The 2001 recession was a business investment led recession, and the pattern didn't hold. Housing starts (blue) increased a little in 2009 with the homebuyer tax credit - and then declined again - but mostly starts moved sideways for two and a half years and only started increasing steadily near the end of 2011. This was one of the reasons the unemployment rate remained elevated.The good news is single family starts have been increasing steadily for the last 18 months or so, and I expect starts to continue to increase over the next few years. That should mean more construction employment this year, and that the unemployment rate should continue to decline.

No Recovery Here Either: Home Renovation Spending Plummets To 2010 Levels - One of the widely accepted misconceptions surrounding the so-called "housing recovery" fanfared by misleading headlines such as this "Remodeling activity keeps up positive momentum", which in reality has merely turned out to be a housing bubble in various liquified "flip that house" MSAs (offset by continuing deteriorating conditions in those places where the Fed's trillions in excess reserves have trouble reaching coupled with ongoing foreclosure stuffing), is that "renovation spending", the amount of cash spent to upgrade and update a fixer-upper, has surged. Sadly, this is merely the latest lie about the US economy: as the attached chart showing renovation spending in the past 6 months, it has absolutely imploded, confirming that not only is a broad housing recovery a myth (instead of localized pockets of bubbly liquidity here and there), but that the US home-owning household is now more tapped out than at any time in the past two years.

Fixing manufactured housing -  One of the casualties of the sub-prime crisis in the US has been the manufactured housing sector. Mortgages against manufactured homes have generally been significantly more expensive than those on traditional homes. That allowed some of these loans to be pooled and sold to yield-hungry investors, initially as ABS and later as part of CDOs.  Of course all that ended in 2008 and the manufactured home industry collapsed. Obtaining a mortgage on such housing became difficult, particularly as delinquencies rose. But now, with the US potentially facing a housing shortage (see post), one would think the number of manufactured units would rise. It hasn't. The number of units shipped each month is roughly where it was in 2009 - near historical lows.Part of the reason the manufactured housing sector failed to make even a modest comeback has been the Dodd Frank regulation. Mortgages on these homes have been viewed as "predatory" because of their high rate and small size. And banks do not want to charge traditional interest on mortgages that historically have had relatively high delinquency rates. Higher rates on riskier loans does not make it "predatory" lending. Now there is a push in Congress to amend the Dodd-Frank regulations to make an exception for manufactured housing.

March Factory Order Rebound Doesn’t Change Dismal Trend - New factory orders (actual, adjusted for inflation and not seasonally adjusted), which is a broader measure than durable goods orders because it includes non-durables, dropped 3.3% on a year to year basis in March. It was the 5th straight year to year decline. As the Fed inflates a stock market bubble, US manufacturing is shrinking. I adjust this measure for inflation and use not seasonally manipulated data in order to give as close a representation as possible of the actual unit volume of orders and thus the actual trend. Real new factory orders, NSA, were up 5.2% month to month. March is always an up month, rising in all of the prior 10 years. March 2012 saw a rise of 6.8%. In 2011 was it was up by 19.2%.  The average March change during the previous 10 years was  an increase of 12.8%. This year’s number was worse than the average and worse than the last two years. In fact it was the worst March performance since 1998.More important is the big picture trend and the response of manufacturing to Fed stimulus. After rebounding sharply from the 2009 bottom through early 2011, the trend then stalled. The annual growth rate has been in a downtrend since April of 2010 and has been zero or a negative number for the past year. Since the Fed started settling its QE3 MBS purchases in November 2012, this index has shown no material improvement. The ISM data for April suggests that the factory data for that month won’t be much better. So don’t believe the hype about a return of US manufacturing. It ain’t happening, as the chart above makes clear

Why Were Young People Hit Harder by the Recession? - Younger people were hit harder by the recession than older people. What explains the disparity? One of the biggest factors, a new paper suggests, is the larger mortgage debt young households under 45 had relative to their assets compared to older people in the run-up to the financial crisis — and the fact that much of their wealth came from owning homes. Reviewing data from the Federal Reserve, Edward Wolff, an economist at New York University, finds the average wealth of people under 35 dropped from $95,500 in 2007 to $48,400 in 2010 (in 2010 dollars), while that of people 35-44 shrank from $325,000 to $190,000. Older groups, by contrast, suffered much smaller relative declines. The reason? The big drop in home prices between 2007 and 2010 meant a 59% loss in home equity for people under 35, compared with just 26% for people generally. That meant a massive loss of wealth, or “net worth” — what people own minus what they owe. People ages 35-44 saw a 49% fall in home equity.

Slower Consumer Credit as People Use Plastic Less: Consumer credit recorded its smallest increase in eight months in March as Americans cut back on credit cards to fund purchases, Federal Reserve data showed Tuesday. Total consumer installment credit rose by $7.97 billion to $2.81 trillion, the smallest rise since July. Economists polled by Reuters had expected a solid $16 billion increase in March. Revolving credit, which primarily measures use of credit cards, fell $1.71 billion after rising $453 million in February. Nonrevolving credit, which includes student loans made by the government and auto loans, was up $9.68 billion following an $18.18 billion increase in February.

Consumer Credit in U.S. Increases Less Than Forecast - Bloomberg: Consumer borrowing in the U.S. climbed less than projected in March as Americans reduced credit-card purchases for the first time this year. The $7.97 billion increase followed an $18.6 billion advance the previous month that was the biggest since May 2012, Federal Reserve figures showed today in Washington. The median forecast in a Bloomberg survey called for a $15.6 billion rise. Revolving credit, which includes credit-card spending, fell, while non-revolving borrowing rose.The tempering of credit-card use coincides with a slowdown in March consumer spending amid higher payroll taxes and limited income growth. At the same time, rising stock prices and home values are enabling households to repair finances, putting them in a position to take advantage of low borrowing costs for purchases such as new cars.

Consumer credit posts smallest gain in eight months | Reuters: (Reuters) - Consumer credit recorded its smallest increase in eight months in March, a possible hint that Americans are still trying to pare their debts. Consumer installment credit rose by $7.97 billion to $2.81 trillion, the Federal Reserve said on Tuesday. It was the smallest increase since July and well below economists' expectations for a $16 billion rise. For the first quarter, the total flow of credit rose at an annual rate of $157.1 billion, slowing from a $177.7 billion increase in the last three months of 2012. Revolving credit, which mostly measures credit-card use, fell $1.71 billion after rising $453 million in February. Credit from depository institutions fell in March, while advances by financial institutions were unchanged. "One sobering statistic that argues against a rebound in household credit growth in the near future is that student loans have been the driver of any growth in credit to households," said Julia Coronado, chief North America economist at BNP Paribas. U.S. households built up a massive debt load as the housing bubble expanded. Efforts to pay down those debts have been a restraint on spending and the economy's recovery.

Credit-Card Debt Declines for First Time in 2013 - Americans cut their credit-card debt in March, a sign some consumers are cautious about the sluggish economic recovery. While total consumer borrowing increased slightly during the month, revolving credit, a category dominated by credit card debt, fell 2.4% in March at an annual rate, the first decline this year, a Federal Reserve report showed Tuesday. The step back after two months of increasing credit card debt suggests consumers were less willing to take on higher balances in order to keep spending. January tax increases took a bite out of most workers’ paychecks.

March Consumer Credit Increase Driven Entirely (And Then Some) By Student And Car Loans -  The March consumer credit headline was a disappointment, increasing by just $7.97 billion, on expectations of a $15.6 billion increase, with the February total revised lower to $18.14 billion. So far so bad. It gets worse when one peeks beneath the surface and finds that discretionary consumer credit in the form of credit card and other revolving loans posted its first decline of 2013, dropping by $1.7 billion, the biggest decline since December's 2.1 billion. So what rose: why debt for purchases of Government Motors and student loans of course, which increased by $9.676 billion in March. In other words: the student bubble keeps getting bigger, more and more GM cars are being bought on subprime credit, while the vast majority of Americans can't even afford to charge toilet paper purchases as the discretionary deleveraging continues.

Weekly Gasoline Update: A Tiny Price Increase after 9 Weeks of Declines - It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Gasoline prices rose fractionally last week. Rounded to the penny, the average for Regular increased two cents and Premium one cent. This is the first week of price gains after nine weeks of declines, which followed eleven weeks of price rises. Since their interim high in late February, Regular and Premium are both down 25 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.

Bright Lights, Big City, Bigger Prices - Where Inflation Hides - Subdued headline inflation hides the inimitable rise of prices across the country; but ConvergEx's Nick Colas examines the pace of inflation in four large cities across the US – Boston, Chicago, New York and San Francisco.  All are home to multitudes of urban working professionals, share the same currency and have similar macro economies, though, Colas notes, the trend of price increases varies considerably (particularly with regards to NYC vs. the rest).  The cost of living is up in all four cities since 2008.  Incomes, too, are generally higher – although not in New York, likely a result of the Big Apple’s unique micro economy. Comparatively, New Yorkers have experienced the steepest price increases in transportation (higher cab and subway fares give this category a boost) and groceries, meanwhile rent, dinners out and cocktails continue to be more and more costly.  So what gives?  Rising inflation despite lower incomes?  The answer lies in the tug of war between less cash pay on Wall Street and a very active foreign investment market that is driving up real estate prices.

Wholesales Sales Drop By Most Since March 2009; Relentless Inventory Accumulation Continues -  The relentless warehousing of wholesale inventories continues, even if the "any minute now" gusher of wholesale sales continues to be pushed back into the indefinite future. Sure enough, the March data showed that wholesale sales disappointed, and instead of growing 1.5%, declined by -1.6%, below expectations of a 0.1% rise. This was the biggest drop in sales since March of 2009: another nail in the coffin of any recovery dreams. That this happened even as inventories increased by more than the expected 0.3%, or 0.4% up from the previos decline of -0.4%, shows that indeed the end-demand weakness has been quite widespread. Logically, the Inventory-to-Sales ratio rose to 1.21, up from the 1.17 a year ago, and the highest also since 2009. Sooner or later all this pent up inventory will have to be cleared, resulting in even more dumpin, price reductions and margin deterioration in a retail world in which the bottom line is more elusive now than it has ever been: just ask Amazon.

Wolf Richter: When Flight Safety Gets Outsourced To China - Aircraft maintenance was a highly paid blue-collar job that required education, training, manual skills, and brains. It was one of the perfect American middle-class jobs with generous healthcare, retirement, and vacation benefits; and free flights! They were working for icons like Delta, American Airlines, Continental, TWA, or Pan Am.  After endless rounds of Wall Street engineering and tough competition, they all went bankrupt, some of them twice. High wages and generous fringe benefits of maintenance mechanics got whittled down. Then the actual jobs, these well-paid blue-collar specialty jobs that required a lot of training and brains, the bedrock of the American middle class, were outsourced to cheap countries, including China. Specifically to one company. It started in 1997 when Boeing announced that it would acquire for $11 million a 9.1% stake in an outfit that had opened for business the year before: Taikoo Aircraft Engineering Co. (TAECO), based at Gaoqi International Airport in Xiamen, China. TAECO does “heavy maintenance” on aircraft, a labor-intensive job that takes around four weeks per plane – if you have enough mechanics. And cheap labor makes a huge difference for Boeing and its airline customers. I should probably disclose that my parents died in a Boeing nearly 40 years ago.

The financialization of labour - My latest post at Pieria: "We are used to thinking of workers as free agents who sell their labour in a market place. They bid a price, companies offer a lower price and the market clearing rate is somewhere between the two. Market economics, pure and simple. But actually that's not quite right. The financial motivations of workers and companies are entirely different. To a worker, the financial benefit from getting a job is an income stream, which can be ended by either side at any time. But to a company, a worker is a capital asset. This is not entirely obvious in a free labour market. But in another sort of labour market it is much more obvious. I'm talking about slavery. Yes, I know slavery raises all sorts of emotional and political hackles. But bear with me. I am ONLY going to look at this financially. From a financial point of view, there are more similarities than differences between the slave/slaver relationship and the worker/company relationship - and the differences are not necessarily in the free worker's favour......" The remainder of this post can be found here.

Worker Flows Over the Business Cycle - - Lisa Kahn and Erika McEntarfer have an interesting paper on worker flows, firm quality, and the business cycle. They define firm quality as average pay (and their findings are robust to using other sensible definitions). Here’s one of their key graphs:  This graph shows that while all firm types shrink the size of their workforce in recessions (i.e. growth is negative), net job growth declines more for good (high paying) firms. This is because they have more separations in recessions than low-quality firms. High wage firm hiring doesn’t fall by as much as it does for low wage firms, but this difference in hiring is not large enough to overcome the difference in separations.

Employment Trends Index at Highest Level Since 2008 - A compilation of U.S. labor-market indicators edged up in April to its highest level since June 2008, according to a report released Monday by the Conference Board. The board said its April employment trends index increased to 111.68 from an upwardly revised 111.61 in March. The March figure initially was reported as 111.20. The latest index is up 3.8% from a year ago, posting another high mark since June 2008, when the index stood at 113.15. “Despite weak economic activity, the Employment Trends index is still signaling moderate job growth in the coming months,” said Gad Levanon, director of macroeconomic research at the board. “On average, employment has grown almost as fast as [gross domestic product] over the past three years, and that is likely to continue into the third quarter of 2013.”

Philly Fed Forecasters See Better Job Market - Forecasters have downgraded modestly their outlook for growth and upgraded their job market outlook, according to the Survey of Professional Forecasters, released Friday. The long-running survey is released by the Federal Reserve Bank of Philadelphia. In the second-quarter poll, participants continue to expect growth to pick up and unemployment to fall. Views are mixed relative to the first-quarter survey. In the survey, the forecasters see the U.S. growing by 1.8% in the second quarter, by 2.3% in the third quarter, and by 2.7% in the final three months of the year. The respondents see what is now a 7.6% unemployment rate trailing down to 7.4% in the final three months of the year. Average monthly job growth in the second quarter is seen at 179,000, with third-quarter activity at a 142,700 average monthly gain, and 173,000 average monthly gain in the fourth quarter. On an annual basis, the forecasters expect the economy to grow 2% this year, and by 2.8% next year, and by 3% in 2015. Unemployment will average 7.6% this year, 7.1% in 2014, and 6.6% in 2015. Survey respondents don’t see inflation breaking away from the Fed’s 2% target. The average headline consumer price index for this year is seen at 1.9%, and 2.1% next year. The personal consumption expenditures price index is seen averaging 1.5% this year and 1.9% in 2014.

Revisions to the Nonfarm Payroll Jobs Report -- Earlier today I posted an updated commentary on some Stunning Demographic Trends in Employment. In a footnote I commented on the unreliability of the Bureau of Labor Statistics' employment data for Nonfarm Payroll Employment, which included a link to historic revisions back to 1979 on the BLS website. Here's the latest: With Friday's release of the May jobs report for April, we have an additional month of data. My approach is to take the employment numbers since January 2000 and plot the change from the first to third estimate for each month through February 2013, the most recent month for which we have three estimates. During this timeframe there were 92 upward revisions and 63 downward revisions. The absolute mean (average) revision was 46 thousand, which breaks down as 49K for the upward adjustments and 44K for the downward adjustments. The latest third estimate is an upward revision of 96K. Interestingly enough, the direction of revisions was upward during the brief recession of 2001 but downward during the nasty recession from December 2007 to June 2009. To reitierate what I've said before: Don't take the initial monthly employment jobs data too seriously.

A Reality Check For Two Employment Indicators - If the US was slipping into a recession, would the evidence be conspicuous in the labor market data? History says that's a good bet. In fact, it's inconceivable that the country could go into a macro hissy fit without a sharp downturn in jobs creation.. That's good news these days because the trend still looks encouraging on this front. To be precise, the so-called establishment survey from the Labor Department continues to hold up, providing a relatively steady year-over-year growth rate of just under 2%. The household survey, by contrast, looks relatively wobbly, although this series is now looking a bit stronger too. Consider the long-term history for both data sets. Everything's obvious in hindsight and so it's never quite clear what the truth is in real time. But history tells us that if we're staring into the face of a new recession, we're likely to witness a persistent deceleration in employment growth that dips into negative territory at some point during the downturn. Let's take a closer look at recent history, which shows that the household data (red line) has stumbled. But the establishment reports have been relatively stable, raising doubt about the veracity of the implied warning in the household numbers. Note too that the household trend has turned higher recently. Is this a sign that the labor market will steer clear of trouble in the near term? If two estimates of the labor market are trending positive, it's that much harder to expect the worst for the broad macro trend.

The amazingly consistent jobs recovery - We economics writers can be an excitable bunch, eager to draw big conclusions from thin data. Huge monthly job gains of more than 200,000 like we saw this winter? The economy is finally achieving liftoff! A piddling 88,000 added in March? It’s falling off a cliff! But there’s been a surprisingly consistent theme through the last three years: Any attempt to divine a meaningful change in the pace of the expansion has turned out to be wrong. There have been no double dips into recession, despite a clockwork-like speculation that there will be whenever a couple of months of soft data come out. There has been no speedup into a full-throated growth that would bring us back to a strong economy.In April, the United States added 165,000 jobs. Over the last 12 months, it has averaged 168,000 a month. Over the last 24 months, it has averaged 184,000. Over the last 36 months, it has averaged 162,000. For three years straight, any variation from the basic trend has been offset by a variation in the other direction in the following months.

More Bipolar Economic Reporting at the Washington Post – Dean Baker - The April Jobs report was better than most economists (including me) had expected. Better news is always better than worse news, but it was one report amidst a lot of other less than stellar news. Furthermore, it just was not that good. Nonetheless the front page Post story hyped the good news in the report and told readers [in print edition only]: "The jobs report could also have significant implications for the Federal Reserve's $85-billion-a-month stimulus program. .. The program is tied to the outlook for the labor market, and some officials have begun suggesting that job growth could accelerate enough for the Fed to begin winding down the purchases this year." The Post, like most major media outlets have been shooting from excessive optimism to excessive pessimism about the economy consistently failing to keep their eyes on an underlying trend of weak growth. (Neil Irwin's blogpost yesterday gets the story almost exactly right.) Just last fall the Post and other news outlets were filled with pieces about how uncertainty over the "fiscal cliff" was already slowing growth and deterring investment. Somehow the people doing the investment did not get the message, as investment rose at a 13.2 percent annual rate in the quarter.

McJobs recovery continues in latest job figures —The main takeaway from the Bureau of Labor Statistics’ April jobs numbers: Steady as she goes. The unemployment rate dipped slightly to 7.5%, as the U.S. economy adds just enough jobs to keep up with population growth. The country’s staggeringly low labor force participation rate, the proportion of people who are either working or looking for work, hasn’t budged. The numbers aren’t terrible—in fact, they’re a little bit better than many economists predicted—but they’re not great, and they’re not significantly different from anything we’ve seen recently. A snail’s pace economic recovery has been the norm for quite some time now. At the current rate of job growth, “it will take more than five years to return to the prerecession unemployment rate,” according to a note from the Economic Policy Institute’s Heidi Shierholz. But the shape of the recovery matters just as much as the pace, and that’s where BLS indicators become even more alarming. As the United States plods its way out of recession, it appears to be completing its transformation into a McJobs economy. Take a look at this chart:

The College Grad Recovery Continues - The rumors of the recovery's demise are greatly exaggerated. It turns out it's the same as it ever was: slow and steady, but real nonetheless. If you graduated from college, that is.  Despite the biggest spending cuts since the 1950s, and one manufactured crisis after another, the recovery has chugged along at 2 percent growth since 2010. (Thanks, Ben Bernanke). It's been enough to bring unemployment down, but not fast enough -- unless you think Recovery 2020 is fast enough. But with the expiring payroll tax cut and the sequester cuts making austerity even more austere, there have been renewed fears of an (actually mythical) spring swoon. Indeed, a few weeks of disappointing data seemed to bear this out. The April jobs report reminded us of what we had forgotten. The recovery is the same in 2013 as it was in 2012 as it was in 2011 as it was in 2010. The Bureau of Labor Statistics estimates the economy added 165,000 jobs the past month, and another 114,000 in upward revisions to past months. As Justin Wolfers points out, that gives us an average of 196,000 jobs a month so far in 2013, compared to 225,000 in 2012, and 194,000 in 2011. It's pushed unemployment down to a four-year low of 7.5 percent. But as disappointing as the recovery has been, it's been even more disappointing more people who didn't graduate from college. It's been nonexistent. As you can see in the chart below of workers 25 and older, college grads are the only group that has net added jobs in the past five and a half years.

The Idled Young Americans - For all of Europe’s troubles — a left-right combination of sclerotic labor markets and austerity — the United States has quietly surpassed much of Europe in the percentage of young adults without jobs. It’s not just Europe, either. Over the last 12 years, the United States has gone from having the highest share of employed 25- to 34-year-olds among large, wealthy economies to having among the lowest. The grim shift — “a historic turnaround,” says Robert A. Moffitt, a Johns Hopkins University economist — stems from two underappreciated aspects of our long economic slump. First, it has exacted the harshest toll on the young — even harsher than on people in their 50s and 60s, who have also suffered. And while the American economy has come back more robustly than some of its global rivals in terms of overall production, the recovery has been strangely light on new jobs, even after Friday’s better-than-expected unemployment report. American companies are doing more with less. Employers are particularly reluctant to add new workers — and have been for much of the last 12 years. Layoffs have been subdued, with the exception of the worst months of the financial crisis, but so has the creation of jobs, and no one depends on new jobs as much as younger workers do. For them, the Great Recession grinds on.

Stunning Demographic Trends in Employment: New Update -  The Labor Force Participation Rate (LFPR) is a simple computation: You take the Civilian Labor Force (people age 16 and over employed or seeking employment) and divide it by the Civilian Noninstitutional Population (those 16 and over not in the military and or committed to an institution). The result is the participation rate expressed as a percent. The first chart below splits up the LFPR data since 1948 in two ways: by age and by gender. For the former, I chose the 25-64 age cohorts to represent what we traditionally think of as the "productive" (pre-retirement age) work force. The BLS has data for ages 16 and over, but across this 64-year time frame college attendance has surged dramatically. So I opted for age 25 as the lower boundary to reduce the college-years skew. Note the squiggly lines for the productive years and jumbled dots for the older cohorts. These result from my use of non-seasonally adjusted data. The BLS does have seasonally adjusted data for many cohorts, but not the older ones, so I used the non-adjusted numbers for consistency.The next chart eliminates the squiggles with a simple but effective seasonal adjustment suitable for long timeframes, a 12-month moving average. I've also added some callouts to quantify the data in 1948 and the present.The growth of women in the workplace, the solid red line, was a major trend. As for the age 25-64 cohorts, the participation rate for men peaked way back in May 1954 at 95.9%; for women it was fifty years later in October 2004 at 72.8%, and for the combined cohort is was in March 1998 at 80.2%.The dotted lines representing ages 65 and over also illustrate some dramatic changes. A vision of the good life in retirement, assisted by a burgeoning Social Security system, was a standard expectation for pre-Boomer generations.

Amazing Demographic Trends in the 50-and-Older Work Force -  In my periodic update on demographic trends in employment, I included a chart illustrating the growth (or shrinkage) in six age cohorts since the turn of the century. In this commentary we'll zoom in on the age 50 and older Labor Force Participation Rate (LFPR). But first, let's review the big picture. For the larger context, here is a snapshot of the monthly LFPR for age 16 and over stretching back to the Bureau of Labor Statistics' starting point in 1948, the blue line in the chart below, along with the unemployment rate. The overall LFPR peaked in February 2000 at 67.3% and gradually began falling. The rate leveled out from 2004 to 2007, but in 2008, with onset of the Great Recession, the rate began to accelerate. In January of 2012 it dropped below 64% and is now hovering around the 63.3% level. The demography of our aging workforce has been a major contributor to this trend. The oldest Baby Boomers, those born between 1946 and 1964, began becoming eligible for reduced Social Security benefits in 2008 and full benefits in 2012. Job cuts during the Great Recession certainly strengthened the trend. It might seem obvious that the participation rate for the older workers would have declined the fastest. But exactly the opposite has been the case. The chart below illustrates the growth of the LFPR for six age 50-plus cohorts since the turn of the century. I've divided them into five-year cohorts from ages 50 through 74 and an open-ended age 75 and older. The pattern is clear: The older the cohort, the greater the growth.

Is the real US unemployment rate 11.3% or 7.5%? A new Goldman Sachs study offers an answer - The 7.5% US unemployment rate, at its lowest level since 2008, seems to be telling a story of slow-but-steady recovery after the Great Recession and Financial Crisis. Unfortunately, the bulk of evidence suggests the “real” jobless rate is far higher. As the U-3 rate has fallen, so has the labor force participation rate, or LFPR. If the LFPR were at the same level as when the downturn began, the unemployment rate would be a stunning 11.3%. Two critical questions: First, how much of the 2.7 percentage point drop in labor force participation since 2007 reflects structural forces rather than weak demand discouraging workers? Second, is the key structural element mostly the aging of the US population or is it the shift of the workforce into Social Security disability? A new study by Goldman Sachs, partly based on recent Federal Reserve research, offers some reasonable answers. The real jobless rate is probably more like 9%, still dreadful. And here’s why:

Behavior’s Place in the Labor Force Participation Rate Debate - Atlanta Fed's macroblog - It's not often that the mainstream media is interested in the nuances of labor market statistics, so last week’s debate over the meaning of labor force participation rates (LFPR) in the pages of the Washington Post and the Wall Street Journal was music to this labor economist's ears.Sparked by an article by Ben Casselman in his April 29 Wall Street Journal Outlook column, the ensuing back and forth (here, here, here, and here) between Casselman and the Post’s Jim Tankersley focused on what has become a central preoccupation in assessing the likely course of the labor market: Is the recent decline in the labor force participation rate the result of structural factors (e.g., an aging population) or cyclical ones (such as weak economic conditions)? Almost contemporaneously, Bill McBride declared in his recent Calculated Risk blog, "…most of the [recent] decline in the participation rate was due to changing opposed to economic weakness."The changing pattern of labor force participation has been a topic of discussion among economists for some time—for example, see my Federal Reserve Bank of Atlanta Economic Review article—and both Tankersley and Casselman agree that the long-run secular decline in participation is a matter worthy of independent concern. But the Federal Open Market Committee has substantially raised the stakes on disentangling longer-run trends from short-run cyclical (and presumably temporary) movements in labor force participation. It’s done this by introducing into its policy deliberations concepts like unemployment thresholds and qualitative assessments on “substantial” labor market improvement.

How Social Networks Drive Black Unemployment - NYT -- It’s easy to believe the worst is over in the economic downturn. But for African-Americans, the pain continues — over 13 percent of black workers are unemployed, nearly twice the national average. And that’s not a new development: regardless of the economy, job prospects for African-Americans have long been significantly worse than for the country as a whole. The most obvious explanation for this entrenched disparity is racial discrimination. But in my research I have found a somewhat different culprit: favoritism. Getting an inside edge by using help from family and friends is a powerful, hidden force driving inequality in the United States.Such favoritism has a strong racial component. Through such seemingly innocuous networking, white Americans tend to help other whites, because social resources are concentrated among whites. If African-Americans are not part of the same networks, they will have a harder time finding decent jobs.

What's Wrong With the U.S. Job Market? - For all the positivity about the April jobs report—lowest unemployment rate in four years!—the U.S. job market remains dismal. One statistic makes the point: Just 58.6 percent of American civilians aged 16 and up had jobs in April, according to the Bureau of Labor Statistics. That’s a lower employment-to-population ratio than during the worst of the 2007-09 recession. Even though the jobless rate has fallen, millions of people aren’t counted as unemployed because they’ve stopped looking for work, or never started. It’s time to stop and figure out what’s wrong. Politicians and economists have been talking about high unemployment for better than five years, to little effect. Some of the explanations offered seem to border on rationalizations for why nothing can be done. That’s not good enough. Extended unemployment is not only a human tragedy for the jobless and their families. It’s also a waste of human capital in a nation that can ill afford to discard valuable resources.The breakdown of the labor market can be blamed on either supply or demand. Those who argue that the supply of labor is the main problem say that many Americans simply aren’t qualified for the jobs available. On May 7, the BLS reported that there were more than 3.8 million job openings in the U.S. at the end of March—at a time when more than 11 million people were looking for work.

Rising Structural Unemployment?, by Tim Duy: This tweet from Andy Harless caught my eye: HIres-to-openings ratio looking uglier & uglier… Looks like rising structural unemployment.  The chart: The ratio of hires to openings fell to the low of the last cycle. Now compare the ratio to the unemployment rate. Unemployment appears to be too high relative to the hires/openings ratio (caution is warranted, however, as the JOLTS data only extends back to 2001). One would normally associate such a low ratio with low unemployment as the number of hires would be relatively low because of the lack of available workers. In this case, however, the number of hires appears to be low despite a large pool of potential employees, consistent with the concern that available workers lack the skills firms seek. Structural unemployment, as Harless suggests. That said, recall that Matthew O'Brien pointed us at research here and here suggesting that high unemployment is attributable not to structural factors, but instead to a bias against the long-term unemployed. O'Brien recognizes the insidious nature of this problem: Circles don't get more vicious than this. The people who need work the most can't even get an interview, let alone a job. It's a cycle that could end with the long-term unemployed becoming unemployable. It's what economists call hysteresis, the idea being that a slump, left untreated, can make us permanently poorer by reducing our future ability to do and make things.  Bias against the long-term unemployed might explain why wage growth remains muted:

Employers lack confidence, not skilled labor - Are we missing a couple million jobs? These would be jobs that exist but lack workers to fill them. The notion that the recovery is being hobbled by too few skilled workers is seductive. It might explain today’s stubbornly high unemployment and why aggressive government policies to promote recovery have been so ineffective. Low interest rates and big budget deficits can’t cure bottlenecks in the job market. They can’t make construction workers into computer scientists.There’s only one problem with this story: It’s mostly fiction. For starters, most vacancies are routine. They’re just-posted job openings or those reflecting workers retiring or switching employers. Some skill shortages always exist in a sophisticated economy, says Brookings economist Gary Burtless. “Are they serious enough to explain today’s high unemployment rate?” he asks. “The answer is an emphatic no.” In April, the unemployed totaled 11.7 million; another 6.3 million people wanted a job but weren’t looking. These figures dwarf the number of vacancies.  If shortages were widespread, Burtless and other economists argue, wages would be rising rapidly as employers competed for scarce skilled workers. There’s scant evidence of this. From April 2012 to April 2013, average hourly manufacturing wages rose 1 percent, reports the Labor Department. Over the same period, the gain for all private nonfarm workers was 1.9 percent. Among computer programmers, inflation-adjusted wages have remained flat for a decade, says a study by the Economic Policy Institute, a liberal think tank.

Actually, hiring isn't weak. Jobs have lagged because firings remained elevated - The most interesting results are the ones you don't expect to find, the ones that contradict your beliefs going in.  Over the weekend, I decided to update my scattergraph comparing firing (via initial claims) vs. hiring (via nonfarm payrolls) to see if the relative weakness in job numbers compared with initial claims that started a year ago has persisted. The answer is, it has.  Here's the updated scatterplot graph. The monthly average of initial jobless claims is the left scale, the monthly nonfarm payrolls number is the bottom scale. This allows us to compare how much hiring we've been getting for any given level of firing during this recovery. The graph starts at the peak of initial claims in March 2009. Blue is the first three years, red is the last twelve months: As you can see, the data points moved to the left and have remained there. That tells us that for any given level of firings, we've had less hiring in the last year. That was the result I expected.  But the surprise happened when I decided to compare the current recovery with the recoveries from the 3 previous recessions. I fully expected to find that for a given level of layoffs, there was more hiring in the previous recoveries, especially as layoffs declined under about 400,000. But that wasn't what I found at all.

Temporary Help Services and Employment - Back in 2010, some analysts took the surge in temporary help services as a leading indicator for a pickup in employment. I was skeptical back then, first because of the distortion caused by temporary Census workers, second because housing was still weak, and third because it appeared there had been a change in hiring practices. Once again there has been a pickup in temporary help services. From the BLS reportIn April, employment rose in temporary help services (+31,000) ... Temporary help services has added an average of 28,000 jobs per month over the last three months. The following graph was a favorite of those expecting a huge rebound in employment in 2010 (see the red spike in 2010). The graph is a little complicated - the red line is the three month average change in temporary help services (left axis). This is shifted four months into the future.Unfortunately the data on temporary help services only goes back to 1990, but it does appear that temporary help leads employment by about four months (although noisy). The thinking is that before companies hire permanent employees following a recession, employers will hire temporary employees. But there is also evidence of a recent shift by employers to more temporary workers.

What Job-Sharing Brings - The idea behind work-sharing is that employers have a certain amount of work that needs to be done, and that the work can be divided by many employees working a few hours each or a few employees working many hours each. If hours per employee could be limited, by this logic employers would have to hire more employees to get the same amount of work done.  American labor law has traditionally placed some limits on employee hours, such as overtime regulations. While the recent Affordable Care Act does not strictly limit hours per employee, beginning next year it gives employers a strong push toward part-time employment by levying a significant fee per full-time employee and exempting part-time employees from the fee. A number of employers have said they would change some work schedules to part time from full time to avoid some Affordable Care Act fees. Because part-time workers generally have fewer benefits than full-time employees, this could save employers a considerable sum. From the work-sharing perspective, the part-time employee exemption by itself would be expected to increase employment, because employers would have to hire more people (probably on a part-time basis) to complete work their employees used to accomplish when full time. But it is possible that work-sharing would reduce employment rather than increase it, because it prevents employers from accomplishing their tasks at minimum cost, adding administrative and coordination expenses. Higher

How Low Can Part-Timers' Hours Go? - Say you’re an employer with an employee who works 30 hours a week. If you have 50 employees or more come next year, you’ll be required either to provide her with health-care coverage, which the Affordable Care Act will by then mandate for all employees who work at least 30 hours a week, or you’ll have to pay a $2,000 penalty for failing to cover her. Or, you could just cut her weekly hours to 29. That way, you won’t have to pay a dime, in either insurance costs or penalties. This thought, not surprisingly, has crossed the minds of quite a number of employers. Right now, the average number of hours an employee in a retail establishment works each week is 31.4. And a whole lot of Americans work in retail—just slightly over 15 million, according to the latest employment report, out Friday, from the Bureau of Labor Statistics (BLS). Not all of them work hours that hover just over 30, of course, but the UC Berkeley Labor Center has calculated that 10.6 percent of workers in retail establishments that employ 100 or more individuals put in between 30 and 36 hours each week. As retail establishments that employ between 50 and 100 workers may well employ a higher percentage of part-timers than their larger counterparts, that figure of 10.6 percent is likely to rise when those additional employees are factored in.

Jobs Gains Are Strong, Wages Not So Much - Good time to be a waitress looking for work, hard times if you’re seeking a factory job. Friday’s employment report was better-than-expected, with April net hiring at 165,000 and strong upward revisions to February and March. Even the drop in the jobless rate to 7.5% was “real,” meaning it came from unemployed people finding work, not from people giving up and leaving the workforce. The April jobs report is certainly good news for the economic outlook and it offers evidence that the spring slowdown will not last into summer. The details, however, should raise worries about the financial situation of the consumer sector. Simply put, the jobs being created are mostly not high-paying, and businesses are relying more on part-timers and temporary help rather than putting on full-time staff.

From Bad Jobs to Good Jobs - What happened to the good jobs? This is the question posed by fast-food workers who walked out in New York and Chicago in recent weeks. It is the question posed by activists in those corners of the economy—including restaurants and domestic work and guest work—where the light of state and federal labor standards barely penetrates. And it is the question posed (albeit from a different set of expectations) by recent college graduates for whom low wages and dim prospects are the dreary norm. There is no shortage of suspects for this sorry state of affairs. The stark decline of organized labor, now reaching less than 7 percent of private-sector workers, has dramatically undermined the bargaining power and real wages of workers. The erosion of the minimum wage, with meager increases overmatched by inflationary losses, has left the labor market without a stable floor. And an increasingly expansive financial sector has displaced real wages and salaries with speculative rent-seeking. New work by John Schmitt and Janelle Jones at the Center for Economic and Policy Research recasts this question, posing it not as a causal riddle but as a political challenge: what would it take to get good jobs back?

Chart Of The Day: With "Recoveries" Like These Who Needs Wage Growth? - As if charts of endlessly grinding lower hourly earnings was not enough to show the increasingly desperate plight of the US worker, here is another nugget from the BLS, this time showing the annual change in real US wages, where we have conveniently highlighted the long-term trendline, and where Q1 wages just posted a -0.1% annual decline, which makes one wonder: with "recoveries" like these who needs any wage growth? Another question: what happened to the Fed's trickle-down - or are government handouts and transfer payments to a nation addicted to government handouts all that matters? Final question: since some cash is transferred to the US workers ultimately, what happens to worker wages when the Fed's QEternity finally ends?

Weekly Initial Unemployment Claims decline to 323,000 - The DOL reports: In the week ending May 4, the advance figure for seasonally adjusted initial claims was 323,000, a decrease of 4,000 from the previous week's revised figure of 327,000. The 4-week moving average was 336,750, a decrease of 6,250 from the previous week's revised average of 343,000. The previous week was revised up from 324,000. The following graph shows the 4-week moving average of weekly claims since January 2000.

Jobless Claims in U.S. Unexpectedly Fall to Five-Year Low - The number of Americans filing claims for jobless benefits unexpectedly dropped last week, and the average over the past month fell to the lowest level since before the last recession, showing employers have enough confidence in the economic outlook to hold onto workers. Applications for unemployment insurance payments decreased by 4,000 to 323,000 in the week ended May 4, the fewest since January 2008, Labor Department figures showed today. The four-week average declined to 336,750, the lowest since November 2007, the month before the start of the worst economic slump since the Great Depression. Fewer firings may be a harbinger of further labor-market gains that will help put more of the 11.7 million unemployed Americans back to work. Another report showed consumer sentiment last week held around the highest level in five years as more households said it was a good time to shop for needed goods and services.

Initial jobless claims in normal expansionary range - For the second week in a row, initial jobless claims were under 330,000, at 323,000. Furthermore, the 4 week average, at 336,750, is only 750 above what I consider a population-adjusted normal expansionary range. The 4 week average is also the lowest since November 2007, before the onset of the great recession.  Should next week's number be below 350,000, that ought to be enough to move the 4 week average under 336,000.  If Atrios calls this "good news," I think we are officially there.

Vital Signs Chart: Nearly 6-Year Low in Applications for Unemployment - Jobless claims have returned to prerecession levels. The four-week moving average of first-time claims for unemployment insurance, a metric that smooths out distortions, fell last week to 336,750, the lowest since November 2007. Layoffs have normalized in recent months, reducing claims, but hiring remains spotty amid fears of further economic turmoil and higher health-care costs.

How Silicon Valley Is Hollowing Out the Economy - Jaron Lanier’s latest book, Who Owns the Future?, begins by noting an instructive coincidence: the bankruptcy of the photography giant Kodak occurred within months of Facebook’s billion-dollar acquisition of the photo-sharing site Instagram. This would be just one example of the destructive dynamism of American capitalism, a process through which old companies are overtaken by new technology and new firms more in tune with the needs of customers — and that perhaps benefits us all. Except for one thing, that is: whereas Kodak employed 140,000 workers during its heyday, Instagram employed just 13 people when it was purchased in April 2012. “Where did all those jobs disappear to?” Lanier asks. “And what happened to the wealth that those middle-class jobs created?” Lanier’s answer is that the new “information economy,” which is now superseding the manufacturing economy, is developing in such a way that the rewards are filtering to an elite few at the expense of everybody else.

Are Flagging Productivity Gains a Sign of a Played-Out Economy? - Yves Smith - Bloomberg flagged that productivity gains in the US are tepid, and that’s a sign of economic weakness: Four years into an expansion, the productivity of American workers has slowed and some economists say there are few signs it will soon rebound. Employee output per hour grew at an average 0.7 percent annual rate over the past 12 quarters, which economists at JPMorgan Chase & Co. say is a pace so slow it’s rarely seen outside of recessions. Gains since the recovery began in June 2009 have averaged 1.5 percent, the weakest of the nine postwar expansions that lasted as long, according to IHS Global Insight. This is more significant than readers might realize. The two sources of growth are demographic growth (more people) and productivity gains. Every time the topic of growth arises, some readers argue that we can’t afford more growth because it implies more resource consumption. But productivity-driven growth does not have that character. It means your are producing the same goods and services with less labor input. So if you replace your receptionist with a phone prompt system, you don’t have to have as much office space, you can get rid of the electricity and equipment once used to support him, the receptionist does not consume gas going to and from work, and so on. So, generally speaking, you reduce resource demands. It also can’t be stressed enough that the unprecedentedly high corporate profits we’ve seen are the direct result of businesses hogging the benefit of productivity gains for themselves. Warren Buffett famously warned in 1999 that a corporate profit share of GDP of over 6% wasn’t sustainable. Analysts now peg the corporate share at anywhere from 11% to 14%.

Pay in Blood: May Day and Modern Politics - Try to imagine a President of the United States standing up before Congress and saying something like this: "There is one point … to which I ask a brief attention. It is the effort to place capital on an equal footing with, if not above, labor in the structure of government. … Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration." Of course, it's the kind of thing only some ignorant goober from the sticks -- or maybe even from some other century -- would come out with. Today, fortunately, we know that people who work for wages are just moochers and takers: parasites feeding on the noble blood of their bosses and betters. Being advanced, savvy and modern, we now know that Labor deserves no 'consideration' at all (much less a higher one!): no safe work places, no job security, no secured pensions, no bargaining rights, no privacy, no decency, no dignity. Labor should be glad and grateful to give whatever it takes (and take whatever they give) to serve the interests of our precious elites -- our crusading corporate chieftains, our visionary venture capitalists, our wise shepherds of inherited wealth -- who graciously provide their beasts of burden with store of provender.

BLS: Job Openings decreased slightly in March - From the BLS: Job Openings and Labor Turnover Summary There were 3.8 million job openings on the last business day of March, little changed from 3.9 million in February, the U.S. Bureau of Labor Statistics reported today. The hires rate (3.2 percent) and separations rate (3.1 percent) were little changed in March.... Quits are generally voluntary separations initiated by the employee. ... The number of quits (not seasonally adjusted) was little changed over the 12 months ending in March for total nonfarm, total private, and government. The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS. Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for March, the most recent employment report was for April.Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

JOLTS Jolts Jobs Report Cheerleaders, Implies Worst Job Growth Since September 2010 - The biggest surprise from the JOLTS report is not in any of the standalone series, but in the time progression of the Net Turnovers number, which is simply the total new hires less total separations. Historically, the Net Turnover number tracks the total monthly nonfarm payroll change (establishment survey) on a almost tick for tick basis. Not this time. In fact as the chart below showed, the upward revised March NFP number to 138K, which preceded the even more optimistic, and much cheered April print of 165K, which sent the S&P and the DJIA soaring to new all time highs on Friday, not only did not get a confirmation, but in fact the JOLTS survey for Net Turnovers  - which came at only 46K in March compared to a revised 138K jobs added per the establishment survey - implied that the real NFP number in March should have tumbled to a level last seen in September of 2010!

The Deflated Balloon JOLTS Jobs Report Shows 3.1 Unemployed Per Opening for March 2013 -- The BLS March JOLTS report, or Job Openings and Labor Turnover Survey shows there are 3.1 official unemployed per job opening, the same as last month.  Job openings declined -1.4% from last month to a total of 3,844,000.  People hired in March declined by -4.3% to 4.259 million.  Real hiring has only increased 18% from June 2009.  Job openings are still below pre-recession levels of 4.7 million.  Job openings have increased 81% from July 2009.  The story for jobs is the same flat line drum beat for March.  There is never enough actual hiring in addition to not enough openings. There were 1.8 official unemployed persons per job opening at the start of the recession, December 2007.  Below is the graph of the official unemployed per job opening.  The official unemployed ranked 11,742 million in March 2013 If one takes the official broader definition of unemployment, or U-6, the ratio becomes 5.7 unemployed people per each job opening.  The March U-6 unemployment rate was 13.8%.  Below is the graph of number of unemployed, using the broader U-6 unemployment definition, per job opening. We have no idea the quality of these job openings as a whole, as reported by JOLTS, or the ratio of part-time openings to full-time.  The rates below mean the number of openings, hires, fires percentage of the total employment.  Openings are added to the total employment for it's ratio. 

  • openings rate:   2.8%
  • hires rate:  3.2%
  • separations rate:   3.1%
    • fires & layoffs rate:   1.3%
    • quits rate:  1.6%

U.S. Job Postings Fell in March; Hiring Slowed - U.S. employers posted fewer job openings in March compared with February and slowed overall hiring, underscoring a weak month of job growth. The Labor Department said Tuesday that job openings fell 1.4 percent to a seasonally adjusted 3.8 million jobs. Total hiring declined 4.3 percent to 4.3 million. The unemployed faced heavy competition in March. There were 3.1 unemployed people, on average, for each job opening. That’s above the ratio of 2 to 1 that is typical in a healthy economy. On Friday the government reported that employers added just 138,000 net jobs in March, well below February’s 332,000. Tuesday’s report shows that the slowdown occurred because gross hiring fell and layoffs increased.

Slow Hiring Holding Back Job Market - What’s holding back the job market? Not enough hiring. That’s less obvious than it might sound at first. During the recession, the entire job market came to a screeching halt. Layoffs surged. Hiring plunged. Companies stopped posting job openings. People lucky enough to have jobs clung to them — voluntary quits plummeted. Since then, most of those measures have shown marked improvement. Layoffs are back to normal. Voluntary quits, though still well below their pre-recession level, have been trending steadily upward as workers regain confidence. Companies are even posting more jobs. But actual hiring remains virtually stagnant. The government on Tuesday released its monthly snapshot of job openings and turnover, known as JOLTS. The report echoed what other data, including Friday’s jobs report, already revealed: The job market cooled in March, though only mildly. Hiring and job openings fell modestly, while layoffs edged up. The JOLTS data lag a month behind the main monthly jobs report, and as a result haven’t tended to get as much attention. But that may be beginning to change. Federal Reserve Vice Chair Janet Yellen, widely considered the front-runner to succeed Ben Bernanke when his term ends early next year,  called out the slow pace of hiring as a particular concern.

Vital Signs Chart: 3 Job Seekers Per Opening - Job competition is at a postrecession low. There were just 3.05 job seekers per opening in March, compared with 3.29 a year earlier and 5.67 in March 2010. While the decline partly reflects Americans retiring and otherwise leaving the workforce, there has been marked improvement from when the recovery began in July 2009 and there were 6.7 job seekers per opening.

Churn, baby, churn: The labor market won’t be healthy until people feel like they can quit their jobs: America needs more quitters. Or the job market does, anyway. That’s the lesson to draw from the latest Labor Department report, which shows the soft underbelly of the U.S. jobs picture. The unemployment rate may be falling and the number of jobs rising. But there isn’t enough “churn” going on, a hallmark of a healthy job market, in which people freely move between positions. Tuesday morning, the Labor Department released the Job Openings and Labor Turnover Survey, or JOLTS, for March. It is the favorite data series of labor market wonks everywhere. It parses the details of how many people quit their jobs, how many were laid off or fired, and how many openings employers are looking to fill. But the bad news is that while companies aren’t slashing jobs, the job market is such that workers aren’t comfortable quitting. In March 2007, 2.2 percent of workers voluntarily left their jobs, most of them presumably to take a job elsewhere (that count would also include those who quit to retire, or go back to school, or for other reasons). In March 2013, that was 1.6 percent—unchanged from a year ago and only barely up from the 1.4 percent level of the darkest days of the recession in March 2009).

Federal appeals court strikes down union notification requirement - -- A federal appeals court here struck down Tuesday a rule that would have required more than 6 million private employers to post notices telling workers of their right to join a union. The decision is the latest setback for unions and the Obama administration at the hands of the conservative-leaning appeals court in Washington. When President Obama took office, union leaders hoped that a reenergized National Labor Relations Board could stop or reverse the long decline in union membership. Only about 7% of private workers in the U.S. belong to unions. Two years ago the board adopted a rule requiring employers to post a “notification of employee rights” in their workplaces. The one-page form was to include the basic rights protected by federal labor law, including the right to join a union and to go on strike. But the National Assn. of Manufacturers (NAM) and several anti-union groups went to court to challenge the rule before it could take effect.

Advocate: GOP-backed ‘workplace flexibility’ bill is designed to kill overtime pay -  The House of Representatives passed a Republican-sponsored bill on Wednesday evening purporting to offer greater flexibility to working families, but the bill has been vehemently opposed by women’s groups and labor unions who say the only “flexibility” offered by the bill is given to the employers and not the employees. The bill passed by a vote of 223-204 along party lines. The bill’s sponsor, Rep. Martha Roby (R-AL), wrote in an email to supporters, “Despite efforts by union bosses and liberal activists to distort the facts, the House of Representatives just passed my bill to give working moms and dads more time flexibility in the workplace.” When Roby defended her bill on the House floor on Wednesday, her speech earned boos from her colleagues. Liz Watson, senior advisor to the Education and Employment Team at the National Women’s Law Center, disagreed with Roby’s assessment of what the bill would do. “It takes cash out of the pocket of cash-strapped families under the guise of flexibility,” she said “It’s a bill that comes up right in time for Mother’s day — we say it’s the Mother’s Day equivalent of coal in your stocking.” The Working Families Flexibility Act proposes to modify the Depression-era Fair Labor Standards Act, which requires hourly employees to receive time and a half for hours worked in excess of 40 a week, to allow employers to substitute “comp time” for overtime pay.

Sequester Cuts to Emergency Unemployment Insurance Compensation will likely cost around 30,000 jobs - As part of the sequester, roughly $2.4 billion is being cut from emergency unemployment insurance compensation (see page 40 of this OMB report (pdf)). These cuts cause damage in two ways. Most obviously, they mean that unemployment insurance benefits now provide a weaker lifeline to the long-term unemployed and their families, despite the fact that job opportunities have improved very little since the unemployment rate peaked near the end of 2009.  Less well understood is the fact that cutting unemployment insurance benefits will reduce spending in the economy and thereby cost jobs. While the cuts save an estimated $2.4 billion in government spending on unemployment insurance, the loss to the economy is much greater because these cuts have a large “multiplier” effect. Reducing spending on unemployment insurance by $2.4 billion will pull about $3.8 billion in economic activity out of the economy—economic activity that would have been supporting around 30,000 jobs.1 In an economy that is generating jobs at a pace that won’t restore full employment for at least another five years, this is incomprehensible.

Extended Benefits Didn’t Keep People From Taking Jobs - Extended unemployment insurance benefits in the most recent recession prompted some people who would otherwise have dropped out of the workforce to stay in a little longer, but didn’t encourage people to reject jobs, according to new research recently released by the Federal Reserve Bank of San Francisco. Getty Images Robert Valletta, a San Francisco Fed economist and Henry Farber, a Princeton University economist, teamed up for the study, which compared unemployment insurance data from the early 2000’s to data from 2007 through 2012. They were looking at whether extended unemployment insurance lengthens the time people are without work. There has been a continuing debate about whether extended unemployment insurance is a good thing, with opponents arguing it encourages people to reject jobs they should otherwise accept and provides a disincentive to work. Proponents of the insurance argue it provides a needed financial cushion for people who have lost their jobs. For people who eventually returned to the workforce, the extended monthly checks didn’t prolong the process of finding a new job, the study found. The data suggested that for the unemployed, the benefit “doesn’t reduce their probability of finding or accepting a job offer but it keeps them in the labor force,” said Mr. Valletta in an interview.

The Number Of US Citizens On Disability Is Now Larger Than The Population Of Greece - The number of people on SSDI now exceeds the entire population of Greece. The aging of the population has nothing to do with the increase. In 1968 there were 51 workers for every person on disability. Today there are 13 workers for every person on disablity. Even the most pollyanna would agree that medical advancements since 1968 have been significant. These medical advancements would argue for less people being on disability and unable to work. Workplace safety measures have been increased exponentially since 1968, so that also argues for less disabled workers. The good old ADA law forced all workplaces to become disabled friendly. That argues for less people on disability. The country has transitioned from a manufacturing society to a service society. Workers don’t work on dangerous assembly lines anymore. Robots do the dangerous stuff. This should have dramatically reduced worker injuries and disabilities. The tremendous increase in people on SSDI is nothing but a gigantic fraud. The government broadened the scope of disabilities to include stress, depression, and non-diagnosable things like aches and pains. And don't forget, you get the added benefit of Medicare coverage after only two years of SSDI stress.

Immigration, Dynamic Scoring, and CBO - Immigration policy poses an unusual challenge for the Congressional Budget Office and the Joint Committee on Taxation. If Congress allows more people into the United States, our population, labor force, and economy will all get bigger. But CBO and JCT usually hold employment, gross domestic product (GDP), and other macroeconomic variables constant when making their budget estimates. In Beltway jargon, CBO and JCT don’t do macro-dynamic scoring. That non-dynamic approach works well for most legislation CBO and JCT consider, with occasional concerns when large tax or spending proposals might have material macroeconomic impacts. That approach makes no sense, however, for immigration reforms that would directly increase the population and labor force. Consider, for example, an immigration policy that would boost the U.S. population by 8 million over ten years and add 3.5 million new workers. If CBO and JCT tried to hold population constant in their estimates, they’d have to assume that 8 million existing residents would leave to make room for the newcomers. That makes no sense. If they allowed the population to rise, but kept employment constant, they’d have to assume a 3.5 million increase in unemployment. That makes no sense. And if they allowed employment to expand, but kept GDP constant, they’d have to assume a sharp drop in U.S. productivity and wages. That makes no sense.

Would legalizing undocumented workers really cost $6.3 trillion? - Even if US budgets were deep in the black, it would be perfectly legitimate to examine the fiscal costs of legalizing millions of currently undocumented workers. But such analysis should provide as full an economic picture as possible for policymakers. A new Heritage foundation study, while providing some useful data points, is frustratingly incomplete. Certainly pundits and activists with axes to grind will run hard with Heritage’s claim that “former unlawful immigrants together …  would generate a lifetime fiscal deficit (total benefits minus total taxes) of $6.3 trillion.” Quite a talking point — one researchers arrive at via a fairly straightforward calculation. They simply determine the difference between their forecast of futures taxes paid and benefits received. The study, however, fails to capture indirect but important economic impacts of immigration such as increasing economic activity or positively affecting American employment. Both of those would lead to higher tax revenues and reduced transfer payments.

Counterparties: Bipartisan disagreements - Immigration reform is one of the rare issues that both sides of the aisle can agree on — it has even united the Chamber of Commerce and the AFL-CIO. Still, yesterday, the right-leaning Heritage Foundation released a report that estimated the immigration reform bill proposed by the bipartisan Gang of Eight in the Senate will cost the government over $6.3 trillion over the next 50 years — $5.3 trillion more than the $1 trillion cost of doing nothing. Somewhat surprisingly, conservatives were the first to denounce it. Alex Nowrasteh at the Cato Institute wrote a post denouncing the way the paper calculates future costs, using a static scoring method that “assumes the bill will not affect the rest of the economy – which is highly unrealistic”. Tim Kane also used Heritage’s own arguments against them, digging up Heritage’s last report on this issue, six years ago. Back then, they successfully helped defeat immigration reform — but by their own numbers, it seems, inaction six years ago ended up costing taxpayers half a trillion dollars.Conservative Florida senator Marco Rubio, a major supporter of the current bill who is key to getting more Republicans on board, also rejected the Heritage report findings, invoking his family’s own immigration story. On the other side of the aisle, a separate immigration debate is also brewing. Two weeks ago, the left-leaning Economic Policy Institute released a study concluding that we don’t need more temporary H-1B visas, which are mostly used to bring engineers and scientists to the United States. “Immigration policies that facilitate large flows of guest workers will supply labor at wages that are too low to induce significant increases in supply from the domestic workforce,” the report states. Similarly, Paul Donnelly argues that H-1B visas are actually just a government subsidy, which supplies foreign-born workers to tech companies for lower wages than they would pay American engineers.

Same As They Ever Were - Paul Krugman - The Heritage Foundation is engaged in frantic damage control; not only did its big anti-immigration-reform report turn out to be a steaming heap of, um, bad research, but one of the co-authors turns out to have a serious white supremacist background.  It would be a terrible thing to happen to a serious think tank. But Heritage isn’t a serious think tank, which means that all of this is just a bit of overdue poetic justice. Remember, Heritage came up with the ludicrous claim that the Ryan plan would cut unemployment to 2.8 percent, then tried to scrub the result from its records. It produced ludicrous “studies” purporting to show that small farmers and businessmen were victims of the estate tax. And there are many, many more examples. The truth is that Heritage has never been in the business of doing economic analysis; it’s just a propaganda agency posing as a think tank. And this time it finally caught up with them.

Migration: Heliocentric America | The Economist - THIS week's print edition includes a look at the changing trajectory of the American recovery. From 2007 to 2011 many of the extreme points in America's metropolitan distribution, in employment terms, could be found in the Sunbelt: cities in Texas and Oklahoma were among the few metropolitan areas to manage net employment gains over the period while those in the Southwest and Atlantic Southeast performed miserably, notching some of the highest unemployment rates of the downturn. Since 2011, however, the relatively rapid job growth has spread across the Sunbelt, which now seems to be outperforming most of the country's other regions. California's large metro areas have joined cities like Phoenix and Atlanta alongside Dallas and Houston, which job growth in cities like Boston and Minneapolis has fallen down the league tables a bit.

Declining Migration Within the US - FRB Working Papers - We examine explanations for the secular decline in interstate migration since the 1980s. After showing that demographic and socioeconomic factors can account for little of this decrease, we present evidence suggesting that it is related to a downward trend in labor market transitions--i.e. a decline in the fraction of workers moving from job to job, changing industry, and changing occupation--that occurred over the same period. We explore a number of reasons why these flows have diminished over time, including changes in the distribution of job opportunities across space, polarization in the labor market, concerns of dual-career households, and a strengthening of internal labor markets. We find little empirical support for all but the last of these hypotheses. Specifically, using data from three cohorts of the National Longitudinal Surveys spanning the 1970s to the 2000s, we find that wage gains associated with employer transitions have fallen, possibly signaling a growing role for internal labor markets in determining wages.

Demography: Twentieth Century Economic History - Brad DeLong - A human population with adequate food, and with reasonable pre-modern public health will do what the English settler population did in North America in the two centuries after 1600: it will double from natural increase each generation. Only Malthus’s “positive check”—plague, famine, children malnourished so that their immune systems are compromised and cannot fight off bacterial or viral infections, women so malnourished that they cease ovulating—can keep population stable. Even Malthus’s “preventative check”—priests threatening those who engage in illicit sexual intercourse with damnationd, fathers refusing to let their daughters marry until the suitor is established with a farm of his own, brothers refusing to let younger lineage males marry until lineage resources increase, kings to enforce Poor Laws and confine vagrants and those without visible means of support—cannot do much. Only with the coming of female literacy and artificial means of birth control can a society maintain both a slowly-growing or stable population and a substantial edge in median standard of living over subsistence. China’s population has grown by a factor of 7 since 1800. Egypt’s has grown by a factor of 30. Each has moved between 1⁄4 and 1⁄2 their population off of dependence on the land—out of farming—and have irrigated new lands. Nevertheless, the raw arithmetic means that average farm sizes in China and Egypt today are about 1⁄4 the sizes of their ancestors’ farms in 1800.

Why America’s population density is falling - Cities are increasingly attractive and expensive places to live; that’s a trend which isn’t going away any time soon. And historically, when urban property values rise, it doesn’t take long for property developers to pounce on the trend. New buildings rise; whole neighborhoods get rezoned. With billions of dollars at stake, politically-connected developers normally find a way to get what they want somehow.   In most US cities rising property values in recent years have meant something different: a rise in the number of politically-powerful groups and individuals moving back into the city from the suburbs. These rich and powerful have two important effects on urban density. Firstly, they decrease density just by moving to the city: they do that by dint of the fact that they live in larger homes with smaller families. My apartment in New York’s East Village, for instance, is in a 1920s tenement building, which was converted into condos in 1984. During the condo conversion, the old layout, of four apartments per floor, was scrapped in favor of a new layout with only two apartments per floor. But the number of people per apartment didn’t go up. And if the conversion were to take place today, the building would almost certainly be converted into “full-floor luxury residences”, with a keyed elevator opening directly into monster spaces. Again, without any discernible increase in the number of people per apartment.

What is the Crash Generation? - The economy is personal. It colors our decisions about everything: when to have kids, what city to move to, who to vote for, who to sleep with. And nobody knows this better than the biggest generation in history: the Millennials. These 80 million Americans have come of age during the worst economic recession since the Depression, an experience that will have profound repercussions on our lives—and our political consciousness. I call us the Crash Generation. For many of us in our twenties, 2008 was a period awash in exhilarating highs and terrifying lows. The words “depression,” “economic crisis,” “mass layoffs,” and “foreclosures,” along with “hope,” “change,” and “Obama,” all clogged the headlines and made their way into whiskey-fueled party conversations. Washington and the media had never been so frank about the cataclysmic proportions of a financial crash. And a candidate had never kicked young voters into such high gear like Barack Obama, who seemed to reflect the seismic demographic shift our generation was heralding. The mythic American dream-bubbles were bursting for young people at the exact moment we had begun to wield our political influence. That second half of 2008 was our JFK assassination. Our Vietnam. Our Great Depression.

Our Misleading Measure of Income and Wealth Inequality: The Standard Gini Coefficient - It is by now generally accepted that the sharp rise in income and wealth inequality in the US and much of Western Europe over the 1990s and 2000s was one of the bulldozer forces behind the rise in financial fragility.  And it has long been accepted that the Gini coefficient is the workhorse measure of inequality.  But it is not generally recognized that the coefficient is normally defined in a way which biases the measure in a downward direction, making inequality seem less large than another version of the coefficient would suggest.  By this alternative measure inequality is much higher than is generally thought. The standard measure is misleading us into thinking that economic growth is more “inclusive’ than it is.Economists’ long-standing nonchalance about income inequality is reflected in the fact that the Absolute Gini is rarely used in empirical work. Its unpopularity also reflects the fact that cross-country comparisons of the Absolute Gini are more complicated than for the Relative Gini, because the former depends on the mean of each distribution. This requires that we convert incomes into the same currency (for example, to compare absolute inequality in India with that in the US we have to convert the two means and income distributions either into rupees or into dollars). And to perform comparisons across time we also need to correct for inflation. The choice of appropriate exchange rates and price deflators becomes crucial for making reliable comparisons of absolute inequality.

The minimum wage is lower right across the street, but this McDonald’s is staying put - Here's another data point destroying the already long since destroyed Republican argument that raising the minimum wage will cause job loss. Washington state has a minimum wage nearly $2 higher than neighboring Idaho. . And yet, researchers: [...] looked at 16 years worth of restaurant employment data for 316 pairs of border counties. “And when you add up all those comparisons and look at the average of all those differences in employment, the difference is zero,” said Lester. Or, to put it another way: When the minimum wage increases, said Lester,“On aggregate, there's no job losses.” As if designed for dramatic effect, in one pair of border towns, one side of the street is in Idaho and the other side is in Washington. Guess which side the McDonald's is on? Yup, the classic low-wage employer's franchise is on the Washington side, and stayed there even when an old building was torn down and replaced with a new, expanded one

Food-Stamp Use Rises From Year Ago - WSJ  - Food-stamp use rose 2.7% in the U.S. in February from a year earlier, with 15% of the U.S. population receiving benefits. (See an interactive map with data on use since 1990.) One of the federal government’s biggest social welfare programs, which expanded when the economy convulsed, isn’t shrinking back alongside the recovery. Food stamp rolls increased on a year-over-year basis, but were 0.4% lower from the prior month, the U.S. Department of Agriculture reported. Though annual growth continues, the pace has slowed since the depths of the recession. The number of recipients in the food stamp program, formally known as the Supplemental Nutrition Assistance Program (SNAP), reached 47.6 million, or nearly one in seven Americans. Illinois was the only state to see a double-digit year-over-year jump in use, while Utah, Michigan, North Dakota, Idaho, Pennsylvania, Missouri, Arizona, Maine and Texas all posted annual drops.

Are food stamps the best macro stabilizer? - I have not read the underlying paper, but this summary seemed interesting enough to pass along, via Evan Soltas: In a new working paper, Ricardo Reis of Columbia University and Alisdair McKay of Boston University…find that stabilizing aggregate disposable income plays a “negligible role” in stabilizing the economy as a whole. Transfer payments can indeed stabilize output, they find, but mainly through a different channel — not by changing disposable income in the aggregate, but by changing its distribution. Fiscal policy, in other words, is all about inequality. “It’s the redistribution that has a lot of kick,” Reis said in an interview. “The usual argument for transfers is basically Keynesian. We find that has very low impact in our model.” Reis and McKay reach this conclusion by building a complex macroeconomic model calibrated to U.S. data, but the intuition isn’t all that complicated. Transfer payments yield the highest amount of stabilization per dollar when focused on people who can’t effectively insure themselves against macroeconomic volatility — namely, people with little savings to draw on and limited opportunities to borrow.

How Many People Around You Receive Food Stamps? - interactive widget  - Since the turn of the millennium, participation in the food stamp program, known officially as the Supplemental Nutrition Assistance Program, has more than doubled to 15 percent of all U.S. residents in January. In some parts of the country, as few as 1 in 20 people receive food stamps. In others, the figure is more than 1 in 3. Low-income households that meet SNAP eligibility requirements receive a payment card that can only be used to buy government-approved essential foods. Under President Obama’s watch, the value of the benefits distributed by the program each year has more than doubled as more people have fallen below the poverty line and more households have joined the program. Obama has expanded eligibility under the theory that it helps the economy, which led Newt Gingrich to dub him the “food stamp president” early in the 2012 election season. Due to the high unemployment rate, the Obama administration has also waived a 1996 job requirement—a rule that made finding a job or enrolling in job training a prerequisite for receiving SNAP benefits—for 46 states. Republican leaders are trying to reinstate the requirement to counteract the program’s escalating cost.

State vs. federal spending: Public sector investment collapse.: Here's a chart showing the inflation-adjusted amount of state and local government investment in the United States in blue and federal inflation-adjusted nondefense investment in red. It makes for a kind of terrible chart, since the blue line is so much bigger than the red and thus you can't see things very clearly. But to my way of thinking, that's actually the point. States and localities are so much more important than the federal government in driving nondefense public investment. We spend much more time talking about federal policy and politics than we do talking about state and local policy, but outside the (admittedly important) realms of the military and taking care of the elderly, it's at the state and local level where the bulk of governing happens.

Florida Gives Workers a Smackdown - If the Florida House Republicans have their way, here is what the state’s workers would stand to lose: paid sick leave, a living wage, wage theft protections and equal opportunity benefits (for same sex couples, for example). That’s because an assortment of bills—including one introduced by House Majority Leader Stephen Precourt that would nullify nearly all of these pro-worker policies—would pre-empt local ordinances and leave it up to the state to implement (or not) any of these measures. Miami Herald columnist Fred Grimm writes that these bills were “ghost written by special-interest lobbyists.” It would mean the end of the fourteen-year-old Miami-Dade County living wage ordinance. A new anti-wage theft law that passed just last month in Alachua County would be nixed. The paid sick leave initiative that 52,000 Orange County residents got onto the ballot for 2014—gone.

Update: California Revenues $4.6 Billion ahead of Projections through April - From California State Controller: Controller Releases April Cash Update Through the first 10 months of the fiscal year, total revenues exceeded the Governor's January projections by $4.6 billion (+6.1 percent). ... "We've reached an important milestone in California's economic recovery. For the first time in nearly six years, we closed out a month without borrowing from internal state funds to pay our bills," said Chiang. "But, there remains significant debt that must be shed before we can claim victory and these unanticipated revenues provide us with an important opportunity to take further steps toward long-term fiscal stability." ..The State ended the last fiscal year with a cash deficit of $9.6 billion, and by April 30, 2013, that cash deficit narrowed to $5.8 billion. That deficit is being covered by $10 billion in external borrowing, which the State will begin repaying later this monthThis is just one state, but the drag from the cutbacks at the state and local governments levels are mostly over.  Over the last four years, state and local governments have reduced budgets and employment substantially.  Here are two graphs I've posted recently:This graph shows total state and government payroll employment since January 2007. State and local governments lost jobs for four straight years. (Note: Scale doesn't start at zero to better show the change.)  In April 2013, state and local governments lost 3,000 jobs, however state and local employment is unchanged so far in 2013. The second graph shows the contribution to percent change in GDP for residential investment and state and local governments since 2005.

Moody’s Says Cities View ‘Strategic Default’ as Less Taboo - The number of defaults from U.S. municipal issuers rated by Moody’s Investors Service has more than tripled to an annual average of 4.6 since 2007, showing willingness to pay can’t be taken for granted, the company said in a report. Five municipalities rated by Moody’s defaulted last year, including Stockton, California, which became the biggest U.S. city to seek Chapter 9 bankruptcy protection in June. Wenatchee, Washington, failed to honor a guarantee on an interest payment for a sports arena. The figure doesn’t include issuers such as Vadnais Heights, Minnesota, which “selectively defaulted” on contingent liabilities, the report said. Last year’s local-government defaults are more examples of political unwillingness to place payments to bondholders ahead of essential governmental services amid dwindling cash, New York-based Moody’s said.

In defense of neglectful parenting - As I promised yesterday, I want to respond to this New Yorker article “The Child Trap: the rise of overparenting,” which my friend Chris Wiggins forwarded to me. The premise of the article is that nowadays we spoil our kids, force them to do a bunch of adult-supervised after-school activities, and generally speaking hover over them, even once they’re adults, and it’s all the fault of technology and (who else?) guilty working mothers. In particular, it makes kids, especially college-age kids, incredibly selfish and emotionally weak. They interview overparenting skeptics as well, who seem to be focused on the spoiling and indulgent side of overparenting: As for the steamy devotion shown by later generations of parents, what it has produced are snotty little brats filled with “anger at such abstract enemies as The System,” and intellectual lightweights, certain (because their parents told them so) that their every thought is of great consequence. Epstein says that, when he was teaching, he was often tempted to write on his students’ papers: “D-. Too much love in the home.” I’m basically in agreement with the article, although I’d go further at some moments and not as far at others. For example, with spoiling: in my experience, “spoiled kids” is just a phrase people use to describe kids that have acclimated perfectly to their imperfect environments

Wichita school district counts record number of homeless children - Wichita schools have set a record that no parent or teacher wants to see. As of midday Monday, educators and social workers had identified 2,251 homeless children attending Wichita schools this year. That’s 518 more than last year – and still counting with two school weeks to go – as the economy continues to drag down families and send them to shelters, motels and the streets. To counter that dismal number, students at Woodman Elementary School raised their hands Monday and objected to poverty.

Underfunded and Under Five - Rather than charting progress toward getting all four-year-olds ready for kindergarten, the National Institute for Early Education Research’s annual survey of programs, just issued last week, shows a system in disrepair—or perhaps even retreat. Even as recognition of the benefits of preschool for four-year-olds has grown, the actual implementation of it has stalled—and, in places, lost ground. Meanwhile state funding for pre-K has gone down by more than half a billion dollars in the last year, according to NIEER. In 2012, state spending per child fell to well below what it was ten years ago. The backsliding, which can be blamed in great part on the recession, affects both the number of kids in public pre-K and the quality of education they get while there. “Even though the economies are bouncing back, you’re seeing state legislatures and governors are still slow to replace and or grow early learning programs,” says Kris Perry, executive director of the DC-based advocacy group the First Five Years Fund. The lag poses a serious threat to young kids, according to Perry. “It’s like when you defer maintenance on your home. You can put a bucket under the leak and survive another winter. But at some point, you’re going to jeopardize the health and safety of the children in your home. That’s what’s happening with pre-K.”

Bulletproof Whiteboards And The Marketing Of School Safety - A recent news item out of Minnesota caught our eye: "Bulletproof Whiteboards Unveiled at Rocori Schools."Bulletproof what? Where? That would be whiteboards, at the small central Minnesota Rocori School District, which will spend upward of $25,000 for the protective devices produced by a company better known for its military armor products. It's not just the conversation about guns and school safety that's changed since Adam Lanza gunned down 20 students and six adult staff members at Sandy Hook Elementary School in Newtown, Conn., in December. It's also the plethora of products, including training programs that in some instances advocate fighting back, that are being marketed to school districts that are typically cash-strapped but desperate to prove they're doing something to provide better security

The dark side of home schooling: creating soldiers for the culture war - Several decades ago, political activists on the religious right began to put together an "ideology machine". Home schooling was a big part of the plan. The idea was to breed and "train up" an army of culture warriors. We now are faced with the consequences of their actions, some of which are quite disturbing.  According to the Department of Education, the home schooling student population doubled in between 1999 and 2007, to 1.5 million students, and there is reason to think the growth has continued. Though families opt to home school for many different reasons, a large part of the growth has come from Christian fundamentalist sects. Children in that first wave are now old enough to talk about their experiences. In many cases, what they have to say is quite alarming.  Ryan Lee Stollar was a stellar home schooling student, looking back on his childhood, it all seems like a delusion. As Stollar explains:  "The Christian home school subculture isn't a children-first movement. It is, for all intents and purposes, an ideology-first movement. There is a massive, well-oiled machine of ideology that is churning out soldiers for the culture war. Home schooling is both the breeding ground – literally, when you consider the Quiverfull concept – and the training ground for this machinery. I say this as someone who was raised in that world."

8th Grade Student: Why So Much Advertising on Pearson Tests? - A student in a gifted program wrote this piercing analysis of the state tests he and his classmates just endured. The tests he took had many brand names and registered trademarks. He realized this is product placement. He wrote:“Non-fictional passages in the test I took included an article about robots, where the brands IBM™, Lego®, FIFA® and Mindstorms™ popped up, each explained with a footnote. I cannot speak for all test takers, but I found the trademark references and their associated footnotes very distracting and troubling. “According to Barbara Kolson, an intellectual property lawyer for Stuart Weitzman Shoes, “.To the test-takers subjected to hidden advertising, it made no difference whether or not it was paid for. The only conclusion they (and this test-taker) made is that they could not be coincidental.”

The Last Refuge From Scandal? Professorships - After a sex scandal forced Eliot Spitzer from the governor’s mansion in Albany, he turned up at City College, teaching a course called “Law and Public Policy.” After another sex scandal forced James E. McGreevey from the governor’s mansion in New Jersey, he turned up at Kean University, teaching in the global M.B.A. program.  More recently, Parsons the New School for Design announced that John Galliano, the celebrated clothing designer who lost his job at Christian Dior after unleashing a torrent of anti-Semitic vitriol in a bar, would be leading a four-day workshop and discussion called “Show Me Emotion.” And David H. Petraeus, the general turned intelligence chief turned ribald punch line, will have not one college paycheck, but two. Last month, the City University of New York said he would be the next visiting professor of public policy at Macaulay Honors College. On Thursday, the University of Southern California announced that Mr. Petraeus would also be teaching there; he will split his time between coasts.

Only 150 of 3500 U.S. Colleges Are Worth the Investment: Former Secretary of Education -- The U.S. is home to some of the greatest colleges and universities in the world. But with the student debt load at more than $1 trillion and youth unemployment elevated, when assessing the value of a college education, that’s only one part of the story. Former Secretary of Education William Bennett, author of Is College Worth It, sat down with The Daily Ticker on the sidelines of the Milken Institute's 2013 Global Conference to talk about whether college is worth it.“We have about 21 million people in higher education, and about half the people who start four year colleges don’t finish,” Bennett tells The Daily Ticker. “Those who do finish, who graduated in 2011 - half were either unemployed or radically underemployed and in debt.” Bennett assessed the “return on investment” for the 3500 colleges and universities in the country. He found that returns were positive for only 150 institutions. The top 10 schools ranked by Bennett as having the best "ROI" are below (for the full list he used, click here, and for the latest figures, click here):

Colleges Soak Poor Students to Funnel Aid to Rich - U.S. colleges such as Boston University are using financial aid to lure rich students while shortchanging the poor, forcing those most in need to take on heavy debt, a report found.Almost two-thirds of private institutions require students from families making $30,000 or less annually to pay more than $15,000 a year, according to the report released today by the Washington-based New America Foundation. The research analyzing U.S. Education Department data for the 2010-2011 school year undercuts the claims of many wealthy colleges that financial-aid practices make their institutions affordable, said Stephen Burd, the report’s author. He singled out schools -- including Boston University and George Washington University -- that appear especially pricey for poor families. “Colleges are always saying how committed they are to admitting low-income students -- that they are all about equality,” Burd said in a phone interview. “This data shows there’s been a dramatic shift. The pursuit of prestige and revenue has led them to focus more on high-income students.”

Student Financial Aid Goes To The Rich And The Poor Get Debt Instead -- Did you know rich students get financial help from colleges while the poor ones get laden with debt instead?  Such is the conclusion of a new report, Demerit Aid, from the New America Foundation.  While Pell grants tallied $35 billion in 2012, universities are reducing their own financial aid based on income and instead, shifting those funds to the wealthy students.  Hundreds of public and private non-profit colleges expect the neediest students to pay an amount that is equal to or even more than their families' yearly earnings. As a result, these students are left with little choice but to take on heavy debt loads or engage in activities that reduce their likelihood of earning their degrees, such as working full-time while enrolled or dropping out until they can afford to return. Nearly two-thirds of the private institutions analyzed charge students from the lowest-income families, those making $30,000 or less annually, a net price of over $15,000 a year. There is compelling evidence to suggest that many schools are engaged in an elaborate shell game: using Pell Grants to supplant institutional aid they would have provided to financially needy students otherwise, and then shifting these funds to help recruit wealthier students. Below are graphs from the report.  These figures show just how much funding for financial aid has changed.  The first graph is financial aid based on income vs. merit in public universities and the second graph is the breakdown in financial aid from private institutions.  Merit scholarships are almost mislabeled.  These are scholarships for the best students, but this implies high school students, which does not a university graduate make.  High schools are also not created equal in the eyes of University acceptance administrators, although the report does not delve into bias against high school graduates from low income areas. 

Q.&A. on the ‘Shell Game’ of College Aid - “With their relentless pursuit of prestige and revenue, the nation’s public and private four-year colleges and universities are in danger of shutting down what has long been a pathway to the middle class for low-income and working-class students,” writes Stephen Burd, a senior policy analyst at the New America Foundation, in a new report that’s getting considerable attention. Mr. Burd uses data from the Education Department to argue that many colleges “are engaged in an elaborate shell game.” With Congress having recently increased the size of Pell Grants, a large federal aid program for lower-income families, colleges are redirecting their own aid money toward higher-income students. The goal of the colleges, he says, is to attract the high-scoring students who lift a college’s ranking and prestige. Yet with list-price tuition growing rapidly, lower-income students, Mr. Burd writes, are left to pay more. He adds: “This is one reason why even after historic increases in Pell Grant funding, the college-going gap between low- income students and their wealthier counterparts remains as wide as ever.” He uses the federal data to name colleges that are charging high net prices — that is, even after taking into account financial aid – for low-income students. The average net price for first-year, full-time students with family incomes of $30,000 or less at New York University, for instance, is a whopping $25,462. In effect, N.Y.U. is asking such a family to devote all of its income to college.

The tragedy of US higher education - The tragedy of Cooper Union is endemic to most American higher education, outside a few community colleges; Cooper is just the special case where the blind rush to some kind of global greatness directly and explicitly violates the institution’s founding mission. Now a fantastic report by Stephen Burd shows that it’s not just Cooper which is becoming more expensive for precisely the students who can least afford it. Rather, that’s happening across the US: aid which should be going to the poorest students is in many cases going to some of the richest. The title of the report is “Undermining Pell”. The Pell Grant system has been growing fast, and reached $33 billion in the 2010-11 academic year, thanks in large part to the effect of the recession on poorer families’ incomes, and the way that high youth unemployment has encouraged American kids to go to college. But the money is not, in truth, making college more affordable. Quite the opposite, writes Burd: There is compelling evidence to suggest that many schools are engaged in an elaborate shell game: using Pell Grants to supplant institutional aid they would have provided to financially needy students otherwise, and then shifting these funds to help recruit wealthier students. This is one reason why even after historic increases in Pell Grant funding, the college-going gap between low-income students and their wealthier counterparts remains as wide as ever. Low-income students are not receiving the full benefits intended.

Student Loan Debt Is a Drag on the Economy, Too - The anemic economy has left millions of younger working Americans struggling to get ahead. The added millstone of student loan debt, which recently exceeded $1 trillion in total, is making it even harder for many of them, delaying purchases of things like homes, cars and other big-ticket items and acting as a drag on growth, economists said. The Federal Reserve Bank of New York, in a new study, found that 30-year-olds with student loans were now less likely to have debts like home mortgages than 30-year-olds without student loans — even though most of those with student loans are better educated and can expect to earn more money over their lifetimes. The same pattern holds true for 25-year-olds and car loans. “It is a new thing, a big social experiment that we’ve accidentally decided to engage in,” said Kevin Carey, the director of the Education Policy Program at the New America Foundation, a research group based in Washington. “Let’s send a whole class of people out into their professional lives with a negative net worth. Not starting at zero, but starting at a minus that is often measured in the tens of thousands of dollars. Those minus signs have psychological impact, I suspect. They might have a dollars-and-cents impact in what you can afford, too."

Warren’s proposal: Offer college students the same interest rates as banks - Sen. Elizabeth Warren (D-MA) introduced a bill on Wednesday that would give college students the same interest rates on their federal student loans as banks do when borrowing from the Federal Reserve. “If the Federal Reserve can float trillions of dollars to large financial institutions at low interest rates to grow the economy, surely they can float the Department of Education the money to fund our students, keep us competitive, and grow our middle class,” Warren said.  According to The Hill, the Students Loan Fairness Act would call for the Fed to “float the money” to the department for one year, giving Congress enough time to enact a long-term agreement on student loan rates.

Elizabeth Warren: Students Should Get the Same Rate as the Bankers - Consumer protection maven Sen. Elizabeth Warren, D-Mass., introduced her first piece of legislation this week, a proposal that would allow students to take out government educational loans at the same rate that big banks pay to borrow from the federal government. Under her Bank on Student Loans Fairness Act, for one year, new student borrowers would be able to take out a federally subsidized Stafford loan at 0.75%, compared with the current 3.4% student loan rate. “Let’s give [students] the same great deal that the banks get,” Warren said, introducing her legislation on the Senate floor on Wednesday. Her legislation is well-timed as Congress gears up to debate student loan rates, which are set to double on July 1. Unless legislators vote to extend the 3.4% rate for another year, some eight million students will be forced to pay back their loans plus 6.8% in annual interest. The average student loan borrower now graduates with a record-high $26,000 in debt. Nationwide, student debt has outpaced credit-card debt, as borrowers struggle to pay back a collective $1 trillion in debt.

Elizabeth Warren Q&A: Students “deserve the same break that big banks get” - “The U.S. government invests in big banks by giving them a great deal on their interest rates,” freshman Sen. Elizabeth Warren said in an interview with Salon on Wednesday afternoon (the transcript of which is below). “We should make at least the same investment in our students.” Warren was discussing the first bill she has introduced in the Senate, a plan released on Wednesday to address the crisis of outstanding student debt – which topped $1 trillion this year, with over 37 million Americans owing thousands of dollars in higher education costs that could take decades to pay back. Student debt is now the second-highest form of debt in America – behind only mortgage debt – with the number of borrowers and the average balance increasing 70 percent since 2004. Research from the New York Federal Reserve Board indicates that this has begun to have an impact on the broader economy, with young people burdened by student debt more reluctant to take out auto or home loans. And without congressional action, this will get worse: on July 1, interest rates on federally subsidized Stafford student loans will double, from 3.4 percent to 6.8 percent. This will effectively raise costs for 8 million student borrowers by $1,000.

What Do U.S. College Graduates Lack? Professionalism - I gave an exam last week, and one student showed up 25 minutes late. When the hour ended and I collected the papers, he looked up from his seat, cast a pitiable glance and mumbled, “Please, I got here late -- may I have another 20 minutes?”  I shook my head and said, “Can’t do that.” His request echoed in my head all the way back to my office. Where in the world did he get the idea that an exam doesn’t begin and end at a set time?  Employers call it an “employability skill” -- work ethic, timeliness, attendance and so on -- and they deal with it every day. Whenever the National Association of Manufacturers administers its “Skills Gap” surveys to members, failings in this area are as likely to be cited as complaints about inadequate technical and verbal skills.  In 2001 and 2005, the association’s members rated employability skills as a crushing deficiency in their workforce, and more respondents urged schools to instill better behavior than did those who demanded more training in reading and math.  Even after the 2008 financial crisis, poor conduct remains a top complaint. In the 2011 survey, 40 percent of employers cited “inadequate basic employability skills” as a reason for why they can’t hire and keep workers.

Almost half of American women fear becoming bag ladies, study says - Despite making enormous strides professionally and financially, almost half of American women fear becoming bag ladies, even many of those earning six-figure salaries, according to a new survey. Six in 10 women describe themselves as the primary breadwinners in their households, and 54% manage the family finances, according to the poll by Allianz Life Insurance Company of North America. Even so, 49% fear becoming a bag lady -- a homeless woman who wanders the streets of a city lugging her meager belongings in a shopping bag. Most surprising, 27% of women earning more than $200,000 a year said they fear falling into such destitution. Such concerns were most pronounced among single women (56%), divorcees (54%) and widows (47%). But even 43% of married women harbor such fears, according to the study. Allianz polled more than 2,200 women aged 25 to 75 with minimum household income of $30,000 a year. The study points up the conflicting emotions of American women toward money, and the disconnect among some between their generally promising financial reality and their deep-seated financial fears.

Many Americans say they can't retire until their 70s or 80s - It’s the new retirement: More than four in 10 Americans think they’ll have to work into their 70s or 80s because they can’t afford to retire, according to a new survey. One in 10 people expects to toil into their 80s, while 32% expect to be on the job into their 70s, according to the report by insurer Northwestern Mutual. On average, those surveyed expect to leave work at age 68. However, the report points out, that doesn’t jibe with reality. The mean age of those already retired is 59, the study said. An increasing number of people figure they’ll simply work longer to make up for inadequate nest-egg savings these days, not realizing how layoffs, poor health or other forces pushed their forebears out of the workforce far sooner than they wanted. “We’re seeing the average retirement age being pushed further out, due in large part to widespread feelings of long-term financial insecurity," Oberland said. "That adds up to people feeling squeezed during a period of their lives when their financial obligations really should be easing.” Overall, 51% of Americans say they’re less financially secure than they thought they’d be at this point in their lives. Only 6% think they can retire before age 60.

Mandatory Savings Accounts Are Coming Your Way - The retirement savings crisis in America has brought us to this point: It’s a near certainty that mandatory savings accounts are in the future of anyone with a full- or part-time job. The world’s largest investment firm BlackRock, with $4 trillion under management and a lot of weight to throw around, is the latest to sound the call. “We need a comprehensive solution to retirement savings that includes some form of mandatory retirement savings,” CEO Laurence Fink said this week. He added that his firm has been agitating “quite noisily” for retirement overhaul and that going forward “we’ll be louder as a firm.” Fink’s call for mandatory savings accounts is in sync with other prominent thinkers in the retirement savings field. Alicia Munnell, director of the Center for Retirement Research at Boston College, is on record favoring these accounts. She says they should be designed to provide 20% of pre-retirement income.

Unemployment haunts Social Security recipients -- Losing your job is a nasty shock at any age, but for older Americans nearing retirement, there’s an extra kick: A late stretch of unemployment will haunt them throughout their Golden Years in the form of lower Social Security payments. “Those years are vital to their Social Security benefits,” said Gary Koenig, director of economic security for AARP’s Public Policy Institute. “It’s something you’ll have to deal with your entire life.” Social Security benefits are based on a person’s highest 35 years of earnings, which are then indexed for wage growth. The last years of one’s career are when most people earn their highest salaries, so replacing those top-income years with less lucrative ones — or no income at all — can prove costly. A person who misses a year of earnings could see his Social Security payments reduced by 3%, or just over $450 annually if he receives the average check of $1,262 a month, according to a calculation AARP ran for CNNMoney.

Begich Announces Plan to Make Social Security Fair and Dependable - U.S. Senator Mark Begich (D-AK) introduced his three-point plan to strengthen Social Security today at a roundtable discussion with Alaska organizations that are likely to feel the effects of President Obama’s recent budget proposal to cut Social Security benefits.. In response to the president’s proposal, Begich outlined his own plan to make sure Social Security remains viable and robust for decades.  Key elements of the plan include:

  • Replace the current system for calculating cost-of-living adjustments to more accurately reflect the cost-of-living for seniors.  This would replace the consumer price index (CPI) for workers with a CPI-E, which reflects costs for seniors and would increase their benefits.
  • Lift the cap on high-income contributions.  Current law sets a cap on contributions for higher income earners; this year they quit paying when their wages hit $113,700. By phasing out this cap, which has essentially become a tax loophole, more people would pay into Social Security all year long.  As a result, the solvency of the trust fund would be extended for about 75 years.
  • Repeal provisions that unfairly penalize workers. The Windfall Elimination Provision and Government Pension Offset formulas currently used to calculate Social Security benefits penalize workers, especially many of Alaska’s public employees, who contributed to Social Security in past jobs but retire under other “non-covered” government pensions. 

Florida rejects Medicaid expansion, leaves 1 million uninsured: It seemed like a watershed moment for the Affordable Care Act when Florida Gov. Rick Scott (R), a staunch Obamacare opponent, embraced the Medicaid expansion in February. “While the federal government is committed to paying 100 percent of the costs, I cannot deny Floridians who need access to health care,” Scott told reporters at a press conference. Scott wouldn’t be the one to “deny Floridians” a part of the health care law—but the Florida legislature had other plans. Lawmakers adjourned Friday after passing a budget that does not include funding for a Medicaid expansion. Unless the Republican-controlled legislature comes back for a special session later this year—which some Democrats are calling for—Florida will not expand Medicaid in 2014. In Florida, where one in five non-elderly residents lack insurance coverage, the consequences are especially large: An estimated 1.3 million Floridians were expected to gain coverage through the the Medicaid expansion. About a quarter of those people—Floridians earning between 100 and 133 percent of the Federal Poverty Line—would still be eligible for tax subsidies on the health insurance exchange.

Why not give cash instead of Medicaid? - This question is kicking around the blogosphere and Twitter. The current interest is inspired by the incorrect view that the latest Oregon Health Study paper shows that Medicaid does not improve physical health outcomes but does confer financial benefits. In fact, though the study does show it confers financial benefits, it does not show that Medicaid confers no physical health benefit. It shows that the study had insufficient sample to detect reasonably sized, clinically significant physical health improvements over two years. The authors explain this in their concluding discussion, though I acknowledge it is not in written in a way that is as accessible as it could be. (See Kevin Drum.)Nevertheless, a great deal of the benefit of health insurance is financial security. And, even though Medicaid does more than that, we can still entertain the idea of giving cash instead. Here are a few points and questions of relevance:

To Save The Job Market, Reduce The Medicare Eligibility Age To 55 - Many of "the top 20%," in terms of wealth as opposed to income, are also known as "mom and dad." If you look at the Census Bureau's breakdown of average wealth by age group, the most prosperous are those on the verge of retirement. They've had 30 or 40 years to gradually build up savings. For example, a couple who each have $50,000 jobs (in today's dollars) and live frugally by spending half of their net earnings and saving the other half (roughly giving them $30,000 savings per year) will become millionaires in about 25 years (thanks to compounding and return on investments). Obviously this isn't the majority - the median wealth of people in the 55 - 64 cohort is something like $200,000 - but a non-trivial percentage of middle class workers ultimately reach this milestone.  And you know what they would like to do more than anythings else? Retire! I know this not only from personal conversations with my fellow fossils, but also through a discussion with an accountant recently in which he told me that the number one reason most of his older clients haven't retired yet is because they are afraid to before they are eligible for Medicare. Or they have to continue to work after age 65 themselves because they need their health insurance to cover their spouse until their spouse reaches age 65.

Rising Health Care Costs Are Quietly Strangling the Middle Class - For the American middle class, wage stagnation has been a fact of life for over two decades. Last year, the median household earned just over $50,000—no more, adjusted for inflation, than the median household in 1996 or 1989. That’s in stark contrast to the fortunes of the richest one percent, who saw their annual income rise 50 percent in the same period, from about $592,000 to nearly $879,000. At the same time, the total compensation received by workers has actually increased over 30 percent since 1980—a statistic frequently cited by conservative economists as proof that income inequality is somehow exaggerated. But the fact is, most middle class families haven’t seen a dollar of that extra compensation. It’s consumed before it ever reaches them by the ever-rising cost of health care—the silent killer of middle class wage growth.

Advocates Say N.Y. Managed-Care Plans Shun the Most Disabled Seniors - Managed-care companies in New York have come under fire for signing up vigorous older adults referred to them by social day care centers, customers whose health needs are relatively small.  But on Tuesday, legal advocates for the disabled told the state’s Medicaid director that the most seriously impaired people were getting the opposite treatment.  Among the examples reported to the director, Jason A. Helgerson, in a meeting were cases in which the advocates said representatives of the managed-care plans deterred people who were bedbound or affected by dementia from enrolling in a plan, often by refusing to do an assessment at all, or by falsely saying that the plan’s budget or policies did not allow as much care as the person needed.  The meeting was closed to the news media, but Mr. Helgerson vowed to hold plans accountable, participants said, and some said they were encouraged that he worked with them to come up with a list of quick fixes, including a dedicated complaint line.

California Health Exchange Secrecy: Golden State's Dirty Little Secret?: -- A California law that created an agency to oversee national health care reforms granted it broad authority to conceal spending on the contractors that will perform most of its functions, potentially shielding the public from seeing how hundreds of millions of dollars are spent. The degree of secrecy afforded Covered California appears unique among states attempting to establish their own health insurance exchanges under President Barack Obama's signature health law. An Associated Press review of the 16 other states that have opted for state-run marketplaces shows the California agency was given powers that are the most restrictive in what information is required to be made public. In Massachusetts, the state that served as the model for Obama's health overhaul, the Health Connector program is specifically covered by open-records laws. The same is true in Idaho, where its exchange was established as a private, nonprofit corporation, and in New Mexico. The Maryland Legislature subjected its exchange to the state's public information act, but protected some types of commercial and financial information.

Obama’s April 30 presser on the ObamaCare “train wreck” - Here’s another color-coded annotation of an Obama transcript (via Kaiser), this one from his news conference right after Senator Max Baucus warned that ObamaCare would be “a huge train wreck”. The contrast between Obama working from a prepared text (Inaugural, 2013; Hamilton Project, 2006) and Obama improvising at the podium is quite remarkable; we see no intricate verbal patterning at all. Whereas the prepared texts are bright with color coding, Obama’s health care presser — and I know this will come as a shock to you — codes as equivocation (with one neoliberal code word, “market,” a little nonsense, and few lies). No secular religion or flights of populism whatever. Nevertheless, for all its banality and woodenness, the presser contains some remarkable passages. I’m going to color code the transcript using the same scheme I used for the Hamilton Project speech:

What Is The Out of Pocket Maximum You Will Pay Under the PPACA? - There are quite a few blogs in the blogosphere who tend to get the PPACA wrong and conflate the issues of it well beyond what is reasonable and truthful. Maybe they just do not know what the facts are and miss the benefits of the PPACA to dwell on the negatives exclusively.  For the record, the PPACA is not single payer nor is it even universal healthcare. It is a convenient compromise which has many positives which did not exist previously. Some thoughts for those who think differently .  .    .Maggie Mahar at The Health Beat Blog: “Even if you do not qualify for a subsidy, your out of pocket spending is capped at about $5,500 for an individual; $12,000 for a couple. (That includes deductible and co-pays under a Bronze plan–or any other plan). A couple earning $65,000 joint might not have $12,000 lying around –especially if they were young. But they could work out a payment plan with the hospital or surgeon– paying, say $5,000 up front as a sign of good faith, and $7,000 over time. If they had to, they could borrow the $5,000 from relatives or friends or a credit card.(These days it’s pretty easy to get a credit card that charges 0% interests on cash withdrawals for 6 months to a year). Bottom line: they don’t lose their house, and they don’t go bankrupt. A $12,000 bill is the worst that can happen to them, even if they’re in a horrible accident and in the hospital for 3 months.

“The Pool” Doesn’t Exist, That Is the Real Problem - In a disappointing but sadly expected move, Jared Bernstein’s tries to use the Centers for Medicare & Medicaid Services’ (CMS) newly released data on hospital prices to argue for Obamacare even though the law does almost nothing to solve the underlying problem. Bernstein writesthe variation in price goes well beyond legitimate bounds, into “rent seeking” by hospitals and providers. That’s not their fault–the current system incentivizes it.  And in fact, the more costs are controlled in the covered sector, the more they’ll try to gauge those on the uncovered side. All of which should remind you of the urgency of getting everyone covered and into the pool.  In other words, the best medicine to treat this diagnosis is the implementation of the ACA. The real problem is that “the pool” doesn’t exist and the Affordable Care Act won’t create one. There is no one pool. Medicare has a pool, there are 50 different Medicaid pools, each large company has its own pool, some unions are their own pools, insurance companies sometimes have several pools. We have literally hundreds of different pools who need to separately negotiate with thousands of different providers for every single price. This is why health care financing in America is an inconsistent bureaucratic nightmare full of completely made up prices, discounts, endless negotiations with massive administrative overhead. The way to solve this problem is to actually get everyone into a true single pool. This can be done either directly adopting single-payer or indirectly using all-payer.

I Am A Republican… Can We Talk About A Single Payer System? - Medicare and the Center for Medicare and Medicaid Services (CMS) are de facto setting all of the rules now. They are a single payer system.  When we go to lobby the Hill, we lobby Congress and CMS.  Talking to Blue Cross, Aetna, Cigna and United Health care is essentially a waste of time. All the third party payers do is play off the Medicare rules to their advantage and profit. They have higher premiums, pay a somewhat higher benefit and have a significantly higher level of regulation which impedes the care of their customers.  This is no longer consumer choice but effectively extortion, a less than hidden shake down in which the “choice” for a family of four is company A at $900 per month or company B at $1100 per month.  The payers are simply taking advantage of the system, playing both ends against the middle.   Secondly, in order to move forward with true health care finance we need complete transparency in cost and expense… and we need it now. As was noted in a recent Time magazine piece on the hidden cost of health care, our current system is a vulgar, less than honorable construct more akin to used car sales than medical care, cloaked under the guise of generally accepted accounting principles and hospital cost shifting.   Thirdly, with a single payer system would potentially come real utilization data, real quality metrics and real accountability. The promise of ICD-10 with all of its difficulties is that of a much more granular claims-made data. We could use some granularity in health care data and we will never achieve it in big data quantities without a single payer system.

Counterparties: Putting a price on illness - The US government is giving a whole new meaning to the term “price discovery”. Today, the federal Centers for Medicaid and Medicaid Services released a trove of seemingly basic data to the public for the first time: the prices American hospitals charge Medicare for the 100 most common inpatient procedures. The data, released early by the Obama administration to the NYT, Washington Post and the Huffington Post, have long been guarded by hospitals, who have treated the prices they charge as something like a trade secret. The release was spurred on, in part, by Steve Brill’s massive March Time cover story on how high hospital prices hit Americans. An uninsured patient might pay $199.50 for a blood test for which Medicare would pay $13.90, for example. Chris Kirkham and Jeffrey Young have the clearest take on the new data, and how widely these prices diverge: Within the nation’s largest metropolitan area, the New York City area, a joint replacement runs anywhere between $15,000 and $155,000. At two hospitals in the Los Angeles area, the cost of the same treatment for pneumonia varies by $100,000, according to the database. Even though insured Americans pay only a portion of these full charges, these numbers aren’t theoretical. Americans without insurance are often forced to pay the full bill. Brill, in a post today, suggest that situation is even worse than that: inflated hospital “chargemaster” prices can work as a kind of baseline for patient costs.

The Health Care “Market” is So Not a Market - Jared Bernstein - This recent spate of articles about hospitals releasing what they charge for procedures is interesting, predictable, useful, and a timely reminder that our health care system lacks fundamental characteristics of markets, like symmetrical information and consistent pricing. For example, there’s a huge difference between sticker prices and what insurers, especially Medicare, actually pay. Data being released for the first time by the government on Wednesday shows that hospitals charge Medicare wildly differing amounts — sometimes 10 to 20 times what Medicare typically reimburses — for the same procedure, raising questions about how hospitals determine prices and why they differ so widely. These early results won’t answer that question, but they do make this point very clearly: in case you didn’t know this already, if you’re uninsured, you’re the one they’ll try to hit with the sticker prices.  It’s a classic example of why pooling is so important.

Heart Patient Risk From iPad2 Found by 14-Year-Old - Chien is 14, and her study -- which found that Apple’s iPad2 can, in some cases, interfere with life-saving heart devices because of the magnets inside -- is based on a science-fair project that didn’t even win her first place.  The research offers a valuable warning for people with implanted defibrillators, which deliver an electric shock to restart a stopped heart, said John Day, head of heart-rhythm services at Intermountain Medical Center in Murray, Utah, and chairman of the panel that reviews scientific papers to be presented at the Denver meeting.

Judge blasts Obama administration request for a stay to his Plan B as ‘alternative reality’ - Judge Edward Korman of the Eastern District of New York gave no quarter to the Administration in his ruling this morning declining to issue a stay to his April ruling that made emergency contraceptives available over the counter pending the outcome of the Administration’s appeal. Korman not only repeated his assertions that the Administration was acting in bad faith by trying to dictate the terms of women’s access to Plan B for political reasons, but noted that the deal it struck with one manufacturer to keep it out of the lawsuit would serve to drive up prices to that manufacturer’s certain benefit. In a ruling filled with harsh language for the government — he called their arguments “silly,” “something out of an alternative reality ” an “an insult to the intelligence of women” and “frivolous” and referred to Sebelius’ conduct “improper” — Korman noted that the supposed concerns for the well-being of younger potential users of emergency contraceptives were “a red herring to justify the continued burdens suffered by older women who seek access to the drug.” He also stated that the agency’s argument that the stay was necessary to preserve public confidence in the FDA’s decisions was paradoxical on its face because it was Sebelius’ order overturning the FDA’s decision that started the case: “If a stay is denied, the public can have confidence that the FDA’s judgment is being vindicated, and if a stay is granted, it will allow the bad-faith, politically motivated decision of Secretary Sebelius, who lacks any medical or scientific expertise, to prevail—thus justifiably undermining the public’s confidence in the drug approval process.”

Traffic Pollution May Be Harming Kids in Ways We Never Imagined -- There's a pretty prolific literature on the harmful health impacts of auto pollution. It's been linked to severe heart attacks, to atherosclerosis, to higher rates of asthma among children who might as well be immersed in second-hand smoke. As a health concern endemic to urban environments, air pollution and its consequences rank right up there with the rise of obesity and its related uptick in diabetes. Now, it turns out the two problems may also be intertwined. New research [PDF] published in the journal Diabetologia found that children growing up in areas exposed to high levels of traffic-related air pollutants had higher levels of insulin resistance, one precursor to diabetes. The German research team collected blood samples from nearly 400 10-year-old German children, most of them in Munich, and analyzed auto emissions around the home addresses where the children were born (the study controlled for socio-economic status, birthweight, Body Mass Index, and second-hand smoke in the home). For every 500 meters a child lived closer to the nearest major road, insulin resistance increased by 7 percent by the time they were 10.

To Fight Pandemics, Reward Research – Cowen -That frightening word “pandemic” is back in the news. A strain of avian influenza has infected people in China... The outbreak raises renewed questions about how to prepare for possible risks. Our current health care policies are not optimal for dealing with pandemics. The central problem is that these policies neglect ... “public goods”: items and services that benefit many people and can’t easily be withheld from those who don’t pay for them directly.  Protection against communicable diseases is a core example of a public good, as is basic scientific research... Without government financing for such public goods, the capacity wouldn’t be there if a new pandemic produced a surge in demand. This would amount to an institutional failure.  The government could also take another, more unusual step: it could promise to pay lucrative prices for the patents on drugs and vaccines that prove useful in dealing with pandemics. Over all, the American government seems to be turning its back on its traditional role of producing and investing in national public goods.  Focusing government on the production of public goods may sound like a trivial issue... But, in fact, we have been failing at it, and the consequences could be serious indeed.

Tyler Cowen: More Money for Drug Companies - Dean Baker  - Showing the sort of creativity that we have come to expect from economists, Tyler Cowen used his NYT column today to call for giving more money to the pharmaceutical industry as a way to deal with the risks of pandemics. Cowen moves from the true statement that research and development into prescription drugs and public health more generally has a substantial public good character, to the idea that we need to give pharmaceutical companies more money in order to get them to do the research. Cowen tells readers: "If anything, the American government  should pay more for pandemic remedies than what market-based auctions [of patent rights] would yield. . To encourage innovations, policy makers need to bolster the expectation of rewards." For reasons that Cowen never bothers to mention, he excludes the possibility that patents may not be the best way to finance research. The patent system does provide an incentive to innovate but it also provides an enormous incentive to misrepresent research results and deceive the public and regulators about the quality and safety of drugs. We see this happening all the time, exactly as economic theory predicts. (Think of Vioxx.) The result is considerable damage to public health and an enormous economic waste as money is paid to pharmaceutical industry for drugs that are ineffective or possibly even harmful.

The Nocebo Effect: Media Reports May Trigger Symptoms of a Disease - Media reports about substances that are supposedly hazardous to health may cause suggestible people to develop symptoms of a disease even though there is no objective reason for doing so. This is the conclusion of a study of the phenomenon known as electromagnetic hypersensitivity. Those affected report experiencing certain symptoms on exposure to electromagnetic waves, such as those emitted by cell phones, and these take the form of physical reactions. With the help of magnetic resonance imaging, it has been demonstrated that the regions of the brain responsible for pain processing are active in such cases. "Despite this, there is a considerable body of evidence that electromagnetic hypersensitivity might actually be the result of a so-called nocebo effect," explained Dr. Michael Witthöft of Johannes Gutenberg University Mainz (JGU). "The mere anticipation of possible injury may actually trigger pain or disorders. This is the opposite of the analgesic effects we know can be associated with exposure to placebos." The new study illustrates how media reports about health risks may trigger or amplify nocebo effects in some people.

The Political Roots of American Obesity - The term obesity is defined as a count of 30 or above on a mathematical scale (called BMI, or Body Mass Index) that combines weight and height measurements of individuals. The term overweight is used to describe the BMI of people who fall in between obese and normal. Over the past three decades, the obesity rate in America has by all accounts climbed to astronomical proportions. Over a third of Americans are officially overweight and another 35.7 percent are obese, according to the latest figures from the Centers for Disease Control and Prevention. Conventional experts blame the "wrong food," bad genes, lack of exercise, chemicals in food, and this or that hormone for the problem. If these factors play any role at all in stoking the epidemic of fat in American, they are themselves only transmission agents and facilitators for the deeper causes. Over the past 30 years, the standard prescription of diet, exercise and increased nutritional education haven't solved the problem. In fact, it hasn't even slowed it down and could even be contributing to the difficulties. To really beat it, we have to ask why and when. To discern the fundamental causes of the obesity epidemic in the United States, we will need to go back in history and unearth its beginnings, to find out exactly when it all started. Then we can ask it why

Why You Don't Want To Eat the Food Processed In the U.S.A. - And (Hush!) Obamabots Are Not Protecting You (Europe, Japan, China, and Russia Have Healthier Standards and Reject U.S.A. Imports!) -- Arsenic is beloved of industrial-scale livestock producers because it makes animals grow faster and turns their meat a rosy pink. It enters feed in organic form, which isn't harmful to humans. Trouble is, in animals guts, it quickly goes inorganic, and thus becomes poisonous. Several studies, including one by the FDA, have found heightened levels of inorganic arsenic in supermarket chicken, and its also ends up in manure, where it can move into tap water. Fertilizing rice fields with arsenic-laced manure may be partially responsible for heightened arsenic levels in US rice. . . . As the US chicken industry has sped up kill lines in recent years, it has resorted to heavier use of chlorine-based washes  to "decrease microbial loads on carcasses," The Washington Post recently reported, quoting a previously unreleased USDA document.. . . Antibiotic use has surged on US animal farms has spiked in recent years—and now accounts for 80 percent of all antibiotic use. Meanwhile, meat sold in US supermarkets is rife with antibiotic-resistant bacteria.

Honey Bee Populations Are Collapsing -It seems to me that this honey bee situation is getting pretty serious. The money quote in Elizabeth Grossman's Declining Bee Populations Pose A Threat to Global Agriculture comes at the end.“There’s going to be a shortage of bees in this entire growing season,” James Frazier, a professor of entomology at Pennsylvania State University, said of the U.S. situation. “The ability to replace bees that have been lost has been exhausted, so there’s a very large question mark about next year. Whether we’ve reached a point of no return, we don’t know.”  For much of the past 10 years, beekeepers, primarily in the United States and Europe, have been reporting annual hive losses of 30 percent or higher, substantially more than is considered normal or sustainable.  But this winter, many U.S. beekeepers experienced losses of 40 to 50 percent or more, just as commercial bee operations prepared to transport their hives for the country’s largest pollinator event: the fertilizing of California’s almond trees.  If this doesn't amount to a population collapse among commercial honey bees, I don't know what would.

US honeybees threatened as 31% of colonies died out in 2012, report shows - Nearly a third of managed honeybee colonies in America died out or disappeared over the winter, an annual survey found on Wednesday. . The decline – which was far worse than the winter before – threatens the survival of some bee colonies. The heavy losses of pollinators also threatens the country's food supply, researchers said. The US Department of Agriculture has estimated that honeybees contribute some $20bn to the economy every year. Bee keepers lost 31% of their colonies in late 2012 and through the early months of this year – about double what they might expect through natural causes, survey found. The survey offered the latest evidence of a mysterious disorder that has been destroying bee colonies for seven years. The strange phenomenon known as colony collapse disorder came to light in 2006, when the first reports came in of bees abandoning their hives and disappearing. In a report last week, the federal government blamed a combination of factors for the rapid decline of honeybees, including a parasitic mite, viruses, bacteria, poor nutrition and genetics, as well as the effects of pesticides. But scientists and campaign groups have singled out the use of a widely used class of pesticides, which scramble the honeybees' sense of navigation. The European Union has imposed a two-year ban on such pesticides, known as neonicotinoids, to study their effects on bee populations. However, the US authorities say there is no clear evidence pointing to pesticides as the main culprit for honeybees' decline.

Ignoring Bee Crisis, EPA Greenlights New 'Highly Toxic' Pesticide - Despite new findings that prove a heightened crisis in US bee populations and a recent ban in Europe on similar chemical applications, the Environmental Protection Agency (EPA) has decided to further endanger the population Monday by approving a "highly toxic" new pesticide.The "EPA continues to put industry interests first to exacerbate an already dire pollinator crisis," writes the group Beyond Pesticides. The agency granted sulfoxaflor, a product of the Dow Chemical Company, "unconditional registration" for use on vegetables, fruits, barley, canola, ornamentals, soybeans and wheat among others, despite the EPA's own classification of the insecticide as "highly toxic to honey bees." According to the Washington Examiner, the EPA's studies on the chemical's long-term effect on bees proved to be "inconclusive due to some issues with the study designs" and thus the EPA has proposed simply reducing the amount applied. As part of their decision, the EPA approved new language for the sulfoxaflor labels which reads, "Do not apply this product at any time between 3 days prior to bloom and until after petal fall," during heightened pollinator activity.

Criminally corrupt EPA unconditionally approves sulfoxaflor pesticide extremely toxic to bees with no supporting research -  In apparent contradiction to its stated intention to protect pollinators and find solutions to the current pollinator crisis, the U.S. Environmental Protection Agency (EPA) approved the unconditional registration of the new insecticide sulfoxaflor, which the agency classifies as highly toxic to honey bees. Despite warnings and concerns raised by beekeepers and environmental groups, sulfoxaflor will further endanger bees and beekeeping. The U.S. EPA continues to put industry interests first to exacerbate an already dire pollinator crisis. In January, the agency proposed to impose conditional registration on sulfoxaflor due to inconclusive and outstanding data on long-term honey bee brood impacts. At that time, the agency requested two additional studies—a study on residue impacts, and a field test to assess impacts to honey bee colonies and brood development. This week, the EPA granted full unconditional registration to sulfoxaflor stating that there were no outstanding data, and that even though sulfoxaflor is highly toxic to bees it does not demonstrate substantial residual toxicity to exposed bees, nor are “catastrophic effects” on bees expected from its use. While sulfoxaflor exhibited behavioral and navigational abnormalities in honey bees, the EPA downplays these effects as “short-lived.” The agency says it has reviewed 400 studies in collaboration with its counterparts in Australia and Canada to support its decision. However, these studies do not seem to be currently available in the public scientific literature.

Disease Threatens Florida’s Citrus Industry - Florida’s citrus industry is grappling with the most serious threat in its history: a bacterial disease with no cure that has infected all 32 of the state’s citrus-growing counties.Although the disease, citrus greening, was first spotted in Florida in 2005, this year’s losses from it are by far the most extensive. While the bacteria, which causes fruit to turn bitter and drop from the trees when still unripe, affects all citrus fruits, it has been most devastating to oranges, the largest crop. So many have been affected that the United States Department of Agriculture has downgraded its crop estimates five months in a row, an extraordinary move, analysts said.With the harvest not yet over, orange production has already decreased 10 percent from the initial estimate, a major swing, they said.“The long and short of it is that the industry that made Florida, that is synonymous with Florida, that is a staple on every American breakfast table, is totally threatened,” said Senator Bill Nelson, a Florida Democrat who helped obtain $11 million in federal money for research to fight the disease. “If we don’t find a cure, it will eliminate the citrus industry.”

Cash for Doomed Crops Means U.S. Farmers Avoid Disaster Cost - Bloomberg: When dry weather destroyed Leonard McKissick’s soybeans last year, U.S. government-backed insurance paid him $40,000, the bulk of his loss. Across the Arkansas Delta this spring, farmers such as McKissick are sowing fields that suffered the worst drought in more than half a century. Even though crops may fail again, landowners are shielded by taxpayers from the full burden of their bad bets. Drought helped drive the cost of crop insurance to a record $17.2 billion, the U.S. Department of Agriculture said April 29. The government covers more than 60 percent of payouts, spending about seven times more than a $1.4 billion program that helps farmers adapt to climate change. The subsidies encouraging farmers to ignore addressing extreme weather are harder to justify when automatic budget cuts remove 5 percent from most U.S. programs and lawmakers prepare to craft a new five-year farm law. “We have given farmers incentives to take on more risk rather than give them an incentive to create a permanent solution,”

California strawberry pickers fired for walking off job to flee wildfire - A group of agricultural workers in southern California lost their jobs last week when they took shelter to escape the ash-filled air blowing down on them ahead of one of the wildfires currently blazing in that state. According to NBC Los Angeles, 15 workers went inside to escape the smoke, which was interfering with their ability to breathe. When they returned to work the next day, they were informed that they had been fired. The wildfire, dubbed the Springs Fire was growing out of control in Camarillo Springs, California on Thursday, May 2. The workers, employees of Crisalida Farms in Oxnard, located 11 miles south of the fire’s center, began to cough and experience lowered visibility as smoke and ash rained down on them. Even as the air quality in the fields declined, a foreman told the workers that if they walked off the job, they would not have jobs to come back to. When they returned on May 3, they were told that they were fired.

India's cheap food plans to prove costly for government (Reuters) - India may soon pass a new law to give millions more people cheap food, fulfilling an election promise of the ruling Congress party that could cost about $23 billion a year and take a third of annual grain production. The National Food Security Bill, which aims to feed 70 percent of the population, could widen India's already swollen budget deficit next year, increasing the risk to its coveted investment-grade status. The ambitious bill, a priority for Congress President Sonia Gandhi, will raise India's annual food subsidy spending by 45 percent. It promises wheat and rice at a fraction of the cost to some 810 million people, expanding current handouts to roughly 318 million of India's poorest. Critics say the food bill is little more than an attempt to help Congress, reeling from corruption scandals, win re-election in a vote expected by next May.

The great global food gap - (30 family photos) A study of what 30 families living around the world eat in one week shows the huge gulf between the diets of different nations.

Weather Whiplash Strikes Again: Extreme Drought To Flood In Georgia - The remarkable storm that brought record-breaking May snows and cold to the Midwest last week continues to spin over the Southeast U.S. The storm is unleashing flooding rains, bringing a case of “Weather Whiplash” to Georgia: flooding where extreme drought had existed just a few months ago. The storm formed when a loop in the jet stream of extreme amplitude got cut off from the main flow of the jet over the weekend, forming a “cutoff low” that is now slowly spinning down as it drifts east over the Southeast U.S. On Sunday, the storm dumped 3.4″ of rain on Atlanta, Georgia–that city’s sixth heaviest May calendar day rain storm since record keeping began in 1878. Remarkably, the rains were also able to bring rivers in Central Georgia above flood stage. This portion of the country was in “exceptional drought”–the worst category of drought–at the beginning of 2013.

When weather becomes the "single biggest factor" - Sixty-eight percent. That’s the percent of corporate food and agriculture industry executives who said that weather extremes/volatility will be the “single biggest factor affecting North American food and agribusiness in 2013,” according to a poll by the Dutch bank, Rabobank in late 2012. Rabobank went on to say that business leaders’ concerns about weather extremes “far outweighed the next two closest factors—consumer demand (13%) and policy/regulation (10%).” “Geopolitical events” and “trade/tariffs/exchange rates” received votes in the single digits. This striking data is another sign that the increasing volatility of our weather is not only real but is impacting even the largest food and agriculture businesses. To dig more deeply into perceptions in the food industry about changing climate patterns, I recently conducted a series of conversations with produce distributors around the United States. These are folks who buy and sell vast quantities of fruit and vegetables from suppliers in the U.S. and all over the world, every day. . Many I spoke with are multi-generation, family-owned businesses that sell a local and global supply of produce to institutions in their region of the country.

WMO Annual Climate Statement Confirms 2012 as Among Top Ten Warmest Years - The World Meteorological Organization’s Statement on the Status of the GlobalClimate says that 2012 joined the ten previous years as one of the warmest — at ninth place — on record despite the cooling influence of a La Niña episode early in the year.  The 2012 global land and ocean surface temperature during January–December 2012 is estimated to be 0.45°C (±0.11°C) above the 1961–1990 average of 14.0°C. This is the ninth warmest year since records began in 1850 and the 27th consecutive year that the global land and ocean temperatures were above the 1961–1990 average, according to the statement. The years 2001–2012 were all among the top 13 warmest years on record.  “Although the rate of warming varies from year to year due to natural variability caused by the El Niño cycle, volcanic eruptions and other phenomena, the sustained warming of the lower atmosphere is a worrisome sign,” said WMO Secretary-General Michel Jarraud. “The continued upward trend in atmospheric concentrations of greenhouse gases and the consequent increased radiative forcing of the Earth’s atmosphere confirm that the warming will continue,” he said.

Sea Surface Temperatures Reach Highest Level in 150 Years on Northeast Continental Shelf - Sea surface temperatures in the Northeast Shelf Large Marine Ecosystem during 2012 were the highest recorded in 150 years, according to the latest Ecosystem Advisory issued by NOAA’s Northeast Fisheries Science Center (NEFSC). These high sea surface temperatures (SSTs) are the latest in a trend of above average temperature seen during the spring and summer seasons, and part of a pattern of elevated temperatures occurring in the Northwest Atlantic, but not seen elsewhere in the ocean basin over the past century. 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 °C (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. Sea surface temperature in the region is based on both contemporary satellite remote-sensing data and long-term ship-board measurements, with historical SST conditions based on ship-board measurements dating back to 1854. 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).

Amazon ‘may lose 65% of land biomass by 2060′ – There will be no winners if agriculture made possible by widespread felling in the Amazon continues to expand, say researchers from Brazil and the US.  They calculate that the large-scale expansion of agriculture at the expense of the forest could entail the loss of almost two-thirds of the Amazon’s terrestrial biomass by later this century.  Their study, published in the journal Environmental Research Letters, shows that deforestation will not only reduce the capacity of the Amazon’s natural carbon sink.  It will also cause climate feedbacks that will decrease the productivity of pasture and soybeans – the reason advanced for felling the trees in the first place.  Brazil is under intense pressure to convert the Amazon forests to produce crops and provide pasture for cattle. But the forests’ natural ecosystems sustain wild food production, maintain water and other resources, regulate climate and air quality and ameliorate the impact of  infectious diseases.

Greenland “snow drought” makes big 2013 melt more likely - Multiple melt factors combine to increase the odds of more melt water runoff from the ice sheet during the 2013 melt season:

  1. less ‘cold content’ of snow to melt away (ablate) for a given energy input before bare ice is exposed;
  2. a longer period of exposed darker bare ice, in this case weeks earlier bare ice exposure is likely unless a big snow dump before or during the coming warm season;
  3. Less snow leads to a smaller refreezing capacity in the lower accumulation area. Thanks Robert Fausto of GEUS for reminding me of this one.
  4. a possible higher concentration of light absorbing impurities per unit volume of snow, assuming that the impurities are deposited whether or not it snows.

This pattern results from a persistent atmospheric anomaly, blocking cold air transport southward along west Greenland, producing relatively warm temperatures there while northwestern Europe has had a cold winter (Figure 2).

Degradation of submarine permafrost and the destruction of hydrates on the Eastern Siberian Arctic Shelf as a potential cause of the “Methane Catastrophe”: some results of integrated studies in 2011 - On the basis of the analysis of published data and in the course of the authors’ long-term geochemical and acoustic surveys performed in 1995–2011 on the East Siberian shelf (ESS) and aimed to research the role of the Arctic shelf in the processes of massive methane outbursts into the Earth’s atmosphere, some crucially new results were obtained. A number of hypotheses were proposed concerning the qualitative and quantitative characterization of the scale of this phenomenon. The ESS is a powerful supplier of methane to the atmosphere owing to the continued degradation of the submarine permafrost, which causes the destruction of gas hydrates. The emission of methane in several areas of the ESS is massive to the extent that growth in the methane concentrations in the atmosphere to values capable of causing a considerable and even catastrophic warning on the Earth is possible. The seismic data were compared to those of the drilling from ice performed first by the authors in 2011 in the southeastern part of the Laptev Sea to a depth of 65 m from the ice surface. This made it possible to reveal some new factors explaining the observed massive methane bursts out of the bottom sediments.

Arctic faces further threat from ocean acidification - The Arctic ecosystem, already under pressure from record ice melts, faces another potential threat in the form of rapid acidification of the ocean, according to an international study published on Monday. Acidification, blamed on the transformation of rising levels of the greenhouse gas carbon dioxide from the air into carbonic acid in the sea, makes it harder for shellfish and crabs to grow their shells, and might also impair fish reproduction, it said. Cold water absorbs carbon dioxide more readily than warm water, making the Arctic especially vulnerable. The report said the average acidity of surface ocean waters worldwide was now about 30% higher than at the start of the industrial revolution. "Arctic marine waters are experiencing widespread and rapid ocean acidification," said the report by 60 experts for the Arctic Monitoring and Assessment Programme, commissioned by the eight nations with Arctic territories. "Ocean acidification is likely to affect the abundance, productivity and distribution of marine species, but the magnitude and direction of change are uncertain."

BBC: Arctic Ocean 'acidifying rapidly' - The Arctic seas are being made rapidly more acidic by carbon-dioxide emissions, according to a new report. Scientists from the Arctic Monitoring and Assessment Programme (AMAP) monitored widespread changes in ocean chemistry in the region. They say even if CO2 emissions stopped now, it would take tens of thousands of years for Arctic Ocean chemistry to revert to pre-industrial levels. Many creatures, including commercially valuable fish, could be affected. They forecast major changes in the marine ecosystem, but say there is huge uncertainty over what those changes will be. It is well known that CO2 warms the planet, but less well-known that it also makes the alkaline seas more acidic when it is absorbed from the air.  Absorption is particularly fast in cold water so the Arctic is especially susceptible, and the recent decreases in summer sea ice have exposed more sea surface to atmospheric CO2. The Arctic's vulnerability is exacerbated by increasing flows of freshwater from rivers and melting land ice, as freshwater is less effective at chemically neutralising the acidifying effects of CO2.

On Top Of Sea Ice Death Spiral, Ocean Acidification Poised To Radically Alter Arctic - The Arctic is the fastest changing place on earth. The most obvious and important change is the staggering loss of sea ice (see “CryoSat-2 Confirms Sea Ice Volume Has Collapsed“). In addition, “the Arctic marine waters are experiencing widespread and rapid ocean acidification,” a new study finds. This first-ever Arctic Ocean Acidification Assessment, commissioned by the Arctic Council’s Arctic Monitoring and Assessment Programme (AMAP), explains that the “primary driver of ocean acidification is uptake of carbon dioxide emitted to the atmosphere by human activities.” We knew from a 2010 Nature Geoscience study that the oceans are now acidifying 10 times faster today than 55 million years ago when a mass extinction of marine species occurred. We are risking a marine biological meltdown “by end of century” as a 2010 Geological Society study put it. As the lead author of a 2012 study on acidification in Science explained, “if industrial carbon emissions continue at the current pace, we may lose organisms we care about—coral reefs, oysters, salmon.” Here is a video from AMAP on Arctic Ocean acidification:

Obama Gives Finger to All of Humanity: Announces Increased Carbon Emission Strategy for the Arctic -- The White House blog - The Arctic is rapidly changing. While the Arctic region has experienced warming and cooling cycles over millennia, the current warming trend is unlike anything previously recorded. As sea ice diminishes, ocean resources are more readily accessible. This accessibility, along with recent scientific estimates indicating the presence of significant energy and other resources, have inspired strong interest for new commercial initiatives in the region, including energy production, increased shipping, scientific research, tourism, and related infrastructure development. As an Arctic nation, the United States must be proactive and disciplined in addressing changing regional conditions and in developing adaptive strategies to protect its interests. An undisciplined approach to exploring new opportunities in this frontier could result in significant harm to the region, to our national security interests, and to the global good. Today, we are releasing  the National Strategy for the Arctic Region. Through this strategy, we are setting the United States Government’s strategic priorities for the Arctic region. These priorities are intended to position the United States to respond effectively to emerging opportunities – while simultaneously pursuing efforts to protect and conserve this unique environment.

Climate change: The measure of global warming - AT NOON on May 4th the carbon-dioxide concentration in the atmosphere around the Mauna Loa Observatory in Hawaii hit 400 parts per million (ppm). The average for the day was 399.73 and researchers at the observatory expect this figure, too, to exceed 400 in the next few days. The last time such values prevailed on Earth was in the Pliocene epoch, 4m years ago, when jungles covered northern Canada. There have already been a few readings above 400ppm elsewhere—those taken over the Arctic Ocean in May 2012, for example—but they were exceptional. Mauna Loa is the benchmark for CO2 measurement (and has been since 1958, see chart) because Hawaii is so far from large concentrations of humanity. The Arctic, by contrast, gets a lot of polluted air from Europe and North America.  The concentration of CO2 peaks in May, falls until October as plant growth in the northern hemisphere’s summer absorbs the gas, and then goes up again during winter and spring. This year the average reading for the whole month will probably also reach 400ppm, according to Pieter Tans, who is in charge of monitoring at Mauna Loa, and the seasonally adjusted annual figure will reach 400ppm in the spring of 2014 or 2015.

CO2 levels at highest point in 800,000 yrs -  Since 1956, the Mauna Loa Observatory in Hawaii has been gathering data on how much carbon dioxide is in the atmosphere — a very basic measure of how humans are transforming the planet and setting the stage for future climate change. The so-called Keeling Curve is attracting even more attention than usual this month, as the amount of carbon in the atmosphere is on the verge of hitting 400 parts per million, a new milestone (the readings hit 399.71 on Tuesday):Notice that the curve is jagged. As humans keep burning fossil fuels, the amount of carbon dioxide in the atmosphere has trended upward over time. But there are still seasonal fluctuations. When trees in the Northern Hemisphere bloom in the spring and summer, they absorb some of that carbon. When the leaves wilt in the winter, carbon returns to the air and readings spike. The curve is a record of the planet’s breathing.

Global carbon dioxide in atmosphere passes milestone level - For the first time in human history, the concentration of carbon dioxide in the atmosphere has passed the milestone level of 400 parts per million (ppm). The last time so much greenhouse gas was in the air was several million years ago – when the Arctic was ice-free, savannah spread across the Sahara desert and sea level was up to 40 metres higher than today. These conditions are expected to return in time, with devastating consequences for civilisation, unless emissions of CO2 from the burning of coal, gas and oil are rapidly curtailed. But despite increasingly severe warnings from scientists and a major economic recession, global emissions have continued to soar unchecked. "It is symbolic, a point to pause and think about where we have been and where we are going," said Prof Ralph Keeling, who oversees the measurements on a Hawaiian volcano, which were begun by his father in 1958. "It's like turning 50: it's a wake-up to what has been building up in front of us all along."

Atmospheric carbon dioxide reaches 400 parts per million concentration milestone: For the first time in human history, the concentration of carbon dioxide in the atmosphere has reached 400 parts per million (ppm). The arrival at this threshold represents a powerful symbol of the growing human influence on the Earth’s climate. Manmade emissions of carbon dioxide have increased the atmospheric concentration of CO2 from around 270 to 280 ppm in the late 1700s to today’s record high level – a 43 percent increase. Measurements of CO2 trapped in air bubbles from ice cores in Antarctica indicate today’s levels are unsurpassed in at least 800,000 years.“[The] increase is not a surprise to scientists,” said NOAA senior scientist Pieter Tans. “The evidence is conclusive that the strong growth of global CO2 emissions from the burning of coal, oil, and natural gas is driving the acceleration.” Global CO2 emissions soared to a record high of 35.6 billion tonnes in 2012, up 2.6 percent from 2011 according to Climate Central’s Andrew Freedman. 

Carbon Dioxide Level Passes Long-Feared Milestone -  The level of the most important heat-trapping gas in the atmosphere, carbon dioxide, has passed a long-feared milestone, scientists reported Friday, reaching a concentration not seen on the earth for millions of years.Scientific instruments showed that the gas had reached an average daily level above 400 parts per million — just an odometer moment in one sense, but also a sobering reminder that decades of efforts to bring human-produced emissions under control are faltering. The best available evidence suggests the amount of the gas in the air has not been this high for at least three million years, before humans evolved, and scientists believe the rise portends large changes in the climate and the level of the sea. “It symbolizes that so far we have failed miserably in tackling this problem,” “It means we are quickly losing the possibility of keeping the climate below what people thought were possibly tolerable thresholds,” China is now the largest emitter, but Americans have been consuming fossil fuels extensively for far longer, and experts say the United States is more responsible than any other nation for the high level.

What Does This Number Mean?: The continued rapid rise in CO2 ensures that levels will rise far beyond 400 ppm before they stabilize. If the pace of the last decade continues, carbon dioxide will reach 450 ppm by the year 2040. Carbon dioxide is the most important man-made greenhouse gas, produced mainly by the burning of fossil fuels such as coal, oil and natural gas. The pace of rise depends strongly on how much fossil fuel is used globally. Although the Mauna Loa record extends back only 55 years, a record extending 800,000 years has been obtained from samples of old air preserved as bubbles in the Antarctic ice sheet. These records from the Antarctic ice sheet are referred to as ice-core records of atmospheric carbon dioxide and two ice-core studies have been used to create the figures on the front page showing atmospheric carbon dioxide before the Mauna Loa record. The reference for the ice-core record extending back 800,000 years is: Lüthi, D., et al. 2008. High-resolution carbon dioxide concentration record 650,000-800,000 years before present. An even longer but much less accurate record of atmospheric CO2 can be obtained using other geochemical methods.  These suggest that the last time atmospheric CO2 was over 400 ppm was at least as far back as the Pliocene, three to five million years ago, before humans roamed the earth and when the climate was considerably warmer than today.

Ice-Free Arctic in Pliocene, Last Time CO2 Levels above 400 PPM: - Scientists trying to determine how the Earth might change as temperatures rise often look back in time to a period around 3.6 million years ago called the middle Pliocene, when concentrations of carbon dioxide ranged from about 380 to 450 parts per million. (Today they are nearing 400.) A study published yesterday in the journal Science analyzed the longest land-based sediment core ever taken in the Arctic and found that during this period, from 3.6 million to 2.2 million years ago, the area around the North Pole was much warmer and wetter than it is now. In the middle Pliocene, summer temperatures in the Arctic were around 60 degrees Fahrenheit, which is about 14 degrees warmer than they are now, the study found.

The Next Big Thing: Profiting From The Fear Of Climate Change - “Climate risk is something people are paying more and more attention to,” said Barney Schauble, managing partner at Nephila Advisors, the US branch of an $8 billion Bermuda hedge fund that gambles in weather derivatives. In January, private equity goliath KKR acquired a 25% stake in it. “More volatile weather creates more risk and more appetite to protect against that risk,” Schauble said. “Climate change for us is a driver,” said Marc Robert, Chief Operating Officer of hedge fund Water Asset Management in New York. It acquires water rights and invests in water treatment companies. For them, drought is a godsend. “Not enough people are thinking long term of [water] as an asset that is worthy of ownership,” he said. “The cities that are close to the waterline continue to grow and have more money and need for protection; it’s almost a natural growth market,” said Piet Dircke of Arcadis, a Dutch company with $3.3 billion in revenues. The company calls him a “global expert in flood protection and climate adaptation for coastal and delta cities”; he’s now leading Arcadis' post-Sandy damage assessments and recovery plans. He said his phone was ringing nonstop after Sandy. “The climate is changing. Sea level is rising. That’s quite obvious,” he said.

New emissions plan could energise global climate talks, says US envoy - The United States' proposal to let countries draft their own emissions reduction plans rather than working toward a common target can unlock languishing UN climate negotiations, the US climate change envoy said on Tuesday. The proposal that a global climate deal by 2015 should be based on national "contributions" gained traction at last week's round of UN talks in Germany, although China, the world's biggest carbon emitter, said it wanted far more binding commitments by wealthy countries. In the first public US statements on the plan, Todd Stern, the US State Department's special envoy on climate change, told reporters on Tuesday that the US approach was designed to bring as many countries as possible to the table through a form of peer pressure and break the impasse over a successor to the 1997 Kyoto protocol. "Countries, knowing that they will be subject to the scrutiny of everybody else, will be urged to put something down they feel they can defend and that they feel is strong," Stern said from Berlin during a summit of environmental ministers focused on ways to advance the UN climate talks.

US defends plan for countries to set their own climate goals - A global deal on greenhouse gas reductions can be effective even if countries are allowed to set their own targets, the US special envoy for climate change Todd Stern has said. “It is very hard for us to imagine a negotiation with dozens and dozens and dozens of counties actually negotiating everybody else’s targets and timetables,” said Stern from the sidelines of the Petersberg Climate Dialogue in Berlin. The main criticism levelled at such a system is that nations would be able to set the bar low. “Countries, knowing that they will be subject to the scrutiny of everybody else, will be urged to put something down they feel they can defend and that they feel is strong,” said Stern adding that strong public interest would add to that pressure.

How little-known judges could thwart Obama’s climate plans - On any given day, the U.S. Court of Appeals for the D.C. Circuit has the power to throw the environmental movement into complete disarray. Tucked into a nondescript neighborhood in Washington, D.C., the court isn’t well known to the public, but it’s often called the second most important court in the United States. It has particular significance to the environmental movement because of its exclusive jurisdiction over regulations involving vital environmental laws like the Clean Air Act, the Clean Water Act, and the Endangered Species Act. In the early stages of the modern environmental movement, great progress was made through enterprising lawsuits brought by groups such as the Natural Resources Defense Council and Environmental Defense Fund to enforce the protective mandates of those landmark environmental statutes. But the challenge is different now, with judges on the bench seeking to derail, not enforce, these fundamental safeguards. How environmentalists respond to this threat could dramatically impact the success of the movement in combating 21st century environmental threats such as global warming.

IEA Clean Energy Report Says Progress May Be Too Slow To Limit Climate Change: (Reuters) - The development of low-carbon energy is progressing too slowly to limit global warming, the International Energy Agency (IEA) said on Wednesday. With power generation still dominated by coal and governments failing to increase investment in clean energy, top climate scientists have said that the target of keeping the global temperature rise to less than 2 degrees Celsius this century is slipping out of reach. "The drive to clean up the world's energy system has stalled," said Maria van der Hoeven, the IEA's executive director, at the launch of the agency's report on clean energy progress. "Despite much talk by world leaders, and a boom in renewable energy over the past decade, the average unit of energy produced today is basically as dirty as it was 20 years ago." Global clean energy investment in the first quarter fell to its lowest level in four years, driven by cuts in tax incentives at a time of austerity, according to a separate report by Bloomberg New Energy Finance this week. The IEA said that coal-fired generation grew by 45 percent between 2000 and 2010, far outpacing the 25 percent growth in non-fossil fuel generation over the same period. A revolution in shale gas technology has triggered a switch from coal to cleaner natural gas in the United States. Elsewhere, however, coal use has soared, particularly in Europe, where its share of the power generation mix increased at the expense of gas.

The Third Option - There are, we are told, only two options. Either we stop burning fossil fuels before our carbon dioxide emissions drive the planet’s average temperature up a full 2 degrees C (3.6 degrees F), in which case we will push the world into the biggest-ever recession. Or we continue to burn fossil fuels and push the planet into runaway warming, with lethal consequences for a large part of the human race. The 2008 bank crash that triggered the recent recession was caused mainly by reckless investment that created a “bubble” in house prices. This time the problem is a “carbon bubble”. The market valuation of the world’s 200 biggest oil, gas and coal companies is about $4 trillion, a figure based on the assumed value of their confirmed reserves that are still in the ground. Or, more precisely, a figure based on the assumption that they will eventually be able to sell all of those reserves to customers who want to burn them. On the strength of that assumption, the fossil fuel companies have been able to take on $1.5 trillion of debt, and last year alone they spent $647 billion in the search for even more oil, gas and coal reserves. But what if they will never be able to sell all of their reserves? What if the need to avoid runaway warming forces governments to curb the burning of fossil fuels, so that much of those reserves has to stay underground forever?

Stanford researcher maps out an alternative energy future for New York: New York Gov. Andrew Cuomo will soon decide whether to approve hydraulic fracturing for natural gas in the state. To date, no alternative to expanded gas drilling has been proposed. But a new study finds that it is technically and economically feasible to convert New York's all-purpose energy infrastructure to one powered by wind, water and sunlight (WWS). The ). The plan, scheduled for publication in the journal Energy Policy, shows the way to a sustainable, inexpensive and reliable energy supply that creates local jobs and saves the state billions of dollars in pollution-related costs. Mark Z. Jacobson, a senior fellow with the Stanford Woods Institute for the Environment and the Precourt Institute for Energy,  co-authored the study with scientists from Cornell University and the University of California-Davis. "Converting to wind, water and sunlight is feasible, will stabilize costs of energy and will produce jobs while reducing health and climate damage," said Jacobson, a professor of civil and environmental engineering. The study is the first to develop a plan to fulfill all of a state's transportation, electric power, industry, and heating and cooling energy needs with renewable energy, and to calculate the number of new devices and jobs created, amount of land and ocean areas required, and policies needed for such an infrastructure change. It also provides new calculations of air pollution mortality and morbidity impacts and costs based on multiple years of air quality data

A Dream of Glowing Trees Is Assailed for Gene-Tinkering - Hoping to give new meaning to the term “natural light,” a small group of biotechnology hobbyists and entrepreneurs has started a project to develop plants that glow, potentially leading the way for trees that can replace electric streetlamps and potted flowers luminous enough to read by.The project, which will use a sophisticated form of genetic engineering called synthetic biology, is attracting attention not only for its audacious goal, but for how it is being carried out. Rather than being the work of a corporation or an academic laboratory, it will be done by a small group of hobbyist scientists in one of the growing number of communal laboratories springing up around the nation as biotechnology becomes cheap enough to give rise to a do-it-yourself movement. The project is also being financed in a D.I.Y. sort of way: It has attracted more than $250,000 in pledges from about 4,500 donors in about two weeks on the Web site Kickstarter.

US Wind Power Statistics - The above is from the AWEA quarterly report for Q1 2013 and shows cumulative installed capacity as well as additional capacity by year and quarter.  Installations took a big setback in 2010, but have recovered based on huge levels of installation in Q4 2012 (following belated extension of the industry's tax credits). The following shows the state level distribution of installed capacity.  Texas, with a large area and lots of wind, leads the nation:

Fifty-Four Per Cent of Spain’s Electricity Generation in April From Renewables: Spanish Electricity generation from renewables in April set a new record, beating March’s previous record. PV Magazine notes renewables accounted for 54% of the country’s electricity generation in April, outpacing last month’s total of 51.8%  Spanish hydropower made up 25% of April’s overall electricity generation. Meanwhile, wind power was second with 22%. Solar photovoltaic energy provided 3.6%, and solar thermal energy had 1.3%, based on Red Electrica De Espana (REE) data.  While it’s still only the month of May, if the current pattern continues to hold, electricity demand coming from renewable sources may very well surpass recent years in the country.

Hanford Nuclear Waste Cleanup Plant May Be Too Dangerous -  The most toxic and voluminous nuclear waste in the U.S.—208 million liters —sits in decaying underground tanks at the Hanford Site (a nuclear reservation) in southeastern Washington State. It accumulated there from the middle of World War II, when the Manhattan Project invented the first nuclear weapon, to 1987, when the last reactor shut down. The federal government’s current attempt at a permanent solution for safely storing that waste for centuries—the Waste Treatment and Immobilization Plant here—has hit a major snag in the form of potential chain reactions, hydrogen explosions and leaks from metal corrosion. And the revelation last February that six more of the storage tanks are currently leaking has further ramped up the pressure for resolution.  The plant isintended to sequester the waste in stainless steel–encased glass logs, a process known as vitrification (hence “Vit”), so it cannot escape into the environment, barring natural disasters like earthquakes or catastrophic fires. But progress on the plant slowed to a crawl last August, when numerous interested parties acknowledged that the plant’s design might present serious safety risks. The plant’s construction, currently contracted by the DoE to Bechtel National, Inc., may be the most complicated engineering project underway in the U.S. But back in 2000 the DoE and Bechtel decided to save time and money by starting construction before crucial structures and processes had been designed and properly tested at a scale comparable to full operation. This wasn’t such a good idea, says Dirk Dunning, nuclear material specialist with the Oregon Department of Energy. “The worst possible time to save money is at the beginning. You’re better off to be very nearly complete on design before you begin construction.”

The Master Resource Report: This week’s EIA report on natural gas in storage should have opened a few more eyes. Storage is 30.9% below year ago levels, 6.2% below the trailing five year average and only 3% above the 2007-11 five year average (note this excludes the storage bubble in the 2008-12 five year average). Also of note was the 39.4% year-over-year drop in storage in the east region also reported by the EIA. Here is the graph illustrating the comparison to the 2007-11 and 2008-12 five year averages. The 43 Bcf build was in line with our estimates and should be getting the industry’s attention for this time of year.

Why Natural Gas Prices will Soar in the Future -  Look at what the industry does, not what it says. While hyping the future of natural gas, the industry was doing the following:

    • Organizing their natural gas gathering systems into master limited partnerships and selling them to investors.
    • Selling producing acreage to foreign investors who, believing the hype, generally overpaid.
    • And when gullible foreign investors got wise, selling land packages at rock bottom prices when many companies were desperate to raise cash to meet their debt obligations.

Despite industry protestations to the contrary, all these things told Kevin Hansen that the industry "could not have been profitable." His views were eventually verified by none other than Rex Tillerson, CEO of ExxonMobil Corp., who told an audience in late June last year, "We are losing our shirts [on natural gas]."

Fracking Water Use Draining Resources, Especially In Western U.S., New Studies Find: The natural gas extraction technique known as fracking uses so much water that it could threaten groundwater resources, especially in the Western U.S., two new reports conclude. The first report (pdf), from the Western Organization of Resource Councils (WORC), found that hydraulic fracking removes 7 billion gallons of water every year in just four states: North Dakota, Wyoming, Montana and Colorado. The organization blames inadequate federal and state-level protections for the use and/or contamination of fresh water. "Fracking's growing demand for water can threaten availability of water for agriculture and Western rural communities," WORC board member Bob LeResche said in a prepared release. He also told The Dickinson Press that "Unless our states take real action soon, we stand to watch our agricultural economies, and even our human habitation of some places, disappear. Ninety-nine percent of rural Americans rely on groundwater for their domestic needs, as do 51 percent of all Americans." 

Hydrofracking foes opposing gas-storage plans in NY’s Finger Lakes - The Finger Lakes region of Upstate New York, frequented by tourists for its vistas, recreation and vineyards, is dotted with caverns left behind a century ago when the area was a major salt-producing region. Now, an energy company is eyeing those caves as ideal spaces for storing natural gas, upsetting opponents who are trying to prevent a resurgence of industry to what they call an environmental gem. The plans call for six new rail spurs to handle 24 propane tanker cars every 12 hours. A round-the-clock cycle of trains and tanker trucks seven days a week would bring propane in and out of the facility. Four 700-horsepower compressors would be built, and two open brine ponds would be placed on a hillside above Seneca Lake. Opponents say the industrial site and related heavy traffic will harm the wine and tourism industries that flourish around the Finger Lakes, a necklace of fjord-like lakes south of Rochester. An accident at the brine ponds could pollute Seneca Lake, which supplies drinking water to 100,000 people. The critics also fear accidents like the gas explosion and fire that burned for six days at a salt storage facility in Moss Bluff, Texas, in 2004, or the massive sinkhole over a collapsed salt-dome gas-storage site in Louisiana in August that forced the evacuation of 350 people.

Why natural gas-powered vehicles are catching on - The shale revolution, which in recent years turned fracking into a household word and the U.S. into the world’s second-largest natural gas producer, is only half a revolution. It increased supply enough to meet current U.S. consumption for 100 years. To truly upend the global energy balance, the U.S. must also revolutionize demand. And the only way to do that is to get natural gas into what has always been the greatest prize: light trucks, 18-wheelers, government and delivery fleets, and, of course, private cars.  More than 1,000 natural gas fueling stations already dot the U.S., with about half open to the public and the rest serving fleets. There are about 120,000 natural gas-powered vehicles on U.S. roads today and more than 15.2 million worldwide, according to Natural Gas Vehicles for America, an industry-funded trade group. By 2019 the number of natural gas consumer vehicles worldwide will rise to 25 million, says Navigant Consulting. “This is early days, but we’re on the brink of one of those tectonic shifts that occur every 100 years in the energy game,”

Obama backs rise in US gas exports - The Obama administration has signalled support for more plants to export liquefied natural gas, as the US embraces its surging energy production as a key new element of its national security policy. Barack Obama said at the weekend the US was likely to be a net gas exporter by 2020, the strongest sign yet that the president is swinging his support behind higher energy sales overseas. The Department of Energy is studying applications for new liquefied natural gas terminals, with approval of one in Texas likely within months. It would be only the second such approval granted for sales to countries without trade agreements with the US, such as Japan, the world’s largest importer of LNG. The decision over new export terminals coincides with a White House rethink of energy policy, aimed to give it an elevated place in US diplomacy. “I’ve got to make an executive decision broadly about whether or not we export liquefied natural gas at all,” Mr Obama said during a trip to Costa Rica. “But I can assure you that once I make that decision, then factoring in how we can use that to facilitate lower costs in the hemisphere and in Central America will be on my agenda.”

America’s natural gas: Should exports be restricted? - America is now the world’s biggest producer of natural gas, thanks to hydraulic fracking and drilling advances. Mark Perry has written that the US has enough gas in reserves to last the next 110 years. Yesterday, the WSJ reported the US may be able to use gas exports to its strategic benefit. Proponents of U.S. gas exports, including current and former lawmakers, say that exporting some U.S. gas would bolster America’s relations with allies in Europe and Asia, weaken the hold of major energy producers such as Russia and help further isolate Iran. .. Even China, whose demand for natural gas is expected to soar in coming decades, could be a market for U.S. gas exports. While exporting natural gas could be an ally-building revenue boon, critics say not so fast. Exporting natural gas could increase its price, putting an end to the low energy prices currently enjoyed by American households and businesses. Should we keep the natural gas or export it? What’s best for the economy and country? While Washington debates, companies are getting in line. From the WSJ: Companies from the U.K., Spain, South Korea and India have signed preliminary contracts to import gas from the U.S. if the government approves export projects. Even countries such as Germany, which have traditionally relied on Russia for gas, have told U.S. lawmakers they are interested in access.

The surprising reason why Obama favors natural-gas exports: For the past year, there’s been a simmering debate in Washington over whether the Department of Energy should approve more terminals to export liquefied natural gas. The country, after all, is newly awash in shale gas. Should we sell it abroad or keep it all for ourselves? The Financial Times reports that President Obama is likely to weigh in on the side of more exports. Why is that? Administration officials reportedly think that the trade and geopolitical benefits of increasing exports outweigh the possible downsides:  A vocal lobby of energy-intensive manufacturers, including Dow Chemical and Alcoa, has urged the administration to limit export permits, arguing unrestricted LNG sales overseas could erode the energy cost advantage created by the shale boom’s cheap gas. However, US officials believe that being seen to restrict exports for the benefit of domestic industry would send a terrible signal about the country’s support for free trade. So what’s the thinking here? A recent report from the Congressional Research Service breaks down some of the key trade issues. Technically, Article XI of the General Agreement on Tariffs and Trade forbids restrictions on exports through quotas and licensing. The United States could conceivably get an exception for natural gas — because it’s a limited, exhaustible resource. But there are good reasons not to seek an exception: restricting LNG exports may put the United States in a contradictory position vis-à-vis cases it has brought to the WTO, specifically against China for limiting the export of rare earths and other metals

Liquefied Natural Gas (LNG) Exports: Friend Or Foe? - U.S. natural gas production is booming. According to the Energy Information Administration (EIA), production grew by 23 percent from 2007 to 2012. Now—with production projected to continue growing in the decades ahead—U.S. lawmakers and companies are considering exporting this resource internationally. But what are the climate implications of doing so? This is a topic I sought to address in my testimony yesterday before the U.S. House of Representatives Energy and Commerce Subcommittee on Energy and Power. The hearing, “U.S. Energy Abundance: Exports and the Changing Global Energy Landscape,” examined both the opportunities and risks presented by exporting liquefied natural gas (LNG). I sought to emphasize a number of points that are often overlooked in this discussion; in particular, fugitive methane emissions and cost-effective options for reducing them.

Arguments against Exporting Natural Gas Don’t Add Up - The energy policy topic of the week is whether to export more of America’s newly abundant natural gas. Like any good card-carrying economist, my instincts favor free trade. Other things being equal, that makes me pro-export. Still, shouldn’t we listen to what the other side has to say? Large users of natural gas are among the most vocal opponents of increased exports. Not surprisingly, they argue that today’s gas prices, still only a little above their historic lows, are a boon for the U.S. economy. Speaking recently to Politico, Andrew Liveris, CEO of Dow Chemical, put it this way: [w]hen natural gas is not solely used as an export, and is used as a building block for manufactured goods, it creates eight times more value across the entire economy. In this way, American’s natural gas bounty is more than a simple commodity. It’s a once-in-a-generation opportunity to export advanced products and not just BTUs. Unfortunately, pointing out that we could use any exported primary good to make advanced products at home instead does not, by itself, tell us much about whether it should be exported. Existing trade patterns suggest that the United States sometimes has a comparative advantage in exporting primary goods and sometimes more highly processed ones. For example, we export more wheat than pasta, but we import primary aluminum and export aircraft. There is no general rule that says exporting advanced products is the path to prosperity.

Low natural gas prices in 2012 reduced returns for some oil and gas producers -- U.S. Energy Information Administration (EIA) Low natural gas prices contributed to reduced returns on equity (ROE), a measure of profitability, for oil and natural gas producers in 2012, according to EIA analysis. Producers with lower proportions of liquids in their total oil and gas production generally had lower ROE in 2012 compared to 2011, and compared to producers with higher proportions of liquids.  Wide differences in natural gas and oil prices affected the bottom line for upstream operators and shaped their decision-making about where and how to deploy capital. In 2012, wholesale natural gas prices in the United States and Canada fell to their lowest levels in a decade. Crude oil prices, on the other hand, remained at historically high levels. Some key findings from the analysis show that:

  • Among U.S. and Canadian oil and natural gas producers whose primary business is in North America, producers with less than 40% of their production in liquids averaged negative ROEs in 2012. Producers with liquids making up more than 40% of their production averaged positive ROEs.
  • During 2011, when natural gas spot prices at the Henry Hub averaged $4.00 per million Btu, 45% above their average level in 2012, producers in all quintiles of the distribution of liquids share of total production averaged positive ROEs.
  • The group of oil and natural gas producers with liquids accounting for more than 80% of their oil and gas production had the highest ROEs in both 2011 and 2012.

Natural Gas Rig Count at 18-Yr Low - In its weekly release, Houston-based oilfield services company Baker Hughes Inc. ( BHI - Analyst Report ) reported a rise in the U.S. rig count (number of rigs searching for oil and gas in the country). This upside can be mainly attributed to an increase in the tally of oil-directed rigs, partially offset by lower natural gas rig count that fell to its lowest level in nearly 18 years.Rigs engaged in exploration and production in the U.S. totaled 1,764 for the week ended May 3, 2013. This was up by 10 from the previous week’s rig count and indicates the first increase in 3 weeks. The current nationwide rig count is more than double the lowest level reached in recent years (876 in the week ended Jun 12, 2009), though it is way below the prior-year level of 1,965. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending Aug 29 and Sep 12. Rigs engaged in land operations ascended by 9 to 1,690, offshore drilling was up by 2 to 51 rigs, while inland waters activity decreased by 1 to 23 units.

No "Peak Natural Gas" Anytime Soon - One does not hear much these days about "peak oil", as new technologies are developed and implemented that, together with market conditions, make feasible the exploitation of previously uneconomical or irretrievable deposits. A new report by the Diplomatic Center for Strategic Studies (DCSS), based in Kuwait, just published, confirms an International Energy Agency report from two years ago, estimating that under present rates of consumption, global supplies of natural gas could last up to 250 years, until the middle of the twenty-third century. The figure is slightly speculative, as it refers to "potential" reserves, such as Chinese shale gas that may or may not be actually recoverable. But it leaves no doubt that the American success with unconventional gas is not just a national but a global game-changer. The DCSS report adds the interesting nuance that natural gas is fairly evenly distributed around the world, and all regions have recoverable resources in sufficient quantity to last at least 75 years, i.e. until the last decade of the present century.

Interview: Energy Investor Bill Powers Discusses Looming Shale Gas Bubble  On Sat., April 27, I met up with energy investor Bill Powers to discuss his forthcoming book set to hit bookstores on June 18. The book’s title – Cold, Hungry and in the Dark: Exploding the Natural Gas Supply Myth - pokes fun at the statement made by former Chesapeake Energy CEO Aubrey McClendon at the 2011 Shale Gas Insight conference in Philadelphia, PA. What Powers unpacks in his book, though, is that McClendon and his fellow “shale promoters,” as he puts it in his book, aren’t quite as “visionary” as they would lead us all to believe. Indeed, the well production data that Powers picked through on a state-by-state basis demonstrates a “drilling treadmill.” That means each time an area is fracked, after the frackers find the “sweet spot,” that area yields diminishing returns on gas production on a monthly and annual basis. It’s an argument regular readers of DeSmogBlog are familiar with because of our recent coverage of the Post Carbon Institute‘s “Drill Baby, Drill” report by J. David Hughes. Powers posits this could lead to a domestic gas crisis akin to the one faced in the 1970′s. We discuss these issues and far more in the interview below.

The Case of the Disappearing Dilbit: How Much Oil Was Released in 2010 Pipeline Spill? - A key piece of data related to the biggest tar sands oil spill in U.S. history has disappeared from the Environmental Protection Agency's website, adding to confusion about the size of the spill and possibly reducing the fine that the company responsible for the accident would be required to pay. The July 2010 accident on an Enbridge Inc. pipeline dumped thousands of barrels of Canadian dilbit into the Kalamazoo River and surrounding wetlands. But almost three years and two federal investigations later, one of the most important questions about the spill remains unanswered: Exactly how much oil spilled from the pipeline? The same question is being asked about a more recent dilbit spill—a March 29 accident on ExxonMobil's Pegasus pipeline in Mayflower, Ark. Estimates for that spill, which is still being cleaned up, have risen from 80,000 gallons to more than 200,000 gallons. Determining the size of an oil spill is important, because every barrel of oil that reaches a navigable waterway triggers a statutory fine of $1,100 per barrel under the Clean Water Act. The fine rises to $4,300 per barrel if a company is proven to have acted with gross negligence.

Arkansas Residents Sick From Exxon Oil Spill Are on Their Own - For more than a month, residents of Mayflower, Ark. have been told not to worry about lingering fumes from a March 29 oil spill that shut down a neighborhood and forced the evacuation of 22 homes. "Overall, air emissions in the community continue to be below levels likely to cause health effects for the general population," Arkansas regulators wrote on a state-operated website that tracks Mayflower's air monitoring data. Despite these reassurances, residents have suffered headaches, nausea and vomiting—classic symptoms of short-term exposure to the chemicals found in crude oil. Much of the attention is focused on airborne levels of benzene, a known carcinogen that is toxic at very low doses. But crude oil also contains hundreds of other chemicals, and for some of these compounds, little is known about their effects on human health. The Arkansas Department of Health says people with dizziness, nausea and headaches have the option to leave, and it is their personal choice.

Protests mount on use of BP Gulf spill funds - A plan to build a convention centre in Alabama using money given by BP to restore the coast of the Gulf of Mexico has angered environmentalists, raising concerns over how funds to improve the environment are spent.The plan is part of projects worth $594m announced last week by BP and the five coastal states affected by the 2010 Deepwater Horizon disaster, funded out of the $1bn that the company promised in 2011 for early restoration of the Gulf. Groups including the National Wildlife Federation have protested that building the convention centre in Gulf State Park in Alabama, justified as a way to improve public access to the natural resources of the coast, will do nothing to repair the damage done by the spill. The controversy is a foretaste of even fiercer disagreements that are likely over the much larger sums expected to flow into the region in damages and penalties following the trial over the disaster at the federal court in New Orleans. The convention centre is planned as part of a refurbishment of the park using $85.5m of BP’s money: the bulk of the $94m spending announced in Alabama last week. It will replace a lodge that was wrecked by Hurricane Ivan in 2004. Robert Bentley, Alabama’s governor, said the centre, which will be built and run by a public-private partnership, would create jobs and generate more tourism in the state.

A Tale of Two Oil States - Texas and California have been competing for years as U.S. growth models, and one of the less discussed comparisons is on energy. The Golden State has long been one of America's big three oil producing states, along with Texas and Alaska, but last year North Dakota surpassed it. This isn't a matter of geological luck but of good and bad policy choices.  Barely unnoticed outside energy circles, Texas has doubled its oil output since 2005. Even with the surge in output in North Dakota's Bakken region, Texas produces as much oil as the four next largest producing states combined. The Lone Star State now pumps nearly two million barrels a day,  Now look to California, where oil output is down 21% since 2001, according to Energy Department data, even as the price of oil has soared and now trades in the neighborhood of $95 a barrel. (See the nearby chart.) This is not because California is running out of oil. To the contrary, California has huge reservoirs offshore and even more in the Monterey shale, which stretches 200 miles south and southeast from San Francisco.

US Oil Production Is Nearly Even With Imports: The amount of oil produced in the U.S., now at a 21 year high, is nearly even with the amount being imported, and the gap is narrowing. The impact of rising U.S. oil production is also showing up rather dramatically in the futures market, where the price spread between higher priced international crude, or Brent, and domestic West Texas Intermediate is also narrowing. The spread was below $7.72 per barrel Wednesday, at its lowest level since December, 2011. "All this oil we're producing is really starting to show up in the spread," said Gene McGillian, analyst with Tradition Energy. "...Reversing pipelines, rail traffic and barge traffic is getting oil to the American refineries." West Texas Intermediate settled at $96.62 per barrel, up $1. Brent finished the day six cents lower at $104.34 per barrel. The spread between the two was more than $20 in February. 

Brent Pressured by U.S. Tripling Crude to Canada.  - U.S. oil exports are poised to reach the highest level in 28 years as deliveries to Canada more than triple, helping bring down the price of the global benchmark Brent crude relative to U.S. grades. The shipments will rise to at least 200,000 barrels a day by the end of the year, according to Ed Morse, head of global commodities research at Citigroup Global Markets Inc. Exports were 59,600 in 2012 and haven’t averaged more than 200,000 since 1985. The U.S. restricts companies from sending American crude abroad, with Canada an exception.  The premium for Brent, used to price European and West African crude, over U.S. West Texas Intermediate narrowed to less than $8 a barrel this week from $25.53 in November.  Exports to Canada doubled in February from a year earlier to 124,000 barrels a day, the highest level since 1999, according to U.S. Energy Information Administration data. Canadian refineries might be able to process “a couple hundred thousand barrels a day” from the U.S., Adam Sieminski, the EIA’s administrator, said in an interview in Houston.

Canadian minister takes fight for oil sands crude to Europe - A European Union plan to label crude from the Alberta oil sands as dirty is unfair and could damage Canada's bid to find new export markets, the Canadian resources minister said at the start of a mission to lobby against the idea. As part of a plan to cut greenhouse gases from transport fuel, the EU's executive commission has developed a Fuel Quality Directive that would single out oil from Alberta's tar sands as more polluting than conventional crude. Canada, whose oil sands are the world's third-largest proven reserves of crude, strongly opposes the move. Natural Resources Minister Joe Oliver, speaking at the start of a week-long trip to Paris, Brussels and London, said the directive should be changed to ensure it does not discriminate against crude from the oil sands. "We think that's critical as an alternative to what we view as a flawed and ineffective approach that's proposed by the commission," he told Reuters in an interview from Paris. Extracting crude from the clay-like Alberta oil sands requires more energy than conventional oil production. Environmentalists say that increases greenhouse gas emissions, making the oil sands a top target for the green movement.

Shell presses ahead with world's deepest offshore oil well - Royal Dutch Shell is pressing ahead with the world's deepest offshore oil and gas production facility by drilling almost two miles underwater in the politically sensitive Gulf of Mexico. The move is being viewed in the oil industry as a demonstration of Shell's confidence that its technology can deliver returns on expensive and risky offshore projects, despite a recent downturn in oil prices. It comes a day after ExxonMobil said it would start work on a $4bn (£2.6bn) project to develop the Julia oilfield, also in the North American ocean basin, and weeks after BP delayed development of its biggest Gulf of Mexico project – Mad Dog Phase 2 – citing rising costs.

OECD Oil Consumption: Here's a slightly more detailed look at OECD oil consumption than last week, based on the EIA monthly data.  Here's the history since 1990, broken down into three major regions (the US, Europe, and everywhere else in the OECD: Japan, Korea, Canada, Anz, etc). Consumption peaked in 2005, fell into the great recession, recovered briefly, and then has been falling slowly again for the last three years. That last fall is at a rate of a little less than half a million barrels a day for each year: The regional decomposition of this decline is telling: US oil consumption is falling; the US economy is growing slowly, but the US is growing more oil efficient faster than that. Europe is contracting economically, and this shows up in sharp falls in consumption. Meanwhile, the rest of the OECD is doing somewhat better economically and it's oil consumption is growing.

Short-Term Non-OECD Demand Trends - The above shows the trend for the major drivers of non-OECD demand in the last few years - China, the rest of developing Asia, the Middle East, and Latin America.  The data come from the IEA Oil Market Report, Table 1.  Adding all these together, there's something like 1.25mb/d of additional demand each year coming from these regions currently.  This can be compared to yesterday's conclusion that OECD demand has been declining at about 400kb/d/yr (substantially fueled by a deep European recession).  Thus overall, the world needs about 800kb/d of additional supply each year to keep things on their current trend.  That hasn't been happening in recent months:

Middle East Oil Markets Contracting - The Iraqi and Libyan governments said they would help Egypt cope with its economic crisis by offering up crude oil exports.  Conflict in Libya and Iraq, meanwhile, has raised questions about their ability to make post-war oil gains. With OPEC members forced to make adjustments to U.S. oil production gains, it may be that retraction isn't just an economic issue anymore. The Egyptian government is trying to secure a $4.8 billion loan from the International Monetary Fund.   The government this week said it would get some relief on the energy front, however, with crude oil promises from Iraq and Libya. Last month, the Libyans said they would give Egypt about $1.2 billion worth of crude on credit. In March, the Iraqi government said it would supply it with about 4 million barrels of oil per month. Libyan oil production is holding steady at a post-war rate of around 1.4 million barrels per day. Civil war in 2011 cut Libya out of the picture. Depsite recent gains, the U.S., British and French governments expressed concern this week that government affairs were falling victim to "armed intimidation" after militias occupied several ministerial buildings. In terms of exports to the United States, a top global consumer, Libya delivered a mere 6,000 bpd in January and nothing in February, the last date for which data is available.

The U.S. has Spent $8 Trillion Protecting the Strait of Hormuz - A group of nine student journalists from the Medill National Security Journalism Initiative have created a website as part of a project to report on the US energy security situation. An incredibly interesting article on the site, and written by Dana Ballout, looks at how oil travels around the world on the seas, and where the vulnerable choke points are. The Strait of Hormuz is the busiest passageway for oil tankers in the world, with over 17 million barrels (or 20% of the total world supply) moving through the narrow stretch of water each day. Disruption to this flow could severely damage global oil markets and so protecting the straits is an important job; and one of the most critical that the US Navy carries out. Roger Stern, a professor at the University of Tulsa National Energy Policy Institute, wrote a study in 2010 in which he estimated that the US had spent $8 trillion on protecting oil cargoes in the Persian Gulf since 1976, when its military presence in the region was boosted following the first Arab oil embargo. This is all despite the fact that only 10% of the oil passing through the straits is actually destined for the US.

OPEC Falling Apart at the Seams - Growing security risks in the Middle East are giving oil companies the jitters. French supermajor Total said recently that it was spending more on security since the January attack on the In Amenas gas facility in Algeria. BP said it had its own concerns, noting it was holding back on natural gas projects in the country because of the security situation there. OPEC-member Algeria has seen production declines in every month so far this year. In a lackluster economy, there hasn't been much from OPEC members to suggest there was any sort of revival. But with seven of the 12 members of the cartel experiencing at least some form of upheaval, the cost of doing business suggests members may need more than a little bit of luck to return to glory. In January, fighters affiliated with al-Qaida stormed the In Amenas natural gas facility in Algeria.  The facility is operated by British supermajor BP, Norwegian energy giant Statoil and Algerian state-owned oil and natural gas company Sonatrach. A four-day operation by Algerian forces left dead more than two dozen militants and 37 hostages, some of them energy company employees. Four months on and energy companies working in the region are expressing concern that the cost of doing business in the region may be too high.

How Resource Limits Lead to Financial Collapse - Resource limits are invisible, so most people don’t realize that we could possibility be approaching them. In fact, my analysis indicates resource limits are really financial limits, and in fact, we seem to be approaching those limits right now. Many analysts discussing resource limits are talking about a very different concern than I am talking about. Many from the “peak oil” community say that what we should worry about is a decline in world oil supply. In my view, the danger is quite different: The real danger is financial collapse, coming much earlier than a decline in oil supply. This collapse is related to high oil price, and also to higher costs for other resources as we approach limits (for example, desalination of water where water supply is a problem, and higher natural gas prices in much of the world).The financial collapse is related to Energy Return on Energy Invested (EROEI) that is already too low. I don’t see any particular EROEI target as being a threshold–the calculations for individual energy sources are not on a system-wide basis, so are not always helpful. The issue is not precisely low EROEI. Instead, the issue is the loss of  cheap fossil fuel energy to subsidize the rest of society.

Chile’s Copper Dependence Casts Shadow Over Its Economy - Chile, Latin America’s most market-friendly economy, is hitting headwinds, driven mainly by its heavy reliance on copper exports. Near-term, China’s economic downshift is the threat. But longer-term, the danger for Chile’s copper complex, and economy, comes from within. Bloomberg News The Middle Kingdom accounts for roughly two-fifths of global demand for the red metal, while about one-third of the world’s copper supply comes from the Andean nation. Copper futures soared just shy of 7% on Friday, thanks to the estimate-beating U.S. jobs data that day. But China matters more for copper prices, and recent disappointing manufacturing growth data out of China (and the U.S.), have fed worries that global copper supply is exceeding demand. That’s why copper, one of the most widely used industrial metals, is still down about 11% so far in 2013. That’s also why Chile, where mining accounts for about one fifth of gross domestic product and copper around three-fifths of total exports, suffers as a result.

China Services PMI Slows to Marginal Rate of Growth - Fresh on the heels of a report that shows China Manufacturing PMI barely Above Contraction comes news the Chinese service sector is following suit.  The Markit China Composite PMI shows Activity growth eases across both the manufacturing and service sectors in April. Key Points:

  • Composite data signals slower activity and new business growth in April
  • Total employment falls for first time since last October
  • Both input prices and output charges decline at the composite level
HSBC China Composite PMI™ data (which covers both manufacturing and services) signalled an expansion of output for the eighth consecutive month in April. However, the HSBC China Composite Output Index signalled only a marginal rate of growth, posting at 51.1. This was down from 53.5 in March, suggesting that the rate of expansion was the weakest since last October. Behind the weaker expansion of total output was a slower rate of new order growth in April. Both the manufacturing and service sector posted modest rates of expansion that were weaker than in March. Overall, new order growth at the composite level was the slowest in seven months. 

Chinese Growth - Real Or Imagined? - As we recently noted, it is actually unlikely that China can complete this transition to organic (as opposed to investment-led) growth (with moderate growth the exception not the rule), and China's recent trade data does not pass the smell test. As GREED & Fear's Chris Wood notes, with the Hong Kong trade data being released last week, it is worth noting a growing discrepancy between the data on China’s exports to Hong Kong reported by mainland’s customs department and the corresponding data on Hong Kong’s imports from China reported by Hong Kong’s Census and Statistics Department in March. Such inconsistency in China’s export numbers relative to the imports data from its trading partners has generated growing speculation about the credibility of China’s trade figures. Various explanations have been put forward (below) but the divergence would seem far too large to be simply explained by "different statistical methods" as the Chinese government's official line notes.

Feedback loops - Pettis - Early this month Martin Wolf had another of his very interesting articles, this time on China, which I think suggests some of the concerns we must have about the upcoming adjustment. Wolf argues 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. I of course agree. Over the next decade, China’s growth will slow, probably sharply. That is not the view of malevolent outsiders. It is the view of the Chinese government. The question is whether it will do so smoothly or abruptly. On the answer depends not only China’s own future, but also that of much of the world. Wolf had to stress that it is not just “malevolent outsiders” who predict slower Chinese growth. You would think that identifying risks in the Chinese growth model and suggesting ways to minimize or hedge them would be considered a service to China. But for some reason in China there is a very vocal minority that considers any skepticism about the sustainability of the Chinese growth model to be either an insult to the Chinese people or a malevolent foreign conspiracy. The extent of this rather surprising rage may suggest a level of fragility in China’s social fabric and its self-confidence that could make any slowdown more difficult to manage, but this is a digression. My point in bringing up Wolf’s article is not to play amateur national psychologist but rather to suggest something about the process of shifting to a new growth model.

Local governments borrow heavily for stimulus plans - In spite of escalating debts, some local governments have recently unveiled economic stimulus packages totaling more than 20 trillion yuan ($3.24 trillion). At the end of last month, the People's Government of Zhejiang Province announced a massive investment blueprint for next five years, funding more than 1,000 major construction projects as a way to boost the economy. The government said it expected fixed-assets investment to reach 10 trillion yuan, almost three times as much as the province's gross domestic product (GDP) last year of 3.36 trillion yuan. Taken together with the stimulus plans launched by other governments, including Sichuan, Shanxi provinces and Guangxi Zhuang Autonomous Region, so far the total amount of local government stimulus packages is more than 20 trillion yuan, about 40 percent of the 2012 GDP of the world's second largest economy.

Divorces of (Real-Estate) Convenience in China -  Recent regulations in China intended to tamp down real-estate speculation have had an unintended consequence of separating happily married couples to take advantage of better tax benefits accruing to single persons: Long queues of happy couples waiting to get married might be a common sight in Las Vegas. But lines of happily married couples waiting to get divorced? Only in China. In major cities across the country last month, thousands of couples rushed to their local divorce registry office to dissolve their marriages in order to benefit from fast-expiring tax breaks on property investments for unmarried individuals. Local media reported long waits at registries in Beijing, Shanghai, Guangzhou and elsewhere as savvy investors sought to buy or sell a second home before the government introduced strict new regulations that would force married homeowners to pay hefty taxes on the sale of second properties. The new regulations are designed to cool speculation in China’s feverish property market and are part of a package of measures that would require couples to pay up to 20% capital gains tax on the sale of second homes. But for determined investors, nothing gets in the way of a good bargain, and some quickly noticed that the 20% impost didn’t apply if the second home was bought before the couple were married — or after they got divorced.

China caught a developed nations' disease - weak credit transmission - China is awash with liquidity. New domestic bank loans have seen some of the strongest growth in years and broad money supply is increasing at nearly 16% per year. Furthermore, property loans have risen 16.4% from the previous year to 13 trillion yuan ($2 trillion). The increased liquidity is now visible in China's money markets, with short-term interbank rates declining in recent months.Capital is also pouring in from abroad as investors attempt to escape the zero-rate environments many developed nations are facing. The demand for yuan has been quite strong, driving CNY to new record highs. In the past, improved credit/liquidity conditions would result in stronger economic activity, particularly in manufacturing. That's no longer the case.It seems that China has caught a developed nations' disease in which stimulus no longer translates into improved growth. As was the case in the Eurozone (see discussion), China is suffering from what economists call "weak monetary transmission", a condition in which credit/liquidity is not getting to the areas of the economy where it's most needed (and in some cases there is simply no demand for credit).

China’s Economy Unexpectedly Stumbles Again - After a powerful recovery through the autumn and winter from a V-shaped downturn last summer, China’s economy is unexpectedly faltering once again. Exports are weak. The country’s domestic economy is still growing mostly because of huge increases in lending by state-controlled banks and a surge in off-balance sheet lending. Consumer spending is rising, but not fast enough to offset weakness in other sectors. That combination has prompted growing concerns among economists and business executives about the sustainability of even 7.5 percent growth in China in the coming years, the government’s current goal after three decades of double-digit growth with only a few interruptions. The latest sign of trouble came on Wednesday, when China’s General Administration of Customs announced export and import figures for April. On the surface, they looked fairly respectable: exports were up 14.7 percent from a year earlier, and imports were up 16.8 percent.  But April 2012 was an exceptionally bad month for Chinese exports and imports — indeed, dismal trade statistics for that month were the first sign that economic weakness during the preceding winter was turning into a precipitous decline.

Chinese trade stats goosed by hot money - ANZ offers  a useful guide to why Chinese trade numbers are getting whack: China’s trade growth remained strong in April, following a surge in the past two quarters. Today’s trade data also defies the weak trade data reported in other regional economies, suggesting capital inflow imbedded in trade remains unchecked. Meanwhile, the port throughput data remained soft for the past few months, suggesting that the real demand has not yet fundamentally recovered. The inconsistency between port throughput and the headline trade growth shows that many Chinese exporters could have over-invoiced their trade value to take advantage of the interest rate differentials between onshore and offshore markets, and the RMB’s steady appreciation since July last year. China’s FX regulator recently posted a new regulation (effective on 1 June) to crack down on these speculative capital inflows embedded in trade, which may help China’s trade growth return to its true level. In our view, the RMB exchange rate should see weakening bias going forward if the ‘hot money’ inflows were under control. We reiterate our view that an overly strong RMB, especially amid a weak economic recovery and a sharp yen depreciation, is not in China’s interests. If it is the strong RMB that attracts such speculative capital inflows, the PBoC will need to de-peg with the USD and return to its exchange rate policy back to referencing to a basket of currencies.

Beijing cracks down on hot money inflows for bets on yuan appreciation - The mainland's currency regulator has stepped in to restrain corporate borrowing in US dollars and crack down on hot money inflows under the guise of trade as the yuan's appreciation gains momentum. In a circular to commercial banks the State Administration of Foreign Exchange (SAFE) introduced for the first time a minimum net open position in US dollars, restricting banks' capacity to lend in the greenback. After a 1 per cent rise by the yuan against the dollar so far this year, many companies have borrowed in US dollars, converted them into yuan and bought into yuan-denominated assets, waiting for the Chinese currency to strengthen further. The tightening measures also include stricter scrutiny of importers and exporters who channel in money disguised as trade bills. This comes after surprisingly high export figures in the first two months of this year generated suspicion about false trade invoicing. HSBC economists said in a research note yesterday that the measures "suggest a level of tolerance [by the regulator] over the nature of renminbi appreciation has been breached, following a strong run for the yuan".

"Addressing China’s macroeconomic imbalances through sectorial reforms" -- It has been long argued that correcting microeconomic distortions in countries with persistent current account imbalances is a central precondition for global macroeconomic rebalancing. For China, a country with a persistent current account surplus, it has been frequently claimed that the surplus derives from microeconomic or sectorial distortions that have led to excessive saving. Although China’s current account surplus, which was a remarkable 10.1% of GDP in 2007, has come down to 2.6% in 2012 (Figure 1), the narrowing of imbalances appears to be rather cyclical than structural; it seems to be driven by a decline in external demand and a boost of public investment rather than by changes to the country’s perennial development model. As a response to the outbreak of the Global Financial Crisis, the Chinese government launched a huge stimulus program amounting to RMB 4 trillion (US$ 586 billion) in November 2008. Further fiscal and monetary stimulus followed in response to the anemic international demand due to the Great Recession in the U.S. and the debt crisis in Europe. As a consequence, China’s fixed investment rate increased from 41.7% of GDP in 2007 to about 48% in 2012, while the savings rate remained above 50% of GDP throughout (Figure 2), thereby shrinking the current account surplus.

China, yuan to really do this? - China’s State Council has announced intentions to carry out some potentially quite big reforms. From Bloomberg: China signaled it will propose plans this year to allow freer flows of its currency in and out of the nation as part of measures to loosen control over the yuan and interest rates. The plan on yuan capital-account convertibility will also include a way to let individuals make overseas investments, the State Council said in a statement yesterday after a meeting led by Premier Li Keqiang on the focus of economic reforms in 2013. Other measures include improving controls on risks from local- government debt, expanding trials of value-added taxes on companies and pushing forward changes to the country’s household-registration system. Wow! That’s quite a list. Chinese officials have been talking about a 2015 goal for “full yuan convertibility” since at least late 2011, but many sceptics have noted that this can’t really happen while (for example) the yuan trades within a still-narrow band, or while lending and deposit rates are still tightly controlled. If these reforms were delivered in full, it would be a big step towards removing the financial repression that has kept Chinese households’ share of economic growth relatively low, which in itself is a key contributor to the imbalanced economy.

The most important story in global economics - The most important economic story that people aren’t paying attention to this week is coming out of China. The nation’s powerful State Council said it will move to open its borders to the freer flow of capital. At present, there are strict limits on the ability of, say, a U.S. company to convert dollars to the Chinese currency in order to build a factory, or of a Chinese citizen to convert yuan to euros to invest in the German stock market. The State Council says plans for changing that will be unveiled this year. The new endorsement of liberalizing capital controls accompanies a related move, underway since June 2010, to allow the Chinese currency to rise in value relative to the dollar, something long-sought by the U.S. government and a sign that China has been shifting toward policies that put the value of its currency more in line with market fundamentals.  Put it together, and the new Chinese government that took power at the end of last year is sending signals on all fronts that it is proceeding—in its measured, careful way—with liberalizing China’s financial system. That is no small thing.  It helps answer one of the great questions for the future of the world. Namely, what sort of economic power will China be?

China to Switch Sides (of the Trilemma)? - At Wonkblog, Neil Irwin rightly points out that China's announced intention to liberalize financial flows by making it easier to convert renminbi into foreign currency is a big deal.  He writes:  China is essentially weighing a trade-off.  A transition to a freer, more market-based financial system could pack many advantages, including a more efficient system of funneling savings into productive investment, more reliable savings vehicles available for its citizens, and advantages for Chinese companies as they do business across Asia and beyond. But getting those advantages will come at a price. It means pivoting away from an export-led growth strategy that has been wildly successful over the last generation and has benefited from an artificially low yuan. It leaves China with greater risk of volatile capital flows that have created booms and busts, and bursts of inflation, in many other emerging economies over the years.   As Greg Mankiw explains, the international finance "trilemma" (or "impossible trinity" for those who think "trilemma" sounds too silly) implies that a country cannot simultaneously have (i) free capital mobility (financial flows) (ii) a fixed exchange rate and (iii) monetary policy autonomy.  That is, on this diagram, all countries must choose a side:

China may not overtake America this century after all - Doubts are growing about whether China can pass the US to become the world's biggest economy this century amid warnings that the country’s 30-year miracle is nearing exhaustion. Mr Li aims to cut China's economic growth to a safe speed limit of 7pc next year and rein in rampant investment – still a world record 49pc of GDP – before it traps the country in a boom-bust dynamic of frightening scale. Vested interests are conspiring to stop him, launching a counter-attack from their power-base in the $6 trillion state industries. Even so, uber-growth is surely over. China's catch-up spurt has a few more years to run in the Western hinterlands perhaps, but when the full story comes out we may find that nationwide growth has already fallen below 7pc. Mr Li complained in a US diplomatic cable released on WikiLeaks that Chinese GDP statistics are "man-made", confiding to a US diplomat that he tracked electricity use, rail cargo, and bank loans to gauge growth. For a while, analysts use electricity data as a proxy for GDP but the commissars kept a step ahead by ordering power utilities to fiddle the figures.

Finance and growth in China and India: Have firms benefited from the capital-market expansion? - The growth of China and India’s financial sectors is hard to ignore. This column presents a new dataset on domestic and international capital raising activity and performance of the publicly listed firms in China and India. The data suggest that expanding capital markets might tend to directly benefit the largest firms – those able to reach some minimum threshold size for issuance. More widespread direct and indirect effects are more difficult to elucidate.

India’s new China war - Under cover of night last month, a platoon of People’s Liberation Army soldiers hiked across barren mountains and set up camp in the foothills of the Himalayas, one of the most inhospitable places on earth for a bivouac. But it wasn’t just an exercise in high-altitude preparedness. The Chinese camp was 19 kilometres on the Indian side of the Line of Actual Control (LAC), which separates Ladakh in the state of Jammu & Kashmir from Aksai Chin. The border here has never been demarcated and remains a thorn in Beijing’s side. A Foreign Ministry spokesman insisted the soldiers were still in China. The incursion comes as Beijing is on an imperialist expansion kick. It is already embroiled in territorial disputes with neighbours like Japan and the Philippines over islands, and mineral and fishing rights. It recently started cruises to to the Paracel Islands, which is claimed by Vietnam. Now, the latest land grab, which has passed almost unnoticed in the western press. But it has raised alarm bells in New Delhi, brought protesters out onto the streets and recalls alarming memories of 1962, when the two countries fought a short-lived war triggered by border disputes, and a standoff in 1986.

For India’s poor, a school under a railway bridge - India's Right To Education Act promising free, compulsory schooling to all children ages 6 to 14 was supposed to take full effect March 31, but millions of children still don't go to school and many who do are getting only the barest of educations. Those who also attend government schools say classrooms there are packed and that teachers, when they show up, just come in, write a problem on the board, and leave. So every morning, more than 50 children gather under the bridge for two hours of lessons at Rajesh Kumar's informal school. They sweep the dirt flat and roll out foam mats to sit on, just meters (yards) from the bushes were several men had been squatting and defecating minutes earlier. The students, ages 4 to 14, study everything from basic reading and writing to the Pythagorean Theorem.

Everybody Lives in Asia - This map submitted by Reddit user valeriepieris has been making the rounds on Twitter, and not only does it look cool, it underscores the fundamental truth of 21st-century economics—everyone lives in Asia. We had an approximately 200-year span in which an enormous amount of economic growth and geopolitical influence were located in Western Europe and its colonies in North America, but it's still the case that people mostly live in Asia. So now that all the countries inside the circle are politically independent and only a handful of them are still governed by totally insane ideologies, we should expect most of the action to happen where most of the people are. That means most of the manufacturing, but also most of the innovation and most of the popular culture. Both the producers and consumers of everything live over there. Bad government inside the circle can stall the catch-up process, but outsiders can't force Asian countries to be poorly governed.

Welcome to the post-BRIC world -  In 1980, China and India together accounted for less than 5% of global output. Last year, the two were responsible for over 20% of world GDP. The transition from the one figure to the other was responsible for massive and highly disruptive changes across the global economy. The world trade order has been stood on its ear. The movement of hundreds of millions of new workers into global labour markets has had an enormous impact on real wage growth and real interest rates and, consequently, on innovation and investment. The strain on supplies of all sorts of goods and resources, from oil and gold to wine and art, has generated wild price gyrations and remarkable economic knock-on effects in producing and consuming countries.It is this era of major and disruptive economic transformation that seems to be at an end. BRIC growth rates are slowing. In China's case, that seems to be at least partly due to maturation (in several senses). Rapid, resource-intensive, investment-led growth is giving way to a more consumption and services oriented economy. And China's workforce is aging and shrinking. in India, the pace of reform looks inconsistent with double-digit growth rates, and Brazil and Russia may struggle as the supply response to high commodity price erodes the value of their economic cash cows. In 2012, according to IMF data, the sum of the growth rates of China and India stood at its lowest level in just over 20 years.

Inflation is falling everywhere - The trend is consistent with what appears to be a spring slowdown in global growth. It’s probably worth noting that the wild fluctuations in the headline rate have had only a muted impact on core inflation in the past decade. Just something to keep in mind when you start hearing calls for policy action at the first hint of commodity price gyrations. Capital Economics writes that there is divergence among some of the bigger emerging economies, with India and Brazil headed in opposite directions, but across the developed world the story is similar (though Japanese inflation expectations are heading higher, and are now above the eurozone’s, by one popular market measure):

Uneven Global Growth Suggests Fragile Recovery - FRB Dallas - Uneven growth across countries is contributing to a fragile recovery, with some short-term risks easing and the focus shifting toward medium-term risks. With the euro-area crisis remaining a pressing risk to the global economy, developments in the region are closely watched. Interest has also shifted to Japan, where a new round of quantitative easing has begun. The world economy is expected to grow at a moderate 3.3 percent rate in 2013, revised down from the January forecast of 3.5 percent from the International Monetary Fund (IMF). The outlook for 2014, however, appears more solid, with global growth accelerating to 4 percent. Emerging economies continue to bolster world growth as advanced economies lag behind (Chart 1). Other indicators of economic activity are mixed and suggest unbalanced growth for 2013. The March global composite Purchasing Managers Index (PMI), which includes manufacturing and services, increased slightly to 53.1 from 52.9 in February, while the global manufacturing PMI decreased to 50.5 in April from 51.2 in March. The global softening in manufacturing indicated by the PMI numbers seems to have reached the U.S. and major emerging economies such as China, which are inching even closer to the expansion–contraction level of 50. China’s economy slowed to 7.7 percent growth in first quarter 2013. China’s official manufacturing PMI fell modestly to 50.6 in April from 50.9 in March. Manufacturing PMI numbers also declined in Brazil, Russia and India. The Institute for Supply Management’s manufacturing index in the U.S. dropped to 50.7 in April, from 51.3 in March, erasing almost all of the gains of the PMI in the first quarter. However, the U.S. still posted real GDP growth of 2.5 percent.

Canadian Government Establishes Two-Tier Approach for Trade Talks: Insiders and Everyone Else: As the future of the proposed Canada-European Union Trade Agreement becomes increasingly uncertain -- the EU has been unwilling to compromise on the remaining contentious issues leaving the Canadian government with a deal that offers limited benefits and significant costs -- the Trans-Pacific Partnership Agreement (TPP) is likely to emerge as the government's new top trade priority. The TPP has rapidly become of the world's most significant trade negotiations, with participants that include the United States, Australia, Mexico, Malaysia, New Zealand, Vietnam, Japan, and Canada. There is a veil of secrecy associated with the TPP, however, as participants are required to sign a confidentiality agreement as a condition of entry into the talks. Despite those efforts, there have been occasional leaks of draft text that indicate the deal could require major changes to Canadian rules on investment, intellectual property, cultural protection, procurement, and agriculture.

Japanese Movement Against TPP Growing - This Real News Network video on resistance to the Trans-Pacific Partnership in Japan explains some implications of TPP for health care policy, but also gives a glimpse of how our post-national global elites would like the nature of the State to change. Of course, the TPP negotiations are secret, which cannot but give the impression that TPP’s advantages are not likely to be readily apparent to the citizens who putatively give sovereign states their legitimacy. So, although US discussions have focused mainly on content and intellectual property issues, it would seem that the powers that be have bigger fish to fry.

Really? One Basis Point?, by Tim Duy: Bloomberg has a story with an ominous opening paragraph: Bank of Japan Governor Haruhiko Kuroda’s stimulus policies are backfiring in the housing market, where mortgage rates are rising even as the central bank floods the financial system with cash. Lions, tigers, and bears, oh my! The next paragraph: Fixed 35-year home-loan costs rose to 1.81 percent this month, the first increase since February and up from an all-time low of 1.8 percent in April, according to data compiled by the Japan Housing Finance Agency.  Seriously? The case against Kuroda is that after declining since February, mortgage rates climbed a whole basis point? And Kuroda is expected to accomplish in a few months what took Bernanke five years? And I thought I could be a harsh critic of central bankers! Hopefully this is just a typo; I can't seem to locate a time series of the 35-year mortgage rate in Japan. Otherwise, one might be tempted to conclude that the reporters were biased against Abenomics.

Japan Corrects GDP Figure After Economist Points Out Error - The Cabinet Office said this week that there were errors in the gross domestic product data for the October-December quarter, first released in February then revised in March. While it wasn’t mentioned in the Cabinet Office media release, officials confirmed that the error was first detected by a private-sector economist. Dai-ichi Life Research Institute chief economist Yoshiki Shinke published a report on Tuesday morning noting the error. The Cabinet Office corrected it later in the day. The Cabinet Office said the nation’s nominal GDP during the period contracted by an annualized pace of 0.5% from the previous quarter, instead of the 1.3% shrinkage it previously reported. That was a result of an error in the trade deficit. The initial data had incorrectly reported a larger deficit.

The Moral Equivalent of Space Aliens - Paul Krugman - To almost everyone’s surprise, Japan — Japan! — has emerged as the advanced country most willing to break with austerian orthodoxy and try a combination of aggressive monetary and fiscal stimulus. The verdict on Abenomics is, of course, still out, although early indications are good. But how did this happen? David Pilling , writing in the FT, suggests that it was the double shock of the 2011 tsunami and China’s overtaking of Japan as the number 2 economy by market value. These shocks, he argues, broke through the fatalism and convinced the Japanese elite that something must be done. Long-time readers know that I once joked that what we needed in America was a fake threat from space aliens, which would jolt us into action on stimulus; if the aliens were later revealed as a hoax, no matter. Well, it looks as if Japan has found the moral equivalent of space aliens. Good for them.

Land of the Rising Sums - Paul Krugman - The good news for Abenomics keeps rolling in; of course, it’s not over until the sumo wrestler sings, but there has clearly been a major change in Japanese psychology and expectations, which is what it’s all about. Why does this seem to be working as well as it is? Long ago I argued that to gain traction in a liquidity trap, the central bank needed to credibly promise to be irresponsible — that is, convince investors that it would not rein in monetary expansion once the economy was at full employment and inflation was starting to rise. And this is a hard thing to do; no matter what central bankers may say, history shows that they often revert to type at the first opportunity. The examples of successful changes in expectations tend to involve drastic regime changes, like FDR taking us off the gold standard. And this is where the tsunami-China moral equivalent of space aliens theory comes in: arguably, the shocks of the past two years have changed Japanese perceptions of what must be done enough to make irresponsibility — or, actually, a serious, sustained commitment to higher inflation — credible, at long last.

Japan PM's 'stealth' constitution plan raises civil rights fears  - Shinzo Abe makes no secret of wanting to revise Japan's constitution, which was drafted by the United States after World War Two, to formalize the country's right to have a military - but critics say his plans go deeper and could return Japan to its socially conservative, authoritarian past. Now he is seeking to lower the hurdle for revising the constitution as a prelude to an historic change to its pacifist Article 9 - which, if strictly read, bans any military. That would be a symbolic shift, loosening restrictions on the military's overseas activities, but would have limited impact on defense as the clause has already been stretched to allow Tokyo to build up armed forces that are now bigger than Britain's. Sweeping changes proposed by Abe's Liberal Democratic Party (LDP) in a draft constitution would strike at the heart of the charter with an assault on basic civil rights that could muzzle the media, undermine gender equality and generally open the door to an authoritarian state, activists and scholars say."What I find strange is that although the prime minister is not that old, he is trying to revive the mores of his grandfather's era,"

Vital Signs Chart: Dollar Stronger Against Yen The greenback is rising against the yen, having strengthened 15% this year amid loosened monetary policies by the Japanese central bank aimed at spurring economic growth. One U.S. dollar now buys ¥99.33, near its recent high of ¥99.78 a month ago. A weaker yen helps Japanese manufacturers by making Japan-made products less expensive in the local currencies of overseas markets.

Japan’s yen crosses the 100 milestone - Anyone who doubts the power of the Bank of Japan’s printing press need only look at the spectacular fall of the Japanese yen over the past five months. Since Christmas day 2012, when Shinzo Abe, the new Japanese prime minister, intimated that he would lean on the Bank of Japan to pursue a very much more expansionary monetary policy, the Japanese yen has depreciated by more than 20% against the US dollar. And today the yen breached the psychologically important 100 yen to the US dollar barrier, which suggests that the Japanese yen has a lot further to fall. Fueling this spectacular currency depreciation is the Bank of Japan, which is now printing money and will continue to print money over the next eighteen months at a rate that makes the Federal Reserve’s money printing pale. The Bank of Japan’s money printing seems to be an unalloyed short-term boon to the Japanese economy. The Japanese equity market is the best performing major equity market this year, which is lifting Japanese consumer sentiment. Meanwhile, Japanese exports are receiving a huge boost from a cheap currency, which is providing a much-needed fillip to a flagging Japanese economy. Most important of all, a rapidly depreciating Japanese yen is now providing real hope that Japan can extricate itself at last from its deflationary trap.

Japanese Government Bonds Halted Limit Down; Yields Spike To 10 Week High; Worst Day In 5 Years - Prime Minister Shinzo Abe is playing not with matches but with dynamite with his 2% inflation mandate widely known as "Abenomics". So far, Abe's policies are popular (at least from exporters), yet I caution once again "Be Careful of What You Ask, You May Get It". There is no reason at all to believe Japan can easily contain this mess given should inflation get out of hand. A mere rise in interest rates to 3% would consume Japan's entire tax revenue just on interest on its national debt.This will not end well for Japan.

G7: US warns Japan to stick to rules on currency - Japan is pushing the boundaries of international agreements to avoid competitve currency devaluations, the US Treasury Secretary has warned, as the International Monetary Fund said unprecedented monetary easing could lead to a "serious boom and bust". Jack Lew said that Japan had "growth issues" that needed to be addressed, but that its attempts to stimulate its economy needed to stay "within the bounds" of international agreements to avoid competitive devaluations. "I'm just going to refer back to the ground rules and the fact that we've made clear that we'll keep an eye on that," Mr Lew told CNBC. The yen sank to a fresh four-year low against the dollar on Friday, a day after it pushed beyond the psychologically important 100 yen mark. Kathleen Brooks, research director at, said that it would "take an almighty dollar negative event" to push the dollar back below the 100 level. The dollar weakened slightly to 101.37 yen after a closely-watched speech by US Federal Reserve chairman Ben Bernanke on Friday made no mention of the central bank's plan to taper quantitative easing purchases, but managed to told on to yesterday's gains. Japan insisted its tumbling currency would not be a hot topic at the G7 meeting of finance chiefs in London this weekend, despite revived rhetoric about a currency war.

South Korea Joins Global Currency War, Cuts Rates In Response To Abenomics - Kenya, Australia, Poland and now South Korea. The country, whose net exports represent nearly 60% of GDP, and which have been deeply impacted by the recent collapse in the Yen, finally threw in the towel overnight and cut the benchmark seven-day repurchase rate from 2.75% to 2.50%, as only 6 of 20 economists predicted. The reason the move was surprising is that just like China, which overnight reported CPI of 2.4% on expectations of 2.3%, the country still has pent up inflation concerns, however it appears that preserving economic growth and its export potential is more important to the country bordered by North Korea, than price stability. The result of this largely unexpected move is a strengthening in the Yen overnight, if only by some 30 pips in the USDJPY.

Brazil’s High Hopes for Its Man at the WTO - Officials from Brazil, a country that has engaged in perhaps more than its fair share of protectionist policies, aren’t downplaying their delight that one of their own was chosen to be the next director-general of the World Trade Organization. They may want to temper their enthusiasm. The Doha Round of global trade talks has essentially gone nowhere since it first started in late 2001, stalled by contentious issues such as cutting industrial goods tariffs, farm subsidies, liberalizing services and coming to terms on intellectual property rights. In mid-2011, an agreement among WTO members to drop those issues and focus on what members supposedly could agree to, a “Doha-lite”, was expected to lead to a deal by the end of that year. It didn’t happen. Disputes between developing and developed countries continued to linger, hampering progress ever since.

Companies ‘cook the books to meet tough targets’: survey (Reuters) - Hard-pressed company bosses across much of the world are under so much pressure to deliver on growth that many have resorted to cooking the books, Ernst & Young ERNY.UL says in its latest Fraud Survey published on Tuesday. One in five of almost 3,500 staff quizzed in 36 countries in Europe, the Middle East, Africa and India said they had seen financial manipulation in their companies in the last 12 months, the accounting and consultancy firm said. In addition 42 percent of board directors and top managers surveyed said they were aware of "some type of irregular financial reporting". And despite scandals and regulatory failures in the wake of the credit crunch, almost a quarter of top financial services staff surveyed said they were aware of manipulation and almost 10 percent of all staff said their companies had understated costs, overstated revenues or used unprincipled sales tactics. Meanwhile, almost half of the sales staff surveyed across all sectors did not consider anti-corruption policies to be relevant and more than a quarter thought it acceptable to offer personal gifts or services to win or retain business.

How to make factory conditions better - April’s factory collapse in Bangladesh, which killed more than 400 people, has renewed public debate over working conditions in the developing world: How can dangerous and debilitating factory work be improved? For more than a decade, MIT political scientist Richard Locke has studied that question. Locke has made hundreds of visits to factories around the world, heading a team of researchers who have been collecting an unprecedented amount of information from companies. For years, Locke thought that the answer might lie in private policing: multinational firms auditing the factories where their suppliers produce goods, noting safety violations, and threatening to withhold business from those suppliers. But in recent years Locke has changed his view. Private oversight, he thinks, is not enough to eliminate workplace dangers, excessive hours, child labor and poor wages. Governments, he says, must set and uphold better factory standards as well. “The dominant approach to trying to fix these issues, the private-compliance approach, didn’t work, systematically,” says Locke, who is head of MIT’s Department of Political Science and deputy dean of the MIT Sloan School of Management. “It’s better than nothing, but it wasn’t leading to a significant and sustained improvement in working conditions or enforcement of labor rights in any of the supply chains that we studied.”

Better Safety in Bangladesh Could Raise Clothing Prices by About 25 Cents - The Rena Plaza incident is officially the worst disaster in the history of the global clothing industry, and it renewed calls for improved safety protections and building code standards in Bangladesh -- a country that owes much of its recent economic growth largely to low-wage clothing work.  The dangerous conditions have been partly blamed on price-conscious businesses, some of whom go with the cheapest and often least-safe local suppliers at the expense of protections for workers. After a November fire that killed 112 workers, brands like Wal-Mart, Gap, and H&M refused to sign a new union-proposed safety plan, which would have introduced more rigorous safety inspections, saying it was "not financially feasible."  That price pressure comes from consumers, too, though. "It bothers me, but a lot of retailers are getting their clothes from these places and I can't see how I can change anything," "They definitely need to improve, but I'll still shop here. It's so cheap."  This consumer cognitive dissonance raises the question: just how much more expensive would our clothes get if factories in Bangladesh were safer?

Technology as a Driver of Growth (or Not) - Last week, while I was doing reporting for my column about the economic impact of digital technologies, I had a chat with Astro Teller. Mr. Teller runs Google X — Google’s incubator of crazy futuristic technologies like self-driving cars. He has little patience for techno-skepticism. Who cares if digital services don’t show up much in official statistics of gross domestic product? If you want to measure the economic importance of the Internet, he suggested, just try to imagine what would happen to the economy if the Internet were to vanish tomorrow. This may not be the best measure of technology’s contribution to social welfare. But it raises a crucial point. The impact of a technological innovation depends on how deeply it embeds itself in everything we do.  Earlier this month, a couple of economists at the Harvard Business School and the Toulouse School of Economics in France produced a paper asking “If Technology Has Arrived Everywhere, Why Has Income Diverged?” Economic prosperity, they noted, is ultimately driven by technological innovation. So if technologies today spread much more quickly than they used to from rich to poor countries, how come the income divide between rich and poor nations remains so large?

What is a Job Guarantee? - This is a background blog which will support the release of my Fantasy Budget 2013-14, which will be part of Crikey’s Budget coverage leading up to the delivery of the Federal Budget on May 14, 2013. The topic of this blog is the concept of employment guarantees as the base-level public policy supporting a return to full employment in Australia. We introduce the specific proposal – the Job Guarantee. In the next background blog we will see how much the Australian government needs to invest to make this policy improvement possible. The recent background blogs (see links above), I provided some perspectives on how much capacity for real expansion currently exists in Australia. While these exercises involve considerable judgement, there is little doubt that there is significant idle capacity in the Australian economy.

Investing in a Job Guarantee – how much? - In previous background blogs I have estimated the output gap to be around 4 per cent or $A60 billion on an annualised basis.In the last background blog I proposed that the first step to closing that gap should be for the federal government to introduce a Job Guarantee, an open an open-ended public employment program that offers a job at a living (minimum) wage to anyone who wants to work but cannot find employment. The question I posed was this: Can we create enough jobs within the estimated output gap so as not to push nominal expansion beyond the real capacity of the economy to absorb it? In this blog I will show you how that is possible.

Australia faces decade of debt, economists warn - AUSTRALIA faces at least a decade of debt until the billions in borrowings under Labor can be wiped from the Budget books, according to economists. Treasurer Wayne Swan declined to comment yesterday on when he thought the current $144 billion net debt level could be repaid while shadow treasurer Joe Hockey would only say reducing debt was a "medium-term'' proposition. The Howard government took 10 years to pay down the $96 billion net debt inherited from Labor in 1996. CommSec chief economist Craig James yesterday said circumstances could change quite dramatically, such as if China ramped up again, but that surpluses still looked three or four years away at best. "And then you have to look at using those surpluses over a number of years,'' he said. "Conservatively we are looking at 10 years.''

Australian Central Bank Cuts Key Rate to Historic Low - The Australian central bank dropped its key interest rate to a record-low 2.75 percent Tuesday, becoming the latest central bank in recent weeks to try to stimulate growth. Few analysts had expected the central bank, the Reserve Bank of Australia, to deliver a rate cut at its policy meeting, and the reduction, by a quarter of a percentage point, prompted the Australian dollar to decline about half a cent against the U.S. dollar, to $1.019. In a statement accompanying the rate decision, Glenn Stevens, the central bank’s governor, struck a sanguine note about the global economy, saying it was “likely to record growth a little below trend this year before picking up next year,” with the United States currently on a path of moderate expansion and China’s growth running at a robust pace. And although commodity prices — which are important to resource-rich Australia — have moderated in recent months, they “remain high by historical standards,” he added. Still, unemployment has edged up despite a string of rate cuts in recent years, and investment in mining, a major source of economic activity, is projected to peak this year.

Lessons in monetary policy – Use it or Lose it - Surprise! Economists mostly failed to predict that the Reserve Bank of Australia would cut rates to a record low of 2.75 per cent at its monthly meeting today. Yep, lower than during the height of the financial crisis — another sign that we’re living in different times now. Central banks like to be able to surprise, but what caught the forecasters (less so the rates markets) unaware was the cut coming after little sign of serious deterioration in the economy. Sure, there has been little positive news but not many negative shocks either – Monday’s retail sales data, which was nowhere near as bad as painted in some sections of the media, being a case in point.  The latest housing approval statistics for March, were poor but they followed some good months and the RBA today pointed to an overall “modest firming in dwelling investment”. Property prices are also fairly robust and the RBA would presumably prefer not to make Australian housing even more expensive or end up in the same situation as its neighbor across the Tasman Sea. (New Zealand has something approaching runaway house price inflation).  Employment remains in ‘enviable’ territory, too. Nomura’s Martin Whetton earlier today described the most recent unemployment data as follows: while it missed expectations with 31,600 jobs lost in March, and unemployment rose to 5.6 per cent from 5.4 per cent, this was still “much stronger than the economic performance over the period would suggest” and for the whole quarter 50,000 net jobs were created.

Druckenmiller: Australian dollar to fall hard - Hot on the heels of George Soros’ big short on the Australian dollar (AUD), Stanley Druckenmiller, founder of Duquesne Capital, has come out this morning calling an end to the commodity super cycle and recommending investors short the AUD. Speaking at the Sohn Investment Conference in New York, where he presented “The Commodities Conundrum”, Druckenmiller argued that “China had misallocated resources and misread signals”, whereas “commodity producers ramped up production and misread situation”. As such, the “current supply demand situation in commodities is deadly”, and the commodity super cycle is now at an end: “the past two years are not a correction but a trend”. Druckenmiller also said to avoid commodities and short the AUD: “We think the Australian dollar will come down and will come down hard”. That Druckenmiller has taken a similar view to Soros on the AUD is probably not surprising given that he was formerly a Managing Director at Soros Fund Management, where he served as Lead Portfolio Manager of the Quantum Fund and Chief Investment Officer of Soros. Druckenmiller famously earned $1 billion for the Quantum Fund by betting against and forcing a devaluation of the British pound in 1992.

Africa's Economic Pulse - I'm always hesitant to proclaim that economic growth is finding a foothold in sub-Saharan Africa. There were just too many reports in the 1960s, 1970s, 1980s, and even the 1990s that growth in Africa was on the verge of taking off--only to see disappointment a few years later. But Africa's economic and social statistics in the last decade or so do look genuinely promising. The World Bank puts out an "Africa's Pulse" report twice per year, and the most recent edition offers some statistics.  Here are some rates of real GDP growth for sub-Saharan Africa, shown by the yellow line. The blue bars, for comparison show the annual growth rates for real GDP among the other developing economies of the world, although excluding China, which is now classified by the World Bank as an "upper-middle-income" economy. The red line leaves out South Africa, which is also classified as an "upper-middle-income" economy by world standards, and which has been lagging the growth rates of the rest of sub-Saharan Africa for most of the last decade. There's clearly a hiccup with the global financial and economic woes of 2009, but a rapid and quick bounce-back in the last few years.

Number of the Week: Total World Debt Load at 313% of GDP - $223.3 trillion: The total indebtedness of the world, including all parts of the public and private sectors, amounting to 313% of global gross domestic product. Advanced economies tend to draw attention for their debt at the government and household levels. But emerging markets are gathering debt at an increasing pace to drive their economic development. In a comprehensive report on global indebtedness, economists at ING found that debt in developed economies amounted to $157 trillion, or 376% of GDP. Emerging-market debt totaled $66.3 trillion at the end of last year, or 224% of GDP. The $223.3 trillion in total global debt includes public-sector debt of $55.7 trillion, financial-sector debt of $75.3 trillion and household or corporate debt of $92.3 trillion. (The figures exclude China’s shadow finance and off-balance-sheet financing.) “Increasingly, ‘debt’ is seen as a dirty word,” the ING research team said in a report released this week. “But in most cases, it should not be. Perhaps it is no coincidence that the rise of U.S. indebtedness coincided with improvements in technology and the globalization of trade, human labor and finance. Computers allowed for speedier processing and better and more transparent access to credit risk data.” “Debt can become dirty when the rise of debt service costs exceeds income and a borrower’s long-term ability to make payments and often when rapid growth of debt and/or lack of adequate transparency disguises creditworthiness issues,” they write.

Blanchard on Fiscal Policy - I was recently rather negative about the way the IMF frames the fiscal policy debate around the  right speed of consolidation. In my view this always prioritises long run debt control over fiscal stimulus at the zero lower bound (ZLB), and so starts us off on the wrong foot when thinking about the current conjuncture. Its the spirit of 2011 rather than the spirit of 2009.  Blanchard and Leigh have a recent Vox post, which allows me to make this point in perhaps a clearer way, and also to link it to a recent piece by David Romer. The Vox post is entitled “fiscal consolidation: at what speed”, but I want to suggest the rest of the article undermines the title. The first three sections are under the subtitle “Less now, more later”. They discuss the (now familiar from the IMF) argument that fiscal multipliers will be significantly larger in current circumstances, the point that output losses are more painful when output is low, and the dangers of hysteresis. I have no quarrel with anything written here, except the subtitle, of which more below.

Exchange Rates and Austerity - Paul Krugman - Quite often, austerians point to some example of a country that engaged in fiscal austerity yet experienced a strong economic recovery,and claim that this is a refutation of Keynesian views. Usually, however — not always, but usually — it turns out that the real story is that these countries experienced large currency depreciations, so that they could have export-led recoveries despite domestic austerity. Let’s use the BIS data on real effective exchange rates to look at two examples: Korea in the late 1990s, and Iceland more recently. Two points: First, for euro area countries that must rely on internal devaluation, real depreciations on this scale would be inconceivable, requiring devastating deflation. Second, the whole advanced world is in a liquidity trap these days — and we can’t all massively devalue against each other. So invoking cases like these as if they have something to do with the fiscal policy debate is either ignorant, disingenuous, or both.

Euro zone slump drags on, Chinese growth sags (Reuters) - Business growth flagged in China, recession dragged on euro zone companies, and even U.S. corporate growth slowed in April, according to surveys that bucked a stronger trend in U.S. jobs data. Monday's European purchasing managers indexes (PMIs) suggested the euro zone is on course for a worse downturn in the current quarter, with Germany now suffering a contraction in business activity that has long dogged France, Italy and Spain. In China, the survey covering services from banks to hotels showed April's growth was the weakest since August 2011, while a U.S. PMI on Friday put growth at its slowest in nine months. However, Friday's main U.S. payrolls release has bolstered an overall view of U.S. resilience, in sharp contrast to Monday's European data showing the euro zone dogged by recession as its sovereign debtors struggle to control their finances. "Fiscal tightening, unemployment fears and, in some cases, housing wealth losses are clearly still taking their toll on consumer spending intentions,"

The Chronic Crisis That Is The Euro - Lars Seier Christensen, the co-chief executive of Saxo Bank, thinks it's only a matter of time before the euro passes into history as another failed experiment in the dark art of monetary machinations."It is the renewed reality for traders and investors," he advised at a Bloomberg conference last week in London. "The euro is a doomed currency and a lot of people knew that already when it was introduced. Rationality needs to return to the Eurozone. If it doesn't, recession will turn into depression."Granted, predictions of the euro's demise have been popular and premature… so far. Thanks mostly to the European Central Bank, the currency endures. Despite repeated events that brought the euro to the brink, Europe's great experiment in monetary unification limps on. It's conceivable that the ECB could extend life support indefinitely. But at what cost? At what point does the economic pressure on the people in the street rise so high that the technical capacity for keeping the patient alive becomes a self-defeating proposition? It's been popular to look for acute events that will trigger a euro collapse—Greece's exit from the currency union. But while pondering the odds of a Grexit or an equivalent catalyst makes for compelling headlines, the bigger risk is the chronic pain that the euro architecture imposes on the weaker economies in the Eurozone.

France Declares Austerity Over as Germany Offers Wiggle Room - French Finance Minister Pierre Moscovici declared the era of austerity over after his German counterpart offered flexibility on deficit cutting, an interpretation that portends renewed bickering between Europe’s two biggest economies. “We’re witnessing the end of the dogma of austerity” as the only tool to fight the euro debt crisis, Moscovici said yesterday on Europe 1 radio. “We’ve been pleading for a growth policy for a year. Austerity on its own impedes growth.” The gap between the French Socialist finance chief’s view and the election-year positioning of Germany’s Wolfgang Schaeuble underscores the divergence between their economies and the wrangling that has marked the crisis fight since Francois Hollande replaced Nicolas Sarkozy as French leader a year ago. With German Chancellor Angela Merkel campaigning for a third term in a Sept. 22 vote, policy making among Europe’s elected leaders has ground to a crawl, with European Central Bank President Mario Draghi set to take the initiative. The risk is that they’ll back off policies needed to spur competitiveness and restore growth.

French finance minister says Europe's deficit move marks end of "austerity dogma" - Europe's move to give France two more years to cut its public deficit to below 3 percent marks the end of the "austerity dogma" in Europe, French Finance Minister Pierre Moscovici said on Sunday. The European Commission on Friday gave France two more years to meet its budget deficit target because of the country's poor economic outlook within the recession-hit euro zone. "This is decisive, it's a turn in the history of the European project since the start of the euro," Moscovici told French radio Europe 1 in an interview. "We have witnessed the ending of a certain form of financial austerity and the end of the austerity dogma." President Francois Hollande had appealed for an extra year to bring France's public deficit below 3 percent of economic output in line with European targets, as the weak economy was pushing unemployment levels in Europe's second-biggest economy to record levels. Moscovici repeated that France would stick to its target to cut its public deficit to below 3 percent of economic output in 2014, but he welcomed the two-year leeway in case growth is not strong enough.

It Ain’t Over ’til It’s Over -  Austerity partisans had a couple of rough weeks, with highlights such as  the Reinhart and Rogoff blunder, and Mr Barroso’s acknowledgement that the European periphery suffers from austerity fatigue. In spite of the media trumpeting it all over the place, and proclaiming the end of the austerity war, it is hard to believe that eurozone austerity will be softened. Sure, peripheral countries will obtain some (much needed) breathing space. But this is neither a necessary nor a sufficient condition for a significant policy reversal in the EMU. The problem is that there is no sign that core countries like Germany will finally let their domestic demand expand. And yet, this is what is needed. Look at the following figure, comparing the EMU and the US performance from the peak of the crisis to the latest available data (the last quarter of 2012):

Europe’s jobs crisis comes into sharper relief (Reuters) - Europe's policymakers are starting to recognize chronic unemployment as a crisis in its own right, rather than something that will resolve itself when the economy improves. Compared with the United States, where the labor market is a key determinant of economic policy, European authorities have been more passive in their approach to jobs for many years. But the depth of the jobless epidemic, especially in euro zone countries like Spain and Italy, means their rhetoric is at least changing. Friday's spring economic forecast from the European Commission was a case in point. Invoking European Central Bank President Mario Draghi's pledge to protect the euro, the European Union's Economic and Monetary Affairs Commissioner Olli Rehn said the EU would do "whatever it takes" to overcome the jobless crisis. In previous forecasts, Rehn mentioned reducing unemployment mainly as something that would only come further down the line, after the completion of painful reforms.

Europe Gauge Shows Contraction as Retail Sales Decline - Euro-area services and manufacturing output shrank for a 15th straight month in April and retail sales fell in March as the 17-nation economy struggled to emerge from recession. A composite index based on a survey of purchasing managers in the manufacturing and services industries increased to 46.9 last month from 46.5 in March, London-based Markit Economics said in a report today. While above an initial estimate of 46.5 published on April 23, it was still below 50, indicating contraction. Retail sales declined for a second month in March, another report showed.The euro-area economy will shrink more than previously estimated in 2013 as part of a two-year slump that has pushed unemployment to a record high, the European Commission said on May 3. The European Central Bank last week reduced its key interest rate to an all-time low after confidence was shaken by political turmoil in Italy and a bailout of Cyprus. “The financial markets appear to have survived the government debt crisis, but the leading economic indicators have recently declined,” said . There is “a significant risk that, contrary to analysts’ expectations, the economy will not pick up in the spring,” he said.

Eurozone recession set to deepen as private sector shrinks for 15th month - The eurozone's private sector shrank for the 15th consecutive month in April – suggesting the single currency area will fall deeper into recession. Germany, the powerhouse of the eurozone, also suffered a contraction in business activity during the month, which could send a worrying signal for the rest of the bloc. An official indication of eurozone GDP is due next week and on Monday the president of the European Central Bank, Mario Draghi, stressed that the policymakers would be ready to cut rates again after taking a quarter of a percentage point off the benchmark rate to a record low of 0.5% last week. "We stand ready to act again," Draghi said in remarks that knocked the euro lower. Wall Street, meanwhile, remained close to last week's record highs. Tim Moore, a senior economist at Markit, said prospects for Germany's service sector were increasingly gloomy. "A renewed slide in services output during April, alongside falling manufacturing production, raises the risk that the German economy will fail to expand over the second quarter," he said. Data gauging the level of activity across thousands of companies and regarded as a good indicator of general economic conditions came in below the crucial level of 50, which separates contraction from expansion. At 46.9 in April, Markit's eurozone composite purchasing manager's index (PMI) was an improvement on initial readings of 46.5 and March's output of 46.5 but it has been below 50 for more than a year.

Italy to Contract More Than EU Forecasts Amid Slump, Istat Says - Italy’s economy will shrink this year more than the European Commission estimates as weak domestic demand and investment extend the country’s longest recession in more than two decades, the national statistics institute said. Gross domestic product will decline 1.4 percent in 2013 before rising 0.7 percent next year, Rome-based Istat said in the institute’s annual report. Household consumption and corporate investments will both decline this year. Istat’s GDP projections compare with forecasts by the European Commission for a 1.3 percent contraction this year and growth of 0.7 percent in 2014. The Organization for Economic Cooperation and Development said May 2 that the euro region’s third-biggest economy will shrink 1.5 percent this year and expand 0.5 percent next.

Italy seeks pro-growth alliance with Spain - The premiers of Spain and Italy teamed up Monday to push the eurozone to focus more on spurring economic growth instead of just reducing debt - a move they hope will reduce high youth unemployment and speed up a banking reform effort aimed at stabilizing Europe's financial system. After meeting with Spanish Prime Minister Mariano Rajoy, Italian Premier Enrico Letta warned that inaction could prompt rising anti-Europe sentiment among voters across the continent, resulting in political punishment for leaders who support the 17 nations that use the euro currency. Letta warned that the European Union risks driving its supporters away if it fails to offer a "positive" view of economic and political integration and is only the bearer of bad financial news that has now lasted years. Europe must focus on getting more young people into the workforce and alleviating the financial hardships ordinary people are facing, he said. In particular, Letta warned, if an upcoming June EU summit ends with another "bureaucratic, routine, formal" result, the 2014 elections for the European Parliament could see a rise in victory for anti-European parties.

Of Spain's "Bad Bank" Foreclosed Properties, Only 6,000 Of 83,000 Units Have Tenants - Most of the SAREB's loans are linked to finished properties, for which it might be easier to find a buyer, but 4.3 percent are for unfinished developments and nearly 10 percent are for empty lots, for which there is little or no demand. Nearly all of the foreclosed properties in its portfolio are empty, including apartment blocks far outside big cities. Only 6,000 of nearly 83,000 housing units have tenants.

Self-Serving Recommendation of the Day: Visa Asks Spain to Lower Limit on Cash Transactions - Spain's underground economy is reportedly 19% of GDP. Is it? Who knows? Whatever it is, Visa has its eyes on transaction fees while holding a carrot in front of the Spanish government regarding more taxable income. Via Mish-modified translation from Libre Mercado, please consider Visa recommends Spain further limit the use of cash transactionsThe black market economic activity is beyond the control of the Treasury, and is one of the major objectives of the government during the current crisis to try to raise tax revenues. In 2010, Spain decreed the obligation to report all transactions greater than $ 3,000. In 2012 a ban was placed on cash payments in excess of 2,500 euros.  Visa Europe now recommends that the Government of Mariano Rajoy further restrict the use of cash to combat the underground economy and, thus, increase tax collection. Visa suggests a measure similar to that adopted in Italy, where the limit is set at 1,000 euros.

Spanish Banks Refinanced, Restructured $272.4 Billion in Loans - Spanish banks had 208.2 billion euros ($272.4 billion) of refinanced or restructured loans at the end of last year, a figure that analysts said could translate into further losses. Twenty-four percent, or about 51 billion euros, of that relates to mortgages, 36 percent to non-real estate companies and 33 percent to property and construction, the Bank of Spain said in its financial stability report published today. The balance was in loans to households and government. An economic slump in its sixth year is generating mounting defaults for Spanish lenders that in some cases refinanced or restructured more loans to avoid booking losses. The central bank said on April 30 it told lenders to review their refinanced portfolios “without delay” to avoid differing interpretations of how to classify loans.

The Worst Unemployment Crisis In Modern History Is Unfolding Right Now - At 27.2%, Spain is suffering the worst unemployment rate in modern history.Spain is tied with Greece, and is worse than the approximately 25% unemployment rate that the U.S. saw during The Great Depression. The causes, by now, are familiar — the end of a massive, bubble-fueled construction boom in 2008 led to spiraling unemployment and a deep recession, wreaking havoc on the Spanish economy. And although the country managed to return to marginally positive economic growth in 2010 and 2011, it has since slipped back into recession, and the outlook isn't good.Unlike the Spanish growth trajectory, the rise in Spanish unemployment since 2008 has been incredibly consistent. Each new statistical release bears the terrible news that more Spaniards have joined the ranks of the unemployed.

Parenthood for Sale: Spain in Crisis Becomes Fertility Destination - "I needed money desperately," says Campos, 34, who has long, dyed-blonde hair. She worked for a time as a model while still in high school, but as the real-estate crisis hit Spain, she approached a private clinic for reproductive medicine in Granollers, near Barcelona, about becoming an egg donor. For each donation cycle, Campos received just under €1,000 ($1,300), as recommended by the Bioethics Committee of Catalonia, as compensation for both her time and the inconvenience. But for Campos, the fee she received was far more than that -- it was the answer in her search for a way out of her family's financial misery. Despite a legal limit of six donations, Campos had her eggs harvested 14 times in just under two years. She earned around €10,000, exploiting her body to keep her family from plunging into poverty. Since both she and her husband were self-employed, neither of them could claim unemployment benefits. Only after a year did they start receiving a family allowance of €640 a month. "It's a risk I was willing to take," Campos says of her donations. "I didn't care." At the same time Campos was struggling to provide for her family, a German woman in her mid-thirties, living in the city of Freiburg, was engaged in a struggle of another kind. She wanted to get pregnant, but it simply wasn't working. Even treatments with natural remedies and acupuncture made no difference.

Generation J(obless): A Quarter Of The Planet's Youth Is Neither Working Nor Studying - We recently discussed the 'dead-weight' problem of youth unemployment in developed economies. The Economist estimates that the world's population of NEETs (not in employment, education, or training) is a stunning 290 million - or around one-quarter of the world's youth. Sadly, many of the 'employed' young have only informal and intermittent jobs. In rich countries more than a third, on average, are on temporary contracts which make it hard to gain skills. Young people have long had a raw deal in the labour market. Why is this so important? A number of studies have found that people who begin their careers without work are likely to have lower wages and greater odds of future joblessness than those who don’t. A wage penalty of up to 20%, lasting for around 20 years, is common. The scarring seems to worsen fast with the length of joblessness and is handed down to the next generation, too - leading to a vicious cycle that weighs on growth dramatically.

Mario Draghi: Your call is important to us -- First up, the actual policy measures: Draghi: We act consistently with our analysis of price developments and in line with our objective of maintaining price stability in the medium term. The weak developments in the real economy, and on the monetary and credit side, warranted action by the ECB, so we decided to cut rates by 25 basis points and, as I have said, to maintain the fixed rate full allotment policy at least until July of next year. The combination of the two measures is important by itself. It ensures the smooth transmission of our monetary policy to money markets. The fixed rate full allotment policy will represent liquidity insurance for the banking system. In short: More Of The Same. We know – in as much as we know anything in economics that that 25bps cut will not add sufficient liquidity where it is needed. It may pump up Bund prices, and even help property owners in Helsinki or Munich, but money is not flowing to the companies and individuals that need it at the periphery for sure, and increasingly to the semi-core. This is like calling the Fire Brigade and being put on hold with periodic “Your Call Is Important to Us”‘s.

Countercyclical no More -- Browsing national accounts may be an inexhaustible source of insight on the current debate about austerity. Take this figure, which shows the evolution of real GDP and of its components for the US and the EMU, making the first quarter of 2008 equal to 100. I tracked in particular the evolution of private (consumption plus investment) and public expenditure on good and services.One can distinguish two phases. During the first, 2008-09, the EMU is in synch with the US (and with most other advanced economies): private expenditure falls dramatically as the crisis spills from the financial sector to the real economy; and governments gradually build up a classic Keynesian response, reaching its climax with the stimulus plans implemented in 2009. But the interesting part is the second phase. The figure shows that from the beginning of 2010 the crisis went local. While private expenditure picked up in the US, it kept falling in the eurozone.

All About the ECB - Paul Krugman -- Joe Weisenthal has a good post going after Roger Altman’s assertion that European austerity was necessary to satisfy the markets. As Paul De Grauwe has been arguing for a while, what has been needed all along to calm the markets isn’t austerity — which doesn’t seem to help at all — but a liquidity backstop from the ECB, which works wonders. Just to enlarge on Joe’s chart, I have one showing both Italy (his case) and Spain. Different countries, different politics, and some difference in spreads — but the turning points come at exactly the same points, and correspond to changes in ECB policy:

Brussels trains its sights on Slovenia -The European Commission is being pushed to take a tougher line with Slovenia amid mounting concerns that infighting is hampering the country’s ability to overhaul its banking sector and avoid becoming the next rescue target in the eurozone crisis. According to two senior eurozone officials, concerns have focused on “non-cooperation” between Slovenia’s finance ministry and central bank, which is responsible for supervising the financial sector. One of the officials said the central bank was being “obstructionist” towards the new government’s clean-up efforts. The central bank’s role could prove particularly problematic because the three largest Slovenian banks – most in need of a rescue – are state owned, raising questions about the supervisor’s ability to evaluate their needs impartially. “ Concerns about Spain, however, are hampering the commission’s decision. Madrid was formally warned about its economic imbalances last month and some believe it may not be possible to impose new controls on Slovenia without doing the same for Spain – a move that commission officials worry might spark wider market unease. “As Spain goes, so goes Slovenia,” The country has a governance problem of major proportions,”

Slovenian bank crisis could require $10.5-billion bailout - Investors and economists fear Slovenia will become the next victim of a bank blow-up, the latest in a string of banking woes in small European countries that have had a nasty habit of spinning out of control. Slovenia, one of the smallest members of the 17-country euro zone, was one of the region’s miracle economies that fell apart after the 2008 housing bust and recession. Its new government is now scrambling to raise money through privatizations and higher taxes to shore up its banks and avoid an international bailout. It may not work. Mai Doan, economist in London at Bank of America Merrill Lynch, said there is a “meaningful risk” of a combined Slovenian sovereign and banking bailout worth €6-billion ($7.9-billion) to €8-billion ($10.5-billion), a big figure for a country with a gross domestic product of about €45-billion. The amount might have to be partly financed by a Cypriot-style “haircut” on bank depositors.

"Action Plan" for Eurozone Straggler Slovenia - The new government of struggling eurozone member Slovenia is expected to announce Thursday an action plan aimed at avoiding a bailout, reportedly including privatisations, "crisis" taxes and austerity cuts. Moody's last week cut its rating on Slovenia two notches to "junk", the economy has been in recession since 2011, unemployment stands at 13.5 percent and voters are fed up with their political leaders. According to leaked details, Bratusek is eyeing a "crisis" levy of 0.5-5.0 percent on all wages, to hike in 2014 value-added tax (VAT), a tax on property and other measures to boost state revenues.

Netherlands seeks another year to reduce deficit - The Netherlands wants one more year to bring its deficit under the EU limit of 3% of economic output, the country's finance minister Jeroen Dijsselbloem said Tuesday. Mr. Dijsselbloem, who also serves as the head of the group of euro-zone finance ministers, said his country would miss the target in 2013 but would reach it in 2014. "We're not going to make it this year, even though we are doing massive reforms and expenditure cuts," the Dutchman said, adding that "we will do extra in order to get back on track in 2014." The European Commission, which enforces the 3% limit, has indicated that it may be prepared to give the Netherlands more time to rein in its deficit. But its economics chief, Olli Rehn, didn't set a new deadline for the Netherlands when he presented the EU's country-by-country forecasts last week. The Netherlands, a "core" economy in Europe, is a member of the German-led bloc of creditor countries that have resisted bailouts for troubled euro-zone countries.

France's budget gap widens in March (Xinhua) -- At the end of March, France recorded a wider budget deficit at 31 billion euros (40.65 billion U.S. dollars) compared to 29.4 billion euros a year ago, government data showed on Tuesday. In its monthly report, the Budget Ministry said the widening deficit stemmed mainly from levying 2.6 billion euros in early 2012 to establish and operate a public mobile radio network. Public expenditure in March was up by 3.5 percent from the same month last year despite a significant decrease in the government debt thanks to low interest rates, the ministry added. As for revenue, a 3.6-percent growth in net tax receipts helped the country collect 2 percent more revenue which reached 69.6 billion euros over the period. France is working hard to trim its budget gap from an expected 3.7 percent of the GDP in 2013 to zero deficit by 2017 by squeezing public spending and bolstering competitiveness. Last week, the European Union gave France two more years to reach its financial commitments and "to correct the excessive deficit at the latest by 2015" instead of 2013, blaming the grim economic climate in the bloc.

German Central Bank Head Blasts France - France needs more time to get its budget deficit under control. That much was made clear last Friday when the European Commission announced it was granting Paris until 2015 to bring its budget deficit below the maximum 3 percent of gross domestic product allowed by European Union rules ensuring the stability of the euro. But on Wednesday evening, Jens Weidmann, the president of Germany's central bank, the Bundesbank, said he is adamantly opposed to the move. "You can't call that savings, as far as I am concerned," he told the daily Westdeutsche Allegemeine Zeitung in an interview. "To win back trust, we can't just establish rules and then promise to fulfil them at some point in the future. They have to be filled with life," Weidmann said. France had originally hoped to reduce its budget deficit below the 3 percent limit this year, but with its economy suffering, the deficit is likely to be closer to 4 percent and slightly higher in 2014.  Immediately following the announcement from Brussels, French Finance Minister Pierre Moscovici said that Paris planned to scale back its austerity measures. "We don't want excessive consolidation for our country, we don't want austerity beyond what is necessary," he said.

Bad loans at Italy banks grow at highest rate since Dec 2011 - Bad loans at Italian banks grew in March at eir highest annual rate since December 2011, indicating no-let up for the country’s lenders as Italy struggles with its longest recession for 20 years. Bank of Italy data released on Thursday showed bad debts rose 21.7 per cent in March to 131 billion euros (US$172.6 billion), compared with an annual growth rate of 18.6 per cent in the previous month. The acceleration is likely to fuel investors’ concerns that the growth rate for bad debts may not peak in the first half of the year, as had been previously expected. Statistics office ISTAT said this week Italy’s economy will shrink by 1.4 per cent this year, a sharp downward revision form its previous forecast for a 0.5 per cent contraction.

Germans splurge on Italian homes locals can’t afford - “I’d say 60% of our closings are with Germans, which is much higher than in previous years,” Rosenmaier said by telephone from her office in Cernobbio on Lake Como.  Foreign investment in Italian holiday properties is rising as Germans, Britons and Russians take advantage of a market where locals are struggling to purchase even a first home. Residential sales in the country dropped almost 26% last year amid a plunge in mortgage lending, almost two years of recession, and uncertainty surrounding a new tax on primary residences. Second-home sales to buyers from abroad rose 14% last year, with non-Italians spending 2.1 billion euros ($2.8 billion), according to research institute Scenari Immobiliari. Germans, the biggest buyers since 2009, accounted for almost 40% of the transactions by foreigners, followed by the British at 18% and Russians with 13%.

German Tax Revenue Growth Weakens Amid Euro Area Recession - German tax revenue will be lower than forecast this year and next, the Finance Ministry said in new forecasts that show the recession in the euro area is weighing on the region’s biggest economy. Revenue will total 615.2 billion euros ($810.5 billion) in 2013, a decline of 2.8 billion euros from a November projection, the ministry said today in an e-mailed statement. Next year, tax revenue will grow by 3.8 billion euros less than expected to 638.5 billion euros, the ministry said. It cited the findings of a three-day meeting of a tax panel that includes economic institutes and the Bundesbank in the eastern city of Weimar. The federal government will be able to absorb the anticipated drop in revenue without being forced to make an upward adjustment of net new borrowing this year, Finance Minister Wolfgang Schaeuble said at a press conference in Berlin after the data was released. The 2014 federal budget now in planning will still show a structural balance, Schaeuble said.

The German model is not for export - Germany is reshaping the European economy in its own image. It is using its position as the largest economy and dominant creditor country to turn members of the eurozone into small replicas of itself – and the eurozone as a whole into a bigger one. This strategy will fail. The Berlin consensus is in favour of stability-oriented policies: monetary policy should aim at price stability in the medium term; fiscal policy should aim at a balanced budget and low public debt. No whiff of Keynesian macroeconomic stabilisation should be admitted: that is the way to perdition. To make this approach work, Germany has used shifts in its external balance to stabilise the economy: a rising surplus when domestic demand is weak, and the reverse. Germany’s economy may seem too big to rely on a mechanism characteristic of small and open economies. It has managed to do so, however, by relying upon its superb export-oriented manufacturing and ability to curb real wages. In the 2000s, this combination allowed the country to regenerate the current account surplus lost during the post-unification boom of the 1990s. This, in turn, helped bring modest growth, despite feeble domestic demand.

The dramatic adjustment in eurozone trade imbalances -- Martin Wolf’s column on Wednesday and his subsequent blogpost have once again focused attention on the importance of trade flows in the eurozone. Martin’s argument is that the German strategy of fiscal austerity and internal reform to fix the imbalances needs to change. I would like to ask a different question, which is what happens in the likely event that it does not change? Investors, ever more optimistic that the worst of the euro crisis is over, are asking whether the German strategy might actually work. Largely unnoticed by some, eurozone trade imbalances have in fact improved dramatically in recent years. But this has happened mainly for the wrong reasons, ie recession in the south rather than any large narrowing in the competitiveness gap. The eurozone is engaged in a race between the gradual pace of internal devaluation and the mercurial nature of democratic politics. It is still not obvious how this race will end.

Portugal Unemployment Rate Hits Record 17.7% - Portugal's unemployment rate surged to a record 17.7% in the first quarter this year. According to the National Statistics Institute, the number of jobless Portugese rose from 16.9% in the previous quarter, as the bailed-out country tries to tackle its deepening recession. The overall number of unemployed rose to 952,200 people from 819,300 a year earlier. Youth unemployment rose to 42% from 36% a year ago. Since Portugal resorted to a European Union and International Monetary Fund bailout in 2011, the country's government has had to repeatedly revise up its unemployment estimates. It now expects unemployment to reach 18.2% this year and then peak at 18.5% in 2014.

Greek unemployment rises to 27 per cent; recovery expected in 2014 - Greece‘s unemployment rate rose to 27 per cent in February from a revised 26.7 per cent the month before, statistics agency ELSTAT said Thursday as the country‘s finance minister said the economy should begin recovering next year. The jobless rate is nearly twice the eurozone‘s average of 12.1 per cent recorded in March. Greece has implemented unpopular austerity measures demanded by international creditors in exchange for bailout loans. It remains in recession for the sixth-straight year. Speaking on state television NET, Finance Minister Yannis Stournaras predicted the high unemployment rate to begin dropping from the end of 2014 and that the government‘s aim was to achieve a primary budget surplus by the end of this year.

Greek Youth Unemployment Rises Above 60 Percent - Greek youth unemployment rose above 60 percent for the first time in February, reflecting the pain caused by the country's crippling recession after years of austerity under its international bailout. Greece's jobless rate has almost tripled since the country's debt crisis emerged in 2009 and was more than twice the euro zone's average unemployment reading of 12.1 percent in March. While the overall unemployment rate rose to 27 percent, according to statistics service data released on Thursday, joblessness among those aged between 15 and 24 jumped to 64.2 percent in February from 59.3 percent in January. Youth unemployment was 54.1 percent in March 2012. "It is by far the highest youth unemployment rate in the euro zone, highlighting the difficulties young people face in entering the labor market despite government incentives to create jobs," said economist Nikos Magginas at National Bank.

Greek Unemployment Hits New Record High, Youth Jobless Rises By 5% In One Month To 64.2% - The Greek economic depressionary catastrophe continues to merrily chug along. Hours ago, Greek Elstat reported that February unemployment rose to a new record high of 27.0%, with the January number revised from 27.2% to 26.7%, up from 21.9% in February 2012, and almost as if unlike the Greek BLS is not even trying to fudge numbers anymore and wants to show a deteriorating situation (or, as it was called in the Old Normal - "reality"). Looking at the Shadow economy, the number of people who are inactive, or "neither worked neither looked for a job", hit 3,358,649. This number is just shy of the total people employed, meaning in 2-3 months, the Greek shadow economy will be greater than the official, taxed-one. A gender breakdown shows that females have never had it worse with 31% unemployment, compared to 24.1% for men. But the most stunning number was the number of unemployed Greek youths (15-24), which hit a record 64.2%, the highest number on record, and a mindblowing 5% increase from the 59.3% youth unemployment reported in January, and a 10% increase from a year ago.

Doomed Europe - It’s long — at some 4,500 words — but I can highly recommend the debate between George Soros and Hans-Werner Sinn about what Soros calls The German Question. The debate is profound, and the two stake out radically different positions, even though they end up at pretty much the same place. Soros says that Germany should make a simple choice: either sign on to Eurobonds, where the euro zone as a whole would issue low-yielding debt to the benefit of all, or else leave the euro zone entirely. Either way, he says, Europe would win — either from reducing the fiscal burden of the various national debts, or else from seeing the euro devalue against the new Deutschmark. Sinn agrees with Soros that Germany would be making a huge mistake were it to leave the euro zone; he disagrees vehemently, however, on the subject of Eurobonds. But both men are clear that given political realities in Germany, neither of Soros’s two choices is going to happen. Germany is going to stay in the euro zone, and Eurobonds aren’t going to happen. That, says Soros, is a tragedy:

German euro founder calls for ‘catastrophic’ currency to be broken up -Oskar Lafontaine, the German finance minister who launched the euro, has called for a break-up of the single currency to let southern Europe recover, warning that the current course is "leading to disaster". "The economic situation is worsening from month to month, and unemployment has reached a level that puts democratic structures ever more in doubt," he said. "The Germans have not yet realised that southern Europe, including France, will be forced by their current misery to fight back against German hegemony sooner or later," he said, blaming much of the crisis on Germany's wage squeeze to gain export share. Mr Lafontaine said on the parliamentary website of Germany's Left Party that Chancellor Angela Merkel will "awake from her self-righteous slumber" once the countries in trouble unite to force a change in crisis policy at Germany's expense. His prediction appeared confirmed as French finance minister Pierre Moscovici yesterday proclaimed the end of austerity and a triumph of French policy, risking further damage to the tattered relations between Paris and Berlin. "Austerity is finished. This is a decisive turn in the history of the EU project since the euro," he told French TV. "We're seeing the end of austerity dogma. It's a victory of the French point of view."

Backing Grows for European Bank Plan - NYT — The European Union’s halting effort to create a more unified banking system, which many experts consider necessary for avoiding future financial crises, received fresh impetus on Tuesday. Two top E.U. finance officials gave a push forward to efforts to overhaul governance of the region’s banks, easing concerns that the bloc is failing to move swiftly enough to avoid future crises that could sink the euro. Speaking in Berlin, Germany’s finance minister, Wolfgang Schäuble, signaled support for moving ahead with efforts to create a so-called banking union. Germany, and Mr. Schäuble in particular had been widely viewed as standing in the way of progress, demanding a potentially complicated treaty change to proceed. “Naturally, with the inertia that we have in Europe, we cannot wait for treaty changes to solve current problems,” . “We have to make the best of it on the basis of the current treaties.” German officials say there has no been a change in their stance, but proponents see a softening in tone that could signal a new openness. Meanwhile, the president of the euro zone’s group of finance ministers, Jeroen Dijsselbloem, said it would be “dangerous” to delay moving ahead with a banking union. He said some of the bloc’s biggest banks could reveal new vulnerabilities as their accounts come under scrutiny in the next few months as part of a new round of so-called stress-test audits expected to be conducted by the European Central Bank.

ECB Ponders Buying Toxic Debt of the Periphery; Don't Worry, It Will Be "Fiscally Neutral" and Temporary - In an effort to stimulate small and medium (SME) lending the ECB considers acquiring banks toxic debt of the periphery. Via mish-modified translate from Spanish Libre Mercado.  The European Central Bank (ECB) could "soon" start buying bad debts of Southern European countries in an attempt to end the fragmentation in the eurozone and boost funding to SMEs, as confirmed by the German ECB representative Jörg Asmussen.  "It's part of the debate on lending to SMEs," Asmussen said when asked about the measure, which was unveiled by the German newspaper Die Welt. The ECB has an "open mind" to do everything "within our mandate" to solve this problem, Asmussen explained in an appearance before the Economic Affairs Committee of the Parliament.The goal, the German banker continued, is "revive the market asset-backed securities, particularly those backed by loans to SMEs, of course with strict supervision." In any case, the ECB representative stressed that "liquidity is not what is preventing banks from lending" but "the lack of capital."

George Osborne’s Fear of Ghosts - Paul Krugman - Truly, we live in bizarro world. The stern taskmasters of the IMF are coming to Britain, to demand that the government live it up and spend more; the government, defiantly, will insist on continuing to impose suffering. But why? The Guardian reports that it’s all about not scaring away the confidence fairy: Treasury officials intend to show that any change to the strategy followed for the last three years would damage the government’s credibility in the financial markets and that the subsequent increase in long-term interest rates would outweigh any benefits from cutting taxes or increasing spending.My question, which I’ve raised before, is this: even if you believe that markets would be unnerved by some relaxation of short-term fiscal austerity — which they shouldn’t be, because a percentage point or two of GDP now has virtually no relevance to the long-run budget outlook — how is this spike in long-term rates supposed to happen?

The fake jobseekers’ questionnaire reveals a new kind of nanny state - A questionnaire filled out by jobseekers at the behest of the government has been shown to be "fake". It supposedly tested one's strengths, but the results were the same regardless of the answers submitted. Since jobseekers were told to fill it in on pain of losing benefits, they are quite angry about the dupe. But why were they conned? The questionnaire was based on the assumptions of behavioural economics, which has been institutionalised in the government's "nudge" unit, now itself due to become a profit-making venture. Behavioural economics emerged as a minority discipline in the 1970s, in response to the manifest failings of neoclassical economics. The mainstream economic paradigm assumed that agents in the market are "rational actors", whose actions are determined strictly by their net gain in any transaction. Behavioural economists noticed that there were too many examples of behaviour – either altruistic or self-destructive – that didn't comply with this notion of self-interested rationality. They thus sought a more realistic model of decision-making

Recovery? One-In-Five Britons Borrow Money To Afford To Eat - While GBP jumped and the world celebrated the UK's recent avoidance (for now) of a triple-dip recession (defined on GDP as opposed to reality), the situation in the island nation appears to be going from bad to worse. As Carney takes over the reigns of this once mighty nation he faces a country deeply divided. As the BBC reports, while London real estate prices smash old records, a stunning one-in-five households borrowed money or used savings to cover the costs of food in April. This is the equivalent of five million households unable to fund their food via income alone. Over 80% of these people are concerned about rising food prices (just as print-meister Carney is about to go 'Abe' on them) and almost 60% find it difficult to cope on their current incomes. The director of the consumer group 'Which?', noted that "many households are stretched to their financial breaking point," as "families face a cost of living crisis." While equity and real estate prices hit all-time highs, the opposition sums up the country's feeling, "this incompetent government needs to wake up to the human cost of their failed economic policies."

The Monarchs Of Money - The world's central banks have printed unimaginable amounts of money in recent years - "these guys are really more powerful than the government." Neil Macdonald explores what this means for the global economy and for your financial well-being - "can you imagine if the American public knew there was this 'club' that met secretly in Switzerland and made decisions that dramatically affected their lives, but we're not going to tell you about it because it's too complicated." This brief documentary should open a few eyes to the reality behind the world's most powerful (and real) cabal.

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