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

Saturday, June 15, 2013

week ending June 15

U.S. Fed balance sheet grows in latest week (Reuters) - The U.S. Federal Reserve's balance sheet grew in the latest week on larger holdings of U.S. Treasuries, Fed data released on Thursday showed.The Fed's balance sheet, which is a broad gauge of its lending to the financial system, stood at $3.367 trillion on June 12, compared to $3.357 trillion on June 5. The Fed's holdings of Treasuries rose to $1.906 trillion as of Wednesday, June 12, from $1.898 trillion the previous week.The Fed's overnight direct loans to credit-worthy banks via its discount window averaged $15 million a day during the week versus $8 million a day the previous week. The Fed's ownership of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and the Government National Mortgage Association (Ginnie Mae) stayed about flat at $1.165 trillion.The Fed's holdings of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Bank system totaled $70.89 billion, the same as the previous week.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--June 13, 2013 - Federal Reserve statistical release

How did we get here? A "map" of the Fed's balance sheet's history - Some in the mass media continue to be confused about the historical trajectory of the Fed's balance sheet. People have trouble distinguishing between the liquidity facilities provided by the central bank and the various monetary expansion activities. Here is a historical "map" to show how we got here.
1. The Fed launches the Term Auction Facility (TAF) to replace term interbank funding and commercial paper for banks who started having trouble rolling short-term debt. The Central Bank Liquidity Swap Facility was also launched at the time to provide dollars to other central banks.
2. Increase in TAF demand (it's no longer taboo to use the facility) and increase in the Central Bank Liquidity Swap Facility as foreign banks start having trouble raising dollars to fund their dollar assets.
3. The Fed provides Bear Stearns (Maiden Lane) funding to support the purchase of Bear by JPMorgan.
4. All hell breaks loose as the Fed is forced to ramp up TAF and the Central Bank Liquidity Swap Facility (as foreign banks desperately need dollars). The Fed also launches the Commercial Paper Funding Facility (CPFF). Among other reasons, CPFF was meant to help corporations like GE Capital, who relied heavily on commercial paper funding and were beginning to have trouble rolling debt.
5. Around the same time as #4, AIG failed. The Fed responded with Maiden Lane II (see post), Maiden Lane III (see post), as well as direct funding for AIG. This was the one move by the central bank that made Bernanke especially angry.
6. QE1 (treasuries and agency MBS). Shortly after, the TALF program was launched (relatively small impact to the balance sheet).
7. QE2 (treasuries).
8. Central Bank Liquidity Swap Facility facility picks up again as the various Eurozone banks lose their ability to roll dollar commercial paper (US money market funds cut exposure) - see posts here and here.
9. QE3 (treasuries and agency MBS).

About Those Reserves On The Fed’s Balance Sheet, Again, Sigh…- Fortune Magazine has published another inane and misleading piece about the reserves on the Fed’s balance sheet. They, like many other useless, spewing pie hole, Wall Street pundits think that bank reserves are somehow a voluntary representation of banks’ caution about lending, or the state of the economy, or something. They just don’t get that those reserves are a simple accounting entry that, under the laws of double entry accounting, are instantly created whenever the Fed purchases an asset. They will grow as the Fed purchases more securities. They will be there until the Fed shrinks its assets (unlikely, but hey, you never know). They aren’t voluntary holdings of banks, and they can’t ever “go” anywhere except “away” when the Fed so decides. At the same time as they exist as liabilities of the Fed, they exist in the banking system as cash assets, and as such are part of the loanable base against which banks can decide to lend or not. But whether the banks lend more or not will not impact the size of the reserves one iota. Banks lending more won’t reduce the amount of reserves. Banks in the aggregate can’t ”withdraw” the reserves from the Fed. They shift them around to one another when they trade and transact business, but the total in the system and on the Fed’s balance sheet remains the same regardless of how much trading or new lending the banks do.

Defining “Reserves” - I’ve run into quite a bit of confusion in conversations discussing bank reserves, and found occasion to get precise on the usage in recent comments.

  • 1.  “Reserve balances.” These are banks’ deposits at the Fed. Similar to your credit balance in your checking account (except in “bank money”). They’re liabilities of the Fed, assets of the banks. They appear and are identified as such on banks’ (and the Fed’s) balance sheets.
  • 2.  “Required reserves.” A regulatory amount (percentage of deposits) that banks are required to hold in specified “safe” assets — significant examples being treasuries, vault cash, gold (in their vaults or the Fed’s), and…reserve balances. The term “required reserves” does not appear on banks’ balance sheets.
  • 3.  “Excess reserve( balance)s.” I add “balances” because this explicitly refers to that particular type of holdings — deposits at the Fed. A bank could (in theory) have sufficient required reserves held in treasuries and vault cash, so all of its reserve balances could be “excess reserves.”  What’s funny here: Excess Reserves are explicitly not reserves in the sense of “funds that are required to be ring-fenced under law so depositors can withdraw their money or transactions can clear.” By definition, they’re the banks’ deposits at the Fed that are not ring-fenced.

So excess reserves are not actually “reserves.” No wonder people get confused.

The Market Doesn’t Think the Fed Will Ever Sell Those Bonds Back - You know the trillion dollars a year of Treasury and GSE bonds that the Fed’s buying up? (And the $3-trillion+ it’s already holding?) It’s driving up bond prices and suppressing yields, right? And if it starts selling them back, it will drive down prices and increase yields, right? The market should be front-running that, right? They should be driving down prices in expectation of the Fed eventually selling. But they’re not, are they? They must not expect the Fed to ever do that. The market must think that if anything, the Fed will just let those bonds retire naturally (which will reduce the future stock of bonds held by the private sector, but not the flow to/from that sector — that already happened when the Fed “retired” the bonds onto its balance sheet). Welcome to the brave new world where:

  • o Total reserve balances and the size of the Fed’s balance sheet are immaterial to interest rates or lending to the real sector.
  • o The policy rate is purely a function of the Fed-specified IOR (interest on reserves) floor.
  • o Open-market operations/QE only affect asset prices via the flow effect (with bond spreads based on what maturities the Fed’s currently buying/selling).
  • o Fed buying/selling pushes bond and equity prices in the same direction (because high bond prices/low bond yields push investors into equities, and vice versa).
  • o The Fed’s push/pull on all asset prices only affects real-economy spending via the wealth effect.

Michael Woodford and Adair Turner Agree: CBs Won’t (and Shouldn’t) Sell the Bonds Back - Following up on yesterday’s post, see here from Ambrose Evans-Pritchard in The Telegraph (emphasis mine): All this talk of exit strategies is deeply negative,” [Woodford] told a London Business School seminar on the merits of Helicopter money, or “overt monetary financing”. He said the Bank of Japan made the mistake of reversing all its money creation from 2001 to 2006 once it thought the economy was safely out of the woods. But Japan crashed back into deeper deflation as soon the Lehman crisis hit. “If we are going to scare the horses, let’s scare them properly. Let’s go further and eliminate government debt on the bloated balance sheet of central banks,” he said. This could done with a flick of the fingers. The debt would vanish. Lord Turner, head of the now defunct Financial Services Authority, made the point more delicately. “We must tell people that if necessary, QE will turn out to be permanent.”

Recent Volatility Shows Quantitative Easing More Trouble than it’s Worth - Over the past several weeks, financial markets have been extremely volatile. The yield on the 10 year U.S. Treasury increased by about 50 basis points (29%) to 2.15% and the S&P 500 has swung up and down by 80 points (about 5%). The proximate cause of the increase in volatility was Fed Chairman Bernanke’s May 22 Congressional testimony where he suggested that the Fed could slow its purchases of assets from the current $85 billion monthly pace. By reducing longer term interest rates, Fed asset purchases suppress the discount rates applied to all future cash flows, which boosts stock and real estate prices. The recent volatility is a reminder of the extent to which asset prices have become dependent on Fed policy and the huge risks created by the Fed’s ongoing intervention. The case for quantitative easing is straightforward. The Fed has a “dual mandate” to achieve both price stability and full employment. With inflation low, unemployment elevated, and the employment-to-population ratio near its all-time low, the Fed would normally reduce interest rates. But since the Fed’s main policy rate – the overnight federal funds rate – is already at zero, any additional loosening of monetary policy has to occur through “nonstandard” policies. These have generally taken the form of “quantitative easing” whereby the Fed purchases Treasury bonds and mortgage-backed securities (MBS) from banks with newly created reserves (i.e. “printing money.”) By removing Treasury bonds and MBS from the market, the Fed makes them more scarce, which drives up their price and reduces their yield

The futures market implies the Fed "taper" to end by early 2015 - The rate curve implied by the Fed Funds futures has steepened considerably over the past month. The market now anticipates the Fed beginning to raise the overnight rate in May of 2015. A month ago the expectation was for the end of 2015 - the implied rate hike has been pulled forward.  But the Fed can't start raising rates before the end of the unconventional monetary policy measures (can't be raising rates while buying securities at the same time). That means if the Fed begins to "taper" off bond buying in the next few months, it will have about one and a half years to go from $85 bn of securities purchases per month to zero.

Fed Watch: Two For Tapering - Today's data was supportive of the Fed scaling back its asset purchase program sooner than later - although it is important to clarify that "sooner" does not mean next week, but September. Later is December. Data dependent, of course. But the data is not yet taking the kind of downward turn needed to turn talk away from tapering. Retail sales rose 0.6% in May, slightly ahead of expectations of a 0.5% gain. Excluding autos and gas, the general upward trend of recent months is steady: That said, the pace of growth isn't exactly something to get excited about: At best, year-over-year growth is just pulling back into the range seen for most of 2012. That lack of spending growth, however, was evident before the tapering talk emerged, suggesting that the Fed does not see the current pace of activity as an impediment to tapering.  Somewhat more optimistic was the drop in initial unemployment claims: Volatile data, to be sure, but I still don't see reason to believe the downward trend is broken. . Separately, Zero Hedge is quoting economist David Rosenberg: Ben Bernanke convinced the FOMC in December that in order to get ahead of a potential 'fiscal cliff' in December, it was a matter of having to 'shoot first and ask questions later'. In other words, take a pre-emptive strike in December against the prospect of falling off the proverbial cliff and into recession in the opening months of 2013. But what happened next was a fiscal deal that was reached in early January and the economy faced a hill, not a cliff. The economy still faces near-term sequestering hurdles, but the reality is that a bold policy move aimed at thwarting off recession is now being reconsidered.

Analysis: Fed Likely to Push Back on Market Expectations of Rate Increase  - Since last December the Fed has been promising to keep short-term interest rates near zero until the jobless rate reaches 6.5%, as long as inflation doesn’t take off. Most forecasters don’t see the jobless rate reaching that threshold until mid-2015. At the same time, however, the Fed is talking about pulling back on its $85 billion-per-month bond-buying program. The chatter about pulling back the bond program has pushed up a wide range of interest rates and appears to have investors second-guessing the Fed’s broader commitment to keeping rates low. This is exactly what the Fed doesn’t want. Officials see bond buying as added fuel they are providing to a limp economy. Once the economy is strong enough to live without the added fuel, they still expect to keep rates low to ensure the economy keeps moving forward.It’s a point Chairman Ben Bernanke has sought to emphasize before. The Fed, he said in his March press conference and again at testimony to Congress last month, expects a “considerable” amount of time to pass between ending the bond-buying program and raising short-term rates.

Is the Fed Going to Dial Down Its QE Taper Talk? - Yves Smith - We’ve suggested that the Fed has drunken a bit too much of its own confidence Kool-Aid to be talking about tapering QE. The problem now, as we’ve stressed, is that the effect of QE may prove to be asymmetrical, that the flattening the yield curve exercise when short rates were already in ZIRP land haven’t done much to stimulate the real economy (where was the Fed in calling for more fiscal stimulus, or in arguing against deficit scare-mongering?). But perversely, taking it away could be more of an economic downer than the central bank anticipates. Three front page stories at the Wall Street Journal tonight all highlight reasons why the Fed might dial down taper expectations. The first is that mortgage refinancings have fallen, which we predicted would happen. Even though there is some whistling-in-the-dark talk about how some consumers might refinance with rates going in the wrong direction, the most you are likely to see is people who’ve been distracted and haven’t gotten around to doing the paperwork. Anyone who is remotely attentive to rates has likely refied multiple times already.  The second is on how the Fed-induced interest rate increases have led to worrisome interest rate increases in Eurozone periphery countries. Suddenly the belief that the Eurozone crisis was over is coming into question.  From the Journal: Government bonds have recently taken a hit around the world, now that investors are preparing for the possible end of central banks’ boundless economic stimulus. The third article in the Journal addresses another topic near and dear to our heart, that inflation rates and inflation expectation are falling. The Fed has been taking the view that this is an aberration but if current patterns hold or intensify, it will have to rethink its assumptions. From the article:The Fed has a 2% inflation goal and doesn’t want consumer prices to veer too much above or too much below that number over time. Some recent inflation measures have dropped below that level this year, but Fed officials haven’t been too worried because expectations of future inflation were stable…. “It is no longer clear that inflation expectations are so stable,” Jan Hatzius, chief economist at Goldman Sachs Group Inc., said in an interview.

Bernanke will try to ease market rate fears, report says - With many Federal Reserve officials, including Chairman Ben Bernanke, having raised the prospect of a reduction in  the pace of its asset purchase program in coming months, there are signs that financial markets think the Fed is heading to the exit in a hurry and have pushed forward the timing of the first rate hike. But this is exactly what the Fed doesn’t want to see happen,according to Jon Hilsenrath of the Wall Street Journal.  So Bernanke will use the Fed meeting to try to assuage fears among investors that the bond buying program will end all at once and the Fed will soon raise short-term interest rates, the report said, quoting  unnamed “officials.” Bernanke is due to hold a press conference on Wednesday after the latest interest rate decision. Bernanke is likely to press home the point that he expects a “considerable” amount of time to pass between ending the bond-buying program and raising short-term rates, the report said.

IMF Wades Into Fed Exit Debate, Urges No Change Through 2013 - The International Monetary Fund lowered its 2014 growth outlook Friday and waded into the hot public debate over the Federal Reserve‘s monetary easing exit strategy by suggesting that the central bank should continue its $85 billion a month bond buying until at least the end of 2013. “There is no need to rush to exit from monetary accommodation given the still large output gap, given the subdued growth that we have, and given the well-anchored inflation expectations,” said IMF Managing Director Christine Lagarde.  In its annual assessment of the U.S. economy, the fund kept its forecast for a slight cooling of growth this year to 1.9%, from 2.2% last year. But it cut its estimate for 2014 growth by 0.3 percentage points to 2.7% because of the automatic budget cuts that have crimped output.The IMF said the U.S. recovery is gaining ground and becoming more durable despite the headwinds created by federal budget battles. House prices and construction activity is rebounding, household balance sheets are strengthening and labor market conditions are improving, the fund said.  Still, Ms. Lagarde said the Fed should keep the monetary spigot open as “the economy has a way to go before it returns to full strength.”

Fed Watch: Bullard Holds His Ground - St. Louis Federal Reserve President James Bullard reaffirmed his commitment to the current policy stance. From his press release: “Labor market conditions have improved since last summer, suggesting the Committee could slow the pace of purchases, but surprisingly low inflation readings may mean the Committee can maintain its aggressive program over a longer time frame,” Bullard concluded. This is not surprising. Bullard has long been more focused on the implications of inflation for policy, believing that employment is largely out of the Fed's hands at this point. More from Reuters: "What's not encouraging in this picture is that it's (inflation) just going down and so far it hasn't moved back at all. So I would have expected our very aggressive purchase program to turn that process, inflation expectations would go up and actual inflation would follow behind, which is what happened in the QE2 period," said St. Louis Fed President James Bullard. I think that Bullard is something of an outlier at this point. Ongoing declines in inflation would eventually cause his worries to spread further through the Fed, and could very well delay any effort to cut back on asset purchases. That, however, is not the baseline case. As a general rule, policymakers are more focused on the path of unemployment, which leads them to expect tapering to begin as early as in a few months. See Robin Harding here.

Fed’s Bullard: Weak Inflation May Argue For More Stimulus - Weak inflation readings may mean the Federal Reserve will have to press forward with its current bond buying stimulus effort for longer than was once expected, a U.S. central bank official said Monday. In a speech in Montreal, Federal Reserve Bank of St. Louis President James Bullard portrayed the monetary policy outlook as being caught between an improving economic landscape and inflation pressures that continue to ebb ever lower from the central bank’s 2% target. As the official sees it, the improvement in the economy may support a slowdown in the pace of bond buying, while the weak inflation readings suggest the Fed will have to continue forward with stimulus. The official is currently a voting member of the monetary policy setting Federal Open Market Committee.

What the Great Natural Experiment Reveals About QE - There is a great natural economic experiment unfolding. And it is not the QE3 versus U.S. fiscal austerity debate that some of us have been debating. Rather, it is the United States versus the Eurozone and the different policy "treatments" their economies are receiving. Jim Pethokoukis explains:[W]e have an intriguing natural economic experiment. Two large, advanced economies are both undergoing fiscal austerity from spending cuts and tax increases. But one is recovering, though glacially, from a previous downturn; the other is deteriorating. The likely difference: monetary policy. Not only did the Federal Reserve slash short-term interest rates to nearly zero way back in 2008, but it has also embarked upon a massive bond-buying program known as quantitative easing. The European Central Bank, however, only last month cut its key interest rate to 0.5 percent, still higher than the Fed-funds rate. And the ECB’s “unconventional” monetary policy has been far more modest, with bond purchases less than a tenth the size of the Fed’s. Its goals have also been more limited: stabilizing southern Europe’s debt markets and avoiding a financial crisis. This policy treatment explains the different NGDP trajectories in this figure:

Fed's Bond-Buying Wild Card: Inflation Expectations - Many investors have lowered their expectations for future inflation, a shift that could get the attention of Federal Reserve officials as they consider the course of their bond-buying program at a policy meeting next week. The Fed has a 2% inflation goal and doesn't want consumer prices to veer too much above or too much below that number over time. Some recent inflation measures have dropped below that level this year, but Fed officials haven't been too worried because expectations of future inflation were stable.  Now that expectations show signs of shifting, too, Fed officials could feel pressed to rethink their view that consumer prices will return to their target. If the fall in inflation expectations persisted and deepened, it could cause some Fed officials to argue for continuing their bond-buying program at the current $85 billion-a-month pace for longer than otherwise. "It is no longer clear that inflation expectations are so stable," Jan Hatzius, chief economist at Goldman Sachs Group Inc., said in an interview. Market-based measures of inflation expectations are now on "the low side of comfortable." In a note to clients June 10, he predicted that expectations of lower inflation are likely to make Fed officials less willing to pull back on the bond-buying programs out of fear it could destabilize those expectations about future inflation.

What's The Message In The Ongoing Slide In Inflation Expectations? - It's still a mystery… for now. The sharp divergence between rising stock prices and falling inflation expectations has persisted since February. It's unclear what this striking uncoupling means, but surely it signals a change of one sort or another for monetary policy, the macro trend, the capital markets... all of the above? For now, the only point of clarity is that equities are no longer joined at the hip with changes in the market's outlook for inflation. It's the end of the new abnormal, the positive link in recent years between stocks and inflation expectations, based on the yield spread between the nominal 10-year Treasury and its inflation-indexed counterpart. The question is what comes next? One theory is that we're receiving flawed signals from the inflation-indexed Treasury market and so the divergence isn't as dramatic as it appears. That's a possibility, but other measures of inflation expectations have been sliding recently as well, albeit modestly. The Cleveland Fed's estimates of the inflation outlook are softer these days. Inflation predictions from economists are also lower, according to last week's update of the Livingston Survey via the Philadelphia Fed.

The Prospect Of Deflation -  Deflation and the potential for such a condition to develop is currently a topic of paramount importance, for a variety of reasons. [note: to clarify, for purposes of this discussion, when I mention "deflation" I am referring to the CPI going below zero.]As one can see in the various professional economic forecasts mentioned in this blog – as well as the continually low readings from the Federal Reserve Bank of Atlanta’s series titled "Deflation Probabilities" – there is virtually no expectation of deflation either in the near-term or for the next few years.Is this widely-held expectation of virtually no chance of deflation realistic?For a variety of reasons, I believe that it is not. There are many signs in the market, the economy, and conditions experienced by businesses that indicate that the onset of deflationary conditions is (at the very least) something that should be closely monitored.I have already written of the disconcerting price action of Gold – and its signal of "deflationary pressures" – in the post of April 15 ("Gold’s Decline And Implications") as well as the May 20 post (on Doug Short’s blog) titled "The Recent Decline in Gold." Other recent notable posts on the topic of falling price levels can be seen in my post of June 5 titled "Expectations Concerning Lower Prices" and Doug Short’s post of May 31 titled "PCE Price Index Update – Sorry Fed, The Disinflationary Trend Continues" - in which the April Core PCE Index value of 1.05% is the lowest ever recorded. For reference, here is a long-term chart of that measure:

The Confidence Fairy, The Expectations Imp, and the Rate-Hike Obsession - Krugman - Brad DeLong has a long meditation on policy that, surprisingly, includes some things I strongly disagree’s where I think Brad is getting something wrong now: when he says that  It is unfair for Keynesians to be making fun of the people who call for austerity by saying “confidence fairy” when they are making similar expectational-shift arguments themselves. He’s referring to calls for the Fed and other central banks to raise expectations of future inflation as a way to get some traction in a liquidity trap — which is certainly something I and others support. But there are two crucial differences between us and the expansionary austerity types.First, our expectations argument is a hope; theirs is a plan. I want the Fed, the Bank of Japan, etc. to target higher inflation, in the hope that it might help, but it’s a hope, and meanwhile we need to fight demands for fiscal austerity and even push for stimulus. The expansionary austerity types, on the other hand, are (or were) actually counting on the supposed rise in confidence to avoid what would otherwise be nasty recessions, which have in fact materialized.Which brings us to the second point: those of us hoping to summon the expectations imp want to do so with policies that are at worst harmless, such as expanding the monetary base under conditions where this has no direct inflationary impact.

Top U.S. CEOs Expect Slow Economic Growth Ahead - Members of the Business Roundtable, a lobbying group for CEOs at large U.S. companies, said they expect the nation’s economy to expand 2.2% this year, up slightly from the 2.1% growth they forecast previously. The latest survey, conducted in May and released Wednesday, found that 78% of the 141 respondents expect their sales to increase in the next six months, while just 37% plan to boost their company’s capital spending and 32% expect to expand their workforces during the same period.“The survey results reflect an economy that is on a slow road to recovery,” Jim McNerney, the CEO of Boeing Co. and chairman of the Business Roundtable, told reporters. The nation’s top executives are seeing job growth that is “muted, pretty across the board,” Mr. McNerney said, though the auto manufacturing and health care industries are bright spots that are hiring more. The U.S. economy is being held back by an international environment in which the European economy remains mired in a “very negative situation” while emerging economies continue to grow at a healthy clip, Mr. McNerney said. He added that the domestic economy is also suffering from legislative uncertainty, as debates over immigration, tax and budget overhauls drag on. Resolution for these issues could “provide a tailwind” to the economy, Mr. McNerney said, adding that business investment “remains constrained until we get some certainty.”

Remarkably Stable NGDP Growth – Part 1 - In comments here, Mark Sadowski says a lot of thoughtful things, including this:Beckworth is claiming that AD growth has been steady despite fiscal contraction which it has. In fact the standard deviation of the quarterly growth rate in nominal GDP (NGDP) since 2010Q1 is by far the lowest for any 13 quarter period on data going back to 1947. Many Fed watchers have been stunned by the amazing steadiness of the NGDP numbers despite all the various fiscal policy shifts (or cliffs) and this raises serious doubts as to the existence of a liquidity trap. I’ll admit, it’s not at all clear to me how the serious doubts follow from the amazing steadiness when GDP growth is stuck in the mud, but it’s that steadiness that I want to focus on – eventually. Meanwhile, Graph 1 shows the YoY percentage growth in GDP over my life time, seasonally adjusted quarterly data. As you can see, GDP growth has certainly been steady over the last three years, albeit at a remarkably low level.  Market monetarists argue that since monetary policy has been inept and fiscal policy has not been expansionary, this steady growth casts serious doubts on the efficacy of fiscal policy. Why can’t one simply turn this around and say that since fiscal policy has been inept and monetary policy has not been expansionary, this steady growth casts serious doubts on the efficacy of monetary policy?  Either way it makes very little sense.  And you’ll note that supporters of fiscal policy never make this kind of claim.

Remarkably Stable NGDP Growth – Part 2 (Part 1)   The low standard deviation of GDP growth is primarily an artifact of low GDP growth numbers Suppose you have a data set with values hovering around 13, with a range of +/- 20%.  The entire packet width is 5.2.  Now suppose you have another data set with values hovering around 3, with a range of +/- 20%.  The entire packet width is 1.2.  Does this suggest that the second data set is more steady than the first? The graph shows the 13 quarter standard deviation of GDP growth since 1947.  Data is from this FRED page, Gross Domestic Product, 1 Decimal (GDP), Quarterly, Seasonally Adjusted Annual Rate, 1947-01-01 to 2013-01-01.  GDP growth graph can be seen here. Yes the standard deviation is dropping like a rock for the last 5 quarters.  It dropped like a rock from 1952 to 57 [with three separate stages that were each comparable to what we are seeing now,] from 1961 to 1965 in two stages, and from 1984 to 88 in two stages.  It always drops after a recession – sometimes like a rock and sometimes in a more leisurely fashion.  The reason that the bottom values were higher in those earlier periods than what we’re seeing now is that the GDP numbers were bigger.

How The Fed, Courtesy Of Foreign Banks, "Grew" The US Economy By $146 Billion In The First Quarter - By now it should come as no surprise to anyone that in a Keynesian world in which the aggregate increase in credit levels is the only necessary and sufficient driver for "growth", as admitted repeatedly by Europe which has blamed its longest ever recession on "(f)austerity" and the inability to issue debt like a drunken-sailor, that the only thing that matters is how much credit money (i.e., liabilities) are created in the banking sector, either organically by creating loans, or through the Fed's low-power "reserve" money creation. If there is any confusion, we present Exhibit A: the chart that strips away all the conventional GDP = C+I+G+(X-M) abracadabra and cuts to the chase - US GDP has tracked the change in traditional bank liabilities for the past 50 years on an almost dollar for dollar basis.

Fed’s QE Has No Impact on Full Time Jobs Ratio Stuck at 1983 Levels - The actual NSA (not seasonally adjusted) number of persons reported in the CPS as employed in May rose by 708,000 from April. Over the previous 10 years, with the exception of 2009, May has always shown an increase. The average increase over that period, excluding the recession year of 2009 was 445,000. Last year the increase was 732,000. This year’s May gain was second to only last year over the past 11 years. The year over year gain in total employment under the CPS was 1.2% which was the same as in April and up from 0.9% in March. The annual growth rate has decelerated from 2.2% last October. The growth rates were actually stronger before the Fed restarted pumping money into the economy in November, when it settled its first MBS purchases in QE3. Full time employment in the CPS rose by 969,000 in May, which is always an up month for full time jobs. This year’s gain was better than last year’s 635,000 and better than the average gain of 756,000. The annual gain was 1.8%, which is better than a trough of 0.8% set in March, but still below the 2.4% rate when QE3 was announced in September and 2.1% when the cash started hitting the system in November. As for whether the fecal cliff and secastration have had a negative impact, the answer is no. The current annual gain of 1.8% in full time jobs is exactly the same as in December and January before the fecal cliff took effect.  The Keynesian complaint that the fecal cliff has slowed jobs growth isn’t supported by the data.  It also does not appear that the Obamacare employment rules that require full time workers to have coverage has had a lasting material impact. The hysteria and paranoia surrounding government policy notwithstanding, the  US economy is so big and slow moving that these niggling policy changes at the margin have virtually no impact

Here’s Proof Fed QE Is Great For Bubbles, For Jobs, Not So Much - The Fed’s QE has been great for bubbles. Since the Fed began publishing its open market operations daily starting in 2002, we’ve been able to see the correlations of the direction of the Fed’s System Open Market Account (SOMA) with 3 stock market bubbles, plus the biggest credit and housing bubbles in history, and the creation of fake bubble jobs in 2005-2007. When the bubbles collapsed in 2007 and 2008, the fake jobs disappeared. The Fed has frantically tried to reflate the bubbles since 2007. It has had great success with bond prices, stock prices, and house prices. But the fake jobs haven’t come back. That’s because while asset prices have undergone massive inflation since the 2009 bottom, economic activity has merely mirrored population growth. QE has done absolutely nothing to stimulate additional economic growth. Meanwhile employers have wised up. They don’t need the fake jobs and they’re not going to hire people to fill them. Fake bubble prices are back, but the economic activity that accompanied them the last go round isn’t. The fake bubble jobs haven’t come back. And the chances of them coming back anytime soon are pretty slim.  Businesses have found that squeezing their workers works to increase executive bonuses and to transfer wealth from labor to themselves. They’ll continue to do that until they’ve squeezed the lemon dry and the economy collapses because the vast majority of workers, not to mention the unemployed, can’t afford to buy the products and services that businesses provide. Businesses ultimately cannot survive on the sale of luxury goods to the top 7% alone.

Fiscalists, Monetarists, Credibility, and Turf - Paul Krugman -- Cardiff Garcia has a nice survey of the two main groups of stimulati — those who want policy makers to be doing much more in the way of fiscal expansion, and those who want much more in the way of monetary expansion. As he says, most (but not all) of the players here are, as a practical matter, OK with trying both, so in policy terms there isn’t much argument between them. I’d just add two points. First, I concluded that monetary policy could be effective, but only if — in what I guess is now a widely used phrase — the central bank could credibly commit to being irresponsible, that is, to allowing inflation to rise, not tightening money as soon as the economy recovered. When crisis struck more widely, it became clear to me just how hard this would be to achieve — in part because it would obviously take years to persuade central bankers that they needed a higher inflation target, and further time to convince investors that the central bankers really had changed their spots.  So I became a pragmatic fiscalist, for reasons best laid out by Mike Woodford: the great thing about fiscal stimulus is that it doesn’t depend on expectations, and it works even if nobody believes it will work. Second, I’m surprised that Garcia doesn’t mention Richard Koo, who would seem to be the prime candidate on the fiscalist side for someone who is adamant that we not try monetary policy on the side. I’ve written about my puzzlement over Koo’s position.

Why Bernanke was right to speak out on fiscal policy - This is a comment on Cardiff Garcia’s post on fiscalists and market monetarists, and also some related criticism of Bernanke’s recent remarks on fiscal policy, criticism which I think is totally wrong. I want to argue that a ‘monetarist’ position which is indifferent to what fiscal policy is doing in current circumstances is untenable. As a result, central bankers have to speak out on the dangers of austerity. [1] There are two lines that monetarists might take. The first is that unconventional monetary policy, Quantitative Easing (QE), is a perfect substitute for conventional monetary policy. The second is that an appropriate monetary policy regime can, through expectations, undo the restriction imposed by the zero lower bound (ZLB). Let me take each in turn. The first argument is wrong mainly because of uncertainty. Macroeconomists know little enough, but we do know something about how conventional monetary and fiscal policy works, and we have a lot of data that can help us. We know so much less about unconventional monetary policy. What kind of model we should use is unclear, and we have very little data. The second argument would be right if we could fix inflation expectations in exactly the same way as we could, absent the ZLB, fix nominal interest rates. Would a nominal GDP target do that? Of course not.

Why Isn’t Disruptive Technology Lifting Us Out of the Recession? - Brookings - The weakness of the economic recovery in advanced economies raises questions about the ability of new technologies to drive growth. After all, in the years since the global financial crisis, consumers in advanced economies have adopted new technologies such as mobile Internet services, and companies have invested in big data and cloud computing. More than 1 billion smartphones have been sold around the world, making it one of the most rapidly adopted technologies ever. Yet nations such as the United States that lead the world in technology adoption are seeing only middling GDP growth and continue to struggle with high unemployment. There are many reasons for the restrained expansion, not least of which is the severity of the recession, which wiped out trillions of dollars of wealth and more than 7 million US jobs. Relatively weak consumer demand since the end of the recession in 2009 has restrained hiring and there are also structural issues at play, including a growing mismatch between the increasingly technical needs of employers and the skills available in the labor force. And technology itself plays a role: companies continue to invest in labor-saving technologies that reduce demand for less-skilled workers.

10Y TIPS Yield Above 0%; Highest In 19 Months - After 19 months in the red, yields on the 10Y TIPS have just shifted into positive territory. We saw a similar surge in TIPS yields in Q4 2010 / Q1 2011 which did not end well for stocks. This comes along with the simultaneous drop in the Fed's inflation gauge - five-year forward breakevens - which is now at its lowest in 9 months. This kind of drop has previously led to further QE action by the Fed, and right on cue...*

U.S. 30-year yield hits fresh 14-month high (Reuters) - U.S. 30-year Treasury bond prices fell 1 point on Tuesday, adding to earlier losses and sending the 30-year yield to a fresh 14-month high, according to Reuters data. The decline in the U.S. "long" bond price was part of a global debt market sell-off after the Bank of Japan disappointed traders by not embarking on measures to help reduce recent market volatility. The long bond last traded 31/32 in price with a yield of 3.427 percent, up 5.5 basis points from late on Monday.

Treasury Sales By Foreigners Hit Record High In April - The monthly TIC (foreign capital flows) data gets less respect than it should. Perhaps it is because it is two months delayed, or perhaps due to the Treasury Department labyrinth one has to cross in order to figure out what is going on. Either way, for those who do follow the data set, will know by now that in April, foreign investors, official and private, sold $54.5 billion. Why is this number of note? Because it is the biggest monthly sale of Treasurys by foreigners in the history of the data series. The TSY revulsion was somewhat offset by a jump in MBS purchases, which saw $23 billion in acquisitions, while corporate bonds were sold to the tune of $4.5 billion. Finally, looking at equities, foreigners were responsible for some $11.2 billion in US stock purchases. The great rotation may not be working domestically, but it seems to be finally impacting foreign investors.

The Bond Market Vigilantes Are Still Not in the Same Hemisphere as We Are...Brad DeLong - Matthew Boesler: US Real Rates Rise Central To Markets: For the first time in years, real interest rates are rising rapidly in America, leading to strength in the U.S. dollar…. Bond markets across both the developed and the emerging worlds are selling off as rising interest rates in the U.S. make American government debt a more attractive investment… caused a bout of weakness in stock markets from the U.S. to Europe, from Japan to emerging markets, and almost everywhere in between. All of this begs the question: are central bankers finally losing control of long-term interest rates, which for years following the global financial crisis of 2008 have been their most powerful policy instruments? Answer: no. When the 10-Year TIPS yield gets above 2.5%/year it might be time to start thinking about whether the long run in which the bond market wreaks its will upon the economy and constrains the Fed might be on the way. When the TIPS yield crosses zero? No way…

The more you borrow, the more you'll pay - Jim Hamilton - A key reason to be concerned about high debt levels is very simple-- you're going to be stuck with the bill for the interest payments for the rest of your life. According to the Congressional Budget Office, net federal debt held by the public (which leaves out the sums owed to Social Security and other trust funds) was $11.3 trillion as of the end of 2012, or 73% of GDP. Federal net interest expense for 2012 came to $220 B, for an average interest rate paid on outstanding debt of 220/11300 = 1.9%. The graph below repeats that same calculation for each of the last 40 years. Federal interest expense as a percent of debt owed is currently lower than it's been at any time during this period. For example, the average implied rate over 2000-2009 was 4.5% and the average over 1990-1999 was 6.6%. That implied rate calculation tracks the actual interest rate on a 10-year Treasury bond fairly closely.And that makes it pretty simple to calculate what would happen to the government's total interest expenses if interest rates were to rise. For example, if today the government had to pay the same average rate that was seen over 2000-2009, interest expense would come to (0.045)(11,300) = $508 B every year, even if the level of debt stays exactly where it was as of the end of last year ($11,300 B). With an average interest rate like we saw in the 1990s, the interest cost would be (0.066)(11,300) = $746 B. For comparison, total federal discretionary spending on all categories other than defense came to $615 B in 2012, and the entire defense budget was $670 B.

Debt Alarmism in California - Not all the paranoia about fiscal deficits has been exorcized.  Jim Hamilton tells us that, if interest rates rise, the interest burden on the federal debt will swallow us whole, or nearly.  Where will we get the cash to service this monster? The short answer is: from the same folks who are collecting all this interest.  Lord knows, there’s plenty of room for tax increases on the wealth-holding class, and there’s no reason why we can’t have a private-to-public flow of tax transfers to offset any increase in public-to-private interest transfers.  More even.  If our economy ever gets back on its feet and away from the ZLB, fiscal multipliers will be small again, and smaller still at the highest income brackets. The key is to remember that, if the increased government debt is held domestically, we are simply seeing a shifting of net credit positions between the private and public sectors.  If the balance shifts too much toward private net wealth and public net obligation, we have ways to rebalance again.  If interest rates rise, lean on the tax lever; if not, go a little easier.  I hear you ask, what if a significant portion of new public debt ends up in the hands of foreigners?   If there is a sizeable net increase in foreign holdings of US assets, public and private, then we have a widening payments imbalance to deal with—and that’s the problem, not the fiscal deficits.

If Interest Rates Rise, We Can Plummet the National Debt! - Dean Baker makes what seems to be a stunningly obvious point, one that I haven’t seen discussed anywhere. Condensed and with emphasis added for your consideration:…the value of our [government] debt will plummet if interest rates risewe could buy back long-term debt issued today at interest rates of less than 2.0 percent for discounts of 30-40 percent. This would sharply reduce our debt-to-GDP ratio at zero cost. This is not some kind of magic bullet, of course: we would still pay the same interest Buy back $100 billion of 2% bonds at their new market value of $66 billion. Pay for it by issuing $66 billion of 3% bonds. Either way, interest: $2 billion. But (if we did this with all the outstanding 2% bonds) our debt/GDP ratio would plummet by 33%! That’s a magic bullet, right? Growth would skyrocket!

S&P Revises Up Its Outlook for US Debt: Markets Yawn - Perhaps you recall back in August of 2011 when S&P’s credit rating agency downgraded US debt…no??  Well, if not, you weren’t alone.  Markets shook it off, maybe because a) it didn’t make a lick of sense at the time, b) the credit raters hadn’t exactly distinguished themselves during the debt bubble. Well today they revised their outlook from “negative” to “stable.”  And again, I expect no one to notice. In fact, here’s the trajectory of 10-year Treasury yields since the downgrade, wherein you see a conspicuous lack of reaction to the downgrade.  I often poke at financial markets for not being as all-knowing as assumed, but in this case, I gotta give it up: they correctly ignored non-information.

U.S. on Track for Smallest Deficit in 5 Years - The U.S. government remains on track to post its smallest budget deficit in five years as higher taxes and an improving economy boost revenue. The budget deficit for the first eight months of the fiscal year, which started Oct. 1, totaled $626.33 billion, down about 26% from the same period a year earlier, the Treasury Department said Wednesday in its monthly report. Under current policies, the deficit is expected to fall to $642 billion for the full fiscal year and get as low as $378 billion in 2015, according to Congressional Budget Office projections. The last time the deficit was under $1 trillion was 2008, when spending outpaced revenue by $458.55 billion. The improving fiscal outlook is one reason that Standard & Poor’s raised its U.S. credit rating outlook to “stable” from “negative” on Monday. The government isn’t spending less. Outlays totaled $2.427 trillion from October through May, compared with $2.408 trillion a year earlier. Rather, receipts so far this year have jumped about 15% to $1.801 trillion, thanks largely to higher payroll taxes, higher tax rates for households making more than $450,000 and stronger incomes. One downside to the improving fiscal picture: less pressure for the White House and lawmakers to fix long-term problems, including unsustainable spending on Social Security and health-care programs.

Crisis Withdrawal Syndrome - Paul Krugman - Dean Baker complains, as he often does (and correctly so), about “reporting” on the fiscal outlook that reads a lot like editorializing — indeed, like a sponsored ad from Pete Peterson. But maybe he should show a bit of human sympathy: these guys are basically addicts trying to get off the stuff, and maybe it’s too much to expect them to go cold turkey. For the fact is that a lot of people inside the Beltway are still having a very hard time coming to terms with the fading away of the alleged fiscal crisis. Just the other day they were sure that they were being wise and serious by talking in apocalyptic terms about the looming danger of debt; then they woke up to find deficits down, medium-term debt projections looking distinctly not scary, and the research that supposedly showed that terrible things happen when debt crosses 90 percent of GDP debunked. The only thing they have had left to cling to is the proposition that in the long run we are all doomed; hence the boilerplate about nothing having been done to address long-term problems. Except that, too, turns out to be wrong, especially on health care. Social Security is about where it has always been, with spending expected to rise by around 1 percent of GDP by 2035. But if you compare the 2009 Trustees Report for Medicare (pdf) with the latest report, there’s a big change: Medicare spending, formerly projected at 7.2 percent of GDP in 2035, is now projected at “only” 5.6 percent. That’s still a 2-point rise from current levels, but the whole “entitlements” problem is now looking relatively manageable — maybe 3 percent of GDP in savings or additional revenue needed 20-plus years from now, which isn’t trivial but isn’t that impossible either.

The End of the Austerity Crusade? - Is President Obama planning to reverse course on deficit reduction? You will recall that the president joined the deficit-hawk crowd in calling for more than $4 trillion of deficit reduction over the next decade; that he has offered to cut Social Security and Medicare as part of a grand bargain (that the Republicans mercifully rejected); that it was Obama who appointed the Bowles-Simpson Commission; and that his own budget for FY 2014 includes substantial spending cuts. But, with the 2014 midterm election looming and the recovery stuck in second gear with mediocre job creation, there is zero chance of a grand-budget bargain that includes tax increases, and interest rates are creeping up (which will slow the recovery further). Europe demonstrates that austerity economics are a proven failure. Even the International Monetary Fund says so. So let us read the tea leaves.

Brad DeLong Says We Can't Do Anything to Raise Employment Because Billionaire Wall Street Bankers Are Still Too Dumb to Breathe - Dean Baker - Brad DeLong has a set of ruminations on the economic situation that we now face, the gist of which is that we better be cautious in using fiscal policy because "we" are worried that the bankers may sink themselves again if interest rates rise back to more normal levels.  In citing the Fed's successes Brad tells us: "There was the 2001 collapse of the dot-com Bubble that took $5 trillion of equity wealth down with it. IN all of these cases the Federal Reserve was able to react swiftly and smoothly to keep these large financial shocks from having much of an effect on the real economy of production and employment."That's not what the data show. First of all, from peak to trough we lost $10 trillion in equity value. The crash went far beyond the dot-coms, the stock price of everything from GM to McDonalds plummeted in the stock market crash of 2000-2002. It turns reality on its head to say there was not much effect on employment from this crash. Employment peaked in February of 2001. It didn't cross this peak again until February of 2005. The employment peak in the private sector was reached in January of 2001. It didn't cross this again until June of 2005. In both cases this was at the time by far the longest stretch without gains in employment since the great depression.

More Thoughts on Job Creation in the Recovery - Dean Baker - Having gotten a few e-mails I thought I would add a few more words on job growth in the recovery. There are a some basic facts on the growth and jobs story that I thought were not entirely clear in this NYT piece.First, the basic problem is that growth has been extremely weak in this recovery. Annual growth has averaged just over 2.0 percent in this recovery. That is pathetic, it is below the underlying trend rate of growth, which is in the neighborhood of 2.4 percent. This means that the economy has actually been falling further behind its potential level of output even during the recovery.Growth during a recovery is usually proportionate to the severity of the downturn. When we had severe downturns in 1974-75 and 1981-82 we saw years of growth in excess of 6 percent. If this recovery were like other recoveries that is what we would be seeing. By comparison, the 2.0 percent growth we actually have seen is dismal. No one should think that growth has been anywhere close to acceptable in the recovery.Just to be clear, this is not because the Obama administration has been especially inept in dealing with the economy. They have been inept, facts speak for themselves and millions of people are needlessly suffering as a result, but the nature of the problem they faced was qualitatively different than in other downturns.

“The sequester will help the economy”: another right-wing fairy tale debunks itself - Remember all those fearless predictions by the usual grinning idiots on the right about how the sequester was going to work miracles for the economy? Well guess what? That never happened. The sequester took effect on March 1, so we now have three months’ worth of jobs data that have been released in its aftermath. The results have been underwhelming, to say the least. As Brad DeLong observed this week, we are still in a depressed economy. And as Ed noted yesterday, the latest monthly jobs report was thoroughly mediocre.  I particularly wanted to highlight the point the New York Times’ Annie Lowrey made: that the report shows that the sequester is already, specifically beginning to have a negative impact on employment. Yesterday’s report shows that the federal workforce, which has suffered cutbacks due to the sequester, is shrinking at a dramatically accelerated rate: Those newly unemployed federal workers, of course, now have less money to spend, which will also slow down the economy. In addition, the sequester is also causing cuts in programs like unemployment benefits and benefits to low-income people such as aid for Women, Infants, and Children (WIC) and the Low Income Home Energy Assistance Program (LIHEAP). Benefits to the unemployed and low-income folks act not only as a social safety net, but also as stimulus, since poor people and the jobless are likely to spend every penny they’ve got.

Sequestration - It's Just Beginning -- Evidence of the sequester remains elusive. The warning signs that we track closely – initial jobless claims, Richmond Fed, personal income and payrolls – do not show any material deterioration that we can attribute to the sequester. One mystery is why personal income of government workers has not contracted, as fewer hours worked should equal less pay. The answer, BofAML notes, is simple - it's just beginning... Close to a million federal employees have been told that they will be furloughed for several days this year, but the number that has actually started to take furlough days is quite low. We expect aggregate government worker income to decline in May given that furloughs started in late May. The first day of government wide furloughs was on May 24, when roughly 115,000 federal workers, or 5% of the total federal work force, stayed home without pay. However, with the majority of the furloughs not kicking in until the beginning of July, including the Pentagon’s 680,000 furloughs beginning July 8, the real income shock will not show up until the July personal income and outlay report on August 30.

The sequester may start to show in data -- So far, signs that sequestration and higher tax rates have damaged the economy have been few and far between. The White House press corps has begun to regularly pepper Obama spokesman Jay Carney with questions about whether the administration cried wolf when it warned about damage from federal government cutbacks that went into effect on March 1. But some economists say evidence of a negative impact from a so-called fiscal drag may start appearing. “The sequester looks to me like it is more a May story than an April story,” said Ethan Harris, co-head of global economics research at Bank of America Merrill Lynch. Analysts think that technical factors have delayed the impact. Scott Anderson, Bank of West chief economist, said companies paid out bonuses in December which allowed many consumers to smooth out spending. And the sequestration only cut budget authority, not spending, allowing government agencies room to work their magic and avoid furloughs. But Anderson, who is also the chairman of the American Bankers Association’s economic advisory panel this year, said economists think a slowdown is coming. “We all believe it is going to have a significant impact on growth,” Anderson said.

Stop the deficit extremists - The U.S. economy is improving, yet Congress seems still to be in the grip of the delirium that shrinking the deficit in the near term is still a matter of paramount urgency. That's what's prevented lawmakers from dealing with their real task, which is to jolt the miserable jobs recovery into a higher gear and lift the budget sequester, one of the outstanding examples of mass insanity the country has ever seen. Consider the sequester as exhibit A. That's the package of mandated budget cuts enacted as part of the deal to raise the debt limit in 2011. They were supposed to be so draconian that Republicans and Democrats would have to come to the negotiating table for a budget deal. That didn't happen, so the cuts went into effect this year. They're expected to pare anywhere from a half a percentage point to a full point from 2013 growth projections. Since projections for 2013 growth have been hovering in the 2% range, that's real damage.

IMF Urges Washington to Repeal ‘Ill-Designed’ Spending Cuts - NYT - The International Monetary Fund urged the United States on Friday to repeal sweeping government spending cuts and recommended that the Federal Reserve continue a bond-buying program through at least the end of the year. In its annual check of the health of the U.S. economy, the IMF forecast economic growth would be a sluggish 1.9 percent this year. The IMF estimates growth would be as much as 1.75 percentage points higher if not for a rush to cut the government's budget deficit. The IMF cut its outlook for economic growth in 2014 to 2.7 percent, below its 3 percent forecast published in April. The Fund said in April it still assumed the deep government spending cuts would be repealed, but it had now dropped that assumption. Washington slashed the federal budget in March, adding to the drag on the economy created by tax increases enacted in January. The IMF said the United States should reverse the spending cuts and instead adopt a plan to slow the growth in spending on government-funded health care and pensions, known as "entitlements." The Fund would also like the United States to collect more in taxes. "The deficit reduction in 2013 has been excessively rapid and ill-designed," the IMF said. "These cuts should be replaced with a back-loaded mix of entitlement savings and new revenues." The IMF warned cuts to education, science and infrastructure spending could reduce potential growth.

Why is the IMF telling the US to kill the sequester when tax hikes are the bigger fiscal drag? - The IMF is advising Washington to, among other things, kill the sequestration budget cuts in order to boost economic growth: On the fiscal front, the deficit reduction in 2013 has been excessively rapid and ill-designed. In particular, the automatic spending cuts (“sequester”) not only exert a heavy toll on growth in the short term, but the indiscriminate reductions in education, science, and infrastructure spending could also reduce medium-term potential growth. These cuts should be replaced with a back-loaded mix of entitlement savings and new revenues, along the lines of the Administration’s budget proposal. At the same time, the expiration of the payroll tax cut and the increase in high-end marginal tax rates also imply some further drag on economic activity. Except that a new study from the San Francisco Fed estimates while US budget policy will knock as much as one percentage point a year from GDP growth over the next three years — 90% of the fiscal drag comes from higher taxes.  So why isn’t the IMF talking about repealing the “super-cyclical” rise in taxes, everything from higher income tax rates for high-income households to the recent expiry of temporary Social Security payroll tax cuts to new taxes associated with Obamacare?

Reminder That Debt Ceiling Debate Still Looms - Investors are focused on how monetary policy will play out this summer. But on Monday rating agency Standard & Poor’s sent a reminder that fiscal policy could also shift the economic outlook this summer. Within its announcement that it was lifting its U.S. long-term debt-rating outlook to stable from negative, S&P mentioned increased partisanship in Washington has made it more difficult to resolve budget disagreements. The next big fiscal debate will come this summer when Congress must raise the government’s debt ceiling. Because Washington leaders avoided pushing the economy off the fiscal cliff early this year, the rating agency is hopeful the White House and Republican congressional leaders will find a way to play nice. “Although we expect some political posturing to coincide with raising the government’s debt ceiling, which now appears likely to occur near the Sept. 30 fiscal year-end, we assume with our outlook revision that the debate will not result in a sudden unplanned contraction in current spending–which could be disruptive — let alone [a pause in] debt service,” the S&P release said. Yet with recent episodes — such as the IRS scandal and the phone surveillance program — distracting the White House and emboldening GOP members of Congress, expectations of an easy agreement may be overly optimistic.

Instead Of Fiscal Cliff, Call It "Cliffgate" 2014 - So now, in addition to Watergate, Monicagate, and all the other Washington disgraceful events that have been similarly labeled, it's time to start calling what happened last November and December something new. "Fiscal cliff" is way too benign; the correct pejorative label is "Cliffgate." Why bring this up now? We're looking a new fiscal cliff, that is, yet another cliffgate, later this year. The Congressional Budget Office this week issued a short report showing that the so-called "extraordinary measures" -- what the U.S. Treasury does to manage cash and avoid default when the debt ceiling is reached -- will last until late October or early November. In one sense the CBO analysis is good news because the date is much later than had been projected earlier in the year. But it's also bad news in the sense that the same end-of-year budget scenario that was so destructive in 2012 is starting to emerge again in 2013. Here's what I'm expecting.

The Quiet Closing of Washington, by Robert Reich -  Conservative Republicans in our nation’s capital have managed to accomplish something they only dreamed of when Tea Partiers streamed into Congress at the start of 2011: They’ve basically shut Congress down. Their refusal to compromise is working just as they hoped: No jobs agenda. No budget. No grand bargain on the deficit. No background checks on guns. Nothing on climate change. No tax reform. No hike in the minimum wage. Nothing so far on immigration reform.  It’s as if an entire branch of the federal  government — the branch that’s supposed to deal directly with the nation’s problems, not just execute the law or interpret the law but make the law — has gone out of business.  But the nation’s work doesn’t stop even if Washington does. By default, more and more of it is shifting to the states, which are far less gridlocked than Washington. Last November’s elections resulted in one-party control of both the legislatures and governor’s offices in all but 13 states — the most single-party dominance in decades.  This means many blue states are moving further left, while red states are heading rightward. In effect, America is splitting apart without going through all the trouble of a civil war.

The Big Shrug, by Paul Krugman - For more than three years some of us have fought the policy elite’s damaging obsession with budget deficits ... that led governments to cut investment when they should have been raising it, to destroy jobs when job creation should have been their priority. That fight seems largely won —... I don’t think I’ve ever seen anything quite like the sudden intellectual collapse of austerity economics as a policy doctrine. But while insiders no longer seem determined to worry about the wrong things, that’s not enough; they also need to start worrying about the right things — namely, the plight of the jobless and the immense continuing waste from a depressed economy. Instead, policy makers both here and in Europe seem gripped by a combination of complacency and fatalism, a sense that nothing need be done and nothing can be done. Call it the big shrug.  Even the people I consider the good guys ... aren’t showing much sense of urgency these days. For example,... the Federal Reserve’s ... talk of “tapering,” of letting up on its efforts, even though inflation is below target, the employment situation is still terrible and the pace of improvement is glacial at best. ... Why isn’t reducing unemployment a major policy priority? One answer may be that inertia is a powerful force... As long as we’re adding jobs, not losing them, and unemployment is basically stable or falling ... policy makers don’t feel any urgent need to act. Another answer is that the unemployed don’t have much of a political voice. ... A third answer is that while we aren’t hearing so much these days from the self-styled deficit hawks, the monetary hawks ... have, if anything, gotten even more vociferous. It doesn’t seem to matter that the monetary hawks, like the fiscal hawks, have an impressive record of being wrong about everything (where’s that runaway inflation they promised?). ...

Fiscal Fixes for the Jobless Recovery - Alan Blinder: Do you sense an air of complacency developing about jobs in Washington and in the media? After all, the story goes, the U.S. economy has been creating an average of 194,000 net new jobs per month over the past six months. And despite the small uptick on Friday, the unemployment rate has crept down another six-tenths of a percentage point over the past year, to 7.6%, even though GDP growth has been anemic. That's pretty good, right? No, it's pretty bad. The Federal Reserve estimates that normal "full employment" corresponds to a measured unemployment rate around 5.6%. Americans used to think 7.6% was an unemployment rate you get during a recession. The Brookings Institution's Hamilton Project, with which I am associated, estimates each month what it calls the "jobs gap," defined as the number of jobs needed to return employment to its prerecession levels and also absorb new entrants to the labor force. The project's latest jobs-gap estimate is 9.9 million jobs. At a rate of 194,000 a month, it would take almost eight more years to eliminate that gap. So any complacency is misguided. Rather, policy makers should be running around like their hair is on fire.

Discretionary Fiscal Policy as a Stabilization Policy Tool: What Do We Think Now That We Did Not Think in 2007? - J. Bradford DeLong and Laura D. Tyson - Six years ago there was near-consensus among economists and policymakers alike in support of Taylor's (2000) argument that aggregate demand management was the near-exclusive domain of central banks. Today central bankers like Federal Reserve Chair Bernanke (2013) are actively asking for help by fiscal authorities. What caused this shift? In part, the course of interest rates has made the costs of discretionary expansionary fiscal policy lower than anyone would have believed. In part, the benefits via Keynesian multiplier processes appear to have been much larger than was presumed. And in large part monetary policy has proven inadequate to the task without undertaking risky and untried non-standard policy measures at a scale that has so far proven too large for central banks to risk. Against this shift in the benefit-cost calculus toward use of discretionary expansionary fiscal policy in the current conjuncture we must set uncertain long-run costs of debt accumulation. These costs, however, remain especially hard to analyze, as they seem to substantially consist of “unknown unknowns”.

Revenue Blues: The Case for Higher Taxes -  From the 1940s into the 1970s, as Beth Pearson points out, taxes were widely understood as essential investments in the public good, and the anti-tax crackpots occupied the political fringes.  Much of the anti-tax rhetoric, of course, serves a “starve the beast” strategy by which diminished revenue yields budget deficits, spending cuts, impoverished public services, and demands for further tax cuts. But that’s not the way the argument is made. Instead we are told that the administration (or “Washington”) has engaged in an unsustainable orgy of taxing and spending. This couldn’t be farther from the truth. As Dean Baker and others have tirelessly reminded us, the deficit is a creature of the recession (which placed new demands on public programs as it strangled revenues) and not of some willful spending spree. In fact, discretionary government spending, as a share of gross domestic product (GDP), has never been lower. But the real howler here is on the tax side. There is no conceivable benchmark—in our past, or in comparison to our international peers—by which one could sustain the argument that we are taxed too much, or “taxed enough already.” Here are four ways of underscoring that point.

The Tax Code Ain't Nearly So Big as Often Claimed - Linda Beale - Many of those claims about a giganormous Code that is pressing down on taxpayers from the sheer weight of its pages stem from three facts:  (i) that the CCH looseleaf service itself notes that the service (in 20-odd volumes, with extensive and often duplicative annotations to cases, private letter rulings, notices, and various legislative history and rev.proc and rev.rul. items as well as the actual current Code provisions and regulations promulgated thereunder) runs more than 70,000 pages; (ii) that it is very useful to propaganda tanks and others bent on painting a negative picture of IRS tax enforcement and collection and taxes in general to portray the rules as so complex and lengthy that no one in their right mind could think it appropriate; and (iii) people without those bad propaganda intentions frequently serve as shilling boom-boxes for those (false) claims, because they don't stop and think or do their own homework.  So the claims are repeated, over and over, and --as psychologists have shown--once something is repeated often enough, it gets to be accepted as fact even by those who should know better.   

Congress Hurdle to U.S. Code Rewrite Seen as Few Know How: Taxes -  As lawmakers rewrite the 4,000-page U.S. Internal Revenue Code, the complexities of Congress -- not just the tax code -- may present some of the biggest hurdles. Lobbyists and lawmakers working on tax legislation point to a relative lack of experience among officials and their staffs -- particularly among House Republicans -- in drafting, debating, and voting on major pieces of tax legislation. That may make tax reform more difficult, Bloomberg BNA reported. Add the migration of power from House committees to a small number of majority-party leaders in recent years, and the odds of passing tax reform appear longer still.Of lobbyists, officials and former lawmakers, and tax-writing staff members interviewed by BNA, none predicted that the challenges would derail reform. Several agreed the task will be tougher based on the realities of crafting such a complicated bill. Votes in committee alone could take days, testing the patience and knowledge of staff and lawmakers.

Tax Reform Bumps Into More Political Reality - If Congress is going to reform the tax code, it will take an enormous amount of hard work and a lot of luck. The stars, as they say, will have to align. Unfortunately, those galactic bodies seem to be getting more and more disarranged. Reform just can’t catch a break. The deficit is shrinking, taking away one possible driver of a rewrite. The Congressional Budget Office now projects the nation won’t bump up against its debt limit until October or even November, taking even more steam out of any Grand Bargain—or even a not-so-grand deal.  And pols seem unable to disentangle themselves from distracting sideshows such as the IRS tea party flap. Some have argued that these events make reform easier, not harder. The IRS scandal, they say, will encourage bipartisan compromise.. I don’t think so. Yesterday, House Ways & Means Committee Chairman Dave Camp (R-MI) gave an important update on tax reform to a group of Washington tax wonks. Yet his talk got almost no attention. The headlines came from what he said to reporters after the event. The Hill’s was typical: “Ways and Means Chairman: IRS targeting of Tea Party groups didn’t start in Ohio.” Tax reform? What tax reform?

No Tax Reform Before The End Of This Decade -  Tax reform is at least three years away...and even that may be optimistic. In fact, I'm not expecting a serious tax reform effort until 2017. Note that I said "effort" rather than a bill. Comprehensive tax reform is far more likely to be enacted towards the end of the decade than it is to be in place before the 2016 presidential election. Yes, I know that absolutely is not the common wisdom. House Ways and Means Committee Chairman Dave Camp (R-MI) has been saying all year that he wants to put tax reform on a fast track so it can be enacted this year. Just a few months ago House Republicans were threatening to make a process for tax reform the price of their supporting the next increase in the federal debt ceiling. And when Senate Finance Committee Chairman Max Baucus (R-MT) announced that he wasn’t going to run for re-election, there was a flurry of speculation about how that decision would make tax reform more likely to happen this year. All of this is nonsense. None of the statements, threats or retirements had any real impact of the politics of tax reform, which are as intractable today as they were at the start of the year.

Why no tax reform this year — or this decade - The chances for fundamental tax reform this year depend heavily on either a) some sort of “grand bargain” being reached on the budget or b) the endgame of a debt-ceiling fight. (Indeed, the first may well be linked to the second.) As I wrote earlier today, the first option is unlikely. And the clock is ticking on the second one as the sharply declining fiscal deficit has pushed back the debt limit. Again, ace political analyst Chris Krueger of Washington Research Group: The debt ceiling is the catalyst for tax reform/deficit reduction and each month you extend the discussion, you lessen the timeframe (and likelihood) of meaningful tax reform. … With a tax reform process via the debt ceiling now likely out the window, the debt ceiling showdown this autumn does not have a logical exit strategy. So don’t expect tax reform this year. And budget expert Stan Collender makes a compelling case that we won’t see tax reform for the rest of the decade. His take: Unlike in 1986, the last time major tax reform passed, Democrats will insist any deal raise revenue. (Democrats will also insist on that in exchange for entitlement reform.) And given that requirement: House and Senate Republicans cannot possibly agree to a tax increase before the 2016 presidential election without seriously, and probably fatally, hurting their political prospects.

Chart of the Day: America's 30-Year Project to Make the Rich Even Richer  - Here's a remarkable chart from EPI.. Actually, no: Strike that. It's true that in a normal world it would be remarkable, but in the world we live in it's actually totally unsurprising. It illustrates the rise in income inequality over the past three decades (top dark blue line), and as you can see, it's been rising steadily. Totally unsurprising. But then author Andrew Fieldhouse did another calculation. The middle blue line shows rising inequality after you account for taxes and transfers. But what if we had the same tax system we did in 1979? Well, inequality still would have gone up, but it would have gone up significantly less (bottom light blue line). In other words, during an era in which the rich were getting richer anyway, we deliberately set out to reduce their tax burdens so that they could become even richer.

Private prison firms, casino operators, and outdoor advertising as REITs--time to get rid of tax subsidies for RE industries - Linda Beale - The Wall Street Journal reported Saturday on an IRS effort to police the misuse of REITs.  See IRS Puts Brakes on Corporate Push to Capture Real-Estate Tax Break, Wall St. J. (June 7-8, 2013), at B1. A REIT is a "real estate investment trust", a special-status entity created by Congress in sections 856 -859 of the Internal Revenue Code to provide a way for ordinary retail investors to share in a big investment in real estate that would be impossible for them to do individually.  REITS avoid the corporate tax so long as they distribute most of their income as dividends to shareholders.The Journal story notes that private prison operator Corrections Corp of America has already completed conversion to REIT status.  Now a flock of corporations operating various businesses that one wouldn't ordinarily think were intended to be covered by the REIT exception to corporate taxation are applying for REIT status--including Iron Mountain Inc. (document storage operator), Lamar Advertising Co. (outdoor billboards), Equinix Inc. (data-center operator), and Penn National Gaming Inc. (casino operator).  CBS  submitted a letter ruling request for its outdoor advertising division's bid for REIT status and an IPO, a move that would save it $145 million in 2014 taxes (and more in later years), according to Davenport Research, as reported in the Journal. In addition to the distribution requirement, REITs avoid corporate taxation only if they satisfy a complex set of eligibility requirements:

Obama Nominates America’s Biggest Walmart Cheerleader as His Chief Economic Adviser - Lynn Parramore -- On June 10, 2013, President Obama announced his intention to nominate Jason Furman to become the next chairman of the Council of Economic Advisers. This is a big-time, highly influential post. So what kind of economist is Furman? One who thinks Walmart is the best thing since sliced bread. For Furman, Walmart is nothing short of a miracle for America’s poor and working-class folks. For him, progressives should be cheering the firm: he even wrote a 16-page paper titled, “Wal-Mart: A Progressive Success Story,” which was posted on the Center for American Progress website. Here’s a sample of Furmanomics: By acting in the interests of its shareholders, Wal-Mart has innovated and expanded competition, resulting in huge benefits for the American middle class and even proportionately larger benefits for moderate-income Americans. Furman has championed the company’s low prices as a big boost to lower-income folks, and views Walmart jobs as good opportunities, never mind the low wages.

Obama Axes Bank-Harrassing Gary Gensler at CFTC, Plans to Install Lightweight Ex-Goldmanite -  Yves Smith - Obama is no longer bothering to pretend that he is anything other than a stooge for banks and other big money interests. The president is effectively dismissing Gary Gensler, the ex-Goldman partner who headed the Commodities Futures Trading Commission. Gensler used his post at a secondary financial regulator to push for reforms. It was his office that blew the Libor scandal wide open by taking referrals from British regulators seriously (by contrast, Geithner, who heard about widespread, deliberate mismarking in 2008, passed the buck to the Bank of England). Gensler has also been making himself unpopular by taking the view that swap dealers, which includes foreign branches of US banks and parties that conduct business with US parties, must comply with Dodd Frank. As Automated Trader noted in April: Gensler has made strict adherence to Dodd-Frank a centrepiece of his swaps market reform campaign, although his initial stance generated considerable pushback from market participants and foreign regulators alike.

‘Financialization’ as a Cause of Economic Malaise - Economists are still searching for answers to the slow growth of the United States economy. Some are now focusing on the issue of “financialization,” the growth of the financial sector as a share of gross domestic product. Financialization is also an important factor in the growth of income inequality, which is also a culprit in slow growth. Recent research is improving our knowledge of financialization, which has yet to get the attention of policy makers. According to a new article, financial services rose as a share of G.D.P. to 8.3 percent in 2006 from 2.8 percent in 1950 and 4.9 percent in 1980. The following table is taken from their article.  They cite research that compensation in the financial services industry was comparable to that in other industries until 1980. But since then, it has increased sharply and those working in financial services now make 70 percent more on average. While all economists agree that the financial sector contributes significantly to economic growth, some now question whether that is still the case. According to the Bank for International Settlements, the impact of finance on economic growth is very positive in the early stages of development. But beyond a certain point it becomes negative, because the financial sector competes with other sectors for scarce resources.

Discussing “Money from Thin Air” on the Attitude - I appeared today on The Attitude with Arnie Arnesen to talk about my recent post “Do Banks Create Money from Thin Air?” But we ultimately veered into discussion of financial stability, where I tried to make the point at the end of the segment that – in my view – the problem of financial instability is not due so much to bank “money creation”, but is a much broader problem of the leveraging of debt with debt that is built into the nature of capitalist finance, and is a persistent danger that can only be met with a permanently vigilant, clean and independent regulatory apparatus – unlike the one we have!  Lot’s of good MMT and Bill Black themes in this discussion. Dan Kervick on The Attitude The Attitude is broadcast by WNHN 94.7 in Concord, New Hampshire

Do Collateral Chains Create Real Value? - Some of the keenest monetary thinkers out there, over at FT Alphaville — Izabella Kaminska, Cardiff Garcia, etc. (I’ll even throw in Tyler Durden at Zero Hedge, with qualifications) — have been pointing us for years towards the work of IMF Senior Economist Manmohan Singh on collateral chains in financial markets. He provides wonderfully cogent explanation of the shadow-banking system and how it creates “money” for the financial system. Start here:The other deleveraging: What economists need to know about the modern money creation process In brief, banks create debt securities collateralized by other debt securities, which in turn are used to collateralize yet more debt securities. This creates an upside-down pyramid of debt securities, all balanced upon a very small amount of real collateral.  Singh speaks in terms of the “velocity of collateral” when referring to the lengths of these collateral chains, and equates it to the “velocity of money” in the real economy. During the financial crisis these collateral chains shortened (and in individual cases evaporated), resulting in a huge decline in the financial system’s “money supply.” With fewer trusted counterparties in the market owing to elevated counterparty risk, this leads to stranded liquidity pools, incomplete markets, idle collateral and shorter collateral chains, missed trades and deleveraging.

Traders Said to Rig Currency Rates to Profit Off Clients - Traders at some of the world’s biggest banks manipulated benchmark foreign-exchange rates used to set the value of trillions of dollars of investments, according to five dealers with knowledge of the practice.Employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years. The behavior occurred daily in the spot foreign-exchange market and has been going on for at least a decade, affecting the value of funds and derivatives, the two traders said. The Financial Conduct Authority, Britain’s markets supervisor, is considering opening a probe into potential manipulation of the rates, according to a person briefed on the matter. “The FX market is like the Wild West,” The $4.7-trillion-a-day currency market, the biggest in the financial system, is one of the least regulated. The inherent conflict banks face between executing client orders and profiting from their own trades is exacerbated because most currency trading takes place away from exchanges.

WM/Reuters Busted In Latest Market Rigging And Collusion Scandal: Foreign Exchange - First it was the conspiracy theory that Li(e)bor traders were manipulating the entire rates market which a year ago became conspiracy fact. Then it was commodities with an emphasis on the energy market (but not gold - gold is never, ever manipulated) with even such luminaries as JPMorgan's Blythe Masters, subsequently implicated. And moments ago, via Bloomberg, to absolutely nobody's surprise, we learn that that final market which so far had not been exposed as the "wild west" of manipulators, the FX market, is part of the conspiracy "fact" too. According to Bloomberg, "employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years."

Annals of market manipulation, FX edition - Bloomberg has found anecdotal evidence of market manipulation in the FX world as well.  The problem here comes as little surprise. There are huge investors out there — largely ETFs and index funds — which invest internationally and which need to engage in a lot of large FX trades, especially at the end of the month. Their substantial FX trading notwithstanding, those funds don’t tend to employ dedicated FX traders. Instead, they do a deal with a big wirehouse — probably Deutsche, Citi, UBS, or Barclays — which promises them execution at whatever the spot FX rate is at the end of the day. So at 3:30pm or so at the end of the month, the index fund tells the bank that it will need to (say) exchange 1 billion dollars into Swiss francs; the bank promises to do so, at whatever the official market rate is at 4pm. The official market rate is determined by WM/Reuters, which looks at all the trades taking place between 3:59:30pm and 4:00:30pm, and then takes the median rate of all those trades.  As Matt Levine explains, if the bank can’t manage to buy those Swiss francs at the WM/Reuters level, then it will lose money; if it can get a better price than the WM/Reuters official rate, then it will make money.  Here’s Izabella Kaminska:“Concentration” tactics are normal practice for the industry. It’s the equivalent of creating economies of scale and then choosing the moment to transact so that the depth of the market, and its likely impact on the price, is most beneficial to you. It’s called skillful execution.

Everything is Rigged, Vol. 9,713: This Time, It's Currencies - Taibbi - Given the LIBOR story, the Interest Rate Swap manipulation story, the Euro gas price manipulation story, the U.S. energy price manipulation story, and (by now) countless others of the "Everything is Rigged" variety, this screams out for immediate notice. Via Bloomberg: Traders at some of the world's biggest banks manipulated benchmark foreign-exchange rates used to set the value of trillions of dollars of investments, according to five dealers with knowledge of the practice . . . Employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years. This time the rates allegedly being rigged are in the foreign-exchange or "FX" markets, meaning that if this story is true, it would almost certainly trump LIBOR for scale/horribleness.  Bloomberg suggested the story is just the tip of the iceberg: The $4.7-trillion-a-day currency market, the biggest in the financial system, is one of the least regulated. The inherent conflict banks face between executing client orders and profiting from their own trades is exacerbated because most currency trading takes place away from exchanges.

IT FINALLY COMES OUT: Elite Traders Are Getting Access To Data Before Everyone Else -  In the past few days people have finally started paying attention to a funny thing going on in the market. Time after time ahead of major news, there seems to be someone who knows something before it happens — there seem to be trades that hit too hard and fast before the news is actually made.  This has been going on for a while, and people are finally starting to understand why.  The current target of collective ire is Thomson Reuters. There was some shady trading ahead of the Consumer Confidence number at the end of last month. About a quarter of a second before the number was released, there was an eruption of orders in the SPDR S&P Sector ETF (SPY), the e-Mini (electronically traded futures), and in hundreds of stocks, according to Nanex, a market research firm. After some digging CNBC's Eamon Javers reported that the source of the early trading was Thomson Reuters. The company has a well-known deal with the University of Michigan, the source of the data, that allows Thomson Reuters to release that data 5 minutes before it's supposed to come out (9:55 am) to clients who pay for that privilege.  But Thomson Reuters also provides a service called “ultra-low latency,” which allows premium customers to get numbers like Consumer Confidence and the Institute for Supply Management's manufacturing index number 2 seconds before it's released to the general public for $2,000 a month.  Two seconds in high-frequency trading time is an eternity. The University of Michigan responded to this by saying, essentially, “we do it because people pay for it.

Auctioning Off the Jobs Report and Economic Efficiency - Dean Baker - Neil Irwin has an interesting discussion of a new practice by which some private data gathering outfits sell early access to the releases of their data at a premium. The idea is that a small number of people will have access to the new information ahead of the market.Irwin raises several issues about this practice, but misses an important one: economic efficiency. From an economic standpoint we would like as few resources as possible to be devoted to the process of collecting and disseminating information. This means for example, that if we can have 2000 people involved in the process of collecting data on employment, wages, prices and output and disseminating this information to the rest of us, we are much richer collectively than if we have 2 million people involved in this process (including the running of financial markets). However if we deliberately create a situation where there are large amounts of money to be made by getting early access to data then we will almost certainly be pulling more people into this process of collecting and disseminating information. To be concrete, if people think that they can make millions or billions of dollars by beating the crowd to information then many people will devote great effort to beating the crowd to information. This is pure rent-seeking in that their behavior offers no benefit to the economy. It will not make the economy more efficient if the price of a specific stock or other financial assets adjust 1 second more quickly to new information, however it can make particular individuals very rich.

Unproductive Finance - Paul Krugman - More than half a century ago, in his classic paper on the economics of speculation, Paul Samuelson noted the perverse rewards to knowing stuff just slightly before everyone else. Kevin Drum points us to a real-world example quite close to Samuelson’s thought experiment. It turns out that Thomson-Reuters pays the University of Michigan a million dollars a year to provide selected clients with the results of the latest survey of consumer confidence 5 minutes before the rest of the world sees them –and to provide super-special clients with this information 2 seconds before the rest.This is a trivial example; still, what we see here, as Drum notes, are real resources being devoted to the socially useless task of getting an economic number slightly before the hoi polloi. And you have to wonder how much of what the financial sector does is like that. Certainly these days many vast fortunes come, not from building something, but from consistently guessing what other investors are going to do a few days, or sometimes a second or two, ahead of the pack.

Mary Jo White Institutionalizes Deutsche Bank Protection Racket at the SEC - Yves Smith - The Financial Times has caught a significant revolving door that its business press peers have largely overlooked. In a front page story, the pink paper points out that the incoming chief counsel for the SEC has an outstanding suit against him from his last incarnation, as head of compliance for the Americas for Deutsche Bank. An overview: Robert Rice joined the SEC last week, working directly for Mary Jo White, the new SEC chairman.  Eric Ben-Artzi, a former Deutsche risk manager, filed a discrimination complaint with the US Department of Labor last year, alleging he was fired after telling the SEC that Germany’s biggest bank had hidden billions of dollars of losses with mismarked derivatives positions. The complaint describes several meetings with Deutsche officials, including Mr Rice… Mr Ben-Artzi, along with at least two other former Deutsche employees acting independently, went to the SEC with a range of allegations against the bank during the past three years. The common thread was a claim that Deutsche executives reduced their losses during the financial crisis by not properly marking derivatives positions known as leveraged super senior trades. The former employees estimated Deutsche should have recognised losses of $4bn-$12bn during the crisis. We wrote about the case last year in a series of posts. The underlying trade in question was a MEGO (My Eyes Glaze Over) type, a pre-crisis confection called a leveraged super senior trade. The extensive attachments to Ben-Artzi’s complaint made it clear (once you parsed them) that the valuation of this very large trade was basically a kludge. Ben-Artzi had been hired from Goldman to address that, and was pretty much prevented from doing his job, and then fired.

JPMorgan’s Dimon Says There Was No Lying, Hiding on Whale - JPMorgan Chase will fight “till the end” anyone who sues claiming they were misled over more than $6.2 billion in losses at the chief investment office last year, Chief Executive Officer Jamie Dimon said. “There was no hiding, there was no lying, there was no bulls----ing, period,” Dimon said today at a conference sponsored by Morgan Stanley in New York. While he conceded the company made some mistakes, “no one at JPMorgan, not one single solitary person, from CIO, to risk, to finance, to myself -- and a lot of people looked at it -- thought we had a big problem” when the bank reported earnings on April 13, 2012, the day Dimon dismissed news reports about the trade as a “complete tempest in a teapot,” he said. Executives thought they had losses that might cost about $200 million, Dimon said, “not a $6 billion problem.”

US to crack down on virtual currency tax fraud - US officials are targeting virtual currencies due to fears that Americans are using them to evade taxes, opening a new front in the crackdown on tax fraud. Virtual currencies such as Bitcoin and the exchanges where they trade have come under increased scrutiny since last month’s arrest of five individuals associated with Liberty Reserve, a Costa Rican-based digital currency business, on charges of running a $6bn money laundering scheme. High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email to buy additional rights. Authorities alleged Liberty Reserve was the “bank of choice” for drug traffickers, computer hackers, child pornographers and identity thieves. Now US authorities have signalled they believe that virtual currencies – which can be traded anonymously – are being used improperly in other ways including to evade tax. “Clearly the increasing use and misuse of cyber-based currency and payment systems to anonymously transfer illicit funds as well as hide unreported income from the IRS is a threat that we are vigorously responding to,”

Some Baby Steps on Money Funds - Money market funds need tighter regulation because both individual and institutional investors rely on them as bank-account alternatives. These investors have come to believe that their holdings will never decline in value; $1 in will always be $1 available for redemption. But unlike banks, money funds do not have to set aside capital for either redemptions or losses. Therefore, money funds can be vulnerable to runs when shareholders stampede for the exits.  To prevent a future run on these funds, the new, nearly 700-page S.E.C. proposal offers two possible regulatory fixes. One would require some funds to abandon the fixed $1-a-share asset price and require the price to float, based on fluctuations in their holdings. The idea here is to dispel the myth that each share of a money fund is worth precisely $1 at the end of every business day. That fiction has lulled investors into complacency about the funds’ safety and predictability. The proposal offers another attempt to prevent a run: a redemption charge. If any fund’s so-called weekly liquid investments fell below 15 percent of its total assets, the fund could impose a 2 percent fee on all redemptions. (Weekly liquid assets are typically cash, United States Treasury securities and instruments that convert into cash within seven days.) Once a fund crossed the 15 percent threshold, its overseers could also halt redemptions for as long as a month, allowing an orderly sale of assets as well as time for panicked investors to cool down.

Hedge Funds Haven’t Owned This Much Of The Stock Market Since Right Before The Crash In 2008 - Two interesting stats on hedge fund exposure to the market via BofA Merrill Lynch analysts:
1.In the first quarter of 2013, net exposure (the difference between long and short positions in stocks) rose to match the previous peak (made in the second quarter of 2007).
2.The percentage of the stock market (specifically, the Russell 3000 float) owned by hedge funds is now the highest since the second quarter of 2008.
In their Hedge Fund Quarterly Report, the BAML analysts write: Based on the quarterly 13F filings and estimated short positions of the equity holdings of 895 funds, we estimate that hedge funds reduced cash holdings to the 2Q07 trough of 4.3%, while raising net exposure to the 2Q07 peak of 59% in 1Q13. Meanwhile, dollar notional net exposure rose by 11% to $463bn notional in 1Q13 – setting a new record. The bullish positioning indicates that risk appetite is back to the peak set in 2007. Gross exposure rose by 12% to $1280bn notional in 1Q13. Percentage-wise, gross exposure increased to about 160%. When including ETF positions the gross exposure increases to 180%. Note: Our estimates are based on analyses of hedge fund equity holdings only and do not include derivatives, which are potentially a larger source of exposure and leverage; readings are best used as a gauge, rather than a cardinal measure of exposure levels. The orange bars on the chart below show net exposure, back to its previous peak:

Covenant-light lending making its presence felt again - Competition is feral at the institutional end of the banking industry, where quantitative easing is creating a flood of cheap money, and in the big banks a recent development has everyone talking: covenant-light lending appears to be making a comeback. Covenant-light loans were a phenomenon of the boom that ushered in the global financial crisis. Bankers who say covenant-light lending is on the rise again say loans that are being proposed now are not as radical as the ones created ahead of the crisis, but say they are watching closely.Covenants are designed to protect lenders from corporate implosions. They impose financial limits on the borrower, maximum gearing levels, for example, and if they are breached, the lenders can take steps to protect their position. Bankers say now that US banks and investment banks are leading the revival of covenant-light lending. They are surprised it has returned so quickly, but acknowledge that quantitative easing has created enormous pressure.

Regulators Question Banks on Lending Risks - U.S. regulators are grilling banks over lending standards and warning them about mounting risks in business loans. Lending to companies has been a bright spot for banks searching for revenue amid slow economic growth and historically low interest rates. But regulators worry that banks have sweetened loan terms too much, which could put them in jeopardy if corporate borrowers can't repay. Bank examiners are pulling out more loans for inspection, questioning loan officers more thoroughly about credit standards and studying other underwriting functions more closely than they have in years, according to bankers, consultants and regulators. In private meetings with bankers in recent months, regulators from the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Federal Reserve Board all have focused heavily on commercial lending, the people said. Looser lending standards are part of a wave of risk-taking that is sweeping through the capital markets, from stock investors loading up on margin debt and piling into high-yield and investment-grade corporate bonds, to private-equity firms ramping up leveraged buyouts.

CFPB issues study on bank and credit union overdraft practices - The Consumer Financial Protection Bureau has issued this study on bank and credit union overdraft practices. As explained in the agency's press release, the study raises concerns about whether the overdraft costs on consumer checking accounts can be anticipated and avoided. The report shows big differences across financial institutions when it comes to overdraft coverage on debit card transactions and ATM withdrawals, drawing into question how banks sell this account feature. The report also finds that consumers who opt in for overdraft coverage [as required by 2010 legislation meant to benefit consumers] end up with more costs and more involuntary account closures. “Consumers need to be able to anticipate and avoid unnecessary fees on their checking accounts. But we are concerned that overdraft programs at some banks may be increasing consumer costs,” said CFPB Director Richard Cordray. “What is often marketed as overdraft protection may actually be putting consumers at greater risk of harm.”

Regulators Turn Up Heat Over Bank Fees - WSJ - U.S. regulators are stepping up scrutiny of overdraft fees charged by banks, a big revenue stream that is helping the industry lessen the hit caused by low interest rates and the sluggish economy. The Consumer Financial Protection Bureau, in a report set for release Tuesday, plans to criticize the U.S. banking industry for practices that it says range from confusing rules on overdraft fees to increasing the likelihood of multiple fees being charged to the same customer. The agency, created by the Dodd-Frank financial-overhaul law in 2010 to be a powerful voice for consumers, said it has no immediate plans to issue or recommend new overdraft-fee rules. But the report is the strongest signal yet that the CFPB is burrowing into the controversial fees, which generated about $32 billion in revenue in the U.S. last year, according to research firm Moebs Services Inc. Fees are a huge revenue source for banks but have exposed them to ire from regulators and consumers.

Banks Seen as Aid in Fraud Against Older Consumers - Koch, 83, told the telemarketer on the line that, yes, of course he would like to update his health insurance card. Then Mr. Koch, of Newport News, Va., slipped up: he divulged his bank account information.  What happened next is all too familiar. Money was withdrawn from Mr. Koch’s account for something that he now says he never authorized. The new health insurance card never arrived.  What is less familiar — and what federal authorities say occurs with alarming frequency — is that a reputable bank played a crucial role in parting Mr. Koch from his money. The bank was the 140-year-old Zions Bank of Salt Lake City. Despite spotting suspicious activity, Zions served as a gateway between dubious Internet merchants and their marks — and made money for itself in the process, according to newly unsealed court documents reviewed by The New York Times.  The Times reviewed hundreds of filings in connection with civil lawsuits brought by federal authorities and a consumer law firm against Zions and another regional bank that has drawn even more scrutiny, First Bank of Delaware. Last November, First Delaware reached a $15 million settlement with the Justice Department after the bank was accused of allowing merchants to illegally debit accounts more than two million times and siphon more than $100 million.

Watch out for the rate hike hit to banks - Earlier this year, officials at America’s mighty Federal Deposit Insurance Corporation engaged in a bout of brainstorming with bank leaders about interest rate risk. The message was sobering. Back then, in April, the FDIC did not seriously expect US rates to jump soon. Little wonder: at that stage, the 10-year yield was still below 2 per cent – and sinking – while Ben Bernanke, the US Federal Reserve chairman, seemed committed to quantitative easing. But if rates were to rise, the fallout could be painful, the regulator warned. Or as Dan Frye, an FDIC official, told the bankers: “If rates started going up today it could have serious consequences for some of our banks ... a lot of banks would get hurt.” Indeed, the FDIC felt so uneasy about the issue that it begged banks to start scrutinising their balance sheets, in readiness for that day.Investors – not to mention bankers – should take note. After all, a rate increase is no longer an entirely hypothetical idea. On the contrary, in the past couple of months 10-year Treasury yields have jumped 60 basis points, amid speculation that the Fed could embark on a “tapered” end to QE next year. That increase has already inflicted painful losses on bond investors and some hedge funds. And though banks have remained out of the spotlight, as bond market volatility rises, the issue raised by the FDIC is now looking doubly pertinent; notably, what regulators and some bankers are trying to assess is just how damaging a rate increase might be – not just for big banks, but small ones too.

Unofficial Problem Bank list declines to 760 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for June 7, 2013.  Changes and comments from surferdude808:  As CR posted yesterday, another bank controlled by Capitol Bancorp, LTD (Ticker: CBCRQ), 1st Commerce Bank, North Las Vegas, NV ($20 million) was closed intra-week. .  The fate of the remaining seven banks controlled by Capital Bancorp is uncertain. So far, the four failed banks of Capitol Bancorp have cost the FDIC insurance e fund an estimated $44.2 million. The FDIC could assess the $44.2 million failure cost against the seven banks under cross guarantee authority. At March 31, 2013, the seven banks had cumulative equity of $51.8 million. Thus, an assertion of cross guarantee by the FDIC would likely lead to a closing of the seven banks. We will continue to monitor the status of the remaining operating banks of Capitol Bancorp. Meanwhile, the Unofficial Problem Bank List had a net reduction of one institution to 760 after two removals and one addition. Assets total $277.5 billion, which is the first weekly increase since the last week of January 2013. A year ago, the list held 923 institutions with assets of $355.7 billion.

Counterparties: Government’s governance problem - The US and UK have a unique sort of corporate governance mess on their hands. Both countries are trying to deal with the complications of owning a multi-billion dollar financial institution, and are having a hard time doing so.Britain’s problem is RBS, which the government owns 81% of as a result of 2008 bailout that ended up costing $71 billion. The US government, meanwhile, is facing a lawsuit from Fannie and Freddie shareholders seeking $41 billion in damages for improperly seizing the companies in 2008. Fannie’s stock has been on a tear recently, based on the essentially speculative rationale that the government will decide to privatize the company. Matt Levine makes the great point that the bailout-related lawsuit could should cause the government to keep its hands on the mortgage companies: Fannie and Freddie were designed to carry out a public purpose while also making money for private shareholders. When those goals conflicted, the public purpose won and the private shareholders were thrown into the abyss. If you’re the government: that’s perfect. Except now those shareholders are suing, as shareholders tend to do. If you’re the government: why would you set yourself up for more of that?  Jesse Eisinger argues that Congress continues to find new and interesting ways to bungle Fannie and Freddie’s rehabilitation. Neither of the two main proposals to reform Fannie and Freddie, Eisinger writes, reflect what we’ve learned about the housing market since the crisis.

'Shadow' homes could burden U.S. housing agencies: report  (Reuters) - Well over a million U.S. homeowners are months behind on payments on government-backed mortgages, raising the risk federal housing agencies will end up facing the cost of managing a fresh flood of foreclosed homes, two government watchdogs said on Thursday. Some 1.7 million borrowers have missed several payments on mortgages backed by the U.S. government, the inspectors general of the Federal Housing Finance Agency and Department of Housing and Urban Development said in a joint report. These loan delinquencies represent a "shadow inventory" of homes that could hit the market if foreclosed on, which would need be managed by government-run Fannie Mae (FNMA.OB) or Freddie Mac (FMCC.OB), or some other federal housing agency. Once seized, these so-called real estate owned properties, or REOs, present significant financial challenges to these government agencies, the report said. "Not only are current REO inventory levels elevated ... they may rise over the next several years depending on the number of shadow inventory properties that are ultimately foreclosed on," the report stated. Since the housing market boom and bust, the government has employed billions of dollars to help borrowers manage high-cost loans and stabilize neighborhoods hit by foreclosures. Fannie Mae, Freddie Mac and HUD, which oversees the nation's mortgage insurer, the Federal Housing Administration, have been burdened with a glut of repossessed properties as a result of the housing market collapse.

Fed Board Couldn't Be Bothered to Vote on Multi-Billion Foreclosure Settlement - The foreclosure fraud settlements were already farcical, but it just gets worse and worse. Now we learn that the Fed approved the amendments to its consent orders with mortgage servicers without it actually going before the Board of Governors for a vote.   I get that Fed regulations permit delegation of this sort to the Fed's staff, but the foreclosure fraud settlement wasn't some Mickey Mouse enforcement action against a community bank's holding company for a minor know-your-customer rule infraction. As far as I'm aware, this was by far the largest settlement of any sort in the Fed's history. This settlement was a policy statement as much as an individual settlement. The fact that the Fed's Board didn't even bother formally deliberating and voting on the settlement is indicative of how seriously the Fed's Board takes the foreclosure fraud issue:  the Board doesn't think that it's worth their time.  Not even a single Board member requested review of the action. Yet another exhibit for why consumer protection cannot be left in the hands of prudential bank regulators.

Feds Find Someone Weak and Poor Enough to Nail for Housing Meltdown - The U.S. Attorney for the Western District of Wisconsin announced a major conviction today in the ongoing criminal prosecution of the people who brought the economy to its knees four years ago via a toxic campaign of mortgage fraud. Meet James Wazlawik of Prescott, Wisc. Wazlawik is 48 years old. He is married with three sons, one of whom was born with Down Syndrome and required heart surgery not long after he was born. Today he was sentenced to one day in jail and three years supervised release after pleading guilty to "making a false statement to a bank in connection with a home equity loan." His crime: When he applied for a $150,000 home equity loan from Citibank in 2005, he put his signature to an "income verification form" claiming that his monthly income was $8,500. In fact, it was substantially less than that.

Mortgage Delinquencies Down….But a Record 843 Days to Foreclose -from naked capitalism. Yves here. While most investors and analysts were busy fixating on the Fed’s taper and the unemployment report and the Abenomics roller coaster, some important housing market news slipped under the radar. A Bloomberg report pointed to a panic among prospective home buyers (the ordinary person kind, as opposed to the investor/flipper/private equity landlord type) about being shut out of the market by rising rates. The Oregon Supreme Court whacked MERS. In addition, a bankruptcy court in Texas in In Re Saldivar accepted the logic of what we’ve called the New York trust theory in assessing standing in a foreclosure. Some defendants whose mortgages wound up in trusts governed by New York law (and the overwhelming majority elected New York law) have tried arguing that the trust did not have standing to foreclose since the borrower note had to get to the trust by a stipulated cut-off date, and that didn’t occur (and New York law is very unforgiving in terms of requiring that a trust act only as precisely stipulated; any acts not consistent with the governing instrument is a void act). While the decision is helpful, one otherwise good write up of the case speculated that it might be “REMIC Armageddon” and forecast all sorts of tax law issues arising. Sorry, sports fans, but tax law is a different beast than trust law. The REMIC issue was raised with the IRS first in 2010 and a few times since then, an the answer is crystal clear: the IRS doesn’t see any problem. So while this decision is a win for borrowers, it won’t nuke the mortgage industrial complex.

BofA Gave Bonuses to Foreclose on Clients, Lawsuit Claims -- Bank of America Corp. (BAC), the second-biggest U.S. lender, rewarded staff with cash bonuses and gift cards for meeting quotas tied to sending distressed homeowners into foreclosure, former employees said in court documents. Mortgage workers falsified records and were told to delay U.S. loan-assistance applications by requesting paperwork that the Charlotte, North Carolina-based bank had already received, according to statements from ex-employees filed last week in federal court in Boston. The lender improperly disqualified applicants to the Home Affordable Modification Program, or HAMP, according to a May 23 statement from Simone Gordon, a loss-mitigation specialist who left the company in 2012. “We were regularly drilled that it was our job to maximize fees for the bank by fostering and extending delay of the HAMP modification process by any means we could,” Gordon said. Managers instructed staff to “delay modifications by telling homeowners who called in that their documents were ‘under review,’ when in fact, there had been no review,” she said.  Bank of America, which has spent more than $45 billion to settle claims tied to its 2008 takeover of Countrywide Financial Corp., is being sued by homeowners who didn’t receive permanent loan modifications after making payments under trial programs, according to court papers. Statements from seven former loan employees were included in a filing last week as part of plaintiffs’ attempt to gain class-action status. The lender has denied the allegations.

RealtyTrac: Home repossessions rose in May - Lenders stepped up action last month against homeowners who had fallen behind on their mortgage payments, taking possession of more homes and initiating the foreclosure countdown clock on many others. Completed foreclosures jumped 11 percent nationally in May from the previous month, with monthly increases taking place in 33 states, foreclosure listing firm RealtyTrac Inc. said Thursday. The monthly pick up reflects a rise in homes entering the foreclosure process last year. Many of those homes wound their way through the often lengthy process and ended up becoming bank-owned properties. Home repossessions, however, were down 29 percent from May last year, reflecting the long-term downward trend. Banks also started the foreclosure process on more homes last month. Foreclosure starts rose 4 percent from April, but were down 33 percent versus May last year, the firm said.

Foreclosures Jump as Banks Bet on Rising U.S. Home Prices - Home repossessions in the U.S. jumped 11 percent in May after declining for the previous five months as rising prices and limited inventory for sale across the country spurred banks to complete foreclosures. Lenders took back 38,946 homes, up from 34,997 in April, according to Irvine, California-based data firm RealtyTrac, which tracks notices of default, auction and seizures. Thirty-three states had increases in the number of homes repossessed, RealtyTrac said in a report today. Banks are more willing to move to the final stage of foreclosure because there is sufficient demand and prices are improving. U.S. home prices advanced almost 11 percent in the year through March, the biggest 12-month gain since April 2006, according to the S&P/Case-Shiller index of values in 20 cities. “For a very long period of time, the market in general and specifically banks were unsure of what these assets were valued at,”  “With increasing stability of the economy and housing prices throughout the U.S., these banks and sellers are getting much more comfortable with the value of their properties.”Private-equity firms, hedge funds and individuals are all buying foreclosed or distressed homes to turn into rental properties as prices remain 28 percent below their 2006 peak. Companies including Blackstone Group LP (BX), which has invested more than $5 billion to buy almost 30,000 homes, and Colony American Homes Inc., which owns more than 12,000 properties, are helping to increase prices in areas hit hard by the real estate crash by draining the market of inventory as low mortgage rates and improving employment fuel demand from buyers.

Lawler: Table of Distressed Sales and Cash buyers for Selected Cities in May - Economist Tom Lawler sent me the table below of short sales, foreclosures and cash buyers for several selected cities in May.   Look at the two columns in the table for Total "Distressed" Share. In almost every area that has reported distressed sales so far, the share of distressed sales is down year-over-year - and down significantly in many 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.

CoreLogic: Negative Equity Decreases in Q1 2013, 9.7 Million Properties still with Negative Equity - From CoreLogic: 9.7 Million Residential Properties with a Mortgage Still in Negative Equity CoreLogic ... today released new analysis showing approximately 850,000 more residential properties returned to a state of positive equity during the first quarter of 2013, and the total number of mortgaged residential properties with equity currently stands at 39 million. The analysis shows that 9.7 million, or 19.8 percent of all residential properties with a mortgage, were still in negative equity at the end of the first quarter of 2013 with a total value of $580 billion. This figure is down from 10.5 million*, or 21.7 percent of all residential properties with a mortgage, at the end of the fourth quarter of 2012. ... At the end of the first quarter of 2013, 2.1 million residential properties had less than 5 percent equity, referred to as near-negative equity. Properties that are near negative equity are at risk should home prices fall. ... During the past year, 1.7 million borrowers have regained positive equity.This graph shows the break down of negative equity by state. Note: Data not available for some states. From CoreLogic: "Nevada had the highest percentage of mortgaged properties in negative equity at 45.4 percent, followed by Florida (38.1 percent), Michigan (32 percent), Arizona (31.3 percent) and Georgia (30.5 percent). These top five states combined account for 32.8 percent of negative equity in the U.S." The second graph shows the distribution of home equity. Just over 8% of residential properties have 25% or more negative equity - it will be long time before those borrowers have positive equity.

Worst Month For Mortgage Applications Since 2009 Driving Mass Layoffs - This morning's 11.5% week-over-week plunge in mortgage applications is the fourth week of fading demand in a row as it appears the bloom is very much off the rose of the second-coming of the housing bubble. This makes it the worst plunge in mortgage applications since June 2009 and the lowest level of activity since December 2011. Wondering how this is possible? We explained in detail here but this collapse in mortgage demand fits perfectly with Mark Hanson's insights that a number of "large private mortgage bankers had mass layoffs last Friday to the tune of 25% to 50% of their operations staff." This all feels very deja vu all over again. As Mark Hanson notes, This morning I was made aware that three large private mortgage bankers I follow closely for trends in mortgage finance ALL had mass layoffs last Friday and yesterday to the tune of 25% to 50% of their operations staff (intake, processing, underwriting, document drawing, funding, post-closing). This obviously means that my reports of refi apps being down 65% to 90% in the past 3 weeks are far more accurate than the lagging MBA index, which is likely on its' way to print multi-year lows in the next month.

MBA: Mortgage Applications Increase, Mortgage Rates highest since March 2012 - From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey - The Refinance Index increased 5 percent from the previous week. Despite the increase in the refinance index last week, the level is still 11 percent lower than two weeks prior and 36 percent lower than the recent peak at the beginning of May. The seasonally adjusted Purchase Index increased 5 percent from one week earlier. ...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.15 percent, the highest rate since March 2012, from 4.07 percent, with points increasing to 0.48 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Freddie Mac: "Mortgage Rates on Six Week Streak Higher" - From Freddie Mac today: Mortgage Rates on Six Week Streak Higher -- Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing fixed mortgage rates climbing higher amid a solid employment report for May. Since beginning their climb last month, the 30-year fixed-rate mortgage has increased over half a percentage point. ...30-year fixed-rate mortgage (FRM) averaged 3.98 percent with an average 0.7 point for the week ending June 13, 2013, up from last week when it averaged 3.91 percent. Last year at this time, the 30-year FRM averaged 3.71 percent.  15-year FRM this week averaged 3.10 percent with an average 0.7 point, up from last week when it averaged 3.03 percent. A year ago at this time, the 15-year FRM averaged 2.98 percent.  This graph shows the relationship between the monthly 10 year Treasury Yield and 30 year mortgage rates from the Freddie Mac survey.  Currently the 10 year Treasury yield is 2.18% and 30 year mortgage rates are at 3.98% (according to Freddie Mac). Based on the relationship from the graph, if the ten year yield stays in this range, 30 year mortgage rates might move up to 4.1% or so in the Freddie Mac survey. The second graph shows the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey® compared to the MBA refinance index.

Treasury & Mortgage Snapshot: 30-Year Fixed Mortgage at 14-Month High - I've updated the charts below through today's close (June 13). The latest Freddie Mac Weekly Primary Mortgage Market Survey, out today, puts the 30-year fixed at 3.98%. That's the highest rate since early April of last year. Its all-time low was 3.31%, which dates from the third week in November of last year. The yield on the 10-year note stands at 2.19%, down slightly from its interim closing high of 2.25% yesterday. Today's close is 76 bps above its all-time closing low of 1.43% set in July 2012. But more dramatic is its rise of 53 bps since its interim low in early May. The S&P 500 is now up 14.74% for 2013 and 1.97% below the all-time closing high of May 21. Here is a snapshot of selected yields and the 30-year fixed mortgage over the past year. For an eye-opening context on the 30-year fixed, here is the complete Freddie Mac survey data from the Fed's repository.  At its peak in October 1981, the 30-year fixed was at 18.63 percent. The long-term graph doesn't capture the recent rise in rates over the past six months.

Vital Signs Chart: Mortgage Rates at 14-Month High - Mortgage rates are rising. During the first week of the month, interest on a 30-year fixed-rate mortgage climbed to 4.15%, the highest level since March 2012. That increase has slowed refinancing, but applications for loans to purchase homes remain up by 14% from a year earlier. Still, almost 70% of applications were to refinance homes, not purchase properties.

Are higher mortgage rates impacting housing? - As mortgage rates in the US reach the highs not seen since early 2012, many are asking the key question: would this rise in rates impact the housing market or consumer sentiment? So far the only effect we are seeing is a decline in refinance activity - which has always been volatile. The Purchase Index however continues to show elevated mortgage activity that results from house purchases.The markets are also not anticipating the mortgage rate increases to have a major impact on the housing sector. Homebuilder shares, having taken a bit of a beating in recent days, are still massively outperforming the broader indices. Some analysts are warning however that if the 30-year mortgage rate rises above 4.5%, all bets are off and the housing market will begin to feel the effects.

Fed's securities purchases blunt the impact of convexity hedging - Mortgage backed securities (MBS) have sold off sharply over the past month as fixed income markets face the new reality of rising rates. But unlike most other fixed income securities, MBS duration tends to increase with yield. That's because higher MBS yields typically mean higher mortgage rates and lower mortgage refinancing activity (which we have already seen). Pools of mortgages backing many MBS, particularly loans with lower coupon, will experience slower prepayment speeds going forward. Slower refinancing extends the effective duration of the bonds (illustration below). If you have a 30-year mortgage at 3.6%, it is now less likely you will refinance any time soon (mortgage rates today are above 4%). One reason your mortgage is not treated as a full-term 30-year note is the probability that you will sell your house, thus terminating the note. There is also some probability that in the future, mortgage rates will drop below 3.6% again, providing you another opportunity to refinance. The expected average life of your 3.6% mortgage and the security that is backed by your loan has therefore been extended (from you potentially refinancing in the next six months to you selling your house in say 5 years). And if rates rise further, prepayments will slow even more. The chart below shows the prepayment speed (PSA) for just such a security over the past month as well as the expected prepayment speeds going forward. It also shows what happens if rates increase by another half a percent.

As Home Sales Heat Up Again, Buyers Must Resort to Cold Cash - The percentage of homes bought with cash has shot up in many markets across the nation. Nearly a third of all homes purchased in Los Angeles during the first quarter of this year went for all cash, compared with just 7 percent in 2007. In Miami, 65 percent of homes sold were for cash deals, compared with 16 percent six years ago. The prices on all-cash deals are also rising significantly. In Los Angeles, the median price on an all-cash home this year is about $351,000, compared with $230,000 in 2009. Over the same period, the median price over all increased to $410,000, up $85,000. In fact, last month, home prices in Southern California hit their highest level in the last five years. All-cash buyers, typically investors eager to renovate and quickly resell or rent out homes, are making it more difficult for first-time buyers, who typically rely on mortgage loans that can take weeks or months to materialize. More California homes have been flipped in the last year than in any year since 2005.  Buyers in Boston are offering $100,000 more than the asking price or placing offers on homes they have spent only minutes in. In San Francisco, Miami and Phoenix, sellers are looking at dozens of offers within days of putting their home on the market, often accompanied by letters from would-be buyers professing their love for the property. New York City has seen similar drops in inventory, and prices have been rising steadily since 2009.

Blackstone Denies It Is the Cause Of Housing Bubble 2.0 - Following widespread discussion of the impact that Wall Street investors (gorging on the Fed's free-money extravaganza) have had on home prices, today's final straw for Blackstone appears to be the New York Times' editorial suggesting/blaming them (and others) for driving up the prices of single family homes and reducing the supply of affordable housing for first-time home owners. Blackstone decided to hit back with some of its own version of real estate truthiness via its' blog and why it is "proud of what it is doing in the housing market." So here are the six reasons that Blackstone believes laying the blame for housing bubble 2.0 at their (them being Wall Street) feet is wrong (and a few short responses to their perspective).

Here’s What Happened When 8,000 Pairs Of Equally Qualified Whites And Minorities Went House Hunting - Minorities in search of a home today typically get to meet the agent and see the property.But they're less likely than whites to then learn about the full range of housing options available to them – to be told "I have another two-bedroom you might like to see," or "let me show you one more house." "It’s very subtle," says Margery Turner, a senior vice president with the Urban Institute. "It’s pretty much impossible for the victim to detect that this is happening to him or her." We know, however, that this kind of discrimination takes place across the country based on the results of a sweeping new study released today by HUD and conducted by the Urban Institute. The research is the fourth in a series of HUD-sponsored studies of housing discrimination in America that have taken place roughly once a decade since 1977. In this latest study, 8,000 pairs of matched testers – one white, one minority, both equally qualified for the home in question – responded to ads for a variety of housing in 28 nationally representative metropolitan areas. Blacks in the market to own a home, for example, were then shown 17 percent fewer properties than whites.

Time to Buy a House? Not on Your Life! - Anyone who buys a house in today’s market should be aware of the risks. They should know that current prices are not supported by fundamentals, but by unprecedented manipulation by the Fed, the Obama administration, Wall Street Private Equity investors, and the nation’s biggest banks. If any of these main-players withdraws or even reduces their support for the market (in other words, if the banks release more of their distressed inventory, if rates rise, if PE firms buy fewer homes, or if the Congress curtails current mortgage modification programs), housing prices will fall. Given the increasing volatility in global stock and bond markets in recent weeks–which is likely to intensify as the Fed  implements its exit strategy from QE– interest rates will continue to fluctuate putting downward pressure on housing sales and prices. The impact the Fed’s policy will have on markets and the economy is unknown. The Central Bank is in uncharted water. That makes it a particularly bad time to buy a home. Caveat emptor.

Housing's Up, but Is Foundation Sound? - The housing-market recovery is here but there's a growing debate among bulls and bears over how long it will last ... Population growth will require 14 million additional housing units this decade, around three-quarters of them single-family homes, according to Zelman & Associates, a research and advisory firm. Analysts at Zelman estimate that only 5.7 million of those units will be built by 2015, meaning the U.S. would need to add two million homes a year over the last four years of the decade—spurring a big boost of construction that would ripple through the economy. Joshua Rosner, managing director of Graham Fisher & Co., draws attention to several forces that had helped housing—and the economy—expand over the past few decades but whose end will now hinder growth. Mr. Rosner first highlights the end of the "democratization" of credit. On the way up, lenders extended loans on better terms to more borrowers during a period in which interest rates were also declining. ... Housing and consumption enjoyed a one-time boost as baby boomers moved from one-income to two-income households during the inflation spells of the 1970s and as those consumers entered their peak consumption years in the 1980s. Those forces fueled homeownership, renovations and second-home buying. Now, those tailwinds are becoming headwinds, Mr. Rosner says. The democratization of credit ended during the bust, and a new period of much tighter credit standards has replaced it.

Will Housing Save the U.S. Economy? - Sufi has a short paper on this issue that is worth reading.My bottom line is that we need to temper our optimism on what  a housing recovery can do for the U.S. economy. I agree that house prices will continue to rise and new residential construction will steadily increase from its current very low level. This is good news. But we will not be returning to the boom years that preceded the Great Recession. The days when housing was the predominant force driving economic activity are gone, and I view that as a good thing. Sufi makes a number of points, including the following two. First, the days of numerous cash-out refis (and 40 cents of consumption for every dollar of it) don’t seem to be coming back. Second, all-cash buyers and investors seem to be playing a sizable role in the housing recovery, which means that marginal homebuyers who have much higher MPCs aren’t. Instead, they are probably paying higher rents, not fueling a lot of consumption via cash-out refis.He concludes: Easy credit fueled house prices and consumption during the boom, and the collapse in spending was exacerbated by excessive debt burdens and a failure to provide any relief to underwater homeowners. Fueling consumption through easy household credit may help in the short-run, but it inevitably has long-run painful consequences.

Housing: Watch Inventory - I've been watching for sale inventory very closely this year. My guess is inventory probably bottomed early this year. Inventory in many areas is still very low, but when more inventory comes on the market, buyer urgency will wane - and price increases will slow. Several real estate agents have told me that they think more inventory is about to come on the market in their selling areas based on their discussions with potential sellers. I wouldn't be surprised if inventory builds all year (usually inventory peaks in July or August). We also might see less demand from cash flow investors who have bid up the low end. Note: I'm confident that prices have bottomed (post-bubble), but if more inventory comes on the market, we will probably see more seasonal price declines this winter than last winter.

Existing Home Inventory is up 15.5% year-to-date on June 10th - 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.   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 April).  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 increased more than the normal seasonal pattern, and finished the year up 7%. 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.

Update: Real Estate Agent Boom and Bust - Way back in 2005, I posted a graph of the Real Estate Agent Boom. Here is another update to the graph. Below is another update to the long term graph of the number of real estate licensees in California.The number of agents peaked at the end of 2007 (housing activity peaked in 2005, and prices in 2006).  The number of salesperson's licenses is off 32% from the peak, and is still declining. The number of salesperson's licenses has fallen to June 2004 levels.  However brokers' licenses are only off 8% and have only fallen to late 2006 levels - and appear to have stopped falling

Senate Bill Sweetens Loans for Energy-Efficient Homes - Home buyers purchasing energy-efficient properties could qualify for larger mortgages than their incomes would normally allow under a Senate bill reintroduced Thursday with broad real estate industry support. The measure would allow lenders to include projected energy savings from efficiency upgrades when measuring the borrower’s income against expenses and the value of the home against the debt. In addition to giving borrowers larger loans in new purchases and refinancings, it could also lower their interest rates. Senator Johnny Isakson, a Republican from Georgia who worked in the real estate industry for 33 years and introduced the bill with Senator Michael Bennet, a Democrat from Colorado, said that consumers should get credit for energy-saving construction materials, which are often “out of sight and out of mind and are not valued.” Decreasing the amount of energy a home uses, he said in an interview, increases “the amount of dollars in the pockets of the homeowners.” The government already promotes so-called energy-efficient mortgages under a Department of Housing and Urban Development program. But the proposed legislation would require lenders to take the projected energy savings into account when presented with a qualified energy report.

Q1 2013: Mortgage Equity Withdrawal Strongly Negative - The following data is calculated from the Fed's Flow of Funds data and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is little MEW right now - and normal principal payments and debt cancellation. For Q1 2013, the Net Equity Extraction was minus $85 billion, or a negative 2.8% of Disposable Personal Income (DPI). This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.  There are smaller seasonal swings right now, perhaps because there is a little actual MEW (this is heavily impacted by debt cancellation right now). The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding declined further in Q1. Mortgage debt has declined by almost $1.3 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance. With residential investment increasing, and a slower rate of debt cancellation, it is possible that MEW will turn positive again in the next year or two.

NFIB: Small Business Optimism Index increases in May - From the National Federation of Independent Business (NFIB): Small-Business Confidence Edges Up, Reaches May 2012 LevelFor the second consecutive month, small-business owner confidence edged up, according to NFIB’s Index of Small Business Optimism, which increased by 2.3 points to a final reading of 94.4 in May. ...Job creation plans rose 6 points to a net 6 percent planning to increase total employment, outcome nice improvement after the 4 point decline in March...Owners were asked to identify their top business problem: 24 percent cited taxes, 23 percent cited regulations and red tape, 16 percent cited weak sales and 2 percent reported financing/access to credit.  In a little sign of good news, only 16% of owners reported weak sales as the top problem (lack of demand).  During good times, small business owners usually complain about taxes and regulations - and those are now the top problems again.This graph shows the small business optimism index since 1986. The index increased to 94.4 in May from 92.1 in April.   This is still low, but near the post-recession high.  This graph shows the small business optimism index since 1986. The index increased to 94.4 in May from 92.1 in April.   This is still low, but near the post-recession high.

Small Business Sentiment: Highest Level Since May 2012 -The latest issue of the NFIB Small Business Economic Trends is out today (see report). The June update for May came in at 94.4, which, despite a 3.2 point gain, remains in the lowest quartile of this indicator across time at the 22nd percentile in this series. A more optimistic view is that the index is its highest since its 94.5 reached twice since the onset of the Great Recession, first in February 2011 and 15 months later in May 2012. The index ended a sustained, 14-year cycle above this level in January 2008, the month after the onset of the Great Recession. Here is an excerpt from the opening summary of the report: While May's reading is the second highest since the recession started December 2007, the Index does not signal strong economic growth for the sector. Eight of 10 Index components gained momentum, showing some moderation in pessimism about the economy and future sales, but planned job creation fell 1 point and reported job creation stalled after five months of gains.  Washington remains in a state of policy paralysis, and while the stock market sets records, GDP posts mediocre growth. The unemployment rate remains in the mid-7s and it is departures from the labor force —- not job creation — that is contributing to its decline when it does fall. The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings of the past three years. The NBER declared June 2009 as the official end of the last recession.

Despite Recovery, Younger Households Are Slower to Make Gains THE total wealth of American households has recovered from the financial crisis and Great Recession, according to the Federal Reserve Board. But many Americans, particularly younger adults who took on heavy debt to acquire homes before the housing bubble collapsed, are lagging.  During the housing boom, homeownership rates, and mortgage debt levels, rose for younger households, as well as for less educated and minority ones. Those groups suffered more during the crisis, he said, and have been slower to recover. Mr. Emmons compiled average wealth figures for different groups from the triennial surveys ... older households are down just 3 percent on average, while those headed by middle-age people are down about 10 percent. But the decline is nearly 40 percent for the younger group.  During the housing boom, households ended up with more of their wealth in real estate than before, and mortgage debt rose to record levels relative to the size of the economy. The proportion of wealth in homes is now back to close to the level of the 1990s, but the debt levels remain high by historical standards.

Gallup: Consumer Spending Is Up, Retail Data Is Down:  In an interesting report from Gallup, Americans' self-reported daily spending rose to an average of $90 in May, the highest since October 2008 and higher than it has been in May since the $114 found in the same month in 2008. Spending is up from $86 in April and on par with the $89 found in March. Notice in the chart above that this analysis is based on what consumers are "saying" they are spending money on outside of their home, automobile and normal household bills. The question specifically is "what did you spend, OR CHARGE, yesterday on all other types of purchases you may have made, such as at a store, restaurant, gas station, online, or elsewhere?" This is a very interesting question from the standpoint that, while consumers are "saying" they are spending more, the issue is whether they are "actually" doing it. The retail sales data from the Gallup Survey is extremely volatile, so in order to smooth the data for comparison I have used a 3-month average of the annual rate of change. The chart below compares the Gallup consumer spending survey data with the actual retail sales data from the ICSC-Goldman Sachs weekly retail sales report and the BEA monthly retail sales report. As you can see there is a big discrepancy occurring between the Gallup survey and the actual retail sales data. While consumer confidence has definitely increased in recent months, due much to the rise in the asset markets, the question becomes sustainability.

Retail Sales increased 0.6% in May - On a monthly basis, retail sales increased 0.6% from April to May (seasonally adjusted), and sales were up 4.3% from May 2012. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for May, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $421.1 billion, an increase of 0.6 percent from the previous month, and 4.3 percent above May 2012.This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).  Retail sales are up 27.1% from the bottom, and now 11.4% above the pre-recession peak (not inflation adjusted) Retail sales ex-autos increased 0.3%. Retail sales ex-gasoline increased 0.6%. Excluding gasoline, retail sales are up 24.3% from the bottom, and now 11.9% above the pre-recession peak (not inflation adjusted). The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail sales ex-gasoline increased by 5.1% on a YoY basis (4.3% for all retail sales). This was slightly above the consensus forecast of 0.5% increase in retail sales mostly due to strong auto sales.

Retail Sales: Again Better Than Expected - The Advance Retail Sales Report released this morning shows that sales in May came in at 0.6% month-over-month, a strong improvement over the 0.1% in April. Today's headline number came in above the consensus forecast of 0.3%. Excluding gasoline, Retail Sales were up 0.3%, up from last month's 0.0%. The first chart below is a log-scale snapshot of retail sales since the early 1990s. I've included an inset to show the trend in this indicator over the past several months. Here is a year-over-year snapshot of the same series. Here we can see that, despite the upward trend since the middle of last year, the YoY series has been slowing since its peak in June of 2011. Bottom Line: Although retail sales came in better than expected, the trend has been slowing month-over-month, and the year-over-year trend has been one of broad decline for the past 22 months.

A Better Retail Report, Courtesy of MasterCard - MasterCard Advisors combines its tracking of tens of billions of transactions with proprietary algorithms to create monthly estimates of retail spending for the U.S., U.K. and Canada. Yesterday, I interviewed Sarah Quinlan, the head of MasterCard Advisors' Market Insights group, about their latest report, which came out earlier this week. The U.S. economy continues to grow at a relatively weak pace. However, it is outperforming most other large countries. A few things that caught my attention from the MasterCard data:  Since the end of 2009, growth in U.S. consumer spending has been driven largely by luxury goods and consumer staples. The middle class has less disposable income (or access to credit) available for discretionary purchases. That said, U.S. purchases of high-end jewelry have grown much more slowly than total retail spending. Moreover, high-end jewelry spending hasn't matched its peak in December 2007. The rebound in the U.S. housing market was first evident in spending on home furnishings, which started picking up in the beginning of 2012. Americans are shifting a greater share of their spending online. The value of Internet purchases rose at an average annual rate of more than 10 percent throughout the recession and the recovery. Intriguingly, online spending seems less sensitive to the health of the economy than spending in stores.

What The "Real" Retail Spending Report Reveals - When it comes to the validity, accuracy and honesty of government-sourced data, sadly there is much to be desired in the time of the New Normal, when governments have made it very clear they will resort to any measure to boost confidence - from the wealth effect to flagrantly doctoring economic (dis)information. Luckly for now at least, the private sector provides a somewhat credible alternative, although even that is rapidly being subsumed by the government apparatus (see ADP morphing into BLS-lite). Still, it is a useful data point for those who still care about the anachronism known as "fundamentals." So in order to supplement the retail data disclosed earlier which according to some was the "most important retail spending" report in years, one useful counterpoint is sales data as disclosed by credit card processors such as MasterCard (sadly often hiding behind subscription paywalls). Here are some highlights of what a parsing such a recent report reveals, courtesy of Bloomberg.

Companies scramble for consumer data - Corporate competition to accumulate information about consumers is intensifying even as concerns about government surveillance grow, pushing down the market price for intimate personal details to fractions of a cent. Over recent years, the surveillance of consumers has developed into a multibillion-dollar industry conducted by largely unregulated companies that obtain information by scouring web searches, social networks, purchase histories and public records, among other sources. The resulting dossiers include thousands of details about individuals, including personal ailments, credit scores and even due dates for pregnant women. Companies feed the details into algorithms to determine how to predict and influence consumer behaviour. Basic age, gender and location information sells for as little as $0.0005 per person, or $0.50 per thousand people, according to price details seen by the Financial Times. Information about people believed to be “influential” within their social networks sells for $0.00075, or $0.75 per thousand people. Slightly more valuable are income details and shopping histories, which both sell for $0.001. As basic information on consumers becomes ubiquitous, data brokers are tracking down even more details. For $0.26 per person, sells the names and mailing addresses of people suffering from ailments such as cancer, diabetes and clinical depression. The information includes specific medications including cancer treatment drug Methotrexate and Paxil, the antidepressant, according to price details viewed by the FT.

Preliminary June Consumer Sentiment decreases to 82.7 (graph) The preliminary Reuters / University of Michigan consumer sentiment index for June decreased to 82.7 from the May reading of 84.5.  This was below the consensus forecast of 84.5 and reverses some of the large increase last month. Sentiment has generally been improving following the recession - with plenty of ups and downs - and one big spike down when Congress threatened to "not pay the bills" in 2011.

Michigan Consumer Sentiment: June Preliminary Down Fractionally from May Final -  The University of Michigan Consumer Sentiment preliminary number for June came in at 82.7, down from the 84.5 final reading for May. Today's number was below consensus of 83.0 and's more optimistic forecast of no change. See the chart below for a long-term perspective on this widely watched index. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy. To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is now 3% below the average reading (arithmetic mean) and 2% below the geometric mean. The current index level is at the 39th percentile of the 426 monthly data points in this series. The Michigan average since its inception is 85.2. During non-recessionary years the average is 87.6. The average during the five recessions is 69.3. So the latest sentiment number puts us about 13 points above the average recession mindset and 5 points below the non-recession average. It's important to understand that this indicator can be somewhat volatile. For a visual sense of the volatility here is a chart with the monthly data and a three-month moving average.

Producer Price Index: Headline Inflation Rises 0.5%, Core Rises 0.1% - Today's release of the May Producer Price Index (PPI) for finished goods shows a month-over-month increase of 0.5%, seasonally adjusted, in Headline inflation. Core PPI rose 0.1%. had posted a MoM consensus forecast of 0.1% for both Headline and Core PPI.  The May increase in Headline PPI after two consecutive monthly declines followed two months of increases, which had followed three months of declines. Year-over-year Headline PPI is at 1.8%, its highest since October, and Core PPI is at 1.6%, its lowest YoY since January 2011. Here is the essence of the news release on Finished Goods: In May, over sixty percent of the broad-based rise in finished goods prices is attributable to the index for finished energy goods, which advanced 1.3 percent. Also contributing to the increase in finished goods prices, the index for finished consumer foods rose 0.6 percent and prices for finished goods less foods and energy moved up 0.1 percent.  The index for finished energy goods moved up 1.3 percent in May following two consecutive declines. A 1.5-percent rise in the index for gasoline accounted for forty percent of the May increase. Higher prices for residential natural gas and residential electric power also were factors in the advance in the finished energy goods index. (See table 2.).   More... Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. As we can see, the YoY trend in Core PPI (the blue line) declined significantly during 2009 and stabilized in 2010, increase in 2011 and then began falling in 2012. Now, as we approach mid-2013, the YoY rate is about the same as in early 2011.

Gasoline Prices down slightly Nationally, Higher in Midwest due to Refinery Issues - From Reuters: U.S. Midwest gasoline price spike expected to linger Gasoline prices at the pump in several U.S. Midwestern states have spiked close to record highs this week and were expected to stay near those levels for several weeks due to unexpected outages at key regional refineries ... price spikes have moved east from Midwestern states such as North Dakota, Minnesota and Nebraska, where some cities experienced record high prices a few weeks ago, but the reason is the same -- refineries are undergoing maintenance work. And from Reuters: Steady average gas price belies local ups and downs-survey The average price for a gallon of gasoline slipped 1.81 cents to $3.6385 on June 7, according to the Lundberg Survey of about 2,500 gas stations across the country. ... Oil prices were up this week, with WTI up to $96.03 per barrel, and Brent at $104.56. Using the calculator from Professor Hamilton, and the current price of Brent crude oil, the national average should be around $3.45 per gallon. That is almost 20 cents below the current level according to There are probably some seasonal factors not included in the calculator, but if crude oil prices stay at the current level, we should expect national gasoline prices to fall below $3.50 per gallon.

Vital Signs Chart: Gas Prices Holding Steady - Gas prices are elevated as driving season revs up. Prices at the pump, which surged at the start of the year and then retreated, have ticked up again and are holding steady. In the week ended Monday, an average gallon of regular gasoline cost $3.65 in the U.S. That is down from the year’s peak so far—$3.78 a gallon during the week ended Feb. 25—but up from the $3.29 a gallon seen at the start of the year.

May PPI Jumps Due To Rise In Gasoline, Electricity, Eggs And Imitation Cheese Production Prices - So much for continued disinflation: moments ago the PPI headline number came out at the highest level since February, or 0.5%, well above the expected 0.1% and up significantly from the -0.7% in April. The core PPI ex-food (which rose 0.6%) and energy (increasing 1.3% in May, the highest since February) rose a far more manageable 0.1% in May, and just 1.7% Y/Y, below the statutory accepted 2% annual growth on both the producer and consumer side: a break down of just which finished products led to this increase (gasoline, eggs and imitation cheese as it turns out) is provided below. Luckily, since nobody in the US either eats or uses energy (because they are such a "small component" of the hedonically-adjusted purse), nobody will mind when companies have no option but to pass through rising input costs to consumers.

High prices are driving more motorists to rent tires - When the tires on their Dodge Caravan had worn so thin that the steel belts were showing through, Don and Florence Cherry couldn't afford to buy a new set. So they decided to rent instead. The Rich Square, N.C., couple last September agreed to pay Rent-N-Roll $54.60 a month for 18 months in exchange for four basic Hankook tires. Over the life of the deal, that works out to $982, almost triple what the radials would have cost at Wal-Mart."I know you have to pay a lot more this way," said Florence Cherry, a 57-year-old nurse who drives the 15-year-old van when her husband, a Vietnam veteran, isn't using it to get to his job as a prison guard. "But we didn't really have a choice."

Tire Rentals - The latest twist on the rent-to-own schemes seems to be car tires, as reported by Ken Bensinger in the L.A. Times. Consumers end up spending many times more "renting" car tires than the cash price at Wal-Mart. Obviously, the transactions are principally just incredibly expensive ways to finance the purchase of tires, which makes me wonder why the businesses involved in the market are offering tire rentals instead of  just  expensive credit. People in dire financial straits will take extraordinary steps to get the necessities of life, including tires, but I wonder why calling it a "rental" rather than a "loan" seems to matter. Although a few Google searches suggested the market for used car tires is more robust than I would have thought, it would not seem likely that the possibility of repossessing and reselling a used car tire is motivating the economics of the transactions

U.S. Export Prices Down Amid Weaker Demand Overseas - In the latest sign of weak demand from trade partners, the Labor Department Thursday reported that prices paid for U.S. exports of consumer goods, excluding autos, have fallen 1.3% over the past year. That’s the biggest drop at least since the Bureau of Labor Statistics started keeping track in December 1983. Lower prices may reflect Europe’s economic struggles and slower growth in some developing countries, like China. Big-ticket items have been particularly hard hit. The price index for consumer durable goods ex-autos–products designed to last at least three years–is down a record 2.9% over the past year. U.S. exporters also have been getting less for other goods. May’s 0.5% decrease in overall export prices marks the first time the index has declined for three consecutive months since the end of 2008, the Labor Department said. The big exception to lower prices is farm goods. Prices for agricultural exports rose 4.7% from May 2012 to May 2013, the Labor Department said. Prices paid for goods imported into the U.S. also fell in May, marking the third straight monthly decline, as weakness in the global economy keeps inflation subdued.

Fed: Industrial Production unchanged in May - From the Fed: Industrial production and Capacity Utilization Industrial production was unchanged in May after having decreased 0.4 percent in April. In May, manufacturing production rose 0.1 percent after falling in each of the previous two months, and the output at mines increased 0.7 percent. The gains in manufacturing and mining were offset by a decrease of 1.8 percent in the output of utilities. At 98.7 percent of its 2007 average, total industrial production in May was 1.6 percent above its year-earlier level. The rate of capacity utilization for total industry edged down 0.1 percentage point to 77.6 percent, a rate 0.2 percentage point below its level of a year earlier and 2.6 percentage points below its long-run (1972–2012) average. This graph shows Capacity Utilization. This series is up 10.7 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 77.6% is still 2.6 percentage points below its average from 1972 to 2010 and below the pre-recession level of 80.8% in December 2007.. The second graph shows industrial production since 1967. Industrial production was essentially unchanged in May at 98.7 . This is 17.8% above the recession low, but still 2.1% below the pre-recession peak. The monthly change for both Industrial Production and Capacity Utilization were below expectations. The consensus was for a 0.2% increase in Industrial Production in April, and for Capacity Utilization to increases to 77.9%. Most of the weakness in industrial production was due to a sharp decline in the output of utilities.

Industrial Output Unchanged In May -- Industrial production was flat last month, falling a bit short of expectations. Although it’s clear that the industrial sector has suffered a slowdown lately, today’s update was at least mildly upbeat in the sense that output in May rebounded slightly from April’s 0.4% drop. The manufacturing component fared a bit better, posting a 0.2% increase last month, the first gain since February.Nonetheless, the nation’s industrial sector has slowed considerably in the spring. It’s not yet clear if the sluggish data is a prelude to bigger declines. The fact that May showed a bit of growth holds out some hope for stronger numbers in the summer. Another reason for thinking that industrial production may perk up comes from looking at data from elsewhere in the economy. Yesterday’s robust reports on retail sales and initial jobless claims, for instance, imply that modest economic growth will roll on in the months ahead. The trend in industrial activity, however, looks sluggish. The year-over-year percentage change slipped again through May, posting a 1.6% advance over the previous year’s level. That’s the slowest pace in more than three years.

Industrial Production Flatlines for May 2013 - The May 2013 Federal Reserve's Industrial Production & Capacity Utilization report shows no change in industrial production.  Three of the last six months have shown no growth in industrial production and last month was a negative -0.4% change.  For May, utilities output took a hit and declined -1.8% while mining increased 0.7%.  Manufacturing showed a slight sign of life with a 0.1% monthly gain.  Manufacturing has had little change so far for 2013, not a good sign.  The G.17 industrial production statistical release is also known as output for factories and mines. Total industrial production has increased 1.6% from May 2012 and is still down -1.3% from 2007 levels, going on past an incredible six years.  Additionally, the annual growth is now much less than we saw in March.   Here are the major industry groups industrial production percentage changes from a year ago.

  • Manufacturing: +1.7%
  • Mining:             +4.8%
  • Utilities:           -3.6%

Manufacturing output alone just gave a bare 0.1% increase for May.  April saw a -0.4% decline and March also declined by -0.3%.  Manufacturing output has seen negative growth three of the last six months and since January 2013 growth has basically been nil.   Publishing and logging are just getting hammered with a -0.4% monthly decline, the sixth decline in a row, and are also down -9.4% from a year ago.   Below is a graph of just the manufacturing portion of industrial production.

US Economy Decelerates As Industrial Production Misses, Capacity Utilization Lowest Since October -  Earlier today we reported that producer prices in May rose primarily as a result of a jump in electricity and nat gas prices. Which is why it is somewhat surprising that Industrial Production among Utilities dropped by the most, or -1.8%, for the second month in a row, following last month's -3.2% decline. This drop was offset by an increase in Mining IP of 0.7% (a decline from April's 1.1%) and the general manufacturing production which increased by a tiny 0.1%, still the best result of the past three months.  Altogether, these amounted to an unchanged print in the broader index, which printed at 98.7, same as April, and the lowest since February, not to mention below expectations of a 0.2% increase. Finally, looking at capacity utilization, in May total industry CU edged down 0.1 percentage point to 77.6 percent, a rate 0.2 percentage point below its level of a year earlier and 2.6 percentage points below its long-run (1972–2012) average. It was also the lowest print since October 2012. Oops.

Manufacturing Remains Below Prerecession Levels - U.S. manufacturing isn’t likely return to prerecession levels for at least year and a half largely because the sector is grappling with weak demand for American exports and federal government cutbacks. “The manufacturing sector has yet to fully recover from the recession and will likely not reach its previous peak level of production until very late in 2014,” said Don Norman, senior economist for the Manufacturers Alliance for Productivity and Innovation trade group. Manufacturing output held nearly flat in May after falling the previous two months, the latest sign that the field is struggling. Output of consumer goods, including processed foods and paper products fell last month. The largest decline came in defense and space equipment — a category that has failed to post a monthly gain this year, reflecting government budget tightening. “The sequester will hurt growth through the end of the year, while slowing growth in emerging markets and a lengthy euro zone recession have muted foreign demand,”

Auto Makers Diverge From Weakening Factory Sector - The overall U.S. factory sector is hurting, but one piece of it — auto manufacturing — has been revving up. The inventory of cars held at the wholesale level hit exceptionally low levels in April, the Commerce Department said Tuesday. The ratio of inventory to vehicle sales dropped to 1.43, down from 1.44 the prior month. That’s now at its lowest level since April 2007, before the recession began. A key reason: Demand for autos remains strong, as many Americans who held on to older vehicles — and put off buying new ones — during the recession and early stages of the recovery are now returning to showrooms. Wholesalers’ sales of autos rose a seasonally adjusted 2.9% in April from the prior month – the fastest pace since January 2012 — and 7.2% from a year ago. Consumers are showing a willingness to take on more debt particularly to buy cars, a sign of their confidence in the durability of the recovery despite a slow expansion. Strong demand for vehicles indicates auto makers can maintain and even increase output. U.S. auto production rose about 15% last year and is projected to increase again in 2013. Auto stockpiles have generally trended down as sales have risen since the recovery began in mid-2009.

Why Not To Believe US Manufacturing Renaissance Hype - 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, managed to stabilize at a 0.6% year to year gain in April. That followed 5 straight months of year to year declines. As the Fed inflates a stock market bubble, US manufacturing has gone nowhere. 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 down 3.7% month to month. That was actually a pretty good performance for April, which is always a down month. April 2012 saw a drop of 7.8%.  The average April change during the previous 10 years was  also a drop of 7.8%.  But the improved performance of April is likely to prove temporary as the ISM’s new manufacturing orders index cratered in May. 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 close to zero since April of 2010. Since the Fed started settling its QE3 MBS purchases in November 2012, this index has shown no material improvement. The money printing is not trickling into the manufacturing sector.  The ISM data for May suggests that the factory data for that month will be even worse. So don’t believe the hype about a return of US manufacturing.

The jobs report was pretty solid. So why aren’t wages rising?: The nice thing about the latest jobs number is how very normal they seem. The nation added 175,000 jobs in May, which is right on track with the trend over the past year (average monthly jobs gained: 172,000). The May job gains were a bit better than expected, but that was offset precisely by revisions to previous months that subtracted from earlier reported gains. The jobs report giveth and the jobs report taketh away.The unemployment rate, meanwhile, ticked up to 7.6 percent, but that was mainly for a good reason: More than 400,000 people joined the labor force, and there weren’t enough new jobs to accommodate all those new entrants. These are all subtle details, though. After more than five years on an economic roller coaster, what we need is steady, month-after-month gains in jobs that over time repair the broken U.S. labor market. It would be great if it were faster. But the most important thing is that it is continuing. If it keeps continuing for a few more years, we’ll make it out of our economic doldrums; a decade later than we might have hoped, but it beats the alternative. That doesn’t mean there are no dark clouds. The jobs being added are concentrated to an unfortunate degree in low-paying sectors. Restaurants, bars and caterers added 38,000 jobs in May; 26,000 jobs were added by temporary help firms. It is not a great sign that fully 37 percent of job creation could be attributed to these low-paying sectors.

Another Phony Jobs Report From A Government That Lies About Everything -- The payroll jobs report for May released today continues the fantasy. Goods producing jobs declined, with manufacturing losing another 4,000 jobs, but the New Economy produced 179,000 service jobs. Are these jobs the high-powered, high-wage “innovation jobs” that economists promised would be our reward from Globalism. I’m afraid not. According to the Bureau of Labor Statistics, the jobs created are the usual lowly paid non-exportable domestic service jobs–the jobs of a third world country. Retail trade accounts for 27,700 of the jobs. Wholesale trade accounts for 7,900 jobs. Ambulatory health care services accounts for 15,300 of the jobs. Waitresses and bartenders account for 38,100 of the jobs. Local government accounts for 13,000 of the jobs. Amusements, gambling, and recreation account for 12,500 of the jobs. Temporary help services provided 25,600 jobs. Business support services provided 4,300 jobs. Services to buildings and dwellings provided 6,400 jobs. Accounting and bookkeeping services provided 3,100 jobs. Architectural and engineering services provided 4,900 jobs. Computer systems design and related provided 6,000 jobs (most likely filled by H-1B work visas). Management and technical consulting services provided 3,200 jobs. For a decade this has been the jobs profile of “the world’s most powerful economy.” It is the profile of third world India 40 years ago. The jobs that made the US the dominant economy have been moved off shore by corporations threatened by Wall Street with takeovers if they did not increase their profits.

U.S. Is Still 10 Million Jobs Away From Normal - Today's jobs report suggests the U.S. labor market is gradually healing the wounds left by the financial crisis of 2008. That said, we're still very far from normal. A jobs report's headline numbers are designed to answer two questions: How many jobs did non-farm employers add in the previous month, and what percentage of the labor force was out of work? The answer to the first -- an estimated 175,000 in May, bringing the three-month average to 155,000 -- tells us that employers are adding jobs at a decent pace. The answer to the second -- 7.6 percent in May, up from 7.5 percent in April -- tells us that the labor force, which includes only those people who have jobs or are actively searching for one, increased by more than the number of people employed. To get a better idea of where the job market stands, consider a different question: What percentage of the civilian population aged 16 to 65 is employed, and how does that compare to the pre-crisis average? This measure covers everyone, including those who have given up on finding jobs and hence are not counted in the unemployment rate. It also attempts to correct for the effects of an aging population by focusing on one age range. As of May, the 16-to-65 employment-to-population ratio stood at 67.5 percent. That's up from 67.2 percent a year earlier, but still well below the average of 72.5 percent in the 10 years preceding the recession that began in January 2008.

Graphs for Duration of Unemployment, Unemployment by Education and Diffusion Indexes -- A few more employment graphs by request ... This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more. The general trend is down for all categories, but only the less than 5 weeks is back to normal levels.   The 6 to 14 weeks category declined to 1.7%, the lowest since May 2008, but this is still above the "normal" level of under 1.5%. The long term unemployed is at 2.8% of the labor force - the lowest since May 2009 - however the number (and percent) of long term unemployed remains a serious problem. This graph shows the unemployment rate by four levels of education (all groups are 25 years and older). Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down.  Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment (all four categories are only gradually declining). Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed".The BLS diffusion index for total private employment was at 59.8 in May, up from 55.6 in April. For manufacturing, the diffusion index increased slightly to 45.7, up from 45.1 in April. Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.

BLS: Job Openings decreased slightly in April - From the BLS: Job Openings and Labor Turnover Summary There were 3.8 million job openings on the last business day of April, little changed from 3.9 million in March, the U.S. Bureau of Labor Statistics reported today. The hires rate (3.3 percent) and separations rate (3.2 percent) also were little changed in April. ...  Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... The number of quits (not seasonally adjusted) was up over the 12 months ending in April for total nonfarm and total private but was little changed for government.  The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.  This series started in December 2000.Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for April, the most recent employment report was for May.

JOLTS Shows Jobs Static - 3.1 Unemployed Per Opening in April 2013 - The BLS April JOLTS report, or Job Openings and Labor Turnover Survey shows there are 3.1 official unemployed per job opening, the same as the last two months.  Every month it is the same story, a static dead pool job market with employers clearly not hiring.  Job openings declined -3.0% from last month to a total of 3,757,000.  People hired did increase by 4.7% to 4,425 million.  Yet, real hiring has only increased 22% from June 2009.  Job openings are still below pre-recession levels of 4.7 million.  Job openings have increased 72% from July 2009.  The story for jobs is the same flat line drum beat, over and over.  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 11,659 million in April 2013. If one takes the official broader definition of unemployment, or U-6, the ratio becomes 5.8 unemployed people per each job opening.  The April U-6 unemployment rate was 13.9%.  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:   2.7%
  • hires rate:  3.3%
  • separations rate:   3.2%
    • fires & layoffs rate:   1.2%
    • quits rate:  1.7%
    • other rate:  0.3%

Graphed below are raw job openings.  Job openings are still below the 4.7 to 4.3 million levels of 2007.

More Signs of Slowly Healing Job Market - The labor markets continue to take baby steps toward improvement. Businesses are filling slots when they can, and hiring might be stronger except that companies face difficulty filling certain slots. More workers are willing to jump ship, another sign of progress. Larger strides toward healthy job markets will depend on a more stable federal outlook and better private demand. The Federal Reserve has been trying to grease the wheels of demand by making borrowing extremely cheap. But ultimately, stronger spending will depend on more income flowing to consumers. The Labor Department on Tuesday released its April data on job openings and turnover. Job openings fell 118,000 from March to April, but gross hiring rose a much larger 198,000. 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, recently highlighted JOLTS as an important supplement to more traditional data in evaluating the health of the labor market. In a March speech, Ms. Yellen called out the slow pace of hiring as a particular concern.

Decrease in Job Openings Tempers U.S. Hiring Prospects  - Job openings in the U.S. fell in April, showing companies were waiting to assess the effects of higher taxes and reduced government spending before committing to bigger staff increases. The number of positions waiting to be filled fell by 118,000 to 3.76 million, the fewest since January, from a revised 3.88 million in March, the Labor Department reported today in Washington. The pace of hiring picked up and more people also left their jobs voluntarily, the figures showed.Today’s data indicate it will be difficult for the world’s largest economy to keep adding jobs at May’s 175,000 pace as government spending cuts, known as sequestration, slow growth this quarter. Federal Reserve policy makers have said they want to see a “sustained” pickup in hiring before they begin dialing back record bond purchases meant to spur the expansion. “We’re still stuck in this labor market where employers don’t have a lot of conviction,” “You’re still talking about levels that are bouncing around in a range without a whole lot of upward tilt to it.”

Reminder: There Are Still 3 Times More Unemployed Workers Than Job Openings - The Department of Labor released its latest report on job openings yesterday, and while not much changed from last month, it was a reminder that the labor market is still pretty much murder. With more than 11.7 million unemployed Americans still out there, the government estimates that there are 3.8 million jobs to be had -- a ratio of 3.1-to-1, as shown on this graph from the Economic Policy Institute.There are a couple of broader points about these numbers that I'd like you to remember the next time you read a pundit opining about how Americans can't find employment because they lack the education or skills. First: Even if there are jobs to be had, there are still far, far more job hunters vying for them than is normal. Pre-recession, the ratio of jobless to job openings was less than 2-to-1. Second: As of now, there are more job hunters than job openings in every single major industry sector. Now what does that tell us? It might mean that companies used the recession as a chance to lay off employees whose talents were no longer valuable to them and have yet to find replacements with fresher skills. There's probably at least a bit of that going on. But as EPI argues, the across the board surplus suggests that "the main problem the labor market is a broad-based lack of demand for workers," not a lack of able applicants.

Vital Signs Chart: More Than 3 Unemployed Per Job Opening - Nearly four years into the U.S. economic recovery, competition for jobs remains brisk but not nearly as sharp as it was. The most recent data, which are seasonally adjusted, show that for every job opening in April, there were more than three individuals seeking work. That is down from the level in July 2009, when there were more than six job seekers for every opening.

Weekly Initial Unemployment Claims decline to 334,000 -  the DOL reports: In the week ending June 8, the advance figure for seasonally adjusted initial claims was 334,000, a decrease of 12,000 from the previous week's unrevised figure of 346,000. The 4-week moving average was 345,250, a decrease of 7,250 from the previous week's unrevised average of 352,500 The previous week was unrevised at 346,000. The following graph shows the 4-week moving average of weekly claims since January 2000.The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 345,250.

Weekly New Unemployment Claims at 334K, Down 12K and Better Than Forecast - The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 334,000 new claims number was a 12,000 decrease from the previous week's 346,000 (a rare case of no revision). The less volatile and closely watched four-week moving average, which is usually a better indicator of the recent trend, rose by 4,500 to 352,500. Here is the official statement from the Department of Labor: In the week ending June 8, the advance figure for seasonally adjusted initial claims was 334,000, a decrease of 12,000 from the previous week's unrevised figure of 346,000. The 4-week moving average was 345,250, a decrease of 7,250 from the previous week's unrevised average of 352,500.  The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending June 1, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending June 1 was 2,973,000, an increase of 2,000 from the preceding week's revised level of 2,971,000. The 4-week moving average was 2,967,250, a decrease of 12,750 from the preceding week's revised average of 2,980,000.  Today's seasonally adjusted number was below the consensus estimate of 345K. Here is a close look at the data over the past few years (with a callout for the several months), which gives a clearer sense of the overall trend in relation to the last recession and the trend in recent weeks.

Why a Romney economic adviser wants the government to just hire people - Kevin Hassett is the John G. Searle Senior Fellow and Director of Economic Policy Studies at the American Enterprise Institute (AEI). Formerly an associate professor of economics and finance at the Graduate School of Business at Columbia University and a senior economist at the Federal Reserve Board of Governors, he served as an economic adviser to Sen. John McCain’s 2000 and 2008 presidential campaigns, George W. Bush’s 2004 campaign, and Mitt Romney’s 2012 campaign. On April 24, he testified before the Joint Economic Committee of Congress, arguing for a variety of policies to assist the long-term unemployed, including direct hiring of the unemployed into government jobs, work-sharing programs, wage subsidies, and privatized training programs. We spoke on the phone Thursday; a lightly edited transcript of our conversation follows.

Declining Labor Shares and Rising Corporate Profits - A few people have been posting about the global trend of falling labor shares (e.g. Tim Taylor) so I thought I’d highlight a paper by Loukas Karabarbounis and Brent Neiman on the subject. Here’s a non-technical summary. I haven’t had a chance to read through the model and all of the paper as carefully as I should (so apologies if I don’t get this exactly right), but my understanding is that they attribute about half of the decline in labor share to large declines in the (relative) cost of capital since the early 1980s. Since capital and labor are somewhat substitutable, aggregate expenditure shares on labor decline when capital gets relatively less expensive. Here are two charts from their paper that provide suggestive evidence for their story from (1) the global time series and (2) cross-country correlations between relative price of investment and labor share changes.

What We Need Now: A National Economic Strategy For Better Jobs - Robert Reich: Jobs are returning with depressing slowness, and most of the new jobs pay less than the jobs that were lost in the Great Recession. Economic determinists — fatalists, really — assume that globalization and technological change must now condemn a large portion of the American workforce to under-unemployment and stagnant wages, while rewarding those with the best eductions and connections with ever higher wages and wealth. And isolationism and neo-Ludditism would reduce everyone’s living standards. Most importantly, there are many ways to create good jobs and reduce inequality. Other nations are doing it. Germany was generating higher real median wages until recently, before it was dragged down by austerity it imposed the European Union. Singapore and South Korea continue to do so. Chinese workers have been on a rapidly-rising tide of higher real wages for several decades. These nations are implementing national economic strategies to build good jobs and widespread prosperity. The United States is not. Any why not? Both because we don’t have the political will to implement them, and we’re trapped in an ideological straightjacket that refuses to acknowledge the importance of such a strategy. The irony is we already have a national economic strategy but it’s been dictated largely by powerful global corporations and Wall Street. And, not surprisingly, rather than increase the jobs and wages of most Americans, that strategy has been increasing the global profits and stock prices of these giant corporations and Wall Street banks.

No, Public Sector Jobs Do Not Crowd Out Private Sector Ones - I was on Larry Kudlow’s radio show the other day along with Brian Westbury and the two of them asserted that government job growth crowded out private sector jobs.  We were discussing last Friday’s jobs numbers and I pointed to evidence of the sequester on federal government jobs–they’re down 45,000 since the cuts took effect in March.  They argued this was probably a good thing because it would mean more private sector jobs.  At which point I went all empirical and recalled running some simple analysis of this assertion, which thoroughly refuted it. I update that here, using a simple statistical model called VAR* which estimates how one variable moves when you nudge another variable that’s related to it.  In this case, I look at the impact of private employment when you increase government employment.  The figure shows the result. If Larry and Brian were right re government jobs crowding out private sector jobs, when you “shock”—i.e., increase the former’s growth—you should see private sector jobs head south.   The middle line is private jobs, the two lines on either side of it are standard errors.  The fact that the middle line basically hugs zero means no job crowd out and the standard error lines tell you that even what little movements you see are far from statistically significant.

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). The overall 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. 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.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.

Class of 2013 – All Dressed Up and No Place to Work - Lynn Parramore - As members of the class of 2013 stepped on stage to receive their diplomas, the unemployment rate in America stood at 7.6 percent — a bit better than the past four years, but that ain’t saying much. Before the financial crisis, students graduating in 2007 faced a much rosier jobless rate of only 4.7 percent. The fact of the matter is that the past four years of high unemployment numbers represent the worst economy the country has suffered in 70 years, and young adults are shouldering a hefty part of the burden. When you look at the specific numbers for Millennials, things look even bleaker. As of April, the jobless rate for workers under age 25 was an alarming 16.2 percent. A study by the think tank Demos found that 18- to 34-year-olds make up 45 percent of those who can’t find work. That’s a lot of stifled human potential. In a paper, The Class of 2013, researchers at the Economic Policy Institute showed that young people are not searching in vain for jobs because they lack the appropriate skills or the right education, as many pundits would have it. Rather, they can’t find work because of the weak demand for goods and services. It’s actually very simple: when a company can’t sell its goods and services because customers don’t have enough money to spend, it can’t hire more workers. You can be Super-Skilled Super Student, and if the economy isn’t humming, you’ll have trouble landing a job.

Health-Care Jobs Move Home -- Throughout the ups and downs of the recovery, the health-care sector has remained a jobs engine, notching 11,000 of the 175,000 positions added in May. The Labor Department’s tallies for the health-care sector reflect a trend toward more outpatient care, with hospitals shedding almost 6,000 jobs last month while doctors’ offices and ambulatory care centers added workers. “The most fundamental thing is that care is being moved out of the hospital…to outpatient settings,” said Mark Pauly, a professor of health-care management, business economics and public policy at the University of Pennsylvania’s Wharton School. “This has been a fairly strong pattern over the last five years. Hospital employment has slowed fairly dramatically but has been more than offset by employment in the outpatient sector and in doctors’ offices.” Two reasons behind the shift, Mr. Pauly said, are cost-containment and technology. That means fewer patients are in hospitals or skilled-nursing facilities and more are at home, receiving care.

Most Americans Aren’t Excited About Their Jobs - A new Gallup poll finds that 52% of all full-time workers in America are not involved in, enthusiastic about or committed to their work. Another 18% are “actively disengaged,” meaning they’ve gone beyond just checking out mentally and could even be undermining colleagues’ accomplishments. That leaves just 30% of American workers who feel excited about their jobs. While disheartening for managers, that finding marks an improvement over worker engagement levels measured in the depths of the financial crisis and actually matches the highest engagement rate since Gallup started tracking in 2000.Gallup used responses from surveys of thousands of U.S.-based workers, managers and companies in its annual State of the American Workplace report.

Immigration remains vital to longer term economic growth in the US - Much has been made of the declining labor participation rate in the US. What is not always made clear however is that about half of those declines is simply the result of aging US population. Clearly cyclical forces have been at work in recent years as people drop out of the workforce. But over the log run demographics win out.Given the recent weakness in US labor markets and a considerable labor slack, it may sound a strange to some that the US may be facing labor shortages in the future. Growth rate of the working-age population has been declining and will ultimately put a cap on the rate of US economic expansion. JPMorgan: - The growth rate of labor supply has slowed sharply over the past decade. And while some of that slowdown is cyclical and reflects unusually weak labor markets, a large part is secular. Growth of the working-age population is on a slowing trend, and the trend in labor force participation rates is gradually lower. According to the February 2013 CBO estimates, for example, potential growth of the labor supply has been irregularly slowing from 2.5% annual growth from 1974-1981 to only 0.8% from 2002-12 and is projected to slow further to only 0.6% over the next five years. Potential labor supply is expected to slow to only 0.6% per year from a longer-term average of 1.5%. That is why progressive immigration policies are crucial for the US. Under the current immigration policies, the US population growth is expected to slow considerably over time according to the US Census Bureau. But if one phased out immigration altogether over a 30-year period for example, population growth would collapse and the US economy would be in trouble.

A Shortage of Low-Wage Workers?? That’s Not the Right Defense of Immigration Reform - Readers know I’m a supporter of immigration reform for many reasons, some of which go beyond economics into the realm of America as a welcoming country for those seeking opportunities. But when we defend reform, I think we have a responsibility to stick to the facts as best we can, and I thought this piece went far beyond that threshold, particularly in claiming a shortage of low-wage workers: In 1950, according to the Census Bureau, 56% of U.S. workers were high-school dropouts. Today, the figure is less than 5%.  The result is that the pool of people available to fill low-skilled jobs has shrunk dramatically. The argument that we have a shortage of high-skilled workers in this country is dicey, but there’s a case to be made (a weak case, but that’s a difference discussion).  But I know of no credible arguments that we have a shortage of low-skilled workers (obviously, we’re not talking about right now, when shortages are clearly on the demand side–not enough job slots).  If their wage and employment trends over the past thirty years doesn’t convince you that there’s no supply shortage in the low-wage sector (here’s the wage evidence; for jobs evidence, see the unemployment rates of the least skilled/educated—it’s consistently way above the average), then you’re playing with a very different set of cards than the rest of us.

Exclusive – Wal-Mart’s everyday hiring strategy: Add more temps (Reuters) - Wal-Mart Stores has in recent months been only hiring temporary workers at many of its U.S. stores, the first time the world's largest retailer has done so outside of the holiday shopping season. A Reuters survey of 52 stores run by the largest U.S. private employer in the past month, including one in every U.S. state, showed that 27 were hiring only temps, 20 were hiring a combination of regular full, part-time and temp jobs, and five were not hiring at all. The survey was based on interviews with managers, sales staff and human resource department employees at the stores. The new hiring policy is to ensure "we are staffed appropriately," when the stores are busiest and is not a cost-cutting move, said company spokesman David Tovar. Temporary workers, he said, are paid the same starting pay as other workers. Using temporary workers enables the company to have adequate staff on busy weeknights and weekends without having to hire additional full-time staff.

The One Problem With Wal-Mart's Recent Hiring Spree .. Is that it is for temporary workers. Of course, to some this is a good sign and an indication that eventually, at some point, all these workers will become full-time. Alas, it isn't. Recall that as we pointed out first back in 2010 in "Charting America's Transformation To A Part-Time Worker Society", this has been a long-term transformation, which has only accelerated in recent months with the implementation of Obamacare, whose provisions (which once again had to be passed to be grasped) effectively punishes employers by hiring full-time workers. Since for corporations the bottom line is all that matters, this is manifesting in the hiring plans of the world's largest private employer. And where Wal-Mart goes, all other cost-cutting corporations (which in a time when revenue growth is negative, is everyone) are sure to follow. In short: while the quantity assessment of jobs may be improving, it is the quality that is collapsing, as those hired are mostly into lower-paying jobs (this chart explains it all), or just part-time with no job security, no leverage, and zero benefits.

Half Lives – Why the Part-time Economy Is Bad for Everyone - Lynn Parramore - Why is a whole job getting harder to find every day in America? Ever since the financial crash, a growing number of people have been forced to take part-time gigs when what they really want is something increasingly out of reach: solid, full-time employment. Between late 2007 and May 2013, the number of part-timers jumped from 24.7 million to 27.5 million. A 2013 Gallup poll shows that one in every five workers is now part-time. Some folks, like students, may work part-time because they want to. Nothing wrong with that. But involuntary part-time employment is not a choice, it’s a burden. Often it means substandard jobs with crazy schedules that don’t pay nearly enough. According to the Labor Department, as many as a third of all part-timers fall into the involuntary category. There are signs that their ranks are likely to swell.   Employers have found a new excuse to drop full-time employees to part-time status: the Affordable Care Act. Diane Stafford of the Kansas City Star looks at a trend called the “Obamadodge,” in which bosses around the country, including Regal Entertainment Group, franchise owners of Five Guys, Applebee’s and Denny’s, and the owner of Papa John’s pizza chain, have announced plans to side-step new requirements that businesses with over 50 full-time-equivalent employees offer their full-time workers access to a qualified healthcare plan or pay a penalty. Another rising trend is employers changing part-time workers’ schedules from week to week. According to a New York Times report, this manuever is becoming commonplace in the American retail and hospitality industries. Bosses use sophisticated software to track the flow of customers and purchasing patterns in stores, which allows managers to assign just enough employees to handle the anticipated demand. Instead of five- or six-hour shifts, workers get two- or three-hour shifts. They are often called in at the last minute, and have no way of predicting which days they’ll be working.

Productivity & Costs for Q1 2013 Shows Biggest Wage Decline on Record -- The Q1 2013 Productivity & Costs revision shows labor productivity increased an annualized 0.5%.   Output increased 2.1% and hours worked increased 1.6%.  Hourly compensation dropped -3.8% in Q1 2013.  This is the largest quarterly decline for wages in history.  Between the numbers lies even more bad news for workers.  Labor is simply getting squeezed to death as workers created more while being paid less.  This quarterly report also shows there is no worker shortage for compensation would surely rise if demand for workers exceeded supply.  Below is an analysis of why the Q1 BLS productivity statistics are horrific news for American labor. The basic equation for labor productivity is Q/L, where Q is the total output of industry and L stands for labor.  Output can be thought of as the cars which come off the assembly line to burgers & fries being served up at McDonald's.  Here is the BLS labor productivity formula: Labor productivity is calculated by dividing an index of real output by an index of the combined hours worked of all persons, including employees, proprietors, and unpaid family workers. Labor, is measured in hours only.  Business Output directly correlates to real GDP, minus the government, all of those nonprofits and our infamous, often illegal nannies and gardeners, and equivalent rent of owner occupied properties.   The output, or Q is about 75% of real GDP reported.  Farms, if you can believe this, only subtract off about 1% from output totals.   Labor productivity is reported as annualized figures and both indexes are normalized to the year 2005.  The main productivity numbers above are all business, no farms, where labor costs are over 60% of output.  These productivity statistics are referred to as nonfarm business. From Q1 2012, a year ago, annual productivity increased 0.9%, output increased 2.4%, and hours worked rose by 1.5%.  Changes from a year ago show a little less worker squeeze for compensation increased 2.0%.  This means for Q1 2013 worker's paychecks were simply hammered.  Additionally, output only growing 2.4% from a year ago shows just anemic economic growth.

National Income: Paying Work, Not Capital  - The most disturbing economic trend today is the falling share of national income—the total amount of money earned within the country—going to workers. According to the Bureau of Economic Analysis (BEA), only 61.8 percent of national income went to compensation of employees in 2012, compared with 65.1 percent in 2001. (Historically, about two-thirds of national income has gone to employee compensation) Since the vast majority of workers are in the middle class, this means the middle class has been falling behind over the past decade at an alarming pace. The flip side to this trend is the rising share of national income going to capital—interest, rent, dividends, and other forms of so-called unearned income. Corporate profits have risen to 14.1 percent of national income from 8.5 percent in 2001. (Historically, corporate profits have been about 9 percent of national income.) For some time, this trend was thought to be temporary—as with all economic data, these numbers fluctuate from year to year based on the business cycle. It now appears undeniable that just such a structural shift has indeed occurred.

Boy, Is There Ever No Wage Inflation in This Economy -I know…you didn’t think there was…any wage inflation…in this economy.  But this is economics; you’ve got to prove it.  The figure shows a compensation series that doesn’t get a lot of press but is quite useful and comprehensive: what employers pay for employee compensation, including wages and benefits.  The lines plot out the yearly changes in nominal hourly benefits, wages, and their sum: total compensation.  Benefits tend to grow more quickly (think health costs) but they’re 30% of comp, so wages are a larger driver of the total. You see total comp growing around 4% before the recession slammed the brakes on the rate of growth, and while there have been some wiggles, the most recent reading is around 1% (1.3%, 2012q1-2013q1)–and remember, this is average compensation, so it includes high-end earners with phat benefit packages.  That 1.3% is around the rate of inflation, so that means flat hourly comp in real terms, on average. One question this raises is how the heck are we getting anything like the decent consumer spending numbers in recent GDP reports? 

Unemployment Benefits and Actual Unemployment: An Analogy - Paul Krugman  - A reader writes in, having just heard somebody or other claim that the current unemployment rate would be much lower if unemployment benefits were even less generous, and asks whether this can be true. And the answer is no. People who say things like this are fundamentally confused about what the economic research actually means.Here’s what is true: there’s respectable research — e.g., here — suggesting that unemployment benefits make workers more choosy in the search process. It’s not that workers decide to live a life of ease on a fraction of their previous wage; it’s that they become more willing to take the risk of being unemployed for an extra week while looking for a better job.What this means, in turn, is that UI may raise the “full employment” level of unemployment — the level at which labor shortages start to appear, wages start an upward spiral, and inflation becomes a potential problem. Since the Fed raises interest rates when it sees signs of inflation, there is a sense in which UI raises unemployment on average over the business cycle.  But all of this is totally irrelevant to our current situation, where inflation is running below target, the target is too low anyway, and the reason we have mass unemployment is that there just isn’t enough demand, and hence there just aren’t enough jobs, no matter how desperately people search for them.

Are Long-Term Unemployed Taking Refuge in Disability? - Some 8.9 million Americans were receiving federal disability payments in May, up 1.8 million, or 25%, since the recession began in 2007. The sharp rise in federal disability rolls has sparked worry that able-bodied workers are using the system to hide from the weak job market. But new research suggests those fears may be overblown. Economists have long known that disability filings go up during recessions, but they aren’t sure why. Perhaps the most worrisome theory is that displaced workers are essentially using disability insurance as a form of extended unemployment benefits, either by exaggerating real disabilities or through outright fraud.  Berkeley economist Jesse Rothstein set out to test that theory. He reasoned that if the increase is being driven by unemployed workers gaming the system, there ought to be a correlation between expiring jobless benefits rising disability claims.  When Mr. Rothstein looked at the data, however, he found no such correlation. When the unemployment rate started rising in 2008 and 2009, the government extended unemployment benefits, leading to a drop in the number of people exhausting their payments. Yet the number of people filing for disability kept on rising. In more recent years, the government has cut back unemployment benefits, leading to an increase in expirations, but the number of disability applications has remained flat or even slowed.

Employers: Pay your interns. Labor Department: Bust them if they don’t! - The summer has begun and greedy employers across the country are searching for people who will work for them for free. Meanwhile, in a few weeks the nation will celebrate the 75th anniversary of the Fair Labor Standards Act, which makes it illegal for most employers to take advantage of their fellow Americans’ work without paying at least the minimum wage for it. At a time when the real value of the minimum wage is well below the levels of the 1960’s (making entry-level workers quite affordable), when the weak labor market is forcing college graduates in record numbers to take jobs that don’t require a college degree and entry level wages for college grads are already substantially below the levels of 10 years ago, the exploitation involved in not paying employees anything at all is shameful and economically dangerous. It’s dangerous because the main obstacle to a healthy recovery from the Great Recession is weak consumer demand, and unpaid internships hurt consumer demand in two ways. First, they leave interns without any wage income, reducing their ability to purchase the products and services supplied by businesses. Second, they lower expectations and reduce wage demands by employees who do have paying jobs.

Inequality In U.S. Is Scarily High, Rising (INFOGRAPHIC) - President Obama acknowledged Monday that inequality is on the rise "even though the economy is growing." That growth hasn't helped many people who lost mid-wage jobs during the recession. Half of the U.S. population is now considered poor or low-income, and income has been redistributed from the middle class to the very rich faster under Obama than under George W. Bush.  Income inequality in the U.S. is much worse than it is in other industrialized countries, where it is also an alarming problem, according to a new report from the International Labour Organization. The gap is only getting wider as the median wage continues to fall.

Women’s pay gap looks better because men’s average pay has gotten worse - As my colleague Laura Clawson wrote earlier this week, 50 years after the Equal Pay Act, 97 percent of women working full-time still earn less than their male counterparts. A number of reasons have been offered for this, but one of them is still, half a century after corrective measures were taken, outright discrimination.  Another round of proof came last October in a study by the American Association of University Women, Graduating to a Pay Gap. It showed, just one year after they obtained their diplomas, college-educated women were on average already making $7,600 less each year than their male counterparts. And that wasn't because they were having babies or because they all chose fields that were less lucrative. The reason for the lower pay was simply because they were female. Over the past three decades, there has been improvement, a narrowing of the gap. As Heidi Shierholz at the Economic Policy Institute points out, the median hourly wage for women in 1979 was 62.7 of the median for men. In 2012, it was 82.8 percent: However, a big chunk of that improvement—more than a quarter of it—happened because of men’s wage losses, rather than women’s wage gains.

One way to help close the gender wage gap: raise the minimum wage  - This week, ThinkProgress’s excellent Bryce Covert wrote about a new report by the National Women’s Law Project about the relationship between the minimum wage and the gender pay gap. As the NWLP demonstrates, raising the minimum wage would help close the gender pay gap, because women are disproportionately concentrated in low-wage sectors such as food service, retail, housekeeping, and home health aides, Raising the minimum wage is an important policy tool to bring about economic justice to women workers. Consider the following:

  • — Contrary to what you might assume based on the recent mass freak-out by male Fox News anchors, we women are hardly the dominant sex in the workplace. In fact, we’re losing ground economically, and the gender wage gap is getting worse rather than better. Increasing the minimum wage would significantly remedy the situation.
  • — The NWLP points out that women of color, who suffer from racial discrimination as well as gender discrimination, make up a disproportionate number of minimum wage workers. So they, too, stand to strongly benefit from a minimum wage increase, in ways that would partially offset the effects of discrimination.
  • — Earlier research has shown that the declining real value of the minimum wage has substantially accelerated the trend in growing wage inequality the U.S. generally, particularly among women. Increasing the minimum wage would help slow this trend.

People With Disabilities Face 13.4% Unemployment Rate -- An improving economy is helping lower the unemployment rate for people with disabilities, though the job market remains tough for the deaf, blind and others with physical or mental conditions. The unemployment rate for people with disabilities fell to 13.4% last year from 15.0% in 2011, the Labor Department said in a report released Wednesday. By comparison, the unemployment rate for people without a disability was 7.9% in 2012, down from 8.7% a year earlier. The lower rate comes as the number of persons with disabilities who have a job increased to a little more than 5 million. But the unemployment rate only captures those who were available and actively looking for work. About 8 in 10 persons with disabilities weren’t in the labor force in 2012, compared with about 3 in 10 persons with no disability, the Labor Department said. The disparity in part reflects demographics. Nearly half of persons with a disability were 65 years or older. Older people are more likely to be retirees than frustrated job seekers. But strip out the elderly and the unemployment rate for people with disabilities is even higher at 14.6% for people of working age, versus 7.9% for those with no disability.

The Sword Drops on Food Stamps - It’s official: Congress will slash food stamp funding in the midst of a deep economic recession, when more people rely on food stamps than ever before. Monday night, the Senate passed a five-year farm bill that contained $4.1 billion in cuts to the Supplemental Nutrition Assistance Program (SNAP) over ten years. This ensures that the only debate now will be about how much to cut—and it’s likely to result in cuts much deeper than $4.1 billion. The House Agriculture Committee passed a farm bill last month that cut $20.5 billion from SNAP by removing “categorical eligibility” (more on that here), which would take food stamps away from 2 million Americans and hundreds of thousands of children.  That bill has yet to be fully debated and passed on the House floor, and the push to make the cuts even deeper will be strong—conservatives have insisted on even deeper cuts. Representative Paul Ryan’s 2013 budget, for example, called for $135 billion in food stamp cuts, and on Tuesday, twenty-five House Republicans wrote to House Speaker John Boehner to remove food stamp funding from the bill altogether. (They just want the program debated on a separate track, but the barely implicit message in the letter is that they don’t want to be forced to agree to “only” $20.5 billion in food stamp cuts at the risk of killing the farm bill.)  The House bill, once passed, will head to conference committee, and the negotiators will have to reach a consensus number. Without question, it won’t be lower than $4.1 billion.

5 Maps That Show How Divided America Really Is - The below five maps were created using the latest five-year American Community Survey estimates provided by the Census Bureau for last weekend's National Day of Civic Hacking (we're geeking out on these projects this week).  Working from Boston, the group has so far mapped nearly a dozen demographic points from the data, including a few they calculated on their own (be sure to check out the very bizarre map of America's gender ratios by county). These five maps, however, jumped out at us for how they each illustrate deep and lingering differences between the American North and South, as seen through several different data points. Of course, the patterns aren't perfect, and exceptions abound; major cities in the North turn out to be hotspots of inequality on par with much of the Deep South. But the overall trends in these maps are relevant for thinking about communities most in need of investment (and the politicians, for instance, currently rejecting Medicaid). All of the maps are divided by county, set on a basemap from OpenStreetMap. You can navigate them and view the others here.

Births Rise as Parents-to-Be Renew Confidence in Economy - An increase in the number of babies being born provides the latest sign that the U.S. economy is mending from the worst recession of the post-World War II era. Births rose less than 1 percent to 3.96 million in 2012, the first annual increase since the number tumbled from the historic high reached just as the economic recession began in December 2007, according to provisional data released today by the U.S. Centers for Disease Control and Prevention in Atlanta. Lower birth rates have been tied to economic distress, with declines also seen during the Great Depression of the 1930s and the recession in the early 1970s. Typically in these economic situations couples put off marriage or childbearing because of losing a job or lowered income, resulting in fewer births.

Majority of Toddlers Likely to Be Nonwhite This Year - As the Journal reported today, more white Americans are dying than being born for the first time in our nation’s history. But there’s a corollary to this “natural decline,” as demographers call it. Slowly but surely, U.S. states and counties are becoming places where the majority of people are minorities. Last year, the U.S. Census Bureau said the majority of births and children under one in 2011 were minority children. This week, Census data showed 49.9% of children under 5 — toddlers — were minority children last year. That means when we next get data on this front, the majority of toddlers most likely will be nonwhite. “Whites, especially young whites, will play a smaller role in our demographic future,” says William Frey of the Brookings Institution in Washington. Between 2000 and 2010, 46 U.S. states saw their population of children under 5 rise, and 13 states saw gains among white children. Since 2010, only 13 states have seen their total young-child populations rise, with 47 seeing declines in white children, driving the nation’s overall decline in toddlers.At the same time, more of the U.S.’s states and 3,000-odd counties are seeing minorities become the majority of their populations.

State budgets are on the mend - States are climbing out of the deep fiscal hole they fell into during the economic downturn, but the pace of the recovery is expected to slow as federal budget cuts kick in and a valuable tax windfall disappears, according to a new report. The Fiscal Survey of States found that the fiscal distress that gripped states in the years after the recession has largely eased. The report, to be released Thursday, said 30 states, including Maryland, are on course to enjoy surpluses and that 10 others, including Virginia, are right on target with revenue.Meanwhile, 42 governors proposed budgets that increased spending for next year, and many states can begin restoring money to key programs, including public schools, that they were forced to cut in recent years. But the report warned that the fiscal future is uncertain. Analysts are still waiting for states to feel the full impact of the across-the-board federal budget cuts that went into effect earlier this year. Also, although improving, unemployment remains high, creating a drag on revenue while elevating social service spending. State sales tax revenue is still growing slowly, in large part because levies associated with online sales often go uncollected, the report said. A bill that would authorize states to collect taxes on all Internet purchases has passed the Senate and is now in the House, where its prospects are unclear.

Pennsylvania struggles to chip away at bridge problem - It would cost state taxpayers billions of dollars to fix a growing number of structurally deficient bridges, but it costs money to do nothing with them, too, a top transportation official says. Pennsylvania has the most deficient bridges in the nation — about 5,400, including state- and locally owned spans — and lawmakers in Harrisburg are grappling with proposals to boost transportation funding by at least $1.8 billion. Even with that kind of windfall, about 300 more bridges will join the list each year, adding costly detours for some. That drives up gas consumption, business costs, emergency response times and lengths of commutes for workers, students and others, PennDOT Secretary Barry Schoch said. The average detour around a closed or weight-restricted bridge is about 8 miles, he said. Weight restrictions hinder us, Tom McElree of Robinson-based Emergency Medical Services Institute said, noting some large EMS vehicles weigh 26,000 pounds — or 13 tons — and many bridges have limits of 10 tons or less.

Philadelphia launches assault on public education with school closings and layoffs - Mark Twain said, "Every time you stop a school, you will have to build a jail." Philadelphia is following his advice. Sort of. The city is closing 23 schools—and in addition to the $400 million doozy of a prison the state is building in the area, the city is spending millions on a Department of Homeland Security fusion center. The school closures will overwhelmingly hit poor students and black students, meanwhile.  Along with the 23 schools being closed, 3,783 jobs are being slashed, including 1,202 cafeteria and playground aides, 676 teachers, 283 counselors, and 127 assistant principals. MSNBC's Traci Lee writes: Nutter argued that Philadelphia’s school system would not suffer from the closures because of the expansion of charter schools in the city, which he insisted were still public schools. He dismissed the argument that charter schools have often been criticized for their lack of accountability, and added, “My job is to make sure we have a system of great schools all across the city of Philadelphia…and that the election officials are providing the proper funding for a high-quality education regardless of what school a parent decides to send their child to.”

Philadelphia Prepares to Dismiss Teachers Amid Budget Shortfall - Philadelphia’s school district, the nation’s eighth-largest, is sending notices to 3,783 teachers, aides and other employees -- 19 percent of its workforce -- that they may be fired July 1 because of a budget shortfall. The district faces a $304 million deficit in its $2.35 billion budget, which it says is due to state cuts and rising expenses, documents show. It has requested $180 million from the city and Pennsylvania and seeks $133 million from labor-contract savings to prevent reductions in areas from arts to nurses. “I am doing everything in my power to prevent this budget from becoming a reality on July 1,” said Superintendent William Hite Jr. in a statement June 7. “Our current circumstances are deeply disheartening.” Philadelphia is among large urban districts facing shortfalls as states have reduced spending on traditional public schools and more students move to charter schools. Chicago officials last month voted to consolidate 50 of its 681 schools, and Detroit shuttered facilities as its population declined.

Congress Turns Its Back on Rural America - For fifteen years in Neodesha, Kansas (population 2,486) there were only two options for early childhood education services in town: a program for at-risk 4-year-olds operated by the school district, and a Head Start Center for children ages 0 through 5 run by the Southeast Kansas Community Action Program (SEK-CAP). SEK-CAP offers a range of services to twelve counties, responding to the housing, utilities, transportation, employment, medical care, child care, education and nutrition needs of low-income people in southeast Kansas. The counties have a combined population of approximately 192,000 people and the child poverty rate is nearly 26 percent — an increase of 13 percent in the past year. The past three years have also seen a rise in unemployment, food and housing insecurity, as well as agricultural and natural disasters. Due to sequester cuts, SEK-CAP decided in May that it could no longer afford to operate the Head Start Center in Neodesha, which served 17 children and their families, and employed five staff members. The rental and maintenance costs of the building made this closure the obvious choice for the agency to find the savings forced upon it by Congress. Gray said the affect of the cuts is far more significant than “it might appear on paper.”

The Once (but No Longer) Golden Age of Human Capital - A majority of Americans (57 percent) say the higher education system in the United States fails to provide students with good value for the money they and their families spend, according to a recent survey by the Pew Research Center. It seems that the golden age of human capital is losing its shine. That shine came not just from a high rate of return (both individual and social) on a college degree, but also from a beautiful, if partial, alignment between ideals of human development and the needs of employers. It was a happy alignment, not just for college professors and their students, but for the soul of capitalism itself. Academic striving would be rewarded. Merit would prevail. Students willing and able to invest in their own abilities had a good shot at permanent prosperity. Not anymore. Problems are particularly conspicuous on the supply side: declining state support, higher tuition and fees, increased inequality of access and the growing burden of debt. The investment costs more than it once did and remains beyond the reach of those who need it most. Problems are also increasingly apparent on the demand side: high unemployment and underemployment rates among college graduates.

Devaluing Human Capital - Paul Krugman -- Nancy Folbre suggests that the golden age of human capital – roughly speaking, the era in which the economy strongly demanded the kinds of skills we teach in liberal-arts colleges and universities – is already behind us. She may well be right: after a long stretch when both technology and trade seemed to be undermining only manual labor, it does look as if many skilled occupations are now under threat by Big Data, Bangalore, or both. I’d just like to add a sort of footnote, inspired by a conversation I had the other day with a Congressional aide. Has there ever before, he asked, been a time when technology undermined skilled labor, instead of making it more necessary than ever? And the answer is of course yes, once you realize that there are many kinds of skill, and book learning hasn’t always been the one that mattered. In the 18th century, there were skilled laborers, who were paid much more than their peers; it’s just that those skills tended to involve craftsmanship rather than pushing around words and other symbols. And – crucially – the truth is that quite a few of those skills did indeed end up being devalued by technology. Remember, the Luddites weren’t unskilled manual workers; they were skilled weavers and others who found themselves displaced by such technologies as the power loom.

Counterparties: The skills that pay fewer bills -- Nancy Folbre declared this week that the “golden age of human capital” behind us. As evidence, she points to the falling rate of return on a college degree, thanks to “declining state support, higher tuition and fees, increased inequality of access and the growing burden of debt.” Further, she says, technology is making many relatively well-paying jobs obsolete as complex tasks are increasingly done by computers. But maybe that’s okay, Folbre writes. Education has an intrinsic value: it’s good for society even if it isn’t making us richer. Paul Krugman notes the “skill” involved in being a skilled worker — what we now think of as a job needing a college degree — has evolved with each epoch of technological innovation. Five centuries ago, monks were highly skilled workers who copied books line by line. (Then the printing press happened). “The role of higher education as a creator of human capital came along quite late. And maybe, as Nancy Folbre says, this role is already waning,” says Krugman. But a lower return on investment doesn’t mean college is worthless. Adam Looney, a fellow at the Brookings Institution and the director of the Hamilton Project, came up with this graph last year showing the increasing difference in the employment rate and average incomes for those with and without college degrees:

The Gamification of Financial Education - A hot trend in financial education (and elsewhere) is gamification. Make it fun and they will come, and (hopefully) learn and change! What is gamification? A PEW report defines it as "interactive online design that plays on people’s competitive instincts and often incorporates the use of rewards to drive action--these include virtual rewards such as points, payments, badges, discounts and 'free gifts'; and status indicators such as friend counts, re-tweets, leader boards, achievement data, progress bars and the ability to 'level up.'" The idea is to apply the fun and excitement of games to non-game activities. The explanation from the VP of one gamification consulting firm is explicit: "'It's using the dynamics and mechanics of psychology that make games so addicting, so sticky, so engaging.'" Gamification can be used to encourage simple habit-formation (e.g., hand-washing in hospitals) or major scientific efforts (e.g., modeling a protein important for developing retroviral drugs). When used with an intent to teach information and skills rather than an intent to motivate particular actions, it is sometimes called "edutainment."

Data Do Not Show a Shortage of Workers With College Degrees - Dean Baker - A NYT piece on the growth in the percentage of young people getting college degrees included the assertion from Jamie P. Merisotis, the chief executive of the Lumina Foundation: “There are worrisome signs that the demand for high-skilled talent is increasing more rapidly than we’re actually educating people ... We can’t expect our citizens to meet the demands of the 21st-century economy and society without a 21st-century education.” It is not clear what this evidence would be. The unemployment rate for college graduates, although down from its peak in 2010, is still close to twice its pre-recession level. In addition, wages for college graduates without advance degrees were stagnant even before the recession. These facts suggest that the economy is not suffering from a shortage of highly educated worker, although there may be some narrow occupations and locations in which shortages appear.

Affirmative Reaction - NYT - In the coming days the Supreme Court is expected to rule on a case that could further restrict the use of race as a factor in college admissions. A white student denied a place at the University of Texas at Austin claims that although Texas uses race sparingly in its college admissions, the state is still cheating white students and violating the Equal Protection Clause of the 14th Amendment. The betting among court watchers is that the verdict will be another setback for racial affirmative action. As a supporter of diversity, I wonder: could that be a blessing in disguise?  I am not a disinterested bystander on the subject. As an editor, I have long believed that hiring and promoting talented minorities was not just a moral obligation but a professional imperative: to comprehend a disparate world and present it to a disparate audience, it helps to have a reporting and editing staff with a diversity of experience and perspective. As a trustee of a liberal arts college, I’ve supported admission of black and Latino students not just as a remedy for historic injustice but because something fundamental is missing from a campus where everybody is pretty much alike. Diversity tends to make institutions more creative, more adaptable, more productive.

Getting More Bang for the Buck in Higher Education - Laura D’Andrea Tyson - Unless Congress can agree on a plan, the interest rate on new loans will double on July 1 to 6.8 percent from 3.4 percent. While the interest rate on student loans is important, there are much bigger problems in the financing of higher education: soaring tuition costs, the exploding volume of total student debt and shockingly low college completion rates. Americans are spending unprecedented amounts, both privately and publicly, on higher education. What are the returns? Are there ways to get more bang for the buck on this substantial investment in the nation’s future work force? Students are already borrowing about $113 billion a year, more than twice as much as a decade ago, and student debt now tops $1 trillion.  What can be done? A report just released by the Center for American Progress contains several worthwhile recommendations. The first step is greater transparency, and technology as well as disclosure can be helpful here. For students to make wiser choices among competing postsecondary institutions and programs, it must be easier to compare costs, average debt loads, completion and graduation rates, and placement rates after graduation. A second step is the use of such data by the federal and state governments to hold postsecondary educational institutions accountable for their performance. The federal government has an immense potential stick to influence performance: it could withhold financial aid and student loan support for institutions that do not prove their value.

Are unpaid internships illegal?: Unpaid internships* are increasingly a fact of life for college students. The National Association of Colleges and Employers found that 55 percent of the class of 2012 had an internship or co-op during their time in college. Almost half of those — 47 percent — were unpaid. A third of internships at for-profit companies were unpaid. Depending on how you look at it, this is either massive exploitation of young people by powerful corporations which worsens inequality, or a valuable opportunity for on-the-job training at lower cost than a degree or certificate at a college or university. But whatever your moral leanings, a judge on Tuesday confirmed what intern advocates have been alleging for years: a lot of these programs are illegal. Judge William Pauley, who sits on the United States District Court for the Southern District of New York, ruled that Fox Searchlight’s use of interns in the production of the movies “Black Swan” and “500 Days of Summer” violated minimum wage and overtime laws, and that those interns can file a class action against the studio.

Student loan rate increase looms: - Another deadline is looming for lawmakers in Washington. This time it affects college students whose summer vacations could hit a low point on July 1. Unless Congress takes action, interest rates on federal Stafford loans will double from 3.4 percent to 6.8 percent. According to the Wisconsin Public Interest Research Group, or WISPIRG, this would affect more than 159,000 students in Wisconsin. The group also says the debt increase per student would be about $915. Students and parents locally say they've been nervously watching the student loan rate debate unfold. Financial aid advisors say there are things you can do to prepare yourself. While families like the Sprangers check out colleges this summer, they're also trying to decide how to pay for it all. "Oh yes, yes. That's a big concern," said Sara Sprangers, mother. "It's kind of nerve-wracking. I was trying to just blow it off but now it's getting closer so I have to start working more and have to start worrying of how I'm going to pay for it, and how many student loans I will actually need,"

Student Loan Rates Might Be About to Double, So Here's What It'll Cost You - Well, nothing's set in stone yet, but as of today it seems a bit more likely that the interest rate on federally subsidized student loans will double from 3.4 percent to 6.8 percent starting next month. This afternoon, the Senate shot down a pair of proposals that could have stopped the scheduled hike -- one from Democrats, which would have frozen rates in place for two years while Congress figured out a long term solution, and one from Republicans, which would have based rates on the government's own cost of borrowing. In the meantime, President Obama is threatening to veto a student loan bill passed by House Republicans, and the administration's own plan lacks momentum on the Hill. Maybe there'll be a compromise when the deadline hits. But maybe not. So how much will it cost students if Congress doesn't act? Less than you might think, but more than some can probably afford. Let's take a look at the numbers.

The Student Debt Crisis Is Everyone's Problem - With interest rates on federally subsidized Stafford Loans set to double on July 1, from 3.4 percent to 6.8 percent, student debt has finally started getting the attention it deserves. Unfortunately, most of the coverage of the metastasizing student debt crisis fails to take note that the fight over interest rates is but one small battle in the overall war against exponentially mounting student debt. Senator Elizabeth Warren recently introduced her first piece of stand-alone legislation, the “Bank on Students Loan Fairness Act,” which would set interest rates on federally subsidized Stafford loans at .75 percent, the same rate at which the big banks are able to borrow at the Federal Reserve’s discount window. According to Senator Warren, if we as a society deem it so vital to our economy that we need to subsidize the big banks that nearly destroyed our economy, then what is the rationale for charging students a rate nine times higher simply to obtain an education? We’ve lost sight of the fact that higher education is not a product but rather both a public good and an investment in our collective future. How are we ever to compete on the global stage in the new, twenty-first-century economy if we’re saddling our best and brightest with mortgage-sized debts just as they’re starting out in life? What most media coverage fails to emphasize is that a well-educated workforce benefits everybody, not just the individuals obtaining the educations in question.

Retirement savings: Why $1M may not be enough - One million dollars in retirement savings sounds like a lot, but financial experts warn that even a seven-figure nest egg may not be enough for the average couple.  So how much is enough -- and how can you get it? For bare-minimum saving, CBS News contributor and analyst Mellody Hobson recommends the average person needs 70 to 80 percent of their annual income for each post-retirement year.  But putting that into practice doesn't appear to be happening for many Americans, with a new study by the Employee Benefit Research Institute revealing only two-thirds of Americans have saved anything -- and the average American has saved less than $25,000 for retirement. To make your money work for you, Hobson suggests getting "really aggressive and save now." Though many people plan to rely on Social Security payments, Hobson warns it's there "for now," and noted the average Social Security check in the U.S. is $1,230 a month -- less than $15,000 a year. She said, "(That's) not a lavish lifestyle. And most people, 70 percent of their income will be Social Security."

Elderly Americans Living With Children Are More Unhappy - In a new working paper published by the National Bureau of Economic Research, researchers examine Gallup data from the Healthways Well-Being Index and World Poll to determine the connection between participants’ self-assessments of their well-being and the presence of young children in the home.American adults between the ages of 34 and 46 living with children — mostly parents of the children — experience some increased negative emotions, but unlike Americans over the age of 65, they also experience enhanced positive emotions. Elderly Americans report more stress, worry and anger as well as reduced happiness and enjoyment. “None of this is to argue that some elderly do not take pleasure in their grandchildren or in children of those with whom they live. But, on average, we can find no evidence of it,” write Messrs. Deaton and Stone. The researchers acknowledge that negative outcomes come partly due to the selection. Elderly Americans may be more likely to live in multigenerational homes as a result of poor health conditions and income constraints, in which case negative outcomes result regardless of their living arrangements. But even with controls for socioeconomic characteristics and health factors, American elders living with children had worse outcomes.

California on the Brink: Pension Crisis About to Get Worse -- A growing number of key California cities are a lot worse off than previously thought, thanks to new changes coming in the way state and local governments must account for their pension costs.  The pension changes from Moody’s, and separately the Governmental Accounting Standards Board, scheduled for this month, could result in Los Angeles, San Francisco, San Jose, Azusa and Inglewood joining fiscally troubled Stockton and San Bernardino, among others, as severe credit risks. It's all largely due to soaring employee retirement costs, according to new analysis based on the methodology by Bob Williams and his team at State Budget Solution (SBS), a non-partisan organization that studies state budget crises.   The new rules could nearly double California’s unfunded liabilities to $328.6 billion. Moreover, California cities that have already filed for bankruptcy protection, like Stockton and Vallejo, will fall deeper into the red.   Officials in these California cities did not return calls for comment.

The Endgame Of State/Local Government Pensions - There is no way the pensions and benefits promised in an era of financialized abundance can be paid once the wheels of financialization fall off. During the past 30 years of financialized abundance, the benefits and pensions promised to public employees were increased substantially. Public unions are a powerful political force in many states, and in eras of rising tax revenues, it's an easy political decision to increase public employee benefits and pension payouts. The rising stock and bond markets generated huge profits for the public-employee pension funds, enabling them to grow without taxpayer contributions. Alas, the 8+% annual growth rate of the boom era is now structurally unrealistic. The New Normal is bond yields of 2% or 3% at best, and equities markets that are increasingly at risk of significant sell-offs. The endgame of promises made in an era of illusory, financialized abundance will be hurried along by a collapse in the equities and bond markets.

Social Security Meets Real Needs - Linda Beale - Sometimes when you look at the hype on Social Security from the right, you wonder what in the world is going on in the heads of the hypers.  Here's the way it tends to go:

  • 1) Social Security is meant to be an insurance program that pays for itself.
  • 2) Down the road in 20 or 30 years it is predicted by Social Security trustees (using prudently conservative estimates based on present valuing for infinity the obligations of the trust fund) that Social Security will be {pick your term: insolvent, bankrupt} and as a result , the program will, at that future date, be able  to pay only about 75% of the benefits promised to retirees (which will, nonetheless, exceed the benefits that are currently being paid to retirees).
  • 3) So therefore we should "save" Social Security by "reforming" it now : the way to do that reform is not by lifting the cap (so the rich pay into the program the same way everybody else does) but by cutting benefits so that the program starts paying less benefits today to retirees.

When you write it out in stark terms like that, it becomes strikingly clear how idiotic these "reforms" are and how unprincipled the purported "reformers" are.  As Paul Krugman noted in an earlier New York Times opinion piece, Krugman, The Geezers Are All Right, New York Times, Opinion (June 2, 2013), they are proposing preemptively decimating benefits today because the program might reach a situation decades off where benefits would be partially reduced of necessity if nothing at all is done.

What’s Next for Social Security? - The trustees of Social Security recently reported that the retirement system can pay full benefits until 2035, when it will be able to pay about three-fourths of promised benefits. That is not a crisis. It is a manageable problem.The system needs to be restored to long-term health, but policy makers must realize that broad-based benefit cuts are not really a viable option. The focus on benefit cuts also conveniently ignores the fact that benefits are already shrinking. Under current law, benefits are being reduced by the higher retirement age, which has been gradually rising from 65 to 67 for those born in 1960 or later. That translates into lower monthly benefits for those who retire at 65 or fewer years of benefits for those who work until 67. Benefit checks are also being reduced by higher Medicare Part B premiums, which are deducted from Social Security benefits. The premiums are set to rise from 5 percent of benefits, on average, for those retiring in 2002 to 9.5 percent for those retiring in 2030. And if you factor in rising co-payments on health care services, most retirees already face living on less. Taxes further erode benefit payments because the levels at which benefits become taxable — generally, $25,000 for individuals and $32,000 for couples — have never been adjusted for wage growth or inflation. By 2030, more than half of recipients will owe tax on a portion of their benefits, compared with 10 percent when the taxes were first imposed, in 1984.

Can Distressed Social Security be Fixed? - At times, the rancorous debate over what to do about the looming Social Security funding gap seems like an argument among doctors about how to save a dying patient. One side insists that major surgery (cutting benefits) is the only solution; the other is certain any invasive treatment will only make matters worse. But some observers say the Social Security system is far from death's door. And they say the cure for its funding woes would be fairly simple if politics weren't standing in the way. Former Social Security trustee Marilyn Moon says the system requires only "very small changes" to get back in balance. "Most of the people that I know who analyze Social Security, including me, believe that this is a relatively easy problem to fix in terms of finding a fair and reasonable solution," says Moon, who is now senior vice president and director of the health program at the American Institutes for Research in Washington, D.C. "But we also believe that it is politically a difficult one to fix."

To Fix Social Security, Use the Right Wrench  - Robert Shiller -- SOCIAL SECURITY is expected to run out of reserves by 2033 — a mere 20 years from now. With the public apparently opposed both to tax increases and to benefit cuts, the main politically feasible way to avoid such a fate seems to involve some monkeying with obscure aspects of the definition of benefits.  Congress seems to want a ruse to disguise a cut in benefits as something else — like the discovery of a technical error that, once corrected, would let the government write smaller checks without taking the blame for cutting benefits.  In a spirit of compromise, President Obama has proposed changing how inflation is measured in benefit calculations. In his 2014 budget proposal released in April, he proposed that retirees’ Social Security benefits be indexed to something called the Chained Consumer Price Index for All Urban Consumers or C-CPI-U, rather than the current benchmark, the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.  This seems to correct a real technical error. Economists have argued that the current index overstates the actual inflation rate, and that a switch to the C-CPI-U would make the inflation indexing more accurate, seemingly justifying the resulting gradual reduction in benefits. But here is the rub: the proposal solves the wrong problem and, in doing so, undermines the integrity of the Social Security system.

Chuck Blahous Finds the Answer for Social Security and Loses It - Charles Blahous is one of the politically appointed Trustees for Social Security. He has written “A Guide To The 2013 Social Security Trustees Report” at e21 Economic Policies for the 21st Century . Blahous tells us “Social Security faces a large and increasingly immediate financing shortfall necessitating prompt legislative corrections.” This is arguably true, but a cautious reader will recognize that “large” and “immediate” and “prompt” may be subject to differing opinions and lead to unnecessary hysteria. From that point Blahous descends into a misleading presentation of Social Security’s finances. First he offers a graph showing the projected decline in the number of workers per beneficiary. The graph is truncated to give a more alarming picture than the facts warrant. Moreover Blahous fails to note that the current tax rate has been until recently more than enough to pay for current benefits, so the “3.5 workers per beneficiary” in 2000 gives no idea what the ratio of workers to beneficiaries needs to be for the present tax rate to be sufficient. It turns out that the 2012 ratio of about 2.8 taxpayers per beneficiary very closely provides enough to pay 2012 benefits at the current tax rate. Comparing this ratio to the projected 2035 to 2040 ratio of about 2.1 workers per beneficiary suggests that a tax increase of about 33% would be sufficient to cover the benefit expenses of those years and after (note that the line flattens after 2035). But this is a 33% increase of a 6% tax. So a 2% increase in the tax will pay for expected future benefits at the expected ratio of workers to beneficiaries. Blahous fails to note this. Moreover, we have 20 years before we need to reach this 2% increase.

Post Runs Another Front Page Editorial on Social Security and Medicare - The "grand bargain" to cut Social Security and Medicare is looking increasingly dead these days. Projections for future deficits have fallen sharply because of the sequester, higher than expected tax revenues (although with slower than expected growth), and much slower projected health care cost growth. This situation has made the Post very unhappy. It ran a front page piece with the headline, "urgency on the debt fades with big issues unsolved." Of course this is not true.  The big issues have been solved, we will maintain Social Security and Medicare pretty much in their current form. The Post doesn't like this fact, but this is a position that is supported by the vast majority of people across the political spectrum. We haven't decided how we will make up projected shortfalls in these programs in the decades ahead, but so what? There is no obvious reason why we have to schedule tax increases decades ahead, we have often in the past raised taxes with little or no notice.  To express its unhappiness with Congress' unwillingness to adopt its agenda, the Post turned to both the Concord Coalition, which was founded by Peter Peterson and the Committee for a Responsible Federal Budget, which is funded by Peter Peterson. There was no one cited in the article who has been a vocal proponent of addressing the jobs crisis, who could have pointed out that the deficit hawks have been shown 180 degrees wrong in their predictions about interest rates and inflation.

What Social Security/Medicare Solvency Problem? - For years now, economists using the ideas of Modern Money Theory (MMT) have been telling us that the so-called long-term “funding” problems of Social Security (SS) and Medicare emphasized incessantly by supporters of austerity are faux problems. The MMT economists believe this because the US is a currency issuer of a non-convertible fiat currency, has a floating exchange rate, and incurs no debts in any currency except US dollars. So, the US Government can issue whatever financial resources it needs to carry out its obligations without raising any solvency issues. The only problems involved in carrying out these obligations are problems of political will, not problems of financial incapacity, which is why, from an economic point of view, they are faux problems.There are other economists who also believe these are faux problems, even though they don’t subscribe to the view that the government can’t become insolvent. They also view them as problems of political will because they think that the SS long term “solvency” issue can be easily solved by Congress just by lifting the payroll tax cap on income; while the problem of rising health costs threatening long term Medicare “solvency” is easily solved by passing a Medicare for All bill such as HR 676, which creates a single-payer for most health care services and puts the private insurers out of business, while holding down provider costs through negotiations.

Chicago Hospital Accused of Cutting Throats for $160,000 - Bloomberg: A surgeon at Chicago’s Sacred Heart Hospital cut a hole in Earl Nattee’s throat on Jan. 3, the day before he died. It’s not clear why. The medical file contained no explanation of the need for the procedure, called a tracheotomy, according to a state and federal inspection report that quotes Sacred Heart’s chief nursing officer as saying it happened “out of the blue.” Tracheotomies are typically used to open an air passage directly to the windpipe for patients who can’t breathe otherwise.Now, amid a federal investigation into allegations of unneeded tracheotomies at the hospital, Nattee’s daughter, Antoinette Hayes, wonders whether her father was a pawn in what an FBI agent called a scheme to defraud Medicare and Medicaid. “My daddy said, ‘They’re killing me,’” Hayes recalled, in reference to the care he received at the hospital. Based in part on surreptitious tape recordings, an FBI affidavit lays out allegations that a Sacred Heart pulmonologist kept patients too sedated to breathe on their own, then ordered unneeded tracheotomies for them -- enabling the for-profit hospital to reap revenue of as much as $160,000 per case.

The New Subsidy for Layoffs -- A major provision of the American Recovery and Reinvestment Act helps predict what will happen in the insurance market next year. Economists understand premium assistance to be a subsidy to layoffs, making them cheaper and less of a burden. Employers saw it this way, too, according to an Urban Institute study.  “Some large‐firm interviewees reported that before A.R.R.A. they provided some amount of free or reduced cost Cobra coverage for laid‐off workers, based upon the prior duration of employment,” the study found, referring to the Consolidated Omnibus Budget Reconciliation Act, which allows workers who have lost their jobs to purchase coverage. ”Several of these companies reported that they reduced or dropped this prior benefit in reaction to A.R.R.A.” Although we will learn more when (and if) the United States Treasury releases its final report on the premium-assistance program, it appears that program participation was high. An interim report indicated that perhaps two million households and even more individuals had their health insurance subsidized within nine or 10 months of starting the program.

Insurance Tyranny - Krugman - Many of us wish that Obamacare were a simpler system... Political reality, unfortunately, ensured that many people will receive coverage from private insurers, selling policies — often with subsidies — on the "exchanges". And naturally enough, the Obama administration is teaming up with the insurers to help inform Americans of the benefits to which they will be legally entitled, starting Jan. 1.And in the eyes of Republicans, Bloomberg reports, this makes Obama a “bully” — dragooning those private companies into helping sell a public program that will increase their profits. Why, it’s tyranny, I tell you! Yes, it’s ridiculous. But they can’t help themselves. I suspect that the idea of helping lower-income Americans in any way would drive the GOP bonkers; but the idea that this help might come from Obama (implementing a program originally designed by Republicans, but never mind), and that Obama’s plan might actually work, drives them crazy.

Are Early Calls on ObamaCare Costs Premature? -  Yves Smith - Loyal Dems were over the moon with reports from California that the costs provided by insurers of various levels of plans on state exchanges were coming in under CBO estimates, as well as below prices on the current small-group market. The early huzzahs survived an effort to claim otherwise by Avik Roy at Forbes; his creative footwork with numbers was shredded in the blogosphere (although still curiously repeated by Reuters).  A bit more serious challenge to claims of early success on the cost front comes from Ohio, where Republican officials brayed that premium increases next year would average 88%. The analysis appears a bit sus, since it included some pretty crappy plans in the baseline. But while more detached commentators weren’t happy with how Ohio officials ran the numbers, they didn’t appear able to debunk the idea that costs would be higher for most people than before, even though the higher costs might indeed result from plans providing more comprehensive coverage. One big issue is that the Republican-led states are doing a good job of throwing sand in the gears of implementation, which means it’s likely that consumers there will indeed have reason to be less satisfied. These states have refused to implement state health exchanges, throwing the task on the Federal government, and also nixing Medicaid program expansion, which will leave a lot of low-income people out in the cold.

Health Care’s Overlooked Cost Factor - When the Evanston Northwestern Healthcare Corporation merged its two hospitals with the neighboring Highland Park Hospital just north of Chicago 13 years ago, the deal was presented as an opportunity to increase efficiency and improve the quality of patient care. It was a great deal for the hospitals. The fees they charged to insurers soared. One insurer, UniCare, said it had to accept a jump of 7 to 30 percent for its health maintenance organizations and 80 percent for its preferred provider organizations. Aetna said it swallowed price increases of 45 to 47 percent over a three-year period. “There probably would have been a walkaway point with the two independently,” testified Robert Mendonsa, an Aetna general manager for sales and network contracting. “But with the two together, that was a different conversation.” And who was left holding the bag? Not the shareholders of UniCare or Aetna. It was the people who bought their policies, who either paid higher premiums directly or whose wages grew more slowly to compensate for the rising cost of their company health plans.

Supreme Court Says Human Genes Cannot Be Patented, Striking Down Breast and Ovarian Cancer Gene Patents - Human genetic sequences cannot be patented, the U.S. Supreme Court ruled Thursday in an unexpected decision that is a tremendous public interest victory. “Myriad [Genetics] did not create anything,” the Supreme Court held, in a lawsuit that challenged the firm’s monopoly on two gene sequences used in expensive tests that reveal whether women have an inherited risk of breast and ovarian cancer. “To be sure, it found an important and useful gene, but separating that gene from its surrounding genetic material is not an act of invention.” The immediate impact gives other biotech firms the go-ahead to develop less-expensive DNA-based tests for the genetic risk of breast and ovarian cancer. Looking down the road, the ruling will force biotech companies to rethink their business models that have been based on ‘owning’ the building blocks of life. “The Court rightfully found that patents cannot be awarded for something so fundamental to nature as DNA,” said Daniel B. Ravicher, Executive Director of the Public Patent Foundation, which lead the suit challenging two patents awarded for gene sequences tied to breast and ovarian cancer. “Bottom line, diagnostic genetic testing is now free from any patent threat, forever, and the poor can now have their genes tested as freely as the rich.”

Court: Human genes cannot be patented - The Supreme Court unanimously ruled on Thursday that human genes cannot be patented. But in something of a compromise, all nine justices said while the naturally occurring isolated biological material itself is not patentable, a synthetic version of the gene material may be patented. Legal and medical experts believe the decision will have a lasting impact on genetic testing, likely making varieties more widely available and more affordable. The overriding legal question addressed was whether "products of nature" can be treated the same as "human-made" inventions, allowing them to be held as the exclusive intellectual property of individuals and companies. The broader issue involved 21st century conflicts over cutting-edge medical science, the power of business and individual legal rights, and how their convergence might influcence decisionmaking over how people and medicine manage the prospect and reality of certain diseases, like cancer.

Global Burden of Disease - What are the world's biggest health problems and risks? The Global Disease Burden study, a collaborative project that in its most recent version includes 488 co-authors from 303 institutions in 50 countries, tries to answer that question. A nice summary of some of the results is available from the Institute for Health Metrics and Evaluation at the University of Washington in its report "The Global Burden of Disease: Generating Evidence, Guiding Policy."  Here's a figure showing the top 10 leading diseases and injuries on a global basis, shown with blue diamonds, and the top 10 risk factors for for deaths, shown with brown diamonds. The horizontal axis shows their cost in deaths in 2010. The vertical axis shows their cost in DALYs. Thus, "Low Back Pain" among the top 10 diseases and injuries based on DALYs, although it is not a direct cause of death. Lung cancer and diarrhea cause a similar number of deaths, but diarrhea is far worse in terms of DALYs.  A few of the high risk-factors that jump out at me as being a little unexpected to find in the top 10 are "Diet low in fruit," "Household air pollution," and "High sodium."

Study Links Monsanto’s Roundup to Autism, Parkinson’s and Alzheimer’s -  A new review of hundreds of scientific studies surrounding glyphosate—the major component of Monsanto’s Roundup herbicide—sheds light on its effects within the human body. The paper describes how all of these effects could work together, and with other variables, trigger health problems in humans, including debilitating diseases like gastrointestinal disorders, diabetes, heart disease, obesity, Parkinson’s and Alzheimer’s disease. Glyphosate impairs the cytochrome P450 (CYP) gene pathway, which creates enzymes that help to form and also break down molecules in cells. There are myriad important CYP enzymes, including aromatase (the enzyme that converts androgen into estrogen) and 21-Hydroxylase, which creates cortisol (stress hormone) and aldosterone (regulates blood pressure). One function of these CYP enzymes is also to detoxify xenobiotics, which are foreign chemicals like drugs, carcinogens or pesticides. Glyphosate inhibits these CYP enzymes, which has rippling effects throughout our body.Because the CYP pathway is essential for normal functioning of various systems in our bodies, any small change in its expression can lead to disruptions. For example, humans exposed to glyphosate have decreased levels of the amino acid tryptophan, which is necessary for active signaling of the neurotransmitter serotonin. Suppressed serotonin levels have been associated with weight gain, depression and Alzheimer’s disease. This paper does not claim to yield new scientific discoveries. Instead, it looks at older studies in a new light. Critics will say the links between glyphosate and health problems made in this paper are purely correlational, but this work is important because it brings all of the possible health effects of glyphosate together and discusses what could happen

US: Starved of healthy options -- The US is in the grip of an obesity epidemic. More than a third of American adults – including half of African-American adults – are obese, as are one in five children, according to the Centers for Disease Control. Mississippi, at 35 per cent, has the highest obesity rate in the country.  More than 27 per cent of all Americans aged between 17 and 24 – more than 9m people – are now too heavy to join the military if they wanted.  Obesity costs hundreds of billions of dollars a year for healthcare, reduces productivity through missed days at work and increases medical and disability claims.  An average company with 1,000 employees faces $285,000 per year in extra costs associated with obesity, according to the Rudd Center for food policy and obesity at Yale University.  This obesity epidemic is affecting poor Americans in particular, and Tchula shows why: while its residents may have access to food, it is not the right kind of food.

Secret Trade Agreements Threaten to Undo Our Last Shreds of Food Safety - If you think the U.S. government is doing a sub-par job of keeping your food safe, brace yourself. You could soon be eating imported seafood, beef or chicken products that don’t meet even basic U.S. food safety standards. Under two new trade agreements, currently in negotiation, the U.S. Food and Drug Administration (FDA) could be powerless to shut down imports of unsafe food or food ingredients. And if it tries, multinational corporations will be able to sue the U.S. government for the loss of anticipated future profits.  More frightening? Negotiations for both agreements are taking place behind closed doors, with input allowed almost exclusively from the corporations and industry trade groups that stand to benefit the most. And the Obama Administration intends to push the agreements through Congress without so much as giving lawmakers access to draft texts, much less the opportunity for debate.

Air polluters like to send their emissions across state lines - If you near a state line, you might be getting an unusually heavy dose of pollution from your neighbors across the border. That’s the conclusion of a working paper by political scientists James Monogan, David Konisky and Neal Woods. They report that air polluting facilities in the United States are disproportionately likely to be located near downwind borders. When the breeze picks up, noxious emissions are hustled out of state and become someone else’s problem. The pattern highlights one of the difficulties facing pollution control efforts in the country. States play a major role in implementing U.S. environmental policies, but they also have an incentive to export the environmental and health costs of economic development across state lines. Cross-border pollution is not a new issue. In the early 1900s, Monogan and his co-authors write, Georgia sued a Tennessee copper smelter for “despoiling forests and orchards and creating health problems for residents of bordering counties in Georgia.” New Jersey in 2006 accused the Environmental Protection Agency of failing to regulate toxic emissions from a coal-fired power plant across the Delaware River in Pennsylvania. And several studies have argued that pollution levels tend to be higher near borders than in the interior of a state, a phenomenon referred to as “state line syndrome.”

Africa's Worst Drought Tied to West's Pollution - The biggest drought to hit the planet in the 20th century, the Sahel drought sucked Central Africa dry from the 1970s to the 1990s. The severe famines that resulted killed hundreds of thousands of people during this period and gained worldwide attention. A new study blames the dry spell on pollution in the Northern Hemisphere, primarily from America and Europe. Tiny particles of sulfate, called aerosols, cooled the Northern Hemisphere, shifting tropical rainfall patterns southward, away from Central Africa, according to research published April 24 in the journal Geophysical Research Letters. "Even changes from relatively far away spread into the tropics," said Dargan Frierson, a study co-author and climatologist at the University of Washington in Seattle. At the time, the cooling effect went unnoticed, overshadowed by Earth's overall warming, Frierson said. Instead, the drought was blamed on overgrazing and poor land use practices. But in the past decade, researchers have realized that aerosol pollution plays an important role in Earth's climate, he said. In certain parts of the atmosphere, the tiny particles reflect the sun's light and build longer-lasting clouds, cooling the atmosphere. Not all aerosols reflect light, and the cooling from sulfate particles offsets global warming only a regional scale, because their effects are short-lived and concentrated in high-pollution areas.

Pollution in Northern Hemisphere helped cause 1980s African drought - Decades of drought in central Africa reached their worst point in the 1980s, causing Lake Chad, a shallow lake used to water crops in neighboring countries, to almost dry out completely.The shrinking lake and prolonged drought were initially blamed on overgrazing and bad agricultural practices. More recently, Lake Chad became an example of global warming.New University of Washington research, to be published in Geophysical Research Letters, shows that the drought was caused at least in part by Northern Hemisphere air pollution.Aerosols emanating from coal-burning factories in the United States and Europe during the 1960s, ’70s and ’80s cooled the entire Northern Hemisphere, shifting tropical rain bands south. Rains no longer reached the Sahel region, a band that spans the African continent just below the Sahara desert. When clean-air legislation passed in the U.S. and Europe, the rain band shifted back, and the drought lessened.

Forget Oil – There is a Far More Precious Commodity at Stake - Forget oil for once; the new cause of rising tension in the Greater Middle East (and Africa) today is between two countries that do not even share a common border. They have no real bad history between each other, no direct links or political divergences or land or sea disputes with one another, yet the sudden appearance of tension between them could erupt in a violent conflict. This new tension stems from a dispute over the most precious commodity in the world today, something far more precious than oil: water. This latest crisis involves Egypt and Ethiopia, two of the eleven countries that share the waters of the world’s longest river, the Nile, and very lifeline of Egypt. Without the Nile Egypt would wither up and become a desert, killing all plants, animal and human life along the way. The River Nile flows some 6,650 km north, from its still uncertain sources in either Rwanda or Burundi, in the very heart of Africa, on to Lake Victoria in Uganda through the Sudan and traverses all of Egypt from the south to empty itself in the Egyptian Nile Delta in the Mediterranean Sea. The nine countries the Nile passes through are Tanzania, Uganda, Rwanda, Burundi, Democratic Republic of the Congo, Kenya, Eritrea, South Sudan and the Sudan. The Nile is Egypt’s only source of water. Without the Nile Egypt would simply stop to exist.

California tops list of states with water infrastructure needs - California could use $44.5 billion to fix aging water systems over the next two decades, according to a federal survey that placed the state at the top of a national list of water infrastructure needs. Texas, at nearly $34 billion, and New York, with about $22 billion, were next in line. The assessment, conducted by the U.S. Environmental Protection Agency in 2011 and released last week, is used to document the capital investment needs of public drinking water systems across the country. The EPA relies on the results to allocate grants through the Drinking Water State Revolving Fund. All told, the survey revealed a $384 billion wish list of infrastructure projects through 2030 - $4.5 billion more than in the 2007 assessment. In California and elsewhere, the biggest need was for repairing and upgrading water transmission and distribution lines. That will come as no surprise to residents of Los Angeles, where old mains routinely break, flooding city streets. Treatment projects were next on the list. "The nation's water systems have entered a rehabilitation and replacement era in which much of the existing infrastructure has reached, or is approaching, the end of its useful life," EPA acting Administrator Robert Perciasepe said in a statement. "This is a major issue that must be addressed so that American families continue to have the access they need to clean and healthy water sources."

Irrigation Subsidies Leading to More Water Use - — Millions of dollars in farm subsidies for irrigation equipment aimed at water conservation have led to more water use, not less, threatening vulnerable aquifers and streams. From Wyoming to the Texas Panhandle, water tables have fallen 150 feet in some areas — ranging from 15 percent to 75 percent — since the 1950s, scientists say, because the subsidies give farmers the incentive to irrigate more acres of land. Other areas, including several Midwestern states, have also been affected.  The Environmental Quality Incentives Program, first authorized in the 1996 farm bill, was supposed to help farmers buy more efficient irrigation equipment — sprinklers and pipelines — to save water.  But the new irrigation systems have not helped conserve water supplies, studies show. And researchers believe that the new equipment may be speeding up the depletion of groundwater supplies, which are crucial to agriculture and as a source of drinking water.

Farmers Are Exploiting Conservation Subsidies To Use More Water, Not Less - The government has paid farmers about $1 billion since 1997 to help them develop more efficient irrigation systems — but the subsidies have backfired. According to the New York Times, water conservation subsidies have actually led farmers to use even more water to irrigate crops, draining already fast-depleting aquifers and reservoirs.  Increasingly severe droughts and record low rainfall have forced farmers to rely more heavily on groundwater supplies. But without changing current farming practices, these reserves will run out rapidly. Climate change will make droughts longer and hotter, while rain will only come in harsh storms that will flood crops and erode valuable topsoil without much of it making it down to the groundwater.  The conservation subsidy under the Environmental Quality Incentives Program (EQIP) was meant to help farmers employ more environmentally friendly practices. However, research shows the program prompted many farmers to expand their acreage using the water that was supposed to be conserved.

California conservative ag interests are paying for their pro-business ways - Central California's agribusiness has always tended towards conservative, even right wing values. Now they are paying for their pro-business ways. Fracking has come to the valley because the vast Monterey Shale Field was opened up to the process. “Oil and ag” businesses once coexisted peacefully, but the agricultural interests are getting worried. Nerves are jangling as new oil rigs pop up, sometimes along city streets. Worse, the related chemical dumping ponds are more visible and common. This is because, in one of the most fertile areas in the world, fresh water is priceless. Fracking not only uses vast amounts of water, it threatens even more vast amounts of water. According to a June 1 New York Times article, a fourth generation farmer named Tom Frantz summed up the problem, “As farmers, we’re very aware of the first 1,000 feet beneath us and the groundwater that is our lifeblood.”

Fracking Is Already Straining U.S. Water Supplies - As the level of hydraulic fracturing of oil and gas wells in the United States has intensified in recent years, much of the mounting public concern has centered on fears that underground water supplies could be contaminated with the toxic chemicals used in the well-stimulation technique that cracks rock formations and releases trapped oil and gas. But in some parts of the country, worries are also growing about fracking’s effect on water supply, as the water-intensive process stirs competition for the resources already stretched thin by drought or other factors. Every fracking job requires 2 million to 4 million gallons of water, according to the Groundwater Protection Council.  The Environmental Protection Agency, or EPA, has estimated that the 35,000 oil and gas wells used for fracking consume between 70 billion and 140 billion gallons of water each year. That’s about equal, EPA says, to the water use in 40 to 80 cities with populations of 50,000 people, or one to two cities with a population of 2.5 million each. Some of the most intensive oil and gas development in the nation is occurring in regions where water is already at a premium. A paper published last month by Ceres found that 47 percent of these wells were in areas “with high or extremely high water stress” because of large withdrawals for use by industry, agriculture, and municipalities. In Colorado, for example, 92 percent of the wells were in extremely high water-stress areas, and in Texas more than half were in high or extremely high water-stress areas.

USGS Report: 'Groundwater Depletion in the United States (1900-2008)' Plus More! - Great report from friend and hydrogeologist extraordinaire Leonard (Lenny) Konikow, another Long Island kid, but one who made real good -  Groundwater Depletion in the United States (1900-2008).Abstract A natural consequence of groundwater withdrawals is the removal of water from subsurface storage, but the overall rates and magnitude of groundwater depletion in the United States are not well characterized. This study evaluates long-term cumulative depletion volumes in 40 separate aquifers or areas and one land use category in the United States, bringing together information from the literature and from new analyses. Depletion is directly calculated using calibrated groundwater models, analytical approaches, or volumetric budget analyses for multiple aquifer systems. Estimated groundwater depletion in the United States during 1900–2008 totals approximately 1,000 cubic kilometers (km3). Furthermore, the rate of groundwater depletion has increased markedly since about 1950, with maximum rates occurring during the most recent period (2000–2008) when the depletion rate averaged almost 25 km3 per year (compared to 9.2 km3 per year averaged over the 1900–2008 timeframe). Note that 1 km3 equals about 810,000 acre-feet, so over the entore timeframe we are talking about a depletion of about 810 million acre-feet! And since 2000 we're depleting our groundwater at an average annual amount of over 20 million acre-feet.

Senate passes farm bill; food stamp fight looms in House - (Reuters) - The Democratic-run U.S. Senate passed a $500 billion, five-year farm bill on Monday that expands a taxpayer-subsidized crop insurance program and rejects sweeping cuts in food stamps for the poor being pursued in the House of Representatives. The bill passed easily, 66 to 27, and now goes to the Republican-controlled House. It was the second time in a year that the Senate has sent a five-year farm bill to the Republican-led House, which let the bill die at the end of 2012. Analysts say food stamp cuts are the legislation's make-or-break issue, given otherwise broad similarities between the two versions. While the Senate would trim food stamps by $4 billion over a decade, the bill awaiting debate in the House calls for a $20 billion cut, the largest in a generation. Some 2 million people, or 4 percent of enrollment, would lose benefits. "I do not support what the House is doing, $20 billion (in cuts)," said Senate Agriculture Committee chairwoman Debbie Stabenow, Democrat of Michigan. Still, she was confident the issue would be resolved and "very optimistic" of sending a farm bill to President Barack Obama for enactment.

Senate Passes Bill to End Direct Payments to Farmers - The Senate on Monday passed a multiyear $955 billion bill that would end a long-running government practice of funneling direct payments to farmers regardless of crop yields, market prices or economic circumstances, marking a notable shift in agriculture assistance. The payments, which totaled $47 billion between 2002 and 2011, have accounted for between 21% and 45% of total farm-program payments in recent years, according to the U.S. Department of Agriculture, covering various crops produced across the country. The Senate legislation would end the payments, plowing some of the savings into an expansion of crop-insurance support and other assistance programs to offset the impact on farmers. The overall bill would cut $18 billion in government farm spending over the next decade, according to the nonpartisan Congressional Budget Office, almost all of it coming from ending the direct payments. The bill, which passed the Senate by a 66-to-27 vote Monday evening, outlines farm and nutrition-program spending over the next decade, the bulk of which goes to food-stamp assistance for lower-income families. The legislation includes a range of other support programs aimed at segments of the agriculture industry, including direct support to sugar producers, and an expansion of existing crop insurance to dairy farmers and produce growers.The House is expected to take up its version of the farm bill next week.

Study finds more pests are growing resistant to genetically modified crops - More pest species are becoming resistant to the most popular type of genetically-modified, insect-repellent crops, but not in areas where farmers follow expert advice, a study said on Monday. The paper delves into a key aspect of so-called Bt corn and cotton — plants that carry a gene to make them exude a bacterium called Bacillus thuringiensis, which is toxic to insects. Publishing in the journal Nature Biotechnology, US and French researchers analysed the findings of 77 studies from eight countries on five continents that reported on data from field monitors. Of 13 major pest species examined, five were resistant by 2011, compared with only one in 2005, they found. The benchmark was resistance among more than 50 percent of insects in a location. Of the five species, three were cotton pests and two were corn pests. Three of the five cases of resistance were in the United States, which accounts for roughly half of Bt crop plantings, while the others were in South Africa and India. The authors said they picked up a case of early resistance, with less than 50 percent of insects, in yet another US cotton pest.

Dramatic honeybee shortage threatens Calif. almond crop, nation's food supply - The honeybee population has been dwindling for years, but Californians are now seeing the effects of the shortage firsthand. It has been reported that roughly 80 percent of the world's almonds come from California's Central Valley. TIt's an 800,000 acre area that is entirely dependent on bees pollinating the trees.  But what's known as colony collapse disorder is threatening the almond crop, along with a whole lot more.  Dr. Joseph Mercola, a physician who specializes in alternative health wrote an article for his website about bee loss titled 'Bee Colony Collapse Disorder May Affect Our Food Supply.'  Mercola references a recent report by Dan Rather, who pointed out that this year, many of the 6,000 orchard owners simply could not find enough bees to pollinate their almond trees. Of the 11,000 hives brought to California from all over the country for the mass pollination effort this year, hundreds of hives turned out to be dead upon arrival. A fourth generation beekeeper lost 70 percent of his hives. Another lost 100 percent of his bees. And while nobody knows the exact cause of the demise of bee colonies, mites, disease, and pesticides are all suspects.  Researchers at U.C. Davis have identified residues of 150 different chemicals in the bee colonies they studied.

What the Produce Section Looks Like in a World without Bees - A Whole Foods Market in Providence, Rhode Island, recently took before and after pictures of what their produce section would look like in a world without bees.  The view sans bees is quite depressing, as it should be. Of the 453 products, 237 were removed, including apples, avocados, carrots, mangoes, lemons, eggplant, summer squash and a whole slew of other things.

Disease Outbreak Threatens the Future of Good Coffee - A disease called coffee rust has reached epidemic proportions in Central America, threatening the livelihoods of hundreds of thousands of farmers and the morning pick-me-up of millions of coffee drinkers. Caused by a leaf-blighting fungus, possibly exacerbated by growing practices and climate change, the disease leaves coffee plants spindly and barren, their precious fruits unripened. “Where people have been using heirloom varietals for a century, you just have trees without leaves,” said David Griswold, president of Sustainable Harvest Coffee Importers. “We’re already into the flowering cycle now, then it takes nine months to incubate the beans. You can see from the flowering what the losses will be. It’s just twigs. It’s as though you’re walking through a forest of twigs.” The effects haven’t been felt yet among coffee drinkers in developed countries, but history gives a sense of the problem’s potential magnitude. England, that quintessentially tea-drinking nation, only became so in the 19th century, after rust outbreaks destroyed coffee plantations in Sri Lanka and shifted production to Indonesia. That’s why coffee is sometimes called java.

Pigs fed GM grain suffer health problems, study says - Pigs fed a combination of genetically modified soy and corn suffer more frequent severe stomach inflammation and enlargement of the uterus than those who eat a non-GM diet, according to a new peer-reviewed long-term feeding study published Tuesday in the Organic Systems Journal. The five-month study combined “real on-farm conditions” with “strict scientific controls,” according to lead researcher Judy Carman of Flinders University in Australia.  Using pigs was important not only because “we eat them,” but because humans and pigs share similar digestive systems, Carman said in a statement. "We need to investigate if people are also getting digestive problems from eating GM crops," the statement said.  In pigs eating genetically modified crops, the average rate of severe stomach inflammation was nearly three times as high as that for other pigs (32 percent vs. 12 percent).  Among male pigs eating a GM diet, the rate of severe stomach inflammation was four times higher.

U.K. farmers fail to feed nation after extreme weather hits wheat crop -- The wettest autumn since records began, followed by the coldest spring in 50 years, has devastated British wheat, forcing food manufacturers to import nearly 2.5m tonnes of the crop.  "Normally we export around 2.5m tonnes of wheat but this year we expect to have to import 2.5m tonnes," said Charlotte Garbutt, a senior analyst at the industry-financed Agriculture and Horticulture Development Board. "The crop that came through the winter has struggled and is patchy and variable. The area of wheat grown this year has been much smaller."  Analysts expect a harvest of 11m-12m tonnes, one of the smallest in a generation, after many farmers grubbed up their failing, waterlogged crops and replanted fields with barley. According to a National Farmers Union poll of 76 cereal growers covering 16,000 hectares, nearly 30% less wheat than usual is being grown in Britain this year. Britain is usually the EU's third biggest wheat grower but it will be a net importer for the first time in 11 years.

NGOs Target Financial Investment in Farmland - Banks, pension funds, hedge funds and other financial institutions have stepped up their investment in farmland in recent years, including financing for controversial large-scale land deals in developing countries. NGOs are now calling specifically on financial institutions to ensure that their investments are environmentally and socially sound, or consider divestment. Last month, Friends of the Earth released a report that linked a number of European banks and investment firms to large-scale land acquisitions in Uganda. In this case, the financial institutions provided financing to Wilmar, a major agricultural trading firm with extensive interests in palm oil production and refining. FOE’s research showed that Wilmar’s subsidiary in Uganda had violated environmental and land tenure legislation in connection with recent land purchases in the country. In the past year, other NGOs have also drawn attention to the problems associated with financial investment in farmland acquisition. The Oakland Institute, for example, released a report that highlighted the environmental and social problems associated with land grabs and the role that financial institutions, such as pension funds and hedge funds, have played in fuelling such investments. According a report by the International Institute for Environment and Development, around 190 private equity firms are acquiring land and other agricultural assets on behalf of their investors.

More Ways That Financiers Suck Wealth From Agricultural Providers (and Ultimately, You) - In my last two posts (A-great-sucking-sound-part-2, A-great-sucking-sound-part-1/), I addressed the roles of debt, farmland acquisition, and physical commodity hoarding in helping finance siphon wealth from global agriculture. In this final post, I discuss the role of derivatives and insurance markets in this redistributive process. I then turn to some of the potential critiques of my argument. Derivative and insurance markets are implicated in the redistribution of wealth from agriculture to finance in at least two ways. First, derivatives—and some retail insurance products based on them (e.g. Brazilian CPR, micro crop and revenue insurance)—are increasingly marketed to farmers, traders and/or consumers as a means of reducing market and weather risks in agriculture (demand for such products has been catalyzed by the erosion of public arrangements to prevent and mitigate agricultural risk). To my mind, this arrangement in many cases resembles a case of unequal exchange. An hedging product of mediocre quality is being exchanged for a stream of fees and commissions to the financial sector. Second, agricultural derivatives markets have become a key investment venue for global financial firms, with these investments in “virtual” commodities pushing up global food prices. Here, financial investment comes at the expense of price volatility for food system actors.

After Drought, Rains Plaguing Midwest Farms -  About this time last year, farmers were looking to the heavens, pleading for rain. Now, they are praying for the rain to stop. One of the worst droughts in this nation’s history, a dry spell that persisted through the early part of this year, has ended with torrential rains this spring that have overwhelmed vast stretches of the country, including much of the farm belt. One result has been flooded acres that have drowned corn and soybean plants, stunted their growth or prevented them from being planted at all. With fields, dusty and dry one moment, muddy and saturated the next, farmers face a familiar fear — that their crops will not make it. “This is the worst spring I can remember in my 30 years farming,” said Rob Korff, who plants 3,500 acres of corn and soybeans here in northwestern Missouri. “Just continuous rain, not having an opportunity to plant. It can still be a decent crop, but as far as a good crop or a great crop, that’s not going to happen.”Another year of mediocre crop yields could well trickle down to consumers, though agriculture experts insist that it is too early to rule out a robust harvest of corn and soybeans for this year.

Drought's affects on U.S. river ecosystems affecting native fish - Persistent drought in North America has caused "a conservation crisis" for native fish communities, a Kansas State University researcher reported. Biology Professor Keith Gido and his team studied state and federal endangered and threatened fish species in river ecosystems including the Arkansas, Kansas, Gila, San Juan, Red and Platte rivers, a university release reported Thursday. "A couple of key species that we have been studying have virtually disappeared where they historically were abundant," Gido said. As an example he cited silver chub, noting that more than 300 were observed in the Ninnescah River in southern Kansas in summer 2011. After a second consecutive year of severe drought, his team saw three silver chub during their sampling in 2012. Gido said they found zero silver chub in spring 2013. "We are in a conservation crisis," he said. "Our fish communities have changed dramatically and we are losing a lot of native species."

Great Lakes Shipping Suffers as Water Levels Fall - Drought and other factors have created historically low water marks for the Great Lakes, putting the $34 billion Great Lakes-St. Lawrence Seaway shipping industry in peril, a situation that could send ominous ripples throughout the economy. Water levels in the Great Lakes have been below their long-term averages during the past 14 years, and this winter the water in Lakes Michigan and Huron, the hardest-hit lakes, dropped to record lows, according to the Army Corps of Engineers. Keith Kompoltowicz, the chief of watershed hydrology with the corps’s Detroit district, said that in January “the monthly mean was the lowest ever recorded, going back to 1918.” While spring rains have helped so far this year, levels in all five Great Lakes are still low by historical standards, so getting through the shallow points in harbors and channels is a tense affair. The combination of low water and infrequent dredging is annoying to recreational boaters, but the biggest impact is economic: shippers, carriers and the industries that rely on the bulk materials like limestone, iron ore, coal and salt are hugely dependent on lake travel.

Sequester Forces NOAA Satellite Cuts To Save Weather Jobs - There has been mounting concern over the National Oceanic and Atmospheric Administration’s mandatory furloughs of National Weather Service employees amidst increasingly severe weather. As a result, NOAA has reportedly submitted a plan to Congress that would restore the jobs at the expense of its weather satellites.This ‘pay one debt to incur another’ plan is the result of budget cuts mandated by sequestration, which severely threaten the agency’s ability to carry out its key mission by slashing $271 million from its 2013 budget, including a $50 million cut in its geostationary weather satellite program.After the devastating tornadoes in Oklahoma and Missouri and in preparation for what’s predicted to be an extremely active hurricane season, NOAA’s acting administrator Dr. Kathryn Sullivan announced last week that the agency was cancelling its mandatory furloughs, but provided no details on how it would be offset. On Sunday evening, Politico reported that the agency has proposed draining the funds from the promising COSMIC-2 satellite program in order to save weather jobs on the ground. A joint initiative with Taiwan, the COSMIC program began with the launch of six satellites in 2006. As the initial fleet nears the end of its life, COSMIC-2 would launch 12 new satellites into orbit with the capacity to collect and transmit an enormous amount of data that enhance weather forecasts and climate models.

$110 Billion Price Tag for Extreme Weather Events in 2012 - When it came to extreme weather and climate events, 2012 was a colossal year for the U.S. It was the warmest year on record in the lower 48 states, featuring a massive drought and deadly heat waves that broke thousands of temperature records. Hurricane Sandy devastated parts of the Mid-Atlantic and Northeast, and one of the most intense and long-lasting complexes of severe thunderstorms, known as a “derecho,” plunged 4 million people into darkness from Iowa to Virginia. Now the National Oceanic and Atmospheric Administration (NOAA) has totaled the losses caused by the 11 most expensive extreme weather and climate disasters in 2012, each of which cost upwards of $1 billion. According to NOAA’s National Climatic Data Center in Asheville, N.C., these billion-dollar events cost the U.S. a total of $110 billion, which puts 2012 behind only 2005 on the list of costliest years since 1980.

Bloomberg to Propose Spending Billions to Mitigate Storm Risks - Almost eight months after Hurricane Sandy flooded New York’s subways, destroyed homes and blacked out half of Manhattan, Mayor Michael Bloomberg will propose spending billions of dollars to mitigate storm risk along the city’s more than 500 miles of coastline. Mindful of environmental scientists’ predictions that sea levels around the city may rise 12 to 55 inches by 2080, the mayor tomorrow will unveil a capital spending plan to mitigate the dangers, his office said. “As bad as Sandy was, future storms could be even worse,” the mayor said in remarks prepared for delivery tomorrow. “Because of rising temperatures and sea levels, even a storm that’s not as large as Sandy could be -- down the road -- even more destructive.” By mid-century, as much as one-quarter of New York’s land area, where 800,000 residents live, will be in a flood plain, the mayor plans to say.

Senators from Sandy-hit states press Obama on climate rules -  Democrats from states hit by Hurricane Sandy are putting fresh political pressure on the White House to impose carbon emissions standards on power plants, claiming the storm makes the case for tougher steps to confront climate change. Five senators from New Jersey, New York and Connecticut sent a letter Thursday to President Obama saying the “superstorm” that tore through the Northeast last year “brought home the increasing costs of global warming for millions of Americans.” The Democratic senators' letter notes Sandy wrecked tens of thousands homes and businesses, and inflicted major damage to infrastructure, transit systems and the coastline. “Even when the damage caused by Sandy is repaired, the cost of infrastructure projects to mitigate future natural disasters caused by extreme weather events could run into the hundreds of billions of dollars. Superstorm Sandy, and the possibility of even more devastating storms in the future, clearly demonstrates the urgency of squarely addressing the causes of climate change and its effects,” states the letter from Sens. Robert Menendez (N.J.), Kirsten Gillibrand (N.Y.), Charles Schumer (N.Y.), Richard Blumenthal (Conn.) and Chris Murphy (Conn.). The letter urges Obama to impose emissions standards on the nation’s existing power plants, which is a top priority for climate change activists.

Extreme Jet Stream Pattern Triggers Historic European Floods - Dr. Jeff Masters - The primary cause of the torrential rains over Central Europe during late May and early June was large loop in the jet stream that developed over Europe and got stuck in place. A "blocking high" set up over Northern Europe, forcing two low pressure systems, "Frederik" and "Günther", to avoid Northern Europe and instead track over Central Europe. The extreme kink in the jet stream ushered in a strong southerly flow of moisture-laden air from the Mediterranean Sea over Central Europe, which met up with colder air flowing from the north due to the stuck jet stream pattern, allowing "Frederik" and "Günther" to dump 1-in-100 year rains. The stuck jet stream pattern also caused record May heat in northern Finland and surrounding regions of Russia and Sweden, where temperatures averaged an astonishing 12°C (21°F) above average for a week at the end of May. All-time May heat records--as high as 87°F--were set at stations north of the Arctic Circle in Finland.  We are now in a new climate regime with more heat and moisture in the atmosphere, combined with altered jet stream patterns, which makes major flooding disasters more likely in certain parts of the world, like Central Europe. As I discussed in a March 2013 post, "Are atmospheric flow patterns favorable for summer extreme weather increasing?", research published this year by scientists at the Potsdam Institute for Climate Impact Research (PIK) in German found that extreme summertime jet stream patterns had become twice as common during 2001 - 2012 compared to the previous 22 years. When the jet stream goes into one of these extreme configurations, it freezes in its tracks for weeks, resulting in an extended period of extreme heat or flooding, depending upon where the high-amplitude part of the jet stream lies. The scientists found that because human-caused global warming is causing the Arctic to heat up more than twice as rapidly as the rest of the planet, a unique resonance pattern capable of causing this behavior was resulting.

German flood damage insurance claims may reach €3bn - Damage from the past week's flooding in Germany is expected to lead to insurance claims of up to €3bn (£2.5bn), a credit rating agency has said, as flood levels on the Elbe river in the country's north appeared to stabilise. Further south, the peak of the flood on the Danube, Europe's second-longest river, moved away from the Hungarian capital, Budapest, toward Serbia. The Elbe, the Danube and other rivers have overflowed their banks following weeks of heavy rain, causing extensive damage in Germany, the Czech Republic, Austria, Slovakia and Hungary. Fitch Ratings said that the total cost to insurers of the floods in Germany alone is likely to total between €2.5bn and €3bn. That's well below the expected total cost of the flood damage, which Fitch put at about €12bn. It said the difference is down to the fact that many residents in flood-prone areas may have been unable to get insurance cover for natural hazards, at least at a reasonable price. There was no immediate estimate available of the flooding's cost in the other central European countries affected.

Ganges, Nile and Amazon seen suffering more floods from climate change  (Reuters) – Climate change is likely to worsen floods on rivers such as the Ganges, the Nile and the Amazon this century while a few, including the now-inundated Danube, may become less prone, a Japanese-led scientific study said on Sunday. The findings will go some way to help countries prepare for deluges that have killed thousands of people worldwide and caused tens of billions of dollars in damage every year in the past decade, experts wrote in the journal Nature Climate Change. Given enough warning, governments can bring in flood barriers, building bans on flood plains, more flood-resistant crops and other measures to limit damage. Overall, a “large increase” in flood frequency is expected in south-east Asia, central Africa and much of South America this century, the experts in Japan and Britain wrote.

The Last Fish — Our Exhausted Seas - Out of sight, out of mind. What do you see when you stand on the beach and look out at the ocean? You see a broad expanse of blue water — you see the surface of the sea. It is probably wishful thinking to believe that humans might care about marine ecosystems if they could see the carnage below the surface, but if they could see it, the damage done from overfishing would certainly make an impression on them. Yet, the oceans get short shrift where the environment is concerned, or at least it seems that way to me after decades of following the news. That's not so hard to understand—humans live on the land, on the continents which make up the other 30% of the Earth's surface. Ironically, the large majority of humans prefer to live right next to the oceans. It's not hard to figure out why. My most recent post about the oceans was Philippe Cousteau — Environmental Advocate. I ridiculed Jacques' grandson because his warnings were full of Obligatory Hope, but maybe I should have lowered my expectations and praised him for simply bringing the subject up. Hardly anybody else does. Which brings me to today's video, a German TV special made in 2011 called Der letzte FischUnsere Meere am Scheideweg, which translated as The Last Fish — Our Exhausted Seas. I watched it over the weekend, and was pleased to see that there was interview with Boris Worm of Dalhousie University, whose work I have covered several times on DOTE. I hope you will watch this video, which is fairly long (42:07), if not today, then some other time. The oceans will be around a lot longer than our pathetic species. Long after we're gone, life in the oceans will recover from whatever adverse effects humans have on it in the next few centuries.

Carbon dioxide emissions rose 1.4 percent in 2012, IEA report says - Global emissions of carbon dioxide from energy use rose 1.4 percent to 31.6 gigatons in 2012, setting a record and putting the planet on course for temperature increases well above international climate goals, the International Energy Agency said in a report scheduled to be issued Monday. The agency said continuing that pace could mean a temperature increase over pre-industrial times of as much as 5.3 degrees Celsius (9 degrees Fahrenheit), which IEA chief economist Fatih Birol warned “would be a disaster for all countries.”“This puts us on a difficult and dangerous trajectory,” Birol said. “If we don’t do anything between now and 2020, it will be very difficult because there will be a lot of carbon already in the atmosphere and the energy infrastructure will be locked in.” The energy sector accounts for more than two-thirds of greenhouse gas emissions, so “energy has a crucial role to play in tackling climate change,” the IEA said. Its report urged nations to take four steps, including aggressive energy-efficiency measures, by 2015 to keep alive any hope of limiting climate change to 2 degrees Celsius.

IEA: Carbon emissions from fuel usage hit new global record - The International Energy Agency (IEA) says the world's carbon dioxide emissions from fossil fuel usage have risen to a record level. It warns that despite increased renewables usage climate change will "not go away." Global carbon dioxide emissions hit a new record in 2012, standing at 31.6 billion tons, the IEA reported Monday. The agency said the energy sector accounts for about two-thirds of global emissions of CO2 and other greenhouse gases, which scientists say are fueling climate change. The IEA report, presented in London, singles out China as the biggest polluter. Its emissions in 2012 rose 3.8 percent compared to the previous year. While the Asian country spewed out 300 million tons last year, the gain was one of its lowest seen in decades, reflecting China's efforts to adopt renewable sources of energy and to improve efficiencies. The IEA said the United States had reduced its year-on-year emissions by 200 million tons, or 3.8 percent, in part due to a switch in power generation from coal to gas. That switch brought the US back to levels last recorded in the mid-1990s.

IEA warns global temperature rise set to double target - The rise in the global temperature is on track to double the 2.0 degrees Celsius target, the International Energy Agency warned on Monday, and said four policies were needed urgently to limit climate change without harming economic growth. “This report shows that the path we are currently on is more likely to result in a temperature increase of between 3.6 degrees Celsius and 5.3 degrees Celsius,” IEA chief Maria van der Hoeven said in a statement. Nations have set the goal of limiting the increase in the global temperature this century to 2 degrees C at a UN summit in Durban in 2010 in order to avoid devastating climate change effects such as worsening droughts, storms, flood and sea levels. The IEA’s Redrawing the Energy-Climate Map report found that energy-related emissions of greenhouse gases, responsible for about two-thirds of the total, rose by 1.4 percent last year to a record level.

IEA: CO2 Rose 1.4% In 2012, Climate Catastrophe Looms, Delaying Action Until 2020 Costs World $3.5 TRILLION! - So the good news is that the International Energy Agency reports U.S. emissions dropped in 2012 “while total CO2 emissions growth in China was one of the lowest in the last decade.” China’s annual carbon pollution now exceeds our by 60%! Yes we are headed toward up to 9°F warming if we keep listening to the do nothing and do little crowd. And that, according to Executive Director Maria van der Hoeven, has “potentially disastrous implications in terms of extreme weather events, rising sea levels, and the huge economic and social costs that these can bring.Doing nothing to reduce carbon pollution this decade also has a staggering net cost of $3.5 trillion — assuming that post-2020 we then tried to get back on the 2 C (3.6 F) pathway, as the report explains: Delaying stronger climate action to 2020 would come at a cost: $1.5 trillion in low-carbon investments are avoided before 2020 but $5 trillion in additional investments would be required thereafter to get back on track.

Earth could be four degrees warmer by 2100: Report -  The planet is on track to warm by four degrees Celsius by the year 2100, if the global community fails to act on climate change, a new report by Climate Action Tracker has said. "Recent emissions trends and estimates of the effects of those policies in place and proposed lead to a new estimate that warming is likely to approach 4 degrees Celsius by 2100, significantly above the warming that would result from full implementation of the pledges," the report said. The UN's Intergovernmental Panel on Climate Change has previously set a goal of limiting the increase in the global temperature to no more than two degrees Celsius every century. The report said the "existing and planned policies are not sufficient for countries to meet these pledges" and current emissions trends are likely to lead to higher emission levels than previously projected. "The continuous global fossil-fuel intensive development of the past decade suggests that high warming levels of 4 degrees Celsius are more plausible than assuming full implementation of current pledges," the Climate Action Tracker said in its latest update, released at the Bonn climate talks.

Tougher Regulations Seen From Obama Change in Carbon Cost - Buried in a little-noticed rule on microwave ovens is a change in the U.S. government’s accounting for carbon emissions that could have wide-ranging implications for everything from power plants to the Keystone XL pipeline. The increase of the so-called social cost of carbon, to $38 a metric ton in 2015 from $23.80, adjusts the calculation the government uses to weigh costs and benefits of proposed regulations. The figure is meant to approximate losses from global warming such as flood damage and diminished crops.With the change, government actions that lead to cuts in emissions -- anything from new mileage standards to clean-energy loans -- will appear more valuable in its cost-benefit analyses. On the flip side, approvals that could lead to more carbon pollution, such as TransCanada Corp. (TRP)’s Keystone pipeline or coal-mining by companies such as Peabody Energy Corp. (BTU) on public lands, may be viewed as more costly. “As we learn that climate damage is worse and worse, there is no direction they could go but up,” Laurie Johnson, chief economist for climate at the Natural Resources Defense Council, said in an interview. Johnson says the administration should go further; she estimates the carbon cost could be as much as $266 a ton.

Secret Climate Cost Calculations: the Sequel - Three years ago, the Obama administration released an estimate of “the social cost of carbon”` (SCC) – that is, the value of the damages done by emission of one more ton of carbon dioxide. Calculated by an anonymous task force that held no public hearings and had no office, website, or named participants, the SCC was released without fanfare as, literally, Appendix 15A to a Department of Energy regulation on energy efficiency standards for small motors. This year, the Obama administration updated the SCC calculation. The update was done by an anonymous task force that held no public hearings, and had no office, website, or named participants. It first appeared as – yes! – Appendix 16A to a Department of Energy regulation on energy efficiency standards for microwave ovens. Something has to change in a sequel (unless it’s in Congress); this year’s SCC number is bigger. For a ton of CO2 emitted this year, the estimated damages were bumped up from $25 in the 2010 calculation to about $40 in the revised version (all in today’s dollars). Since the SCC is used in the administration’s cost-benefit evaluations of new regulations, a bigger number means stronger arguments for energy efficiency and conservation standards. That’s the good news. The bad news is that behind the veil of secrecy, the same nonsensical methodology was used both times. In 2010 and again in 2013, the anonymous task force members decided to apply three simple models, PAGE, DICE, and FUND,[1] to five emissions scenarios from other models. The average of these results is the SCC.

Super Pollutants 101: How To Cut Climate Impacts And Safeguard Public Health - Super pollutants are one of the most underappreciated but dangerous contributors to climate change. Also known as short-lived climate pollutants, or forcers, super pollutants are potent noncarbon-dioxide global warming contaminants. They are also dangerous for human health and diminish agricultural productivity. Reducing carbon dioxide — the primary greenhouse gas emitted from the burning of fossil fuels for energy and transportation — is necessary for achieving the long-term greenhouse reductions we need. However, it is impossible to achieve the total greenhouse gas reductions scientists agree are necessary for avoiding dangerous temperature increases without also limiting super pollutants. Not only are super pollutants shorter-lived, but they also remain in the atmosphere for a shorter time than carbon dioxide; therefore, reducing these pollutants now can help reduce temperatures in the near term. In addition, the reduction of super climate pollutants can be easier than the reduction of carbon dioxide since none of them, unlike CO2, are a byproduct of our primary sources of energy. This background brief focuses on three super pollutants that are some of the largest contributors to global warming: methane, black carbon, and HFCs. It explains the sources of these pollutants, their prevalence, and why fast action to reduce them is imperative for protecting public health and avoiding the disastrous impacts of global warming.

What would ‘wartime mobilization’ to fight climate change look like? - The United States and 140 other countries have signed or otherwise associated with the Copenhagen Accord, in which it is agreed that the nations of the world should “hold the increase in global temperature below 2°C, and take action to meet this objective consistent with science and on the basis of equity.” For there to be a chance — even just a 50/50 chance — of limiting temperature rise to 2°C, global greenhouse gas emissions must peak by 2020 (earlier for the developed world) and fall by 9 or 10 percent a year every year thereafter.Nothing like that has ever been done. Not even close. No major energy transition has ever moved that quickly. Carbon emissions have never fallen that fast, not even during the economic collapse brought on by the demise of the USSR. Getting to change of that scale and speed is not a matter of nudging along a natural economic shift, as clean energy cost curves come down and fossil fuels get more expensive. That scale and speed seem to demand something like wartime mobilization.

Iron fertilization, process of putting iron into ocean to help capture carbon, could backfire: A new study on the feeding habits of ocean microbes calls into question the potential use of algal blooms to trap carbon dioxide and offset rising global levels.These blooms contain iron-eating microscopic phytoplankton that absorb CO2 from the air through the process of photosynthesis and provide nutrients for marine life. But one type of phytoplankton, a diatom, is using more iron that it needs for photosynthesis and storing the extra in its silica skeletons and shells. This reduces the amount of iron left over to support the carbon-eating plankton. Because of this iron-hogging behavior, the process of adding iron to surface water -- called iron fertilization or iron seeding -- may have only a short-lived environmental benefit. And, the process may actually reduce over the long-term how much CO2 the ocean can trap. Rather than feed the growth of extra plankton, triggering algal blooms, the iron fertilization may instead stimulate the gluttonous diatoms to take up even more iron to build larger shells. When the shells get large enough, they sink to the ocean floor, sequestering the iron and starving off the diatom's plankton peers.

Why Greenland's darkening ice has become a hot topic in climate science - Last July, a record melting occurred on the Greenland ice sheet. Even in some of the highest and coldest areas, field parties observed rainfall with air temperatures several degrees above the freezing point. A month before, it was as though Greenland expert Jason Box had a crystal ball; he predicted this complete surface melting in a scientific publication. The basic premise of Box's study was that observations reveal a progressive darkening of Greenland ice. Darkening causes the white snow surface to absorb more sunlight which in turn increases melting. Given that this process is likely to continue, the impact on Greenland melt, and subsequent sea level rise, will be profound. There are several mechanisms that are known to darken arctic ice, including desert dust, pollen, soot from natural forest fires, and human biomass burning for land clearing and domestic use. Industrial, shipping, and aircraft pollution also play a role. Some of these effects are increasing. As climate change accelerates, more areas are being burned by wildfire each year. Box wondered how much increasing wildfires with resulting soot landing on the northern ice might amplify what scientists call a "positive feedback" (a self-reinforcing cycle) increasing Greenland melting. The cycle starts with initial warming, leading to more fires, more soot, and in turn more warming and more melt. The feedback is important, particularly in polar regions where observed warming is twice the rate of more southerly locations around the globe. Box calculates this effect has doubled Greenland surface melting since year 2000.

CARVE: methane coming out of permafrost in Alaska - Permafrost (perennially frozen) soils underlie much of the Arctic. Each summer, the top layers of these soils thaw. The thawed layer varies in depth from about 4 inches (10 centimeters) in the coldest tundra regions to several yards, or meters, in the southern boreal forests. The Arctic's extremely cold, wet conditions prevent dead plants and animals from decomposing, so each year another layer gets added to the reservoirs of organic carbon sequestered just beneath the topsoil. Over hundreds of millennia, Arctic permafrost soils have accumulated vast stores of organic carbon -- an estimated 1,400 to 1,850 petagrams of it (a petagram is 2.2 trillion pounds, or 1 billion metric tons). That's about half of all the estimated organic carbon stored in Earth's soils. In comparison, about 350 petagrams of carbon have been emitted from all fossil-fuel combustion and human activities since 1850. Most of this carbon is located in thaw-vulnerable topsoils within 10 feet (3 meters) of the surface. But, as scientists are learning, permafrost -- and its stored carbon -- may not be as permanent as its name implies. And that has them concerned. "Permafrost soils are warming even faster than Arctic air temperatures -- as much as 2.7 to 4.5 degrees Fahrenheit (1.5-2.5 C) in just the past 30 years," Miller said. "As heat from Earth's surface penetrates into permafrost, it threatens to mobilize these organic carbon reservoirs and release them into the atmosphere as carbon dioxide and methane, upsetting the Arctic's carbon balance and greatly exacerbating global warming."

NASA Finds ‘Amazing’ Levels Of Arctic Methane And CO2, Asks ‘Is a Sleeping Climate Giant Stirring in the Arctic?’ - A NASA science team has observed “amazing and potentially troubling” levels of methane and CO2 from the rapidly warming Arctic. Given the staggering amount of carbon trapped in the permafrost — and the fact that methane is a very potent heat-trapping gas — the space agency is now asking: “Is a Sleeping Climate Giant Stirring in the Arctic?”  We’ve known for a while that “permafrost” was a misnomer (see “Thawing permafrost feedback will turn Arctic from carbon sink to source in the 2020s“). The defrosting permamelt will likely add up to 1.5°F to total global warming by 2100. Two studies from February provide more evidence the process may happen even faster than we thought:

Now we are getting some of the first detailed observations of carbon emissions from the thawing permafrost thanks to the Carbon in Arctic Reservoirs Vulnerability Experiment (CARVE), “a five-year NASA-led field campaign studying how climate change is affecting the Arctic’s carbon cycle.”

The Northern Hemisphere's Atmospheric Circulation Has Collapsed Creating a Persistent Polar Cyclone - A sudden stratospheric warming split the polar vortex in two in mid-January. Since then, the northern hemisphere's atmospheric circulation has been behaving very strangely. An area of extreme high pressure formed over the Arctic ocean and lasted for months. It formed in response to prolonged subsidence of air from high above caused by the slow cooling of the bubble of warm air that invaded the stratosphere. High pressure at the pole and a very weak polar vortex pushed cold air out of the Arctic towards north America and western Europe. Weather in the U.S. and Europe in February, March and April was exceptionally cold because polar air pouring out of the Arctic. In May the pressure patterns reversed. Siberia ran out of cold air by the end of April. The weak atmospheric circulation retreated north very rapidly as the long days brought strong solar heating to northern latitudes. The escape of the Arctic cold air in early spring led to an extraordinarily fast snow melt in Siberia in May. A record minimum area of Eurasia was covered by snow in May.Heat built up over Siberia over the first three weeks of May as the snow retreated, causing the whole lower atmosphere to thicken over Eurasia. However, the ice covered Arctic ocean stayed cold. A strong gradient in both temperature and atmospheric thickness developed around the Arctic ocean, causing a storm to develop around May 20. An unbroken series of cyclones has continued since then.

U.S. Solar Installations Climb 33% Led by California - Solar installations in the first quarter increased 33 percent to account for almost half of all new electric capacity installed in the U.S., according to a trade-group report. Installations grew to 723 megawatts from a year earlier with utility-scale projects accounting for 317.7 megawatts of additions, the Washington-based Solar Energy Industries Association said today in a statement. SEIA expects 5.3 gigawatts will be installed in 2013, topping last year’s 3.3 gigawatts. Growth will be driven increasingly by solar installations at homes and businesses, Shayle Kann, vice president of research in Boston at GTM Research, which wrote the report with SEIA, said in an interview. Residential installations grew 53 percent in the quarter, Kann said.

Florida repeals law requiring 10% ethanol blend in gasoline - It looks like ethanol – especially when blended into gasoline – is facing some pushback. Florida has decided to repeal its Renewable Fuel Standard, which had required all gasoline sold in the state to be blended with nine-to-10 percent ethanol or other alternative fuels. Florida Governor Rick Scott just signed into law HB4001, which repeals the state's Renewable Fuel Standard as of July 1, 2013. The bill was passed by the Florida House and Senate in April. The Florida Renewable Fuel Standard Act took effect December 31, 2011 and required all gasoline sold by terminal suppliers, importers, blenders or wholesalers (i.e., those up the supply chain) to be blended. These parties were also required to submit a monthly report to the Department of Revenue on the numbers of gallons of blended and unblended gasoline sold. Retail gas stations had not been expressly prohibited by state law from selling or offering unblended gasoline, Green Car Congress reports. In his signing statement, Scott called the state's Renewable Fuel Standard, "a state mandate on Florida businesses that is duplication of the Federal Renewable Fuel Standard and inconsistent with the efforts to reduce the regulatory burdens that have helped Florida create over 330,000 new private sector jobs in the past two years."

Ethanol Debacle Heats Up - This summer we can expect the Environmental Protection Agency (EPA) to set new targets for US ethanol use while the policy comes under massive criticism. The market has been unkind to the ethanol mandate, and we’re not sure how the EPA is going to now attempt to push through a higher blend ethanol in fuel—above the 10%/gallon, when ethanol supplies aren’t there. So the new targets to be released this summer will require a bit of a re-think, and the EPA will have to decide how to resolve the issue, which could mean a lowering of targets or an elimination of them altogether. Refiners and ethanol producers are up in arms over the mandate, which is already threatening to cause fuel shortages and higher prices for consumers—along with higher food prices thanks to the diversion of corn for the ethanol blend. Of course, the beneficiaries of the EPA’s ethanol targets—primarily the corn-growing states—are hoping there won’t be any lowering of the requirements, but the market clearly sees things differently.

The two edges of gas taxes - Gas taxes have two objectives:

  1. Price the external effects of driving--like emissions, congestion, road use/maintenance...
  2. Raise revenue for other government programs

Sometimes these two objectives conflict.  For example, by pricing the external effects of driving, a gas tax makes driving more expensive and leads drivers to seek alternative ways to reduce the cost of driving.  Some will seek alternative means of transportation (mass transit, bike), while others will seek more fuel efficient vehicles. So objective 1) above might conflict with objective 2).   Here's some evidence...North Carolina is joining a growing number of states raising fees for hybrid and electric car owners to make up for revenue those drivers aren't paying in gas taxes on their fuel-efficient vehicles. The proposal strikes many owners of alternative-fuel vehicles and some advocacy groups as a wrong-headed approach to balancing energy independence with paying for infrastructure. But policymakers and some experts argue taxing hybrid and electric vehicle owners is a matter of making sure all drivers help maintain the roads they use and construct new ones.

Two-thirds of energy sector will have to be left undeveloped, Bonn conference told - - About two-thirds of all proven reserves of oil, gas and coal will have to be left undeveloped if the world is to achieve the goal of limiting global warming at two degrees Celsius, according to the chief economist at the International Energy Agency.  Addressing participants in the latest round of UN climate talks in Bonn, Fatih Birol said this should be an “eye-opener” for pension funds with significant investments in the energy sector – particularly in coal – as well as for ratings agencies. He predicted coal would be hardest hit in the “unburnable carbon” scenario, followed by oil and gas. “We cannot afford to burn all the fossil fuels we have. If we did that, it [average global surface temperature] would go higher than four degrees.“Globally, the direction we are on is not the right one. If it continues, the increase would be as high as 5.3 degrees – and that would have devastating effects on all of us.” Dr Birol delivered his address a day after the energy agency published its latest special report, Redrawing the Energy-Climate Map, which called on governments to take action between now and 2020 to ensure the two-degree target could be achieved.

Nuclear Plants, Old and Uncompetitive, Are Closing Earlier Than Expected - The nuclear industry is wrestling with that question as it tries to determine whether problems at reactors, all designed in the 1960s and 1970s, are middle-aged aches and pains or end-of-life crises.  This year, utilities have announced the retirement of four reactors, bringing the number remaining in the United States to 100. Three had expensive mechanical problems but one, Kewaunee in Wisconsin, was running well, and its owner, Dominion, had secured permission to run it an additional 20 years. But it was losing money, because of the low wholesale price of electricity. “That’s the one that’s probably most ominous,”  “It’s as much a function of the cost of the alternatives as it is the reactor itself.” While the other three, San Onofre 2 and 3 near San Diego and Crystal River 3 in Florida, faced expensive repair bills because of botched maintenance projects, “Kewaunee not only didn’t have a major screw-up in repair work, it didn’t even seem to be confronting a major capital investment,” he said.

Coal remains world's fastest growing fossil fuel: BP review - Coal remained the world's fastest-growing fossil fuel in 2012, despite the rate of consumption slipping below the 10-year average of 4.4% during the year, according to the BP 2013 Statistical Review of World Energy released Wednesday. Total global coal consumption in 2012 rose 2.5% on the year to 3.73 billion mt of oil equivalent. The Asia-Pacific region accounted for 69.9% of global coal consumption in 2012, burning 2.61 billion mt of oil equivalent. Despite China's coal consumption growth rate falling to a below-average 6.1%, the country still accounted for all of the net growth in coal burn and accounted for more than half of global coal consumption (50.2 %) for the first time, BP said.Total US coal consumption continued to fall, decreasing by 11.9% on-year to 437.8 million mt of oil equivalent. In Europe -- where low-priced thermal coal continues to displace gas in the merit order -- coal burn increased by 2.2% on the year to 516.9 million mt, representing 13.9% of overall global consumption.

Coal Industry Pins Hopes on Exports as U.S. Market Shrinks - Every few hours trains packed with coal pass through the sagebrush-covered landscape here in southern Montana, some on their way north to Canadian ports for shipment to Japan and South Korea. It’s part of a push by the nation’s coal industry, hobbled by plummeting demand as Americans turn to cleaner natural gas, to vastly expand what it sends to Asia and Europe. But the aggressive effort to rescue the $40 billion industry is running into fierce opposition from environmental groups, who say pollution caused by burning coal should not be exported. The future of the impoverished Crow Nation may also hang in the balance since it owns an enormous deposit of up to 1.4 billion tons of coal — more than the United States produces in a year. But before Cloud Peak can mine the land and send the coal to energy-hungry nations in Asia, it needs more export terminals to be built in the Pacific Northwest, and those have been delayed or, in some cases, scuttled after investors grew weary of the continued opposition from environmental groups. Last week, the Sierra Club and other groups opened another phase in the battle, filing suit in a federal court in Seattle against Burlington Northern Santa Fe railway and several coal companies, saying coal dust escaping from trains has polluted rivers and lakes in Washington. The new export terminals, they say, would only bring more trains carrying coal to the ports and increase the amount of dust. Coal’s share of electricity generation

The Bureau of Land Management Is Ripping Us Off On Federal Coal Sales - The federal Bureau of Land Management is costing taxpayers a bundle by undervaluing the public coal it sells to industry, an Interior Department watchdog has concluded in a new report. The review, by the Department of Interior’s Inspector General, found that the bureau that oversees energy development on hundreds of millions of acres of public land had cost taxpayers at least $62 million by selling recent coal leases on the cheap. Most federal coal is mined in the Powder River Basin region of northeast Wyoming and southeast Montana, where the BLM has leased sales of more than 2 billion tons of coal since 2011. “We found weaknesses in the current coal sale process that could put the government at risk of not receiving the full, fair market value for the leases,” the IG said, according to a report by Reuters. “Even a 1-cent-per-ton undervaluation in the [fair market value] calculation could result in a $3 million revenue loss.”

European coal pollution causes 22,300 premature deaths a year, study shows - Air pollution from Europe's 300 largest coal power stations causes 22,300 premature deaths a year and costs companies and governments billions of pounds in disease treatment and lost working days, says a major study of the health impacts of burning coal to generate electricity.The research, from Stuttgart University's Institute for energy economics and commissioned by Greenpeace International, suggests that a further 2,700 people can be expected to die prematurely each year if a new generation of 50 planned coal plants are built in Europe. "The coal-fired power plants in Europe cause a considerable amount of health impacts," the researchers concluded.Analysis of the emissions shows that air pollution from coal plants is now linked to more deaths than road traffic accidents in Poland, Romania, Bulgaria and the Czech Republic. In Germany and the UK, coal-fired power stations are associated with nearly as many deaths as road accidents. Polish coal power plants were estimated to cause more than 5,000 premature deaths in 2010. The cumulative impact of pollution on health is "shocking", says an accompanying Greenpeace report. A total of 240,000 years of life were said to be lost in Europe in 2010 with 480,000 work days a year and 22,600 "life years" lost in Britain, the fifth most coal-polluted country. Drax, Britain's largest coal-powered station, was said to be responsible for 4,450 life years lost, and Longannet in Scotland 4,210.

Natural Gas Production in 2013 to Increase as Prices Rise - Marketed natural-gas production in the U.S. this year will top 70 billion cubic feet a day for the first time amid gains from onshore reserves and higher prices, a government report showed. Daily output will average 70.01 billion cubic feet, up from 69.9 billion estimated in May, the Energy Information Administration said in its monthly Short-Term Energy Outlook, released today in Washington. Production will set a record for the sixth straight year as new wells come online at shale formations, such as the Marcellus in the Northeast and the Bakken in North Dakota, government data show. Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $3.92 per million British thermal units, up from the May estimate of $3.80, according to the report from the EIA, the Energy Department’s statistical arm. The average for third quarter was raised 7.4 percent to $4.05 from $3.77. Colder winters in 2013 and 2014 compared with unusually warm weather in 2012 are “expected to increase the amount of natural gas used for residential and commercial space heating,” the EIA said. Onshore production will increase this year and in 2014 while federal Gulf of Mexico output drops.

Shale oil and shale gas resources are globally abundant - Today in Energy - U.S. Energy Information Administration (EIA): Estimated shale oil and shale gas resources in the United States and in 137 shale formations in 41 other countries represent 10% of the world's crude oil and 32% of the world's natural gas technically recoverable resources, or those that can be produced using current technology without reference to economic profitability, according to a new EIA-sponsored study (see Table 1) released today (June 10, 2013). More than half of the identified shale oil resources outside the United States are concentrated in four countries—Russia, China, Argentina, and Libya—while more than half of the non-U.S. shale gas resources are concentrated in five countries—China, Argentina, Algeria, Canada, and Mexico. The United States is ranked second after Russia for shale oil resources and fourth after Algeria for shale gas resources when compared with the 41 countries assessed (see Tables 2 & 3). Technically Recoverable Shale Oil and Shale Gas Resources estimates that shale resources considered in conjunction with EIA's own assessment of resources within the United States indicate technically recoverable resources of 345 billion barrels of world shale oil resources and 7,299 trillion cubic feet of world shale gas resources (see Table 1). While the current report considers more shale formations than were assessed in the prior version of this assessment, it still does not assess many prospective shale formations, such as those underlying the large oil fields located in the Middle East and the Caspian region. Currently, only the United States and Canada are producing shale oil and shale gas in commercial quantities.

Oil, Gas From Shale Seen Rising as More Nations Explore -  Global resources of oil and gas from shale formations are greater than previously estimated as more nations join efforts to explore for deposits following a burst of production in the U.S. The U.S. Energy Information Administration released a fresh assessment of worldwide resources of oil and gas in shale, which are tapped by hydraulic fracturing, showing tight oil resources could be 345 billion barrels. Shale gas estimates were increased by 10 percent from 2011, to 7,299 trillion cubic feet. “As shale oil and shale gas production has grown in the United States to become 30 percent of oil and 40 percent of natural gas total production, interest in the oil and natural gas resource potential of shale formations outside the United States has grown,” Adam Sieminski, the agency’s administrator, said today a statement. The report shows “a significant potential for international shale oil and shale gas.” The report doesn’t assess all prospective shale formations, leaving out those under the large oil fields in the Middle East and the Caspian region because of a lack of data. The report studied technically recoverable resources, and the agency says some of those might not be economically justified given current cost for drilling or fracking in different nations.

US judged shocked by Va. role in lawsuit - — A federal judge has expressed shock that an assistant Virginia attorney general has been assisting two natural gas companies that are being sued by landowners who allege the companies bilked them out of natural gas royalties. In an opinion issued Wednesday, U.S. Magistrate Judge Pamela Meade Sargent said the relationship was revealed in emails provided to the court by the plaintiffs in the case against EQT Production Co. and CNX Gas Co., two Pittsburgh-area energy companies.

Pipeline Called Key to Canada Oil Sands - Extracting Canada’s huge deposits of oil sands in the next few years might not be economically viable without building the hotly contested Keystone XL pipeline into the U.S., according to new research that environmentalists said bolsters their view that blocking the project would shut off development of the energy source. Environmentalists say producing Canadian oil sands releases more carbon dioxide than other kinds of oil and are pressing President Barack Obama to block the pipeline, which would carry oil from Alberta and help it get to Gulf Coast refineries. The U.S. State Department, industry officials and some analysts counter that burgeoning railroad capacity will eventually give Canadian crude a way to reach global markets even if Keystone is blocked. “The potential for Canadian heavy crude oil supply to remain trapped in the province of Alberta is a growing risk for the 2014-2017 period depending on the timing of new pipeline start-ups,” analysts at Goldman Sachs Group Inc. GS -0.07% wrote in a research report this past week. Without adequate pipeline capacity, Canadian heavy crude will continue to trade at a steep discount to other grades of oil for the next few years, which could weigh on the economics of developing Canadian oil sands, according to the Goldman Sachs report and other analysts. Environmentalists say Mr. Obama can help curb greenhouse gases by rejecting the pipeline, and they want the State Department, which is reviewing the pipeline, to take into account the environmental impact.

Canadian Regulator Waives Oil-Sands Enforcement Penalties - —Canadian oil sands producers failed to meet promised targets for reducing toxic waste, but the chief provincial regulator has waived enforcement penalties, citing progress the industry has made introducing new technology. A report from Alberta's Energy Resources Conservation Board, which was released last week, found all four mines reviewed in the province's main area of production didn't meet clean-up goals over a two-year cumulative period. The report illustrates challenges faced by the oil sands industry as it seeks to improve its environmental track record. It also may complicate Canadian efforts to win U.S. approval for the Keystone XL pipeline designed to ship more oil from the province to refineries on the Gulf of Mexico. A decision on that project, which has been criticized by environmental groups opposing oil sands development, is expected from Washington sometime later this year. Alberta's environmental minister, Diana McQueen, who has pledged to devise a separate framework to bolster monitoring of oil sands clean-up efforts, said she is confident the industry will eventually achieve promised reductions.

Oil product glut coming as refineries mushroom - IEA  (Reuters) - The world is heading for a glut of refined products as new Asian and Middle East refineries increase oil processing in a move likely to force less advanced competitors in developed countries to close, the West's energy agency said on Wednesday. The International Energy Agency said in its monthly report it expected 9.5 million barrels per day (bpd) of new crude distillation capacity, representing more than a 10th of global demand, to come on stream in 20132018, substantially more than the forecast increase in crude production capacity and global demand growth. "While Europe's economic woes are taking a toll on demand, there are mounting signs that China's oil use, like its economy, may have shifted to a lower gear. Slower growth in demand than in runs could lead to product stock builds," the IEA said. The agency said changes would be already felt from the third quarter of 2013 as global refinery runs may rise by more than 2 million bpd on the back of increased processing by China, Saudi Arabia and Venezuela. This spike in crude runs would exceed forecast product demand growth of 1.7 million bpd, the IEA said.

U.S. Notched Biggest Oil-Output Gain in 2012 - The U.S. last year posted the biggest increase in oil production in the world and the largest increase in U.S. history, unleashing a surge of fresh crude supplies that are helping restrain global oil prices and advance U.S. foreign-policy goals.Oil production in the U.S. jumped 14% last year to 8.9 million barrels per day, according to the newly released annual BP statistical review. That production, spurred primarily by the development of new tight-oil fields such as those in North Dakota, helped offset supply shocks in other oil-producing countries.“The growth in U.S. output was a major factor in keeping oil prices from rising sharply, despite a second consecutive year of large oil supply disruptions,” said BP Chief Executive Bob Dudley.The boom in the U.S. and Canadian oil patch contrasts sharply with developments in many big oil-producing countries such as Mexico, Nigeria, Brazil and Venezuela, where output fell. Canadian production, spurred by both traditional crude production and the development of oil sands, grew almost 7%.

U.S. Oil Production Rose at Record Pace on Shale, BP Review Says -  U.S. oil production grew at the fastest pace since BP started keeping records in 1965 on unconventional sources such as shale and tight oil. An increase in output of about 1 million barrels a day caused net oil imports to the U.S. to drop by 930,000 barrels a day and imports are now 36 percent below their 2005 peak, London-based BP said in its annual Statistical Review of World Energy today. The expansion of both oil and natural gas production in the U.S. was the fastest in the world last year. The report highlights the potential scale of unconventional oil extraction, which involves fracturing underground rocks to tap resources that otherwise wouldn’t flow to the surface. These technological advances will limit the influence of OPEC as North American techniques are replicated in Russia, China and Brazil, Nansen Saleri, the former head of reservoir management at Saudi Arabian Oil Co., said yesterday.

OPEC Boosts Oil Production to Seven-Month High in May, IEA Says - Bloomberg: OPEC boosted crude oil production to a seven-month high last month as output increased from Saudi Arabia, Iran, the United Arab Emirates and Kuwait, according to the International Energy Agency. The 12 members of the Organization of Petroleum Exporting Countries pumped 30.89 million barrels a day in May, up from 30.75 million in April, the Paris-based IEA said today in its monthly oil-market report. That exceeds a target of 30 million that was reaffirmed at the group’s last meeting on May 31.OPEC, which supplies about 40 percent of the world’s oil, estimated that its members produced 30.57 million barrels a day last month, according to a report by the group yesterday based on secondary sources. That was the most since November. Saudi Arabia pumped at the highest in six months at 9.56 million barrels a day in May, rising 220,000 barrels a day from 9.34 million the previous month, the IEA said. Output increased ahead of the summer, when domestic demand for air-conditioning peaks, requiring more crude for direct burning in power plants.

Oil Supply Continues Flat - Above is the latest data on global oil supply (all liquids from various sources above, and the green curve being only crude and condensate below).  We continue to be in a pattern in which supply has been very flat since the beginning of 2012.  A close up just of the last few years shows this better: Despite the flat supply, prices have fallen over the last year: Presumably the fairly high prices sustained since the mid 2000s have set in motion enough conservation efforts in the OECD that demand is falling there enough to accommodate the rising developing country demand, without prices increasing further.  I would not expect Brent prices to fall below $100 though, at least not for long, as Saudi Arabia will cut back production to support them. For those who would like more background on these issues, I made some attempt to explain here

IEA Cuts Demand Forecast for OPEC Crude as China Cools - The International Energy Agency trimmed demand forecasts for OPEC’s crude in the second half of the year amid signs of slowing growth in China as output from the producer group rose to a seven-month high. The Organization of Petroleum Exporting Countries will need to provide an average 29.8 million barrels a day in the second half, the IEA said today in its monthly market report, lowering its assessment from the previous report by 200,000. That would require OPEC to cut output by 1.1 million barrels from the 30.9 million it pumped in May, according to the report. The agency kept its global oil demand estimates for this year unchanged. “While Europe’s economic woes are taking a toll on demand, there are mounting signs that China’s oil use, like its economy, may have shifted to a lower gear,” the Paris-based adviser to 28 oil-consuming nations said.

Come to Where the Energy Is: Myanmar Country - Myanmar, meanwhile, epitomizes the exoticism of the "Far East" to many Westerners. Despite their less-than-perfect reputations, they remain top-drawer economic attractions. Mynamar's considerable natural resources will always have its takers.  So it is with the recent normalization of Myanmar's relations with the rest of the world (best illustrated by it hosting a World Economic Forum event) that it's sought energy sector investment from MNCs whose countries previously barred them from doing business with the military junta. It's like a land grab out there as its "frozen in time" oil and gas fields are going to be up for auction soon. And, unlike the oil and gas fields of Southeast Asian neighbours the Philippines and Vietnam, China is not disputing ownership over them. Indeed, prior to the recent wave of liberalization, China was next to the only major foreign investor in Myanmar. But anyway, back to the story... Australia's Roc, [France's] Total SA (FP), [Italy's] Eni SpA (ENI) and [India's] Oil & Natural Gas Corp. are among 59 companies that qualified earlier this year to bid for onshore fields in Myanmar, according to the nation’s energy ministry. Myanmar is also offering 30 offshore blocks. Myanmar’s potential gas resources are estimated at as much as 45 trillion cubic feet, Roc said in February, citing a U.S. Geological Survey report. Myanmar has 7.8 trillion cubic feet of proven gas reserves, according to BP Plc data.“That’s quite a significant prize, and clearly the industry feels that as well given the appetite,” Eliet said.

China coal import ban sparks industry battle - Two of China’s most powerful energy lobbies are at loggerheads over a controversial proposal to ban imports of low quality coal which, if implemented, could radically reshape the global coal trade. At stake, claims the coal mining industry, are thousands of jobs and the future of one of China’s largest industries which has already seen at least 10 per cent of its coal mines shut down in the last year. Responding to concerns within the industry, the National Energy Administration in May proposed to ban imports of low quality coal, which refers to coal with low heat value. Roughly one-fifth of China’s coal imports – or 50m tonnes per year – would be banned under the current proposal, which has yet to be formally adopted. However, China’s power producers, which generate more than 70 per cent of their electricity from burning coal, are lobbying hard to get the proposal scrapped out of fears it would raise their costs.

Pentagon Loses Control of Bombs to China Metal Monopoly -  A generation after Chinese leader Deng Xiaoping made mastering neodymium and 16 other elements known as rare earths a priority, China dominates the market, with far-reaching effects ranging from global trade friction to U.S. job losses and threats to national security.  The U.S. handed its main economic rival power to dictate access to these building blocks of modern weapons by ceding control of prices and supply, according to dozens of interviews with industry executives, congressional leaders and policy experts. China in July reduced rare-earth export quotas for the rest of the year by 72 percent, sending prices up more than sixfold for some elements.  Military officials are only now conducting an inventory of where and how U.S. suppliers use the obscure but essential substances -- including those that silence the whoosh of Boeing Co. helicopter blades, direct Raytheon Co. missiles and target guns in General Dynamics Corp. tanks.

China to Build Panama Canal Bypass Through Nicaragua - One of the most extraordinary stories of the past decade largely overlooked by the U.S. media is how Central and Latin America have quietly escaped U.S. control since 9-11, as Washington focused on its Global War on Terror. A crucial element in this process has been Central and Latin America expanding their trading opportunities with states frowned upon by Washington, from Iran to China. Now, in the latest sign that Washington’s sway over the region is diminishing still further, Nicaragua has announced that it will soon begin construction of a canal to compete directly with the Panama Canal further south, to be financed by – China. As with the Three Gorges Dam, Beijing is not thinking small, as the proposed canal could take 11 years to build, cost $40 billion and require digging roughly 130 miles of channel. The Panama Canal, in contrast, is 48 miles long. The ruling Sandinista National Liberation Front, which has 63 of the 92 Parliamentary seats, has introduced legislation to award the project to HK Nicaragua Canal Development Investment Co. Ltd. It is an extraordinary proposal for Central America’s poorest nation, which does not even yet have a highway connecting its Atlantic and Pacific coasts. Nicaraguan President Daniel Ortega hope to gain final approval by 14 June.

China's economy stumbles in May, growth seen sliding in Q2 - China's economy grew at its slowest pace for 13 years in 2012 and so far this year economic data has surprised on the downside, bringing warnings from some analysts that the country could miss its growth target of 7.5 percent for this year. "Growth remains unconvincing and the momentum seems to have lost pace in May," Louis Kuijs, an economist at RBS, said in a note. "The short-term growth outlook remains subject to risks and we may well end up revising down our growth forecast for 2013 further." May exports to both the United States and the European Union - China's top two markets - both fell from a year earlier for the third month running. Imports fell 0.3 percent against expectations for a 6 percent rise as the volume of many commodity shipments fell from a year earlier. The volume of major metals imports, including copper and alumina, fell at double-digit rates. Coal imports fell sharply. Economic growth slipped to 7.7 percent in the first quarter, down from 7.9 percent in the previous quarter. Both the International Monetary Fund and the Organization for Economic Co-operation and Development cut their forecasts for China's economic 2013 economic growth in May, to 7.75 percent and 7.8 percent, respectively.

China's economy stumbles in May, growth may fall in Q2 (Reuters) - Risks are rising that China's economic growth will fall further in the second quarter and that full-year forecasts will be cut further, after weekend data showed weakness in May exports and domestic activity struggling to pick up. Evidence has mounted in recent weeks that China's economic growth is fast losing momentum, but Premier Li Keqiang tried to strike a reassuring note, saying the economy was generally stable and that growth was within a "relatively high and reasonable range". China's economy grew at its slowest pace for 13 years in 2012 and so far this year economic data has surprised on the downside, bringing warnings from some analysts that the country could miss its growth target of 7.5 percent for this year. "Growth remains unconvincing and the momentum seems to have lost pace in May," Louis Kuijs, an economist at RBS, said in a note. "The short-term growth outlook remains subject to risks and we may well end up revising down our growth forecast for 2013 further." Exports posted their lowest annual growth rate in almost a year in May at 1 percent, exposing a more realistic picture of trade following a crackdown by authorities on currency speculation disguised as export trades to skirt capital controls.

Chinese economy slowing fast - Over the weekend China released its May data dump and the news is good if you’re looking to see a Chinese rebalancing and bad if you’re Australian.  Starting at the top, inflation came in weak and well below expectations at -0.6% MoM and 2.1% YoY for the CPI. Good news perhaps but more concerning the PPI accelerated downwards at -0.6 MoM and -2.9 YoY (all charts and data thanks to ANZ):You may recall that sharp falls in the PPI presaged China’s second half weakness for 2011 and 2012: Next up, the composition of growth was positive for rebalancing but not so much for Australia. Industrial Production fell to 9.2% YoY in May, from 9.4% in April and electricity production confirmed the weakness, falling back to 4.1% from 6.2% in April:The all important (to Australia) fixed asset investment fell 0.2% to 20.4% YoY, resuming a gentle downtrend and the key component of strength, state spending, appears to rolling over:

World Bank sees 2013 China growth of 7.7%: Despite receding risks from advanced economies, global growth is likely to be "muted" for the next few years as expansion in China and other developing countries slows, the World Bank forecasts in a new report. Global GDP is expected to grow by 2.2 percent this year before strengthening to 3 percent and 3.3 percent in 2014 and 2015, respectively, the lending institution said in its semiannual Global Economic Prospects report, published on Wednesday. In developing countries, GDP growth for 2013 is projected to be 5.1 percent before reaching 5.6 percent and 5.7 percent over the following two years. In China, where the government's target of 7.5 percent for 2013 was buoyed by first-quarter growth of 7.7 percent, the slower pace compared with previous years is due to the country's shift to a consumer demand-driven economy, the World Bank said. The report predicted Chinese growth this year will be 7.7 percent, slightly higher than the official estimate, followed by 8 percent and 7.9 percent in 2014 and 2015. Broken down by region, the report predicts growth this year in East Asia and the Pacific of 7.3 percent (5.7 percent if China is excluded); Europe and Central Asia, 2.8 percent; Latin America and the Caribbean, 3.3 percent; the Middle East and North Africa, 2.5 percent; South Asia, 5.2 percent; and sub-Saharan Africa, 4.9 percent.

China state auditor warns over local government debt levels (Reuters) - China's state auditor warned on Monday that debt levels among local governments are rising and the financial burdens and risks are not being properly managed, adding to concerns over the health of the country's financial system. The National Audit Office, responsible for overseeing state finances, said in a report that the total debt at 36 local governments had risen 13 percent to stand at 3.85 trillion yuan ($627.70 billion) at the end of 2012 from two years before. Debt levels had risen as much as over 20 percent in some of the areas surveyed, it said, requiring "effective measures to strengthen debt management" and the establishment of an early-warning mechanism to effectively guard against risk. The report highlighted a number of problems needing "corrective measures", including a lack of debt management systems and regulations, illegally arranged debts and improper use of funds and falling revenues that could impact the ability to repay. Many Chinese local governments have embarked on spending sprees on big infrastructure projects since the state handed out cash in the wake of the 2008/09 financial crisis to pump up the economy. Concerns have grown that the debts incurred could sour as many infrastructure projects in China are for public use and not profitable. Many local governments have also borrowed from companies in private arrangements at high cost, with the money often used in speculative real estate projects.

China’s Export Growth Slows Amid Concern of Slowdown - NYT - Chinese exports showed only modest growth in May, rising just 1 percent from a year earlier, officials said Saturday, an increase that was much lower than analysts’ expectations. In April, the increase was 14.7 percent, a figure that was believed to have been artificially inflated. Before Saturday’s figure came out, analysts expected Chinese exports to have risen at least 7 percent in May. Concern is rising about the sputtering Chinese economy and tightening liquidity. The European Union, China’s biggest trading partner, remains mired in a stubborn economic downturn, while in the United States, China’s next-largest export market, the Federal Reserve has recently been sending signals it may start curtailing its stimulative monetary policies. China’s figures showed it had a trade surplus of $20.4 billion in May, up from $19.3 billion, as imports declined 0.3 percent, the Customs Administration said. The drop in imports — however slight — was a possible sign of weakness in the domestic economy. Chinese stocks declined last week, their first weekly decline in six weeks, amid signs of tightening liquidity within China. A clearer picture of the Chinese economy is expected Sunday, when the government releases data on retail sales, industrial output and inflation.

China Trade War Escalates - Just one month after we discussed ArcelorMittal's 'demand' that Europe seek sanctions against China's steel tariffs (following unfair 'tit-for-tat-wine' Chinese trade practices, after EU solar panel tariffs), Reuters reports that the EU is indeed to press the WTO to rule against Chinese duties on imported steel. While history never repeats, it merely rhymes, this episodic collapse in economies, markets, and trade is now showing signs of the same desperation as during the Great Depression as intervention, devaluation, and now protectionism are brought to bear to save the domestic economy at all costs. The EU joins Japan in this rapidly escalating trade war with Beijing as they believe "retaliation by the Chinese is now recognized," something not allowed under WTO rules, "and so they have a good chance to win." This will not help either trade relations with the world's 'growth' engine or the credit-crunched nation's massive glut of commodities (and commodity-backed credit lines).

Aussie Falls to Lowest in More Than Two Years as Home Loans Slow - Australia’s dollar fell to the lowest in more than two years versus the greenback after home-loan approvals grew at the slowest pace in three months, boosting the case for further cuts to borrowing costs. The Aussie slid against all but one of its 16 most-traded peers amid speculation the U.S. central bank will reduce stimulus this year, narrowing Australia’s interest-rate advantage. Standard & Poor’s lifted the U.S. credit outlook to stable from negative, supporting the view that the Federal Reserve could taper asset purchases under its program of quantitative easing. New Zealand’s kiwi dollar fell. “Housing is the one area most likely to make up for the mining investment downturn, and it’s disappointed,”

Shadow banking squeeze catches up to majors - From the AFR this morning comes a new headache for the major banks: Australia’s big banks are vigorously fighting a new regulation for derivatives proposed by international financial regulators that would add hundreds of millions of dollars to their funding costs and may lead to higher interest rates being passed on to consumer and business borrowers. As a consequence of a plan that aims to reduce systemic risk in the global financial system, proposed by the Group of 20 and being implemented by the International Organisation of Securities Commissions, Australian banks would need to pay a margin of 6 per cent on about $350 billion of cross currency swaps.The swaps are used to hedge foreign exchange and interest rate risk for offshore transactions.…The problem is unique to a handful of countries such as Australia and Canada, which are heavy users of cross currency swaps due to a shortage of deposits and reliance on international funding markets to fund their loan books. Ironically, Australia and Canada are two of the strongest banking systems in the world and escaped being seriously damaged by the GFC.

India’s Rate-Cut Room Dented as Rupee Drops to Record - The slump in the rupee to a record low has narrowed the Reserve Bank of India’s scope to cut interest rates next week for a fourth straight meeting. Governor Duvvuri Subbarao will keep the repurchase rate at 7.25 percent on June 17, 11 of 19 analysts said in a Bloomberg News survey. The rest called for a reduction to 7 percent. The currency’s 7.1 percent drop versus the dollar this quarter, the biggest in Asia, threatens to make imports more expensive. The rupee reached its weakest level today, weighed down by an unprecedented current-account deficit, the slowest Indian economic expansion in a decade and speculation the dollar will gain if the U.S. scales back monetary stimulus. Subbarao said May 30 that depreciation may stoke inflation and increase the cost of servicing foreign-currency debt.

Japanese Birth Rate Plunges To Record Low As Death-Rate Hits Record High - There are many headwinds to deflation-monster-fighting Abe's plans to bring Japan back from the ledge but perhaps the biggest one is the demographic disaster. As Japan News reports, the decline in Japan's population set another record in 2012 with the number of deaths exceeding births for the sixth year in a row. Records were broken everywhere. The number of babies born in the nation in 2012 fell by 13,705 from the previous year to hit a new low of 1,037,101 and while a total fertility rate of 2.0 children per woman will maintain the population at a stable level. Japan’s rate has continued to fall since dropping below 2.0 in 1975. Meanwhile, the number of deaths in 2012 hit a record high of 1,256,254, increasing by 3,188 from the previous year. The greying of Japan continues and worse still, the young, for many reasons, are not having children as the number of women in their 20s who had a child in 2012 decreased by 16,200.

Japan PM Abe unveils plan for tax cuts to boost capex (Reuters) - Japanese Prime Minister Shinzo Abe said on Sunday the government would decide on tax cuts in autumn to encourage companies to boost capital expenditure as part of sweeping reforms to revive the economy from nearly two decades of stagnation. The government will also work on legislation to scrap regulations hampering corporate research and investment and secure passage in parliament in autumn, he said. "We'd like to decide on bold tax cuts for capital expenditure in autumn," Abe told public broadcaster NHK. The measures will add to a series of steps the government unveiled in a draft of its growth strategy last week, such as setting up special economic zones to attract foreign business and raising incomes by 3 percent annually. The growth strategy is the "Third Arrow" in Abe's prescription to reverse deflation, which also includes hyper-easy monetary policy and big government spending.

Are There Risks to Abenomics? - Brad DeLong - In the long-run, Paul Krugman says, responding to Koo and Smith and Rowe, the real interest rate on JGB is determined by the supply-side factors of risk tolerance, time preference, and growth--none of which are affected by Abenomics. In the short-run, Paul says, Abenomics raises expected inflation and thus reduces the short-term real interest-rate on the debt--that is the point of the policy. Since today's long-term real interest rates are a combination of today's short-run short-term rates and the long-run future's short-term rates, Abenomics unambiguously reduces the overall cost of financing Japan's government debt and thus improves rather than erodes the fiscal position. I think that Paul's conclusion is ambiguously correct--as long as you buy Paul's model, which has a Keynesian unemployment short-run and a classical full-employment supply-side determined long-run, with today's long-term real interest rates and thus debt sustainability a fixed-weight average of the two.

The Zero Upper Bound? -- A funny thing happened the other day. As part of "Abenomics", the Bank of Japan has been buying long-term Japanese government bonds. This has seemed to have the expected positive effects - Inflation is up, inflation expectations are up, growth is up, consumption is up, exports are up, and the stock market, despite a recent drop, is way way up. But here's the funny thing - Japanese long-term government bond yields kept going up over most of the last month (meaning JGB prices went down). That's weird, right? Econ 101 says that if you buy more of something, its price should go up, not down! In this long rant, Richard Koo attributes the rise in interest rates to increased inflation expectations. According to Koo, QE doesn't work, and Japanese private investors, realizing this, started to expect inflation without real growth, and ditched JGBs, causing rates to rise. But Nick Rowe has another explanation. According to Rowe, the rate rise was due to greater expected growth (nominal growth, so both better real growth and more inflation). As the BOJ's easy monetary policy causes the economy to improve, Rowe says, interest rates will naturally rise; investors are simply anticipating that rise, and selling bonds now.

Is Japan already dead? -- No, I don't think it is. But I think "Is Japan already dead?" is a much better question to ask than "Will the increased interest rates from economic recovery kill Japan?" This is just a supplement to three posts: by me; by Noah Smith; and by Paul Krugman. (This also harks back to Livio's post and my earlier post). I think I've finally figured out a way to articulate something I couldn't explain very well before.  If Japan pays nominal interest rate i on government debt, and if Japan's Nominal GDP is growing at rate n, then Japan needs to run a primary surplus as a percentage of NGDP equal to (i-n)x(Debt/NGDP) in order to keep the Debt/NGDP ratio constant over time, and therefore sustainable. If you prefer, we could re-write that formula by subtracting the inflation rate from both i and n to get (r-g)x(Debt/NGDP), where r is the real interest rate and g is the real growth rate of GDP. It's the same thing. Economic recovery means that n will increase. Partly through higher inflation and partly through higher real growth, though we don't know the exact mix. Theory and observation tell us that economic recovery means that i will increase too.

Should Japan default? - There are two reasons to think about what happens in the eventuality of a Japanese sovereign default. The first is that Japan's debt might be big enough, and its bond market reluctant enough, that it is forced to either default, hyperinflate, or go into severe austerity mode. In that situation, a default might be the best option. After all, after Argentina defaulted on its debt in 2001, its economy suffered for three years but then did quite well, substantially outperforming its pre-default trend: That looks like a decently good macroeconomic scenario. And far from being an exception, this story is the norm:  So the precedent for a default is not apocalyptic. Whether this is better than hyperinflation I will leave unanswered, but it seems likely to be better than a long grinding period of austerity-induced stagnation. Also, note that austerity would redistribute wealth from Japan's young to Japan's already-comfortable older generations; a default, in contrast, represents a big transfer of wealth from the pampered old to the struggling young.

Japan revises up Q1 growth to annual 4.1% - Japan has revised up its first-quarter economic growth to 1 per cent, giving Prime Minister Shinzo Abe a boost as he seeks to strengthen his grip on power in next month’s upper house elections. Government data released on Monday showed that the economy expanded at an annualised rate of 4.1 per cent between January and March, lifted by strong household spending and a pick-up in private residential investment. That was much higher than the preliminary estimate of 3.5 per cent, which was already the fastest rate recorded by any Group of Seven economy. The data was followed by a sharp rise in Japanese equities, which have recently been subject to wild swings. The Nikkei 225 index, closed up 4.9 per cent at 13,514.20. The quarter-on-quarter growth rate was the highest since a 1.2 per cent reading during the same period last year, when public spending surged in the tsunami-afflicted northeast and as industrial output bounced back after flooding in Thailand. Analysts said most of the revision was due to a reassessment of changes in inventory levels. Still, Masamichi Adachi, economist at JPMorgan, said that looking ahead, solid private demand would likely sustain growth in the 2.5 per cent to 3.5 per cent range.

Japan’s Economic Stimulus Gets Its Second Wind - NYT - Investors raced back into the Japanese stock market Monday after upbeat data helped dispel some recent doubts cast on the government’s aggressive pro-growth policies. Earlier, the government’s revision of gross domestic product data showed Japan’s economy expanded at a rate of 1.0 percent between January and March, above a preliminary estimate of 0.9 percent, after estimates for corporate capital spending and stronger household spending were raised. That new clip came to 4.1 percent in annualized terms, up from 3.5 percent. Bank lending, which had stubbornly refused to grow despite years of easy money amid companies’ weariness over growth prospects, rose a robust 1.8 percent in May from the same month last year. That uptick came as a victory for the Bank of Japan, which has embarked on a bold program to pump the economy with cheap money to get businesses to borrow and invest. Data released Monday also showed Japan’s current account surplus doubled in April to ¥750 billion, or nearly $7.6 billion, far above market forecasts of slightly above ¥300 billion, as a weakened yen pushed up returns on overseas investments. Last year, Japan’s current-account surplus shrunk to record levels as a strong yen hurt exporters, and an energy shortfall led to a jump in the costs of importing fuel. But a welcome drop in the yen — another consequence of the central bank’s loose monetary policies — has eased some of the pressure on the balance of trade.

Japan Is a Model, Not a Cautionary Tale - Joseph Stiglitz - IN the five years since the financial crisis crippled the American economy, a favorite warning of those who have urged forceful government action, myself included, has been that the United States risked entering a long period of “Japanese-style malaise.” Japan’s two decades of anemic growth, which followed a crash in 1989, have been the quintessential cautionary tale about how not to respond to a financial crisis. Now, though, Japan is leading the way. The recently elected prime minister, Shinzo Abe, has embarked on a crash course of monetary easing, public works spending and promotion of entrepreneurship and foreign investment to reverse what he has called “a deep loss of confidence.” The new policies look to be a major boon for Japan. And what happens in Japan, which is the world’s third-largest economy and was once seen as America’s fiercest economic rival, will have a big impact in the United States and around the world. Of course, not everyone is convinced: though Japan reported a robust 3.5 percent annualized growth rate for the first quarter of this year, the stock market has dipped from a five-year high amid doubts about whether “Abenomics” will go far enough. But we shouldn’t read anything into short-term stock fluctuations. Abenomics is, without a doubt, a huge step in the right direction.

Nikkei Falls 6.4%, Overseas Markets Escalate Hissy Fit Over Cut in World Bank Forecasts, Fed Taper Talk - Yves Smith - The big shortcoming being exposed by the Fed’s talk of tapering QE isn’t just that it’s premature. The central bank could have had its cake and eaten it too by using the “T” word and then in case of overreaction, sending minions out to reassure investors that it didn’t mean it, really, they just had to say it to appease the hawks (not in that formula, mind you, the mere fact of running around and looking concerned about markets having a bit of a swoon is more important than content). It’s that any QE exit subjects the Fed to conflicting objectives and Mr. Market may have finally awoken to that fact. It didn’t help matters that the World Bank injected a further dose of reality and cuts its growth forecast to 2.2% (aside: how anybody believed their initial rose-colored-glasses projections for the year is beyond me).  Plus, to make matters worse, the Fed clearly has no idea, really, how to exit (will it really just “taper” and announce a reduced amount per month? Will it cut the amount purchased one month or two and see how that goes and then announce a plan? Investors got a sense of confidence knowing the Fed would be buying on a regular basis, even though setting quantities meant the central bank was not and could not control the rate impact. So the focus on quantities rather than rates makes it very hard for the Fed to ease out gracefully).  Bernanke & Co. might have assumed that enough insiders understood that nothing was happening any time soon so that any market tsuris would be short lived.

Is Japan just too far gone? And is Europe next? - The Bank of Japan’s unprecedented monetary easing led to a near doubling in the Japanese stock market, now followed by a 20% “bear market” swoon. Of course, Capital Economics has a good point when it says better to label the decline a “substantial market correction” given the previous spectacular rise. But whatever you call the slump, such crazy volatility has understandably raised concerns that one of Shinzo Abe’s “three arrows” has failed to stick to its target. As one Tokyo economist tweeted, “Could this be the end of the fantasy called Abenomics? There were huge expectations. But it didn’t take long for people to realize the reality isn’t that easy.”“Easy?” Maybe it’s impossible. After two decades of deflation and stagnation — and now depopulation – perhaps the Japanese economy has crossed some tipping point and is beyond salvation.

Counterparties: Passing Abenomics - Abe’s plan to revitalize the country’s sluggish economy seemed to be working, as reflected in the Nikkei which soared to around 15,100 in May from 10,395 in December. That has changed: the Nikkei fell 7% yesterday and is down 20% since its May high, closing at 12,445 Thursday. Swiss hedge fund manager Felix Zulauf said Japan would  “cause the next big global crisis”. The reality is it is probably too soon to tell whether Abenomics is working. The prime minister’s three-pronged plan is certainly ambitious. In order to do “whatever it takes” to hit a 2% inflation target, the Bank of Japan is flooding the markets with money and the government has implemented major fiscal stimulus. Last week, Abe proposed a growth strategy that includes a target to lift per-person income by 40% over 10 years and “a series of deregulated and lightly taxed zones around the country”. Abe has said this is the most important of the three prongs, but The Economist notes that the announcement “left many disappointed by its timidity”. As far as growth goes, David Keohane points out that “it’s hard to escape the effects of demographic determinism.” Japan has an aging population, a very low fertility rate, and Abe has not yet proposed a great solution to fix this. What Japan does have going for it is low unemployment, although as Noah Smith has pointed out, a lot of that has to do with falling real wages and women opting out of the labor force. But Joseph Stiglitz is still bullish on Japan, noting that “we see that even after two decades of ‘malaise,’ Japan’s performance is far superior to that of the United States”

Which countries are running the largest government deficits? - The OECD recently updated its 2013 projection of government deficits for the countries they track. The latest results show Japan running by far the largest fiscal deficit, the UK is number 4 on the list, and the US is number 9 (out of total of 37). Here is the full list which includes a few surprises.And the chart below shows how those deficits changed from 2012 (negative numbers indicate an increase in deficit or a reduction in surplus). Greece is the most improved (assuming the OECD numbers are correct), while Slovenia's deficit worsened the most.

Venezuela hit by fears of hyperinflation and recession - Hyperinflation is looming in Venezuela, with prices suffering their highest monthly rise on record in May, while the economy slides into recession and the popularity of Nicolas Maduro, the new president, wanes. Prices rose 6.1 per cent in May, compared with 1.6 per cent in the same period last year, bringing accumulated inflation for the first five months of 2013 to 19.4 per cent, almost as high as the annual figure for 2012 of 20.1 per cent. The sudden jump in prices, with the 4.3 per cent rise in April already sounding alarms, has triggered fears at Goldman Sachs that Venezuela could be on the brink of hyperinflation, which the US bank defines as seasonally adjusted annualised rates of more than 40 per cent. There is no fixed definition of hyperinflation. The International Accounting Standards Board puts it at a cumulative rate of 100 per cent over three years. At present, the annualised rate of inflation in Venezuela is 35.2 per cent. At the same time, the economy is losing steam, with 0.7 per cent growth registered in the first quarter of 2013, compared with 5.9 per cent growth in the same period last year. Analysts at London-based consultancy Capital Economics suspect that the Venezuelan economy may already be in recession, and forecast that gross domestic product will contract by 1 per cent this year.

Cost of insuring emerging market debt soars on fears Fed will taper - The cost of insuring debt issued by Mexico, Brazil and other emerging-market governments against default jumped sharply on Tuesday, underlining the hit took by equities and bonds across the developing world as investors grow skittish over ideas the U.S. Federal Reserve may begin to put a crimp in the flow of liquidity it has provided the market through its bond-buying program. As yields on U.S. Treasurys jumped, the spread on Mexican credit default swaps, or CDS, widened to 147 basis points Tuesday from 128 basis points a day earlier, according to data provider Markit.  CDS are instruments that can be used to insure debt against default. The move means that the annual cost of insuring $10 million of Mexican debt against default for five years jumped $19,000 , to $147,000 — a big rise. Moreover, the cost of insuring Mexican debt against default has doubled since May 9, noted Gavan Nolan, director of credit research at Markit, in a note. As the chart from Markit shows, it’s a similar story for Brazil. The CDS spread at 185 basis points is the widest since November 2011. And Nolan notes that all 14 components of Markit’s CDX.EM index, which tracks a basket of emerging-market government debt CDS, saw spreads widen significantly as investors turned away from high-yielding assets that had previously benefited from the Fed’s quantitative-easing program.

Emerging-Market Currencies See Turnaround After Hefty Losses - The South African rand and other emerging-market currencies reversed course to gain against the dollar Tuesday after suffering heavy losses earlier in the session. These currencies have plummeted rapidly in June, dragged down by expectations the Federal Reserve will taper its bond-buying program later this year. Ultra-accommodative U.S. monetary policy had helped drive investors to seek higher yields in emerging markets in recent years, analysts say. India's central bank dove into foreign exchange markets Tuesday to stop the rupee's slide at a record low of INR58.95 to the dollar. Pressured to attract capital to the country, a top Indian economic official promised a new round of measures to allow foreign investment in currently restricted parts of the economy. The rupee pared losses against the dollar but still fell 0.3% on the day to trade at INR58.34 per dollar. Turkey's central bank on Tuesday announced new measures to attract capital after spending much of the past four years trying to stop too much money from flooding into its economy. That helped to stem the lira's fall to near a multi-year low against the dollar as police moved in on protesters in Istanbul. Brazil's central bank stepped up intervention in the face of the rapid currency depreciation that began on May 28, with a series of foreign exchange swap auctions, including two on Tuesday.

Brazil losing reserves fast as speculators attack real - Emerging nations from Brazil to Indonesia have acted to stem capital flight as the market sell-off of recent days began to rattle governments across the world. Brazil, fast transforming from powerhouse to crisis economy, is relying on derivatives contracts to stem the slide of the real and camouflage capital flight. The central bank spent $5.7bn (£3.6bn) defending the currency this month, though just half has shown up in reserve data. Jornal Valor Economico reported the rest had come through “swap cambial” futures to be redeemed in August and September. “Brazil seems to be under speculative attack. We are losing reserves very fast,” “The market can see the government is in a corner.” Mr Ribeiro said the country’s reserves of $375bn (£240bn) may not be an adequate shield if the exodus turns serious. “We should not forget that Russia lost $210bn in reserves in a few weeks during the Lehman crisis in 2008.” Just months ago Brazil was struggling to stop the real rising too far, waging a “currency war” to curb inflows of hot money. It has since switched gear, scrapping its 6pc tax on foreign bond investors. This week it lifted its 1pc tax on currency derivatives.

Latin America Can Handle Fed’s Post-Stimulus Effects, IMF Says -  Latin American economies are “well positioned” to withstand capital outflows as speculation increases that the Federal Reserve will roll back its stimulus, said the International Monetary Fund’s top official for the region.  Latin American banks are better capitalized than in the past and asset prices aren’t inflated, two important buffers in the event of volatility, Alejandro Werner, director of the IMF’s Western Hemisphere Department, said in an interview. Much of the capital flowing to the region in recent years has come in the form of foreign direct investment and even some portfolio flows are more permanent, reflecting investors’ preference for markets with lower debt levels, said the 46-year-old economist.As the region prepares for the possible end of the Fed’s $85 billion-a-month program of asset purchases, “there will be a lot of volatility, investors do overreact, but I think these economies are well positioned to absorb these kind of movements,” Werner said. “We won’t see important side effects from these movements in asset prices,” he said at Bloomberg’s office in Washington June 7.  Debate among U.S. policy makers over when and how to dial back the Fed’s campaign has shaken financial markets in developing nations. Brazil last week began unwinding capital controls it erected in 2010 after the real lost 8.8 percent in the past three months, the second-biggest decline among 16 major currencies tracked by Bloomberg.

Mexico’s Growing Role in the North American Auto Industry - Chicago Fed - Mexico’s auto industry has experienced tremendous growth since the mid-1980s. Last year, 19% of all light vehicles produced in North America originated in Mexico (see table 1). That is up sharply from 20 years ago and puts Mexico ahead of Canada in terms of the number of vehicles produced.Table 1: Distribution of light vehicle production in North America On May 30, a panel of distinguished experts gathered at an event hosted by the Detroit branch of the Chicago Fed to discuss factors behind Mexico’s growth as a vehicle producer.  Most of the presentations are available here. Also, see a recent Chicago Fed Letter on the same topic.

Canada's latest job report is a mixed blessing - This past week we got some positive news out of Canada: an amazingly strong employment report. CTV News: - Canada's economy created an impressive 95,000 new jobs in May -- the biggest monthly gain in nearly 11 years -- blowing away the expectations of most analysts.  Economists had expected anywhere from 10,000 to 15,000 new jobs last month. Instead, the economy created several times more, sending the unemployment rate down one-tenth of a point to 7.1 per cent.  Even Prime Minister Stephen Harper seemed a little surprised by the numbers, cautioning that the Statistics Canada monthly reports are subject to wide margins of error.  This is certainly great news for Canada, a nation that has been facing significant economic headwinds (see discussion). The unemployment rate has fallen to 7.1%, while youth unemployment fell to 13.6% from 14.5%.A look behind the headline numbers reveals a somewhat troubling trend however. As the Bank of Montreal (BMO) latest research points out, construction seems to be a major driver of job creation. Almost half the jobs in May came from construction, while the manufacturing sector lost jobs.Construction now accounts for a record high percentage of overall employment, putting Canada at risk. BMO: - This is a mixed blessing to say the least, since there was already plenty of concern that the Canadian job market had been artificially pumped up in recent years by the building boom—well, double down on those concerns, as construction payrolls now account for a record high of overall jobs at 7.6%.

Northern disclosure - ONE of the enduring economic mysteries in Canada is why labour productivity is so dismal compared with that in America, even though the two economies are closely intertwined and are each other’s largest trading partner. Since 1980, when they were more or less at par, productivity levels in the two countries have diverged such that average output per Canadian worker in 2011 was only 78.3% of an American counterpart. A succession of governments has tried to make the economy more market-oriented by signing trade deals at the global and continental level, easing restrictions on foreign investment, lowering taxes and deregulating sectors such as air transport, electricity and telecommunications. The gap has only widened. A report out this week by Deloitte, a business consultancy, offers a novel explanation that may be relevant to other poor performers in the productivity stakes: More than one third of Canadian companies don’t realise they are not making the necessary investments in research, machinery, equipment and technology to keep up with more competitive firms because they lack access to the kind of information they need to compare themselves with their peers. The report calls this group “over-confident” because they think they are doing better than they actually are.

How the World Bank Makes Doing Business Easier - Simon Johnson - The Doing Business indicators measure what is involved in setting up and running a relatively small business in 185 economies around the world. There are also subnational reports available for some places, for example Italy in 2012-13.  These data are highly informative, indicating where there are barriers to business creation and development. Such details are extremely annoying or even threatening to three distinct categories of people: some high-level administrators in the World Bank, people who run cozy business cartels and officials who do not like transparency of any kind. Some top World Bank administrators oppose the Doing Business indicators because these measures shine too much light onto exactly what is happening in particular countries. It is much easier to concoct country-by-country measures, preferably with a methodology that is not straightforward for others to replicate. Local business oligarchs are, as you might suppose, rather unenthusiastic about the entry of new companies. And officials in many countries really do not like transparency. Why draw attention to your regulations when these are not best practices? A number of countries have expressed forcefully dissatisfaction with the indicators in their current form. China is the most notable critic, but some other governments are also not happy with this type of transparency.

Labor's falling share of GDP, virtually worldwide - Kathleen Geier - The International Labor Organization (ILO) recently released its Global Wage Report 2012/13. Econ blogger Timothy Taylor, the “Conversable Economist,” (H/T Economist’s View) points to one of the report’s most disturbing findings, the fact that labor’s share of the GDP is declining significantly in nearly all countries throughout the world. Here’s an excerpt from the report: The OECD has observed, for example, that over the period from 1990 to 2009 the share of labour compensation in national income declined in 26 out of 30 developed economies for which data were available, and calculated that the median labour share of national income across these countries fell considerably from 66.1 per cent to 61.7 per cent … Looking beyond the advanced economies, the ILO World of Work Report 2011 found that the decline in the labour income share was even more pronounced in many emerging and developing countries, with considerable declines in Asia and North Africa and more stable but still declining wage shares in Latin America. It wasn’t always this way. As Taylor notes, before the 1980s, labor’s share of national income fluctuated somewhat from year to year but tended to be stable overall. Also, during this period, we’ve seen large surges in productivity — and yet those productivity gains are not being shared by labor. This is an ominous sign for any society.  Keynes: “Nothing corrupts society more than to disconnect effort and reward.”

The zero-sum trade in people - The problem that I identified for the Eurozone in my previous posts is already well-documented on a smaller scale within countries - migration from rural areas to cities. And as various people have pointed out, we are also seeing it in the US and UK, which are currency unions. It's also a particularly worrying feature of the Baltic states and other Eastern European members of the European Union. In short, it's not just a problem peculiar to the Eurozone. The theory behind free movement of labour runs as follows. We assume that importing countries are attracting labour that they need, and exporting countries are shedding labour that they don't need. Migration of labour from low-wage to high-wage areas is an essential part of the internal devaluation process. For any given job, a worker will wish to receive a high wage, while an employer will wish to pay a low wage. The market-clearing price is somewhere between the two depending on their relative power: where there is a shortage of labour the price will be nearer to the worker's demand, while a glut of labour will enable employers to control the price. (Yes, I know this is a bit simplistic!) Clearly, therefore, the low-wage country has more labour than it needs, and the high-wage country does't have enough. If workers can move from low-wage to high-wage countries, therefore, the supply of labour increases in the high-wage country, putting downwards pressure on labour costs, and decreases in the low-wage country, putting upwards pressure on labour costs. And concurrently, when the cost of moving is lower than the benefit to be gained by relocating in a low-wage country, firms will move into that country. As the demand for labour falls in the high-wage country due to firms relocating, wages fall, and conversely as more firms relocate in low-wage country, wages rise. Eventually the two countries reach equilibrium, wages stabilise, labour stops migrating and firms stop relocating.

The impact of immigrants – it’s not what you think - OECD Insights -In the land of tabloid terrors, immigrants loom large. Flick through the pages or online comments of some of the racier newspapers, and you’ll see immigrants being accused of stealing jobs or, if not that, of being workshy and “scrounging benefits”. Surveys offer further evidence: For example, a 2011 study in five European countries and the United States found that at least 40% of respondents in each country regarded immigration as “more of a problem than an opportunity”. More than half the respondents in each country also agreed with the proposition that immigrants were a burden on social services. This sense that immigrants are living off the state appears to be widespread. But is it true? New research from the OECD indicates that it’s not. In general across OECD countries, the amount that immigrants pay to the state in the form of taxes is more or less balanced by what they get back in benefits. Even where immigrants do have an impact on the public purse – a “fiscal impact” – it amounts to more than 0.5% of GDP in only ten OECD countries, and in those it’s more likely to be positive than negative. In sum, says the report, when it comes to their fiscal impact, “immigrants are pretty much like the rest of the population”.

60% chance of global recession: Pimco - Bond giant Pimco believes there is a 60% chance of another global recession in the next few years.  "Given that the last global recession was four years ago, and also given that the global economy is significantly more indebted today than it was four years ago, we believe there is now a greater than 60% probability that we will experience another global recession in the next three to five years," While inflation should remain "well behaved" in the medium-term, Parikh painted a grim picture for the global economy. He forecast slowing growth rates around the world, continued stagnation in Europe and growing trade and currency tensions between developed markets.  The latest data on gross domestic product shows the U.S. economy grew at a 2.4% annual pace in the first three months of the year as it continues to recover from recession.  Meanwhile, the 17 eurozone nations continue to struggle. The eurozone economy contracted for a record sixth consecutive quarter at the start of 2013. China, the global growth engine, has also been experiencing decelerating growth rates over the last few years, and the IMF recently downgraded its forecast for the country's economic prospects.

Everything the IMF Wanted to Know About Financial Regulation and Wasn’t Afraid to Ask By Sheila Bair, Chair of the Systemic Risk Council. - I was honoured when the IMF asked me to moderate the Financial Regulation panel at this year’s Rethinking Macro II conference. And while naturally, I delivered one of the more enlightening and thought-provoking policy discussions of the conference, I did fail in my duties as moderator to make sure my panellists covered all the excellent questions our sponsors submitted to us. Of course, this was to be expected, as panellists at these types of events almost never address the topics requested of them (I certainly never do), but rather, like Presidential candidates, answer the questions they want to answer. However, being the conscientious person I am, who accepts responsibility for my mismanagement (unlike some bank CEOs we know), I will now step up and answer those questions myself.

Do U.S. tech companies now have legal troubles in the EU? -- Laws in this area can be tricky to interpret, so digest this caution, but I found this analysis from Bloomberg BusinessWeek of interest: The Safe Harbor scheme (not recognized by the Germans, incidentally) allows U.S. tech firms such as Google to self-certify, to say that they conform to EU-style data protection standards even if their country’s laws do not. It’s not quite that simple—these companies really do need to jump through some hoops before they claim compliance; just ask Heroku—but it does largely come down to trust. EU data protection regulators have already called for the system to be toughened up through the introduction of third-party audits, but frankly it now looks like the whole system is in tatters. U.S. companies claiming Safe Harbor compliance include Google, Yahoo, Microsoft (MSFT), Facebook, and AOL (AOL), all of which now appear to be part (willingly or otherwise) of the NSA’s PRISM scheme. As EU data protection rules don’t say it’s OK for foreign military units to record or monitor the communications of European citizens—heck, even local governments aren’t supposed to be doing that—the Safe Harbor program now looks questionable to say the least. A lot of people have already pointed to the U.S. Patriot Act as a threat, and now the effects of that legislation are plain to see.

France lifts block on EU-US trade talks - France lifted objections against opening transatlantic trade talks late on Friday after EU ministers agreed to exclude cultural industries from forthcoming negotiations, a move that is set to launch the world’s most ambitious free-trade agreement.  After more than 12 hours of talks in Luxembourg, ministers reached a compromise that would allow the French to continue protecting their film and music sectors from US media giants but left the door open for the EU to negotiate those industries at a later stage with the consensus of all member states, including France. France had initially refused a similar deal but later decided to accept the offer after it was reassured that it would still have the power to block any demands to reinstate cultural matters in the talks with Washington. The EU is treaty-bound to approve a negotiating mandate in advance of the trade negotiations.

French President Says The Euro Crisis Is 'Over' - The eurozone crisis is over, French president Francois Hollande said as he sought to reassure Asian investors on a visit to Japan. "What you need to understand here in Japan is that the crisis in Europe is over," he said. "And that we can work together, France and Japan, to open new doors for economic progress." Europe needs to put more emphasis on taking steps to promote growth and competitiveness "so that we can have a better presence in the world", he added. Mr Hollande, the socialist leader who ousted Nicolas Sarkozy, is not the first European politician leader to declare an end to the crisis. Last year the Spanish prime minister Mariano Rajoy said that "the worst has passed" for the euro . Markets have also grown less concerned about the situation in the shared currency region. One analyst recently suggested that a "Greecovery" - Greek recovery - might now be a more apposite term than the feared "Grexit" - Greek exit from the euro. While the imminent threat of a country being forced to leave the currency has receded, the region does however remain mired in recession.

Choke on banks stifles Cyprus economy - “The banking system has effectively collapsed and is in a state of advanced decomposition.” “If this continuing and prolonged inertia on the part of the authorities persists it will lead to paralysis of the productive sectors of the economy and an even deeper recession,” he said. Mr Hatzikyriakos is not the only businessman to voice frustration at the slow pace of reform since the Cypriot crisis erupted earlier this year. In March, Cyprus agreed to capital controls, a 60 per cent hair cut of uninsured deposits as well as the restructuring of its biggest commercial lender – the Bank of Cyprus – in return for a €10bn bailout by the EU and the International Monetary Fund. But the Bank of Cyprus restructuring has been delayed because of infighting between the government, the central bank and international lenders. The central bank says it will relax controls over the summer but has not set a date for lifting them ­altogether. With a key report due at the end of July and Cyprus expected to shut down in August for holidays, the earliest reforms are likely to be introduced is September.

Privatisation of Greek gas firm DEPA fails - sources -- Greece failed to attract any binding bids for natural gas company DEPA, two Greek officials close to the sale said on Monday, making it unlikely the country will meet privatisation targets under its international bailout. Athens, which has a binding goal to raise 1.8 billion euros (1.53 billion pounds) from asset sales by the end of September, got just one bid - from Azerbaijan's SOCAR - for natural gas grid operator DESFA, a DEPA unit that it wanted to sell separately. It was unclear if a DESFA sale could proceed if DEPA remains in state hands. Failure to sell the companies would also block the planned privatisation later this year of state oil refiner Hellenic Petroleum , which owns 35 percent of DEPA."Greece has received no binding bids for DEPA and one bid from Azerbaijan's SOCAR for DESFA," a senior official involved in the sale told Reuters on condition of anonymity. The deadline to submit binding bids expired at 1000 GMT. Russia's Gazprom was a frontrunner to buy DEPA but withdrew at the final stage.

Greek State TV, Radio Broadcasts Go Off the Air — Greek state TV and radio were gradually pulled off the air late Tuesday, hours after the government said it would temporarily close all state-run broadcasts and lay off about 2,500 workers as part of a cost-cutting drive demanded by the bailed-out country’s international creditors. The conservative-led government said the Hellenic Broadcasting Corp., or ERT, will reopen “as soon as possible” with a new, smaller workforce. It wasn’t immediately clear how long that would take, and whether all stations would reopen. “Congratulations to the Greek government,” newscaster Antonis Alafogiorgos said toward the end of ERT’s main TV live broadcast. “This is a blow to democracy,” he added, as thousands of media workers and supporters protested the closure outside the company’s headquarters in the Athens suburb of Aghia Paraskevi.

Greece's state broadcaster defies government closure - as it happened - It's been a dramatic night in Greece, where workers at state broadcaster ERT have defied the government's attempt to shut them down. ERT journalists kept broadcasting online and on digital frequencies, as thousands of people gathered outside the organisation's headquarters in northeastern Athens to protest against the decision. Employees has been urged to leave the broadcaster's buildings or face being arrested, but remained on air through the night as riot police were also on standby near the complex.The government has said it wil reopen ERT with a smaller staff, claiming the broadcaster was bloated and inefficient. But the decision has caused a major political row in Athens. The junior partners in the Greek coalition are refusing to support the measure, while opposition leader Alexis Tsipras launched a stinging attack on the move. Kathimerini reports: Syriza leader Alexis Tsipras appeared live on ERT’s main channel, NET, at around 3 a.m. on Wednesday to voice his opposition to the closure. He said that he had spoken to President Karolos Papoulias about the matter and claimed that the veteran politician was “troubled” by the move to take ERT off air.

Yanis Varoufakis: Occupying the Closure of Greek Public TV (Journalists at BBC, ABC, and CBC, Take Note) - For those of us who grew up in the Greece of the neo-fascist colonels, nothing can stir up painful memories like a modern act of totalitarianism. When the television screen froze last night, an hour before midnight, as if some sinister power from beyond had pressed a hideous pause button, I was suddenly transported to the 60s and early 70s when a disruption in television or radio output was a sure sign that another coup d’ etat was in the offing. The only difference was that last night the screen just froze; with journalists still appearing tantalisingly close to finishing their sentence. At least the colonels had the good sense of pasting a picture of the Greek flag, accompanied by military tunes…  After the state channels froze on our screens, I turned to the commercial ones assuming that this major piece of news would be recorded and commented upon by them. Not a word. Soaps, second rate movies and informationals. That was all we got. As if ERT’s, the public radio and television service’s, instant demise was not worth a mention by their commercial competitors. Soon after the phone rang. It was a journalist friend. Her message to me: “Come to ERT now. Thousands are gathering. It will be a long night.” And so I did.

Beware of Hungarians Bearing Gifts - Hungary’s foreign minister, János Martonyi, Friday offered to make peace with Europe. He explained in a press conference that the Hungarian government would propose two new constitutional amendments to address European grievances.  But beware of Hungarians bearing gifts. The proposed constitutional amendments do not fix problems that Europe has had with the new Hungarian constitutional order. The new amendments may remove some offending language from the constitution itself, but they won’t actually change the facts on the ground unless the provisions that will be removed from the constitution are also removed from the other laws, too. And, judging from the press conference, that is still in doubt. The Fidesz government is eager to please Europe because, over the next few weeks, two important European representative bodies will have the opportunity to vote on sanctions against Hungary. And the European Commission is threatening more infringement actions. The European Parliament’s Civil Liberties (LIBE) Committee is scheduled to vote on 19 June on a tough, accurate and fair report written by Portuguese MEP Rui Tavares. It calls for a rigorous monitoring regime to ensure that Hungary complies with the basic values of the European Union. If the report passes, it goes to the floor of the European Parliament for a debate and vote in the July plenary session. If Fidesz can kill the report in committee, the monitoring regime dies.

Italy's GDP contracts sharply in first quarter --Italy's economy contracted more than expected in the first quarter of 2013, shrinking 0.6% compared with the previous three months as activity fell in all sectors except farming, said national statistics institute Istat Monday. Gross domestic product in the euro zone's third-largest country declined 0.6% in seasonally-adjusted real terms, which was more than the preliminary estimate of a 0.5% drop, Istat said. Italian GDP contracted 2.4% in the first quarter compared with the same period of 2012, Istat said. Economists polled by Dow Jones Newswires had expected the preliminary estimates of a 0.5% quarterly drop and a 2.3% annualized fall to hold. Italy's recession has contracted for seven quarters in a row and is expected to continue doing so for the three months ending June 30. The contraction so far this year had been led by domestic weakness, with fixed business investments falling 3.3% from the final three months of 2012 and 7.5% from the first quarter a year ago, Istat said. Italian fixed investments--often seen as a proxy for future output and productivity growth--were 20% lower in the first quarter of 2013 compared with the same period in 2008, according to Istat's data.

Italy's three-year debt yields hit peak since March (Reuters) - Italy's three-year borrowing costs jumped to their highest level since March at an auction on Thursday, as concerns the U.S. Federal Reserve could soon slow the pace at which it creates new money triggered selling pressure on riskier assets. Japanese stocks plunged over six percent, European shares opened lower and buyers chose to park some liquidity in higher-rated long-term German Bunds in early European trade in a flight to safe-haven assets. However, a recent rise in Italian yields from lows reached after a 10-month-long rally helped demand for both the three-year maturity and 15-year paper at the auction, allowing the treasury to come within reach of its 8-billion-euro sale target. "Italy drew healthy demand at today's auction ... a sign that yields at these levels are considered attractive by investors," said a trader at an Italian bank. When three-year yields were last at Thursday's level in March, Italy was still struggling to form a government after inconclusive February elections, and Fitch ratings agency had just downgraded it a few days before the sale.

Italy's public debt hits new record of 2.041 trillion - Italy's huge public debt reached a new record of 2.0413 trillion euros in April, the Bank of Italy said on Friday. The central bank said the national debt was up by 52.6 billion euros on December and 83.3 billion on April 2012. The public debt grew again in March and April after briefly contracting in February to 2.0176 trillion from 2.0027 in January. Overall public debt has remained throughout 2013 above the two-trillion-euro mark after temporarily going under the threshold in December to 1.986 trillion, according to Bank of Italy data. Italy's national debt first crossed the two-trillion-euro mark in October last year and was estimated at 127% of gross domestic product (GDP) in 2012 by Eurostat. It is forecast to climb to around 132% of GDP by the end of this year.(

Spain's public debt hits record high - Spain's central bank says the country's public debt burden rose to a record 88.2 percent of gross domestic product at the end of the first quarter. The bank said Friday that Spain's debt was 922.82 billion euros ($1.23 trillion) at the end of March, up 19.1 percent from the same period a year earlier. The government has said it expects its debt burden to rise to 90.5 percent of GDP at the end of 2013 but it may have to revise the forecast. Spain, with 27.2 percent unemployment, has been in recession for most of the past four years as the economy struggles to emerge from the collapse of its once-booming real estate sector in 2008. In that year, public debt represented 39.5 percent of GDP.

Unhealthy developments across the euro area labour market -  Rebecca Wilder -  There are many ways to define rebalancing within the euro area: relative prices, trade, productivity, unit labor costs, etc. I’d argue that one could see it in the employment data as well, although it will take a long time to work its way through. Basically, Spaniards should move to Germany and vice versa to enjoy higher income and lower input costs, respectively, when looking for work or planning a business.  So what’s happened to date? Eurostat released its annual detailed report of the labour force in Europe. The gist of what I found is the following: employment in the periphery markets has plummeted with no seeming end in site. Notably, 2012 employment levels in Portugal and  Greece are 299,000 and  356,000 lower than their respective 2000 levels. Since 2009 (end of that recession), out of the EA11 (EA 12 less Luxembourg), 1.7 million jobs have been added regionally, while 3.2 million jobs have been lost. The balance is wholy uneven and skewed toward job loss. I expect this pace to pick up, as hoarding runs its course. Since 2009, 5 countries added jobs with the heavyweight, Germany, accounting for 84% of the new jobs, while 6 countries cut employment with Spain accounting for 50% of that. Interestingly, the Italian labour market has only seen 169,000 jobs lost since 2009 despite seeing seven consecutive quarters of negative GDP growth as firms presumably hoard workers. Given the downbeat outlook for Italy, the employment statistics are likely to worsen materially in coming quarters.

Euro-Area Industrial Production Unexpectedly Gains on France -  Euro-area industrial output unexpectedly increased in April, led by France, adding to signs the currency bloc’s economy is beginning to emerge from a record-long recession. Factory production in the 17-nation euro area rose 0.4 percent from March, when it increased a revised 0.9 percent, the European Union’s statistics office in Luxembourg said today. The median forecast in a Bloomberg News survey of 36 economists was for stagnation. Production fell 0.6 percent from April 2012.The euro-zone economy is forecast to stagnate in the second quarter before gross domestic product returns to growth, according to a separate Bloomberg survey of economists. GDP fell 0.2 percent in the first quarter, a sixth consecutive contraction. The European Central Bank left its benchmark interest rate at a record low 0.5 percent last week.

German Court Debates Fate of Euro - Karl Albrecht Schachtschneider, a retired law professor and well-known euro opponent, told the court he hoped that “the euro adventure will be brought to an end for the good of Germany and the good of Europe.” On the opposite side, Wolfgang Schäuble, the German finance minister, warned that the cost to Germany would be incalculable if the country left the currency union. And he pointed out that under the European Central Bank, inflation has been lower than it was with the deutsche mark. “The E.C.B. is acting within its mandate,” he told the court. Mr. Schäuble said the central bank could be put into an impossible position if it were faced with conflicting rulings by courts in different euro zone countries.  The hearing, in a fenced-off court and police complex in a wooded area outside Karlsruhe, a city in southwest Germany near the border with France, drew an eclectic group of Germans on both the left and right who deride the euro as a travesty and long to bring back the deutsche mark. Outside a security checkpoint, several dozen anti-euro protesters chanted and waved signs. One sign called for Jörg Asmussen, a German arguing on behalf of the E.C.B. in the hearings, to be thrown in jail, an indication of the emotion that some Germans attach to the issue.

Decisive Days for Euro: High Court Considers ECB Bond Buys - Spiegel - Germany's highest court is currently reviewing the European Central Bank's controversial bond-buying program to shore up euro-zone crisis countries. A decision in Karlsruhe could determine the common currency's fate.On Tuesday and Wednesday of this week, Germany's Constitutional Court in Karlsruhe will rule on the euro crisis aid measure that Draghi announced last fall. As Draghi and his monetary experts on the executive floor of the bank were told by their constitutional experts long ago, this court decision could have an enormous impact on the bank's policies -- and potentially spell the end of the euro. Over the past few months, Draghi and the heads of government in the European capitals have felt confident about the outcome of the impending ruling. After all, the judges in Karlsruhe have always ultimately endorsed Germany's contributions to euro-zone bailout programs. Nevertheless, the list of questions compiled by the judges for this week's deliberations indicates that everything may be at stake this time around. When Draghi recently visited French President François Hollande in Paris, the main topic of discussion was not the state of the French economy or Southern Europe, but rather the question of what will happen in Karlsruhe. Only one hour by train away from Frankfurt, a conflict is brewing that already appeared to have been resolved last autumn.

Germany’s brother gladiators battle over euro destiny in constitutional court - Germany's two heavyweight members on the European Central Bank have fought an unprecedented duel at the country’s top court, taking opposing sides in a landmark case that could make or break the euro. Jens Weidmann, the Bundesbank’s hard-line chief, testified that the ECB’s bond rescue plan for Spain and Italy risks “significant losses” for Germany’s central bank and grave damage to its credibility. “Ultimately, it is the German taxpayer who carries the risk,” he said. Mr Weidmann said the bond scheme, known as Outright Monetary Transactions (OMT), blurs the line between fiscal and monetary policy and encroaches on the terrain of parliaments. It leaves the ECB with the task of carrying out rescue operations that is the proper responsibility of the euro bail-out fund and compromises the bank’s independence. The two-day hearings at the constitutional court in Karlsruhe will investigate the legality of the OMT, the “game-changer” that defused the EMU debt crisis last July and has been so successful that no country has yet needed to use it. The case stems from complaints by 37,000 citizens, including the Left Party, More Democracy and eurosceptic professors, most arguing that the ECB is financing bankrupt states. While the court has no jurisdiction over the ECB, it could prohibit the Bundesbank from taking part in bond purchases. This amounts to the same thing, since the OMT would collapse if Germany stepped aside.

The ECB’s Forked-Tongue Policy To Save The Euro - In theory, Germany’s Federal Constitutional Court could throw a monkey-wrench into the efforts to keep the Eurozone duct-taped together; it could rule against the ECB’s money-printing and bond-buying mechanism, lovingly dubbed Outright Monetary Transactions. It was launched with fanfare last September. Actually, not with fanfare but with a few vague words, uttered by ECB President Mario Draghi himself, including the magic one, “unlimited.”  During oral arguments on Tuesday and Wednesday, the Court weighs if OMT violates the constitution’s requirement that budget matters be controlled by Parliament, but a ruling will be delayed until after the general elections on September 22. If the Court, which has no authority over the ECB, rules that aspects of OMT are unconstitutional in Germany, it could forbid the Bundesbank from participating in the one measure that has kept the Eurozone together. The Eurozone as we know it would unravel. In practice, the Court would never do that. Given how it has ruled on euro-related issues so far, it will find a way out of the debacle, regardless of what it says in the constitution. And if it really wants to throw the book at the ECB, it could nod with an impish frown, impose some stipulations, and rubberstamp the rest. But that hasn’t kept the mess from ballooning beautifully out of control in Germany where the ECB’s efforts to save the euro and itself – without euro there would be no ECB – are viewed with a decided lack of enthusiasm: 48% of the Germans side with the 37,000 plaintiffs, believing that the Court should stop the ECB’s whatever-it-takes-to-save-the-euro approach; only 31% believe that the plaintiffs are wrong; and despite the dense coverage in the media and in every corner of the internet, 21% still have no opinion.

Why You Should Stop Worrying About Central Bank Losses - from naked capitalism Yves here. I guarantee this post will make some readers’ heads explode. It also explains why Germany would benefit from OMT.  By Paul De Grauwe. The monetary-fiscal policy connection is under scrutiny by the German Constitutional Court in the context of the ECB’s OMT bond-buying programme. This column argues that most analyses are deeply flawed by the misapplication of private-company default principles to the central bank. ECB bond-buying transforms public bonds into monetary base, and sovereign-default risk into inflation risk. The real question is: What is the non-inflationary limit to money-base expansion? This depends upon the economic situation and is much higher in the current liquidity-trap setting.

The Hellenization of Economic Policy - Paul Krugman -- Simon Wren-Lewis has been on a roll lately; his latest talks about how the mishandling of Greece inflicted vast damage on the European economy as a whole, and to some extent the US economy too. Basically, troika officials refused to admit the obvious and allow an early Greek default; instead they made absurd claims for the effectiveness of austerity, and in so doing spread austerian economics far and wide. So in a way we’ve had the worst of all possible worlds: the alleged prospect of becoming another Greece has been used by austerians to frighten politicians and the public into policies that deepen the slump, and the mishandling of Greece — by many of the same people spreading this fear — has made the prospect of becoming another Greece even more frightening. The IMF, at least, seems to have learned something from the experience.But as Wren-Lewis says, there is no hint of rethinking or remorse at the ECB, which is at this point the player that really matters.

Hamster-Wheel Economics - Paul Krugman - Sad reading from British economic analysts these days — sad, that is, for anyone who likes to believe that evidence actually matters for policy. First, the normally even-tempered Simon Wren-Lewis is angry, with cause: he sees the Dutch central bank calling for more austerity despite the depressed state of the Dutch economy, no prospect of recovery any time soon, no hint of debt trouble — and no explanation except boilerplate about how deficits are bad. As he says, it was one thing to buy into the austerity thing three years ago, when there wasn’t a vast accumulation of evidence about the effects of austerity in a depressed economy; but to roll out the same old line given everything that has happened since is pretty disgraceful.But then, think about the fact that Martin Wolf is out today with a column explaining that there is no current risk of inflation. He’s right, of course, and presumably what he hears from policymakers and others tells him that such a column is necessary. But my God: we had this debate in full four years ago. The usual suspects issued dire inflation warnings; the Keynesian/liquidity trap types like me insisted that this was all wrong given current circumstances.

Industrial production edges higher - UK - The April industrial production figures do not look up to much but are probably better than they seem. Overall industrial production edged up by 0.1% between March and April, while manufacturing slipped by 0.2%. However the previous two months had been strong, particularly for manufacturing, so these figures show a rise of 0.8% in industrial production in the latest three months compared with the previous three, with manufacturing 0.5% higher. In terms of the second quarter GDP arithmetic, April industrial production was 0.9% higher than its Q1 average, while manufacturing was 0.7% up. Not a bad start. More details here.

British Regulator Looking Into Currency Rates Trades - Britain’s financial regulator said on Wednesday that it was examining claims that traders at large banks manipulated some foreign exchange benchmark rates and that it might start an official investigation. The Financial Conduct Authority is talking to individuals in the foreign exchange market and seeking more information about claims that traders rigged the so-called WM/Reuters rates before deciding whether to open an investigation.  Bloomberg News reported that employees had been manipulating the rate by pushing through client trades before and during 60-second windows when the benchmarks are set. The rates are used by fund managers to calculate the value of their holdings and by index providers like FTSE Group, Bloomberg reported. A spokesman for the F.C.A. said the agency was already looking at the foreign exchange market before the Bloomberg report, adding that it was still too early to say whether its findings would lead to an official investigation. Because the foreign exchange market is not regulated, any F.C.A. inquiry would focus on individuals authorized by the regulator to act in the market and whether companies did enough to prevent market abuse. “The F.C.A. is aware of these allegations and has been speaking to the relevant parties,” said Stewart Todd, a spokesman. Bloomberg News, citing two unidentified traders, reported that rate manipulation occurred daily and had been going on for at least a decade, affecting the value of funds and derivatives.

Bank Bailout Blues Stall U.K. Recovery - Five years after rescuing one of the world's biggest banks, the British government still hasn't figured out what to do with it—a sign of the country's struggle to put its banking woes behind it. Royal Bank of Scotland received a bailout of £45 billion, or about $70 billion, in 2008. Today, it remains 81%-owned by U.K. taxpayers, and a return to private hands is unlikely soon, according to government officials. Under pressure from the Bank of England, officials at the U.K. Treasury have been studying splitting up RBS, with one part fully nationalized and the remainder devoted to serving British businesses and individuals, officials say.It is unclear whether the breakup idea will come to fruition, because government officials worry it might be too complex and risky to justify the potential benefits.  The U.K. initially won plaudits for its bold efforts to tackle its financial crisis, which erupted in 2007 with customers queuing outside branches of mortgage lender Northern Rock to withdraw their money. The government rescued and took big stakes in RBS and Lloyds, as well as some smaller lenders. But the banking industry still hasn't regained its footing, analyst and investors say. The government remains a big shareholder in Lloyds and RBS. While Lloyds is healing, economists say the long process of restructuring the two banks is hurting the weak British economy. And other banks are struggling too.

The overstated inflation danger - Let us look at this big issue for the UK, which has rising public debt and relatively high recent inflation.  Whatever the longer-term dangers, the picture for the next two years or so is quite the opposite. Both core and headline inflation rates are reasonably low. Wage inflation is close to zero and, despite falling productivity, unit labour costs are rising at below 2 per cent a year. The exchange rate has stabilised, as have commodity prices. The International Monetary Fund forecasts that they are likely to fall in the next few years. On balance, then, short-term inflationary pressures are very weak. What is true for the UK is even truer of the US and the eurozone. Now turn to the next five years. Over that period, demand and capacity utilisation become important. Alas, UK gross domestic product is 16 per cent below its pre-crisis trend. Official estimates also indicate much excess capacity: the IMF estimates the “output gap” – the difference between actual and potential output – at 4 per cent of the latter this year. Though not as high as one might expect, unemployment is at about 8 per cent. Furthermore, the expansion of the central bank’s own balance sheet has not offset the declining willingness of the banks to lend. As a consequence, the amount of credit and so-called “broad money” in circulation is shrinking. Finally, fiscal policy is highly contractionary.

Why real wages are falling - Real wages are falling at a near-record rate. Yesterday's figures show that they were 6% lower in April than they were in April 2008. This is the biggest five-year drop in real wages since 1921-26, and the second-largest fall since records began in 1855. This cannot be blamed simply on the recession. As the IFS has pointed out (pdf), real wages rose during the recessions of the early 80s and 90s. Something, then, has changed since then. But what? Here's a theory. Back in the 70s and 80s, bosses could often not efficiently monitor their workers. To keep pilfering and skiving within tolerable limits they therefore had to pay better than market-clearing wages, to buy goodwill. However, as Frederick Guy and Peter Skott have shown, socio-technical change since the 80s such as CCTV, containerization and computerized stock control has made it easier for bosses to monitor workers. Direct oversight means they don't need to worry about buying workers' goodwill.

UK living standards drop to lowest level in a decade - Living standards in Britain have dropped to their lowest in a decade after average real incomes fell a further 3 per cent last year, official data show. Median real incomes fell for the second successive year to £427 a week as earnings and benefits grew more slowly than the cost of living, according to annual data from the Department for Work and Pensions. While Britain’s unemployment rate has not climbed as much as many had expected in the wake of the financial crisis, the DWP data show Britain’s recession and subsequent stagnation have nonetheless had a significant impact on the population. “The reduction in real terms earnings may partly be due to a combination of both pay freezes and economic restructuring following the recession,” the DWP said. Income inequality remained steady in the 2011-12 fiscal year as people across the distribution range suffered similar declines in living standards. In  However, last year various reforms as part of the government’s austerity drive squeezed benefits, including the decision to uprate them each year by the consumer price index instead of the retail price index. The percentage of individuals in relative poverty was 16 per cent before housing costs.

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