week ending Aug 24

U.S. Fed balance sheet shrinks in latest week : (Reuters) - The U.S. Federal Reserve's balance sheet shrunk in the latest week, despite a modest increase in its holdings of U.S. Treasuries and mortgage-backed securities, Fed data released on Thursday showed. The Fed's balance sheet liabilities, which are a broad gauge of its lending to the financial system, stood at $3.6026 trillion on August 21, down from $3.6033 trillion on August 14. The Fed's holdings of Treasuries rose to $2.012 trillion as of Wednesday, up from $2.001 trillion the previous week. The Fed's ownership of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and the Government National Mortgage Association (Ginnie Mae) rose to $1.303 trillion from $1.300 trillion a week ago. The Fed's holdings of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Bank system totaled $65.713 billion, which was unchanged from the previous week. The Fed's overnight direct loans to credit-worthy banks via its discount window averaged $22 million a day during the week, compared with $15 million a day the previous week.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--August 22, 2013: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed Seems on Track to Slow Bond Buys by Year’s End  — The Federal Reserve appears on track to slow its bond purchases by the end of this year if the economy continues to improve. But it remains divided over the exact timing of the move. That’s the message from the minutes of the Fed’s July 30-31 meeting released Wednesday. A few policymakers said they wanted to assess more economic data before deciding when to scale back the central bank’s $85 billion a month in Treasury and mortgage bond purchases. Others said it “might soon be time” to slow the purchases, which have helped keep long-term rates near record lows. Since the July meeting, a few Fed officials have suggested the central bank could slow the bond buying in September. By then, updated reports on employment and economic growth will be issued. Most economists say a decision in September or December is most likely. Fed policymakers did agree they wouldn’t raise the short-term interest rate they control from nearly zero at least until the unemployment rate fell to 6.5 percent. Several members even said they were willing to lower that threshold.

Fed Minutes Offer Cautious View on Bond Buying - WSJ.com: Minutes from the Federal Reserve's July policy meeting provided no clear signal on when the central bank will start scaling back its $85 billion bond-buying program.  The minutes from the July 30-31 meeting show officials divided about the appropriate timing of the first reduction in bond purchases, with "a few" officials with votes on policy looking to move soon and "a few" others urging "patience" and more of a wait-and-see approach. The minutes were released Wednesday after the customary three-week lag. Overall, the minutes give the impression of a committee tentative about drawing conclusions from the incoming economic data. Officials also appeared slightly more pessimistic about the economic outlook than they had earlier in the year. Officials generally thought growth would pick up "somewhat" in the second half of the year and strengthen further in 2014, the minutes said. "A number of participants indicated, however, that they were somewhat less confident about a near-term pickup in economic growth than they had been in June."  Fed officials also described recent economic data as "mixed."  Such assessments are important because the Fed has said its decision on reducing its bond purchases hinges on the economic data. After the Fed's June policy meeting, Chairman Ben Bernanke said that if the economy continues to improve as the Fed expects, the central bank could make the first reduction in its bond purchases later this year. If the economy continued to meet the Fed's expectations, reductions would continue and the program would wrap up by mid-2014, Mr. Bernanke said.

FOMC Minutes: "Almost all Committee members agreed that a change in the purchase program was not yet appropriate" - The start of tapering is still contingent on incoming employment data.  The July employment report was released a few days after this FOMC meeting, and the report was disappointing (although the unemployment rate declined to 7.4%).  There is only one more employment report before the September FOMC meeting.   Clearly the Fed is getting ready to start reducing their asset purchases soon, but they are not ready yet.From the Fed: Minutes of the Federal Open Market Committee, July 30-31, 2013 . A few excerpts on asset purchases: In considering the likely path for the Committee's asset purchases, members discussed the degree of improvement in the labor market outlook since the purchase program began last fall. The unemployment rate had declined considerably since then, and recent gains in payroll employment had been solid. However, other measures of labor utilization--including the labor force participation rate and the numbers of discouraged workers and those working part time for economic reasons--suggested more modest improvement, and other indicators of labor demand, such as rates of hiring and quits, remained low. While a range of views were expressed regarding the cumulative improvement in the labor market since last fall,  almost all Committee members agreed that a change in the purchase program was not yet appropriate.

Key Passages From Fed Minutes -- Fed officials were guarded in discussions about what to do with their $85 billion bond buying program at their July 30-31 meeting, and decided to sit tight until they had a better read on the economy, according to minutes released Wednesday. (Read related story) Below is a look at key passages in the meeting minutes:

A Brief Blurb on the July FOMC Meeting Minutes -- Investors and the press love to read the tea leaves of the FOMC meeting minutes.  Most in the press believe July 31st Federal Reserve Open Market Committee meeting minutes confirm quantitative easing, the $85 billion a month in mortgage backed securities and asset purchases, will be reduced starting in September.  We don't know that answer but we can guess.   From the minutes:Almost all participants confirmed that they were broadly comfortable with the characterization of the contingent outlook for asset purchases that was presented in the June postmeeting press conference and in the July monetary policy testimony.  Most are interpreting this to mean September 17-18th will be when the Fed begins tapering of the $85 billion a month in mortgage backed securities and T-bills, but it could also mean December.  Ending quantitative easing by the middle of 2014, assuming $10 billion a month tapering, implies an eight month window.  By the time to taper alone, one might expect September to be the date of the first announcement.  Yet odds are the FOMC will do a test the waters taper in September of a small reduction in asset purchase amounts.  The real ending of quantitative easing, the bulk of the reduction in asset purchases, when then be happening in December.  Below one can see the debate among Committee members, which hints towards some sort of compromise action in September 2013.

The Sept. Taper Is Not a Slam Dunk - As regards the Federal Reserve beginning to taper its asset buying program in next month, I recently suggested that the it’s less of a slam dunk than many market participants think it is.  The minutes of the Fed’s July meeting, released yesterday, do not add a lot of clarity (from the NYT):There were hints that some members of the divided committee are comfortable with beginning to ease the Fed’s program of buying $85 billion a month in government bonds and mortgage securities as soon as their next meeting in mid-September. But there were also indications that another camp within the policy-setting group favors waiting until December, or even later.Incoming data will make a difference, of course, and I take seriously the fact that Ben & Co. have prepared markets for a Sept. taper, but a) they’ve hedged, and b) the fact that financial conditions have tightened fairly sharply in recent weeks should not be ignored.  Researchers at Goldman track a financial conditions index, which they find correlates strongly with real GDP growth.  It’s up about 30 basis points, due to higher interest rates, wider rate spreads, equity prices, and mortgage rates Their figure below shows the impact of the GS financial conditions index on GDP growth under three scenarios: it stays flat, it rises (tightening conditions), or it falls.  Recent trends would suggest flat or tightening are more likely, though there’s lots of endogeneity—circular causality—in here.

Lockhart ‘Comfortable’ With Slowing Pace of Bond Buying - Federal Reserve Bank of Atlanta President Dennis Lockhart said Friday he would be “comfortable” with slowing the pace of central bank bond buying next month, but he also cautioned that the Fed can shift gears at any meeting. In an interview on the sidelines of the Kansas City Fed’s research conference here, Mr. Lockhart said the notion the central bank can only make big policy moves at meetings followed by press conferences is mistaken. Many in financial markets believe the Fed can make big policy moves only at the four meetings it holds that are by press conferences at which Fed Chairman Ben Bernanke can provide detailed explanations. At the June press conference, Mr. Bernanke sent markets reeling by announcing the Fed could start scaling back its $85 billion-per-month bond-buying program “later this year” and end it by mid-2014 if the economy improves as Fed officials expect. Investors have been on edge since then, waiting for word of whether and when the Fed might move. Mr. Bernake’s next scheduled press conferences are after the Fed’s meetings in September and December. “I certainly don’t want to see the pattern of expectations being narrowed to four meetings a year where something can happen and four meetings a year where nothing can happen,” Mr. Lockhart said in the interview. “Every meeting should be a meeting where serious decisions can be on the table,” he said.

And I Do Not Understand the Federal Reserve's Current Thinking at All...- Delong - There are no signs in the pace of technological progress, in the level of investment, in the pace at which the American labor force educates itself, in measures of capacity utilization, in signs of upward wage pressure due to labor quality bottlenecks, or in surging commodity prices due to supply bottlenecks to suggest that the path of growth of U.S. sustainable potential GDP is materially lower today than was believed back in 2007. Yet real GDP in the U.S. today is and remains at least 5.5% below the path that past history tells us is consistent with stable inflation, and thus with rough balance in the labor market. It is true that fiscal policy is and has been sub-optimally tight due to Republican Congressional obstruction and the Obama administration's turn in January  2010 to deficit reduction as job #1 with Obama's call that since "families across the country are tightening their belts… the federal government should do the same". It is true that financial policy with respect to housing has been highly suboptimal due to the Obama administration's commitment of the Japanese Mistake with its failure to replace Ed DeMaro as head of FHFA with someone who understood the situation--and this in spite of all Tim Geithner's reassurances in 2009 that he understood the lessons from the Japanese Mistake, and that the Obama administration would not repeat them.

Bullet-Pointing the Big Bank Bamboozlement - Brad DeLong has taper anxiety, and is wondering what the Fed is thinking.  But at this point, does anybody really know what central bank policy would actually be most conducive to getting back to trend growth? Let’s run it down, PowerPoint style, shall we?

• Are Fed asset purchases holding long-term interest rates down? Certainly.
• Are those low rates leading to a healthy situation in the housing market, or to another dangerous bubble?  An open question.
• Are asset purchases injecting money into the bank accounts of the affluent and large financial institutions? Yes.
• Are asset purchases also draining interest income from the economy? Yes.
• Are asset purchases contributing to a wealth effect by boosting the prices of equities? Possibly.
• Are asset purchases contributing to a negative wealth effect by suppressing the interest earnings of retirement savings and other long-term assets? Possibly.
• Is unconventional monetary policy the “only game in town” given that both parties are run by corrupt plutocrats determined to stab non-wealthy Americans in the back? Possibly.
• Is unconventional monetary policy creating an illusory distraction that takes the pressure off of the political branches of government and our plutocratic parties, and gives them more political space to stab non-wealthy Americans in the back? Possibly.

Economist Urges Fed Not to Tighten Too Soon -- The Federal Reserve needs to withstand pressure to tighten credit conditions before the economy is healed, Stanford University economist Robert Hall said in a paper being presented Friday morning at the Kansas City Fed Bank’s annual economic symposium in Jackson Hole, Wyo. “The central danger in the next two years is that the Fed will yield to the intensifying pressure to raise interest rates and contract its portfolio well before the economy is back to normal,” Mr. Hall said in the paper, titled “The Routes into and out of the Zero Lower Bound.” He also warned against the Fed raising the interest rate it pays on the reserves that banks deposit at the Fed, calling it the “worst step” the central bank could take. “Every percentage point increase in the reserve rate drives the real interest rate up and contracts the economy,” he argued. In late 2008, the Fed gained the power to pay interest on the reserves, and it’s widely seen as an instrument that can help the Fed manage the wind down of its easy-money policies.

IMF’s Lagarde: Unconventional Monetary Policies A Clear Success - The leader of the International Monetary Fund said Friday the world’s major central banks had helped their respective economies by providing extraordinary levels of monetary stimulus, and that now is not the time to pull back on these policies. Christine Lagarde, managing director of the IMF, told an audience at the Kansas City Fed’s annual Jackson Hole economic conference that unconventional monetary policies, like the Federal Reserve’s ongoing bond-buying program, are “still needed in all the places” these policies are being employed. “I do not suggest a rush to exit,” Lagarde said, adding in Europe, “there is a good deal more mileage to be gained” from unconventional policy. As for Japan, she said an “exit is very likely some way off.” Lagarde’s speech keynoted the first day of a prestigious conference held by the Kansas City Fed. While this year’s event has been taken down a few pegs due to the unusual absence of Fed Chair Ben Bernanke and his counterparts from the European Central Bank and the Bank of England, the conference nevertheless comes at an important time for policymakers. Lagarde spoke as many U.S. central bank officials are thinking about slowing down the pace of their bond buying from the current monthly rate of around $85 billion. Many believe, and central bankers appear to agree, that this first pull-back could happen at the September Fed policy meeting. A slower pace of bond buying would reflect officials’ belief that the economy’s prospects have improved. Markets have struggled to come to grips with this outlook, generating high levels of volatility that have spilled across markets internationally.

Why has the Fed given up on America’s unemployed?  - Adam Posen - Complaints about public officials’ short time horizons are well rehearsed: the gripe is usually that too many activist policies result from pandering to voters and special interests. But the reality is that measures are often discarded before they have a chance to work. Then, having not really tried, policy makers claim that the target was unattainable. In macroeconomics, it is the unemployed who suffer most from this repeated failure to follow through. There is a rush in the US and Europe to prematurely declare stimulus policies ineffective at reducing unemployment. Much of the persistent joblessness is deemed structural and the costs of addressing long-term unemployment too daunting. Labor regulations and skills mismatches clearly play some role in keeping the jobless out of work, but their impact is exaggerated to excuse inaction. ...So there is no reason to hold back on trying to drive US unemployment down through monetary and fiscal policy. An elastic supply of labour will keep wage growth low, which will suppress inflationary pressure. ... At present, there is no danger of a 1970s-style wage-price spiral. ...The costs of pushing a bit too far are small and reversible. But the costs of letting unemployment persist are vast. ... There is no good reason for the Fed to give up on the labor market – and thus no good argument for allowing the de facto tightening of monetary conditions to stand.

Fed contemplates creating "overnight reverse repo facility" - Today investors focused on the broad support for tapering in the July FOMC minutes, driving treasury yields sharply higher. There was however another passage in the minutes that wasn't broadly covered in the mass media. July FOMC minutes: -  the Desk report also included a briefing on the potential for establishing a fixed-rate, full-allotment overnight reverse repurchase agreement facility as an additional tool for managing money market interest rates. The presentation suggested that such a facility would allow the Committee to offer an overnight, risk-free instrument directly to a relatively wide range of market participants, perhaps complementing the payment of interest on excess reserves held by banks and thereby improving the Committee’s ability to keep short-term market rates at levels that it deems appropriate to achieve its macroeconomic objectives. It's an interesting development because this project could potentially achieve three objectives:
1. The "full-allotment overnight reverse repurchase agreement facility" can provide competition for bank deposits. While deposits of under $250K rely of the FDIC insurance, corporate and institutional depositors remain concerned about bank credit risk because in a bankruptcy depositors become unsecured creditors. By allowing non-banks to participate, the Fed creates a deposit account that is free of counterparty risk (without having to purchase treasury bills).
2. Instead of just changing the interest paid on bank reserves to manage short-term rate policy (in addition to the fed funds rate), the Fed would now have another monetary tool - adjusting rates paid on these types of broadly held accounts.
3. By accepting broader deposits, the Fed can effectively "soak up" excess liquidity and "sterilize" some of its securities holdings. And by adjusting these rates, the central bank could fine-tune how much liquidity these accounts attract. This reduces the need to sell securities in order to drain liquidity from the system.

Does Forward Guidance Reach Main Street? -- Atlanta Fed's macroblog -- The Federal Open Market Committee (FOMC) has been operating with two tools (well described in a recent speech by our boss here in Atlanta). The first is our large-scale asset purchase program, or QE to everyone outside of the Federal Reserve. The second is our forward guidance on the federal funds rate. Here’s what the fed funds guidance was following the July FOMC meeting: [T]he Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.  But forward guidance isn’t worth much if the public has a very different view of how long the fed funds rate will be held near zero. The Federal Reserve Bank of New York has a good read on Wall Street’s expectation for the federal funds rate. Its June survey of primary dealers (a set of institutions the Fed trades with when conducting open market operations) saw a 52 percent chance that the fed funds rate will rise from zero in 2015, and the median forecast of the group saw the fed funds rate at 0.75 percent at the end of 2015. In other words, the bond market is broadly in agreement with the fed funds rate projections made by FOMC meeting participants.

Mosler on Treasury Rates and Fed Policy - It’s starting to look like QE might be indirectly responsible for a dangerously volatile situation in US financial markets.  And 10-year Treasury notes hit a 2-year high following today’s Fed statement. But, in my opinion, it’s not the intrinsic nature of the policy itself that has created the danger, but all of the ridiculous and misleading hullabaloo and punditry that has surrounded it. I don’t blame the Fed for using asset purchases to hold down long-term interest rates. But I do blame all of the market pundits and neo-monetarist theorists out there who have grossly misrepresented these asset purchases as something they are not: an all-embracing attempt to manage aggregate demand, gross spending and employment by “pumping money into the economy.” Unfortunately, there now seem to be a not-insignificant number of people who believe:

• 1. The Fed has been “keeping the economy afloat” by its asset purchases which “pour money into the economy.” and
• 2. The future volume of Fed asset purchases depends inversely on its perception of the health of the private sector economy.

The second claim is certainly true, but the first is ridiculous.  But as a result of believing both of these things together, Mr. Market now responds to good news by taking bearish actions, thus turning good news into bad news. And it responds to bad news by breathing a sigh of relief and taking economically positive steps that turn the bad news into good news!  If indicators tick up, the markets believe the Fed will taper its bond-buying early, and so their misguided believe in claim #1 leads them to act as if they just received bad news.  If indicators are sour, they assume that means the Fed will not taper early and they turn bull.

Nowhere to Run, Nowhere to Hide -  Kunstler - The Federal Reserve answers only to God, but Ben Bernanke’s must not have known that his boss was such a prankster. All of a sudden here is the interest rate of 10-year Treasury paper rising like an angry carbuncle on Ben’s pale tuchus just when he thought he could sit back and watch the mud wrestling contest between Larry Summers and Janet Yellen.  Poor Ben, sedulous student of the Great Depression, who didn’t notice that the country had changed from a nation of farmers and factory workers to a nation of pole dancers and waiters, now awaits his sublime moment of Hooverization. Like poor President Hoover, he gets to hang around the pilot house half a year after he runs the garbage barge of US finance aground on the shoals of wishful thinking and accounting fraud. Everyone who has to pay attention to the order of things in the universe — meaning those not stewed on crank or drank, or waiting on line for a SNAP card, or leafing through the tattoo catalog, or waiting for a Kim Kardashian gangbang guest shot on Duck Dynasty, or lost in the alt reality of their cell phone — is suddenly very nervous about the order of things in this little corner of the universe. Sag Harbor is starting to live up to its name and down along the Hamptons the tide has gone out to feed a Tsunami of margin calls that soon will give the phrase “under water” a whole new life in the twisted mythology of capital. The immortal Bill Gross even sent out an SOS on Twitter at the end of the week. No wonder folks have got the heebie-jeebies. The fear is that the central banks have finally lost control of a situation that they have only pretended to control since 2007, when the grotesque racket of mortgage re-bundling caused a psychotic break in the banking system. The prescribed therapy for that was half a decade of ZIRP and maxing out the national credit card. The ugly truth now emerging through this fog of psychosis is that the bond market probably can’t be saved, and without it all other paper markets are toast, including the stock markets and very possibly the entire fiat currency system.

Vital Signs: Bond Markets Grapple With Fed Questions -- Bond markets are grappling with two big questions. How is the economy doing? And what’s next for the Federal Reserve‘s $85 billion-a-month bond buying program. The uncertainty has made for some ups and downs in Treasury markets, but the overall trend has been lower prices and higher yields. Yields on the benchmark 10-year Treasury note closed at 2.88% Monday, a new two-year high. Yields, which move inversely to price, have climbed steadily since the spring and are up more than 0.5 percentage point since June 19, when Fed Chairman Ben Bernanke said “there is no change in policy here” but markets widely interpreted his remarks as signaling the beginning of the end for the central bank’s bond purchases. The Fed is buying bonds to keep interest rates low and spur growth. Fed policy makers don’t meet again until Sept. 17-18, but the market is anticipating new insight on their thinking when minutes of the last meeting are released Wednesday with their normal three-week delay. The Kansas City Fed’s annual retreat follows in Jackson Hole, Wyo., at the end of the week, though Mr. Bernanke isn’t attending and Vice Chairman Janet Yellen isn’t set to speak. The central bank’s other permanent voters, including New York Fed President William Dudley, also have been keeping quiet. The U.S. economy, meanwhile, has flashed mixed signals, though the overall trend is one of steady improvement. One recent scrap of data showed jobless claims at their lowest level since before the recession, suggesting that the unemployment rate will continue to trend lower.

That spike in US treasury yields - It’s seriously pronounced. While in absolute terms the US 10 year benchmark is simply back at summer 2011 levels, the pace of deterioration since the beginning of May has not been seen in recent decades. Over the past week alone, yields have leaped 30 basis points. Since May 2 — albeit from a very low base — yields are are up 76 per cent. Here’s the point illustrated, courtesy of SocGen:

White House wants pushover bubble-watching Fed chair who would be fun to have a beer with during a crisis -- That’s our exaggerated (but not too much) reaction to reading Neil Irwin’s column on the reasons that White House insiders are uneasy with Janet Yellen as Fed chair. Roughly, the reasons are that she has demonstrated an independent streak in her role as Fed vice chair, is big on preparation and prefers deliberate thinking to a “manic” problem-solving approach, and is more worried about unemployment right now than about fighting asset bubbles.To reiterate, those are considered bad things. Look, there are intelligent cases to be made for Summers over Yellen, though obviously we disagree with them. Brad DeLong has made one, as have Tyler Cowen and Roger Altman. But if Irwin’s column accurately reflects the sophistication of the thinking inside the Obama administration, then it would seem to confirm what we originally thought: the White House, whether because of laziness or an insulated process, just hasn’t done anything close to the appropriate diligence on what the moment requires from a new Fed chair.

The Banksters Master Irony – Push Summers & Geithner for Fed Due to Their Regulatory Zeal - Bill Black - The big banks are desperate to prevent Janet Yellen from being appointed as Bernanke’s successor to run the Fed. Their sexist attacks have backfired. On August 1, 2013, Deutsche Bank launched the single most absurd assertion to block Yellen’s appointment. Deutsche Bank wants Larry Summers, or better yet Timothy Geithner, to (not) regulate them because not being regulated effectively is its highest priority.  “To the extent that the job has become much more international and with more regulation and supervision within the new financial world order, that makes people such as Summers and former Treasury Secretary Tim Geithner compelling candidates,” says Deutsche Bank economist Joseph Lavorgna.  Deutsche Bank’s story is that because President Obama has (purportedly) finally figured out that the “international” aspects of “regulation and supervision” are important to the “financial world order” he should appoint Summers or Geithner to Chair the Fed. It was at this juncture that I checked to see whether I had missed the inauguration of a new tradition of outrageous “August Fool’s” jokes. I expected the next paragraph of the article to propose Bill Clinton’s as Chair of the Marriage Fidelity Task Force and Todd Akin to head the “legitimate rape” counseling center. Summers and Geithner are among the greatest enemies of effective regulation, supervision, and prosecutions of banksters in the world.

Where Obama went wrong - In the previous post comment section Jim Glass provided me with this quotation from President Obama: “I want a Fed chairman that can step back and look at that objectively and say, let’s make sure that we’re growing the economy, but let’s also keep an eye on inflation. And if it starts heating up, if the markets start frothing up, let’s make sure that we’re not creating new bubbles.” So that’s it. The reason America is about to suffer through 8 years of high unemployment is not GOP obstructionism, but rather because our President is listening to the wrong set of progressives. We either have the monetary policy Obama wants, or we might even have a more expansionary policy than he’d prefer.  Suddenly Obama’s mystifying behavior back in 2009 doesn’t look so mysterious.

Wanted: A Boring Leader for the Fed - THE debate over who should succeed Ben S. Bernanke, the chairman of the Federal Reserve, has been exceptionally personality-driven. What all sides seem to misunderstand, however, is the proper nature of the central bank’s role in the economy. Instead of casting about for a new maestro, we need to return the Fed to dullness and its chairman to obscurity. The Fed has become anything but boring. Under Mr. Bernanke and his predecessor, Alan Greenspan, it didn’t foresee the housing bubble, much less try to pop it. Even if the Fed could identify bubbles, Mr. Bernanke once said, “monetary policy is too blunt a tool for effective use against them.”  Yet for more than four years, the Fed has used this blunt instrument on an unprecedented scale. Mr. Bernanke’s supporters say he has done his best with monetary policy while a do-nothing Congress has offered no help through fiscal policy. But quantitative easing has amounted to an audacious experiment in trickle-down economics. Among other things, it has artificially boosted the stock market in the hope that enriching a few — the top 1 percent of American households owned 42 percent of the nation’s financial assets in 2010 — will help the many. Meanwhile, retirees who don’t dare buy stocks have seen their modest bank deposits stagnate with interest rates near zero (despite a recent significant increase in Treasury yields).

Creating a History of U.S. Inflation Expectations - NY Fed - Central bankers closely monitor inflation expectations because they’re an important determinant of actual inflation. Treasury inflation-protected securities (TIPS) are commonly used to measure bond market inflation expectations. Unfortunately, they were only introduced in 1997, so historical data are limited. We propose a solution to this problem by using the relationship between TIPS yields and other data with a longer history to construct synthetic TIPS rates going back to 1971.

Learn to stop worrying and love (moderate) inflation - The Federal Reserve's unprecedented programs of Quantitative Easing have not, as many predicted, resulted in substantially increased inflation. But I view this as a failure of the policy, not a success.Inflation is grossly underappreciated. Economists consistently fail to educate the public about what they mean by the term "inflation". People think it just means "a rise in the price of something" (though that's not really what it means). And people don't like prices rising, because it seems like it should make stuff more expensive - and who wants that?We're told that inflation is a necessary cost of improving the economy. And in fact, that's exactly what monetarist macroeconomists (think of Mike Woodford, Miles Kimball, etc.) tell us that it is. We must accept higher inflation, they tell us, in order to also get better GDP growth. But given our 'druthers, they tell us, we'd rather have very low inflation. No one wants to become like Zimbabwe, or the Weimar Republic, right?? I'm not so sure this is true, and I'll explain why later. But first, let me dispel a couple of popular myths about inflation.

• Popular Inflation Myth 1: "Inflation means I can't buy as much stuff." ...
• Popular Inflation Myth 2: "Inflation punishes savers." ...
• Inflation Benefit 1: Your debt goes away. ...
• Inflation Benefit 2: The federal government debt goes away. ...
• Inflation Benefit 3 (?): "Balance sheet recession" might go away! ...

Chicago Fed: "Index shows economic growth in July again below average" - The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth in July again below average  The Chicago Fed National Activity Index (CFNAI) edged up to –0.15 in July from –0.23 in June. The index’s three-month moving average, CFNAI-MA3, increased to –0.15 in July from –0.24 in June, marking its fifth consecutive reading below zero. July’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.
emphasis addedThis graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Chicago Fed: "Index shows economic growth in July again below average" - The US economy continued to expand in July but at a rate that’s “below its historical trend,” according to today’s update of The Chicago Fed National Activity Index. “The index’s three-month moving average, CFNAI-MA3, increased to –0.15 in July from –0.24 in June, marking its fifth consecutive reading below zero,” the bank advised in a press release. The modest improvement (slightly better than my econometric projection) puts CFNAI-MA3 at the highest level since February.  CFNAI-MA3 offers "a more consistent picture of national economic growth," the Chicago Fed advises. By that standard, the US economy is still expanding at a pace that’s only slightly below its historical trend as of last month. (A zero reading for CFNAI-MA3 equates with economic conditions that match the historical trend.) Based on the guidelines published for this index, today’s update also shows that recession risk was low in July. A CFNAI-MA3 value below -0.70 after a period of economic expansion "indicates an increasing likelihood that a recession has begun," according to the Chicago Fed. In other words, last month's macro profile remained convincingly in the growth camp. That’s in line with yesterday’s update of The Capital Spectator's Economic Trend & Momentum indices, which also tell us that business cycle risk remains low, according to the latest economic and financial indicators.

Chicago Fed: Economic Activity Again Below Average in July - "Again Below Average": This is the headline for today's release of the Chicago Fed's National Activity Index for July. Today's update is particularly interesting for those of us who follow this series closely, because it contains revision stretching all the way back to December of 1967, in the same spirit as the massive GDP revisions released at the end of last month. The index has now been negative (meaning below-trend growth) for five consecutive months and 12 of the last 16. Here are the opening paragraphs from the report: The Chicago Fed National Activity Index (CFNAI) edged up to –0.15 in July from –0.23 in June. Three of the four broad categories of indicators that make up the index increased slightly from June, but only two of the four categories made positive contributions to the index in July.  The index's three-month moving average, CFNAI-MA3, increased to –0.15 in July from –0.24 in June, marking its fifth consecutive reading below zero. July's CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from eco- nomic activity over the coming year.   [Download PDF News Release]  Investing.com had forecast a -0.10 for today's number. The Chicago Fed's National Activity Index (CFNAI) is a monthly indicator designed to gauge overall economic activity and related inflationary pressure. It is a composite of 85 monthly indicators as explained in this background PDF file on the Chicago Fed's website. The index is constructed so a zero value for the index indicates that the national economy is expanding at its historical trend rate of growth. Negative values indicate below-average growth, and positive values indicate above-average growth.

Chicago Fed Index Remains in Negative Territory -- Modest gains in data tracking labor-market trends and the health of business sales and orders helped boost a closely watched economic indicator last month, though economic expansion remains below its historical average. The Federal Reserve Bank of Chicago said Tuesday that its National Activity Index rose to -0.15 in July from -0.23 in June, while the less-volatile three-month moving average improved to -0.15 from -0.24.  It was the fifth straight month the two measures have remained in negative territory, indicating below-trend growth. Two of the four contributors to the Chicago Fed index were positive in July, with the employment-related component rising to 0.06 from 0.05 in June. This follows an improved unemployment rate, which fell to 7.4% in July from 7.6% in June. Sales, orders and inventories rose to 0.04 from -0.07 in June, and consumption and housing improved to -0.15 from -0.20, helped by news that housing starts rose to 896,000 in July from 846,000 the prior month.

Is the U.S. Economy Headed Towards Recession? - A country experiences an economic slowdown when it's industrial production lags, its jobs market shows a dismal performance, corporate profits deteriorate, and the general standard of living declines. Sad to say, this is exactly what the U.S. economy is experiencing right now. Industrial production in the U.S. economy is anemic. For the month of July, industrial production in the U.S. economy remained unchanged; in June, it saw a menial increase of 0.2%; in May, it was flat; and in April, industrial production declined 0.4%. Last month, the production of consumer goods in the U.S. economy declined by 0.5%. Moving onto the jobs market in the U.S. economy, while politicians certainly do a good job at making it sound like the employment picture is improving, the majority of jobs created since the Great Recession have been in low-wage-paying sectors. Corporate profits, as has been very well documented in these pages, are dismal. Companies in the U.S. economy have found ways to boost their earnings through artificial means, but when you look at their sales, companies in the U.S. economy are not selling more. As for the standard of living in the U.S. economy, consumers are struggling. Just look at the numbers: In the first quarter of 2013, there were 309,920 consumer bankruptcies in the U.S. economy. In the second quarter, the number increased to 380,020. This is an increase of 23% within just one quarter. The fact is the U.S. economy is going in the wrong direction. And that's very troublesome, because our central bank has run out of arsenal to fight the coming economic slowdown—and interest rates are starting to rise.

Conference Board Leading Economic Index Update - The August Conference Board Leading Economic Index (LEI) for July was released this morning. The index rose to 0.6 percent to 96.0 percent from June (2004 = 100). The Investing.com forecast for a 0.6 percent increase was right on target.  Here first is an overview of today's release from the LEI technical notes: The Conference Board LEI for the U.S. increased in July, after recording no gain in the previous month. The financial components, building permits and the ISM® new orders index made the largest positive contributions to the index. In the six-month period ending July 2013, the leading economic index increased 2.0 percent (about a 4.1 percent annual rate), faster than the growth of 1.1 percent (about a 2.2 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators remain widespread.   [Full notes in PDF format]  Here is a chart of the LEI series with documented recessions as identified by the NBER.

Further fiscal drag poses risks to the US economy - One of the reasons for the slow US recovery has been weaker than usual government spending. The weakness started with fiscal consolidation at the state and local level, driven by sharp declines in tax revenues. The negative impact on the economy is now more pronounced at the federal level. In previous recoveries government expenditures provided cushion to the economy, while in this recovery the net impact of government activity creates a drag. Of course the recent tax increases have not been helpful either.The most direct impact is visible in the number of government jobs - the impact on the private sector that services the government is of course quite large as well. The chart below shows the decline in government payrolls over time (not seasonally adjusted).While government payrolls continue to fall, the decline has been slowing - mostly due to the stabilization in state and local employment. Federal jobs however are another story. Given the fiscal drag resulting from an already weak (relatively) federal spending, the US economy is highly vulnerable to a negative outcome of the upcoming debt ceiling/budget fight. And while tightening federal spending is absolutely vital, a disruption at this juncture could prove to be costly.BNY Mellon: - The upcoming showdown between Republicans and Democrats of Capitol Hill over both the 2014 federal budget and the national debt ceiling is shaping up to be a battle royal in Washington...”

Treasury Snapshot: Yields and 30-Year Fixed Mortgage at Interim Highs - I've updated the charts below through yesterday's close. The yield on the 10-year note ended the day at 2.90%, a new interim closing high from its historic low of 1.43% on July 25th of last year. That's a 103% increase. The latest Freddie Mac Weekly Primary Mortgage Market Survey, published yesterday, puts the 30-year fixed at 4.58%, the highest since mid-June of 2011 and 127 bps above its all-time low of 3.31% in late November of last year. That's a 38% increase in the mortgage rate.Here is a snapshot of the 10-year yield and the 30-year fixed mortgage since 2008. A log-scale snapshot of the 10-year yield offers a more accurate view of the relative change over time. Here is a long look since 1965, starting well before the 1973 Oil Embargo that triggered the era of "stagflation" (economic stagnation with inflation). I've drawn a trendline connecting the interim highs following those stagflationary years. Here is a long look back, courtesy of a FRED graph, of the Freddie Mac weekly survey on the 30-year fixed mortgage, which began in May of 1976.

Fed Sends $19.3B In Bond Interest From QE To Treasury In 2nd Quarter - The Federal Reserve’s easy-money program continued to generate a profit in the second quarter, sending $19.3 billion it made in interest on long-term bonds to the Treasury Department. That is up from $15.3 billion in the first quarter, but down from $22.7 billion in the same period last year, according to the Fed’s quarterly financial report, released Friday. The central bank’s bond-buying program–$85 billion each month of Treasurys and mortgage-backed securities–is meant to stimulate the U.S. economic recovery in an effort to hold down borrowing costs and spur growth and hiring. The program has yielded record profits, but Fed Chairman Ben Bernanke has said the remittances would likely be lower in coming years as the central bank scales back its program. “If the economy continues to strengthen, as we anticipate, and policy accommodation is accordingly reduced, these remittances would likely decline in coming years,” Mr. Bernanke said in the bank’s monetary policy report in February. In July’s report, he noted interest from the large-scale asset-purchase programs had “continued to support a substantial sum of remittances to the Treasury Department.”

Summer 2013: Who Really Owns the U.S. National Debt? - It's time again to check in on who really owns the U.S. national debt. This edition of our occasional series is different however, because the official size of the U.S. national debt hasn't meaningfully changed over the last three months.  That's because of the deal struck between President Obama and the U.S. Congress, which allowed the national debt to increase while both the House of Representatives and the Senate passed budget proposals, which was a real accomplishment for the U.S. Senate, since that body hadn't fulfilled its Constitutional responsibilities for passing any budget proposal for years.  But after that, the window for further debt increases closed, with the total public debt outstanding for the U.S. since then frozen within a few billion of $16.738 trillion.  Meanwhile, the Federal Reserve has maintained its quantitative easing programs, where it has been acquiring an average of $85 billion per month in U.S. Treasuries (UST) and Mortgage-Backed Securities (MBS).  Since that time, the Federal Reserve's share of the total public debt outstanding of the United States has increased from 10.8% to 12.0%, as the share held in the U.S. Civil Service Retirement Trust Fund has declined from 5.6% to 4.4%.  With the Federal Reserve sustaining its QE bond-buying program, we also observe that the relative share of the national debt by foreign entities has declined. This is a result of the Fed's QE policy "crowding out" these other lenders from the market for U.S. government-issued debt securities.

US treasury secretary urges Congress to raise debt limit -- US Treasury Secretary Jacob Lew Thursday urged Congress to raise the government's borrowing limit to avoid unnecessary self-inflicted crisis. In a speech to the Commonwealth Club of California, Lew emphasized the need for Congress to act as soon as possible to avoid jeopardizing the full faith and credit of the United States and to avoid the economically harmful consequences of a US default or the threat of default. "It is important to note that the debt limit has nothing to do with new spending. It has to do with spending that Congress has already approved and bills that have already been incurred. Failing to raise the debt limit would not make these bills go away. It would, though, have disastrous effects for our nation," Lew said in prepared remarks. "We cannot afford for Congress to wait until some unknowable last minute to resolve this matter on the eve of a deadline. We cannot afford another unnecessary self-inflicted wound," he added. When Congress returns from its recess in early September, lawmakers and the Obama administration will make tough fiscal decisions that include funding the government by Sept. 30 to avoid a federal shutdown and raising the debt limit.

Clock Is Ticking for Recess, and for a Deficit Deal -- Budget talks between the White House and Senate Republicans have gone nowhere since Congress began its summer recess, increasing chances of a fiscal stalemate that could lead to a government shutdown in October or the threat of a government default later in the fall. Negotiators who had hoped for a summer breakthrough say the chances for a major deficit reduction deal are rapidly slipping away. While many members of both parties say they would like to avoid either a shuttering of the government as of Oct. 1 or a default caused by failing to increase the federal debt limit, no acceptable solution has emerged. Lawmakers say the consequences could be severe. “It ends badly for the American people and the Republican Party if we shut down the government,” said Representative Reid Ribble, Republican of Wisconsin and a member of the House Budget Committee. “I hope grown-ups get in a room and behave like grown-ups, not simply actors on a political stage.” In search of a compromise, a group of Senate Republicans are scheduled to meet with top White House officials next Thursday, the first such meeting since Aug. 1, when negotiators promised that staff and high-level talks would continue throughout the month. “Nothing has occurred since that time, nothing whatsoever,” said Senator Bob Corker, Republican of Tennessee and one of the eight lawmakers involved in the talks.

Government Spending and the Government’s Money - Warren Mosler has made an interesting proposal concerning how we should think about Treasury securities:… with today’s floating fx/non convertible currency tsy secs (held outside of govt) are logically additions to ‘base money’, as the notion of a reduction of govt reserves (again, gold, fx, etc) is inapplicable to non convertible currency.That is, with today’s floating fx, I define base money as currency in circulation + $ balances in Fed accounts. And $ balances in Fed accounts include both member bank ‘reserve accounts’ and ‘securities accounts’ (tsy secs). And to me, it’s also not wrong to include any other govt guaranteed debt as well, including agency paper, etc.That is, with floating fx, ‘base money’ can logically be defined as the total net financial assets of the non govt sectors. Mosler continues:  And deficit reduction is the reduction in the addition of base money to the economy, with the predictable slowing effects as observed. The point of this post is to ‘reframe’ govt deficit spending away from ‘going into debt’ as it would be with fixed fx, to ‘adding to base money’ as is the case with floating fx where net govt spending increase the economy’s holdings of govt liabilities, aka ‘tax credits’. So Warren is proposing that we extend the definition of the monetary base to include not only holdings of currency and reserve deposit balances, but also include Treasury securities and government-sponsored agency debt.  There is certainly much to be said in favor of the proposal.  For one thing, if we think about financial assets in terms of their associated risks, we can note that the new capital rule approved by government regulators and scheduled to go into effect in January, 2015 – described here in the Community Banking Guide jointly issued by the Fed and FDIC – assigns a zero risk weight to both cash and “direct and unconditional claims on the U.S. government, its agencies, and the Federal Reserve.” So the regulators regard dollars and treasuries as equally risk-free.

Measuring the cost of austerity -- How do we count the cost of fiscal austerity? The most obvious question to ask, at least for a macroeconomist, is how much higher GDP would be without it. This is what Oscar Jorda and Alan Taylor did in some recent research, which I discussed in this post. All I did in my post was translate this percentage into the amount of output lost per household, because I think that kind of number is easier for non-economists to relate to. Many macroeconomists today might point out that this is an overestimate of the true cost of austerity, because to the extent that we are collectively producing less because we are working less, we should offset this GDP number with the benefit of the extra leisure we are enjoying. Many other people, including I hope some macroeconomists, might think that was just silly, and gets things the wrong way round. To the extent that this fall in GDP is associated with a rise in unemployment, that increase in unemployment does much more harm than the amount of goods that unemployed person might otherwise have produced. Chris Dillow has a useful post on this, and the evidence is in my view overwhelming. Exactly why macroeconomists continue to get this backwards will have to be the subject of another post.

Budget Bedlam To Fiscal Fiasco - House and Senate Republicans are now threatening to use the debt ceiling increase that will be needed by the middle of November rather than the continuing resolution that will be needed by October 1 to make yet another stand on Obamacare. This is more than just a timing shift for the fight: It actually significantly changes the probability that something economically disastrous could result. Given that none of the individual appropriations for fiscal 2014 are likely to be enacted by October 1, refusing to pass a continuing resolution -- the legislative equivalent of threatening to hold your breath until you turn blue -- would be bad but not a disaster. Yes, federal agencies and departments would stop operating, it would be quite a spectacle and many individuals and government contractors would be harmed, but the damage to the U.S. economy would be relatively limited and short-lived. The real harm from a shutdown would happen only if it continued for multiple weeks and, given the voter anger that would start and then steadily intensify after just a few days, that's just not that likely to happen. The opposite would be true if the debt ceiling isn't raised when needed: the damage would be immediate and long-lasting. There could be actual defaults on the interest and principal due to bond holders and technical defaults on payments to contractors and employees. The government might also well have to pay an interest premium to borrow money from that time forward given that the previously unthinkable had just actually happened for the first time in U.S. history.

A $20 Billion Wrinkle in the Upcoming Budget Battle - For those focused on the upcoming budget debate, Greg Sargent raises an important point, one that’s worthy of your attention.  Put on your boots—we’re going deep into the fiscal muck on this one. At the end of next month, the current patch that’s paying for government operations, called a continuing resolution (CR), expires.  That means Congress either passes regular appropriation bills (won’t happen), another patch, or shuts down the government.  In the latter case, the stuff that’s funded even without Congressional action—mandatory programs like Social Security and Medicare—keeps going but funding for anything else that they don’t exempt stops. The conventional wisdom is that they’ll come up with a patch before the deadline but the question is, at what level will they fund discretionary spending, i.e., the non-mandatory part of the budget that funds defense and non-defense activities?   But, as Sargent points out, there’s a wrinkle—a $20 billion wrinkle: that’s the amount by which defense spending must be reduced in 2014 to be in compliance with the sequester. Rep Chris Van Hollen, someone who consistently not only gets these issues, but can both think about them strategically and articulate them effectively, explains to Sargent that this could provide critical leverage to Democrats and others who want to replace sequestration with a balanced plan that a) replaces the reckless cuts we write about each week here at OTE with a balanced plan including targeted spending cuts and new revenues, and b) is backloaded in such a way as to spare what’s still a too-fragile recovery from more fiscal headwinds.

DeMint: Republicans who oppose Defund Obamacare ‘need to be replaced’ - Former senator Jim DeMint (R-S.C.) said in an interview broadcast Tuesday that congressional Republicans who oppose the Defund Obamacare effort “should be replaced.” “I’m not as interested in the political futures of folks who think they might lose a showdown with the president,” DeMint said at a Monday town hall hosted by Heritage Action, the political arm of the Heritage Foundation, which DeMint leads. DeMint later told NPR: “I think (President Obama) knows that Republicans are afraid, and if they are, they need to be replaced.” The Defund Obamacare movement seeks to get Republicans to commit to not voting to fund the government if Obamacare is included in that funding. But several GOP senators have balked at the proposal, not wanting to risk a government shutdown that could be blamed on Republicans.

The Future of the Charitable Deduction - As one can see in the table from Congress’s Joint Committee on Taxation, the vast bulk of charitable gifts in dollar terms come from the wealthy, those making more than $200,000 a year. If the priorities of the wealthy were the same as those of the nonwealthy, this probably wouldn’t matter too much. But they are not. As the following chart from a blog post by Catherine Rampell in The New York Times shows, those with moderate incomes are far more likely to contribute to churches and other religious organizations, while the wealthy give relatively little of their total contributions to such groups. Education, health and arts organizations are much more significant recipients of contributions by the wealthy than by the nonwealthy. Although those with low incomes are not less generous than the wealthy, the bulk of them either have no federal income tax liability or use the standard deduction and therefore cannot deduct their contributions. By contrast, the value of the charitable deduction rises with income because tax rates rise with income. For someone in the top bracket, the federal government provides a de facto subsidy of 40 percent.

Obama’s FBI Channels the Tea Party – Partner with the Banks and Blame the Poor for the Crisis - Bill Black: This is the third column in my series discussing why the FBI and the Department of Justice (DOJ) have failed to investigate and prosecute successfully the largest and most destructive financial fraud epidemic in history. The series uses the FBI’s 2010 Mortgage Fraud report to tease out how the FBI and DOJ suffered such a defeat.  The MBA conned the FBI into a “partnership” with the trade association of the “perps.” In my prior column I showed the first product of the partnership – a poster warning customers not to defraud banks but ignoring banks defrauding customers. This column discusses the more consequential and damaging product of the FBI/MBA partnership. The MBA presented a definition of “mortgage fraud” under which the bank is always the innocent victim and never a perpetrator. Because the FBI and DOJ did not draw on the banking regulators’ expertise due to the death of criminal referrals by the agencies the FBI fell for the MBA con. The second product of the MBA and the FBI’s Faustian bargain is a purported definition of “mortgage fraud.” The FBI’s March 8, 2007 press release announcing its “partnership” with the FBI contained the same fake definition as the FBI’s 2010 mortgage fraud report quoted below. Note that the MBA con of the FBI was so successful that the FBI parrots the definition uncritically, year after year, as if it were revealed truth. Unlike Gaul, all mortgage fraud is divided into only two parts – and the bank and its elite officers are always the victims.

What Was Really Behind President Obama’s Meeting With Wall Street Regulators - The White House issued a statement yesterday on the President’s meeting with the federal agencies that regulate Wall Street. Curiously, the phrase used to describe the agencies was “independent regulators.”  In that briefing, Earnest referred to the regulators as “independent” seven times. If the President now finds it necessary to attempt to brainwash the American public through endless repetition of the word “independent” to shore up sagging public doubt that there are any real cops on the beat when it comes to policing Wall Street, he has no one to blame but himself.The President may well have other things on his mind in calling the high profile meeting. One of those is that members of his own party think the Dodd-Frank reform legislation is a bust and are pushing to restore the Glass-Steagall Act, separating Wall Street casinos from banks holding insured deposits. There are now two separate pieces of legislation in the Senate and House calling for the restoration of this depression era investor protection act. There is also that pesky problem that real experts on the financial markets are increasingly testifying before Congress on just how dangerous Wall Street remains to the health of the U.S. economy, despite Dodd-Frank. The President may be worrying about his legacy if Wall Street crashes again.

Are Higher Haircuts Better? A Paradox - NY Fed - Repurchase agreement (repo) markets played an important role in the 2007-09 financial crisis in the United States, and much discussion since then has focused on the role of repo haircuts. A repo is essentially a loan collateralized by securities. Typically, the value of the securities exceeds the value of the loan and the amount of overcollateralization corresponds to the haircut. In a 2010 paper, Yale’s Gary Gorton and Andy Metrick identified a dramatic increase in haircuts in the bilateral segment of the repo market, which they interpreted as a run on repo. Separately, an industry task force aimed at reforming a different segment of the market, the tri-party repo market, indicated that haircuts may have been too low during the crisis, given the volatility of many of the underlying assets’ values. Maintaining higher haircuts throughout the business cycle could solve both problems: the excessively rapid increase in haircuts in the bilateral segment of the market and the low level of haircuts in the tri-party segment. But are permanent higher haircuts always better? In this post, we dig a little deeper and find that they can have paradoxical effects.

To Cut Fees, Public Funds Seek to Take Charge of Investing - Investors responsible for more than $2 trillion recently gathered at a resort in the Canadian Rockies, far from the news media and, more important, far from Wall Street.Those in attendance, including leaders of Abu Dhabi’s sovereign wealth fund and France’s pension system, were there to consider ways to put their money to work together without paying fees to private equity firms and hedge funds. Over that weekend, three of the attendees completed the details of a $300 million investment in a clean-energy company. The group holding the gathering, the Institutional Investors Roundtable, has kept a low public profile since it began in 2011, but it attracted 27 funds managing public money to its latest meeting and is spinning off concrete investments. The group is part of a much broader push by the world’s biggest pension and sovereign wealth funds to reduce their reliance on the Wall Street firms that used to manage almost all their money.

Bond fund August outflows hit $30.3 bln: TrimTabs -- In a sign that the exodus from bond funds shows no sign of slowing, fixed-income mutual funds and exchange traded funds have seen $30.3 billion of withdrawals in August through Monday, according to data released by TrimTabs Investment Research on Wednesday. If that figure were to hold through the end of the month, that would make August the third-heaviest month for bond-fund outflows recorded by the research firm. Outflows would need to reach $42 billion to top October 2008, which ranks No. 2. Investors have withdrawn a total of $114 billion from all bond funds since the start of June. Separately, investors pulled a net $3.92 billion from bond funds during the week ended Aug. 14, marking the 10th week of outflows in 11 weeks, according to data released Wednesday by the Investment Company Institute. Muni bond funds had net $2.09 billion of withdrawals while taxable bond funds had net $1.84 billion of outflows. Equity mutual funds took in net $1.49 billion and funds that invest in both stocks and bonds received net $1.55 billion of inflows, but that was not enough to stem total mutual-fund net outflows of $879 million.

Pursuing Profits - or Power?: Do corporations seek to maximize profits? Or do they seek to maximize power? The two may be complementary—wealth begets power, power begets wealth—but they’re not the same. One important difference is that profits can come from an expanding economic “pie,” whereas the size of the power pie is fixed. Power is a zero-sum game: more for me means less for you. And for corporations, the pursuit of power sometimes trumps the pursuit of profits. Take public education, for example. Greater investment in education from pre-school through college could increase the overall pie of well-being. But it would narrow the educational advantage of the corporate oligarchs and their privately schooled children—and diminish the power that comes with it. Although corporations could benefit from the bigger pie produced by a better-educated labor force, there’s a tension between what’s good for business and what’s good for the business elite. Similarly, the business elite today supports economic austerity instead of full-employment policies that would increase growth and profits. This may have something to do with the fact that austerity widens inequality, while full employment would narrow it (by empowering workers). If we peel away the layers of the onion, at the core again we find that those at the top of the corporate pyramid put power before profits.

Goldman Sachs Makes Bad Trades, Wants Money Back - When things don’t go your way it is really a learning experience – life is like that sometimes. We all have to accept that life isn’t fair and sometimes we lose despite what we think should happen – oh, unless we are Goldman Sachs.  If you are a bankster and something goes wrong the last thing you should do is take your lumps. You need to demand justice even if the rules are less than clearly on your side. Yesterday the computer at Goldman Sachs responsible for trading options whose symbols start with the letters H through L traded a bunch of options at the wrong prices and put Goldman out by a hundred million dollars or so. Today various exchanges are sitting down and pondering whether to give Goldman that money back. This strikes some people as unfair because, y’know, hahaha Goldman you screwed up, but also because someone was on the other side of those trades, made a profit, hedged it out, and will now be sad and possibly screwed when it is unwound. Goldman relies on these computers to make trades which have reaped profits for the firm. The computer breaks down costing, instead of making, them money – and now they want the money they lost. The person who made the opposite bet of Goldman should give them the money back because Goldman was supposed to win.

JPMorgan probed on US power markets - FT.com: US prosecutors are investigating whether JPMorgan Chase manipulated US energy markets, people familiar with the matter said, in another sign that authorities have increased scrutiny over the embattled bank. The investigation follows a civil settlement JPMorgan reached last month with the Federal Energy Regulatory Commission over allegations the bank manipulated power markets in California and the Midwest. JPMorgan agreed to pay $410m. It also agreed to waive almost $227m it had sought through a challenge to new market rules and shelved rights to $35m that grid manager California Independent System Operator said it overpaid the bank. At the time, Ferc said JPMorgan used “manipulative bidding strategies” to make tens of millions of dollars from old uneconomic gas-fired power plants. The bank started 10 of the 12 strategies even after an investigation had started, Ferc said.

JPMorgan And Goldman Sachs Are Playing Whack-A-Mole With Everyone Suing Them Over Their Metal Warehousing Businesses - As if on cue, around the country individuals and companies have started filing lawsuits against JP Morgan and Goldman Sachs for allegedly delaying deliveries of aluminum stored in their metals warehouses, thus manipulating the price of the commodity. Lawsuits have been filed in Michigan, Florida and Louisiana. On top of that, The Commodities Futures Trading Commission has subpoenaed JPM, Goldman, and commodities trading firm Glencore for documents related to their warehouse businesses, Bloomberg reports. The thing is — usually, when an issue is this obscure and hard to understand, it's easily swept under the rug. And so it could have been with a story that appeared in the New York Times last month, accusing Goldman Sachs of using its Detroit metals warehouses to hoard aluminum, driving up the price of the commodity for customers and consumers alike. To understand why you have to understand supply, demand, yield curves and a weird trading term — "contago."  But there are powerful people unwilling to let this issue go, including Ohio Democratic Senator Sherrod Brown, and beer maker MillerCoors. The company's global risk manager Tim Weiner, says that these activities have inflated aluminum costs by $3 billion over the last year.

Financial Crisis-Era Derivatives Are Making A Comeback -   Collateralized debt obligations, the complex financial instruments that cratered disastrously in the financial crisis, are back. The market for the instruments, which were based on subprime mortgages, shrank from $520 billion in 2006 to just $4.3 billion in 2009 after the housing bust. Warren Buffett once called CDOs "financial weapons of mass destruction" because of their riskiness. This time around, the investment has shifted from a mortgage-based CDO into a "collateralized loan obligation," a cash-generating asset structured similarly to CDOs, but consisting of loans to businesses. Financial institutions have issued $50 billion in CLOs in the US in 2013, estimates the Loan Syndication and Trading Association, a trade group. The LSTA estimates the industry will issue $70 billion-worth in the US overall in 2013 and $100 billion worldwide. Goldman Sachs, Morgan Stanley, Barclays and Citigroup are among the banks most active in structuring CLOs in 2013. Citigroup alone has sold about 20 of the instruments this year.

Congress Has Lost Control of the Big Banks -- On January 16 of this year, Richard Fisher, President of the Federal Reserve Bank of Dallas, delivered a speech on the continuing threat to the U.S. economy posed by the too-big-to-fail banks. Fisher said: “I submit that these institutions, as a result of their privileged status, exact an unfair tax upon the American people. Moreover, they interfere with the transmission of monetary policy and inhibit the advancement of our nation’s economic prosperity.” As part of his talk, Fisher presented a chart showing the Frankenbank nature of the five largest banks in the U.S. – JPMorgan, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley. Cumulatively, these five banks are the parent to 19,654 subsidiaries or affiliates while their nondeposit liabilities total over $4.1 trillion – a figure equal to 26.3 percent of the Gross Domestic Product (GDP) of the country. On July 23, 2013, the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, chaired by Senator Sherrod Brown, held a hearing titled: “Examining Financial Holding Companies: Should Banks Control Power Plants, Warehouses, and Oil Refineries?” At the hearing, Timothy Weiner, Global Risk Manager of the giant beer brewer, MillerCoors LLC, told the Senate subcommittee that the largest U.S. banks had gained “effective control” of the London Metals Exchange (LME) and were using their cartel powers to hold up deliveries of aluminum and push up its price. Joshua Rosner, a Managing Director of the independent research firm, Graham Fisher & Company, also testified at the hearing, saying “We’re on the threshold of a new Gilded Age, where the fruits of all are enjoyed by a few.” Rosner put the blame squarely on the Federal Reserve for effectively rewriting the securities laws in 2003 by allowing Wall Street banks to take possession of physical commodities.

Judge endorses use of fraud law against Bank of America (Reuters) - A federal judge has endorsed a broad interpretation of a savings-and-loan era law that the Justice Department is trying to use in cases against Wall Street banks. U.S. District Judge Jed Rakoff in Manhattan said Monday that a "straightforward application of the plain words" of the Financial Institutional Reform, Recovery and Enforcement Act (FIRREA) allowed the interpretation sought by the government. The law has a low burden of proof, strong subpoena power and a 10-year statute of limitations, twice as long as the typical limit for fraud cases. Rarely asserted until recently, it has become the basis of three lawsuits by lawyers under Manhattan U.S. Attorney Preet Bharara against banks including Bank of America Corp, Wells Fargo & Co and Bank of New York Mellon Corp. The latest decision came in a case the Justice Department brought last October against Bank of America over toxic mortgages that its Countrywide Financial mortgage unit sold to Fannie Mae and Freddie Mac in the financial crisis. The government's case, which is set for trial on September 23, focuses on a program instituted in 2007 by Countrywide called "High Speed Swim Lane" and also known as "HSSL" or "Hustle."

Safe banks need not mean slow economic growth, by Thomas Hoenig -  Before 2007, the owners of America’s largest banks contributed as little as three cents of common equity for every dollar on their balance sheets. The capital requirements in place at the time were little constraint on the use of debt by these banks to fund purchases. Given the devastating effect of the financial crisis on US jobs and wealth that followed, would anyone really want to argue that requiring the biggest banks to hold more equity in 2007 would have adversely affected economic growth? So, last month, US bank supervisors proposed a new capital standard that would limit the largest banks’ ability to finance themselves with excessive amounts of debt. For every dollar of assets and some proportion of off-balance-sheet commitments, the largest banks would hold at least six cents of equity, and their parent holding companies would hold five cents. This cap on the banks’ leverage ratio would significantly increase capital requirements for these banks, enhancing their ability to withstand financial shock and continue lending.  The largest banks are raising objections designed to scare the public and force a retreat from good public policy. ... One of the more frequent objections asserts that the proposed increase in equity capital will force banks to curtail lending in the short term and thereby inhibit the recovery. This is false. ... The public should not accept the liability associated with a highly leveraged banking industry as the price of credit and economic growth. A review of real-world data since 1999 on the relationship between equity and loan levels for the eight US globally systemic banks found no evidence that higher capital leads to lower loan volumes over the long run.

Fed advises US banks to lift capital targets - FT.com: The largest US banks should hold regulatory capital beyond their own internal targets to better prepare them for periods of market stress, according to a study published by the Federal Reserve on Monday. The study, which examined banks’ approaches to the Fed’s recent stress tests, also said that while banks had “considerably improved” their regulatory capital planning in recent years, they had “more work to do to enhance their practices”. Banks have at times criticised the Fed for the way it administers its annual industry stress tests, which were first run in 2009 as a way of gauging banks’ preparedness for a future financial crisis. Monday’s suggestion that banks should hold capital beyond their own goals is likely to fuel speculation that the Fed has in effect created another minimum capital requirement for the industry. The biggest banks should “establish capital targets above their capital goals to ensure that capital levels will not fall below the goals during periods of stress”, the US central bank said. “The goals and targets should be specified in the capital policy and reviewed and approved by the board.” The Fed noted that some of the 18 banks that have so far been included in the tests “continue to fall short” in some areas. Some of the banks did not have clear enough capital policies, while others generated loss estimates that did not fully take into account the full impact of stressed markets. Others had “less-than-robust” controls around their capital planning processes, the Fed said.

Lender, beware - My new post at Pieria talks about the nature of the relationship between banks and depositors:"I recently wrote a post with Euronomist in which we suggested that depositors should be explicitly charged for deposit insurance, rather than insurance being implictly provided by the state or covered by a levy on financial institutions."This did not go down too well in some quarters. There were a number of comments along the lines of "why should I pay for the risks that banks take?" and "banks should look after their customers' money". Underlying these remarks was a fundamentally wrong understanding of the nature of the relationship between modern banks and their depositors. And this wrong understanding is the main source of anger towards banks for putting depositors' money at risk, and anger towards banks for giving rubbish returns to savers. Most depositors believe that the job of banks is to keep their money safe. Many depositors also believe that they are entitled to a share in the returns that banks make from "lending their money out".  In short, depositors expect banks to invest their money responsibly to generate good returns, and absorb the risk of those investments so that depositors do not suffer losses. But that is not how banks see it. And the law is on the side of banks.......

Unofficial Problem Bank list declines to 717 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for August 16, 2013.  Changes and comments from surferdude808:  The OCC was busy this past month mostly terminating a number of enforcement actions. They were responsible for five of the seven terminations this week and the sole addition. After these changes, the Unofficial Problem Bank List holds 717 institutions with assets of $253.9 billion. A year ago, the list held 899 institutions with assets of $347.5 billion. There is no news to pass along on Capitol Bancorp, Ltd. and the remaining banks they control. Next week the FDIC may release industry quarterly performance for the second quarter and the Official Problem Bank figures. At the first quarter release, the difference between the official and unofficial count was 149 but it has been narrowing after peaking at 185 a year ago. This quarter, it is estimated the difference has narrowed further to around 135. With there being two more Fridays in the month, it is likely the FDIC will wait until the second Friday to release their enforcement action activity through July 2013. Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now back down to 717.

A Very Profitable Part Of Banking Goes Totally To Heck - Refinancing mortgages is a phenomenally profitable and nearly risk-free business for banks, and one of the few growth sectors that were actually spawned by the Fed’s herculean efforts to force down long-term interest rates through waves of quantitative easing. Banks went on a hiring binge to shuffle all this paper around and extract fees along the way before they’d dump most of these mortgages into the lap of government-owned and bailed-out Fannie Mae and Freddie Mac. And then they’d run. Refis accounted for up to 70% of all mortgage lending in the first half of this year. But they’ve been plunging since early May, consistently, unrelentingly, week after week. The Mortgage Bankers Association’s Refinance Index, after being down another 4.6% for the week ending August 16, reported yesterday, has swooned 62.1% from its recent peak in early May. Mortgage rates have jumped over a full percentage point from 3.59% in early May to 4.68%, as of the week ending August 16, according to the MBA. Thus, much of the incentive to refinance a home has evaporated, especially when fees and points are taken into account.It’s all part of the process of interest rates returning possibly to some sort of old normal as the Fed palavers more and more intensively about tapering its purchases of Mortgage Backed Securities and Treasuries. And the folks who were hired to process the tsunami of refis are now massively getting axed. Because what QE giveth, the end of QE taketh away.

Do Savers Need to be Saved? - The Bank of England is following the Federal Reserve and the ECB in adopting forward guidance. Bank of England Governor Mark Carney announced that the Bank will not raise interest rates until the jobless rate--currently 7.8%-- falls to 7% or below. According to the Monetary Policy Committee (MPC), this state-contingent forward guidance implies that interest rates are likely to remain at the current 0.5% rate for about three years. The backlash against this announcement of continued low rates is particularly strong and vocal in the UK, where an organization called Save our Savers is campaigning against "artificially low interest rates." The organization writes, "Although the financial crisis was caused by debt, the Bank’s policy continues to favour borrowing at the expense of saving." This sentiment appears, sometimes in more subtle forms, in the US too. Perhaps the most notable counterpoint to Save our Savers is Frances Coppola, who has this to say about low interest rates and savers: "The desire of savers to be compensated for loss of purchasing power is understandable but wrong...Savers have no right whatsoever to expect to receive a higher rate of return than the ability of the economy to generate that return. If the economy is growing at 0.6%, the risk-free rate of return cannot be any higher than that. If savers want higher returns they have to put their money at risk.

The Occupy Money Cooperative - Welcome to the start of the financial services revolution. Welcome to The Occupy Money Cooperative.   This is a new venture whose purpose is to offer excellent value, transparent financial services to anyone.  Today, many people are either locked out of the banking system, or end up being charged excessive fees.    The Occupy Money Cooperative:

• Will offer access to low cost, transparent, high quality financial services to everyone.
• Will actively and directly encourage the development of innovative financial services that will foster financial inclusion, and lead the field in terms of openness and fairness.
• Will lead by example to effect a positive change for our members and stakeholders, and provide an uplifted standard of conduct for the financial community.
• Will actively work with business partners and organizations that demonstrate a commitment to the well-being of their communities.
• Access to financial services is an important public service.  It should belong to the public.  Your support will help launch the coop and its first product, the Occupy Card.
• The Occupy Money Cooperative will be owned and controlled by its members.  Its members will consist of its customers.  If you use its products, you will automatically become a member of the cooperative, with a voice in how the coop will be run, and what services it will develop.

Fannie, Freddie Masking Billions In Losses, Watchdog Finds - As is well-known by now, one of the main reasons why the Fed's hands are tied when it comes to the future of QE, is the dramatic drop in the US budget deficit which cuts down on the amount of monetizable gross issuance (read Treasurys) and for which a big reason is that the GSEs have shifted from net uses of government cash to net sources. So in what may be the best news for Bernanke, and/or his successor, we learn that according to a report written by the Federal Housing Finance Agency (FHFA) inspector general and reviewed by Reuters, "Fannie Mae and Freddie Mac are masking billions of dollars losses because of the level of delinquent home loans they carry."

Why Rush To Get Rid Of Fannie Mae and Freddie Mac? - Here I go, about to defend Fannie Mae and Freddie Mac, whom all Very Serious People know should go as soon as possible.  President Obama thinks they should go, and we have two bills in Congress that will lead to that outcome, one in the Senate co-sponsored by Dem Sen. Warner of VA (my state) and Rep Sen. Corker of TN, both VSPs in good standing, while in the House Banking Chair Hensarling (R-TX) also has such a bill. I mean wow, we have both the president and VSPs from both parties in Congress on this.  It must be great.  Well, except maybe not.  Buried in the Saturday Real Estate section of the Washington Post today we have Kenneth Harley raising some questions.  Yes, indeed, both of these entities are most certainly open to serious criticism.  To varying degrees they have had histories of mismanagement and even corruption.  They were buying lots of subprime mortgages at the peak of the housing bubble.  Furthermore, they essentially went belly up with the bust and needed to be bailed out by a government takeover.  However, Harley notes that they are now making money and paying off their loans.  Furthermore, not only have they been funding many housing market deals during these recent years of a desperately weak housing market, they were the only entity in the US that was doing so at the pit of the crash (a point Harley does not make).  Indeed, Harley reports that "Economists at Moody's Analytics estimate that dumping the companies and switching to a plan advocated by Sens. Bob Corker (R-Tenn) and Mark Warner (D-VA) 'would increase the interest rate for the average mortgage borrower' by one-half to three-quarters of a percentage point." 

Foreclosure Fiasco - These days, lawyers have taken a back seat to Wall Street as the main target of public ire. But when a bank sues a homeowner for foreclosure or engages in any other legal action related to delinquent mortgages, they hire a law firm to represent them. Nicknamed “foreclosure mills” because of the relentless churn of cases they take on, these firms are complicit in much of the misconduct we attribute to banks throughout the foreclosure process. There’s a long list of documented abuse by foreclosure mills, which are often specialist law firms built to handle thousands of foreclosures at once. Because of their financial incentives, firms are rewarded for each action they take and frequently cut corners on legally mandated steps of the process. And like everyone else along the foreclosure chain, foreclosure mills have faced virtually no accountability for their misconduct. “It’s the crookedest thing I’ve ever seen in 38 years of law practice,” But Colorado is the place where justice might finally get served, thanks to an investigation by state Attorney General John Suthers into the billing practices of leading foreclosure mills. The case, which has not yet led to charges, has so far featured allegations of bill-padding, collusion, destruction of evidence, and lobbying for personal gain. If Colorado is successful in reining in the worst conduct of the foreclosure mills, it could spark more scrutiny of their practices across the country.

Sen. Warren: Local gov’t should keep tabs on bank foreclosures – Sen. Elizabeth A. Warren voiced support today for local attempts to tackle the ongoing foreclosure crisis, saying the issue should not be left only to the federal and state governments. Local officials have a role to play, the Massachusetts Democrat said, even though officials like Attorney General Martha Coakley are leading foreclosure prevention efforts. "The idea that the only two parties who have an interest in foreclosures are the bank that holds the mortgage and the family that's about to lose the home is just wrong," Ms. Warren said. "There's a much larger interest there." Her comments came at a meeting at the Telegram & Gazette with newspaper editors and reporters from mid-sized Massachusetts cities, known as the Gateway cities. The first-year senator answered questions for more than an hour about transportation funding, the economy, casino gambling and other topics. Ms. Warren said real estate regulations historically have been written at the local level. "Local officials don't have the same platform that the attorney general has, but they are ultimately responsible for their communities," she said. "That means they not only have the right to speak up, they have the responsibility to speak up."

CFPB Examiners Find Mortgage Servicing Business Remains a Sewer - Not that we needed additional evidence, but the Consumer Financial Protection Bureau has found more fraud and theft inside the nation’s mortgage servicing operations. CFPB has examiners in both bank and non-bank servicers; this is the first time non-bank servicers have faced such scrutiny. And their new report on Supervisory Highlights for the summer shows that extremely little has changed, despite a gauntlet of settlements that were supposed to end this conduct (OK, not really). The problem with mortgage servicing has been discussed ad nauseum on this site (here’s just one example). This should be the simplest, most turnkey operation imaginable, as boring as it gets, basically an accounts receivable department for mortgages and accounts payable to investors. But the profit margins are so thin that servicers only stay afloat by keeping as bare-bones a staff as possible, and also by maximizing the financial potential of running up fees, which they get to keep. And it’s not just that they were “unprepared” for a foreclosure wave, or that their software platforms are antiquated, although that’s all part of it. Their compensation structure creates a mismatch in financial incentives between them and the underlying loan owners for whom they work, as they prefer foreclosure to modification, not the other way around. Servicer-driven defaults are commonplace, and these are often not the result of human error, but directed policy to make profits off of human misery.

MBA: Mortgage Refinance Applications down 62% from Recent Peak -- From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey: Mortgage applications decreased 4.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 16, 2013. ... The Refinance Index decreased 8 percent from the previous week. The Refinance Index has dropped 62.1 percent from the recent peak reached during the week of May 3, 2013. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. ... The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.68 percent from 4.56 percent, with points increasing to 0.42 from 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. With 30 year mortgage rates up over the last 3 months, refinance activity has fallen sharply, decreasing in 13 of the last 15 weeks. This index is down 62.1% over the last 15 weeks. The last time the index declined this far was in late 2010 and early 2011 when mortgage increased sharply with the Ten Year Treasury rising from 2.5% to 3.5%. We've seen a similar increase over the last few months with the Ten Year Treasury yield up from 1.6% to over 2.8% today.

Mortgage refinance boom ending - While there is still some debate about the degree to which higher rates are impacting housing demand (see post), there is no question about the drop off in refinancing activity. The refinance applications index is down 60% from a year ago. The (poorly designed) chart below from MND shows the refinance index and the 30y mortgage rates.Perhaps an even better indicator of refinance activity is the frequency of US Google search for the phrase "mortgage refinance" (chart below), which is consistent with the applications index. This slowdown is negatively impacting profitability in the banking sector and even generating layoffs. Moreover, economists are forecasting refinancing activity to shrink further in the next few quarters. The refi gravy train is coming to a stop.

Mortgage Rates in U.S. Jump to Highest Level in Two Years -  Mortgage rates in the U.S. jumped to a two-year high, increasing borrowing costs for homebuyers as sales accelerate.  The average rate for a 30-year fixed mortgage rose to 4.58 percent this week from 4.4 percent, Freddie Mac said in a statement today. The average 15-year rate climbed to 3.6 percent from 3.44 percent, the McLean, Virginia-based mortgage-finance company said. Both were the highest since July 2011.Homebuyers are rushing to take advantage of historically low borrowing costs before they increase any more. Existing-home sales in July jumped 6.5 percent to the second-highest level in six years, the National Association of Realtors reported yesterday. Those transactions largely reflect closings of contracts signed a month or two earlier, when mortgage rates were just beginning to edge up.

Freddie Mac: Mortgage Rates at highest level since 2011 - From Freddie Mac today: Mortgage Rates up on Taper Timing Speculation: Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates following bond yields higher, and reaching new highs for the year, with the expectant release of the Fed's comments around taper timing of its bond purchase program... 30-year fixed-rate mortgage (FRM) averaged 4.58 percent with an average 0.8 point for the week ending August 22, 2013, up from last week when it averaged 4.40 percent. A year ago at this time, the 30-year FRM averaged 3.66 percent. 15-year FRM this week averaged 3.60 percent with an average 0.7 point, up from last week when it averaged 3.44 percent. A year ago at this time, the 15-year FRM averaged 2.89 percent. This graph shows the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey® compared to the MBA refinance index.  The refinance index has dropped sharply recently (down 62% over the last 3 months) and will probably decline further if rates stay at this level.

5% 30 Year Mortgage Rates? - It seems like yesterday that I wrote 4% 30 Year Mortgage Rates? (it was a few months ago in May).Now there is some discussion of 5% 30 year mortgage rates. Here is what mortgage banker Lou Barnes wrote today:  Release of the Fed’s July 31 meeting minutes on Wednesday collapsed the last courage in the bond market, 10-year T-notes to 2.90% and low-down, low-fee mortgages to 5.00%. The minutes were incomprehensible, but their failure to pull back from taper of QE3 means that it is still a “go.” This morning Treasury short-sellers so pleased with themselves got clobbered by word that new home sales had fainted 13.4% in July, and June was revised down by 8%. The 10-year briefly to 2.81%. New home sales are measured by new contracts written, thus these June-July results are the first since mortgage rates jumped 1% from May to June. Correlation is not cause ... Barnes is talking about "low-down, low-fee" 30 year mortgages hitting 5%, but his comment made me wonder at what 10 year Treasury yield, mortgage rates in the Freddie Mac survey would probably rise to 5%? Here is an update to a graph that shows the relationship between the monthly 10 year Treasury Yield and 30 year mortgage rates from the Freddie Mac survey.

How to identify a housing bubble - If house prices increase by 50% relative to income over a few years, almost any interested party would realize it was a bubble - even before house prices came crashing down. The only people that would deny it is a bubble are either brain washed ideologues, paid propagandists, or they work in the mortgage industry. While it lasts, bubbles make an enormous amount of money for many. If you are on the risk management side of the mortgage industry, an executive with a long-term interest, an investor, or regulator, then you really want to know if it is a bubble. Most of use can use our judgment to correctly decide. But if you are in risk management or a regulator then there are powerful forces fighting against backing away from the golden goose during the height of the boom. Your judgment will be questioned, mocked, and dismissed. Judgment isn't good enough, there need to be principles and metrics that automatically pull risk back. Some advocate measuring house prices relative to rental income, broad based inflation measures, or who knows what else. A sucker's bet is to measure home prices relative to the cost of home ownership based on nominal rather than real interest rates. What is most important is that the measures are clear to even the least analytical, which is why I favor simple personal income (could also be wages, median, etc.). It is easier for opponents to undermine rocket scientists than simple rules of thumb.

Weekly Update: Existing Home Inventory is up 21.7% year-to-date on Aug 19th Weekly Update: One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I'm tracking inventory weekly 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 June).  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.

Sales of U.S. Existing Homes Rise to Highest Since 2009 -  Sales of previously owned U.S. homes climbed more than forecast in July to the fastest pace since November 2009 as more buyers entered the market before further increases in mortgage rates. Purchases of previously owned houses advanced 6.5 percent to a 5.39 million annual rate last month, figures from the National Association of Realtors showed today in Washington. The median forecast of 76 economists surveyed by Bloomberg projected a 5.15 million pace. Prices increased 13.7 percent from a year earlier, the most since October 2005. Compared with a year earlier, purchases increased 17.2 percent in July on an adjusted basis, today’s report showed. The median price of an existing home climbed to $213,500 last month from $187,800 a year earlier.

U.S. Home Sales Hit 5.39M in July, Highest Since ’09  — U.S. sales of previously occupied homes surged in July to a seasonally adjusted annual rate of 5.39 million, approaching a healthy level for the first time since November 2009. The spike in sales shows housing remains a driving force for the economy even as mortgage rates rise.The National Association of Realtors said Wednesday that sales jumped 6.5 percent last month from a 5.06 million pace in June. They have risen 17.2 percent over the past 12 months ago. Sales have now stayed above an annual pace of 5 million for three straight months. The last time that happened was in 2007. And sales are well above the 3.45 million pace hit in July 2010, the low point after the housing bubble burst.Home sales jumped in July despite higher mortgage rates, which have risen a full percentage point since early May. Higher rates may have encouraged some potential homebuyers to close deals early.

Existing Home Sales in July: 5.39 million SAAR, 5.1 months of supply - The NAR reports: Existing-Home Sales Spike in July Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 6.5 percent to a seasonally adjusted annual rate of 5.39 million in July from a downwardly revised 5.06 million in June, and are 17.2 percent above the 4.60 million-unit pace in July 2012; sales have remained above year-ago levels for 25 months. Total housing inventory at the end of July rose 5.6 percent to 2.28 million existing homes available for sale, which represents a 5.1-month supply at the current sales pace, unchanged from June. Listed inventory is 5.0 percent below a year ago, when there was a 6.3-month supply.This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.  Sales in July 2013 (5.39 million SAAR) were 6.5% higher than last month, and were 17.2% above the July 2012 rate. The second graph shows nationwide inventory for existing homes.

Comments on Existing Home Sales: Too early to see impact of higher mortgage rates, Inventory has Bottomed - First, the headline sales number was no surprise (see Lawler: Early Look at Existing Home Sales in July). Second, the strong sales rate in July is not a sign that higher mortgage rates have had no impact on sales.  The NAR reports CLOSED sales, and the usual escrow period is 45 to 60 days.  Mortgage rates didn't start increasing sharply until the 2nd half of May (see Freddie Mac Weekly Primary Mortgage Market Survey®), so buyers could have locked in rates in May - and pushed to close in July. My guess is sales will be down in August reflecting higher mortgage rates.  The key number in the existing home sales report is inventory (not sales), and the NAR reported that inventory increased 5.6% in July from June, and is only down 5.0% from July 2012.  This fits with the weekly data I've been posting. This is the lowest level of inventory for the month of July since 2002, but this is also the smallest year-over-year decline since March 2011. The key points are: 1) inventory is very low, but 2) the year-over-year inventory decline will probably end soon. With the low level of inventory, there is still upward pressure on prices - but as inventory starts to increase, buyer urgency will wane, and price increases will slow.  When will the NAR report a year-over-year increase in inventory?   Soon.  Right now I'm guessing inventory will be up year-over-year in September. 

Vital Signs: More Homes for Sale, At Last - Inventories of new homes are steadily increasing for the first time since the housing market collapsed in 2006 and 2007, ahead of the recession. The number of new homes for sale at the end of July reached a seasonally adjusted 171,000, an increase of 28,000 from a year earlier, the Commerce Departmentsaid Friday. That’s the largest annual gain in supply since November 2006. The July jump is partially due to slow down in the pace of new home sales during the month as rising interest rates may have chilled the housing market. Still, the number of homes on the market has now increased for six consecutive months, after falling steadily the previous five years. Inventories remain far below their peak during the housing bubble. A larger supply of new homes could put downward pressure on existing home prices, which have advanced 13.7% in the past year, according to the National Association of Realtors. Realtors’ economist Lawrence Yun said this week that price gains of that magnitude are not sustainable.

Lawler: Table of Distressed Sales and Cash buyers for Selected Cities in July - Economist Tom Lawler sent me the updated table below of short sales, foreclosures and cash buyers for selected cities in July.Look at the two columns in the table for Total "Distressed" Share.  The share of distressed sales is down year-over-year in every area.  Also there has been a decline in foreclosure sales in all of these areas (except Springfield, Ill).   And short sales are now declining year-over-year too!  This is a recent change - short sales had been increasing year-over-year, but it looks like both categories of distressed sales are now declining. The All Cash Share is mostly staying steady or declining slightly.  The all cash share will probably decline as investors decrease their buying.

Vital Signs: Median Home Price Just 7.3% Off 2006 Record - Home prices are continuing to rise at a brisk pace. The median price of previously owned homes sold in July was $213,500, up 13.7% from a year ago, the National Association of Realtors said Wednesday. That leaves prices just 7.3% below their 2006 peak of $230,400. Prices have risen year over year for 17 consecutive months. The rise reflects stronger demand for homes thanks to low interest rates and tight inventory. “Past persistent home price gains have brought more sellers out,” . “Going forward, more sellers should get off the fence as strong home prices gains should continue, bringing more balance to the low-supplied home resale market.” Prices also are being pushed up amid a changing mix of homes up for sale. There are far fewer distressed homes, such as those in foreclosure, being sold than there were earlier in the recovery, helping to push up overall prices.

Zillow: House Prices up 6% year-over-year in July, Case-Shiller expected to show 12.1% YoY increase for June -- From Zillow: Housing Conversation Turns to the Future as Market Turns in Another Strong Month in July The national housing market recovery proved it is on firm ground in July, as home values rose 6 percent year-over-year to a Zillow Home Value Index of $161,600, the first time home values have appreciated at an annual pace of 6 percent or higher since August 2006. July marked the 14th straight month of annual home value appreciation, according to the July Zillow Real Estate Market Reports. Home values were up 0.4 percent in July compared with June. ...For the 12-month period from July 2013 to July 2014, U.S. home values are expected to rise another 4.8 percent to approximately $169,308, according to the Zillow Home Value Forecast.  The Zillow data is for July. The Case-Shiller house price indexes for June will be released Tuesday, August 27th.   Zillow has argued that the Case-Shiller numbers overstate the recent price increases: "The Case-Shiller indices are giving an inflated sense of national home value appreciation because they are biased toward the large, coastal metros currently seeing such enormous home value gains, and because they include foreclosure resales."Also Zillow has started forecasting the Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.  Zillow Predicts Another 12% Annual Increase in Case-Shiller Indices for June. The following table shows the Zillow forecast for the June Case-Shiller index.

House Prices Rose 7.7% in Year Through June, FHFA Says - U.S. house prices rose 7.7 percent in the year through June, extending a recovery that’s spurring more homeowners to list their properties for sale. Prices climbed 0.7 percent on a seasonally adjusted basis from May, the Federal Housing Finance Agency said today in a report from Washington. The average economist estimate was for a 0.6 percent gain, according to data compiled by Bloomberg.Higher mortgage rates may be encouraging buyers to complete deals before borrowing costs rise further. Sales of previously owned U.S. homes climbed 6.5 percent last month to the fastest pace since November 2009, the National Association of Realtors reported yesterday. The median price jumped to $213,500, up 13.7 percent from July 2012.

U.S. New-Home Sales Plunge as Mortgage Rates Rise - Americans cut back sharply in July on their purchases of new homes, a sign that higher mortgage rates may weigh on the housing recovery. The Commerce Department said Friday that U.S. sales of newly built home dropped 13.4 percent to a seasonally adjusted annual rate of 394,000. That’s the lowest pace in nine months. And it is down from a rate of 455,000 in June, which was revised sharply lower from a previously reported 497,000. New-home sales have risen 7 percent in the 12 months ending in July. The annual pace remains well below the 700,000 that is consistent with a healthy market. The housing market has been one of the strongest performers this year in an otherwise sluggish economy, helped by steady job gains and low mortgage rates. But mortgage rates have risen a full percentage point since May and have started to steal some of the market’s momentum. In July, builders began work on the fewest single-family homes in eight months. And mortgage applications from potential buyers have fallen since rates have risen more than a full percentage point. The impact of higher mortgage rates has surfaced in the new-home market faster because the July sales report reflects signed contracts. Sales of previously occupied homes reached a nearly four-year high last month. But that report measured completed sales, which typically reflects mortgage rates locked in a month or two earlier. The jump in previously occupied home sales likely reflected a rush by home buyers to lock in lower rates. Some economists expect those sales to fall back in August.

New Home Sales decline sharply to 394,000 Annual Rate in July - The Census Bureau reports New Home Sales in July were at a seasonally adjusted annual rate (SAAR) of 394 thousand. This was down from 455 thousand SAAR in June (June sales were revised down from 497 thousand). April sales were revised down from 453 thousand to 446 thousand, and May sales were revised down from 459 thousand to 439 thousand. The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. "Sales of new single-family houses in July 2013 were at a seasonally adjusted annual rate of 394,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 13.4 percent below the revised June rate of 455,000, but is 6.8 percent above the July 2012 estimate of 369,000. The second graph shows New Home Months of Supply. The months of supply increased in July to 5.2 months from 4.3 months in June. The all time record was 12.1 months of supply in January 2009. This is now in the normal range (less than 6 months supply is normal). "The seasonally adjusted estimate of new houses for sale at the end of July was 171,000. This represents a supply of 5.2 months at the current sales rate." This graph shows the three categories of inventory starting in 1973.

New Home Sales Crater To Lowest Since October; Biggest Drop Since May 2010; Median Home Price At 6 Month Low - And so the housing "recovery" comes to a screeching halt, which is not surprising as there never was a recovery to begin with.  Moments ago cheerleaders of the second housing bubble were shocked to learn that in July a tiny 35K new houses were sold (with just 3K sold in the Northeast, and just 19K in the otherwise strong South), of which 13K houses were not even started. This translated into a puny 394K seasonally adjusted annualized sales, missing expectations of 487K by nearly a record 100K, and in addition the June print was revised much lower from 497K to 455K (which back in July beat expectations of 484K and was trumpeted as the highest print since 2008 - so much for that). Yet one thing that did not change is that the median home sale price decline continued, and in July dropped to $257.2K down from $258.5. And now time to spin this ugly news as great because it means that maybe the Fed will delay the September taper (it won't).

New Home Sales Plunge 13.4% in July, June Revised Lower; Blame Rising Mortgage Rates; Starts 896,000 - Sales 394,000 - Hmmm - If you are looking for what fueled the rebound in home sales and the increase in home prices, look no further than the above chart.  In the two-year period from December 2010 until December 2012, the rate on popular 30-year mortgages fell from 4.97% to 3.42%, a decline of 155 basis points (1.55 percentage points). In April, rates were still near record lows at 3.56%.  On June 24, in 10-Year Treasury Yield Up 100 Basis Points Since May; What's That Mean for Mortgage Rates and Housing Affordability? I commented ... Anyone who stretched to buy is no longer qualified unless they locked some time ago. Refinancing will soon be dead in the water (anyone who has not already locked no longer has any incentive) and new home affordability has taken a big hit.  Today, the Census Bureau reports New Home Sales Plunge 13.4%. June was revised lower to 455,000 from previously reported 497,000. None of this should be a surprise given what I said on August 14. Nonetheless, it was a surprise. USA Today posted charts of new and existing sales along with this comment "Sales of new homes plunged in July. The seasonally adjusted annual sales pace of 394,000 missed analysts' expectations of 487,000." Here's a few comments from Bloomberg.  Sales of newly built homes declined 13.4 percent to a 394,000 annualized pace, the weakest since October, following a 455,000 rate in the prior period that was lower than previously estimated,  The median estimate of 74 economists surveyed by Bloomberg called for a decrease to 487,000. Last month’s decline was the biggest since May 2010.  Purchases of previously owned homes jumped in July to the second-highest level in more than six years, data showed Aug. 21.New home sales are recorded at signing while existing home sales are recorded at closing. The surge in existing sales reflects contracts written months ago and possibly contracts rushed to closing to beat rate increases. Thus, we need to wait a month minimum to see what effect rising rates had on existing sales

New Home Sales Plunged 13.4%, Previous Months Revised Down  - July 2013 New Residential Single Family Home Sales plunged -13.4% to 394,000 in annualized sales and April through June were significantly revised lower.  New Single Family Housing inventory is now a 5.2 month supply.  New single family home sales are now 6.8% above July 2012 levels, but this figure is well within the ±18.6% margin of error.   A year ago new home annualized sales were 369,000.  Sales figures are annualized and represent what the yearly volume would be if just that month's rate were applied to the entire year.   These figures are seasonally adjusted as well.  The real bad news on new home sales are the revisions, although large revisions should be no surprise with this large of a error margin, along with the fact data is presented annualized.  Below is a graph showing single family new home sales levels as reported in July, in red, against the against June's reported figures in blue.  April through June were all revised significantly lower, with June's single family annualized sales now at 455,000, a far cry from the 497,000 originally reported. The monthly change is well within the statistical error margin of ±14.5%.   To show how absurd it is for Wall Street to go nuts over new home sales monthly percentage changes, below is a graph of those monthly percentage changes.  As we can see this statistic is incredibly noisy and the below graph tells us nothing about new home sales by looking at the month to month percentage change. Prices are just getting to be absurd and note how increasing prices are not being recognized for a slow down in sales by the press.  The average home sale price was $322,700, a 14.3% increase from a year ago.   These prices are still clearly outside the range of what most wages can afford, even with low mortgage rates  In July 2012, the average home sale price was $282,300.  Just recently it was reported the average home price in Silicon valley is now over $1 million.  Imagine working in that area and trying to live without being a millionaire.

Comments on New Home Sales - Three key comments:
1. This is just one month of data (I note this whenever we see a weak or strong sales report). There is plenty of month-to-month noise for new home sales and frequent large revisions.
2. The downward revisions to previous months were expected (In the weekly schedule I wrote: "Based on the homebuilder reports, there will probably be some downward revisions to sales for previous months."). But these revisions do suggest the housing recovery was not as strong as previously thought.
3. Important: Any impact from rising mortgage rates would show up in the New Home sales report before the existing home sales report. New home sales are counted when contracts are signed, and existing home sales when the transactions are closed - so the timing is different. For existing home sales, I think there was a push to close before the mortgage interest rate lock expired - so closed existing home sales in July were strong - and I expect a decline in existing home sales in August.
For New Home sales, I expect some buyers were shocked by the increase in rates - and they held off signing a contract in July.  But this doesn't mean the housing recovery is over - far from it.  In fact I think the housing recovery (starts / new home sales) has just begun.   Based on estimates of household formation and demographics, I expect sales to increase to 750 to 800 thousand over the next several years - substantially higher than the current sales rate. And here is another update to the "distressing gap" graph that I first started posting over four years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next few years.

Ecstatic homebuilders having trouble selling homes - what's wrong with this picture? - Today's news of a sharp decline in new home sales has left many economists scratching their heads, trying to understand the trajectory of the US housing market. And here is what they are struggling with:With the homebuilder survey showing tremendous optimism while homes not selling well, there is clearly a disconnect. As many other economists, Goldman's research team is having a tough time reconciling the two.  GS: - Based on contract signings rather than closings, new home sales are a slightly more timely indicator of housing activity than the stronger-than-expected July existing home sales data [see this post] released earlier this week. The recent weakness is concerning in light of the rise in mortgage rates in recent months and drop in new purchase mortgage applications. However, the weakness in new home sales stands sharply in contrast to the NAHB homebuilders index, which points to more favorable prospects for housing starts and new home sales in coming months. Nevertheless, in spite of conflicting data, Goldman's research team decided to downgrade its forecast for the 3d quarter GDP to 1.8%.  Long-term interest rates may be having a far deeper impact on the economy than previously thought.It is worth mentioning that this forecast does not bode well for the success of the Fed's latest round of monetary easing:

• Including the current quarter and Goldman's forecast above, the 4 quarters since the start of QE3 have generated 1.2% average annualized GDP growth in the US.
• The prior 4 quarters have generated 3.2% average annualized GDP growth.

Are mortgage rates impacting construction? A couple of signals from the markets -- Here are three charts to consider:
1. Mortgage rates this month.
2. Lumber futures prices this month -Is this telling us something about expectations for housing starts this month?
3. For those who think the above two charts are a coincidence, here is a signal from the equity markets comparing homebuilder shares with the S&P500 over the past 3 months.

AIA: "Positive Trend Continues for Architecture Billings Index" in July Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From AIA: Positive Trend Continues for Architecture Billings Index - The Architecture Billings Index (ABI) saw a jump of more than a full point last month, indicating acceleration in the growth of design activity nationally. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the July ABI score was 52.7, up from a mark of 51.6 in June. This score reflects an increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 66.7, up dramatically from the reading of 62.6 the previous month. This graph shows the Architecture Billings Index since 1996. The index was at 52.7 in July, up from 51.6 in June. Anything above 50 indicates expansion in demand for architects' services. This index has indicated expansion in 11 of the last 12 months.

Hotels: Occupancy Rate tracking pre-recession levels - Another update on hotels from HotelNewsNow.com: STR: US results for week ending 10 August In year-over-year comparisons, occupancy rose 1.9 percent to 72.7 percent, average daily rate increased 4.8 percent to US$112.48 and revenue per available room grew 6.8 percent to US$81.74.The 4-week average of the occupancy rate is close to normal levels. Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.Through August 10th, the 4-week average of the occupancy rate is slightly higher than the same period last year and is tracking the pre-recession levels.  This is probably the high for the 4-week average of the occupancy rate.  The occupancy rate will decrease over the next several weeks as the summer travel season ends - however, overall, this has been a decent year for the hotel industry.

Consumer sentiment in the US has peaked - With a sharp rise in interest rates (see chart) and with gasoline prices still elevated after a spike this summer (see chart), it is increasingly important to track the US consumer sentiment. Given the anemic post-recession growth, additional weakness in consumer spending could be bad news for the economy. And while confidence remains near multi-year highs, a number of sentiment measures seem to indicate that American consumer confidence has peaked earlier this summer. Here are three measures that seem to support that thesis:
1. The Thomson Reuters/University of Michigan consumer confidence, the most broadly tracked consumer sentiment index, showed a surprising drop in August.The Guardian: - Consumer confidence in the US fell unexpectedly in August as higher interest rates and a dip in the rate of economic growth appeared to sap optimism. The Thomson Reuters/University of Michigan's preliminary reading of consumer sentiment slipped from a six-year high of 85.1 in July to 80.0. The figure was well below the 85.5 reading expected by economists.
2. Bloomberg Consumer Comfort Index (which came out today), also showed a decline. Econoday: - Consumer confidence fell last week to the lowest level in two months as Americans' views on the economy deteriorated. The Bloomberg Consumer Comfort Index fell to minus 28.8 for the period ended August 18 from minus 26.6.
3. Gallup's Economic Confidence Index points to consumer confidence having peaked as early as late May to early June - before the major spike in rates and gasoline prices. Gallup: - Gallup's Economic Confidence Index was -13 last week, declining to the levels seen during most of July and August, after a slightly better reading two weeks ago. The current index reading is 10 points lower than the peak reached in late May and early June.

Staples.com rips off poor people; let’s take control of our online personas - mathbabe - You’ve probably heard rumors about this here and there, but the Wall Street Journal convincingly reported yesterday that websites charge certain people more for the exact thing. Specifically, poor people were more likely to pay more for, say, a stapler from Staples.com than richer people. Home Depot and Lowes does the same for their online customers, and Discover and Capitol One make different credit card offers to people depending on where they live (“hey, do you live in a PayDay lender neighborhood? We got the card for you!”). They got pretty quantitative for Staples.com, and did tests to determine the cost. From the article: It is possible that Staples’ online-pricing formula uses other factors that the Journal didn’t identify. The Journal tested to see whether price was tied to different characteristics including population, local income, proximity to a Staples store, race and other demographic factors. Statistically speaking, by far the strongest correlation involved the distance to a rival’s store from the center of a ZIP Code. That single factor appeared to explain upward of 90% of the pricing pattern.

The US Spends Pathetically Little On Infrastructure Compared To The Rest Of The Civilized World : One area where the U.S. has been lacking is infrastructure spending, which is needed for future growth. Many saw the last recession as an opportunity to put Americans back to work by employing them in infrastructure projects , which would've also made the U.S. much more efficient. "Even nations with higher GDP per capita are spending a much greater share of GDP on investment – i.e., Qatar, Hong Kong," wrote J.P. Morgan's Tom Lee. "Even Eurozone countries like Spain, Italy, and France have higher levels of spending, as does Japan at 21.2% of GDP is spending." Lee's definition of fixed investment comes from the CIA which "records total business spending on fixed assets, such as factories, machinery, equipment, dwellings, and inventories of raw materials, which provide the basis for future production." According to Lee's work, the U.S. ranks #143 in construction spending, one slot ahead of of Greece.

Rail Traffic Picks Up Some Momentum -- More decent news here in rail trends as we begin to see some signs of life in traffic.  Intermodal jumped 6.1% year over year and total traffic was up 2.7%.  Carloads were down marginally.  This week’s reading brought the 12 week moving average in intermodal to 2.8% which is the highest reading since May.   AAR has the details on this week’s report:  “The Association of American Railroads (AAR) reported mixed weekly rail traffic for the week ending August 10, 2013, with total U.S. weekly carloads of 288,803 carloads, down 0.2 percent compared with the same week last year. Intermodal volume for the week totaled 257,969 units, up 6.1 percent compared with the same week last year. Total U.S. rail traffic for the week was 546,772 combined carloads and intermodal units, up 2.7 percent compared with the same week last year. Six of the 10 carload commodity groups posted increases compared with the same week in 2012, led by petroleum and petroleum products with 12,726 carloads, up 16.8 percent. Commodities showing a decrease compared with the same week last year included grain with 16,754 carloads, down 11.4 percent. For the first 32 weeks of 2013, U.S. railroads reported cumulative volume of 8,890,938 carloads, down 1.3 percent from the same point last year, and 7,747,032 intermodal units, up 3.5 percent from last year. Total U.S. traffic for the first 32 weeks of 2013 was 16,637,970 carloads and intermodal units, up 0.9 percent from last year.”

ATA Trucking Index declined in July, Up 4.7% Year-over-year - Here is a minor indicator that I follow, from ATA: ATA Truck Tonnage Index Fell 0.4% in July The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index slipped 0.4% in July after edging 0.1% higher in June. ... The latest drop was the first since April. In July, the SA index equaled 125.4 (2000=100) versus 125.9 in June. June 2013 is the highest level on record. Compared with July 2012, the SA index increased 4.7%, which is robust, although the smallest year-over-year gain since April.  “After gaining a total of 2.2% in May and June, it isn’t surprising that tonnage slipped a little in July,” “The decrease corresponds with the small decline in manufacturing output during July reported by the Federal Reserve last week.” "Despite the small reprieve in July, we expect solid tonnage numbers during the second half of the year as sectors that generate heavy freight, like oil and gas and autos, continue with robust growth,” Costello said. “Home construction generates a significant amount of tonnage, but as mortgage rates and home prices rise, growth in housing starts will decelerate slightly in the second half of the year, but still be a positive for truck freight volumes..”Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

Weekly Gasoline Update: Down a Penny - It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, the average for Regular and Premium both dropped a penny. Regular and Premium are now 23 cents and 21 cents, respectively, off their interim highs in late February.  According to GasBuddy.com, Hawaii and Alaska are averaging above $4.00 per gallon, unchanged from last week. No states are reporting average prices in the 3.90-4.00 range.

DOT: Vehicle Miles Driven decreased 0.4% in June - The Department of Transportation (DOT) reported: Travel on all roads and streets changed by -0.4% (-0.9 billion vehicle miles) for June 2013 as compared with June 2012. Travel for the month is estimated to be 258.1 billion vehicle miles. The following graph shows the rolling 12 month total vehicle miles driven.  The rolling 12 month total is still mostly moving sideways.Currently miles driven has been below the previous peak for 67 months - over 5 1/2 years - and still counting.  The second graph shows the year-over-year change from the same month in the previous year. Gasoline prices were up in June compared to June 2012. In June 2013, gasoline averaged of $3.69 per gallon according to the EIA. In 2012, prices in June averaged $3.60 per gallon.  Gasoline prices were up even more year-over-year in July, so I expect miles driven to be down more year-over-year in July.   However prices were down year-over-year in August, so miles might be up.
Vehicle Miles Driven: Population-Adjusted Hits a New Post-Crisis Low -   The Department of Transportation’s Federal Highway Commission has released the latest report on Traffic Volume Trends, data through June. Travel on all roads and streets changed by -0.4% (-0.9 billion vehicle miles) for June 2013 as compared with June 2012. Travel for the month is estimated to be 258.1 billion vehicle miles. Cumulative Travel for 2013 changed by -0.1%. Cumulative estimate for the year is 1,461.7 billion vehicle miles of travel. Both the civilian population-adjusted data (age 16-and-over) and total population-adjusted data have set new post-financial crisis lows.

Yet More Evidence of Peak Car - You’ve got Peak Driver’s License. Peak Registered Vehicle. Peak Gas Consumption. Peak Miles Traveled. There are peaks per person, per household, per demographic. Then you've got your absolute peaks when you add up all of our vehicles and miles together, as if we were all cruising the highways at the same time. The point of all of this is that any one number is a little dubious, especially in light of that inconvenient economic recession. But Michael Sivak at the University of Michigan Transportation Research Institute has been methodically slicing the question every which way. And the totality of the picture he's built is starting to look pretty convincing.  Earlier this summer, Sivak released data showing that the number of registered light-duty vehicles in America (cars, pickup trucks, SUVs, vans) had peaked per person, per licensed driver and per household in the early to mid 2000s, before the onset of the recession. Because the U.S. population continues to grow, he predicted that the absolute number of vehicles had not yet peaked. But per person and household, we seem willing now to own fewer of the things. Now he has released a follow-up study [PDF] of how much we drive. As a nation, our total mileage has leveled off (but again, because the population continues to grow, we may surpass this 2006 peak again):

Open All Night: America's Car Factories.  - Nearly 40% of car factories in North America now operate on work schedules that push production well past 80 hours a week, compared with 11% in 2008, said Ron Harbour, a senior partner with the Oliver Wyman Inc. management consulting firm. "There has never been a time in the U.S. industry that we've had this high a level of capacity utilization," he said.  But fresh from a near-death experience during the recession, auto makers are reluctant to put money into bricks, mortar and machinery that could become a drag on profits if car sales fall. Through a series of agreements negotiated with the United Auto Workers union, the Detroit Three now can schedule work at night and on weekends without paying as much in overtime as they would have in the past. Adding a third shift, as many plants have done, also reduces overtime. Toledo factory managers recently changed break schedules to squeeze out even more production. Instead of shutting down the assembly line eight times a day for routine breaks, they have hired extra workers to fill in during breaks, so the line doesn't stop running. GM is running six of its U.S. plants through the night on three-shift schedules. Last year, GM produced 3.24 million vehicles in North America compared with 4.52 million in 2007—when it had five more assembly factories.Ford has gone a step further, adding a fourth crew of workers at some engine and transmission plants to keep those factories running 152 hours out of the 168 hours in a week. The techniques have helped expand production by 600,000 vehicles during the past 15 months—the equivalent of about three assembly plants, says James Tetreault, Ford's vice president of North America manufacturing. Ford doesn't plan to build a new North American assembly plant, he says

Subprime Squeezed as Auto-Lender Costs Increase - Borrowing costs are rising for subprime auto lenders in the asset-backed bond market, squeezing profit margins and pressuring firms to make even riskier loans. A General Motors Co. (GM) unit that makes car loans to people with blemished or limited credit sold top-rated securities backed by the debt to yield 45 basis points more than the benchmark swap rate on Aug. 7, almost double the spread it paid on similar notes in April, according to a person with knowledge of the transactions. American Credit Acceptance Corp., the Spartanburg, South Carolina-based buyer of “deep subprime” loans, paid 225 basis points over benchmarks to sell A rated debt on July 31, up from 165 in March. Subprime lenders lured into the market by low financing costs during the past three years now face being pushed out as rates reverse, according to Moody’s Investors Service. Funding costs are climbing as the Federal Reserve considers reducing $85 billion of monthly bond purchases that have steered investors to riskier, higher-yielding debt.

No Dead CAT Recovery On This Sales Chart (Where Caterpillar Asia Sales Post Biggest Drop Since November 2009) - There was some hope two months ago when CAT global retail sales posted a modest uptick between February and May, rising from a recent low of -13% Y/Y to "only" declining -7%. Alas, it turned out to be nothing but a dead CAT bounce, as a month ago hopes the global recovery would continue were dashed after the -7% global dealer retail sales dipped once again to -8%. Moments ago, the downward trend continued its acceleration, when the company reported global retail sales at -9%. And while it was not all bad news, with the US retail sales drop slowing and in July posting an almost flat print at -1%, it was the key market of Asia/Pacific (read China) that plunged by 28% from past year, far worse than the 21% drop in June, and the ugliest Y/Y comp since November 2009. Any day now, though, the third cat bounce will take place.  The chart below of retail sales broken down by geographic bucket speaks for itself.

Should Industrial Production and Capacity Utilization Be Concerning Us? -- Consider the following charts: Industrial production has increased the last four months. However, the last 9 readings of this metric have been closely bunched. As opposed to seeing a strong, continued uptrend, there is far more static in the data series. Compare the recent slope with that which occurred in late 2012. Also consider that you can bunch the readings into two levels. The overall level remained fairly static in 2012, jumped up to a slightly higher level in 2013 but then again printed readings around a certain level. This metric does not seem to be making a lot of forward progress. Capacity utilization has been printing around the 77.5 level for nearly two years. At this point, we can say with a high degree of certainty that this measurement has stalled at this level. And just to make matters a bit more dire, consider this chart: US capacity utilization has been peaking at lower and lower levels for the last twenty+ years.

Sticker Shock: The talk of an American manufacturing revival seems to have died down. Maybe all this chatter is a bit pre-mature -- or, even, dare we say, overly optimistic. Now, like any patriotic citizen, we would take great pride and delight in a real production renaissance. In our opinion, "Made in America" is a label appearing today on too few goods. But, we are realists: we acknowledge there are more than just a few speed bumps along the road to re-starting America's forges and factories. The automotive industry offers an interesting case study of these challenges -- many overlooked amidst all of the euphoric reports. In the aggregate, automobile and auto parts manufacturers employ over 800 Thousand Americans. Manufacturing enterprises employ approximately 12 Million workers. The automotive industry today directly accounts for about one in every fifteen manufacturing jobs. These numbers understate its importance. Indirect manufacturing employment -- among steel and plastic producers, machine tool manufacturers and the like -- add to the job totals, since for many firms in these industries, the automotive sector is the largest or second largest client. These numbers do not include refining activities (most oil is cracked to produce gasoline) or the extensive service sector -- from dealerships, to auto parts shops, to filling stations -- existing solely for our four-wheeled companions.Putting aside Washington's ambivalence (antipathy in certain quarters) to the internal combustion engine, the problem confronting the industry is one of demand. Frankly, unless the U.S. suddenly becomes a net auto exporter or, domestic producers win back market share, we do not see demand reviving to levels necessary to return domestic production above 15 Million autos and light trucks per annum. This target is one-third higher than last year's 11.3 Million sales volume of domestic cars and light trucks.

Kansas City Fed: Regional Manufacturing Activity "Improved Further" in August - From the Kansas City Fed: Tenth District Manufacturing Survey Improved Further The Federal Reserve Bank of Kansas City released the August Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity improved further, and producers’ expectations also edged higher after easing last month. “Although some District firms noted weakness in August associated with federal spending cuts and difficulties finding workers, we were encouraged to see another solid gain in our composite index and most of its components,” said Wilkerson The month-over-month composite index was 8 in August, up from 6 in July and -5 in June ... production index remained solid at 21, and the new orders and order backlog indexes also rose moderately. The new orders for exports index edged higher from 2 to 4, and the employment index moved into positive territory for the first time in six months.

Manufacturing Gauge Reaches 5-Month High - Activity in the U.S. factory sector rose to five-month high as employment and new orders gathered steam, according to an early reading of August activity released on Thursday. The flash purchasing managers’ index compiled by data provider Markit rose to 53.9 in August from a final July reading of 53.7. Markit said the flash-August PMI reading, which is based on about 85% of the usual number of monthly replies, is the highest reading since March. A reading above 50 mark indicates expansion. While the overall manufacturing landscape in the U.S. continues to improve, progress has been choppy. Last Thursday, the Federal Reserve Bank of Philadelphia reported activity among its regional manufacturers slowing sharply this month. Its index fell to 9.3 from 19.8 in July. Other regional gauges will be out in the coming days, with Kansas City’s Fed releasing its index this afternoon and the Dallas Fed’s reading out next Monday. The Markit subindexes, especially new orders and employment, broadly improved this month. The new orders index rose from 55.5 in July to 56.4 in August, marking a seven-month high. The employment index rose to 53.2 from 53.0. Markit said firms that hired additional staff “generally cited increased workloads.”

Number of the Week: Manufacturing Nowhere Near Regaining Lost Jobs - 22%: The share of U.S. manufacturing jobs lost during the recent downturn that has been regained during the recovery. American manufacturing was creamed in the recession. From December 2007 to December 2009, factories shed nearly 2.3 million jobs, or 16.5% of the sector’s total. Of course, the recession ended in June of 2009—but factories kept dumping workers for months thereafter. The rest of the economy suffered big job losses in the downturn too, but nowhere near the bloodbath in manufacturing. Jobs in all other categories combined fell about 5% during the same two-year period. “Manufacturing always takes the brunt of recessions—and that’s particularly true in this cycle,” says Daniel Meckstroth, chief economist with the Manufacturers Alliance for Productivity and Innovation, an industry-funded research group. One reason, says Meckstroth, is that purchases of durable goods like dishwashers and cars are easy to postpone. “You can always get another year” out of something designed to last years, he adds. The manufacturing sector is digging its way out of its hole. Some optimists even see the nation on the cusp of a manufacturing renaissance, though that seems widely optimistic. Since December of 2009, factories have added 504,000 jobs—a tidy gain, to be sure, but one that represents less than a quarter of the jobs lost during the meltdown. The rest of the economy, meanwhile, has done considerably better. The U.S. has regained 6.2 million non-manufacturing jobs since December of 2009—which means the rest of the economy has regained more than 96% of the jobs lost.

Factory Jobs Still Pay Better - U.S. manufacturing still deserves its reputation for creating relatively “good jobs.” Reuters Economists at the Commerce Department, studying data from 34 state unemployment insurance systems that gives a detailed picture of what people earn in different sectors of the economy, found that the average monthly earnings of newly hired factory workers was 38% higher than for new workers in other industries as of the end of 2011. That’s the latest data available. “I went into this thinking the premium would decline — but we found it didn’t,” says Susan Helper, the department’s chief economist. In fact, other than a spike upward during the recession, the earnings premium for newly hired factory workers has stayed roughly steady over the past decade, hovering around 40%. That’s remarkable, given the turbulence that has hit U.S. manufacturing during the period. The economists found that the premium for new factory workers began rising in 2008, as the recession began to bite, and peaked at just over 50% in 2010. Ms. Helper says the wage premium for new manufacturing workers might have been pushed up during that period by the fact that there was very little hiring — and that those who did get jobs tended to be more highly-skilled workers that were still in demand even in the downturn. A smaller pool of higher skilled workers would naturally earn more when compared to a broader mix of new hires in all other industries.

Not Really Made in China (or the United States) - “Made in U.S.A.” still appeals to many consumers, but businesses have found that that classification can be iffy. And how do you decide what is an import and what is an export when imports are important inputs into many exports, and vice versa? No company illustrates this phenomenon better than Apple, considered a virtuoso in the realm of outsourcing as well as in design. Most iPhones are assembled in China, contributing to a huge trade surplus with the United States in recent years. But a detailed case study estimates that in 2009, the value added in China amounted to less than 4 percent of the total manufacturing cost.  In other words, iPhones are not really made in China, even though their final assembly takes place there. The cost of components imported from Germany, Japan, South Korea, the United States and other countries far exceeded the value added in China. Measured in these terms, rather than final sales, China’s apparent trade surplus in iPhones is actually a deficit. Rather than exporting iPhones, China simply represents a particularly visible part of Apple’s global supply chain.

America's Outsourcers to be Reclassified as Manufacturers  - Don't like the trade deficit, low GDP and the public outrage over the offshore outsourcing?  Change the accounting method to make it go away!  Such is the agenda of government statisticians it appears.  How they are going to incorporate statistical lies into national accounts is shocking.  Production location no longer matters, the thing that will count is ownership of the final product. We have a new definition, Factoryless manufacturing.  Did you know we can have U.S. manufacturing without actually making any goods in the United States?  That's the plan to count corporations and their products who are located in the U.S. but offshore outsource their manufacturing abroad as part of the U.S. manufacturing base.  Get that? Factoryless” manufacturers, as defined by the U.S. OMB, perform underlying entrepreneurial components of arranging the factors of production but outsource all of the actual transformation activities to other specialized units. Right now, iPhones are counted as imports and rightly so.  Apple has offshore outsourced manufacturing and final assembly to China.  Most parts are not manufactured in the United States and components come from China, Japan, South Korea and Germany.  Very obviously an iPhone is no more American than that cheap plastic good marked Made in China.Yet if the government statistical agencies have their way, that iPhone will be an American manufactured good, despite the fact that 1 million Chinese made the thing while Apple does not provide Americans jobs of scale and maintains their strong profit margins. The target date for this statistical fraud is 2017.  There is a Factoryless Production Group, involving all of the statistical agencies, working out the incorporation to count offshore outsourcing as U.S. manufacturing.

Fed’s Fisher: Bad Washington Policy Holding Back Manufacturing - The U.S. could be the best performing manufacturing center in the world if the nation’s political leaders could get their respective acts together, a Federal Reserve official said Thursday. In a speech in Orlando, Fla., Federal Reserve Bank of Dallas President Richard Fisher pressed forward with his long running indictment of what he sees as crippling infighting and counterproductive regulation coming out of Washington. Mr. Fisher’s comments, which came from a text prepared for delivery at the event, had little to say about monetary policy. Mr. Fisher argues that as it now stands, the U.S.’s manufacturing base, while relatively small in comparison to the total American economic output, has nevertheless been performing better that other nations. But, he said, it could be better.“The remaining obstacle to being the absolute best economy for manufacturers and other businesses, bar none, has been fiscal and regulatory policy that seems incapable of providing job-creating manufacturers and other businesses with tax, spending and regulatory incentives to take advantage of the cheap and abundant fuel the Fed has provided,” Mr. Fisher said in his speech. Mr. Fisher said that his contacts at manufacturing companies repeatedly say bad Washington policy making is holding them back. “Ask any manufacturer what holds him or her back and they will tell you that they can’t operate in a fog of total uncertainty concerning how they will be taxed or how government spending will impact them or their customers directly,” the official said.

America's Productivity Problem - Would you like a raise? How about more vacation? Of course you would. If you’re anything like me, one of your main motivations each day at the office is the prospect of advancing, making more money, or even earning more time off to spend on the things outside your career that matter. The main factor that makes any of this possible is rising worker productivity. The more efficiently we do our jobs, the more our employers can justify paying us — be it in salary or leisure. And one of the economy’s main weaknesses of late has been a decline in the growth of labor productivity, a dynamic that might help explain the plight of the average American worker in recent years. On Friday, the Labor Department announced that labor productivity rose at just 0.9% in the second quarter of this year, after falling 1.7% in the first quarter. And these numbers aren’t an anomaly: According to a report issued last week by JPMorgan Chase economists Michael Feroli and Robert Mellman, worker productivity has only grown at an annual rate of 0.7% in the past three years, after averaging 2.9% growth from 1995 to 2005. And as Feroli and Mellman point out — and as TIME’s Rana Foroohar noted earlier this year when the JPMorgan economists identified this dynamic in a report called “Is I.T. Over?” – the decrease in productivity growth began even before the recession, and has coincided with a slowdown in technological growth, as measured by the pace in which computer equipment has become more affordable in recent years. According to the report, “Over the past few years the real price of information-processing equipment and software has declined at the slowest pace in more than a generation.”

Is Big Data And Economic Big Dud? - Cisco estimates that in 2012, some two trillion minutes of video alone traversed the Internet every month. That translates to over a million years per week of everything from video selfies and nannycams to Netflix downloads and “Battlestar Galactica” episodes. What is sometimes referred to as the Internet’s first wave — say, from the 1990s until around 2005 — brought completely new services like e-mail, the Web, online search and eventually broadband. For its next act, the industry has pinned its hopes, and its colossal public relations machine, on the power of Big Data itself to supercharge the economy. There is just one tiny problem: the economy is, at best, in the doldrums and has stayed there during the latest surge in Web traffic. The rate of productivity growth, whose steady rise from the 1970s well into the 2000s has been credited to earlier phases in the computer and Internet revolutions, has actually fallen. The overall economic trends are complex, but an argument could be made that the slowdown began around 2005 — just when Big Data began to make its appearance. Those factors have some economists questioning whether Big Data will ever have the impact of the first Internet wave, let alone the industrial revolutions of past centuries. One theory holds that the Big Data industry is thriving more by cannibalizing existing businesses in the competition for customers than by creating fundamentally new opportunities.

The Dynamo and Big Data - Paul Krugman  -- James Glanz relays skepticism about the economic impact of Big Data, with some economists questioning whether Big Data will ever have the impact of the first Internet wave, let alone the industrial revolutions of past centuries. OK, we’ve been here before; there was a lot of skepticism about the Internet too — and I was one of the skeptics. In fact, there was skepticism about information technology in general; Robert Solow quipped that “You can see the computer age everywhere but in the productivity statistics”. But here’s another instance where economic history proved very useful. Paul David famously pointed out (pdf) that much the same could have been said of electricity, for a long time; the big productivity payoffs to electrification didn’t come until after around 1914.  David predicted that IT would similarly deliver its big payoff with a lag, as people figured out how to use it; and so it proved (pdf).  There’s every reason to believe that the story for Big Data will be similar. Now, that doesn’t mean that it will be the equivalent of electricity or the steam engine; the Internet wasn’t. But it could, nonetheless, be pretty Big. Have patience.

The Government and the Entrepreneurs - Simon Johnson - The reports in question are the Global Entrepreneurship Monitor series, which has been running since 1999. I’ll focus here on the 2012 Global Report (from which the quotes below are taken). Tracking, monitoring and measuring entrepreneurship is not easy, and the Global Entrepreneurship Monitor team deserves a lot of credit for developing a sensible methodology and sticking to it.  The focus is on “the incidence of start-up businesses (nascent entrepreneurs) and new firms (up to 3.5 years old) in the adult population (i.e. individuals aged 18–64 years)” (see Page 14).The reports are rich in detail, but three points jump off the page regarding the role of government. First, when the overall environment for business is bad, there are many entrepreneurs.  For example, while there is a great deal of variation shown by the data within Africa, it is also clear that this is a difficult place to do business, because, for example, regulation is unpredictable and property rights can be hard to defend against powerful people.  Lack of human capital is also a weakness.  You need capable engineers, managers and many others to help companies grow.  The education system in many African countries is not in good shape.Second, the negative effects of macroeconomic policy can crush new business creation even in places with plenty of human capital and good perceived opportunities.  Third, the most difficult question is for what the report calls the innovation-driven economies, most of which are already among the richest countries in the world.  What, if anything, should the government do to promote entrepreneurship?

Percent of Population in Prime Working Age - Last week I posted an animation of the age and distribution of the U.S. population over time. The animations used actual data from 1900 to 2010, and Census Bureau projection from 2015 through 2060. I mentioned that the ratio of total Americans in the prime working age will be about the same in 2060 as in 1900. The graph below shows the percent of population in the prime working age from 1900 to 2060 (I used two definitions of prime working age "25 to 54" and "25 to 59". Over time, the prime working age has expanded to included the "55 to 59" age group (red line). Of course in the 1900s, the non-prime working age was mostly children, and in the 2000s, the non-prime working age will be more evenly split between children and the elderly. This table shows the percent of the population under 25, 25 to 54, and over 55.

Downside to Housing, Energy Booms: More Workplace Deaths - There is a downside to booming energy production and a resurgent housing market: a rise in on-the-job fatalities in the industries. The Labor Department on Thursday said that fatal injuries in the oil and gas extraction industry rose 23% to 138 last year, the highest level on record. The private construction sector, meanwhile, saw fatalities rise 5% to 775, the first increase in six years.The preliminary numbers for the two sectors contrast with a broader move toward fewer on-the-job deaths. Overall, there were 4,383 fatal work injuries in the U.S. last year, down almost 7% from 2011 and the second-lowest figure since Labor started issuing the report in 1992. “Job gains in oil and gas and construction have come with more fatalities, and that is unacceptable,” Labor Secretary Thomas Perez said. “No worker should lose their life for a paycheck 

What's Behind the Gallup Unemployment Rate Spike From 7.9% on Aug 1 to 8.9% on August 20? Sampling Error or Seasonal Effect? - Inquiring minds note the steady rise all month in Gallup's Daily Employment Survey.

• 7.9% August 1-2
• 8.0% August 3-6
• 8.1% August 8-8
• 8.2% August 9-11
• 8.3% August 12
• 8.4% August 13-16
• 8.6% August 17-18
• 8.8% August 19
• 8.9% August 20

That's quite a trend. The unemployment rate steadily rose a full percentage point in a mere 20 days. Gallup notes "Because results are not seasonally adjusted, they are not directly comparable to numbers reported by the U.S. Bureau of Labor Statistics, which are based on workers 16 and older. Margin of error is ±1 percentage point." My first inclination was the rise was part of a seasonal trend. However, "each result is based on a 30-day rolling average; not seasonally adjusted". To see if this was part of a normal seasonal trend, I downloaded the data which dates back to 2010. Let's take a look at an apples-to-apples comparison of August 2013 vs. August in prior years to eliminate any seasonal bias.A close look at August 2013 vs. August in prior years shows no other seasonal spikes. The upward  trend is steady, persistent, and unique to 2013.  Whatever is going on, it's not a typical seasonal pattern.

BLS, We Have A Problem: Polled Unemployment Soars To March 2012 Levels -  Gallup tracks daily the percentage of U.S. adults, aged 18 and older, who are underemployed, unemployed, and employed full-time for an employer, without seasonal adjustment. Due to the lack of Arima-X 'magic' the results are specifically not comparable to the BLS data, but, as the chart below suggests, the correlation is high. What is most worrying about the latest data is the rapid rise in both unemployment and underemployment that the Gallup poll finds (to 8.9% unemployment and 17.9% underemployment. Unemployment rates have jumped notably in the last month to their highest in 13 months. Will the Fed 'allow' this data to filter into the BLS data and 'avoid the Taper' or are there non-economic reasons (G-20, deficits, technicals, sentiment) that the Fed needs to SepTaper.

U.S. Unemployment Aid Applications Rise to 336,000 - The number of Americans applying for unemployment benefits rose last week after reaching the lowest level in nearly six years. But the broader trend suggests companies are laying off fewer workers and could step up hiring in the months ahead. The Labor Department said Thursday that applications for first-time benefits rose 13,000 in the week ending Aug. 17 to a seasonally adjusted 336,000. The four-week average, which smooths week to week fluctuations, fell to 330,500. That’s the sixth straight decline and the lowest for the average since November 2007. At the depths of the recession in March 2009, applications numbered 670,000. Applications for unemployment benefits generally reflect layoffs. The four-week average has fallen 5 percent in the past month. .

Weekly Initial Unemployment Claims increase to 336,000, Four Week Average Lowest since November 2007 - The DOL reports:In the week ending August 17, the advance figure for seasonally adjusted initial claims was 336,000, an increase of 13,000 from the previous week's revised figure of 323,000. The 4-week moving average was 330,500, a decrease of 2,250 from the previous week's revised average of 332,750. The previous week was revised up from 320,000. 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 330,500. The 4-week average is at the lowest level since November 2007 (before the recession started). Claims were above the 329,000 consensus forecast. Here is a long term graph of the 4-week average of weekly unemployment claims back to 1971.

Research: Drop in Jobless Claims suggests pickup in Wage Growth - Fast FT has an excerpt from a Deutsche Bank research note: US jobless claims hold signs for the second half So far, rises in wages and salaries have barely been able to outpace the combined effect of inflation and the higher payroll tax introduced at the start of the year. Deutsche expects that could change: If the recent four-week average (332,000) on claims is sustained over the entirety of the third quarter, this should be consistent with an acceleration in wages and salary income toward 5.7% by yearend—which would significantly outpace the drag from inflation and the payroll tax The following graph is from the research note. This shows that the year-over-year change in weekly unemployment claims (inverted) typically leads wage growth. However, I think wage growth will remain sluggish with the high unemployment rate.

Outlook for Jobs and Confidence in Economy Sink - Gallup reports Americans Sour Slightly on Quality Jobs Market.  The market for quality jobs may be cooling. The 21% of Americans who say now is a good time to find a quality job is down from 25% in July -- and the most negative reading this year. Now, 76% say it is a bad time to find a quality job, up from 70% in July. Prior to this month, Americans' views of the availability of quality jobs, though still generally pessimistic, had been improving. The percentage saying now is a good time to find quality work rose through most of 2012 and increased further in 2013. But that momentum appears to be fading, which could be due to a variety of economic factors. Americans' quality jobs outlook has worsened at the same time that their confidence in the economy has declined and the U.S. Payroll to Population employment rate has been stagnant.

'This, by Definition, is Job Polarization' - I do want to point out that the fundamental changes occurring in the labor market are best seen at the occupational level not the industry level. When discussing cognitive or routine or manual type functions and how technological change is impacting them, these generally cut across industries by occupation. When I look at employment growth from 2010 to 2012, using occupational groups, I get the following (trying to match the great graphics that both the WSJ and Atlanta Fed use).. What we see here is strong job growth at both the top and bottom ends of the wage spectrum. Yes, food preparation and personal care account for a disproportionately large share of jobs gained in recent years, but so too have business and financial services, healthcare practitioners, computer and mathematical occupations and management. Where we have seen slower growth is in the middle. The light blue bars, which I term lower middle-wage jobs account for about 40% of all occupations in 2012 yet account for just 26% of the growth. The dark blue bars, which I term upper middle-wage jobs, account for another 19% of all occupations and 0% of the growth. This, by definition, is job polarization. ...

Elderly More Likely to Be Employed Than Teens - The past five years have been hard on teenagers. The decade before that wasn’t much better. The Wall Street Journal today reported that teenager’s work rates plummeted during the recession and have seen little recovery since. More than 40% of teens worked in the summer of 2007. This year, less than a third did. But while the recession explains the recent drop, there are also longer-term forces at work. From the mid-1960s to the late 1980s, somewhere between 55% and 60% of teens aged 16 to 19 years old worked in any given summer. The rate edged down slightly in the 1990s, then began to fall precipitously in the 2000s. The decline in youth employment is part of a broader shift in working patterns. Americans are entering the workforce later and staying in it longer than at any time in history. A decade ago, a 16- or 17-year-old boy was twice as likely to have a job as his 70-year-old grandfather. Today, the grandfather is actually more likely to have a job than the boy. That’s an amazing shift in so short a period of time. What’s going on? For young adults in their late teens and early 20s, rising rates of college attendance are a big part of the story. But that’s less of a factor for kids still in high school. Some high-schoolers may be opting out of work in order to focus on college application-boosting extra-curricular activities, but the decline in employment has been most pronounced among teens from low-income families, not the middle class. Nor does the minimum wage—often cited as a major barrier to youth employment—appear to be a driving force: Much of the decline came in the early 2000s, when the minimum wage was flat.

On "bullshit jobs" - ANTHROPOLOGIST David Graeber has written an amusing essay on the nature of work in a modern economy, which seems to involve lots of people doing meaningless tasks they hate: In the year 1930, John Maynard Keynes predicted that, by century’s end, technology would have advanced sufficiently that countries like Great Britain or the United States would have achieved a 15-hour work week. There’s every reason to believe he was right. In technological terms, we are quite capable of this. And yet it didn’t happen. Instead, technology has been marshalled, if anything, to figure out ways to make us all work more. In order to achieve this, jobs have had to be created that are, effectively, pointless. Huge swathes of people, in Europe and North America in particular, spend their entire working lives performing tasks they secretly believe do not really need to be performed. The moral and spiritual damage that comes from this situation is profound. It is a scar across our collective soul. Yet virtually no one talks about it. It is not the case, he writes, that people have to keep working to produce the consumer goods for which the rich world hungers. Outrageously, meaningless employment—in what he calls "bullshit jobs"—is concentrated in “professional, managerial, clerical, sales, and service workers”:

The Rise of Bullshit Jobs from naked capitalism - In a highly amusing, but also somewhat depressing article in Strike! Magazine, David Graeber asks why Keynes’ prophecy has not come true and instead we find ourselves working a range of meaningless “bullshit jobs” that many of us hate: Instead, technology has been marshaled, if anything, to figure out ways to make us all work more. In order to achieve this, jobs have had to be created that are, effectively, pointless. Huge swathes of people, in Europe and North America in particular, spend their entire working lives performing tasks they secretly believe do not really need to be performed. The moral and spiritual damage that comes from this situation is profound. It is a scar across our collective soul. Yet virtually no one talks about it. Graeber goes on to describe how these so-called “bullshit jobs” are concentrated in “professional, managerial, clerical, sales, and service workers”: Over the course of the last century, the number of workers employed as domestic servants, in industry, and in the farm sector has collapsed dramatically. At the same time, “professional, managerial, clerical, sales, and service workers” tripled, growing “from one-quarter to three-quarters of total employment.” In other words, productive jobs have, just as predicted, been largely automated away… Yves here. I disagree with almost all of this discussion. First, if you look back historically, the idea that the lower classes needed to be kept busy for their own sake was presented in moralistic terms but was in fact ruthlessly economic. The whole point of making the peasants work instead of faff around and drink was to enable them to be exploited by the newly-emerging entrepreneurial class. In other words, a big part of the capitalist exercise is to find or create workers to exploit. Graeber has the story backwards. The moral fable (idleness is bad for the perp and putting him to work is thus a moral undertaking) was not, as Graeber suggests, because lazy people are proto-insurrectionists. It is that people who are self-sufficient and have time on their hands on top of that drove the early capitalists nuts. They were exploitable resources lying fallow, no different to them than a gold vein in the next hill that the numbnick farmer/owner was unwilling to mine because he liked the view and was perfectly content grazing sheep.

The Destruction Of America's Middle Class (In Under Seven Minutes) - While hardly news to frequent visitors, especially those who recall the following list, anyone who needs a 7 minute refresher into why the US middle class is on collision course with extinction is urged to watch the following brief video which highlights all the salient facts such as:

• 76% of Americans live paycheck to paycheck
• 27% of American have no savings at all
• 46% of Americans have less than $800 in savings
• The conversion of America into a part-time working society and the country's second largest employer - a temp agency.
• The college trap and the student loan bubble
• And of course, foodstamps, foodstamps, foodstamps and the nearly 50 million poverty-level Americans who need them to survive

Long-Term Unemployment: A Weak Link in a Fragile Recovery - The 2008 financial crisis has left us with no shortage of economic problems, but among the most worrisome is the scourge of long-term unemployment. Though the official unemployment rate has fallen from more than 10% in October 2009 to 7.4% today, the labor market remains a brutal place for the 4.2 million long-term unemployed, whom the Labor Department defines as workers who have been out of work for six months or more.  This trait distinguishes the 2008–09 recession from past downturns. At the depth of the recession we experienced in the early 1980s, for example, just 25% of the unemployed were without jobs for more than six months. Four years into our current recovery, that number remains close to 40%.

Long-Term Unemployment Crisis Is Historically Terrible (CHART) -- Nearly 40 percent of America’s unemployed have been jobless for 27 weeks or more, according to a new report from the non-partisan Brookings Institution. The share of jobless who are long-term unemployed hit its peak at the end of the Great Recession, but still remains historically high, as the Brookings chart below indicates:As the chart shows, the number of long-term unemployed as a share of the unemployed -- and labor force overall -- was higher during the Great Recession and the period immediately following it than at any point since the end of World War II. The 4.7 million Americans still struggling with long-term joblessness could face the threat of a lifetime drop in wages and poorer health for their children, according to Brookings. Being out of work for 9 months or more also can decrease interview requests by up to 20 percent for those applying to low- or medium-skilled jobs, according to a recent study.And by causing a large-scale decay of skills in the workforce, the high levels of long-term unemployment could be bad news for the economy as well, acc ording to economists cited by the International Business Times.

Report: U.S. Household Income Below End-of-Recession -  The average American household is earning less than when the Great Recession ended four years ago, according to a report released Wednesday. U.S. median household income, once adjusted for inflation, has fallen 4.4 percent in that time, according to the report from Sentier Research. The report is based on an analysis of Census Bureau data. The median, or midpoint, income in June 2013 was $52,098. That’s down from $54,478 in June 2009, when the recession officially ended. And it’s below the $55,480 that the median household took in when the recession began in December 2007. The report says nearly every group is worse off than four years ago, except for those 65 to 74. Some groups have experienced larger-than-average declines, including blacks, young and upper-middle-aged people and the unemployed.

Median Household Incomes: The Real Truth About the U.S. Economic Recovery, Four Years Later -  The press release of Household Income On the Fourth Anniversary of the Economic Recovery: June 2009 to June 2013 in PDF format is available here at the Sentier Research website. The full report, 27 pages of richly detailed data on median household incomes, is available for a modest fee here, and I highly recommended a close study of the full report for anyone with a keen interest in the demographics of the U.S. economy. The press release opens with the initial stunner, one which comes as no surprise to those of us who follow the monthly Sentier Research updates: Based on new estimates derived from the monthly Current Population Survey (CPS), real median annual household income, while recovering somewhat from the low-point reached in August 2011, has fallen by 4.4 percent since the "economic recovery" began in June 2009. Adding this post-recession decline to the 1.8-percent drop that occurred during the recession leaves median annual household income now 6.1 percent below the December 2007 level. Today's new report from the company includes breakdowns of the median data in multiple ways: by type of household, age of householders, employment status of householders, number of earners, race and ethnicity, education and much more. In this commentary I'll focus on two of these broad areas: age and race/ethnicity. In follow-up commentaries, I'll explore some of the other findings.

US Households Continue to Bleed - Two former Census Bureau officials working at Sentier Research have released a new report claiming that median US household income is recovering, but remains 6.5% below its pre-recession level in real (inflation adjusted) terms: After adjusting for changes in consumer prices, median annual household income declined during the officially-defined recession from $55,480 in December 2007 to $54,478 in June 2009. During the “economic recovery”, as the unemployment rate and the duration of unemployment remained high, median annual household income continued its decline, reaching a low point of $50,722 in August 2011. As of June 2013 median household income had recovered somewhat to $52,098 (seasonally adjusted estimates).  What is arguably more disturbing is the fact that real median household income is now 7.2% below its January 2000 level:Compared to January 2000, the beginning point for our monthly statistical series, median annual household income is now lower by 7.2 percent. (All income amounts in this report are before-tax money income and are presented in terms of June 2013 dollars). Moreover, virtually all groups have been adversely affected by the slump: Based on our data, almost every group is worse off now than it was four years ago, with the exception of households with householders 65 to 74 years old. For some groups of householders—Blacks, men living alone, young and upper-middle age brackets, part-time workers, the unemployed, females with children present, and those with only a high school degree or some college but no degree—the declines have tended to be larger than average. Changes in educational attainment during the economic recovery have played a key role in the findings, as we describe in the report.”

Gen Y and Boomers, Suffering the Most - As my colleague Robert Pear reports, a new study from Sentier Research finds that four years after the start of the economic recovery, the median American household income is still down 4.4 percent. Incomes have risen a little since their recent trough in August 2011, but not enough to make up for the losses sustained earlier. The declines were not distributed evenly. One of the more striking findings from the report was the variation in changes in median income by age group:  Those in the 65- to 74-year-old group are the only demographic in the entire study — which also included breakdowns by race, family status, gender, education and work status — to have incomes rise by a statistically significant amount in inflation-adjusted terms. (Householders 75 and older also reported higher incomes, but the change was not statistically different from zero.) On the other hand, those under age 25 and between the ages of 55 and 64 (roughly the baby boomer demographic) suffered the biggest hits. As I’ve written before, these changes in income are not the only ways that different age groups have been disparately affected by economic turmoil.  Older Americans may not only have higher incomes, but may also might enjoy higher life expectancies as a result of the recession and continually poor job market. One study found that death rates for people over 65 have historically fallen during recessions. The researchers theorized that weak job markets push more workers into taking relatively low-paying and undesirable work at nursing homes, leading to better care there.

Between 2000 and 2012, American wages grew…not at all: You can always rely on the Economic Policy Institute for really depressing charts about just how far behind the U.S. middle class is falling, and the latest report from EPI President Lawrence Mishel and economist Heidi Shierholz is no exception. The paper — titled “A Decade of Flat Wages” — finds exactly that. Real hourly wages for people at the middle of the wage distribution were no higher in 2012 than in 2000. While the early 2000s saw some growth, it’s all been wiped out since the recession hit, and hasn’t rebounded at all. Indeed, those with only a high school diploma have actually seen wages fall since 2000. College grads saw stagnant wages, while only those with advanced degrees actually made gains. Here, you may object that the wage figures don’t include other forms of compensation, like health and dental benefits or pension plans. That’s very true, though it’s easy to overstate the importance of that caveat. More spending on health care shows up as increased compensation but in many (if not most) cases it doesn’t improve peoples’ lives as much as just giving them that money would. Indeed, it may not even improve their health more than just giving the money would. As Berkeley inequality expert Emmanuel Saez once put it, “the argument (of the right) has to be: cash market income of the bottom 99 percent of adults has stagnated but the bottom 99 percent get much more expensive private and government provided health care benefits, some more government transfers, and they have fewer kids. This does not seem like a great situation, especially from a conservative point of view.”

Median Household Incomes After the Great Recession: Household Types and Educational Attainment: -Yesterday I posted my analysis of selected features in Sentier Research's disturbing report on the general decline in median household incomes since the end of the Great Recession in June 2009. My focus was on real income change by age groups and by racial/ethnic categories (see my article here). The Sentier Research press release in PDF format is available here at the Sentier Research website. The press release opens with the initial stunner, one which comes as no surprise to those of us who follow the monthly Sentier Research updates, namely that real (inflation-adjusted) median household annual incomes are down 4.4% since the "economic recovery" began in June 2009 and 6.1% below the December 2007 recession start.Today I'll explore the changes since the end of the recession in household types and householder educational attainment.Households are subdivided into two broad categories: Family and Nonfamily, which have a ratio of about two-to-one of all households. Family households are divided into three categories: Married, Female householder with children present, and Other family households.Nonfamily households are broken into two easily understood categories -- Women living alone and Men living alone -- and a third and much smaller "Other nonfamily" catch-all.The table below shows the number of households per type and the real (inflation-adjusted) median annual income in June 2009 and the equivalent data for June 2013.

America's Growing Income Inequality Problem - Did you know the United States has the worst income inequality of any industrialized nation?  So says the OECD in this study.  Globally, income inequality has increased more from 2007 to 2010 than during the twelve years previous and America is sure enough #1.  While the Great Recession might be relabeled the great wealth transfer from the middle classes to the super rich, it is not the actual cause for such American economic injustice.  The primary cause is Congress and their never ending giving to the rich through the U.S. tax code. First some stark facts on income inequality.  The most common measurement for economic injustice is the Gini coefficient.   The Gini is a ratio where zero means all people have equal income and the value one means just one single person has all of the money and nobody else has any.  The higher the Gini ratio is, the worse income inequality has become in that nation.  In 2011 the United States had a Gini index of 0.477, which is a 1.5% increase from 2010 and this is a very high ratio! Over the past 40 years, the top 1% have seen a doubling of their income in the United States.  The latest OECD data is from 2010 and as we can see in the below chart, the United States had the worst income inequality of any industrialized nation in 2010 and note this does not account for the huge spike in the Gini for 2011.  The below graph shows the Gini index in blue bars and is the ratio for disposable household income inequality.  Only Turkey, Mexico and Chile are worse for household disposable income inequality and these are all 3rd world nations.  The truth America is we are a 3rd world nation, with scores of poverty stricken, as amplified by the fact over 15% of the total population requires food stamps to survive. The yellow dots in the above OECD chart represent yet another horrific statistic.  The yellow dots, scale on the right, is the difference between the richest 10% of a country and the poorest 10%.  As we can see in 2010 only two nations, Mexico and Chile, were worse in the gap between rich and poor than the United States.  Again, most of America is clearly in 3rd world status at this point and the illusion of America being the wealthiest nation on Earth is only for a select few.

The Affordable Care Act and Part-Time Work - Among the various attacks on the Affordable Care Act, one of the more coherent — a low bar, given what’s out there — is that it is causing small employers to create part-time jobs so as to remain under the 50 full-time worker cutoff for the employer mandate. The problem for those who want to come at the law from that angle, however, is that though the incentive exists, the evidence does not. As Paul Van de Water and I pointed out in Politico the other day, if employers were responding to the incentive the way the critics claim, we should see involuntary part-time work growing as a share of total jobs, as workers who want full-time jobs would be stuck with part-time ones. But both involuntary and overall part-time work are slowly declining as a share of all jobs. Still, it is legitimate to ask whether the slow decline in the share of part-timers is occurring more slowly in this recovery because of the incentive to stay under 50 full-timers. So I built a simple statistical model of the relationship between the share of involuntary part-time work and the unemployment rate. I then ran the model through the first half of 2009, and predicted, using the actual unemployment rate, the shares of involuntary part-time work. If the law were keeping more than the usual number of full-time workers stuck in part-time jobs, then the predicted trend would be significantly below the actual one. In fact, the two trends hug each other quite tightly, further evidence that part-time employment is much where we would expect it to be at this stage of recovery, given the high level and slow decline in the jobless rate.

How to Become a Part-Time Worker Without Really Trying from naked capitalism -Yves here. This post by Barbara Garson, which originally appeared at TomDispatch, describes how big companies squeeze down even more on workers by turning what were once full-time jobs into part-time positions to avoid providing benefits and to push pay even lower (workers who are desperate to get more hours will also accept reduced wages, working off the clock, and abusive work conditions). Tom Engelhardt, in his introduction, pointed out that this campaign to drive ordinary workers into penury so as to fatten executive pay packages, was made respectable by Walmart. Of course, the end result, as some economists predicted, is that failing to share the benefits of productivity gains is ultimately self-defeating. It sucks demand out of the economy, limiting revenue growth, as the New York Times reported last week:  Major retailers, like Walmart and Kohl’s, that cater to budget-conscious customers with lower incomes cited sluggish sales this week as they decreased their annual forecasts. Macy’s, with a slightly higher-income clientele, did not meet analysts’ expectations for the first time in 25 quarters. But even upper-income consumers do not seem to be spending as freely as some hoped. While Nordstrom’s, which reaches a middle-to-luxury-end market, reported a higher-than-expected quarterly profit on Thursday, it too said sales “remained softer than anticipated” and lowered its forecast. And who is responsible for this type of scheme to crush labor? McKinsey. McKinsey told Walmart that more experienced “associates” (with seven plus years of tenure) earned 55% more than ones who were one year into the job but were no more productive. The clear implication was that Walmart should ditch more seasoned employees and encourage churn, since having overly-experienced workers was too costly.

How low can you get: the minimum wage scam - Half of minimum-wage jobs are held by adults over 25 years old, and asking adults to live on $7.25, or $14,500 a year, doesn't leave them with enough to rent an apartment, commute to work, raise a child and participate in society in any meaningful way. Low-wage workers can't even care for their own health without giving up some other necessity. According to the Center for Economic and Policy Research, it took a minimum-wage worker 130 hours to earn a year's worth of health benefits in 1979. That is only three-and-a-half weeks of full-time, minimum -age work. By 2011, the same health coverage cost 749 hours, or 19 weeks of full-time, minimum-wage work. Working nearly half the year to afford only healthcare, and nothing else, is a ridiculous demand to make of low-wage workers. The low minimum wage is also as costly for the government as it is cheap for companies. While McDonald's or other fast food companies save pennies and boost their profitability by paying a low wage, their workers cannot survive on that amount and often end up taking welfare benefits. In 2012, 4.3 million people received welfare benefits and 47 million received food stamps. The number of Americans getting food stamps – a national hunger crisis – has risen in tandem with the number of people unemployed or out of the workforce. The minimum-wage salary is eaten up fast by necessities like food and healthcare: US minimum-wage workers don't just lack cash; they lack benefits, and this ends up costing the government. Each of the 23 million households on food stamps is getting an average benefit of about $274 a month from the government to pay for meals. About 40% of food stamp recipients live in a household where at least one person is earning money, according to the US Department of Agriculture. That means that the money being spent on food stamps is money that the government is paying to subsidize company profits: as businesses pay a minimum or near-minimum wage, their workers are forced to turn to government programs to make ends meet. There is, as they say, no such thing as a free lunch.

Welfare Pays Better than Work - The federal government funds 126 separate programs targeted towards low-income people, 72 of which provide either cash or in-kind benefits to individuals. (The rest fund community-wide programs for low-income neighborhoods, with no direct benefits to individuals.) State and local governments operate more welfare programs.Of course, no individual or family gets benefits from all 72 programs, but many do get aid from a number of them at any point in time.  In the Empire State, a family receiving Temporary Assistance for Needy Families, Medicaid, food stamps, WIC, public housing, utility assistance and free commodities (like milk and cheese) would have a package of benefits worth $38,004, the seventh-highest in the nation. Welfare is slightly more generous in Connecticut, where benefits are worth $38,761; a person leaving welfare for work would have to earn $21.33 per hour to be better off. And in New Jersey, a worker would have to make $20.89 to beat welfare.Nationwide, our study found that the wage-equivalent value of benefits for a mother and two children ranged from a high of $60,590 in Hawaii to a low of $11,150 in Idaho. In 33 states and the District of Columbia, welfare pays more than an $8-an-hour job. In 12 states and DC, the welfare package is more generous than a $15-an-hour job.

Mapping the Income for Welfare vs Work - According to a study by Michael Tanner and Charles Hughes, the money that people can make on welfare in many states is more than they can make in an entry-level job. And in some states, it's more than what a person who works to earn the median income takes home. The Wall Street Journal describes the findings of the study: The state-by-state estimates are based on a hypothetical family participating in about seven of the 126 federal anti-poverty programs: Temporary Assistance for Needy Families; the Women, Infants and Children program; Medicaid; Supplemental Nutrition Assistance Program; and receiving help on housing and utilities. In Hawaii, that translates into a 2013 package of $49,175 — up $7,265 from an inflation-adjusted $41,910 in 1995. Rounding out the top five areas for welfare benefits, along with their 2013 amounts, were: the District of Columbia ($43,099), Massachusetts ($42,515), Connecticut ($38,761) and New Jersey ($38,728). The state with the lowest benefits package in 2013 was Mississippi, at $16,984, followed by Tennessee ($17,413), Arkansas ($17,423), Idaho ($17,766) and Texas (18,037). From our perspective, the report is interesting because all the data is presented in the form of tables. That creates an opportunity for us, because we can take that data and visualize it! So we have, using the data visualization tools available at IBM's ManyEyes site. And what's more, we've taken it to the next level by incorporating an interactive version of the map we created in this post to illustrate each state's typical pre-tax welfare "income", their median incomes, and also their hourly "welfare", median and also minimum wages, which we added for good measure!)

Stop Worrying about Food Stamp "Fraud" -- Over at the Weekly Standard blog, Jeryl Bier raised an alarm on Friday about the rise of food stamp (aka SNAP) fraud. The howler in the piece is that although the headline says food stamp fraud is up 30 percent, you soon realize that the fraud rate only rose from 1.0 percent to 1.3 percent. Bier rightly deserves a ding for a ridiculously misleading use of statistics. I think we should point out that the kind of food stamp “fraud” Bier is complaining about is not even a problem. The USDA calls the type of fraud in question “trafficking,” and it basically amounts to individually swapping out food stamp dollars for actual dollars. Despite what you hear, it is not easy to sell food stamps anymore because they are distributed via debit cards.  But check this out: giving people food stamps is basically the same thing as giving them more cash. Suppose I am spending $300/month feeding my family. Then I get on to SNAP and receive a monthly benefit equal to $100. What do I do? Well, I take $100 of my $300 monthly food budget and replace it with SNAP money. Now, that $100 I used to spend on food each month is freed up for me to spend on other things. Because money is fungible, giving me vouchers for a certain kind of spending that I am already doing is no different than just giving me cash.

California discourages needy from signing up for food stamps - For years, Texas was among a handful of states that required every resident seeking help with grocery bills to first be fingerprinted, an exercise typically associated with criminals.  Texas — always seeking to whittle down "big government" — remains one of the most effective states at keeping its poor out of the giant federal food stamp program. But it is not No. 1. That distinction belongs to California. Liberal California discourages eligible people from signing up for food stamps at rates conservative activists elsewhere envy. Only about half of the Californians who qualify for help get it. That stands in contrast to other states, including some deeply Republican ones, that enroll 80% to 90% of those with incomes low enough to qualify. That public policy paradox — one of the country's most liberal states is the stingiest on one of the nation's biggest benefit programs — has several causes, some intentional, some not. It also has two clear consequences: Millions of Californians don't get help, and the state leaves hundreds of millions of dollars of federal money on the table.

The High Probability of Being Poor - Late last month, the Associated Press ran a report about economic insecurity that managed to gain some traction in certain parts of the political internet, and since then, again and again in certain relevant debates. The statistical bomb dropped in the first sentence of the report really says it all: Four out of 5 U.S. adults struggle with joblessness, near poverty or reliance on welfare for at least parts of their lives, a sign of deteriorating economic security and an elusive American dream. To be clear, this figure pertains to the percentage of people facing these problems at least once in their life, not the percentage of people facing them right now. Shortly after the AP report blew up, the Wall Street Journal's James Taranto responded with a few criticisms that are worth reading. Taranto argues that using near-poverty to derive the figure (meaning 150 percent of the poverty line) instead of the poverty line is arbitrary. Taranto also takes issue with the joblessness part of the figure because it counts even a day of joblessness, and takes issue with counting anyone who has ever received welfare benefits into the figure as well. In light of Taranto's criticisms, an interesting question presents itself: What would this figure look like if it did not include those features which Taranto objects to? If we used the poverty line instead of the near-poverty line and did not include joblessness or welfare receipt into the calculation, how much lower would the figure be? Lucky for us, Mark Rank and Thomas Hirschl published data on precisely this question.

BLS: State unemployment rates were "little changed" in July -- From the BLS: Jobless rates up in 28 states, down in 8 in July; payroll jobs up in 32 states, down in 17: Regional and state unemployment rates were little changed in July. Twenty-eight states and the District of Columbia had unemployment rate increases, 8 states had decreases, and 14 states had no change, the U.S. Bureau of Labor Statistics reported today...Nevada had the highest unemployment rate among the states in July, 9.5 percent. The next highest rate was in Illinois, 9.2 percent. North Dakota continued to have the lowest jobless rate, 3.0 percent. This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are below the maximum unemployment rate for the recession.The size of the blue bar indicates the amount of improvement - Michigan and Nevada have seen the largest declines and many other states have seen significant declines (California, Florida and more). The states are ranked by the highest current unemployment rate. No state has double digit unemployment and the unemployment rate is at or above 9% in only two states: Nevada and Illinois, and Mississippi.  This is the fewest states with 9% unemployment since 2008.

Most States Saw Rise in Unemployment Rate - The labor market’s progress was uneven across the U.S. in July, with many states and regions experiencing rising unemployment despite an overall decline across the country. The unemployment rate rose in 28 states and the District of Columbia, fell in eight states and held steady in the remaining 14, the Labor Department said Monday. Nationwide, the unemployment rate fell to 7.4% from June’s 7.6%, partly because the number of employed people rose, though some also dropped out of the labor force. That was the lowest overall level since December 2008. The share of unemployed grew the most in Alaska and Georgia, at 0.3 percentage point. Rates stand at 6.3% in Alaska and 8.8% in Georgia. Mississippi made the most progress on the labor front, with its rate declining 0.5 percentage point to 8.5%. The numbers reflect frustratingly slow economic growth. Employers have been adding jobs but the pace hasn’t been fast enough for the 11.5 million Americans who want a job but can’t find one. Monday’s figures also highlight the lingering fallout from the financial crisis. The unemployment rate in Nevada, a state hit hard by the housing bust, remained the highest in the nation at 9.5%. The state shed 10,200 jobs last month, the biggest loss since early 2009. The chief economist for the state’s Department of Employment, Bill Anderson, attributed the big drop to volatility in the monthly estimates. The country’s energy boom, meanwhile, is helping keep the jobless rate well below the national average in North Dakota, at 3%, and South Dakota, at 3.9%.  See the full interactive graphic.

State Unemployment and Payrolls for July 2013  -- The July state employment statistics show an odd data duck.  In spite of the national unemployment rate decline, 28 states plus D.C. showed their unemployment rate increased.  Only eight states showed unemployment rate declines and 14 of the states had no change at all.  Below is the BLS map of state's unemployment rates for the month.  Nationally, the unemployment rate was 7.4% for July.  There are two states with unemployment rates above 9%, Nevada, coming in at 9.5% and Illinois, 9.2%.  Rhode Island and North Carolina are almost there, with 8.9% unemployment rates.  Michigan and Georgia both have 8.8% unemployment rates.  California is 8.7%, New Jersey, 8.6%, Kentucky and Tennessee both come in at 8.5%.  The states with the lowest unemployment rates are North Dakota at 3.0% and South Dakota with a 3.9% unemployment rate.  The unemployment change from a year ago nationally has declined by -0.8 percentage points.  The biggest improvement has been in California, with a -1.9 percentage point change from July 2012.  Nevada's unemployment rate declined by -1.7 percentage points.  Florida and Rhode Island's unemployment rates both dropped by -1.6 percentage points.  All in all, 36 states plus D.C. showed an unemployment rate decline, 9 states increased and 5 had no change.

Philly Fed: State Coincident Indexes increased in 34 states in July -- From the Philly Fed:  The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for July 2013. In the past month, the indexes increased in 34 states, decreased in nine states, and remained stable in seven, for a one-month diffusion index of 50. Over the past three months, the indexes increased in 38 states, decreased in nine, and remained stable in three, for a three-month diffusion index of 58.  Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:  The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged). In July, 38 states had increasing activity, the same as in June (including minor increases). This measure has been and up down over the last few years ...Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and all green at times during the recovery.

Makers, Takers, and the Politics of Economic Development -- Economic development is inextricably linked to politics, and it will be that way as long as locally elected politicians govern communities with separate tax bases. Accordingly, this blog takes the occasional detour into the impact of politics on economic development, with a spin on data analysis. With the rise of the Tea Party and the proliferation of bumper-sticker catchphrases lacking any resemblance to nuanced debate, such as “makers and takers” or “you didn’t build that” or “the 1%,” there’s apparently a lot of interest these days in the appropriate degree of government involvement in our lives. Since the vast majority of economic development work is funded with taxpayer money, this is not an inconsequential issue. Running an effective program may be challenging if your community is convinced that government is the root of all evil.

Private Gain to a Few Trumps Public Good for the Many - Robert Reich : A society — any society —- is defined as a set of mutual benefits and duties embodied most visibly in public institutions: public schools, public libraries, public transportation, public hospitals, public parks, public museums, public recreation, public universities, and so on. Public institutions are supported by all taxpayers, and are available to all. If the tax system is progressive, those who are better off (and who, presumably, have benefitted from many of these same public institutions) help pay for everyone else. "Privatize" means "Pay for it yourself." The practical consequence of this in an economy whose wealth and income are now more concentrated than at any time in the past 90 years is to make high-quality public goods available to fewer and fewer. In fact, much of what’s called “public” is increasingly a private good paid for by users — ever-higher tolls on public highways and public bridges, higher tuitions at so-called public universities, higher admission fees at public parks and public museums. Much of the rest of what’s considered “public” has become so shoddy that those who can afford to do so find private alternatives. As public schools deteriorate, the upper-middle class and wealthy send their kids to private ones. As public pools and playgrounds decay, the better-off buy memberships in private tennis and swimming clubs. As public hospitals decline, the well-off pay premium rates for private care

Monday Map: Migration of Personal Income -This week, our Monday Map draws data from our interactive State Migration Calculator, and illustrates the interstate movement of income over the past decade (from 2000 to 2010). When a person moves to a new state, their income is added to the total of all other incomes in that state. This positively affects the total taxable income in his or her new state, and negatively affects the income in the state he or she left. 

Social immobility erodes the American dream - If there’s one issue on which both the left and right agree, it is the crisis of declining mobility. The American dream at its core is that a person, no matter his or her background, can make it here. A few weeks ago, four economists at Harvard and the University of California at Berkeley released a path-breaking study of mobility within the United States. And last week the Journal of Economic Perspectives published a series of essays tackling the question from an international standpoint. The research is careful and nuanced, yet it does point in one clear direction. The question is, will Washington follow it? For more than a decade, it has been documented that Northern European countries do better at moving poor people up the ladder than the United States does. Some have dismissed these findings, pointing out that the United States cannot be compared with places such as Denmark, an ethnically homogeneous country of 5.5 million people. But Miles Corak of the University of Ottawa points out in his contribution to the Journal of Economic Perspectives that Canada is a very useful point of comparison, being much like the United States. (The percentage of foreign-born Canadians is actually higher than the percentage of foreign-born Americans, for example.) And recent research finds that people in Canada and Australia have twice the economic mobility of Americans. (The British are about the same as Americans but much worse than Canadians and Australians. )

Pa. to put new weight restrictions on 1,000 bridges - The Pennsylvania Department of Transportation can't print money to fix thousands of structurally deficient bridges across the state. But it can print signs reducing the weight load allowed to travel across those bridges. It was doing just that Thursday at its sign shop in Harrisburg, just after Transportation Secretary Barry Schoch announced about 1,000 of the most at-risk bridges in the state would be weight-restricted. Schoch said the move will put the brakes on bridge wear and tear. "They are not unsafe, not unsafe," Schoch repeated himself to emphasize the point. "We are restricting the weight so we can slow down the deterioration." Schoch said Pennsylvania is tops in the nation in terms of structurally deficient bridges with 4,479. He added that 11,000 of the state's 25,000 are in need of TLC that they're currently not getting because of budgetary restraints. By weight-restricting 1,000 bridges, most tractor-trailers and fire engines and some school buses will have to find alternate routes. He said everyone will feel the impact in some way. "The cost is gonna be all the products shipped by any vehicle could go up, school children moved by bus that are gonna have to go on a longer route," Schoch said. "That's gonna be a cost in terms of time and money and that cost is gonna get passed on."

Judge appoints $600-an-hour attorney to keep tabs on Detroit bankruptcy legal fees - The legal bills are quickly adding up in Detroit’s bankruptcy — and the person assigned to monitor the legal spending is charging some big fees of his own.U.S. Bankruptcy Judge Steven Rhodes on Monday appointed a fee examiner to monitor legal bills in Detroit’s Chapter 9 bankruptcy.  Rhodes named attorney Robert M. Fishman of the Chicago-based firm Shaw Fishman Glantz and Towbin to ensure the city’s legal fees and consulting bills don’t become exorbitant. Fishman also will be charged with making sure the fees are public information. But in a sign of how expensive bankruptcies can be, even the person responsible for preventing excessive fees will be well paid. Fishman’s hourly rate will be $600 an hour. That’s a discount from his typical hourly rate, which is $675.

Creditors File Objections to Detroit Bankruptcy — The city’s biggest employee union, retirees and even a few dozen residents filed objections Monday to Detroit’s request for bankruptcy protection, the largest municipal filing in U.S. history and a move aimed at wiping away billions of dollars in debt. The filing by the American Federation of State, County & Municipal Employees Michigan Council 25 also came before expected objections from two city pension systems, bondholders, banks and others who hope to convince federal Judge Steven Rhodes not to allow the Chapter 9 petition by Detroit emergency manager Kevyn Orr. Rhodes set Monday as the eligibility objection deadline. Attorneys for large creditors have until just before midnight to file objections electronically. Individual creditors who fear losing their pensions and paying more for health care began filing objections Monday in person at the court. By early Monday evening, more than 100 objections had been filed including those made by several smaller city unions.

Wall Street Swaps Claim Detroit Cash Over Retirees - As Nobel Prize-winning economist Joseph Stiglitz sees it, banks that sold interest-rate swaps to Detroit “should be at the bottom in line” among those paid in the city’s record bankruptcy. Instead, they may be first, ahead of retired workers and investors. UBS AG and Bank of America Corp., which sold the swaps to the city as a way to cut the cost of borrowing for pension contributions, won the preferential treatment in 2009, four years before Detroit’s $18 billion bankruptcy filing. The banks probably will get 75 percent of what they’re owed while unsecured bondholders and pensioners will get less than 20 percent under Emergency Manager Kevyn Orr’s plan to restructure.

Abandoned Dogs Roam Detroit in Packs as Humans Dwindle - As many as 50,000 stray dogs roam the streets and vacant homes of bankrupt Detroit, replacing residents, menacing humans who remain and overwhelming the city’s ability to find them homes or peaceful deaths.Dens of as many as 20 canines have been found in boarded-up homes in the community of about 700,000 that once pulsed with 1.8 million people. Poverty roils the Motor City and many dogs have been left to fend for themselves, abandoned by owners who are financially stressed or unaware of proper care. Strays have killed pets, bitten mail carriers and clogged the animal shelter, where more than 70 percent are euthanized. “With these large open expanses with vacant homes, it’s as if you designed a situation that causes dog problems,” said Harry Ward, head of animal control.

Columbia, South Carolina Criminalizes Homelessness In Unanimous Vote: ity council members in Columbia, S.C., recently voted unanimously to criminalize homelessness. Concerned that Columbia has become a “magnet for homeless people,” and that businesses and the area’s safety are suffering as a result, council members agreed on Aug. 14 to give people on the streets the option to either relocate, or get arrested, according to the city’s “Emergency Homeless Response” report. Cooperative homeless people will be given the option to go to a remote 240-person bed emergency shelter, which will be open from September to March. The shelter will also be used as a drop-off for people recently released from prison and jail, too. A hotline will be set up for passersby to “report” a homeless person that needs to be removed, additional police will be dispensed to monitor the streets and vans will escort the homeless to the shelter. ----- there are an estimated 1,621 homeless people living in Columbia and the surrounding area, 25 percent of whom are members of families with children, a figure that could overwhelm the designated shelter.

Funding cuts hit 57,000 preschoolers nationwide - Federal spending cuts are hitting 57,000 children who would have started preschool in the next few weeks. The cuts will impact an estimated 1,400 children in Louisiana. The Administration for Children and Families reported Monday that 51,299 fewer children will begin Head Start preschool programs and 5,966 fewer toddlers will enter Early Head Start programs due to the $85 billion in federal budget cuts called sequester. In Merced County, Calif., 52 fewer preschoolers were enrolled in Head Start programs and 12 fewer toddlers enrolled in Early Head Start programs. Capital Area Head Start in Harrisburg, Pa., had to cut 68 incoming preschoolers from attending programs this year. It also laid off 15 staffers after the state turned down a request for more funding. "We didn't get (the expanded funding), so sequester had a much more significant impact than we had hoped," said Jo Pepper, director of that program. Head Start programs provide early childhood education for lower income families who qualify. The cuts are part of the $85 billion in forced spending cuts that kicked in between March 1 and Sept. 30. Unlike other programs, Head Start programs are tied to the school year, so many of the cuts couldn't be fully implemented until the school year began.

How 57,000 children are paying the price for the GOP’s hard line —Budget cuts mandated by sequestration have eliminated Head Start services for more than 57,000 children nationwide, according to new data released by the federal government. The automatic, across-the-board budget cuts have also resulted in pay cuts or layoffs for at least 18,000 employees of Head Start, which provides education, nutrition, and health services for children aged 5 and under. Overall, Head Start will provide 1.3 million fewer days of service nationwide because of the cuts, according to the Department of Health and Human Services, which operates the program. Last year, more than 956,000 children were enrolled in Head Start overall.The data was collected from individual Head Start programs that submitted plans to the federal government explaining how they would handle the mandatory cuts. Local grant recipients who administer the program have the discretion to decide what parts of their program would bear the brunt of the cuts.

Philadelphia scrambles to find funds as schools teeter on the edge -- When a major school district can't pay its bills, does it shut down? Or does it beg, borrow and steal to keep going? Faced with a $304 deficit last June, Philadelphia schools slashed payrolls and budgets earlier this summer, issuing thousands of pink slips. Now with fall school opening around the corner, the district is scrambling to find the funds to open. Philadelphia is dealing with a problem hitting school districts around the country on a smaller scale. From Newark to Los Angeles, school districts are in crisis as state funds are constrained by continuing revenue shortfalls and expensive employee contracts that prove difficult to fix. To teachers and their defenders in Pennsylvania, the problem is funding. To the governor and his supporters, the problem is spending. And so with children in the crossfire, the street fight over how to repair and fund a flailing school system that cannot balance its books continues. “The problem is the whole system is designed for adults,” said Piya Abraham, a policy analyst with the Pennsylvania-based Commonwealth Foundation. “It’s high time to think about reforming the entire system so that it is genuinely student-centered.”

Lack of pension fix jeopardizes Chicago school finances (Reuters) - The $6.6 billion proposed fiscal 2014 budget for the Chicago Public Schools is unsustainable and the district's fiscal health will continue to deteriorate absent pension reform, according to an analysis by a government finance watchdog group on Thursday. The Chicago-based Civic Federation said it does not support the school spending plan, which helps close a $977 million deficit by draining $696.6 million in reserves, noting that budget gaps of nearly $1 billion are already projected for the next two fiscal years. The city-run school system's contribution to pensions will triple to $600 million in fiscal 2014 due largely to the expiration of a three-year partial pension funding holiday passed by the Illinois Legislature in 2010, the analysis said. The payment in fiscal 2013, which ended on June 30, was $196 million. Meanwhile, the funded level of the Chicago Teachers' Pension Fund fell to 54.5 percent in fiscal 2012 from a healthy 81.2 percent in fiscal 2003 on a market value basis. "The district knew this budget crisis was coming and should have been aggressively advocating for their own pension reform proposal tied to a long-term financial plan to stabilize their budget,"

Newest Wingnut Fad: Obama Decrees That 3 X 4 = 11 -- Fire up the Debunk-O-Matic 5000 and get ready to start sending your wingnut co-workers to snopes.com, folks! Fox & Friends and the American Patriarchy Association’s Bryan Fischer are among several conservative outlets pitching a selectively edited video that appears to show Illinois school official Amanda August saying that under the Common Core standards, it won’t matter whether a student thinks three times four equals eleven or twelve, as long as the student can explain why they came up with their answer. Fox & Friends showed a clip of August saying just this much:  Even if they said, ’3 x 4 was 11,’ if they were able to explain their reasoning and explain how they came up with their answer really in words and in oral explanations, and they showed it in the picture but they just got the final number wrong, we’re really more focusing on the how.  Steve Doocy mocked the clip, saying, “if you can explain it to the teacher…you get credit!” and co-host Anna Kooiman decried it as part of the “wussification of America [where] everybody gets a trophy … what happens if the child becomes a doctor and decides to operate on the wrong knee?” Pretty shocking stuff, and just more evidence that liberal teachers are throwing standards out the window!

Tucker Carlson’s Daily Caller Simply Does Not Care For All These Whorish ‘Teachers’ Whoring It Up: Every day, when we wake up, we like to ask ourselves: Are teachers somewhere doing sex for money? Will today be the day that some website says they are? Please please pretty please G_d, let today be the day we can call teachers whores! Believe it when The Daily Caller tells you: If you find any fault with public school teachers, you will definitely hear about how very hard they work, and how they care so much about making the world a better place. The Daily Caller now has evidence that the many spirited defenders of the old profession of teaching are right in many exciting, stimulating ways.Hahaha, oh we get it! Teachers do not work hard or care about making the world a better place! (Only reporters at the Daily Caller do that.) Can you guess why? We bet you cannot guess why. We will just tell you. IT IS BECAUSE ALL TEACHERS ARE WHORES!!!1! Man, the only way the Daily Caller could be more filled with jizz about getting to call teachers whores is if it were simultaneously getting to beat up homos in public restrooms! Oh right, they must have some sort of reason for thinking teachers are doing sex for money, right? > SeekingArrangement.com, which bills itself as “the #1 online dating website for sugar babies and generous men,” is now boasting that some 40,000 public school teachers of a certain moral caliber have joined the website in an attempt to sell sexual services seek wealthy, older men for “mutually beneficial relationships.”

Student Test Scores Rose When Teachers Retired Early - Student test scores rise when experienced teachers are enticed to leave, according to new research. In the Illinois program, teachers aged 50 or older, with at least five years of service, received extra retirement benefits — equivalent to five years of service — for retiring immediately. The researchers estimate that about 10% of teachers in the Illinois public school system left over a two-year period as a result of the plan. The median age of retirement went from 60 with 32 years of teaching service to 55 with 27 years, and the retirees were typically substituted with younger, more novice teachers who were also cheaper to employ. The researchers calculate that replacing a 27-year veteran teacher with a beginner saved a school district an average of $20,772 per year in salary payments. To measure student achievement, the researchers examined math and English standardized test scores of third, sixth and eighth grade students from 1989 to 1997 — before and after the program’s implementation. They found that school districts with more retirees had higher test scores. The results were unexpected, as previous literature has shown that teacher experience correlates with student achievement.

College students say no to costly textbooks - College students and some of their professors are pushing back against ever-escalating textbook prices that have jumped 82% in the past decade. Growing numbers of faculty are publishing or adopting free or lower-cost course materials online.Students also are getting savvier: 34% this spring reported downloading course content from an unauthorized website, up from 20% in 2010, says a survey released last month by the Book Industry Study Group, a trade association whose members include publishers, retailers, librarians, and other professionals engaged in print and electronic media. Also, 31% said they photocopied or scanned chapters from other students' books, up from 21% in 2010. The study (from spring 2013) is based on ongoing surveys involving about 6,000 book buyers a month.The price for new textbooks has been rising about 6% a year, says a report released this summer by the Government Accountability Office, the investigative arm of Congress. It is based on five U.S. higher education textbook publishers that represent more than 85% of college textbook sales. The 82% increase in textbook prices since 2002 compares with a 28% rise in the overall Consumer Price Index during the same period. Publishers have been able to drive up textbook prices because students "have to buy whatever textbook they've been assigned,"

College Costs: Rising, Yet Often Exaggerated - “Soaring college costs” is one of those phrases for which journalists and speechwriters seem to have a save-get key. It’s become conventional wisdom that the cost of attending college has risen far more than the cost of just about any other major item in family budgets. Expect to hear more such talk in the commentary about President Obama’s speech on higher education on Thursday – and perhaps even in the speech itself.  But the conventional wisdom is at least partly wrong. The cost of attending college has indeed increased more quickly than inflation in recent years, but it has not risen as fast as many people imagine. The main reason for the misunderstanding is the fact that the list price of college – especially the list price of elite private colleges – receives far more attention than the actual price. The list price is the one that colleges highlight in their brochures and that media accounts often mention; the actual price, which takes financial aid into account, reflects what families truly pay and, by any imaginable definition, matters more.

Obama Vows to Shame Colleges Into Keeping Costs Down — President Obama deplored the rising costs of college on Thursday as he tried to shame universities into holding down prices. He held out the prospect of more federal student aid if they did. Speaking at the University at Buffalo, where tuition and fees now total about $8,000 per year for New York residents, Mr. Obama said the middle class and those struggling to rise out of persistent financial troubles were being unfairly priced out of American higher education. “Colleges are not going to just be able to keep on increasing tuition year after year and passing it on to students,” Mr. Obama told an enthusiastic audience of about 7,200 students and others in the university’s auditorium. “We can’t price the middle class and everybody working to get into the middle class out of college.” The president, who was on the first day of a two-day bus trip across New York and Pennsylvania, said rising prices at colleges were partly driven by the distribution of $150 billion in federal assistance to students. He said colleges that allowed tuition to soar should be penalized by getting less federal aid for their students, while colleges that held down costs should get more of the money. He announced plans to create a federal rating system that would allow parents and students to easily compare colleges. And he said he would urge Congress to pass legislation to link the student aid to the rating system.

President Obama’s new higher education plan -- Here is one summary:“Early Thursday, he released a plan that would:

• Create a new rating system for colleges in which they would be evaluated based on various outcomes (such as graduation rates and graduate earnings), on affordability and on access (measures such as the percentage of students receiving Pell Grants).
• Link student aid to these ratings, such that students who enroll at high performing colleges would receive larger Pell Grants and more favorable rates on student loans.
• Create a new program that would give colleges a “bonus” if they enroll large numbers of students eligible for Pell Grants.
• Toughen requirements on students receiving aid. For example, the president said that these rules might require completion of a certain percentage of classes to continue receiving aid.”

There is another summary here.So far I don’t get it.  There seems to be plenty of information about colleges, and I doubt if a federal rating system would improve on those ratings already privately available.  To the extent that federal system became focal, the incentives to game and scheme it would become massive, and how or whether to punish the gamers, if and when they are caught, would be a political decision.  I don’t see that as healthy.

Obama’s Backup Plan on Colleges - White House officials are well aware that their plan to link federal financial aid to college performance faces hurdles. College presidents have generally resisted attempts to measure outcomes, and Congressional Republicans have generally resisted any domestic-policy proposal from President Obama. But the White House has something of a backup plan. Even if Mr. Obama (or his successor, given the plan’s long timeline) cannot persuade Congress to change the rules for awarding federal aid by 2018, his administration can still collect and publish the data on college outcomes. Mr. Obama’s first choice is that this data – on tuition, graduation and retention rates, student makeup and graduates’ earnings – help determine how much federal money the colleges receive. The backup plan is that parents and students will be able to use the data to decide where to enroll and, in the process, reward top-performing colleges and punish laggards. The White House plans to publish ratings based on this data by 2015. Whether this backup plan works will depend greatly on the details.

Obama’s New Plan to Accelerate Corporate Barbarism -- President Obama’s new “vision” for higher education is so crass, so ignoble, so barbarous, and so chilling that it is hard to believe that it could have been written by anyone other than the most vulgar and mercenary corporate suit in his employ.  It is a plan aimed at speeding up the corporate takeover of our higher education system, and transforming it once and for all into nothing but an assembly line for the production of useful human capital.  I will leave it to the reader to scan the philistine details.   For those whose minds, upon hearing the term “higher education”, immediately run to associations with business-world terms such as “bargain”, “investment”, “competition”, “options”, “performance”, “ratings system” … well then, it might be to your taste. Totally missing in this plan is any lively embrace of the idea that educating its young people is a responsibility of the whole society; or that the possession of an educated and cultivated mind is a good of the highest order in itself for the person who possesses it, and not just a means to more prosaic economic ends; or that education serves social and cultural ends more lofty than the efficient allocation of labor talents to industry; or that the future of our democracy depends on the existence of a cultivated citizenry and not just an army of mentally skilled worker-monkeys; or that the advance of human culture depends on our ability to generate compassionate moral visions out of the deep but confused recesses of our spiritually groping humanity. Obama seems to regard higher education primarily as a consumer choice, undertaken by an individual for the purpose of long-term individual gain of the most banal kind, and as thus primarily the responsibility of that individual. So he sees the social task here as just making sure the market for higher education is working well, enough to guarantee a wide assortment of individual options for personal advancement through post-secondary training, with sufficient competition so as to assure affordability, and with quantitative measurement tools conducive to informed shopping. The Obama plan for the American future is the ongoing stratification of Americans into a variety of castes, with post-secondary education continuing to evolve into a divisive system of young adult trade schools delivering the desired human product into the countless nooks and crannies of the production system.

Student advocates call for deeper reforms on debt as Obama outlines education plan - In a speech in Buffalo, New York today, President Obama unveiled a new plan that aims to reduce the rising costs of higher education. That plan includes a rating system for colleges that would rank schools using tuition costs, student debt, graduation rates and the income made by those who graduate. Financial aid to schools would be based on rankings, though Congress would have to approve that part of the plan. But some progressive economists, professors and student advocates say the plan doesn’t address the root causes of unequal access to education, and are calling for more structural changes that would forgive student debt now and prevent it in the future. In Washington, FSRN’s Alice Ollstein has more. (MP3 - 5:19)

Start funding college like high school -- Whether or not President Obama’s speech today is in direct response to Rolling Stone reporter Matt Taibbi’s eye-opening must-read on the college loan crisis, it is great news that the White House is evidently now taking the crisis more seriously. The credit bubble in college loans has ballooned into a systemic threat to the nation’s economy. Additionally, as Taibbi documents, economic and political trends are now converging to force an entire generation into a truly no-win situation: either don’t get a post-secondary education and severely harm your ability to get a job in an already weak economy, or get a post-secondary education and condemn yourself to a lifetime paying off debt that you may never be able to pay off because the economy is so weak and your job prospects are still not guaranteed. Peruse employment data and you’ll see that the New York Times was right when it declared that “the college degree is becoming the new high school diploma: the new minimum requirement, albeit an expensive one, for getting even the lowest-level job.” Though the Times notes that the weak economy means the job outlook for college grads “is rather bleak,” it is even more bleak if you don’t have a post-secondary degree. So, in terms of job-market competitiveness, some form of higher education is now increasingly as necessary as high school education. Yet, that’s the thing: in its financing models, America isn’t treating it as such. Just consider the critical distinction between how high school and college education are funded.

The Government Profits from Student Debt Defaults -- Matt Taibbi’s expose of Federal educational loan programs is over-the-top and not balanced but it does have some shockers. Most importantly, according to Taibbi, the Federal government makes a profit on student defaults. While it’s not commonly discussed on the Hill, the government actually stands to make an enormous profit on the president’s new federal student-loan system, an estimated $184 billion over 10 years, a boondoggle paid for by hyperinflated tuition costs and fueled by a government-sponsored predatory-lending program that makes even the most ruthless private credit-card company seem like a “Save the Panda” charity.…In 2010, for instance, the Obama White House projected the default recovery rate for all forms of federal Stafford loans (one of the most common federally backed loans for undergraduates and graduates) to be above 122 percent. The most recent White House projection was slightly less aggressive, predicting a recovery rate of between 104 percent and 109 percent for Stafford loans. The government claims the net after costs is less than 100%: ..Still, those recovery numbers are extremely high, compared with, say, credit-card debt, where recovery rates of 15 percent are not uncommon…. After the latest compromise, the 10-year revenue projection for the DOE’s lending programs is $184,715,000,000, or $715 million higher than the old projection – underscoring the fact that the latest deal, while perhaps rescuing students this coming year from high rates, still expects to ding them hard down the road. The loans are profitable even when the student defaults because the government has ways of making people pay:

Debt Could be Killing Young Americans - Having a buttload of student debt as you enter the job world is not only bad for your pocketbook, making you feel like you're running on a financial hamster wheel, but it might also be bad for your health. A new Northwestern University study headed for publication in the August issue of Social Science and Medicine found that higher debt in young adults was associated with higher blood pressure and ... ... poorer general health and mental health. The study looked at the psychology and health of 8,400 people aged 24 to 32 via data gathered from the National Longitudinal Study of Adolescent Health. One out of 5 subjects said if they sold everything they had they'd still be in debt, according to a summary of the research. And researchers found that the higher the debt of the subject, the more likely they were to report stress, bad health and high blood pressure (a 1.3 percent increase), the academics say. Such an increase in high blood pressure correlates to greater risk of stroke and hypertension, the researchers noted. 

With Student Debt, Even Paying It Off Isn’t the End -- About two-thirds of the 20 million people who attend college every year borrow money to do so. We’ve heard a lot about how growing educational debt loads — the average student borrower now graduates owing $26,600 — can be a detriment to someone just starting out in life, and to the health of the broader American economy. Student debt loads are crowding out other things that young people historically spend money on, forcing them to delay marriage, home ownership, auto and other big-ticket purchases, investments in start-up businesses, and retirement savings. But as it turns out, the negative effects of borrowing for college haunt borrowers long after their debts are paid off. The question of whether or not a college degree is a worthwhile investment is one that comes up often as higher education costs continue to rise. All other things being equal, the answer is yes: Researchers at Georgetown University found that over a lifetime, people who earn four-year college degrees earn an average of roughly $1 million more than those with only a high-school education. But a new study from nonprofit group Demos uncovers a troubling phenomenon: All other things being equal, people who borrow money to go to college build about $208,000 less in wealth over the course of a lifetime than those who don’t — and this assumes the borrowers take advantage of the government’s often-overlooked income-based repayment plan.

Why the Improving Economy Has Done Nothing for Retirement Saving - Despite a noticeable uptick in the economy, Americans continue to fall farther behind in their retirement savings—and pre-retirees seem to be in the direst shape.  In the last 12 months:

• The unemployment rate has fallen to 7.4% from 8.2%.
• Housing prices have risen 12%.
• The average stock has returned 20%.

But while 18% of Americans are saving more than they were a year ago, 17% are saving less and 54% are saving the same, according to a survey from Bankrate. That means a net of just 1% are taking advantage of the improving economy to shore up their long-term financial independence That means a net of just 1% are taking advantage of the improving economy to shore up their long-term financial independence. Perhaps most surprising is that employed pre-retirees appear to be doing the least about it. Folks between the ages of 50 and 64 are most likely to be saving less than a year ago. Among upper middle-income households—many of who are pre-retirees—21% are saving less than a year ago, Bankrate found. This is especially troubling because of the catch-up savings options available to people past age 50. You can contribute and extra $1,000 (total of $6,500) into an IRA and as much as an extra $5,500 (total of $23,000) in a 401(k). Of course, you need to have the money to make extra contributions, and well-earning pre-retirees are most likely to be in a squeeze that includes carrying some of the burden of an aging parent and either a child in college or

There Is No Scenario Where This Ends Well - Luckily, the average American is so bad at math they can’t read this chart and understand the implications. They remain willfully ignorant of their plight. After a lifetime of working, the median Boomer household has managed to accumulate $12,000 of retirement savings. That means that 50% have even less than $12,000 for their retirement. These 55 to 64 year olds are up shits creek without a paddle. No wonder the percentage of over 55 people working is at an all-time high. Every age bracket has been living in a land of delusion. The entire country has bought into the ”live for today” mantra. We have trillions in unfunded Social Security obligations that won’t be paid. Cities and States have trillions in unfunded pension and health benefits that won’t be paid. The government and its citizens have lived above their means for decades and haven’t saved for a rainy day or their futures. Wait until the 40% stock market crash does a number on these figures in the next year. There is no possible scenario where this ends well or can be solved by another government solution. It’s too late.

The Trends Few Dare Discuss: Social Security And The Decline In Full-Time Employment -- Believing official reassurances based on Fantasyland projections of ever-rising payroll taxes and employment does not magically make the Social Security system viable. Questioning the financial viability of the Social Security system is often taken as an attack on the program itself. Nothing could be further from reality. Anyone who truly wants Social Security to continue as is should take an active interest in structural trends rather than focusing all their energy on attacking those who question the official reassurances that the the system is sound until 2033. The two primary trends are obvious:

• 1. A structural decline in full-time employment
• 2. A historically unprecedented increase in Social Security benefits paid

Report: Fix Social Security Now–or Pay a Stiff Price - Social Security has already passed one important milestone on the road to insolvency: The program pays more in benefits than it generates in revenue. Another milestone is fast approaching: By 2033, the cumulative Social Security surplus (excess money collected over the decades and invested in Treasury bonds) will run dry. At that point, all beneficiaries regardless of age or income will face an immediate 23% benefits cut. But the situation is less dire than it seems—if lawmakers act soon. The shortfall could be closed with a 16.5% across-the-board cut in benefits or a 20% cut for new beneficiaries, according to the report from the bipartisan Committee for a Responsible Federal Budget. That’s not painless. But it beats the alternative. In 10 years, the required benefits cuts would be 19% or 30%, respectively, the report states. Another immediate fix would be a 2.7 percentage point payroll tax increase—from 12.4% to 15.1%. That jumps to a 3.3 percentage point hike in 10 years or 4.2 percentage points in 20 years, the report states. Acting now also helps beneficiaries. There is no Tooth Fairy. At some point, we must address the shortfall and doing so soon would cost less and give future retirees more time to prepare for the new reality.

Wisconsin Cuts Most People Off Of Medicaid - Well, Scott Walker finally gets to be number one at something - being his own death panel: Wisconsin would cut more people from Medicaid than any other state as part of a plan advanced by Republican Gov. Scott Walker, according to an independent analysis of data by Kaiser Health News. About 92,000 Wisconsin citizens, including 87,000 parents and caretaker relatives, and 5,000 childless adults with incomes above the federal poverty level, would lose the Medicaid coverage they previously had as a result of a waiver. Those people would be sent to the online insurance marketplace. At the same time, the state is planning to add 100,000 Wisconsin childless adults with incomes below the poverty level to Medicaid. Wisconsin is one of only four states that will reduce their Medicaid eligibility, according to the report. The other three, and the number of people who will lose coverage, will include: Maine, 35,000; Vermont, 19,000 and Rhode Island, 6,700.  Kaiser Health News collected enrollment data from the four states. The changes they plan still need federal approval, which is expected.

What explains regional variation in health care spending? -- It doesn’t seem to be demand side factors, but rather what doctors believe, including false beliefs.  That is scary.  There is a new NBER paper by David Cutler, Jonathan Skinner, Ariel Dora Stern, and David Wennberg and the abstract is this: There is considerable controversy about the causes of regional variations in healthcare expenditures. We use vignettes from patient and physician surveys, linked to Medicare expenditures at the level of the Hospital Referral Region, to test whether patient demand-side factors, or physician supply-side factors, explains regional variations in Medicare spending. We find patient demand is relatively unimportant in explaining variations. Physician organizational factors (such as peer effects) matter, but the single most important factor is physician beliefs about treatment: 36 percent of end-of-life spending, and 17 percent of U.S. health care spending, are associated with physician beliefs unsupported by clinical evidence.

One Reform, Indivisible, by Paul Krugman  - Recent political reporting suggests that Republican leaders are in a state of high anxiety, trapped between an angry base that still views Obamacare as the moral equivalent of slavery and the reality that health reform is the law of the land and is going to happen.  ... So let me help out by explaining, one more time, why Obamacare looks the way it does. Start with the goal that almost everyone at least pretends to support: giving Americans with pre-existing medical conditions access to health insurance. Governments can ... require that insurance companies issue policies without regard to an individual’s medical history... But we know what happens next: many healthy people don’t buy insurance, leaving a relatively bad risk pool, leading to high premiums that drive out even more healthy people. To avoid this downward spiral, you need to induce healthy Americans to buy in; hence, the individual mandate, with a penalty for those who don’t purchase insurance. Finally, since buying insurance could be a hardship for lower-income Americans, you need subsidies to make insurance affordable for all. So there you have it: health reform is a three-legged stool resting on community rating, individual mandates and subsidies. It requires all three legs. ...You see, this thing isn’t going to be the often-predicted “train wreck.” On the contrary, it’s going to work.

They Can’t Handle The Health Care Truth - Paul Krugman -  Aaron Carroll talks about the Republican health care dilemma, and makes a good point: it runs deeper than the specific fact that Obamacare looks the way it does because it has to. At the most fundamental level, you can’t guarantee adequate health care to everyone unless the people who don’t need help right now — the young, healthy, and affluent — are induced, one way or another, to contribute to the care of those who do need help. You can do this purely with taxes, via a single-payer system (and maybe even by having the government act as provider), or you can do it, Swiss or Massachusetts style, via a combination of regulation, taxes, and subsidies. But some way of corralling the lucky healthy into contributing is necessary.For the vast majority of this group, this is still a good deal — as Ezra Klein says, nobody stays young and healthy forever, and only a very small number of people are so rich that they are better off on a lifetime basis with no guarantee of insurance at all. But conservatives balk at the notion of any kind of redistribution, even if it makes almost everyone better off. So they are unable to come up with an alternative.What they have are fantasies — claims that somehow unleashing the magic of the marketplace can make health care so cheap that everyone can afford it. There is absolutely no reason to believe that this is true. ...

Karl Rove Shouldn’t Pretend He Understands Health Policy - Krugman - Aaron Carroll points me to Karl Rove claiming that Republicans do too have health care ideas. It’s always helpful here to keep your eye on the problem of Americans with preexisting conditions. That’s the best starting point for understanding why Obamacare has to look the way it does; it’s also often the best way to see what’s wrong with alleged Republican solutions. So, ask the following question: how is it that many Americans with preexisting conditions have health insurance now? The immediate answer is, they get it from their employers. But why do employers do that? Well, employment-based health insurance is tax-advantaged: it’s a benefit employers can provide that isn’t counted as taxable income, which makes it better, in some cases, than offering higher wages instead.  But for company health plans to receive this tax-advantaged status, they have to obey ERISA rules, which essentially require that the same benefits be made available to all full-time employees — no discrimination based on health history, and you can’t provide benefits only to your highest-paid workers.  Now comes Rove, and his big idea is to make the tax break on health coverage available to everyone, not just beneficiaries of employer plans. Great! Now employers can say “Here, we’ll eliminate your coverage, but we’ll pay you more, and you can use the money to buy tax-deductible insurance on your own!” Except that employees with preexisting conditions won’t find insurers willing to offer them affordable coverage — oh, and lower-paid workers won’t be able to afford coverage even if they’re healthy.

Health costs are growing really slowly - Ask any health economist and they’ll no doubt tell you that health care cost growth is slowing, growing at a low, unprecedented rate. They can point to the National Health Expenditures report, which shows health care costs now growing at the same rate as the rest of the economy. Or, they can pull up new data out Tuesday from the Kaiser Family Foundation, showing that premiums grew 4 percent in 2013. That’s way lower than growth in the late 1990s and early 2000s. Ask any American about what direction health costs are moving, and you’ll likely get a completely different story. Preliminary results for a forthcoming Kaiser Family Foundation poll show that most Americans think that health care costs are actually growing faster than usual right now. Fewer than 10 percent say the growth is slowing down. “We have a very moderate increase this year, but premiums go up each year,” Kaiser Family Foundation president Drew Altman says. “People see what they pay for their premium going up and perhaps more forms of cost-sharing. We’ve been seeing a quiet revolution from more comprehensive coverage to less.”

UPS Drops 15,000 Spouses From Health Plan, Blames Obamacare -- The unintended consequences of Obamacare are coming thick and fast (and not just from tin-foil-hat-wearing blogs, mainstream media, or political party ignorance). This time it is UPS, who announced that due to the higher costs under Obamacare will drop 15,000 spouses from its health insurance plan. As CNN reports, an internal document obtained by Kaiser Health News said the policy will apply to non-union US workers (saving what is expected to be a $60 million rise in costs). More 'anecdotal evidence'... UPS justified its move by saying that 35% of companies intend to do the same thing...

Here is HHS’s talking-point response to UPS dropping 15,000 spouses from insurance because of Obamacare -- Here’s the bloodless, robotic response from HHS to the decision by United Parcel Service — a decision UPS at least partly blames on Obamacare – to drop 15,000 spouses from its health care plan because they’re eligible for coverage elsewhere.“The health care law will make health insurance more affordable, strengthen small businesses and make it easier for employers to provide coverage to their workers,” said Joanne Peters, spokeswoman for the U.S. Department of Health and Human Services

Stopping Obamacare At Any Cost Even If We Have to Shoot It Because Founding Principles and Freedom and Terrorism and Other Stuff - For reasons known only to them, the right-wingers at Heritage Foundation are going all out this week with the launch of their campaign to stop the unconstitutional horror that is taking care of sick people. Thus do we have: 14 GOP Senators threatening to force a government shutdown unless Obamacare is defunded; half a million dollars in ads targeting other Republicans who don't agree that the absolute worstest thing in the universe is letting regular people get health care and thus we must do everything in our power to stop it,  including shutting down the government, such as it is; threats to make health care more expensive because, who knows; the start of a nine-stop "Defund Obamacare Tour" of town halls across the country to convince people that this "unworkable, unaffordable law" will destroy marriage and kill old people and wreck our fine country (though they will be tailed by liberal groups saying, umm, actually, not); and an effort to create an anti-Obamacare Internet meme go viral by urging people to tweet and post photos of their best arguments against government-abetted health care, like pictures of grumpy cats and this picture Heritage posted on their site of the great Jeff Bridges in, alas, reportedly the worst movie ever made, brandishing his guns at Obamacare with the caption, “He said #stopobamacare! Are you listening?” because, see, guns solve everything, like this communist idea of taking care of sick people. Best comment in response to the post: "Who the hell are you people?"

Man’s scrotum swelled to 132 pounds due to lack of health insurance - A 49-year-old Las Vegas man spent more than four years with a massively enlarged scrotum. According to CNN, the mass between Wesley Warren’s legs weighed 132 pounds when doctors removed it, not counting fluid they drained from the area and smaller bits of tissue that were removed during the operation.  Warren lived with the swollen mass for years because he didn’t have health insurance and couldn’t afford the hundreds of thousands of dollar it would cost to have it removed. It was only after he appeared on “The Howard Stern” show that a fellow sufferer of the medical condition that caused the swelling referred Warren to a physician who would perform the procedure for free.

Obesity Kills More Americans Than Previously Thought: One in Five Americans, Black and White, Die from Obesity - Obesity is a lot more deadly than previously thought. Across recent decades, obesity accounted for 18 percent of deaths among Black and White Americans between the ages of 40 and 85, according to scientists. This finding challenges the prevailing wisdom among scientists, which puts that portion at around 5%. "Obesity has dramatically worse health consequences than some recent reports have led us to believe," "We expect that obesity will be responsible for an increasing share of deaths in the United States and perhaps even lead to declines in U.S. life expectancy." While there have been signs that obesity is in decline for some groups of young people, rates continue to be near historic highs. For the bulk of children and adults who are already obese, the condition will likely persist, wreaking damage over the course of their lives. In older Americans, the rising toll of obesity is already evident. Dr. Masters and his colleagues documented its increasing effect on mortality in White men who died between the ages of 65 and 70 in the years 1986 to 2006. Grade one obesity (body mass index of 30 to less than 35) accounted for about 3.5% of deaths for those born between 1915 and 1919 -- a grouping known as a birth cohort. For those born 10 years later, it accounted for about 5% of deaths. Another 10 years later, it killed off upwards of 7%.  But younger age groups will be exposed to the full brunt for much longer periods. "A 5-year-old growing up today is living in an environment where obesity is much more the norm than was the case for a 5-year-old a generation or two ago. Drink sizes are bigger, clothes are bigger, and greater numbers of a child's peers are obese,"

Antibiotics Do's And Don'ts - Doctors aren't only handing out too many antibiotics, they also are frequently prescribing the wrong ones, researchers and public-health officials say. Recent studies have shown that doctors are overprescribing broad-spectrum antibiotics, sometimes called the big guns, that kill a wide swath of both good and bad bacteria in the body. Instead, narrow-spectrum antibiotics, like penicillin, amoxicillin and cephalexin, can usually clear up many infections, while targeting a smaller number of bacteria. Professional organizations, including the American Academy of Pediatrics, and public-health groups such as the Centers for Disease Control and Prevention are pushing doctors to limit the use of broad-spectrum antibiotics. Among the most common broad-spectrum antibiotics are ciprofloxacin and levofloxacin—a class of drugs known as fluoroquinolones—and azithromycin, which is sold by one drug maker under the brand name Zithromax, or Z-Pak.  Overuse of antibiotics, and prescribing broad-spectrum drugs when they aren't needed, can cause a range of problems. It can make the drugs less effective against the bacteria they are intended to treat by fostering the growth of antibiotic-resistant infections. And it can wipe out the body's good bacteria, which help digest food, produce vitamins and protect from infections, among other functions.

Bloomberg, Health Experts Denounce Obama’s Gift to Big Tobacco in the TPP - The Obama administration has drawn sharp criticism from leading health organizations, U.S. state representatives, and New York mayor Michael Bloomberg by caving to pressure from Big Tobacco to abandon safeguards for tobacco control policies in the Trans-Pacific Partnership (TPP), the pending "free trade" deal with 11 Pacific Rim countries. The administration has scrapped a proposal to provide a "safe harbor" for tobacco control measures. Instead the administration will issue a proposal in the current Brunei round of TPP negotiations that clears a path for tobacco corporations to use the TPP to directly challenge governments' progressive public health measures.   In response to the announcement, a major victory in tobacco corporations' effort to use TPP-like deals to roll back anti-smoking safeguards, Dr. Gregory Connolly of the Harvard School of Public Health stated, "Our government’s trade policy is promoting the tobacco epidemic." The American Cancer Society, the American Heart Association, the American Lung Association, and the Campaign for Tobacco Free Kids denounced the Obama administration’s decision to cave to Big Tobacco's TPP demands at the expense of public health. Legal and health experts at the Harvard School of Public Health, Georgetown University Law Center, and Action on Smoking and Health blasted the TPP proposal, finding it "will do little to protect governments’ right to regulate tobacco." "it would be better to not offer this text at all than to give the false impression that the United States is serious about protecting government authority within the TPP to regulate tobacco to protect health."

Graph of Total Global Biofuels Production 2002 – 2012  -- Look at the plateau! Is this a trend, or temporary? By industry and policy predictions, it is temporary, but time will tell. FROM BP’s REPORT:
● World biofuels production declined by 0.4% (-0.1 mtoe) in 2012, the first decline since 2000. This resulted from a decline in the US of 4.3% (-1.2 mtoe).
● Increased output in South America and Asia Pacific was outweighed by declines in North America and Europe.
● Global ethanol output declined by 1.7%, the second straight annual decline.
● Biodiesel production grew by 2.7% and has doubled in the last five years and now makes up 31% of total biofuel supply.

Genetically Modified Plants Reduce Cost of Biofuel Production - By genetically modifying plants to remove a key gene needed for lignin production, the scientists discovered that the plants grew with far less lignin, and that 80% of the cellulose within the plant could then be extracted without the need for the acid treatment. Only 18% of the cellulose in a normal plant can usually be extracted without the acid treatment.One of the main problems with removing most of the lignin in the plant is that the lignin is what gives the plant structure and strength. Removing it results in far shorter plants, reducing the yield of biofuel from the crop. Working on this problem, researchers at Lawrence Berkley National Laboratory have managed to create a way to only remove the lignin from parts of the plant, but not all; allowing most of the cellulose to be easily removed, but without compromising the structural integrity of the plant. The next stage of the study will be to transfer this genetic modification to biofuel producing plants such as switchgrass or poplar.

European climate policy drives wood pellet boom in NC — In the searing August heat, big yellow logging machines pile up the harvest from 153 acres of sweet gum, red oak and maple trees.A roaring log loader grabs the trunks to slice off 16-foot logs and stack them for one of the sawmills that provide a traditional market for Eastern North Carolina timber. These logs are worth $20 to $40 a ton and will be turned into plywood, cabinets and veneer. In a second woodpile, there’s new money. Limbs and leafy treetops are stacked alongside trees as big as 16 inches across. They cannot be sold as saw logs because they’re forked or knotty, crooked or hollow.This pile will be fed into a chipper and milled at an Ahoskie factory that makes 1,000 tons, every day, of a minor American fuel product suddenly in hot demand on the other side of the Atlantic: wood pellets.Two years ago, everything in this second pile would have been left on the ground to rot, said David Jennette, a Windsor forester who is managing this timber harvest. Now it brings $2 to $8 a ton. “When you’re talking about 50 to 75 tons of chips to the acre, and maybe more, that’s a significant amount of money going back to the landowner that we weren’t able to get before,” Jennette said.

The Three Factors That Put Lower-Income Americans At Greater Risk From Extreme Weather - As extreme weather batters communities across the country, a new report from the Center for American Progress details how these events disproportionately harm middle and lower-income Americans because they simply have fewer resources to prepare for and recover from such disasters. While many describe storms and other extreme weather as “social equalizers” that do not differentiate based on ethnicity, race, or class, the truth is that these events exacerbate our underlying economic inequities. With extreme weather on the rise, and so-called “storms of the century” becoming part of the new normal, vulnerable populations will be at much greater risk from climate change. While it is impossible to predict all the ways an extreme weather event can disrupt a community, the report explains that many of our disaster-resilience and recovery policies do not even account for the ongoing vulnerabilities that low-income households experience.

Experts surer of manmade global warming but local predictions elusive - Climate scientists are surer than ever that human activity is causing global warming, according to leaked drafts of a major U.N. report, but they are finding it harder than expected to predict the impact in specific regions in coming decades. The uncertainty is frustrating for government planners: the report by the Intergovernmental Panel on Climate Change (IPCC) is the main guide for states weighing multi-billion-dollar shifts to renewable energy from fossil fuels, for coastal regions considering extra sea defences or crop breeders developing heat-resistant strains. Drafts seen by Reuters of the study by the U.N. panel of experts, due to be published next month, say it is at least 95 percent likely that human activities - chiefly the burning of fossil fuels - are the main cause of warming since the 1950s. That is up from at least 90 percent in the last report in 2007, 66 percent in 2001, and just over 50 in 1995, steadily squeezing out the arguments by a small minority of scientists that natural variations in the climate might be to blame. That shifts the debate onto the extent of temperature rises and the likely impacts, from manageable to catastrophic. Governments have agreed to work out an international deal by the end of 2015 to rein in rising emissions.

Leaked U.N. Report: Humans 95% Responsible for Climate Change - A leaked draft of a forthcoming report from the Intergovenmental Panel on Climate Change finds that scientists are 95 percent sure that humans are causing global warming. The report stresses that the repercussions of rising emissions are likely to be profound. Just a few of the leaked details:

• —We're on course to change the planet in a way "unprecedented in hundreds to thousands of years."
• —Much of the carbon we've emitted will stay in the atmosphere for a millenniun, even after we've stopped emitting it. Those politicians who talk about “reversing” climate change don’t know what they’re talking about. The only thing we can do is stop making it worse.
• —Ocean acidification is virtually certain to increase. Excess carbon dioxide goes into the ocean where it changes the pH of the ocean. Even small changes affect small critters at the bottom of the ocean food chain and will eventually starve salmon, oysters, sea urchins, and other essential fish.
• —The IPCC scientists are now much more sure on sea level rise than they were six years ago. Their 2007 report predicted that by 2100 seas would rise 7 to 15 inches in a low scenario, or 10 to 23 inches in a high scenario, but that excluded the contribution from ice sheet flow because the modelers weren’t sure. Since 2007, Arctic and Greenland ice sheets have generally melted faster than predictions.
• —Over the course of 1,000 years, says the leaked report, the Greenland ice sheet could melt substantially or entirely. If that happens, the seas would rise about about 22 feet. Cities would drown—in the United States, the three most vulnerable large cities are New York, Miami, and New Orleans.

Welcome to the Age of Denial - IN 1982, polls showed that 44 percent of Americans believed God had created human beings in their present form. Thirty years later, the fraction of the population who are creationists is 46 percent.  In 1989, when “climate change” had just entered the public lexicon, 63 percent of Americans understood it was a problem. Almost 25 years later, that proportion is actually a bit lower, at 58 percent. The timeline of these polls defines my career in science. In 1982 I was an undergraduate physics major. In 1989 I was a graduate student. My dream was that, in a quarter-century, I would be a professor of astrophysics, introducing a new generation of students to the powerful yet delicate craft of scientific research. Yet instead of sending my students into a world that celebrates the latest science has to offer, I am delivering them into a society ambivalent, even skeptical, about the fruits of science. The triumph of Western science led most of my professors to believe that progress was inevitable. While the bargain between science and political culture was at times challenged — the nuclear power debate of the 1970s, for example — the battles were fought using scientific evidence. Manufacturing doubt remained firmly off-limits. Today, however, it is politically effective, and socially acceptable, to deny scientific fact. ... My professors’ generation could respond to silliness like creationism with head-scratching bemusement. My students cannot afford that luxury. Instead they must become fierce champions of science in the marketplace of ideas.

Fish Farms Cause Rapid Local Sea-Level Rise --Groundwater extraction for fish farms can cause land to sink at rates of a quarter-meter a year, according to a study of China’s Yellow River delta. The subsidence is causing local sea levels to rise nearly 100 times faster than the global average. Global sea levels are rising at about 3 millimeters a year owing to warming waters and melting ice. But some places are seeing a much faster rise — mainly because of sinking land. Bangkok dropped by as much as 12 centimeters a year in the 1980s thanks to groundwater pumping. Oil fields near Houston, Texas, experienced a similar drop during the 1920s because of oil extraction. Deltas can also sink as old river sediments compact under their own weight and water carrying replacement sediments is held back by dams or diverted for irrigation. “You can get crazy rates of sea-level rise,” says James Syvitski, a geologist at the University of Colorado Boulder and a co-author of the study, published online in Geophysical Research Letters.

Sea Level Could Rise 3 Feet by 2100, Climate Panel Finds - An international team of scientists has found with near certainty that human activity is the cause of most of the temperature increases of recent decades, and warns that sea levels could rise by more than three feet by the end of the century if emissions continue at a runaway pace. The scientists, whose findings are reported in a summary of the next big United Nations climate report, largely dismiss a recent slowdown in the pace of warming, which is often cited by climate change contrarians, as probably related to short-term factors. The report emphasizes that the basic facts giving rise to global alarm about future climate change are more established than ever, and it reiterates that the consequences of runaway emissions are likely to be profound. “It is extremely likely that human influence on climate caused more than half of the observed increase in global average surface temperature from 1951 to 2010,” the draft report says. “There is high confidence that this has warmed the ocean, melted snow and ice, raised global mean sea level, and changed some climate extremes in the second half of the 20th century.” The “extremely likely” language is stronger than in the last major United Nations report, published in 2007, and it means the authors of the draft document are now 95-100% confident that human activity is the primary influence on planetary warming. In the 2007 report, they said they were 90-100% certain on that issue.

World Bank sees $1 trillion bill for rising seas - From the World Bank overnight: Climate change, rapid urbanization, and subsiding land are putting the world’s coastal cities at increasing risk of dangerous and costly flooding, a new study calculating future urban losses from flooding shows.The study, led by World Bank economist Stephane Hallegatte and the OECD, forecasts that average global flood losses will multiply from $6 billion per city in 2005 to $52 billion a year by 2050 with just social-economic factors, such as increasing population and property value, taken into account. Add in the risks from sea-level rise and sinking land, and global flood damage could cost $1 trillion a year  if cities don’t take steps to adapt.Most coastal cities’ current defenses against storm surges and flooding are designed to withstand only current conditions. They aren’t prepared for the rising sea levels accompanying climate change that will make future floods more devastating, the authors write. Protecting these cities in the future will take substantial investment in structural defenses, as well as better planning, they write.The findings add to a series of recent studies, led by the World Bank’s Turn Down the Heatreports, that have looked closely at expected rises in sea level and their impact on vulnerable regions around the world.

China tests ‘most economical solution’ for shipping to Europe through Russian Arctic -- The Chinese are the first to pilot a container-transporting vessel through the icy Northern Sea Route (NSR), a journey from China to Europe that decreases transport time by at least 12 days compared to the traditional Suez Canal route. The 19,000-ton Yong Sheng, operated by Cosco Group, left the Chinese port of Dalian on August 8 and is set to dock in Rotterdam on September 11. The projected travel time, via the Bering Strait, is 12 to 15 days less than the southern route through the Suez Canal.  As Russia has been recently and significantly slowing its activity in the NSR, some experts say joining forces with China would help revive the route’s economics.  On the other hand, risks weigh of China gaining some control over the Arctic. China is openly calling itself a subarctic state and is seeking to win icebreaking contracts from Russia. In addition, China has received the status of a ‘permanent observer’ in the Arctic council – the body regulating access to the Arctic’s huge energy resources. The Arctic’s oil reserves are estimated at 90 million tonnes, or 13 percent of the world’s supply, with natural gas reserves standing at 1.67 trillion cubic meters, or 30 percent of the world reserves, and liquefied natural gas weighing in at 44 billion barrels, or 20 percent of world stock.

Race for Resources: Warm to Investors, Greenland Opens Up - Geologists have long known that deep beneath the forbidding ice of this Arctic island lay buried treasure. Below hundreds of feet of frozen water and ground, iron, copper, nickel, zinc, rare-earth minerals and rubies beckon. Oil and gas may sit offshore. Fortune hunters taste opportunity. Prospectors from various countries, encouraged by Greenland's investment-friendly policies, have spent over $1.7 billion developing potential projects. A British company is going for iron ore. Scots are testing for undersea oil. Australians are pursuing rare earths. Canadians are digging for rubies, while giant Chinese mining and engineering concerns are jockeying for position. In Greenland, the Arctic is in play. Recent annual thaws make it possible for the Danish territory to contemplate exploiting these riches, even though the 56,000 people who live on the world's biggest island lack the means to build the ports, roads and power plants required to transform the fishing-based economy into a mining one.

Helium Reserve Faces Shutdown - When Congress returns to Washington next month, it will have just weeks to prevent a shortage of helium that could deal a blow to a range of industries. Unless Congress acts to wind it down more gradually, the Federal Helium Reserve, which supplies more than one-third of the world's crude helium, will shut down on Oct. 8. The Amarillo, Texas-based underground reservoir and its connected infrastructure are operated by the government to store and process helium, a crucial element already experiencing global shortages. Making the timeline even tighter: the Bureau of Land Management could begin winding down its operations as early as Sept. 15 to prepare for the closure, according to industry estimates. That is just a week after lawmakers return from their summer break. Industry officials have dubbed it the "helium cliff,'' a play on the year-end "fiscal cliff'' deadline that Congress had to navigate last year to avoid broad tax increases. Congress has known for years about the difficulties involved in extricating the government from its decadeslong involvement with helium, which includes operating the helium reserve along with a processing plant and 450-mile pipeline system. But lawmakers have yet to pass legislation that would ease the planned transition to an all-private system. An abrupt closure of the federal helium program would trigger nearly immediate problems for industries reliant on the element, including aerospace, defense, high-tech manufacturers, medical equipment users and researchers. Among other uses, helium plays a role in testing rocket engines, welding, commercial diving and in making flat-screen televisions, fiber optic cables and semiconductor chips.

In Texas, Oil Is Big But Solar Is Cheap - Despite foot-dragging by the state’s leadership on solar policies, residential solar installation prices recently hit $3.90 per watt in Texas, lower than anywhere else in the nation. It’s part of a nationwide plunge in installation prices for the smaller systems — generally 10 kilowatts or less — used for individual homes. According to a new report out of the U.S. Department of Energy’s Lawrence Berkeley Laboratory, that national price fell from around $12 per watt in 1998 to $5.30 per watt in 2012.Large utility-scale solar systems saw a similar plunge in installation price, hitting $4.60 per watt in 2012. But it’s the small, distributed residential systems that could fundamentally remake the electricity market in America, and have been a large part of the growing pro-solar coalitions between environmentalists and the Tea Party. Granted, residential solar is still a relatively small slice of national capacity, but it’s also been the least sensitive to seasonality and market volatility. And according to the Lawrence Berkeley Laboratory report, of all the states with measurable observations of 15 or more, Texas clocked in with the lowest median price of $3.90 per watt.

Carbon Catastrophe: Obama Administration To Sell 316 Million Tons Of Coal - Today the Obama administration’s Bureau of Land Management will hold the first of two major coal lease sales over the next month from public lands in Wyoming’s Powder River Basin. Combined, they will allow the extraction of almost 316 million tons of taxpayer-owned coal that, when burned, will result in significant carbon pollution. The second sale is scheduled for September 18. Burning this coal will release 523,524,951 tons of carbon dioxide into the air, according to a Climate Progress analysis using BLM’s environmental analyses and the Environmental Protection Agency’s Greenhouse Gas Equivalencies Calculator. This is equivalent to the emissions from nearly 109 million passenger vehicles every year. For comparison, there are approximately 253 million vehicles in the U.S. The first of three tenets in President Barack Obama’s Climate Action Plan announced in June is “cutting carbon pollution in America.” Paul Bledsoe, a former Interior Department official during the Clinton administration, highlighted the disconnect between the administration’s dual pushes for coal leasing and cutting carbon pollution in December 2011: On some level, the twin goals of increased fossil fuel production and reducing U.S. greenhouse gas emissions are necessarily in conflict, at least without a national cap on emissions. This fundamental contradiction in current U.S. energy policy is playing out on the Keystone oil pipeline, in our public lands policy and throughout the energy economy.  As Grist’s David Roberts succinctly puts it, “digging up and burning that Powder River Basin coal will put enough carbon in the atmosphere to undo all of Obama’s other climate work.”

We Need A War On Coal - Earlier this year, the concentration of carbon dioxide in the atmosphere reached 400 parts per million. The last time there was that much CO₂ in our atmosphere was 3 million years ago, when sea levels were 24 meters higher than they are today. Now sea levels are rising again. Last September, Arctic sea ice covered the smallest area ever recorded. All but one of the 10 warmest years since 1880, when global records began to be kept, have occurred in the 21st century.  Some climate scientists believe that 400 ppm of CO₂ in the atmosphere is already enough to take us past the tipping point at which we risk a climate catastrophe that will turn billions of people into refugees. They say that we need to get the amount of atmospheric CO₂ back down to 350 ppm. That figure lies behind the name taken by 350.org, a grassroots movement with volunteers in 188 countries trying to solve the problem of climate change.  Other climate scientists are more optimistic: They argue that if we allow atmospheric CO₂ to rise to 450 ppm, a level associated with a temperature increase of 2 degrees Celsius, we have a 66.6 percent chance of avoiding catastrophe. That still leaves a one-in-three chance of catastrophe—worse odds than playing Russian roulette. And we are forecast to surpass 450 ppm by 2038. One thing is clear: If we are wish not to be totally reckless with our planet’s climate, we cannot burn all the coal, oil, and natural gas that we have already located. About 80 percent of it—especially the coal, which emits the most CO₂ when burned—will have to stay in the ground.

Coming Full Circle in Energy, to Nuclear - In April 1977, President Jimmy Carter call ed Americans to arms, urging a vast increase in coal production to “protect ourselves from uncertain supplies” of oil. North Antelope Rochelle and the other vast strip mines cutting through the plains of Wyoming’s Powder River Basin — whose low-sulfur carbon met standards imposed by the Clean Air Act — were the result. Since then, coal production west of the Mississippi has multiplied by four times, to about 640 million tons a year.  While nuclear power also ranked high in President Carter’s speech, it proved no match against cheap coal and gas — especially after the force of American public opinion, scarred by visions of Three Mile Island and Ukraine’s Chernobyl disaster, contributed to delays and regulatory hurdles that made building a new nuclear power plant prohibitively more expensive.  Today, the world is staring at a similar inflection point in energy policy. Glowing wood fires are now understood to be a problem, spewing heat-trapping carbon dioxide into the atmosphere. Most scientists see coal — what James Schlesinger, the nation’s first energy secretary, called America’s “black hope” — as one of the biggest threats to the world’s climate.  But even as the consensus among experts builds that coal and other fossil fuels must be sharply reduced and eventually removed from the energy matrix, there is no agreement on what sources of energy could feasibly take their place, and how to get from here to there.

Wrecked Fukushima storage tank leaking highly radioactive water (Reuters) - Contaminated water with dangerously high levels of radiation is leaking from a storage tank at Japan's crippled Fukushima nuclear plant, the most serious setback to the cleanup of the worst nuclear accident since Chernobyl. The storage tank breach of about 300 metric tons of water is separate from contaminated water leaks reported in recent weeks, plant operator Tokyo Electric Power Co said on Tuesday. The latest leak is so contaminated that a person standing half a meter (1 ft 8 inches) away would, within an hour, receive a radiation dose five times the average annual global limit for nuclear workers. After 10 hours, a worker in that proximity to the leak would develop radiation sickness with symptoms including nausea and a drop in white blood cells. "That is a huge amount of radiation. The situation is getting worse,"

Tritium Measurement In Fukushima Bay Highest Ever As TEPCO Admits 40 Trillion Becquerels Have Spilled Into Pacific -- Over the weekend we posted an in-depth narrative of what may happen in a theoretical worst case scenario in Fukushima, one in which the government continues to do nothing and pretends all is well, and where the end casualties are millions of innocent Japanese (and other) citizens, whose only crime is believing their government. Sadly, with every passing day the theoretical is becoming all too real, and moments ago reality struck again, when the Nikkei newspaper reported that readings of tritium in seawater taken from the bay near the crippled Fukushima nuclear plant has shown 4700 becquerels per liter. This was the highest tritium level in the measurement history. It gets better: Earlier, Tepco admitted that an estimated 20 to 40 trillion becquerels of tritium may have flowed into the Pacific Ocean since the nuclear disaster.

When It Rains, It Pours Radiation: Fukushima Plant Springs Worst Leak In History - Just when one though the bad news out of Fukushima would trickle down, no pun intended, if only because purely statistically it was improbable that any more bad news would leak out, here comes TEPCO which at a press conference this morning announced that "roughly 300 tonnes of radioactive water has seeped from a storage tank, marking the worst leak in more than 2½ years of efforts to contain the effects of the March 2011 earthquake and tsunami." In other words, not only is the irradiated coolant water overflowing the storage tanks, it is also leaking straight into the environment, including the surrounding soil, ocean and who knows where else.

BBC News - Q&A: Fukushima leak problems: The ongoing problem with water seems to be coming, in the main, from poorly constructed storage tanks. Tepco, the company that operates Fukushima, is using huge volumes of water every day to cool the reactors that once generated electricity at the plant. When the water comes in contact with fuel rods at the heart of the reactors, it becomes highly radioactive and has to be stored in large containers on the site where the water is then processed to remove some of the most dangerous elements. Every day, the company has an extra 400 tonnes of irradiated water to store. This is roughly a 10th of an Olympic-sized swimming pool. The water is held in some of the 1,000 water tanks the company has erected on site. But there are problems with these tanks. "To keep up with the rate at which radioactive cooling water is accumulated, Tepco has opted to use containment tanks incorporating plastic seals. Seepage from these joints was the cause of the latest leak of radioactive water." It is believed that about a third of the storage is constructed in this way. Four previous, smaller leaks all came from these type of tanks. Finding the small leaks is very difficult, according to Prof Hyatt. "It is very challenging. They have a real problem with the high level of background radiation, so the small leaks are hard to find."

Radioactive Leaks in Japan Prompt Call for Overseas Help -  Tokyo Electric Power Co. indicated it’s losing the battle to contain leaks of radioactive water at its Fukushima plant and emphasized for the first time that it needs overseas expertise to help contain the disaster. The remark from Zengo Aizawa, a vice president at the utility, followed a leak of 300 metric tons of irradiated water this week. Japan’s nuclear regulator labeled the incident “serious” and questioned Tepco’s abilty to deal with the crisis. Prime Minister Shinzo Abe made similar comments earlier this month.  “"There is much experience in decommissioning reactors outside of Japan. We need that knowledge and support.” In Vienna, the International Atomic Energy Agency said it’s prepared to help. Besides radiated water, the site north of Tokyo has more than 73,000 cubic meters of contaminated concrete, 58,000 cubic meters of irradiated trees and undergrowth, and 157,710 gallons of toxic sludge, according to the utility. The tanks holding highly radioactive water cover an area equal to 37 football fields, and the utility is clearing forest to make room for more. There are 480 filters clogged with cesium. Each weigh 15 tons and are warehoused in what the utility calls temporary storage, though it will take hundreds of years for the radiation to decay.

"Tepco Has Lost Control" - What Is Really Happening At Fukushima In Four Charts -  After a self-imposed gag order by the mainstream media on any coverage of the Fukushima disaster (ostensibly the last thing the irradiated Japanese citizens needed is reading beyond the lies of their benevolent government, and TEPCO, and finding out just how bad the reality is especially since the key driver behind Abenomics is a return in confidence at all costs), the biggest nuclear catastrophe in history is once again receiving the attention it deserves. This follows the recent admission by TEPCO of the biggest leak reported at Fukushima to date, which forced the Japanese government to raise the assessment of Fukushima from Level 1 to Level 3, even though this is merely the catalyst of what has been a long and drawn out process in which Tepco has tried everything it could to contain the fallout from the exploded NPP, and failed. And today, in a startling and realistic assessment of Fukushima two and a half years after the explosion, the WSJ finally tells the truth: "Tepco Has Lost Control." Full interactive charts can be found here

Fukushima leak is 'much worse than we were led to believe' --A nuclear expert has told the BBC that he believes the current water leaks at Fukushima are much worse than the authorities have stated. Mycle Schneider is an independent consultant who has previously advised the French and German governments. He says water is leaking out all over the site and there are no accurate figures for radiation levels. Meanwhile the chairman of Japan's nuclear authority said that he feared there would be further leaks. The ongoing problems at the Fukushima plant increased in recent days when the Tokyo Electric Power Company (Tepco) admitted that around 300 tonnes of highly radioactive water had leaked from a storage tank on the site. But some nuclear experts are concerned that the problem is a good deal worse than either Tepco or the Japanese government are willing to admit. They are worried about the enormous quantities of water, used to cool the reactor cores, which are now being stored on site. Some 1,000 tanks have been built to hold the water. But these are believed to be at around 85% of their capacity and every day an extra 400 tonnes of water are being added. "What is the worse is the water leakage everywhere else - not just from the tanks. It is leaking out from the basements, it is leaking out from the cracks all over the place. Nobody can measure that.

Fukushima's new looming crisis: Radioactive groundwater seeping toward ocean - Deep beneath Fukushima's crippled nuclear power station a massive underground reservoir of contaminated water that began spilling from the plant's reactors after the 2011 earthquake and tsunami has been creeping slowly toward the sea. Now, two-and-a-half years later, experts fear it is about to reach the Pacific and greatly worsen what is fast becoming a new crisis at Fukushima: the inability to contain vast quantities of radioactive water. The looming crisis is potentially far greater than the discovery earlier this week from a tank used to store contaminated water used to cool the reactor cores. That 300-ton (80,000 gallon) leak is the fifth and most serious since the disaster of March 2011, when three of the plant's reactors melted down after a huge earthquake and tsunami knocked out the plant's power and cooling functions. Experts believe the underground seepage from the reactor and turbine building area is much bigger and possibly more radioactive, confronting the plant's operator, Tokyo Electric Power Co., with an invisible, chronic problem and few viable solutions. Many also believe it is another example of how TEPCO has repeatedly failed to acknowledge problems that it could almost certainly have foreseen — and taken action to mitigate before they got out of control.

Can an Ice Wall Stop Radioactive Water Leaks from Fukushima? - Multiple efforts by plant operator Tokyo Electric Power Company to halt the daily flow of 300 tons—nearly 72,000 gallons—of radioactive water from the plant into the ocean have failed. (See related story: "Fukushima Radioactive Water Leak: What You Should Know.") At a Tokyo press conference, Japanese Chief Cabinet Secretary Yoshihide Suga made the frozen containment, whose cost could reach 50 billion yen (about $410 million), sound like an edgy, exotic final resort for stopping the leakage from the plant's stricken reactor buildings, which were severely damaged by a March 2011 earthquake and tsunami that knocked out their cooling systems. "There is no precedent in the world to create a water-shielding wall with frozen soil on such a large scale," Suga told reporters. "To build that, I think the state has to move a step further to support its realization." To many people, the concept of an ice wall might sound almost too bizarre to be believable. The plan, initially proposed by Japanese construction company Kajima Corporation. and approved by a government panel in late May, reportedly calls for engineers to sink an array of vertical pipes into the ground around the buildings housing reactors 1 through 4. According to experts in ground-freezing technology, several large refrigerator units—the sort used to cool hockey arenas—would chill coolant that would circulate through the pipes, gradually lowering the temperature of the wet soil around them to subzero temperatures. In about two months, the soil would solidify and form a frozen barrier that would block water from flowing into the plant, and prevent already contaminated water inside it from reaching the ocean. (See related photos: "A Rare Look Inside Fukushima Daiichi.")

PG&E Says Gas Penalty Would Push to Brink of Bankruptcy - PG&E, owner of California’s largest electric utility, said it may be pushed to the edge of bankruptcy if state regulators impose a proposed $2.25 billion penalty for a deadly 2010 pipeline explosion. If approved, the company would pay a total of $4 billion, including money already spent on pipeline upgrades and safety work, Chairman and Chief Executive Officer Tony Earley said in an interview at Bloomberg headquarters in New York today. The San Francisco-based company would need to sell about $2 billion in additional stock, he said. “The risk is you can’t raise that capital and you end up in bankruptcy,” Earley said. Investors would have to buy stock that they “would never get a return on” because the money couldn’t be recovered from customers. “If I was a shareholder, I wouldn’t be buying PG&E stock under those circumstances.”

Aubrey McClendon Is Back, With Deals In The Utica - Forbes Aubrey McClendon is back with a vengeance and prowling Ohio’s Utica shale. The wildcatting landman and former CEO of Chesapeake Energy Chesapeake Energy has tapped his deep-pocketed pals and raised $1 billion to buy up at least 50,000 acres (and perhaps more than 70,000 acres) in Ohio’s Utica shale.According to a story in Upstream newspaper, also posted here, McClendon’s American Energy Partners put up the high bid for 50,000 acres offered by Shell in the Ohio portion of the Utica. A Shell spokeswoman says the company has no comment to add to the speculation and rumors. McClendon is also thought to have acquired 22,000 acres of Utica acreage from EnerVest, one of Chesapeake’s partners in Ohio, for more than $250 million. EnerVest disclosed the deal here, but did not mention McClendon or AEP. Naturally, that deal was brokered by Jeffries — Chairman Ralph Eads is a former fraternity brother and longtime friend of McClendon’s. The two men co-own a winery in France.

Exclusive: Ousted Chesapeake Energy CEO Aubrey McClendon Launching Ohio Land Grab -- Steve Horn - Aubrey McClendon's penchant for "land grab" as a business model made the recently-ousted Chesapeake Energy CEO infamous - and he's at it again for his new start-up hydraulic fracturing ("fracking")company in Ohio's Utica Shale basin. Under Securities and Exchange Commission investigation for sketchy business practices, McClendon departed Chesapeake with a severance package including $35 million, access to the company's private jets through 2016 and a 2.5% return on every well Chesapeake fracks through June 2014. Since then, he launched three new start-ups: McClendon Energy Partners, American Energy Partners and Arcadia Capital LLC. American Energy Partners' headquarters are just half a mile down the road from Chesapeake's, the number two U.S. producer of shale gas behind ExxonMobil. Some of those in McClendon's Chesapeake inner circle - those who helped run the potentially illegal internal hedge fund named AKM Operations (McClendon's initials) - have left Chesapeake and joined him at his new ventures. In other words, the scandal-ridden AKM Operations has shape-shifted into McClendon Energy Partners, American Energy Partners and Arcadia Capital LLC. McClendon's playing the same business plan game using a different company name, with Ohio serving as the first pit stop. Although his business plans were held close to the chest since his Chesapeake departure, recent stories indicate that McClendon's Ohio "land grab" has now begun in earnest.

Chesapeake Co-Founder's New Startup Bets Big on Ohio - WSJ.com  -- Aubrey McClendon, one of America's best known wildcatters, is betting again on striking it big in Ohio as he builds a new oil and gas exploration company. Mr. McClendon's deal-making in the rustbelt echoes the wager he made as chief executive of Chesapeake Energy Corp., CHK -0.04%before being ousted by unhappy investors earlier this year. It offers the first glimpse of how he hopes his comeback will unfold after he lost control of the company he co-founded in 1989. He has lined up about $1.2 billion in equity and debt financing for deals in Ohio, much of it coming from two energy-focused private-equity firms, according to people close to the matter. Mr. McClendon is close to completing an agreement to get more than $500 million from the Energy & Minerals Group, a Houston firm run by John Raymond, son of former Exxon Mobil Corp. Chief Executive Lee Raymond, according to people close to the deal. He expects to get another $200 million from private-equity group First Reserve, of Greenwich, Conn. Others will invest smaller sums, while Mr. McClendon will contribute some of his own money, the people said. The company has raised $400 million in debt, one person familiar with the matter said. Mr. McClendon's new company, American Energy Partners LP, struck a deal earlier this month to buy drilling leases on more than 22,500 acres in southeastern Ohio for $284.3 million from closely held EnerVest Ltd. and its publicly traded unit EV Energy Partners LP, according to people familiar with the deal. Separately, American Energy has acquired some properties in Ohio from Royal Dutch Shell, according to a person familiar with the matter. Representatives of EnerVest and Shell declined to comment.

Why Every Oil & Gas Discovery is a ‘Game Changer’ - Prepare yourself for another hype cycle in the U.S. oil and gas industry. The industry says it has found a deposit of oil that may turn out to be the largest in the world. The deep tight oil deposit goes by the name Spraberry/Wolfcamp and is located in West Texas. It's no surprise then that the industry is trotting out the America-as-the-new-Saudi-Arabia theme once again, a theme that many including me have shown to be pure bunkum. This is the discredited notion that in tight oil and shale gas deposits, a company can drill anywhere and extract economical volumes of oil and/or natural gas. The idea has been discredited by the record of every tight oil and shale gas deposit drilled to date, deposits which settle down into a pattern of tightly focused "sweet spots" where drillers can make money and vast areas that are not profitable to drill--mainly because the oil and natural gas are too difficult to get out. Though there are plenty of other reasons to doubt the claims about Spraberry/Wolfcamp, no one will know for certain what's true until the area is drilled and produced. But, in order to drill it, oil and gas companies must raise billions in capital to pay for drilling and production costs. And, in order to do that, they have to get investors interested in ploughing money into the drilling of actual individual wells through what are called private placements. These placements are riskier than shares of oil and gas companies because they relate to specific drilling projects which may or may not succeed. On the other hand, such projects can be quite lucrative when they do succeed. Hence, the continuing attraction for the speculative investor.

Shale oil & gas Ponzi scheme --  While the industry continues to hype natural gas and oil production from shales as the great panacea for all our energy woes, such hyperbole needs sufficient justification. And well the numbers just aren't there. At least not for anybody except Wall Street investment bankers and even they are now seriously struggling to make shales pay.  Energy companies claiming long term viability of shale production is cause for some critical thinking and critical questioning which unfortunately has  been sorely lacking in the shale debate to date. After all, those companies need to convince investors about shales prospects to keep the money flowing in. But when one examines the numbers, whether they be significant deterioration of free cash flow at virtually every shale company, or the cost of externalities [damage to infrastructure, no insurance, health problems, pollution, etc.] far outstripping severance tax revenue or massive writedowns of shale assets able to knock 50-60% off earnings at companies the size of Royal Dutch Shell and Exxon Mobil, one has to sit back and consider that maybe, just maybe, shales are not all they are cracked up to be.

Is the shale forecast curve hyperbolic, or exponential? - The US shale gas production boom took everyone by surprise — apparently that includes George Mitchell himself, who was credited for sparking the shale gas production surge on his death last month. Yet the variety of output from different shale gas plays is also taking some by surprise. Like Shell, for example, whose Q2 results were grim with a sharp fall in profits and a $2.1bn writedown, mostly of North American shale assets. The cratering of the US natgas price is good in that it means supply is abundant, something which has great societal value, if not seen that way by markets and investors. And perhaps the abundance can be counted on for many years to come – another good thing, arguably. The problem is where and how this argument is applied. If one is going to look decades into the future, for example, and consider the public good rather than at just a few years of investment returns, the shale gas boom may not be a good thing at all. Moving away from these thorny questions and back to supply and pricing — how reliable is the production outlook, anyway? The picture is confusing. As the FT’s Greg Meyer reports:  Supply from Marcellus states such as Pennsylvania and West Virginia has been climbing even as production from other shale fields has levelled off. Gross production is up 45 per cent so far this year from the same period in 2012, according to Bentek Energy. In the Haynesville shale straddling Louisiana and Texas, production is down 21 per cent year on year. So there’s resilient output from Marcellus which is currently more than offsetting declines in other plays. As Greg points out, this abundant supply means gas is trading for as little as $1 per mBTU in Pennsylvania – less than a third of the Henry Hub benchmark.

Fracking leaves property values tapped out- Depending on where you stand and what's beneath the ground you're standing on, fracking is either paving the way toward American energy independence or dooming it to methane-addled water and man-made tremors.  The one certainty about fracking, however, is that it doesn't exactly do wonders for property values. As reported by The Atlantic, mortgage lenders are becoming more cautious about approving loans for properties near fracking sites. Lawyers, real estate agents, public officials and environmentalists have noted that banks and federal agencies are revisiting their lending policies to account for the potential impact of drilling on property values. In some cases they are refusing to finance property with or even near drilling activity. That's particularly problematic, considering that many home insurance policies do not cover residential properties with a gas lease or gas well, though all mortgage companies require home insurance from their borrowers. Part of the problem stems from uncertainty over the effects of the process itself.

Groundwater Contamination May End the Gas-Fracking Boom: Scientific American: In Pennsylvania, the closer you live to a well used to hydraulically fracture underground shale for natural gas, the more likely it is that your drinking water is contaminated with methane. This conclusion, in a study published in the Proceedings of the National Academy of Sciences USA in July, is a first step in determining whether fracking in the Marcellus Shale underlying much of Pennsylvania is responsible for tainted drinking water in that region. Robert Jackson, a chemical engineer at Duke University, found methane in 115 of 141 shallow, residential drinking-water wells. The methane concentration in homes less than one mile from a fracking well was six times higher than the concentration in homes farther away. Isotopes and traces of ethane in the methane indicated that the gas was not created by microorganisms living in groundwater but by heat and pressure thousands of feet down in the Marcellus Shale, which is where companies fracture rock to release gas that rises up a well shaft. Most groundwater supplies are only a few hundred feet deep, but if the protective metal casing and concrete around a fracking well are leaky, methane can escape into them. The study does not prove that fracking has contaminated specific drinking-water wells, however.

How shale fracking led to an Ohio town's first 100 earthquakes: Since records began in 1776, the people of Youngstown, Ohio had never experienced an earthquake. However, from January 2011, 109 tremors were recorded and new research in Geophysical Research-Solid Earth reveals how this may be the result of shale fracking. In December 2010, Northstar 1, a well built to pump wastewater produced by fracking in the neighboring state of Pennsylvania, came online. In the year that followed seismometers in and around Youngstown recorded 109 earthquakes; the strongest being a magnitude 3.9 earthquake on December 31, 2011. The study authors analyzed the Youngstown earthquakes, finding that their onset, cessation, and even temporary dips in activity were all tied to the activity at the Northstar 1 well. The first earthquake recorded in the city occurred 13 days after pumping began, and the tremors ceased shortly after the Ohio Department of Natural Resources shut down the well in December 2011. "We found that the onset of earthquakes and cessation were tied to the activity at the Northstar 1 deep injection well. The earthquakes were centered in subsurface faults near the injection well. These shocks were likely due to the increase in pressure from the deep waste water injection which caused the existing fault to slip," said Dr. Won-Young Kim. "Throughout 2011, the earthquakes migrated from east to west down the length of the fault away from the well -- indicative of the earthquakes being caused by expanding pressure front."

Shale Boom Not Generating Lots of Jobs in Ohio - Ohio’s shale boom still isn’t generating a lot of jobs. Researchers at Cleveland State University earlier this year released a study that showed retail spending in the corner of Ohio where the shale business is concentrated surged in 2012, while hiring in the area had increased only modestly. In an update, the research found the trend has continued into the beginning of this year. Retail sales in the 15-county block with lots of shale activity went up 14.2% in the first quarter — while hiring increased only 0.1%. Hiring was actually a bit stronger—up 0.2% in the first quarter — in another section of the state with only moderate shale activity. “It is likely this robust sales growth in the strong sale counties is being driven by ‘shaleionaires,’ the landowners profiting from leasing their formerly agricultural land for drilling purposes,” the report says. The study says job growth is likely being muted in part by the fact that workers are still being trained to work in the new industry and the nature of the development up to now. “As the midstream development—the system of pipelines and processing plants that will take the hydrocarbons from the well pad to the end-user, whether it’s a chemical company, a refinery or your BBQ grill—continues and improves market access over the next several years, production numbers are predicted to continue rising and associated job growth will accompany these developments,” the report concludes.

Lacking Funds for Repairs, Texas to Convert Roads into Gravel Paths  -- Whilst it maybe a common belief that the oil boom has benefitted Texas greatly, it has actually brought problems to many local residents, as the increased traffic has begun to severely damage infrastructure and the environment. As new fields are developed and the energy company-realted traffic increases, many farm-to-market roads in East and South Texas have been badly damaged, and affect such a large number of roads, that despite the supposed higher revenues earned by the state, the Texas Department of Transportation claims that it does not have the funds to make the necessary repairs.  In fact it estimates that the cost of maintaining and repairing the roads use by tankers and trucks travelling to and from the oil fields is around $1 billion a year. David Glessner, a spokesman for the Texas Department of Transportation, explained that “since paving roads is too expensive and there is not enough funding to repave them all, our only other option to make them safer is to turn them into gravel roads.”

The Darker Shades Of Shale - Ilargi: I wasn’t going to write a third article on shale in 2 weeks, absolutely not. But what I’ve read these past few days doesn’t leave me much choice. It turns out that the entire plethora of doubts I have raised in Shale Is A Pipedream Sold To Greater Fools and London Is Fracking, And I Live By The River are now also being raised on a larger scale: the media are – belatedly as usual – waking up. But that doesn’t mean they understand what’s going on. They’re clueless. What we see in for instance an article from Bloomberg, and an editorial from the Guardian, is that they do not understand the effect of depletion rates; it’s not even mentioned. Neither do they understand how much of a straightforward and outright speculation scheme bubble shale has been to date. Instead, they seem to think that lower than expected reserves are the main topic, or at best environmental concerns. Neither is true; they are important, but the main question may not be whether fracking is environmentally safe, but if it’s economically safe. The economic case for fracking, and the entire shale oil and gas industry, is so shaky it would be criminally stupid to let it continue and risk any environmental damage. Shale is not about energy, it’s about speculation. Looking at the numbers, it’s obvious the returns don’t justify the levels of investment -and I’m not even talking energy returns -, and that means it’ll all be over soon. Bloomberg: Shale Grab in U.S. Stalls as Falling Values Repel Buyers Oil companies are hitting the brakes on a U.S. shale land grab that produced an abundance of cheap natural gas – and troubles for the industry.

Resource Testeria - George Monbiot – It’s not about jobs. It’s not about securing energy supplies. It’s not even about the money. The government’s enthusiasm for fracking arises from something it shares with politicians the world over: a macho fixation with extractive industries. Compare the treatment of shale gas to the alternatives. Another source of the same product (methane) is biogas, produced by household waste, sewage and farm manure. The great majority is untapped. Capturing it is easy, uncontroversial and probably a lot more profitable than shale gas. According to the government, its exploitation could generate 35,000 jobs and £3bn a year(1). Or compare fracking to wind power. The government is introducing a special veto for local people to prevent the construction of wind turbines. Downing Street explains it as follows: “The prime minister feels that it is very important that local voters are taken into account when it comes to windfarms and that is why new legislation will be brought forward, so that if people don’t want windfarms in their local areas they will be able to stop them.”(3) Strangely, he does not feel it is important for their views on drilling rigs to be taken into account. The government’s new planning guidance makes these developments almost impossible to refuse. Planners judging fracking applications are forbidden to consider alternatives to oil and gas(4). There will be “no standard minimum separation distance”, which means that a fracking rig could be erected right next to your house. And they “should give great weight to the benefits of minerals extraction, including to the economy”(5). If local voters don’t like it, they can go to hell.

Well and Truly Fracked - Modern industrial civilization faces serious challenges in the years immediately before us, as the paired jaws of resource depletion and environmental disruption clamp down ever more tightly on it, and the consequences of decades of bad decisions come home to roost. Any number of examples of this could be quoted, but the one I’d like to discuss here is the way that fracking—hydrofracturing of oil and gas-bearing shales, to give it its more precise moniker—has been transformed, at least in the popular imagination, into the conclusive answer to those annoying little worries about the impossibility of extracting an infinite amount of petroleum from a finite planet. That’s worth discussing just now for at least two reasons.  The first of these is that the public debate over fracking is almost certainly about to become a good deal more heated than it’s already gotten, due to the publication of a lively and eminently readable little book on the subject—Snake Oil: How Fracking’s False Promise of Plenty Imperils Our Future by Richard Heinberg, which you can order from the publisher here. Those of my readers who have been following the peak oil story since its reemergence early in the last decade will recall Heinberg’s The Party’s Over; that and James Howard Kunstler’s memorably edgy The Long Emergency were the books that launched peak oil into the collective conversation of our time.

Mexico's Pemex Looks to Tap U.S. Shale - WSJ.com: —Petroleos Mexicanos, Mexico's state oil monopoly, will set up a new company to explore and produce shale gas and deep-water oil in the U.S. as part of an ambitious plan by its rookie CEO to turn around years of falling production.  The proposal, outlined by Chief Executive Emilio Lozoya in an interview, would push Pemex into complicated drilling techniques where it has no experience. It is a bold move abroad for the inward-looking company, which is the world's fifth-largest crude producer but has never faced competition nor ventured far beyond its borders. "Pemex will be starting a new company that will work on the shale-gas and shale-oil fields in the U.S. and in the deep-water side of the U.S.," said Mr. Lozoya, a 38-year-old former investment banker tapped last year by Mexican President Enrique Peña Nieto to run the oil giant. "The geology is similar and we can benefit from numerous areas of collaboration with international oil companies."

Frackmaster Ernest Moniz pushes fracking in Brazil - US energy companies want to use their experience to help Brazil tap into its vast shale gas reserves, US Energy Secretary Ernest Moniz said on a visit to the Brazilian capital. Studies show that one-tenth of the world’s known shale gas reserves are in Brazil, and if it decides to exploit them the South American giant — currently a gas importer — could be the world’s second natural gas producer. Shale gas production could be viable only by 2023 assuming that investments begin now, a representative of the state-run National Petroleum Agency said in May. The United States “clearly today has the most experience in this area,” Energy Secretary Ernest Moniz said at a press conference on Friday in Brasilia after a meeting with Brazilian industrialists. Fracking has unlocked an energy boom in the United States, but has been banned in other countries over fears of environmental damage.“It really has enormous impact and then when you come to Brazil, with its potential resource in gas, of course, our companies are very interested in participating,” Moniz said.“Our government has made it clear that we think development of unconventional resources across the world could be a very good thing for the global hydrocarbon markets.”

Can the US Export its Way to Energy Independence? - Never let the facts get in the way of a good story.  After all, the industry claims, we're on our way to achieving energy independence, and we can help our balance of trade by exporting the extra hydrocarbons we produce. The data, however, contradicts the industry's claim. Even as the Obama Administration approved the country's third natural gas export terminal, the United States remained a net importer of natural gas. Production in the United States averaged 69.5 billion cubic feet (bcf) per day this year through May, the latest month for which data is available. But the country consumed 76.9 bcf per day. It IMPORTED almost 7.8 bcf per day from Canada. And, then it EXPORTED about 1.8 bcf per day to Mexico, a number that is likely to rise as pipeline export capacity to Mexico expands. (Both Canada and Mexico are part of an integrated North American natural gas pipeline system.)  The latest approval would lift the capacity for daily liquefied natural gas (LNG) exports from the United States to 5.6 bcf per day or about 8 percent of what we currently produce. The exports would be shipped using special freighters to Europe and Asia. Strangely, these exports would make it necessary for the United States to IMPORT more natural gas in order to support current consumption! The situation seems surreal, and yet, additional approvals for LNG exports are likely in the future.

US energy boom helps fuel Barack Obama’s export goal - FT.com: The value of US fuel exports has grown faster than other goods and commodities during Barack Obama’s presidency, according to a Financial Times analysis, emerging as a driving force behind his goal to double exports by 2015. The data offer further evidence of how the US domestic energy boom – led by expanding oil and natural gas production and higher prices – is reshaping its economy. The US became a net exporter of fuel in 2011 for the first time in two decades, as rising exports combined with slower imports. According to Census bureau export data reviewed by the FT, the value of petroleum and coal exports more than doubled from $51.5bn in the year to June 2010 to $110.2bn in the year to June 2013. This placed it at the top of the rankings of export growth. Oil and gas exports were second, with a 68.3 per cent increase over the same period but based on smaller nominal values. Primary metals and livestock exports have also experienced strong export growth under Mr Obama, well above the average 32.7 per cent for all commodities. In January 2010, Mr Obama called for a doubling of exports within five years in an ambitious effort to reboot the US’s industrial base. At the time, the US was producing monthly exports worth $143bn, with goods exports accounting for $99bn. Since then, US exports have gradually increased, but the 2015 goal remains elusive. By this June, monthly US exports overall were worth $191bn, with goods exports at $134bn, rising about one-third compared with three and a half years earlier.

Nearly 650,000 Comments Call on Obama Administration to Ban Fracking on Public Lands  —Today, a coalition of 276 environmental and consumer organizations including Americans Against Fracking, 350.org, Berks Gas Truth, Center for Biological Diversity, CREDO Action, Democracy for America, Environmental Action, Daily Kos, Food & Water Watch, MoveOn, Progressive Democrats of America, The Post Carbon Institute and United For Action delivered to President Obama and the Bureau of Land Management nearly 650,000 public comments asking the federal government to ban hydraulic fracturing (fracking) on public lands. This development amplifies the message sent by the 7,800 people who called the White House yesterday, urging President Obama to protect communities and their resources from the negative effects of fracking. The deadline for submitting public comments to the federal government regarding drilling and fracking on federal lands is August 23. "Our public lands are a national treasure and a sacred trust passed by one generation of Americans to another," said Drew Hudson of Environmental Action. "Fracking on public lands threatens the drinking water of millions of people, including the President's daughters and everyone else here in Washington, D.C. It would also poison many of our last wild and pristine ecosystems. Fracking has no place on our public lands, and these citizens, more than half a million of them, are calling on the President and the Bureau of Land Management to say: ‘Yes we can ban fracking.’ ""By allowing fracking on public lands, the BLM is participating in a form of legalized corruption that pollutes our democracy and undermines the national interest," said actor and advocate Daryl Hannah. "They are sacrificing our public lands, which they've been entrusted with, to the fossil fuel industry and private profits. Instead they should honor their mandate to ensure the health of these lands, their uncontaminated water, air, soil and biodiversity on behalf of all the citizenry and future generations."

Cold Lake Spill: “There is No Control on this Incident,” says Energy Regulator - Canadian Natural Resource Limited (CNRL), the company responsible for a massive ongoing spill on the Cold Lake Air Weapons Range southeast of Fort McMurray released a public notice last week claiming the release was “secured” and that “clean-up, recovery and reclamation activities are well under way.”Cara Tobin, Office of Public Affairs spokesperson for the Alberta Energy Regulator, said that CNRL has yet to bring the release under control. The spill, caused by a rare underground spring of bitumen emulsion, is the result of High-Pressure Cyclic Steam Stimulation (HPCSS) technology that forces steam into underlying bitumen reservoirs at temperatures and pressures high enough to fracture underlying formations. “I don’t want to presume what they mean by [secure] but I can tell you a few things that might help clarify,” she said. Under usual circumstances with HPCSS heavy bitumen is softened by steam injected under the surface, allowing the resulting water and oil mixture – called bitumen emulsion – to surface up a wellbore. In this instance the high pressures underground are creating multiple bitumen springs, forcing the oil mixture to the surface in numerous locations including under a body of water.

‘Crude Solution’ – The Truth About The Gulf Oil Spill - 60 Minutes Australia - When petroleum giant BP spilled millions of litres of crude oil into the Gulf of Mexico 3 years ago, it was the worst ever offshore oil disaster. To try and break up that massive slick, vast quantities of chemical dispersant was sprayed on the spill. It seemed to work… the oil disappeared. But people started getting sick and then people started dying. Now, this environmental disaster has become a health catastrophe and as you’ll see in this special investigation, it could happen so easily right here in Australia.Australia’s 60 Minutes national television program has become the first major media to expose the truth that BP’s oil and Corexit, that the petrochemical-military-industrial complex (PMIC) carpet-bombed Americans along the Gulf of Mexico coast, has caused illness and deaths, a “health catastrophe.” ““It was the world’s worst ever oil disaster,” 60 Minutes stated. “To try and break up that slick, vast quantities of chemical dispersant was sprayed on the spill. It seemed to work: The oil disappeared.”But, people started getting sick, and then, people started dying,” the reported said after 60 Minutes conducted what it calls its special investigation. “Now, this environmental disaster has become a health catastrophe.”To date, not one American major media television has reported this health catastrophe to the public, as detailed in Vampire of Macondo where this Gulf Operation that began in April 2010 is referred to as chemical genocide.

Ecuador Looks to Boost Economy with Amazonian Crude - Much of Ecuador exists under the canopies of the Amazon rainforest, and the protection of the environment is important to the people, with the national constitution making note of the rights that nature has in the country. In 1989, the United Nations declared that the Yasuni Park, the most biologically diverse place on Earth according to the Ecuadorean government, would become a biosphere reserve in an attempt to protect its biological and cultural diversity.  However, after a recent announcement by President Rafael Correa, it seems that Ecuador is only in favour of protecting the environment whilst that plan does not interfere with economic growth and development. Existing oil fields are falling into decline, and in order to boost domestic production and create higher revenues, Correa announced plans to develop crude deposits in the Yasuni National Park.  President Correa said that he would present the proposal to drill in the Ishpingo-Tambococha-Tiputini (ITT) oil fields to the country’s congress. If approved by congress, the plan will effectively reverse the decision to protect the Yasuni National Park, a reserve that covers an area eight times the size of Los Angeles, and is estimated to contain around 920 million barrels of crude oil, nearly 20% of Ecuador’s entire reserves.

US petroleum demand hits 3-year high -  The overall petroleum demand in the US jumped in July to the highest level in three years, the American Petroleum Institute (API) said. The total petroleum deliveries, a measure of demand, rose 1.7 percent in July from a year ago to average $18.9 million barrels per day, Xinhua reported. "The summer travel season brought greater demand for several fuel types last month than we've seen in the recent years," "On the supply side, we produced more domestic crude last month than at any other point in the last 22 years," The US domestic crude oil production in July increased 17.4 percent from a year earlier to average 7.5 million barrels per day. With the surging domestic energy production, imports of crude oil and refined products in July averaged 9.7 million barrels per day, the lowest July level in 18 years. It also marked the fourth time this year for the total imports below 10 million barrels per day.

Points to Note when Determining the Real Story of Oil Limits: The story of oil limits is one that crosses many disciplines. It is not an easy one to understand. Most of those who are writing about peak oil come from hard sciences such as geology, chemistry, and engineering. The following are several stumbling blocks to figuring out the full story that I have encountered. Needless to say, not all of those writing about peak oil have been tripped up by these issues, but it makes it difficult to understand the “real” story.The stumbling blocks I see are the following:

• 1. The quantity of oil supply available is primarily a financial issue.The issue that peak oil people are criticized for missing is the fact that if oil prices are high, it can enable higher-cost sources of production–at least until these higher-cost sources of production prove to be too expensive for potential consumers to buy. Thus, high price can extend oil production for longer than would seem possible, based on historical patterns. As a result, forecasts based on past patterns are likely to be inaccurate.
• 2. The higher cost of oil extraction in the future doesn’t necessarily mean that the price consumers can afford to pay will rise. I often hear the statement, “When oil prices rise, .  .  .” as if rising oil prices are a given. Businesses may be afford to pay more, but individuals and governments are finding themselves in increasingly poor financial condition. Quantitative easing isn’t getting money back to individuals and governments–instead, it is inflating the price of assets–a temporary benefit until asset price bubbles break, as they have in the past, or interest rates rise.

Vital Signs: Mideast Concerns Push Up Oil Prices - Mounting turmoil in Egypt is stoking concerns about the stability of the world’s largest oil-producing region, pushing oil prices higher. U.S. oil prices closed at $107.46 a barrel on Friday on the New York Mercantile Exchange, the highest level since Aug. 1 and up 11% from a year ago. Prices moderated a bit Monday but remain elevated. Though not a large oil exporter itself, Egypt is a major oil-transit point for Middle East crude. Nearly three million barrels of oil a day–about 7% of all seaborne oil–passes through the Suez Canal. The flare up in Egypt’s political crisis, which has left hundreds dead on the streets of Cairo, comes as Syria’s civil war grinds on and unrest in Libya keeps oil export terminals in that country closed. Strengthening growth in advanced economies has also helped to boost oil prices. Data out in the last couple of weeks has showed a decline in U.S. jobless claims to precrisis levels and an end to Europe’s longest recession since World War II. But ample U.S. gasoline supplies have helped keep a lid on fuel costs for drivers. A gallon of regular unleaded gasoline averaged $3.54 on Monday, down 13 cents from a month ago and 18 cents from a year ago, according to AAA.

Saudi Arabia ready to replace Western aid to Egypt = Saudi Arabia said on Monday that Arab and Islamic countries will step in to help Egypt if Western nations cut aid packages to Cairo over its deadly crackdown on Islamist protesters. “To those who have announced they are cutting their aid to Egypt, or threatening to do that, (we say that) Arab and Muslim nations are rich… and will not hesitate to help Egypt,” Foreign Minister Prince Saud al-Faisal said in a statement carried by the kingdom’s SPA state news agency. Prince Saud was speaking upon his return from France, where he held talks with President Francois Hollande who has strongly condemned the violence in Egypt.

Saudi Arabia and Iraq Cut Oil Exports in June: JODI Data – Saudi Arabia, the world’s largest oil exporter, shipped less crude in June and exports also slid in fellow OPEC members Iraq, Kuwait and Nigeria, according to official data. The kingdom delivered 7.32 million barrels a day, down from 7.79 million in May, according to figures the governments filed with the Joint Organizations Data Initiative. Daily Saudi production fell by 20,000 barrels in June to 9.64 million. Exports from Iraq, OPEC’s second-largest producer, slumped to 2.33 million barrels a day from 2.48 million in May, the data showed. Kuwaiti crude shipments dropped to 2.09 million barrels a day in June from 2.23 million in the prior month. “Exports were low from OPEC countries, as demand was low in June, but production was high in many of them since local demand for summer is pushing consumption up,” Kamel al-Harami, an independent oil analyst based in Kuwait, said today by phone. “Still, there are countries like Nigeria, Iran and Libya who are cutting on exports due to their own problems.”

Daddy’s Girl: How An African ‘Princess’ Banked $3 Billion In A Country Living On $2 A Day - At 40 Dos Santos is Africa’s only female billionaire, and also the continent’s youngest. She has quickly and systematically garnered significant stakes in Angola’s strategic industries–banking, cement, diamonds and telecom–making her the most influential businessperson in her homeland. More than half of her assets are held in publicly traded Portuguese companies, adding international credibility. When FORBES outed her as a billionaire in January the government disseminated the news as a matter of national pride, living proof that this country of 19 million has arrived.  The real story, however, is how Dos Santos–the oldest daughter of Angolan President José Eduardo dos Santos–acquired her wealth. For the past year FORBES has been tracing Isabel dos Santos’ path to riches, reviewing a score of documents and speaking with dozens of people on the ground. As best as we can trace, every major Angolan investment held by Dos Santos stems either from taking a chunk of a company that wants to do business in the country or from a stroke of the president’s pen that cut her into the action. Her story is a rare window into the same, tragic kleptocratic narrative that grips resource-rich countries around the world.

China Warns It Can't Find Jobs For College Graduates - While jobs in the US are hardly a success (employment not the movie), it appears that despite the faith that China is still growing at 7.5%, the slowing-growth nation is facing its own job creation nightmare. As China.org reports, this is being called the hardest job-hunting season ever for Chinese graduates - as nearly 7 million of them swarmed into the job market this summer. In a sad reflection of the US, it is becoming increasingly difficult for college graduates to secure a job in recent years (let alone a degree-required job) as the number of unemployed graduates has nearly doubled in the last 4 years (from 9% of graduates in 2008 to 17.5% now).

Michael Pettis On China's Urbanization Fallacy - The latest default bull argument supporting higher levels of growth in China than I believe possible is the urbanization argument. Beijing is planning another major urbanization push, and according to this argument China can resolve the problem of wasted investment by investing in the urbanization process, that is it can engage in a massive investment program related to the need to build infrastructure for all the newly urbanized. Like so many of the earlier bull arguments, however, this new belief that urbanization is the answer to China’s growth slowdown is based on at least one fallacy and probably more - urbanization accommodates, it doesn‘t cause, growth. It is not the act of building all this stuff that creates wealth or real, long-term growth. It is only if building the stuff caused overall productivity to rise by more than the cost of capital and labor employed in building it that a society gets richer.

China Prepares to Bail Itself Out - Things are happening which suggest China is preparing for a period of slower growth and bank stress. First, from a note by Capital Economics: There has been an increase in the value of non-performing loans (NPLs) in the banking system since Q3 2011 (see Chart below), as the economy has slowed. At face value, this problem does not yet appear too serious, given that NPLs are less than 1% of outstanding loans, according to official data. However, the real figure is probably much higher/ Nevertheless, we do not anticipate a full-blown financial crisis, not least because the central government has the resources to support the banking sector if required. How will they bail out the banks? More from Kate Mackenzie at FTAlphaville: Earlier this week we wrote about how China is using its fiscal reserves to help retire some of the bad debts shelved off to the big “asset management companies” back in 1999 — with a big hat-tip to Chen Long, of INET’s China Economics Seminar. Some more interesting news has been revealed by our colleague Paul J Davies in Hong Kong, who has a great story — two stories, in fact — about what Cinda and fellow AMC, Huarong, are doing. Paul writes that there have been talks with big foreign banks — Goldman, Deutsche and Morgan Stanley — about investing in Huarong. It’s not the first time western banks have invested in an AMC. In March last year, UBS reportedly bought 5 per cent of Cinda, while Standard Chartered bought 1 per cent.

China’s Economists Find Local Debt Worrisome - China’s economists see 2013 as the calm before the storm. A survey of Chinese economists released Sunday shows that many see troubles ahead, with mounting government debt, burgeoning overcapacity and a swelling property bubble among their chief concerns. The survey of 43 senior government and academic economists by Xinhua News Agency and Xiamen University showed that 63% see local government debt as the country’s top challenge. “The reality is that local governments, the major debtors in this country, have disturbed the country’s financial market,” Liu Xiahui, a researcher with the government’s Chinese Academy of Social Sciences and one of the 43 economists polled, said at the survey launch. If authorities don’t find a way for local governments to pay for their spending without borrowing, their debt will only become a bigger concern in the future, Mr. Liu said.

Economists React: China’s Manufacturing Industry Delivers Some Positive News - China’s manufacturing sector appears to be picking up steam, in line with other indicators of a turnaround in the world’s second-largest economy. The preliminary or “flash” reading of the Markit manufacturing purchasing managers’ index, which provides one of the first insights into how the economy performed this month, climbed to 50.1 in August from a final reading of 47.7 in July. That puts it closer to the official PMI, a competing index issued by the government’s National Bureau of Statistics, which has managed to stay above the key 50-level that separates expansion from contraction throughout the recent slowdown. Good news from the PMI follows positive surprises last month on industrial production, exports and fixed-asset investment, and suggests the economy may yet avoid the sharp downturn some observers have been predicting. Still, experts are divided on the long-term prospects.

China Manufacturing Grows as Europe Recovery Signs Build - Chinese manufacturing resumed expansion this month after shrinking the most in almost a year in July and output at European factories and services companies improved, a sign the global recovery is strengthening. A preliminary purchasing managers index for China by HSBC Holdings Plc and Markit Economics rose to 50.1 from 47.7, exceeding all 16 estimates in a Bloomberg News survey. A reading above 50 indicates expansion. Manufacturing and services in the euro area also grew more than economists forecast in August, led by Germany.China’s manufacturing, fueled by domestic demand after Premier Li Keqiang rolled out measures to support growth, indicates the world’s second-biggest economy is strengthening after a two-quarter slowdown. Global central bankers meet this week in Jackson Hole, Wyoming, to discuss the global economy as the Federal Reserve considers winding down the pace of monthly stimulus, a prospect that’s already roiled financial markets. “We expect the euro-zone economy to continue its recovery in the remainder of this year, but it will likely be a slow and uneven process,”

Stabilization or Stagnation? Expect Downward Surprise -  The HSBC Flash China Manufacturing PMI™ reports states Operating conditions stabilise in August. Key points:

• Flash China Manufacturing PMI™ at 50.1 (47.7 in July). Four-month high.
• Flash China Manufacturing Output Index at 50.6 (48.0 in July). Three-month high.

Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “China's manufacturing growth has started to stabilise on the back of modest improvements of new business and output. This is mainly driven by the initial filtering through of recent fine-tuning measures and companies’ restocking activities, despite the continuous external weakness. We expect further filtering-through, which is likely to deliver some upside surprises to China's growth in the coming months.”

Binding China to new superpower rules - What kind of superpower will China turn out to be? Given China's growing economic and military power, this question is increasingly meaningful for many people. Economic power defined by total gross domestic product (GDP) does not equate with superpower status. China's GDP is expected to surpass that of the United States around 2020. But for China to accurately be called a superpower - in military and political terms as well as economic - may well take until the middle of the century. And even then, it is highly unlikely China will "rule the world''. It will just command significant regional and global influence. How will China adjust to this new role and what can the world expect when the long-established US domination is challenged? All indications are that China will be a very different superpower from the US; it is unlikely to act unilaterally in global affairs as the US has done. These differences result from vastly different traditions and cultures. China shapes its foreign policy around four key characteristics: the traditional belief that human and international relations emphasize "harmony with differences'', the notion that the "four seas" of the world are brothers and family, the modern principles of non-intervention and peaceful co-existence, the rejection of Maoist revolutionary ideology, and the pursuit of a "peaceful development" strategy.

Taiwan Data Reflects Decoupling from U.S. - Gone are the days when Taiwan’s trade and production data acted as a barometer of the health of developed economies, particularly the U.S. Last year, as the U.S. economy expanded 2.8%, Taiwan’s exports to the U.S. dropped 9.3%. In the first seven months of this year the island’s exports to the U.S. were off 1.1% from a year earlier, despite the quickening U.S. recovery. While the U.S. recovery is gaining steam, Taipei last week trimmed its 2013 economic-growth target to 2.31% from 2.40% and its export-growth forecast to 2.30% from 2.80%. Taiwan’s economy grew 1.32% last year. That’s a stark contrast to the previous U.S. growth cycle. “Demand from the U.S. is actually stabilizing, but that’s not seen in Taiwan’s exports,” Once counted among the four “Asian Dragon” economies—with South Korea, Hong Kong and Singapore—Taiwan in recent years has suffered from muted growth in capital spending, sluggish foreign direct investment and accelerating outbound investment. The government is now trying to attract more foreign investment and make local businessmen invest more domestically by easing regulations on fund flows, scope of businesses and acquisitions.

What Does Abenomics Feel Like? - Depending on whom you ask and when, Abenomics is or is not working, and Japan is or is not entering a recovery. What if you ask the people of Japan? The closest thing to asking them is looking at the Bank of Japan's Opinion Survey on the General Public's Views and Behavior, a quarterly survey with a nationwide sample of 4,000 individuals who are at least 20 years old.  When asked, in the abstract, about the "growth potential" of the Japanese economy, responses are less pessimistic than in previous quarters.  But when asked about their own household's experience, the situation still looks pretty bleak. In one question, respondents are asked, "What do you think of your household circumstances compared with one year ago?" Only 4.9% say they are better off, while 39.2% say they are worse off, and the rest say it is difficult to tell. While not great, these numbers are a minor improvement over a year prior, when only 3.6% said they were better off and 47% said they were worse off. Of the households who reported worse circumstances, 73% said a reason was that their income decreased and 42% said a reason was that their income was not likely to increase in the future (they could choose multiple options).

Japan's Women to the Rescue - Prime Minister Abe has signaled his intention to move forward with the “third arrow” of his policy quiver — significant structural reforms to increase Japan’s long-term growth potential. His list reads like a neoclassical economist’s list of “usual suspects,” including deregulation, industrial restructuring, corporate tax reform and trade liberalization — all worthy objectives. But in a departure from tradition, he is also championing reforms to expand economic opportunities for women. Mr. Abe believes in numerical targets, and he has established several of them to increase the participation and advancement of women in the workplace. He wants to eliminate day-care waiting lists by creating 200,000 new day-care openings in authorized public facilities by 2015, with another 200,000 by 2017. He wants businesses to double their child-care leave to three years. He wants 30 percent of leadership positions in government and business to be held by women by 2020. He is calling on Japanese corporations to appoint at least one woman to their boards. And he is considering both changes in tax laws that discourage mothers from working and new training subsidies to help them return to the workplace following child-care leave. These initiatives are not motivated by softhearted political correctness but by hard-headed economic logic. Japan needs to expand its work force, which is shrinking rapidly as a result of a sagging birth rate and an aging population. The International Monetary Fund estimates that Japan’s working-age population will fall by almost 40 percent by 2050. The share of citizens older than 65 is expected to jump from 24 percent in 2012 to 38 percent in 2050, when the ratio of the working population to the elderly population will be 1 to 1.

Japan PM Adviser Wants More Spending If Tax Raised - Japan will need an extra spending package of up to Y10 trillion ($103 billion) to protect its nascent economic recovery should the government go ahead with a sales tax hike next year, an economic adviser to the prime minister warns.  Etsuro Honda, a leading critic of the plan to raise the 5% sales tax to 8% in April, told The Wall Street Journal that the central bank may also have to step up its purchasing of risky assets to help cushion the “extremely strong blow” to Japan’s fledgling recovery.The comments from Mr. Honda come as debate intensifies on whether the government of Prime Minister Shinzo Abe should proceed with the April tax hike–the first of a two-stage plan to double the levy by October 2015. Proponents say the increase is a vital first step to rein in Japan’s debt, now twice the size of its economy, while opponents say it could derail efforts to drag the economy out of 15 years of deflation Mr. Honda–an architect of “Abenomics”, the prime minister’s economic policy mix of monetary easing, fiscal stimulus and pro-growth measures–reiterated that he was against the hike to 8%, instead calling for a one-percentage-point increase every year for five years.

Five Takeaways From Japan Trade Data - Japan racked up another jumbo trade deficit in July, but behind the disappointing figures were also some optimistic signs.  Imports soared 19.6% on year, their fastest pace of increase in more than three years. German cars and Chinese clothes were among some of the import items that recorded a rise, but by far the biggest contributor was crude oil, whose imports grew 30.2%, due to strong demand for fuel to generate electricity amid a hotter-than-usual summer and a weaker yen. But in a possible indication that Japan’s export slump may have turned a corner, exports rose in volume by 1.8% on year, marking their first increase since May 2012. By value, exports grew 12.2% from a year earlier.July’s Y1.024 trillion trade deficit was the 13th in a row. That’s the longest stretch since the nation posted 14 straight monthly deficits in 1979-1980. The July deficit was also the third largest ever monthly figure, after Y1.634 trillion marked in January 2013 and Y1.491 trillion in January 2012. Exports to the U.S. rose 18.4% on year, making it Japan’s biggest export destination for the second straight month, replacing China. The shift in exports to the U.S. comes amid signs of improvement in the world’s largest economy and as Tokyo’s ties with Beijing remain frayed over a territorial dispute. Meat imports from the U.S. soared 39.3% in July, the biggest jump in recent years, following the relaxation in February of import curbs on U.S. beef. Japan had restricted U.S. beef imports since 2003 following an outbreak of mad cow disease.

Talks to Resume on Pacific Trade Deal at Heart of US “Pivot” --- When negotiators from the United States and 11 Pacific nations sit down in Brunei this week to discuss the proposed Trans-Pacific Partnership free trade agreement, they’ll be trying to push forward an initiative that is key to the Obama administration’s professed pivot toward Asia. The aim is to conclude a free-trade pact by the end of the year that includes the United States, Japan and other major trading nations on both sides of the Pacific Ocean. The talks don’t include China, which sees the TPP as an American-led attempt to curb Beijing’s influence in its own backyard — something the U.S. has been at pains to deny. The agreement aims to go beyond tariff reductions to address issues ranging from government procurement to intellectual property rights. Negotiations received a major boost this summer when Japanese Prime Minister Shinzo Abe pushed past domestic opposition to bring the world’s third-largest economy to the table – meaning the 12 countries in the negotiating room will comprise a massive 40% of the global economy. Establishing a free-trade zone that includes the U.S., Australia, Japan, Malaysia, New Zealand, Singapore, Brunei, Vietnam, Canada, Mexico and Chile would be a major success for the Obama administration’s goal of extending U.S. influence in Asia-Pacific. But reaching a deal, especially in a matter of months, won’t be easy: This week’s round of negotiations will already be the nineteenth since 2010. And despite Japan’s decision to join the talks, serious disagreements remain over Tokyo’s dogged defense of its agricultural sector.

Obama Goes to Bat for Big Tobacco in TPP - The Obama Administration has backed down from a proposal revealed 15 months ago to protect health from Big Tobacco under the Trans-Pacific Partnership (TPP), the pending free trade agreement with 11 other countries. New language concerning tobacco, the exact text of which has not been released, is expected to be proposed later this week at the next TPP negotiating round in Brunei. Legal analysts for the public health community, who were briefed Friday morning in a closed session by administration officials, agreed that the new proposal will do little to protect governments’ right to regulate tobacco. “The draft TPPA benefits tobacco companies with zero tariffs, expanded investor rights, and greater limits on regulation of tobacco advertising and other services,” said Robert Stumberg, director of the Harrison Institute for Public Law at Georgetown University Law Center. “The revised U.S. position inserts the word ‘tobacco’ without touching the benefits for tobacco companies.” The tobacco industry has a long history of using trade agreements to attack public health measures aimed at reducing tobacco use. Last year, the United States lost its final appeal in a suit brought under World Trade Organization rules by Indonesia over a U.S. ban on flavored cigarettes, including candy flavors clearly aimed at children. The case was a wake-up call for the U.S. public health community about the dangers to tobacco regulations posed by a web of trade obligations.

NAFTA on Steroids: The TransPacific Partnership and Global Neoliberalism: Since rejection of the Free Trade Agreement of the Americas at the hemispheric summit in 2005 by the countries of Latin America and the collapse of the Doha round of WTO negotiations in 2008, transnational capital has sought to embed protection of Trade Related Intellectual Property (TRIP) and other investor rights in new free trade agreements. TPP is the latest such power grab by transnational corporations. TPP has been described as "NAFTA on steroids" by those who have seen some of its leaked provisions. Negotiations began under the Bush administration and the Obama administration is continuing them in secret in hope of completing the agreement by this October. The discussions include trade representatives of the United States and Australia, Brunei, Canada, Chile, Mexico, New Zealand, Peru, Singapore, Malaysia and Vietnam. Japan has just joined. But the public, members of Congress, journalists, and civil society are excluded. Not even Congressional committees have been able to see the draft text, but 600 corporate advisors have. They are writing the rules for trade in their own interests without any democratic input from the people whose lives will be profoundly affected. If adopted, TPP will deny citizens their democratic rights to shape public policies on a host of domestic issues, conceding those decisions to the large corporations.

Trans-Pacific Partnership Will Remove What’s Left Of American Democracy -- If you think America is a corporate free fire zone now, wait until the Trans-Pacific Partnership (TPP) passes. The trade deal is essentially the kill shot for what remains of legal democratic accountability in the United States and will allow the rootless global elite and their transnational corporations to dictate the daily lives and laws of the American people. The giant multinationals are pushing a trade deal that will literally let them bypass our laws. This deal is called the Trans-Pacific Partnership (TPP) and it is coming at us in the next few months. The corporations are trying to switch this gravy-train onto the “Fast Track.” For them this deal is the light at the end of the tunnel of democracy and self-government that has been trying to reign them in. We need to get this runaway train back on the rails or We the People will be begging for scraps thrown from the caboose. Call your Senators and Representative today and let them know that people are paying attention and oppose “Fast Track trade authority.”… If TPP passes it will override American law. Again: we will not be able to pass laws that reign in the corporations. We will not be able to protect our jobs and wages because, as we have seen, companies can just close a factory and move your job to a country that pays very little, doesn’t protect the environment, and doesn’t let working people do anything about it. Of course the giant companies want these agreements — they let them tell us that if we ask for decent wages or benefits they will fire us and move our job out of the country. It was bad enough when elections turned into auctions, but now Congress is being replaced by corporate boardrooms.  Don’t worry you’ll quickly learn to love this trade deal before it passes thanks to the 1% and their media.

The Trans-Pacific Partnership is not about free trade. It’s a corporate coup d’etat–against us! - Where does your mayor, school board, governor, or any other "public shopper" go to purchase fixtures, food, furniture, ferns, and whatnot? Where I live, various agencies have Buy Austin, Buy Texas, Buy American, Buy Green, Buy Sweatshop-Free, and other targeted policies that apply our tax dollars to our values. This sensible idea has swept across the country, most likely including where you live, and these agency purchases add up to a big financial boost for start-ups, independents, women-owned, and other homegrown enterprises. Rather than buying everything from Walmart or China (excuse the redundancy there)--thus shipping truckloads and boatloads of cash out of our communities--plow that public money back into the home turf for grassroots economic growth and the flowering of local jobs. Imagine the uproar if President Obama and Congress tried to pass a bill to outlaw such "preferential procurement" policies, summarily cancelling our democratic right to decide where to make public purchases. I'd get pretty PO'd, wouldn't you? The American people would never stand for this brazen affront to our sovereignty, so I can assure you that Obama and Congress will definitely NOT be proposing any such thing. Not directly, that is. Instead, their hope is to tiptoe it around us. The nullification of our people's right to direct expenditures of our own tax dollars is but one of the horror stories being quietly packed into a political-and-economic bombshell benignly labeled TPP --the Trans-Pacific Partnership.

Keeping a Massive Trade Deal Out of the Fast Lane -  One thing members of Congress probably aren’t hearing about from their constituents during the August recess is the Trans-Pacific Partnership (TPP), the most significant international trade agreement underway in decades. The nineteenth round of talks began yesterday in Brunei, with negotiations reportedly in the “end game.” Congress itself hasn’t heard much about the TPP; the negotiating process has been characterized by extreme secrecy and the Obama administration has denied repeated calls from legislators to make the process more transparent, while pressing to finalize the agreement this year. Dubbed “NAFTA on steroids,” the TPP is a free-trade pact currently comprised of twelve participants, including Mexico, Canada, Japan, Vietnam, Singapore, Malaysia, Brunei, Australia, New Zealand, Peru and Chile. Lawmakers do have one critical decision to make regarding the TPP when they return to Washington this fall: whether to grant fast-track authority to President Obama. Fast-tracking (formally called Trade Promotion Authority) would allow Obama to sign the agreement prior to congressional approval, before legislators even read the final text. Congress would have to vote within ninety days to approve the deal retroactively, but debate would be limited and no amendments would be allowed. Fast-track authorization would limit Congress’s ability to address three major concerns with the TPP: the potentially harmful economic impacts of the deal, the very real prospect of the agreement superseding domestic policy in areas ranging from internet privacy to environmental and financial regulations and an unbalanced negotiating process and its likely outcome, both tipped towards corporate rather than public interest.

Capital Flows Back to U.S. as Markets Slump Across Asia - Asia’s role as the world’s growth engine is waning as economies across the region weaken and investors pull out billions of dollars.The Indian rupee fell to a record low today, Thailand is in recession and Indonesian stocks have slumped about 20 percent since their peak. Chinese banks’ bad loans are rising and economists forecast Malaysia will post its second straight quarter of sub-5 percent growth this week. The clouds forming in Asia as liquidity tightens and China’s slowdown curbs demand for commodities and goods are fueling a selloff of emerging-market stocks, reversing a flow of money into the region in favor of nascent recoveries in the U.S. and Europe. Emerging markets from Brazil to Indonesia have raised borrowing costs in 2013 to try to aid their currencies as the prospect of reduced U.S. monetary stimulus curbs demand for assets in developing nations. “The eye of the storm is directly above emerging markets now, two years after it hovered over Europe and four years after it hit the U.S.,”  “This could be serious for Asia.”

"No Question" of India Economic Crisis - There is "no question" of India going back to an economic crisis experienced in 1991, as its rupee currency is now linked to the market and foreign exchange reserves are adequate, Prime Minister Manmohan Singh said on Saturday. "There is no question of going back to 1991," Singh said in a Press Trust of India report published by the Economic Times newspaper on its website, making reference to a balance of payments crisis the country suffered that year. "At that time foreign exchange in India was a fixed rate. Now it is linked to market. We only correct the volatility of the rupee." The news agency report said Singh acknowledged India's ballooning current account deficit, which he blamed on large imports of gold as a contributing factor. "We seem to be investing a lot in unproductive assets," Singh said. India is trying to curb its citizens' apparently insatiable demand for gold, through measures such as hiking import duties, banning the import of coins and medallions and making domestic buyers pay cash.

India’s financial crisis: Through the keyhole - ON SATURDAY morning August 17th India’s top policymakers gathered at a rather obscure event—the launch of an official history of the Reserve Bank of India (RBI), held in a room in the prime minister’s house in Delhi. Present were Manmohan Singh, the prime minister, and the past, present and future bosses of the central bank, among others. The day before there’d been a rout of India’s financial markets, as we described in a previous post. Here’s what I picked up at the event. First, reality has bitten. There is a mood of distress, if not panic. This is a good thing. The economy faces “very difficult circumstances,” admits Mr Singh. While he and many of the others present held senior jobs during the previous balance-of-payments crisis, in 1990 and 1991, they have spent the past two years giving sugar-coated predictions even as the economy has slowed. Now though no one is disputing the fact that India is in trouble. Duvvuri Subbarao, the outgoing boss of the RBI, drummed in the message. “Does history repeat itself,” he asked, “as if we learn nothing from one crisis to another?”Second, it is widely accepted that the capital controls announced on August 14th have backfired. The new rules limit the ability of Indian individuals and firms to take money out of the country and were put in place after clear signs of capital flight. However the changes have spooked foreign investors who worry that India might freeze their funds, too. The finance ministry has already tried to calm nerves. Although it probably won’t reverse the measures, the RBI is considering making it much clearer that more capital controls are not on the agenda. That would be helpful; people trust the bank more than the government.

Why Buffett Bailed on India -  India has long been viewed as a value investor’s dream: rapid growth, 1.2 billion people pining for a taste of globalization, and underdeveloped industries ripe for turnarounds. So it surprised few when the genre’s guru, Warren Buffett, placed a bet on the world’s ninth-biggest economy. What did come as a surprise, though, was last week’s decision by the billionaire’s Berkshire Hathaway Inc. to give up on India’s insurance market after just two years. Adding to the drama, the withdrawal came the same week India unveiled plans to open the economy as never before to foreign-direct investment.Buffett isn’t alone in voting with his feet. Wal-Mart Stores Inc., ArcelorMittal (MT) SA and Posco are pulling back on investments in India that they had announced with great fanfare. What’s scaring foreigners away? A rampant political dysfunction that has stopped India’s progress cold. Headwinds from New Delhi are contributing to the slowest growth rates in a decade, a record current-account deficit and a 7.9 percent plunge in the rupee this year. Fiscal neglect has bond traders demanding higher yields for government debt than India wants to pay. But the most devastating no-confidence vote is coming from the big, long-term money India needs to boost its competitiveness. Foreign-direct investment slid about 21 percent last fiscal year, and this one doesn’t look promising.

State Bank of India CDS jump to 14-month highs as rupee plunges - The cost of insuring exposure to the debt of State Bank of India BSEs, used by investors as a proxy for the Indian sovereign, jumped on Monday to 14-month highs as the rupee plunged to new record lows. Five-year credit default swaps on SBIBSE traded at 351 basis points, a 45 bps rise from Friday's close, data provider Markit said. This is the highest level since June 2012 and indicates an annual cost of $351,000 to insure $10 million worth of SBI debt for a five-year period. India is fighting to stem a rout in the rupee which has hit record lows against the dollar on fears the country may fail to finance its current account deficit. India has no traded sovereign debt outstanding and investors commonly use the state-owned SBI as a proxy to hedge exposure to India.

Rupee Drops to Record on Fed Tapering Concern -  India’s rupee plummeted past 64 per dollar for the first time on concern foreign outflows will accelerate as the Federal Reserve prepares to trim stimulus. Overseas funds have pulled about $12 billion from local debt and equities since May 22 when Fed Chairman Ben S. Bernanke first signaled the central bank may pare its $85 billion monthly bond-buying program. The Fed may start tapering in September, 65 percent of analysts surveyed by Bloomberg said this month. The rupee, which sank as much as 1.5 percent to touch an unprecedented 64.12 a dollar, pared most of the losses on speculation the Reserve Bank of India intervened to arrest the slide, said two traders with knowledge of the matter, asking not to be named as the information isn’t public. It ended the day at 63.23. “Financial markets have developed something of an obsession with the Federal Reserve’s likely tapering,”“We expect a strong U.S. employment report and the Fed to announce a tapering of asset purchases at the September” policy meeting, they wrote, adding that the dollar is likely to rally.

Rupee Panic - Krugman - OK, the plunging rupee is the big economics story of the day, and I’m trying to get up to speed on the issues. My immediate question, however, is why the panic?  Yes, the rupee is down a lot in a short time — along with other emerging market currencies. In fact, its fluctuations are small compared with the obvious comparator, Brazil: We more or less know the story here. First, advanced countries plunged into a prolonged slump, leading to very low interest rates; capital flooded into emerging markets, causing currency appreciation (or, in the case of China, real appreciation via inflation). Then markets began to realize that they had overshot, and hints of recovery in advanced countries led to a rise in long-term rates, and down we went. (I don’t think QE has much to do with it, although your mileage may vary.) So the recent decline is sharp. But should India panic?This would be scary if India was like the Asian crisis countries of 1997-1998 or Argentina in 2001, with large amounts of debt denominated in foreign currency. But unless I’m misreading the data, it isn’t:

India gripped by mood of crisis as rupee falls again The Indian rupee fell to a new low against the dollar on Wednesday and stocks declined after a central bank promise to inject liquidity into the country’s financial markets provided only temporary relief from a deepening sense of crisis. Bank shares and bond prices had jumped in the morning after the Reserve Bank of India’s latest intervention, but the euphoria quickly evaporated. On Tuesday night the RBI announced that it would purchase Rs80bn ($1.2bn) of long-dated government bonds and take other steps to ease pressures on Indian banks, whose valuations have been badly hit by a series of measures introduced to protect the rupee over the past month. The latest moves partially reversed previous monetary tightening measures and led to accusations from analysts of Indian policy “flip-flops”.  The government and the RBI have issued a series of edicts in recent days designed to reduce the current account deficit and bolster the rupee, including increases in the import duty on gold, the end of duty exemptions for flatscreen televisions brought in by airline passengers and restrictions on outward direct investment by Indian companies and individuals.

India Borrowing Costs at 2001 High Threaten Singh Goal - A surge in Indian sovereign debt costs to a 12-year high this week is threatening Prime Minister Manmohan Singh’s plan to cut the budget deficit and fueling the fastest surge in credit risk since 2008. Ten-year (GIND10YR) yields rose 72 basis points this month through yesterday to 8.92 percent, the most among 14 regional markets tracked by Bloomberg, touched the highest level since 2001 of 9.48 percent. They plunged 57 basis points today after the Reserve Bank of India said late yesterday it will buy long-dated notes via open-market auctions. Government debt in Indonesia added 68 basis points to 8.39 percent. Singh’s pledge to reduce the shortfall in public finances to a six-year low of 4.8 percent looks more difficult to keep as borrowing costs soar amid an economic slowdown that would erode revenue. The rising costs of India’s 6.3 trillion rupee ($99 billion) borrowing program for the year through March 2014 will be apparent when the government sells 150 billion rupees of notes at an auction on Aug. 23. “India’s macroeconomic situation appears to be nothing short of a train wreck,” “Higher yields will make incremental borrowing expensive at a time when we expect a significant drop in tax revenue due to slow economic growth. The government might be forced to raise its borrowing target.”

Rupee Suffers Another Record Low - The beleaguered Indian rupee continued its steep descent on Wednesday, hitting a record low of 64.54 to the dollar amid global nervousness about the timing and scale of the Federal Reserve’s likely scaling back of its bond-buying program. The 2 percent drop took the Indian currency’s decline since early May to 20 percent, raising worries about the impact it will have on the country’s substantial import bills and on an already large current account deficit. Indian stocks also dropped. The Sensex index closed down 1.9 percent and the Nifty ended 1.8 percent lower. Both indexes have dropped more than 10 percent since late July. Signs that the American central bank will reduce its bond purchases soon set off big outflows of cash from emerging markets around the world in May, and the reverberations continued Wednesday. A drop in the Indonesian currency sent the rupiah to 10,755 per dollar, its lowest level since April 2009. The South African rand and Brazilian real likewise are now at their weakest level since early 2009. Indonesia also has a large current account deficit. In India, however, the rupee’s latest decline comes on top of a slide that began in 2011, when mounting signs of reform gridlock began to cast a serious pall over the once-rosy India story. In total, the rupee has now sagged more than 40 percent since mid-2011, and many analysts warn that it could fall even further.

India in uproar over rupee's fall -- The Indian rupee is in a free fall, and the nation is aflutter. Almost every day, Indians are waking up to alarming headlines about their currency hitting a “historic low” or a “lifetime low.” Last week, on what was dubbed “Black Friday,” the currency sank to a record level, and Indian media carried pictures of workers in Mumbai’s financial district clutching their heads in dismay.  With the country’s stock market tumbling, the rupee fell further Tuesday. It is down about 15 percent against the U.S. dollar since May — from more than 53 rupees to the dollar to more than 63.  The currency has become a powerful metaphor for India’s rapidly sliding economy. The rupee has triggered countless jokes and political mudslinging, and, like everything in India, it has generated astrological speculation, too. Some economists, meanwhile, blame the rupee’s recent misfortune on plans by the U.S. Federal Reserve to begin scaling back its massive effort to stimulate the U.S. economy, which has tended to keep the dollar weak compared with other currencies.

The Problem With Delhi’s Rich Kids - A woman I went to college with in New Delhi, now 29, lives in her family home on Prithviraj Road, one of the toniest parts of the capital. She has a shiny new convertible BMW 3 series, bought by her father. She doesn’t have a job. She called me recently and we met for lunch. She looked dull and withdrawn. She told me she was extremely depressed and felt that her life wasn’t worth living. She isn’t the only Delhi rich kid to feel this way. Sanjay Chugh, a Delhi-based psychiatrist, says he treats three or four young, wealthy, unhappy patients a day. “Such children are often brought up being told that they have nothing to worry about and that money can take care of everything,” he said. Often, newly wealthy parents don’t want their children to go through the hardships they experienced growing up, Mr. Chugh says. But they fail to teach them there is more to life than fancy drinks, new toys and branded clothes. On a recent evening at a posh lounge in Delhi, I saw Prada and Gucci-clad teenagers arrive in Lamborghinis, Jaguars and Porsches. They air kissed and went to the bar. “Hedonism is back,” a note on the bar’s website says. After an hour or so of drinking, a chubby guy in the group got the bill. “Oh, just 60? Not bad,” he said loudly. It was 60,000 rupees ($1,000.)

Indian Situation Continues To Deteriorate -   The situation in India continues to deteriorate. First, yields are spiking:A surge in Indian sovereign debt costs to a 12-year high this week is threatening Prime Minister Manmohan Singh’s plan to cut the budget deficit and fueling the fastest surge in credit risk since 2008. Ten-year (GIND10YR) yields rose 72 basis points this month through yesterday to 8.92 percent, the most among 14 regional markets tracked by Bloomberg, touched the highest level since 2001 of 9.48 percent. They plunged 57 basis points today after the Reserve Bank of India said late yesterday it will buy long-dated notes via open-market auctions. Government debt in Indonesia added 68 basis points to 8.39 percent. In response, the Reserve Bank of India has gone into the market to buy bonds with the intended effect of lowering yields: Late on Tuesday night the RBI announced that it would purchase Rs80bn ($1.2bn) of long-dated government bonds, along with other measures to ease pressures on banks, whose valuations have been badly hit by a series of measures introduced to protect the rupee over the past month. The moves partially reversed previous tightening measures and led to accusations from analysts of policy “flip-flops”. These moves have led to questions about the overall veracity of the RBIs policies: However, the latest move followed a series of other minor interventions, including steps to tighten controls on domestic capital controls last week and further open market interventions to support the rupee on Tuesday, leading to doubts about the RBI’s overall approach.

Inflation could accelerate due to rupee fall, says RBI (Reuters) - India's inflation could accelerate in the current fiscal year due to the rupee's sharp depreciation, the Reserve Bank of India (RBI) said in a report on Thursday. The Indian rupee touched record low of 65.52/dollar on Thursday and is down 16 percent so far this year despite efforts by policymakers to prop it up. "The pass-through of the depreciation of the rupee exchange rate by about 11 percent in the four months of 2013-14 is incomplete and will put upward pressure as it continues to feed through to domestic prices," the RBI said in its annual report for the 2012-13 fiscal year ending last March. Asia's third-largest economy has been pummelled by a selloff in emerging markets, with the rupee the worst performer in Asia this year after the U.S. Federal Reserve indicated it will begin winding down its economic stimulus. Headline wholesale price index inflation climbed to 5.79 percent in July driven primarily by higher food prices and costlier imports as the rupee's fall continued. Consumer price index inflation was 9.64 percent in July, fuelled by high food prices. "Risks on the inflation front are still significant," the RBI said. The rupee's weakness could also increase subsidy payouts for fuel and fertiliser in 2013/14, the central bank said.

India to Import Onions for First Time Since 2011 as Prices Surge -- India is preparing to import onions for the first time in two years as a surge in prices threatens to trigger a backlash against Prime Minister Manmohan Singh before next year’s elections. Prices of the vegetable have almost quadrupled in three months in New Delhi as the government struggles to tackle the highest inflation among the biggest emerging markets. State-run trading company PEC Ltd. this week sought overseas suppliers to deliver as much as 300,000 tons of onions, while National Agricultural Cooperative Marketing Federation of India Ltd. said the country may buy from China, Iran, Egypt and Pakistan. “The government has to address this issue urgently and imports are the only solution in the short term,” “Onions are a nasty thing politically and parties have lost elections in the past” over this issue, he said. With the rupee’s plunge threatening to fuel inflation in a country where a gauge of gains in consumer prices has averaged 10 percent, a surge in the cost of onions is the last thing Singh needs before he faces polls by May. Already embattled in the face of decade-low economic growth and twin budget and current-account deficits, his government is counting on the inbound shipments to address shortages caused by droughts, hoarding and distribution bottlenecks.

India rupee breaches 65 to a dollar: The Indian rupee fell past 65 to the dollar to a record low on Thursday, after Federal Reserve minutes hinted that the US was on course to begin tapering stimulus as early as next month and as foreign investors become sellers of Indian stocks. In an ominous sign for Asia's worst-performing currency this year, overseas investors who had been net buyers of Indian stocks so far in 2013 headed for the exits this week, selling a net $500 million worth of shares in the four sessions through Wednesday. Foreigners have also sold a net $1.3 billion of Indian government and corporate bonds so far this month. "Unless growth signals emerge in the next few quarters, FIIs (foreign institutional investors) will continue to pare down Indian equities, which will weigh on the rupee," said Deven Choksey, managing director of KR Choksey Securities. The rupee fell as much as 2.2 per cent to 65.52, heading for a sixth straight session of declines, and is down/s16 per cent so far this year despite efforts by policymakers to prop it up. Currencies in Indonesia, Malaysia and Thailand all hit multi-year lows on Thursday on concerns that the Fed's scaling back of stimulus would lead to further capital outflows from emerging markets, which have benefited for the last two years from waves of cheap money printed by Western central banks.

India’s rupee set for worst week since 1993 on Fed stimulus risk— India’s rupee plunged 4.4 per cent to a record this week in its worst performance since 1993 on signs the US is getting closer to reducing stimulus that fuelled demand for emerging-market assets. Federal Reserve policy makers were “broadly comfortable” with Chairman Ben S. Bernanke’s plan to start reducing bond purchases later this year if the economy improves, with a few saying tapering might be needed soon, according to the minutes of their July meeting released August 21. Global funds cut holdings of Indian debt by US$9.9 billion (RM30 billion) since Bernanke first flagged possible paring on May 22, leaving the rupee vulnerable to the nation’s record current-account deficit. “The rupee’s levels reflect lack of flows in the market,” said Mirza Baig, head of foreign-exchange and interest-rate strategy in Singapore at BNP Paribas SA. “Indian authorities should just allow the currency to find its own value.” The rupee fell to 64.4650 per dollar this week as of 10:29am in Mumbai and touched an unprecedented 65.56 yesterday, according to prices from local banks compiled by Bloomberg. It was the biggest weekly loss since March 1993. The currency rose 0.2 per cent today.

Fears of Capital Controls Rise as Indian Rupee Falls -- Concerns are rising that India might implement broad capital controls to stem the plunge in its currency and shares. Those fears were inflamed last week after the central bank reduced the amount of money Indian residents and companies can send abroad, and limited the potential uses for that money. The measures spooked foreign investors, who fear they presage broader restrictions to prevent overseas investors from taking money out of the economy. That exacerbated a selloff in Indian financial markets, where investors already had been brooding over growing troubles in the economy as growth slows but inflation remains sky-high. Senior officials including Prime Minister Manmohan Singh have sought to reassure investors and contain the damage. If the currency continues to depreciate, however, the government may be left with few alternatives to broader controls. The rupee hit a fresh all-time low for the fifth consecutive day Thursday and last was trading close to its record-low of 65.12 to the U.S. dollar. That comes several days after the Bombay Stock Exchange’s benchmark S&P BSE Sensex Index recorded its biggest single-day fall last week and bond yields rise to multi-year highs as investors cash out.

A Trilemma for India’s New Central Banker - When he takes over as governor of India’s central bank on Sept. 5, Raghuram Rajan has the challenging task of addressing a rapidly depreciating currency, slowing economic growth and high inflation.His writings suggest he will take a different approach to his predecessor, Duvvuri Subbarao, and focus on a single objective rather than balancing all three and finding himself in what economists call a trilemma or an impossible trinity.  If the central bank lowers interest rates, it risks a pullout of capital by investors, which may then cause the currency to depreciate. If the bank increases interest rates or places controls on the flow of capital, as it did last week, economic growth is put at risk. If it does nothing, the currency continues to depreciate, making imported goods more expensive and adding to inflation. The Indian rupee hit a new low of 65.56 to the U.S. dollar Thursday, continuing a slide that has seen it lose 17% against the greenback since the start of May. India’s economic growth has slowed to 5%, the lowest in years, and inflation remains near double-digits.

The emerging-market squeeze, short version - PAUL KRUGMAN writes:This would be scary if India was like the Asian crisis countries of 1997-1998 or Argentina in 2001, with large amounts of debt denominated in foreign currency. But unless I’m misreading the data, it isn’t... So at first examination this doesn’t look like as big a deal as some headlines are suggesting. What am I missing? I had the same question, and yesterday's post was my effort to try to identify the answer. My conclusion was that the big risk is a policy overreaction in affected economies. Governments or central bankers worried about depreciation or its effect on inflation will be tempted to move monetary policy in an inappropriately tight direction. And that risks turning a broad regional slowdown into a recession. That would be really bad, particularly in economies where expectations of steady improvements in employment opportunities and living standards are key to maintaining social order. But this isn't the Asian financial crisis all over again, and we should be clear about that.

Developing Market Currencies Dropping Sharply -  India is in a very difficult position, as it seems that several major macro-level economic problems are coming to a boil. First, they have a large current account deficit, which is having an overall negative impact on the rupees value. Secondly, inflationary pressures -- while lower -- are still cropping up underneath the surface. To stem both of these problems, the central bank would normally raise interest rates. However, overall economic growth has been dropping as well, hemming in the Central Bank. Brazil is another developing country that has a very difficult economic environment. Growth is slowing while the inflation rate remains elevated: All of these problems are starting to come to a head in the respective ETF charts of these currencies: Both are weekly charts. The rupee ETF (top chart) has fallen through support at the 19.5 level and is currently trading near three year lows. Momentum is negative, as is the volume flow. Prices are pulling the shorter EMAs lower.

Emerging markets central banks’ emergency reserves drop by $81bn - FT.com: Central banks in the developing world have lost $81bn of emergency reserves through capital outflows and currency market interventions since early May, even before renewed turmoil in emerging markets. The figure, which excludes China, is equal to roughly 2 per cent of all developing country central bank reserves, according to Morgan Stanley analysts, who compiled the data from central bank filings for May, June and July. However, some countries have suffered more precipitous drops. Indonesia has lost 13.6 per cent of its central bank reserves from the end of April until the end of July, Turkey spent 12.7 per cent and Ukraine burnt through almost 10 per cent. India, another country that has seen its currency pummelled in recent months, has shed almost 5.5 per cent of its reserves. Central bank reserves are held to act as a safety buffer against turmoil, and are on average still far larger than during past emerging market crises. But the pace of the drops have spooked some investors and analysts.  Many central banks are likely to have suffered further reserve depletion in August, as the turbulence caused by the US Federal Reserve’s plans to end its monetary stimulus has resumed, and compounded concerns over slowing economic growth in emerging markets.Palaniappan Chidambaram, India’s finance minister, said on Thursday that India’s reserves were currently $277bn, compared with $280bn at the end of July, according to Morgan Stanley’s figures.

What Should Emerging Market Economies Do? --- By now, everybody is aware of the turmoil in emerging markets. Several emerging market currencies have come under severe pressure, with fresh blows coming fast and furious [0] The current stresses are a manifestation of the trilemma, or the impossible trinity: the proposition that a country cannot simultaneously pursue full exchange rate stability, full monetary autonomy, and complete financial openness. In a series of papers, Joshua Aizenman, Hiro Ito and I have evaluated empirically the extent the trilemma has held [1] [2]. (And I recently discussed Klein and Shambaugh's paper on the subject.)  I'm somewhat old-fashioned in my views: easing or tightening monetary policies in core advanced economies forces difficult decisions on emerging market economies, regardless of whether it's done via policy rates or via quantitative easing and/or forward guidance. It's true that the magnitude of effects is less understood, but the impact is conceptually the same. After all, there were similar concerns about push and pull factors in capital flows to emerging markets in the 1990's. (I trace out this argument in this paper presented at the BIS annual conference, and discussed at Free Exchange (Avent)). I agree with Ryan Avent that one key danger is over-reaction on the part of emerging market policymakers (of course, one only knows that one's over-reacted after the fact...). Our results in Aizenman, Chinn and Ito suggest that exchange rate stabilization should not be slavishly adhered to (in this context, would entail raising policy rates). Of course, our cross-country time series study could not incorporate all sorts of important factors that have to be incorporated into the decisionmaking process -- the most important I think is balance sheet effects. Paul Krugman has noted in the Indian case, it's not clear that this is a big worry, given the relatively small amount of external debt (which is mostly denominated in foreign currency). For some other indicators for the East Asian economies, see here. Currency depreciation will also help offset the negative impact of diminished capital inflows.

India, Brazil should thank Bernanke for their currency woes - India and Brazil are struggling to regain control of their currencies as both the rupee and the real touch new lows (all-time record for the rupee). It is remarkable how violent the corrections have been in just the past 3 months: For those who don't watch these currencies on a daily basis, these sell-offs seem to happen in spurts - almost at random. But there is a pattern here, particularly in the past few months. Investors are dumping these currencies during periods of higher expectations of the Fed's slowing its securities purchase program. The evidence for the pattern is in the correlation between these exchange rates and the US treasury yields. Since Bernanke's first comments on slowing the securities program, currency weakness consistently corresponds to higher US yields resulting from sharper taper expectations (see post). The prospects of higher long-term interest rates resulting from the Fed's taper is forcing investors out of emerging markets - and these two nations are feeling the brunt of this "rotation". To be sure, we have no way of knowing if this would have still occurred if the Fed had not initiated QE3 a year ago. But the severity and the speed of these corrections would suggest that this is one of those unintended consequences of applying and then trying to exit an aggressive monetary stimulus program within highly interconnected capital markets, operating in a global economy. This has not been a part of the FOMC's forecast...

This Age of Bubbles, by Paul Krugman - So, another BRIC hits the wall. Actually, I’ve never much liked the whole “BRIC” — Brazil, Russia, India, and China — concept: Russia, which is basically a petro-economy, doesn’t belong there at all, and there are large differences among the other three. Still, it’s hard to deny that India, Brazil, and a number of other countries are now experiencing similar problems.  What’s going on? It’s a variant on the same old story: investors loved these economies not wisely but too well, and have now turned on the objects of their former affection. ... As a result, India’s rupee and Brazil’s real are plunging, along with Indonesia’s rupiah, the South African rand, the Turkish lira, and more.  Does this reversal of fortune pose a major threat to the world economy? I don’t think so (he said with his fingers crossed behind his back). ..Still, this latest financial turmoil raises a broader question: Why have we been having so many bubbles? ... The thing is, it wasn’t always thus. The ’50s, the ’60s, even the troubled ’70s, weren’t nearly as bubble-prone. So what changed?  One popular answer involves blaming the Federal Reserve — the loose-money policies of Ben Bernanke and, before him, Alan Greenspan. But the Fed was only doing its job. It’s supposed to push interest rates down when the economy is depressed and inflation is low. And what about the series of earlier bubbles, which ... reach back a generation? ... Besides, isn’t the sign of excessive money printing supposed to be rising inflation? We’ve had a whole generation of successive bubbles — and inflation is lower than it was at the beginning.

Real halts 6-day slide as Brazil steps up currency intervention (Reuters) - Brazil's real gained for the first time in seven sessions on Tuesday after policymakers raised their rhetoric against currency speculators and the central bank stepped up intervention on the foreign exchange market. The real opened higher following overnight comments by Finance Minister Guido Mantega and central bank chief Alexandre Tombini, both of whom advised investors to avoid strong bets against the real. Their comments, which came on Monday after the real closed at its weakest level since March 2009, suggested they believed the currency had overshot as it plummeted nearly 6 percent during six straight sessions of losses. Most emerging-market currencies have sold off over the past few days as investors prepare for an expected withdrawal of U.S. stimulus measures. The Brazilian currency has been specially hard-hit, however, as the country's slow-growing economy has fallen out of favor with investors. After gaining more than 1 percent in the first hour of trading, the real shed some of its gains to rise a more modest 0.5 percent, at 2.4029 per dollar. Also supporting the currency were two auctions of traditional currency swaps, derivatives that emulate an injection of dollars in the futures market, and a third auction of spot dollars through repurchase agreements.

Currency Depreciation Adds to Brazil Central Bank’s Inflation Worries - As if 6.15% annual inflation weren’t problem enough, Brazil’s central bank will face yet another challenge — this one posed by the rapid depreciation of the Brazilian real against the U.S. dollar — when it meets next week to review the country’s already towering base interest rate. In a survey, 14 economists and financial market analysts were unanimous in expecting a half-point rise in the Selic base rate next week. In July, the central bank’s monetary-policy committee voted without dissent to raise the Selic rate a half point to 8.5%. It was the third consecutive rate increase this year. According to analysts, the rate committee members this time will be forced to evaluate not only things like food and fuel prices but also the impact on inflation of the recent depreciation of the Brazilian currency. The interest rate decision will be announced next Wednesday. “The central bank will be obliged to evaluate the impact of the depreciation on prices and — who knows? — maybe they’ll have to raise the Selic rate even more than 50 [basis] points,” said André Perfeito, an economist at São Paulo brokerage Gradual. Despite such qualms, Mr. Perfeito is sticking with his prediction of a half-point hike in the base rate to 9.0%. However, he is reviewing his year-end forecast, currently 9.25%, and may raise it as high as 9.75%. Most economists agree that 9.75% is the limit, but for political not economic reasons. “Think of the headlines — double-digit base rate again! — and after all the government’s rhetoric about pulling down rates.”

Brazil central bank commits $60bn to prop up currency - Brazil's central bank has announced a $60bn plan to prop up the value of the national currency. It comes as the Brazilian real nears a five-year low against the US dollar. The real and other emerging market currencies have fallen steadily over the last three months on speculation of higher US interest rates. The central bank said it would spend $500m a day on Mondays to Thursdays and $1bn on Fridays buying reais in the currency markets. The Monday-to-Thursday interventions will target currency swap markets - financial derivatives used by companies and investors to hedge their currency exposure - while on Fridays, the central bank will buy the national currency directly in return for US dollars. The interventions will run up until December. "This shows the firm determination of monetary authorities to keep the exchange rate from slipping further,"

Thailand GDP Highlights Policy Dilemma -- Thailand’s central bank is in a dilemma that’s mirrored in other Asian economies: Growth is slowing but widening current account deficits are constraining monetary policy. Thailand’s GDP grew 2.8% on year in the second quarter, below expectations of over 3%. The planning agency downgraded its full-year growth forecast to between 3.8% and 4.3% from a previous range of 4.2% t0 5.2%. Thailand’s benchmark stock index fell 2% on the data. But Thailand’s central bank, which meets Wednesday, is unlikely to cut its key policy rate from 2.5% in an attempt to help the economy due to concerns about the country’s widening current account deficit. Exports to China, Thailand’s biggest overseas market, have slumped as China’s economy cools. Meanwhile high domestic credit growth has kept local demand high, sucking in imports. The current account swung from a $1.3 billion surplus in the first quarter to a $5.1 billion deficit in the second quarter. As economic growth has slowed, central banks normally would ease rates. But Thailand’s central bank, like many others in Asia, including the Reserve Bank of India, have been forced to keep rates stable in recent months to attract capital amid signs of an end to global easy-money policies. Expectations U.S. rates will rise later this year as the U.S. Federal Reserve pulls back its massive stimulus program add to pressures on Asia policy makers to keep their own rates stable – or even to tighten policy – to attract capital. In Thailand, robust private credit growth of over 12% on-year in recent months and high household debt add to reasons not to cut rates. The bank last cut its key policy rate in May.

Govt slashes GDP growth projection - The government has slashed its economic growth forecast for this year further in light of slowing exports, weakening domestic demand and possible delays in implementation of its water and infrastructure development plans. The Thai government's planning unit, the National Economic and Social Development Board (NESDB), yesterday cut its forecast for full-year gross domestic product (GDP) growth to a range of 3.8-4.3%, from 4.2-5.2% made in May. The agency also lowered its export growth estimate to 5% from 7.6%, reflecting demand weakness abroad. Thai exports in the first half of the year grew only 1.2% compared with the same period last year. Thai gross GDP unexpectedly shrank 0.3% in the three months through June from the previous quarter, when it contracted by 1.7%, showing the economy has slipped into a mild recession. A technical recession is typically defined as two consecutive quarters of contraction in GDP.

The financial unraveling of southeast Asia - It is now well underway.  The stock market is Indonesia had several big loss days in a row, with some daily drops over five percent, and their credit-driven economic expansion seems to be over.  Weaknesses in commodity markets will hurt them and they did not use their boom to invest sufficiently in future productive capacity, instead preferring to ride upon the glories of higher resource prices and growing credit.  The central bank is burning reserves and starting to worry about an eventual crisis scenario.I am puzzled by Krugman’s take on the rupee.  I would not argue that the weaker rupee is bad per se, but rather it is a symptom that an earlier overvaluation of India’s economic prospects is now over.  The country is, sorry to say, the “sick man of Asia,” economically speaking that is.  (Or more literally in terms of public health, for that matter.)  Here is my May 2012 column on India, which I think has held up very well.  One can only hope that this financial crisis will bring reforms comparable to those of the early 1990s; otherwise the momentum for better policies appears to have been exhausted.  Right now the country has about the worst legal system in the world and the ten-year yield has been popping over ten percent.  It is shifting from a better multiple equilibrium to a worse one and foreigners are having second and third thoughts about further investing. The Thai economy has shrunk for two consecutive quarters and total debt (public and private) to gdp ratio is now about 180 percent.  Malaysia also has serious debt problems.  The uncertainty coming out of China is not helping either.

Emerging market rout threatens wider global economy --The $9 trillion (£5.8 trillion) accumulation of foreign bonds by the rising powers of Asia, Latin America and the emerging world risks going into reverse as one country after another is forced to liquidate holdings to shore up its currency, threatening to inflict a credit shock on the global economy.India’s rupee and Turkey’s lira both crashed to record lows on Thursday following the US Federal Reserve releasing minutes which signalled a wind-down of quantitative easing as soon as next month. Dilma Rousseff, Brazil’s president, held an emergency meeting on Thursday with her top economic officials to halt the real’s slide after it hit a five-year low against the dollar. The central bank chief, Alexandre Tombini, cancelled his trip to the Fed’s Jackson Hole conclave in order “to monitor market activity” amid reports Brazil is preparing direct intervention to stem capital flight. The country has so far relied on futures contracts to defend the real – disguising the erosion of Brazil’s $374bn reserves – but this has failed to deter speculators. “They are moving currency intervention off balance sheet, but the net position is deteriorating all the time,” said Danske Bank’s Lars Christensen. A string of countries have been burning foreign reserves to defend exchange rates, with holdings down 8pc in Ecuador, 6pc in Kazakhstan and Kuwait, and 5.5pc in Indonesia in July alone. Turkey’s reserves have dropped 15pc this year.

Europe's Next Crisis? Migrant Flows Are Surging - With Greek haircuts likely (or Cyprus-style bail-ins), Merkel elections (and the potential for less positive coalitions and post-election 'sternness'), and the possibility for the German court to curtail plans for OMT; there is plenty to  remove the 'magic' that is supporting Europe's market 'recovery'. However one topic not often discussed is the ongoing surge in people seeking refuge in EU countries from North Africa and the Middle East. Countries such as Greece or Italy that make up the European Union's southern border have long struggled to deal with flows of refugees from across the Mediterranean. The issue, as Stratfor notes, has been magnified by high unemployment rates in destination countries, where social security systems are strained and anti-immigrant sentiment is high. However, the combination of continued northern flows of European migrants, the increase in asylum applications and the spread of the European economic crisis appears primed to weaken some of the achievements Europe has seen in integration.

Spanish Lenders’ Bad Loans Ratio Reached Record 11.61% in June - Bad loans as a proportion of total lending in Spain rose to a record in June as the country’s weak economy spurred a jump in missed payments. Bad loans accounted for 11.61 percent of lending in Spain in June compared with 11.21 percent in May and 9.65 percent in the same month a year earlier, the Bank of Spain in Madrid said on its website today. The stock of “doubtful” loans in the economy rose to 176.4 billion euros ($235.1 billion) as 6.21 billion euros of credit soured during June, the regulator said. A Spanish economic slump now in its sixth year continues to drive up non-payment of loans by companies and consumers, hurting profits at lenders as they set aside provisions to cover losses. Banco Santander SA (SAN), the nation’s biggest bank, said last month its bad loans ratio climbed to 5.18 percent from 4.76 percent in March as the bank booked 2 billion euros of loans as doubtful to comply with new Bank of Spain criteria for classifying 208 billion euros of loans that have been refinanced or restructured.

Greece will need third bail-out, says Schaeuble - Wolfgang Schaeuble, Germany's finance minister, has made an unexpected admission that Greece will need a third bail-out, just weeks before German national elections. His comments mark a surprise departure from those of his government colleagues, who have been careful to play down the deeply unpopular prospect in the run-up to German elections in September. "There will have to be another programme in Greece," said Mr Schaeuble, addressing a campaign audience in northern Germany. However he maintained that, despite this, there would be no further debt haircut for Athens. Just hours before Mr Schaeuble spoke, German Chancellor Angela Merkel was quoted in a regional newspaper dismissing questions about further aid for Greece, saying there was no point in discussing the matter until its second package expires at the end of next year. However, economists have long predicted a third rescue package for Greece, which is struggling to control its mounting debt burden as the economy shrinks under tough austerity measures.

Cyprus Bank’s Bailout Hands Ownership to Russian Plutocrats - When European leaders engineered a harsh bailout deal for this tiny Mediterranean nation in March, they cheered the end of an economic model fueled by a flood of cash from Russia. Wealthy Russians with money in Cyprus’s sickly banks lost billions. But the Russians, though badly bruised, are now in a position to get something that has previously eluded even Moscow’s most audacious oligarchs: control of a so-called systemic financial institution in the European Union. “They wanted to throw out the Russians but in the end, they delivered our main bank to the Russians,” said the Cypriot president, Nicos Anastasiades, in a June interview. The March bailout hammered bank creditors and depositors in an early test of what has since become the official European Union policy of “bailing-in” banks. The policy is intended to force creditors and depositors to pay for a bank’s mistakes and to spare taxpayers from picking up the entire bill. The strategy, however, has generated unintended consequences in the case of Cyprus. The exercise was meant to banish what Germany and other Northern European nations viewed as dirty Russian money from Cyprus’s bloated banks. Instead, it has pulled Russia even deeper into Europe’s financial system by giving its plutocrats majority ownership, at least on paper, of the Bank of Cyprus, the country’s oldest, biggest and most important financial institution. “Whoever controls the Bank of Cyprus controls the island,”

Bitcoin recognized by Germany as legal tender - Virtual currency bitcoin has been recognized by the German Finance Ministry as a "unit of account", meaning it is now legal tender and can be used for tax and trading purposes in the country.  Bitcoin is not classified as e-money or a foreign currency, the Finance Ministry said in a statement, but is rather a financial instrument under German banking rules. It is more akin to "private money" that can be used in "multilateral clearing circles", the Ministry said.  "We should have competition in the production of money. I have long been a proponent of Friedrich August von Hayek scheme to denationalize money. Bitcoins are a first step in this direction,"said Frank Schaeffler, a member of the German parliament's Finance Committee, who has pushed for legal classification of bitcoins.  Bitcoin is a virtual currency that allows users to exchange online credits for goods and services. While there is no central bank that issues them, bitcoins can be created online by using a computer to complete difficult tasks, a process known as mining. Currently one bitcoin is worth just over $119.

Areas of high unemployment bear the brunt of bank closures - A new report finds that there was a net loss of nearly 7,500 bank and building society branches in the period 1989 to 2012 or more than 40% of all branches. The report also finds that the least affluent third of the population has borne the brunt of two thirds of closures since 1995. The areas with above average rates of closure between 1995 and 2012 were Britain's least affluent inner city areas, multicultural metropolitan areas and traditional manufacturing areas. The two areas which have experienced the biggest decline of 39% (traditional manufacturing and inner city areas), were also characterised by unemployment rates and levels of renting from the public sector, which are far above the national average. By contrast, the rate of closure experienced by areas defined by researchers as 'Middle England' – including suburbs and small towns – have fared much better, seeing the lowest rates of closure. Traditional manufacturing and inner city areas have lost branches at a rate 3.5 times higher than suburbs and small towns.