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

Saturday, September 28, 2013

week ending Sept 28

FRB: H.4.1 Release-- Factors Affecting Reserve Balances -- Thursday, September 26, 2013 - Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed’s Fisher: Tapering Delay Threatens Credibility - The Federal Reserve‘s failure to make the expected cut in its bond- buying programs calls the body’s credibility into question, Dallas Fed President Richard Fisher said in prepared remarks Monday.The S&P 500 hit an all-time-high and 10-year Treasury note yields fell Wednesday after the Fed decided to postpone a widely expected reduction of its $85 billion-a-month bond buying. The tapering, as it is known in the market, was supposed to signal that the economy had improved enough that the Fed felt confident start cut its bond buying by up to $10 billion a month. By backing off the expected tapering, the Fed contradicted the message it had been sending to markets for months and has made future policy direction murkier, Mr. Fisher said during a speech to banking- industry representatives.“Today, I will simply say that I disagreed with the decision of the committee and argued against it,” said Mr. Fisher in his speech. “Here is a direct quote from the summation of my intervention at the table during the policy ‘go round’ when Chairman [Ben] Bernanke called on me to speak on whether or not to taper: ‘Doing nothing at this meeting would increase uncertainty about the future conduct of policy and call the credibility of our communications into question.’ I believe that is exactly what has occurred, though I take no pleasure in saying so.”

Fed’s Lockhart: Hard to See Hitting Conditions for October Taper -- While the decision not to pull back on the Federal Reserve‘s easy-money policies last week was a “close call,” a veteran central banker on Monday suggested it will be hard for the Fed to find cause to trim its bond buying program at its upcoming October meeting. In an interview with the Wall Street Journal, Federal Reserve Bank of Atlanta President Dennis Lockhart said the economy is currently beset with uncertainty resulting from economic data that’s proved “ambiguous.” At the same time, a showdown between the White House and the Congress over the budget and borrowing powers has the potential to cause economic trouble if it’s resolved as poorly as past episodes, the official said.“In the short time between now and the October meeting, I don’t think there will be an accumulation of enough evidence to dramatically change the picture” about where the economy now stands, Mr. Lockhart said.Mr. Lockhart was interviewed in New York in the wake of last week’s Federal Open Market Committee meeting. Heading into that gathering, market participants had broadly expected the central bank to reduce the pace of what is now an $85 billion per month program of Treasury and mortgage bond buying. The central bank is buying the securities in a bid to drive up growth and push down unemployment.

Fed’s Dudley: Economy Not Strong Enough for Fed to Taper - The economy has not improved enough for the Federal Reserve to cut back on its easy money policies, an official at the heart of the central bank’s decision making process said Monday. “The economy still needs the support of a very accommodative monetary policy,” Federal Reserve Bank of New York President William Dudley said in speech. Mr. Dudley, who serves as vice-chair of the policy setting Federal Open Market Committee, said that while the economy is recovering from the recession, the pace of the improvement remains insufficient and clouded by too much uncertainty for the central to begin dialing back its efforts to spur stronger growth. “We have yet to see any meaningful pickup in the economy’s forward momentum,” Mr. Dudley said. Before the Fed cuts back its $85 billion-per-month in bond purchases, “I’d like to see economic news that makes me more confident that we will see continued improvement in the labor market. Then I would feel comfortable that the time had come to cut the pace of asset purchases,” he said. For the Fed to cut the pace of bond buying, which he stressed was not a prelude to raising short-term rates, it would need to see real gains in labor markets. It would also need confidence the recovery’s pace will continue. ” I think we have made progress with respect to these metrics, but have not yet achieved success,” the official said.

NY Fed's Dudley: Two Tests Before Taper - From NY Fed President William Dudley: Reflections on the Economic Outlook and the Implications for Monetary Policy - To begin to taper, I have two tests that must be passed: (1) evidence that the labor market has shown improvement, and (2) information about the economy’s forward momentum that makes me confident that labor market improvement will continue in the future. So far, I think we have made progress with respect to these metrics, but have not yet achieved success.  With respect to the first metric, we have seen labor market improvement since the program began last September. Over this time period, the unemployment rate has declined to 7.3 percent from 8.1 percent. However, at the same time, this decline in the unemployment rate overstates the degree of improvement. Other metrics of labor market conditions, such as the hiring, job-openings, job-finding rate, quits rate and the vacancy-to-unemployment ratio, collectively indicate a much more modest improvement in labor market conditions compared to that suggested by the decline in the unemployment rate. With respect to the second metric—confidence that the economic recovery is strong enough to generate sustained labor market improvement—I don’t think we have yet passed that test. The economy has not picked up forward momentum and a 2 percent growth rate—even if sustained—might not be sufficient to generate further improvement in labor market conditions.

Fed Watch: Resetting Expectations - Now that the smoke has cleared somewhat, we see clearly that the taper will be pushed forward to some data-dependent point in the future. But which point? That is tricky given the Fed's predilection for focusing on the last employment reports when setting policy. The Fed appears to want to shift away from asset purchases in favor of forward guidance and is looking for the right time to begin that process. Their modus operandi has been to see six months of good employment data, send up a warning flag that the end of policy accommodation is coming, and then back down when the data turns weaker in the next three months.  If they continue that pattern, then we could be looking at mid-2014 before enough evidence of sustainability emerges that the Fed feels confident they can taper. But if they are on a knife edge now, they may only need two or three months of good data to taper, assuming they see little risk that interest rates will get away from them. Which gives a wide range for the taper - no sooner sooner than December, as late as mid-2014 if the data holds. But an end to asset purchases does not mean a solid recovery. The Fed's expectation of a long period of low term rates suggests the healing will remain anything but rapid.Using this week's speech by New York Federal Reserve President William Dudley as a baseline, consider his two tests for meeting the requirement of "stronger and sustainable" labor market activity: To begin to taper, I have two tests that must be passed: (1) evidence that the labor market has shown improvement, and (2) information about the economy’s forward momentum that makes me confident that labor market improvement will continue in the future. So far, I think we have made progress with respect to these metrics, but have not yet achieved success. It is very unfortunate from a communications perspective that the Fed keeps throwing out markers for the unemployment rate, first the 6.5% threshold for interest rates and the 7% trigger for asset purchases. In the absence of those makers, I think most of us would agree that healing in the labor market is far from complete:

Fed’s Evans Suggests Tapering Could Start Later Than October -Federal Reserve Bank of Chicago President Charles Evans said Friday that the U.S. central bank could start reducing its $85 billion-a-month bond-buying program at its October policy meeting, but it could happen later than that. “We could make a decision in October,” Mr. Evans told reporters on the sidelines of a monetary policy conference in Oslo, adding, “We need to see further developments of the positive variety for the economy to have that added confidence. It wouldn’t surprise me if we go a little bit longer.” The U.S. Federal Reserve‘s bond-buying program, also known as quantitative easing, or QE, is meant to stimulate economic growth and hiring by keeping interest rates low to encourage households and businesses to spend and invest. Since the 2008 financial crisis, the Federal Reserve has expanded its balance sheet to $3.6 trillion, and kept its key rate near zero in an attempt to stimulate the U.S. economy. Mr. Evans is a voting member on the Federal Open Market Committee and is regarded as one of the more dovish members on interest rates and inflation. His views are important because he is among those who have supported unconventional policies like bond buying.

Fed May Not Start Taper Until January - The Federal Reserve could start winding down its controversial bond-buying program as soon as next month or perhaps not until January, a central bank official said Friday, adding to the reasons why investors are uncertain about the Fed’s plans. “We’re not on a pre-set course,” Charles Evans, president of the Federal Reserve Bank of Chicago told reporters on the sidelines of a monetary policy conference in Oslo. He said the Fed’s decision to start reducing its $85 billion in monthly bond purchases “could be in October, it could be in December, but it also could be at the January meeting.” Mr. Evans was among ten central bank officials who have expressed a wide range of views on the program since their most recent policy meeting September 17-18. Some would have preferred to start scaling it back at that meeting; others explained why they wanted to continue the program unchanged and one said they might consider taking more action to stimulate the weak economy. Many investors were surprised Fed officials didn’t start paring its bond purchases at the last meeting. Fed Chairman Ben Bernanke had said in May they might do that at one of the “next few meetings.” He said in June they could do it later this year if the economy improved as they forecast then. But after the meeting this month, he said the economic data had not come as strongly as they had hoped. Now investors are unsure about what comes next.

Fed’s George: Amount of Taper Less Important Than Clarity of Approach - The Federal Reserve needs to lay out a clear approach when it begins tapering its $85 billion bond-buying program, while the initial amount remains less important, a regional bank president said. Esther George, president of the Kansas City Fed, also spoke of areas in the economy where she sees risks tied to the Fed’s current policy, pointing to the leverage-lending market and the value of farmland, which has risen rapidly in recent years. Ms. George, during a question-and-answer session after a speech here Thursday, said farmland values should be starting to come down in the face of declining commodity prices, but that hasn’t happened. Ms. George, in her prepared remarks, continued to make the case for the Fed to begin reducing the bond-buying program in response to an improving U.S. economy. A reduction now will help markets adjust, with the central banker describing last week’s decision by the Fed to hold steady on the program as a surprise to markets and a disappointment to her. Ms. George has been a persistent critic of central bank actions, and has dissented at every Fed meeting held thus far this year. She has argued in favor of the Fed dialing down its stimulus because she fears that if the central bank continues down its current path, it runs the risk of creating new asset bubbles and a surge in inflation. The central banker, while she has the support of some regional Fed presidents who don’t currently have votes on the Federal Open Market Committee, has fought a lonely fight, having had no other FOMC members join her in similar dissents.

Fed Watch: A Synopsis of Fedspeak - Much Fedspeak this week, expressing a wide variety of views. I need a scorecard to keep track, and I probably still missed one or two:

    • New York Federal Reserve President William Dudley; Event: Speech, interview; Taper?: Sets a high bar for taper, seeing insufficient evidence that the recovery is either sufficient or sustainable.
      St. Louis Federal Reserve President James Bullard; Event: Speech; Taper?: September was a close call, October possible
    • Federal Reserve Governor Jeremy Stein; Event: Speech; Taper?: September close, but he supported holding back. Likely would not oppose taper.
    • Minneapolis Federal Reserve President Narayana Kocherlakota; Event: Speech; Taper?: Believes the Fed should do more, not necessarily more QE.
    • Dallas Federal Reserve President Richard Fisher; Event: Speech; Taper?: Hell, yes, that's how we do it in Texas.
    • Kansas City Federal Reserve President Esther George; Event: Speech; Taper?: If you need to ask, you aren't paying attention.
      Chicago Federal Reserve President Charles Evans; Event: Speech (FYI: Great slides!); Taper?: Close call, could still be this year.
    • Richmond Federal Reserve President Jeffery Lacker; Event: Speech; Taper?: Yes, never a supporter in the first place.
    • Atlanta Federal Reserve President Dennis Lockhart; Event: Speech (Topic is productivity, indirect reference to monetary policy), interview; Taper?: Close call in September, probably not October, but Lockhart will fall in line with whatever is the FOMC concensus.

Does the Fed have a communication problem, or do markets have a listening problem? - First, Chairman Ben Bernanke and his colleagues telegraphed that they would begin slowing their bond buying later in the year, which markets interpreted as meaning at their policy meeting last week. Until, that is, 2 p.m. last Wednesday, when "Taper Off!" was shouted on trading floors around the world and global markets rallied on news that the Fed would wait longer. So did the Fed blunder its communications in the runup to the meeting? Or did Wall Street fail to listen? And either way, what does it mean for the future of the economy and monetary policy? The answer from the world of analysts and Fed watchers is resounding: The Fed blew it. In a Reuters poll, 33 of 48 forecasters described the Fed's communications as "unclear," with one of them anonymously describing it as "buried under a pile of horse dung." Less colorfully, as Justin Wolfers put it at Bloomberg View, "This whole taper debate is . . .  the result of a failed communication strategy."

The Fed is clear, the market is not - In the wake of the FOMC’s September ‘no taper’ decision, we have seen a slew of Fed speakers. While concerns over heightened uncertainty and FOMC communication credibility raised by dissenter Esther George and non-voter Richard Fisher have received the greatest attention, it is the well considered comments of NY Fed President William Dudley and St Louis Fed President James Bullard which are most constructive for the policy outlook.  Likely to draw the ire of market participants burned by last week’s decision, Dudley noted on Tuesday that the September decision was “completely consistent” with the Fed’s June guidance: the Fed had made a conditional pledge to taper if the data supported it and markets had jumped to conclusions, ignoring the erratic and often poor tone of data. While Dudley did not rule out a late-2013 taper, the framework laid out by Dudley on Monday makes it highly improbable.  From the detail of Dudley’s speech, a clear narrative emerges. Dudley (and arguably the majority of the committee) believes that, to date, the improvement in the US’ underlying fundamentals has been offset by the drag from fiscal policy and tighter financial conditions. The consequence is that “we have yet to see any meaningful pickup in the economy’s forward momentum”, a necessary pre-requisite before Dudley would agree to taper.

The Fed’s Confusing Search for Clarity - The Federal Reserve wasn’t trying to surprise investors last week, it’s just not doing a good job of communicating clearly, Jeremy C. Stein, a Fed governor, said Thursday.  Indeed, Mr. Stein said that articulating a clear plan for winding down the Fed’s monthly bond purchases was more important than the exact timing of tapering. “Whether we start in September or a bit later is not in itself the key issue — the difference in the overall amount of securities we buy will be modest,” Mr. Stein said. “What is much more important is doing everything we can to ensure that this difficult transition is implemented in as transparent and predictable a manner as possible. On this front, I think it is safe to say that there may be room for improvement.” The Fed, he said, should cut the volume of its monthly bond purchases by a fixed amount from the current level of $85 billion for each 0.1 percentage point decline in the unemployment rate. In sharing his thoughts on the best way to achieve clarity, however, Mr. Stein is likely to have contributed to the general confusion about the Fed’s intentions. He joins a number of other Fed officials in outlining proposals for the tapering of asset purchases, leaving investors to guess which ideas may prevail – and when.  This is particularly problematic because, as Mr. Stein also explained Thursday, investors are a little jumpy at the moment. The Fed’s stimulus campaign basically rests on persuading investors to bet their own money on the proposition that the Fed will continue to suppress interest rates. It is basically a trust fall.

The Fed's Forward Guidance and Forecasting Inconsistencies - The Fed’s effort to manage market expectations and aggregate demand through forward guidance may generate as many inconsistencies and misinterpretations as benefits, particularly as the Fed constantly changes its guidance. The Fed’s economic forecasts and assessment of the future appropriate path of the Federal funds rate add to the mixed messages and confusion. The Fed’s forward guidance on when it may taper its asset purchases and the timing of rate hikes attempts to suppress interest rates until economic growth strengthens. But the longer the economy recovers from financial crisis and recession and the more the unemployment rate falls, potential inconsistencies arise between the Fed’s monetary policy and its long-run objectives.  The Fed’s efforts to be transparent have not clarified key issues, only raised questions about the merits and risks of its policies. If the Fed’s longer-run inflation target is 2 percent and it views its appropriate long-run Fed funds target as 4 percent, does a 1.75 percent-2 percent Fed funds rate at year-end 2016 make sense when it projects the unemployment rate to be 5.4 percent-5.9 percent and core inflation 1.7 percent-2.0 percent? Is the Fed’s long-run inflation objective really 2 percent, even though it has indicated that temporarily higher inflation would be accepted, even welcomed?  How reliable are the Fed’s projections as forward guidance, when the Fed changes the parameters of its guidance, such as downplay the unemployment rate in favor of a broader assessment of “overall labor market conditions”?  Left unanswered, these questions add confusion, jeopardize the Fed’s credibility and establish a bad precedent for future monetary policy.

The Key to Forward Guidance? Don’t Give It, Fischer Says -- Critics of the U.S. Federal Reserve say it did a poor job this summer in communicating plans to wind down a $85-million-a-month bond-purchase program. The lesson, according to Stanley Fischer, the former head of the Bank of Israel, is the Fed would do better not to telegraph future policy decisions. Mr. Fischer, who was talking at a conference organized by broker CLSA in Hong Kong on Monday, said he had grave reservations about moves by some central banks to give more information about what they plan to do. Fed officials have placed great store on these communications. By assuring the public that it will keep short-term interest rates low for several years, for instance, the Fed is sending signals aimed at holding down long-term rates to boost growth.nBut Mr. Fischer said making such statements – known as forward guidance – can cause market confusion. “You can’t expect the Fed to spell out what it’s going to do,” Mr. Fischer said. “Why? Because it doesn’t know.”

Does the Fed Have the Tools to Achieve its Dual Mandate? - Stephanie Kelton recently sat down with L. Randall Wray to discuss, among other things, the news that the Federal Reserve will refrain for the time being  from tapering its asset purchases (QE).Wray took the occasion to elaborate on his view that quantitative easing is ineffective as economic stimulus and that — given the tools at its disposal — the Fed can’t actually carry out its dual mandate (on employment and price stability).One interesting wrinkle here is that Wray makes this case not just with regard to asset purchases — which even some QE supporters have admitted don’t accomplish much in and of themselves — but also the “expectations channel” (forward guidance).Kelton and Wray also touch on the latest debt ceiling showdown and the future of retirement security programs. Download or listen to the podcast here.

"No Tapering, More QE, Serious Housing Slowdown" says Saxo Bank Chief Economist -- With September out of the way, most economists now expect a December tapering event. Steen Jakobsen, chief economist at Saxo Bank in Denmark is not one of them. Via email, Steen writes ... I have mentioned a few times how I see the fourth quarter having a dramatic slow-down effect, mainly due to unemployment rising, but also due to a serious drop in US housing activities. Please see the chart below. It clearly shows not only why housing will fall (correlation with a lag of mortgage rates) but also why we will see more quantitative easing (QE) rather than less.Tapering will not happen in October or in 2013 for that matter. Not a single economic vector in our model is pointing up. All indicate less growth, less inflation and less upside. The problem? The market is still talking recovery, despite the US this year being barely able to muster 1.5 percent growth after 2.5 percent last year. If this is recovery, I don't want to experience recession.Again, we are increasingly confident about our 2.25 percent 10-year US bond rate call by the end of Q4-2013 versus 2.65 percent now. The Federal Open Market Committee's fixed income put issued by the Fed's recent non-tapering act has changed the relative value of fixed income over equities. This story has only just begun.

The Regressive Politics of Quantitative Easing - With signs of a fragile economic recovery gathering enough momentum to reassure policymakers in the US, the policy was expected to be wound down. But in a move that caught commentators off guard, the Fed instead committed to continue with its existing level of asset purchases. For the foreseeable future, at least, QE is here to stay. What began as a short-term crisis measure has now become a key component of Anglo-American growth strategies. The way the Fed led the policy response to the financial crisis is important in two ways. First, it reflects the extent to which the Anglo-American economies have become financialised: credit-debt relations are pervasive throughout all facets of contemporary economic activity and there has been a deepening, extension and deregulation of financial markets commensurate with this development. In that context, with the increased competitiveness, scale and global integration of financial markets intensifying the risk of financial instability, the crisis management capacities of central banks have become increasingly important. Second, central bank leadership of the policy response also reflects a key feature of neoliberal political economy in practice. Despite all the rhetoric of free markets, competition and deregulation that has been the mainstay of neoliberalism, there is a central contradiction at its heart: neoliberalism has been extremely reliant upon the active interventions of central banks within supposedly “free” markets. The crisis has been warehoused on the expanding balance sheets of central banks, demonstrating just how much scope for policy manoeuvre there is when governing elites want it. Given this room for manoeuvre, there is no doubt that a much more expansionary fiscal policy and a progressive taxation system could have been implemented in response to the crisis, but that response is foreclosed by the ideological confines of the prevailing neoliberal orthodoxy. Instead, we have monetary expansion and fiscal austerity.

RICHARD KOO: Forget Hyperinflation — The Fed Is Now Facing The True Cost Of Quantitative Easing - Last Wednesday, the Federal Reserve shocked markets with a surprise decision to refrain from beginning to taper back the pace of its bond-buying program known as quantitative easing. In the press conference following the decision, Fed chairman Ben Bernanke cited the recent rise in long-term interest rates — spurred by Bernanke's previous press conference in July, during which he seemed to endorse it — as a reason for the delay. Rates had risen too far, too fast, and they were presenting a threat to sustainable economic growth.  Nomura chief economist Richard Koo calls this a "QE 'trap' of [the Fed's] own making," writing in a note to clients that the Fed's decision last week is a clear sign that a "vicious cycle of rising rates and economic weakness has already emerged."  The yield on the 10-year U.S. Treasury note rose as high as 3.0% in the weeks before the Fed announced its decision not to taper. "Instead of falling back to 2.0% or lower following the Fed’s decision to delay tapering, the 10-year Treasury yield has settled at around 2.5%, which means the next rise in rates could easily take the 10-year yield into 3.0%-plus territory," says Koo. "I worry that this kind of intermittent increase in rates threatens the recoveries in interest- rate-sensitive sectors such as housing and automobiles. That could lead to renewed hesitance at the Fed and prompt it to temporarily shelve or postpone tapering." That's how the vicious cycle starts.

PCE Price Index Update: The Core Measure Remains Well Below the Fed Target - The September Personal Income and Outlays report for August was published today by the Bureau of Economic Analysis.The latest Headline PCE price index year-over-year (YoY) rate of 1.15% is a decline from last month's adjusted 1.33%. The Core PCE index of 1.23% is fractionally higher than last month's adjusted 1.13%. As I pointed out last month, the general disinflationary trend in core PCE (the blue line in the charts below) must be troubling to the Fed. After years of ZIRP and waves of QE, this closely watched indicator has consistently moved in the wrong direction since early 2012 and has been flatlining in recent months.The ajacent thumbnail gives us a close-up ofthe trend in Core PCE since January 2012. The first chart below shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. I've also included an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. I've highlighted 2 to 2.5 percent range. Two percent had generally been understood to be the Fed's target for core inflation. However, the December 12 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place. I've calculated the index data to two decimal points to highlight the change more accurately.  For a long-term perspective, here are the same two metrics spanning five decades. 

Inflation Remains Far From Fed Target - Inflation in August remained far away from the Federal Reserve’s target, a factor that could make central bankers even more hesitant to pare back their support for the economy. The Fed’s preferred inflation gauge, the price index personal consumption expenditures, advanced 1.2% in August from a year earlier, the Commerce Department said Friday. That was slower than July’s 1.3% annual increase and marks the first time year-over-year inflation eased since April. Excluding volatile food and energy prices, “core” inflation also advanced just 1.2% from a year earlier. That represents a slight pickup from July’s year-over-year reading. Inflation sitting so far below the Fed’s 2% target may make it difficult for the Fed to slow its bond purchases from its $85 billion monthly pace. The latest figure is the final one the Fed will have before its next policy meeting starts in late October. Some Fed officials say the Fed should maintain its support for the economy at its current level until inflation picks up. Inflation remaining at a low pace for years would also complicate an eventual next step — increasing short-term interest rates later this decade. “We should be very reluctant to raise rates if inflation remains persistently below target, and that’s one of the reasons that I think we can be very patient in raising the federal funds rate,” Fed Chairman Ben Bernanke said at a press conference earlier this month.

At Least the Fed Has An Inflation Target, Right? - Five years into the crisis and the Fed still has not adopted a nominal GDP level target. At least we can take solace in the fact that the Fed now has an explicit inflation target, right? After all, the Fed stated it was serious about its new 2% inflation target when announced in January, 2012: The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and enhancing the Committee's ability to promote maximum employment in the face of significant economic disturbances. Now an inflation target can be problematic if there are large and frequent supply shocks, but if we are in a slump that is largely the result of demand shocks this target should be good news. It should hold the Fed's feet to the fire--more so than when it was implicitly targeting inflation--and force it to do all the wonderful things promised in the paragraph above. So let's see how the Fed has done by its own standard of targeting 2% PCE core inflation: This is not what the Fed promised with its new inflation target. Instead of gravitating around an average 2% inflation target, the Fed seems to have made 2% an upper bound. And the lower bound appears to be around 1%. This band seems to have been operational since the crisis began. It also appears that the Fed's purchases of treasury securities are closely tied to subsequent changes in the inflation rate as seen below. Maybe the apparent make-it-up-as-we-go-along nature of the QE programs was not so ad-hoc after all. Maybe they always have been tied to keeping PCE core inflation in this band.

Where Is the Panic Over Deflation? -  A quick point worth noting from this morning's gross domestic product report. The report is largely a yawn, containing few interesting revisions to earlier estimates of economic progress in the second quarter. But there's one number that caught my attention. The Bureau of Economic Analysis has revised its estimates for the personal consumption expenditures price index. It's an important number, because this is the index the Federal Reserve targets. And remember, it's aiming for inflation of 2 percent. Instead, the index fell in the second quarter. That is, the U.S. is experiencing deflation. I won't overstate this. It's just one quarter, and it's evident in just one index, and even when I cherry-pick this interesting number, prices aren't really falling very quickly. The PCE deflator fell at an annual rate of only 0.1 percent in the second quarter. But it's striking that the Fed's preferred price measure is declining at a time when the main conversation among policy makers is when and how to tighten monetary policy, rather than to make it more accommodative. Now I don't really believe that widespread deflation has beset the U.S. economy. A better gauge of inflation comes from the core PCE deflator, which excludes food and energy. But even that rose only at an annual rate of 0.6 percent. Looking over a longer period -- say over the past year -- the headline and core PCE deflators rose by 1.1 percent and 1.2 percent, respectively.

Fed’s new solve-everything reverse repo facility set for a tryout -- The announcement from Friday is here, coming shortly after the decision last Wednesday not to taper QE, though we have no idea if anything should be read into the timing. Certainly it’s surprising how quickly the Fed has moved from considering the proposal at the July meeting to the first test.We’ll continue to follow closely any developments regarding this facility. Previous Alphaville explainers and commentary are here and here, and the NY Fed has a new FAQ.For additional detail to get you caught up, here’s a note by Barclays credit strategists from the weekend:This is only a test meant to check out the communications between bidders of Fed collateral and the central bank. It in no way should be interpreted as a policy move. And it is not meant to protest the current level of repo rates. Indeed, if the Fed was unhappy with the level of overnight rates, it could have done something a lot sooner.Instead, the Fed is happy to let the market find its own equilibrium provided there is no interruption in market function or liquidity. Recall that at the beginning of the year, the same overnight GC rate that is currently pinned to 6bp was trading over IOER.The operation will drain a small amount of bank reserves – individual bids will be limited to $500mm per counterparty. And the fixed rate on the initial test will be set to just 1bp – which even by the current low level of repo rates is quite low. Future tests may be bumped up to $1bn per counterparty with a 5bp fixed rate. The Fed has been testing some of its reserve draining tools – like the term deposit program – for several years. And these tests have generally been limited to under $10bn – enough to see if there are “leaks” in the plumbing, but insufficient to have any effect on market rates such as repo or fed funds.

The greatest trick the Fed ever pulled…… was convincing the world there wasn’t a taper. The Fed’s Fixed Rate Full-Allotment Reverse Repo (FRFARRP) facility kicked off in trial mode on Monday, and as pointed out by Manmohan Singh on FT Alphaville earlier on Monday, the facility may prove just as significant — if not more significant — than the Fed’s non-taper move last Thursday.This is because, when you get to the nitty-gritty of it, the initiation of what we’d like to call ‘FARPs‘ is the polar opposite of QE.And in that sense the Fed really is going through with a form of tapering after all.With FARPs, instead of buying assets, the Fed will be disposing of securities it holds on its balance sheet in exchange for liquidity soaked up from an expanded list of counterparties, which now includes asset managers and money market funds — all of whom are hungry for risk free capital preservation and the avoidance of negative rates.In theory, this should set a definitive floor on GC repo rates and ease the collateral squeezes that have been plaguing the US sovereign bond market for most of this year.It’s easy to understand why the Fed would want to downplay the tapering nature of its latest policy action, given the market’s complete misunderstanding of what tapering really constitutes. In this case it seems clear that the action was devised to help MMFs and asset managers avoid the negative consequences of QE, which were — due to negative repo rates — beginning to stifle the saving/risk-free side of the investment universe. Tapering was arguably never about tightening, but about resolving these issues.

Bubbles, Regulation, and Secular Stagnation - Paul Krugman  - Looking at current macroeconomic policy, the obvious question is, stupid or evil? And the obvious answer is, why do we have to choose? But it is, I think worthwhile – or at any rate soothing – to think about the longer-term future for monetary and fiscal policy. I recently talked about some of these issues with Adair Turner, and I thought I might write up my version of the story so far (just to be clear, Adair bears no responsibility for any errors or confusion in what follows). In brief, there is a case for believing that the problem of maintaining adequate aggregate demand is going to be very persistent – that we may face something like the “secular stagnation” many economists feared after World War II. So, let’s start with the basic role of monetary policy in stabilizing the economy.  We think of the central bank as being able to set the real interest rate; its goal is to set that rate at a level that keeps the economy near potential output, which in turn is consistent with low and stable inflation. This is equivalent conceptually to setting the rate at the Wicksellian natural interest rate. When the Minsky moment came, there was a rush to deleverage; this drove down overall demand for any given interest rate, and made the Wicksellian natural rate substantially negative, pushing us into a liquidity trap:This meant that monetary policy could no longer do the job of stabilizing the economy: Central banks found themselves up against the zero lower bound. Fiscal policy could and should have helped, and automatic stabilizers did help mitigate the slump. But fiscal discourse went completely off the rails, and overall we had unprecedented austerity when we should have had stimulus.

Krugman on Bubbles and Secular Stagnation - Dean Baker - Paul Krugman has some interesting thoughts on the possibility that the U.S. economy might have a serious problem with secular stagnation that has been remedied in large part over the last two decades by bubble generated demand. This is old hat to some of us, but it's great to see Krugman pursuing this line of thought. The textbook story has never fit the data very well (net capital flows have often been in the opposite direction), but the flows from poor to rich have been especially large in the years following the East Asian financial crisis. The harsh treatment by the I.M.F. of the countries in the region (yes, this was the bailout led by the Committee to Save the World) led to a sharp increase in the accumulation of foreign exchange reserves (i.e. dollars) by developing countries. Countries in Latin America, Asia, and Africa suddenly began to accumulate as much reserves as possible with the idea that this would protect them against ever being in the situation of the East Asian countries. That led to a large rise in the value of the dollar and a big increase in the size of the U.S. trade deficit. The trade deficit in turn led to a big gap in demand that was filled at the end of the 1990s by the stock bubble and in the last decade by the housing bubble. (A trade deficit means that income generated in the United States is being spent in other countries instead of the United States.) There may well be a problem of secular stagnation even if trade were closer to balanced, but the huge expansion of the trade deficit in the last 15 years clearly aggravated the problem considerably.

Trade and Secular Stagnation - Paul Krugman -- Dean Baker weighs in on my secular stagnation piece, and argues that persistent trade deficits are a big part of the problem.  I don’t disagree, although there are some issues I need to think through. Here’s the US balance on current account – the trade balance broadly defined — as a percentage of GDP: Leaving aside the large surplus just after World War II, we went from persistent small surpluses before 1980 to persistent large deficits after 1980. This meant that we needed more domestic demand, other things equal, to achieve full employment. The reason I’m hesitating a bit before simply declaring trade the culprit is the issue of causation, and the related issue of whether those deficits are likely to persist. Why, exactly, did we start running persistent deficits? After around 2000, you could argue that policies abroad were responsible: China and other developing countries were clearly keeping their currencies undervalued and accumulating large dollar reserves, and the counterpart of that accumulation had to be deficits in the rest of the world, which ended up meaning us. But the deficits began long before that, and some of the biggest surpluses out there are being run by countries that don’t do a lot of foreign exchange intervention. So the causation could run the other way, with deregulation and rising leverage pulling in foreign capital, keeping the dollar overvalued, and producing persistent deficits.

What we talk about when we talk about bubbles - SINCE March of last year the Case-Shiller 20-city home-price index has risen by 21%. Some of the markets within that index have risen even more; the Los Angeles index has risen 30% from its post-crisis bottom.But that raises the question: just what is a bubble? Use of the term has grown so fast and loose that nearly any sustained rise in prices in any market gets the bubble label at some point. I'd say there are a few ways to think about what a bubble is or might be.A bubble could be a pure, financial-market ponzi game, in which prices bear no relation to any defensible story about future fundamentals. It may depend entirely on buyers betting prices will go up because others will buy betting prices will go up, and so the bubble inflates until the supply of suckers is exhausted.But a "bubble" might have a more rational basis. It could be a sustained rise in prices that is reasonable given particular, defensible expectations about the future, but which deflates once it becomes clear that particular version of the future has not come to pass. The future is uncertain, after all, and it is not irrational to bet that something might happen just because it doesn't eventually happen. Or, a "bubble" could be a sustained rise in prices that is reasonable given particular, defensible expectations about the future—which eventually are borne out—but which nonetheless deflates, temporarily, due to an unexpected turn in credit conditions.

U.S. Economy Grew at 2.5 Percent Rate in Spring — The U.S. economy grew at a 2.5 percent annual rate from April through June, an improvement from the first three months of the year. But economists are worried that growth may now be slowing. The Commerce Department says its final look at economic growth in the spring was unchanged from a prior estimate made last month. However, the components of growth were altered slightly. Businesses added a bit less to their stockpiles and exports did not grow as fast as previously thought. These downward revisions were balanced by slightly stronger spending by state and local governments. Many analysts believe growth is slowing to a sluggish rate at or below 2 percent in the current quarter. Economists had initially hoped growth would improve in the second half of the year.

GDP Q2 Third Estimate (to One Decimal) Unchanged at 2.5% -The Third Estimate for Q2 GDP, to one decimal, remained unchanged at 2.5 percent. Both and had forecast 2.6 percent. At two decimal places, GDP fell slightly from 2.52 percent to 2.48 percent. The decline would have been somewhat greater (to 2.35 percent) if the BEA had not reduced the GDP deflator in their latest calculation of real GDP. Here is an excerpt from the Bureau of Economic Analysis news release: Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.5 percent in the second quarter of 2013 (that is, from the first quarter to the second quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.1 percent.  The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was also 2.5 percent. With the third estimate for the second quarter, the general picture of economic growth remains largely the same. The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, private inventory investment, and residential fixed investment that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased. The acceleration in real GDP in the second quarter primarily reflected upturns in exports and in nonresidential fixed investment, a smaller decrease in federal government spending, and an upturn in state and local government spending that were partly offset by an acceleration in imports and decelerations in private inventory investment and in PCE.  The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 0.2 percent in the second quarter, 0.1 percentage point less than the second estimate; this index increased 1.2 percent in the first quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 0.8 percent in the second quarter, compared with an increase of 1.4 percent in the first. [Full Release] Here is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. 

Final Q2 GDP Declines To 2.48%; Misses Expectations --In a world in which nobody knows anymore if good is good, bad, neutral, or completely irrelevant, today's final Q2 GDP revision was largely meaningless, although we are confident the algos will somehow take this red flashing headline as a sufficient reason to ignite momentum higher. At 2.48%, the final print was below the expected 2.6%, and below the first revision of 2.52%. It is certainly well below Groundhog Phil Joe Lavorgna's 3.0% forecast.Key source data suggest that Q2 real #GDP could be revised up 0.5% to +3.0%. If so, that helps H2 growth prospects. Yet despite the change deep to the right of the decimal comma, there was little to note: Personal Consumption came at 1.8%, missing expectations of 1.9% as the broke consumer obviously can't "charge" much more, and resulted in 1.24% of the 2.52% GDP print, modestly higher than the 1.21% in the first Q2 revision, but well below the 1.54% in Q1. Other components saw a modest drag from net exports which from 0.00% declined to -0.06%, while change in private inventories dipped from 0.59% in the prior revision to 0.41% in the final one. This is also well below the 0.93% in Q1. Finally, fixed investment was also in line, at 0.96%, up a fraction from the 0.90% in the final revision.

U.S. Second Quarter Third GDP Technical Note (Text) -  Sources of Revision to Real GDP.  Real GDP increased 2.5 percent (annual rate) in the second quarter, the same increase as last month’s estimate, primarily reflecting downward revisions to inventory investment and to exports that were offset by an upward revision to state and local government spending: * The downward revision to inventory investment primarily reflected downward revisions to retail trade industries and to “other” industries. The revision to retail trade industries reflected the incorporation of revised prices, and the revision to “other” industries was based on revised second-quarter quarterly financial report data from the Census Bureau for information industries. * The downward revision to exports reflected downward revisions to goods and to services and was primarily based on revised data from the international transactions accounts. * The upward revision to state and local government spending primarily reflected an upward revision to investment in structures and was based on revised Census construction spending data for May and June. The price index for gross domestic purchases--the prices paid by U.S. residents for goods and services wherever produced-increased 0.2 percent in the second quarter, a downward revision of 0.1 percentage point. The revision was mostly accounted for by a downward revision to PCE prices for financial services and reflected the incorporation of newly available commercial bank Call Report data.

Final Estimate of Q2 GDP and the September FOMC - The Bureau of Economic Analysis announced here that Q2 real GDP increased at a seasonally adjusted annual rate of 2.5%, according to the final estimate. Growth in private domestic investment was revised down from 9.9% to 9.2% and government consumption and investment expenditures were revised up from -0.9%to -0.4%. Growth in private consumption was unrevised at 1.8%, but slowed compared to last quarter’s 2.3% pace.The revised data leaves the broad picture of the economy unchanged. Output, consumption, and income continue to grow at a modest pace. Employment and total hours are steadily growing, albeit slowly. Unemployment is creeping toward 6.5% (the Fed’s stated threshold to possibly, maybe, some chance of, increasing the funds rate) and initial claims dropped 5k, staying near the cycle low. Not much is new. In fact, not much has really changed in the behavior of the economy since the start of the recovery in June 2009 (NBER’s official date). The graph below shows the series mentioned above, plotted as a percentage of their level in June 2009. From about 2011 onward, the growth rate of these macro ‘fundamentals’ has been pretty stable. GDP has averaged slightly above 2 percent growth (relatively slow compared to past recoveries); consumption has growth been slightly higher at 2.8%. In terms of household income, with the exception of the blip up in late 2012 as a result of the ending of the payroll tax holiday, growth has been steady also. So, where does that leave the Fed? After the recent non-taper event, Fed officials hailed the move as a sign that the FOMC committee doesn’t follow market expectations, but is rather guided by the data. That data apparently told them that it wasn’t time to start pulling back on large scale asset purchases as a way to begin to unwind the Feds current bloated balance sheet but rather that more stimulus is still needed.

US GDP Growth Holds at 2.5% in Q2, Corporate Profits at Record High, Key Inflation Index Falls -  The Bureau of Economic Analysis released new data today showing that corporate profits reached an all-time nominal high in the second quarter of 2013. Profits before tax rose to 12.53 percent of GDP from 12.22 percent in the previous quarter, as the following chart shows. That was just fractionally short of the all-time high of 12.60 percent reached in the final quarter of 2011. At the same time, the BEA confirmed that GDP grew by 2.5 percent, the same as the August estimate. Meanwhile, proprietors’ income was flat in Q2. Popular discussions often treat proprietors’ income as a proxy for the income of small business. It includes the current income of unincorporated businesses that have the legal forms of proprietorships, partnerships, and tax-exempt cooperatives. It does not perfectly match up with small firm size because some small firms are incorporated and some proprietorships, partnerships, and cooperatives are large. Proprietors’ income has lagged behind corporate income in recent decades. In the 1950s and 1960s, the shares of corporate profits and proprietors’ income were roughly the same. Now, corporate profits are half-again greater. The gap between the two hit an all-time high in Q4 2011, when corporate profits reached 168 percent of proprietors’ income. (This earlier post discussed some of the reasons for the increasing disparity between large and small-business profits, including changes over the years in tax and healthcare policy.)  In addition to data on GDP and its components, the latest BEA report included new estimates of inflation based on the national income accounts. The broadest measure of inflation, the GDP deflator, grew at just a 0.6 percent annual rate in Q2. The deflator for personal consumption expenditures, closely watched by the Fed, actually fell at a 0.1 percent annual rate. Previously the PCE deflator had been estimated to have been unchanged in the quarter.

Vital Signs: Second-Quarter GDP Details Are Plus for Third-Quarter Growth - The second quarter is far back in the rearview mirror—but the latest estimate of the spring gross domestic product offers one good bit of news for third-quarter growth.In its third look at GDP figures, the Commerce Department said the economy grew at a 2.5% annual rate last quarter, unchanged from the second reading which was up from the advance GDP estimate of 1.7%. The mix of growth, however, was of higher quality. More came from final sales and less from inventory building. While businesses added to their stockpiles last quarter, the pace of accumulation was not so fast to suggest an overhang of goods and supplies. As a result, any increase in demand this quarter is being met mostly by increased production. The course of demand in the fourth quarter, however, will depend more on politics not economic fundamentals.

Does the Fed really have a ‘hidden agenda’ to hide the cost of US debt? - The Drudge Report links to a piece entitled “The Fed’s ‘hidden agenda’ behind money-printing.” The article’s claim: Although the Fed justifies its bond buying program — also known as quantitative easing — as a way to boost economic growth, there’s more to the story. The Fed’s “hidden agenda,” apparently, is the suppression of interest rates so Uncle Sam can more easily finance and afford its growing national debt. The piece  goes to explore a scenario where US interest rates return to their 20 year average of 5.7%. If the federal government were to pay an average interest rate of 5.7% on its debt versus the 2.4% we pay today, debt service cost in 2020 would be about $930 billion. Here is the kicker: 85% of all personal income taxes collected would go to servicing the debt. And who knows, maybe rates will go even higher “as a  result of the massive QE exercise of printing money at an unprecedented rate. We just don’t know what the effect of all this will be but many economists warn that it can only result in inflation down the road.”Sounds awful. But I find this analysis problematic. While the 20-year average for long rates might be 5.7%, the six-decade average is about 3.0%. But the most recent Congressional Budget Office forecast already assumes 10-year rates rise to 5.2% in 2017, close to the rates specified in the article. And CBO forecasts that in 2020, debt service will nearly triple to $644 billion. But guess what? Net interest only doubles as a share of GDP to 2.8% from 1.4%. Total debt as a share of GDP actually declines to 71.5% from 75.1%. And the annual budget deficit falls to 3.2%  from 4.0%. What explains bigger debt but a smaller debt burden? An economy growing faster than the debt.

The Other Reason The Fed Is Terrified Of A Government Shut Down - While some have argued that the Fed is flying blind, given their endless efforts to convince the market that their actions (or inactions) are now all data-dependent - what happens when that data simply does not exist? As SMRA notes, the official word from the BLS is that they are working under the assumption that there will not be a government shutdown and the employment data will be released as scheduled; but what happens if the un-negotiation reaches beyond October 1st? How will our central-planners know what to do? Via Ray Stone of Stone McCarthy,The official word from the BLS is that they are working under the assumption that there will not be a government shutdown and the employment data will be released as scheduled.That said, the Bureau does recognize that there is a risk of a shutdown and such could have implications for the timing of the Employment Situation release, and possibly other releases depending on the duration of the shutdown. If there is a shutdown, the BLS won't be able to tell us when the employment data, and other key economic reports will be released until after the shutdown ends.If the Federal Government shuts down on October 1 some BLS employees will report to the office to provide for an orderly shutdown. No new work will occur, but computers will be shutdown to prevent problems. Those workers that worked from home or in the field will be forced to turn in laptops, and BLS provided cell phones.

Chicago Fed: "Economic Growth Picked Up in August" - The Chicago Fed released the national activity index (a composite index of other indicators): Economic Growth Picked Up in AugustThe Chicago Fed National Activity Index (CFNAI) increased to +0.14 in August from –0.43 in July.
The index’s three-month moving average, CFNAI-MA3, increased to –0.18 in August from –0.24 in July, marking its sixth consecutive reading below zero. August’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.
This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967. This suggests economic activity was below the historical trend in August (using the three-month average).

Chicago Fed: US Economy Growing At “Below-Trend” Rate Through August - The US economy posted another month of growth in August but at a pace 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 –0.18 in August from –0.24 in July, marking its sixth consecutive reading below zero,” a press release issued by the bank advised. The marginal improvement was slightly below expectations, based on last week's release of The Capital Spectator’s average forecast. Using CFNAI-MA3 as a benchmark of the US economic trend, the expansion rolls on, but at a relatively sluggish pace. Nonetheless, the -0.18 reading for last month is the highest since April and so it’s fair to say that the trend isn’t deteriorating. (A zero reading for CFNAI-MA3 equates with economic conditions that match the historical trend.)

Chicago Fed: Economic Activity Picked Up in August - The index has now turned positive after being negative (meaning below-trend growth) for five consecutive months and 12 of the last 18. Here are the opening paragraphs from the report:The Chicago Fed National Activity Index (CFNAI) increased to +0.14 in August from -0.43 in July. All four broad categories of indicators that make up the index increased from July, and three of the four categories made positive contributions to the index in August. The index's three-month moving average, CFNAI-MA3, increased to -0.18 in August from -0.24 in July, marking its sixth consecutive reading below zero. August'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. The CFNAI Diffusion Index increased to -0.10 in August from -0.16 in July. Forty-eight of the 85 individual indicators made positive contributions to the CFNAI in August, while 37 made negative contributions. Fifty-two indicators improved from July to August, while 33 indicators deteriorated. Of the indicators that improved, 18 made negative contributions. [Download PDF News Release] 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. The first chart below shows the recent behavior of the index since 2007. The red dots show the indicator itself, which is quite noisy, together with the 3-month moving average (CFNAI-MA3), which is more useful as an indicator of the actual trend for coincident economic activity. I've added a high-low channel for the MA3 data since 2010. As we can see, the MA3 of the index is at the midpoint of this falling trend, but is has been rising since May.

Foreign Investors Cut U.S. Treasury Holdings - Overseas private investors cut their holdings of U.S. Treasurys for the first time in more than three years during the second quarter of 2013, likely a reflection of uncertainty surrounding the nation’s monetary and fiscal policies as well as expectations of stronger global growth. Foreign private investors reduced their Treasury holdings by 2.4%, or $39.62 billion, to $1.591 trillion from the first three months of the year, the Commerce Department said Tuesday. That was the first time private investors trimmed Treasury holdings from the prior quarter since the end of 2009. Overseas governments and related institutions pared Treasury holdings by about 2%, or $81.56 billion, to $4.009 trillion. Foreign official holdings of U.S. Treasurys hadn’t declined since the end of 2011. The moves come against a backdrop of unorthodox policies at the Federal Reserve, political stalemate in Congress and signs that the worst of Europe’s debt crisis has passed.

The Depressed Economy Is All About Austerity - Krugman -  Right now the official unemployment rate is 7.3 percent. That’s bad, and many people — myself included — think it understates the true badness of the situation. On the other hand, there are some reasonable people (like Bob Gordon) arguing that at this point, possibly thanks to long-run damage from the Great Recession, “full employment” is now a number north of 6 percent. So there’s considerable uncertainty about just how depressed we are relative to potential.But we’re clearly still well below potential. And we’ve also had exactly the wrong fiscal policy given that reality plus the zero lower bound on interest rates, with unprecedented austerity. So, how much of our depressed economy can be explained by the bad fiscal policy? To a first approximation, all of it. By that I mean that to have something that would arguably look like full employment, at this point we wouldn’t need a continuation of actual stimulus; all we’d need is for government spending to have grown normally, instead of shrinking. Here’s a comparison of two series. One is actual government purchases of goods and services since the Great Recession began (this is at all levels; most of the fall has been state and local, but the Federal government could have prevented that with revenue sharing). The other is what would have happened if those purchases had grown as fast as they did starting in the first quarter of 2001, i.e., in the Bush years.

Another Way of Reading the CBO Report - On Tuesday, the Congressional Budget Office released its new projections (pdf) for the long-term budget. A Bloomberg article titled “CBO Says Short-Term Deficit Cut Won’t Avert Fiscal Crisis” provided a fairly typical summary: [F]ederal spending will rise from 22 percent of GDP in 2012 to 26 percent in 2038 … The deficit [currently 3.9 percent of GDP] would be 6.5 percent of GDP in 2038, greater than any year between 1947 and 2008 … Even though tax receipts would grow …, the revenue increase wouldn’t be “large enough to keep federal debt” from “growing faster than the economy starting in the next several years,” according to the CBO report. Here’s another way of presenting those CBO numbers. Spending on actual government programs is projected to fall from its current 19.5 percent of GDP to 18.8 percent in 2023, before rising to 21.3 percent in 2038. And revenues are also projected to rise, from 17 percent to 19.7 percent of GDP by 2038. The result, according to the CBO, is that the primary budget balance (that is, excluding interest payments) shrinks from its current level of -2.5 percent of GDP to -0.3 percent in 2023, and then grows to -1.6 percent of GDP by 2038. In other words, a quarter-century from now, the primary deficit — the gap between tax revenues and the spending under Congress’s control — will be smaller than it is today, according to the CBO’s numbers. Here’s the relevant Table:

The Federal Government Is Not a Large Household or Business - The Heritage Foundation presents what one hopes it doesn’t believe is a clever critique of US public finances: Brad Plumer has the inevitable takedown here. This pretty much sums up the inanity of these government-as-household analogies: “Anyway, it’s a good analogy. The U.S. federal government really does resemble your typical money-printing family that owns lots of tanks, operates a giant insurance conglomerate, can borrow money at extremely low rates, and is assumed to be immortal.”

Shutdown vs. Default: The Relative Impact - Legislators are using both the debt ceiling and a continuing resolution as bargaining chips. But economists warn against reading any equivalence into the two: failing to raise the debt ceiling would be much, much, much worse for the economy, they argue, than a temporary shutdown.  To understand why, it helps to understand what would happen in a shutdown and what would happen in a default.  On Sept. 30, the continuing resolution channeling money to the various federal agencies would expire, and with it the government’s “spending authority.” Washington’s debit card would be cut off and the agencies would be ordered to stop racking up bills.A shutdown would not affect “mandatory” spending — meaning money for Medicaid, Medicare, Social Security, unemployment insurance, food stamps, tax credits and a smattering of other programs. But it would put a vise on “discretionary” spending, meaning everything else, from national parks to the Education Department to visa offices. Hundreds of thousands of employees would be put on furlough, and much of the federal government would go offline.There are some exceptions. Self-financing agencies, like the Postal Service, would remain at work. So would activities with a “reasonable and articulable connection between the function to be performed and the safety of human life or the protection of property.” That means air traffic control, food inspection, federal prisons, disaster assistance, border security and veterans’ hospitals.On the X-date, on the other hand, the Treasury would find itself unable to make all that day’s federal payments.

The shutdown showdown: What happens now? —The House succeeded in passing a stop-gap measure on Friday to continue funding the government. Now the continuing resolution goes to the Senate, where it will die. The Democratic-controlled upper chamber will not pass a bill that defunds the president’s health care law. The Senate will start debating the bill as early as Monday. Senate Majority Leader Harry Reid plans to file cloture to begin debate that day, according to Senate aides.That sets up a Wednesday vote to officially bring the bill to the Senate floor. That requires 60 votes and is expected to go through.The process becomes less clear after that.Reid has a number of options for stripping out the language that defunds the president’s health care law while still funding the government.Under one likely scenario, he would wait until after a cloture vote on the bill–that would take place Thursday or Friday if senators don’t all agree to shorten that time window. Then, an amendment to strip the defund language would be considered in order and automatically come up for a vote. It would take only 51 votes to pass the amendment, and then 51 votes to pass the final bill.

#Cliffgate: Are You Really Betting On The Tea Party To Stop A Shutdown? - A government shutdown and #cliffgate may still not occur. But those who are discounting the chances of it happening have far more confidence in the willingness of the tea party wing of the House GOP to act rationally at the last minute as its dreams of being seen as uncompromising and defiant are close to being realized than I do. Now that the House has passed a continuing resolution that the Senate won't accept because it defunds Obamacare, the budget process choreography for the coming week will be as follows:

  1. The Senate will begin to debate the House-passed CR on Monday or Tuesday.
  2. The Senate is likely to strip out the defunding provision.
  3. The Senate may increase the spending level from what the House included in its version of the CR.
  4. Senate Republicans may filibuster the CR and, therefore, bear the responsibility for the bill not being enacted by the start of the fiscal year and, therefore, for the shutdown.
  5. But, in one of the great legislative ironies in American history, Senate parliamentary procedures will force the GOP to filibuster the House-passed CR that defunds Obamacare. In other words, Senate Republicans technically will be preventing what they say they actually want to happen from being adopted.
  6. If the filibuster doesn't happen, the Senate is not likely to send whatever CR it passes back to the House until next Thursday, September 26, at the earliest.
  7. If there is a filibuster and cloture is invoked, the Senate-passed bill may not get back to the House until the 28th or 29th of September, that is, just two days before a shutdown will begin.

Government shutdown depends on a three-way battle— Outside the capital the prospect might seem unthinkable, but inside it seems increasingly likely, and to some inevitable: In less than two weeks, the federal government, from the Agriculture Department to the Weather Service, may shut its doors. Agencies already have contingency plans for stopping all but essential work. Soldiers would be required to report for duty but would not be paid. National parks would be closed and overnight campers would be given two days to leave. Social Security checks would go out, but the agency would stop updating people's earning records. The State Department would stop issuing most passports. The last time the entire government shut down, for five days midway through the Clinton administration, about 800,000 federal employees were furloughed without pay. A second shutdown a few weeks later lasted 21 days but affected only part of the government. Workers eventually were reimbursed, but the government has made no guarantee that would happen again. Now, as then, the shutdown looms because a political standoff has blocked passage of the annual bills that provide money for most government agencies. The opening round of the fight comes Friday with a vote in the House. The budget year ends Sept. 30. The snarl this time is worse than in the Clinton era in at least two ways: It involves not just one deadline, but a series of deadlines over the next several weeks, any one of which could see normal government activities come to a halt. If Congress manages to slip past the end of the budget year, the next crisis will come when lawmakers face a vote in mid-October on raising the limit on the nation's debt. Moreover, the fight has morphed from a straightforward battle between Republicans and Democrats into a three-way brawl in which the GOP congressional leadership must contend not only with the White House, but with conservative insurgents in their own ranks.

Ironies Abound: Destroying the Village to Save It -- I find it strange that self-avowed patriotic Americans are willing to shut down the government, breach the debt ceiling, and throw the world economy into tumult, when those same self-avowed patriots have been asserting that policy uncertainty has slowed down the economy. Let’s stipulate for the sake of argument policy uncertainty has been an important determinant of slow growth [0]; when do we see the spikes in policy uncertainty?  In other words, going to the debt ceiling precipice again will, if we take the conservatives’ assertions at face value, possibly throw the economy into another slowdown or even recession, using their own logic. Of course, internal consistency has never been a particularly prominent characteristic of those arguing for breaching the debt ceiling.When will Treasury hit the ceiling? The Bipartisan Policy Center estimates it will occur between October 18 to November 5.  It’s possible that Treasury could technically default (defaulting on vendor payments, but not on debt related payments). Note, this is default. The Bipartisan Policy Center (BPC) observes that a more plausible option might be to delay payments until sufficient funds come in. They provide an example of how that would work if X date happens to be October 18th. Notice over time how the delays become longer and longer. Even prioritizing the payments to only cover debt related payments (so technical default) would encounter problems over time. “Treasury must “roll over” well over $370 billion in debt that will mature this year during the Oct 18 – Nov 15 period.” If interest rates rise to account for an elevated risk premium, then a larger amount will be required. There’s also the possibility that the issues would be undersubscribed, forcing use of cash, or debt default (in addition to defaulting on payments to vendors).

‘There is no evidence to suggest that the debt ceiling will be raised in time’ - Now you can sort of see an end-game over the budget and continuing resolution. Eventually the House passes a “clean” CR thanks to a promise from GOP leaders that they will take the Obama White House to the mat over the debt ceiling. Something like that. Then it gets real. The White House strategy has three parts: 1) don’t negotiate, 2) don’t blink, 3) remember not to negotiate or blink. The GOP, on the other hand, doesn’t really have a plan and is far from unified on what they want to get from Obama or how exactly the battle should play out.  Who is going to blink? The non-scary options — Obama offering a quid pro quo, raising the debt ceiling by congressional disapproval and an Obama veto, a straight hike in the debt ceiling — require someone to blink. Then you have the unilateral options where Obama just flat out bypasses Congress, both of which would likely freak out markets. At this point Krueger sees a 40% probability the US enters “technical default scenarios” in late October or early November due to a debt ceiling impasse.

Do investors really not get it regarding US paying it’s debt? - A question has been nagging me. First, does the rest of the world not get that the republicans are playing a game with the US’ bank account? Does anyone really believe that the US won’t pay as in the renter just skipped out the back door? Or maybe I should say as in the capital venture company just loaded up the latest purchase with debt, pocketed that money and filed bankruptcy..Really, the US won’t pay it’s bills? Oh no, the nation is going Detroit? It’s a game folks. Don’t play it. If you don’t pay it then the republicans have no threat because the financial world is not really threatened.

Senate Democrats Ponder Shorter Budget Measure - Senate Democrats are discussing a shorter-term measure to keep the government funded after the end of this month, hoping to move quickly to a more permanent spending program and move past the contentious fights that have tied up both chambers of Congress for weeks. Sen. Dick Durbin (D., Ill.), the No. 2 Senate Democrat, said that the discussions centered on a spending bill that would stretch through Nov. 15, instead of through mid-December, the current target date. He said that the rationale was to avoid adopting last year’s budget “over and over,” and to shift to a new budget. Federal agencies have limited flexibility over where to allocate budget dollars, and temporary spending measures tend to lock agencies in to spending plans that may no longer suit their needs. “If we do this till Dec. 15, Merry Christmas,” Mr. Durbin told reporters. “We’re going to be sitting around here and it will be once again  Christmas Eve” and Congress will still be wrangling over the budget.Democrats will hash out their plans more fully later on Tuesday, when both parties meet behind closed-doors for weekly luncheons.

Another Game of Political Chicken - As a potential government shutdown looms, where has President Obama been? With his influence on Capitol Hill severely limited, he journeyed to a Ford auto plant in Missouri on Friday and addressed a Congressional Black Caucus dinner over the weekend to tout his economic record and lash out at Republicans. And as congressional leaders dueled on the Sunday morning talk shows, administration officials were notably absent—choosing to let House and Senate Democrats fight for them. This particular strategy just might pay off as the president tries to avert the first government shutdown in 17 years. House Republicans last Friday passed a short-term measure to fund the government through Dec. 15, but their bill required that funding for Obamacare be axed. The president is insulated from this threat, since the bill will never cross his desk. Senate Majority Leader Harry Reid (D-NV) will strip out the anti-health care language and send the spending bill back to the House with just days to act again before the new fiscal year starts on Oct. 1. Tea Party Republicans, including Sens. Ted Cruz of Texas and Mike Lee of Utah, will be helpless to stop Reid.

Austerity, Not Uncertainty, Is the Scary Part of Fiscal Showdowns -- It is taken as a given that the annual fiscal policy dramas of the past few years are “bad for the economy.”  The general idea that these fiscal policy fights have hurt the economy’s recovery from the Great Recession is clearly right. However, far too many people get the story wrong about how these annual fiscal dramas have slowed recovery. In short, it’s not that they introduce damaging “uncertainty.” Rather, it’s that they have led to smaller budget deficits, which have sucked purchasing power out of an economy that remains severely demand-constrained.This may sound doubly strange—the corrosive impact of “uncertainty” is now essentially an official talking point for the Beltway pundit class, and the most treasured cliché of economic commentary is that reducing the budget deficit is nearly always and everywhere a good thing. In respect to the damage done by “uncertainty,” it’s really hard to convincingly argue that uncertainty can be measured particularly well or (even more importantly) that it’s an independent cause of slower growth rather than a symptom of slow growth. I tried to convince myself that there might be something here a year ago, but in the end it was awfully hard to say anything more than “Does fighting about the statutory debt ceiling in and of itself damage the economy [by introducing uncertainty to economic decision-making]? Maybe.”

There’s much less time to avoid a government shutdown than you think -- The Senate is now considering the House's continuing resolution, which defunds Obamacare. But Republican Sen. Ted Cruz, among others, has promised to filibuster that bill. So, here's what happens next:  

  • 1) The Senate files cloture on the motion to proceed to the bill. A "cloture" vote -- which is how you overcome a filibuster -- takes two full calendar days. So that takes us to Wednesday.
  • 2) There are 30 hours of post-cloture debate. If Cruz and his compatriots choose to burn time -- and they probably will -- that means it'll be Thursday before the Senate is actually on the bill.
  • 3) The Senate files cloture to move to a vote on the bill and the amendment stripping out the "defund" language, as Majority Leader Harry Reid has pledged. Two more calendar days. Now it's Saturday.
  • 4) Another 30 hours of post-cloture debate. Now it's Sunday. Finally, the actual vote can happen.
  • 5) The Senate sends the bill back to the House. That'll probably happen on Monday, Sept. 30.

The key is what happens after that. The House could just pass the Senate's CR and send it to the president. If that happens, no shutdown. But if they don't want to pass the Senate's CR -- which won't defund Obamacare or offer any new concessions to House Republicans -- there's no real time left to send a new bill back to the Senate. "If that happens," one Senate aide told me, "I think we just go to shutdown."

Boehner Says House Will Not Accept "Clean" Funding Bill From The Senate - First the House passed a spending bill that would avert a September 30 government shutdown, and extending government funding to November 15, however with an Obamacare defunding provision. Naturally, the Senate struck it down, and would propose a clean funding bill ex-any Obamacare defunding provisions, with a funding provision for an additional month. Moments ago, Boehner made it clear that the House is unlikely to accept a clean spending bill from the Senate, increasing the chances of a government shutdown after Sept. 30. "I don’t see that happening," Boehner told reporters at a Capitol press conference. So back to square zero, with Congress nowhere closer to a compromise, a continuing resolution just as unlikely as it was before the latest episode of grandstanding began, and five days left until government shuts itself down. More from The Hill: The Senate is expected to strip out the House GOP’s provision defunding ObamaCare, but it may not pass the bill until Saturday, giving the House little time to act before a shutdown. Republican leaders broadly want to shift the fiscal battle to the debt ceiling, but they may try one more round of legislative ping-pong on the spending bill to satisfy the demands of conservatives and try to extract a modest concession from Democrats. Boehner refused to say what the House might try to attach to the spending bill. He also did not address the possibility that the House would move a short, one-week continuing resolution to buy more time for the two chambers to negotiate a longer compromise. “I’ve made it clear now for months and months and months that we have no interest in seeing the government shut down, but we’ve got to address the spending problems that we have in this town,” Boehner said. “So there will be options available to us. There is not going to be any speculation on what we are going to do or not do until the Senate passes their bill.”

Debt Ceiling Dates, Explained - Here’s a rough calendar of events, based on projections from Treasury, CBO, and the Bipartisan Policy Center.

  • Sept. 30 – Government funding expires for a number of federal programs. This is unrelated to the debt ceiling, but provides another fiscal pressure point for Congress leading up the borrowing limit deadline.
  • Oct. 1 – The government is expected to make nearly $75 billion in payments for military retirement and health programs, according to the BPC.
  • Oct. 17 – The government will exhaust the emergency measures it has used since May to allow the government to continue borrowing money, Treasury says. It predicts the government will have $30 billion cash-on-hand after this point to pay obligations, combined with incoming tax revenue.
  • Oct. 17 – The government is scheduled to roll over $120 billion in maturing debt. There should not be a net cost to the government, though it is unclear what the investor appetite for bonds will be if the debt ceiling isn’t resolved.
  • Oct. 22 – CBO estimates this is the first date the government could exhaust all of its reserves and begin missing payments.
  • Oct. 23 – The government is scheduled to pay $12 billion in Social Security benefits.
  • Oct. 24 – The government is scheduled to roll over another $57 billion in maturing debt.
  • Oct. 31 – The government is scheduled to make a $6 billion interest payment on its debt.
  • Oct. 31 – The government is scheduled to roll over $115 billion in maturing debt.
  • Oct. 31 – CBO estimates this as the last date of its range when the government could exhaust all of its reserves and begin missing payments.
  • Nov. 1 – The government is scheduled to make $55 billion in Medicare, Social Security, and military payments.

Washington dysfunction threatens US economy — MSNBC: More than 2,500 miles west of Washington, Kaufman runs Spin and Margie’s Desert Hideaway, a five-room bed-and-breakfast near Joshua Tree National Park. If Congress can’t pass a budget before September 30, “we would lose reservations within days,” she says—right at the beginning of the park’s high season.  A shutdown would affect federal workers, military service members, and government contractors directly, and, downstream, would also hit millions of American families and businesses that rely on government services. Washington’s dysfunction could significantly damage the U.S. economy. Under a shutdown, the government would continue to provide essential services to protect the public’s health and safety, including air traffic control, national security, and mandatory payments like Social Security. But huge swaths of government activities would come to a standstill: paychecks to military service members would be delayed, passport offices and national parks would be closed, and mortgage servicing by the Federal Housing Administration would be suspended. A brief shutdown—say, three to five days—would have minimal economic impact. “Although terribly irresponsible, and certainly disruptive and inefficient, it is not a major crisis,” says Isabel Sawhill, a senior fellow at the Brookings Institute and a former Clinton budget official. “A few days would be more of a nuisance than an economic problem,” says Mark Zandi, chief economist at Moody’s Analytics.

Government Shutdown May Harm U.S. Credit Quality, Moody’s Says -- A U.S. government shutdown or failure to raise the debt limit may slow economic activity, which would damage the nation’s credit quality, according to Moody’s Investors Service. While the ratings company expects the nation’s leaders will avoid a shutdown and increase the debt limit, if it fails to do so “the consequences for the economy and government revenues would be negative,” it said in a report today. “Financial market and economic consequences would likely be more severe if the debt limit is not raised than under a government shutdown,” Moody’s said. “The perception that the U.S. government could default on debt servicing if the debt limit isn’t raised could roil financial markets and damage business and consumer confidence.”

Failure to Raise the Debt Ceiling Would Be ‘Catastrophic’ -- Even a temporary failure of the U.S. government to pay its bills would have a “catastrophic” impact on the U.S. and global economy, according to the International Monetary Fund. U.S. officials warn that the government could run out of cash to pay its social security and military obligations by the middle of next month if lawmakers fail to reach a deal to raise the amount of money the country can borrow, called the debt ceiling.Even if it was temporary, the IMF estimates that such a shock could shave around a half-percentage point off growth around the world at a fragile stage in the global recovery. Europe is only just showing signs of coming out of two years of severe recession while growth in emerging markets is weakening.In its July review of the U.S. economy, the IMF said the threat of economic disaster would likely rule out a potential debt-ceiling debacle. The fund forecast U.S. growth to accelerate a full percentage point to 2.7% next year, predicting Congress and the White House would reach a deal on near-term deficit reduction and the debt ceiling.But it also acknowledged the risk of a political stalemate that failed to raise the debt ceiling.“The economic costs would be potentially catastrophic depending on how long the impasse lasts; spillovers to the rest of the world would be severe,” the IMF said then

After past shutdowns, Congress gave federal workers back pay. This time? Don’t count on it - A government shutdown next week would jeopardize the paychecks of more than 800,000 federal workers who could be told to stay home. More than 2 million other employees who are deemed essential by the government — including the active military — would be entitled to their salaries but might not get paid on time. While there is no law requiring that nonessential employees be compensated if they are ordered off the job, Congress has in the past voted to reimburse their losses once shutdowns ended.  But this go-round could be different. The bitterly divided Congress includes many lawmakers who are unsympathetic to the plight of federal workers and could be loath to help them recoup their money. "It’s a very different time and a very different Congress,” said Colleen Kelley, president of the National Treasury Employees Union, which represents 150,000 federal workers. “I’m concerned when employees who were here remember that last time employees were paid and think it will happen again, because it’s not a given at all.”

Stop the Kabuki: It’s About “the Great Betrayal” - MSNBC continues on with its campaign to cast the Tea Party Republicans in the role of principal villains in the imminent Government budget/ government shutdown crisis and the likely coming debt ceiling crisis. The teabots, you see, are using the Republican majority in the House to demand more austerity in government and defunding of the Affordable Care Act (ACA).  Speaker Boehner is coming in for his share of the blame, being called feckless, spineless, weak, a failed leader, and unpatriotic for his decision to respect the Hastert rule, give into teabot “lunacy,” and help them pass a budget implementing further budget cuts and defunding the ACA. MSNBC’s thrust is clearly to call the Republicans bad names while painting the Democrats and the Administration as the adults in the room, willing to compromise to keep the Government running and prevent a default which could crash the world economy. I think this campaign is hiding the real story here, as it is designed to do. Let’s stipulate, to begin with, that the tea party Republicans are mean, evil, stupid, and crazy dudes and gals funded by Ayn Randian billionaires whose primary interest is to replace society with a state of nature in which life is nasty, brutish, and short for those of us who don’t have private armies. It’s still true that they do not bear the sole blame for this crisis, because it is simply not the case that there is nothing the Administration can do to both short circuit the crisis and defuse its impact.  By framing things in this way, the media are echoing the Administration’s framing of the situation and absolving the President of his share of the blame for the crisis. They are also preparing the way for a compromise, that if it doesn’t defund Obamacare, will, almost certainly, result in hurtful cuts to Government spending including renewed consideration of the Great Betrayal, also known as the Grand Bargain, and probably passage of the chained CPI cuts to Social Security over the objections of a large majority of the American people.

GOP Economist Warns Party on Shutdown Risks - The logistics of a partial shutdown would impact a range of government operations but do virtually nothing to address the country’s long-term fiscal problems, a Republican economist and budget expert said Tuesday. Douglas Holtz-Eakin, who led the Congressional Budget Office and was a top adviser to 2008 presidential candidate John McCain, said a shutdown would impact just 36% of the federal budget and leave untouched the largest – and growing – elements that many Republicans believe need to be structurally changes, such as Medicare and Social Security.“People don’t really understand how this works,” said Mr. Holtz-Eakin, president of the American Action Forum. “Shutting the government down is bad idea. It’s a bad policy and a bad political move at this point in time.”

House GOP offers plan to avert shutdown - With federal agencies set to close their doors in five days, House Republicans began exploring a potential detour on the path to a shutdown: shifting the fight over President Obama’s health-care law to a separate bill that would raise the nation's debt limit. If it works, the strategy could clear the way for the House to approve a simple measure to keep the government open into the new fiscal year, which will begin Tuesday, without hotly contested provisions to defund the Affordable Care Act. But it would set the stage for an even more nerve-racking deadline on Oct. 17, with conservatives using the threat of the nation’s first default on its debt to force the president to accept a one-year delay of the health-care law’s mandates, taxes and benefits.  Obama administration officials dismissed the plan, vowing that there would be no delay of the insurance initiative, which is set to begin enrolling consumers Tuesday. They argued that Republicans risk destroying their own credibility among voters, who strongly disapprove of such brinkmanship regardless of their views on the Affordable Care Act.

Republicans See Keystone Pipeline as a Card to Play in Last-Minute Fiscal Talks - As a possible government shutdown looms, environmental activists who oppose construction of the Keystone XL pipeline say they are increasingly alarmed that the project might become a bargaining chip in last-minute negotiations between Republicans and President Obama to avert a fiscal crisis. If built, the 1,700-mile pipeline would carry millions of gallons of crude oil from Alberta in Canada to American refineries on the Gulf Coast. Because it crosses an international border, the pipeline requires approval by Mr. Obama’s administration after a review by the State Department. Mr. Obama has repeatedly said he would not make a decision until that process was complete. But Republicans who support the pipeline have already signaled that they intend to demand approval of a permit for its construction in exchange for their willingness to support Mr. Obama and raise the nation’s debt ceiling next month.“We feel like this is our only option,” said Representative Lee Terry, a Nebraska Republican who is one of the leading pipeline supporters.

Treasury's Lew: US may have less than $50 billion soon - The United States could have less than $50 billion in cash in mid-October when the government exhausts its legal borrowing capacity, Treasury Secretary Jack Lew said on Tuesday. (Read more: What a government shutdown could mean) Lew had previously said the government would have around $50 billion then. He said on Tuesday revenues have come in a little slower than expected in recent weeks. "Because things have come in a little bit slower ... that number is smaller than 50 now," Lew told Bloomberg News in an interview in New York. The government has been scraping up against its $16.7 trillion debt limit since May but has avoided defaulting on any of its bills by employing emergency measures to manage its cash, such as suspending investments in pension funds for federal workers.

Lew: Steps to avoid debt limit run out Oct. 17 - Emergency steps to keep the government from hitting the debt ceiling will run out on Oct. 17, Treasury Secretary Jacob Lew said Wednesday. Lew's comment, made in a letter to Speaker of the House John Boehner, add more clarity to prior estimates that the steps would run out in mid-October. Lew said that Treasury would have about $30 billion on hand to pay bills. "This amount would be far short of net expenditures on certain days, which can be as high as $60 billion," Lew said.

Treasury Secretary explains: The debt ceiling only allows U.S. to pay for spending Congress has already approved - Treasury Secretary Jacob Lew warned Wednesday the US government will have no more flexibility to juggle spending and meet its obligations after October 17, under a statutory debt cap. Lew told Congress that, after months of maneuvers to meet government commitments without added borrowing, those “extraordinary measures” will be exhausted by that date. That will leave the Treasury with only $30 billion in cash to meet ever-mounting demands that can only be met by borrowing more money. Lew urged the House to increase the borrowing ceiling, which has been locked at $16.7 trillion since May. “Extending borrowing authority does not increase government spending; it simply allows the Treasury to pay for expenditures Congress has already approved,” he wrote. “As such, I respectfully urge Congress to act immediately to meet its responsibility by extending the nation’s borrowing authority.”

‘Our 60% probability that the U.S. will not enter into technical default is based on nothing more than blind faith’ - “The path forward on the debt ceiling remains a total mystery and our 60% probability that the U.S. will not enter into technical default scenarios is based on nothing more than blind faith.”Some more alarming commentary from Chris Krueger, political analyst with Guggenheim Washington Research Group, who sees — do the math — a 40% chance of a technical default. A few thoughts:

  • 1. Here’s your trouble: The White House strategy is a) don’t negotiate, b) don’t blink, c) remember not to negotiate or blink. The GOP, on the other hand, doesn’t really have a plan and is far from unified on what they want to get from Obama — Keystone pipeline, entitlement reform, tax reform — or how exactly the battle should play out. Who is going to blink?
  • 2. A “technical default” refers to a temporary delay in US debt interest payments. During the last debt ceiling crisis, legendary investor Stanley Druckenmiller raised eyebrows when he told The Wall Street Journal: “I think technical default would be horrible, but I don’t think it’s going to be the end of the world.”
  • 3. A technical default would not be good. As JPMorgan said back in 2011: “Any delay in making a coupon or principal payment by Treasury would almost certainly have large systemic effects with long-term adverse consequences for Treasury finances and the US economy.”
  • 4. Among those potential nasty “effects”:  a) a run on money market funds, b) new reluctance by foreigners to hold US federal debt causing interest rates to spike, c) at least a 1% hit to GDP growth.

You Really Ought to Be More Terrified of the Debt Ceiling - The truly scary thing about going over the debt cliff isn't what we think will happen—a scramble to prioritize payments, delayed checks to groups like veterans and senior citizens, and angry, confused investors.The truly scary thing is that we actually have no idea what will happen. We don't know if it's even possible for the government to prioritize payments to millions of different clients. Households, businesses, and investors don't know how long they'll have to wait for their money, whether it's a defense contract deal, a doctor's reimbursement, or a Social Security check. And nobody will know how long the nightmare will go on. Our international economic reputation—reflected in our low interest rates, the safe haven status of Treasuries (when everything goes haywire, investors clamor for U.S. debt), and our status as global reserve currency—rests on the assumption that Washington isn't completely insane. That assumption will be proved wrong if we make it past October 17 without increasing the debt limit. That was the drop-dead date announced this morning, when Treasury Secretary Jack Lew sent House Speaker John Boehner a note detailing the dangers of breaking through the debt ceiling.

Default Notes - Paul Krugman - Add me to the chorus of those puzzled by the lack of market alarm over the possibility of U.S. default, induced by failure to raise the debt ceiling.  Business types come to Washington, and they talk to Boehner, or Paul Ryan, or Eric Cantor. What they don’t realize is that those guys aren’t in control, and that they’re running scared of a large faction of the party that is indeed insane.” That makes sense to me; if most political reporters are still in denial over the real state of affairs, one can imagine that businesspeople are having an even harder time realizing the extent to which the inmates have taken over the asylum. But suppose that markets were giving the possibility of default the attention it deserves; how should they be reacting? That’s not actually all that obvious, at least as far as interest rates are concerned. What everyone stresses is that U.S. government debt, until now regarded as the ultimate safe asset, suddenly becomes not so safe. That could drive up short-term interest rates, at least a bit, because T-bills could start to trade at a discount relative to cash. Although maybe not. Is there a reason the Fed can’t serve as bond buyer of last resort, standing ready to buy T-bills at par, so they remain fully liquid? Meanwhile, what about long-term interest rates? A lot of people seem to assume that they’ll go up, because who’ll buy debt that might face delays in payment?  If the feds are forced to slash spending, one way or another (and probably semi-randomly) to match receipts, that’s about $600 billion in cuts at an annual rate, or 4 percent of GDP. That’s a huge case of unintended austerity, quite aside from the disruptions, surely enough to push us back into recession if it lasts for any length of time.And a double-dip recession would, in turn, push back the date of Fed rate increases far into the future, which would normally cause a big drop in long-term rates. So I’m not at all sure that we’re looking at an interest rate spike; maybe even the opposite.

Meet the new idiots, same as the… actually these idiots might be worse - To the seasoned finance blogger, US Congressional asshattery lacks the terrifying intrigue it had in 2011.The world was in worse shape back then. It was pre-LTROs in Europe and high season for Eur-exit speculation, while in the US we were confronting another dispiriting summer slowdown and the legitimate possibility of a double-dip recession. As the possibility that the debt ceiling wouldn’t be lifted in time became frighteningly real, financial markets started flashing signs of acute distress, and consumer confidence cratered. We got through it. And it’s also been easy to think that once again Congress will come to its senses at the last minute and, at the very least, avoid catastrophe. But we just came across this piece by Ezra Klein arguing that the dispute between Republicans and Democrats this year is worse than it was in 2011, when they actually agreed on a few things:  In 2013, however, the parties don’t agree on anything:

1) Republicans believe Obamacare’s unpopularity gives them a mandate to defund or delay the law. Democrats believe that their victory in the last election gives them a mandate to implement their agenda.
2) Republicans believe there should be negotiations around raising the debt ceiling. Democrats emphatically don’t. Currently, there are no ongoing negotiations, nor any plan for them.
3) Republicans believe the aim of these negotiations should be defunding or delaying Obamacare. Democrats say they will not, under any circumstances, delay or defund Obamacare.

There is, quite literally, no shared ground for a deal. Democrats and Republicans disagree on everything from the principle of negotiations to the potential objective of those negotiations.

House Republicans lack votes to move plan to raise debt ceiling - House Republican leaders found themselves struggling to secure the votes on Thursday for a debt-ceiling measure they hoped to pass swiftly through the House as the latest salvo in a multifront fiscal fight. In a closed-door meeting, the leaders outlined to their members a proposal that would demand a laundry list of Republican priorities in exchange for a yearlong suspension of the nation’s $16.7 trillion borrowing limit. The centerpiece of the plan is a one-year delay of President Obama’s signature healthcare law.  But hours after the meeting, the party had yet to release the legislation formally, and conservatives complained that it lacked specific spending cuts and failed to tackle entitlement reform. “We still have some challenges,” “We’ve got an awful lot of support, but clearly at this point we don’t have a final product that’s attracting the number that we need. Hopefully that’ll change, and I think it could.”  A meeting of the House GOP leadership late Thursday afternoon broke up without an announcement about the bill. Aides said the timing remained "in flux," and the Rules Committee had yet to schedule a meeting.

Obama and Republicans remain poles apart as twin crises loom - Even by the standards of multiple confrontations between Mr Obama and Republicans since they took control of the House of Representatives in early 2011, this stand-off appears intractable, with no clear path forward. “All of this would be funny if it weren’t so crazy,” Mr Obama said in a sharp attack on Republicans in his Maryland speech. Congress must pass a new budget by October 1 or trigger a partial government shutdown. A fortnight or so later, on October 17, the US Treasury says it will be near to running out of money to pay its bills. The stakes are high, with the threat of multiple government agencies being forced to close their doors, and more seriously, the possibility the US government could run out of money to meet its debts. In the next step in a complicated legislative dance, the Democratic-controlled Senate will strip out the provision in the budget inserted by the Republican House to gut funding for Obamacare. Mr Boehner said Republicans had some “options” available to get some of their favoured policy proposals through with the budget, but he did not detail what they were. The outcome of the budget negotiations will influence Republican tactics for handling the second, and more serious, deadline on the debt ceiling. The Republicans have announced a laundry list of conservative causes as a condition of their support for approving new US government borrowings. On top of a 12-month delay of Obamacare, the demands include approval for the Keystone XL pipeline from Canada to the US, a rollback of the authority of the Environmental Protection Agency to regulate greenhouse gases and tighter means testing of health benefits for the elderly.

#Cliffgate Update: Watch The House Rather Than The Senate - All eyes will be on the Senate today as it votes mid-afternoon on whether to proceed to a vote on the continuing resolution. Unless something unexpected happens and that vote fails, the Senate is widely expected to strip out the GOP-preferred provision that would prevent federal agencies from spending any money to implement Obamacare and then send a clean bill back to the House. It's what happens in the House that will determine whether there's a government shutdown next Tuesday. At this very late point in the debate, it's hard to discern even a hint of a strategy among House Republicans about what to do and how to get it done. The GOP plan that seemed to be emerging to vote this week on a debt ceiling extension that included tea party legislative priorities and punt on the CR was abandoned yesterday when the leadership realized it didn't have the votes from its own caucus to pass that bill. That leaves the CR as the vehicle of choice for the tea party wing of the House GOP. So the questions for this weekend all have to do with House Republicans. Will they:

  1. Be able to agree on anything?
  2. Be able to agree on anything before midnight on Monday?
  3. Be able to agree on anything that will have any chance of passing the House?
  4. Decide to pass a short-term (as in one week) CR to give themselves more time to do #1 and 2
  5. Decide to that a shutdown is worth the effort and again send the Senate something that it won't accept?

Republicans bet that Obama is bluffing on debt ceiling - House Republicans emerged from an hourlong private meeting on Thursday with a wish list of demands for Democrats and President Barack Obama in return for their approval on a measure to raise the federal government’s borrowing limit. Among the Republican requests: They want the individual mandate to buy health insurance that was in the 2010 federal health care law delayed for one year. Approval of the Keystone XL pipeline. Increased offshore oil drilling. More spending cuts. For months, however, the president and his deputies have said they are not willing to negotiate when it comes to raising the debt limit, which Treasury Secretary Jacob Lew said this week must occur by Oct. 17. Not doing so, he said, could cause the federal government to default on spending obligations. Despite the warnings — House Speaker John Boehner said Obama called him last week to reiterate that there would be no compromise on the debt ceiling — Republican leaders refuse to take Obama at his word. They think he’s bluffing. “The president says, 'I’m not going to negotiate,'” Boehner told reporters after the meeting with other Republicans on Thursday. “Well, I’m sorry, it just doesn’t work that way.”

House GOP Debt-Ceiling Plan: Paul Ryan's Losing Ideas from 2012 - House Speaker John Boehner, House Majority Leader Eric Cantor and House Budget Committee chairman Paul Ryan are not quite done threatening a government shutdown as part of the “Defund Obamacare” debacle. But they are already on to their next project: holding hostage any agreement to allow the debt-ceiling to rise. Traditionally, increases in the debt ceiling to pay for spending that has already been agreed to have been approved with little debate and less opposition. But no one accuses Boehner and Cantor of being serious about anything but political games. So, in advance of the mid-October date when an adjustment will be required, they are advancing a new plan—already vetted by the lobbyists on K Street—that would exchange a one-year lifting of the debt ceiling for:

  • a one-year delay of Obamacare
  • means testing of Medicare and other so-called “entitlement reforms”
  • sweeping tax reforms
  • pro-corporate tort reforms, including limits on medical malpractice lawsuits
  • approval of the Keystone XL oil pipeline
  • approval of offshore drilling
  • the undermining of regulations on business
  • moves that that likely to weaken the Consumer Financial Protection Bureau
  • elimination of net neutrality protections for a free and open Internet

10 more things House GOPers should demand before raising the debt ceiling -- House Republicans have a few minor, hardly-worth-mentioning demands in return for graciously agreeing to waive or raise the US debt ceiling: one-year Obamacare delay, Paul Ryan-esque tax reform, fast-track tax reform authority, energy reform (Keystone Pipeline, coal ash regulations, offshore drilling, energy production on federal lands, EPA carbon regulations), regulatory reform (REINS Act, regulatory process reform, consent decree reform, blocking Net Neutrality), federal employee retirement reform, ending the Dodd Frank bailout fund, transitioning CFPB funding to appropriations, child tax credit reform to prevent fraud, repealing the Social Services Block grant, means testing Medicare, repealing a Medicaid provider tax gimmick, tort reform, altering Disproportion Share hospitals, repealing the Public Health trust fund, Seems incomplete. How about a few more: 1) Herman Cain’s 9-9-9 tax plan, 2) personal retirement accounts, 3) renaming Dulles airport after Calvin Coolidge, 4) Brilliant Pebbles missile defense (or x-ray pulse laser, whatevs), 5) nominating Ron Paul for Fed chair, 6) national apology from Jimmy Carter, 7) details on how Hillary really made $100,000 from cattle trading, 8) Harry Reid to return Romney’s tax returns, 9) Obama to visit Bakken oil fields in North Dakota, and 10) new episodes of 24.  (Wait, that last one is already happening. Change that to new episodes of Firefly.) OK, the point here is that Obamacrats and House Republicans are far apart. Chris Krueger of Guggenheim Washington Research Group sees a 40% chance of technical default: This list only underscores how difficult the debt ceiling raise will be to engineer. What is Obama offering? Nothing. Full stop. Ultimately, something symbolic will have to be given from the White House for a raise (which will happen) but with 21 days to go we base that on nothing more than blind faith because there is no evidence to suggest that this group of politicians can get out of the box they have created.

Wonkbook: We may have a shutdown after all. And that may be a good thing. - It looks like we may have a shutdown after all. And that may be a good thing. On Thursday, Speaker Boehner attempted to execute his latest strategy to avoid a shutdown by distracting his members with a bill that tied an increase in the debt ceiling to, well, everything Republicans have ever wanted. No go."About two dozen hard-liners rejected that approach, saying they will not talk about the debt limit until the battle over government funding is resolved," report Lori Montgomery and Paul Kane. It's still possible the House and Senate will avoid a government shutdown. But at what cost? Politico's Jake Sherman and John Bresnahan report that if "unified Democratic opposition forces Republicans to swallow a government funding bill they deem less-than-satisfactory, House Republicans will certainly counter by increasing their demands for reform when it comes to the debt-ceiling legislation." It is hard, at this point, to imagine what that even means. Virtually the only demand left out off the list Boehner offered is a pony for each man, woman and child in the Republican Party. But when it comes to the final compromise on the bill, Sherman and Bresnahan are surely right: House Republicans are going to be more resistant to raising the debt ceiling if they feel they didn't even stand and fight on the CR.

House Republicans Hunt for Plan in Budget Battle - House Republican leaders struggled Friday to come to terms with conservative lawmakers who want to halt the new federal health-care law, leaving unclear how an increasingly dysfunctional Congress might be able to pass a spending bill by Monday night to avert a fiscal crisis. The Democratic-led Senate approved legislation Friday to fund federal agencies for the first six weeks of the fiscal year and to restore money for the health law. The GOP-led House last week passed a bill to avert a shutdown that also defunded the law, as demanded by the chamber's conservatives. The next move belongs to House Speaker John Boehner (R., Ohio), who has said the House will not pass the Senate bill but hasn't yet laid out how he plans to amend it. House leaders face a difficult situation. Mr. Boehner doesn't want to alienate the dozens of lawmakers who won't back any spending plan that doesn't in some way limit the reach of the health law. At the same time, Senate Democrats say they will reject any measure that alters the health law. Underscoring the dilemma, a group of 62 conservative GOP lawmakers emerged with their own demand late Friday: delay the health-care law for one year as part of the spending bill. The proposal is sure to be discussed during a rare Saturday meeting of House GOP lawmakers called by Mr. Boehner to figure out a way forward. The standoff both between the two major parties and within the GOP brings the federal government to the brink of a shutdown with little obvious room for resolution. Unlike in previous showdowns, there have been no major negotiations among congressional leaders or with the White House, which is taking an increasingly combative tone.

Government Shutdown Odds: 40%, Nomura Estimates - In a world in which everyone has become an ultra-short term pathological gambler, and every outcome is a zero-sum prop bet, it was only a matter of time before someone tried to quantify the probability of the event that the market (for some inexplicable reason) is so transfixed on: the government shutdown (inexplicable, because anything more than a few day shutdown risks a full blown mutiny by the tens of millions of government workers). So without further ado, here is Nomura, with its "estimate" of a government shutdown on October 1: 40%. From Bloomberg, citing the Japanese bank:

  • Not obvious how gap between House, Senate proposals will be closed, and time for negotiations is short, Nomura strategists led by Lewis Alexander wrote in note.
  • Shutdown for a couple of weeks won’t have much of an impact on economy; impact of failure to extend debt ceiling "unknown, potentially very large and long lasting"
  • Contentious and potentially chaotic fiscal negotiations over next few weeks likely to generate volatility, biggest threat to economy
  • If govt shuts down for one week, assuming 36% of non-postal federal employees furloughed, temporary loss of wages, benefits would reduce annualized real GDP by ~0.1ppt
  • If shutdown lasts longer, decision on back pay for federal employees likely decisive for consumption
  • Week-long shutdown would delay Oct. 4 jobs report
  • If debt ceiling becomes binding, Treasury may have to pay debts in order of due date, may not be able to prioritize debt payments

Labor Dept says U.S. jobs report would be delayed by shutdown  - The United States will stop publishing much of its economic data next week if the government shuts down, including the closely watched monthly employment report, officials said on Friday. Whole swaths of the U.S. federal government could shut down next week if Congress does not approve extensions to department budgets due to expire on Monday.All non-essential federal employees would stop working, including those at the Labor Department's Bureau of Labor Statistics (BLS), which is scheduled to release the monthly nonfarm payrolls report on Oct. 4."All survey and other program operations will cease and the public website will not be updated," said Erica Groshen, the commissioner of the BLS, said in a memo published on the department's website. The Commerce Department, which issues estimates on the pace of growth in the economy, also will stop releasing economic data, a spokesperson said.The jobs report due on Friday would provide estimates for the nation's unemployment rate in September. It would also show how many workers were added to employer payrolls during the month.

Obama chides Republicans as shutdown looms -  With Washington barreling toward a government shutdown, a deadlocked Congress entered the final weekend of the fiscal year with no clear ideas of how to avoid furloughs for more than 800,000 federal workers. Millions more could be left without paychecks. The Senate on Friday approved a stopgap government funding bill and promptly departed, leaving all of the pressure to find a solution on House Republican leaders.President Obama weighed in, sternly lecturing GOP leaders that the easiest path forward would be to approve the Senate’s bill, which includes money for the implementation of the Affordable Care Act, the president’s prized legislation achievement, which he signed into law in 2010. But a far-right bloc of House and Senate Republicans banded together to leave House Speaker John A. Boehner (R-Ohio) virtually powerless to act. “My message to Congress is this: Do not shut down the government. Do not shut down the economy. Pass a budget on time,” Obama said in the White House press briefing room. Boehner’s leadership team offered no public comment and remained out of sight most of Friday, hunkering down for another weekend on the brink. For Boehner, this is the latest in a series of unstable moments that have become the hallmark of his three-year run as speaker. With a stroke-of-midnight deadline Monday, Senate Majority Leader Harry M. Reid (D-Nev.) said Democrats would reject any conservative add-ons that Boehner might attach to the funding bill. That would further delay passage, and given the staunch opposition from Sen. Ted Cruz (R-Tex.), who has suggested that he will not help move the process along, the slow-moving Senate would require up to a week to approve something even if Reid were amenable to the changes. That sets the stage for a shutdown Tuesday.

House GOP set to attach Obamacare delay to CR -  With a government shutdown less than three days away, the House is charging toward delaying Obamacare for one year and repealing the medical device tax in exchange for funding the government, several sources tell POLITICO. A plan is expected to be finalized Saturday morning during a rare Saturday in session in the Capitol. Senate Majority Leader Harry Reid (D-Nev.) has said the Senate will not accept any Obamacare-related changes to the Senate-passed government funding bill. So a House move in that direction would be a step toward a government shutdown. The government shuts down Tuesday if Congress doesn’t pass a government-funding bill before then. Speaker John Boehner (R-Ohio) and his top lieutenants have told Democrats there could be a vote on a continuing resolution or CR on Saturday, although that timing is still tentative. Republicans have not said what will be in that package or whether Democrats would be inclined to support it.

James Fallows Says #Cliffgate Is Unlike Anything We Have Ever Seen #cliffgate is my term. Everything else you see here about the current political situation in the U.S. is from Fallows. It's short and chilling.The money quote: This time, the fight that matters is within the Republican party, and that fight is over whether compromise itself is legitimate.** Outsiders to this struggle -- the president and his administration, Democratic legislators as a group, voters or "opinion leaders" outside the generally safe districts that elected the new House majority -- have essentially no leverage over the outcome. I can't recall any situation like this in my own experience, and the only even-approximate historic parallel (with obvious differences) is the inability of Northern/free-state opinion to affect the debate within the slave-state South from the 1840s onward. Nor is there a conceivable "compromise" the Democrats could offer that would placate the other side.

#Cliffgate Update: GOP Wants Obama To Negotiate With Himself -  One of the biggest differences between the current shutdown situation and the ones that occurred in 1995 and 1996 is that Bill Clinton could negotiate with Newt Gingrich knowing that the deal they agreed to would be accepted by their respective political parties. That's absolutely not the case today. House Speaker John Boehner (R-OH) clearly does not speak for the House GOP caucus. Indeed, Boehner has been slapped down by his caucus so often and so hard in recent days that it's more likely almost anything he would agree to will be rejected out of hand than it will be taken seriously. There's no one after Boehner. Majority Leader Eric Cantor (R-VA) has shown no willingness to take the lead. In addition, with Cantor supporting the Boehner plans that have been rejected, it is not clear that he has the ability to convince the House GOP caucus to do anything either. And if that's not enough, Cantor's performance during the fiscal cliff negotiations, when he unilaterally stopped negotiating with Vice President Biden rather than compromise, creates grave doubts about his willingness and ability to be of help this time around. House Budget Committee Chairman Paul Ryan (R-WI) should be the natural person for the caucus to turn to in this situation. But...and its a very telling but...he has been completely AWOL and apparently has intentionally played no role whatsoever in the shutdown/debt ceiling debate. There's no reason to expect him to step up now.

Commentary: Congress will "Pay the Bills" -- It seems more and more likely that there will be a partial government shutdown starting next Tuesday. This is expensive, dumb and inconvenient (for me, the delayed data releases will be frustrating). But the scary issue is the so-called "debt ceiling". Unfortunately "debt ceiling" sounds virtuous, but it isn't - it is actually a question of "paying the bills". Sometimes we see articles like this in the NY Times: House G.O.P. Leaders List Conditions for Raising Debt Ceiling [B]ehind closed doors in the Capitol, House Republican leaders laid out their demands for a debt-ceiling increase to the Republican rank and file.They include a one-year delay of the president’s health care law, fast-track authority to overhaul the tax code, construction of the Keystone XL oil pipeline, offshore oil and gas production, more permitting of energy exploration on federal lands, a rollback of regulations on coal ash, blocking new Environmental Protection Agency regulations on greenhouse gas production, eliminating a $23 billion fund to ensure the orderly dissolution of failed major banks, eliminating mandatory contributions to the new Consumer Financial Protection Bureau, limits on medical malpractice lawsuits and an increase in means testing for Medicare, among other provisions.  That is foolish. Just tell the "rank and file" the truth - it has to be a clean bill (as Reagan, Greenspan and many other Republicans have said before).  As I pointed out in early January, a poker analogy is that the GOP is bluffing into the best possible hand - and everyone knows it.  They will have to fold, and everything they say is just political posturing.

Americans Reject by 61% Obama Demand for Clean Debt Vote -  Americans by a 2-to-1 ratio disagree with President Barack Obama’s contention that Congress should raise the U.S. debt limit without conditions. Instead, 61 percent say that it’s “right to require spending cuts when the debt ceiling is raised even if it risks default,” because Congress lacks spending discipline, according to a Bloomberg National Poll conducted Sept. 20-23. That sentiment is shared by almost three-quarters of Republicans, two-thirds of independents, and a plurality of Democrats. Just 28 percent of respondents backed Obama’s call for a clean bill that has no add-on provisions. “Sometimes it can be hard to negotiate if Republicans are making irrational demands, but to say ‘I’m not going to talk at all’ -- I’ve just never found not negotiating to be an effective way to get something done,”

Could the GOP Boost Tax Reform By Adding the Idea to the Debt Limit? - House Republicans reportedly are considering several ways to add a framework for tax reform to legislation needed to increase the federal government’s borrowing authority. Could such a rider increase the chances of reform happening in the near future? Sadly, no. Indeed, it is likely to bury a tax code rewrite even more deeply in Washington’s partisan muck. The GOP leadership remains unsure about what this amendment would look like, to say nothing of what they’d finally accept once the bill works its way through the legislative meat grinder. But it seems pretty clear that adding tax reform to their debt limit wish list is little more than a talking point. And real reform would remain as elusive as ever, if not more so. Keep in mind that the House GOP is not going to include an actual tax reform plan in its version of the debt bill. They are, in fact, far from agreeing among themselves on what such a proposal would look like. But they could try to tie an outline of their tax reform goals, and perhaps a timetable for reform, to a debt limit extension.The tax reform amendment would likely be one of many ideas the GOP would add to their version of a debt limit extension, which Treasury estimates must be passed no later than Oct. 17. Other possible GOP asks include a delay in the Affordable Care Act, permitting the Keystone pipeline, and rolling back a raft of environmental regulations as well as part of the Dodd-Frank financial reform law. The National Review Online published one version last evening.

Obamacare Defunding and the Mandate - OK so let’s pretend that Republicans get their way and Obamacare is defunded so no money may be spent implementing or enforcing Obamacare. Does this mean that people who owe and don’t pay the penalty get their refunds ? Well no, money may be disbursed from the Treasury only as appropriated by law by Congress. The IRS can’t send people money if, according to the ACA which is still the law of the land, they aren’t owed money. The defunding just means the IRS can’t pay some poor paper pusher to decide if someone owes the penalty. It doesn’t allow the IRS to send out checks to people who are, according to the law, owed nothing just because it hasn’t checked. In fact, I don’t think the IRS would be allowed to send anyone refund checks. People with health insurance don’t have to pay the penalty and get a refund (or owe the “amount you owe”) according to the plain old garden variety tax code. But to check the documents that prove that the tax return filer has insurance the IRS would have to spend money implementing and enforcing Obamacare.  I think the Republican proposal is to leave the tax code as it is (including the penalty) and forbid any implementation.  Everyone who would suffer from the mandate would, as far as I can tell, suffer equally from defunding. Also everyone who wouldn’t suffer from the mandate would suffer from defunding. I think they are counting on losing this one. They couldn’t possibly afford to win it.

Obamacare Subsidies: an Effective Marginal Tax of About 15% --- Atrios: Something I'm looking for and not finding is an estimate of the effective marginal tax rates on people in the exchanges who are eligible for subsidies. A problem with means-testing programs is that as you earn more income, your benefits go away, meaning that effectively you're paying a pretty high tax on each additional dollar earned. Your company giveth, and Uncle Sam taketh away.That got me curious. The subsidies are calculated so that you never have to pay more than a certain percentage of your income in health premiums. That percentage rises with income according to a formula, so it's pretty easy to figure out the subsidy at different income levels and then calculate the effective marginal tax rate caused by the fact that the subsidy level goes down.I used the Kaiser subsidy calculator to get the subsidy for a family of three at various income levels. (The exact subsidy level varies depending on family size, but this provides a pretty good estimate for an average family.) As you can see, as you gain more income, you get less subsidy, which produces an effective marginal tax rate of 12-16 percent at most income levels. When your income gets high enough, the subsidies are so low that there isn't much left to lose, so the effective marginal rate goes down. At 400 percent of the poverty level, the subsidies decline to zero.

70% or bust: More evidence the left wants to repeal and replace the Reagan tax cuts - Just got an email from the left-liberal Economic Policy Institute promoting a new paper on “middle-out” economics. More on what exactly “middle-out” economics is in a moment (other than the basis of Elizabeth Warren’s 2016 presidential campaign). But here is one of EPI’s supposedly pro-middle class policy ideas:While the highest-income households have claimed vastly disproportionate shares of total income growth, top income-tax rates have fallen substantially in recent decades, with the increase beginning January 1 of this year only slightly pushing back against this trend. If federal tax rates on the top 1 percent had remained at 1979 levels, this would have led (all else equal) to more than $150 billion in additional annual tax revenue in 2007. Besides raising revenue, higher tax rates would blunt the drive toward greater inequality.  Forget about the GOP desire to repeal and replace the 2010 Affordable Care Act, EPI economists Josh Bivens and Hilary Wething apparently would like to repeal and replace the 1981 Reagan tax cuts. For them, it’s still a live policy debate more than three decades on. In fact, it’s the new left-liberal consensus that top tax rates could go to the pre-Reagan 70% level or even higher with little negative economic impact. Welcome back, Jimmy Carter.

Using the Tax Code as a Weapon - The ultra-wealthy uses the tax code as a weapon in their class-war against the poor by paying less than their fair share of taxes, when in a progressive tax system, the most wealthy are supposed to pay a greater percentage of their incomes --- because they are more able to contribute more, which benefits the most.For almost a century, starting with capital gains* in the Revenue Act of 1921 (near the end of the Gilded Age), the top 1% has always received most of the tax breaks; and that's because they have the means and the connections to lobby members of Congress for special tax provisions. * The top 1% earns most of their wealth with investments in stocks. The top 10% holds about 80 percent of all stock market wealth (The stock markets have over doubled since March 2009). Those who derive income from stocks pays a capital gains tax on realized gains, just as CEOs who earned stock options as "incentive pay". After one year they pay a 23.8 percent tax rate for federal taxes, less than the top marginal rate of 39.6 percent for regular wages --- and this income is not subjected to any Social Security taxes. But occasionally, because of a U.S. Court or public outcry, Congress is induced to change a tax law --- that is, until another loophole is found and exploited, or a new tax bill favoring the rich is passed, or Congress is forced to amend the tax code --- that's why we have such a complicated tax code today.

How Washington Caved to Wall Street -- Stiglitz  - In TIME’s recent cover story “How Wall Street Won,” Rana Foroohar gave an excellent appraisal of the last five years since Lehman collapsed. While her analysis hit at five of the major shortfalls in our “reformed” financial sector, there was even more she could have pointed to: Five years after the crisis, why have we not even begun putting the mortgage market on a sound footing? Why has so little been done about banks’ market manipulation? The LIBOR scandal is a major example. Nothing has been done to replace this manipulable (and manipulated) figure, a fictional number that remains the basis of a more than $300 trillion market.  And every day we are exposed to new stories of banks manipulating one market or another—most recently, energy and ethanol credits. The list of issues goes on. While we recognize that predatory lending was part and parcel of the failure of the subprime mortgage failure, we continue to allow payday loans. The only successful actions against the credit rating agencies since the crisis have been private suits (both in the US and Australia).  The causes of much of this neglect are all too obvious: congressional lobbying combined with a revolving door, with too many people in the administration too closely tied to the financial sector. The Treasury Department’s strong reaction to TIME’s article only convinced me more of how important and accurate your report is.  You pointed out that only 40 percent of the regulations required by Dodd-Frank have been written. Treasury seemingly prides itself that, three years after Dodd-Frank, they have completed, or are in the process of completing three fourths of the deadlines set by Congress.  In other words, they are tardy on more than a quarter.  And many of the obligations are far softer than they should have been—partly because the administration failed to support those who wanted deeper reforms, for example in transparency of the derivatives market.  Nothing was done in curbing the anti-competitive practices of the credit card industry (only debit cards were affected by the Durbin amendment, and even the courts noted that the interchange fee set for debit cards was unconscionably high, well above costs).

Change Is Coming to the Repo Market - In Gretchen Morgenson’s “Five Years Later, the Plumbing Is Still Broken”.  Ms. Morgenson does not note the significant reforms that the financial services industry has carried out or that are under way, and the fact that many large financial institutions have already reduced their reliance on the overnight repo market. For example, new service and delivery technologies, combined with significantly enhanced collateral standards, will practically eliminate the need for intraday credit in the tri-party repo market by the end of next year. By the end of this year, 70 percent of intraday credit will have been removed from the market. In addition, further reform initiatives will address the precise risks associated with unwinding repo transactions that the article mentions. The Basel III Accord introduced, for the first time, quantitative liquidity requirements that stress-test large-bank funding practices and force firms to move from primarily overnight funding to longer-term financing arrangements. We are seeing financial institutions rely on more stable term sources of capital, such as debt and equity, rather than repo financing. In fact, the vast majority of remaining risk in the repo market is against United States Treasuries, the most liquid instruments in the market today.

CFTC chair Gary Gensler warns on fund cuts to police derivatives - The head of the regulator that oversees the US’s vast derivatives market has warned that a lack of resources could severely damage his agency’s ability to protect the public from future financial scandals. Gary Gensler, outgoing chairman of the Commodity Futures Trading Commission, said that his 680-employee agency, which has an annual budget of $195m, was “sorely underfunded” and needed to have about 1,000 staff in order to police the $450tn swaps and futures market that it regulates. High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. “We do not have the people to do annual examinations of the clearing houses – these very systemically important clearing houses that Congress is saying we have to annually examine,” Mr Gensler told the Financial Times in an interview. “In the enforcement area we definitely don’t have the resources; it’s a concern.” Clearing houses, which guarantee deals between two parties, have been at the heart of regulatory efforts to make banks engaged in the vast and fast-growing derivatives market shockproof. But their increasing power has prompted some banks to warn about clearing houses’ own ability to withstand market shocks and defaults.

US rules ‘endanger’ derivatives reforms - Landmark reforms of the derivatives market are being threatened by a battle over the extent of US oversight, according to bankers, investors and officials. US regulators had hoped to begin shifting the opaque derivatives market on to electronic exchanges from October 2. The switch to so-called “swap execution facilities”, which is designed to improve financial stability and transparency, is a key part of the regulatory response to the financial crisis. But with days to go until the new system is due to go live, market participants are warning of “chaos around implementation”, citing operational, technological and regulatory challenges.  One hotly-debated issue involves the reach of the US Commodity Futures Trading Commission, which says that any platform – including those based overseas – must follow the US rule book if it trades with a US counterparty. At a meeting at the US embassy in London this week, Gary Gensler, chairman of the CFTC, was told US banks could be kicked off platforms based in London, including those operated by interdealer brokers such as ICAP, which want to escape the rules. “ICAP said straight out that they’ve told US members to clear out by October 2 because they were afraid that it would taint them,” said one person familiar with the meeting. ICAP, which was fined by the CFTC this week for its role in manipulating Libor, declined to comment. “They are in fact telling people they don’t want to deal with US firms,” said a lawyer for a US bank.

HSBC still laundering money for terrorist groups, says whistleblower Everett Stern - In the video interview above, former HSBC anti-money laundering compliance officer, Everett Stern, frankly describes the criminal methods used by HSBC to launder money for terrorist groups including Hamas and Hezbollah as well as for drug cartels and other criminals. Although the bank paid a $1.9 billion penalty as part of a record-breaking money laundering settlement with the U.S. authorities in December 2012, Stern claims the London-headquartered bank is still laundering money with impunity and that the much vaunted “anti-money-laundering compliance team” it put in place to assuage US regulators as part of last year’s settlement is “a sham”. Stern, unfazed by HSBC’s legal bullying, adds that people started taking him more seriously after Matt Taibbi’s article on HSBC was published in Rolling Stone in February 2013. In the article, Taibbi wrote: Stern found himself in the middle of a perverse sort-of anti­compliance mechanism. HSBC had “complied” with the government’s Don’t Do It Again, Again order by hiring hundreds of bodies whom it turned into an army for whitewashing suspicious transactions. Stern was interviewed by Luke Rudkowski of Change.Org at Occupy Wall Street, the protest movement which celebrated its second birthday yesterday. And Stern is in no mood to give up.

A court ruling that threatens the private equity industry in the US - A legal case that has received almost no attention in the mass media could potentially seriously damage the private equity business in the US. In Sun Capital vs. New England Teamsters and Trucking Industry Pension Fund, the First Circuit Court of Appeals ruled that a fund managed by Sun Capital was engaged in a "trade or business" rather than as a passive investor with respect to one of its portfolio companies. The private equity industry has received considerable attention from many politicians and the media because the offshore funds' incentive fees (carried interest) have been taxed as capital gains rather than ordinary income. There are a number of reasons many investors have to come into private equity funds through offshore vehicles (such as Cayman Islands based funds for example). If you are the Ontario Teachers Pension or Sunsuper (an Australian pension fund) for example, the last thing you want is to have to file taxes in the US. The "trade or business" treatment could force these offshore funds to file taxes in the US. And many foreign pensions would rather forgo investing in the US at all than being forced to deal with the IRS. The same applies to many tax-exempt investors in the US. That means the flow of foreign capital now coming into the US to finance private corporations, will slow dramatically if these funds are ruled by the IRS to be engaged in a "trade or business". Many private equity-backed firms grow quickly and create more jobs than public firms. And a slowdown in job creation due to weaker inflows of foreign capital as well as domestic tax-exempt capital is the last thing the US needs right now.

Billions of dollars wasted on investment advice - Pension funds and other large investors are throwing away billions of dollars a year on worthless advice from investment consultants, according to academic research. The funds recommended by consultants do no better than any other, and by some measures they underperform the wider market significantly, the research* found. On an equal-weighted basis, US equity funds recommended by consultants underperformed other funds by 1.1 per cent a year between 1999 and 2011, according to analysis of 29 consultancies accounting for more than 90 per cent of the market by a team from Oxford university’s Saïd Business School.“The enormous power wielded by consultants is not matched by their performance,” said Jose Martinez, one of the authors of the study.“In US equities, one of the largest asset classes, investment consultants as an industry appear to add no value in fund selection,” added co-author Howard Jones.

Federal Regulator of Credit Unions Files LIBOR Charges Against Banks - Yesterday, the National Credit Union Administration (NCUA) filed suit in U.S. District Court for the District of Kansas against 13 foreign banks and U.S. based JPMorgan Chase, charging the group with violating federal and state anti-trust laws through their manipulation of interest rates in the setting of the London Interbank Offered Rate (LIBOR), a benchmark used to set rates on everything from student loans to interest rate swaps to adjustable rate mortgages.NCUA, the regulator of U.S. credit unions, alleges the defendants conspired to achieve multiple benefits for themselves to the detriment of their customers and investors. According to the complaint, the motives were to suppress LIBOR in order to benefit their trades that were tied to LIBOR, to reduce their borrowing costs, to deceive the market as to the true state of the banks’ creditworthiness, and to deprive their counterparties of the level of interest rate payments to which they were entitled. On the issue of benefitting their own trading position, NCUA specifically mentions JPMorgan, noting: “Derivatives traders within the Defendant banks held extensive trading positions tied to LIBOR.  For instance, Defendant JPMorgan had interest rate swaps with a notional value of $49.3 trillion. By artificially manipulating LIBOR, Defendants were able to book enormous unearned profits…JPMorgan acknowledged in 2009 that a difference of 1% (or 100 basis points) was worth over $500 million to the bank.”

U.S. commission reviews white-collar sentences (Reuters) - As the U.S. government remains under pressure to hold individuals accountable for the financial crisis, a federal commission is launching a review that could actually reduce sentences for white-collar criminals. Those pushing for lighter sentences for white-collar offenses such as securities, healthcare and mortgage fraud include not only the American Bar Association, the nation's largest trade group for lawyers, but also a growing number of federal judges. The judges' position could have particular weight, since they are the ones who turn to the advisory guidelines in imposing sentences. Under the guidelines, first adopted in 1987, judges calculate sentences by assigning points for the seriousness of the offense, the defendant's criminal history and, for white-collar crimes, a complicated 16-level table based on the resulting financial loss. Critics argue that financial losses, which can easily rise to hundreds of millions of dollars in crimes like securities fraud, have grown to dwarf the other factors in the calculation, leading to outsize sentences.

Quelle Surprise! More Proof that the FCIC was a Whitewash, Thanks to Angelides and Born – Yves Smith -William Cohan has a damning account in the Sunday New York Times, “Was This Whistle-Blower Muzzled?” on how the Financial Crisis Inquiry Commission actively suppressed information that would inconvenience America’s favorite zombie bank, Citigroup. Recall that Sheila Bair’s book Bull by the Horns depicted in riveting detail how she engaged in a protracted battle with pretty much all the other regulators, with the Treasury leading the charge, to try to resolve or at least seriously clean up Citigroup, which by all the metrics the FDIC had (and even some OCC measures) was far and away the sickest big bank. Even though Bair could have put down the US depositary on her own authority, the other financial regulators withheld information about the operations not under the FDIC’s purview, which was almost half the bank. As much as she felt Citi needed to be put down, she felt she could not do so when she both had all the bank supervisors opposed to her and she was at an information disadvantage (that is, they’d pillory her even if their data confirmed what she was seeing, and because it was confidential supervisory information, she would be unable to get it divulged).  At least Bair put up a tenacious fight about Citi, even though Geithner, an acolyte of its board member Bob Rubin, used every bureaucratic device he could find to stymie her (Neil Barofsky has separately described how underhanded and persistent Geithner is, frequently working through cat’s paws). By contrast, another person who tried exposing the extent of the rot at Citi when it should have been safe to do so, long after the worst of the crisis was over, found himself blocked by people who were supposedly tasked with getting to the bottom of the crisis.

The Wall Street Journal Pines for the Return of Liar’s Loans - William K. Black - The Wall Street Journal’s editorial staff (WSJ) criticizes the Dodd-Frank Act and the leadership of the financial regulatory agencies.  I share many of those criticisms, but I parted company when the WSJ expressed its horror that: “The regulation micromanages bank decisions down to the kind and quality of loan.”  The Dodd-Frank Act bans a “kind” of loan based on the inherently fraudulent “quality of [the] loan.”  The Act bans liar’s loans.  The WSJ considers this ban so appalling, so obvious a violation of the divine right of banks, that it labels it “micromanage[ment]” and assumes that the label proves the absurdity of banning liar’s loans. As I have been explaining for over two decades, no honest lender would make liar’s loans.  Here is George Akerlof and Paul Romer’s explanation of the analytics in their famous 1993 article in which they expressly cited my explanation.  Note the eerie manner in which they discuss the specific underwriting failures that characterized liar’s loans a decade later.“[An officer] who is gambling that his thrift might actually make a profit would never operate the way many thrifts did, with total disregard for even the most basic principles of lending: maintaining reasonable documentation about loans, protecting against external fraud and abuse, verifying information on loan applications, even bothering to have borrowers fill out loan applications. 5When a lender fails to follow “even the most basic principles of lending” it will suffer massive losses.  The controlling officers, however, will be made wealthy by making crappy loans.  Indeed, Akerlof and Romer stressed that accounting control fraud is a “sure thing” (1993: 5).

JPMorgan faces US charges on mortgage-backed securities - JPMorgan Chase’s legal woes deepened as US authorities prepared to file civil charges as early as Tuesday alleging the bank misled investors in mortgage-backed securities sold in the lead-up to the financial crisis. The civil lawsuit, expected to be filed by the US attorney’s office in the Eastern District of California, would be the third launched by government authorities against the bank’s mortgage-securities operation. Efforts to resolve the allegations have so far failed, with both sides unable to agree to the amount of the settlement, a person familiar with the matter said. Last year, the US’s largest bank by assets agreed to pay $296.9m to settle civil charges filed by the Securities and Exchange Commission alleging the bank misled investors who bought securities. The bank did not admit or deny wrongdoing. New York state’s attorney-general also filed a lawsuit against the bank, which has vowed to fight it. The latest federal action puts additional strain on the bank as it seeks to restore its reputation after paying $920m last week to US and UK authorities for withholding information from its board and regulators over mushrooming losses from its “London Whale” trade.

JPMorgan in talks to settle government probes for $11 billion: sources -  (Reuters) - JPMorgan Chase & Co is in talks with government officials to settle federal and state mortgage probes for $11 billion, two people familiar with the matter said on Wednesday. The sum could include $7 billion in cash and $4 billion for consumers, said the sources, who asked not to be identified because the negotiations are private. The talks are fluid and the $11 billion amount could change, the people familiar with the matter said. The discussions include the U.S. Department of Justice, the Securities and Exchange Commission, the U.S. Department of Housing and Urban Development and the New York State Attorney General, the sources said. JPMorgan is hoping to ease some of the pressure that regulators have been putting on the bank for months. The bank sidestepped the worst losses in the financial crisis, but it has looked less smart since May 2012, when it said it was losing money on derivatives bets that became known as the "London Whale" trades.

Money Talking: JP Morgan’s $11 Billion Would Send the Wrong Message - Is $11 billion a lot to pay for causing some of the mischief that caused the financial crisis? That’s what Justice Department officials in Washington are currently trying to decide. The $11 billion in question is the potential price tag for banking giant JP Morgan to settle scores of investigations and charges by various federal and state agencies. Those bodies are looking into how the bank handled mortgage-backed securities before the financial crisis. The idea is to cut one big check, and be done with the fallout from the crisis. The bank is currently in “constructive” discussions, and an agreement may be announced within days. So how much is that $11 billion, really?  It would be largest settlement by a single company with the Justice Department ever.It’s also what JP Morgan earns in profit about every two quarters. While many pundits have been saying that an $11 billion settlement would indeed represent justice for some of the mistakes made during the crisis, I’d disagree. In fact, I think it sends an odd message, which is that massive fines substitute for clear banking rules, smart post crisis re-regulation of the sector, and pro-active industry watchdogs. Despite the immense numbers being tossed about, it’s worth remembering that JP Morgan was hardly the worst banking actor over the last several years—they just made a particularly bad trade, at a time when there’s a growing conversation about how easily banks have gotten off after wrecking the real economy.

The Fat Lady Has Yet to Sing for Dimon and JP Morgan - Yves Smith - I thought I was late to write about JP Morgan’s $920 million multi-regulator settlement last week on the London Whale, but breathless news of a possible $11 billion settlement of mortgage-related liabilities has pushed the bank and its chief back under the hot lights.Let’s go in reverse chronological order. The $11 billion settlement, if it comes together, is less of a hit than it seems. JP Morgan’s stock traded up 2.7% when the news broke. First, the $11 billion is really more like $7 billion, which is the cash component. The remaining $4 billion is various forms of borrower relief. If this settlement bears any resemblance to the mortgage settlements of 2011 and 2012, these are junk credits, with the bank being allowed to claim relief for things it would have done anyhow. If the economic value of bona fide borrower relief gets to be as much as 10% of nominal value, that would be a large by historical standards.The reason the numbers being bandied about are large is that the total includes FHFA putback claims, which the Wall Street Journal puts at $6 billion out of the total. FHFA suits against all the banks were pencilled out as carrying a price tag of as much as $200 billion. But that estimate likely based the total on the value if the agency litigated and prevailed (which frankly was pretty likely, the GSEs have well-defined rights). The Department of Justice is leading the negotiations and the New York state is also a participant.  In addition to an apparently large bid-asked spread (the Morgan bank proposed a mere $3 billion versus the $11 billion bruited as the sought-after figure) and the fact that the bank wants a global settlement for all mortgage-related liability (the DoJ is reluctant to settle criminal liability), another potential sticking point is an admission of wrongdoing.

Is This Normal? Can I Get a Meeting with the Attorney General? -- I'm floored that Attorney General Eric Holder was willing to take a private meeting with JPMorgan Chase CEO Jaimie Dimon while the bank is under criminal investigation and negotiating an enormous civil (and possibly criminal) settlement.  I can't recall something like this meeting happening before. There's not anything illegal about such a meeting, but the optics are really bad and underscore the privileged position of the too-big-to-fail banks.   Yes, perhaps the AG should have some level of involvement in a multi-billion dollar settlement, but I would be quite surprised if he was very hands on with it, and meeting personally with Dimon certainly adds a explicit political flavor to the settlement discussions.   And it shows the special solicitious treatment and access that Dimon and JPM and other too-big-to-fail banks receive in DC.   Who else is able to call up the AG and just get a meeting like that when their firm is under criminal investigation?  Do other citizens get talk things through mano-a-mano with the AG himself? That Dimon even thought to initiate direct contact with Holder suggests that he has no sense of his place in society--or perhaps that he in fact does.  Bottom line is that Dimon (and JPM) shouldn't get any more special treatment than any other citizen, but it sure looks like he did.

So Why is Dimon Getting to Plead His Case for JP Morgan (and Maybe Himself) Directly with Holder? - Yves Smith - I got this e-mail from a law school professor this evening: wtf is with Eric Holder personally meeting with Jaimie Dimon? Since when do other targets of investigations get such access and solicitude? Do you think any AG would have met with Michael Milken when he was being investigated? Unreal.  It should be no surprise by now to see the degree to which Administration officials toady and scrape to the banks. Oh yes, you’ll witness the occasional stern word in public from Obama and his minions to maintain the appearance that that they operate independently of their financial lords and masters. But Holder has been so absent from any meaningful action that it’s surprising to see him pretend to play a hands-on role. I’d was certain he had forgotten how to practice law, since his main job seemed to be acting as propagandist for Team Obama enforcement theater. In case you wondered what the indignation was about, here’s a Washington Post recap:The sage of Wall Street journeyed to Washington on Thursday, but Jamie Dimon’s visit was unlike any the JPMorgan Chase chief has made before.Dimon sought a meeting with Attorney General Eric H. Holder Jr. in an urgent bid to dispose of multiple government investigations into the bank’s conduct leading up to the financial crisis — and avoid criminal charges. The deal that Dimon discussed with Holder would involve paying the government at least $11 billion, the biggest settlement a single company has ever undertaken, according to several people familiar with the negotiations…For Holder, 62, meanwhile, a landmark settlement with JPMorgan could help quiet criticism that the Justice Department has failed to hold Wall Street accountable for sparking the housing market’s crash and the ensuing recession. Holder was criticized by lawmakers and consumer advocates this year for saying that some banks had become too big to prosecute.

Unofficial Problem Bank list declines to 692 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for September 20, 2013.  Changes and comments from surferdude808:  As anticipated, the OCC released its actions through mid-August this week, which led to many changes to the Unofficial Problem Bank List. In all, there were nine removals and one addition that leave the list with 692 institutions and assets of $242.9 billion. It is the first time the list has under 700 institutions since April 2010. A year ago, the list held 878 institutions with assets of $327.4 billion. The First National Bank of Russell Springs, Russell Springs, KY ($192 million) was added to the list this week. Next week, we anticipate the FDIC will release its enforcement action activity through August 2013. There is nothing new to report on the status of banks controlled by Capitol Bancorp, Ltd. CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. Less than two years later the list peaked at 1,002 institutions. Now, more than two years after the peak, the list is down to 692 (the list increased faster than it is decreasing - but it is steadily decreasing as regulators terminate actions and close a few banks).

Banks find appalling new way to cheat homeowners - A few months ago, Ceith and Louise Sinclair of Altadena, California, were told that their home had been sold.  Their mortgage servicer, Nationstar, foreclosed on them without their knowledge, and sold the house to an investment company. If it wasn’t for the Sinclairs going to a local ABC affiliate and describing their horror story, they would have been thrown out on the street, despite never missing a mortgage payment. It’s impossible to know how many homeowners who didn’t get the media to pick up their tale have dealt with a similar catastrophe, and eventually lost their home. As finance writer Barry Ritholtz has explained, home purchases involve a series of precise safeguards, designed to protect property rights and prevent situations where borrowers who are perfect on their payments get evicted. “In a nation of laws, contract and property rights, there is no room for errors,” Ritholtz writes. “The only way these errors could have occurred is if several people involved in the process committed criminal fraud.” Any observer of the mortgage industry since 2009 is no stranger to foreclosure fraud, and the fact that virtually nobody has paid the price for this crime. But the case of the Sinclairs involves a new player in that rotten game: Nationstar.  Nationstar has racked up an impressively horrible customer service record in its short life, failing to honor prior agreements with borrowers and pursuing illegal foreclosures. The fact that Nationstar and other corrupt companies like it are beginning to corner the market for mortgage servicing should trouble not only homeowners, but the regulators tasked with looking out for them. It didn’t seem possible that a broken mortgage servicing industry could get worse, but it has.

LPS: Mortgage Delinquency Rate declined further in August, In-Foreclosure Rate lowest in 4 1/2 Years - According to the First Look report for August to be released today by Lender Processing Services (LPS), the percent of loans delinquent decreased in August compared to July, and declined about 10% year-over-year. Also the percent of loans in the foreclosure process declined further in August and were down 34% over the last year.LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.20% from 6.41% in July. The normal rate for delinquencies is around 4.5% to 5%.The percent of loans in the foreclosure process declined to 2.66% in August from 2.82% in July.   The is the lowest level in 4 1/2 years.The number of delinquent properties, but not in foreclosure, is down 306,000 properties year-over-year, and the number of properties in the foreclosure process is down 679,000 properties year-over-year.LPS will release the complete mortgage monitor for August in early October.

Is Richmond’s mortgage seizure scheme even legal? -  The possibility of using eminent domain to reduce underwater mortgage debt in the city of Richmond California survived several tough challenges a week ago. As Lydia DePillis reported, the City Council decided to go ahead with the process after a long hearing that could have possibly derailed it. Meanwhile an attempt by Wells Fargo and Deutsche Bank to have the action shut down even before it properly started was tossed out by a U.S. District Court The arguments will now proceed to the two parts of eminent domain law: demonstrating public purpose for the takings and offering fair-value. Since this is the furthest an eminent domain case has made it, it might be useful to step back and walk through the arguments. If the case succeeds, it is likely other cities, which have been hesitant, will consider going forward. Richmond, California is one of the hardest hit cities in the housing collapse. Roughly 51 percent of mortgages are underwater, and the average underwater homeowner owes 45 percent more than their home is worth. 16 percent of homeowners with a mortgage have suffered a foreclosure. Richmond has proceeded by offering to purchase 624 mortgages held in private-label securities, but if they failed they would use their eminent domain powers. However, in a technique argued since the beginning of the crisis by Cornell law professor Robert Hockett, rather than use eminent domain on the house itself, the city would seize the mortgage. A private investment company, Mortgage Resolution Partners (MRP), would in turn write down the mortgage amount to something closer to the current value. They would collect a profit and refinance the loan. The homeowner would be less likely to default with a lower loan amount, or would be able to sell without a short-sale, leaving him or her with more money to spend locally.

Mortgages, Eminent domain and Richmond - Mike Konczal writes in the WaPo: Is Richmond’s mortgage seizure scheme even legal? The short answer is No (Although Konczal apparently disagrees). There are some confusing passages in Konczal's piece. The key issue is if there is a public interest for the city of Richmond to use eminent domain. Konczal writes:  It is very likely Richmond will argue that preventing blight is a major, legitimate public purpose, and the courts agree. Abandoned homes result in increased crime and significant public costs, in addition to destabilizing neighborhoods. ... The banks argue that the loans are performing (more on their argument about this in a minute), and as such don’t serve a public purpose. But there’s also a public purpose in solving problems in the coordination of mortgage servicers to writedown and deal with failing mortgages. There’s also the public purpose of allowing people to move as well as refinance allowing for the movement of individuals as well as the ability to refinance. These are all legitimate purposes of eminent domain ... First, blight is a legitimate issue for eminent domain, but blight doesn't apply in the Richmond case. Most of these homes are owner occupied and the owners are current on their mortgages. The "abandoned homes" is mostly irrelevant in this case (there might be a few abandoned). Drive down any street in Richmond with one of the houses in question, and there is no evidence of "blight". Note: For any house that is not maintained, the city has alternatives to eminent domain - so we can rule this one out.

Federal Housing Administration Said to Take Taxpayer Subsidy - The Federal Housing Administration will take a taxpayer subsidy for the first time in its 79-year history after efforts to improve its bottom line failed to offset losses on loans backed during the housing bubble, according to three people familiar with the matter. The government mortgage insurer will draw the money from the U.S. Treasury to shore up its insurance fund by Sept. 30, the end of the current fiscal year, said the people who asked not to be identified because the action hasn’t been announced. Federal budget officials are working to determine the exact size of the cash infusion, the people said. White House officials projected in April that the FHA would need about $1 billion. The agency, which is required to keep enough money on hand to cover all projected future losses, has authority to take the money without prior approval from Congress. The FHA’s need for aid could spur lawmakers to move more quickly to shrink the agency’s risk and its footprint in the mortgage market. Representative Jeb Hensarling, the Texas Republican who leads the House Financial Services Committee, urged swift passage of his bill to largely limit FHA coverage to first-time borrowers purchasing moderately priced homes.

US mortgage insurer seeks $1.7bn from Treasury - For the first time in its 79-year history, the US Federal Housing Administration is tapping US Treasury funds to cover a $1.7bn shortfall in its key mortgage programme, the agency told the Senate banking committee in a letter sent on Friday. The FHA, which doesn’t originate loans but insures mortgage lenders, needs the money because of a high number of loan defaults that mostly come from the 2007 to 2009 period, according to Carol Galante, FHA commissioner. The agency has about $30bn in reserves but is required to have funds to pay potential claims over the next 30 years. The FHA, which guarantees mortgages to borrowers who can put down deposits as low as 3.5 per cent, will draw on the cash infusion on Monday, when its fiscal year ends. The $1.7bn shortfall of the FHA pales in comparison to the approximately $190bn bailout of US government-owned mortgage groups Fannie Mae and Freddie Mac. But the cash injection from the Treasury was highlighted by critics as another reason why the government’s involvement in the housing finance market should be overhauled.

Rethinking Fannie, Freddie—and the 30-Year Mortgage - Washington is finally talking seriously about how to replace Fannie Mae and Freddie Mac,  the mortgage-finance juggernauts that the government was forced to rescue five years ago. Just don't expect quick action. The firms are proving to be as difficult to shut down as the U.S.-operated Guantanamo Bay prison in Cuba. Republicans and Democrats are deeply divided over what to do. On the surface, the disagreements concern what role the government should play in the mortgage market. But the real debate boils down to this: Should all Americans continue to have relatively easy access to the pre-payable, 30-year, fixed-rate mortgage? American homeowners love the 30-year mortgage, which isn't available in most other countries. It provides payments that are stable for the life of the loan, which makes finances easier to manage. In many other countries, homes are financed with adjustable-rate mortgages, where payments rise and fall with prevailing interest rates. The government plays an unusually large role in the U.S. mortgage market because banks don't like holding 30-year mortgages.  Enter Fannie and Freddie. They don't make loans. Instead, they buy them from lenders, package them into securities, and sell those to investors. They promise to make investors whole when mortgages default. In other words, they take the credit risk.

Housing "Recovery" Endgame Escalates -- Och-Ziff were perhaps a little early but used the last 10 months to unwind their real estate and exit the landlord business as the hedge-fund sponsored echo-bubble in housing rolled over into the mainstream. "American-Homes-4-Rent"'s IPO suggested a scramble to exit. With 60% of home purchases now being cash-only (explains the ongoing and massive layoffs in the mortgage business not just due to rate-driven weakening of demand), it is therefore a concern when one of the biggest funds playing in this space - OakTree Capital - announces plan to exit the buy-to-rent trade - selling roughly 500 fully-leased homes. As Reuters notes, it is yet another indication that early investors are looking to cash-out on the "recovery" in U.S. housing prices.Via Reuters,Oaktree, which manages about $76 billion, and its partner Carrington Mortgage Services are entertaining bids for the portfolio of fully-leased homes as they seek to exit from the buy-to-rent trade that has become popular the past two years with hedge funds and private equity firms... Oaktree, which specializes in distressed investing, and Carrington had initially planned on converting their portfolio into a real estate investment trust. But investors have now decided to simply exit the trade. Their asking price for the portfolio could not be learned. Earlier this year, Reuters first reported that Oaktree, after partnering with Carrington in early 2012, was souring on the buy-to-rent trade after seeing returns on rents from single-family homes begin to compress.

Housing Smoke and Mirrors (18) – “The Mendacity of HOPE (and HARP and HAMP)” - The dissonance observed in Housing Smoke and Mirrors “Re-tuning the HARP”, “Name That Tune” and “Dude Where’s My Housing Recovery” has started to become the familiar monotone of weakness. Since the back up in mortgage interest rates, after the “Taper” talk began, only 12% of loans are now “Refinancible”; as many borrowers now have existing mortgages that are at a lower rate of interest than is currently available. The refinancing window is now barely open.Fannie Mae and Freddie Mac both reported continued declines in serious delinquencies throughout June; to the lowest rates on record since December 2008. The improving delinquency picture is having an asymmetric impact on the housing market however. In its latest National Consumer Credit Trends report, Equifax noted that the total balance for seriously delinquent first mortgages decreased to a five-year low thanks to the improvement in home equity. This improving home equity position seems to have brought out the sellers however. Redfin recently reported that the prospect of rising mortgage interest rates has prompted fears amongst homeowners that the rise in prices will not last. The combination of improving home equity and interest rate expectations has triggered the increase in inventory supply coming to market.Existing Home Inventory is therefore running at an elevated level; which is tracking the crisis profile of 2010 which led to QE2.

MBA: Mortgage Applications Increase in Latest Weekly Survey, HARP Refinance Share Increases -From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 5.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 20, 2013....The Refinance Index increased 5 percent from the previous week. The seasonally adjusted Purchase Index increased 7 percent from one week earlier. ... The Purchase Index was at its highest level since July 2013.The HARP share of refinance applications increased to 41 percent from 40 percent the week before, and is the highest since MBA started tracking this measure in early 2012....The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.62 percent from 4.75 percent, with points increasing to 0.41 from 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. The refinance index increased partially because of more HARP refinance activity. I expect to see even more HARP activity soon.. The second graph shows the MBA mortgage purchase index.

Average U.S. 30-Year Mortgage Rate Down to 4.32 Percent  — Average U.S. rates on fixed mortgages fell this week to their lowest point in two months. The decline follows the Federal Reserve’s decision last week to hold off slowing its monthly bond purchases. Mortgage buyer Freddie Mac says the average rate on the 30-year loan dropped to 4.32 percent from 4.50 percent last week. The average on the 15-year fixed loan declined to 3.37 percent from 3.54 percent. Both are the lowest averages since July 25. Mortgage rates are nearly a full percentage point higher than in May, when the Fed first signaled it might slow its $85-billion-a-month in bond buys. But last week the Fed kept the pace steady after lowering its outlook for economic growth. The bond purchases are intended to lower long-term interest rates, including mortgage rates.

Rates Are Up, But It’s Easier to Get a Mortgage Now - For the past few years, would-be homebuyers were faced with a frustrating paradox: Home prices had taken a beating and mortgage rates were at rock bottom, but without near-perfect credit and a hefty down payment, lenders wouldn’t go near your application.What a difference a few years makes. Home prices are staging a modest recovery in most of the nation, with a few in-demand pockets bouncing back so fast people are using the phrase “seller’s market” again. They’re still cheap compared to the peak of the bubble, but steals of a lifetime are few and far between anymore. And after hitting a trough of just over 3.3% last fall, mortgage rates have gone on a tear, rising roughly an entire percentage point since spring.This has slammed the brakes on the brisk trade banks had been doing in mortgage refinancing — the higher the rates go, the less attractive the prospect looks, given the investment of time and money required. According to the Mortgage Bankers Association, the number of refis just hit a four-year low. To make up the shortfall, banks are trying to make new mortgage loans, but those are also on the wane, with sales of newly-built homes hitting a nine-month low in July.

Mortgages are easier to get these days … watch out, it could be a trap! - One number – your FICO credit score – carries more weight than almost anything else in deciding whether you get a new mortgage or can refinance the mortgage you already have. Anything that hurts that score, whether it's late credit card payments or heavy student loans, is one more strike against you. For the past few years, the trend has been for banks to require absurdly high credit scores to lend any money. In August 2012, you might have needed a FICO score as high as 763 to get approved for a mortgage for a new home, and 769 to refinance your old mortgage. So here's the good news: research shows that it's easier to get a mortgage with a less-than-perfect credit score than it was last year. According to new research from Ellie Mae, a mortgage origination software firm, only 52% of mortgages had an average FICO score of 700 in June 2013, compared to 71% in June 2012. Some big banks are even reducing the size of down payments they're requiring, and they're bragging about it. Banks, however, are not charity organizations. They're businesses, and they're looking for a profit. So here's the bad news: getting a mortgage or refinancing with a lower credit score may not entirely be a gift. It may be a trap. Usually, when mortgage rates rise – as they have been for the past few months – banks lend less. This time we've seen the strange phenomenon of rising mortgage rates and more lending. That could be an early red flag. The mortgage industry only lowers standards when it's desperate for business – and when it's desperate for business, it tends to get sloppy. It's not clear yet whether the mortgage industry has entirely cleaned up its act since the go-go days of 2006; mortgage lending has been so restricted that we haven't been able to see how banks would behave in a normal market. History has shown that a freer flow of mortgages also means banks are less watchful.

Gauging the trajectory of the US housing market - One set of economic data that shocked some economists last week was the existing home sales report. In spite of sharply higher mortgage rates, sales rose in August. NYTimes: - Sales of existing houses climbed 1.7 percent in August to a six-and-a-half-year high, and factories grew busier in the mid-Atlantic region this month, providing signs that rising borrowing costs are weighing only modestly on the economy. The National Association of Realtors said on Thursday that existing houses were selling at an annual rate of 5.48 million units, the highest level since early 2007, when a housing bubble was deflating and the economy was sliding toward its deepest recession in decades. The report surprised analysts who had expected higher interest rates would lead to a decline in resales. Mortgage rates have risen more than a percentage point since the Federal Reserve’s chairman, Ben S. Bernanke, hinted in May that the central bank could begin reducing its economic stimulus soon. On Wednesday, however, the Fed said it would maintain its $85 billion monthly purchases of Treasury and mortgage-backed securities. One could argue that home-buyers are ignoring higher rates, but that doesn't seem likely. Is this spike driven by capitulating buyers who had been waiting on the sidelines for mortgage rates to drop? That strategy had certainly worked in the past and buyers are realizing that this time it's different.  One reason to think that the jump in existing home sales is transient is the decline we've seen in new home sales - which most are attributing to higher rates. The divergence shown below is unlikely to be sustainable.

Weekly Update: Existing Home Inventory is up 21.8% year-to-date on Sept 23rd - Here is another weekly update on housing inventory: 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 August).  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.

LPS: House Price Index increased 0.6% in July, Up 8.7% year-over-year - The timing of different house prices indexes can be a little confusing. LPS uses June closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted. From LPS: LPS Home Price Index Report: July Transactions, U.S. Home Prices Up 0.6 Percent for the Month; Up 8.7 Percent Year-Over-Year Lender Processing Services ... today released its latest LPS Home Price Index (HPI) report, based on July 2013 residential real estate transactions. The LPS HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The LPS HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales. The LPS HPI is off 14.7% from the peak in June 2006. Note: The press release has data for the 20 largest states, and 40 MSAs. LPS shows prices off 46.1% from the peak in Las Vegas, off 38.8% in Orlando, and 36.7% off from the peak in Riverside-San Bernardino, CA (Inland Empire). Prices were at new peaks in Austin, Dallas, Denver, Houston and San Antonio.

Lawler: Video of How CoreLogic and Zillow House Price Indexes are Constructed -- From economist Tom Lawler: Zillow reported that its “National” Home Value Index for August was up 0.4% from July, and was up 6.6% from last August. Zillow’s HVI is a “hedonic” index, regional and national HVIs are median home value measures (or unit-weighted by the housing stock for which Zillow has “Zestimate”), “monthly” HVIs are three-month moving averages, and the HVIs are seasonally adjusted. Zillow also does not use foreclosure resales in constructing its HVIs. CR Note: Here is the Zillow release: U.S. Home Values Continue to Surge in August; Pace Expected to Slow as Summer Season Ends. Of the 382 metro areas for which Zillow releases a HVI to the public, 324 showed a YOY increase in August.  Recently Mark Fleming of CoreLogic and Stan Humphries of Zillow gave presentations on each firm’s home price indexes at a “Lunchtime Data Talk” (“Home Price Indexes: Appreciating the Differences”) at the Urban Institute. The presentation covered index construction, as well as the main differences between a hedonic imputation index, like the Zillow Home Value Index, and a repeat sales index, like the CoreLogic Home Price Index, and slides are available here. A video of the presentation is available here.

Case-Shiller: Comp 20 House Prices increased 12.4% year-over-year in July - S&P/Case-Shiller released the monthly Home Price Indices for July ("July" is a 3 month average of May, June and July prices). This release includes prices for 20 individual cities, and two composite indices (for 10 cities and 20 cities). Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.  From S&P: Home Prices Steadily Rise in July 2013 According to the S&P/Case-Shiller Home Price Indices Data through July 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices ... showed increases of 1.9% and 1.8% from June for the 10- and 20-City Composites. For at least four months in a row, all 20 cities showed monthly gains. Phoenix posted 22 consecutive months of positive returns. Although home prices in all the cities increased, 15 cities and both Composites saw these monthly rates decelerate in July versus June. ver the last 12 months, prices rose 12.3% and 12.4% as measured by the 10- and 20-City Composites. ... The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000). The Composite 10 index is off 23.7% from the peak, and up 0.7% in July (SA). The Composite 10 is up 15.7% from the post bubble low set in Jan 2012 (SA). The Composite 20 index is off 23.0% from the peak, and up 0.6% (SA) in July. The Composite 20 is up 16.3% from the post-bubble low set in Jan 2012 (SA). The second graph shows the Year over year change in both indices. The Composite 10 SA is up 12.2% compared to July 2012. The Composite 20 SA is up 12.4% compared to July 2012. This was the fourteenth consecutive month with a year-over-year gain and it appears the YoY change might be starting to slow.

S&P Case-Shiller Index Shows Home Prices Continue to Soar in July 2013  - The July 2013 S&P Case Shiller home price index shows a 12.4% price increase from a year ago for over 20 metropolitan housing markets and a 12.3% change for the top 10 housing markets from a year ago.  Once again price increases on on high for homes.  Home Prices, not seasonally adjusted, are now comparable to April 2004 levels and are quite bubbly again.  America is now only 21-22% away from the peak of the housing bubble.  Graphed below is the yearly percent change in the composite-10 and composite-20 Case-Shiller Indices. This is the largest annual increase in home prices in seven years.  This is true, home prices increased greater in March 2006.  Yet the press as well as S&P describe a leveling off of price increases.  This is also slightly true, if one wishes to compare to a housing bubble, yet increases like this, even when leveling out are not sustainable.  Below is a graph of the annual change in the S&P Case-shiller home price composite-20 and composite-10 indexes.  Notice how in March 2006, annual increases are at a cusp and early 2006 is the start of a long slide down.  If we are having housing bubble déjà vu, let's hope the pattern does not continue.  Below are all of the composite-20 index cities yearly price percentage change, using the seasonally adjusted data.  Las Vegas is a bubbling cauldron of trouble as prices have increased 27.5% from a year ago.  Remember, Nevada has the worst unemployment rate in the nation.  Clearly people obtaining jobs and income does not explain the sudden price rise in Las Vegas.   San Francisco is also on fire, a 24.8% annual home price increase, as people working there are now in six figure indentured servitude due to housing and other costs soaring.  Phoenix, which looked like a neutron underwater mortgage bomb just three years ago, has seen price increases for 22 months in a row.  Overall the return to the the housing bubble has been clearly re-established as home prices are soaring out of reach again for the majority Americans.  If anyone recalls, creative home loans came about in part because almost no one in America could qualify for a traditional mortgage, due to home prices being so out of alignment with today's meager wages.

Home Prices Rising at Fastest Pace Since Start of Bubble - Home prices rose faster during the first seven months of 2013 than any year since 2004, the year that marked the beginning of the home-price bubble. The S&P/Case-Shiller home price index for 20 major metro areas released Tuesday offers the latest sign of runaway price inflation earlier this year, amid short supplies of homes for sale, heavy demand, and very low mortgage rates. Prices tend to slow down after June, but the July report showed still strong price gains. Prices rose by 1.8% from June, the largest June-to-July increase in the 14-year history of the 20-city index. The year-to-date gains, however, are the most eye-opening. Prices in July stood 11.2% above the level of December 2012. By contrast, prices in the same period last year were up 5.8%. In 2004, prices rose by 11.3% year-to-date through July. The Case-Shiller index tracks home prices on a three-month moving average; Tuesday’s report measured prices on home sales that were recorded in the May-to-July period, and buyers would have closed on contracts to buy those homes one or two months before then. Rising mortgage rates could ultimately slow the pace of price gains, though the supply of homes for sale still remains quite tight in many parts of the country.

July Case-Shiller Housing Index Misses For Third Month In A Row, Pace Of Increase At 10 Month Lows There was something for everyone in the just released July Case-Shiller house price index. On one hand, on a year over year basis, the NSA Composite 20 city index rose 12.39% in July, up from 12.07% in June, and in line with expectations of a 12.40% increase. This was the highest annual price increase since the start of the great financial crisis. On the other hand, the same Composite-20 Index increased by just 0.62% in July on a SA M/M basis, missing expectations of a 0.80% increase, and down from the 0.88% increase in June. This was the third consecutive miss on a M/M basis, and while the Case-Shiller index continues to still rise, the momentum as can be seen in the chart below, is starting to fade, with the monthly increase posting at the lowest rate since September of 2012 when the rise was 0.52%.

A Look at Case-Shiller by Metro Area - Home prices extended a winning streak of year-over-year gains, though the rate of increase may have peaked, according to the S&P/Case-Shiller indexes. Reuters The composite 20-city home price index, a key gauge of U.S. home prices, was up 12.4% in July from a year earlier. All 20 cities have posted year-over-year gains for seven straight months. Dallas and Denver both reached levels not seen since before the recession hit in December 2007. Prices in the 20-city index were 1.8% higher than the prior month. Adjusted for seasonal variations, which reflect a traditional stronger spring and summer selling season, prices were 0.6% higher month-over-month. No city posted a monthly decline, though on a seasonally adjusted basis priced were lower in Cleveland and Minneapolis. Even as mortgage rates rise, many economists expect price gains to continue, though they may moderate. “The story here, we think, is simply that the rise in rates has deterred some proportion of would-be homebuyers, at a time when inventory has started to rise,”Read the full S&P/Case-Shiller release

Comment on House Prices: Real Prices, Price-to-Rent Ratio, Cities - The Case-Shiller index released this morning was for July, and it is actually a 3 month of average prices in May, June and July (when the market was really hot).  I think price increases have slowed recently based on agent reports (a combination of a little more inventory and higher mortgage rates), but this slowdown in price increases will not show up for several months in the Case-Shiller index because of the reporting lag and because of the three month average. I expect to see smaller year-over-year price increases going forward and some significant deceleration towards the end of the year.   I also think it is important to look at prices in real terms (inflation adjusted).  The first graph shows the quarterly Case-Shiller National Index SA (through Q2 2013), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through July) in nominal terms as reported. In nominal terms, the Case-Shiller National index (SA) is back to Q4 2003 levels (and also back up to Q4 2008), and the Case-Shiller Composite 20 Index (SA) is back to April 2004 levels, and the CoreLogic index (NSA) is back to September 2004. The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices. In real terms, the National index is back to Q4 2000 levels, the Composite 20 index is back to November 2001, and the CoreLogic index back to May 2002. In real terms, house prices are back to early '00s levels.This graph shows the price to rent ratio (January 1998 = 1.0). On a price-to-rent basis, the Case-Shiller National index is back to Q4 2000 levels, the Composite 20 index is back to May 2002 levels, and the CoreLogic index is back to February 2003.

Zillow: Case-Shiller House Price Index expected to show 12.4% year-over-year increase in August - The Case-Shiller house price indexes for July were released yesterday. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.   From Zillow: August Case Shiller Indices Expected to Show Further Monthly Slowdowns The Case-Shiller data for July came out this morning and, based on this information and the August 2013 Zillow Home Value Index (released yesterday), we predict that next month’s Case-Shiller data (August 2013) will show that both the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 12.4 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from July to August will be 0.6 percent for both the 20-City Composite and the 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for August will not be released until Tuesday, October 29. ... Both the Case-Shiller indices and the Zillow Home Value index are showing the first signs of moderation in home value appreciation. We are seeing slowing in month-over-month appreciation, although the Case-Shiller indices will continue to show an inflated picture of home prices. The Case-Shiller indices are biased toward the large, coastal metros currently seeing enormous home value gains, and they include foreclosure resales. The inclusion of foreclosure resales disproportionately boosts the index when these properties sell again for much higher prices — not just because of market improvements, but also because the sales are no longer distressed.

U.S. New-Home Sales Jump 7.9 Percent in August — Americans stepped up purchases of new homes in August after cutting back in July, suggesting that higher mortgage rates may not be slowing the housing recovery. The Commerce Department says sales of new homes increase 7.9 percent to a seasonally adjusted annual rate of 421,000. That comes after sales plunged 14.1 percent in July to a 390,000 annual rate.The rebound in new-home sales could ease worries that higher rates have started to dampen sales. Still, some buyers could be racing to close deals before rates rise further. The average rate on the 30-year fixed mortgage has risen more than a full percentage point since May.New-homes sales were 12.6 percent higher in August than a year ago. The pace remains well below the 700,000 consistent with a healthy market.

New Home Sales increased to 421,000 Annual Rate in August - The Census Bureau reports New Home Sales in August were at a seasonally adjusted annual rate (SAAR) of 421 thousand. This was up from 390 thousand SAAR in July (July sales were revised down from 394 thousand. May sales were revised down from 439 thousand to 429 thousand, and June sales were revised down from 455 thousand to 454 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 August 2013 were at a seasonally adjusted annual rate of 421,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.9 percent above the revised July rate of 390,000 and is 12.6 percent above the August 2012 estimate of 374,000." The second graph shows New Home Months of Supply.

Median New Home Price Drops To Lowest Since January 2013 - New home sales meet expectations at 421k after downward revisions in the last month - which was already the biggest miss of expectations in over 3 years. This looks like the last hurrah rush for purchases as we got a dip lower in rates in July before the most recent surge higher. Bear in mind that the actual unadjusted number of homes sold was a mere 35k (the 3rd lowest in 2013) and 11k have yet to be started. In the meantime, median home prices continue to slide - now at 2013's lows and supply is rising at 5.1 months (unadjusted) this is the highest in 2013. It seems that as rates rise, just as we warned, speculative capital will exit (on uneconomic yields) and home prices ae forced lower on a stagant income vs higher rates affordability basis.  Sure enough, median home prices have slumped to their lowest level since January 2013.  and don't get too excited about today's print - as the following chart illustrates all too clearly - the data has an awkward tendency to be revised notably lower over time...

Comments on New Home Sales - Looking at the first eight months of 2013, there has been a significant increase in new home sales this year.  The Census Bureau reported that there were 304 new homes sold during the first eight months of 2013, up 19.7% from the 254 thousand sold during the same period in 2012.   The year-over-year increases have slowed - August only saw a year-over-year increase of 12.6%, but I still expect new home sales to be up 15% to 20% for the year.  That follows an annual increase of 21% in 2012.And even though there has been a large increase in the sales rate, sales are close to the lows for previous recessions. This suggests significant upside over the next few years.  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 421 thousand sales rate.  As I mentioned last month, 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 and August were strong - and I expect a decline in existing home sales soon.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.

Pending Sales of Existing Homes in U.S. Decreased 1.6% in August - Fewer Americans signed contracts in August to buy previously owned homes, a sign that rising mortgage rates may have slowed housing market momentum. The index of pending home sales fell 1.6 percent, after a revised 1.4 percent decrease in July that was bigger than initially reported, figures from the National Association of Realtors showed today in Washington. Economists forecast a 1 percent decline in the gauge from the month before, according to a median estimate in a Bloomberg survey. Mortgage rates that hit their highest in August since July 2011 and a limited number of existing homes may have caused some prospective buyers to hold back, slowing the real estate recovery. Employment growth and gains in income could help buyers to afford houses, fueling the broader economy.

Pending Home Sales Index declines 1.6% in August - From the NAR: Pending Home Sales Decline in August The Pending Home Sales Index, a forward-looking indicator based on contract signings, eased 1.6 percent to 107.7 in August from a downwardly revised 109.4 in July, but remains 5.8 percent above August 2012 when it was 101.8; the data reflect contracts but not closings. Pending sales have been above year-ago levels for the past 28 months.The PHSI in the Northeast rose 4.0 percent to 84.8 in August, and is 5.1 percent above a year ago. In the Midwest the index declined 1.4 percent to 111.6 in August, but is 13.8 percent higher than August 2012. Pending home sales in the South fell 3.5 percent to an index of 116.9 in August, but are 3.7 percent above a year ago. The index in the West declined 1.6 percent in August to 106.9, but is 1.7 percent higher than August 2012.Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in September and October.

Why do so many Americans live in mobile homes?: An estimated 20 million Americans live in mobile homes, according to new Census figures. How did this become the cheap housing of choice for so many people? US Census figures confirmed that South Carolina did indeed have the highest proportion of mobile homes - also known as trailers or manufactured housing - though the figure is closer to 18% than 20%. Mobile homes have a huge image problem in the US, where in many minds they are shorthand for poverty. But how accurate is this perception? Comparing the top 10 mobile home states with the 10 most deprived states suggests a loose correlation. South Carolina is not among the 10 poorest by income, but there are eight states, all southern, that appear in both lists."Not everyone who lives in a trailer park is poor," says Charles Becker, a professor of economics at Duke University, and one of a handful of academics nationwide who has extensively studied the subject. "And there are parts of the country, like Michigan, where living in a mobile home community doesn't have the stigma it does in the south. You also have retirement communities in Florida where people aren't poor at all."

Household Net Worth Up on Rising Stocks, Home Prices - The net worth of U.S. families and nonprofit organizations rose $1.3 trillion in the second quarter as rising home values and gains in the stock market boosted Americans’ balance sheets. U.S. households’ net worth — the value of homes, stocks and other investments minus debts and other liabilities — climbed 1.8% to $74.82 trillion in the April-to-June period, according to a Federal Reserve report released Wednesday. That is the highest level since records began in 1945, without adjusting for inflation. The Fed’s quarterly “Financial Accounts of the United States” report, which provides a snapshot of the finances of U.S. households and corporations and the government, provides the latest evidence that Americans are gradually rebuilding their wealth after the recession. Households’ net worth rose about 6% in the first two quarters of 2013, and have likely increased further in the past few months. Stock prices and real-estate values have continued to advance with the Standard & Poor’s 500-stock index up 5% since the end of the second quarter. The Fed’s figures aren’t adjusted for inflation or population growth. Rising household wealth also masks big differences between the affluent, who tend to own stocks, and the less affluent, who were disproportionately hit by the housing crash since their biggest financial asset tends to be their home. While stocks have been on a multiyear bull run since 2009, home prices, even after recent gains, remain below their prerecession peaks.

Home and Stock Values Boost U.S. Household Wealth - U.S. household net worth jumped $1.3 trillion in the spring, fueled by gains in home and stock values.The Federal Reserve says net worth rose to $74.8 trillion in the April-June quarter, up 1.8 percent from the first quarter. Home prices and stock markets have risen further since then, suggesting that Americans’ net worth is now even higher.The gains in wealth haven’t been evenly distributed. Home ownership has declined since the recession, particularly among lower-income Americans. And the wealthiest 10 percent of households own about 80 percent of stocks.Americans’ wealth bottomed at $57.2 trillion in 2008 during the Great Recession. It’s since risen $17.6 trillion. Household wealth, or net worth, reflects the value of assets like homes, stocks and bank accounts minus debts like mortgages and credit cards.

U.S. Household Wealth Hits a Historic Peak of $74.8 Trillion -- A rebound in stocks and housing prices has driven the net worth of U.S. households up to $74.8 trillion, a historic high according to the Wall Street Journal. But as with every glimmer of good news in this shaky recovery, it comes riddled with caveats.For one, that measure of wealth, once adjusted for inflation, is actually 4 percent shy of what it was in the bubbly, pre-recession days. Households have reclaimed 80 percent of their wealth in real terms — not bad, considering some of that wealth never existed outside of irrationally exuberant investors’ heads.And some economic indicators show trouble ahead, including lackluster job growth, stagnant middle class incomes, a possible interest rate hike from the Fed and a looming government shutdown, all of which make it that much harder for the recovery to shake off that word “shaky.”

The Bogus Flow of Funds Q2 Report Shows $3 Trillion in Additional Net Household Worth Which Doesn't Exist - The Q2 2013 Federal Reserve's flow of funds report shows household net worth increased $1.5 trillion to $74.8 trillion in Q2 2013 and hit another record high.  The thing is, magically household net worth was boosted up by unfunded pension funds.  Nice huh, to have an increase in wealth that Americans do not actually have?  Below is a graph of the revision to household net worth, red is the new value, blue the old.Q1 household net worth was revised upward by a whopping $3.13 trillion.  Below is the difference between the previously reported household net worth and the new one.  Notice the increase in disparity starting around year 2000.  As we noted in revisions to national income and product accounts, the BEA in their infinite wisdom decided to count unfunded, promise to pay pension funds owed by employers as household assets.  Below is a graph of now called entitlement pension funds revisions, the current in red, the past in blue.  This is located in table B.100, line 30 in the flow of funds report.  The current level for Q2 is $18,736.61 billion, whereas in Q1, the value is now $18,560.9 billion, an upward revision of $3.6 trillion.  This is just astounding to us, for pensions have been under attack and Detroit is just one example where pensions are wiped out by declaring bankruptcy.  This is a routine technique, to destroy pensions people are counting on by declaring bankruptcy and turning the pension fund over to the PBGC as happened with Delphi automotive and was a 2012 campaign issue. The flow of funds report has always been bogus, confusing, with summary data presented as seasonally adjusted and annualized, whereas the detailed tables are in various forms, mainly not seasonally adjusted.  We overview more details below, but frankly these days we're not sure what the point is, for counting non-existent pension contributions makes the report more of a fantasy land.

Household Net Worth: The ’’Real’’ Story - Let's take a long-term view of household net worth from the latest Flow of Funds report. A quick glance at the complete data series shows a distinct bubble in net worth that peaked in Q4 2007 with a trough in Q1 2009, the same quarter the stock market bottomed. The latest Fed balance sheet shows a total net worth that is 34.6% above the 2009 trough at a new all-time high 8.4% above the 2007 peak. The nominal Q4 net worth is up 1.8% from the previous quarter and up 11.5% year over year.But there are problems with this analysis. Over the six decades of this data series, total net worth has grown about 7159%. A linear vertical scale on the chart above is misleading because it fails to provide an accurate visual illustration of growth over time. It also gives an exaggerated dimension to the bubble that began in 2002. But there is another more serious problem, one that has to do with the data itself rather than the method of display. Over the same time frame that net worth grew seven-thousand-plus percent, the value of the 1950 dollar shrank to about nine cents. The Federal Reserve gives us the nominal value of total net worth, which is significantly skewed by money illusion. Here is my own log scale chart adjusted for inflation using the Consumer Price Index. Here is the same chart with an exponential regression through the data. The regression helps us see the twin wealth bubbles peaking in Q1 2000 and Q1 2007, the Tech and Real Estate bubbles. The trough in real household net worth was in Q1 2009. From that quarter to the latest data point, net worth initially trended at about the same growth rate as the overall regression but has improved over the last four quarters. We are currently 5.1% below the regression. I've referred to this data series as "household" net worth. But, as I show in the chart titles, it also includes the net worth of nonprofit organizations. The ratio of two isn't clearly defined in the Fed data, and it obviously varies by asset and liability component. I've seen estimates that the nonprofit component is around six percent of the total net worth.

U.S. Consumers Boost Spending 0.3 Percent in August - U.S. consumers increased their spending slightly last month as their income grew at the fastest pace in six months.The Commerce Department says consumer spending rose 0.3 percent in August. That’s up from a 0.2 percent gain in July. Income rose 0.4 percent in August, the best gain since February and up from a 0.2 percent July increase. Private wages and salaries rose $28.5 billion, while government’s increased $2 billion. Forced federal furloughs reduced government wages and salaries by $7.3 billion. Consumer spending drives 70 percent of economic activity. Many analysts forecast weaker overall growth of around 2 percent in the July-September quarter, in part because of weaker consumer spending.

Personal Income & Spending Rise Again In August Today’s income and spending report looks encouraging. Disposable personal income (DPI) rose 0.5% last month vs. July—the strongest monthly comparison since February. Personal consumption expenditures (PCE) also increased in August, albeit at a lesser pace. Nonetheless, PCE gained 0.3% last month, up a bit from July’s advance and generally in line with expectations. And as we’ll see, the year-over-year comparisons improved again too. Overall, it’s fair to say that income and spending are both trending positive these days, offering a bit more support for thinking positively for the economic outlook in the near term.Indeed, both DPI and PCE last month posted monthly gains for the fourth update in a row. The increases are hardly stellar, but they’re positive and, for the moment, persistent. The real news in today’s release is the sight of another round of stronger year-over-year changes. As the next chart shows, DPI and PCE moved higher last month relative to their respective year-earlier numbers vs. the previous update. The rebound in DPI is particularly noteworthy in today’s report. Indeed, disposable personal income advanced 2.8% last month vs. a year ago. That’s the fastest annual rate of growth so far in 2013 and it reflects a substantial turnaround from the last several years, when decelerating growth was conspicuous in both income and spending data. It's anyone's guess if this represents a major change for the better, but the possibility looks somewhat more plausible today.

Personal Income increased 0.4% in August, Spending increased 0.3% - The BEA released the Personal Income and Outlays report for August: Personal income increased $57.2 billion, or 0.4 percent ... in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $34.5 billion, or 0.3 percent....Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in August, compared with an increase of 0.1 percent in July. ... The price index for PCE increased 0.1 percent in August, the same increase as in July. The PCE price index, excluding food and energy, increased 0.2 percent in August, compared with an increase of 0.1 percent in July.On inflation, the PCE price index increased at a 1.7% annual rate in August, and core PCE prices increased at a 1.9% annual rate. The following graph shows real Personal Consumption Expenditures (PCE) through August (2009 dollars).  The dashed red lines are the quarterly levels for real PCE.Using the two-month method to estimate Q3 PCE growth (first two months of the quarter), PCE was increasing at a 1.5% annual rate in Q3 2013 (using mid-month method, PCE was increasing at 1.6% rate).   This suggests sluggish PCE (and GDP) growth in Q3.

The Latest on Real Disposable Income Per Capita  - Earlier today I posted my latest Big Four update which included today's release of the July data Real Personal Income Less Transfer Payments. Now let's take a closer look at a rather different calculation of incomes: "Real" Disposable Personal Income Per Capita.The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. This indicator has been significantly disrupted by the bizarre but not unexpected oscillation caused by 2012 year-end tax strategies in expectation of tax hikes in 2013. The August nominal 0.38% month-over-month and 2.03% year-over-year numbers put us approximately back to the trend we saw near the end of last year prior to the forward pull of income and subsequent plunge to manage expected tax increases. However, when we adjust for inflation, the real MoM change is trimmed to 0.25%, and the real YoY is a discouraging 0.87%. The BEA uses the average dollar value in 2009 for inflation adjustment. But the 2009 peg is arbitrary and unintuitive. For a more natural comparison, let's compare the nominal and real growth in per capita disposable income since 2000.   Nominal disposable income is up 54.6% since then. But the real purchasing power of those dollars is up only 18.3%.Let's take one more look at real DPI per capita, this time focusing on the year-over-year percent change since the beginning of this monthly series in 1959. I've highlighted the value for the months when recessions start to help us evaluate the recession risk for the current level.

Personal Income, Spending Both As Expected; Savings Rate Rises To Highest Since May -There were no surprises in today's Personal Income and Spending report. At $14.188 trillion, Personal Income rose 0.4% in August, just as expected, and up from an upward revised 0.2% in July. On the spending side, US Personal Outlays were $11.94 trillion, an increase of 0.3% from July, and also higher than the upwardly revised July spending of 0.2%. The PCE Deflator came in at 0.1%, as expected, while the PCE Core rose 0.2% compared to expectations of 0.1% and up from 0.1% last month. The breakdown of components at both income and spending levels was uniformly distributed with nothing standing out. Real Disposable income rose 1.6% Y/Y but only due to a change in the current-dollar series as a result of an adjustment in the implicit price deflator which revised recent numbers to appear larger.  Finally, since in nominal terms incomes rose a fraction more than spending, the implied savings rate rose by the same fraction: 4.5% to 4.6%, the highest since May.

Vital Signs: Big-Ticket Shopping Still on Consumers’ To-Do List - Friday’s personal income and spending report suggests household spending is increasing at a modest pace in the first two months of the third quarter. Economists are concerned that real spending is now slowing down after it grew at a 1.8% annualized rate in the second quarter which was down from a 2.3% gain in the first. Half of households, however, are not finished yet with big-ticket shopping. A September survey done by American Express shows 51% of consumers still plan to make a large purchase before the end of the year. Among affluent households with yearly incomes of $100,000 or more, 62% plan a big purchase. The top items on the shopping list are televisions and furniture. If the buying plans become reality, the extra spending will offer a needed boost to economic growth in the second half.

More Americans Worried About Their Finances - Americans aren’t too happy about their finances. About 42% of Americans feel negative about their income and 51% feel negative about their savings, according to a new survey by CEB, a business advisory firm. Nearly 40% are discouraged about their progress toward financial goals.The culprit? The erosion of real income, said CEB managing director Peter Aykens. Stagnant wages translate to weak spending power, particularly as Americans are battling high – and rising – costs for rent, groceries, gas and other basic necessities, according to the group’s latest Consumer Financial Monitor survey. People aged 30-46 who are less affluent are feeling the most financial pressure, the report said. That group of Americans said they’re feeling worse about their paychecks now than they were earlier this year. Only 24% felt positive about income in the third quarter, down from 38% in the first three months of the year. Confidence about paying off debt and satisfaction with credit and borrowing products also declined in the time period. The overall negative feelings could directly influence how Americans feel about financial-services providers, even if those institutions haven’t done anything wrong, the group warned. That could spur consumers to move bank accounts or close credit cards. The respondents that felt more positive about their incomes in the third quarter than they did in the first were young people (ages 18-29) with more than $100,000 in investable assets, and older middle-income earners (ages 47-65) with fewer assets.

Consumer Confidence Slips - U.S. consumer confidence edged a bit lower in September, held back by job and income worries, according to a report released Tuesday. The Conference Board, a private research group, said its index of consumer confidence fell to 79.7 this month from a revised 81.8 in August, first reported as 81.5. The September reading was very close to the 79.8 expected by economists surveyed by Dow Jones Newswires. Consumer expectations for economic activity over the next six months fell to 84.1 from a revised 89.0 in August, originally reported as 88.7. The board’s present situation index, a gauge of consumers’ assessment of current economic conditions, increased to 73.2 in September from a revised 70.9, first put at 70.7. Views on the current labor market improved. The board’s survey showed 11.5% of consumers this month think jobs are “plentiful,” from 11.3% thinking that in August. Another 32.7% think jobs are “hard to get,” from 33.3% who said that last month. Consumers are less upbeat about labor markets over the next six months. Those anticipating more jobs in the future fell to 16.9% this month from 17.5% in August, while those anticipating fewer jobs rose to 19.7% from 17.2%.

Consumer Confidence Comes in a Bit Below Expectations - The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through September 13. The 79.7 reading is slightly below the 79.9 forecast by and 2.1 points below the August upwardly adjusted 81.8 (previously reported at 81.5). The index is now 2.5 points off its five-and-a-half year interim high set in June. Or, to put it another way, the index is 10.9 points below the December 2007 level, which the NBER declared as the start of the Great Recession. Here is an excerpt from the Conference Board report. "Consumer Confidence decreased in September as concerns about the short-term outlook for both jobs and earnings resurfaced, while expectations for future business conditions were little changed. Consumers' assessment of current business and labor market conditions, however, was more positive. While overall economic conditions appear to have moderately improved, consumers are uncertain that the momentum can be sustained in the months ahead."  Consumers' appraisal of present-day conditions improved moderately. Those claiming business conditions are "good" increased to 19.5 percent from 18.7 percent, while those claiming business conditions are "bad" decreased to 23.9 percent from 24.5 percent. Consumers' assessment of the labor market was also more favorable. Those saying jobs are "plentiful" increased slightly to 11.5 percent from 11.3 percent, while those saying jobs are "hard to get" decreased to a five-year low of 32.7 percent from 33.3 percent. Consumers' outlook for the labor market, however, grew more pessimistic. Those anticipating more jobs in the months ahead decreased to 16.9 percent from 17.5 percent, while those anticipating fewer jobs increased to 19.7 percent from 17.2 percent. The proportion of consumers expecting their incomes to increase declined to 15.4 percent from 17.5 percent.   [press release]

Consumer Confidence Drops Most In 6 Months To 4 Month Low - Following UMich confidence's biggest miss on record, the Conference Board misses expectations printing at its lowest since May 2013 as the last data was revsied higher. This is the largest MoM drop since March. Crucially, the headline index was saved by a surge in the "present situation" as expectations for the future plunged. As a reminder, Consumer Confidence has an awkward 4 year 4 month pattern of dysphoria to euphoria (though at progressively lower levels) and today's data merely confirms that the cycle of exuberance may have been broken.

Michigan Consumer Sentiment: Lowest Level Since April - The University of Michigan Consumer Sentiment final number for September came in at 76.5. Today's number is below the forecast of 78.0 and a 4.6 decline from the August final reading of 82.1. The September reading is 7.6 points below the interim high in July and at the lowest level since April. See the chart below for a long-term perspective on this widely watched index. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is now 9 percent below the average reading (arithmetic mean) and 8 percent above the geometric mean. The current index level is at the 31st percentile of the 429 monthly data points in this series.The Michigan average since its inception is 85.2. During non-recessionary years the average is 87.6. The average during the five recessions is 69.3. So the latest sentiment number puts us 8.2 points above the average recession mindset and 10.1 points below the non-recession average. It's important to understand that this indicator is somewhat volatile with a 3.1 point absolute average monthly change. For a visual sense of the volatility here is a chart with the monthly data and a three-month moving average.

Vital Signs: Consumers Want One Last Sip from Punch Bowl - Average consumers may not know tapering from tarragon but they already suspect cheap borrowing is a thing of the past. The Conference Board’s survey of consumers show a shrinking share of consumers thinks interest rates will go lower in the next year. Only 7.8% of respondents in September say they expect rates to fall. That’s down from 8% saying that in August and equals the 7.8% share in July. Taken together, the three month average is the lowest since 2006. The sentiment change may reflect increases already seen in mortgage rates along with market expectations that the Federal Reserve will begin to ease off quantitative easing. (The survey was completed by September 13, before the September 17-18 policy meeting when the Fed surprised markets by not tapering.) The Fed’s next move will not take away the punch bowl, but it will dilute the libations. Before that happens, consumers are keen to enjoy one last round of cheap financing. The Conference Board’s surveys over this quarter show a rising share of consumers planning to buy homes or autos in the next six months.

U.S. Consumer Confidence Dips as Jobs Outlook Dims — Americans’ confidence in the economy fell slightly in September from August, as many became less optimistic about hiring and pay increases over the next six months.The Conference Board, a New York-based private research group, says its consumer confidence index dropped to 79.7 in September. That’s down from August’s reading of 81.8, which was slightly higher than previously estimated. Consumers’ confidence is closely watched because their spending accounts for 70 percent of economic activity. While confidence has bounced back from the depths of the Great Recession, it has yet to regain a reading of 90 that typically coincides with a healthy economy.

U.S. Consumer Confidence Falls for 2nd Month - U.S. consumer confidence declined this month as Americans turned more pessimistic about the economy, their own finances, and government budget policies.The University of Michigan says its final reading of consumer sentiment dropped to 77.5 in September from 82.1 in August. It was the second straight decline after confidence reached a six-year high of 85.1 in July.A potential budget impasse in Washington, which if unresolved could shut down the federal government Tuesday, spurred twice as many negative comments about government policy as three months ago, the survey found. Americans are also less hopeful about their paychecks. Half of all households expect no pay increase in the year ahead. And a majority expects their income will trail inflation for the next five years.

Final September Consumer Sentiment at 77.5 - (graph) The final Reuters / University of Michigan consumer sentiment index for September was at 77.5, down from the August reading of 82.1, but up from the preliminary September reading of 76.8.  This was below the consensus forecast of 78.0. Sentiment has generally been improving following the recession - with plenty of ups and downs - and one big spike down when Congress threatened to "not pay the bills" in 2011.  Unfortunately Congress is once again threatening to "not pay the bills" and that might impact sentiment (and consumer spending) in October.

Consumers' view of inflation diverges further from market-implied CPI - The scatter plot below compares UMichigan consumer inflation expectations to the 2yr market-implied inflation expectations from the Cleveland Fed (the 2-year TIPS are sufficiently liquid to prove a useful measure of short-term inflation expectations from the market.) The data is monthly and covers roughly the past 30 years. Except for periods of unusually high inflation (highlighted in yellow), there doesn't seem to be a stable relationship. The consumer and the market seem to be disconnected. Part of the issue of course is that the UMichigan survey focuses on what consumers think about general price increases going forward, while the Fed's market-implied measure is based specifically on the CPI (TIPS are tied to CPI). Consumer surveys are often criticized because consumers tend to respond to recent price increases, particularly the ones that are most visible. Market-based (breakeven) measures on the other hand tend to price the CPI going forward. Wikinvest: - Typically, beliefs of households about future inflation are much higher than normal, and have a smaller role in impacting future inflation than investor expectations of inflation. The former is true because households tend to base their estimates of future inflation based solely on previous inflation, rather than on previous inflation in addition to other factors, like changing supply or demand. It's easy to discount households as not being fully capable of "estimating" inflation changes going forward. A question for the academic community however is whether the consumer may simply be "sensitive" to a different "basket" of goods and services than what is covered by the CPI. If so, what is that basket, and how does it interact with consumer sentiment?

Wal-Mart Cutting Orders as Unsold Merchandise Piles Up -  Wal-Mart Stores Inc. (WMT) is cutting orders it places with suppliers this quarter and next to address rising inventory the company flagged in last month’s earnings report.  Last week, an ordering manager at the company’s Bentonville, Arkansas, headquarters described the pullback in an e-mail to a supplier, who said others got similar messages. “We are looking at reducing inventory for Q3 and Q4,” said the Sept. 17 e-mail, which was reviewed by Bloomberg News. U.S. inventory growth at Wal-Mart outstripped sales gains in the second quarter at a faster rate than at the retailer’s biggest rivals. Merchandise has been piling up because consumers have been spending less freely than Wal-Mart projected, and the company has forfeited some sales because it doesn’t have enough workers in stores to keep shelves adequately stocked.

Weekly Gasoline Update: Down a Nickel -  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 fell a nickel over the past week. Regular and Premium are 29 cents and 27 cents, respectively, off their interim highs in late February. According to, Hawaii is the only state averaging above $4.00 per gallon, down from two states last week. Two states, Alaska and California, are reporting average prices in the 3.90-4.00 range -- California as an addition to this category, having dropped from the $4-plus category last week.  The next chart is a weekly chart overlay of West Texas Intermediate Crude, Brent Crude and unleaded gasoline end-of-day spot prices (GASO). WTIC closed today at 103.39, down 02.75 from last Monday. That's 30.3% above its interim low in June of last year.

DOT: Vehicle Miles Driven increased 1.6% in July - The Department of Transportation (DOT) reported:

◦ Travel on all roads and streets changed by 1.6% (4.2 billion vehicle miles) for July 2013 as compared with July 2012
◦ Travel for the month is estimated to be 263.6 billion vehicle miles.
◦ Cumulative Travel for 2013 changed by 0.2% (2.7 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 68 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 July compared to July 2012. In July 2013, gasoline averaged of $3.66 per gallon according to the EIA. In 2012, prices in July averaged $3.50 per gallon.  Even with higher gasoline prices, vehicle miles were up in July. Gasoline prices were down year-over-year in August, so I expect miles driven to be up in August too.

Vehicle Sales: Likely Weaker Sales in September - The automakers will report September vehicle sales Tuesday, Oct 1st. According the Bureau of Economic Analysis (BEA), light vehicle sales in August were at a 16.0 million rate, on a seasonally adjusted annual rate (SAAR) basis.  It looks like September sales will be somewhat softer. Here are a few forecasts: From Kelley Blue Book: September Auto Sales Expected To Dip 2 Percent, According To Kelley Blue Book "September 2013 new-vehicle sales represent the first year-over-year drop since May 2011, due to slower retail sales, two fewer sales days in the month, and this year's Labor Day sales included in August 2013 totals,"  ...From JD Power: Strong Labor Day Weekend Sales Pull Deliveries from September Based on analysis of sales during the first two weeks of the month, new-vehicle sales are likely to reach nearly 1.33 million units, but may be weaker than in recent months due to strong Labor Day weekend sales that were tallied with August's robust sales totals. From TrueCar: September 2013 New Car Sales Expected to Be Down 4.4 Percent According to TrueCar; September 2013 SAAR at 15.4M For September 2013, new light vehicle sales in the U.S. (including fleet) is expected to be 1,131,333 units, down 4.4 percent from September 2012 and also down 24.5% percent from August 2013 (on an unadjusted basis – September 2013 had 23 sales days, compared to 25 in September 2012).The September 2013 forecast translates into a Seasonally Adjusted Annualized Rate ("SAAR") of 15.4 million new car sales, down about four percent from August 2013 and up about four percent over September 2012.

Durable manufacturing, motor vehicle and parts production, and oil and gas extraction all reached record highs in August -  The Federal Reserve released data last Monday on US industrial production for August, here are some highlights (posted today with a 5-day lag):

  • 1. The total output from America’s factories, mines, and utilities increased in August by 2.7% compared to a year ago, and by 0.4% from July. Over the last quarter, industrial production has been growing at a 2% annual rate.
  • 2. Manufacturing output increased by 2.6% year-over-year through August, and by 0.7% from May. Output from America’s mines increased by 7.5% in August from a year earlier.
  • 3. One of the strongest industry sectors for growth over the last year has been US factory production of “Motor Vehicles and Parts,” which increased by 8.4% on an annual basis through August (data here). At 107.53 in June, the index for motor vehicles and parts reached a new all-time monthly production record last month, and was solidly above the pre-recession high in mid-2007 by more than 3% (see blue line in top chart).
  • 4. Boosted by record motor vehicle production, the Durable Manufacturing component of industrial production rose to an all-time record high in August, and increased by 4.1% above the level a year ago.
  • 5. Another strong industrial sector for growth in August was reflected in the booming oil and gas extraction component of US industrial production, which increased last month by 11.4% from a year ago to the highest level since the Federal Reserve began reporting monthly data in January 1972, more than 40 years ago (see bottom chart).

The U.S. Ranks Second to Last in Investment among Developed Countries - From the paper:“America’s economic problems are often attributed by those in the popular press and in political office to a “lack of demand,” resulting in numerous policies aimed at boosting consumption. These policies appear to have worked, in that consumption has grown steadily in recent years such that it is now at an all-time high as a share of GDP. However, economic growth remains sluggish, keeping millions unemployed four years into the recovery.“Meanwhile, investment—the true engine of economic growth—is at a nearly record low, well below the levels seen in our largest trading partners. Cross-country comparisons show the U.S. has an extremely low level of investment and low economic growth relative to both developed and major developing countries.”  As a whole, the U.S. consumes more as a percentage of GDP than every OECD country except Greece.  More importantly, the U.S. invests less than every OECD country except the United Kingdom and significantly less than China (see ranking here).

What We Could Do With a Postal Savings Bank: Infrastructure That Doesn’t Cost Taxpayers a Dime - The U.S. Postal Service (USPS) is the nation’s second largest civilian employer after Walmart. Although successfully self-funded throughout its long history, it is currently struggling to stay afloat. This is not, as sometimes asserted, because it has been made obsolete by the Internet. In fact the post office has gotten more business from Internet orders than it has lost to electronic email. What has pushed the USPS into insolvency is an oppressive 2006 congressional mandate that it prefund healthcare for its workers 75 years into the future. No other entity, public or private, has the burden of funding multiple generations of employees who have not yet even been born.The Carper-Coburn bill (S. 1486) is the subject of congressional hearings this week. It threatens to make the situation worse, by eliminating Saturday mail service and door-to-door delivery and laying off more than 100,000 workers over several years. The Postal Service Modernization Bills brought by Peter DeFazio and Bernie Sanders, on the other hand, would allow the post office to recapitalize itself by diversifying its range of services to meet unmet public needs.

Orders For Long-lasting Factory Goods Up Slightly - — U.S. factories received slightly more orders in August, as demand for autos rose and companies spent more on machinery and metal products. The Commerce Department says durable goods orders increased 0.1 percent in August, after they plummeted 8.1 percent the previous month. July’s decline was driven by a drop in demand for commercial aircraft, a volatile category.Auto factories reported a 2.4 percent increase in orders, the biggest in six months. Orders for defense aircraft and other goods fell sharply. Excluding defense, orders rose 0.5 percent. Orders for so-called core capital goods rose 1.5 percent, after falling 3.3 percent the previous month. Core capital goods are a good measure of businesses’ confidence in the economy and include items that point to expansion, such as machinery and computers.

August Durable Goods Orders Are a Mixed Bag - The September Advance Report on August Durable Goods was released this morning by the Census Bureau. Here is the Bureau's summary on new orders:New orders for manufactured durable goods in August increased $0.3 billion or 0.1 percent to $224.9 billion, the U.S. Census Bureau announced today. This increase, up four of the last five months, followed an 8.1 percent July decrease. Excluding transportation, new orders decreased 0.1 percent. Excluding defense, new orders increased 0.5 percent. Transportation equipment, also up four of the last five months, drove the increase, $0.5 billion or 0.7 percent to $67.9 billion. This was driven by Motor vehicles and parts, which increased $1.1 billion. Download full PDF The latest new orders number at 0.1% percent was below the forecast of 0.2 percent. Year-over-year new orders are up 13.7 percent. The previous month was revised downward to -8.1 percent from -7.4 percent.If we exclude transportation, "core" durable goods were a negative -0.1 percent but up 7.6 percent YoY. was looking for a 0.2 percent MoM increase. If we exclude both transportation and defense, durable goods were up 0.5 percent MoM and up 7.4 percent YoY. Core Capital Goods showed the best results for August, up 1.5 percent MoM, a welcome (if small) rebound from the previous month's 3.3 percent decline.

Core Durable Goods, CapEx Both Miss; Revised Downward - Moments ago we got the latest confirmation the much delayed capital expenditures corporate spending spree - aside for airplanes ordered on spec of course - just refuses to arrive. While the headline durable goods print rose by a modest 0.1% in August, and beat expectations of a -0.2% decline, this was offset by a prior month revision lower from -7.3% to -8.1%, in effect netting even worse for the current month, and likely resulting in even more declines in Q3 GDP tracking estimates. More importantly, when stripping away airplane orders (on spec, and which are just a function of the credit environment), durable goods declines -0.1% on expectations of a 1.0% increase, which also was the third consecutive miss in this series in a row. Finally, the two most important metric tracking pure CapEx: capital goods orders and shipments non-defense excluding aircraft, both missed expectations, rising at 1.5% vs 2.0%, and 1.3% vs Exp. 1.5%, respectively. It looks like the Fed (and all those other skeptics who called "bull" on the latest talk of a recovery) was well aware of just how bad things in the economy are, and becoming, when it decided not to taper after all.

Vital Signs: A Summer Slump in Business Spending - Durable goods data are as noisy as midnight on New Year’s Day. The problem is that big-ticket items such as defense and aircraft can cause large swings. That was evident in the August report. Because of fluctuating aircraft demand, new orders edged up just 0.1% last month following a huge 8.1% drop in July. Ignoring the top-line volatility, the durables report is important for information on business investment on equipment. The latest numbers show a split in current and future capital expenditures. Shipments of nondefense capex goods excluding aircraft—an input into gross domestic product estimates—have been struggling this summer. That suggests business equipment investment is not adding much to third-quarter GDP growth. Future business investment looks more promising, as new orders have stayed at a high level. Alan Levenson, chief economist at T. Rowe Price says fundamental supports “including strong profitability and apparent replacement demand, point to a resumption of growth.” That offers hope for overall fourth-quarter GDP strength. A government shutdown in October, however, could put capex spending back on hold.

Making Sense of the Durable Goods Numbers - Over the last few months, the durable goods numbers have printed some very wide results.  Let's look at the data to make sense of what we're seeing: Above is a table from the latest report. The new orders numbers have been all over the place: we see a 3.9% increase followed by an 8.1% decrease followed by a .1% increase.  So -- what's really going on? I still think the data ex-transportation is really the best number to look at.  And in that category we see that orders ex-transportation increased .1%, decreased .5% and then decreased .1%.  These data points tell us that transportation orders are responsible for a tremendous amount of statistical noise.

The New Normal? Slower R&D Spending - Atlanta Fed's macroblog - In case you need more to worry about, try this: the pace of research and development (R&D) spending has slowed. The National Science Foundation defines R&D as “creative work undertaken on a systematic basis in order to increase the stock of knowledge” and application of this knowledge toward new applications. (The Bureau of Economic Analysis (BEA) used to treat R&D as an intermediate input in current production. But the latest benchmark revision of the national accounts recorded R&D spending as business investment expenditure. See here for an interesting implication of this change.)The following chart shows the BEA data on total real private R&D investment spending (purchased or performed on own-account) over the last 50 years, on a year-over-year percent change basis. (For a snapshot of R&D spending across states in 2007, see here.)Notice the unusually slow pace of R&D spending in recent years. The 50-year average is 4.6 percent. The average over the last 5 years is 1.1 percent. This slower pace of spending has potentially important implications for overall productivity growth, which has also been below historic norms in recent years. R&D spending is often cited as an important source of productivity growth within a firm, especially in terms of product innovation. But R&D is also an inherently risky endeavor, since the outcome is quite uncertain. So to the extent that economic and policy uncertainty has helped make businesses more cautious in recent years, a slow pace of R&D spending is not surprising. On top of that, the federal funding of R&D activity remains under significant budget pressure. See, for example, here.

US PMI Misses Expectations To 3-Month Lows; Orders And Employment Tumble - Despite exuberance at European and Chinese PMIs, the US clean shirt just skidded with a miss. Against expectatins of a high YTD 54.0 print, PMI posted 52.8 - its lowest in 3 months and falling for the second month in a row. New orders fell at the slowest pace since April (boding ill for durable goods) and the employment sub-index grew at the slowest pace in 3 months (suggesting payrolls will not hold up well). Of course, as Markit notes, bad news is good news "as far as policymakers are concerned there are some worrying signals in relation to the sector’s growth momentum, which vindicate the Fed’s decision to hold off on tapering its asset purchases."From Markit:Employment growth also slowed, reflecting manufacturers’ concerns about the strength of future demand and the on-going need to boost productivity to remain competitive at home and abroad. The sector is consequently not helping to bring unemployment down

Weaker US manufacturing data takes shine off news from China and Europe - European and Chinese firms have reported strong factory orders in September, sending a strong signal that the global economy is healing. But weaker than expected US manufacturing activity hit stock market sentiment. Financial data firm Markit said its "flash", or preliminary, US manufacturing purchasing managers index (PMI) retreated to 52.8 this month from 53.1 in August, confounding analysts' forecasts of an improvement. A reading above 50 indicates expansion. The weaker PMI was widely seen as a signal that jobs growth in the sector had entered a slower phase, justifying the Federal Reserve's decision to maintain its stimulus to boost the economy – a move that had initially bolstered stock markets last week. Output expanded at a faster pace while new order inflows slowed, suggesting "production growth is likely to weaken in the fourth quarter unless demand picks up again in October", said Chris Williamson, Markit's chief economist.

Richmond Fed Manufacturing: Activity Was Flat In September - The Fifth District includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The Federal Reserve Bank of Richmond is the region's connection to the nation's Central Bank. The complete data series behind today's Richmond Fed manufacturing report (available here), which dates from November 1993. The chart below illustrates the 21st century behavior of the diffusion index that summarizes the individual components.Today the manufacturing composite declined sharply from last month's interim high of 14. had forecast an increase to 17. Because of the highly volatile nature of this index, I like to include a 3-month moving average to facilitate the identification of trends, now at 1.0, which is close to no growth.Here is a snapshot of the complete Richmond Fed Manufacturing Composite series. Here is the latest Richmond Fed manufacturing overview.  Shipments, capacity utilization, and vendor lead time flattened, while the volume of new orders slowed. The backlog of new orders remained in decline. Finished goods inventories and raw materials inventories built up at about the same pace as in August. Manufacturing employment fell and the average work week shrank, while wage growth remained robust. Looking ahead six months, manufacturers' optimism about business prospects strengthened. Firms expected a greater volume of new orders, rising capacity utilization, with shorter lead-times and a solid increase in shipments. Further, they anticipated that the backlog of orders would grow. Additionally, survey participants expected a jump in capital expenditures. Manufacturers looked for the number of employees to climb and average workweek to moderate. Their outlook was for slightly slower average wage growth. Raw materials and finished goods prices rose more quickly in September compared to last month. In addition, relative to their outlook of a month ago, surveyed manufacturers expected prices to rise more quickly in the next six months.

Kansas City Fed: Manufacturing Survey "Moderated Somewhat" - From the Kansas City Fed: Tenth District Manufacturing Survey Moderated Somewhat “We saw slightly slower growth this month, but firms were much more optimistic about industry activity in early 2014” said Wilkerson. “Worker shortages remained a problem at many firms.”...The month-over-month composite index was 2 in September, down from 8 in August and 6 in July ... The employment index eased after rising last month.  On Tuesday, the Richmond Fed reportedThe composite index of manufacturing activity was flat in September, at a reading of 0 following last month's 14, as the component indexes cooled this month. ... The index for the number of employees fell twelve points from last month to settle at −6. The overall outlook of producers for the next six months was for stronger business conditions. The gauge for expected shipments added three points to end at 39, and the index for the volume of new orders rose two points to 35 this month. In aggregate the regional surveys have suggested moderate growth in September. The last of the regional Fed manufacturing surveys for September will be released on Monday (Dallas Fed).

More Manufacturing Coming Back to the U.S. - A study by the Boston Consulting Group documents what many manufacturers have quietly discovered in recent years — bringing production back to the United States from overseas carries some advantages. More than half of executives at manufacturing companies with sales of more than $1 billion plan to return some production to the United States from China or are considering it, according to the report. That’s up from 37 percent in February 2012.And the number of respondents in the process of moving back also rose, with 21 percent engaged in returning work to the United States, or “reshoring,” compared with 10 percent in 2012.The study, conducted last month, elicited responses from more than 200 decision makers at companies across a broad range of industries. Virtually all of the companies manufacture in the United States and overseas and make products for consumption both in the United States and abroad. One surprise is that energy costs — often mentioned by supporters of the natural-gas extraction process known as “fracking” as an argument for increased energy exploration to foster creation of manufacturing jobs — actually was the factor least cited by executives.

More Manufacturers Moving Operations Back to U.S. - More U.S. manufacturers are moving some of their production back from China, a new survey shows. Tim Hussin for The Wall Street Journal The survey by Boston Consulting Group, conducted in August and released Tuesday, found that 38% of U.S.-based manufacturing executives who responded were shifting production to the U.S. or considering that, up from 18% in a similar survey in February 2012. The latest survey drew responses from 216 U.S.-based executives at companies with annual sales of more than $1 billion. About 13% of the companies already were moving production back or had done so, the latest survey found. About 8% planned to move production to the U.S. within two years, and 17% were considering such moves. Another 17% said they probably would consider moving production. Scores of companies — including General Electric Co., Whirlpool Corp. and Caterpillar Inc. — have announced such “reshoring” moves in the past couple of years. Manufacturers increasingly try to shorten supply lines and reduce inventory by making products closer to where they are sold. Meanwhile, the surge in Chinese wages and higher shipping costs mean Asian production is no longer a no-brainer. The shale-gas boom is reducing U.S. energy costs, and some firms want to move production home to protect intellectual property. But offshore production is still attractive for many types of work, such as sewing clothes or assembling smart phones, that require lots of manual labor as well as suppliers or expertise that may no longer exist in the U.S. Regulations and taxes also can be less burdensome abroad.

Fed’s Lockhart: Churn in Jobs Market Has Slowed in Past Decade - The U.S. economy is healing over time, but innovation is needed to rekindle productivity and revive dynamism in the labor market, a key Federal Reserve official said Monday. Speaking at the Blouin Creative Leadership Summit, Atlanta Fed President Dennis Lockhart said the economic progress made since the recession has been on the back of struggling labor productivity and slowdown in the creation and destruction of jobs in market.“We see a picture in which fewer firms are expanding employment, and each expanding firm is adding fewer new jobs on average than in the past,” Mr. Lockhart said. “At the same time, fewer firms are shrinking, and each is downsizing by less on average. Fewer people are being laid off or are quitting their job, and firms are hiring fewer people. In other words, the employment dynamics of the U.S. economy are slower.”

U.S. Probably Created 345,000 More Jobs in Year to March 2013 -  The U.S. economy probably created more jobs than currently estimated in the year ended March 2013, the Labor Department said today in preliminary projections. The number of jobs added to payrolls will probably be revised up by 345,000 from the current estimate of 2.03 million, the Labor Department said on its website. The final annual benchmark revisions to payrolls will be issued with the January employment data that are released in February 2014. The Labor Department uses records from state jobless benefit tax records to benchmark its employment data.

Employment: Preliminary annual benchmark revision shows upward adjustment of 345,000 jobs - This morning the BLS released the preliminary annual benchmark revision showing an additional 345,000 payroll jobs as of March 2013. The final revision will be published next February when the January 2014 employment report is released in February 2014. Usually the preliminary estimate is pretty close to the final benchmark estimate. The annual revision is benchmarked to state tax records. From the BLS:  In accordance with usual practice, the Bureau of Labor Statistics (BLS) is announcing the preliminary estimate of the upcoming annual benchmark revision to the establishment survey employment series. The final benchmark revision will be issued in February 2014, with the publication of the January 2014 Employment Situation news release. Each year, employment estimates from the Current Employment Statistics (CES) survey are benchmarked to comprehensive counts of employment for the month of March. These counts are derived from State Unemployment Insurance (UI) tax records that nearly all employers are required to file. For National CES employment series, the annual benchmark revisions over the last 10 years have averaged plus or minus three-tenths of one percent of Total nonfarm employment. The preliminary estimate of the benchmark revision indicates an upward adjustment to March 2013 Total nonfarm employment of 345,000 (0.3 percent). This revision is impacted by a large non-economic code change in the Quarterly Census of Employment and Wages (QCEW) that moves approximately 469,000 in employment from Private households, which is out-of-scope for CES, to the Education and health care services industry, which is in scope. After accounting for this movement, the estimate of the revision to the over-the-year change in CES from March 2012 to March 2013 is a downward revision of 124,000. ... Using the preliminary benchmark estimate, this means that payroll employment in March 2013 was 345,000 higher than originally estimated. In February 2014, the payroll numbers will be revised up to reflect this estimate. The number is then "wedged back" to the previous revision (March 2012).

Number of Jobs Revised Up, but Only Because of Technicality- The U.S. Labor Department revised up the number of jobs in the economy as of March 2013, but the increase was largely due to a technical change rather than actual growth in payrolls. In its preliminary benchmark revision released Thursday, the Labor Department said there were 345,000 more jobs on U.S. payrolls in March 2013 than previously reported. But the department said the upward revision was mostly due to the way jobs performed in private households are classified. Household laborers aren’t counted in the government’s tally of jobs, but those who provide in-home care to the elderly and persons with disabilities, for example, should be, the Labor Department said. As a result, a large number of household workers were reclassified into the education and health care services category. There were 469,000 workers who previously weren’t counted added to the rolls. Those workers will likely be added to payrolls over a number of years when final figures are released in February 2014. That’s a change from typical benchmark revisions. In most prior years, only the previous 12 months of data changed. Without the reclassification, the over-the-year change would have been a downward revision of 124,000.

The Job Situation Looks a Little Worse - Every year at this time, the Labor Department tells us how badly it blew the previous year’s job figures. In each of the last two years, it turned out that job growth was better than previously estimated. But not this year. The revised numbers come because the government has access to better data, after a long delay. The earlier figures come from a survey of employers, with the numbers adjusted for the government’s estimate of how many jobs were created by new employers, and lost from failing companies that could not, of course, respond to the survey. The revised figures come from state unemployment insurance premium figures. The new numbers are called the “benchmark revisions,” and they are preliminarily announced in September, although they are not made final until the followed February. “The preliminary estimate of the benchmark revision indicates an upward adjustment to March 2013 total nonfarm employment of 345,000 (0.3 percent),” said the Labor Department’s announcement. But then it explained that all of that gain, and more, came from changing definitions, not new jobs. The monthly job figures exclude some workers, like the self-employed, and it counts household workers as self-employed. But now it has revised its definitions, and decided that “establishments that provide nonmedical, home-based services for the elderly and persons with disabilities” should be classified as health care companies. “Many of these establishments were previously classified in the private households industry,” it said. That added 490,000 workers to the total reported number for last March. On an apples-to-apples basis, however, the result is to reduce job growth in the 12 months through last March by 124,000. The old numbers indicated that job gains in those 12 months averaged 169,000 per month. This change will shave that figure to 159,000.

Why is the Unemployment Rate Declining So Rapidly? - There are three possible explanations for this rapid decline in the unemployment rate during the current weak recovery. The first is related to productivity. Employers can increase production by either adding workers or increasing productivity of existing workers. From the mid-1990’s until the last three years, employers in the non-farm business sector have increased the productivity of their workers by almost 2.5% per year. However, during the past three years, productivity growth averaged only 0.8% per year.  The flip side of weak productivity growth is employers have been adding jobs at a solid pace.   The second explanation is that during the last four years the baby boomers have reached retirement age and have begun leaving the work force at an accelerated pace. This has opened jobs for job seekers, thereby lowering the unemployment rate.  Third, among younger workers, more have been choosing not to work. Among the population aged 25 to 54, the percent of Americans who are not in the labor force, which is defined as those who are not workers or active job-seekers for various reasons, increased from 17.5% in October 2009 to 19% in August 2013. The smaller number of people competing for jobs has contributed to the declining unemployment rate.

How Bad Data Warped Everything We Thought We Knew About the Jobs Recovery - It turns out seasonal adjustments are really interesting! They explain why, ever since Lehmangeddon, the economy has looked like it's speeding up in the winter and slowing down in the summer. In other words, everything you've read about "Recovery Winter" the past few winters has just been a statistical artifact of naïve seasonal adjustments. Oops. Okay, but what are seasonal adjustments, and how do they work? Well, you know the jobs number we obsess over every month? It's cooked, in a way -- but not how Jack Welch thinks. For example, the economy didn't really add 169,000 jobs in August. It added 378,000 jobs. But that 378,000 number doesn't tell us too much. See, the economy pretty predictably adds more jobs during some months more than others. Things like warmer weather (which helps construction), summer break, and holiday shopping create these annual up-and-downs. So to give us an idea of how good or bad each month actually is, the Bureau of Labor Statistics adjusts for how many jobs we would expect at that time of year. This doesn't change how many jobs we think have gotten created over the course of the year; it changes how many jobs we think have gotten created each month of the year. You can see how that smooths out the data in the chart below. It compares the adjusted (blue) and unadjusted (red) numbers for total employment going back to 1990. But there's a problem. The BLS only looks at the past 3 years to figure out what a "typical" September (or October or November, etc.) looks like. So, if there's, say, a once-in-three-generations financial crisis in the fall, it could throw off the seasonal adjustments for quite awhile. Which is, of course, exactly what happened.

What Happens to Jobs Report if Government Shuts Down? - Federal bureaucrats are scrambling to determine which government functions should be deemed “essential” in the event of a partial government shutdown. Next week’s employment report seems to lie squarely on the chopping block. If the government shutters nonessential operations on Tuesday, longstanding protocol appears to call for a delay in releasing the Oct. 4 jobs data. That’s what happened in 1995. But it’s possible the jobs report could be spared. Keith Hall, a former commissioner of the Labor Department’s Bureau of Labor Statistics, said number crunchers this time could conceivably rush to release the market-moving figures before heading home during the budget standoff. The survey that determines the unemployment rate has already been completed and analysts are now processing the numbers, Mr. Hall said in an interview. “Once they collect data and compile it, they don’t want to hold on to it for security reasons,”

Jobless Claims in U.S. Unexpectedly Decline to 305,000 -  The number of Americans filing applications for unemployment benefits unexpectedly declined last week, showing further progress in the labor market. Jobless claims decreased by 5,000 to 305,000 in the week ended Sept. 21, a Labor Department report showed today in Washington. The median forecast of 49 economists surveyed by Bloomberg called for an increase to 325,000. The four-week average of initial filings fell to the lowest since June 2007. Fewer dismissals may be a sign employers are optimistic about the demand outlook in the U.S. Further gains in employment and improved income growth will be necessary to spur bigger advances in consumer spending, which accounts for about 70 percent of the economy.

Weekly Initial Unemployment Claims decline to 305,000, Four Week Average lowest since June 2007 - The DOL reports: In the week ending September 21, the advance figure for seasonally adjusted initial claims was 305,000, a decrease of 5,000 from the previous week's revised figure of 310,000. The 4-week moving average was 308,000, a decrease of 7,000 from the previous week's revised average of 315,000. The previous week was revised up from 309,000. 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 308,000. The 4-week average is at the lowest level since June 2007 (before the recession started). Claims were below the 330,000 consensus forecast. Here is a long term graph of the 4-week average of weekly unemployment claims back to 1971. 

What Does the U-6 “Broad Unemployment Rate” Really Tell Us? - The main contribution of U-6, as I see it, is to remind us that those whom the BLS defines as unemployed—those who are not working for pay even an hour a week but have looked for work within the last four weeks—are not the only ones who suffer when labor markets are weak. U-6 brings in two groups of people who feel  labor market distress even though they do not fit the official definition of unemployed:

  • Those who are working part-time “for economic reasons,” that is, who would prefer to work full time but are not doing so because they cannot find a full-time job or because their employer has cut their hours.
  • Those who are “marginally attached to the labor force,” that is, who would like a job, are available for work, and have looked for work in the past year but not in the past four weeks. “Discouraged workers” are a subset of the marginally attached who have not recently looked for work because they think none is available. The remaining marginally attached workers have other reasons for not actively looking for work. The BLS adds marginally attached workers to both the numerator and the denominator of U-6.

Popular accounts often focus on the discouraged worker component of U-6, but in practice, as the next chart shows, involuntary part-time work is the most important added category. The top line in the chart shows the gap between U-6 and U-3. The next line, which shows involuntary part-time workers as a percentage of the labor force, almost entirely fills the gap. It is responsible both for most of the rise in U-6 during the recession and most of its gradual decline during the recovery. The third line, which shows marginally attached workers, contributes relatively little either to the U6-U3 gap or to its change over the cycle.

American Workers: Hanging on by the Skin of Their Teeth - After five years of Obama’s economic recovery, the American people are as gloomy as ever.  According to a Bloomberg National Poll that was released this week, fewer people “are optimistic about the job market” or “the housing market” or “anticipate improvement in the economy’s strength over the next year.” Also, only 38 percent think that President Obama is doing enough “to make people feel more economically secure.”  Worst of all,  Bloomberg pollsters found that 68 percent of interviewees thought the country was  “headed in the wrong direction”. So why is everyone so miserable?  Are things really that bad or have we turned into a nation of crybabies? The reason people are so pessimistic is because the economy is still in the doldrums and no one’s doing anything about it. That’s it in a nutshell. Survey after survey have shown that what people really care about is jobs, but no one in Washington is listening. In fact, jobs aren’t even on Obama’s radar.  Just look at his record. He’s worse than any president in modern times. Take a look at this graph. More than 600,000 good-paying public sector jobs have been slashed during Obama’s tenure as president. That’s worse than Bush, worse than Clinton, worse than Reagan, worse than anyone, except maybe Hoover. Is that Obama’s goal, to one-up Herbert Hoover?

Almost half the jobs Americans thought were safe will soon be done by robots - In the modern world of work, low-income service jobs have expanded sharply at the expense of middle-income manufacturing and production jobs. There are many more security guards and pharmacy aides while the rate of growth has slowed in professions such as chemical plant operators and fabric pattern makers. Meanwhile, computers have increased the productivity of high-income workers, such as professional managers, engineers and consultants. The result has been a polarized labor market with surging wage inequality. Research has shown that this polarization between “lousy” and “lovely” jobs is happening in Britain as well as in the US, implying that there has been a hollowing-out of the middle class. The threat of computerization has historically been largely confined to routine manufacturing tasks involving explicit rule-based activities such as part construction and assembly. But a look at 700 occupation types (pdf) in the US suggests that 47% are at risk from a threat that once only loomed for a small proportion of workers. The likelihood of a job being vulnerable to computerization is based on the types of tasks workers perform and the engineering obstacles that currently prevent machines from taking over the role.

The Increasingly Endangered Middle-Skill Job - WSJ -- It’s a tough time to be a bank teller, production worker, or other so-called “middle-skilled” professional.For at least a few decades, employment in those positions – which have historically offered workers without a college degree a berth in the middle class – has been falling sharply. About 25% of the employed workforce in 1985 held middle-skilled jobs; now just above 15% hold those positions, according to a new paper from the Federal Reserve. Fed economist Chris Smith examined what happened as people moved from one kind of occupation to another, and especially what became of workers in what he calls “middle-type” jobs after they were laid off, fired, or switched careers.Generally, this hollowing out of the middle of the labor market has hurt younger workers and those without college degrees, many of whom wound up in lower-paying occupations—from bookkeeper to retail clerk, for example. For these demographic groups, the shift away from middle-skilled employment almost exactly mirrored the increase in so-called “low-type” employment. Employers and community colleges often complain that young adults aren’t preparing themselves for careers on modern, highly-mechanized factory floors. While those jobs may be going unfilled, many middle-skilled office workers, such as receptionists and bank tellers, have simply seen their jobs automated or outsourced away, That trend has especially hit women from 25 to 54 years old without a college education. That group, which is highly represented in those office and administrative support jobs, has seen the sharpest decline in middle-type occupation. In 2012, about 30% of the employed women in that group were in middle-type jobs, down from around 45% in 1985, according to Smith.

Economic Gender Discrimination Alive and Well in 2013 - Women are still low on the economic totem pole.  A new Census report shows nothing has changed, women still make 77¢ to a male's dollar when both are working at full-time jobs and if one includes part-time, the ratio is even lower, 71¢.  Worse than that, women with families and no husband around make the lowest median income of all, $34,002.  A male equivalent with no wife present makes 30% more.  Full-time jobs for men increased by a million in 2012, yet for women, there were no full-time employment gains.  Males clearly get more of the full-time jobs with 71.1% working full time in comparison to only 59.4% of women who work are doing so full-time.  As women are older, the income disparity ratios become worse as shown in this below Census graph.  No surprise with that level of income inequality between the sexes, women dominate the poverty rolls.  Overall 16.3% of females are in poverty in comparison to 13.6% of males.  Women over the age of 65 have a poverty rate almost double their male counterparts, 11.0% to 6.6% for older men.  In 2012 a whopping 30.9% of women with families lived in poverty and their kids represent 47.2% of all children growing up in poverty stricken conditions.  Compare that statistic to male householders with families.  Their poverty rate is 16.4%. One of the reasons women stopped gaining full time jobs in 2012 is discrimination, pure and simple. In 2010 married mothers who had lost their jobs spent longer than married fathers looking for work. Once they did find a job, their earnings decreased more than men’s—by $175 a week, or $9,100 a year. The discrimination against women clearly still abounds.  Just recently both Bank of America and Merrill Lynch settled cases, BoA $39 million and Merrill for $160 million.  Yet the bias against women just keeps on coming.  This isn't some warm fuzzy situation these days.  Gender bias needs to be eradicated because women need the money to survive.

Obamacare and the labor markets - The impact of the Affordable Care Act (ACA) on US employment remains a hotly debated topic - particularly as the budget deadline looms. When it comes to the impact on job creation nationally, there is no smoking gun. While many point to growth in part-time employment as evidence for changing patterns in hiring, the Obamacare complexity and the latest payrolls data make it difficult to demonstrate a causal relationship. Nevertheless any regulatory uncertainty, particularly one that is this complex and broad, is generally not helpful to business expansion and hiring. Furthermore, numerous recent surveys continue to suggest that the impact of ACA on payrolls growth has indeed been quite negative. Sal Guatieri/BMO Capital Markets: - ... a number of surveys strongly suggest that the ACA has curbed employment and will continue to do so. According to the Economist, more than 10% of firms (surveyed by Mercer, a consultancy) plan to reduce workers’ hours because of the health care act. A Gallup poll found that 41% of small companies have frozen hiring because of the ACA, while 19% have already cut staff. The New York Times reports that some California agricultural growers plan to lay off workers or shift workers to part-time status to avoid paying an estimated $1 per hour more per worker to meet the health plan rules. The Fed’s February 2013 Beige Book noted that “Employers in several Districts cited the unknown effects of the Affordable Care Act as reasons for planned layoffs and reluctance to hire more staff.” A Philadelphia Federal Reserve survey found that 2.8% of firms have already laid-off workers or slowed hiring because of the ACA, 5.6% have shifted full-time workers to part-time status, and 11.1% have outsourced work.6 Moreover, the latter three figures jump to 5.6%, 8.3% and 18.1%, respectively, when the companies are asked about planned changes in the year ahead.

At 77 He Prepares Burgers Earning in Week His Former Hourly Wage - Today, the 77-year-old former vice president of marketing for Oral-B juggles two part-time jobs: one as a $10-an-hour food demonstrator at Sam’s Club, the other flipping burgers and serving drinks at a golf club grill for slightly more than minimum wage.The youthful and perennially optimistic grandfather considers himself lucky. He’s blessed with good health, he said. He’s able to work, live independently and maintain his dignity, even if he has to mop the floors at the club grill before going home at 8 p.m. and finally getting off his feet. “That’s part of the job,” he said. Low-income Americans have long had to scrape by in old age, relying primarily on Social Security. The middle class, with its more educated and resourceful retirees, is supposed to be better prepared, with some even having the luxury to forge fulfilling second acts as they redefine retirement on their own terms. Or so popular culture tells us. The reality is often quite another story. More seniors who spent much of their careers as corporate managers and professionals are competing for low-wage jobs. For these growing ranks of seniors with scant savings, it’s the end of retirement.

Thousands of Grocery Workers Vote on Strike Authorization - Thousands of members of the United Food and Commercial Workers from popular chains such as QFC, Albertsons, Safeway and Fred Meyer cast ballots at the Lynnwood Convention Center in Washington this week. If passed, the measure would allow negotiators to take union members on strike if future negotiations break down.According to workers, who have been in contract negotiations since March, the four major issues at stake are healthcare benefits, pay for holiday work, paid sick leave and obtaining living wages.“I think our members are resolute,” Local 367 Secretary-Treasurer Daniel Comeau told the News Tribune. “They know that sometimes they have to take stands.”The grocery stores are negotiating under the banner of Allied Employers. Union representatives have expressed frustration with what they call “take-backs,” which include harmful measures like an end to time-and-one-half on holidays and no offer of a permanent pay raise. However, the main concern is healthcare and the impact of the Affordable Care Act.  Stores have proposed that workers who work fewer than thirty hours a week get their health insurance from government insurance exchanges under healthcare reform, and to no longer be on the insurance plan now jointly managed by the unions and the companies, King 5 News reports. The threshold for health coverage for nonunion competitors is thirty hours per week under the ACA.

Income-Wise, What Percentage of People are Worse Off Now Than in 2000? - I asked Doug Short at Advisor Perspectives that seemingly simple question after posting his chart of Real Disposable Income in Illusion of Prosperity: Deflating the American Dream; No Recovery in "Real" Income.My comment from the above link: "Real median incomes are down 7.3% since 2000. That means at least half of the population is worse off now than 13 years ago!" Not only is half the population worse off, it is worse off by at least 7.3% in "real" inflation-adjusted term, using the CPI as the deflator.Unfortunately, the true situation is far gloomier. Disposable Personal Income (DPI) includes income from all sources (including transfer payments – Social Security, Medicare, private pensions, etc.) less all taxes on income: Federal (including FICA), State and (if applicable) local. Other taxes (e.g., property or sales taxes) are not subtracted from income in the DPI formula.It's also safe to assume that substantially more than half the population has no disposable income from stocks or bonds. Ignoring sales taxes and property taxes, I asked Doug Short "The chart of median real income since 2000 shows 50% of the people are negative by 7% or so. Where is the zero-Line? In other words, since the year 2000, what percentage of people are actually ahead in terms of real income?" Doug Replied ... The monthly data from Sentier Research has only the median incomes. The annual data (now through 2012) from the Census Bureau has a number of breakdowns of the data, but none, I think, that would enable the calculation you mention. However, a telling graph is a comparison between the median (middle) and the mean (average).Check out the mean skew of these chart (all households) – real (inflation-adjusted) data. It shows how much faster the mean has grown over the median.

Matt Yglesias just wants to believe… …that Census data showing real median household income is slightly below 1989 levels is wrong, so he went searching for another data source to support his hunch. (Real means adjusted for inflation; median means right at the middle of the income distribution, with half of all households above, and half below.) In his first post on the topic, “Median family income since 1989: Is the stagnation real?,” Yglesias drew on an assortment  of feelings to make his Slate-ish contrary case: bigger better cars, bigger better TVs, MP3 players, and, of course, the Internet. . But the Census figures come from a survey of over 50,000 households (technical details ‎here), which sounds like a more reliable source than Matt’s gut.  But, perhaps realizing that anecdata doesn’t really cut the mustard, Yglesias found himself an actual data source, the Consumer Expenditure Survey (CEX) from the Bureau of Labor Statistics (BLS) to support his hunch. (It’s abbreviated CEX so as not to confuse it with the Current Employment Statistics [CES], the source of the monthly payroll data.) So he rolled out his discovery in a piece posted on Friday, “BLS incomes have risen since 1989.” Anyone familiar with U.S. income stats knows that this is ill-advised—all you need do is read the BLS’s FAQ, which advises against relying on CEX income data: Data from the Current Population Survey are based on a much larger sample size. For income information, visit the Web site…. So the BLS itself recommends using the very Census data that Yglesias wants to dismiss.

U.S. Income Inequality Higher Than Roman Empire's Level -- Income inequality in America is at levels even higher than those in ancient Rome, according to a recent study from two historians, Walter Schiedel and Steven Friesen, cited by Per Square Mile. After analyzing papyri ledgers, biblical passages and other previous scholarly estimates, the researchers found that the top one percent of earners in Ancient Rome controlled 16 percent of the society's wealth. By comparison, the top one percent of American earners control 40 percent of the country's wealth, according to Vanity Fair. (h/t ThinkProgress) The findings add to the growing chorus of studies and criticisms indicating that the wealth gap is hitting truly remarkable levels. The top one percent saw their incomes rise by 275 percent between 1979 and 2007, according to the Congressional Budget Office, while the bottom fifth of earners only saw their incomes grow by 20 percent during that same period.  In addition, the total net worth of the bottom 60 percent of Americans is less than that of the Forbes 400 richest Americans. Perhaps even more shocking, the six heirs to the retail giant Walmart had the same net worth in 2007 as the bottom 30 percent of Americans. And the phenomenon isn't just limited to the U.S. -- income inequality is on the rise in most of the world's major economies, according to the Organisation of Economic Development and Cooperation.

Income, Poverty, and Healthcare 2012: The Patient Did Not Get Worse But Remains Seriously Ill - The Census Report “Income, Poverty, and Healthcare” covering the year 2012 came out on Tuesday. Overall, the picture was little changed from 2011, which is to say that the recovery which did not happen for most Americans in 2011 continued not to happen for them in 2012. The situation for women remained poor. (All amounts are expressed in 2012 dollars. Incomes and earnings are pre-tax.) After four years of declines, median household income was statistically unchanged in 2012, decreasing from $51,100 in 2011 to $51,017. A comparison of real household income over the past five years showed an 8.3 percent decline since 2007, the year before the nation entered an economic recession, and a 9.0 percent decrease from the 1999 peak of $56,080. The first time median real household income hit current levels was in 1989 ($51,681). If we take into account higher debt levels, it could be argued that overall we are worse off than we were 23 years ago. Additionally, mean or average household income was $71,274 in 2012. This is an indication of the degree to which income is skewed to the upper brackets. This becomes clear if we look at the shares of aggregate income by quintile and top 5%: The top 5% has almost as much aggregate income (22.3%) as the bottom 60% (25.9%). The top 20% has slightly more aggregate income than the bottom 80% combined.  We see a similar distribution looking at household income by selected percentiles. The black line is the 50th percentile or median. Those in the 60th percentile (purple line) and below have had very small to small increases in real household income over the last 45 years. While most groups experienced gains in the 1980s and 1990s, these were concentrated in the 80th percentile and above. Since 2001, all groups plateaued with some dropoff after the start of the 2007 recession. The difference is that in the lower percentiles most of the gains were lost whereas in the upper percentiles, especially the 90th percentile and above, the losses were minor and almost all of the overall gains were retained.

US Working-Age Poverty Remains Near Record High in 2012 -  The Bureau of the Census released data for U.S. poverty rates and family income today. The headline poverty rate for all individuals was essentially unchanged from 2011, at 15 percent. The poverty rate reached an all-time low of 11.3 percent in 2000. Median family income declined from $51,100 to $51,017, a change that is not statistically significant.  One of the most striking trends in recent poverty data has been the rise in poverty among the working-age population. As the following chart shows, when the government first began to publish poverty data, the elderly were the poorest segment of the population, with children in second place. Since that time, poverty rates among the elderly have fallen dramatically, while those of children have changed little. Meanwhile, the poverty rate for working-age individuals (defined as 18 to 65 years) has risen, and has continued to rise during the current economic recovery. It reached 13.7 percent of the population in 2010, and has not showed a statistically significant change from that level since. One might wonder why working-age poverty would not have decreased as a result of the gradual fall in unemployment rates. Another data series helps explain why it has not. The following chart shows the percentage of all poor people who worked full-time year around. It is ominous that the number of poor full-time workers, after trending down for many years, has begun to rise again even during the recent recovery, from a low of 8.3 percent in 2010 to 9.1 percent as of 2012. Traditionally, employment has been the surest way out of poverty, but that seems to be less and less the case in the United States. The latest data will intensify the search for ways to improve the situation of low-wage workers.

This Week in Poverty: New Data, Same Story (and Same Dangerous House Republicans) -  For me, the biggest takeaway from the new Census data on poverty has little to do with the data itself—it’s this: we’ve long known what to do to take the next steps in the fight against poverty, and we still know what to do to take the next steps in the fight against poverty. But we’re not doing it. Significantly, 44 percent of those in poverty live below half the poverty line—in “deep poverty”—on less than about $9,150 for a family of three. That adds up to 20.4 million people, and includes 15 million women and children—nearly 10 percent of all children in the United States. Deep poverty and its accompanying toxic stress are particularly harmful to children. We also have evidence that just a modest boost in income—$3000 in earnings or government benefits for a family living on less than $25,000—makes a significant difference in the lives of young children when they reach adulthood, both in the hours they will work and the income they will earn. Another number that remained stagnant last year is the number of people living below twice the poverty line—on less than $36,600 for a family of three. That describes 106 million Americans, more than one in three of us. These are people who are living a single hardship—such as a lost job or serious family illness—away from poverty.

Why the Poor Don't Work, According to the Poor - One of their key data points on this front comes from the Census. Each year, the bureau asks jobless Americans why it is they've been out of work. And traditionally, a only a small percentage of impoverished adults actually say it's because they can't find employment, In 2007, for instance, 6.4 percent of adults who lived under the poverty line and didn't work in the past year said it was because they couldn't find a job. As of 2012, it had more than doubled, leaving it at a still-small 13.5 percent. By comparison, more than a quarter said they stayed home for family reasons and more than 30 percent cited a disability. As you might expect, the are some big differences between the genders on this front. Women are far more likely than men to cite family. Men are more likely to cite their inability to find a job.   To me, these are the sorts of numbers that raise more questions than they answer. Are women staying home because they prefer to be mothers, or because they can't find jobs that pay enough to make working a financially viable choice, once the cost of family care is factored in? Are youngish retirees really choosing to leave the workforce early, or are they cashing in their social security benefits prematurely because they're out of other options? Of the millions of apparently impoverished college students in the country, how many are essentially living on loans or their Pell Grants? You get the idea.   If you do choose to take the Census figures at face value, though, I think there are a couple of lessons. First, the recession changed poverty to some extent. More of the non-working poor claim they cannot find a job than at any point in the past two decades. Given that there are three unemployed Americans for every job opening, that shouldn't be much of a surprise. Second, the poor who choose not to work aren't necessarily doing so out of laziness, but because they have other obligations: they're trying to take care of relatives, they're ill, or they're attempting to make their way through school.And taking away their meal tickets won't fix any of those problems.

What's wrong with predistribution - Is ‘predistribution’ the way forward for the centre-left? Perhaps – but it may prove to be an inadequate remedy for one of the core problems facing the US, the UK and quite possibly a number of other rich nations in coming decades. I recommend we consider an additional approach. The problem is the lack of wage growth for lower-half households. In the United States, inflation-adjusted wages at the median and below have been stagnant since the late 1970s.1 That’s three-plus decades. It isn’t just a function of the great recession: real wages barely budged from the business-cycle peak in 1979 to the peak in 2007. Nor is it due to a shortage of economic growth: US per-capita GDP rose at a pretty healthy clip during those years.The result has been slow growth of household incomes. In fact, the only reason incomes have increased at all is that more and more American households have added a second earner.2 This isn’t how it should be. In a good society, those in the middle and at the bottom ought to benefit significantly from economic growth. When the country prospers, everyone should prosper.

Would a Big Bucket of Cash Really Change Your Life? - Okay, so here’s the question we’re trying to answer today: if you’re thinking about helping poor families, how effective would it be to simply give them a big pile of cash? Would that change the course of their trajectory over time? Giving away $50,000 may sound like a lot of money, but if it means helping not only this one family but the next generation, and the next, it’s probably a bargain, right? Now, there are a couple of problems with trying to answer this question. The first is that none of you are willing to give me $2.5 million to fund the experiment. But there’s also this: in order for it to be an experiment, we need to randomize who gets the money – which also means having a control group, so we can measure the effect of the money.  And also, we need a lot of time. Even if we could give $50,000 to 50 families today, we want to see the long-term effect of that money – how it affects their children and their grandchildren. So wouldn’t it be great if, somewhere in history, something like this already happened – that there was some magical dataset that a couple of scholars could analyze, and write a paper that answers these questions … ? Hoyt BLEAKLEY: The paper is “Shocking Behavior: Random Wealth in Antebellum Georgia and Human Capital Across Generations.”

How Much Money Would It Take to Eliminate Poverty In America? -- Last week, the Census Bureau put out its annual income and poverty figures for 2012. The big news on the poverty front is that the percentage of Americans living in poverty is unchanged at 15 percent, which amounts to 46.5 million Americans. More than one in five kids under the age of 18 are in poverty, and nearly one in four kids under the age of six are impoverished as well.  The sheer scale of poverty in the U.S. is so massive that it can seem as if eliminating or dramatically reducing it would be nearly impossible.  But in reality, if we stick to the official poverty line, the amount of money standing in the way of poverty eradication is much lower than people realize. In its annual poverty report, the Census Bureau includes a table that few take note of which actually details by how much families are below the poverty line. A little multiplication and addition later, and the magic number pops out. In 2012, the number was $175.3 billion. That is how many dollars it would take to bring every person in the United States up to the poverty line. In 2012, that number was just 1.08 percent of the nation’s gross domestic product (GDP), which is to say the overall size of the economy.It might be helpful to put the $175.3 billion magic number in perspective. In 2012, this number was just one-fourth of the $700 billion the federal government spent on the military. When you start hunting through the submerged spending we do through the tax code, it takes you no time to find enough tax expenditures geared toward the affluent to get to that number as well.

The food stamps program - In an ideal policy world, would food stamps exist as a program separate from cash transfers?  Probably not.  But as it stands today, they are still one of the more efficient programs of the welfare state and the means-testing seems to work relatively well.  And giving people food stamps — since almost everyone buys food — is almost as flexible as giving them cash.  It doesn’t make sense to go after food stamps, and you can read the recent GOP push here as a sign of weakness, namely that they, beyond upholding the sequester, are unwilling to tackle the more important and more wasteful targets, including Medicare and also defense spending, not to mention farm subsidies.  Here are a few basic numbers on when food stamps have grown and what has driven that growth.  It has not become a “problem program” in the way that say disability has.

More SNAP Judgments - Paul Krugman - I want to say some more about the SNAP program, and how utterly unjustified the attack on the program really is. First, another look at trends in the program over time, this time in terms of spending as a share of GDP: Does this look like an out-of-control program to you? Spending as a percentage of GDP was no higher in 2007 than it had been in 1990. It then soared when we experienced the worst economic crisis since the Great Depression — which is exactly what should have happened. True, spending didn’t fall during the Bush-era economic expansion, but as I’ve already explained, that expansion didn’t trickle down to the people who use food stamps. You also want to bear in mind that we used to have another major poverty program — AFDC — which was replaced with TANF, which has virtually withered away. In 1990, spending on AFDC was 0.3 percent of GDP; by 2011, it was down to 0.07 percent of GDP. So food stamps were, in effect, picking up some (but only some) of the hole left by the end of traditional welfare.

Hating On Food Stamps - Paul Krugman  -- Tyler Cowen wonders why Republicans have chosen to go after the food stamp program, which he concedes is actually pretty good. He suggests that it’s a sign of weakness, because the GOP isn’t willing or able to go after the big items like Medicare. But this begs the question, why does the inability to go after programs that really are problems (although the disability story isn’t nearly as problematic as he thinks) mean that you should go after a program that isn’t a problem? There’s no significant money to be saved — if and when the economy recovers, SNAP will be back down to something like 0.25 percent of GDP.Well, I have a theory. Republicans know, just know, that there has been a huge expansion of government under Obama. The trouble is that the data don’t say what they know must be true. Here’s federal spending as a percentage of potential GDP: So here’s the thing about SNAP: it’s one federal program that really has exploded in size in recent years, with the number of beneficiaries rising around 80 percent. Of course, it’s exploded for a very good reason, namely a once-in-three-generations economic crisis, and the program has stayed large because our so-called recovery hasn’t trickled down to the bottom half of the income distribution. But the right doesn’t care about any of that; in food stamps, it gets to see what it wants to see — surging government spending! Millions of takers! And so food stamps become public enemy #2.

Free to Be Hungry, by Paul Krugman - The word “freedom” looms large in modern conservative rhetoric. Lobbying groups are given names like FreedomWorks; health reform is denounced not just for its cost but as an assault on, yes, freedom.  The right’s definition of freedom, however, isn’t one that, say, F.D.R. would recognize. . Conservatives seem, in particular, to believe that freedom’s just another word for not enough to eat.  Hence the war on food stamps, which House Republicans have just voted to cut sharply even while voting to increase farm subsidies.  In a way, you can see why the food stamp program — or, to use its proper name, the Supplemental Nutritional Assistance Program (SNAP) — has become a target. Conservatives are deeply committed to the view that the size of government has exploded under President Obama but face the awkward fact that public employment is down sharply, while overall spending has been falling fast as a share of G.D.P.   SNAP, however, really has grown a lot, with enrollment rising from 26 million Americans in 2007 to almost 48 million now.  Conservatives look at this and see what they can’t find elsewhere in the data: runaway, explosive growth in a government program.  Still, is SNAP in general a good idea? Or is it, as Paul Ryan, the chairman of the House Budget Committee, puts it, an example of turning the safety net into “a hammock that lulls able-bodied people to lives of dependency and complacency.”

Cornel West rips GOP: Vote to cut food stamps ‘morally obscene and spiritually profane’ - Civil rights activist and Princeton University professor Cornel West laid out the case for the country’s continued income disparity to conservative pundit William Kristol on CNN’s Crossfire Monday night. “We black folk, we have been some of the most open-minded, forgiving and embracing people in the nation,” West told host S.E. Cupp. “We’ve got Clarence Thomases within our community. It’s not like we gotta go somewhere else to have conservatives. But the issue is this: Why are the Republicans cutting food stamps? That’s morally obscene and spiritually profane. Four million poor people may be pushed into poverty.” “How much have food stamps gone up in the last four years?” Kristol interjected. “They’ve doubled.” “They’ve gone up — you know why?” West countered. “Because this crisis of capitalism. Their wages have been stagnant.” “Who’s been president the past four years?” Kristol said with a smirk. “I thought the economy was roaring back under President Obama.” “This is where neo-liberalism goes hand-in hand with your neo-conservatism,” West argued. “Privatize, militarize, support big banks and big corporations. The result is what? Working-class devastated, middle-class downward mobility, escalation of poverty. So yes, you’re right: We’ve got a lot of food stamps increasing because of what? People are suffering. But then you’re gonna cut the food stamps?”

No reason to make a snap decision on cutting food stamp benefits - There’s been an 80% rise since 2007 in the number people on food stamps, officially the Supplemental Nutrition Assistance Program. University of Chicago economist Casey Mulligan thinks the bulk of the 135% cost increase comes from more generous benefit formulas and eligibility rules rather than a weak economy. Harvard’s Peter Ganong and Jeffrey Liebman reach the opposite conclusion.Liberal groups are aghast that House Republicans want to cut $40 billion over ten years from the $80 billion a year program. The Center on Budget and Policy Priorities calls the House GOP bill ”harsh.” The CBPP notes that many of the 3 million to 4 million Americans losing benefits are unemployed, childless adults in high unemployment areas and “low-income families who have gross incomes above the federal SNAP limits but disposable income below the poverty line.”Now SNAP could certainly use reform. Some research has found that food stamps reduce work incentives, suggesting the program should be abolished with its funding redistributed to other antipoverty programs such at the Earned Income Tax Credit. I agree with Reihan Salam who advocates a broader rethink of how we support low-income households beyond just “rolling back” SNAP. I worry we don’t have a good feel for the dynamics of the US labor market right now, and how exactly the labor force — the low-skill bit, especially — is being affected by technology as it intersects with rising hiring costs. Certainly market income for the bottom 20% in recent decades has fallen sharply.

Why it is difficult to develop good SNAP policy -  When legislators want to make cuts to the Supplemental Nutrition Assistance Program (SNAP), they don't write in a change to an appropriated dollar amount.  Instead, because the program is a "mandatory" or entitlement program, they change the eligibility and benefit rules in some particular way, and then the Congressional Budget Office "scores" the change to provide an estimate of the budgetary change that is generated.  When House Republicans proposed this summer to cut SNAP, the particular legislative vehicle was a proposal by Rep. Steve Southerland (R-FL) to increase work requirements.  Democrats opposed the change, not so much because of an objection to work requirements, but rather because the proposal was first and foremost the vehicle for SNAP cuts.  In the Washington Post today, Eli Saslow has an excellent feature about Southerland and his interest in work requirements.  The article has two especially captivating passages.  The first passage is a conversation between Southerland and low-income participants in a job readiness program.  The second captivating passage is about how Southerland, though he has the courage to speak to program participants, lacks the ability to speak to program supporters in Congress:

The Rise in Disability Is Not Just a Bad Economy - The Washington Post had an interesting article on the sharp rise in disability rates in the downturn. It would have been helpful to include some additional information. One important reason for the rise in disability not connected to the recession, is the increase in the normal retirement age. This was increased from 65 for people who turned 62 before 2002, to 66 for people who turned 62 after 2008. The rise in the normal retirement age means that people on disability can collect benefits for an extra year before they have to turn to their Social Security retirement benefits, which will typically be less. A second point that would have been worth noting is that it is not easy to get disability. More than 60 percent of applicants are originally ruled ineligible. It is reasonable to believe that the vast majority of frivolous claims are rejected.  At one point the article discusses the notion put forward by economists David Autor and Mark Duggan that workers with little education may have substantial incentives to turn to disability: "Benefits are hardly generous. They average $1,130 a month, and recipients are eligible for Medicare after two years. But with workers without a high school diploma earning a median wage of $471 per week, disability benefits are increasingly attractive for the large share of American workers who have seen both their pay and job options constricted. While the difference between median earnings and the average disability payment is considerably lower for less-educated workers there are two other important factors that affect disability rates. First, less educated workers are far more likely to have worked at physically demanding jobs that could result in a disability. For example, someone who works as a mover is more likely to develop back problems than an office worker with a desk job.

Two US migration stats worth contemplating -- From a long article in the New York Times about the continued attraction of Mexico:Americans now make up more than three-quarters of Mexico’s roughly one million documented foreigners, up from around two-thirds in 2000, leading to a historic milestone: more Americans have been added to the population of Mexico over the past few years than Mexicans have been added to the population of the United States, according to government data in both nations. And from a new report by the Pew Research Hispanic Trends Project: The sharp decline in the U.S. population of unauthorized immigrants that accompanied the 2007-2009 recession has bottomed out, and the number may be rising again. As of March 2012, 11.7 million unauthorized immigrants were living in the United States, according to a new preliminary Pew Research Center estimate based on U.S. government data. The estimated number of unauthorized immigrants peaked at 12.2 million in 2007 and fell to 11.3 million in 2009, breaking a rising trend that had held for decades.

Study: US Bridges Need $3 Trillion in Repairs - Bridges across the United States have fallen into disrepair, as hundreds of thousands of such overpasses have aged without much maintenance. Motorists coming off the Frederick Douglass Memorial Bridge into Washington are treated to a postcard-perfect view of the U.S. Capitol. The bridge itself, however, is about as ugly as it gets: The steel underpinnings have thinned since the structure was built in 1950, and the span is pocked with rust and crumbling concrete. District of Columbia officials were so worried about a catastrophic failure that they shored up the horizontal beams to prevent the bridge from falling into the Anacostia River. In 2009, the American Society of Civil Engineers gave U.S. roads a grade of D-minus. Pew Research says that one-third of those roads are substandard, and a quarter of our bridges are falling apart. In fact, America’s crumbling infrastructure could be one cause for the uptick in traffic fatalities we saw in 2012.

Philly Fed: State Coincident Indexes increased in 40 states in August -From the Philly Fed: The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for August 2013. In the past month, the indexes increased in 40 states, decreased in five states, and remained stable in five, for a one-month diffusion index of 70. Over the past three months, the indexes increased in 42 states, decreased in six, and remained stable in two, for a three-month diffusion index of 72.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). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.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 August, 45 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. There are several states with declining activity again.

California signs law raising minimum wage to $10/hour by 2016 - California has become the first state in the nation to commit to raising the minimum wage to $10 per hour, although the increase will take place gradually until 2016 under a bill signed into law by Democratic Governor Jerry Brown on Wednesday. The law raises minimum pay in the most populous state from its current rate of $8 per hour to $9 by July 2014 and $10 by January 2016. The state with the highest minimum wage currently is Washington, where employers must pay at least $9.19 per hour. State Assemblyman Luis Alejo, who authored the wage hike bill, said the increase would help working people pay for necessities in a state where rising costs have long outpaced wage increases for the poor and working class. "We have created a system where we pay workers less but need them to spend more," Alejo said in a statement. "That causes middle-class families to fall down the economic ladder. It's the reason our middle class is shrinking and the reason we are facing the largest gap between upper- and lower-income Californians in at least 30 years."

City Incomes Are Growing - Median household income grew strongly in the nation's cities between 2011 and 2012, which may explain why city populations are growing again. The major cities of the nation's metropolitan areas were one of the few demographic segments to experience a gain in median household income between 2011 and 2012, after adjusting for inflation. In those cities, median household income grew 3.2 percent. In contrast, median income did not change significantly for households in suburbs or nonmetropolitan areas. Median household income in 2012 (and percent change 2011-12; in 2012 dollars):
Households in the cities of metropolitan areas: $45,902 (+3.2%)
Households in the suburbs of metropolitan areas: $58,780 (+0.5%)
Households outside of metropolitan areas: $41,198 (-0.4%)

How The NFL Fleeces Taxpayers - Last year was a busy one for public giveaways to the National Football League. In Virginia, Republican Governor Bob McDonnell, who styles himself as a budget-slashing conservative crusader, took $4 million from taxpayers’ pockets and handed the money to the Washington Redskins, for the team to upgrade a workout facility. Taxpayers in Hamilton County, Ohio, which includes Cincinnati, were hit with a bill for $26 million in debt service for the stadiums where the NFL’s Bengals and Major League Baseball’s Reds play, plus another $7 million to cover the direct operating costs for the Bengals’ field. In Minnesota, the Vikings wanted a new stadium, and were vaguely threatening to decamp to another state if they didn’t get it. The Minnesota legislature, facing a $1.1 billion budget deficit, extracted $506 million from taxpayers as a gift to the team, covering roughly half the cost of the new facility. In California, the City of Santa Clara broke ground on a $1.3 billion stadium for the 49ers. Officially, the deal includes $116 million in public funding, with private capital making up the rest. At least, that’s the way the deal was announced. A new government entity, the Santa Clara Stadium Authority, is borrowing $950 million, largely from a consortium led by Goldman Sachs, to provide the majority of the “private” financing. Who are the board members of the Santa Clara Stadium Authority? The Santa Clara City Council.

Shaken U.S. municipal bond market contracted in second quarter (Reuters) - Rising interest rates shook up the U.S. municipal bond market in the middle of the year, bringing a long run of refinancing to a halt and tempering new debt sales, Federal Reserve data showed on Wednesday. The amount of outstanding municipal debt shrank in the second quarter to $3.721 trillion from $3.729 trillion in the first quarter and from $3.732 trillion a year earlier, the Fed said. In May, the Fed signaled that it could soon begin to reduce monetary stimulus. The news roiled fixed-income markets as investors sold bonds and shifted funds to stocks in a "great rotation" that lifted interest rates. Detroit's financial distress made the quarter even more volatile for municipal bonds as investors grew skittish ahead of the city's filing in July for the largest U.S. municipal bankruptcy ever. "We anticipate net negative issuance, meaning more bonds will come out of the market in 2013 than will come into the market," said Blackrock Municipal Bond Strategist Sean Carney. BlackRock has slashed its forecast for issuance in 2013 to $345 billion from $388 billion and it expects 2014 to remain weak, Carney said. The decline will be led by refundings, as higher interest rates make refinancing unattractive, he added. Over the second quarter, yields on top-rated debt shot up along Municipal Market Data's benchmark scale. Yields on highly rated 30-year bonds rose 74 basis points to end the quarter at 3.83 percent. Rates of top-shelf 10-years jumped 67 basis points to end the quarter at 2.56 percent.

White House Details Obama’s $300M Plan To Help Detroit - While an exhaustive federal bailout isn’t on the table, the White House wants Detroit to take advantage of existing programs to rebuild and right itself financially. The Sept. 27 meeting is part of ongoing discussions between city leaders and Presidential cabinet members concerning the Detroit’s financial troubles. The Administration is committing to the following, in partnership with the state, city, philanthropic and private sector: Unlocking and Attracting Nearly $150 Million for the Effective, Coordinated Demolition of Blighted Properties, Neighborhood Revitalization and Redevelopment in Detroit.

  • Unlocking $65 million in Community Development Block Grant Program (CDBG) funds for blight eradication, housing rehabilitation, and other community revitalization efforts through HUD, in partnership with the city.
  • Demonstrating a public private partnership by providing Detroit with $25.4 million for commercial building demolition from the city, state and HUD, as well as business and philanthropic partners. 
  • Ensuring efficient and green utilization of the recently announced $52 million Hardest Hit Fund allocation for blight elimination through assistance from the Department of the Treasury and the Environmental Protection Agency (EPA), including the release of a “toolkit” for safe demolition.
  • Providing Detroit with $10.18 million for affordable housing from HUD.
  • Awarding $1.1 million for environmental assessments and cleanup of brownfield sites from EPA.
  • Expanding access to a tax lien assistance program that has helped more than 1,600 families and counting avoid foreclosure through a partnership of the Michigan State Housing Development Authority and Treasury Department.

Detroit eyes freezing pensions, probes city's dysfunction (Reuters) - Detroit's emergency manager proposed freezing pension benefits for some current city workers starting in 2014 and will launch a two-month probe into the city's dysfunctional and error-prone handling of employee benefits. A copy of Kevyn Orr's proposal was released by one of Detroit's two pension boards on Thursday, the same day the city's auditors posted a report that shed light on how Detroit overpaid benefits, including unemployment compensation for almost two years to 58 people who never worked for the city. The report also raised the question of whether there was fraud in doling out some unemployment claims. The auditors' review of nearly two years of unemployment compensation claims found that 13 percent were likely fraudulent and another 36 percent were highly questionable and required investigation. In his pension proposal, Orr, who was tapped by the state of Michigan in March to run its biggest city, would close the general retirement fund, which represents non-uniform city workers, to all future city workers and freeze it for current workers as of Dec. 31. The city would replace the pensions with 401(a) and 457(b) retirement plans.

Philadelphia Raises Stakes With Plan to Reverse Blight - With an estimated 40,000 abandoned houses, lots and commercial buildings, Philadelphia wants to consolidate its inventory of distressed real estate by creating a “land bank” to make purchase more attractive to potential buyers. If the City Council votes this fall, as expected, to establish the land bank, Philadelphia will join Syracuse, Macon, Ga., and a number of other cities that have adopted plans like it to encourage buyers who are committed to making improvements, instead of speculators, to acquire tax-delinquent properties. “There are new tools to allow government to acquire tax-delinquent properties without putting them out on the market to the highest bidder,” said Rick Sauer, executive director of the Philadelphia Association of Community Development Corporations, which is helping to lead the land-bank initiative. To keep property from speculators who might sit on it for years without improving it, he said, the land bank would insist that buyers were current on taxes, had no history of code violations and had the resources to make promised changes. “You want to put it into the hands of a responsible property owner who is going to put it back into productive use sooner rather than later,” Mr. Sauer said. A city ordinance “would provide a means for the land bank to go in and pull those properties out before they are exposed to the private market.”

Superman’s Shop Floor: An Inquiry into Charter School Labor in Philadelphia - In Philadel­phia, as in other large cities that have become the con­tested ter­rain in the bat­tle to pri­va­tize pub­lic edu­ca­tion, pub­lic school teach­ers and staff, stu­dents, and their fam­i­lies have con­tin­u­ously waged a strug­gle against the clos­ing of their neigh­bor­hood insti­tu­tions. A cen­tral tac­tic of edu­ca­tion reform­ers is to divide these pub­lic school activists from fam­i­lies who have elected to send their chil­dren to char­ter schools, and from new char­ter school teach­ers, who have been locked out of tra­di­tional pub­lic schools by hir­ing freezes. Stake­hold­ers in the project of pri­va­tiz­ing pub­lic schools have care­fully orches­trated this divi­sion; using an exten­sive pub­lic rela­tions cam­paign, they have rep­re­sented the cri­sis of pub­lic edu­ca­tion as a divi­sion into two oppos­ing camps, favor­ing the shinier, glossier char­ter side.4 Beyond win­ning sup­port for their team, this has allowed edu­ca­tion pri­va­tiz­ers to con­ceal sev­eral of their major plays: defund­ing pub­lic schools and then rat­ing them as “under­per­form­ing”; seques­ter­ing the pub­lic school stu­dents with the most social cap­i­tal in char­ter schools to train them for a Gates-controlled future econ­omy, while encour­ag­ing the stu­dents who remain in tra­di­tional pub­lic schools to self-destruct; and using new forms of labor man­age­ment in char­ters to squeeze teach­ers across char­ter and pub­lic schools, with the corol­lary goal of top­pling teach­ers’ unions, the largest remain­ing pub­lic sec­tor unions in the country.

Catching Up or Falling Behind? New Jersey Schools in the Aftermath of the Great Recession - NY Fed - Today’s post, which complements Monday’s on New York State and a set of interactive graphics released by the New York Fed earlier, assesses the effect of the Great Recession on educational finances in New Jersey. The Great Recession severely restricted state and local funds, which are the main sources of funding for schools. To help avoid steep budget cuts to schools, the federal government allocated $100 billion for education as part of the American Recovery and Reinvestment Act of 2009 (ARRA), also known as the stimulus. The stimulus money was meant to provide temporary relief to strained state and local budgets. However, after the stimulus funds were exhausted, the economy was still weak and school districts were faced with large budget shortfalls.     In this post, we discuss some key findings from our recent study exploring New Jersey’s experience during the past four years. How did the state’s school districts handle the sharp revenue decrease caused by the recession? How did they use the stimulus money? What did they do once the stimulus money was used up?

A Move Is Afoot to Keep Climate Science Out of Classrooms - For decades objections to the theory of evolution have bedeviled individual teachers, school boards, state boards of education and state legislatures. Educators fought to keep evolution in science classes and creationism out. We resisted intelligent design, the notion that natural selection alone cannot explain the complexity of life-forms, which served as a way of getting creationism through the back door. We are now fighting legislation that encourages teachers to teach the “evidence against evolution”—facts found only in the creationist literature. The consequences of antievolutionism are felt in many American schools: evolution is not taught or is taught poorly. Yet evolution is one of the most important ideas in human intellectual history, and students have a right to learn it. The common ancestry of living things and the mechanisms of inheritance explain why things are the way they are. Students and adults deprived of this knowledge are scientifically illiterate and ill prepared for life in a global, competitive world. Students given merely once-over or light instruction in evolution are woefully undereducated.These “academic freedom” laws are not aimed solely at evolution. They often also take on climate change, another field of science with a body of evidence that is accepted by the scientific community. That the planet is warming and that the burning of fossil fuels over the past 150 years explains the current rapid rate of change are virtually indisputable in the scientific community. But public distrust means that the National Center for Science Education, which formed in the 1980s to contend with antievolutionists, now helps teachers cope with push back on climate, too.

The Case Against High-School Sports - Sports are embedded in American schools in a way they are not almost anywhere else. Yet this difference hardly ever comes up in domestic debates about America’s international mediocrity in education. (The U.S. ranks 31st on the same international math test.) The challenges we do talk about are real ones, from undertrained teachers to entrenched poverty. But what to make of this other glaring reality, and the signal it sends to children, parents, and teachers about the very purpose of school? When I surveyed about 200 former exchange students last year, in cooperation with an international exchange organization called AFS, nine out of 10 foreign students who had lived in the U.S. said that kids here cared more about sports than their peers back home did. A majority of Americans who’d studied abroad agreed. Even in eighth grade, American kids spend more than twice the time Korean kids spend playing sports, according to a 2010 study published in the Journal of Advanced Academics. In countries with more-holistic, less hard-driving education systems than Korea’s, like Finland and Germany, most schools do not staff, manage, transport, insure, or glorify sports teams, because, well, why would they?

A Report Card on Education Reform - I sat down last week in Washington with Arne Duncan, the secretary of education, and Mitch Daniels, the former Indiana governor and current Purdue University president, after they had met with several dozen chief executives of big companies to talk about education. Their meeting was at the office of the Business Roundtable, the corporate lobbying group, and joining us for the conversation was John Engler, the former Michigan governor who runs the Business Roundtable. Mr. Duncan is a Democrat, of course, and Mr. Daniels and Mr. Engler are Republicans. But they all sympathize with many of the efforts of the so-called education reform movement. I asked them whether the country’s education system was really in crisis and what mistakes school reformers had made. A lightly edited version of the first part of our conversation follows; the second part will appear on Economix on Thursday.

3 Leaders on Education Reform, Continued - The conclusion of a discussion with Education Secretary Arne Duncan; Mitch Daniels, the president of Purdue University; and John Engler, the head of the Business Roundtable.

Truly "Exceptional" And Dumber Than Ever: Verbal SAT Scores Plunge To Fresh Record Low -- Having followed this tragic development year after year, it is amazing that we are still surprised by what the chart below shows, yet here we are: surprised. Although judging by recent social, fiscal and monetary developments (and the complete lack thereof as the same old broken approaches are tried with a lunatic's intensity and an idiot's resolve that this time will be different), we can certainly believe it. In brief: another year, another record low for the average verbal SAT score, and another sad achievement for a nation that is getting fatter, dumber and ever more in debt.

11 Public Universities with the Worst Graduation Rates - Just 56 percent of college students four-year degrees within six years, according to a 2011 Harvard Graduate School of Education study. Among the 18 developed countries in the OECD, the U.S. was dead last for the percentage of students who completed college once they started it ― even behind Slovakia.  College dropouts tend to be male, and give reasons such as cost, not feeling prepared, and not being able to juggle family, school and jobs, according to the Harvard study. An American Institutes for Research report last year estimated that college dropouts cost the nation $4.5 billion in lost earnings and taxes.  One force behind these disappointing statistics are America’s for-profit schools, which have garnered plenty of media attention for being “dropout factories” that send students out into the workforce with major debt and few skills. But there are a number of four-year public universities, funded in part by taxpayer dollars, which have graduation rates that are just as bad ― or worse ― as their for-profit counterparts.

Undisclosed Pension Extras Cost Detroit Billions - Detroit’s municipal pension fund made payments for decades to retirees, active workers and others above and beyond normal benefits, costing the struggling city billions of dollars and helping push it into bankruptcy, according to people who have reviewed the payments. The payments, which were not publicly disclosed, included bonuses to retirees, supplements to workers not yet retired and cash to the families of workers who died before becoming eligible to collect a pension, according to reports by an outside actuary and other people with knowledge of the matter. How much each person received is not known. But available records suggest that the trustees approving the payments did not discriminate; nearly everybody in the plan received them. Most of the trustees on Detroit’s two pension boards represent organized labor, and for years they could outvote anyone who challenged the payments. Since June, Detroit’s auditor general and inspector general have been examining the pension system for possible fraud or misfeasance, and their report is expected to be released on Thursday. Among the findings is likely to be how much damage was done by the extra payments.

Moody's: Most large local governments' pension liabilities outweigh revenues - More than half of the 50 largest local governments in the country have pension underfunding liabilities greater than revenues, according to a report issued by Moody's Investors Service on Thursday.The report, “Adjusted Pension Liability Measures for 50 Largest U.S. Local Governments,” which ranked them by debt outstanding, also notes that the proportion of pension burdens to tax and operating revenues varies widely by locality, as does state support for local pension funds. Of the 10 local governments receiving state support for pension funds, state contributions covered between 6% and 81% of their total contributions. The local governments in the report include counties, cities, school districts and a property-tax-funded wastewater district. The largest unfunded liability percentage above operating revenue is the city of Chicago with 678%, based on fiscal 2011 data, followed by Cook County, Ill., at 382%.  Among the top 50, 20 local governments were below 100%, with Washington, D.C., the lowest at 11%.

Looting the Pension Funds: How Wall Street Robs Public Workers - Taibbi - In the final months of 2011, almost two years before the city of Detroit would shock America by declaring bankruptcy in the face of what it claimed were insurmountable pension costs, the state of Rhode Island took bold action to avert what it called its own looming pension crisis. Led by its newly elected treasurer, Gina Raimondo – an ostentatiously ambitious 42-year-old Rhodes scholar and former venture capitalist – the state declared war on public pensions, ramming through an ingenious new law slashing benefits of state employees with a speed and ferocity seldom before seen by any local government.  Called the Rhode Island Retirement Security Act of 2011, her plan would later be hailed as the most comprehensive pension reform ever implemented. The rap was so convincing at first that the overwhelmed local burghers of her little petri-dish state didn't even know how to react.  "Nobody wanted to be the first to raise his hand and admit he didn't know what the fuck she was talking about."Donors from Wall Street firms like Goldman Sachs, Bain Capital and JPMorgan Chase showered her with money, with more than $247,000 coming from New York contributors alone. A shadowy organization called EngageRI, a public-advocacy group of the 501(c)4 type whose donors were shielded from public scrutiny by the infamous Citizens United decision, spent $740,000 promoting Raimondo's ideas. Within Rhode Island, there began to be whispers that Raimondo had her sights on the presidency. Even former Obama right hand and Chicago mayor Rahm Emanuel pointed to Rhode Island as an example to be followed in curing pension woes.

Taibbi on How Wall Street is Looting Public Pension Funds - Yves Smith - You must go, pronto, and read Matt Taibbi’s latest expose, on how hedge funds are plundering public pension funds, meaning pension funds managed on behalf of government employees like policemen, sanitation workers, and teachers. Taibbi describes how a concerted PR campaign has made workers the scapegoats for large pension shortfalls when in fact public officials and unscrupulous financiers (both through their machinations with these funds and via damage done by the global financial crisis) are the real perps. Taibbi describes how the fact that they are exempted from ERISA meant their overseers, state and local politicians, could play fast and loose. As he explains: Politicians quickly learned to take liberties. One common tactic involved illegally borrowing cash from public retirement funds to finance other budget needs. For many state pension funds, a significant percentage of the kitty is built up by the workers themselves, who pitch in as little as one and as much as 10 percent of their income every year. The rest of the fund is made up by contributions from the taxpayer. In many states, the amount that the state has to kick in every year, the Annual Required Contribution (ARC), is mandated by state law. . In 2011, an industry website called 24/7 Wall St. compiled a list of the 10 brokest, most busted public pensions in America. Among the worst of these offenders are Massachusetts (made just 27 percent of its payments), New Jersey (33 percent, with the teachers’ pension getting just 10 percent of required payments) and Illinois (68 percent). In Kentucky, the state pension fund, the Kentucky Employee Retirement System (KERS), has paid less than 50 percent of its ARCs over the past 10 years, and is now basically butt-broke – the fund is 27 percent funded, which makes bankrupt Detroit, whose city pension is 77 percent full, look like the sultanate of Brunei by comparison.

SOCIAL SECURITY AND INNUMERACY - MATH HELP FOR K*ASTINGS - In the open thread section last night constant reader B*uce K*asting reported: “CBO changed some variables, the result was an increase in the unfunded numbers. In 2012 CBO concluded that the shortfall was 1.9% of payrolls. In 2013 they increased that to 3.4% – A 70% increase. Question; How big does this shortfall have to be before anything is done about it??” I assume that the report is accurate and that CBO is making an honest prediction.But B*K* is vastly over reacting.  It is true that 3.4% is 70% bigger than 1.9%.  But this is a meaningless, or misleading, comparison.If one were to compare the new projection to the old projection for the tax rate needed to put Social Security into “actuarial balance” for the next seventy five years, it would look like this:  Old projection 12.4% (current rate) plus 1.9% equals 14.3%.  New projection 12.4% plus 3.4% equals 15.8%.  So the new projection 1s 15.8/14.3 or about 10.4% bigger than the old projection.And if you compare, as you should, the new projection to the old projection as a percent of PAYROLL, the increase is 1.5% of payroll.  Or, since workers only see half of this,  it would be a difference of about 0.7%.For an average worker today, making 40,000 dollars per year, this would be about 280 dollars more per year (or about five dollars per week).  This may seem like a lot of money, but when you realize it is the money that you are going to need to “save” (that’s what the payroll tax is:  mandatory savings) in order to have enough to live on for twenty years or more when you are too old to work,  it shouldn’t seem like a lot. But there is no accounting for math hysteria.

I Have Seen The Future, And It Is Medicaid - Paul Krugman - One of the papers at Brookings was an attempt at prognosticating the future of health care costs — for what it’s worth, their best guess was slightly below CBO’s, so it was consistent with CBO’s relatively not-scary long-term fiscal forecasts. But what struck me most was this chart, showing cost growth in different forms of health insurance: That flat red line at the bottom is Medicaid. Everyone who’s serious about the budget realizes that to the extent we do have a long-run fiscal problem — which we do, although it’s far from apocalyptic — it’s mainly about health care costs. And then there’s much wringing of hands about how nobody knows how to control health costs, so maybe we should just give people vouchers, and if they still can’t afford insurance, too bad. Meanwhile, we have ample evidence that we do know how to control health costs. Every other advanced country does it better than we do — and Medicaid does it far better than private insurance, and better than Medicare too. It does it by being willing to say no, which lets it extract lower prices and refuse some low-payoff medical procedures.

Reverse “Sticker Shock”—Why are Insurance Rates in the State Marketplaces Lower Than Expected? — Part I -- First, the majority of individuals shopping in the Exchanges will be eligible for government subsidies that will go a long way toward covering premiums. In the past I have written about how these tax credits will help young adults (18-34).  But older Americans also will benefit. Fully 30% of those who receive tax credits will be 35-54, and 12.5% will be 55 or older.  This is important because in the Exchanges, insurers  in every state except New York and Vermont will be allowed to charge a 60-year-old three times as much as they would charge a 20-year-old for exactly the same policy.  Without subsidies many would find insurance totally unaffordable.The second reason premiums are significantly lower than expected is that as I have explained on  in the state marketplaces insurers are forced to compete on price. All policies sold in the Exchanges must cover the same essential benefits, and follow other rules that will make the plans look very much alike. The only way for a carrier to distinguish himself from the crowd will be to charge less—or have a better network of providers. But the younger customers that carriers covet care far more about price than about the network. Third, in many cases, state regulators have been clamping down. In Portland Oregon, for example, regulators forced insurers to cut their proposed rates by an average of nearly 10%. Three of the 12 insurance companies in that market had to lower their rates by more than 20% f Finally, rates in many Exchanges are looking surprisingly affordable because many insurers are narrowing their networks to a group of hospitals and doctors who will offer higher-quality care for less. Meanwhile the fear-mongers argue that this means patients won’t receive the care they need.

National Health Costs vs. Your Health Costs - Health care spending growth has plummeted to the lowest levels ever recorded. But many Americans insist that they are paying more and more. It is jarring, but both of those things are true, as a report from the Health Care Cost Institute helps to show. Out-of-pocket spending on things like deductibles and co-payments has shot up faster than overall spending of late. That means that even while hospitals and insurers have wrung billions of dollars out of the system, many individuals are feeling a heavier and heavier burden.  In its 2012 Health Care Cost and Utilization Report, the nonprofit research group found that health spending grew slowly last year, at a 4 percent annual rate. “Although average health care expenditures grew at nearly the same rate in 2012 as 2011, the causes of the 4 percent increase in spending each year were quite different,” “In prior years, rising health care prices drove up spending. In 2012, we saw utilization start to change health care trends for prescription drugs and professional procedures. Preliminary evidence suggests this may be indicative of a larger shift in care as people search for lower-cost care alternatives.”The institute found that out-of-pocket spending growth outpaced overall spending growth, jumping about 4.8 percent to $768 a person. Older adults, 55 to 64, spent about $1,265 out of pocket, with those under 18 incurring just $427 in uncovered costs. Women also had greater out-of-pocket expenses than men, by more than $200 a year. Those rising out-of-pocket costs are a major reason that the slowdown in cost growth feels so alien to so many Americans. Health care providers and insurers may see it in their data and their bottom lines. But millions of working Americans don’t.

Economy Can’t Be All That’s Slowing Health Costs - A new set of projections released last week by Medicare’s actuaries has drawn much attention, in part because it suggests the deceleration in the growth of health costs we’ve seen over the past few years is ephemeral. The actuaries attribute the slowdown to the “lingering effects of the economic downturn and sluggish recovery” and to increases in cost sharing. Both of these explanations have serious shortcomings -- and that, in turn, suggests something larger is in fact at work. The assertion that economic sluggishness is playing a dominant role is based on an econometric analysis that links past slow growth in gross domestic product to current aggregate health spending. However, such a macroeconomic explanation is difficult to reconcile with the slowdown in Medicare, because there is no reason to expect Medicare -- a subsidy that goes mainly to retired people -- to be much affected by the economy.  What’s more, the econometric methodology itself, which I have long disliked, was debunked in another paper released last week. Amitabh Chandra et al found that when they made even modest changes in this type of model, the results changed drastically. They concluded, “We are reluctant to make much of the time-series evidence between GDP growth and healthcare spending.”

Lower Health Insurance Premiums to Come at Cost of Fewer Choices — Federal officials often say that health insurance will cost consumers less than expected under President Obama’s health care law. But they rarely mention one big reason: many insurers are significantly limiting the choices of doctors and hospitals available to consumers. From California to Illinois to New Hampshire, and in many states in between, insurers are driving down premiums by restricting the number of providers who will treat patients in their new health plans. When insurance marketplaces open on Oct. 1, most of those shopping for coverage will be low- and moderate-income people for whom price is paramount. To hold down costs, insurers say, they have created smaller networks of doctors and hospitals than are typically found in commercial insurance. And those health care providers will, in many cases, be paid less than what they have been receiving from commercial insurers. Some consumer advocates and health care providers are increasingly concerned. Decades of experience with Medicaid, the program for low-income people, show that having an insurance card does not guarantee access to specialists or other providers. Consumers should be prepared for “much tighter, narrower networks” of doctors and hospitals

Obamacare will Increase Health Spending by $7,450 for a Typical Family of Four - It was one of candidate Obama’s most vivid and concrete campaign promises. Forget about high minded (some might say high sounding) but gauzy promises of hope and change. This candidate solemnly pledged on June 5, 2008: “In an Obama administration, we’ll lower premiums by up to $2,500 for a typical family per year….. We’ll do it by the end of my first term as President of the United States.”  Unfortunately, the experts working for Medicare’s actuary have (yet again[1]) reported that in its first 10 years, Obamacare will boost health spending by “roughly $621 billion” above the amounts Americans would have spent without this misguided law.$621 billion is a pretty eye-glazing number. Most readers will find it easier to think about how this number translates to a typical American family—the very family candidate Obama promised would see $2,500 in annual savings as far as the eye could see. So I have taken the latest year-by-year projections, divided by the projected U.S. population to determine the added amount per person and multiplied the result by 4.    Simplistic? Maybe, but so too was the President’s campaign promise. And this approach allows us to see just how badly that promise fell short of the mark. Between 2014 and 2022, the increase in national health spending (which the Medicare actuaries specifically attribute to the law) amounts to $7,450 per family of 4.

Nauseating Health Care Idiocy from Forbes - A non-blogging friend points me to this new article at Forbes by Chris Conover purporting to show that the "typical family of 4" will see its health care spending rise by $7450. He quotes the Center for Medicare and Medicaid Services (CMS), saying "in its first ten years, Obamacare will boost health spending by 'roughly $621 billion' [that's the CMS quote]  above the amounts Americans would have spent without this misguided law." How stupid is this? Let us count the ways. First of all, this is not $7450 per year, but over the entire 10-year (or more likely 9-year; he usually refers to 2014-22) period. So the he's hyping shock value that isn't there. As he explains, he divides the $621 billion by total population over the period to give a per capita cost, which he then multiplies by 4 to get the cost to his "typical family of 4." So what we're actually looking at, before we start tearing up his calculation, is ($7450/9)/4 = $207 per capita higher spending per year on average. Recall that in 2011 the United States spent $8174.90 per person on health care (see link on how to navigate to the ultimate source for this data, Second, Conover doesn't understand present value. He writes, "Of course, all these figures are in nominal dollars. In terms of today’s purchasing power, this annual amount will rise steadily." Of course, it is just the opposite. A dollar in 2022 is worth less than a dollar today. In 2013 dollars, the amount is less than $207 per person per year. How does an editor not catch this? I have a screen shot to memorialize the error after it eventually gets fixed. Third, Think Progress's Igor Volsky is completely right when he quotes Paul van der Water of the Center on Budget and Policy Priorities that none of this will apply to the "typical American family" because that family gets its insurance at work. More money will obviously be spent over time, but it won't be spent at the center of the health insurance distribution, if you want to look at it that way.

Interactive Map: In 13 States Plus D.C., Obamacare Will Increase Health Premiums By 24%, On Average - Obamacare makes many significant changes to the U.S. health-care system, but one category of change stands out above all others: the degree to which the law reshapes the market for individually-purchased health insurance. Will the “Affordable Care Act” live up to its name and make health insurance less expensive? To help the public understand the impact of Obamacare on individual-market premiums, my Manhattan Institute colleagues and I have crunched the numbers and created an interactive, state-by-state map, where you can find out how Obamacare affects insurance rates where you live. The results may surprise you.

Dismantling the Social Safety Net - One of the major complaints of right-wing politicians against the Affordable Care Act (Obamacare) is its imposed mandates that individuals obtain health insurance and that larger businesses offer health insurance to employees.  The professed opposition is to the mandates, per se.  It ignores the mandates that both employers and workers pay taxes for Social Security coverage—old-age, disability, Medicare, and unemployment compensation.  Mandates are not new—nor is “government interference” in private choices about private insurance.  Opposition to the ACA mandates is really just a stalking horse for the eventual dismantling of the American social safety net. If the new mandates were to be dropped (unlikely, thank goodness), I would expect that their opponents would quickly move on to removing mandates for other programs that have been in effect for 70+ years.

Young Invincibles Caught in Crossfire Over Obamacare Cost -  Steven Binko is young, healthy and recently unemployed. He doesn’t see any reason he should be required to buy health insurance next year. Binko is one of 2.7 million healthy 18- to 34-year-olds, dubbed the young invincibles, that the Obama administration has said are needed in the exchanges to offset the cost of providing care for millions of other uninsured people who are likely to be older and sicker. Without young adults, who pay for insurance yet rarely use it, premium costs in the exchanges may soar. “For young people learning to take care of ourselves, it’s foolish if we have to take care of the older generation too,” Binko, who now lives in Los Angeles, said in an interview. Young invincibles are the focus of a pitched battle between Obamacare backers and the law’s opponents as the U.S. nears the Oct. 1 roll-out of government-run insurance exchanges. It’s a conflict playing out on television and the Internet, on college campuses and in door-to-door campaigns by volunteers nationwide. “This demographic is critical,” “If you mostly have high risk people, premiums go up. It becomes a death spiral.”  If premiums can be kept low, Obama’s signature domestic policy achievement has a better chance of fulfilling its promise of affordably expanding health care to most of the nation’s 50 million uninsured people. If not, the costs may open fertile ground for new attacks on an overhaul that has been under siege by Republicans since it was signed into law by Obama in 2010.

How to Gut Obamacare - Temporary defunding probably would not do much. But Congress could substantially mar the law by stripping or delaying the tax penalties on Americans who decline to buy insurance — the so-called “individual mandate.” And it is one tactic that Speaker John A. Boehner of Ohio is mulling.A new Urban Institute study explains why. Using Congressional Budget Office figures, it shows that delaying the individual mandate for a year would reduce coverage by about 11 million people in 2014. That would save the government some money. However, the effect on the health insurance marketplace might be profound. Many young and healthy people would decline to buy insurance coverage, with no penalty. The pool of the insured would be relatively sicker. Insurers would be forced to increase rates, as the healthy would do less to cross-subsidize the ill. Premiums would shoot up.Here’s the institute on the multibillion-dollar problems that might create:There is significant risk that low exchange enrollment in the first year due to the lack of a mandate could begin an adverse selection cycle which would make it difficult to establish viable risk pools in the exchange in future years. While the Urban Institute estimated that premiums without the mandate could be up to 24 percent higher than with the mandate, that analysis assumed fully effective risk adjustment across the exchange and nonexchange markets. Less effective risk adjustment could lead to even higher premiums in the exchange without the mandate and could dissuade insurers from participating in the new markets; this could then further dissuade healthier individuals with current nongroup coverage from entering the exchanges, exacerbating the effect in the following years.

Attack of the Killer Hipsters - Paul Krugman -- Jonathan Chait has an excellent survey of the current state of the battle for health reform. Among other things, it drives home the extent to which — despite all the glitches likely in the first few months — this is now being fought on favorable terrain for the reformers. Never mind the polls showing approval of Obamacare moving one way or the other; they are all being taken in an environment where people are amazingly ignorant about the law, with a large minority believing that it has been repealed. What matters is how the thing works — and that, in turn, depends crucially on sufficient numbers of young, currently uninsured people signing up for the exchanges. Advocates will try to get those people signed up; Republicans will try to convince them not to. So how are the two sides’ chances. Well, let’s think about who we’re talking about: Young. Currently uninsured, which generally means not very affluent, and also tends to mean nonwhite more than average.  In other words, basically the opposite of the profile of Tea Party backers. Also, by the way, more or less the opposite of midterm voters. Yep, when it comes to reaching hipsters, or young people in general Dems have big advantages; all that coastal cultural elite hatred suddenly turns into a big disadvantage for the right.

Doctors Brace for Health Law’s Surge of Ailing Patients - Holy Cross Hospital’s health center treats the uninsured, and has been busy since it opened in 2012 with a waiting list of more than 400 people at its clinic. Now, as a result of the U.S. Affordable Care Act, it’s mulling adding staff and hours in anticipation of next year’s rush of newly-insured patients, many with chronic medical conditions that have gone untreated for years. About 25 million Americans are expected to gain coverage under the health law, commonly known as Obamacare. Starting Oct. 1, as many as 7 million uninsured Americans will begin shopping for private plans through government-run exchanges, with many people eligible to have their premiums subsidized by taxpayers. On Jan. 1, Medicaid programs for low-income people will be expanded in about half the U.S. states. Strained System The increase in newly insured patients arrives at a time when the nation has 15,230 fewer primary-care doctors than it needs, according to an Aug. 28 assessment by the U.S. Department of Health and Human Services. And emergency rooms report being strained with visits that have risen at twice the rate of population growth. “It’s like we’re handing out bus tickets and the bus is already full,” “The shortfall of primary-care access is not an insignificant problem, and it’s going to get worse.” Almost half of all uninsured, non-elderly adults had a chronic condition, based on a 2005 report by the Urban Institute and the University of Maryland. One in six with hypertension reported no visits to health professionals in a year. Most who come to Holy Cross’s health center now lack insurance, and have lived for years with serious ailments, according to Elise Riley, the center’s medical director. “It’s frustrating to see diseases that could have been prevented,” she said in an interview in her office.

Obamacare Premiums Look Good, But Medicare-For-All Would Be Better - With the exchanges officially opening on Monday, October 1st, Reuters reports:The Obama administration is counting on signing up 7 million Americans in the first full year of reform through the state exchanges, including 2.7 million younger and healthier consumers who are needed to offset the costs of sicker members.Debate over whether Obamacare will prove affordable for millions of uninsured Americans has been sharp during the past few months, as states have announced rates. States that have supported the law said it will lead to lower prices. Others that have opposed the reform - including Georgia, Florida, and Indiana - warned of "rate shock" for consumers compared to what they could buy on the individual insurance market a year ago.HHS said the average price was 16 percent lower than its own projections on premiums. In addition, consumers who earn up to 400 percent of the federal poverty level, or $62,040 for a couple, will qualify for subsidies that will lower the price further.As is always the case, conservatives are looking at the new data and highlighting how for some—like younger people who typically don't carry insurance or those who have the cheapest and least protective coverage—premiums may go up. But as economist Dean Baker argued this week, the real improvement that Obamacare offers is the protections it gives to society's most vulnerable citizens, especially those who in the past have fallen victim to the cruel behavior of insurance companies that have refused coverage to the two groups of people who need it the most: the sick and the poor.

Maggie Mahar Healthbeat Blog: Reverse “Sticker Shock” Part 2 –Subsidies Mean Enormous Saving for Older Americans - In the past I have written about how government tax credits will help young adults (18-34) who must buy their own coverage because they don’t have access to “affordable, comprehensive” employer-sponsored coverage.   But older Americans forced to purchase their own insurance will save even more. Precisely because a 50-year-old’s premiums may be three times higher than a 20-year-old’s, his subsidies will be larger. Subsidies are designed to fill the gap between the percentage of your income that you are expected to contribute toward the cost of a premium (with the government assuming that if you earn more, you can spend more on health insurance) and the actual rates that insurers in your market charge for a benchmark Silver plan.. Families USA estimates that while the majority of 18-34 year olds shopping in the Exchanges will qualify for help from the government, fully 30% of the those who receive tax credits will be 35 to 54, and 12.5% will be 55 or older. Note that younger Americans will not be subsidizing these tax credits for their elders. Under the Affordable Care Act subsidies are funded by device-makers, drug-makers, hospitals—plus taxpayers earning over $200,000—and couples earning over $250,000) Very few twenty-somethings are that fortunate.

Untangling Obamacare: Shopping the insurance exchanges -- For starters, it’s best to think of buying insurance in the exchanges as a four-step process that includes several key decision points. Forget all that extraneous stuff that is the focus of too many stories—the politics of Obamacare, the prognostications about premiums, the latest academic study. Audiences care little about that as they face the daunting challenge of selecting coverage.

  • STEP 1 The health insurance buying cycle: A good way to think about shopping for exchange coverage, Benjamin suggests, is a cycle with four phases.  Initial enrollment. From October 1 though the end of March 2014, the 24 or so million Americans eligible for exchange coverage can sign up online at or with the help of specially trained navigators.
  • STEP 2 The mechanics: You’ll need an email account to make the process work, and navigators can help people without accounts create one. Next comes a lot of fill-in-the blank stuff—household information, residency, immigration status, and household income. Government computers verify the information and let customers know whether they are eligible for exchange coverage or for public insurance like Medicaid.
  • STEP 3 Choosing a policy: Eventually, shoppers will get to the point of choosing a policy—the hardest decision of all, since it amounts to estimating the medical care you will need in the coming year. That’s tough, unless you have a chronic illness with predictable annual expenses.
  • STEP 4 Finding and reading the disclosures: The Affordable Care Act called for a disclosure document to help shoppers compare plans, and the form that was created is pretty good as these documents go. Shoppers can find out about the policy elements, deductibles (and what they apply to), coinsurance and copays for different services (especially common ones like diagnostic tests and outpatient surgery), amounts for different services, and fees.

Obamacare Will Leave Millions of Low-Income Americans Without Health Insurance -- Although the stated objective of the Affordable Care Act -- Obamacare-- was universal health insurance, the non-partisan Congressional Budget Office projected in May that the number of uninsured will settle at 30 million from 2016 onwards, down from 55 million today. One reason is that millions of low-income Americans will be unable to get subsidized health insurance through the exchanges. If they are married to someone who has affordable single-family coverage from an employer — coverage that the worker is obligated to accept — they will not be eligible for premium subsidies on the exchanges. Without subsidies, low-income families will not be able to afford Obamacare. The Internal Revenue Service estimates that family plans will cost $20,000 (in after-tax dollars) a year by 2016.Anyone under 400 percent of the poverty line, currently $94,000 for a family of four, qualifies for a subsidy — unless a family member has employer-provided insurance.

An electronic medical records mess - Electronic health records were once touted as a turning point in U.S. health care, expected to revolutionize recordkeeping on patient histories and reduce the potential for medical errors. I hope that someday they will. But as the Affordable Care Act launches and, presumably, more Americans seek treatment, there is no standard system nationwide, and entry errors and inconsistencies are becoming common.  Ironically, the most significant benefit of the expensive, multiyear effort to implement electronic health records may be legible medical notes.  Medical billing is a chronic war between those wanting to get paid (physicians, hospitals) and those not wanting to pay (insurance companies, government). While billing has long been computerized, the shift to electronic records among clinical practices is relatively recent. The 2009 stimulus legislation made billions in federal funds available for the transition to electronic health records, with more earmarked for the future. Hundreds of electronic systems now exist. To greatly simplify, the dog-and-pony show goes something like this: A company hypes its system, emphasizing its compatibility with billing procedures. Administrators buy the systems, generally without input from the doctors, nurses and others who enter the data.

Acetaminophen Continues to Rack Up Casualties and Escape Regulatory Control - Readers of the blog are familiar with the risks of acetaminophen, the active ingredient in Tylenol. Although this widely available, over-the-counter analgesic (pain medicine) is considered to be safe when taken at recommended doses, certain ordinary uses can damage or destroy the liver. A described in a blockbuster investigative report by, the FDA has long been aware of the science proving that acetaminophen can be risky, aware that the margin between the amount that helps and the amount that can harm is smaller than that of other over-the-counter pain relievers. See ProPublica's companion piece on how confusion in pediatric dosing has killed some children due to inadvertent overdosing by their parents, and how the manufacturer and the FDA reacted to these unnecessary tragedies with glacial speed. As ProPublica reports, McNeil has taken some steps to protect consumers, but for more than three decades, it has opposed safety warnings, dosage restrictions and other measures to ensure consumers fully understand the risks, and instead of proactively informing has worked to keep people from knowing the truth. As the same time, federal regulators have diddled around, deferring decisions on consumer protections even while the FDA’s own advisory committees recommended them. The feds began a comprehensive review to set safety rules for acetaminophen in the 1970s. They haven’t finished yet. In the meantime, according to data from the Centers for Disease Control and Prevention (CDC), about 150 people die every year from acetaminophen overdose, which the agency even calls a “persistent, important public health problem.”

Hormone disruptors rise from the dead  - Hormone-disrupting chemicals may be far more prevalent in lakes and rivers than previously thought. Environmental scientists have discovered that although these compounds are often broken down by sunlight, they can regenerate at night, returning to life like zombies. “The assumption is that if it’s gone, we don’t have to worry about it,” says environmental engineer Edward Kolodziej of the University of Nevada in Reno, joint leader of the study. “But we’re under-predicting their environmental persistence.” “Risk assessments have been built on the basis that light exposure is enough to break down these products,” “This work undermines that idea completely.” Endocrine disruptors — pollutants that unbalance hormone systems — are known to harm fish, and there is growing evidence linking them to health problems in humans, including infertility and various cancers1. But pinpointing specific culprits from the vast array of trace chemicals in the environment has proved difficult. Indeed, concentrations of known endocrine disruptors in rivers often seem to be too low to explain harmful effects in aquatic wildlife, says Kolodziej.

The Arsenic in Our Drinking Water - The baby with the runny nose, the infant with a stubborn cough — respiratory infections in small children are a familiar family travail. Now scientists suspect that these ailments — and many others far more severe — may be linked in part to a toxic element common in drinking water. The element is naturally occurring arsenic, which swirls in a dark, metalloid shimmer in soil and rock across much of the United States and in many other countries. It seeps into groundwater, but because the contamination tends to be minor in this country, for many years its presence was mostly noted and dismissed by public health researchers.They’ve changed their minds. Long famed for its homicidal toxicity at high doses, a number of studies suggest that arsenic is an astonishingly versatile poison, able to do damage even at low doses. Chronic low-dose exposure has been implicated not only in respiratory problems in children and adults, but in cardiovascular disease, diabetes and cancers of the skin, bladder and lung.Trace amounts in the body interfere with tumor-suppressing glucocorticoid hormones, studies show, which is one reason that arsenic exposure has been linked to a range of malignancies. Arsenic also interferes with the normal function of immune cells. It damages lung cells and causes inflammation of cells in the heart.

Jeremy Grantham, WSJ: the world is running out of food - JEREMY GRANTHAM'S GOT A TRACK RECORD that's impossible to ignore—he called the Internet bubble, then the housing bubble. While moves like those have earned the famed forecaster the nickname "perma-bear," in early 2009 he also told clients at GMO, his $100 billion, Boston-based money-management firm, to jump back into the market. It was the same week that stocks hit their post-Lehman low.Now, however, the outspoken Yorkshireman, who is chief investment strategist at GMO, is making headlines with a new prediction: Dire, Malthusian warnings about environmental catastrophe. To hear him tell it, the world is running out of food. Resources will only keep getting more expensive. And climate change looms over it all. Indeed, at times he sounds like someone Greenpeace would send door-to-door with a clipboard. (He's not above likening the coal-industry spin to the handiwork of Goebbels.) If it were anyone else, Wall Street would probably laugh him off. But because it's Jeremy Grantham, they just might listen.

New UN report calls for transformation in agriculture - Transformative changes are needed in our food, agriculture and trade systems in order to increase diversity on farms, reduce our use of fertilizer and other inputs, support small-scale farmers and create strong local food systems. That’s the conclusion of a remarkable new publication from the U.N. Commission on Trade and Development (UNCTAD). The report, Trade and Environment Review 2013: Wake Up Before it is Too Late, included contributions from more than 60 experts around the world (including a commentary from IATP). The report includes in-depth sections on the shift toward more sustainable, resilient agriculture; livestock production and climate change; the importance of research and extension; the role of land use; and the role of reforming global trade rules. The report links global security and escalating conflicts with the urgent need to transform agriculture toward what it calls “ecological intensification.” The report concludes, “This implies a rapid and significant shift from conventional, monoculture-based and high-external-input-dependent industrial production toward mosaics of sustainable, regenerative production systems that also considerably improve the productivity of small-scale farmers.”

The Mind-Boggling Math of Migratory Beekeeping - Between October and February they come to California from all over the country, riding inside more than one million boxes loaded onto thousands of tractor–trailers. In all, more than 31 billion honeybees converge on California’s Central Valley each February to pollinate the almond trees. By the end of the bloom, having gathered plenty of nectar and pollen to feed their colonies, the honeybee population in the orchards may exceed 80 billion. These are the kinds of numbers you need when you're dealing with something like 2.5 trillion flowers, each of which likely requires several visits from pollen-laden bees to produce a nut. Each year, California produces between 50 and 80 percent of all the almonds harvested worldwide; this year California’s orchards are expected to yield 1.85 billion pounds of almonds, which works out to about 700 billion individual almonds. Every almond grows from a successfully pollinated flower, but the bees likely pollinated far more than 700 billion flowers this past spring. An almond tree can only support and nourish so many nuts, so in April and May the trees shed as much as 15 percent of their almonds, depending on the year.Some researchers, beekeepers and journalists have argued that migratory beekeeping is one of the primary reasons that so many bees die each winter as well as an explanation for colony collapse disorder (CCD)—the sudden and mysterious disappearance of an entire hive's residents, save for the queen and a few stragglers. Bringing so many bees together all at once in Central Valley and other flowering sites guarantees that they will spread viruses, mites and fungi to one another as they collide midair and crawl over each other in the hives. Forcing bees to gather pollen and nectar from vast swaths of a single crop deprives them of the far more diverse and nourishing diet provided by wild habitats. The migration also continually boomerangs honeybees between times of plenty and borderline starvation. Once a particular bloom is over, the bees have nothing to eat, because there is only that one pollen-depleted crop as far as the eye can see. When on the road, bees cannot forage or defecate. And the sugar syrup and pollen patties beekeepers offer as compensation are not nearly as nutritious as pollen and nectar from wild plants.

Factory Food From Above: Satellite Images of Industrial Farms - Wired Science

A hotter world is a hungrier world warns Oxfam ahead of IPCC report - Climate change will leave families caught in a vicious spiral of falling incomes, rising food prices, and declining quality of food, leading to a devastating impact on the health of millions, Oxfam warns today (Sep 23, 2013).  Oxfam’s new report Growing Disruption offers an up to date assessment of the links between climate change and the many causes of hunger. While there is increasing awareness that climate change can harm crop production, the report shows that its threat on food security is much broader, hitting incomes, food quality and human health in ways that are not yet well understood. At a time when one in eight people are going hungry and demand for food is rising, climate change will not only reduce production, it will reduce the nutritional value of both crops and livestock, worsen human health and lead to higher prices. Climate change will mean that many more people will not be able to afford enough to eat and this toxic mix is likely to hit regions that are already more susceptible to food insecurity. The report comes ahead of the launch of the Intergovernmental Panel on Climate Change (IPCC) assessment report (AR5) on Friday. Final discussions between governments and scientists begin today in Stockholm. The IPCC is expected to confirm beyond doubt that climate change is not only happening, but that it is getting worse and that humans have caused the majority of it.

Think your plastic is being recycled? Think again - Think those plastic items you carefully separate from the rest of your trash are being responsibly recycled? Think again. U.S. recycling companies have largely stayed away from recycling plastic and most of it has been shipped to China where it can be processed cheaper. Not anymore. This year China announced a Green Fence Policy, prohibiting much of the plastic recycling they once imported: For many environmentally conscious Americans, there’s a deep satisfaction to chucking anything and everything plasticky into the recycling bin—from shampoo bottles to butter tubs—the types of plastics in the plastic categories #3 through #7. Little do they know that, even if their local trash collector says it recycles that waste, they might as well be chucking those plastics in the trash bin.  “[Plastics] 3-7 are absolutely going to a landfill—[China's] not taking that any more… because of Green Fence,” David Kaplan, CEO of Maine Plastics, a post-industrial recycler, tells Quartz. “This will continue until we can do it in the United States economically.”

Ground Gives Way, and a Louisiana Town Struggles to Find Its Footing -- More than a year after it appeared, the Bayou Corne sinkhole is about 25 acres and still growing, almost as big as 20 football fields, lazily biting off chunks of forest and creeping hungrily toward an earthen berm built to contain its oily waters. It has its own Facebook page and its own groupies, conspiracy theorists who insist the pit is somehow linked to the Gulf of Mexico 50 miles south and the earthquake-prone New Madrid fault 450 miles north. It has confounded geologists who have struggled to explain this scar in the earth. And it has split this unincorporated hamlet of about 300 people into two camps: the hopeful, like Mr. Landry, who believe that things will eventually settle down, and the despairing, who have mostly fled or plan to, and blame their misery on state and corporate officials. The sinkhole is worrisome enough. But for now, the principal villains are the bubbles: flammable methane gas, surfacing not just in the bayou, but in the swamp and in front and backyards across the area.

Disappearing River - You could keep Lakes Mead and Powell nearly full, and the generators buzzing, if the demand in the basin were cut by a third. As it is now, the over-reaching for water in the Colorado River basin has exceeded the supply, and in 50-years the imbalance will grow at least 21 percent. The take-home message here is: if Mr. Ely believed it, and Ms. Mulroy believes it, then maybe the people should believe it too. Obviously, the next step is to make some changes that are correct, since the changes of the past were incorrect. I will admit that 4-years of abundant snowfall could shave some layers of worry off the mind’s of these water managers. Pat Mulroy said as much herself when she mentioned, “praying for a change of weather couldn’t hurt either.” But eventually the Day of Reckoning is gonna come. And when it does, unfortunately we will discover that our underground reservoirs are going empty too. Okay, so now the nation is a dollar short in a big time way, and finally looking back to realize it just squandered a few decades of precious time to properly prepare the Southwest for this really monstrous problem. Consequently, the infrastructure isn’t in place and won’t be for at least another 30-years. Other river basins that might actually have a surplus of water in 50-years aren’t really interested in sharing their water with the unquenchable people of the desert.

Glacial Meltdown - Glaciers are wild beasts. Back in our preindustrial days we feared them like wolves—except glaciers ate whole villages. By the late 19th century they’d become tourist attractions; in Switzerland you could venture into the belly of the Rhône Glacier through a tunnel dug each summer next to the Hotel Belvedere. By then we had also begun creating a world that may one day have no room for glaciers. But for now, beasts they remain. They breathe. Snow stacks up to become ice in the upper altitudes of a glacier; it melts down near the snout. “The glacier breathes in in winter, then breathes out in summer,” says Matthias Huss, a young glaciologist at the University of Fribourg in Switzerland. In August a quarter of the water flowing in the Rhône River comes from melting glaciers. They move. When enough ice weighs down on it, ice itself can flow. “When it’s not moving, it’s stagnant ice—it’s not a glacier,” says Dan Fagre, pointing at a shriveled white patch in Montana’s Glacier National Park. He has worked there for two decades as a climate change ecologist. There are 25 active glaciers in the park, but a century ago there were 150. Many disappeared before they could be put on a map. We know them by their moraines—the piles of rubble they plowed up as they slid downhill, back when they were alive and moving.

A Pause, Not an End, to Warming - THE global warming crowd has a problem. For all of its warnings, and despite a steady escalation of greenhouse gas emissions into the atmosphere, the planet’s average surface temperature has remained pretty much the same for the last 15 years.  As you might guess, skeptics of warming were in full attack mode as the Intergovernmental Panel on Climate Change gathered in Sweden this week to approve its latest findings about our warming planet. The skeptics argue that this recent plateau illustrates what they always knew — that complex global climate models have no predictive capability and that, therefore, there is no proof of global warming, human-caused or not. Greenhouse theorists appear to be on the defensive as they offer different explanations for the letup — that deep ocean water may be draining some warmth from the atmosphere, that increases in high-altitude water vapor may be responsible or that numerous small volcanic eruptions are the cause.  My analysis is different. Berkeley Earth, a team of scientists I helped establish, found that the average land temperature had risen 1.5 degrees Celsius over the past 250 years. Solar variability didn’t match the pattern; greenhouse gases did.

Faux Pause: Ocean Warming, Sea Level Rise And Polar Ice Melt Speed Up, Surface Warming To Follow - “Global Warming Has Accelerated In Past 15 Years, New Study Of Oceans Confirms,” as we reported back in March. And “Greenland Ice Melt Up Nearly Five-Fold Since Mid-1990s, Antartica’s Ice Loss Up 50% In Past Decade,” as we reported last November. Another study that month found “sea level rising 60% faster than projected.” And yet much of the media believes climate change isn’t what gets measured and reported by scientists, but is somehow a dialectic or a debate between scientists and deniers. So while 2010 was the hottest year on record and the 2000s the hottest decade on record, we are subject to nonsensically framed stories like this one from CBS, headlined “Controversy over U.N. report on climate change as warming appears to slow.”The drama-driven junkies of the MSM apparently think that the most newsworthy thing in the once-every-several-years literature review by hundreds of the world’s leading scientists is that people who make a living denying climate science … wait for it … deny climate science. That CBS story actually begins, “Climatologists and climate-change deniers agree on at least one thing this week:  Stop the presses! No, please, stop the damn presses already if you are an editor or reporter who thinks deniers deserve equal billing with scientists. Because the media keeps making the same faux pas about the faux pause, scientists and science writers have had to debunk it repeatedly. Anyone in the media who insists on buying into the false dialectic MUST read the new piece at Real Climate by climatologist Stefan Rahmstorf, the Mother Jones piece by Chris Mooney, this piece by Tamino, and almost anything at Skeptical Science (such as this or this).

How to use short timeframes to distort reality: a guide to cherrypicking - Cherrypicking is the practice, widespread amongst climate change contrarians, of carefully selecting particular points in the noisy short-term climate datasets and using them to show 'trends' that are not representative of the true situation. The huge global surface air temperature spike that accompanied the monster El Nino of 1997-98 is thus chosen as the starting point for the "no warming in 17 15 16 years" that you may read in internet comment-threads below climate stories (the number varies, apparently at random, from commentator to commentator). This year we have seen the Arctic sea-ice melting season once again reported by contrarians as a recovery, although as the graph below, from the National Snow and Ice Data Center, clearly shows, there have been a number of 'recoveries' in previous years too. The long-term trend, as shown by the dotted trendline, is downwards. But that long term trend is exactly what the contrarians, their media allies and echo-chamber denizens do not want the public to read or hear about. Right now, in the run-up to the release of the IPCC Fifth Assessment Report (WG1) Summary for Policymakers, the contrarians are especially busy bombarding everywhere they can with climate change myths. Why not keep tabs on which myths are featuring the most, using our Most Used Climate Myths section on the left of this page? Cherrypicking is a vital tool in their armoury, so let's illustrate it with a working example: how to make Northern Hemisphere summers colder than winters. Sounds like ridiculous fantasy? It is, and is thus in good company with the other climate change myths that the contrarians like to put out.

Arctic sea ice shrinks to sixth-lowest extent on record - Sea ice cover in the Arctic has shrunk to one of its smallest extents on record, bringing the days of an entirely ice-free Arctic during the summer a step closer. The annual sea ice minimum of 5.099m sq km reached last Friday was not as extreme as last year, when the collapse of ice cover broke all previous records. But it was still the sixth lowest Arctic sea ice minimum on record, and well below the average set over the past 30 years of satellite records. This suggests the Arctic will be entirely ice-free in the summer months within decades, scientists said. The annual sea ice minimum, based on a five-day average, is expected to be officially declared by the US National Snow and Ice Data Centre in Boulder, Colorado, within the next few days. "It certainly is continuing the long-term decline," said Julienne Stroeve, a scientist at the centre. "We are looking at long-term changes and there are going to be bumps and wiggles along the long-term declining trend, but all the climate models are showing that we are eventually going to lose all of that summer sea ice." Overall, the Arctic has lost about 40% of its sea ice cover since 1980. Most scientists believe the ocean at the north pole could be entirely ice-free in the summer by the middle of the century – if not sooner.

No, Arctic Sea Ice Has Not Recovered, Scientists Say - Arctic sea ice extent has reached its seasonal minimum, dropping to the sixth-lowest level in the 35-year satellite record. This year’s melt represents a significant gain in sea ice extent from last year — when the ice cover plummeted to a record low — but scientists cautioned that long-term trends are what is most important, with most projections still showing a seasonally ice free Arctic Ocean by the middle of the century, if not sooner. In addition, measurements of sea ice volume are at near-record low levels, indicating that the ice cover is unusually thin and vulnerable. Arctic sea ice loss during the 2013 melt season was equivalent to losing the entire area of states from Tennessee to Maine.  According to data from September 18, Arctic sea ice extent was about 1.97 million square miles, which is well above the level observed on the same date last year, yet still well below the 1981-2010 average, according to the National Snow and Ice Data Center (NSIDC) in Boulder, Colo. An official announcement of the sea ice minimum came on Friday. The long-term decline in sea ice, both in terms of the extent of sea ice cover as well as its thickness, is largely due to warming caused by human activities and natural variability, as the Arctic is warming at nearly twice the rate of the rest of the globe.

The Deep Greenland Sea Is Warming Faster than the World Ocean — Recent warming of the Greenland Sea Deep Water is about ten times higher than warming rates estimated for the global ocean. Scientists from the Alfred Wegener Institute, Helmholtz Centre for Polar and Marine Research recently published these findings in the journal Geophysical Research Letters. For their study, they analysed temperature data from 1950 to 2010 in the abyssal Greenland Sea, which is an ocean area located just to the south of the Arctic Ocean. Since 1993, oceanographers from the Alfred Wegener Institute, Helmholtz Centre for Polar and Marine Research (AWI), have carried out regularly expeditions to the Greenland Sea on board the research ice breaker Polarstern to investigate the changes in this region. The programme has always included extensive temperature and salinity measurements. For the present study, the AWI scientists have combined these long term data set with historical observations dating back to the year 1950. The result of their analysis: In the last thirty years, the water emperature between 2,000 metres depth and the sea floor has risen by 0.3 °C. The Greenland Sea is just a small part of the global ocean. However, the observed increase of 0.3 °C in the deep Greenland Sea is ten times higher than the temperature increase in the global ocean on average.

Winds of Change: Why Antarctic Sea Ice Is Growing - The ice that covers the Arctic Ocean has been on an overall downward trend in summer for more than three decades now, but the growth of sea ice in winter at the opposite end of the world in the Antarctica has been trending upward over the same time span. That doesn’t contradict the idea of global warming — for one thing, the growth is very slow compared with ice loss in the Arctic — but it’s still a scientific mystery that scientists want to understand. Now a University of Washington scientist named Jinlun Zhang may have solved it. Writing in the Journal of Climatology, Zhang argues that about 80 percent of the growth can be explained by changes in the prevailing winds around the frozen continent; the remaining 20 percent, he suspects, might be the result of changes in ocean circulation. The idea of a connection between changing winds and growing ice isn’t entirely new: a study published last year in the journal Nature Geoscience connected those same dots: in that research, climate scientists tracked the pattern of ice motion and wind direction, concluding that wind was pushing sea ice away from the frozen continent, creating expanses of open water closer in, where new ice could easily form. Zhang’s new paper looks not at winds in general, but at a phenomenon known as the polar vortex, a circular pattern of winds that swirls around Antarctica. “My results look at the fact that the vortex has gotten stronger over the past three decades,” Zhang said in an interview. There has also been an increase in convergence, or winds coming from different directions to slam into each other.

In new report, climate experts to warn of sea peril - - UN experts are expected to warn on Friday that global warming will hoist sea levels higher than was projected six years ago, threatening millions of lives. In a report touching on a high-stakes, contentious issue, the Intergovernmental Panel on Climate Change (IPCC) will predict sea levels to rise by between 26 and 81 centimetres (10.4 and 32.4 inches) by 2100, according to a draft seen by AFP. If these estimates are endorsed in the final document issued in Stockholm, they will outstrip projections made by the Nobel-winning group in 2007 of a 18-59 cm rise by 2100. The figures are based on the most optimistic and most pessimistic scenarios for reining in heat-trapping carbon emissions. Sea-level rise is, potentially, one of the big whammies of climate change. Rising seas stealthily gobble up valuable land and threaten oblivion for low-lying small island nations like the Maldives, where the ground level is just 1.5 metres (five feet) above the waves on average. They also expose cities to storm surges, as was catastrophically shown last year when parts of New York City and New Jersey were engulfed by Tropical Storm Sandy.

U.N. Climate Panel Endorses Ceiling on Global Emissions…The world’s top climate scientists on Friday formally embraced an upper limit on greenhouse gases for the first time, establishing a target level at which humanity must stop spewing them into the atmosphere or face irreversible and potentially catastrophic climatic changes. They warned that the target is likely to be exceeded in a matter of decades unless steps are taken soon to reduce emissions.  Unveiling the latest United Nations assessment of climate science, the experts cited a litany of changes that are already under way, warned that they are likely to accelerate and expressed virtual certainty that human activity is the main cause. The panel, in issuing its most definitive assessment yet of the risks of human-caused warming, hoped to give impetus to international negotiations toward a new climate treaty, which have languished in recent years in a swamp of technical and political disputes. The group made clear that time is not on the planet’s side if emissions continue unchecked. “Human influence has been detected in warming of the atmosphere and the ocean, in changes in the global water cycle, in reductions in snow and ice, in global mean sea level rise, and in changes in some climate extremes,” the report said. “It is extremely likely that human influence has been the dominant cause of the observed warming since the mid-20th century.”

Climate change: how hot will it get in my lifetime? (interactive)  The UN is to publish the most exhaustive examination of climate change science to date, predicting dangerous temperature rises. How hot will it get in your lifetime? Find out with our interactive guide, which shows projections based on the report

Humans blamed for ‘unequivocal’ global warming - It is now virtually certain that humans have been the main cause of the “unequivocal” global warming recorded in the past 60 years, according to a landmark climate science report likely to rekindle debate over the fossil fuels powering the world’s economies. If industrial greenhouse gas emissions keep rising, they are likely to cause more global warming that will lead to shifts in global sea levels, ice cover and other aspects of the climate already changing in ways not seen for thousands of years, warns the report by the UN’s Intergovernmental Panel on Climate Change. The slowdown in global temperature rises over the past 15 years is downplayed in the 36-page summary of the study released in Stockholm on Friday morning after government officials and scientists finished a marathon all-night session to approve its final wording. The summary, which contains significant changes from earlier drafts, says that because of natural changes in the climate, “trends based on short records are very sensitive to the beginning and end dates and do not in general reflect long-term climate trends”. The report it is based on was compiled by 259 scientists from 39 countries over the past four years. It is part of the first comprehensive assessment in six years by the panel, which was set up 25 years ago to give governments reliable information about climate change.

U.N. Says Humans Are ‘Extremely Likely’ the Main Cause of Global Warming —A much-anticipated United Nations report on climate change claims that while human activity has likely been the dominant cause of global warming since the 1950s, temperatures aren't expected to rise as quickly as previously thought.  A summary of the report, issued Friday by the Intergovernmental Panel on Climate Change, or IPCC, took an even firmer stance on human influence than the previous report issued in 2007. The new report says there is an "unequivocal" warming of the climate and that it is "extremely likely" that humans are the biggest influence, whereas six years ago the group said it is "very likely." The IPCC's working group compiled physical evidence and scientific research in reaching a conclusion that there is a 95% chance that humans can be primarily blamed. The report is closely watched by governments, environmentalists and key industries such as the oil, gas and coal sector, because it provides the scientific backing for many governments' policies on climate change, and may impact those policies. The summary issued on Friday previews a full report that will be issued next week as part of the group's wider so-called fifth assessment, which will come out in several phases.

UN Panel Says Humans ‘Extremely Likely’ Responsible For Climate Change - The United Nations created Intergovernmental Panel on Climate Change (IPCC) has issued a landmark report claiming that climate change is real and human beings are the culprits. The report called the existence of Global Warming, a point of contention in Congress, “unequivocal.” And noted that “human influence has been the dominant cause of the observed warming.” “Human influence has been detected in warming of the atmosphere and the ocean, in changes in the global water cycle, in reductions in snow and ice, in global mean sea level rise, and in changes in some climate extremes,” the report says. The IPCC also published a summary for policymakers with a more digestible breakdown of the results for those without a scientific background. The summary includes other information besides the conclusion that Global Warming is real and man-made such as:

  • • The atmospheric concentrations of carbon dioxide, methane, and nitrous oxide have increased to levels unprecedented in at least the last 800,000 years. Carbon dioxide concentrations have increased by 40% since pre-industrial times, primarily from fossil fuel emissions.
  • • There is “high confidence” that the rate of sea-level rise since the mid-19th century has been larger than the mean rate during the previous two millennia. Over the period 1901-2010, global mean sea level rose by about 7.4 inches. Global mean sea level will continue to rise during the 21st century.
  • • There is “high confidence” that over the last two decades, the Greenland and Antarctic ice sheets have been losing mass, glaciers have continued to shrink almost worldwide, and Arctic sea ice and Northern Hemisphere spring snow cover have continued to decrease in extent.
  • • Global surface temperatures are “likely” to be at least 2.7 degrees above pre-industrial levels by the year 2100, and will likely range from 4.7 to 8.6 degrees above the levels seen in 1986-2005.

2 °C or Not 2 °C: Insights from the Latest IPCC Climate Report - Most often, the question gets framed as “will we stay below 2 °C?”, that is, will we reduce emissions swiftly enough to keep global average surface temperatures from rising to 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels? Signing the Copenhagen Accord in 2009, world leaders agreed to keep temperature increases resulting from heat-trapping emissions to less than 2 °C, a target aimed at limiting dangerously disruptive climate impacts. A policy target informed by science, “2 °C” is the formally codified benchmark, the line in the sand by which nations have agreed to measure our collective success in providing  generations to come with a secure climate future.The IPCC’s Summary for Policy Makers (SPM) tells us that global average surface temperatures have risen about 0.85 °C since 1900. It concludes that “cumulative emissions of CO2 largely determine global mean surface warming by the late 21st century and beyond” – in other words, the principal driver of long-term warming is total emissions of CO2. And it finds that having a greater than 66% probability of keeping warming caused by CO2 emissions alone to below 2 °C requires limiting total further emissions to between 370–540 Gigatons of carbon (GtC).  At current rates of CO2 emissions (about 9.5 GtC per year), we will hurtle past the 2 °C carbon budget in less than 50 years. And this conservatively assumes that emissions rates don’t continue on their current upward trajectory of ~3% per year.

Alarming IPCC Prognosis: 9°F Warming For U.S., Faster Sea Rise, More Extreme Weather, Permafrost Collapse -The UN Intergovernmental Panel on Climate Change (IPCC) now says we are as certain that humans are dramatically changing the planet’s climate as we are that smoking causes cancer.S o perhaps the best way to think about the IPCC, which has issued a summary of its latest report reviewing the state of climate science, is as a super-cautious team of brilliant diagnosticians and specialists (who, like many doctors, aren’t the best communicators). They are are the best in the world — the climate equivalent of the Cleveland Clinic or Mayo Clinic or Johns Hopkins — where you and the rest of humanity have just gone through a complete set of medical tests and are awaiting the diagnosis, prognosis, and recommended course of treatment. (It has a big waiting room — called planet Earth.) The diagnosis is that humans are suffering from a fever (and related symptoms) caused by our own actions — primarily emissions of carbon pollution. Indeed, team IPCC is more certain than the last time we came in 6 years ago and ignored their advice. They are 95% to 100% certain we are responsible for most of the added fever since 1950.

Climate Crisis: Why We’re on Track for 7°C Warming or Greater by 2100 - Gaius Pubius - This is the third part in our three-part series, Climate Crisis: The View from 10,000 Feet. The three parts are:

The climate crisis in three easy charts
A closer look at global temperature, both before and during the age of man
▪ Climate crisis: Why we’re on track for 7°C warming or greater by 2100 (this piece)

Note the remarkable flatness of average global temperature during the Holocene. Note that temperatures never rise much above +2°C for the period pictured, and in the Holocene, they never rise above (or fall below) ½°C (0.5°C for the math majors) — until the very end when the Industrial Revolution begins.That’s an amazing consistency in temperature. While regional temperatures have varied more widely, the earth as a whole has stayed within a very narrow range — ±½°C — through the entire period until very near the end. Again, from the chart above, “Modern age of glaciers” is the period of hunter-gatherer man; the Holocene, which immediately follows, is the time of “Agricultural & civilized man.” The correspondences could not be more clear.  This norm holds more or less intact through the year 1800, at which point the Industrial Revolution, which started around 1760, began to have a warming effect. The Industrial Revolution is also the “first carbon era” in Michael Klare’s nomenclature.Thus the “Holocene normal temperature” is also the pre-Industrial normal temperature” — the temperature prior to the year 1800. Below is a global-average temperature chart created for an IPCC (Intergovernmental Panel on Climate Change) publication released in 2000 and reprinted in an important 2009 publication, the Copenhagen Diagnosis.Note the start of solid black line, observed temperature in the year 1800, is marked as “zero.”

Why the World Bank is Taking on Climate Change - We know that climate change, left unchecked, threatens the health, homes, and livelihoods of millions of people around the globe, with the poorest and most vulnerable hit the hardest.  This week, the United Nations Intergovernmental Panel on Climate Change (IPCC) will release a major report that is expected to raise the panel’s certainty that human activity, particularly the burning of fossil fuels, is the cause of much of the warming seen in recent years. In New York, World Bank President Jim Kim will also be speaking at the opening of Climate Week on Sept. 23 on the impacts of climate change on poverty and the need for action.“Decades of progress are now in danger of being rolled back because of climate change,” Kim says. "This is a ‘make-or-break’ decade for action on global warming. The time to address the interlinked challenges of climate change and ending extreme poverty is now.” The IPCC report, prepared by hundreds of scientists as an update from the panel’s 2007 report, is expected to reinforce predictions of rising sea levels and of the increasing likelihood of heat waves and other extreme weather. Its findings are expected to strengthen the scientific case for urgent action on climate change, described in the World Bank’s “Turn Down the Heat” reports. The Bank reports warned that the world would warm by 4 degrees Celsius without concerted, immediate action, and that a 2 degree Celsuis warmer world – conditions we could experience in our lifetimes – will keep millions of people trapped in poverty.

World won't cool without geoengineering, warns report - Global warming is irreversible without massive geoengineering of the atmosphere's chemistry. This stark warning comes from the draft summary of the latest climate assessment by the Intergovernmental Panel on Climate Change. According to one of its lead authors, and the latest draft seen by New Scientist, the report will say: "CO2-induced warming is projected to remain approximately constant for many centuries following a complete cessation of emission. A large fraction of climate change is thus irreversible on a human timescale, except if net anthropogenic CO2 emissions were strongly negative over a sustained period." In other words, even if all the world ran on carbon-free energy and deforestation ceased, the only way of lowering temperatures would be to devise a scheme for sucking hundreds of billions of tonnes of carbon dioxide out of the atmosphere.Much of this week's report, the fifth assessment of the IPCC working group on the physical science of climate change, will reaffirm the findings of the previous four assessments, published regularly since 1990. It will point out that to limit global warming to 2 °C will require cumulative CO2 emissions from all human sources since the start of the industrial revolution to be kept below about a trillion tonnes of carbon. So far, we have emitted about half this. Current emissions are around 10.5 billion tonnes of carbon annually, and rising. Since the last assessment, published in 2007, the IPCC has almost doubled its estimate of the maximum sea-level rise likely in the coming century to about 1 metre. They also conclude that it is now "virtually certain" that sea levels will continue to rise for many centuries, even if warming ceases, due to the delayed effects of thermal expansion of warming oceans and melting ice sheets.

Challenges Await Plan to Reduce Emissions - The Obama administration’s potentially pathbreaking proposal for carbon emission limits on new power plants will face political and legal challenges from opponents who argue that the technology needed has not been close to being proven as the law requires. The draft rule was announced on Friday at the National Press Club by Gina McCarthy, the administrator of the Environmental Protection Agency. But to protect industries from pie-in-the-sky requirements, current law limits what rules the agency can make. E.P.A. rules sometimes demand technological advancements, but the goals that the agency establishes have to be met by techniques that existing law describes as “adequately demonstrated.” The proposal would limit new gas-fired power plants to 1,000 pounds of carbon dioxide emissions per megawatt-hour and new coal plants to 1,100 pounds of carbon dioxide. Industry officials say the average advanced coal plant currently emits about 1,800 pounds of carbon dioxide per megawatt-hour. A megawatt-hour is a little more than a typical American household uses in a month. Once the rule is in place, new plants would be required to capture carbon dioxide from the smokestacks and “sequester” it underground. Officials said the regulation could be completed by the fall of 2014.

The EPA’s Carbon-Capture Delusion - On Friday, the EPA finally unveiled its long-awaited rules for new coal-fired power plants. The agency’s administrator, Gina McCarthy, has claimed that the new rules “will provide certainty for the future of new coal.” That’s true. The rules mean that no new coal plants will be built in the U.S., because they won’t be able to meet the limit of 1,100 pounds of carbon dioxide per megawatt-hour of electricity produced.The EPA’s new rule relies on the agency’s misplaced belief in carbon capture and sequestration, or CCS. McCarthy has claimed that “CCS technology is feasible.” Yes, it’s feasible. But that doesn’t mean the technology is economically viable or can scale to a level that makes it a reasonable alternative to traditional sources of electricity generation. There are numerous problems with CCS. Among them: It’s extremely expensive; it dramatically reduces the output of power plants; no pipelines exist to transport the carbon dioxide to a location where it could be sequestered; the opposition to those pipelines and sequestration projects will be significant.The huge cost of CCS at coal-fired power plants can be seen by looking at Southern Co.’s project in Kemper County, Miss. The 582-megawatt project, which has been hampered by delays and cost overruns, is now expected to cost $4.7 billion. That works out to about $8 million per megawatt of capacity. In comparison, the nuclear reactors being built at Plant Vogtle, in Georgia, will emit no carbon dioxide and will cost about $6.3 million per megawatt. Meanwhile, a natural-gas-fired generator without any CCS equipment costs in the neighborhood of $1 million per megawatt.

Four Numbers Say Wind and Solar Can’t Save Climate - First, 32: That’s the percentage growth in carbon dioxide emissions that has occurred globally since 2002. In the past decade, these emissions have increased by about 8.4 billion tons. And nearly all of that has happened in the developing world. In Asia, emissions rose 86 percent; in the Middle East, 61 percent; and in Africa, 35 percent.  In the U.S., meanwhile, carbon dioxide emissions were 8 percent lower in 2012 than they were in 2002, largely due to a surge in shale gas production, which has reduced coal use. In Europe, carbon dioxide emissions have been essentially flat for a decade. Now to the second number: 1. That’s the power density of wind in watts per square meter. Power density is a measure of the energy flow that can be harnessed from a given area, volume or mass. Wind energy’s paltry power density means that enormous tracts of land must be set aside to make it viable. Consider how much land it would take for wind energy to replace the power the U.S. now gets from coal. In 2011, the U.S. had more than 300 billion watts of coal-fired capacity. Replacing that with wind would require placing turbines over about 116,000 square miles, an area about the size of Italy. And because of the noise wind turbines make -- a problem that has been experienced from Australia to Ontario -- no one could live there. Now let’s turn to the third number: 30. This represents the massive scale of global energy use, which is about 250 million barrels of oil equivalent per day, or the output of about 30 Saudi Arabias. (Since the 1970s, the Saudis have produced about 8.2 million barrels of oil per day.) Of that 30 Saudi Arabias of daily energy consumption, we get 10 from oil, nine from coal, seven from natural gas, two from hydro and 1 1/2 from nuclear. That remaining 1/2 -- the final number -- represents the amount of energy we get from all renewable sources, not counting hydropower. In 2012, the contribution from all of those sources amounted to about 4.8 million barrels of oil equivalent per day, or roughly one-half of a Saudi Arabia. Put another way, we get about 50 times as much energy from all other sources -- coal, oil, natural gas, nuclear and hydropower -- as we do from wind, solar, geothermal and biomass.

China's synthetic gas plants would be greenhouse giants - Coal-powered synthetic natural gas plants being planned in China would produce seven times more greenhouse gas emissions than conventional natural gas plants, and use up to 100 times the water as shale gas production, according to a new study by Duke University researchers.  These environmental costs have been largely neglected in the drive to meet the nation's growing energy needs, the researchers say, and might lock China on an irreversible and unsustainable path for decades to come.  "Using coal to make natural gas may be good for China's energy security, but it's an environmental disaster in the making," As part of the largest investment in coal-fueled synthetic natural gas plants in history, the central Chinese government recently has approved construction of nine large-scale plants capable of producing more than 37 billion cubic meters of synthetic natural gas annually. Private companies are planning to build more than 30 other plants, capable of producing as much as 200 million cubic meters of natural gas each year—far exceeding China's current natural gas demand. "These plants are coming online at a rapid pace. If all nine plants planned by the Chinese government were built, they would emit 21 billion tons of carbon dioxide over a typical 40-year lifetime, seven times the greenhouse gas that would be emitted by traditional natural gas plants," Jackson said.

Beijing to Offer Higher Prices for Clean Fuels to Encourage Production  - In Beijing’s fight to reduce air pollution, the National Development Reform Commission (NDRC) has announced this week that it will raise prices for high quality clean fuels, beginning at the end of the year, in an attempt to encourage oil films to boost production of less polluting fuels. Beijing has already asked China’s national refiners, led by Sinopec, to upgrade their plants in order to produce cleaner fuels, but the costly upgrades would force many companies to suffer heavy losses due to the lack of subsidies and low, state-controlled fuel prices. The NDRC proposes to increase prices for any diesel and gasoline produced that meets the national IV fuel standards by 290 yuan ($47.37) and 370 yuan ($60.44) respectively; and any that meet the national V standards will be increased by 170 yuan ($27.77) for diesel, and 160 yuan ($26.14) for gasoline.

India Plans To Build The Largest Solar Plant In The World - Indian utilities plan to use 23,000 acres of land to build the largest solar power plant in the world, at 4 gigawatts of power, bringing prices and production of solar energy closer to competitiveness with coal.  The plant in Rajasthan is expected to commission its first phase in 2016, providing 1 gigawatt of power, enough to make it India’s largest solar power project ten times over. It will be a joint venture of five government-owned utilities. The other 3GW would be produced in an arrangement determined by the success of the first phase. The finished plant would be comparable in power production to the four in-progress coal-fired Ultra Mega Power Plants (UMPP) under production, at 4 gigawatts of power. But those plants are struggling to hold prices low due to reliance on imported low-carbon coal. The solar plant’s operations won’t be subject to any such constraints.In addition to cutting carbon, getting off of coal would help India reduce the 100,000+ deaths each year caused by coal plant pollution. This comes as IBM and the Delhi-Mumbai Industrial Corridor Development Corporation finalized a plan to link technological infrastructure in a massive stretch between India’s business and political capitals. Grid improvements will be necessary to fully take advantage of the new solar plant, as India’s often experiences outages and rationing, especially outside of big cities.

Brazil cools on nuclear power plans, favors wind -- Brazil will probably scale down its plans for new nuclear plants due to safety concerns following the 2011 radiation leak in Japan and pick up some of the slack with a "revolution" in wind power, the head of the government's energy planning agency said.Mauricio Tolmasquim, chief of the Energy Research Company, told Reuters it was "unlikely" the government would stick to its plans to build four new nuclear plants by 2030 to meet rising demand for electricity.He declined to specify how many might be built instead.Tolmasquim's comments, part of a broad assessment of Brazil's long-term strategic plans for electricity generation, highlighted continued global doubts regarding nuclear power more than two years after an earthquake and tsunami led to an accident at the Fukushima nuclear power plant in Japan."We haven't abandoned (the plans) ... but they haven't been resumed yet either. It's not a priority for us right now." Brazil has not begun the tender process for the facilities projected to be finished by 2030. The nuclear facility currently under construction, known as Angra 3, is being built with technology from Germany's Siemens-KWU.

Nuclear Denial: From Hiroshima To Fukushima  - Bulletin of Atomic Scientists - Governments and the nuclear power industry have a strong interest in playing down the harmful effects of radiation from atomic weapons and nuclear power plants. Over the years, some scientists have supported the view that low levels of radiation are not harmful, while other scientists have held that all radiation is harmful. The author examines the radiation effects of nuclear bombs dropped on Japan in 1945; nuclear weapons testing; plutonium plant accidents at Windscale in England and Chelyabinsk in the Soviet Union; nuclear power plant emissions during normal operations; and the power plant accidents at Three Mile Island in the United States, Chernobyl in the Soviet Union, and Fukushima Daiichi in Japan. In each case, he finds a pattern of minimizing the damage to humans and attributing evidence of shortened life spans mostly to stress and social dislocation rather than to radiation. While low-level radiation is now generally accepted as harmful, its effects are deemed to be so small that they cannot be distinguished from the much greater effects of stress and social dislocation. Thus, some scientists declare that there is no point in even studying the populations exposed to the radioactive elements released into the atmosphere during the 2011 accident at Fukushima.

Fukushima Shows Catastrophic Potential of Privatizing Nuclear Power - The possibility of a global nuclear catastrophe as a result of the ongoing crisis at Fukushima is not only a real threat to untold lives in Japan and around the world, it is a model example of why nuclear power of any sort should not be privatized -- and should only have limited uses within governmental programs.As reported on Monday on BuzzFlash at Truthout, the potential nuclear radiation release from "repairs" at Fukushima threaten the globe. "Nuclear Crisis at Fukushima Could Spew Out More Than 15,000 Times as Much Radiation as Hiroshima Bombing," Harvey Wasserman, a longtime anti-nuclear advocate, wrote on BuzzFlash. Truthout posted a follow-up story today that states, "We’re in very apocalyptic territory, with a wide and unknown range of outcomes." It's hard to analyze the nuclear industry rationally when the private company, TEPCO, in Japan has just thrown up its hands and admitted it does not have a full-proof plan to prevent a nuclear disaster of proportions not yet seen.  You can bet the Japanese government which has been assuring the world that everything was under control had a role in inviting international assistance in keeping Fukushima from creating a nuclear nightmare.What is a private power company, TEPCO, doing in charge of "repairing" Fukushima anyway?  How did we turn over an energy source that can threaten the survival of life on earth to private companies?

The Hidden Export Bombshell in Cloud Peak’s Financials: Powder River Basin coal giant earned more shorting coal than exporting it  - Cloud Peak Energy, one of the major coal producers in the Powder River Basin, is doing its very best to sound upbeat about coal exports. In an investor conference call this past July, the company declared that, even though falling international coal prices had eaten into their earnings, their exports were “still profitable overall.”But a close look at Cloud Peak’s second quarter financial statements suggests a far stranger story: the company’s export division actually made most of its profits from derivatives trading rather than coal. Stripping away the financial-speak, the implications are striking: Cloud Peak’s export arm made at least 10 times more money betting against coal than it did selling coal. For those who are interested, here are the details…

U.S. Coal vs. the World - In case you hadn't heard, there is apparently a war on coal. But climate change is just one front–the U.S. coal industry's adversaries range from Beijing's coughing commuters to Australia's ailing dollar. And while many coal-mining stocks have crumbled in the face of this pressure, investors should remember that the shares are cheap for good reasons. New regulations from the U.S. Environmental Protection Agency announced Friday effectively make it almost unthinkable to build new coal-fired power plants–which account for more than 90% of U.S. coal consumption. The EPA aside, it is hard to see many new coal-fired plants sprouting in the U.S. anyway. Cheap natural gas from shale is a formidable competitor. U.S. coal consumption fell by 238 million tons, or 21%, between 2007 and 2012, according to the Department of Energy.U.S. coal has tried to adapt with acquisitions and exports. But the first approach hasn't worked well and the second may have reached its limit.

The First-Ever Bulk Freighter To Pass Through The Arctic Was Carrying Coal - Sometime earlier this week a cargo ship passed through the Northwest Passage into Baffin Bay, along Greenland’s southwestern coast, making it the first bulk carrier ever to make the voyage. This journey was completed by the Nordic Orion, a 225-meter, ice-strengthened vessel loaded with coal in Vancouver, British Columbia and headed for Finland.  Long eyed as a commercial route, the Northwest Passage is a channel of waterways through the Arctic Ocean along the northern coast of North America connecting the Atlantic and Pacific Oceans — a shortcut from Europe to Asia through the Canadian Arctic. The Nordic Orion doesn’t didn’t exactly blaze the trail itself. Smaller vessels have been navigating the channel for about a hundred years, but climate change — which has reduced Arctic pack ice that prevented regular marine shipping for most of the year and made waterways hard to navigate.  Last year Arctic sea ice reached an all-time low of 1.32 million square miles. While it rose slightly this year to 1.97 million square miles, according to the University of Colorado Boulder’s National Snow and Ice Data Center, that is still the sixth lowest on record, and reinforces the long-term downward trend.

National Parks Will Close To The Public But Stay Open To Drilling If The Government Shuts Down - Despite the fact that most Americans object to the tactic of shutting down the government over Obamacare, Congressional Republicans continue to insist that they will not pass a budget for the federal government unless the Affordable Care Act is defunded, meaning that the government could potentially shut down when its current funding authorization runs out this coming Monday, September 30th.  A review of the most recent contingency plans completed in December 2011 for federal agencies shows that under a government shutdown, federal land management agencies would be required to close national parks, wildlife refuges, and national forests to the general public but keep them open to most oil, gas, and mining operations.  The National Park Service’s contingency plan says: Effective immediately upon a lapse in appropriations, the National Park Service will take all necessary steps to close and secure national park facilities and grounds in order to suspend all activities except for those that are essential to respond to emergencies involving the safety of human life or the protection of property…Where ever possible, park roads will be closed and access will be denied.

Shale Gas is Not a Saviour, it is a Thorn in Renewable Energy’s Side - The narrative of the shale oil and gas revolution is compelling because it promises so much: cheap, abundant energy, not only for the US but also for the rest of the world, thanks to the presence of rich shale deposits in Russia, China and elsewhere. And, as US President Barack Obama stressed in his climate action plan, shale could help tackle global warming if cleaner-burning natural gas is substituted for coal and oil. The speed and scope of the shale-led energy renaissance in the US has been nothing short of remarkable. Horizontal drilling and hydraulic fracturing opened hitherto inaccessible oil and gas deposits locked away in relatively impermeable shale rock formations and rapidly boosted energy production, particularly of gas. After years of being a natural gas importer, the US now suffers from a glut that has depressed prices. Drillers have shifted focus to more-profitable shale oil, production of which has expanded by almost a third since 2008 – and accounted for 29 percent of total US oil production in 2012 – holding out the tantalizing prospect of energy independence. But shale may yet fail to live up to its promise. The peculiar geology and economics of shale energy production, compared to conventional oil and gas, make the US experience both unsustainable and difficult to replicate. US shale oil and gas production growth has started to slow on the back of fast rising costs and rapidly depleting reservoirs. Meanwhile attempts to produce commercial-scale shale energy in countries such as China, which boasts the world’s biggest shale gas resources – and the third-largest recoverable shale oil deposits, after Russia and the US – are running into technological, regulatory, political and economic problems.

Debate Over US Natural Gas Exports Heats Up - The consequences of the shale gas and oil energy revolution in the United States have had a great impact on the U.S. industry and economy. The benefits are by now widely visible. The price of natural gas has decreased to its lowest level in decades, which hugely benefited the energy demanding sectors of U.S. industry. The U.S. is reducing its imports of oil and gas from abroad, and by 2016, when the first export liquid natural gas (LNG) terminal becomes operable, the country will actually become an overall exporter of natural gas. America’s carbon footprint has been reduced as a consequence of replacing coal with natural gas, and low energy prices are bringing foreign investments and improving the country’s global competitiveness.  But there is another side of the coin. The sudden influx of natural gas from shale resources in 2010 and 2011 created a supply glut causing the Henry Hub (the U.S. pricing point for natural gas future contracts) to plummet in 2012 to its lowest levels historically of less than $2 per million British thermal units (mmBtu).  Although the prices have gone up since, the price is still hovering around the relatively low $4/mmBtu, and the U.S. Energy Information Agency estimates that they should hit $8/mmBtu by 2040. Even with the EIA’s estimated increases in the U.S. natural gas prices, this will still be substantially lower compared to the rest of the world. Japan switched off its last operating nuclear reactor on the 14th of September and is currently free of nuclear energy. As a consequence, it is paying $15/mmBtu. Other emerging Asian nations are facing similar prices.

California’s New Anti-Fracking Law Draws Opposition From Environmentalists And Big Oil - On Friday, California Gov. Jerry Brown signed the state’s first fracking bill into law, which will impose regulations on the oil and gas industry in the state but will also open up the state’s vast Monterey Shale reserves for drilling. The law, which will go into effect next year, will require oil and gas companies to list the chemicals they use in the fracking process online. . Fracking chemicals are exempt from federal disclosure laws, so it’s up to each state to decide if and how the oil and gas companies should disclose the chemical brew they use. The law will also require oil and gas companies to get a permit for fracking, notify neighbors before drilling and monitor ground water and air quality. In addition, state officials will have to complete a study by 2015 that evaluates the risk of fracking. The law’s author said the legislation was aimed at increasing “transparency, accountability and protection of the public and the environment.” But the law has drawn criticism from environmentalists, anti-fracking activists and the editorial board of the LA Times, who called the regulations in the law “so watered down as to be useless.” The law does’t impose a moratorium on fracking until more research is done about the potential impacts of the practice in the state — a halt similar to the one New York enacted six years ago. And opponents say it doesn’t go far enough in protecting Californians from the dangers of fracking — dangers which could include setting off seismic activity in an earthquake-prone state and damaging the air and water. But the oil industry is still pushing back on even these watered-down regulations, saying they “could create conditions that will make it difficult to continue to provide a reliable supply of domestic petroleum energy for California.”

North Carolina Returns EPA Grant To Study Fracking’s Effects On Streams And Wetlands - North Carolina has returned two grants from the Environmental Protection Agency to study the potential impacts fracking could have on streams and wetlands in the state, a move that environmentalists in the state are concerned could be the first in a trend of “backing away from science.”  John Skvarla, North Carolina’s newly-appointed head of the Department of Environment and Natural Resources (DENR), says the department doesn’t need the $222,595 grant to collect baseline water quality data in the state’s streams nor the $359,710 for wetlands monitoring. According to an EPA spokesman, North Carolina is the first state in the Southeast to turn down an EPA grant.

Fracking Victims Demand EPA Reopen Investigations Into Poisoned Drinking Water - Residents personally harmed by gas drilling and fracking held a press conference in front of the White House yesterday and delivered 250,000 petition signatures from concerned citizens across the U.S. to Environmental Protection Agency (EPA) Administrator Gina McCarthy at EPA headquarters. The residents—including Ray Kemble from Pennsylvania, Steve Lipsky and Shelly Perdue from Texas and John Fenton from Wyoming—were all part of the EPA fracking investigations in their respective states that the EPA abandoned despite evidence of water contamination. The petitions were collected by Stop the Frack Attack and Americans Against Fracking and its advisory committee member, actor Mark Ruffalo. The petitions demand that the U.S. EPA reopen investigations into fracking-related drinking water contamination in Pennsylvania, Texas and Wyoming and provide residents with safe drinking water in the interim. “Today, I stand with affected community members from Dimock, PA, Pavilion, WY, and Parker County, TX, to call on President Obama and the EPA to re-open the investigations on the link between fracking and drinking water contamination,” said actor and advocate Mark Ruffalo. “The American people expect and deserve a transparent EPA that makes science-based decisions, free from political interference.”

Fracking Chemicals May Be Unknown, Even To Gas Drillers, Lawsuit Documents Suggest - Critics of hydraulic fracturing, known widely as "fracking," have been pushing hard for natural gas companies to disclose all of the chemicals in the fluids that are used in the process. But what if the companies themselves don't even know what those chemicals are? Documents from a lawsuit against Texas-based Range Resources suggest that they may not. The documents are part of an appeal that a resident of Washington County, Pa., has made to the state's Environmental Hearing Board. The plaintiff in the case alleges that a Range wastewater impoundment, which holds water left over from hydraulic fracturing operations, contaminated well water.  (See the full filing here.) As part of the discovery process in this case, a judge directed Range to release the full list of chemicals used in its drilling operations, including the components of all the products that are used at every stage in the gas drilling process. But Range says in its filing that it has been unable to obtain from its suppliers the ingredients in many of the products. Range has been inquiring with its manufacturers about the ingredients in 55 different products, including lubricants, drilling fluids, slurry and surfactants, according to documents. But in many cases, Range had not yet been able to obtain the information.One example on the list is Airfoam HD, a type of surfactant used to release gas from wells. The list indicates that Range sent an email and made a phone call seeking a full list of components of the product, but had not yet received a response. "Phone call and follow-up email requesting that we resend MSDS [Material Safety Data Sheet]. Awaiting additional information," Range's note states.  According to the notes, the company that provides another product, known as Flo Stop P, informed Range that it doesn't actually produce the product, they just apply a label to it and resell it. The reseller could not provide additional information about the contents. Other companies said they would not provide the information without a protective order.

Remember The Tar Sands Leaks That No One Knew How To Stop In July? They’re Still Leaking. - Tar sands oil that began leaking more than four months ago in northern Alberta is still bubbling to the earth’s surface, an environmental disaster that has prompted the Alberta government to intervene. The government has ordered Canadian Natural Resources Ltd., the company in charge of the leaking Primrose tar sands operation, to drain two-thirds of a 131-acre lake on the property in an attempt to plug one fissure, located directly below the lake, which has been spilling tar sands oil into the lake over the four months. The order, according to CNRL, will allow the company to identify the exact location of the leak and attempt to halt it. The company’s plan to stop the other three leaks on the site is unknown, though CNRL says the seepage rate from all four leak sites has been reduced to fewer than 20 barrels a day. The first of the four ongoing leaks at the Primrose site was reported May 20, and may well have started leaking long before that. As of September 11, the leaks have spilled more than 403,900 gallons — or about 9,617 barrels — of oily bitumen into the surrounding boreal forest and muskeg, the acidic, marshy soil found in the forest. In addition, 14,491 metric tons — 31,947,188 pounds — of “impacted soils” have been removed from the site, along with 515 cubic meters — 18,151 cubic feet — of oily vegetation. Two beavers, 49 birds, 105 amphibians and 46 small mammals have been killed as a result of the spill, according to the Alberta Energy Regulator.

Bakken - Hype Versus Reality - As Wall Street, CNBC, and feckless politicians tout American energy independence from the miracle of shale oil, reality is already rearing its ugly head. Production grew by 24% over the first six months of 2012. Production has grown by only 7% over the first six months of 2013. That is a dramatic slowdown. The fact is that these wells deplete at an extremely rapid rate. Oil companies will always seek out the easiest to access oil first. They have already accessed the easy stuff. This explains the dramatic slowdown. Peak Bakken oil production will be below 1 million barrels per day. The last time I checked, we consumed 18 million barrels per day. I wonder when that energy independence will be achieved? Reality is a bitch.  The headlines ring of “booming” American oil production and “gluts” of oil (USO). I’m here to tell you that while the boom is real, there is no glut of oil and we need to be aware that the huge production growth of the past eighteen months is going to slow.It already is slowing.I’ve been watching what is going on in the Bakken pretty closely because I think it is going to be an excellent proxy for what will happen across the country. Let’s take a look at what happened to production in North Dakota during the first six months of last year (2012). Here is the raw data detailing barrels of oil production per day:

Bakken crude shipments to the East Coast benefit railroads - US East Coast (PADD 1) "unaccounted-for" supply of crude oil delivered to refineries has spiked this year. The only explanation is crude delivered by rail. EIA: - While EIA does report inter-PADD domestic barge and tanker movements of crude oil, the intra-PADD shipment of crude that has been railed to Albany, New York and then shipped intra-PADD by barge to East Coast refineries is not captured and is included in the unaccounted-for supply. Refineries in eastern Canada have also gained access to Bakken crudes via rail and by barge/ship from Albany.  Trade press and company reports indicate that crude-by-rail infrastructure is continuing to expand on the East Coast. The Phillips 66 Bayway refinery in Linden, New Jersey is already processing Bakken crude that is shipped to the refinery by rail and then by barge, and has plans to process more, once a 50,000-bbl/d rail offloading facility at the refinery is completed. Philadelphia Energy Solutions, a partnership between The Carlyle Group and Sunoco Inc., is developing crude-by-rail unloading facilities at their refinery in Philadelphia. Enbridge Inc., along with other partners, is developing the Eddystone Rail Company, a crude-by-rail terminal designed to provide 160,000 bbl/d of domestic crude to refineries in Philadelphia by mid-2014.  Rather than moving gasoline and jet fuel up from Louisiana refineries, Bakken (North Dakota) crude is brought in by rail directly to refineries in the East. And East Coast refinery capacity is quickly being upgraded. Railroads have played a major role in this rapid shift in US fuel transport markets and rail shares have been the beneficiaries.

Oil Railway To Prince Rupert Could Carry Northern Gateway's Capacity: Memos - CN Rail, at the urging of Chinese-owned Nexen Inc., is considering shipping Alberta bitumen to Prince Rupert, B.C., by rail in quantities matching the controversial Northern Gateway pipeline, documents show. Internal memos obtained by Greenpeace under the Access to Information Act show the rail carrier raised the proposal last March with Natural Resources Canada. "Nexen Inc. is reportedly working with CN to examine the transportation of crude oil on CN's railway to Prince Rupert, B.C., to be loaded onto tankers for export to Asia," states a departmental briefing note setting up the March 1 meeting. An attached CN presentation paper notes that "CN has ample capacity to run seven trains per day to match Gateway's proposed capacity." CN is denying it has made a specific proposal for Prince Rupert but says it will consider any such project as it comes up. Greenpeace provided the documents to The Canadian Press. The proposed Enbridge Northern Gateway pipeline, which would carry crude oil to Kitimat, B.C., has met fierce opposition from First Nations and environmentalists.

Monthly Oil Supply Update - Anyway, here is the latest global oil supply data. After a period of flatness in 2012 and early 2013, there has been a modest uptick in supply in the summer of 2013 - to the tune of about 1mbd extra in July, though with some fallback in August. The graph above shows the major data series for total liquid fuel, along with Brent oil price on the right scale. This graph also shows the level of crude & condensate. We won't know for sure whether the July peak will also show up in the C&C level, but I would expect that it would. Finally, a close-up of total oil supply, just for the period since the great recession:

Fund Warns US Oil To Surge Above Global Benchmark On Cushing Shortage - With WTI crude oil prices hovering at record levels for this time of year......and the spread to Brent crude has bounced from zero as Syria started up to around $4.50.  At the time time we noted the plunge in the spread was as much related to US infrastructure and technical issues as the war premium and now Pierre Andurand, manager of one of this year's most successful commodity hedge funds, believes US crude will trade at a premium to the Brent benchmark within weeks, counter to the expectations of many in the market.  As The FT reports, the ex-Goldman trader is known for taking bold positions, and while not commenting in specific trades, he noted "In order for Cushing inventories to stop drawing and start building, I think WTI [the US benchmark] should be at a premium to Brent [the global benchmark]."  Via The FT,...the former Goldman Sachs oil trader believes US crude will trade at a premium to the Brent benchmark within weeks, counter to the expectations of many in the market.

On This Day In History, Oil Prices Have Never Been Higher -The recent drop in WTI crude oil prices has brought out the ubiquitous "well, that's a tax cut for the US consumer" recency-biased talking-heads always looking for a silver-lining to justify something. What they fail to notice, is at $103.57, this is the highest price WTI crude oil has ever been at the end of September. The reason timing is important is the annual cycle of oil prices means comparing Summer with Winter and so on is misleading. So is the highest price ever for oil in the Fall still a positive for the economy?Of course, gas prices have fallen recently - helped by the collapse in the duopolized RINs market - tracking oddly close to 2011's pattern... but once again 2013's gas price is still massively more expensive than 2010's...

Iran and the Petrodollar Threat to U.S. Empire - Over the last few years, Iran has unleashed a weapon of mass destruction of a very different kind, one that directly challenges a key underpinning of American hegemony: the U.S. dollar as the exclusive global currency for all oil transactions.  It began in 2005, when Iran announced it would form its own International Oil Bourse (IOB), the first phase of which opened in 2008. The IOB is an international exchange that allows international oil, gas, and petroleum products to be traded using a basket of currencies other than the U.S. dollar. Then in November 2007 at a major OPEC meeting, Iran's President Mahmoud Ahmadinejad called for a “credible and good currency to take over U.S. dollar’s role and to serve oil trades”. He also called the dollar “a worthless piece of paper.” The latest round of U.S. sanctions targets countries that do business with Iran's Central Bank, which, combined with the U.S. and EU oil embargoes, should in theory shut down Iran's ability to export oil and thus force it to abandon its nuclear program by crippling its economy. But instead, Iran is successfully negotiating oil sales via accepting gold, individual national currencies like China's renmimbi, and direct bartering. China and India are by far the most significant players, with Russia playing a supporting role. China is Iran's number one oil export market, followed by India. Both have been paying for at least part of their Iranian oil imports with gold, and according to the Financial Times, have also been paying in their own currencies, the Chinese renmimbi and Indian rupee.[1] As neither currency is easily convertible as international currency, they will be used to pay for Chinese and Indian imports. And on 22 June, Russian media reported that China imported almost 524,000 barrels per day in May, a whopping 35% jump from the previous month.[2]

Fears grow over soaring Chinese debt -  Concerns about rising leverage on the mainland have been heightened by a report last week which estimated that the liabilities of local governments may have doubled to 20 trillion yuan (HK$25 trillion) since 2010 as they sought to prop up economic growth. In order to monitor the opaque finances of local governments and keep default risk under control, the National Audit Office began a nationwide probe at the beginning of last month. The results, to be released soon, will be keenly watched to discern the financial health of the world's second-largest economy after a lending binge over the past few years. Mainland debt structureLiu Yuhui, a researcher at the Chinese Academy of Social Sciences, predicted last week that local government debt was at least 20 trillion yuan, including 9.7 trillion to 9.8 trillion yuan of bank loans and 13 trillion to 14 trillion yuan from the shadow banking system, mainly trust firms. Fitch Ratings said last week that conservative estimates put the mainland's credit to gross domestic product ratio at the end of 2017 at close to 250 per cent, compared with 130 per cent in 2008.

China’s Ultimate Debt Holders—Not the Borrowers - In China, things are not looking pretty. Debt is high among corporations and local, provincial, and state governments—up to more than 25 trillion RMB among governments in 2012 and 60 trillion RMB among corporations in 2012. Some say debt is also high among households, but let’s face it: households still have a hell of a time borrowing from banks. Much of the debt that has gone to governments and corporations has been extended through loans, “entrusted loans,” or “trust loans.” Entrusted loans are loans from one party to another that use a bank as an intermediary, while trust loans are loans from trusts to one or multiple parties. Both of these types of loans can be securitized and sold off to bank customers, which they have been, in spades, as wealth management products. The biggest reason that corporate and government debt is high is that income from real production has been down. Local governments wanted to look like they were producing and boosted creation of assets (often infrastructure or real estate) by borrowing through local government financing vehicles. Corporations have faced smaller income flows and have therefore borrowed to augment industrial capacity. But signs on the real economy are turning unmistakably negative despite all of this propping up of GDP, signaling a potential credit crisis in the works. Signs that the economy is turning downward include an increase in losses of loss-making enterprises and declines in industrial value added. Very little of the news on China’s economy lately has been good news. Increasingly, we fear our fear is justified. A credit crisis may arise when banks and trusts stop lending because economic conditions indicate higher levels of risk.

China's excess of industrial capacity nears danger level - When China announced a massive stimulus programme in late 2008, the intention was to boost economic growth in the short term by investing in the infrastructure needed to underpin long-term development. What actually happened turned out to be rather different. Although a great deal of money did indeed pour into infrastructure investment, far more ended up flowing into new factories, steel mills, office buildings and shipyards, many of them surplus to requirements. As a result, China's economy is today suffering from an excess of industrial capacity so great that its elimination will suppress growth for years to come. Back in November 2008, Beijing reacted to the collapse of global demand following the implosion of Lehman Brothers by announcing a 4 trillion yuan (HK$5 trillion) stimulus package.In the event, the programme turned out to be worth far, far more than 4 trillion yuan. As China's banks opened their credit taps in support of Beijing's stimulus efforts, state-owned companies across the country rushed to borrow as much as they could to fund an enormous build-up in new capacity. Between 2009 and 2012, China's investment grew by almost 3 trillion yuan each year. A good deal of the extra did go into infrastructure. But at least as much went into the property market, while the biggest share - around a third of all investment - was pumped into new manufacturing capacity.

Pettis: Chinese real estate defies the curbs - Real estate prices continue to rise – in fact the sheer extent of the increase in real estate prices has been, for me, the only real surprise. Here is the Financial Times on the subject:Residential prices soared in China’s biggest cities in August, raising the possibility that the government will take fresh measures to cool the red-hot market. Prices for new homes in Beijing, Shanghai and Shenzhen – the country’s three largest cities – surged 18-19 per cent year-on-year, accelerating from previous months. Nationwide, new homes prices increased 8.3 per cent year-on-year, up from 7.5 per cent in July.The sharp increase in prices in the biggest cities is the latest evidence of a full-fledged recovery in the Chinese property market after it was smothered by several tightening measures earlier this year. A series of land sales have set record prices since August, with real estate developers ramping up their competition for the best plots in the biggest cities.I expected real estate prices to keep rising as long as credit is so freely available, but it is unclear to me why real estate prices have risen so dramatically in the past couple of months. Part of it may simply be that few Chinese see any real alternative to real estate as a way of saving. Deposit rates are still low and the stock market has been uncooperative. Money is still flowing into the country. Although the PBoC clamped down on companies that were over-invoicing exports as a way of bringing money into mainland China illegally, there is still a pretty wide discrepancy between mainland export numbers to HK and HK import numbers from the mainland.

China’s ‘Ghost Cities’ May Not Be So Spooky - WSJ - China’s “ghost cities” may be a lot less ghostly than previously thought. The phenomenon of eerie shopping malls and completed apartment blocks completely devoid of stirrings of Chinese life has been well-documented in Western media in recent years, from video segments to photo series and more. But according to CLSA analyst Nicole Wong, those reports might be missing the forest for the trees—or in this case, missing the people for their timing. Ms. Wong, who recently returned from a tour of 137 projects in three Chinese cities often cited for their ghostly developments, says that the presence of empty apartments is thanks to some unusual quirks of China’s real-estate landscape. Specifically, she noted at Tuesday’s CLSA Asia-Pacific Markets Investors’ Forum in Hong Kong, new Chinese apartments are typically sold as virtual concrete shells that buyers must outfit, installing everything from showers to flooring to kitchen sinks to make them move-in ready. Accordingly, Ms. Wong notes, many such “ghost” developments take awhile to gain traction—especially as it’s often the sale of the land they’re sitting on that allows the city to fund subsequent facilities and transportation links that will eventually help make them mature neighborhoods. “When buildings are first completed they are actually not that habitable, so it takes a long time before most people want to move in,” Ms. Wong said.

China’s wealthiest families score $720 billion in undeclared “gray income” – The undeclared “gray” income earned by China’s richest families has reached staggering levels, and is contributing to massive income inequality that is far worse than official statistics, according to research by the state-backed China Society of Economic Reform.CSER researcher Wang Xiaolu, writing in Caixin magazine, said gray income reached 6.2 trillion renminbi (about $1 trillion) in 2011, or about 12% of GDP, based on a survey of 5,344 families in urban areas that was completed in 2012.That means the richest 10% of urban Chinese families make almost 21 times more than the poorest 10%, versus official statistics from the National Bureau of Statistics that place the rich-to-poor income ratio at only 8.6. The Gini index for China’s urban households—which measures income distribution on a scale of 0 to 1, where the higher values mean more inequality—was 0.496 according to the CSER data, versus the NBS figure of 0.324. A Gini score over 0.4 is correlated with social instability.“The richer the household, the more likely it receives shadow income,” Wang noted. Even some Chinese officials admit that income inequality has been understated, because families often lie on household surveys, and China lacks a comprehensive tax record system to check those results. The government has resisted calls for officials to disclose their assets, and entrepreneurs are similarly cagey.

BOJ's aggressive QE finally brought down JGB yields -- The Bank of Japan was able to lower Japanese government bond yields after an unexpected spike earlier this year (see post). The 10yr JGB is now yielding around 70bp, corresponding to about minus one percent of real yield.The central bank continues to control this market, accelerating bond purchases since the new governor took the helm. Sooner or later that forces yields lower. The goal is to make cash and government bonds so unattractive (negative real yield) that investors do something else with their money - hopefully stimulating growth in the process. The effectiveness of this program however is yet to be demonstrated. The recent economic gains were mostly the result of a weaker yen instead of more spending and investment. And the type of inflation generated by BOJ's policy is hardly what the central bank had in mind (see post).

Shinzo Abe: Unleashing the Power of 'Womenomics' - I have no idea who first coined the word "Abenomics." It was not my original term for the set of anti-deflation, growth-promotion policies I am now pursuing.  I do know, however, who first promoted one concept that is a vital component of Abenomics: "Womenomics." In 1999, Kathy Matsui and her colleaguesfirst advocated that Japan could increase its gross domestic product by as much as 15% simply by tapping further its most underutilized resource—Japanese women.Fourteen years have elapsed since then, and the idea has finally entered Japan's political lexicon. Womenomics will feature prominently in my address on Thursday at the United Nations General Assembly. Unleashing the potential of Womenomics is an absolute must if Japan's growth is to continue. Womenomics also holds the key to enhancing growth in Africa, an economic powerhouse in the making.Japan is a country with a shrinking population caused by a seemingly intractable decline in its birthrate. But Womenomics offers a solution with its core tenet that a country that hires and promotes more women grows economically, and no less important, demographically as well.

Japan Debt Disaster Seen Unless VAT Rises to 20% by 2020 - Japan must raise its sales tax to at least 20 percent by the time the Olympics come to Tokyo in 2020 to avert a “disaster” in its bond market, according to the head of a panel advising the world’s biggest pension fund. The consumption levy, due to increase in April for the first time since 1997, will need to quadruple from current levels to handle Japan’s increasing welfare costs and rein in the nation’s debt, said Takatoshi Ito, who leads an investment panel for the 121 trillion yen ($1.23 trillion) Government Pension Investment Fund. He said funds like GPIF are at risk of being too dependent on Japanese government bonds, where 10-year yields of 0.670 percent are the lowest globally. Prime Minister Shinzo Abe is expected to decide next month if Japan’s economy can weather an increase in the tax to 8 percent in April. Current rates of 5 percent are a fifth of the value-added taxes imposed in Nordic countries like Sweden, and need to be raised to prevent the implosion of a debt burden that’s more than double the size of Japan’s economy, Ito said.

Japan could face debt downgrade if budget deficit doesn't shrink: S&P (Reuters) - Japan could face a debt downgrade if it does not shrink its budget deficit, which is unlikely to return to primary balance by a targeted date of fiscal 2020, even if the prime minister's policies go well, a senior official of Standard & Poor's said. Japan's outstanding debt burden is the highest in the world at 1,000 trillion yen, or more than twice the size of its economy. Standard & Poor's remains doubtful about the scale of Japanese welfare reform and how much spending can be cut, Takahira Ogawa, director of sovereign ratings at the agency, told reporters on Friday. Prime Minister Shinzo Abe is set to announce around October 1 that he will raise sales tax to 8 percent from 5 percent in April to pay for welfare spending, but the hike may not aid public finances because the government is compiling stimulus measures to offset the blow, Ogawa said. "The government is taking about raising the sales tax by 3 percentage points, but the stimulus spending is worth around 2 percentage points," Ogawa said. "In the end a 1 percent point hike may not have much of an impact." The agency has an AA- rating on Japan, which is three notches from the top rating of AAA. S&P's rating on Japan has a negative outlook, meaning a downgrade is possible.

President Obama speaks out on Trade Promotion Authority - President Barack Obama on Thursday said he hoped to work with Republicans in Congress on a bipartisan bill supporting White House efforts to wrap up huge trade deals with 11 other countries in the Asia-Pacific region and the 28 nations of the European Union. “We’re going to need Trade Promotion Authority,” Obama said in remarks to the President’s Export Council, which brings together top corporate leaders, Cabinet officials and members of Congress to discuss ways to expand trade. The remarks came as the White House is trying to finish talks on the proposed Trans-Pacific Partnership with Japan, Vietnam and other Asia-Pacific countries by the end of the year. “We are very far along in trying to get that deal done,” Obama said. The United States is also set to hold a second round of talks in October with the European Union on the proposed Transatlantic Trade and Investment Partnership. Obama, who was seen as indifferent to trade agreements when first elected in 2008, tied both negotiations to his flagging five-year goal of doubling exports to more than $3 trillion in 2014.

Trans-Pacific Partnership: Ocean’s Twelve - If all goes to plan, within a few months the world will have an enormous new trading bloc that will affect everything from how public tenders are conducted in Australia to what kind of thread Vietnamese tailors can use. The new trade zone, which would stretch from the US to New Zealand and from Japan to Peru, would be the first self-styled “21st-century trading agreement” and, arguably, the most important advance for free trade in two decades.But what, precisely, is the Trans-Pacific Partnership? To some, it is the “gold standard” of trade deals. They argue that the 12-member club of aspiring free-trade purists led by the US can jump-start the stalled multilateral Doha round, which the World Trade Organisation initiated in 2001 to break down global trade barriers. To opponents, the TPP is a “giant corporate power grab” that would endanger food safety, access to medicines and national sovereignty. Some others regard the project as a commercial irrelevance, or at best a US geopolitical exercise in Asian re-engagement gussied up in free-trade clothing. In China, official media have suspected that the deal has more insidious goals than simply forging a trade alliance, accusing the US of corralling Pacific nations against Beijing’s interests. The would-be agreement had humble beginnings. Initially a trade pact envisaged by Brunei, Chile, New Zealand and Singapore, the TPP was transformed in 2008 when the US expressed its interest. Since then, the TPP has expanded to 12 members, bringing in Australia, Canada, Malaysia, Mexico, Peru and Vietnam. Most significantly, this year, Japan – often considered a free-trade laggard – surprised many by entering the talks. Its entry brings a critical mass to a deal that, if completed, would cover countries that account for two-fifths of global output and one-third of international trade.

Senators Seek to Address Currency Manipulation Asia-Pacific Trade Deal - A group of sixty U.S. senators on Tuesday asked the Obama administration to consider the issue of currency manipulation as a part of major trade negotiations among Asia and Pacific nations. Sens. Debbie Stabenow (D., Mich.) and Lindsey Graham (R., S.C.) circulated a letter among their colleagues urging Treasury Secretary Jacob Lew and U.S. Trade Representative Michael Froman to look into the issue of currency manipulation by other countries in the Trans-Pacific Partnership and future trade pacts. The letter to Messrs. Lew and Froman doesn’t include details of how alleged manipulation should be addressed. “Currency manipulation can negate or greatly reduce the benefits of a free trade agreement and may have a devastating impact on American companies and workers,” the letter said. Earlier this month, Members of a House of Representatives committee discussed with Messrs. Lew and Froman whether it makes sense to include rules limiting government currency interventions in a trade pact under negotiation with Asian and Pacific countries, according to attendees at the meeting. Rep. Sander Levin (D., Mich.) and other critics have blamed China and Japan for working to weaken their currencies unfairly, a move that can put U.S. goods, including American-made cars, at a relative disadvantage. Lawmakers and officials arrived at no conclusion about whether exchange rates belong in the trade pact. Critics have long accused China of reining in the yuan. Recently the Bank of Japan has pursued a policy, much like the U.S. Federal Reserve, of using large-scale monetary easing to stimulate its economy. The U.S. is seeking to finish talks on the TPP, which includes Japan and a dozen Asian and Pacific countries but not China, by the end of the year.

TPP, Fast track, secret to you - Via Truthout comes this item: So far, the TPP has been drafted with an unprecedented degree of secrecy. While information has been kept from the public more than 600 corporate advisers have access to the treaty’s text – including companies such as Halliburton, Monsanto, Walmart, and Chevron. The Obama administration has kept the TPP classified, making it the first-ever classification of a trade agreement. In addition to denying public access to its text, the president has urged Congress to use Fast Track to pass the treaty. Fast Track would limit congressional consideration of the text to a quick up or down vote and give President Obama the power to sign and negotiate the treaty. This turns the Constitution on its head as the Commerce Clause authorizes Congress to “regulate commerce among nations” not the president.” See here and here.  Succinctly, Stormy writes: Of course, no major paper covered the protest…we know who pays the bills. Obama will fast track the secret agreement through Congress—who of course will not pay much attention, watching their wallets instead. If suspicions are correct, then multinationals will control more of labor and environmental regulations than we really want—in short, well-known impediments to corporate profit. I am beginning to learn that what IS NOT in the news is actually more important than what IS the news.

China and the TPP, Part II - Yesterday, we wrote about China’s “Trojan Horse” option for the Trans-Pacific Partnership. Today, we follow up with a little bit more analysis of how these trade deals look from China’s point of view.In the previous post, this blog highlighted that some feel China may be pursuing a kind of “spoiler” strategy with regards to its apparent recent interest in joining the Trade in Services Agreement (TiSA) and even possibly the TPP negotiations. We noted that China had recently almost single-handedly ruined the WTO’s Information Technology Agreement (ITA) negotiations by trying to get an unreasonably large number of products excluded for the benefit of its domestic industries. The TPP and TiSA, to some extent, represent a “if you can’t persuade ‘em, then ignore ‘em” strategy for the negotiating members, a trade “coalition of the willing,” if you will. For China though, things look quite different, and indeed attempting to derail or alter these negotiations is perfectly natural and understandable. For example, if China were to find itself excluded from a successful and extensive TPP or TiSA, then it would be negatively affected.  There will almost certainly be benefits for any player if they were to base production or service facilities within a member economy (thus being able to sell more competitively within other member economies tariff-free or at reduced rates). Already suffering from diminishing competitiveness, China is keen to avoid any further hits to its trade position. So China does not want to be excluded, but on the other hand, being included in an extensive agreement with tough requirements would be bad for Beijing, too. China is still far behind more advanced economies in the quality, extent and abilities of its nascent services sector. Equally, many of its companies depend on government support or benefit from facilities that would be hit hard by current TPP conditions.

Why is China ahead of India? A fascinating analysis by Amartya Sen -- I had the wonderful opportunity to listen to my former professor Amartya Sen at the World Bank who attempted to answer this very pertinent question in the minds of many today. The fundamental question at the core is why is it that while we rate democracy as the better form of government, it is single party ruled China that has been more successful at bringing more people out of poverty than democratic India? The implications for India are clear; investing in education and health for all its citizens is the best solution for long term growth.Professor Sen argues that it is not the nature of government that is the main factor in China’s success but its investment in health and education that provided fuel to its explosive growth. India he said has under-invested in these key areas and hence its economic growth is poorly supported by quality human capital. Professor Sen was critical of the suggestion that countries could grow economically first and then invest in education later saying that it was the reverse that is true. He supported his claim bringing historical evidence of Japan’s rapid growth since the second decade of the 20st century being driven by its investment in health and education after the Meiji restoration on the 1868. More recently, similar investment by Korea and the South East Asian countries provided impetus to economic growth in these countries.

Raghuram Rajan’s Plans in His Own Words - The decision by the U.S. Federal Reserve to defer the rollback of its bond-buying program has provided the new governor of India’s central bank with a breather, but he’s not going to relax just yet.  The threat of a withdrawal of easy money in the U.S. signaled a possible rise in interest rates there and turned investor’s heads back towards American markets. This brought the rupee under severe pressure as investors pulled money out of India in favor of the U.S.  In his debut monetary policy review late last week, Raghuram Rajan, indicated he would use the reprieve to get India’s economic house in order by fixing the fundamentals – rising inflation and sluggish growth –  in anticipation of Fed tapering down the line. India Real Time presents the key takeaways from the governor’s first major announcement:

India fails to bite the bullet to cut fuel demand (Reuters) - India's oil minister shied away from introducing comprehensive energy subsidy cuts on Tuesday, instead calling on his countrymen to embrace car pooling, buses and cycling as well as staggered working hours in a bid to curb fuel consumption. The struggling Asian economy - the world's fourth-largest user of energy - is battling a weak rupee that has increased the price of oil products as economic growth has halved to 4.4 percent from the 8-9 percent seen in the boom years. Delhi is also seeking to rein in a record current account deficit that is in part fuelled by energy imports. A falling rupee also boosts inflation and the wholesale price index measure of inflation, the benchmark for the country's central bank, rose to a six-month high of 6.1 percent in August. M. Veerappa Moily told a news conference on Tuesday he hoped to save $5 billion from fuel conservation measures even as he shied away from substantial measures such as raising diesel and other fuel prices as the electoral cycle hots up with polls due to be held by May 2014. "As of now there is no proposal to raise prices," Moily said, referring to diesel subsidy changes. India, where energy consumption per person is among the lowest in the world, has little room to cut fuel use as it tries to power exports and agriculture. Diesel accounts for more than 40 percent of fuel demand, or around 1.4 million barrels per day, the bulk of which is used by trucks, farmers and industry.

India and the danger of potential - If India continues its current path it will face a catastrophic shortage of jobs, creating a young and angry population, and with it conditions for social unrest and economic disaster. Whether India exploits or is undermined by its demographics will likely be determined by the policy choices over the next two administrations. It simply cannot afford a repeat of the last five years. That’s from a recent Espirito Santo note that makes for refreshing reading compared with the usual demographic dividend stories that cruise through our inboxes every few days. India is understandably a favourite topic of the latter, more usual, type — Deutsche, for example, has India’s working age population hitting 866.5m in 2040, and that’s with a cutoff age of 59 years, meaning it would bypass China as the world’s largest pool of workers in the late 2020s. A little more from ES on what threatens to be quite the resultant mismatch: Manufacturing’s importance [in India] has stagnated for 40 years and now contributes 15-16% to GDP, employing only 10.2% of the labour force. Services has meanwhile grown its share nearly 10% every decade to 60% of GDP today. But employment creation hasn’t kept pace, with the labour force share growing from 17% in the early 1970s to 27% today. This precocious development model isn’t sustainable. Services is unlikely to employ more than 25-30% of the incoming labour force over the next decade. Manufacturing will have to pick up the bulk of the rest. Yet manufacturing has added jobs at only 1-2 million a year since the 1970s, and actually lost 7 million jobs between 2005-2010.

Asian Bond Issuers Take Advantage of Low Rates, Fed Reprieve - Funding costs are declining across Asia as investors adjust their expectations of when the Federal Reserve will wind down its emergency support for the U.S. economy — and Asian bond issuers are running to take advantage of the reprieve. Issuance of bonds denominated in dollars, euros and yen from Asia excluding Japan hit $5.7 billion in the week of Sept. 9. That’s the highest level since mid-May, according to Dealogic, as borrowers sensed the appetite for emerging-market assets and rushed to raise funds before the Fed’s September meeting, when it was expected to announce a tapering of its economic stimulus policies. In the end, the Fed decided to maintain its bond purchases for now, helping to keep global rates low. Among those selling dollar bonds earlier this month were Sri Lanka’s National Savings Bank – its maiden offering – and the South Korean government. South Korea sold $1 billion in 10-year debt, paying a yield of 4.02%. When it last sold a dollar bond in 2009, it paid 7.125% on the 10-year tranche – a yardstick of just how much borrowing costs have eased since the global financial crisis.

The Global Economy Has Become Heavily Addicted to Bernanke’s Dollars  - Cash can be addictive. Once bankers and investors get hooked on lots of it sloshing around, weaning them off is akin to getting a chain smoker to give up his two packs a day. That’s what seems to be happening in the global economy right now. After five years of largesse, the Federal Reserve is faced with the daunting task of exiting from the unorthodox stimulus programs that have flooded the world with dollars. As a result, financial markets seem set to endure all the nervousness and tetchiness of nicotine junkies deprived of their smokes. The proof can be found in the tumult in world stock and currency markets in recent days. Last week, global investors expected Federal Reserve Chairman Ben Bernanke to announce that he would begin to “taper” his program of quantitative easing, or QE, in which the Fed buys $85 billion of bonds a month to support growth. Yet in a surprise move, he didn’t, citing uncertainty about the strength of the U.S. economic recovery. “We want to make sure that the economy has adequate support,” Bernanke said in a press conference, “until we can be comfortable that the economy is, in fact, growing the way we want it to be growing.” You’d think such a statement would scare investors. After all, the U.S. is the world’s largest economy, and any indication its recovery may be sputtering (again) should be a negative for markets. Not so this time. Stock markets around the world soared. Even the stocks and currencies of emerging markets like India and Indonesia, which had gotten battered in anticipation of the taper, rebounded strongly.

The Fragile Five - Whilst tapering the cheap cash injections and an end to the Fed's economic stimulus could begin to spell a return to normality for the US economy, it could have serious ramifications for five large emerging economies in particular.Dubbed "The Fragile Five" by Morgan Stanley, these are the countries judged to be most at risk when tapering finally begins. The group includes Indonesia, South Africa, Brazil, Turkey and India. What do they all have in common? Well, they all have large current account deficits - the broadest measure of the trade gap - which means that they rely on external financing. So, these countries have relied on money flowing into their borders, and now that investment may leave when the end of the era of cheap cash looms. I have written about this Great Reversal of cash before.Plus, foreign investors are worried about political risk because all five have elections set for next year. That raises uncertainty. Perhaps one reassuring thought is that there has been some time for these economies to prepare for the inevitable end of cheap cash. Unlike prior crises where the money left quickly there is no "sudden stop" of cash this time. After all it's been five years since the financial crisis and the Fed can't inject money into the economy forever.

World Trade Volume Rose by 2.2% in July - The volume of world trade rebounded strongly in July after two straight months of decline, an indication that the global economy gained momentum at the start of the third quarter. In its monthly report said the volume of exports and imports rose 2.2% from June, having fallen by 0.5% in that month. The rise in trade volumes was strongest in the developing economies of Asia, where imports were up by 5.4% and exports were up 5.7%, more than reversing the large falls seen in June.  The CPB’s July trade figures are consistent with other indicators of economic activity, which have recently pointed to a stronger global economy. The JP Morgan global purchasing managers index rose in August to hit its highest level since February 2011. According to figures provided by the Organization for Economic Cooperation and Development, the global economy picked up in the second quarter of this year, with the combined gross domestic product of the Group of 20 largest economies expanding by 0.9%, up from the 0.6% recorded in the first quarter. However, G-20 leaders remain concerned about the strength and sustainability of the recovery, warning after their summit earlier this month that it was too weak. They were particularly worried by a recent slowdown in a number of developing economies, partly as a result of capital outflows and an associated increase in volatility in financial markets. The July revival in trade suggests their worst fears have not been realized. In addition to developing countries in Asia, trade flows rebounded in Africa and the Middle East, and grew strongly in central and eastern Europe. Imports to Latin America rose, although imports fell.

Global trade volume and world industrial production both reached new record highs in July -  The CPB Netherlands Bureau for Economic Policy Analysis released its monthly report this week on world trade and world industrial production for the month of July 2013. Here are some of the highlights of that report:

  • 1. World merchandise trade volume (adjusted for price changes) increased by 2.2% in July from June, and by 3.6% from a year ago to reach a new all-time record high in July (see blue line in chart above). On a month-over-month basis, both import growth and export growth for July were much stronger in the emerging economies (5.4% for imports and 4.0% for exports) than in the advanced economies (-0.5% for imports and 1.4% for exports).
  • 2. Annual growth in trade activity over the last year was led by the emerging economies with a 5.4% increase in exports and an 8.2% increase in imports, while advanced economies experienced an increase in exports of 1.5% and a slight decrease in imports (-0.2%).
  • 3. At a new record high of 131.9 for the trade index in July, the volume of world trade is now nearly 8% above its previous cyclical peak of 122.2 in early 2008, and almost 35% above the recessionary cyclical low of 98 in May 2009.
  • 4. World industrial production (adjusted for price changes) increased in July on a monthly basis by 0.5% to a new record high, led by monthly growth of 0.9% in the emerging economies compared to only 0.1% growth in the advanced economies in July (see red line in chart
  • 5. At an all-time high index level of 121.3 in July, world industrial output is now 7% above its previous recession-era peak in February 2008 of 113.5, and 23.3% above the recessionary low of 98.4 in February 2009.

Bangladeshi factory workers locked in on 19-hour shifts -- It's the middle of the night and I am lying on the floor of a van in the sweltering back streets of Dhaka, Bangladesh. I'm outside a factory making clothes for a western supermarket. I can see dozens of workers inside. They've been in there since 07:00. We've been told this factory - Ha Meem Sportswear - works incredible hours; we're hiding in the shadows to get the proof. There's a guard sitting in front of the main gate. He hasn't spotted us. He's about to do something shockingly dangerous. At 01.15 - with workers still busy inside - he locks the main factory gate and wanders away. This place had a fire a few weeks ago and they're commonplace in the industry. If anything goes wrong tonight, the workers are trapped inside. The shift finally ends at 02.30. That's a nineteen and a half hour day. One worker agrees to talk. He earned about £2 for the shift and he's exhausted. He has to be back at work again for 07:00.

Two Hundred Bangladesh Factories Shut on Labor Unrest - Bangladesh labor protests entered a fourth day after overnight negotiations failed to end a dispute over low wages as garment factory owners reopened plants that supply companies including Wal-Mart Stores Inc. (WMT) Shipping Minister Shajahan Khan met last night with factory owners and labor leaders in an effort to end demonstrations that forced about 400 of the country’s 5,000 garment factories to close yesterday. Thousands of workers seeking to more than double their monthly pay to $104 blocked traffic today in Dhaka, the capital. “I hope the workers will get back to work,” Khan told reporters after the meeting ended early today. He promised to boost security for factories that employ 3.6 million people, mostly women, and account for 78 percent of the country’s export earnings. The labor unrest comes five months after the collapse of the eight-story Rana Plaza factory complex killed more than 1,000 people in the worst industrial accident in the South Asian country’s history. The lowest wages in Asia after Myanmar have helped spawn a $19 billion Bangladeshi manufacturing industry that supplies global retailers with cheap clothes.

The End of Poverty, Soon - Jeffrey Sachs - In April, the Development Committee of the World Bank set the goal of ending extreme poverty by the year 2030. More recently, the United Nations General Assembly working group on global goals concluded that “eradicating poverty in a generation is an ambitious but feasible goal.” As one who wrote in 2005 that ours was the generation that could end extreme poverty, I am pleased to see this idea take hold at the highest levels.  Are these errant dreams as the world barrels toward more confusion, conflict and climate change, or is there something substantial in the recent wave of high-level interest in the idea? The evidence is on the side of the optimists. And the evidence also supports both those who favor more markets and those who favor more public-private strategies. It’s all a matter of context. The global picture will surprise doomsayers. According to the World Bank’s scorecard, the proportion of households in developing countries below the extreme-poverty line (now measured as $1.25 per person per day at international prices) has declined sharply, from 52 percent in 1980, to 43 percent in 1990, 34 percent in 1999, and 21 percent in 2010. Even sub-Saharan Africa, the region with the most recalcitrant poverty, is finally experiencing a notable decline, from 58 percent in 1999 to 49 percent in 2010. The gains are more marked in health. According to the latest Unicef study this month, the mortality rate of children under 5 in Africa declined from 177 deaths per 1,000 births in 1990, to 155 per 1,000 births in 2000, to 98 per 1,000 in 2012. This is still too high, but the rate of progress is rapid and accelerating.

Argentina’s Shrinking Currency Reserves Point to Further Controls — Argentine President Cristina Kirchner may have to impose further U.S. dollar rationing on her citizens in coming months as the slide in the hard currency reserves that Argentina uses to pay its import bill and creditors shows no sign of abating, analysts say. Argentina faces significant dollar outflows at a time when the foreign currency provided by trade, the South American nation’s only significant source of the U.S. currency, is shrinking due to surging fuel imports. The trade surplus accumulated between January and August narrowed by 32% on the year to $6.29 billion, the government said Monday. With the last few months of the year a seasonally slack period for exports, the Kirchner administration may struggle to reach its latest target of a $10.6 billion surplus in 2013. If the government’s past behavior is any indicator of future behavior then more belt tightening could fall on tourism and imports. Net dollar outflows from tourism rose to $4.53 billion in the first half as Argentines continued to travel and shop abroad even after the government slapped a special 20% tax on those activities.

Russia Urged by IMF to Avoid Stimulus as Growth Forecast Lowered -- Russia should avoid higher budget spending in the coming years and refrain from easing monetary policy to keep inflation under control, the International Monetary Fund said as it cut the economy’s growth forecast. Increased infrastructure outlays have to be offset by cuts in other expenditure to rebuild fiscal buffers and save oil revenue, the Washington-based fund said in a statement after completing the Article IV consultation of Russia’s economy. It recommended that Bank Rossii keep interest rates on hold “with a tightening bias.” The comments feed into a government debate over how to steer the $2 trillion economy out of its sharpest slowdown since 2009, with the central bank spurning calls by senior officials for lower borrowing costs by holding its main lending rates for a year. The IMF predicts Russia’s gross domestic product will grow 1.5 percent this year and 3 percent in 2014, versus July projections of 2.5 percent and 3.3 percent.

Now not the time for deeper austerity in Russia- Finance Minister - Russia's government should avoid deeper austerity measures at a time of slowing economic growth, Finance Minister Anton Siluanov told the Reuters Russia Investment Summit on Tuesday. But he also said that without further structural reforms to the budget and measures to cut spending by state monopolies, Russia may face "significant risks" from a rise in spending within five years. His comments came on the day that the International Monetary Fund urged Russia to pursue gradual fiscal tightening in the medium term, warning that risks to Russia's economy "are tilted to the downside". Siluanov disagreed with the IMF's call for deeper cuts, saying that the budget of the world's eighth-largest economy was already tight enough. "In a period of slower growth in the economy one should not cut state demand because that will deliver a double blow to the economy," Siluanov said.

Draghi Says ECB Will Offer More Long-Term Loans If Needed. “We are ready to use any instrument, including another LTRO if needed, to maintain the short term money markets at the level that is warranted by our assessment of inflation in the medium term,” Draghi said in response to questions from lawmakers in the European Parliament in Brussels today. Euro-area money-market rates rose to a level that Draghi described as “unwarranted” in July after the U.S. Federal Reserve signaled that it would begin to ease stimulus and signs emerged of a recovery in the 17-nation region. While those rates have since declined, excess liquidity in the financial system is approaching the 200 billion-euro ($270 billion) level the ECB has previously signaled as a lower limit. In his opening remarks at the hearing, Draghi said while repayment of central bank credit is “certainly a sign of normalization, the resulting reduction in excess liquidity can reinforce upward pressures on term money market rates.” As the buffer of excess cash held by the financial system falls, the rates that banks charge each other for liquidity can rise as they shoulder more risk.

Portugal Could Be Cooking Up a Storm - Now that the German elections are over, the euro zone needs to get back to crisis fighting. And top of the list of urgent problems is what to do about Portugal. Uniquely among crisis countries, Portugal has seen no benefit from improving sentiment toward the euro zone. Despite second-quarter growth in gross domestic product of 1.1%—the strongest in the currency bloc—Portuguese 10-year government bond yields have soared well above 7% from 5.23% in May. Last week Lisbon was warned by Standard & Poor's that its credit rating faced a possible downgrade. Before the summer, Portugal was able to issue five- and 10-year bonds. Now it is shut out of markets again. Blame that on June's political crisis when government squabbling over the budget triggered the resignation of highly regarded Finance Minister Vitor Gaspar.  Ultimately, the administration led by Prime Minister Pedro Passos Coelho re-emerged at the head of an unchanged coalition, but the damage to investor confidence has been immense. There are two ways to think about Portugal's predicament. One is to look at it as a game of multidimensional chess involving the government, the markets and the so-called troika of official lenders that comprises the European Central Bank, the European Commission and the International Monetary Fund. The object is to restore Portugal's market access while avoiding at all costs any solution that involves forcing private-sector bondholders to take losses, given damage to Portuguese banks and wider euro zone contagion.

A Merkel rout --That means there’s a slight shift to the left in the Bundestag and, more significantly, an increased share of the vote for Merkel. They must really love her. (Sorry AfD) From the FT:The outcome is seen as a remarkable personal victory for the chancellor, who steered her Christian Democrats to their best result in more than 20 years, winning 311 seats in the 630-seat parliament, a swing of 8 points to the largest party group.The performace of erstwhile coaltion partners the FDP was more painfully notable. From Citi:Of the roughly 4.5m votes the CDU/CSU gained, roughly half came from voters that previously voted for the FDP, a quarter did not vote at all in 2009. Not only will it not be represented in parliament for the first time since 1949, but it also suffered the biggest loss invote shares of any party in a postwar election in Germany with the exception of the SPD in 2009 and it lost voters to all other parties and to non-voters. Against our expectations, any strategic voting in favour of the FDP was thus clearly limited (according to which CDU voters would vote for the FDP to allow it to get over the 5% threshold).

The world has the Germany it always wanted - Once upon a time a question often asked about Germany was whether it was, or could ever be, a “normal” country. Was it doomed to be different from other economically advanced, liberal democracies because of its relatively late emergence in 1871 as a nation state and the violent trajectory of its 20th-century history? It is a tribute to Germany’s political leaders, and to German society as a whole, that such questions have largely been forgotten.  One certainly hears criticisms – from within Germany and without – to the effect that modern Germans, especially in the context of the eurozone crisis, are too placid, too cautious, too content to stay in their comfort zone. But the notion of a country of irresponsible political thinkers and aggressive rulers, imbued with a unique tendency to inflict destruction on their nation and others, belongs to the past. It is nonetheless something of a special case, though for reasons different from those once identified by historians. Between the 1950s and the 1980s, they described a Germany that had spread mayhem far and wide because of a warped process of industrial, political and social modernisation unlike anything undergone by Britain, France or the US. Today’s Germany is special because of the maturity and moderation of its politics, the stability of its decentralised system of government, the strength of its law-based democratic institutions and the power of its economy. I deliberately place the economy last on this list of virtues. It was said of West Germany, before reunification in 1990, that economic prosperity and a rock-solid currency were its most important achievements. It was, after all, a virtually invisible actor on the world’s geopolitical stage, and it was still a young democracy. With today’s Germany, however, we must alter our perspective to appreciate the country’s real strengths.

Good News for Merkel is Not Necessarily Good News for Europe - The German word for election, Wahlen, comes from the word “choice”, and in this general election there wasn’t really one. The parties avoided contentious issues, which was not terribly difficult since there were few. With the exception of the leftist “Links” party the other principal parties are solidly centre-right. The clear winners were the Christian Democrats (CDU) and their Bavarian sister party CSU. They registered their best showing in two decades, reaching 41.5% of cast votes and were close to an absolute majority in the Bundestag, the lower house of parliament. Together with the approximately thirty percent of voters who did not bother to go to the ballot box, another fifteen marked their ballot papers for parties that failed to pass the five percent hurdle. That means that just over half of the voters supported the parties in the next Bundestag. In other words not even one in four of the electorate chose Mrs. Merkel and her party. This omission says a lot about the current state of German politics. There is hardly a compassionate voice here in politics, nor in the media concerning the effects of this crisis – at least not in mainstream media. No one talks about the millions of young people, pensioners and so many others in Greece, Ireland, Portugal, Spain, Italy and Cyprus whose lives are being ruined by the current crisis or face emigration.

Germany’s strange parallel universe - Angela Merkel’s remarkable election result confirms her position as the dominant politician in Germany and so also in Europe. It is assumed she will get the eurozone she wants: Germany writ large. That may prove right. Alas, if she does, it is going to be a deeply depressing spectacle.  Wolfgang Schäuble, Germany’s finance minister, laid out the view on which Berlin’s current policy is based, with sobering clarity, in the Financial Times last week. The doomsayers, he argued were wrong. Instead, “the world should rejoice at the positive economic signals the eurozone is sending almost continuously these days”. If depressions and mass unemployment are a success, then adjustment in the eurozone is indeed a triumph. Mr Schäuble accuses his critics of living in a “parallel universe”. I am happy to do so rather than live in his. Ambrose Evans-Pritchard of The Telegraph has provided a colourful rejoinder. Kevin O’Rourke of Oxford and Alan Taylor of the University of California, Davis, offered a sober assessment, concluding that a break-up is not unthinkable. So where is the eurozone? Its unemployment is 12 per cent. Its gross domestic product in the second quarter was 3 per cent below its pre-crisis peak and 13 per cent below its pre-crisis trend (see chart). In the most recent quarter, Spain’s GDP was 7.5 per cent below its pre-crisis peak; Portugal’s, 7.6 per cent; Ireland’s, 8.4 per cent; Italy’s, 8.8 per cent; and Greece’s, 23.4 per cent. None of these countries is enjoying a strong recovery. The latest unemployment rate is 12 per cent in Italy; 13.8 per cent in Ireland; 16.5 per cent in Portugal; 26.3 per cent in Spain; and 27.9 per cent in Greece. These would be higher without emigration. Ireland’s plight is a warning: it has long since restored its competitiveness and is running a large current account surplus. Yet its GDP has stagnated for four years.

Fiscal Sadism in Greece --In case you missed it, what with all the celebrating going on in the eurozone over the incredible success of austerity policies, the unemployment rate in Greece is now at 27.9 percent and the country is likely on its way to a third bailout. C. J. Polychroniou argues in a new one-pager that offering Greece another bailout package like the first two makes no sense, and he provides some much-needed (and daunting) perspective on how far Greece would need to climb — assuming its economy started growing, and wasn’t still contracting (Greek output shrank by “only” 3.8 percent in the second quarter of 2013) — just to get its economy back to where it was before its version of the Great Depression set in:“At this stage, in order for Greece to be able to service its debt and recapture its lost GDP and employment levels, one would have to rely on an outrageously optimistic scenario of economic growth: probably somewhere in the range of a long-term nominal GDP growth rate of 7–8 percent. While Greece may soon end up with wages comparable to those of China, the odds of its experiencing growth rates close to those of China are probably the same as achieving time travel.”

Greece Moves Back to Center Stage in Europe's Debt Drama - The reelection of Angela Merkel means that Germany, which has financed most of the €240 billion in aid pledged to Athens so far, is likely to continue insisting that Greece maintain strict budget austerity. Even though she will be looking for a new coalition partner—most likely either the Green party or the center-left Social Democratic party, the SPD—her approach to Greece isn’t likely to change, according to economist Alex White of JPMorgan Chase (JPM) in London. Merkel’s bloc won 41.5 percent of the vote, which means the chancellor “will be negotiating from a position of strength,” White says. “Given their weak position, we expect both SPD and Greens to focus more on domestic issues, and not to treat European differences as a deal-breaker.” STORY: Is Germany Responsible for the Euro Crisis? Meanwhile, the streets of Athens are getting ugly fast. Riot police were called to break up recent strikes by school personnel, and support for the far-right, nationalist Golden Dawn party—implicated in the recent stabbing death of a young rap musician in Athens—is surging. Potentially even more damaging, the Greek government is considering lifting a five-year-old moratorium on mortgage foreclosures that has prevented thousands of Greeks from losing their homes. Some 29 percent of loans on the books of Greek banks are nonperforming, threatening the lenders’ solvency.

Next Greek package: Dangers for the EZ - The situation in Greece is so disastrous that some form of debt relief is likely. The timing is right as Germany’s electoral ‘purdah’ period has ended. The most likely solution, however, will make it impossible to deal with other countries. Since the beginning, policymakers have invented “unique and exceptional” solutions to deal with Greece. But these went on to become the blueprint for subsequent programmes applied to other countries.This column argues that Greece is suffering because northern EZ countries kicked the can down the road by forcing crisis countries to borrow rather than restructure their debts early on. It is time for the ‘generous’ lenders to face the consequences of their short-sightedness. The bad news that Chancellor Merkel ought to break now to her people is that official debt restructuring is inevitable.

From Tragedy To Travesty – Selling Off The Cradle Of Democracy - Is it merely a coincidence that the troika rode its Trojan horse into Athens again on the very day Angela Merkel went awfully close to an absolute majority in German elections? I’m sure it is. But it’s still very bad news for the Greeks, who now have their perhaps last chance to throw out the international financial system and decide their own fate, before most of their valuables have been sold off to foreign interests. Greece is where democracy started, and the way things are going, it may be where it will end as well. The troika starts the new round of talks right off the bat with more pressure on selling off more of the goodies, even as up to now they’ve not sold for anything near targets, at absolute bottom prices, if at all. The Greek population, if it doesn’t call a halt to these negotiations, will end up not owning a single brick in their own country anymore, and still be heavily indebted to foreign banks and investors. And largely unemployed. Their own government, which consists mainly of bankers too, warns of domestic radical elements, but what other choice but radicalization do they leave the people? From Greek news service Ekathimerini: Troika Puts Pressure on Sell-Offs Creditors insist on acceleration of privatizations projects for the shortfall in revenues to be covered in 2014. The troika of Greece’s creditors on Monday exercised strong pressure on the state privatization fund (TAIPED) to speed up the country’s sell-off projects.

Greece, in Anti-Fascist Crackdown, Targets Police - The killing of Mr. Fyssas has spurred the government to begin a risky crackdown on Golden Dawn, opening its first investigation into whether the police forces are infiltrated by sympathizers or members of the group, one of the most violent rightist organizations in Europe. On Tuesday, officers raided three police stations on the outskirts of Athens. The sweep came a day after the government replaced seven senior police officials — including the chiefs of special forces, internal security, organized crime and the explosives unit — to ensure the investigation would take place with “absolute objectivity.” In addition, two top members of the Greek police force resigned abruptly Monday, citing “personal reasons.” Such steps have the potential for volatile repercussions in a country where the security forces have had links to far-right organizations at various points since the end of World War II. They are likely to test the determination of the government and the public to turn back the influence of Golden Dawn, which has climbed steadily in opinion polls in the past year and has 18 of its members in Parliament.

France says public debt to hit record in 2014 - France said Wednesday its public debt would hit a record 95.1 percent of GDP in 2014, far higher than previous estimates, as it unveiled next year's draft budget for the embattled eurozone economy. But the government said debt should fall back in 2015, and reiterated a pledge to meet its EU-mandated deadline to bring the public deficit below three percent that year. The draft budget was presented to the cabinet by Finance Minister Pierre Moscovici and Budget Minister Bernard Cazeneuve, who outlined "unprecedented" 15-billion-euro ($20-billion) cuts in public spending as France tries to rein in its public deficit without compromising growth. The country is battling to rekindle tepid economic growth back amid record-high unemployment, limited investment and low consumer spending. Some 80 percent of fiscal savings next year will come from cuts in public spending and 20 percent from a rise in taxes, the ministers said.

Italian GDP Slumps Fastest Since 1861's Unification - Italy’s Stability Program targets a 5%-6% primary budget surplus, and 3% nominal GDP growth. Both strike JPMorgan's Michael Cembalest as unrealistic in the context of post-crisis Italy. Italy ran a 6% surplus for a brief moment in the 1990’s but it didn’t last, as it was the result of a prior devaluation helping growth, some asset sales and some tax increases. Only asset sales seem feasible in Italy right now, if anything.  If Cembalest's concerns are correct, Italy will remain a country with almost twice the debt/GDP ratio as the US; unbreakable interdependency of the government, the banks, and the ECB; and low GDP and employment growth. If history is any guide, he will be right as the last few years have seen the biggest collapse in Italian GDP since The Unification in 1861...

Italy on Verge of Downgrade to Junk; Silvio Berlusconi’s Supporters Threaten Mass Resignation from Parliament - Silvio Berlusconi supporters threatened to resign form Italy's parliament en masse today, even though a week ago Berlusconi himself said he would not end the coalition.  In response to the threat of a government collapse Standard & Poor’s warned of a further downgrade “by one notch or more” if Italy could not demonstrate “institutional and governance effectiveness”. Italian sovereign debt is just two notches above junk. The Financial Times reports Italy PM Letta returns to resignation threat from centre-right Fresh from assuring potential Wall Street investors that Italy was “young, virtuous and credible”, prime minister Enrico Letta was heading back to Rome late on Thursday to save his coalition government from collapse after Silvio Berlusconi’s supporters threatened a mass resignation from parliament. The 76-year-old former prime minister – convicted last month for tax fraud and also appealing against a separate conviction for paying for sex with an underage prostitute – threw the government into chaos on Wednesday night when his centre-right Forza Italia party warned it would quit parliament if a senate committee voted to expel its leader from the upper house next month. As Mr Letta has repeatedly warned, Italy can ill afford higher costs in servicing its €2tn of public debt, with its budget deficit for 2013 currently forecast to overshoot the 3 per cent limit agreed with the EU.