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

Saturday, September 14, 2013

week ending Sept 14

Fed Balance Sheet September 12, 2013 - For the September 11 week, the Fed balance sheet expanded $7.9 billion after growing $9.7 billion the prior week. The gain was led by a $7.8 billion in holdings of Treasuries with "other assets" (largely those denominated in foreign currencies) gaining $2.2 billion. Partially offsetting was a $1.5 billion dip in federal agency debt. Total assets for the September 11 week were $3.662 trillion. Reserve Bank credit for the September 11 week increased $8.9 billion, a gain of $5.5 billion the week before. Total assets in the Fed's H.4.1 report are Wednesday levels while Reserve Bank credit is an average of daily figures for the week ending on the same Wednesday. Changes in total assets are from Wednesday to Wednesday while changes in Reserve Bank credit are for weekly averages.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--September 12, 2013 - Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Events disrupt the Fed’s timetable - A week ago, the immediate path ahead for the Fed seemed to be well mapped out for the financial markets. There was a clear consensus that the FOMC would taper its asset purchases in its 17-18 September meeting, and would completely end its asset purchases in mid 2014. Furthermore, it seemed increasingly certain that Lawrence Summers would be nominated by the President to be the next Fed Chairman sometime in October, and that the ratification process would end in time for him to take office on 1 February. Now this timetable has been thrown into much greater doubt.The primary culprit for the doubts on that path for Fed tapering was, of course, Friday’s lacklustre jobs report for August. Tim Duy presents his always insightful analysis of the data here. Non-farm payrolls growth has dipped in recent months, and the decline in the unemployment rate to 7.3 per cent has been mainly driven by a fall in the labour participation rate. Furthermore, the jobs which are being created are largely in the low paid sector, many of them part time, so consumer spending power is still subdued. The key question is whether the Fed will deem this to be the “substantial” improvement in the labour market which they say they need to justify tapering. Here is an updated version of the labour market spider chart which I have used before:

Fed Message Muddled as Misunderstood Taper Meets Slowing Growth - Federal Reserve Chairman Ben S. Bernanke and his colleagues meeting next week are poised to take two steps that appear inconsistent. They will probably lower their estimates for growth for this year and next for the third consecutive time. Simultaneously, they are forecast to start scaling back the $85 billion in monthly bond purchases they have been relying on to stoke the recovery. What’s more, annual inflation has been running at least a half percentage point below the Fed’s goal since December. And while the unemployment rate, at 7.3 percent in August, is falling, that’s mainly because some Americans are leaving the labor force. “As a central bank, you are lowering your growth forecast, inflation is running low, and hiring is slowing and you are going to taper your asset purchases?” Borrowing costs increased on the mere mention at Bernanke’s last press conference, following the June policy meeting, of a tapering of bond purchases sometime this year. The yield on the U.S. 10-year note reached a 12-month high of 2.99 percent on Sept. 5, compared with 2.19 percent on June 18, the day before Bernanke’s remarks.

Unemployment Falling for Wrong Reason Creates Fed Predicament - While unemployment dropped last month to 7.3 percent, the lowest level since December 2008, the decline occurred because of contraction in the workforce, not because more people got jobs. Labor-force participation -- the share of working-age people either holding a job or looking for one -- stands at a 35-year low. The reduced workforce “poses a problem for the Fed,” said Roberto Perli, a former central bank official who is now a partner at Cornerstone Macro LP in Washington. “The unemployment rate is coming down faster than the Fed thought, but it’s not declining for the right reason.” The jobless rate is important because Chairman Ben S. Bernanke and his colleagues have established it as the lodestar for policy. Bernanke has said he expects the Fed to complete its asset-purchase program in the middle of next year when unemployment is around 7 percent.

Fed’s Williams: Closer to Fed’s Marker of ‘Substantial Improvement’ in Labor Market -- An improving labor market puts the Federal Reserve on track to start scaling back its monthly bond purchases this year, though not necessarily as soon as next week, a central bank official said Monday. “We’re still on our forecast, in my view, that we would begin tapering, quote-unquote, later this year,” Federal Reserve Bank of San Francisco President John Williams told reporters after a speech here to the National Association for Business Economics. He added, “I’m not going to get into whether that’s September, or whatever.” Many investors and analysts expect the Fed to start winding down its bond-buying program as soon as its policy meeting next Tuesday and Wednesday. Mr. Williams said he is going into the meeting “with an open mind.” The Fed is buying $85 billion per month of bonds—$45 billion of Treasurys and $40 billion of mortgage-backed securities– in an effort to hold down long-term interest rates in hopes of boosting asset prices, spending, investment and hiring. The Fed has said it would continue the purchases until the outlook for the labor market has improved “substantially.” Mr. Williams, who has been a strong supporter of the bond-buying program, said, “I think that we are continuing to get closer to this marker of substantial improvement.”

Lies, damned lies and the US unemployment statistics - The Fed has said that it will taper its asset purchases next week if it judges that the labour market outlook has improved “substantially”, and will consider interest rate rises when the unemployment rate falls below 6.5 per cent. Jan Hatzius of Goldman Sachs says that the Fed is suffering from “buyer’s remorse” over the 6.5 per cent threshold, and may reduce it next week. But are they right to use the unemployment rate as their key indicator of labour market conditions? The evidence on this is becoming increasingly murky.The US unemployment rate has fallen from a peak of 10.0 per cent of the labour force in October 2009 to only 7.3 per cent today, an impressive rate of decline. Yet the employment/population ratio has hardly changed at all over the same period, implying that the whole of the decline in unemployment has been due to a decline in the participation ratio, as disillusioned job seekers have quit the labour force. On this basis, many Keynesians have argued that the labour market has not improved at all, let alone substantially. The corollary is that the unemployment statistics are giving a seriously misleading indication of the scope for further action to stimulate demand. This issue has been rumbling along for at least a couple of years, but it came to the fore last week with an important speech by John Williams, President of the San Francisco Fed. He said explicitly that “the preponderance of evidence indicates that the unemployment rate remains the best overall summary statistic”, while “the employment-to-population ratio blurs structural and cyclical influences”.

Fed Prepares for Change in Policy and in Policy Makers - — Federal Reserve officials, who have made clear that they intend to cut back on the Fed’s monthly asset purchases by the end of the year, must decide next week whether it is time to tap the brakes or better to wait another month or two.  The far thornier challenge they face is convincing markets that the Fed remains committed to its broader effort to stimulate the economy even as it begins to pull back from the most visible component of that campaign — and even though as many as nine of the 12 voting members of the Fed’s policy-making committee may be replaced in the next year.  Most notably, Ben S. Bernanke, the Fed’s chairman, is expected to step down at the end of January; the person President Obama is widely expected to nominate in his place, Lawrence H. Summers, has said little about monetary policy in recent years.  Fed officials are concerned that the markets will misinterpret the introduction of tapering, as the impending move is popularly known, as a sign of a broader retreat. They are expected to discuss ways of reinforcing the Fed’s continuing determination to encourage economic activity and job creation when the Federal Open Market Committee meets here Tuesday and Wednesday.

Why Michael Woodford supports monetary tapering (Kaminska wins) In an excellent, follows up on my original question, there should be more of this kind of reporting piece, Matthew Klein writes: “For Woodford, the most important point is that the Fed’s balance sheet cannot keep growing without imposing costs on the financial system and broader economy — even when inflation is low and unemployment is high. While Woodford didn’t explicitly tell me what those costs were, a possible explanation can be found in this brief passage from the paper he presented at last year’s Jackson Hole Economic Symposium: An increase in the safety premium obtained by making “safe assets” (in the relevant sense) more scarce would in itself be welfare-reducing. If Treasuries provide a convenience yield not available from other assets (including bank reserves), then reducing the quantity of Treasuries in the hands of the public reduces the benefits obtained from this service flow. In other words, Treasury bonds are uniquely useful for savers. When the Fed makes these securities more expensive — or restricts their supply through asset purchases — the central bank harms regular savers without doing much to boost the broader economy. Moreover, the relative scarcity of newly-issued Treasury bonds has been causing havoc in the repo markets. Here is Izabella Kaminska on collateral shortage

Goldman Expects $10-15bn Taper And Fed Walking-Back From Employment Thresholds - With bonds and stocks rallying (and the USD dropping) notably in the last few days, one could be forgiven for believing the Taper is off but Goldman's baseline forecast remains for a $10bn reduction in asset purchases - probably all in Treasuries - and $15bn is possible (though recently mixed labor data may choke that a little) and a strengthening of forward-guidance. As they note, the current redction in uncertainty (or rise in complacency some might say) has the potential to offset the tightening in financial conditions, barring another major outbreak of DC strife in the run up to the debt ceiling in late October/early November. However, what is most notable is Goldman's expectation that the Fed will start walking-back its unemployment-rate threshold as it has been clearly shown not to be a good catch-all indicator of broad economic and labor market performance. So it's data-dependent - but the data is unreliable at best and false at worst.

The IMF knows that the Fed is playing with fire in emerging markets - Listen to the IMF's Christine Lagarde very carefully. While the US Federal Reserve has as a parochial "closed economy" view – and made a series of grave blunders over the last six years as a result – her job is to look at the entire world, and she does not like what she sees. She warned over the weekend that Fed tapering could ricochet back into the US economy if handled carelessly. "Very negative spillover effects on the emerging market economies could very much backfire on other economies. So to assume that the domestic economy is totally isolated, that a country is an island, would not be the right approach," she told CNBC at the Ambrosetti Forum on Lake Como, which I have been attending. "Without necessarily changing the mandate, without reviewing the terms of references, and maybe without even acknowledging it, I cannot believe that central bankers do not take into account what's happening elsewhere in the world," she said. Unfortunately, that is exactly what the Fed seems poised to do. It is an open question whether the US economy itself has really reached escape velocity, or is strong enough to withstand much tapering, and the European economy is not even close to that point. One suspects that the Fed is acting for "bad motives" rather than "good motives", by which I mean that it is starting to tighten because of growing (and understandable) alarm about speculative excess, or because the Fed is worried as an institution that it cannot easily extract itself from QE if it waits until 2014 (the Mishkin thesis), not because the US economy is genuinely healthy. But the Brics are in no fit state to cope with the withdrawal of global dollar liquidity. And remember, emerging markets now make up half the world economy, so we are in uncharted waters here

Creating Effective Regulation is the Imperative Issue at the Federal Reserve --  William K. Black - The only positive aspect of the public contest to pick a successor for Ben Bernanke that the White House has inexplicably sparked is that economists are acknowledging that the next head of the Fed must act to create (not “restore”) effective regulation by the agency.  It is long past time to have a serious discussion about the collapse of regulation by the Fed.  In this column I make the first of what will become four points.  First, the consequences of the Fed’s regulatory collapse have proven catastrophic for our Nation.  Second, the Fed’s supervisory structure inherently creates a conflict of interest identical to the one that existed in the Savings and Loan (S&L) debacle until Congress and the President decided the conflict was intolerable and eliminated it in 1989.  Third, the supervisory culture of the Fed ensures recurrent supervisory failure – and the Fed’s economists are largely responsible for these failures.  Fourth, the Fed’s economists’ dogmas and ignorance of fraud mechanisms have combined to create to create intensely criminogenic environments.  The Fed does not simply fail to prevent the epidemics  of control fraud that cause our recurrent, intensifying financial crises – its policies are so perverse that they aid the fraud epidemics.

The Economy’s Not a Rock, and Paper Isn’t Killing It -- Matt Yglesias writes that paper money kills economies because it institutes an effective lower bound on interest rates, the primary instrument of monetary policy. People like Miles Kimball have long argued that the “zero lower bound” and, hence, liquidity trap is basically a “policy choice” – a consequence of our cash economy. That is to say, under an electronic money system, we can easily implement negative nominal interest rates, giving monetary policy infinite power at all times. The best way to think about this is imagine we all had dollar bills whose purchasing power was proportional to the length of the note, and the government can change the rate at which the note evaporates at will. If the rate of paper evaporation is increased, money demand will fall as consumers and investors across the world will throw cash for goods, services, and assets propping up a rapid recovery. In fact, the government doesn’t even have to increase the rate of evaporation, as long as it merely announces a credible intention to do so in the future.But central banks can’t credibly announce the coming of negative interest rates, not the least because it isn’t physically possible in our current paradigm. Does that mean paper money is killing the economy…? I think not, for several reasons. Primarily, paper electronic money would be a superior choice to current monetary policy (and I, personally, have no animus towards accepting the future. Note that I’ve always hated carrying around cash, and don’t even have a wallet, so I love my electronic money, also known as Visa. But a lot of people use cash, and this would distributionally hurt them the most). But what we might call “conventionally unconventional” policies of quantitative easing are not out of steam.

Is the Fed giving up on the US economy? -- In a new research note, Goldman Sachs says its statistical model suggests the FOMC will likely project lower GDP growth and unemployment projections when the central bank releases updated economic forecasts next week.We expect a substantial downgrade to the growth forecast for 2013. Real GDP grew just over 1.8% (annualized) in H1 and we are currently tracking Q3 GDP at 1.6%. We also expect a small downward revision to 2014 and to the longer-run growth rate. As far as GDP goes, Goldman thinks the Fed will forecast 2.2% growth for this year (Q4/Q4), 3.0% for 2014, 3.1% for 2015, and 2.8% for 2016. As for unemployment, 7.1% at the end this year, 6.5% at year-end 2014, 5.9% at year-end 2015, and 5.7% at year-end  2016. The longer-run projections are for 2.3% GDP growth and a 5.5% unemployment rate.

  • 1. As JPMorgan economist Mike Feroli recently pointed out, back in the 1990s the potential US growth rate was thought to be around 3.5% a year. Now the Fed may calculate it’s just 2.3% — and perhaps dropping. At least, the Fed isn’t yet as gloomy as JP Morgan itself: “The long-run growth potential of the US economy continues to slide lower, by our estimate, to around 1.75%; if realized this would be the lowest of the post-WWII era.”
    2. The unemployment forecast also suggests Fed policymakers are making peace with the idea — as JP Morgan has also speculated — that the labor force participation rate isn’t going to bounce back in any major way. So, yes, the unemployment rate will continue to drop even as the employment rate remains depressed.
    3. So there you have it: a) slow growth due to weak labor supply and productivity and b) a permanently larger pool of jobless Americans. Meanwhile, the central bank seems ready to begin tapering off its QE bond buys.

Real and Bogus Reasons for the Slow Recovery from the Recession - Why has the recovery from the recession been so slow? Part of the answer is that recessions caused by a collapse of the financial sector are among the hardest to recover from. But that is not the only reason for the slow recovery. Many additional factors are often cited for the agonizingly slow recovery, some real and some bogus. Let’s begin with the real reasons for the slower than necessary recovery, and then turn to bogus reasons that have been used to support ideological goals: The failure to address household balance sheet problems: When a recession is caused by a financial meltdown like we recently experienced, a “balance sheet recession” as it is known, an important part of the policy response is to repair balance sheets that have been severely damaged by declines in the value of financial assets and housing. Policymakers did a pretty good job of repairing bank balance sheets, and that certainly helped our prospects for recovery. But they did a very poor job of repairing household balance sheets wiped out by declines in housing and stock values. Households had no choice but to reduce consumption and increase saving to slowly rebuild their balance sheets, and the prolonged decline in consumption as balance sheets were rebuilt made the recovery much slower than it needed to be. Poor fiscal policy. The stimulus package was much too small, and too short in duration to produce the fastest possible recovery. In addition, there have been substantial cuts in government spending at the state and local level and those cuts have hampered the recovery. If federal authorities had done more to help state and local governments – much more – the economy would have recovered faster. We also needed a substantial effort at job creation anchored by infrastructure projects as a follow-up to the initial stimulus package, but instead we got budget cuts in the US and Europe – austerity – that slowed the recovery

America’s economic growth is built on sand - Twelve weeks in to his presidency, when the Great Recession was at its darkest and he was still the embodiment of hope, Barack Obama gave a speech about rebuilding and rebalancing the US economy. “We cannot rebuild this economy on the same pile of sand,” said Mr Obama. “We must build our house upon a rock. We must lay a new foundation for growth and prosperity – a foundation that will move us from an era of borrow and spend to one where we save and invest; where we consume less at home and send more exports abroad.” Four years on, that rebalancing has stalled; the US is building again, but on foundations of sand. It is depressing to consider, but on its current path the US is headed back to the same economic structure as before the recession: driven by consumption and sucking in imports. These are the first steps towards a future crisis. With a better balance of demand, the economy should be less vulnerable to shocks, less prone to build-ups of debt, and better able to grow because of higher investment. For a year or two it looked promising – but rebalancing stopped. Start with trade. The current account deficit fell to 2.5 per cent of gross domestic product in 2009 but then got stuck. Mr Obama’s 2010 goal of doubling exports in five years looks like a pipe dream. As the US recovers and emerging economies slow down, the current account deficit looks likely to widen. The personal savings rate tells a similar story. In the wake of the crisis it jumped from 3 per cent of incomes to 6 per cent, but has since drifted down again nearer to 4 per cent. Corporate saving – all that cash on corporate balance sheets – remains high even as the public sector battles to reduce its deficit.

Retired General: Economic Stability Drives National Security - WSJ  - The general who led the U.S. military in Africa during U.S. airstrikes in Libya has a message for economists: what you do can matter more than what we do. “I believe ever more firmly about this very strong connection between sound economic policy and our national security,” retired Gen. Carter Ham, who stepped down in June after heading the U.S. Africa Command, told economists at the National Association for Business Economics in San Francisco.He said he has seen first-hand that places where people feel they have opportunities — for themselves and their children — have more stability and security. Those areas also have the best governments, least amount of conflict and increasing respect for human rights. “I’ve learned in Africa, security and stability in many ways depends a lot more on economic growth and opportunity than it does on military strength,” he said. Saying retirement has freed him to speak his mind, Gen. Ham also took the opportunity to criticize openly the across-the-board spending cuts that hit the federal government in March.“My least-favorite saying on the planet is to ‘do more with less.’ You don’t do more with less, you do less with less,” Gen. Ham said. “You have to figure out what’s most important.”

Is War Now "Inevitable" - In a moment of surprising clarity, Deutsche Bank's Jim Reid pointed out what is largely taboo in the financial industry - the truth. "Looking back, real GDP growth in the US through the latter half of the 2000s and the 2010s has been at the lowest levels since the cyclically scarred decades of the Great Depression and the First World War." What is amusing, is the constant state of shock of supposedly serious people who are stunned that despite the Fed being constantly in the markets, and buying up trillions in securities, the US economy has not responded in a favorable manner. Of course, nobody has pointed out that if all it took to generate growth out of thin air without consequences was for the Fed to print, i.e., monetize debt, this would have started 100 years ago in 1913, and by now the US economy would be so advanced it would be colonizing Uranus. Logic, however, is not a Keynesian economist's best friend.That said, the reasons surrounding the lack of US growth are secondary for the time being. A bigger question is what happens from here, now that even respected banks, and even ivory tower economists have admitted that QE has been a complete failure for the broader economy, and the common American, benefiting only the uber-wealthy. Which leads us to a different topic. Syria. With much of the discussion behind the motives for the Syrian (at first, then coming to a city near you) war focusing on gas pipelines, chemical weapons, moral right, exceptionalism or the lack thereof, boosting deficit spending and permitting the untaper, one issue has been left unaddressed. Perhaps the most important one. Economic growth. Which is surprising, it is not as if the US has not found itself in a position in which its real economic output was far lower than its potential output.

License To Stagnate - Paul Krugman - This is an equilibrating system — I’m not sure if it’s exactly self-equilibrating, because part of the mechanism runs through the mind of the central bank. But anyway, suppose the economy is depressed; this will lead to steadily falling inflation, which will lead the central bank to keep cutting interest rates (and because the inflation coefficient in Taylor rules is always bigger than one, this means cutting real rates); and eventually the interest rate will fall enough to restore full employment.So what’s wrong with this pretty picture? Two ugly zeroes. First is the zero lower bound on the interest rate: after a sufficiently large shock, the Taylor rule may say that you should keep cutting rates, but you can’t. Second is downward nominal rigidity, which isn’t quite as binding a constraint, but does lead the Phillips curve to be non-vertical in the face of very low inflation; as an IMF study of persistent large output gaps found, even years of a deeply depressed economy tend to produce at most slow, grinding deflation, and more usually slight positive inflation, not the ever-accelerating deflation the standard model would have predicted. So here’s what happens after a large negative shock to the economy: the central bank finds itself up against the zero lower bound, so that all it can do is resort to controversial unorthodox measures. It might do that, or fiscal policy might be forced into action, if the economy really were suffering from accelerating deflation; but instead all you see is low inflation, which might even lead some central bankers to declare that they were doing their job just fine.In the Bond movies, two zeroes meant a license to kill. In monetary policy, two zeroes — the hard zero on interest rates and the soft zero on wage changes — can, all too easily, give central bankers a de facto license to let the economy stagnate, remaining far below potential for an indefinite length of time

Debt is usually a good deal for the federal government. -- Here's an interesting chart from Brad DeLong showing that with the exception of the Reagan years, the interest rate the federal government pays on debt is normally lower than the growth rate of the economy. That's to say that borrowed money (rather than taxes) has normally been a good way to pay for the marginal government service. Since people have a lot of very strong, very emotional, very ideologically charged opinions about the appropriate shape and scope of government spending, they sometimes have difficulty thinking clearly about the question of how the government should be financed. The message here isn't necessarily that going into debt to spend more is usually a good idea. The message is that for whatever the appropriate level of spending is, the appropriate level of taxation is (usually) lower. Fully paying for government spending with taxes represents an unnecessary burden on the present-day private sector relative to the fiscal capacity of tomorrow's richer private sector.

CBO: Monthly Budget Review for August 2013 --From the Congressional Budget Office (CBO): Monthly Budget Review for August 2013: The federal government ran a budget deficit of roughly $750 billion for the first 11 months of fiscal year 2013, CBO estimates—a reduction of more than $400 billion from the shortfall recorded for the same period last year. Revenues have risen significantly, accounting for more than two-thirds of the decline in the deficit. The deficit for all of fiscal year 2013 is expected to be smaller than the 11-month figure, as revenues are likely to outpace outlays in September...Receipts for the first 11 months of fiscal year 2013 totaled $2,472 billion, CBO estimates—$284 billion more than receipts for the same period last year....Outlays for the first 11 months of fiscal year 2013 were $127 billion less than spending during the same period last year, CBO estimates.The surplus in September should be around $100 billion ($75 billion in Sept 2012), putting the annual deficit close to $650 billion (very close to the most recent CBO estimate):  If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $642 billion, the Congressional Budget Office (CBO) estimates, the smallest shortfall since 2008. Relative to the size of the economy, the deficit this year—at 4.0 percent of gross domestic product (GDP)—will be less than half as large as the shortfall in 2009, which was 10.1 percent of GDP.

U.S. Budget Gap Narrows as Stronger Growth Boosts Revenue -  The U.S. budget deficit narrowed in August from a year earlier as a stronger job market boosted revenue, propelling the world’s largest economy toward its smallest annual shortfall since 2008.   Outlays exceeded receipts by $147.9 billion last month, compared with a $190.5 billion gap in August 2012, the Treasury Department said today in Washington. In the 11 months through the fiscal year that ends Sept. 30, the deficit was $755.3 billion, the narrowest for that period in five years.An accelerating economy and a payroll tax increase are lifting receipts, while the across-the-board federal budget cuts known as sequestration combined with lower unemployment-benefit payments keep spending in check. For the full fiscal year, the gap will be even smaller because September is expected to be a surplus month, the Congressional Budget Office said this month. “It’s a story of improved economic conditions, which provided more revenue to the government,” s“But it’s also a story of sequestration, which lowered the spending for this year.”

Debt Limit Deadline: Study Finds U.S. Could Default As Early As October 18 -- The United States could default on its obligations as early as Oct. 18 if Washington fails to agree on legislation to raise the government's borrowing cap, a new study predicted Tuesday. The Bipartisan Policy Center analysis says the default date would come no later than Nov. 5 and that the government would quickly fall behind on its payments, including Social Security benefits and military pensions. The think tank's estimate is in line with a warning last month by Treasury Secretary Jacob Lew that the government would exhaust its borrowing authority by mid-October and be left with just $50 billion cash on hand. The government has never defaulted on its obligations. Raising the $16.7 trillion borrowing cap promises to be a major struggle for House Republicans and President Barack Obama. Two years ago Obama agreed to pair a $2.1 trillion increase in the debt limit with an equivalent amount in spending cuts spread over 10 years. But the president now says that he won't negotiate over the debt limit and is asking Congress to send him a straightforward increase that would ensure the government can pay its bills. In January, House Republicans permitted an increase in the debt ceiling without demanding offsetting spending cuts.

The Wonk Gap and the Debt Ceiling – Krugman - So, are we going to have a crisis over the debt ceiling again? Everyone seems to assume that we won’t, that Republicans have learned their lesson, and that they’ll huff and puff before slinking away into the shadows. But there’s a problem: the GOP leadership has been telling the base to chill on the idea of shutting down the government to defund Obamacare, that they’ll use the debt limit instead. And so far nobody seems to have been willing to admit that this won’t work either. And part of the problem may be, once again, the complete lack of actual policy analysis on the right. Apparently Eric Cantor is floating the idea of demanding a one-year delay in Obamacare in return for not forcing America into bankruptcy; Greg Sargent emails a Republican aide for clarification, and get this reponse: It’s absolutely one of the possible outcomes of a debt limit negotiation, and likely given the President’s proclivity for delaying sections of this law. Whether it’s a mandate delay, or delaying the law entirely, it depends on a great deal of other factors. OK, this represents a complete failure to understand how the health reform works. As I’ve tried to explain, three things are essential: nondiscrimination, the individual mandate, and subsidies. Other things, like the employer mandate, can be delayed without undermining the basic working of the plan. But Republicans don’t know any of that; they haven’t tried to understand Obamacare, they’ve just denounced it.

Repeating myself on the "Debt Ceiling" - The bottom line is Congress is being silly (again), and they will raise the debt ceiling. It is just a matter of when.  It looks like the "debt ceiling" will be reached on October 18th.  Note: There is a reason Congress never threatens to default right before an election, they hope everyone will forget!   I wrote several posts about the "debt ceiling" debates in 2011 and early 2013 (only odd years, not even years because of elections). The debate clearly scared many Americans in 2011 and negatively impacted the economy.   Congress folded earlier in early 2013.  Hopefully this time the "debt ceiling" will be raised again in advance of the deadline. Here are some excerpts from some previous posts ...  I prefer "default ceiling" because "debt ceiling" sounds like some sort of virtuous limit, when, in reality, the vote is about whether or not to the pay the bills - and not paying the bills is reckless and irresponsible.A key point is that all of the talk in Congress is just a bluff.  They will fold.  As Republican Senator Mitch McConnell noted in 2011, if the debt ceiling isn't raised the "Republican brand" would become toxic and synonymous with fiscal irresponsibility.

The Debt Ceiling Once Again - As we head for yet another political clash over government debt, one where Republicans are threatening a government shutdown and the health of the financial sector in an attempt to defund social insurance programs -- Obama care in particular -- a few things to keep in mind. First, the long-run debt crisis is, and always was, primarily about health care costs.Second, and importantly, it is a problem "driven in large part by increasing costs in the private-sector delivery of health care goods and services." That is, it is not a problem that is caused by the government or unique to government sponsored health care programs.Third, the evidence suggests that Obamacare is reducing health care costs. Fourth, the social safety net -- the very thing Republicans want to scale back substantially or eliminate -- played a key role in limiting the severity of the recession. Without these automatic stabilizers, things would have been even worse than they were.

Congress Searches For A Shutdown-Free Future : It's All Politics - There's a lot of searching on Capitol Hill but no discovery yet of a way to avoid a federal government shutdown at the start of next month.Speaker John Boehner and Majority Leader Eric Cantor are searching for enough House GOP votes for a spending bill that could pass in the Democratic-controlled Senate and keep the government open past Sept. 30.Tea Party-affiliated lawmakers are searching for a way to repeal the Affordable Care Act with the help of the Democratic-controlled Senate and President Obama.Democrats are searching for a way to end the sequester budget cuts, or failing that, to pass a spending bill for the new fiscal year starting Oct. 1 that funds the government at a higher level than Republicans want.The only thing found Thursday seemed to be more time for negotiations and vote-wrangling. Republican leaders recall how their party was blamed for the shutdowns of the mid-1990s and earnestly want to avoid a repeat, especially heading into a midterm election year.

Boehner Seeking Democrats’ Help on Fiscal Talks - With Congress momentarily freed from the Syrian crisis, lawmakers plunged back into their bitter fiscal standoff on Thursday as Speaker John A. Boehner appealed to the Obama administration and Democratic leaders to help him resolve divisions in the Republican ranks that could lead to a government shutdown by month’s end. In meetings with Democratic and Republican Congressional leaders on Thursday after a session with Treasury Secretary Jacob J. Lew on Wednesday, Mr. Boehner sought a resumption of negotiations that could keep the government running and yield a deficit-reduction deal that would persuade recalcitrant conservatives to raise the government’s borrowing limit. Much of the federal government will shut down as of Oct. 1 unless Congress approves new spending bills to replace expiring ones, and by mid-October, the Treasury Department will lose the borrowing authority to finance the government and pay its debts. “It’s time for the president’s party to show the courage to work with us to solve this problem,” said Mr. Boehner, who argued that budget deals have been part of past agreements to raise the debt limit But a bloc of 43 House Republicans undercut the speaker’s deficit-reduction focus, introducing yearlong funding legislation that would increase Pentagon and veterans spending and delay President Obama’s health care law for a year — most likely adding to the budget deficit. That bloc is large enough to thwart any compromise that does not attract Democratic support. “Obamacare is the most dangerous piece of legislation ever passed in Congress,” said Representative John Fleming, Republican of Louisiana. “It is the most existential threat to our economy” that the country has seen “since the Great Depression, so I think a little bit of additional deficit is nothing,” he added.

Boehner Wants Joint Talks on Debt, Budget - House Speaker John Boehner argued Thursday that lawmakers and President Barack Obama should agree to a new round of budget cuts or other conservative priorities as elements of a bill that would raise the nation's debt ceiling. The move came as legislative leaders struggled to find a way forward in talks on several pressing fiscal issues. Democrats immediately dismissed Mr. Boehner's proposal to link the debt ceiling with GOP policy goals, and fears re-emerged that Congress was reviving the kind of budget battle that in the past has scared the markets and triggered fears of a government shutdown. Congress faces a deadline in mid-October to pass legislation that would raise the debt limit. Mr. Obama has said he would refuse to negotiate with Republicans on terms for raising the borrowing limit and that Congress must allow the Treasury to pay for spending already approved by lawmakers.But Mr. Boehner (R., Ohio) told reporters Thursday that stance was a departure from numerous precedents, in which the White House and Congress agreed to budget changes in exchange for a debt-limit increase."For decades, the White House, the Congress have used the debt limit to find bipartisan solutions on the deficit and the debt," Mr. Boehner said, alluding to deficit-reduction deals passed under former presidents Bill Clinton and George H.W. Bush, among others. "So, President Obama is going to have to deal with this, as well."Mr. Boehner added, "You can't talk about increasing the debt limit unless you're willing to make changes and reforms that begin to solve the spending problem that Washington has."

Increasing the Debt Ceiling Should Be Paired with…NOTHING! - In a little over a month, according to the US Treasury, in order to pay bills they have already incurred, Congress needs to raise the government’s borrowing authority by increasing the debt ceiling. Since 1960, Congress has raised the limit 78 times, under both Republican and Democrat presidents (49 times under R’s, 29 under D’s).  Many of these increases have been stand-alone bills; sometimes they’ve incorporated other provisions.  But while politicians on both sides of the aisle have grandstanded on the issue, it is only in the last few years that some have threatened default by the US government unless they got their way.  Nor is it the case, as Speaker John Boehner alleged today, that “for decades, the White House and Congress have used the debt limit to find bipartisan solutions on the deficit and debt.” First off, the logic of his argument is mind-boggling.  If that’s what past Congresses have done, then clearly they’ve failed or we wouldn’t be in this mess. Second, his list of examples to make his case starts in 1985 and he references five debt limit bills wherein there have been notable reforms to reduce the debt.  Yet, there’s been 34 bills raising the debt limit since then. Here’s the bottom line.  The time to decide whether you’re going to pay the bills you rack up is when you’re looking at the menu, not after you’ve finished the meal. 

Government-Shutdown Crisis Proceeding on Schedule - What with all the attention being paid to Syria, most people have forgotten that we're just three weeks away from a government shutdown unless Congress passes a continuing resolution (CR), which is the (relatively) quick-and-easy way of keeping the government operating at current funding levels without writing a whole new budget. As you may remember, Tea Party Republicans in the House would like to use the threat of a government shutdown to force a defunding of the Affordable Care Act, or Obamacare, while the Republican leadership, conservatives to a person, realizes that this is spectacularly stupid. If they hold up the CR with a defunding demand, Barack Obama will say no, the government will shut down, Republicans will get every ounce of the blame, and it'll be a complete disaster for the GOP. Eventually they'll give in and pass a CR, but only after having caused a crisis and eroding their brand even further, and by the way not actually defunding Obamacare. So House Majority Leader Eric Cantor came up with something resembling a solution. The way it would work is that the House would pass two versions of the CR, one that defunds Obamacare and one that doesn't. They would then send them to the Senate, which would presumably pass only the one that doesn't defund Obamacare, which Obama would then sign. As Politico describes it, "The arrangement allows all sides to express themselves, but it surrenders the shutdown leverage that some conservatives hunger for." And not surprisingly, Tea Partiers both inside and outside Congress don't like it. Take, for instance, high-profile bloviator Erick Erickson of Red State and CNN. Here's how his reaction starts: Eric Cantor is always looking for new and imaginative ways to screw conservatives.

Defunding Obamacare is magical thinking masquerading as serious policy -- Very much in the spirit of my blog post earlier today, AEI economist Stan Veuger sensibly points out the flaws in the GOP’s “defund Obamacare” strategy. It’s bad practical politics: But if Republicans demand that the president defund, delay or repeal his main domestic-policy accomplishment, the president says no  … and the government shuts down, moderate voters are likely to think: “Well, that’s a bit uncalled for. Why would Republicans think that the president was going to torpedo his whole agenda?” It will make Republicans look irresponsible, it will divert attention from President Obama’s muddled Syria policy, it will make it less likely that they win back the Senate and the White House in the near future and, as a consequence, ultimately make it harder, not easier, to reform or repeal Obamacare. And it’s also constitutionally dubious: It is not a good moment to ask for the full surrender of all power to one house of Congress: if that were what the founders had in mind, they would not have gone through the trouble of creating a second house of Congress and an executive branch to jointly deal with budgetary issues.And let me add that the GOP negotiating position would be much stronger if they demonstrated some consensus on real-world healthcare reform to de facto replace Obamacare. Also not sure that Republicans should, as part of a debt ceiling deal, exchange a one-year delay  of the individual mandate and other aspects of the law for ending the sequester cuts. Again, GOP not likely to come out ahead politically, plus there’s the potential damage that could be inflicted on the economy.

What Defunding Means - Krugman - As some of us have been saying, financial markets are way too complacent about the debt ceiling — which we’re going to hit in as little as five weeks. Everything Republican leaders are actually saying suggests that they intend to go full-on blackmail, holding America’s full faith and credit hostage to the sacred goal of crippling Obamacare before it gets going. Assumptions that they will in fact blink are entirely faith-based. And this article about the plight of the near-old — those close to, but not yet at, the Medicare age — shows what it is the GOP is willing to fight for, indeed to endanger the stability of world financial markets:THE sweeping federal health care law making its major public debut next month was meant for people like Juanita Stonebraker, 63, She was able to continue her health insurance coverage from the hospital for a time, but when she tried to find an individual policy on her own, none of the insurers she contacted would cover her because she was diabetic. Yes: Republicans are willing to push the economy and the financial system to the edge of disaster in order to deny people like Ms. Stonebraker coverage. Awesome, isn’t it?

GOLDMAN: The Economic Damage From The Sequester Is Becoming More Clear, And It Could Get Worse - Federal employment has been steadily dropping for several months, but a new note from Goldman Sachs economist Jan Hatzius suggests effects of the sequester have now cropped up other economic indicators. "The first area where sequestration has shown up fairly clearly in the data is personal income, which registered a disappointing 0.1% monthly gain in July, due in part to a 0.5% decline in government wages and salaries," Hatzius wrote to clients. "The decline was likely mainly due to defense furloughs, which started July 8. Absent the July furloughs, which according to the BEA reduced annualized wages by $7.7bn that month, personal income growth would have just barely been rounded up to 0.2%." "We expect a similar negative effect in August, with a reversal of the entire effect in September" as furloughs subside. Hatzius writes that many federal agencies haven't really adhered to hiring freezes in the hopes that the federal government would end up ditching the sequester. If it continues, federal job losses could become more pronounced. "We assume that Congress will not reverse sequestration, and the federal spending level that we project as a result is consistent with year-on-year declines in federal employment of around 100k over the next few quarters, with smaller declines thereafter,"

Insurance Company With An Army Blogging - Paul Krugman - A short piece on yours truly in Bloomberg Businessweek online, in which I learn that Jeff Sachs, whose analysis and motives become increasingly mysterious, thinks that I don’t pay enough attention to wasteful government spending. And that calls, I think, for a couple of reminders. First, if we’re talking about current federal spending, outside defense — which isn’t part of this discussion — where is the major waste? As we need to remember now and then, the federal government is basically an insurance company with an army, and the insurance side isn’t bad. Nondefense spending is dominated by Social Security, which is highly efficient; Medicare, which could do better, but is more efficient than private insurance; and Medicaid, which is much more cost-effective than private insurance. I’m sure that if you look through nondefense discretionary spending you’ll find some waste, but no more than in any large organization. More broadly, the US spends twice as much on health care as other advanced countries, with no better results — and that disparity is the result of private-sector, not public-sector, waste.. But here the point is that it’s hard to waste resources more thoroughly than by leaving them idle; hiring the unemployed and putting them to work doing something is a huge improvement, even if it isn’t the best possible project. So whenever you hear someone talk about “wasteful government spending”, demand that he be specific — and in particular, that he explain wasteful relative to what. There aren’t any good answers.

Econobloggers: Does Big Government Help or Hurt Growth? Or Neither? -- Tim Kane was nice enough to include my question in this year’s Hudson Survey of Leading Economics Bloggers (PDF). Here’s the question and the results:  Judging based on post-war economic data, how do prosperous, high-GDP/capita countries compare with one another? Countries with larger government sectors have _____ growth rates compared to countries with smaller government sectors. As a group, they did very well on this question: Almost 50% got the right answer, and those who got it wrong were evenly split.

How should underpayment of employees affect tax policy? -- In a pre-Labor Day blogposting, Robert Reich wrote about the brute capitalism results for many employees today–a full-time job that doesn’t play a living wage.  Walmart was his example–”America’s biggest employer” where a “typical employee is still paid less than $9 an hour.”  See Reich, Wal-Mart’s typical employee is paid less than $9 an hour.  So what does this have to do with tax policy, you say?   Reich is making an argument for an increase in the minimum wage to $15 an hour and greater recognition of workers’ rights.  Those are worthy objectives, and I fully support them.  You could add better enforcement of anti-trust laws.  But the question I am raising is the connection between such company policies and tax policy.  I think there is a strong argument that we should consider at least the following principles, coupled with a stronger (more progressive and higher rates) corporate tax to ensure the rules have some bite:

  • 1) our tax rules should discourage companies from ripping off workers to over reward managers and owners.
  • 2) our tax rules should work to ensure that people in the lowest income brackets don’t have to carry the burden of paying taxes on their meager incomes and
  • 3) our tax rules should shift the incidence of tax to those at the top who control their own salaries and away from those at the bottom who have practically no say on what they work for.

Eight in Ten U.S. Households Pay Social Security and Medicare Taxes - While relatively few low-income people pay federal income tax, a large and growing share owe Social Security and Medicare payroll taxes, according to new estimates by the Tax Policy Center. As a result, while about 43 percent of all households will pay no federal income tax this year, only 14 percent will pay neither income nor payroll tax.Once household income reaches $100,000, just about everyone pays both. But the story is more complex for those at the lower end of the economic food chain. Despite the oversimplified and inaccurate claims of some commentators, most low- and moderate-income households do pay Social Security and Medicare taxes, and the vast majority pay more in payroll tax than in income tax.    Nearly 63 percent of households in the lowest 20 percent of income (those making less than about $23,500) will pay some Medicare and Social Security taxes in 2013.Many of those who don’t are the low-income elderly. Because they do not work, they pay no payroll taxes. And because their incomes are so low—often only Social Security benefits—they pay no income tax.My TPC colleague Amanda Eng estimates that among the elderly in the bottom 20 percent of income just 5 percent will pay payroll taxes and less than 1 percent will pay income tax. By contrast, among households with no members 65 and older, more than 8 in 10 will owe payroll tax while just 6 percent pay income tax. Among all taxpayers in the middle 20 percent (between about $45,000 and $76,000) more than 85 percent will pay Social Security and Medicare taxes this year while 72 percent will pay federal income tax. Even among middle-income households, more than eight in ten will pay more payroll tax than federal income tax.

How Wal-Mart’s Waltons Maintain Their Billionaire Fortune - America’s richest family, worth more than $100 billion, has exploited a variety of legal loopholes to avoid the estate tax, according to court records and Internal Revenue Service filings obtained through public-records requests. The Waltons’ example highlights how billionaires deftly bypass a tax intended to make sure that the nation’s wealthiest contribute their share to government rather than perpetuate dynastic wealth, a notion of fairness voiced by supporters of the estate tax like Warren Buffett and William Gates Sr. Estate and gift taxes raised only about $14 billion last year. That’s about 1 percent of the $1.2 trillion passed down in America each year, mostly by the very rich, former Treasury Secretary Lawrence Summers estimated. The contrast suggests “our estate tax system is broken,” he wrote. ‘Unbelievable’ Savings Alice Walton’s mother and brother poured more than $9 billion into trusts since 2003 that fund charitable projects like Crystal Bridges and are also designed to protect gifts to heirs from taxation. Another Walton pioneered a tax-avoidance maneuver that is now widely used by U.S. billionaires. “I hate to say it, but the very rich pay very little in gift and estate tax,”

US Treasury keeps eye on bond market liquidity - US Treasury and Federal Reserve officials are monitoring the liquidity of bond markets after warnings from banks and institutional investors that the system has been weakened dangerously by new regulations. According to people familiar with the matter, government officials are reviewing market data to assess whether there is any substance to financial industry arguments that rules designed to make markets more robust have had the opposite effect. Investors and banks have delivered warnings – including in a July presentation to the Treasury – that new capital rules and the Volcker rule that prohibits proprietary trading at banks are sapping liquidity from the wider bond market, and that the negative effects have been masked by the Federal Reserve’s unprecedented bond purchases under quantitative easing. “Regulations have created multiple constraints likely to curtail liquidity when it is really needed,” said a presentation from the Treasury Borrowing Advisory Committee, a group whose members range from JPMorgan to Pimco. It said there was a “potential for significant dislocation when investor flows reverse”. The Fed and Treasury are investigating but officials believe that liquidity was too cheap during the crisis and some change was desirable. They are also suspicious that the case – made by banks such as Citigroup and large institutional investors such as Fidelity – is overstated, with the drop in banks’ inventories of corporate bonds skewed by the fact that the data include asset-backed securities. Fed data show the inventories of corporate bonds held by big banks are down almost 80 per cent since their peak of $235bn in 2007. But Goldman Sachs analysts have estimated that the inventories are down 40 per cent from their pre-crisis peak, once other assets are stripped out. However, there is some concern in Washington about the shock to bond markets that followed Ben Bernanke’s comments in the spring that were seen as heralding the end of the Fed’s quantitative easing programme.

Investors yank record $20 billion from ETFs -- Investors yanked more than $20 billion out of exchange-traded funds in August, according to Morningstar. That's the largest monthly outflow since the first ETF launched 20 years ago. Although stocks have been surging for most of the year, August was the worst month of 2013. Stocks fell as traders worried about the potential impact of the Federal Reserve scaling back its stimulus program sooner rather than later. Fears about a U.S. military strike against Syria didn't help either. Investors pulled more than $15 billion out of U.S. stock ETFs alone. The SPDR S&P 500 (SPY), the largest and most liquid ETF, was the biggest loser. ETFs are most heavily used by hedge funds and other big institutional investors, but individual investors have been also shifting out of traditional mutual funds into ETFs to take advantage of the lower fees.

Alcoa on “low risk financiers” and parallel metal markets - Alcoa, one of the world’s largest aluminium producers, has come out against the LME’s proposed new rules for dealing with warehouse queues.  In a letter to the LME, Alcoa’s president for materials management Tim Reyes states the plans are “counter productive” and designed to address what the company feels is a “red herring”.The latter is an interesting turn of phrase, for it suggests the problem runs much deeper than the peripheral explanation which has so far been expressed by end-users and fabricators. This is that warehouse owners are purposefully delaying response times to delivery notices because of the additional fees they can generate from holding the commodities.The LME’s proposals would enforce penalties on delays, but in so doing up the cost of using the LME system. According to Alcoa the problem is more structural and relates not just to a new breed of low-risk financier, using aluminium as a form of collateral — akin to a high-yielding but safely collateralised debt obligation — but the low interest rate environment we are in.

Which Apple Components Were Developed By The US Government - While the investing community this morning is focused squarely on the very disappointing iPhone 5 relaunch and the lack of a cemented China Mobile deal, which has resulted in a $20 billion loss in market cap in early trading for the second most widely held hedge fund stock, a thing that we find more curious in the aftermath of the latest revalations of an implicit, if not explicitly voluntary, joint venture between Apple and the US government and specifically its NSA uberspies, is just how much of Apple's product suite is derived thanks to developments by the US government. As the following Goldman breakdown of various components used by Apple in its products over the ages shows, one can understand why the NSA felt it was owed a little kickback by Apple and its "zombie" clients. After all, without the US government's technological innovation, Apple as we know it, would not exist.

How the cult of shareholder value wrecked American business -  In the recent history of management ideas, few have had a more profound — or pernicious — effect than the one that says corporations should be run in a manner that “maximizes shareholder value.”  Indeed, you could argue that much of what Americans perceive to be wrong with the economy these days — the slow growth and rising inequality; the recurring scandals; the wild swings from boom to bust; the inadequate investment in R&D, worker training and public goods — has its roots in this ideology  The funny thing is that this supposed imperative to “maximize” a company’s share price has no foundation in history or in law. Nor is there any empirical evidence that it makes the economy or the society better off. What began in the 1970s and ’80s as a useful corrective to self-satisfied managerial mediocrity has become a corrupting, self-interested dogma peddled by finance professors, money managers and over-compensated corporate executives.

Not with a Bang but a Whimper – the SEC Enforcement Team’s Propaganda Campaign -- Bill Black: The New York Times has one of those “inside” stories that unintentionally demonstrate the collapse of justice and financial reporting. In the NYT’s account a pathetic failure of competence, integrity, and courage at the SEC is reimagined as a fantastic triumph of vigor and ethics on the part of the SEC enforcement attorney who refused to seek to hold Lehman’s senior officers accountable for their violations but otherwise became the scourge of elite frauds. In the end, he is promoted for his dedication to “justice” and is now the anti-enforcement leader of the SEC’s enforcement group.  “Justice” became an oxymoron in the Bush and Obama administration. It now means that the elite frauds that became wealthy through their crimes that drove our financial crisis should enjoy de facto immunity from prosecution. The NYT, however, pictures the SEC as an ultra-aggressive enforcer that virtually never fails to take on the elite CEOs leading the control frauds. The entire piece is one extended leak by the SEC’s enforcement leadership which has been severely criticized for its failure to recover the fraudulent profits that elite Wall Street bankers obtained by running the control frauds. The puff piece, with no critical examination, presents these key statements. The S.E.C. … has brought civil cases against 66 senior officers in cases linked to the financial crisis. The agency also extracted nine-figure settlements from banks like Goldman Sachs. According to new research by Stanford University’s Securities Litigation Analytics, the S.E.C. has declined to charge individual employees in only 7 percent of its securities fraud cases.My article is the first installment of a three-part series of articles correcting the NYT propaganda. This installment deals with these three sentences quoted above. Someone carefully constructed them to maximize the misleading nature of the statements. The “66 senior officers in cases linked to the financial crisis” is a phantom number without a source or useful definitions that falls apart as soon one looks at the SEC’s claims.

New York Regulator Sees Abuse Increasing Under New Insurance Rules - Several big life insurers are going to have to set aside a total of at least $4 billion because New York regulators believe they have been manipulating new rules meant to make sure they have adequate reserves to pay out claims. The development stems from contentions by insurance companies that states’ regulations are forcing them to hold too much money in reserve. Many of them have engaged in secretive transactions to artificially bolster their balance sheets, often through shell companies in other states or countries. Regulators, who want to be sure companies have enough real liquid assets to pay all claims, have struggled to find a solution that all 50 states can agree on, and decided to test a new framework of rules.On Friday, New York State plans to drop out of that agreement, according to a letter from Benjamin M. Lawsky, the financial services superintendent, to his fellow state insurance regulators. In the letter, which was reviewed by The New York Times, Mr. Lawsky said the test, which started in 2012, showed that the new framework did not work and was, in fact, making the “gamesmanship and abuses” in the industry even worse. The move appears to be another attempt by Mr. Lawsky to address the much broader potential problem of the life insurance industry’s use of the secretive transactions. He has derided them as “financial alchemy” because they seem to create surplus assets out of thin air. In June, Mr. Lawsky called on other state insurance regulators to join him in blocking any more of these transactions. But other regulators said they wanted instead to keep pursuing a test of the new regulatory framework.

New York State Regulator Issues Subpoenas in Money Laundering Investigations - As part of a broad investigation into money laundering by banks, New York State banking and insurance regulator Benjamin Lawsky has issued subpoenas for records to a number of major consulting firms in recent months, a government source tells TIME. The exact number and identities of all the recipients of the subpoenas is unknown. The private consulting firms typically are hired to look into bank practices when questions about anti-money laundering systems arise in bank examinations either by the financial institution itself, or in a review by regulators.Lawsky and the agency he heads, the New York Department of Financial Services, have been investigating whether financial institutions exert undue pressure on the consultants they hire in such cases. Evidence could include documents or e-mails that show the firms pressing their independent consultants to change drafts of reports before they are given to regulators.

Joe Stiglitz: The People Who Break the Rules Have Raked in Huge Profits and Wealth and It's Sickening Our Politics In his powerful speech to the AFL-CIO convention, the famed economist says '95% of the gains from 2009 to 2012 went to the upper 1%.' .The following is taken from a transcript of Joseph Stiglitz's remarks to the AFL-CIO convention in Los Angeles on September 8.

Occupy Finance the book, coming out next Tuesday (#OWS) - mathbabe - Holy shit I’m just about bursting with pride to announce that my Occupy group’s book, Occupy Finance, is coming out Tuesday and is at the printer right now. This is thanks in large part to all of you awesome people who sent contributions for the printing. You guys totally rock. Our plan is to meet in Zuccotti Park Tuesday morning, September 17th, which is the 2nd anniversary of the occupation, give a wee press conference at 10am or so, and then hand out hundreds of copies of the book to whomever shows up.

Foreign Exchange Markets: Now $5.3 Trillion Per Day - Once every three years, the Bank of International Settlements publishes the results of a survey about the size of foreign exchange markets. The most recent "Triennial Central Bank Survey," subtitled "Foreign exchange turnover in April 2013: preliminary global results," has some familiar news.   Foreign exchange markets are extraordinarily large. "Trading in foreign exchange markets averaged $5.3 trillion per day in April 2013. This is up from  $4.0 trillion in April 2010 and $3.3 trillion in April 2007." The growth rate of the foreign exchange market in recent years has been about 35% annually. What accounts for this very large total? In round numbers, world GDP is about $70 trillion, and world exports are about 30% of that amount--call it $21 trillion per year. Clearly, foreign exchange markets are not mainly driven by the direct needs of exchanging currency for exports and imports. Flows of foreign direct investment around the world were about $1.3 trillion in 2012. Total global holdings of portfolio investment were about $39 trillion in 2011. Thus, it doesn't seem that the need to exchange currency for either foreign direct investment or for portfolio investment can explain what's happening in foreign exchange markets, either. The remaining possible explanation is that the enormous size of exchange rate market arises primarily out of short-term decisions about hedging risk and seeking return in a global economy, where many financial and nonfinancial firms are continually adjusting their exposure to the possibilities of future movements in exchange rates.

Why Isn’t the Justice Department Investigating Citibank’s Student Loan Scandal (Part I) - Citibank, the insured depository bank of the global behemoth, Citigroup, was bailed out by the U.S. taxpayer from 2008 through 2010 with over $2 trillion dollars in equity infusions, asset guarantees and loans of under one percent interest from the Federal Reserve. The far flung financial enterprise was bailed out despite a serial history of abusing its customers – crimes for which its regulators have imposed large fines and little justice. The undisputed reality is that the shareholders of Citigroup would be holding worthless stock today were it not for the company’s rescue by taxpayers during the Wall Street collapse five years ago. And yet, today, based on reports from coast to coast, the company is engaging in egregious abuses of struggling young college graduates who took out private student loans from Citibank.The generosity that the U.S. Congress, and Treasury and Federal Reserve lavished on Citigroup is now being repaid with unbridled callousness and twisted schemes to exact as much pain as possible from its student loan holders according to court narratives and complaints filed with federal agencies. Citigroup has quickly forgotten how it survived its brush with death from its own imprudent debt loads.

Dudley Sees Risk Regulators ‘Fall Short’ on OTC Derivatives - Federal Reserve Bank of New York President William C. Dudley said the pace of improving oversight of over-the-counter derivatives is too slow and regulators may not “go far enough” in curbing risk in the financial system. “There are significant risks that we will fall short in this arena relative to what we are likely to achieve elsewhere,” Dudley said today in remarks in Paris. Several nations including the U.S. are trying to align and strengthen rules for the $633 trillion market for swaps and other over-the-counter derivatives. The financial instruments became a target for tougher oversight after the 2008 collapse of Lehman Brothers Holdings Inc. and the rescue of American International Group Inc. (AIG), two of the largest traders in credit-default swaps. Plans for international cooperation include boosting the use of clearinghouses, pushing activity onto regulated markets and requiring banks to put up more collateral. “What matters is not the standardization of OTC derivatives, central clearing or the use of the trade repositories per se, but instead the results that flow from these efforts,” Dudley said. “These institutions are just devices to achieve an end -- less risk, more robustness and greater transparency.”

Why You Should Learn to Love the Brave New World of Low Liquidity - The Financial Times reported earlier this week (hat tip Scott) how banks are cutting the size of corporate bond trading desks and reducing the size of trading inventories, all as a result of big bad regulations. As a result, the banks would like us to know, investors might be hurt by a lack of liquidity! Horrors!  The reporter, Tracy Alloway, is too savvy to take this at face value. She points out that the banks may well be using regulations as a fig leaf to do what they’d like to do at this point in the interest rate cycle more aggressively than usual, which is cut position sized. Dealers are normally expected to make a market in reasonable sizes in instruments they profess to cover. But when interest rates rise, they are are guaranteed to take losses on any bond inventories they hold. The Fed is making very clear it intends to taper, but the when and how it will begin is still up in the air. Nevertheless, the banks would like to get out of the way of this freight train and reduce the size of their inventories, which also means staying committed to not taking on much inventory. That in turn implies much less aggressive bidding when clients ask for prices, particularly if the client has a large position to unload:

Insane financial system lives post-Lehman - Five years ago, the markets plunged into an Alice-in-Wonderland world. For when Lehman Brothers collapsed, the repercussions were so violent investors were faced with confronting “six impossible things before breakfast” each day, to paraphrase Lewis Carroll. So, as markets mark the anniversary of that Lehman collapse, is the system any safer or saner? The answer is both Yes and No. The good news is that the chance of another full-blown banking crisis has receded: some of the crazier innovations have been reined in, banks are better capitalised and financiers more cautious. But the bad news is that the system is just as insane – perhaps more so. There are a host of developments that are at best counterintuitive, and at worst dangerously bizarre. Investors may no longer face six new banking shocks before breakfast, but there are at least six peculiar features of the post-Lehman world that might make Alice blink.

Five Years Later, Financial Lessons Not Learned - Alan Blinder Years of disgraceful financial shenanigans in the 2000s, some illegal but many just immoral, brought on the Great Recession with virtually no help from any co-conspirators. Congress and President Obama reacted comparatively weakly with the Dodd-Frank Act of 2010, which certainly did not seek to remake the U.S. financial system. I am a big supporter of Dodd-Frank, despite its timidity, because laws must be graded on a curve. Sadly, even this good-though-weak law now seems to be withering on the regulatory vine. Far from being tamed, the financial beast has gotten its mojo back—and is winning. The people have forgotten—and are losing. Here are four examples. There are others.

  • • Mortgages and securitization. Piles of unconscionably bad mortgages—underwritten by irresponsible bankers, permitted by somnolent regulators, and passed on like hot potatoes to investors via securitization—were a major contributor to the financial crisis.
  • • Derivatives. Disgracefully bad mortgages created a problem. But wild and woolly customized derivatives—totally unregulated due to the odious Commodity Futures Modernization Act of 2000—blew the problem up into a catastrophe. Derivatives based on mortgages were a principal source of the reckless leverage that backfired so badly during the crisis, imposing huge losses on investors and many financial firms. Dodd-Frank calls for greater standardization and more exchange-trading, which would create a safer and more transparent trading environment. Wonderful ideas. But the law exempts the vast majority of derivatives. Do you see a pattern here?
  • • Rating agencies. The credit-rating agencies also contributed mightily to the financial mess. These private, for-profit companies were presumed responsible for calling out hazards. Instead, they blessed financial junk with coveted triple-A ratings. Honest mistakes? Perhaps. But many critics have pointed out a flaw that cries out for fixing: The agencies are hired and paid by the very companies whose securities they rate.
  • • Proprietary trading. The Volcker rule, part of Dodd-Frank, bans proprietary trading by banks, to prevent them from gambling with FDIC-insured funds. President Obama embraced (and named) the rule very late in the legislative game, over the objections, according to multiple press reports, of his chief economic adviser at the time, Lawrence Summers

We've Learned Nothing From the Financial Crisis -Last month, for example, the federal regulators gutted a provision of the Dodd-Frank Act that required securitizers to retain 5 percent of the the risk of the securities that they were creating—on the grounds that we really, really need the market for mortgage-backed securities to come back. This followed on earlier rules issued by the CFPB that, while certainly not all bad, gave lenders an expansive safe harbor from liability—because we really, really want banks to make mortgage loans. Then there are Fannie and Freddie, which are still doing that thing they do—using the federal government’s credit to subsidize home loans—because no one has the stomach to take on the real estate-financial complex.It’s not just housing. Despite serious-sounding noises from the Federal Reserve, capital requirements for major financial institutions—those that could bring down the financial system—will at best increase from laughable to amusing. The opposition to higher capital requirements is based on the (fallacious) claim that more capital will reduce lending and therefore harm the economy.In addition, federal regulators are woefully behind the curve when it comes to technology risk. In just the past year and a half, we’ve seen the BATS IPO debacle, the Facebook IPO fiasco, the Knight Capital implosion, the London Whale disaster (enabled by faulty risk modeling, done in part in Excel), and the Goldman options snafu. On a bigger scale, at a bad time of day, these shocks could seriously destabilize the financial system. In China, they ban people for life for this sort of thing. Here, where we claim to be so much better at protecting the integrity of the markets, not so much.

Unfinished business in battle to fix the banks - Ever since Lehman Brothers collapsed almost five years ago – the most dramatic event in an unprecedented global crisis that is still reverberating today – policy makers have laboured to fix the causes of that disaster and to pre-empt the next. Have they succeeded? In an attempt to gauge the merit of the glut of global reforms, the Financial Times has looked back at the 34 main banks and brokers that failed in the crisis, judging the principal reasons for failure from a menu of five – low capital; weak funding structures; poor lending; poor trading investments; and misguided mergers and acquisitions. Many failed for multiple reasons, though Royal Bank of Scotland is the only institution to which all five triggers applied. Any analysis of the precise causes of the global financial crisis, even after five years of reflection, is necessarily subjective. But if there were five main causes of failure, regulators can claim at least partial victory on four of them. Capital levels in the system are more than three times higher than they were before the crisis as banks pre-empt the requirements of new Basel III global standards. Financing is more stable, with far less reliance on risky short-term market funding and new incoming rules demanding banks hold minimum levels of cash and safe assets.

Banks Seen at Risk Five Years After Lehman Collapse -  While the amount of capital at the six largest U.S. lenders has almost doubled since 2008, policy makers and some Wall Street veterans say that’s not enough. They see a system still too leveraged, complicated and interconnected to withstand a panic, and regulators ill-equipped to head one off -- the same conditions that led to the last crisis. “We’re safer, but we’re not safe enough,” said Stefan Walter, who led global efforts to revise capital rules as general secretary of the Basel Committee on Banking Supervision. More than 50 bankers, regulators, economists and lawmakers interviewed by Bloomberg News disagreed about what needs to be done. Some said the six biggest U.S. banks have only gotten bigger since 2007 -- a 28 percent increase in combined assets, according to data compiled by Bloomberg -- making it harder to let them fail. Others said they weren’t troubled by bigness or a system that requires government intervention every now and then, calling it an inevitable cost of financing global business.

Volcker Rule to Curb Bank Trading Proves Hard to Write -   Hours after being sworn in as Treasury Secretary in February, Jacob Lew pulled regulators into a conference room and delivered a blunt message: Get the Volcker rule done. On Tuesday, half a year later, Mr. Lew found himself leading another meeting with regulators about the still-unfinished rule. The Volcker rule, a centerpiece of the sweeping overhaul of financial regulation known as Dodd-Frank, is an attempt to protect the financial system from risk. It is simple in concept. Banks are prohibited from making investment bets with their own money. But it has proved fiendishly difficult to apply. Five years after cratering financial firms ignited a global crisis, and three years after Dodd-Frank outlined the Volcker rule as a central part of the government response, the rule languishes unfinished and unenforced, mired in policy tangles and infighting among five separate agencies whose job is to produce the fine print.

Sheila Bair: U.S. Banking System Still Fragile -- In this special Crisis Plus 5 series of The Big Interview, former FDIC Chair Sheila Bair reflects on the five-year anniversary of the 2008 financial collapse, telling WSJ’s David Wessel the banking system in the U.S. remains fragile but that regulators succeeded in enforcing higher capital requirements for big banks. Transcript of the interview:

Larry Summers versus Dodd Frank - Many thousands of words have been spilled explaining just how horrible Lawrence Summers is and how terrible he would be as chair of the Federal Reserve. Given the place the Federal Reserve holds in the imaginations of Americans, it is obvious that Summers’ influence on monetary policy would and has gotten the most focus. In truth, I don’t think this is the most important issue right now. There is a consensus among policy economists (including Summers himself) that a Zero Interest Rate Policy (ZIRP) should be continued. On the other hand it is widely reported in the media that Summers is a “skeptic” on quantitative easing. Ending quantitative easing will certainly have negative effects (as I outlined here ), but I think there are larger issues to consider when thinking about Summers being chair of the Federal Reserve.The most important in my mind is clearly the Fed’s position as a crucial regulator in the ecology of regulators. Larry Summers of course doesn’t have a good history in regulation, famously blocking (long with Alan Greenspan and Robert Rubin) Brooksley Born from asking questions to banks about derivatives that might maybe, possibly lead to a review of regulations concerning future derivative contracts . However, we don’t even need to focus on regulation in the abstract. The most important concrete issue involving regulation is still Dodd-Frank. Like Obamacare, which Lambert has been covering with painstaking detail, the rulewriting for Dodd-Frank has also been going excruciatingly slowly. See for example this excellent Infographic from Davis Polk  (the international law firms need to know what is going on because of their financial institution customers).

Response to TIME Magazine Article on Financial Reform - Treasury Notes (blog)  In the fall of 2008, our economy faced challenges on a scale not seen since the Great Depression. In response, the federal government took unprecedented actions to protect the economy and reform a broken and outdated financial system to provide better protections for taxpayers and consumers. The notion that these reforms are somehow a “myth,” as Rana Foroohar suggests in her September 23, 2013 story is wrong.  It is an undeniable fact that the financial system we have today – the system that Americans rely on to take out a mortgage, save for college, open a small business, even write a check – is safer, stronger and more resilient than it was five years ago.  The Dodd-Frank Wall Street Reform and Consumer Protection Act has given regulators the tools and authorities they need to monitor risk across the modern financial system and replaced a pre-crisis regulatory regime that was built for another era. Financial markets are now more transparent and, for the first time, Americans now have one, dedicated consumer financial watchdog agency, the Consumer Financial Protection Bureau. (This historic new agency, and its recent actions on behalf of consumers, were not mentioned in Ms. Foroohar’s article).​ There is still more to do in order to protect taxpayers, consumers, and our financial system, but it is important to paint a realistic picture of the important changes to the financial system that have occurred . Let’s step back and address a few larger truths about financial reform, as categorized by the article:

Time’s Foroohar Responds to Treasury: Our Financial System Is Not Stronger - It seems that the Treasury Department is in agreement with the core premise of TIME’s cover story this week. In a blog posted on the department’s website Friday, Deputy Assistant Secretary for Public Affairs Anthony Coley notes that while “unprecedented actions” were needed to prevent financial collapse in 2008, there is “still more to do to protect taxpayers, consumers and our financial system” before we can honestly say that our economy is no longer at risk. As I put it in my piece: “The truth is, Washington did a great job saving the banking system in ’08 and ’09 with swift bailouts that averted even worse damage to the economy. But it has done a terrible job of re-regulating the financial industry and reconnecting it to the real economy.”  To respond to some of the key points Mr. Coley raises:

  • 1. While the creation of the Consumer Financial Protection Bureau was a great step forward, it hasn’t changed the underlying business model of many of the largest banks, which still make the majority of their profits from trading operations rather than plain vanilla lending. Nor has it hindered the ability of Wall Street to continue to take opaque trading risks that compromise the integrity of our financial system. Many of these risks are due to loopholes in Dodd-Frank created by vigorous banking industry lobbying.

Follow the Money: Payday Laundry Edition -- Gretchen Morgenson is asking some interesting questions about where the money comes to fund predatory loans. The issue boils down to this:  the most questionable consumer is not done by depositories.  It's done by finance companies or (prior to 2008) by mortgage banks.  That means that these lenders need another source of funding for their loans. That could be their investors' equity, but more typically it is via lines of credit from other financial institutions. Absent lines of credit from large financial institutions, the amount of high-risk lending done in the US would likely be substantially less.I hope that bank regulators (and Congress) start asking why banks are willing to fund loans that they aren't willing to make directly themselves because of reputational concerns. The current situation looks a lot like a rent-a-BIN variation:  instead of the bank providing the front to avoid usury laws or to enable MC/Visa card issuance, here we have the rent-a-finance-company situation, with the banks basically undertaking predatory lending behind the mask of the finance companies. Specifically, it sure looks as if NY banks were financing on-line payday lenders that made loans to NY residents at rates that violated the NY usury laws. (Let me emphasize that the issue here is not whether payday loans are good or bad--that's a separate discussion--but simply whether the NY usury laws were violated.)

$1 Trillion In US Bank Deposits Held Abroad Will No Longer Be Insured -- In the aftermath of the Cyprus bail in (and to a lesser extent the Polish pension fund debacle), it is understandable if depositors are a little sensitive about the insurance, and thus confiscability (sic), of their deposits. Starting today, following a 5-0 vote by the FDIC, depositors in foreign US bank branches will officially no longer have recourse to a $250,000 in deposit insurance. The notional amount of deposits at risk: $1 trillion. This is not a new development: the FDIC rule to curb insurance on this category of deposits was proposed earlier this year, and today was the formalization. However, questions do arise: if a major US depository institution does fail domestically, the financial state of their depositors abroad will hardly be the biggest issue.  WSJ adds: The move rejects what officials called a "creative" legal proposal from the banking industry. "We don't want to become the deposit insurer for the world," FDIC officials said at a briefing. The FDIC's action was prompted by the move last year by U.K. regulators to propose changes in the way deposits held at overseas branches should be treated. FDIC officials said the U.K. proposal potentially opened the door to those deposits being insured by the FDIC; the rule being finalized Tuesday clarified that isn't the case, said FDIC Chairman Martin Gruenberg.

Unofficial Problem Bank list declines to 704 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for September 6, 2013.  Changes and comments from surferdude808:  Quiet week for changes to the Unofficial Problem Bank List with only three removals. After the changes, the list has 704 institutions with assets of $249.8 billion. A year ago, the list held 887 institutions with assets of $330.7 billion. There is nothing new of significance to report on the status of banks controlled by Capitol Bancorp, Ltd. Next week will likely be as quiet as it will be too early for the OCC to release its actions through mid-August 2013.  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 704 (the list increased faster than it is decreasing - but it is steadily decreasing as regulators terminate actions).

CoreLogic: 2.5 Million Fewer Properties with Negative Equity in Q2 2013 - From CoreLogic: CoreLogic reports 2.5 Million More Residential Properties Return to Positive Equity in Second Quarter CoreLogic ... today released new analysis showing approximately 2.5 million more residential properties returned to a state of positive equity during the second quarter of 2013, and the total number of mortgaged residential properties with equity currently stands at 41.5 million. The analysis shows that 7.1 million homes, or 14.5 percent of all residential properties with a mortgage, were still in negative equity at the end of the second quarter of 2013. This figure is down from 9.6 million homes, or 19.7 percent of all residential properties with a mortgage, at the end of the first quarter of 2013 ... Of the 41.5 million residential properties with positive equity, 10.3 million have less than 20 percent equity. Borrowers with less than 20 percent equity, referred to as “under-equitied,” may have a more difficult time obtaining new financing for their homes due to underwriting constraints. Under-equitied mortgages accounted for 21.1 percent of all residential properties with a mortgage nationwide in the second quarter of 2013. At the end of the second quarter of 2013, 1.7 million residential properties had less than 5 percent equity, referred to as near-negative equity. Properties that are near negative equity are at risk should home prices fall. ...This graph shows the break down of negative equity by state. Note: Data not available for some states. From CoreLogic: "Nevada had the highest percentage of mortgaged properties in negative equity at 36.4 percent, followed by Florida (31.5 percent), Arizona (24.7 percent), Michigan (22.5 percent), and Georgia (20.7 percent). These top five states combined account for 34.9 percent of negative equity in the U.S." The second graph shows the distribution of home equity in Q2 compared to Q1. Under 6% of residential properties have 25% or more negative equity, down from over 8% in Q1. It will be long time before those borrowers have positive equity

Lawler: Consistent with Other US Housing Reports, Negative Equity Estimates Vary Widely! CR Note: This is from housing economist Tom Lawler. Lawler has been pointing out the inconsistency in US housing data; this time on negative equity. CoreLogic released its “Equity Report” for the second quarter of 2013, in which the company estimates the distribution of equity (home value less mortgage balance) across all U.S. single-family residential properties with a mortgage. ... Given that this report is based on US housing data, it just “wouldn’t be right” if there weren’t other reports that show significantly different “negative equity” estimates. Zillow and RealtyTrac, e.g., have negative equity reports for the second quarter, and LPS Analytics released its own estimate for the number of residential properties in a negative equity position in March, 2013 (14.7%, compared to CoreLogic’s Q1 estimate of 19.7%). Below is a table showing different estimates. RealtyTrac’s report has three categories: “deeply underwater” (LTV >=125%); “resurfacing equity” (LTV 90% to 110%); and “equity rich” (LTV 50% or lower). RT said that its “estimates” were as of the beginning of September, but I have no clue how it derived home values as of the beginning of September. There are two main sources of differences in negative equity estimates: the first, of course, is the value of the underlying property. The second is the current mortgage balance (including first and junior liens) on each underlying property. In many cases the only public data available are the original mortgage balances of closed-end first and second liens, and for HELOCs the total line of credit (as opposed to utilization). CoreLogic adjusts public record data on mortgages for amortization and home equity utilization to get a “true” (read "estimated”) level of the mortgage balance for each property. Zillow says that it has “partnered” with TransUnion to get “actual” current outstanding mortgage balances.  I’m fairly certain RealtyTrac doesn’t make any such adjustment, and its estimate that 23.7% of homes with mortgages are “deeply underwater” is almost certainly [incorrect].

Eminent Domain Mortgage-Seizure "Approved" For CA City  - Despite PIMCO, DoubleLine, and pretty much every other major mortgage bondholder in the world litigating the actions, Richmond, California's leaders approved this morning a plan for the city to become the first in the nation to acquire mortgages with negative equity in a bid to keep local residents in their homes. Richmond's city council voted 4 to 3 to use the power of 'eminent domain' (as we discussed here most recently) if trusts for more than 620 delinquent and performing "underwater" mortgages reject offers made by the city to buy the loans at deep discount pegged to their properties' current appraised prices to refinance them and reduce their principal. City council members opposed to the plan countered that using eminent domain would put Richmond at risk of expensive lawsuits that could destroy the city's finances; and sure enough, Richmond had no takers last month when the successor to its redevelopment agency put $34 million of bonds up for sale to refinance previous debt. As Reuters reports, investors holding the mortgages targeted by Richmond dispute altruism motivates the plan and are set to meet in court for the first time tomorrow.

California city backs plan to seize negative equity mortgages (Reuters) - Richmond, California's leaders approved on Wednesday morning a plan for the city to become the first in the nation to acquire mortgages with negative equity in a bid to keep local residents in their homes. The power of 'eminent domain' allows governments to seize private property for a public purpose. Critics say the plan threatens the market for private-label mortgage-backed securities. Richmond's city council voted 4 to 3 for Mayor Gayle McLaughlin's proposal for city staff to work more closely with Mortgage Resolution Partners to put the plan crafted by the investor group for the city to work. Richmond can now invoke eminent domain if trusts for more than 620 delinquent and performing "underwater" mortgages reject offers made by the city to buy the loans at deep discount pegged to their properties' current appraised prices to refinance them and reduce their principal. A mortgage is under water when its unpaid balance is greater than its property's market value.

Richmond, California Moves Ahead With Plan to Seize Underwater Mortgages - The city council of Richmond, Calif., has voted 4-3 to proceed with a plan to use eminent domain to buy up underwater mortgages at deep discounts and give homeowners a new, cheaper loan that would have lower monthly payments and decrease the chance that the home will be foreclosed upon. In addition, Richmond has agreed to help other cities follow its lead in using eminent domain to help heal the foreclosure crisis blighting many parts of the country. Mortgage lenders — including federally owned Fannie Mae and Freddie Mac — have announced their opposition to such plans and have threatened that any towns utilizing eminent domain to extract unfair concessions from investors would face a shortage of mortgage lending in the future.

Loan Size to Be Cut for Fannie, Freddie - Federal officials are preparing to reduce the maximum size of home-mortgage loans eligible for backing by Fannie Mae FNMA and Freddie Mac ... Currently, Fannie and Freddie Mac can back mortgages that have balances as high as $417,000 in most parts of the country and up to $625,500 in expensive housing markets, including parts of California and New York, and as much as $721,050 in Hawaii. Mortgages within the limits are called "conforming" loans; mortgages that exceed them are called "jumbo" mortgages. The Federal Housing Finance Agency, which regulates Fannie and Freddie, hasn't announced how far it will drop the loan limits, which would take effect Jan. 1, 2014, and a spokeswoman declined to elaborate on specifics. But in a statement, the agency said a "gradual reduction in loan limits is an appropriate and effective approach to reducing taxpayers' mortgage-risk exposure…and expanding the role of private capital in mortgage finance."

Wells Fargo Said to Be Selling Mortgage Servicing Rights - Wells Fargo & Co. (WFC), the biggest U.S. home lender, is selling mortgage-servicing rights on $41 billion of loans, according to two people briefed on the process. The rights are for government-backed home loans, according to one of the people, both of whom asked for anonymity because they weren’t authorized to speak publicly about the transaction. The contracts relate to borrowers Wells Fargo identifies as “non-core” because they have few other products from the bank, the other person said. Chief Financial Officer Tim Sloan said earlier this week that the San Francisco-based bank will sell servicing-rights in the coming quarters as a risk-management practice. Wells Fargo, the largest U.S. residential mortgage servicer with contracts on $1.9 trillion of loans, generated $393 million in the second quarter from the business.

Fuzzy credit  - Matt Levine has a very smart response to my post about those weird jumbo mortgage rates. Levine comes up with two reasons why jumbo rates might be lower than the rates on loans which can be sold to Frannie, and both of them are entirely plausible. The first is that credit risk on conforming mortgages doesn’t simply disappear just by dint of those mortgages being sold to Frannie. The agencies need to charge a fee to cover the credit risk on the mortgages that they’re buying, and that fee is going to find its way, one way or another, into the yield on conforming mortgages. Since it stands to reason that the credit risk on conforming mortgages is greater than the credit risk on jumbo mortgages (on the grounds that rich people, in general, are more creditworthy) then it similarly makes sense that the all-in yield on conforming mortgages might be higher too. Levine’s second hypothesis is related to the fact that bonds in general, and agency bonds in particular, are instruments which are marked to market daily — while jumbo loans are long-term assets which can sit on a bank’s balance sheet for decades, through many credit cycles. If a bank buys mortgage bonds, notes Levine, then it is obliged to mark them down, taking a hit to its P&L, if and when mortgage rates rise. Actual mortgages, on the other hand, not being marked to market, never need to suffer such markdowns. And that makes them more attractive. Conforming mortgages will always end up being priced off the market, and during times when banks expect interest rates to rise, the market might well be quite expensive, compared to loans which are designed to be held to maturity.

Rates rising, banks hit the brakes on mortgage business - JPMorgan laid off more than 2,000 employees in early August—about half of them in originations, according to a person familiar with the situation. ... The August round of layoffs represented the first time the bank had moved to downsize its origination business, which surged as mortgage rates went to historic lows.  Other Wall Street banks are making similar moves, as a sharp rise in rates has kept consumers from taking out or refinancing mortgages. Late last month, Bank of America notified 2,100 employees that their jobs were being cut; Wells Fargo has laid off more than 3,000 since July. Citigroup confirmed Wednesday the July closure of an office in Danville, Ill., that affected 120 jobs.

MBA: Mortgage Refinance Activity at Lowest Level since 2009 - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 13.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 6, 2013. This week’s results included an adjustment for the Labor Day holiday. ... The Refinance Index decreased 20 percent from the previous week. The Refinance Index has fallen 71 percent from its recent peak the week of May 3, 2013 and is at the lowest level since June 2009. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.80 percent from 4.73 percent, with points increasing to 0.46 from 0.33 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.  The first graph shows the refinance index. The refinance index is down 71% since early May. The last time the index declined like this was in late 2010 and early 2011 when mortgage increased sharply with the Ten Year Treasury rising from 2.5% to 3.5%. We've seen an even larger increase over the last few months with the Ten Year Treasury yield up from 1.6% to over 2.96% today. We will probably see the refinance index back to 2000 levels soon. The second graph shows the MBA mortgage purchase index.

US mortgage rout deepens The US mortgage rout is reaching epic proportions. From the MBA last night:Mortgage applications decreased 13.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 6, 2013. This week’s results included an adjustment for the Labor Day holiday. …The Refinance Index decreased 20 percent from the previous week. The Refinance Index has fallen 71 percent from its recent peak the week of May 3, 2013 and is at the lowest level since June 2009. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier….The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.80 percent from 4.73 percent, with points increasing to 0.46 from 0.33 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. And the charts via Calculated Risk: House prices need to slow so that’s good. But new home construction doesn’t and it is.

Higher Rates Crush Mortgages: Refinancings Plunge To 2009 Levels --For the 16th of the last 18 weeks, mortgage refinance activity plunged (dropping 20% this week alone). Since early May, when the dreaded word "Taper" was first uttered, refis have collapsed over 70%. With mortgage servicers and providers large and small laying people off, it seems hard for even the most egregiously biased bull to still suggest that the housing recovery is sustainable. Once again, for those that forget - and as we explained in great detail here, it is not about 'absolute' levels of rates; it is all about relative levels as prices of homes adjust to the new 'affordability' of monthly payments as rates drop - any rise in rates (with a stagnant income growth) means home prices (and ex-cash-buyer demand - which looks set to 'controlled') collapses. This is the lowest level of mortgage refinance activity since since June 2009 and lowest total mortgage activity since Oct 2008 - in the middle of the financial crisis. Who says the Fed didn't drive all this?

Freddie Mac: Mortgage Rates Hold Steady near Highs for Year - From Freddie Mac today: Mortgage Rates Hold Steady Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates relatively unchanged from last week following a mixed employment report, and holding steady near their highs for the year. ...30-year fixed-rate mortgage (FRM) averaged 4.57 percent with an average 0.8 point for the week ending September 12, 2013, unchanged from last week. A year ago at this time, the 30-year FRM averaged 3.55 percent. 15-year FRM this week averaged 3.59 percent with an average 0.7 point, unchanged from last week. A year ago at this time, the 15-year FRM averaged 2.85 percent. The high this year for 30 year rates in the Freddie Mac survey was 4.58%, and the high for 15 year rates was 3.60%. This graph shows the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey® compared to the MBA refinance index.

Weekly Update: Existing Home Inventory is up 20.6% year-to-date on Sept 9th -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 July).  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.

Sellers Test Housing Market Amid Rising Prices - Housing inventories increased in August and stood just 2.5% below their levels of a year ago, offering the latest sign that more sellers are testing the market after swift home-price gains over the past year. Nationally, there were 1.98 million homes listed for sale in August, according to a report released Thursday by That was up by more than 24% from the low point in February and up 1% from July. Inventories have increased for six straight months.While the overall level of homes for sale remains relatively depressed, the report suggests that inventory may have hit a bottom earlier this year after an extended two-year decline.The report also suggests that home-buyer traffic has eased following a period in which mortgage rates have jumped by more than one percentage point.Inventories in nine of the nation’s top 30 housing markets were above their levels of last August, led by Los Angeles, where inventory was up by 17.4% from a year ago to its highest level since April 2012. Inventories in Atlanta were 13.9% above last year’s level. Other gains were reported in Orlando, Fla. (up 7.1%); Orange County, Calif. (6.9%); Miami (5.1%); Philadelphia (4.2%); and Phoenix (2.8%).Listings stood 23.3% below last year’s levels in Detroit and were down by 20.1% in Boston, 17.9% in Denver and San Diego, and 14.8% in Dallas.Median asking prices nationally were unchanged from July at $199,900, which represented a 6% increase from a year earlier. Asking prices were below last year’s level in Cleveland, but they were unchanged or up from a year ago in every other major market.

Bay Area August Home Sales Dip; Median Price Eases Back From July - A total of 8,616 new and resale houses and condos were sold in the nine-county Bay Area last month. That was down 7.7 percent from 9,339 in July and down 0.6 percent from 8,670 in August last year, according to San Diego-based DataQuick. The median price paid for a home in the Bay Area last month was $540,000. That was down 3.9 percent from $562,000 in July, and up 31.7 percent from $410,000 in August a year ago. Due to seasonal shifts in sales patterns, the Bay Area median almost always declines from July to August. Foreclosure resales – homes that had been foreclosed on in the prior 12 months – accounted for 4.6 percent of resales in August, the same as July’s revised percentage, and down from 14.5 percent a year ago. The July and August level is the lowest since 4.4 percent in August 2007. Foreclosure resales peaked at 52.0 percent in February 2009. The monthly average for foreclosure resales over the past 17 years is about 10 percent. Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 10.0 percent of Bay Area resales last month. That was down from an estimated 10.6 percent in July and down from 23.3 percent a year earlier.

A housing affordability index scenario caps housing prices and mortgage rates - We've had a great deal of movement in the NAR US Housing Affordability Index recently. The index is meant to measure homebuyers' ability to finance house purchases (discussed here back in 2011) and given some recent events, it's worth taking a look at what the index is telling now.  First of all, there has been a great deal of criticism of this index (for example here). The index clearly doesn't take into account factors such as credit conditions, while making some (over)simplifying assumptions (see description). It is certainly a blunt tool that uses the median house price, median household income and the latest mortgage rates. But its simplicity makes it relatively easy to get a picture of "affordability" over time (the absolute level of the index is not very meaningful - just the relative moves). More importantly it's quite easy to stress-test.The Affordability index had peaked in early 2012 and has been declining rather sharply since, as home prices began to recover. Along the way however the declines were offset by falling mortgage rates - until recently. The latest value available from NAR is as of July of this year, when the average mortgage rate used in the calculation was 4.13%. Things have changed since then (see chart). Based on the analysis performed by Deutsche Bank, the chart below shows where the index would be if:
1. we use current mortgage rates (rather than from July) and house prices remain unchanged;
2. 1% increase in mortgage rates and house prices remain unchanged;
3. 1% increase in mortgage rates and house prices increase another 10%.

Prices Are Rising for New Homes, and the Land They Are Built On - After builders across the country spent decades feeding acre after acre of raw land into the maw of demand for single-family homes, the housing crash left them with a land surplus so large that lots were selling for pennies on the dollar. At the peak of supply, in 2009, there were enough lots to last almost eight years, according to MetroStudy, a firm that tracks housing data. Now there is less than four year’s worth, and only about a quarter of that is in the more desirable A- or B-rated locations. "We have gone from a situation where five years ago everyone was saying, ‘There’s too many lots,’ to today, builders are literally crying on our shoulder saying, ‘There’s not enough lots. We can’t find any,’” The shortage of lots is slowing the housing recovery, the National Association of Home Builders said last week. In August, 59 percent of builders surveyed said lot supply was low or very low, the association said. Housing is a critical driver for the economy, not just because of the jobs and supplies needed to build homes but also the appliances and furnishings that new occupants buy. At the peak of the housing boom, builders were finishing more than 1.6 million single-family houses a year. That number plunged to less than half a million during the recession. This year, the industry is on track to complete more than 570,000 homes, still substantially below the level considered necessary to replace aging homes and provide for new households. A return to more normal rates of construction would substantially lift the economy’s anemic growth rate of about 2 percent over the last year.

Report: New Home Sales soft in August -- From the WSJ: New-Home Sales Not So August A survey of 273 builders by John Burns Real Estate Consulting in Irvine, Calif., found that the respondents’ sales of new homes declined by 4% in August from a month earlier. In past years, August typically has yielded a 2% gain from the July figure. Burns estimates that its survey, conducted Aug. 29 to Sept. 3, spans roughly 16% of new-home sales in the U.S. Perhaps more telling: far fewer of Burns’s survey respondents reported raising their prices in August than had in previous months. Of the respondents in August, 47% reported raising prices, 48% held prices steady and 5% lowered prices—the largest percentage of reductions since March 2012. Those figures show substantial change from the results of Burns’s July survey in which 64% of builders reported raising prices, 36% held them study and one builder—statistically 0%—said it cut prices. This is similar to the report from home builder Hovnanian earlier this week. Builders have been raising prices significantly, and combined with rising mortgage rates, this has slowed down new home buying. However, as this graph shows (through July), new home sales are still historically low, and I expect sales to continue to increase over the next few years.

Housing Bubble In Full Bloom, Zany Price Increases, And Now A Sudden Slowdown - Wolf Richter - Cities have seen dizzying home-price increases that are giddily reported and infused with pandemic housing hype and trillions from the Fed into a self-propagating force. And it has become accepted wisdom that the housing market would recover all the way to where it was in 2006, which would represent a complete recovery, a sign that the Fed has done its job, that it cured at least one of the ills that has been dogging this economy for so long. Alas, not too long ago, everyone had called 2006 “the peak of the housing bubble,” the apogee of all craziness, one of the causes of the disaster that followed, and everybody had tales of just how crazy it was back then. All this is forgotten. The prices of 2006 are suddenly no longer the peak of the housing bubble, but a goal to get back to. Electronic real-estate broker Redfin covers 19 metro areas with its Real-Time Price Tracker. It’s based on sales contracts that are reported to the MLS data bases upon signing, and thus far timelier than other gauges. It measures prices per square foot, thus eliminating the issue of larger versus smaller homes. In its report at the end of August, home prices in San Francisco soared 27.3% from a year ago; in Riverside, CA, 29.6%; in Sacramento, CA, 38.8%; and in Las Vegas a cool 39.1%. Price increases that make the last bubble appear boring! So in San Francisco, the median list price, according to Redfin, is $832,000. The median sales price is 7.5% higher. Mortgage rates have jumped too. Combined with higher home prices, they make a toxic mix. So if our homebuyer in San Francisco pays $16,000 down on his median home and finances $816,000 for 30 years, with a fixed-rate mortgage at the average rate of 4.80%, the payment will set him back $4,281 a month.

Mortgage Market Slump: Is it Interest Rates or Jobs and Consumer Income? - Over the past week, most of the major banks in the mortgage sector have been issuing guidance to investors regarding the outlook for mortgage lending volumes going forward in 2014 and beyond.  For the past several months, I have been worried about the transition from refinancing to purchase volumes, both for banks and non-banks.  The good news is that the mortgage loan refinance boom lasted longer than many anticipated.  The bad news is that the industry data and operational announcements by financial institutions have a decidedly bearish slant.Meanwhile, the Mortgage Bankers Association reports that applications for U.S. home loans plunged as mortgage rates matched their high of the year, with refinancing activity falling to its lowest in more than four years.  MBA said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, sank 13.5 percent in the week ended Sept. 6, after rising 1.3 percent the prior week.  In the past three months, there have only been a handful of up weeks for the MBA index.While many analysts say that the decline in mortgage applications is a result of higher interest rates, my view is that the real issues are structural.  Some lenders are easing lending standards to help grow volumes, but the fact is that there are fewer buyers in the market than prior to the crash.  Bloomberg reports that “As the economy rebounds and home values climb at about the fastest pace since 2006, lenders including the largest, Wells Fargo & Co., JPMorgan, Bank of America Corp., and mortgage insurers are easing the tightest credit conditions in two decades, lifting restrictions put in place after the worst real estate bust since the Great Depression.” 

Richest one percent take home record share of US income in 2012 -- The income gap between the richest 1 percent and the rest of America widened to a record last year, new analysis has found.The top 1 percent of U.S. earners collected 19.3 percent of household income in 2012, their largest share in Internal Revenue Service figures going back a century.U.S. income inequality has been growing for almost three decades. But until last year, the top 1 percent's share of pre-tax income had not yet surpassed the 18.7 percent it reached in 1927, according to an analysis of IRS figures dating to 1913 by economists at the University of California, Berkeley, the Paris School of Economics and Oxford University.One of them, Emmanuel Saez of the University of California, Berkeley, said the incomes of the richest Americans might have surged last year in part because they cashed in stock holdings to avoid higher capital gains taxes that took effect in January.Last year, the incomes of the top 1 percent rose 19.6 percent compared with a 1 percent increase for the remaining 99 percent.The richest Americans were hit hard by the financial crisis. Their incomes fell more than 36 percent in the Great Recession of 2007 to 2009 as stock prices plummeted. Incomes for the bottom 99 percent fell just 11.6 percent, according to the analysis.In the study, researchers defined income as consisting of all earnings plus profits from stocks or bonds. But since the recession officially ended in June 2009, the top 1 percent have enjoyed the benefits of rising corporate profits and stock prices: 95 percent of the income gains reported since 2009 have gone to the top 1 percent.

Some 95% of 2009-2012 Income Gains Went to Wealthiest 1% -- Research released this month shows that the incomes of the well-off have largely climbed back from the toll of the most recent recession while those of the poor have yet to start recovering. According to the latest version of “Striking it Richer: The Evolution of Top Incomes in the United States,” by Emmanuel Saez, of the University of California, Berkeley, the income inequality gap has been expanding, rather than narrowing, as the 2007-2009 recession recedes. That trend has been unfolding for more than 30 years, with the highest earners only temporarily set back by the most recent downturn.The findings, based in part on U.S. income-tax data and census figures, update Mr. Saez’s earlier work with Thomas Picketty, with initial income estimates for 2012. Among the highlights:

  • –All told, average inflation-adjusted income per family climbed 6% between 2009 and 2012, the first years of the economic recovery. During that period, the top 1% saw their incomes climb 31.4% — or, 95% of the total gain — while the bottom 99% saw growth of 0.4%.
  • –Last year, the richest 10% received more than half of all income — 50.5%, or the largest share since such record-keeping began in 1917. Here is how the top earners break down: Top 1%: incomes above $394,000 in 2012; Top 5%: incomes between $161,000 and $394,000; Top 10%: incomes between $114,000 and $161,000.
  • –The housing and stock markets give and they also take away. The one-percenters saw their incomes slide 36.3% during the 2007-2009 recession; incomes of the 99-percenters fell 11.6% during the downturn. “The fall in top decile income share from 2007 to 2009 is actually less than during the 2001 recession from 2000 to 2002, in part because the Great Recession has hit bottom 99% incomes much harder than the 2001 recession, and in part because upper incomes excluding realized capital gains have resisted relatively well during the Great Recession,”

The Rich Get Richer Through the Recovery - An updated study by the prominent economists Emmanuel Saez and Thomas Piketty shows that the top 1 percent of earners took more than one-fifth of the country’s total income in 2012, one of the highest levels recorded in the century that the government has collected the relevant data. The top 10 percent of earners took more than half of all income. That is the highest recorded level ever. The figures underscore that even after the recession the country remains in a kind of new Gilded Age, with income as concentrated as it was in the years that preceded the Great Depression, if not more so.High stock prices, rising home values and surging corporate profits have buoyed the recovery-era incomes of the rich, with the incomes of the rest still weighed down by high unemployment and stagnant wages for many blue- and white-collar workers.“These results suggest the Great Recession has only depressed top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s,” Mr. Saez, of the University of California, Berkeley, wrote in his analysis of the data.  The income share of the top 1 percent of earners in 2012 returned to the same level as before both the Great Recession and the Great Depression: just above 20 percent, jumping to about 22.5 percent in 2012 from 19.7 percent in 2011.

Report: The Rich Are Now Richer Than Ever - Rich people in America are richer than ever, according to a new Paris School of Economics study. The report found that the top ten percent of earners took in more than half of the country's total income in 2012, the highest level since the government began keeping records a hundred years ago, the New York Times reported Tuesday. The study, by economists Emmanuel Saez and Thomas Piketty, also found that the top one percent alone took in more than one-fifth of all income earned by Americans, the most since 1913. Here is what that looks like, via the Times:  The data is just the latest in a string of reports over the past couple years illustrating how gains from the economic recovery have gone to the upper crust.Meanwhile, the share of people with a job or looking for a job is at its lowest level since 1978, middle class wages are flat, and working-poor wages have dipped. More depressing details from the Times:

Study: The 1% Took an Even Bigger Slice of the Pie in 2012 - The richest 1% of Americans collected a greater share of household income last year than at any time in the last century, according to a new analysis of IRS data going back to 1913. The wealthiest Americans took a hit during the recent financial crisis, with their wealth plummeting 36% between 2007 and 2009. But since then, the net worth of the flushest among us has rebounded sharply, buoyed by rising corporate profits and stock prices. In 2012, 19.3% of all household income in the U.S. went to the top 1% of earners, their greatest share since 1928. Incomes for the top 1% rose nearly 20% last year, while incomes for the remaining 99% increased by just 1%. One of the academics behind the study, which was conducted by economists at the University of California, Berkeley, the Paris School of Economics, and Oxford, said part of the swell in incomes may partly be a result of Americans cashing in stock holdings in advance of the capital gains tax changes that took effect in January this year. And just who is in the top 1%, these days? According to the Associated Press, the top 1% of American households had income over $394,000 in 2012. According to the study, 95% of income gains reported since 2009 have gone to that group.

US income gap reaches its widest point since the 1920s - The gulf between the richest 1 percent and the rest of America is the widest it's been since the Roaring '20s. The very wealthiest Americans earned more than 19 percent of the country's household income last year — their biggest share since 1928, the year before the stock market crash. And the top 10 percent captured a record 48.2 percent of total earnings last year. U.S. income inequality has been growing for almost three decades. And it grew again last year, according to an analysis of Internal Revenue Service figures dating to 1913 by economists at the University of California, Berkeley, the Paris School of Economics and Oxford University. One of them, Berkeley's Emmanuel Saez, said the incomes of the richest Americans surged last year in part because they cashed in stock holdings to avoid higher capital gains taxes that took effect in January. In 2012, the incomes of the top 1 percent rose nearly 20 percent compared with a 1 percent increase for the remaining 99 percent.

US Income Gap Soars To Widest Since "Roaring 20s"- The last time the top 10% of the US income distribution had such a large proportion of the entire nation's income was the 1920s - a period that culminated in the Great Depression and a collapse in that exuberance. As AP reports, the very wealthiest Americans earned more than 19% of the country's household income last year — their biggest share since 1928, the year before the stock market crash. And the top 10% captured a record 48.2% of total earnings last year. Analysis by Emanuael Saez shows that, based on IRS data, in 2012, the incomes of the top 1% rose nearly 20% compared with a 1% increase for the remaining 99%. Economists point to several reasons for widening income inequality including globalization and technology. However, as John Taylor explains in his recent WSJ Op-Ed, using this as a lever for Obama's "middle-out" policies - higher tax rates, more intrusive regulations, more targeted fiscal policies - will not revive the economy. More likely they will perpetuate the weak economy we have and cause real incomes—including for those in the middle—to continue to stagnate.

Rich Man’s Recovery, by Paul Krugman - A few days ago, The Times published a report on a society that is being undermined by extreme inequality. This society claims to reward the best and brightest... In practice, however, the children of the wealthy benefit from opportunities and connections unavailable to children of the middle and working classes. And ... the gap between the society’s meritocratic ideology and its increasingly oligarchic reality is having a deeply demoralizing effect. The report illustrated in a nutshell why extreme inequality is destructive, why claims ring hollow that inequality of outcomes doesn’t matter as long as there is equality of opportunity. If the rich ... live in a different social and material universe, that fact in itself makes nonsense of any notion of equal opportunity. The point, of course, is that as the business school goes, so goes America, only even more so — a point driven home by the latest data on taxpayer incomes..., 95 percent of the gains from economic recovery since 2009 have gone to the famous 1 percent. ... Basically, while the great majority of Americans are still living in a depressed economy, the rich have recovered just about all their losses and are powering ahead. ...What’s driving these huge income gains at the top? There’s intense debate on that point,..., however, whatever is causing the growing concentration of income at the top, the effect of that concentration is to undermine all the values that define America. Year by year, we’re diverging from our ideals. Inherited privilege is crowding out equality of opportunity; the power of money is crowding out effective democracy.

How much did the Great Financial Crisis cost America? Nearly $30 trillion -- The Federal Deposit Insurance Corp. says it’s selling $2.4 billion in Citigroup bonds.  The current sale, according to Bloomberg, “would bring the government’s overall profit on the Citi bailout to nearly $15.5 billion.” But before we start celebrating Washington’s savvy investment in Wall Street, let’s recall the total costs of the financial meltdown. A new report from the Dallas Fed takes its best shot at guesstimating: The 2007–09 meltdown produced a huge downshift in the path of economic output, consumption and financial wealth. The nation has borne additional costs arising from psychological consequences, skill atrophy from extended unemployment, a reduced set of economic opportunities and increased government intervention in the economy.Assuming the financial crisis is the root cause of all that dislocation, an estimate of the crisis’ overall cost must be weighed against the potential costs of policies intended to prevent similar episodes in the future. We conservatively estimate the loss of national output as a result of the financial crisis and its aftermath at between $6 trillion and $14 trillion. The high end of this range is equal to nearly one year of U.S. output. Including broader and more difficult-to-quantify measures that reflect the lingering trauma experienced by millions of Americans pushes these costs still higher—possibly to as much as two years’ worth of forgone consumption.

Great Recession cost each household between $50,000 and $120,000, according to Dallas Fed study - Oof: the Great Recession cost each household between $50,000 and $120,000, or the equivalent of 40% to 90% of one year’s economic output, according to a study released by the Dallas Fed. In total, that represents an output loss of $6 trillion to $14 trillion.That’s a combination of lost wealth (like the lost value of a house) and a drop in both current wage income and discounted future wage income from unemployment. Plus, the Dallas Fed notes, there are harder-to-measure consequence of extended unemployment, reduced opportunity and increased government presence in the economy.And if output doesn’t ever return to trend, the crisis cost will exceed the $14 trillion high-end estimate of output loss. The researchers said while there have been a number of studies on what caused the Great Recession, there have been few looking at the cost of it.

U.S. Consumer Borrowing Rises $10.4 Billion in July — Americans cut back on using their credit cards in July for the second straight month, while taking on more debt to buy cars and attend school.The Federal Reserve says consumers increased their borrowing $10.4 billion in July from June to a record high of $2.85 trillion. That followed an $11.9 billion gain in June.A measure of borrowing that includes credit card debt fell $1.8 billion in July following an even larger $3.7 billion decline in June. A category that includes auto loans and student loans increased $12.3 billion after an even larger $15.6 billion gain in June.The reduction in credit card debt suggests that consumers remain cautious about accumulating high-interest debt. That could hold back consumer spending, which accounts for 70 percent of economic activity.

Consumer Credit in U.S. Increased Less Than Forecast in July - Consumer borrowing in the U.S. rose less than forecast in July as credit-card use fell for a second month even as Americans took out more loans for car purchases.  The $10.4 billion increase in credit followed a revised $11.9 billion advance in June that was less than initially reported, the Federal Reserve reported today in Washington. The median forecast in a Bloomberg survey called for a $12.7 billion gain in July. Non-revolving financing, including auto and school loans, rose. Gains in home prices and stock values have helped boost household wealth, giving some consumers the confidence to borrow for big-ticket purchases such as automobiles. At the same time, limited employment and wage growth may prompt Americans to cut back on their use of credit cards. “There’s a continued solid pace of auto sales driving consumer credit expansion,”  The report doesn’t track mortgages, home-equity lines of credit and other debt secured by real estate. Revolving credit, which includes credit-card spending, fell $1.8 billion after a $3.7 billion drop a month earlier, marking the first back-to-back decrease in a year.

July Student And Car Loans Soar As Consumers Continue To Pay Down Credit Cards - There has been much jubilation in recent months over the so-called end of the consumer deleveraging (and implicitly, the start of releveraging) - that key missing link so needed for a truly sustainable, Fed-free recovery. The problem, unfortunately, is that this jubilation has been once again misplaced (read wrong) and following the just released July Consumer Credit data, we know that US consumers continued to pay down their credit cards (i.e., delever) for the second month in a row, reducing total outstanding revolving debt by $1.8 billion, which when added to June's revised $3.7 billion reduction in credit card borrowings, is the biggest two month drop in revolving debt since January 2011. The offset? Same as always: non-revolving i.e., student and car loans, debt soared once more by $12.3 billion this month, representing 118% of the total increase of $10.4 billion (less than the $12.7 billion expected), and down from last month's downward revised $11.9 billion.

Americans’ Credit-Card Debt Declines - Consumers’ revolving credit, which primarily reflects money owed on credit cards, fell by $1.84 billion, or at a 2.6% annual rate, in July from a month earlier, the Federal Reserve reported Monday. That came after a 5.2% drop in revolving credit in June. The report showed that Americans stepped up other types of borrowing, namely to buy cars and go to school. Nonrevolving credit, which reflects mostly auto and student loans, rose by $12.28 billion, or 7.4%, in July. That caused overall consumer debt, excluding mortgages, to grow at a 4.4% annual rate in July from June. The drop in credit-card debt could stoke worries that consumers are clamping down broadly on daily discretionary spending, such as going out to eat or shopping at the mall. Such a development would restrain growth in the U.S. economy, which relies heavily on consumer spending. Consumer spending represents more than two-thirds of economic demand in the U.S. Revolving credit peaked at just over $1 trillion in summer 2008 in the wake of that decade’s credit boom, when Americans racked up huge debts amid a strong housing market and low unemployment. But after the financial crisis and housing crash, households spent years cutting debt, either by defaulting or by paying down balances. That process, known as deleveraging, put households on firmer financial footing in the long run but drained the economy of much needed spending. Credit-card balances have dropped in three of the past five months. Revolving credit is now at about $850 billion.

Consumer Credit Report Shows Credit Card Use Down for July 2013 - The Federal Reserve's consumer credit report for July 2013 shows a 4.4% annualized monthly increase in consumer credit, driven by auto loans.  Once again student loans increased, while credit card debt declined.   Revolving credit declined by -2.6%, and non-revolving credit jumped another 7.4%.  June showed consumer credit increasing by a 5.1% annualized rate.  In June, revolving credit increased by 9.5% while revolving credit declined by -5.2%.  Revolving credit are things like credit cards and non-revolving are things like auto loans and student loans.   Mortgages, home equity loans and other loans associated with real estate are not included in this report.  Overall consumer credit increased $10.4 billion dollars to $2,852.1 billion, seasonally adjusted.  Revolving credit declined to $849.8 billion while non-revolving just popped past $2 trillion, a $12,2 billion increase from last month.  The report gives percent changes in simple annualized rates, also known as a continuously compounded annualized rate of change. Consumer credit contractions correlate to recessions.  The consumer credit report does not include charge offs and delinquencies.  Graphed below is total consumer credit.  Below is non-revolving credit, seasonally adjusted, annualized percentage change.  Non-revolving credit increased $11.1 billion, not seasonally adjusted and has increased every month since August 2011.  Subtracting student loans from this figure we get a $8.6 billion increase in non-revolving loan debt.  For June, minus student loans, non-revolving debt increased by $8.4 billion. Federal government non-revolving consumer credit includes loans originated by the Department of Education under the Federal Direct Loan Program, as well as Federal Family Education Program loans that the government purchased from depository institutions and finance companies.   In other words, Federal government non-resolving credit is student loans.  This month student loans increased another $2.5 billion to $571.9 billion, not seasonally adjusted.  The federal government started making 100% of guaranteed student loans in July 2010. People went more into debt, clearly, to pay for the soaring, absurdly high, educational costs.   Below is the not seasonally adjusted ballooning non-revolving credit held by the Federal Government, i.e. student loans.

Preliminary September Consumer Sentiment decreases to 76.8 - The preliminary Reuters / University of Michigan consumer sentiment index for September was at 76.8, down from the August reading of 82.1.  This was below the consensus forecast of 82.0. 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.  This decline could be related to the situation in Syria ... it is probably too early to see the impact of the threats by Congress to "not pay the bills" in October.

Consumer Sentiment Post Sharp Decline - U.S. consumers view the early-September economy in a much less optimistic light, according to data released Friday. The weaker reading raises risks to the consumer outlook. The Thomson-Reuters/University of Michigan early-September consumer sentiment index fell sharply to 76.8 from a final-August reading of 82.1 and an August preliminary reading of 80.0, according to an economist who has seen the numbers. The index had reached 85.1 at the end of July–which had been the highest reading since before the recession. Economists surveyed by Dow Jones Newswires expected the early-September index to edge slightly down to 81.8. The current conditions index fell to 91.8 from 95.2 at the end of last month. The expectations index dropped to 67.2 from 73.7. News of the fallback in sentiment comes about 90 minutes after the U.S. Commerce Department reported consumers did not increase their shopping much in August. Retail sales increased just 0.2% last month, less than the 0.5% expected. Excluding cars, which are still selling well, store receipts rose just 0.1%, less than the 0.3% projected. A darker consumer mood in September could limit spending activity this month as well.

Michigan Consumer Sentiment: A Downside Surprise - The University of Michigan Consumer Sentiment preliminary number for September came in at 76.8. Today's number is surprisingly lower than the forecast of 82.0 and a 5.3 plunge from the August final reading of 82.1. 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 10 percent below the average reading (arithmetic mean) and 9 percent above the geometric mean. The current index level is at the 29th 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 7.5 points above the average recession mindset and 10.8 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.

Consumer Confidence Collapses - Biggest Miss On Record - This is the first consecutive monthly drop in 14 months and the largest miss vs expectations on record. Printing at 76.8 (against an expectation of 82.0), this is the lowest in 5 months and points to the picture we have been painting of a consumer increasingly affected by rising rates and soaring gas prices amid stagnant incomes. As Citi notes below, this is the exact same pattern we have seen play out in the last 2 cycles and suggest significant downside risk to US equities. The economic outlook sub-index collapsed to its lowest since January.

The Cost of Cash, for the Rich and the Poor -- It’s easy to forget that cash is costly to access, until you’re paying an A.T.M. fee or spending time riding a bus to a check-cashing window when you could have been working. Now, a study published on Monday morning has quantified the cost of cash, and who gets hit the hardest. The unsurprising answer: low-income people. In the U.S., the poorest individuals surveyed spend an average of more than three times as much as the wealthiest ones to access cash—specifically, about eighty-one cents a month for those earning under twenty-one thousand dollars annually, compared with twenty-five cents for those earning more than a hundred thousand dollars, according to the study, published by the Institute for Business in the Global Context at Tufts University. What’s more, low-income people tend to spend far more time getting cash—time that might have otherwise been spent earning money, running errands, relaxing, whatever. On average, Americans spend twenty-eight minutes a month travelling to get cash, but that time isn’t evenly distributed. People who don’t use a bank spend about five minutes longer getting to the place where they can get cash, and unemployed people spent nearly nine minutes more—and that’s not including time spent standing in line. “The truth is every payment instrument adds a disproportionate cost onto the poor,”

Poorest Americans Still Spending Less Than They Did in 2008 - Consumers are spending again. Some of them, anyway. The average American household spent $51,442 in 2012, the Labor Department said Tuesday. That’s more than the $50,486 spent in 2008, the first time since the recession that average spending has topped its prior peak. Spending bottomed out at $48,109 in 2010. But the gains in spending haven’t been evenly distributed. Low-income households — those in the bottom fifth of earners, meaning they made less than $19,000 before taxes in 2012 — are still spending less than they were in 2008. Those in the middle three fifths are spending 1.9% more, while the wealthiest 20% — those earning more than $96,000 — are spending 2.4% more. The contrast is even starker in the past year: The wealthiest households increased their spending by more than 5% in 2012 from 2011, versus a less than 1% uptick in spending for the poorest 20%. (Note: The Labor Department technically counts spending not by household but by “consumer unit,” meaning families and others who share expenses, but not roommates or others who live together but maintain separate finances.)

U.S. Retailers' Dwindling Fortunes: A Signal of Economic Slowdown Ahead?: When retailers in the U.S. economy warn about their sales being in a slump or start to forecast rough roads ahead, it should be a warning to investors of an economic slowdown ahead. The logic behind this is very simple: Retailers in the U.S. economy show trends about consumer spending; if retailers are worried, it means consumer spending is in trouble. One way to get an idea about bleak consumer spending is by looking at what happens during the peak buying seasons. In the most recent peak buying season, being the back-to-school shopping season, retailers in the U.S. economy were only able to lure in customers by slashing their already low prices. The president of Retail Metrics (a company that provides estimates of same-store sales), Ken Perkin, said, "They [discounts] seem to be above the norm. That was emblematic of just the lack of demand for back-to-school." (Source: "U.S. retailers rely on deep discounts to win back-to-school shoppers," Reuters, September 5, 2013.) In the very recent past, we have heard from retailers like Wal-Mart Stores, Inc. (NYSE/WMT) and Macy's, Inc (NYSE/M) about how they are struggling with their sales. And that's a problem when you have both low-end and higher-end retailers facing similar customer demand issues.While retailers face soft -- and in some cases, declining -- demand in consumer spending, I have another concern that doesn't get much mainstream attention: how the pullback in consumer spending will impact the American jobs market. Since the beginning of the so-called recovery, we have seen a spur in retail jobs. If we start to see retailers post poor sales because consumer spending is in a slump, jobs created in the low-paying sector will diminish as quickly as they were created.

Retail Sales increased 0.2% in August - On a monthly basis, retail sales increased 0.2% from July to August (seasonally adjusted), and sales were up 4.7% from August 2012. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $426.6 billion, an increase of 0.2 percent from the previous month, and 4.7 percent above August 2012. ... The June to July 2013 percent change was revised from +0.2 percent to +0.4 percent. This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales are up 28.7% from the bottom, and now 12.8% above the pre-recession peak (not inflation adjusted) Retail sales ex-autos increased 0.1%. Excluding gasoline, retail sales are up 25.8% from the bottom, and now 13.3% above the pre-recession peak (not inflation adjusted). The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail sales ex-gasoline increased by 5.4% on a YoY basis (4.7% for all retail sales). This was below the consensus forecast of 0.5% increase in retail sales, however sales for July were revised up.

Slower Retail Spending.... Again - The pace of growth in US retail sales slowed again last month, the Census Bureau reports. For the second month in a row, consumer spending on retail goods and services expanded at a lesser rate, rising a modest 0.2% in August vs. the previous month. That’s the smallest rise since April. On the other hand, retail spending still managed to increase for the fifth consecutive month. It’s been two years since the previous run of five straight monthly gains. Nonetheless, the advance has turned sluggish lately, raising questions about the future.It seems that the headwinds of higher payroll taxes, a still-moderate rise in the number of new jobs, and weak income growth are taking a toll. "The consumer economy is growing reluctantly," according to Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott. "Income growth just isn’t there to support a much faster pace of spending. There’s no stability." Whatever the implications in the August slowdown, the year-over-year comparison still looks decent relative to recent history. Retail sales increased 4.7% last month vs. the year-earlier level. That's well below July's pace, but it matches the average of the year-over-year gains posted in each of the past 12 months (+4.7%) through July. Yes, if the trend continues to slide in the months ahead we’ll have a genuine sign of trouble with regards to evaluating the business cycle's outlook. But for now, it’s not obvious that today’s news is anything more than the normal ebb and flow of volatility for this series.

Retail Sales Miss, Ex-Auto Virtually Unchanged; Building Materials, Clothing Sales Decline -- The all important retail sales report, the final economic data point before next week's taper announcement, has just come and it was a disappointment, printing at just 0.2% for the month of August, down from an upward revised 0.4% in July, and below the 0.5% expected. Excluding the government loan-funded autos and volatile gas sales, retail sales barely rose, increasing at the lowest possible pace, or 0.1%, and below the expected 0.3% rate, and well below the revised 0.6% from July. General merchandise stores went so far to post a -0.2% dip. However, the most notable number is likely the -0.9% drop in building and garden material sales, which is a screeching halt to the recent upward bias in home renovation, and further evidence that the recent cheap-credit fueled housing bubble has finally popped. As for clothing retailers: with a -0.8% drop in August, don't expect a rebound any time soon. So much for retail strength. But hey: at least consumers have stocks they can buy... at all time highs.

Retail Sales Were Good In September 2013 - Econintersect Analysis:

  • sales rate of growth decelerated 2.4% month-over-month, and up 4.8% year-over-year. Ignore the deceleration as the previous month was revised upward AND it was a noisy spike.
  • sales 3 month moving year-over-year average decayed from 5.2% (which we reported last month but has been revised to 5.4%) to 5.3%
  • sales (inflation adjusted) up 3.0% year-over-year
  • backward revisions were moderate and upwards;
  • motor vehicles and miscellaneous store retailers are the biggest strength in this months data. Building materials are the biggest drag.

U.S. Census Headlines: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $426.6 billion, an increase of 0.2 percent (±0.5%)* from the previous month, and 4.7 percent (±0.7%) above August 2012. Total sales for the June through August 2013 period were up 5.4 percent (±0.5%) from the same period a year ago. The June to July 2013 percent change was revised from +0.2 percent (±0.5%)* to +0.4 percent (±0.2%). Retail trade sales were up 0.2 percent (±0.5%)* from July 2013 and 4.8 percent (±0.7%) above last year. Auto and other motor vehicle dealers were up 12.3 percent (±2.1%) from August 2012 and nonstore retailers were up 10.2 percent (±2.1%) from last year.

U.S. Retail Sales Miss Expectations, Point to Slow Growth - U.S. retail sales rose less than expected in August even as demand increased for automobiles and other big-ticket items, the latest sign that economic growth slowed in the third quarter. The Commerce Department said Friday retail sales increased 0.2 percent last month as Americans bought automobiles, furniture and electronics and appliances. However, they cut back on clothing, building materials and sporting goods. Retail sales, which account for about 30 percent of consumer spending, were still up for a fifth consecutive month. They had gained 0.4 percent in July and economists polled by Reuters had expected them to rise 0.4 percent last month. Stripping out automobiles, gasoline and building materials, so-called core sales were up 0.2 percent after rising 0.5 percent in July. Core sales correspond most closely with the consumer spending component of gross domestic product. Though core sales slowed a bit from July, they matched the second quarter's 0.2 percent average monthly gain. The retail sales report added to July data on consumer spending, industrial production, housing starts and durable goods orders that have suggested growth took a step back from the first quarter's 2.5 percent annual pace.

Retail Sales Saved by Autos, Up 0.2% for August 2013 - August 2013 Retail Sales increased by 0.2% on auto sales, which increased 0.9% from last month.  Motor vehicle dealers are having a good year.  Their sales have increased 12.3% from a year ago.  Without motor vehicles & parts sales, August retail sales would have been a 0.1% increase from last month.  Building materials and clothing dragged retail sales down as they declined -0.9% and -0.8% respectively.  July retail sales were revised up by 0.2 percentage points to a 0.4% monthly increase.   Retail sales are reported by dollars, not by volume with price changes removed. Retail trade sales are retail sales minus food and beverage services.  Retail trade sales includes gas, and is up 0.2% for the month and has increased 4.8% from last year.Total retail sales are $426.6 billion for August.  Below are the retail sales categories monthly percentage changes.  These numbers are seasonally adjusted.  General Merchandise includes super centers, Costco and so on.  Online shopping making increasing gains, increasingly important in overall retail sales.  Online shopping continues to expand as nonstore retail sales have increased 10.2% from last year.A surprise, gasoline station sales have declined -1.5% from one year ago.  Sporting goods, hobbies, books & music sales have increased 3.4% from last year. &nbsp Motor vehicles & parts sales overall have increased 10.9% from last year, which implies parts by themselves are less.  The ones that are hurting are Departments stores.  Their retail sales are down -5.3% from August 2012 with general merchandise stores, where department stores are a subcategory, have declined -0.3% from a year ago.  Building materials, garden sales, which are large by volume, have increased 7.6% from a year ago.  Grocery stores have increased sales by 2.9% from this time last year.  Below are the August retail sales categories by dollar amounts.   As we can see, autos rule when it comes to retail sales. &nbsp We also see that electronics, which are up 3.1% from a year ago, is much smaller by total dollars than motor vehicle sales.  This implies there is a hell of a lot of hype around smart phone sales in terms of the overall economy.  Amazing how Apple can use the press instead of pay for advertising to hype their products, quite a shocking market trick, but in terms of the U.S. economy, a drop in the bucket.

Wary Retailers Act Cautiously on Inventories - Friday’s disappointing reports on consumer activity raise yellow flags about the outlook for demand. August retail sales rose less than expected, especially outside of vehicles. And consumers turned gloomy in early September. The latest consumer data underscore the warnings expressed by retailers about the outlook for shoppers. It’s no surprise then that most merchants haven’t gone overboard when building inventory. Well-managed inventories are important to the outlook. Inventory accumulation can add to economic growth, and shortages of goods can lead to unexpected price pressures. But when stockpiling becomes excessive, growth suffers. Businesses meet demand by using up the goods already in the warehouse. Companies don’t place new orders, and factories have no need to increase production or payrolls. For now, businesses economy-wide are keeping a close eye on stockpiles. Total inventories held at manufacturers, wholesalers and retailers rose 0.4% in July, but sales increased a faster 0.6%, pulling down the inventory-sales ratio to a low 1.28. That means inventories would last just 1.28 months at the current sales rate. Retailers posted a 0.8% jump in July stock levels. Auto dealers parked more cars on their lots, but the high pace of August sales suggests consumers drove many of those vehicles out of the dealerships.The exception to the benign inventory outlook is general merchandise stores, mainly department stores. Their inventories jumped 0.9% in July. Given that August general merchandise sales fell 0.2%, it will bear watching how department stores handle inventories in the second half.

Vital Signs: Buy a Home. Then Furnish It -- What’s a new home without a new flat screen TV? The rule of thumb is that homebuyers usually start to shop for furniture, kitchenware and tchotchkes about two to three months after closing on their homes. That trend is reflected in the uptrend in sales at home-related retailers, such as furniture, appliance and building supply stores. Although the total fell in August — thanks to a large 0.9% drop at building supply vendors — sales of furniture, electronics and appliances did well last month. Higher mortgage rates will tap the brakes on homebuying. Expect sales of dryers, drapes and DVD players to slow as well.

Something Is Wrong With This Picture: Record Restaurant Workers, Sliding Restaurant Sales - For those interested in seeing a standout example of the resource misallocation resulting from 5 years (and running) of central planning, we present the following pair of data sets: restaurant workers, which in August just hit an all time high of 10.4 million, and restaurant retail sales, which moments ago we found continued to slow on a year over year basis, and at this pace in a few months, will post its first Y/Y decline since early 2010.

Automakers Don’t Have Enough Cars to Keep Up with Buyers - The final numbers for August auto sales recently came in and, as expected, it was a monster month for car dealers and automakers. More than 1.4 million new vehicles were purchased, an increase of 14%. The tally put the U.S. auto market on pace for more than 16 million cars to be sold in 2013, a figure not reached since 2007. Sales have been so good that car sellers have been in the unusual position of sometimes not having the cars that buyers want available. The Wall Street Journal recently reported on car dealerships around the country that have barely had enough Ford Fusions, Jeep Wranglers, Nissan Sentras, Chevy Impalas, and Honda Accords, Civics, and Odysseys to keep up with demand. A Nissan dealership in California, for instance, normally has 15 to 20 Sentras handy, but it started August with just a single model available on the lot.

Scary Story on the Booming Auto Sales No One Is Talking About - Automakers in the U.S. economy are getting a significant amount of attention these days because they are selling more cars. In August, total light vehicle sales by the automakers in the U.S. economy increased 17% from a year ago. They sold more than 1.5 million cars in August compared to 1.28 million cars last August. (Source: Motor Intelligence.) On the surface, sales reported by the automakers are exuberant. They show consumers are spending. And if this continues, maybe we will see some economic growth in the U.S. economy. Sadly, this is a one-sided conclusion. When I look into the details, it turns out Americans are indeed buying cars from automakers -- but on borrowed money. Since the Federal Reserve introduced its easy monetary policies, there has been a significant increase in auto loans to the subprime borrowers -- those with a low credit score of less than 620 -- compared to the prime borrowers -- those with a credit score of 760 and above. In the second quarter of 2009, there was $10.8 billion of outstanding auto loans to the subprime borrowers in the U.S. economy. Fast-forwarding to the second quarter of 2013, this number stood at $21.2 billion -- an increase of more than 96% in just a matter of a few years. In the same period, the amount of auto loans to prime borrowers only increased 38%! (Source: Federal Reserve Bank of New York)  Auto loans continue to increase in the U.S. economy. In the second quarter of this year, auto loans as a whole increased to $92.0 billion -- the highest level since the third quarter of 2007. Now this will really alarm you... Auto loans delinquent for 90 days or more in the U.S. economy now sit at 3.6% of all loans. With interest rates already rising, I can only see this number growing. Are auto loans going to be the next big bubble to burst in the U.S. economy?

Hotels: Occupancy Rate tracking pre-recession levels - Another update on hotels from STR: US results for week ending 7 September In year-over-year comparisons, occupancy fell 1.9 percent to 56.5 percent, average daily rate was down 0.4 percent to US$102.58, and revenue per available room decreased 2.3 percent to US$57.98. "Rosh Hashanah and Labor Day had an adverse effect on hotel performance last week,” said Jan Freitag, senior VP of strategic development at STR. “RevPAR declined as both ADR and occupancy dropped from the same week last year. Of all the Chain Scales, only Economy properties reported a very slight lift in RevPAR. The last end of summer vacation rush lifted resort RevPAR by 3.9 percent, driven by a 5.8-percent increase in ADR." The 4-week average of the occupancy rate is close to normal levels. Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Weekly Gasoline Update: Down Two Cents - 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 two cents over the past week. Regular and Premium are 20 cents and 18 cents, respectively, off their interim highs in late February.  According to, Hawaii is the only state averaging above $4.00 per gallon, unchanged last week. Two states are reporting average prices in the 3.90-4.00 range -- Alaska and Connecticut, also unchanged from last week.

Vital Signs: U.S. Is Importing Falling Prices - The Labor Department reports U.S. prices for imports excluding petroleum are down 0.9% in the year ended in August. The recent downleg in import prices has been accelerated by Japanese economic policy. Abenomics is aimed at reversing Japan’s deflationary spiral and has brought down the yen’s value, helping the competitiveness of Japanese exports. The strategy has worked on U.S. import prices. Prices of Japanese-made goods are down 2.6% in the year ended in August, says the Labor Department. That’s the largest drop since November 2002 and parallels “the decline in the value of the yen relative to the U.S. dollar,” the report said. While changes in import prices do not correlate one-to-one with total U.S. consumer inflation, import deflation puts downward pressure on overall price trends. Cheaper imports also make it harder for U.S. manufacturers to raise their own selling prices. Producer prices for U.S. finished goods will be reported Friday. Economists expected core prices that exclude food and energy, edged up just 0.1% in August.

Producer Price Index: Headline Inflation is Up, Core Unchanged - Today's release of the August Producer Price Index (PPI) for finished goods rose 0.3% month-over-month, seasonally adjusted, in Headline inflation had posted a MoM consensus forecast of 0.2%. Core PPI was unchanged from last month. was looking for a 0.1% increase.  Year-over-year Headline PPI is at 1.38% (rounded to 1.4% by the BLS), down from last month's 2.1%. The 1.20% Core PPI, unchanged from last month, remains at its lowest YoY since June 2010.Here is the essence of the news release on Finished Goods: In August, nearly two-thirds of the 0.3-percent increase in the finished goods index is attributable to a 0.8-percent rise in prices for finished energy goods. Also contributing to the advance, the index for finished consumer foods climbed 0.6 percent. Prices for finished goods less foods and energy were unchanged in August. Finished core: The index for finished goods less foods and energy was unchanged in August after nine consecutive increases. In August, higher prices for pet food and nonwood commercial furniture offset lower prices for motor vehicles.   More... Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. As we can see, the YoY trend in Core PPI (the blue line) declined significantly during 2009 and stabilized in 2010, increase in 2011 and then began falling in 2012. Now, as we approach mid-2013, the YoY rate is about the same as in mid-2010. The more volatile Headline number has remained in a relatively narrow range over the past 17 months.

Manufacturing Profits Dipped in Second Quarter - U.S. manufacturing profits slipped in the second quarter of the year as sales only inched ahead, a reflection of sluggish economic growth in the U.S. and abroad. Manufacturers’ after-tax profits totaled $154.4 billion in the second quarter, down 2.5% from the same period a year earlier,  the Commerce Department said Monday.. Sales, meanwhile, reached $1.704 trillion, an increase of less than 1% from the second quarter of 2012. The report, which measures quarterly results of manufacturers with assets of at least $250,000, offers a mixed picture of corporate finances in the factory sector. Private manufacturers have been a critical source of hiring and investment throughout the recovery, though the latest data reflect a soft patch for many businesses. Makers of food, textiles, pharmaceuticals, plastics, wood products, minerals like ceramics and glass, and furniture enjoyed a good quarter for year-over-year, after-tax profits. After-tax profits at furniture manufacturers were up nearly 38% year over year, possibly reflecting a resurgent housing market. Companies that produce petroleum and coal products, metals like iron and steel, and computers didn’t fare as well. A so-so market for commercial construction and cutthroat competition may be squeezing some firms.

Factory Rebirth Fizzles in U.S. as Work Shipped Overseas - Randy Webb sees scant evidence of a U.S. manufacturing rebound in the Ohio plant where he’s fixed aircraft electronics for 25 years. Honeywell International Inc. (HON) is closing the shop in 2014 as it expands such work overseas. Webb is among 80 employees poised to lose their jobs in Strongsville, Ohio, outside Cleveland, near where General Electric will shut a lighting factory in favor of production in Hungary. Delphi Automotive is sending parts assembly to Mexico from Flint, Michigan, and Eaton Corp. will make extra-large hydraulic cylinders in the Netherlands, not Alabama.“Manufacturing is clearly on the downswing,” The U.S. industrial comeback, an idea embraced by President Barack Obama and some economists as 12 years of factory-job losses gave way to three annual gains, is now sputtering. Even with nonfarm payrolls up 1.1 percent in 2013 to 136.1 million, manufacturing has stagnated at less than 12 million. Factories added more than 500,000 positions after falling in February 2010 to the lowest since 1941. That left the factory workforce through August about 13 percent smaller than the 13.7 million when the U.S. fell into recession in December 2007. In 2000, the tally was 17 million.

NFIB: Small Business Optimism Index "flat" in August - From the National Federation of Independent Business (NFIB): Optimism Doesn’t BudgeSmall-business optimism remained flat in August, dropping 0.1 points from July for a final reading of 94.0. While the total reading showed essentially no change over the month prior, a look at the individual indicators reveals incongruent details. Job creation plans leapt to a level not seen since before the recession and sales expectations improved; but this optimism would appear to contravene the dramatic deterioration in quarter to quarter sales and profit trends. The favorable employment plans also contrasted sharply with the increasingly negative expectations for improved general business conditions. The month’s performance proved poor, but expectations, pre-Syria, were looking up. ...Small business hiring plans increased in the August survey to a reading of 16 from 9 in July (zero is neutral). This is a very strong reading.In another small sign of good news, only 17% of owners reported weak sales as the top problem (lack of demand). This was down from 20% a year ago, and half the peak of 34% during the recession. During good times, small business owners usually complain about taxes and regulations - and those are now the top problems again.

Small-Business Optimism Flat - Confidence among small businesses “went nowhere” in August, says a report released Tuesday. The National Federation of Independent Business‘s small-business optimism index slipped to 94.0 last month from 94.1 in July. While the top index moved little, the NFIB said the subindexes experienced much churning, some of it conflicting. The earnings trend subindex plunged 13 percentage points to -35%, as more small businesses reported declining sales. Small business owners anticipate better sales in the future. The expected real sales subindex jumped 8 percentage points, to 15% in August, even though the expected business conditions subindex fell 4 points to -10%. The new job creation index jumped 7 percentage points to 16% in August, a level not seen since 2007. Overall, though, owners reported a net decline in employment averaging 0.3 worker per firm. The NFIB’s subindex covering “job openings hard to fill” fell 4 points to 16%. “It all averaged out to no gain in the index, but with an unusually inconsistent set of internals,” the NFIB said.

Small Businesses Hit Hard by Weak Job Gains - Small businesses have historically contributed more than their share to overall employment growth in the United States. But during the recent recession, the rate of net employment losses of small businesses exceeded that of larger businesses. Sharp cuts in the rate of gross job gains at small businesses appear to have been a major factor explaining the larger net employment losses for this group. The drop in the rate of job gains reflected slower business creation and a lower rate of hiring among expanding small businesses.  This Economic Letter explores some of the reasons for this relatively weak employment growth among small businesses.

Vital Signs: Moderate Job Growth Ahead - Attention is focused on the monthly nonfarm payrolls number, but it’s not the only read on the labor markets. The Conference Board gathers up eight separate job-related datapoints to create an employment trends index. The ETI’s aim is to offer insights into the job outlook without the “noise” and volatility that can disrupt individual time series. In August, the index increased to 113.54, 4.5% above its year-ago reading. The index stands at its highest reading since mid-2008, right before the financial crisis fully hit the U.S. economy and labor markets. The continued rise in the index suggests “employment is likely to moderately expand through the fall,” says Gad Levanon, director of macroeconomic research at the board.

Leading Employment Indicators Suggest New Highs Ahead: Following the leading indicators of employment have been great tools towards helping investors stay on the right side of the investment tracks, and why I check in on them from time to time. I first checked in on various employment indicators in March (see link), which argued for higher stock prices and in May ran an update (see link) that suggested higher stock prices into the fall. Those same indicators are calling for further employment gains heading into 2012 and suggests the unemployment rate could reach 6% by next year. Shown below are two indicators, US Job Openings and the Conference Board Employment Trends Index, which both suggest payrolls continue to climb heading into the spring of 2014. Another leading employment indicator is the Fed’s Senior Loan Officer Survey, which measures the percentage of banks tightening lending standards for Commercial and Industrial (C&I) loans to small firms. The survey leads employment growth by one quarter and suggests that payroll growth accelerates from present levels heading into the end of the year. Another encouraging development was the surge in the National Federation of Independent Business (NFIB) Hiring Plans Index which rose to the highest level since early 2007. This is significant as the Hiring Plans Index (shown below in red inverted and advanced) leads the unemployment rate by several months and suggests we approach a 6% unemployment rate sometime in 2014.

Did the Baby Boom Labor Force Surge Cause The Great Inflation? - Steve Randy Waldman delivers another Aha! post (and a followup reply to Scott Sumner) pointing out a huge driver of the 1970s Great Inflation — the rise in the labor force: Between the mid 60s and the mid 70s, the labor force grew by 30%.* The root cause of the high-misery-index 1970s was demographics, plain and simple. The deep capital stock of the economy — including fixed capital, organizational capital, and what Arnold Kling describes as “patterns of sustainable specialization and trade” — was simply unprepared for the firehose of new workers. The nation faced a simple choice: employ them, and accept a lower rate of production per worker, or insist on continued productivity growth and tolerate high unemployment. Capitalists didn’t have the capacity to justify employing all those workers at the prevailing wage. The only way to employ them was to lower real wages (always sticky in real terms) via inflation. The Fed accommodated that, favoring employment over wage control. The alternative would have been massive unemployment of all those eager up-and-coming boomers. 

August Employment Report…not so august - The BLS Employment Situation report for August indicates a 169,000 increase in total non-farm employment. The gain in August was in line with expectations (which weren’t very strong to begin with), but the report also included large downward revisions to June and July (-74K in total). This lackluster report essentially means that the FOMC will likely keep its head down for a while longer. The employment gains in August mostly came from the Trade, Transportation, and Utilities (+65K) and Education and Health (+43K) sectors. The chart below shows the change in employment by industry with the width of each bar representing the share of that industry’s employment out of total employment. The household survey also reveals a drop in the labor force participation rate from 63.4 to 63.2. The unemployment rate was essentially unchanged at 7.3%. The participation rate continued its decline, falling to a level not seen since August 1978. This decline raises an interesting question about the Fed’s “forward guidance.” It has been reported over and over that the Fed will keep its accommodative stance until the unemployment rate reaches 6.5%, the “threshold.” However, as many have mentioned this threshold is not a “trigger.” So, suppose the labor force participation rate declines by 1 percentage point, from 63.2 (green line in the chart) to say 62.2 (the orange line). According to the Federal Reserve Bank of Atlanta’s Jobs Calculator given that participation rate, how many jobs need to be created per month to get to a 6.5% unemployment rate one year from now? The answer is….the economy would have to create approximately ZERO jobs per month!! And if it fell to 62.0% would even have to LOSE jobs! Surely, no one would argue that the labor market has improved enough to begin the taper! While forward guidance may indeed have been somewhat instructive, it appears that it is providing very little, if any, information for the future stance of policy, other than: if things are “bad” we will continue our accommodative stance, if they are “good”, we won’t. Choosing simple thresholds, targets, triggers, to make things more transparent may help to provide a framework, but the markets want to respond to the vast and myriad details….like a poor jobs report, etc.

Charts from BLS Employment Report Show Bad Jobs Continue to Rule in 2013  - The BLS unemployment report shows total nonfarm payroll jobs gained were 169,000 for August 2013, with private payrolls adding 152,000 jobs. Government jobs increased by 17,000. Probably the worse news of this report is July was revised down by 58,000 jobs to show only a 104,000 payroll gain and June was also revised down by 16,000 to 172,000 jobs added for that month. Additionally the types of jobs gained are mostly low paying ones. The BLS employment report is actually two separate surveys and we overview the current population survey in this article. The start of the great recession was declared by the NBER to be December 2007. The United States is now down -1.909 million jobs from December 2007, five years, eight months ago as shown in the below graph. We broke down the CES by industry to see what kind of percentage changes we have on the share of total number of payroll jobs from 2008 until now. Below is the percentage breakdown of jobs by industry for January 2008. Below is the breakdown of jobs growth per industry sector for June 2013. From these two pie charts we can see the job market has changed into more crappy, low paying service jobs of health care assistance and restaurant workers. We expected to see construction jobs shrink relative to total payrolls and it did, by 1.1 percentage points. Manufacturing, of which the auto industry is a part, has contracted 1.1 percentage points as share of total jobs. The financial sector, only shrank 0.2 percentage points as it's share of payroll jobs, in spite of being the maelstrom behind the recession. The manufacturing sector just continues to erode and if one thinks about it, the manufacturing job implosion should not be so great due to the causes of the recession. Health care has gained the most jobs, yet working in a nursing home and as attendants are also low paying jobs. Below is a bar chart showing the employer's payroll growth since January 2008. We see health care jobs, part of education and health sector, is the only real growth sector, along with very low paying restaurant jobs in leisure and hospitality. Remember professional and business includes waste management and low paying administrative types of jobs.

Job Reallocation over Time: Decomposing the Decline - Atlanta Fed blog - One of the primary ways an economy expands is by quickly reallocating resources to the places where they are most productive. If new and productive firms are able to quickly grow and unproductive firms can quickly shrink, then the economy as a whole will experience faster growth and the many benefits (such as lower unemployment and higher wages) that are associated with that growth. Certain individuals may experience unemployment spells from this reallocation, but economists, starting with Joseph Schumpeter, have found that reallocation is associated with economic growth and wage growth, particularly for young workers.Recently, a number of prominent economists such as John Haltiwanger have expressed concern that falling reallocation rates in the United States are a major contributor to the slow economic recovery. ...... The economy is reallocating jobs at much slower rates than 20 or even 10 years ago, and this decline is, with only a few exceptions, common across states and industries. Economists are just now starting to explore the causes of this trend, and a single, compelling explanation has yet to emerge. But some explanation is clearly in order and clearly important for economic policymakers, monetary and otherwise.

Just How Distorted is the U.S. Unemployment Rate Number? - On the first Friday of every month, I go through the jobs report and note the grossly distorted statistics. For example, please see BLS in Wonderland written Friday, September 6.  Every month I conclude with a couple paragraphs like these: Were it not for people dropping out of the labor force, the unemployment rate would be over 9%. In addition, there are 7,911,000 people who are working part-time but want full-time work.Digging under the surface, much of the drop in the unemployment rate over the past two years is nothing but a statistical mirage coupled with a massive increase in part-time jobs starting in October 2012 as a result of Obamacare legislation. This past month I had a couple of extra paragraphs:  Compared to recent Gallup surveys, these BLS stats regarding the base unemployment rate and the alternative measures as well are straight from wonderland. For details, please see Gallup Says Seasonally-Adjusted Unemployment Climbs to 8.6%; Who to Believe (Gallup or the BLS)? I believe Gallup. Thus, I expect more downward revisions in jobs, and upward revisions in the unemployment rate.  Let's take a look at BLS data to get a handle on what is happening, and why.

If Employment Is So Great, Why Are Withholding Taxes Declining? - Since unemployment statistics are either suspect or blatantly bogus, we must look for other less manipulated statistics for some modicum of truth. Key statistics of employment, income and production are vital propaganda tools for the status quo, and the temptation to adjust them to manage perceptions is apparently irresistible. Here in the U.S., unemployment statistics are a travesty of a mockery of a sham:  Real Unemployment Rate Rises To 11.4%, Difference Between Reported And Real Data Rises To Record (Zero Hedge)  To get some semi-accurate sense of China's actual output, as opposed to official propaganda, skeptics look to electricity consumption as an imperfect but better-than-lies gauge of actual economic activity. Here in the U.S., longtime correspondent B.C. suggests we look at withholding taxes as a more accurate measure of employment than the ginned-up official numbers. Withholding taxes are payroll taxes, and as such they are a direct measure of payrolls and earned income. (Self-employed people who don't issue themselves monthly or weekly paychecks pay their withholding taxes quarterly.)

Update: When will payroll employment exceed the pre-recession peak? -- Almost two years ago I posted a graph with projections of when payroll employment would return to pre-recession levels (see: Sluggish Growth and Payroll Employment from November 2011). In 2011, I argued we'd continue to see sluggish growth.  On the graph I posted two lines - one with payroll growth of 125,000 payroll jobs added per month (the pace in 2011), and another line with 200,000 payroll jobs per month.  The following graph is an update with reported payroll growth through August 2013. The dashed red line is 125,000 payroll jobs added per month. The dashed blue line is 200,000 payroll jobs per month.  So far the economy has tracked just below the blue line (200,000 payroll jobs per month).Right now it appears payrolls will exceed the pre-recession peak in mid-2014. Currently there are about 1.9 million fewer payroll jobs than before the recession started, and at the recent pace of job growth it will take just under 11 months to reach the previous peak.   Note: I expect another upward adjustment when the annual benchmark revision is released in January, so we will probably reach the previous peak in fewer than 11 months.

Labor Force Participation Crisis? Don't Blame Demographics! - The Labor Force Participation Rate - in English, the percent of the population that is either in a job or looking for a job - fell yesterday to fresh 35 year lows. This is not a new trend, in fact since the end of 1999 (the dot-com bust) it has trended lower from well over 67% to the current 63.2%; which means the current unemployment rate would be over 11% if the labor force was at its last three decade average. There appear to be at least four reasons (excuses) put forth for this dismal 'structural' trend but chief among them - and propagandized by most in the mainstream (given its lack of 'blame') - is the so-called 'aging of America' or demographics. There is only one problem with that 'myth'; it's entirely inconsistent with other Western economies who are experiencing exactly the same demographic shift. Some claim that one big reason for the decline of the participation rate is the long-run demographic trend of now-retiring Boomers. However, this is just not supported by any facts. Compared to Canada, a nation similar in many respects to the US, the demographics - as represented by the following population pyramid are almost exactly the same...

Three reasons the U.S. labor force keeps shrinking - The U.S. labor force keeps shrinking rapidly. Back in 2007, 66 percent of Americans had a job or were actively seeking work. Today, that number is at 63.2 percent — the lowest level since 1978: The above chart helps explain a seeming contradiction in the jobs numbers — the official unemployment rate keeps dropping even though job creation has been relatively soft. Over the past three months, the U.S. economy has averaged 148,000 new jobs per month. That’s actually a slower pace than the previous six months. Yet the unemployment rate keeps dropping precipitously, reaching 7.3 percent in August — the lowest since December 2008. The reason? Between July and August, 312,000 people dropped out of the labor force. But because the official unemployment rate counts only those workers who are actively seeking work, the unemployment rate fell. To put this in perspective: If the same percentage of adults were in the workforce today as when Barack Obama took office, the unemployment rate would be 10.8 percent. So why is the labor force dropping? There are a couple big factors going on here. Older Americans are retiring, younger Americans are going back to school, and many workers have been discouraged by the weak U.S. economy. Here’s an updated breakdown:

Assuming Full-employment is foolish -- Nick Rowe brings up an important issue and sends a warning. He says that New Keynesian economists are assuming full-employment. And it is foolish. Nick Rowe is correct. Keynes himself talked about how effective demand could stop output before full-employment is reached. The cause is deficient effective demand. And through the research that I do, I have been saying that effective demand is about to cut off output growth from reaching potential output. I show graph after graph of how it happens. The New Keynesians take the CBO projection of potential GDP as a given and in effect assume we are on our way to full-employment. It’s not going to happen. Their assumption is foolish and would not be shared by Keynes himself who told what happens when there is deficient effective demand. Thoma, Krugman, Delong, the Fed, Yellen and others are all assuming a return to full-employment at the CBO potential GDP. Nick Rowe is signalling a warning and others had better pay attention, because this is not a trivial issue.

U.S. Women Regain Lost Jobs; Men Still Short 2.1M — U.S. women have recovered all the jobs they lost to the Great Recession. The same can’t be said for men, who remain 2.1 million jobs short. The biggest factor is that men dominate construction and manufacturing — industries that have not recovered millions of jobs lost during the downturn. Women have made up a disproportionate share of workers in those that have been hiring — retail, health care, restaurants and hotels. The gap was evident in the August unemployment rates: 6.8 percent for women, 7.7 percent for men. In August, 68 million women said they were employed, passing the 67.97 million who had jobs when the recession began in December 2007, the government says. Among men 76.2 million were employed last month, down from 78.3 million in December 2007.

Amazing Demographic Trends in the 50-and-Older Work Force - In my earlier update on demographic trends in employment, I included a chart illustrating the growth (or shrinkage) in six age cohorts since the turn of the century. In this commentary we'll zoom in on the age 50 and older Labor Force Participation Rate (LFPR).For the larger context, here is a snapshot of the monthly LFPR for age 16 and over stretching back to the Bureau of Labor Statistics' starting point in 1948, the blue line in the chart below, along with the unemployment rate.  The overall LFPR peaked in February 2000 at 67.3% and gradually began falling. The rate leveled out from 2004 to 2007, but in 2008, with onset of the Great Recession, the rate began to accelerate. In January of 2012 it dropped below 64% and is at 63.2%, the lowest since August 1978. The demography of our aging workforce has been a major contributor to this trend. The oldest Baby Boomers, those born between 1946 and 1964, began becoming eligible for reduced Social Security benefits in 2008 and full benefits in 2012. Job cuts during the Great Recession certainly strengthened the trend.It might seem intuitive that the participation rate for the older workers would have declined the fastest. But exactly the opposite has been the case. The chart below illustrates the growth of the LFPR for six age 50-plus cohorts since the turn of the century. I've divided them into five-year cohorts from ages 50 through 74 and an open-ended age 75 and older. The pattern is clear: The older the cohort, the greater the growth.

The Trend Toward Part-Time Employment: A Closer Look - The monthly employment report is among the most popular and controversial of the government's economic reports. The latest one released on Friday was no exception, with its weaker-than-expected new jobs but a decline in the unemployment rate from 7.4% to 7.3%. One of the reasons the monthly employment report is so controversial is that it's an incredible hodgepodge of data from bipolar sources: the Current Population Survey (CPS) of households and the Establishment Survey of businesses and government agencies. For example, the Nonfarm Employment number comes from the establishment data, but the unemployment rate is calculated from household data. Additional complications are the substantial revisions to both the CPS and Establishment data, and the complexities of seasonal adjustment, which is available for many, but not all, of the data series. Let's take a close look at some CPS numbers on Full and Part-Time Employment. Buried near the bottom of Table A-9 of the Household Data are the numbers for Full- and Part-Time Workers, with 35-or-more hours as the arbitrary divide between the two categories. The Labor Department has been collecting this since 1968, a time when only 13.5% of US employees were part-timers. That number peaked at 20% in January 2010. The latest month is fractionally lower at 19.4%. Here is a visualization of the trend in the 21st century, with the percentage of full-time employed on the left axis and the part-time employed on the right. We see a conspicuous crossover during Great Recession.Here is a closer look since 2007. The reversal began in 2008, but it accelerated in the Fall of that year following the September 15th bankruptcy of Lehmann Brothers. In this seasonally adjusted data the reversal peaked in early 2010. Three-and-a-half years later the spread has narrowed a bit, but we're a long way from returning to the ratio before the Great Recession.

The stunning growth in part-time employment -- John Lott points out the following: “So far this year there have been 848,000 new jobs. Of those, 813,000 are part time jobs…. To put it differently, an incredible 96% of the jobs added this year were part-time jobs.” In addition to all of this underemployment, today’s job market report shows the labor force participation rate is down to its lowest level since 1978 (when fewer women wanted to work, of course).  And population growth is outpacing job growth, as indeed it had earlier in the oughties before the financial crisis and recovery.  Perhaps that is the new normal?  (Here are a few graphs from the new numbers.)  Here is a passage from my forthcoming Average is Over: Those laid off workers have been absorbed, into new jobs, at a much slower than usual rate, following a recession.  They can’t get their old jobs back, even though the worst of the crisis is over and corporate profits are back up.  Most importantly, the new jobs being created are more likely low wage than mid wage.  In essence, the American economy is learning that — for structural reasons — it can’t afford as many mid wage jobs as it used to have.  Businesses will make higher profits by slotting those workers elsewhere, but not back in other high or mid wage jobs, where they had been before. Addendum: As Ben Engebreth points out, based on these BLS charts, the correct number seems to be 59% not 96%, though the higher estimate does still seem to hold in Lott’s (more cumbersome and less transparent) sources.

Part-time jobs for economic reasons as a share of full-time employment and total part-time jobs have been declining - According to the BLS, workers can be employed part-time for one of two reasons:

  • a) Economic reasons – Refers to those who worked 1 to 34 hours for an economic reason such as slack work or unfavorable business conditions, inability to find full-time work, or seasonal declines in demand. This type of part-time employment could generally be considered cyclical and non-voluntary, since it includes those workers who are willing to work full-time but can only find part-time jobs, and the number of workers employed part-time for economic reasons would be very closely associated with general labor market conditions and the swings in the business cycle.
  • b) Noneconomic reasons – Refers to persons who usually work part time for noneconomic reasons such as childcare issues, family or personal obligations, attending school, retirement or Social Security limits on earnings, and other reasons. This type of part-time employment could generally be considered voluntary and includes those part-time workers who only want part-time work due to other obligations and time constraints like attending school.

The chart above shows the number of persons working part-time for non-voluntary economic reasons as a share of: a) all full-time workers (blue line in chart, left scale) and b) all part-time workers (red line, right scale in chart), on a monthly basis back to January 1968, with the last six recessions shaded. The chart clearly shows the cyclical nature of part-time employment for economic reasons as a share of both full-time employment and total part-time employment, with both series increasing during (and in some case following) recessions, and then eventually declining during economic expansions.

The Majority of New Jobs are Not Part-Time - There are a host of claims out there on part-time work, including this one which claims 96% of all jobs in 2013 are part-time.  Is this really true?  There is no doubt people forced into part-time hours for economic reasons has dramatically increased, as we show every month in our unemployment overview and reproduce below. The BLS has multiple categories of part-time work.  The ones most quoted are those where for that week the monthly employment survey was taken, the person worked less than 35 hours.  There is another statistic which gives what the person is usually employed as, in other words, is the job really part-time or full-time as a rule? This is one reason why the numbers don't add to the total employed.  One can have a full-time job yet one week only work part-time.  Additionally, when businesses cut back on hours, employees who are full-time and have their hours cut down and they too worked only part-time for the employment survey reference week.  People who got their hours cut due to business being slow are referred to as part-time workers due to slack working conditions.  To make matters worse, there are seasonal adjustments unique for each of these BLS data series, so they don't always add up to the other totals, which are also seasonally adjusted, but independently so. First, one must look at the CPS survey, not the payrolls or jobs reported to compare full-time and part-time jobs.  We also need to remove seasonal adjustments and just use raw figures.  Second, one needs to realize there are annual Census population adjustments added to the month of January and see this article on those details. We can take an annual figure and get a rough ball park idea on the percentage of new employment that is truly part-time.  By taking annual figures, the population controls and seasonality of employment even themselves out.  The tally for part-time workers, not seasonally adjusted, for August 2013 is 26,641,000 for full-time the figure is 117,868,000.  The tally of total employed for August 2013, again, not seasonally adjusted is, 144,509,000.  Notice part-time jobs and full-time jobs add to the total.  Now, from a year ago, August 2012, we use the same not seasonally adjusted figures.  Part-time is 26,344,000, full-time 116,214,000 and the total is 142,558,000.  This means the number of employed persons increased by 1.951 million.  The number of persons employed in part-time jobs increased by 297,000.  The number of people employed in full-time jobs increased by 1.654 million.  That means 15.2% of the new people were employed in part-time jobs, a far cry from the claimed 96%, or even 63% or 59% as some are publishing as fact.

Obama-care and part time employment –Part 2 - I’m seeing all types of comments on the 2013 rise in part time employment that blame it on Obama-care and that is just plain wrong. Based on unpublished BLS data so far this year federal employes forced to work part time because of the sequester account for over 100% of the increase in part time employment.So far this year private part time employment is actually some one million jobs lower than in the same 8 months of last year.  Because the data is not seasonally adjusted ( NSA ) the correct comparison to make is the year over year change because frequently the month-to-month changes can be misleading.Time after time I’m seeing people observe the jump in part time workers and just jumping to the conclusion that it is Obama-care.  That is what they want to believe, so they do not bother to check  if their is another explanation. Economist generally call this  the omitted variable problem.  But I suspect it is just more Republican disinformation.  All it takes to get the data showing that the jump in part time  employment is all federal employes is just one simple phone call or email to the BLS . But it appears that people do not want to be confused by the facts.

Here's The Real Problem In The August Jobs Report - On Friday, the White House put out some charts seeking to put August's jobs report in context. Here's the key one. When you look at non-farm payroll growth on a 12-month average basis, you lose the month-to-month noise, and you see that the job situation has been basically unchanged for the last 30 months: Adding jobs at a pace of about 2 million per year. August's disappointing report doesn't materially change that. The problem with the August report isn't that it was bad; it's that it wasn't good. For the past few months, it had looked like the job situation was maybe getting better, with the pace of job growth speeding up to around 2.5 million a year. Now it's becoming clear that we haven't broken out of the funk.

U.S. Employers Posted Fewer Jobs, But Hired More — U.S. employers advertised fewer jobs in July but hired more workers, a mixed sign that suggests only modest improvement in the job market. The Labor Department says job openings fell 180,000 in July to 3.7 million. That’s down from 3.9 million the previous month, which was revised lower. Overall hiring increased to 4.4 million, up from 4.3 million in June and 4.17 million a year ago. The job market remains tight. There were 3.1 unemployed people competing for each open job. In a healthy economy the ratio is 2 to 1. On Friday, the government said employers added 169,000 jobs in August and many fewer in the previous two months. The unemployment rate fell to 7.3 percent, but only because more people gave up looking for work.

Layoffs at Multiyear Lows, Hiring Barely Budges - U.S. employers laid off fewer workers in July than any month since the government started keeping track in 2001. But actual hiring has barely risen in the past year, and job seekers actually faced more competition for open jobs in July than they did in June.The tale of two job markets has become a persistent theme in the recovery. Companies stopped shedding workers not long after the recession ended in 2009; layoffs returned to precession levels nearly three years ago, in 2010. But they have been far slower to start expanding: Both job openings and actual hires remain depressed.The latest data, from the Labor Department’s monthly Job Openings and Labor Turnover Survey, known as JOLTS, show that pattern continued in July. Layoffs were down, but so were job openings. Hiring was up from June, but down from May; step back from the monthly data and both hiring and openings have been pretty much flat for nearly two years. JOLTS tends to get less attention than the monthly jobs report, in part because the data lag a month behind. But interest in the report has picked up ever since Federal Reserve Vice Chair Janet Yellen said earlier this year that she was watching the report for hints about where the job market was headed. With the Fed preparing to meet next week to decide whether to begin winding down its $85 billion-a-month bond-buying program — and with Friday’s tepid jobs report leaving that decision up in the air — this month’s JOLTS report could get extra scrutiny. Don’t look to Tuesday’s report to add much clarity, however. Like the main jobs report, JOLTS showed neither an acceleration nor a deceleration but rather more of the same tepid pace of jobs growth. Voluntary quits, which Ms. Yellen highlighted as a sign of confidence among workers, continued to trend upward, but only slowly — they remain well below their normal level.

BLS: Job Openings "little changed" in July - From the BLS: Job Openings and Labor Turnover Summary There were 3.7 million job openings on the last business day of July, little changed from June, the U.S. Bureau of Labor Statistics reported today. The hires rate (3.2 percent) and separations rate (3.0 percent) also were little changed in July. ... ... Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... The number of quits (not seasonally adjusted) rose over the 12 months ending in July for total nonfarm and total private but was little changed for government. The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS. Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for July, the most recent employment report was for August. Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of turnover. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs. Jobs openings decreased in July to 3.689 million, down from 3.869 million in June. The number of job openings (yellow) is up 5.4% year-over-year compared to July 2012.

Vital Signs: Rising Quit Rate Signals Easing Job Jitters - According to Tuesday’s July job openings and labor turnover survey, job separations so far in 2013 are running a bit ahead of last year’s average. But the increase is actually a sign that workers think the labor markets are doing better. That’s because the increase reflects workers voluntarily leaving their jobs. So far in 2013, roughly 53% of separations have been quits, while 39% have come from workers being laid off or discharged from their jobs. Those shares are an almost exact switch from the respective rates seen at the start of this recovery. The remaining separations are mainly people retiring, dying or becoming disabled. As the Labor Department notes in its Jolts report, “the quits rate can serve as a measure of workers’ willingness or ability to leave jobs.” It’s also a measure of labor market health that’s watched by some Fed officials. A decline in job jitters is echoed in The Conference Board’s consumer survey. Over the three months ended in August, an average of 11.7% of consumers think jobs are “plentiful,” the highest reading since the beginning months of the Great Recession. Now, it’s up to businesses to hire at a pace that brings reality closer to workers’ perceptions.

This Is What Happens When The Bureau Of Labor Statistics Is Caught In A Lie - As frequent readers are aware, over the past three months (here, here and here) we had been tracking one rather disturbing divergence in one set of BLS data with another: namely the monthly Nonfarm Payroll change, and drift, compared to the monthly Net Turnover number (Hires less Separations) as reported by the monthly JOLTS survey. The reason for this is that historically the two data series have had a nearly perfect correlation in estimating the number of jobs created by the US economy as shown by the following long-term chart (using latest revised data): However, beginning in May something odd started to happen: there was a major divergence in the data sets. We showed this last month using the pre-revised NFP data, which indicated that while the average NFP monthly average job gain in 2013 was 196K, the JOLTS number suggested a far lower average monthly "gain" of only 140K. It was shown as follows: The divergence in the two data series, historically convergent, can be seen highlighted on the chart below: While from a distance the highlighted area may not amount to much, here it is zoomed in just for 2013. The difference becomes quite pronounced, and amounts to just shy of 60K jobs per month on average for 2013 alone

Weekly Initial Unemployment Claims decline to 292,000  - The DOL reports:In the week ending September 7, the advance figure for seasonally adjusted initial claims was 292,000, a decrease of 31,000 from the previous week's unrevised figure of 323,000. The 4-week moving average was 321,250, a decrease of 7,500 from the previous week's revised average of 328,750.  From MarketWatch: a Labor Department official on Thursday said two states made changes to their computer systems that resulted in some claims not being processed in time. The Labor Day holiday may have also skewed the report. As a result, initial claims are likely to rise in the following week The previous week was unchanged at 323,000. 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 332,250.The 4-week average is at the lowest level since October 2007 (before the recession started).  Claims were below the 330,000 consensus forecast.

Initial Jobless Claims Slump as Two States Underreport - Bloomberg: Jobless claims in the U.S. declined last week to the lowest level since April 2006 as work on computer systems in two states caused those employment agencies to report fewer applications. First-time claims for unemployment insurance fell by 31,000 to 292,000 in the week ended Sept. 7, which also included the Labor Day holiday, a Labor Department report showed today in Washington. The median forecast in a Bloomberg survey called for 330,000 applications. The decrease in filings doesn’t signal a change in job-market conditions because most of it was caused by computer-network conversions in the two states, according to a Labor Department spokesman. The pace of job cuts has waned since the end of last year, setting the stage for faster payroll and income growth that would help propel consumer spending.

Jobless claims dip below 300,000, but delays cited - - The number of new applications for U.S. jobless benefits fell below 300,000 for the first time since 2006, but the government attributed the surprising plunge to computer-related glitches instead of a sudden improvement in the labor market. Initial claims sank by 31,000 to 292,000 in the week ended Sept. 7, marking the lowest level since April 2006. Yet a Labor Department official on Thursday said two states made changes to their computer systems that resulted in some claims not being processed in time. The Labor Day holiday may have also skewed the report. As a result, initial claims are likely to rise in the following week and probably move closer to their prior range of around 325,000. Economists surveyed by MarketWatch had expected claims to rise to 330,000 on a seasonally adjusted basis from an unrevised 323,000 in the last week of August. Meanwhile, the average of new claims over the past month, a more reliable gauge than the volatile weekly number, fell by 7,500 to 321,250. That's the lowest level since October 2007. Also, the government said continuing claims decreased by 73,000 to 2.87 million in the week ended Aug. 31. Continuing claims reflect the number of people already receiving benefits.

Where are the Jobs? Who Has Them? Who's Likely to Get Them? - In the 16-19 age group, the population has shrunk by 239,000, while the number of jobs in this age group has shrunk by 1,415,000! In the 20-24 age group, the population has grown by 1,625,000 while the number of jobs has shrunk by 362,000. So, for the under 25 age group we have 1,777,000 less jobs with 1,386,000 more people.In the 25 to 54 age group that everyone focuses on, we see a loss in population of 1,382,000 people since August of 2007, but an even greater loss in jobs - 5,940,000!Since we know that the population has grown by over 13,000,000 since 2007 yet we have 1.8 million less jobs since then, what does this tell us? Jobs were lost in every age bracket but the 55+ group, with 16-19 dropping 22.6%, 20-24 falling 2.6%, 25-54 going down 5.9% and 55+ going up 22.7%.The second graph shows the Civilian Non-institutional Population by age - note the basic flat lines on all but 55+. The graph shows the Work Force by age - note once again only 55+ goes up.The fourth graph shows the number employed by age group. Note that it's only the 55+ age group that has done anything in the current "Recovery". The other groups are all down from 2007, with 16-19 devastated. Just go in Walmart and McDonald's and you will see it first hand - senior citizen workers abound.The fifth graph shows the percentage of an age group that is also in the work force. Note the plunges in every age group except 55+. The last graph shows the percentage of the age group employed. It follows the exact trend of the fifth, as it must.

Walmart Workers Plan 'Widespread, Massive Strikes and Protests' for Black Friday 2013 - In twelve weeks, on the busiest shopping day of the year, Walmart workers will mount what may be the biggest-ever US strike against the retail giant. In an e-mailed statement, a campaign closely tied to the United Food & Commercial Workers union promised “widespread, massive strikes and protests for Black Friday,” the day after Thanksgiving. A Black Friday strike last year, in which organizers say over 400 workers walked off the job, was the largest and highest-profile action to date by the union-backed non-union workers’ group OUR Walmart, and the largest US strike in the company’s five-decade history. Workers first formally announced this year’s Black Friday strike at demonstrations held yesterday in fifteen cities across the country. According to organizers, hundreds of Walmart employees and thousands of supporters participated in yesterday’s mobilization; 109 protesters were arrested for acts of civil disobedience in eleven cities, including Baton Rouge, Dallas, Los Angeles, Chicago and New York. Photos show some police wearing riot gear while removing activists seated in the street.

Broken Job Ladders and the Great Recession: Fast Food Edition - One of the features of the current labor market is that the usual mechanisms by which people find better quality jobs have broken down, as net job creation in manufacturing sector, larger establishments and more established firms—all of which tend to pay better—have fallen relatively more. A key avenue for mobility, transitions between jobs, took a dive with the onset of the Great Recession, and has not recovered. In a recent paper, Giuseppe Moscarini and Fabien Postel-Vinay call this the failure of the job ladder. One of the consequences of a broken job ladder is that workers take—and stick around in—less than ideal jobs like fast food.  But the failure of the job ladder does not impact all workers equally.  Higher-credentialed workers have more opportunities to get some job—any job—than their lower-credentialed counterparts.  A college graduate can get a job at McDonald’s if she wants to, but a high school grad will have a hard time getting a job in finance. So as the labor market is stuck in a low gear, an increasing share of fast food vacancies are filled with people who may not have taken such jobs in a healthy labor market, or may have climbed up the job ladder to better opportunities.  This is a form of skills-mismatch, but one that is induced by demand conditions.

A.F.L.-C.I.O. Has Plan to Add Millions of Nonunion Members - Mr. Trumka says he believes that if unions are having a hard time increasing their ranks, they can at least restore their clout by building a broad coalition to advance a worker-friendly political and economic agenda. He has called for inviting millions of nonunion workers into the labor movement even if their own workplaces are not unionized. Not stopping there, he has proposed making progressive groups — like the NAACP; the Sierra Club; the National Council of La Raza, a Hispanic civil rights group; and MomsRising, an advocacy group for women’s and family issues — either formal partners or affiliates of the A.F.L.-C.I.O.  “The crisis for labor has deepened,” Mr. Trumka said in an interview. “It’s at a point where we really must do something differently. We really have to experiment.” By crisis, he means myriad setbacks, including a steady loss of union membership, frequent defeats in organizing drives and unions being forced to accept multiyear wage freezes. Not only have labor leaders faced the embarrassing enactment of anti-union legislation in onetime labor strongholds like Wisconsin and Michigan, but they could not even win passage of legislation making it easier to unionize when President Obama was elected and the Democrats controlled the House and Senate.

Steep Climb: Fiery Warren Slams SCOTUS as Right-Wing Subsidiary of Big Business -- Massachusetts Sen. Elizabeth Warren opened the AFL-CIO’s national convention by denouncing a “corporate capture of the federal courts” that has led to the most right-wing, pro-corporate Supreme Court in decades. Follow this trend to its logical conclusion, she noted, "and you’ll end up with a Supreme Court that functions as a wholly owned subsidiary of Big Business.” Warren also vowed to stand with "organized labor (which) has been there at every turn to fight on the behalf of the workers." We're with AFL-CIO President Richard Trumka: We need to clone her. “From tax policy to retirement security, the voices of hard-working people get drowned out by powerful industries and well-financed front groups... The fight continues to rage, and the powerful interests continue to be guided by their age-old principle: ‘I’ve got mine, the rest of you are on your own.’”

‘Our agenda is America’s agenda,’ Warren tells unions —  Democratic Senator Elizabeth Warren, of Massachusetts, vowed to be a voice for organized labor in the Senate while addressing the delegates from America’s largest federation of labor unions on Sunday. “Our agenda is America’s agenda,” was her mantra as she delivered a keynote address to the AFL-CIO convention in Los Angeles, Calif. That agenda, as laid out by Warren, included calls for a hike in the minimum wage, stricter financial regulation, immigration reform, greater investment in infrastructure, and a more progressive tax code. The Massachusetts senator, who is known for her forthright advocacy of progressive economic causes, also reiterated her opposition to the “stupid” sequester and Social Security cuts. “We ought to be making smart choices about where to cut and where to invest,” she said, stopping just short of a call for more stimulative spending or an expansion of the social safety net. Warren’s speech and the AFL-CIO convention itself both come at a particularly dark time for American organized labor. Wages have stagnated for decades, economic inequality has skyrocketed, and the percentage of American workers in labor unions is gradually inching towards the single digits. Meanwhile, state and federal laws have become more hostile to labor unions, with states like Michigan passing “right-to-work” legislation.

Real Hourly Wages and Hours Worked: Still Off Their Interim Highs - Here is a look at two key numbers in Friday's September monthly employment report for August:

  • Average Hourly Earnings
  • Average Weekly Hours

The government has been tracking the data for Production and Nonsupervisory Employees for decades. First, here is a chart of the Average Hourly Earnings. I've included a linear regression through the data to highlight the trend. Hourly earnings increased at a faster pace through 2008, but the pace slowed from early 2009 onward. But the hourly earnings above are nominal (not adjusted for inflation). Let's look at the same data adjusted for inflation using the Consumer Price Index. Since the government series above is seasonally adjusted, I've used the seasonally adjusted CPI, and I've chained the series to the dollar value of the latest month of hourly wages so that the numbers reflect the purchasing power in today's dollars. As we see, the difference is amazing.The decline in real wages at the onset of the recession accords with our expectations. But why the rise in the middle of the recession when the Financial Crisis began unfolding in earnest? Let's add another data series to the mix: Average Hours per Week. About eight months into the recession, hours per week began to fall. The number bottomed a few months before the recession ended and then began increasing a few months after it ended.

Why Labor's Share of Income Is Falling - In a recent post about fast-food workers striking for a higher wage, I noted the juxtaposition of the strikers and the banks, which just reported another quarter of record profits. In fact, as many inequality watchers have noticed, profits as a share of income are at or near record highs while the compensation share is around a 50-year low. That trend deserves a closer look. The chart below plots the total compensation share of national income, along with just the wage share (that is, excluding what employers pay for workers’ pensions, health coverage and social insurance).  The wage share has been coming down faster than the overall compensation share, initially because more workers were getting more of their pay in nonwage benefits, though more recently, employers have been shedding health and pension benefits (the share of the population with employer-provided health coverage has declined over the last decade from about 73 percent to 63 percent). For completeness, I’ll focus on the compensation share. In fact, there has been a lot of useful analysis of this trend, including Robert Samuelson’s opinion column on Monday for The Washington Post, wherein he links to a very informative post by the economist Timothy Taylor. So here are some of the basic facts:

Breaking Down the Falling Labor Share of U.S. Income - The labor share of national income is falling, both in the U.S. (see here and here) and around the world (see here and here). One useful way to gain understanding on this issue is to break down the different components of labor and capital income and see what's driving the change. The Congressional Budget Office provides a useful overview of this approach with U.S. data in its July 2013 report, "How CBO Projects Income." Here's a figure showing the labor share of income for the U.S. economy as a whole, as well as for as for the business sector as a whole and the corporate sector (that is, businesses that are officially incorporated). As I've noted before, back around 1980 when I was first getting my feet wet in economic data, the standard line belief was that the labor share of income was roughly constant. Even into the 1980s and 1990s, one could argue that the labor share of income was hovering in more-or-less the same fairly narrow range. But the fairly drop in labor share of income since about 2000, down to 59.3% of total income in 2011, is below any post-1950 value.

Vital Signs: Benefits Grabbing Higher Share of Labor Costs - Private businesses and state and local governments saw labor costs fall slightly in the second quarter, the first small decline in a year. The Labor Department said Wednesday that compensation per hour worked totaled $31.00 in the second quarter. The cost was down 0.3% from the first quarter but up 1.3% from year-ago levels. The average wage and salary stood at $21.44 per hour, while total benefits were $9.56. Employers’ share of health insurance costs averaged $2.65 per hour. Companies have struggled with rising benefit costs for years. Health-care expenditures have been particularly onerous, contributing to the overall rise in benefits. As the tab for benefits continues to grab a rising share of compensation, companies are holding the line on pay raises. Since 2004, nominal benefits have risen 30.1%, while wages and salaries are up just 20%. The end result is that business are dealing with rising labor costs but workers aren’t seeing solid gains in wages and salaries that can be used directly for consumer spending.

Guaranteed Income or Employment: Economic Rights for the 21st Century -- Video from the Modern Money and Public Purpose series. This is Lecture 8 on economic rights and features Pavlina Tcherneva and Philip T. Harvey

Can the Government Do Anything About Inequality? - Four political scientists take this issue head on in their paper, “Why Hasn’t Democracy Slowed Rising Inequality?” published earlier this year in Journal of Economic Perspectives. During the past two generations, democratic forms have coexisted with massive increases in economic inequality in the United States and many other advanced democracies. Moreover, these new inequalities have primarily benefited the top 1 percent and even the top .01 percent. These groups seem sufficiently small that economic inequality could be held in check by political equality in the form of “one person, one vote.” Bonica, McCarty, Poole and Rosenthal argue that politics can be an effective tool to restore economic fairness — that  government can, and should, correct imbalances the market produces, providing for those who cannot compete, ensuring opportunity for those who can, and blocking those who would appropriate to themselves what the authors see as an excessive share of our national prosperity. The four political scientists offer “possible reasons why the U.S. political system has, during the last few decades, failed to counterbalance rising inequality”: An intellectual and ideological shift within both political parties toward “acceptance of a form of free market capitalism which, among other characteristics, offers less support for government provision of transfers, lower marginal tax rates for those with high incomes, and deregulation of a number of industries. Financial deregulation, in particular, has been a source of income inequality.”

Government Policy Gave Us Inequality, not the Market - Dean Baker - Tom Edsall is usually a thoughtful commentator on the politics and the economy, but his piece on inequality today really misses the mark. It repeatedly asserts that the huge rise in inequality over the last three decades is a market story. This is very hard to accept when you look at the big winners.At the top of the list of winners are the Wall Street money boys. Does anyone think they would be as rich if the government taxed the financial sector the same way it taxes every other sector in the economy. Even the International Monetary Fund has called for additional taxes on the financial sector in the range of $40 billion a year to make its contribution to the Treasury comparable to that of other sectors. (My favorite here is a financial speculation tax like the one the U.K. has applied to stock trades for more than three centuries.)   I could go on, for example markets don't give us copyright and patent monopolies, government do. But the point should be clear (read my free book, if it isn't), we did not get this massive increase in inequality simply by the natural workings of the market. The rise in inequality was driven by government policies that redistributed income upward. That is why the question posed by Edsall, whether we can do anything about inequality, is silly on its face. Just reverse the policies that gave us inequality -- that won't give us full equality of income (not sure anyone wants that), but it would make the income distribution much more equal than it is today.

The TANF Subsidized Jobs Program: Helping the Market Get Closer to Full Employment -In policy discussions about getting back to full employment, I often make the point that if the market fails to create the needed quantity of jobs, there’s a role for policy to help make up the difference.  Many find that a radical idea, or at least one that perhaps made sense in the 1930s, but is antiquated by now. What if I told you that, in fact, there recently was such a program—a temporary one that was an unheralded part of the Recovery Act—that in its heyday placed “more than 260,000 low-income adults and youth in temporary jobs in the private and public sectors…?” Well, there was.  The above quote comes from a post on the CBPP blog yesterday by my colleague Donna Pavetti.  She, in turn, is citing a new evaluation of the TANF (Temporary Assitance for Needy Families) Emergency Fund, a program wherein state employment programs worked with employers, mostly in the private sector, to create jobs where, for a limited time, the wage is mostly paid by the federal government.  Most states—39 in all—joined in and used $1.3 billion to subsidize job creation.  That comes to $5,000 a job, which in this business is known as big bang-for-the-buck.

A Dearth of Investment in Young Workers - ONE of the most troubling features of the slow economic recovery is that it has largely bypassed young people. This doesn’t bode well for the future of the American economy.  For Americans aged 16 to 24 who aren’t enrolled in school, the employment picture is grim. Only 36 percent are working full time, down 10 percentage points from 2007. Longer term, the overall labor-force participation rate for that age group has dropped 20 percentage points for men and 14 points for women since 1989.  This lack of jobs will damage the long-term careers of a big chunk of the next working generation. Not working after you finish school very often means missing out on developing the skills and habits that will serve you well later on. The current employment numbers are therefore like a telescope into the future labor market: a 23-year-old who is working part time as a dog walker, yoga instructor or retail clerk may be having fun, but perhaps will receive fewer promotions as a 47-year-old.  One culprit in this situation may be the higher minimum wage enacted in 2009, but the root causes run much deeper.  Employers appear to be more risk-averse, more concerned about overhead costs and less willing to invest in developing young workers’ skills. And that seems true across a wide variety of sectors.

Dude, Where's My Job? - Graduation day, and all the joy that comes with it, is three months behind recent graduates. Reality is setting in, and most of these young adults are asking, “Why can’t I find a job?”Over half—52 percent— of recent college graduates are either un- or underemployed, according to the New York Federal Reserve. The Bureau of Labor Statistics reports that 34 percent of recent high school graduates are jobless.The economy suffers when these young adults are not able to invest in their human capital. These negative economic effects reverberate into the future since employment becomes harder to find the longer people are without a job.   One contributor to this problem most people are not familiar with is occupational licensing—requirements that individuals obtain government sanctions to work. The justification behind licenses is concern for public safety. However, these barriers to entry do not serve the public’s interest. They raise unemployment, lower economic growth, and increase consumer costs. The burden of proof should be placed upon proponents of licenses. From data that are available, they have some explaining to do.The Institute for Justice detailed licensing requirements for 102 low- and moderate-income occupations—the jobs sought by graduates [See the Institute for Justice Report here]. On average, workers are forced to spend nine months in education or training, pass an exam, and pay over $200 in fees, all in the name of public safety.

A Generation 'Lost' in the Job Hunt - At 23 years old, he has a job, but not a career, and little prospect for advancement. He has tens of thousands of dollars in student debt, but no college degree. He says he is more likely to move back in with his parents than to buy a home, and he doesn't know what he will do if his car—a 2001 Chrysler Sebring with well over 100,000 miles—breaks down. "I'm kind of spinning my wheels," Mr. Wetherell says. "We can wishfully think that eventually it's going to get better, but we don't really know, and that doesn't really help us now." Mr. Wetherell is a member of a lost generation, a group that is only now beginning to gain attention of many economists and employment experts. From Oakland to Orlando—and across the ocean in Birmingham and Barcelona—young people have come of age amid the most prolonged period of economic distress since the Great Depression. Most, like Mr. Wetherell, have little memory of the financial crisis itself, which struck while they were still in high school. But they are all too familiar with its aftermath: the crippling recession, which made it all but impossible for many young people to get a first foothold in the job market, and the achingly slow recovery that has left the prosperity of their parents' generation out of reach—perhaps permanently.

Apprenticeships: Connecting Young Adults to Jobs - The future US workforce needs a wide range of skills, only some of which are likely to be delivered through a conventional two-year or four-year college degree. Natalia Aivazova looks at "Role of Apprenticeships in Combating Youth  Unemployment in Europe and the United States," . As a starting point, here's a graph showing what share of students age 15-19 are in apprenticeship programs in EU countries. In Austria and Denmark, it's more than one-quarter; in Germany, it's more than one-third. And it's worth emphasizing that this measure of apprenticeships tends to understate what overall share of the population had an apprenticeship at some point in time; for example, a 15 year-old may not have an apprenticeship now, but might have one in the next year or two. This EU data doesn't include estimates for the United States, but a recent OECD report called "A Skills beyond School Review of the United States," offers some information on the US situation

The Well-Being of the Young - Many of the nation's young adults are struggling to make ends meet, according to Extended Measures of Well-Being: Living Conditions in the United States. The analysis examines five domains of well-being: appliance ownership, housing quality, neighborhood quality, ability to get help if needed, and meeting basic needs. Young adults are coming up short in their ability to meet basic needs, reports the Census Bureau. The ability to meet basic needs is measured by asking how many of the following problems a household has experienced in the past year: unable to pay for essential needs, unable to pay rent or mortgage, unable to make utility payments, eviction, utilities cut off, phone service cut off, unable to see a doctor or dentist when needed, and lacking the right kind of food or enough food. This is serious stuff. According to the bureau's analysis, 28 percent of householders under age 30 experienced at least one of these problems in 2011. One in ten experienced at least three problems.  Percentage of householders under age 30 with problem in 2011
Unpaid essential needs: 20.2% 
Unpaid rent or mortgage: 10.7% 
Evicted for non-payment: 0.7% 
Unpaid utility bills: 14.5% 
Disconnected utility: 2.8% 
Disconnected phone: 6.3% 
Unmet need for doctor: 9.8%
Unmet need for dentist: 12.5%
Not enough wanted food: 22.8%
Food insecure household: 16.1%

Teen unemployment portends ‘lost generation’ of Americans - For the fourth consecutive summer, teen employment has stayed anchored around record lows, prompting experts to fear that a generation of youth is likely to be economically stunted with lower earnings and opportunities in years ahead. The trend is all the more striking given that the overall unemployment rate has steadily dropped, to 7.4 percent in August. And employers in recent months have been collectively adding almost 200,000 new jobs a month. It led to hopes that this would be the summer when teen employment improved. In 1999, slightly more than 52 percent of teens 16 to 19 worked a summer job. By this year, that number had plunged to about 32.25 percent over June and July. It means that slightly more than 3 in 10 teens actually worked a summer job, out of a universe of roughly 16.8 million U.S. teens. "We have never had anything this low in our lives. This is a Great Depression for teens, and no time in history have we encountered anything like that," said Andrew Sum, director of the Center for Labor Market Studies at Northeastern University in Boston. "That's why it's such an important story." Summer is traditionally the peak period of employment for teens as they are off from school and get their first brush with employment and the responsibilities that come with it. Falling teen employment, however, is just as striking in the 12-month numbers over the past decade. The picture these teen employment statistics provide looks even worse when viewed through the complex prism of race. Sum and colleagues did just that, comparing June and July 2000 and the same two months of 2013. In 2000, 61.28 percent of white teens 16 to 19 held a job, a number that fell to 39.25 percent this summer. For African-Americans, a number that was dismal in 2000, 33.91 percent of 16- to 19-year-olds holding a job, fell to a staggering low of 19.25 percent this June and July.

Households On Foodstamps Rise To New Record High: More Americans Live In Poverty Than The Population Of Spain - There was much discussion of Friday's "disappointing" non-farm payrolls goal-seeked, seasonally adjusted, X-13-ARIMA conceived jobs "number." The conclusion was that it showed an economy which one year after the start of QEternity was growing nowhere near where the Fed has projected and hoped it would be at this time. But in addition to the BLS jobs number, there was another just as important number that was released on Friday: the monthly foodstamp (SNAP) participation update. There was no discussion of this particular number and for good reason. If the NFP number was at least meant to show some economic stability, if subpar, the monthly foodstamp update shows month after month that the greatest depression is nowhere near ending for millions of American living in poverty (83% of SNAP households have gross income at or below 100% of the poverty guideline ($19,530 for a family of 3 in 2013), and these households receive about 91% of all benefits. 61% of SNAP households have gross income at or below 75% of the poverty guideline or $14,648 for a family of 3 in 2013). To wit: in June, the number of households receiving foodstamps rose to 23.117 million, an increase of 45.9k in one month, and also a new record high. As for the average monthly benefit per household: $274.55, just off record lows.

House Republicans Seek $40 Billion in Cuts to Food-Aid Programs -  U.S. House Republicans plan to vote on legislation next week that would push millions of people off federal food aid programs that have been rapidly growing since the economic downturn. Backers say they want to curb waste and abuse by cutting $40 billion over 10 years from an array of nutrition programs.“I think a lot of our members want to finally make real reforms to the food-stamp program,” said Representative Steve King, an Iowa Republican and senior member of the House Agriculture Committee, which has jurisdiction over the programs. He said the goal is to “ensure that while you have a safety net you shouldn’t be giving welfare benefits to people who are able-bodied and capable of getting a job who just choose to continue to get food stamps when they can actually go and work.” Almost 48 million people in 23 million U.S. households relied on the Supplemental Nutrition Assistance Program, the official name for food stamps, the largest of the nutrition programs. The figures are for June 2013, the last month for which preliminary data was available, according to the USDA. Monthly food stamp usage has risen more than 18 percent over the past four fiscal years, according to data compiled by Bloomberg. Republicans have said their measure would cut spending over the next 10 years by tightening eligibility requirements including on able-bodied adults under 55 who don’t have dependents.

Republicans Try to Cut Food Stamps as 15% of U.S. Households Face Hunger - Congress is back in Washington, meaning that the House of Representatives will soon be able to resume its cherished function in our democracy: casting symbolic votes to slash federal spending on the poor. In particular, Majority Leader Eric Cantor is pushing a Republican plan to cleave at least $40 billion from the Supplemental Nutrition Assistance Program—aka food stamps—over the next ten years, a reduction the Center on Budget and Policy Priorities says would push some 4 to 6 million Americans off its rolls.  As The New York Times noted in a weekend editorial, the GOP is making this crusade at a time when some 14.5 percent of U.S. households are having trouble putting meals on the table due to their finances. That's according to a new report this month from the Department of Agriculture, which found the rate of food insecurity last year was essentially unchanged from 2011. About 5.7 percent of households suffered from "very low food security," meaning among other things that they were actually forced to cut portion sizes or entire meals for lack of cash.

What Is It About the Hungry and Poor House Republicans Just Can't Stand? - People are broke and hungry in America and the food stamp program has been the only thing between many and starvation.  Food stamps are successful, it has an incredibly low fraud rate and most importantly, America doesn't have starvation filling the streets as a result.  Yet for some reason House Republicans, with Majority leader Eric Cantor leading the charge, want to cut food stamps and force people to starve.  Such evil doings are unabashedly promoted claiming somehow people who are broken and hungry don't really need food.  House Republicans want to deny food to adults period as outlined in Cantor's memo: As SNAP has grown, working middle class families are footing the $80 billion bill for a safety net gone well beyond assistance to children, seniors, and the disabled. That is why, with Chairman Lucas, a working group of our conference came together to address the major problems to reform SNAP while still preserving the safety net for those who truly need it. The Nutrition Reform and Work Opportunity Act restores the intent of the bipartisan welfare reforms adopted in 1996 by ensuring that work requirements for able-bodied adults without children are enforced - not waived - and eliminates loopholes exploited over the last few years to avoid the program’s income and asset tests. It also empowers states to engage able-bodied parents in work and job training as part of receiving food stamps to help move them to self-sufficiency. Most importantly, no individual who meets the income and asset guidelines of the SNAP program and is willing to comply with applicable work requirements will lose benefits as a result of these reforms. It is expected that these simple reforms will save taxpayers an estimated $40 billion over ten years.

Americans' overall access to basic needs is close to record-low - Gallup  -- More Americans are struggling to afford food -- nearly as many as did during the recent recession. The 20.0% who reported in August that they have, at times, lacked enough money to buy the food that they or their families needed during the past year, is up from 17.7% in June, and is the highest percentage recorded since October 2011. The percentage who struggle to afford food now is close to the peak of 20.4% measured in November 2008, as the global economic crisis unfolded.Americans' ability to consistently afford food has not yet recovered to the prerecession levels seen in January through April 2008, when less than 17% in the U.S. reported that they had problems affording food in the past year. This is only the third time in 68 successive months of Gallup and Healthways' tracking, which began in January 2008, that at least 20% of Americans said they struggled to afford food in the past year. Americans remain as likely to have access to basic necessities in general now as they were in October 2011, when it was at its lowest point. The Basic Access Index, which includes 13 questions about topics including Americans' ability to afford food, housing, and healthcare, was 81.4 in August, on par with the all-time low of 81.2 recorded in October 2011.

The "Real" America: Near Record 20% Struggle To Afford Food, Highest Since Crisis -With US equity markets on a 7-day roll and excited TV anchors proclaiming the worst over and new all-time highs must signal recovery as they 'celebrate' five years on from Lehman, the following two charts of the state of real America should open a few eyes to just how blinded American has become to the truth (unless you live it). A stunning 20.0% of Americans were found to have struggled to afford food in the last year - surging in recent months to its highest since the peak of the crisis in 2008 - as American's ability to consistently afford food has not recovered to pre-recession levels. Furthermore, Americans access to basic needs (13 factors including housing, healthcare, and food) hovers near record lows - dramatically lower than pre-recession levels. The Gallup polls point to a very different image of American than Dow 15,000 - and is set to get worse as the food stamp program is set to be cut in November. More Americans are struggling to afford food -- nearly as many as did during the recent recession. The 20.0% who reported in August that they have, at times, lacked enough money to buy the food that they or their families needed during the past year, is up from 17.7% in June, and is the highest percentage recorded since October 2011. The percentage who struggle to afford food now is close to the peak of 20.4% measured in November 2008, as the global economic crisis unfolded.

A Brief Post on an Obvious Point: The Poor Didn’t Do It! - But in prepping for a presentation on this stuff for tomorrow, I made the graph below, just showing the sharp increase in the official poverty rate over the great recession.  I’ve noted in many posts the limits of the official measure, most importantly re the dates shown in the figure, how it leaves out many of the safety net benefits that expanded to offset the downturn. But to explain what struck me in gazing upon this simple figure below, we’re actually better off looking at the incomplete official rate.  How can it make any sense to blame the poor themselves, as per Charles Murray, Paul Ryan, along with pretty much the rest of the House R’s caucus, for this increase in poverty in the midst of the worst downturn since the Great Depression? How is it that those of us trying to argue on behalf of providing the poor with the opportunities they need are so often back on our heels, defending the increase in the SNAP (i.e., food stamp) rolls against those who claim the safety net is a hammock?  Did the poor come up with the financial “innovations” that inflated the housing bubble?  You know, the one that imploded and took the economy down with it…how about the bubble?  Was that also the dastardly work of the bottom 20%?

Friday Movie Night - Income Inequality - The story which should be front page news but is not is income inequality.  U.C. Berkeley professor, Emmaneul Saez studies income inequality and has recently updated his research with 2012 figures and the results are astounding.  The top 1% breaking records for grabbing America's income gains should be what's blaring across the headlines. The top 1% income earners have captured 95% of the income growth from 2009 to 2012.  Folks, that's pretty much all of it.  Generally speaking the rich have become much richer, income inequality hasn't been greater and United States is returning to that very unjust society of 1897. The top decile share in 2012 is equal to 50.4 percent, a level higher than any other year since 1917 and even surpasses 1928, the peak of stock market bubble in the “roaring” 1920s.  Tonight's videos are worth watching interviews and lectures on income inequality, the facts, the figures, the outrage and how the American middle class was ripped off without even a kiss.  Below is a UCTV lecture by Saez on income inequality and feel free to scroll forward to get to the lecture.  Something a little more accessible is this in depth, fact wheeling interview with Ralph Nader on income inequality and the minimum wage.  Nader calls this income tyranny.

The Minimum Wage Would be Almost $18 an Hour If It Had Kept Pace With Productivity Growth - Dean Baker - This is a fact that would have been worth mentioning in a piece discussing a plan to raise the minimum wage in California to $10 an hour by 2016. The federal minimum wage had risen in step with productivity growth over the years from 1938-1968. Since then it has not even kept pace with the rate of inflation. The unemployment rate in 1968 was less than 4.0 percent.

Top California Lawmakers Back Raising Minimum Wage - California’s top lawmakers on Wednesday pledged their support for a plan to raise the minimum wage in the state to $10 an hour, which could soon give California workers the highest minimum pay rate in the country.In a rare show of backing for pending legislation, Gov. Jerry Brown, a Democrat, announced his “strong support” for a bill in the State Legislature that would raise the minimum wage to $10 per hour from $8 by the start of 2016. Currently, Washington has the highest minimum wage of any state, at $9.19 per hour. Leaders of the Legislature, where Democrats hold majorities in both houses, also announced their support for the bill on Wednesday, all but guaranteeing its passage before the legislative deadline on Friday. “The minimum wage has not kept pace with rising costs,” Mr. Brown said in a statement. “This legislation is overdue and will help families that are struggling in this harsh economy.” The increase offers one of the clearest examples yet of the effect of one-party rule in California. Efforts to raise the federal minimum wage, which remains at $7.25 per hour, have gained little traction in Washington. And Republicans here, along with business groups, have opposed the state minimum wage increase, calling it a job killer. But their objections matter little as Democrats here, who hold all statewide offices and overwhelming majorities in the Legislature, are poised to approve the increase, with the backing of organized labor.

State and local, post office, and federal US government jobs, charted - The chart (Y axis in thousands) comes via Credit Suisse economists, who have updated it to reflect Friday’s jobs numbers — including the downward revisions to June and July, roughly half of which came from state and local government jobs.From their note:Exhibit 3 shows the evolution of government jobs in the recession and recovery. The downward momentum in federal employment has accelerated recently, likely due to the sequester. Post Office employment continues to shrink on a trend basis. State and local government jobs have largely stabilized. Bill McBride noted a week ago that state and local government government spending had contributed negatively to GDP growth in thirteen of the last fourteen quarters, but the drag was expected to end soon. Also:Currently state and local government as a percent of GDP is back to 1970 levels!We also recommend this Josh Barro post on the optimistic vs pessimistic cases for US jobs growth.

Left with Nothing - This man owed $134 in property taxes. The District sold the lien to an investor who foreclosed on his $197,000 house and sold it. The retired Marine sergeant lost his house on that summer day two years ago through a tax lien sale — an obscure program run by D.C. government that enlists private investors to help the city recover unpaid taxes. For decades, the District placed liens on properties when homeowners failed to pay their bills, then sold those liens at public auctions to mom-and-pop investors who drew a profit by charging owners interest on top of the tax debt until the money was repaid. But under the watch of local leaders, the program has morphed into a predatory system of debt collection for well-financed, out-of-town companies that turned $500 delinquencies into $5,000 debts — then foreclosed on homes when families couldn’t pay, a Washington Post investigation found.

“able-bodied adults to work for food stamps”- “Gov. John Kaisch’s administration will limit food stamps for more than 130,000 adults in all but a few economically depressed areas starting Jan. 1. To qualify for benefits, able-bodied adults without children will be required to spend at least 20 hours a week working, training for a job, volunteering or performing a similar type of activity unless they live in one of 16 counties exempt because of high unemployment. The requirements begin next month; however, those failing to meet them would not lose benefits until Jan. 1. ‘It’s important that we provide more than just a monetary benefit, that we provide job training, an additional level of support that helps put (food-stamp recipients) on a path toward a career and out of poverty,’ said Ben Johnson, spokesman for the Ohio Department of Job and Family Services. For years, Ohio has taken advantage of a federal waiver exempting food-stamps recipients from the work requirements that Kasich championed while U.S. House Budget Committee chairman during the mid-1990s. Kasich and former Rep. Bob Ney, R-Heath, co-sponsored an amendment requiring able-bodied recipients without dependents to work that was included in sweeping welfare-reform legislation adopted in 1996. ‘The governor believes in a work requirement,’ Kasich spokesman Rob Nichols said yesterday. ‘But when the economy is bad and people are hurting, the waiver can be helpful. Now, fortunately, Ohio’s economy is improving.’”

Can China Save the Motor City? - After more than a decade of urban decay, the American city of Detroit filed for bankruptcy in July. One of the surest signs of Detroit’s decline has been the bottoming out of its housing market as people have been fleeing the city since the 1990s. Many have left in search of greater economic opportunity or simply to escape the city’s rising crime rate and other social ills. Today, just 700,000 people live in Detroit; at its peak, 1.8 million people called the Motor City home. A week after Detroit declared bankruptcy, Quartz reported that “bargain-hunting Chinese investors” had been buying up as much cheap real estate in Detroit as they could find. Quartz interviewed Caroline Chen, a real estate broker in Michigan, who said that she has received numerous calls from people in China who want to buy properties in Detroit. The publication quoted Chen as saying: “I have people calling and saying, ‘I’m serious—I wanna buy 100, 200 properties.’” Chen added that investors tell her, “We don’t need to see them. Just pick the good ones.” News about the city’s financial demise has become a very popular topic on Sina Weibo, a Chinese microblogging website. Tea Leaf Nation reported some of the comments posted by Weibo users, including those of one blogger who listed off some of the admirable qualities the city offered Chinese citizens: “Seven-hundred thousand people, quiet, clean air, no pollution, democracy.” “What are you waiting for?” the blogger then asked his followers. In addition to the (relatively) cleaner environment and democratic political system that Detroit boasts, China’s own real estate situation also explains why the city is viewed as such an attractive alternative to Chinese cities.

Demographic Consequences of US Economic Stagnation - In development theory, there is thing called the "demographic transition" which argues that birth rates should diminish as a country becomes wealthier and more urbanized. Instead of "spreading their bets" by having many children in the hopes that at least one will succeed and be able to take care of them in their old age, wealthier folks believe that having fewer children endowed with high "human capital" via education and so on will better guarantee their success.  OK, so that's the theory, and it's held up quite well over the years. However, many developed countries are now entering a twilight zone characterized by vanishing economic prospects and diminished expectations for the future where most believe that the standard of living of future generations will be lower than current generations for obvious reasons. In the face of such difficulties, could a "reverse demographic transition" occur in which parents have more children again to assure them that at least one will make it and help provide for them in their old age?  Well, no. The United States provides some insights. Actually, the total fertility rate--the number of children a woman bears--fell to 1.89 in 2012. This is well below the replacement rate of 2.1 children per woman. In other words, if this trend continues, the United States will indeed suffer from depopulation, "Detroitification," unless migration can compensate. Looking into Census figures, it is indeed the case that current projections the US population will reach 420 million in 2060 are predicated on large-scale increases in migration. (Read the fine print.) In the absence of migration reform, though, I am not certain that the politics will necessarily be in place for that to happen.

Early schooling damaging children’s wellbeing, say experts - More than 100 teachers, writers and academics have said the UK government's early years education policies are damaging children's health and wellbeing. The education specialists have written to the secretary of state, Michael Gove, to demand that children be allowed to learn through play instead of being prepared for formal lessons at such an early age. Signed by 127 senior figures including Lord Layard, director of the wellbeing programme at the London School of Economics, and Sir Al Aynsley-Green, the former children's commissioner for England, the letter in the Telegraph says current research "does not support an early start to testing and quasi-formal teaching, but provides considerable evidence to challenge it". It says: "Very few countries have a school starting age as young as four, as we do in England. Children who enter school at six or seven – after several years of high-quality nursery education – consistently achieve better educational results as well as higher levels of wellbeing." Children must legally be enrolled in a school by the age of five, and by age seven they are subject to three Rs assessment.

Children suffer from growing economic inequality among families since recession -  American families are becoming increasingly polarized along race, class and educational lines, according to a new report released Wednesday, a sign of growing economic inequality that was exacerbated by the Great Recession. The report, “Divergent Paths of American Families,” found a widening gap in recent years between families that are white, educated or economically secure and minority families, those headed by someone with a high school degree or less, and poor families. The concern, report authors say, is not that American families are becoming diverse. Advances in civil rights and women’s economic independence have opened up individual choice and transformed the American family in the past 50 years. The concern, they wrote, is that the divisions fall along race, class and educational lines and that they are accelerating. “I was struck by how strong the divide has become in terms of education,” said report author Zhenchao Qian, a sociologist at Ohio State University. “The gap between the haves and the have-nots, and the children who excel and who lag behind, grew larger than ever in the 2000s.” Increasingly “Balkanized” American families, Qian said, set the children born into them on divergent paths to greater success or disadvantage based to a larger degree than before on the educational level of their parents.

More Michigan school districts slipping into budget deficits in new fiscal year = State Superintendent Mike Flanagan told a joint legislative panel Thursday that Pontiac Public Schools and the Benton Harbor School District are in "dire financial straits" and are hoping for emergency loans through the state treasury to survive.The schools are among the 56 districts and public charter schools either already in or expected to be in budget deficits, according to Flanagan's quarterly report on deficit districts. A total of 55 districts were on the list last quarter, but four districts are new entrants on the list of those having projected deficits.Thursday's presentation was the first to legislators since Buena Vista Schools and Inkster Public Schools were dissolved because of budget problems and their students distributed to surrounding school districts. Several of the districts which took in students from those schools are themselves experiencing budget problems.Two of the districts which took students from Buena Vista, Saginaw City School District and Bridgeport-Spaulding Community Schools, appear on the deficit list, with Saginaw projected to have a smaller deficit while Bridgeport-Spaulding is anticipated to see a $500,000 increase in its deficit.

Texas textbook review panel: Put more ‘creation science based on Biblical principles’ in biology books - Religious conservatives on the Texas state textbook review panel have targeted for elimination high school biology textbooks that don’t include robust refutations of Charles Darwin’s theory of evolution by natural selection. The panel, which includes several creationists, is urging the State Board of Education to reject any textbook that does not issue what it calls “disclaimers” on key concepts in evolutionary theory. “I understand the National Academy of Science’s strong support of the theory of evolution,” said Texas A&M University nutritionist Karen Beathard. “At the same time, this is a theory. As an educator, parent and grandparent, I feel very firmly that creation science based on Biblical principles should be incorporated into every biology book that is up for adoption.” The significance of changes to Texas textbooks cannot be understated. It is the largest textbook market, and publishers tailor the content of their textbooks to appease its State Board. Any alteration to the content of a Texas textbook will be felt across the country. As Michael Hudson, the Texas director of the People for the American Way noted, Texas conservatives have “been able to use our special situation in Texas to impose their narrow views on the nation as a whole.”

Most States’ School Funding Tumbles Since Recession, Study Finds - More than two-thirds of U.S. states are spending less per child on schools than they were five years ago, a study found, showing how slowly governments are replacing funding that was cut because of the recession. At least 34 states will devote less on kindergarten through 12th grade on a per-pupil basis during the current school year than in 2008, once inflation is taken into account, according to a report released today by the Washington-based Center on Budget and Policy Priorities, which tracks the impact of government decisions on those with low incomes. The figures show how public schools haven’t recovered from the 18-month recession that ended in 2009, which led governments to reduce spending when tax revenue dropped. Since 2008, Oklahoma has cut funding the most, by 23 percent, followed by Alabama and Arizona, where per-pupil spending fell 20 percent and 17 percent, respectively. “The cuts that states made are very, very deep and revenues are coming back slowly -- and there are some states that have made their problems worse by cutting taxes,” said Michael Leachman, an analyst for the center who analyzed the state data. “About a third are still digging deeper, and many of the rest of the states still haven’t dug themselves out.”

The Great Stagnation of American Education -The surge in high school graduation rates — from less than 10 percent of youth in 1900 to 80 percent by 1970 — was a central driver of 20th-century economic growth. But the percentage of 18-year-olds receiving bona fide high school diplomas fell to 74 percent in 2000, according to the University of Chicago economist James J. Heckman. He found that the holders of G.E.D.’s performed no better economically than high school dropouts and that the rising share of young people who are in prison rather than in school plays a small but important role in the drop in graduation rates. Then there is the poor quality of our schools. The Program for International Student Assessment tests have consistently rated American high schoolers as middling at best in reading, math and science skills, compared with their peers in other advanced economies. At the college level, longstanding problems of quality are joined with the issues of affordability. For most of the postwar period, the G.I. Bill, public and land-grant universities and junior colleges made a low-cost education more accessible in the United States than anywhere in the world. But after leading the world in college completion, America has dropped to 16th. The percentage of 25- to 29-year-olds who hold a four-year bachelor’s degree has inched up in the past 15 years, to 33.5 percent, but that is still lower than in many other nations. The cost of a university education has risen faster than the rate of inflation for decades. Between 2008 and 2012 state financing for higher education declined by 28 percent. Presidents of Ivy League and other elite schools point to the lavish subsidies they give low- and middle-income students, but this leaves behind the vast majority of American college students who are not lucky or smart enough to attend them. ...

Majority of U.S. Workers Say Job Doesn't Require a Degree - Fewer than half of adults employed full or part time in the United States, 43%, say the type of work they do generally requires a bachelor's or a more advanced degree. Fifty-seven percent say it does not, unchanged from 2005, but down slightly from 61% in 2002.There is no real difference between male and female workers' perceptions of their need for a college degree, and there are only slight differences by age, with middle-aged workers the most likely to say their job requires a degree. However, there are significant differences by income, with the majority of workers earning $75,000 or more saying a degree is necessary, compared with no more than a third of lower-income workers. The majority of high school graduates in the U.S. go straight to college, no doubt believing that a college degree will open career doors and unlock higher lifetime earning potential. Positive expectations about attending college are generally well founded: government statistics show that four-year college graduates will earn roughly double what college nongraduates make over their lifetime -- amounting to an additional million dollars. However, changes in the nation's economy in the past decade, coupled with a revolution in technology, may be challenging the traditional college bargain. The high tuition and lost-opportunity costs associated with spending four or more years getting a bachelor's degree may not be as palatable when weighed against a persistently anemic job market.

Are Tenure Track Professors Better Teachers? - This study makes use of detailed student-level data from eight cohorts of first-year students at Northwestern University to investigate the relative effects of tenure track/tenured versus non-tenure line faculty on student learning. We focus on classes taken during a student’s first term at Northwestern, and employ a unique identification strategy in which we control for both student-level fixed effects and next-class-taken fixed effects to measure the degree to which non-tenure line faculty contribute more or less to lasting student learning than do other faculty. We find consistent evidence that students learn relatively more from non-tenure line professors in their introductory courses. These differences are present across a wide variety of subject areas, and are particularly pronounced for Northwestern’s average students and less-qualified students.

Students Learn Better From Professors Outside Tenure System - In a new working paper published by the National Bureau of Economic Research, researchers David N. Figlio, Morton O. Schapiro and Kevin B. Soter find quite the opposite — that is, tenured professors or those on their way to tenure don’t enhance student learning as much as lecturers outside the tenure system. Tenure effectively implies a contractual right to keep the job for life, barring unusual situations. Tenure-line professors have to fulfill certain requirements, which include publishing research, to progress toward tenure and promotion. Other lecturers are hired on a contractual basis, giving the university the option to renew their contracts. Nearly 60% of all instructional faculty at U.S. institutions, not including graduate student employees, were in the tenure system in 1975, according to data compiled by the American Association of University Professors. By 2009, the share declined to about half as much. Using data on more than 15,000 undergraduate freshmen who entered Northwestern University between 2001 and 2008, Messrs. Figlio, Schapiro and Soter compared the teaching quality of professors in the tenure system to non-tenure-track lecturers. They looked specifically at their impact on student learning in introductory-level classes. The researchers found that students taught by instructors outside the tenure system were more likely to take another class in the same subject and were also more likely to receive better grades in the subsequent class than those who had been taught by tenured or tenure-track professors. The results were more pronounced among relatively less-qualified students, as measured by standardized test scores.

Toxic Inequality - Paul Krugman -- A couple of days ago the Times published a fascinating portrait of a society being poisoned by extreme inequality. The society in question is, in principle, highly meritocratic. In practice, inherited wealth and connections matter enormously; those not born into the upper tier are, and know themselves to be, at a huge disadvantage. Furthermore, you can clearly see some of the other costs of inequality — for example, expenditure cascades, in which the less well-off feel compelled to go into debt in an attempt to keep up. The society in question? The Harvard Business School, where students who can’t spend lavishly on social events are effectively in an inferior class, and borrowing to keep up appearances is apparently common.The point is not that we should weep for middle-class HBS students, most of whom still have better prospects than the great majority of Americans. It is, instead, that what’s going on at HBS is a microcosm of what’s happening to America, and an excellent illustration of the harm extreme inequality can do.

Citibank’s Student Loan Debt Slaves (Part II) - In February of this year, the Consumer Financial Protection Bureau (CFPB), the new Federal agency that Senator Elizabeth Warren fought so hard to create against a tsunami of backlash from Wall Street and Republican ranks, asked the public to comment on making college more affordable and to describe their student loan experiences with private lenders. There was a tidal wave of nearly 30,000 responses.. The most tragic stories came from students who augmented their Federal student loans with loans from the big Wall Street banks like Citibank, a unit of the bailed out poster child for bad behavior, Citigroup. Citibank borrowers tell horror stories of living without heat, living on food donations from friends, and watching their monthly student loan payment skyrocket without warning from $374 to $1025.53. The levels of stress and despair that ring out from these letters should raise a cautionary red flag to every American with a conscience. These young people are America’s future. Two prominent themes emerge from this underreported but, nonetheless, epic human suffering. First, students who took large private student loans from Citibank frequently took the option of deferring the interest until after graduation since they had no means of paying it before getting a full time job. The students failed to understand the dramatic future impact of that decision.   Linda F. reported that she had “paid approximately 50% of the original balance and still owe more than I borrowed due to high interest rates and the times I had to put loans in deferment or forbearance. …I take responsibility for the debt I took on, but it was not my fault that my industry (architecture and building) was taken down by the very banks that I owe. I will be paying on these loans for most of my life…” Linda F. references the second theme that is spread throughout the complaints of the graduates. The Wall Street banks crushed the economy with their implosion in 2008, leaving a scarcity of jobs for graduates. Many graduates are now unemployed, underemployed, or working in low wage jobs.

Student Loan Crisis Threatens U.S. Economic Recovery (Part III) -The Financial Stability Oversight Council (F-SOC), a unit of the U.S. Treasury, warned in its 2013 annual report that high levels of student debt could have severe negative impacts on the U.S. economy, writing that it could “impact demand for housing, as young borrowers may be less able to access mortgage credit. Student debt levels may also lead to dampened consumption.” According to F-SOC, while household debt in general became more current on payments last year, 11.7 percent of student loans were more than 90 days delinquent. The report noted that heavy student debt burdens and a poor job market are contributing factors that are pushing borrowers into delinquency. Acknowledging these alarming trends, the CFPB issued a call for public comment in February of this year. The CFPB received almost 30,000 responses, including an outpouring of horror stories from desperate and despairing young people who were skimping on heat and food as they watched their original loan amount double in size from unexplained penalties, fees and hiked interest rates.  These young people, in many cases, provided their names and addresses to assist in getting to the bottom of whether serious crimes have been committed.  Indeed, numerous regulatory reports draw a comparison to what is happening with student loans and what happened in the big banks’ questionable and, frequently unlawful, mortgage lending practices, leading to the housing collapse.The CFPB released its own report in May of this year, raising further alarms as to economic impact. The report expressed concerns that job growth from the usual entrepreneurship of college graduates may be negatively impacted because their heavy debt burdens will disqualify them from small business loans. Household formations, which provides critical boosts to the economy, may also be impaired.

Retirement Inequality - The Economic Policy Institute put out a series of charts detailing inequality in retirement savings across several different demographic characteristics. The most obvious picture is that the shift to 401(k) plans has produced vast increases in retirement inequality across income groups.Here’s one: And that’s not just a product of increasing income inequality. As a percentage of income, the retirement savings gap has been increasing over time: These trends are entirely predictable. The most important determinant of lifetime retirement savings accumulation is the amount you are able to save during your working years. Someone who makes $200,000 can’t just save five times as much as someone making $40,000. In today’s world, the person making $40,000 often can’t afford to save anything, while the person making $200,000 can save the full $17,500 tax-deductible amount (and she is more likely to have an employer match as well). In the process, of course, the high-income person is also claiming about $6,000 in cash subsidies from federal and state governments, while the low-income person gets nothing. Who would ever have designed such a system? Oh, of course: the people making a lot of money who can maximize their tax deductions. (And the asset management firms that skim a percentage of everyone’s money off the top.)

The public needs to wise up about Medicare -  A recent report in the New England Journal of Medicine paints a discouraging picture of public awareness about Medicare spending. Robert Blendon and John Benson find, among other things, that people generally don’t understand the role Medicare plays in the federal budget deficit—which matters, since the legislators responsible for reducing that deficit tend to care about reelection.The entire piece is worth reading, but I wanted to pull one passage in particular: [W]hen given a dozen possible causes for rising Medicare costs that have been suggested either by experts or in the media, the majority do not identify any one of them as the most important. However, the three most often cited reasons relate to poor management of Medicare by government, fraud and abuse in the health sector, and excessive charges by hospitals. The lowest ranked reason was the cost of new drugs and treatments being offered to seniors. I’m going to set aside the most often cited reasons and focus on that last nugget: only six percent of those surveyed think new treatments—new technology—are a major force behind spending growth. Now seems like a good time to return your attention to a chart Austin pulled together last year:

Transfer Payments and the Macroeconomy: The Effects of Social Security Benefit Changes - From Christy Romer and David Romer: From the early 1950s to the early 1990s, increases in Social Security benefits in the United States varied widely in size and timing, and were generally not undertaken in response to short-run macroeconomic developments. This paper uses these benefit increases to investigate the macroeconomic effects of changes in transfer payments. It finds a large, immediate, and statistically significant response of consumption to permanent changes in transfers. The effects of temporary benefit changes, in contrast, appear small. The consumption effects of the permanent changes appear to decline at longer horizons, and there is no clear evidence of effects on production or employment. Finally, there is strong evidence of a sharply contractionary monetary policy response to permanent benefit increases, which may account for the apparent decline of the consumption effects and their failure to spread to broader indicators of economic activity.

Detroit may pay retirees to buy insurance through exchanges (Reuters) - Detroit emergency manager Kevyn Orr may replace healthcare coverage for retirees under 65 with a $125 per-month stipend to purchase coverage from insurance exchanges established under the U.S. Affordable Care Act, according to a local news report. Retirees over 65 would be covered by the U.S. Medicare program, but officials have discussed the potential changes for younger retirees at a meeting of Detroit's General Retirement System, the Detroit Free Press reported. The plan would reduce the city's annual retiree healthcare costs to less than $50 million from $170 million, Lamont Satchel, the city's director of labor relations, told the newspaper. All retirees under 65 who belong to the General Retirement System or the Police and Fire Retirement System would be affected. Satchel said the city has not finalized the plan for the $125 monthly stipend, but Orr could make a decision as soon as this week. Detroit officials could not be reached immediately for comment.

Texans in Dark on Obamacare as Enrollment Startup Looms - Osban, 55, could use it now, as his wife Kathy, 59, has a heart condition and the money he makes barely covers current expenses, much less a hospital bill. While he’s heard of Obamacare, he doesn’t know if it can help him or how to enroll. “I’m in the dark; total darkness,” Osban said. In 18 days, Americans will start signing up for medical coverage through the Affordable Care Act’s online exchanges. The law, targeting most of the 50 million uninsured, promises to change the way health care is provided in the U.S. It forces most Americans to buy coverage, offers subsidies to pay for it, mandates insurer outlays for disease prevention and guarantees a pre-existing condition won’t get you turned down. You wouldn’t know it in Texas. Distrustful of the U.S. government, with a defiant and independent heritage, Texans are largely unsupportive of a law they little understand. While no state has a higher proportion of uninsured, the Republican governor, Rick Perry, has refused to help build or promote an insurance exchange in the state and he won’t expand Medicaid, the joint state-federal health plan for the poor, to care for more people. “It’s still Texas and it’s still, ‘pull yourself up by your own bootstraps,’”The attitude is “if someone can’t do that, it’s their own problem. It’s a holdover from the Old West.”

IBM Terminates Company-Sponsored Retiree Health Plan Due To Soaring Costs -- 110,000 current and soon to be eligible retirees working for IBM woke up to an unpleasant surprise this morning, when the WSJ reported that as a result of soaring healthcare costs, the tech bellwether giant will be terminating its company-sponsored health plan and instead giving (soon to be former) beneficiaries a lump sum payment to buy coverage on a health-exchange: a move which the WSJ characterized as indicating that employers are unlikely to keep providing the once-common benefits as medical costs continue to rise. The reason why all IBM retirees will have to find alternative, third-party, retirement coverage upon hitting the Medicare eligible age of 65 is that "IBM said the growing cost of care makes its current plan unsustainable without big premium increases." And to avoid those premium increases, the costs will find a clearing price either in a private exchange (supposedly competitive, realistically monopolistic), or will end up commingled with other public healthcare funding. End result: IBM benefits, everyone else loses.  From the WSJ: IBM told retirees that its current retiree coverage will end for Medicare-eligible retirees after Dec. 31, 2013, according to documents reviewed by The Wall Street Journal and confirmed by IBM. Cost increases under our current retirement group health care plan are no longer sustainable for you," IBM said in the notices. "Health care costs under IBM's current plan options for Medicare eligible retirees will nearly triple by 2020, significantly impacting your premium and out of pocket costs," the notice said.

GE, IBM Ending Retiree Health Plans in Historic Shift - America’s biggest employers, from GE to IBM, are increasingly moving retirees to insurance exchanges where they select their own health plans, an historic shift that could push more costs onto U.S. taxpayers. Time Warner Inc. (TWX) yesterday said it would steer retired workers toward a privately run exchange, days after a similar announcement by International Business Machines Corp. General Electric Co. (GE) last year said it, too, would curb benefits in a move that may send some former employees to the public insurance exchanges created under the 2010 Affordable Care Act.While retiree health benefits have been shrinking for years, the newest cutbacks may quickly become the norm. About 44 percent of companies plan to stop administering health plans for their former workers over the next two years, a survey last month by consultant Towers Watson & Co. (TW) found. Retirees are concerned their costs may rise, while analysts predict benefits will decline in some cases. . “Over the next two to three years, we see a much more aggressive rethinking of what employers are going to provide.”

What Obamacare Means for Corporate Retiree Insurance Coverage -The news that Time Warner and IBM are changing retiree health-insurance benefits has some claiming the moves are proof that the Affordable Care Act (ACA) is drastically eroding the employer-based health-insurance system it promised to preserve and increasing costs for retired corporate workers in the process, say critics.In truth, corporate America was already looking for ways to trim health-insurance costs, particularly for retirees, long before Obamacare came along. The benefit decisions announced by IBM and Time Warner have little direct relationship with the health care law and will not, as some have suggested, leave retirees without any insurance. The changes at IBM relate to supplemental health benefits for retirees who already receive Medicare through the federal government. Rather than administer these additional benefits for company retirees over 65, IBM will direct former employees to a Medicare-specific insurance exchange, or marketplace, and subsidize the cost of this extra coverage. Retirees will have to participate in choosing their supplemental plans, but will ultimately have more options, according to IBM. Time Warner, the parent company of TIME, will give retired employees too young to qualify for Medicare subsidies in order to purchase coverage on their own through private exchanges that are separate from the public insurance exchanges that will open Oct. 1 as part of the ACA.

Will “the Bros” Buy Insurance in 2014? If Your Son (or Boyfriend) is Uninsured, Please Send Him This Post -- Some young men say they never go to the doctor. Why, they ask, should they buy into Obamacare? Obamacare saboteurs are urging them to boycott the state marketplaces (a.k.a. the “Exchanges”) where people who don’t have health benefits at work will be able to buy their own insurance. What reform’s opponent don’t tell them is that under Obamacare, a 25-year-old waiter who lives in North Los Angeles and earns $17,200 a year will be able to purchase coverage from one of the state’s highest-rated insurers, Kaiser Permanente, for just $33 a month. How can this be? One word: “Subsidies.” Next year some 11 million young adults (18-34) who are now either uninsured or buying their own (usually bare-bones) insurance will be able to purchase excellent coverage in the Exchanges. Since some 9 million of the 11 million earn less than $45,960 a year ($62,040 for a couple) they will be eligible for tax credits to help cover the premiums. Fully 96% of the youngest (21-27) will qualify for subsidies, says Linda Blumberg, a health policy analyst at the bipartisan Urban Institute. Now that states have begun to announce the rates insurers will be charging in their marketplaces, we can move past speculation to discuss what young adults in particular cities actually will be paying, after applying those tax credits.Fear-mongers should blush.

Picturing the Winners and Losers from Obamacare - Paul Krugman  -- Jonathan Cohn has a useful, comprehensive summary of what we now know about premiums under Obamacare, and does a very good job of keeping his temper in the face of the obscurantists. As I read it, however, I found myself hankering for a simple way to characterize what’s going on. So I’d like to throw out a stylized diagram, which looks like this: Remember the three-legged stool: the same policies available to everyone, regardless of preexisting conditions, the mandate, so that almost everyone (we hope) joins the risk pool, and subsidies to make insurance affordable to those with lower incomes. Who loses under this system — that is, who is better off with the present non-system? Well, if you’re very healthy you might be able to get a cheap policy now, or feel reasonably secure going without insurance. Under Obamacare, someone blessed with good health might find his (or, more rarely, her) premiums going up, and if he’s wealthy as well as healthy he might not get much if anything in the way of subsidies (and if he’s very wealthy he’ll face new taxes). So we’ve know all along that there were going to be at least some people in the northeast corner of my box, doing worse under the new system. The question has always been, how many?

AFL-CIO nearing formal criticism of ObamaCare -  Unions, after a contentious and difficult process, are on the cusp of issuing formal criticism of ObamaCare at the AFL-CIO convention. The AFL-CIO Executive Council is expected to consider a resolution, subject to fierce internal debate, that will call for changes to the Affordable Care Act (ACA) — setting up a potential floor vote this Wednesday before the convention closes. Frustration has grown within labor as the Obama administration has failed to offer a fix to temper union worries over the law. A copy of the draft resolution, obtained by The Hill, praises aspects of ObamaCare and states that the AFL-CIO supports the law’s goal of providing healthcare coverage for all. But the four-page document lays out a laundry list of complaints against ObamaCare — at times taking aim at the administration. The draft resolution says that “federal agencies administering the ACA” are “threatening the ability of workers to keep health care coverage through some collectively bargained, non-profit health care funds” under their interpretation of the law. In addition, the resolution claims “some workers might not be able to keep their coverage,” and the law will be “highly disruptive” to union members’ health plans, known as multi-employer or Taft-Hartley plans. ObamaCare “will effectively use taxpayer dollars to subsidize employers that refuse to take responsibility for providing their employees health care” while taxing nonprofit plans to benefit insurance companies.

Okay, What Is It About This That I’m Not Understanding? -  Beverly Mann - Union leaders note that under the law, workers whose family income is less than four times the poverty line will qualify for subsidies in the form of tax credits to obtain health insurance in the exchanges, with insurance sold by for-profit, nonprofit and cooperative companies. The union leaders say they want similar treatment — “We just want to be treated like equals — we don’t want special treatment,” Mr. Taylor said. “An employer will say, ‘O.K., your plan costs about $10,000 a year. Let me get this straight. I only pay a $2,000 penalty if I drop you. That’s an $8,000 saving for me.’ That’s actually going to happen all over this country.” Unions’ Misgivings on Health Law Burst Into View, Because of Obamacare, an employer will say, “O.K., your plan costs about $10,000 a year. Let me get this straight. I only pay a $2,000 penalty if I drop you. That’s an $8,000 saving for me.”? That’s actually going to happen all over this country?Why, then, haven’t those employers said years ago, “O.K., your plan costs about $10,000 a year. Let me get this straight. If I drop your plan, that’s a $10,000 saving for me.”? Why hasn’t this actually been happening all over this country, for years?Well, it has, of course, except when union contracts prevent it, or where the employer thinks healthcare insurance is a benefit that it makes economic sense to provide as part of employee compensation–a tax-exempt part.Why is it suddenly more attractive to these companies to save $8,000 a year per employee than it has been for those companies to save $10,000 a year per employee? C’mon, y’all.  Explain this to me.  What is it about this issue that I’m not understanding?

The President Lied To Me – Affordable Care Act Edition - Kid Dynamite - I want to get a few important things out of the way up front:  I think the problem with debate and discussion around important National issues these days gets skewered by dogma and partisan political barking.    Rather than relying on pragmatic approaches, people tend to spout dogmatic rhetoric which is sharply demarcated along party lines.   I prefer pragmatism to dogmatism.  I am a registered Independent.   I am not anti-Obama – until he lies to me – which brings me to the topic of this post. I am not a scholar of National Healthcare systems.     I rely on my own experiences with our health insurance system to form my views: pragmatically.   I’m not anti-ACA or pro-ACA because of some partisan dogma that I hold. Recently, I wrote that our health insurance system needs reform, and that I thought the Affordable Care Act couldn’t possibly make our current system worse.   I believe that I was mistaken. Does anyone remember this key promise from The President? That whole “you can keep your plan – you can keep your doctor” foundation that was used to “sell” the Affordable Care Act to the American People?  To me, that’s a pretty important foundation for this reform:  the whole point is to add options for those who need it, while maintaining current choices for those who don’t wish to make a change. Well guess what – I’m finding out in a hurry that this core foundation of my support for Obamacare was a fantasy.   I – the individual healthcare purchaser (in New Hampshire) – am about to get royally screwed.    New Hampshire residents who purchase their own health insurance basically have one option:  Anthem.   The Marketplace under the Affordable Care Act will also only have one provider option:  Anthem.   

Unions Look to Extort an Obamacare Handout -  Wednesday's move by the AFL-CIO to demand more generous benefits from Obamacare is a puzzling thing. The law is under attack from Republicans in Congress, at least half the states and the relentless march of crushing deadlines. So the country's largest labor group naturally decided the time was ripe to make things worse. As Bloomberg News' Jim Efstathiou Jr. reports, the AFL-CIO's members passed a resolution calling for its members to be eligible for the same federal subsidies that Obamacare will extend to those who don't get insurance from their employers. Currently, those subsidies are only available for people who buy coverage on the insurance exchanges created by the law. The AFL-CIO and various outside experts argue that some employers will stop offering coverage because of the law, pushing workers into the exchanges, where coverage may be more expensive. Extending the exchange subsidies to union members may reduce pressure to drop coverage, or so the argument goes. That's true, up to that point: Using federal tax dollars to make employer-sponsored health insurance cheaper could shift costs away from the employer, and if that means workers get to keep better plans than what's available on the exchange, they win too.

Unions Denied Bid for Tax Break Under Obama Health Law - The U.S. government has denied a request from U.S. labor organizations to allow workers covered by an employer-sponsored plan to claim a tax credit under President Barack Obama’s signature health-care law. The move marks a setback for the AFL-CIO, the nation’s largest health federation, which earlier this week called for classifying multiemployer health plans run by labor in a way that would make members eligible for the tax break. The AFL-CIO, a staunch political ally of the president, endorsed the Affordable Care Act when it was enacted in 2010. The administration’s move was described in a letter yesterday from the Treasury Department to Senator Orrin Hatch of Utah, the top Republican on the Senate Finance Committee. Hatch, who released a copy of the letter, had sought information from the agency on whether workers who get health insurance from an employer would qualify for the break. “An individual who is sponsored by an eligible employer-sponsored plan would not be eligible to receive a premium credit,” according to the letter, signed by Alastair M. Fitzpayne, assistant Treasury secretary for legislative affairs. That conclusion applies to whether a worker is covered by “a single-employer plan or a multiemployer plan.” Before the letter to Hatch was made public, Obama met yesterday at the White House with union leaders including AFL-CIO President Richard Trumka. On Sept. 11, at the end of its quadrennial convention in Los Angeles, Trumka’s group approved a resolution urging changes to the health law

Taft-Hartley Plans Have No Legal Way To Be Eligible For Obamacare Subsidies: White House Official - A brewing point of health care contention between labor unions and the Obama administration appears to be coming to a head.The central issue at hand surrounds Taft-Hartley plans -- a non-profit collectively-bargained health care benefit that is maintained by multiple employers (often within the same industry) and the associated labor union.  On Friday, a White House official said the Treasury Department has crafted a letter explaining how it "does not see a legal way" for Taft-Hartley planholders to receive tax credits from the Affordable Care Act marketplace, along with the previously-afforded benefit of tax breaks attached to employer-provided health insurance. The official also stressed that the administration would work with affected individuals and employers to find options through the Obamacare marketplaces.

Obamacare Could Be a Fraudsters’ Free-For-All -Have any idea where to find a health insurance exchange? Up to speed on what a healthcare “navigator” is? Know whether you'll need a new government-issued ID card to qualify for Obamacare when it goes live on October 1?Scam artists hope you're as clueless as possible, because they're counting on widespread confusion about the Affordable Care Act to tap fresh opportunities for milking the unwary. Scams are nothing new, but three factors make the Affordable Care Act a uniquely rich opportunity. First, the law affects nearly every American in some way, since it requires most people to have health care coverage. Second, it won’t be standardized nationwide, the way Medicare and Social Security are, since states have the freedom to administer the law in different ways. Third, the law is brutally complex, which has sown confusion even among health care experts. The result is a sweeping new law that’s shrouded in confusion and varies based on where you live, which is an invitation for abuse.The proper response to fraudulent marketing, of course, is to hang up, delete or slam the door and then contact the FTC.  But Obamacare comes with a few wrinkles that make it a bit harder to tell who’s legit and who’s bogus. The law, for instance, requires each health-insurance exchange to develop a network of “navigators” whose role is “to educate the public about qualified health plans, distribute information on enrollment and tax credits, facilitate enrollment, and provide referrals on grievances, complaints, or questions.” Among other things, navigators will make sure people know they need insurance, and help enroll them in Obamacare if necessary.

Warming Climate Begins to Taint Europe's Blood - A whole new set of ungovernable pathogens are being loosed on the world's blood supplies. A warming climate has allowed blood-borne tropical diseases to flourish where once they were unheard of, and they're getting around. Hospitals and blood banks now routinely screen potential donors for HIV and hepatitis in order to keep these diseases from accidentally finding their way into patients. But recent outbreaks of diseases such as West Nile fever, dengue fever and malaria -- all carried by mosquitoes -- have posed new problems for the health of European blood banks. During the summer heat wave of 2010, when global average temperatures reached a 30-year high, an outbreak of West Nile fever erupted in southeastern Europe. The first cases were in Greece, where 261 cases and 32 deaths were reported. Although West Nile virus had been seen in animals, these were the first reported cases in humans. Additional cases were reported in Romania, Hungary and parts of Russia. In total, there were 900 confirmed cases. Europe also saw its first case of nonimported dengue fever in 2010, when a local case was reported in southern France. More than 1,000 cases of the disease are brought into Europe every year from areas where it's endemic, usually by migrants or visitors predominantly from urban areas in Asia and South America.

GMO corn failing to protect fields from pests -report(Reuters) - Researchers in the key corn-growing state of Illinois are finding significant damage from rootworms in farm fields planted in a rotation with a genetically modified corn, a combination of measures that are supposed to protect the crop from the pests, according to a new report. "It's very alarming," said Joe Spencer, an insect behaviorist with the Illinois Natural History Survey who is researching the issue. Evidence gathered from fields in two Illinois counties suggests that pest problems are mounting as the rootworms grow ever more resistant to efforts to fight them, including crop rotation combined with use of the biotech corn, according to the report issued by Michael Gray, a professor of crop sciences at the University of Illinois, in conjunction with Spencer. Farmers across "a wide swath of Illinois" could face formidable challenges protecting corn crops from the hungry insects,. The crop damage was found in fields where the specialized biotech corn had been planted in a rotation following soybeans, a practice that typically helps beat back the rootworm problems as western corn rootworm adults typically lay eggs in cornfields and not in soybean fields. But a large number of adult western corn rootworms were collected in both the damaged corn fields and from adjacent soybean fields. And they appear to also be resistant to the biotech corn, a double whammy for farmers.

Pests plague GMO corn — and Monsanto - Corn growers in Illinois are finding significant damage from rootworms in fields planted with genetically modified corn designed by Monsanto to protect the crop from the pests. Rootworms are growing resistant to the GMO corn and the pattern of crop rotation typically used to combat them, according to a recent report. "It looked like continuous corn and use of the same trait year after year is what produced resistant beetles," Joe Spencer, an insect behaviorist with the Illinois Natural History Survey, told Reuters. Monsanto introduced the genetically modified corn in 2003. Company spokesman Jeffrey Neu told Reuters Monsanto was working with farmers in Illinois to address the problem.

Resource: A Panel of Scientists and Experts Assess the Subject of Genetically Engineered Crops - Pamela Ronald, UC Davis Plant Pathology and Genome Center Professor, wrote “Buddhist Economics and a GMO rethink” which was published online by Scientific American last week. In her article, she informed us of a forum hosted by the Boston Review Magazine comprised of a virtual group of journalists, activists, plant biologists, and farmers, as well as academic experts in food security and international agricultural and environmental policy, that were invited to discuss the role of genetic engineering in crops and food production. Of the panel, she said, “All accepted the broad scientific consensus that the process of GE does not pose inherent risks compared to conventional approaches of genetic alteration and that the GE crops currently on the market are safe to eat and safe for the environment. That agreement allowed the discussion to move forward to a more societally relevant issue- the use of appropriate technology in agriculture.”The Boston Review Forum was titled, “The Truth About GMOs.” Together, these articles provide a good round-up of up-to-date points from knowledgeable experts surrounding the genetic modification debate. In this post, I shall provide links to each of the panelists at the Boston Review along with a key idea they brought to the discussion. I encourage you to read each of the articles, as they contain much more than what I’ve touched on here in this post.

Government rejects the science behind neonicotinoid ban - The government says it accepts the EU ban on the use of some pesticides linked to bee deaths, but it rejects the science behind the moratorium. In a response to the Environmental Audit Committee, the government does not acknowledge the case for a ban on these chemicals for gardeners.  The Committee says they are disappointed with this approach. The National Farmers Union says the government view is "balanced and sensible". Last April, the European Commission agreed to a EU wide ban for two years from December on some neonicotinoid chemicals, used on crops attractive to bees. While there has been scientific division on the impact of these pesticides on bees, the British government strongly opposed the plans. The House of Commons Environmental Audit Committee (EAC) criticised the government's approach in their report earlier this year. The government now says that they accept the ban but not the science behind it.

Taxpayers Turn U.S. Farmers Into Fat Cats With Subsidies - A Depression-era program intended to save American farmers from ruin has grown into a 21st-century crutch enabling affluent growers and financial institutions to thrive at taxpayer expense. Federal crop insurance encourages farmers to gamble on risky plantings in a program that has been marred by fraud and that illustrates why government spending is so difficult to control.And the cost is increasing. The U.S. Department of Agriculture last year spent about $14 billion insuring farmers against the loss of crop or income, almost seven times more than in fiscal 2000, according to the Congressional Research Service. The arrangement is a good deal for everyone but taxpayers. The government pays 18 approved insurance companies to run the program, pays farmers to buy coverage and pays the bills if losses exceed predetermined limits. President Barack Obama sought this year to cut almost $12 billion from the program over the next decade while his ideological opposite, Republican House Budget Committee Chairman Paul Ryan, has called subsidized insurance “crony capitalism.” Yet the president and the Republicans’ chief budget expert are no match for the farm and insurance lobbies, which spent at least $52 million influencing lawmakers in the 2012 election cycle.

The Folks Who Sell Your Corn Flakes are Acting Like Goldman Sachs—and That Should Worry You - In July, the public learned that Goldman Sachs and several other large banks have morphed into giant merchants of physical goods, routinely shipping oil, running power plants, and amassing stocks of metals so large that Coca Cola accused them of hoarding. It was a disconcerting moment, as regulators realized that firms so recently known for their explosive mortgage-backed securities also deal in goods that can literally explode. These activities mean that banks supplying credit to businesses in the real economy were now also competing with them, opening up a Pandora’s box of perverse incentives and risks. Since the revelations, officials have cracked down, and the banks say they have moved to discard some of these mines and warehouses, returning to more traditional forms of banking.  But that was only half the story. What lawmakers and regulators missed is that it isn’t only the banks that have shifted shape. Over the last decade, some of the world’s biggest traditional traders in grains, oil, and metals have quietly taken on many attributes of banks—running billion-dollar hedge funds, launching private equity arms, and selling derivatives to clients. These businesses enable trading firms to tie up large sums of money in bets and profit off insider information. Unlike the banks, these companies have escaped regulatory scrutiny—even though experts say they present similar hazards.

Global Warming’s Missing Heat: Look Back In Anger (and considerable disbelief)…Probably the most frustrating argument on climate science in the public discourse is about the hiatus in surface temperature rise, and the failure of the models to predict it. The persistent hyperbole, the seeming logic validated largely by a disregard for some basic laws of physics, is merely a prelude to the frenzy that the next IPCC report (AR5) is likely to fuel. There are trying times ahead. To better gird ourselves before the onslaught, it seems like a good time to review another important report, which speaks very clearly to the current arguments about the rate of global warming and the accuracy of the climate models. Here’s a taster from the foreword: “If carbon dioxide continues to increase, the study group finds no reason to doubt that climate changes will result and no reason to believe that these changes will be negligible. The conclusions of prior studies have been generally reaffirmed. However, the study group points out that the ocean, the great and ponderous flywheel of the global climate system, may be expected to slow the course of observable climatic change. A wait-and-see policy may mean waiting until it is too late”. And then we come to the part so relevant to topical argument: “One of the major uncertainties has to do with the transfer of the increased heat into the oceans. It is well known that the oceans are a thermal regulator, warming the air in winter and cooling it in summer. The standard assumption has been that, while heat is transferred rapidly into a relatively thin, well- mixed surface layer of the ocean (averaging about 70 m in depth), the trans­fer into the deeper waters is so slow that the atmospheric temperature reaches effective equilibrium with the mixed layer in a decade or so…It seems to us quite possible that the capacity of the deeper oceans to absorb heat has been seriously underestimated, especially that of the intermediate waters of the subtropical gyres lying below the mixed layer and above the main thermo­cline. If this is so, warming will proceed at a slower rate until these inter­mediate waters are brought to a temperature at which they can no longer absorb heat.

Summer 2013 weather extremes tied to extraordinarily unusual polar jet stream For at least the past one or two decades the adjective extreme has increasingly become used in describing unusual weather. It’s virtually impossible now to escape news of extreme drought, excessive rainfall and floods, record breaking heat waves, cool spells and severe weather outbreaks, etc. which seem to recur year after year around the Northern Hemisphere. This summer was no different except that the behavior and configuration of the polar jet stream, the river of high altitude winds marking the divide between warm and cool air, were rare and mind-boggling. Instead of meandering as a single stream like it normally does, it transformed into a “dual” jet stream configuration, sometimes transitioning from this dual setup back into a single more coherent stream, back and forth. The rarity of dual polar jets was highlighted by Professor John Nielsen-Gammon in an article in Popular Mechanics. He pointed out they are something one might see once per decade. From an independent assessment myself, it appears that there are no other polar jet examples comparable to this summer at least as far back as 2000 (the furthest back I’ve looked). Mostly, the perplexing behavior of the polar jet has been described in befuddling terminology such as weird, mangled, and wobbly. Some have described the jet in a state of disarray, not playing by the so-called rules. Jeff Masters said that in his 30 years doing meteorology, the jet stream has been doing things he’s not seen before. What follows is a rather technical discussion of how this jet stream pattern evolved and some of the weather characteristics associated with it. Although some terms may not be familiar, the included parenthetical notes and illustrations should help guide you along.

Global cooling: Arctic ice caps grows by 60% against global warming predictions | Mail Online: A chilly Arctic summer has left nearly a million more square miles of ocean covered with ice than at the same time last year – an increase of 60 per cent.The rebound from 2012’s record low comes six years after the BBC reported that global warming would leave the Arctic ice-free in summer by 2013.Instead, days before the annual autumn re-freeze is due to begin, an unbroken ice sheet more than half the size of Europe already stretches from the Canadian islands to Russia’s northern shores.The Northwest Passage from the Atlantic to the Pacific has remained blocked by pack-ice all year. More than 20 yachts that had planned to sail it have been left ice-bound and a cruise ship attempting the route was forced to turn back. Some eminent scientists now believe the world is heading for a period of cooling that will not end until the middle of this century – a process that would expose computer forecasts of imminent catastrophic warming as dangerously misleading. The disclosure comes 11 months after The Mail on Sunday triggered intense political and scientific debate by revealing that global warming has ‘paused’ since the beginning of 1997 – an event that the computer models used by climate experts failed to predict.

Daily Mail Lies! No 60% recovery in Arctic sea ice, no expectation of global cooling- September Arctic sea ice extent data since 1980 from the National Snow and Ice Data Center (blue diamonds).  "Recovery" years, meaning years when the sea ice extent is greater than the previous year, are highlighted in red to mock the repeated cynical claims of climate change "skeptics" that global warming has somehow stopped.  Many factors affect the annual summer decrease in Arctic sea ice extent, and it is illogical at best to claim any "trend" by cherry-picking only brief periods of data.  The obvious true long-term trend in Arctic sea ice extent (red second-order polynomial curve fit) is that it is declining at an accelerating rate.

Arctic sea ice delusions strike the Mail on Sunday and Telegraph - When it comes to climate science reporting, the Mail on Sunday and Telegraph are only reliable in the sense that you can rely on them to usually get the science wrong. This weekend's Arctic sea ice articles from David Rose of the Mail and Hayley Dixon at the Telegraph unfortunately fit that pattern. Both articles claimed that Arctic sea ice extent grew 60 percent in August 2013 as compared to August 2012. While this factoid may be technically true (though the 60 percent figure appears to be an exaggeration), it's also largely irrelevant. For one thing, the annual Arctic sea ice minimum occurs in September – we're not there yet. And while this year's minimum extent will certainly be higher than last year's, that's not the least bit surprising. As University of Reading climate scientist Ed Hawkins noted last year,"Around 80% of the ~100 scientists at the Bjerknes [Arctic climate science] conference thought that there would be MORE Arctic sea-ice in 2013, compared to 2012." The reason so many climate scientists predicted more ice this year than last is quite simple. There's a principle in statistics known as "regression toward the mean," which is the phenomenon that if an extreme value of a variable is observed, the next measurement will generally be less extreme. The amount of Arctic sea ice left at the end of the annual melt season is mainly determined by two factors – natural variability (weather patterns and ocean cycles), and human-caused global warming. The Arctic has lost 75 percent of its summer sea ice volume over the past three decades primarily due to human-caused global warming, but in any given year the weather can act to either preserve more or melt more sea ice. Last year the weather helped melt more ice, while this year the weather helped preserve more ice.

Arctic Death Spiral: CryoSat Reveals Decline In Arctic Sea Ice Volume Continues -Arctic sea ice volume collapsed from 1979 to 2012, several decades ahead of what the climate models had predicted. Now new data from the European Space Agency’s CryoSat satellite has revealed that this ice volume trend continued through the spring of 2013:Recent changes in spring ice thickness as measured by CryoSat. University of Leeds Prof. Andrew Shepherd explains:“CryoSat continues to provide clear evidence of diminishing Arctic sea ice…. there has been a decrease in the volume of winter and summer ice over the past three years.“The volume of the sea ice at the end of last winter was less than 15 000 cubic km, which is lower than any other year going into summer and indicates less winter growth than usual.

Carbon Inequality: Just One Percent Of U.S. Power Plants Produce 12 Percent Of U.S. Carbon Emissions - Inequality isn’t just a matter of income: it plays out in carbon pollution as well. It turns out a mere one percent of U.S. power plants account for over 12 percent of all U.S. carbon emissions — and for about 30 percent of U.S. power sector emissions. That’s from a new report by Environment America, which highlights just how much sheer age and inertia have added to U.S. carbon pollution. That one percent is actually 50 plants, all of them coal-fired. In fact, America’s single dirtiest power plant — Georgia Power’s Plant Scherer — dumped over 21 million metric tons (MMT) of carbon dioxide into the atmosphere in 2011. That’s more than all the energy-related emissions produced by the state of Maine that year.And the disproportionate contribution of the dirtiest plants to greenhouse gas emissions continues on down the scale: in 2011, half of all the power sector’s carbon emissions came from the 100 dirtiest plants (98 of which are coal-fired). And 90 percent of all those emissions came from just the 500 dirtiest power plants. That’s out of almost 6,000 electricity generating facilities — renewable and fossil-fuel-powered alike — in the country.

These Gigantic Companies Have The World’s Worst Carbon Emissions - Just fifty companies are responsible for producing 73 percent of the total carbon emitted by the largest 500 corporations on the planet, according to a new report released Wednesday. Those companies have done little to reduce their carbon footprints, and have actually seen their carbon emissions rise over the last four years. Released by PricewaterhouseCoopers, the report calculates the carbon emissions of various corporations by industry: Wal Mart emits the most carbon for unit of revenue in the ‘consumer staples’ industry, Carnival in the ‘consumer discretionary’ industry, Exxon-Mobil in the energy industry, Bank of America in ‘financial,’ Bayer in ‘healthcare,’ Samsung in ‘information technology,’ Verizon in the ‘telecommunications.’ The report also indicates that energy companies hold the largest share of the blame for a bleak sustainability outlook. They perform below average on three different measures of sustainability practices: Emissions performance, strategy, and what the authors call “verification / stakeholder engagement.” (Utility companies, by comparison, perform above average on every one of these measures.) The report adds that energy companies are also doing the least to change their carbon emissions practices: With one of the highest overall emissions of all sectors – the [Energy] sector is responsible for 28.3% of total reported Global 500 scope 1 and 2 emissions – efforts to reduce emissions in the energy sector are essential to the global mitigation of climate change. However, 50% of energy companies have a performance band of C or lower. Since 2009, the overall emissions of the ten biggest emitters in the sector have increased by 53%. The sector also has the highest number of companies without emission reduction targets (24%), which companies justify by concerns that targets would constrain growth in their companies and in the wider economy.

E.P.A. Is Expected to Set Limits on Greenhouse Gas Emissions by New Power Plants - Following up on President Obama’s pledge in June to address climate change, the Environmental Protection Agency plans next week to propose the first-ever limits on greenhouse gas emissions from newly built power plants. But even before the proposal becomes public, experts on both sides of the issue say it faces a lobbying donnybrook and an all-but-certain court challenge. For a vast and politically powerful swath of the utility industry — operators of coal-fired plants, and the coal fields that supply them — there are fears that the rules would effectively doom construction of new coal plants far into the future. While details of the E.P.A.’s proposal remain confidential, experts predict that it will include separate standards for carbon dioxide emissions from plants fired by natural gas and by coal. Plants using comparatively clean gas would be permitted to emit perhaps 1,000 pounds of carbon dioxide per megawatt-hour, a ceiling within easy reach using modern technologies. Coal-fired plants, meanwhile, may be allowed to emit as many as 1,400 pounds per megawatt-hour. But coal is so heavily laden with carbon that meeting even that higher limit would require operators to scrub carbon dioxide from their emissions before they reach the smokestack, and then pump it into permanent storage underground.

High Costs and Errors of German Transition to Renewable Energy - SPIEGEL - If you want to do something big, you have to start small. That's something German Environment Minister Peter Altmaier knows all too well. The politician has put together a manual of practical tips on how everyone can make small, everyday contributions to the shift away from nuclear power and toward green energy. The so-called Energiewende, or energy revolution, is Chancellor Angela Merkel's project of the century."Join in and start today," Altmaier writes in the introduction. He then turns to such everyday activities as baking and cooking. "Avoid preheating and utilize residual heat," Altmaier advises. TV viewers can also save a lot of electricity, albeit at the expense of picture quality. "For instance, you can reduce brightness and contrast," his booklet suggests.Altmaier and others are on a mission to help people save money on their electricity bills, because they're about to receive some bad news. The government predicts that the renewable energy surcharge added to every consumer's electricity bill will increase from 5.3 cents today to between 6.2 and 6.5 cents per kilowatt hour -- a 20-percent price hike. German consumers already pay the highest electricity prices in Europe. But because the government is failing to get the costs of its new energy policy under control, rising prices are already on the horizon. Electricity is becoming a luxury good in Germany, and one of the country's most important future-oriented projects is acutely at risk.

Romantic Germany risks economic decline as green dream spoils - Telegraph: Germany is committing slow economic suicide. It has staked its future on heavy industry and manufacturing, yet has no energy policy to back this up. Instead, the country has a ruinously expensive green dream, priced at €700bn (£590bn) from now until the late 2030s by environment minister Peter Altmaier if costs are slashed - and €1 trillion if they are not. The Germans are surely the most romantic nation on earth. The full implications of this may become clear over the next decade, just as Germany’s ageing crisis hits with maximum force and its engineers retire; and just as German voters discover - what they suspect already - that it costs real money to hold a half-baked euro together. The likelihood is that Germany will start to lose its economic halo soon, “de-rated” like others before it. America was over-rated in 2000. Russia and Britain were over-rated in 2007. Brazil, India and a string of mini-BRICS were over-rated in 2011. Today the country most obviously trading at its cyclical peak is Germany, a geostrategic “short” candidate that is drawing down its credit from past efforts. However, the slippage may be slow, since Germany has locked in a lasting edge over southern Europe through a fixed exchange rate. Chancellor Angela Merkel tied a deadweight around the ankles of her country when she suddenly - and flippantly - abandoned her nuclear policy after Japan’s Fukushima disaster in 2011. “This has forever changed the way we define risk,” she said at the time. “It’s over.”

Tritium levels spike at stricken Fukushima nuclear plant | Reuters: (Reuters) - The operator of the wrecked Fukushima nuclear plant said levels of tritium - considered one of the least harmful radioactive elements - spiked more than 15 times in groundwater near a leaked tank at the facility over three days this week. Tokyo Electric Power Co (Tepco) said tritium levels in water taken from a well close to a number of storage tanks holding irradiated water rose to 64,000 becquerels per liter on Tuesday from 4,200 becquerels/liter at the same location on Sunday. Tepco said last month that 300 metric tons of highly radioactive water leaked from one of the hastily built steel tanks at the plant, which was crippled by a massive earthquake and tsunami in March 2011. A Tepco representative told reporters on Wednesday the company was investigating the high tritium reading and could not rule out the possibility that last month's leak had contaminated the groundwater. The elevated readings of radioactive elements at the plant come just days after Japan's Prime Minister Shinzo Abe told the International Olympic Committee that the situation at the Fukushima facility, 230 km (140 miles) from Tokyo, was "under control", with contamination limited to the area immediately surrounding the plant. Tokyo was chosen over the weekend to host the 2020 Olympic Games. Tritium, which has a half-life of around 12 years, is less harmful to humans than cesium and strontium. A becquerel is a measure of the release of radioactive energy.

Tritium Levels At Fukushima Surge To New Highs - As if the "developed" world did not have enough things to worry about, moments ago VOA's Steve Herman reported that the radioactive problem in Japan, the country hosting the 2020 summer olympics, continues to deteriorate uncontrollably, and citing Jiji, said that Tepco revealed tritium levels in the Fukushima groundwater have just surged to a new high. From Jiji, google translated:A problem radioactive contamination water leaks in large quantities from a storage tank of TEPCO Fukushima Daiichi nuclear power plant, the 12th, from underground water collected on the 11th in observation wells that were dug near the leak location, radioactive tritium TEPCO (triple It was announced today that it has been 97 000 becquerels per liter detection of hydrogen). Compared with values ??when measured groundwater same location on the 10th, then increased to about 1.5 times, and highs tritium concentration in groundwater was collected in this vicinity leakage after.Which perhaps may explain why a few hours ago, an official PR statement was released exonerating Japan of any evil, and promising that Fukushima is "Not a Threat" to the 2020 Tokyo Olympics: Japan's reputation as a 'safe pair of hands' gave it the edge to win the race to host the 2020 Tokyo Olympics and Paralympics. The decision immediately boosted investor confidence - despite the ongoing Fukushima nuclear crisis.'Japanese Prime Minister Shinzo Abe assured the International Olympic Committee that the Fukushima leak was not a threat to Tokyo and took personal responsibility for keeping it safe,'

TEPCO Official Admits Fukushima "Out Of Control" - A month ago, when we quoted an independent expert that "TEPCO has lost control of Fukushima" many took offense, despite all signs to the contrary. Perhaps the skeptics will reevaluate their position following today's news reported by AFP, which cited Kazuhiko Yamashita, who holds the executive-level title of "fellow" at Tokyo Electric Power, who finally admitted what those not mired in prejudice about the state of nuclear energy refuse to accept, that the nuclear plant was "not under control." This promptly led to the government, which last weekend learned it would host the 2020 Olympics and promised that Fukushima would not be a concern by then, to scramble and "reassure people on Friday that they have a lid on Fukushima." Unfortunately, the lies, like the radiation in the plant, are now finally seeping through and more are becoming fully aware of just how serious the catastrophe truly is, and drove yet another steak through the heart of the official narrative by Prime Minister Abe as they "flatly contradict" his assurances. AFP elaborates: In a meeting with members of the opposition Democratic Party of Japan, Yamashita was asked whether he agreed that "the situation is under control" as Abe had declared at the International Olympic Committee meeting in Buenos Aires. He responded by saying, "I think the current situation is that it is not under control," according to major media, including national broadcaster NHK.

Charged With Illegally Dumping Polluted Fracking Fluid, Exxon Claims ‘No Lasting Environmental Impact’ -- Pennsylvania’s Attorney General has filed criminal charges against ExxonMobil for illegally dumping tens of thousands of gallons of hydraulic fracturing waste at a drilling site in 2010. The Exxon subsidiary, XTO Energy, had removed a plug from a wastewater tank, leading to 57,000 gallons of contaminated water spilling into the soil. The Exxon subsidiary has contested the criminal charges, claiming there was “no lasting environmental impact,” and it can “discourage good environmental practices” from guilty companies. “The action tells oil and gas operators that setting up infrastructure to recycle produced water exposes them to the risk of significant legal and financial penalties should a small release occur.” In July, XTO had agreed to several fines, including $20 million to improve its facilities treating wastewater. The company’s response raises one good point about fracking practices: How much to disclose to the public is a largely self-regulated practice.Thanks to laws pushed by corporate front groups like American Legislative Exchange Council, sponsored by ExxonMobil, states have allowed minimum disclosure of the chemicals used in fracking fluid. Pennsylvania now requires disclosure to regulators; however, it has a “gag rule” on the health risks. Meanwhile, a July study found that the closer residents live to wells used in fracking, the more likely drinking water is contaminated, with 115 of 141 wells found to contain methane.

The Failure of Fracking - Betting Our Futures on Well Bore Integrity - As a geoscientist with nearly three decades of experience in the oil industry, I have been watching the debate on fracking (or as we called it, "fracing") with great interest.  After a recent discussion with someone who stated that there had never been a blowout related to fracking like there was on BP's Macondo well, I thought that it was time to help explain exactly what fracking is and where the potential problems lie from a geoscientific viewpoint.  Fracking is a production enhancement technique that has been in use for decades in low permeability reservoirs.  Twenty years ago (or even less), fracking involved pumping what we considered to be large volumes of sand or gel (the material that would help connect the pores) in a semi-fluid state under high pressures through holes that were perforated in the production casing.  This "cracked" the rock and, after the fluids that contained the sand flowed back out of the hole, the sand (the proppant) was left behind in the formation, enhancing the permeability.  Many of us have heard of the unfortunate souls that live in areas where fracking is now commonplace (i.e. Pennsylvania, parts of southern Alberta etcetera) that find themselves with tap water that is contaminated with natural gas as shown here:  When the oil industry drills a borehole to depth, as you can imagine, the sides of the borehole are very unstable and rock continually sloughs into the hole, causing all manner of problems.  To alleviate these problems, a long string of hollow steel production casing of varying diameters is run into the hole to the total depth of the well (or somewhere below or at the depth of the producing formation depending on the type of well).  The diameter of this casing is somewhat smaller than the diameter of the borehole; the space between the two is known as the annulus.   Once the casing is in place, cement is pumped down the casing and flows back up the well between the casing and the sides of the borehole through the annulus.   Here is a cross sectional diagram showing a completed coal bed methane gas well and its components:  So, what could possibly go wrong?  Sometimes, the cement fails to displace the drilling mud in the annulus and completely fill the void between the casing and the formation and other times it fails after a period of time.  This situation allows the formation fluids, which are under pressure because of the weight of the rock that lies on top of them, to flow through the annulus to the surface where the air pressure is far lower.  It is this exact situation that can result in contamination of near surface aquifers even when hydrocarbon-producing formations are many thousands of feet below the source of groundwater.

China: #1 in Shale Gas Reserves, Paltry Production -Much has been made of the United States growing energy independence as it taps shale gas reserves at home. However, the US is far from the only country with a lot of shale gas reserves. China purportedly has the most, but it has been quite slow in tapping these reserves. The numbers tell the story of China's backwardness: Beijing has struggled to find a way to emulate the frenetic exploration and production activity of the shale gas boom in the United States, and the latest setback makes reaching even a modest 2015 output target of 6.5 billion cubic metres (bcm) unlikely. This is only a fraction of the 224 bcm of shale gas the United States produced in 2011, and would amount to just 6 percent of China’s total current output of natural gas. Why this sloth?  It's a combination of various things, with less readily accessible reserves and uncertain land ownership featuring large:  The region's rough terrain, poor infrastructure and deeply buried gas formations present tough technical challenges. The area is so densely populated and intensely farmed that drilling sites are being built within 360 feet of homes in villages like Maoba—upsetting residents who complain of noise, dust and environmental concerns. To ease the way, Shell and its partners are compensating local residents and local government officials for using their land and roads and other inconveniences.  You would have thought that in an authoritarian regime alike China, it's easier to excavate since the state owns more land and can evict people if it is deemed necessary, but no: it's proven easier to pay US (private) landowners for mining for shale gas. By contrast, in China you have militant residents who do not want to deal with the mess of fracking since they will not benefit directly from state-owned resources. I argue that a lot of their environmental complaints would be mitigated otherwise. Such difficulties are compounded by rudimentary infrastructure in parts of China with lots of shale and an unclear regulatory framework:

Oilprice Intelligence Report: US Natural Gas Exports Picking Up Momentum - Washington has backed down over a strike on Syria—for now—and oil prices have responded with crude oil for October delivery falling $1.01 to close on Monday this week at $109.52 a barrel in New York. Wholesale gas prices also fell 5 cents to $2.80 per gallon, and heating oil declined 5 cents to $3.12 per gallon, while natural gas rose 8 cents to $3.61 per 1,000 cubic feet. Now that we have a reprieve from Syria for the time being, we can focus on US natural gas exports, which have clearly picked up momentum in recent months.This week, the Obama administration approved the fourth liquefied natural gas project, giving the conditional green light to Dominion Resources for LNG exports from Maryland’s Western Shore. Dominion plans some $3.8 billion to revamp its Cove Point natural gas import facility into an export terminal, and has already signed 20-year contracts with importers in Japan and India for natural gas shipments. The contracts went to Japan’s Sumitomo Corp. and India’s GAIL Ltd. Dominion is eyeing next year for the start of construction and plans to have its first LNG ready for export in 2017. The company will be allowed to export 0.77 billion cubic feet of natural gas per day from the new facility.  The Department of Energy (DOE) has between over 25 applications to export LNG—some of them seeking to export at least 30 billion cubic feet a day, for which they will fetch much higher prices than at home. The US produces about 70 billion cubic feet a day of natural gas. So the competition will be stiff for these approvals.

Undercover at the Tar Sands: What It's Really Like Working for Big Oil - You can smell the oil in the air, and smog hangs across the otherwise crisp northern horizon. Drive further, and things get even worse. . Shell, Imperial Oil, Exxon, Encana, Husky, BP, Suncor Energy, CNR, Southern Pacific and Petro-Canada all have a stake in this game, and there's an estimated 170 billion barrels of crude on the line. Thousands of employees are put up in temporary housing settlements. The big "camps" have gyms and rec rooms with pool and ping pong tables; a few even have ice rinks, yoga classes and movie theaters. For the most part, though, it's all insulated aluminum-sided trailers with private sleeping quarters and communal bathrooms. The camps serving Shell's Albian Sands project and Imperial Oil's Kearl worksite are among the biggest. Shell's complex – two camps collectively known as "the Village" – is home to about 2,500 employees. Meanwhile, Imperial Oil's Wapasu camp houses more than 7,300. It even has its own airstrip to accommodate workers as they fly in and out on chartered 747s.  Wapasu is a dry camp, meaning absolutely no alcohol is allowed. Employees are bussed in and out of the fenced, guarded compound for work, and aren't allowed to leave or have visitors during off-hours. Meanwhile, all rooms are subject to search. There's nothing like coming home from a long day's work, only to find a note stating drug-sniffing dogs searched your room while you were away. Living in a camp means you get free room and board, including three substantial meals a day. But if you're not careful, the isolation and boredom can wear on you. Many of us get stuck paying inflated prices for cigarettes or smuggled-in drugs and alcohol. There are stories of late-night card games where guys bet – and lose – entire paychecks just for a rush.

The Flip Side of Obama’s Keystone XL Delay -  Steve Horn - Large segments of the environmental movement declared a win on Jan. 18, 2012, the dawn of an election year in which partisan fervor reigned supreme. On that day President Barack Obama kicked the can down the road for permitting TransCanada’s Keystone XL pipeline’s northern half until after the then-forthcoming November 2012 presidential election. “Northern half” is the key caveat: just two months later, on March 22, 2013 – even deeper into the weeds of an election year – President Obama issued Executive Order 13604. Among other key things, the order has an accompanying memorandum calling for an expedited review of the southern half of Keystone XL stretching from Cushing, Okla., to Port Arthur, Texas.The day before, March 21, Obama flew on Air Force One to a pipe yard in Cushing – the “pipeline crossroads of the world” – for a special stump speech and photo-op announcing the executive order and memorandum.Dubbed the Gulf Coast Pipeline Project by TransCanada – 95% complete and “open for business” in the first quarter of 2014 – the 485-mile tube will ship 700,000 barrels of tar sands crude per day from Cushing to Port Arthur, where it will then reach Gulf Coast refineries and be exported to the global market. It will eventually have the capacity to ship 830,000 barrels per day. The subject of a large amount of grassroots resistance from groups such as Great Plains Tar Sands Resistance and the Tar Sands Blockade, the Gulf Coast Pipeline Project – when push comes to shove – is only the tip of the iceberg.That’s because Obama’s order also called for expedited permitting and review of all domestic infrastructure projects – including but not limited to pipelines – as a reaction to the Keystone XL resistance.

No Keystone? No Problem: TransCanada Pushing Another Major Tar Sands Pipeline - With a decision regarding its proposed Keystone XL pipeline delayed indefinitely in the U.S., TransCanada Corp. has set to work promoting another major tar sands pipeline that would carry almost as much crude as Keystone. On Tuesday, the company released a study projecting that construction of the massive Energy East pipeline will result in 2,300 jobs from now through 2015 during the development phase and 7,700 jobs during the construction phase between 2016 and 2018. After the pipeline is completed, the study estimates it will support 1,000 full-time jobs.  Energy East, the most expensive pipeline in TransCanada’s history, would run from Alberta to the Atlantic seaboard, ending where a new deep-water marine terminal would be built to export the crude overseas. In early August, TransCanada said it received the long-term contracts for about 900,000 barrels of crude per day and Canadian Prime Minister Stephen Harper has already indicated his support for the project. Canadians, however, are not so sure. Many question the environmental and economic impact of a pipeline transporting crude across the entire country — with much of the product intended for consumption overseas. According to the Calgary Herald, “The mayor of Edmundston [New Brunswick] says he wants the company to guarantee the west-to-east pipeline, which could traverse his city of 16,000, won’t harm the area’s watershed.”The proposal is being met with particularly stiff opposition in Quebec, where Premier Pauline Marois has halted natural gas exploration while July’s deadly Lac-Megantic crude oil train explosion is still being cleaned up.

Harper cabinet readies major B.C. pipelines push - A parade of cabinet ministers and senior bureaucrats will head to British Columbia starting next week as part of a major push to mollify opponents of building oil pipelines to the West Coast, CBC News has learned. Prime Minister Stephen Harper is signalling he intends to make progress on proposals to connect Alberta's oilsands with ports in British Columbia and the lucrative Asian markets beyond.The new initiative is in large part a response to a report from the prime minister's special pipelines representative in British Columbia. Douglas Eyford told Harper last month that negotiations with First Nations — especially on Enbridge's proposed Northern Gateway — are a mess. Eyford's report to the prime minister, and his final report in November, will not be made public.But sources tell CBC News Eyford urged the federal government take the lead role in dealing with Indian bands on both the Gateway project and the proposed expansion of Kinder Morgan's Trans-Mountain pipeline.First Nations leaders in B.C. confirm they are to meet on Sept. 23 in Vancouver with a delegation of deputy ministers from Aboriginal Affairs, Natural Resources, Environment and other departments with direct oversight of the proposed projects.

 Energy fact of the day: US oil output surged during the first week of September to the highest level in more than 24 years - The Department of Energy reported today that US oil production for the week ending September 6 reached 7.745 million barrels per day (bpd), the highest weekly output of crude oil in the US since May 1989, more than 24 years ago (see chart above). Compared to a year ago, US oil production in the first week of September increased by more than 40%.

DoE Forecasts No Meaningful Change in Fossil Fuel Use by 2040 - What sort of fabulous new energy systems will the world possess in 2040?  Which fuels will supply the bulk of our energy needs?  And how will that change the global energy equation, international politics, and the planet’s health?  If the experts at the U.S. Department of Energy are right, the startling “new” fuels of 2040 will be oil, coal, and natural gas — and we will find ourselves on a baking, painfully uncomfortable planet. It’s true, of course, that any predictions about the fuel situation almost three decades from now aren’t likely to be reliable.  All sorts of unexpected upheavals and disasters in the years ahead make long-range predictions inherently difficult.  This has not, however, deterred the Department of Energy from producing a comprehensive portrait of the world’s future energy system.  Known as the International Energy Outlook (IEO), the assessment incorporates detailed projections of future energy production and consumption.  Although dense with statistical data and filled with technical jargon, the 2013 report provides a unique and disturbing picture of our planetary future.Admittedly, International Energy Outlook is a government product of this moment with all the limitations that implies.  It envisions the future by extrapolating from current developments.  It is not visionary.  Its authors can’t imagine energy breakthroughs that have yet to happen, or changes in world attitudes that may affect how energy is dealt with, or events like wars, environmental disasters, and global economic recessions or depressions that could alter the world’s energy situation.  Nonetheless, because it assesses current endeavors that are sure to have long-lasting repercussions, like the present massive worldwide investments in shale oil and shale gas extraction, it provides an extraordinary resource for imagining the energy crisis in our future.

Why Ecuador Abandoned Plans to Leave Fossil Fuels in the Ground and Save the Amazon  -- On Aug. 15, Ecuadorian President Rafael Correa announced his government’s abandonment of the Yasuni-ITT Initiative, the innovative attempt to reverse the economic arrangement of oil extraction in the Amazon by keeping the oil in the soil in exchange for international assistance. His words that evening were disheartening to many. They encroached on the hopes of environmentalists and indigenous rights activists in Ecuador and progressives around the world. Correa had announced on Ecuadorian state television that he was liquidating the fund for the program and that it was the world’s fault. “The world has failed us,” the fiery president declared, implying that the global community of wealthy nations, organizations and individuals rejected the unique opportunity to cooperate with the Ecuadorian government and its people to save one of the most biodiverse regions on the planet. The idea, highly touted by environmental activists and international supporters of the Correa government, as well as the government itself, was radical in the sense that it would try to provide a model for not extracting oil, while sparing the inhabitants and countless species of the forest from the invariably destructive nature of drilling. Conservation groups have pointed out that the idea for the plan came from civil society, not the government, as one might assume from press coverage.

Oil Becoming Potential Major Economic Threat -- Oil is quickly becoming a potential major threat to the economy. Oil hit resistance at the 98 level five times during the first half of 2013, finally breaking through in July.  Prices consolidated gains between the 102/104 and 108 levels over the summer. The weekly chart simply increases the upward bullish case.  The EMA picture is very bullish.  Momentum is increasing, and an increasing amount of money is flowing into the market.  Also, there is very little recent upside resistance to slow the advance.  Finally, there is the political side.  With the President putting off Syrian action until Congressional approval is given, he's made sure the Middle East will remain an object of tension for at least another weak.  This adds political uncertainty to the fire, which is also bullish for Oil's price future.

Oil Price Predictions and a Potential U.S. Strike on Syria: The specter of a US strike on Syria continues to haunt us, as talking heads debate whether the Obama administration is attempting to delay by asking for Congress’ permission, or whether it’s just hoping to have someone with whom to share the blame for an eventual strike. As it stands, lawmakers aren’t giving the idea much support. The public opposition is too high, and enough lawmakers seem to feel that supporting a strike on Syria would be tantamount to ending their careers. Throughout all of this, there is plenty of debate on what a strike on Syria would mean for oil prices, and for the economy in general. It depends who you ask—a Syrian strike could either lead to a major spike in oil prices, or the reverse. According to Forbes, “the flight of the tomahawks threatens to tank equities further, but if history is any indicator, declines should be short-lived and more of a buying opportunity than anything else. The one big thing to watch though is oil prices, which could spike and derail the tepid global economic recovery.” What would cause a spike would not be what happens in Syria, directly; rather the potential snowball effect. If Iraq—which is already the second frontline in this conflict—sees its oil infrastructure attacked, for instance, this could cause a major spike in oil prices.

Syria and the world oil market - The growing likelihood [1], [2], [3] of U.S. military action in Syria seems to be one factor in the recent sharp rise in oil prices. That is not because Syria itself is an important producer of oil. According to the EIA, the country was producing less than 370,000 barrels a day in 2010, only half a percent of the world total. Civil unrest and an embargo had brought that down to 71,000 barrels this May, less than 1/10 of 1% of global supplies. If that goes too, nobody but the Syrians will miss it. But the question is whether conflict would be neatly contained within Syria. The situation in Egypt, for example, remains quite unstable, and it would not take much to set it off again. Egypt is also a relatively minor contributor to world production. But the Suez Canal and Sumed pipeline together transport 3.5 million barrels of crude petroleum and refined petroleum products through Egypt each day, a number that would correspond to 4.6% of total world field production of crude oil.  Libya may already be tipping. The country was producing 1.9% of the world's total last May, but worker strikes and armed occupation of energy infrastructure may have brought the country's recent production down to 250,000 b/d. Iraq currently produces 4% of the world total and is a critical component in many analysts' scenario for how world production will continue to grow over the next few years (some of which extra production had been intended for planned pipelines through Syria). But dozens of people are being killed daily in Iraq's violence.

India seeks to pay Iran oil bill fully in rupees - Keen to reduce a record current account deficit (CAD) by raising oil imports from Iran, India is seeking to restart the mechanism of paying the Persian Gulf nation entirely in rupees. Iran had in July agreed to take payments for oil it sells to India entirely in rupees after US and western sanctions blocked all other payment routes. But shortly after a brief trial of the mechanism, it reverted to the old system of taking only 45 per cent of the payments due in rupees. “They had given some invoices in rupees for 100 per cent but I think lately they have stopped that. So that matter had to be further discussed,” Oil Secretary, Vivek Rae said here today. India had since July 2011 paid euros to clear 55 per cent of its purchases of Iranian oil through Ankara-based Halkbank. The remaining 45 per cent due amount was remitted in rupees in accounts Iranian oil company opened in Kolkata-based Uco Bank. Payments in euro through Turkey ceased from February 6 this year but the rupee payments for 45 per cent of the purchases continued through UCO Bank. Iran later agreed to take all of the payments in rupees.

Indian billionaires hold off mining deals on erosion of rupee Indian billionaires led by Kumar Mangalam Birla are holding off buying mines overseas as the 13 per cent drop in the rupee this year inflates the cost of deals. The Aditya Birla Group, which runs the nation’s second-biggest copper and aluminium maker, had put acquisition plans on hold, said a person with direct knowledge of the matter. JSW Steel Ltd., controlled by the billionaire Jindal family, would prefer to wait, commercial director Jayant Acharya said. Pessimistic commentary on the 13 per cent drop in the value of the rupee this year. — Reuters file pic“It won’t be easy to make decisions on merger and acquisitions in such a volatile environment,” Acharya said in an interview. “Calls need to be made in a measured manner.” Indian companies spent US$12.7 million (RM41.6 million) on mining assets abroad this year, the lowest amount since at least 2008, as the rupee’s tumble made it Asia’s second-worst performer. Companies that have refrained from overseas purchases risk facing higher import costs for raw materials should the rupee weaken further because of India’s record current-account deficit.

Tin Shortage Worsens as Indonesia Rules Curb Supply -- The tin market is poised for a fifth year of shortages as new rules in Indonesia curb exports, driving up costs for manufacturers of everything from tablet computers to televisions to telephones.  Indonesia, accounting for 40 percent of global supply, introduced a rule Aug. 30 that refined tin must be traded on a local exchange before it can be shipped. A lack of buyers on domestic bourses and a delay in trading permits spurred PT Timah (TINS), the largest producer, and smaller smelters to halt most sales. Exports may drop 19 percent this year, Timah’s Corporate Secretary Agung Nugrohosaid.  Tin prices more than tripled since 2005 as producers failed to keep pace with demand. Shortages started in 2010 and will continue into 2014, Barclays Plc says. Futures that climbed 8 percent last week will rise another 6 percent to $24,275 a metric ton on the London Metal Exchange by the end of the year, the median of six analyst estimates compiled by Bloomberg shows.

Chinese dream turns nightmare for thermal coal - From the AFR: The State Council, China’s cabinet, released a detailed plan on Thursday that aims to overhaul the country’s energy mix so that coal accounts for less than 65 per cent by 2017, down from just under 70 per cent. To achieve that, the government said it would cut coal consumption and stop approving new coal-fired power plants in three key areas: Beijing and Tianjin in the country’s north, the Yangtze River delta around Shanghai and the Pearl River delta in Guangdong. The plan’s release comes just a day after Premier Li Keqiang told high-level participants at the World Economic Forum in Dalian, north-eastern China, that environmental protection ranked alongside economic reform on his list of priorities. He said the government would use an “iron fist” to shut highly polluting and outdated factories. …According to the plan, companies with poor environmental track records will be prevented from listing or raising finance. And local government officials will be judged on the improvement or deterioration of a province’s air quality. And the top 10 and worst 10 cities, in terms of air pollution, will be published in a list every month. In the race to the lowest marginal cost of production that is closing its grip on all of Australia’s bulk commodity markets, spare a thought for thermal coal. It has led the way down with its boom time extrapolations of endless demand, its wasted shareholder capital, its over-supplied markets and assumption of rational market share responses.

Economic Reports Ease Concerns in China - China’s trade surplus rose in August to its highest level this year, while inflation remained under control, government data released on Sunday and Monday showed, in further signs that the Chinese economy and possibly the global economy are faring a little better as the summer ends. The General Administration of Customs in Beijing said on Sunday that China’s surplus reached $28.52 billion last month, the highest level since last December, as exports accelerated. Because China is the world’s largest exporter and often the first large country to release trade data each month, its trade figures are a widely watched barometer not only for the health of China’s large export sector but also of the global economy. Two other worries about China — inflation at the consumer level that might fan public discontent or deflation at the producer level that might prompt companies to stop investing — seemed to be allayed at least temporarily as well by Monday morning’s data. The National Bureau of Statistics announced that consumer prices were only up 2.6 percent in August from a year earlier, compared to a 2.7 percent increase in July. At the same time, deflation slowed in producer prices, which fell only 1.6 percent in August after tumbling 2.3 percent in July.

Evidence mounts that China had escaped the worst of emerging markets rout - The latest data seem to suggest that China has so far been able to elude the severe economic headwinds faced by other emerging economies. Signs of stability have been around for a few weeks, but the first set of direct evidence came from Markit/HSBC PMI, showing China's manufacturing contraction easing (see Twitter post). The official PMI number (to the extent it can be trusted) confirmed the HSBC's result.The nation's exports (once again to the extent the official data here can be trusted) unexpectedly picked up last month as well.The nation's exports (once again to the extent the official data here can be trusted) unexpectedly picked up last month as well. Bloomberg: - Overseas shipments rose 7.2 percent from a year earlier, the General Administration of Customs said in Beijing today. That compares with the 5.5 percent median estimate of 46 economists surveyed by Bloomberg News and July’s 5.1 percent gain. Imports rose a less-than-estimated 7 percent from a year earlier, leaving a trade surplus of more than $28 billion. The Fung Business Intelligence Centre reported improvements in China's logistics index (from 52.4 to 52.9), which tends to be a leading indicator of activity. Here are the details. After a liquidity squeeze forced a sharp selloff in June (see post), the stock market has stabilized for now. The profitability of the banking system has been declining for some time (see Twitter post), but so far we haven't seen any failures as some had predicted. That doesn't mean such an event is off the table - bad assets can be hidden for a long time. But if it were to happen, the government may not let such news see the light of day. Investors seem cautiously optimistic.

China Factory Output in August Grew at Fastest Pace Since March 2012 - —China's industrial sector showed signs of rebounding more strongly in August, though with growth supported by credit and investment, concerns also rose about sustainability. Industrial output in August climbed 10.4% year-on-year, up from 9.7% in July and the highest growth rate since March 2012. Meanwhile, total social financing, a broad measure of new credit in the economy, came in at 1.6 trillion yuan ($260 billion), up sharply from July's 808 billion yuan. Economists said stronger industrial output signaled an end to the slide in growth seen in the first half of the year. "Overall, these data are very strong," said Ma Xiaoping, who covers the Chinese economy at HSBC. "Growth in the third and fourth quarters will sustain a modest recovery." Humming factory-production lines add to confidence that China's government will hit its 7.5% gross-domestic-product growth target for the year, after a slide in growth in the second quarter, to 7.5% year-on-year from 7.7% in the first, raised fears of a rare miss. Still, with a fresh surge in credit helping support the stabilization, some economists doubted how long it could be sustained.

China is growing faster, again, in the same old ways - Chinese macro data have been on a good run recently. Today’s release of August industrial production was particularly strong, beating consensus forecasts by a relatively wide margin, although not in a way that bodes especially well for long-term growth sustainability.Here’s a summary of key data published today, courtesy of BAML: From July to August, industrial production (IP) growth jumped from 9.7% yoy to 10.4% (vs 9.9% consensus), power production growth surged from 8.1% yoy to 13.4%, retail sales growth rose from 13.2% yoy to 13.4% (vs 13.3% consensus), and FAI ytd growth rose from 20.1% yoy to 20.3% (vs 20.2% consensus).  Trade data released yesterday also beat expectations, although imports missed them. Inflation data showed that consumer price data was a subdued 2.6 per cent, year-on-year, in August, down from 2.7 per cent in July. And producer price deflation slowed somewhat. With all these promising signs for the near-term, sell-side analysts have been raising their Q3 GDP forecasts accordingly, and Goldman raised its full-year growth forecast from 7.4 per cent to 7.6 per cent. BAML is saying its own existing 7.6 per cent forecast faces upside risks. You get the picture. So, where did the growth come from? Here are some charts from Societe Generale’s Wei Yao:

China Shadow Banking Surges Back as Growth Rebound Adds Risks - China’s broadest measure of new credit almost doubled in August from the previous month in a sign leaders are committed to meeting economic goals even at the cost of adding financial risks.  Aggregate financing was 1.57 trillion yuan ($257 billion), the People’s Bank of China said in Beijing yesterday, topping the 950 billion yuan median estimate of 10 analysts surveyed by Bloomberg News. New yuan loans from banks accounted for about 45 percent of the total, down from July’s 87 percent, as non-traditional credit played a bigger role.  The first pickup in credit growth after an unprecedented four straight declines, the fastest gain in industrial output in 17 months and above-forecast exports signal better odds that Premier Li Keqiang will achieve his 7.5 percent expansion target this year. The data also mark a resurgence in shadow banking that poses risks for the financial system after a record credit boom in the first quarter.

China's Luxurious, Newly Built 'Ghost' Cities: Oh-So Extravagant And Oh-So Empty -- With migrant workers in China living in makeshift shacks and native college graduates needing affordable apartments, you wouldn’t think China could afford to have large swaths of unoccupied land. Yet that’s exactly what happened with Jing Jin City, a satellite city an hour outside Beijing that is home to 3,000 villas, most of them not lived in -- and this is only one of several such developments around the country. Jing Jin City is situated off of Jingjin Highway, which connects Beijing to the city of Tianjing. The development covers more than 54 square kilometers (13,096 acres) and boasts a five-star hotel, hot springs, a golf course, a museum, a temple, two colleges and entertainment facilities in addition to the villas, the South China Morning Post said Monday. Luxurious surroundings -- but they're not surrounding anyone. A representative for Hopson Development, the Hong Kong-listed developer that built the project along with Tianjin’s Baodi district government, said the community is a work in progress and the occupancy rate is climbing. But experts say that in these new cities, infrastructure and economic opportunities lag the pace of property development, making it difficult to attract residents.

Is China’s urbanisation really the answer? - Last week we ran a guest post from Yukon Huang of the Carnegie Foundation, which argued that China’s high rate of investment to GDP (which exceeds levels ever reached by obvious comparisons such as Japan and South Korea) is a consequence of China’s economic rise, not a problem in itself.The imbalance, says Huang, merely reflects the urbanisation-industrialisation process — income rises and output grows as newly-urbanised workers earn more, but the proportion of their income spent on consumption falls for a time.Adam Wolfe at Roubini Global Economics is not convinced, arguing that this is at best “an incomplete explanation for the shift in China’s growth model”.The logic behind Huang’s argument is an extension of Arthur Lewis’s model, in which surplus labor migrates from the agricultural sector to manufacturing as an economy modernizes. Initially, labor is plentiful and capital is scarce, and capital earns higher returns than labor until the surplus is exhausted. Huang’s argument is that China is near this tipping point and that economic rebalancing will be a natural consequence of the demographic trend. Therefore, policy makers are likely to make a mistake if they target rebalancing. Instead, China should simply focus on “improve[ing] the efficiency of its urbanization process and develop more appropriate financing sources.” To test the idea that savings rates and consumption are driven by urbanisation, he compares both relationships in the years 2000 to 2010 in 32 emerging economies:

Picking Death Over Eviction -Her voice trailed off as she recalled how her sister poured diesel fuel on herself and after pleading with the demolition crew to leave, set herself alight. She died 16 days later.  Over the past five years, at least 39 farmers have resorted to this drastic form of protest. The figures, pieced together from Chinese news reports and human rights organizations, are a stark reminder of how China’s new wave of urbanization is at times a violent struggle between a powerful state and stubborn farmers — a top-down project that is different from the largely voluntary migration of farmers to cities during the 1980s, ’90s and 2000s.  Besides the self-immolations, farmers have killed themselves by other means to protest land expropriation. One Chinese nongovernmental organization, the Civil Rights and Livelihood Watch, reported that in addition to 6 self-immolations last year, 15 other farmers killed themselves. Others die when they refuse to leave their property: last year, a farmer in the southern city of Changsha who would not yield was run over by a steamroller, and last month, a 4-year-old girl in Fujian Province was struck and killed by a bulldozer while her family tried to stop an attempt to take their land.

Next stop, dishwashers - The fair thesis here is that while the demand for commodities such as wheat and copper from emerging markets may have peaked, when it comes to consumer durables we still have plenty way to go. Kamakshya Trivedi and team at Goldman are trying to give a sense of where different countries stand on this “Ladder of Spending,” using 2012 data. China is at the point where the impact of its income growth on demand growth for commodities such as energy and copper is peaking, or where a peak is in sight. India is further behind, at the income level where incremental increases in per capita income have the biggest impact on food and soft commodities, according to the ladder. Russia and Brazil are further up the ladder, but not by much. These two countries are in the income area that is normally the sweet spot for durables such as washing machines and cars. Beyond the BRICs are a group of smaller middle-income countries, for example Portugal and the Czech Republic, which are beginning to move towards the sweet spot for services. Lastly, the most advanced economies are already at the point where incremental increases in income translate into peak growth in services demand in areas such as insurance and tourism. Here’s how the spending ladder might look 20 years hence, with the average Russian jetting off on international vacation, while Bangladeshis are still shuffling towards “meat protein”:

China Enters Top 10 Currencies The Chinese Yuan is now one of the 10 most-traded currencies in the world and has attained perhaps perfection and completeness. Or, at least it might be getting there soon to the dismay of many.Today China ranks 9th place in the currencies that are the most traded in the world. That might not seem great and far off the top position. But, it entered the top 10, jumping in one foul swoop from 17th place to 9th in just the space of3 years when the last survey was carried out by the Bank of International Settlements (BIS).But, the Chinese currency is far from becoming the world’s leading currency yet it would seem. According to results of research carried out by HSBC in a survey of more than 700 worldwide businesses, there are relatively few trade settlements that are being made as of yet in the Yuan. One main reason for that is that the Yuan is still not a fully-convertible currency, although the Chinese State Council has already made many statements about the fact that it should be entirely convertible by 2015 and therefore will become internationalized then. The Chinese government has made convertibility of the highest importance. It was back in 2007 that the Chinese first announced that they wished to liberalize the flow of capital and allow for convertibility to freely take place, enabling the buying of assets or taking equity around the world. The fact that the Yuan has entered the top 10 world currencies means that the Chinese currency is one step closer to allowing convertibility to take place entirely.

CNY on the Rise, by Menzie Chinn: The preliminary results from the BIS triennial survey for 2013 are out. There are a lot of interesting results, but one I want to flag is that the Chinese yuan is increasingly used in forex transactions. ... The Chinese government has been quite aggressive in increasing the use of the Chinese currency, as noted in this post. The yuan is far from becoming a reserve currency [1] [2], but there are other dimensions of an international currency that the CNY could fulfill. One of these is use as an invoicing currency, and here, the CNY has made rapid progress.In a study conducted by myself and Hiro Ito (revision soon to be put online), we document the rise in CNY invoicing for Chinese exports and imports, and compare against JPY invoicing for Japanese exports and imports. ... In the study, we employ a panel time series analysis to predict invoicing, and conclude that 2010 levels of CNY invoicing of exports are below model-predicted levels, suggesting further increases in home currency invoicing are plausible.

China Beats U.S. for Korean Students Seeing Career Ticket -  The number of South Koreans studying in China more than doubled to 62,855 in 2012 from 2003, according to South Korea’s Ministry of Education. The number of U.S.-bound students grew 50 percent to 73,351 in the same period. “It’s only the beginning in the shift in Koreans’ appetite for education toward China from the U.S.,” said Cho Jin Pyou, chief executive officer of Seoul-based Wise Mentor, which provides education and career-path advice. “A flood of Korean students will follow companies going to China for jobs.” The focus on Chinese language mirrors South Korea’s strengthening ties with the world’s second-biggest economy. Trade with China climbed an average 20 percent per year between 1992 and 2012, faster than the 6 percent growth with the U.S., according to Korea Customs Service. South Korea exported more to China than to the U.S. and European Union combined last year. China overtook the U.S. for South Korean foreign direct investment in the first quarter, the finance ministry said. Sea Change That’s causing a sea change in the way Korean students approach one of the world’s most competitive job markets. The nation has the highest level of young adults who finished high school and the highest proportion of gross domestic product spent on private education in the Organization for Economic Co-operation and Development, according to the OECD’s latest data. More than four out of five primary-school children get some form of private education, Statistics Korea said in a May report.

Taiwan Exports Offer Clues About ‘Decoupling’ - Asia has been slow to see a boost from reviving growth in the West, suggesting the continent might be losing its competitive edge.“Historically, Asia’s traders have led the global cycle, showing quickly signs of strength when things began to stir elsewhere,” There are many possible reasons for this, among them the nature of the U.S. expansion. For one, U.S. consumer demand has remained modest, damping demand for emerging Asia’s exports.Yet some economists believe certain Asian economies are seeing more of a lift from reviving Western growth than others.Take Taiwan. The island’s export dependence and close ties to China’s economy make it something of a bellwether of global demand. Recent encouraging signs in Taiwanese output and manufacturing could mean that stronger growth overseas is beginning to make itself felt on Asian shores.Economists surveyed by The Wall Street Journal predict Taiwan’s exports rose 3.9% on-year in August, a sharp rise from July’s 1.6% growth. Imports also are expected to jump, from July’s 7.6% decline to an expected 2.89% gain last month.

Update on Indonesia: indicators of worsening situation - Here are the latest economic and financial indicators for Indonesia (see post), as financial conditions there continue to worsen.
1. The trade deficit has increased to the worst levels in Indonesia's recent history.  FT: - The gloom surrounding Indonesia continued to deepen after southeast Asia’s biggest economy posted a record monthly trade deficit and inflation climbed to a four-year high. The trade deficit jumped to $2.3bn in July, much higher than expected, as imports remained strong while exports shrank because of the slowdown in China and continuing troubles in Europe and the US.
2. The inflation rate, while low by historical standards, has picked up sharply and is expected to rise further. FT: - Annual consumer price inflation rose to 8.8 per cent in August, from 8.6 per cent one month earlier, with economists predicting that inflation may reach double digits by the end of the year, putting pressure on the central bank to continue lifting interest rates at a time when economic growth is slowing.

Indonesia Caught in a Rate Dilemma - Indonesia’s central bank, faced with a plunging currency, will decide today whether to hike rates again to stem its massive losses. The rupiah is down 16% this year – among the worst-performing emerging market currencies. It has continued to lose value despite an emergency rate hike to 7% in late August and the central bank spending $20 billion this year of its foreign reserves to prop up the currency. Some observers back more rate hikes, saying it’s a fast way to cool an economy which had been overheating for a few years and restore investor confidence. Others say tightening policy into a fast-slowing economy is a risk. The economy grew annually at over 6% in recent years on the back of commodity exports to China. As local demand expanded, imports of oil and consumer goods boomed. The result was an expansive trade deficit, which hit a record of $2.3 billion in July. Slowing China demand and higher U.S. interest rates have dramatically changed the picture. Growth is slowing toward 5% and consumer inflation is moving toward double digits. Investors have retreated in herds from Indonesian stocks and bonds, causing a downward spiral.

Indonesia Raises Rate to Four-Year High as Rupiah Extends Slide - Bank Indonesia raised its key interest rate for the fourth time since early June to support a weakening currency and cool inflation expectations. Governor Agus Martowardojo and his board increased the reference rate by a quarter of a percentage point to 7.25 percent, the highest in more than four years. The outcome, announced in Jakarta today, was predicted by four of 23 economists surveyed by Bloomberg News, with three estimating a 50 basis-point move and the rest expecting no change. The central bank also raised the deposit facility rate. The most aggressive tightening since 2005 may damp domestic consumption and hurt bank lending, adding to economic woes including Asia’s worst-performing currency in 2013 and inflation that’s quickened at the fastest pace in more than four years. Indonesia has joined Brazil and India in taking steps to support their currencies as the prospect of reduced U.S. monetary stimulus prompts investors to sell emerging-market assets.

Asean hazed by self-Interest - The dreaded haze has made an unwanted return across large swathes of Southeast Asia and for the second time this season politicians have been found desperately wanting in their inability to find a solution to the horrible haze which is costing the region billions of dollars. Its timing was impeccable. Caused by fires on the Indonesian island of Sumatra, the haze made its return amid a diplomatic dispute within the 10-member Asean bloc over how best to handle the issue. Documents obtained by Spectrum show the realities of recent government meetings designed to produce concrete results and find an end to the annual misery which had not measured up to hype that environmental ministers and their spin doctors had claimed. The Indonesian government, local companies and palm oil producing groups from Malaysia, Singapore and Indonesia have been blamed for widespread burn-offs, year-after-year, although their tendency was to shift the blame onto small land holders and traditional farmers. Of particular concern was Jakarta's inability to sign off on the trans-boundary Asean treaty designed to combat the fires, despite statements to the contrary since 2002. Indonesia was the only country not to ratify the treaty, criticised by environmentalists who claimed Jakarta was simply doing big business a favour.

Takaways From Revised Japan GDP - Japan’s Cabinet Office on Monday released revised figures for the April-June gross domestic product, saying the economy had grown 3.8% on an annualized basis on the back of strong capital investment, up from a preliminary reading of 2.6% growth released a month ago. Here are the initial takeaways from the data.

  • Upward revision as expected. The upward revision of the GDP was in line with expectations after data last week showed an increase in capital investment, the main component of the review. Forecasts by economists polled by Dow Jones Newswires and the Nikkei had ranged between an annualized growth of 3.0% to 4.3%.
  • Strong capex. In releasing the revised GDP data, the government said capital expenditures had risen 5.1% during the quarter, sharply up from the previous estimate of a 0.4% annualized decline. The expansion marks the first increase in six quarters.
  • Japan ahead. The revised GDP number puts Japan well ahead of its peers among the world’s rich nations in terms of growth during the April-June period: 3.8% growth compares with 2.5% for the U.S. and 1.1% for the euro zone during the same three months.
  • Boost for tax hike proponents. The solid growth number strengthens the case for those who say that the government should proceed with a planned sales tax hike from April as the economy should now be able to withstand the impact of the raise in the tax to 8% to 5%.

Tensions Mount in Japan Over Sales Tax - Tensions are mounting between Prime Minister Shinzo Abe and the Ministry of Finance over how to buffet the economy from the effects of a sales tax increase. The Bank of Japan and the finance ministry are pushing for the country to raise its sales tax, which is low for a developed country, to help reduce a public debt that is currently over twice the size of the nation’s economy.But some, including Mr. Abe’s advisers, are reluctant, fearing such action could wipe out gains that monetary and fiscal stimulus policies have made in recent months.  The government will make a decision on the sale tax next month.Japan’s economy grew 3.8% on an annualized basis in the second quarter, beating most other industrialized countries, and helping Japan in its battle to end 15 years of deflation.Yet consumer confidence has begun to ebb in recent months, as wages have failed to rise with the economy, and some fear a sales-tax rise will further dent confidence. Mr. Abe and his advisers are keen to put countervailing measures in place to limit the negative effects on demand from the higher sales tax. They include a cut in corporate taxes and a fiscal stimulus package.

Make Japan Chaste and Continent, But Not Yet - Paul Krugman - So far, Abenomics has been going really, really well. By signaling that the Bank of Japan has changed, that it won’t snatch away the sake bottle just as the party gets going, that it’s going to target sustained positive inflation — and also by signaling that some fiscal stimulus is forthcoming despite high levels of debt — Japanese authorities have achieved a remarkable turnaround in short-term economic performance. But will this short-run success end up being self-defeating? This really worries me:Japan’s economy expanded at a significantly faster rate in the second quarter than initially reported, increasing the chances that Shinzo Abe, prime minister, will press ahead with a contentious sales tax increase – albeit one that would be offset by more government spending.  Look, maybe Japan can sustain growth in the face of this tax increase. But maybe not. Why not wait until growth is firmly established, and in particular until expected deflation has been solidly replaced with expected inflation? Delaying the sales tax increase is, I would argue, the prudent thing to do even in purely fiscal terms. One of the serious consequences of Japanese deflation combined with the zero lower bound has been that Japanese real interest rates have until recently been significantly higher than those in other advanced countries — a matter of considerable concern when you have a very large inherited debt. Getting those real rates down (and, to a lesser extent, eroding the real value of existing debt) matters a lot to the long-run fiscal picture; it’s just foolish to endanger progress on that front in the name of fiscal responsibility.

BOJ Beat: Spotlight Still on Fed Policy - The Bank of Japan is now so optimistic about the nation’s economy that it recently went out of its way to press Prime Minister Shinzo Abe to go ahead with a planned sales tax hike from next spring.  But even so, one thing continues to bother the BOJ: the possible spillover effect of the Federal Reserve’s expected move to scale back its bond-buying program. According to the minutes of the Aug. 7-8 meeting of the BOJ’s policy board released this week, its nine members had another round of what appeared to be serious debate over the impact of Fed policy. Even though the economy is performing very well, the debate reflects how heavily dependent on exports Japan remains, making it vulnerable to swings in the global economy, especially among emerging economies, that could be caused by the Fed’s tapering. Now an established driver of global growth, emerging countries have been taking a hit recently from capital outflows fueled by expectations of a shift in Fed policy.

Lawmakers Eye Adding Currency Rules To Asia-Pacific Trade Deal - Members of a House of Representatives committee discussed with top Obama administration officials 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. 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. Mr. Levin, the ranking Democrat on the House Ways and Means Committee, said that lawmakers on Wednesday discussed with Treasury Secretary Jacob Lew and U.S. Trade Representative Michael Froman the possibility of including limits on currency interventions in the rules of the Trans Pacific Partnership. 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. Potential currency manipulation is “one of the aspects of trade where there is no enforceable mechanism,” Mr. Levin said. Lawmakers and officials arrived at no conclusion about whether exchange rates belong in the trade pact, he said. Outside the TPP, the Obama administration officials also discussed ways to address currency concerns with foreign countries both individually and through international groups such as the Group of 20, according to a person familiar with the meeting. Mr. Lew has said previously he would “keep an eye” on whether stimulus provided by the Japanese and other central banks is intended to improve domestic economic growth or weaken currencies. Mr. Froman has deferred to Mr. Lew and the Treasury Department in public discussions of currency issues.

India looks to lower dollar outflow on oil via bilateral deals - With Prime Minister Manmohan Singh underlining the need to reduce the oil import bill by at least $25 billion (about `1.63 lakh crore) in the current financial year to contain the current account deficit (CAD), India is exploring opportunities for bilateral currency swap agreements with oil-producing countries that could include Iraq and the UAE. The move would enable India to pay in rupees for oil imported from other economies. Besides, it would also reduce India’s widening CAD — the difference between inflows and outflows of dollars and make the rupee internationally more acceptable and tradable. India pays Iran rupees for oil imports. Under a plan to pay Iran in rupees and increase oil imports by 2 million tonnes per annum, India expects to save close to $8 billion (about `52,192 crore) from Iran alone. Kuwait and Iraq are two other countries that India is talking too on the same lines. Besides, oil-producing countries, it is set to have more such deals with other economies as well.

Outlook is Gloomy for India Data - Indian economic indicators scheduled to be released this week are unlikely to bring much cheer for the struggling South Asian economy. While Indian stocks and the the rupee have strengthened this week on growing optimism that the country will be able to find a way out of its current rut, the next round of economic data may not be good, economists said. Industrial output is likely to show a further contraction in July while in August both wholesale and consumer price inflation rates were probably stuck at levels well above the central bank’s comfort levels, according to economists surveyed by The Wall Street Journal. The government will announce industrial output data for July and consumer inflation data for August on Thursday. Data on wholesale inflation – the most closely tracked inflation indicator – is scheduled to be released on Monday. The median of 16 estimates on industrial production, which includes manufacturing, mining and electricity, is for a 0.5% contraction in July compared to the year earlier. That would make it the third consecutive month that output shrank. It fell 2.2% in June and 2.8% in May. Although the pace of contraction appears to be slowing, it still reflects a stubborn slowdown in Indian industry which is struggling with weakening consumer appetite and costlier financing in the wake of India’s central bank’s restrictive money policies aimed at controlling inflation. Lower coal and iron ore production have also weighed on the industrial production numbers partly due to a government ban on excavation in some regions following allegations of illegal mining and corruption in the sector. “The consumer sector is growing below potential while weak

Raghuram Rajan: the challenge facing India's Ben Bernanke - The crisis reaper has methodically come for every major economy in the past five years, and now it is India's turn. Rajan, the newly named head of India's central bank, has become the man who has to save the country's plunging currency, the rupee. The rupee has fallen 17% in the past six months, raising fears about inflation, and more importantly, about economic growth. Rajan has chosen to fit himself into the mold of his US counterpart, Fed Chairman Ben Bernanke. India's problems – primarily, a huge federal deficit – are not completely dissimilar to the ones the US was facing until recently, although India has a lot less slack. The intrinsic strength of the US economy offers some room for indulging sloppy fiscal policy. India, as a much younger nation, bears a harsher burden of proof that it belongs in the big leagues.  India's government debt has reached about 66% of its GDP – a percentage so scandalously high that other countries in its economic class don't even come close. Indonesia's debt, for instance, is about 24% of its GDP, according to analysis from Moody's. Turkey's debt-to-GDP stands at 34% and the Philippines at 43%; compared to these, India is in the stratosphere.

The Case for India by Raghuram Rajan -  A few years ago, India could do no wrong. Commentators talked of “Chindia,” elevating India’s performance to that of its northern neighbor. Today, India can do no right. India does have serious problems. Annual GDP growth slowed significantly in the last quarter, to 4.4%, consumer price inflation is high, and the current-account and budget deficits last year were too large. Every commentator today highlights India’s poor infrastructure, excessive regulation, small manufacturing sector, and a workforce that lacks adequate education and skills. These are indeed deficiencies, and they must be addressed if India is to grow strongly and stably. But the same deficiencies existed when India was growing rapidly. To appreciate what needs to be done in the short run, we must understand what dampened the Indian success story. In part, India’s slowdown paradoxically reflects the substantial fiscal and monetary stimulus that its policymakers, like those in all major emerging markets, injected into its economy in the aftermath of the 2008 financial crisis. The resulting growth spurt led to inflation, especially because the world did not slide into a second Great Depression, as was originally feared. So monetary policy has since remained tight, with high interest rates contributing to slowing investment and consumption. Moreover, India’s institutions for allocating natural resources, granting clearances, and acquiring land were overwhelmed during the period of strong growth. India’s investigative agencies, judiciary, and press began examining allegations of large-scale corruption. As bureaucratic decision-making became more risk-averse, many large projects ground to a halt

India eyes cotton export duty, hopes to boost value-added textile sales - India could slap a 10 percent duty on cotton exports as early as Thursday as it wants to boost overseas sales of value-added textiles to take advantage of a weak rupee and help reduce a yawning current account deficit, government sources and industry officials said. It hopes the tax would encourage the sale of more cotton in domestic markets, which would be used to make textiles and garments that could be shipped overseas, generating more money than simple cotton exports. India, the second-biggest cotton producer after China, is expected to have a bumper harvest this year as ample rains are likely to increase yields. The government will decide how much is surplus and available for export. Any curb on cotton exports could boost flagging global prices. The government is trying to reduce its current account deficit, which hit a record 4.8 percent in the year ending March 31, 2013, taking advantage of what is otherwise a damaging fall in the rupee of some 16 percent against the dollar since June 1. Other measures being discussed for approval at a cabinet meeting later on Thursday include raising India's access to World Bank loans by $4.3 billion and a long-standing plan to build two microchip factories with government subsidies to attract an estimated $4 billion investment. India earned about $8.94 billion from cotton exports in 2012/13, equivalent to some 2.97 percent of total exports.

Russia to Brazil Intervention Adds to U.S. Debt Distress - Speculation that the Federal Reserve, the biggest buyer of Treasuries, will reduce its purchases sent U.S. debt down 4.1 percent this year and boosted the dollar against developing-nation currencies for four straight months, matching the longest streak since 2001, according to Bloomberg data. India, Brazil, Russia and Indonesia have intervened in foreign-exchange markets, and dollar sales mean liquidating Treasuries, according to bond traders at Scotiabank and Bank of America Corp. While the $48 billion drop in foreign central bank holdings at the Fed since a record in June is less than half of the $113 billion in withdrawals from U.S. bond funds in the past three months, they mark a change in trend. Foreign ownership of Treasuries fell 0.6 percent in the first half of 2013, poised for the first full-year decline in data going back to 2000 and a departure from the 10 percent annual gains seen since 2006. “There is a lack of buyers in the Treasury market,” Ali Jalai, a Singapore-based trader at Scotiabank, a unit of Canada’s Bank of Nova Scotia, said in a telephone interview Sept. 4. “Selling by central banks to back up their currencies exacerbates the situation.” Capital Flight Developing country currencies are tumbling amid capital flight from their equity and bond markets because the Fed plans to reduce stimulus that has debased the dollar. The JPMorgan Emerging Markets Currency Index has plunged 9.1 since April, and its four-month drop through August hasn’t been exceeded since a 10-month losing streak in 2001. While weaker exchange rates typically make a country’s exports more competitive, the speed of the decline for nations like India and Indonesia threatens to increase inflation and discourages investment, according to Westpac Banking Corp.

Mexico's Economy Has Yet to Grow in 2013 - Dallas Fed - Mexico’s economy contracted in the second quarter after being flat during the first three months of the year. Overall, the Mexican economy shrank 1.4 percent at an annualized rate in the first half of the year (December to June). More recent data continue to show signs of weakness. Industrial production and employment growth remain below last year’s levels. Retail sales are flat. Exports ticked up in July but are still down year to date. The rate of inflation fell to its lowest level in six months, and the peso depreciated against the dollar in August. Mexico’s economy contracted 2.9 percent in the second quarter after growing at a revised rate of 0.1 percent during the first quarter (Chart 1). Service-related activities (including trade, transportation and government) fell 1.7 percent in the second quarter, while goods-producing industries (including manufacturing, construction, utilities and mining) fell 4.3 percent. Agricultural output increased 5 percent. The 2013 gross domestic product growth forecast from the latest central bank survey of economic analysts has been revised down to 2.7 percent from 2.8 percent in June. The official growth estimate was revised down to 1.8 percent from 3 percent earlier in the year.

No Vigilantes Or Vultures Need Apply – Ilargi - Really, the US and France are going to bomb Russia’s only Middle East foothold? What are the odds? How does that fit in with relations in today’s political power field? It’s understandable that we are all very wary of warfare, but we shouldn’t forget that such levels of wariness can be easily (ab)used to play with our minds, and to focus our attention away from other events.One such event, which we should shift more of our attention to, is currently happening in sovereign bond markets. There are some curious recent developments that warrant scrutiny. And questions. One aspect we need to know more about is the one Nicole talked about last week in Promises, Promises … Detroit, Pensions, Bondholders And Super-Priority Derivatives: super-priority, through which in effect the financial industry has fabricated a way to – almost – always get first dibs at whatever assets are left in case of a default. In essence, whether we’re talking defaults of companies, cities, states or even countries, counterparties of derivatives will have preference over everyone else when bankruptcy looms. In many cases, it’s even debatable whether they have to wait for an actual default to start hauling out the kitchen sink. The danger lurks, as Joseph Stiglitz said last week at Project Syndicate, in that: Debt restructurings often entail conflicts among different claimants. That is why, for domestic debt disputes, countries have bankruptcy laws and courts. But there is no such mechanism to adjudicate international debt disputes. Once upon a time, such contracts were enforced by armed intervention, as Mexico, Venezuela, Egypt, and a host of other countries learned at great cost in the nineteenth and early twentieth centuries. After the Argentine crisis, President George W. Bush’s administration vetoed proposals to create a mechanism for sovereign-debt restructuring. As a result, there is not even the pretence of attempting fair and efficient restructurings.

Don’t Blame Fed for Emerging Market Weakness -- Conventional wisdom says the primary driver of recent volatility in emerging markets is the Federal Reserve. Borrowing rates in the U.S. have spiked as the Fed considers starting to reverse its cheap cash policies. Investors are pulling their capital out of risky emerging markets, so the theory goes, and putting it to work back in a higher interest-rate environment. Massive cash flows out of emerging markets are causing stock market slumps and free-falling currencies. But former top Fed economist and senior fellow at the Peterson Institute for International Economics Joseph Gagnon says it’s not so simple. “U.S. tapering isn’t really the problem,” he says. Rather than blaming the Fed like many emerging market officials have done, Mr. Gagnon says investors are pulling their cash out of countries in the fear they’ve over-invested in economies where growth prospects are dimming. That’s in contrast to a steady U.S. recovery, a Japanese economy that shows hope after years of stagnation, and the euro zone that appears to have stopped hemorrhaging. If the capital flows out of emerging markets were simply a matter of the Fed reversing its monetary policy, why weren’t there the same seismic investor shifts at the end of the U.S. central bank’s first and second round of extraordinary policy actions, Mr. Gagnon asks. “Why now when tapering is only a possibility and hasn’t even started yet, when QE1 not only tapered but ended, QE2 not only tapered but ended?” he says. “Those didn’t cause problems, and now, QE3 has not even ending yet, and yet is supposed to be causing problems now? It doesn’t make sense,”

We May Have Avoided the Cliffs, But We Still Face High Mountains - iMFdirect - - Optimism is in the air, particularly in financial markets. And some cautious optimism may indeed be justified. Compared to where we were at the same time last year, acute risks have decreased. The United States has avoided the fiscal cliff, and the euro explosion in Europe did not occur. And uncertainty is lower. But we should be under no illusion. There remain considerable challenges ahead. And the recovery continues to be slow, indeed much too slow. Put poetically: We may have avoided the cliffs. But we still face high mountains. A year ago, we were worried about two short term risks: We were worried that gridlock might lead to excess fiscal consolidation in the United States. And that firewalls in Europe may not be strong enough to prevent a crisis in Spain or Italy. The agreement reached at the end of 2012 in the United States does not solve the fiscal problems, but the extent of fiscal consolidation in 2013 should be roughly appropriate. In Europe, progress on a number of fronts, from the Outright Monetary Transaction program put in place by the European Central Bank to buy government bonds on a conditional basis, to the start of a banking union, has convinced financial markets that the firewall was indeed there, and that Europe was committed to the euro. Still, we have not yet turned the page. The world recovery continues to be hampered by the need for fiscal consolidation—the reduction of government debt and deficits— and by a still weak financial system.

Are We Having “Bank Deregulation” Crises or “Unrestricted Capital Flow” Crises? -  Gaius Publius - The heart of the neoliberal agenda — the world of forced globalization that benefits only the rich — is the push for so-called “free trade.” I’ve written before that so-called “free trade” really means “free capital flow” — the right of owners of capital (Big Money men and women) to move that Big Money into and out of countries at will, without restriction.  For example, here (my emphasis and some reparagraphing throughout): In its simplest terms, “free trade” means one thing only — the ability of people with capital to move that capital freely, anywhere in the world, seeking the highest profit. It’s been said of Bush II, for example, that “when Bush talks of ‘freedom’, he doesn’t mean human freedom, he means freedom to move money.” At its heart, free trade doesn’t mean the ability to trade freely per se; that’s just a byproduct. It means the ability to invest freely without governmental constraint. Free trade is why factories in China have American investors and partners — because you can’t bring down manufacturing wages in Michigan and Alabama if you can’t set up slave factories somewhere else and get your government to make that capital move cost-free, or even tax-incentivized, out of your supposed home country and into a place ripe for predation. Can you see why both right-wing kings (Koch Bros, Walmart-heir dukes and earls, Reagan I, Bush I and II) and left-wing honchos (Bill Clinton, Robert Rubin, Barack Obama) make “free trade” the cornerstone of each of their economic policies? It’s the song of the rich, and they all sing it. And from the same piece: A direct consequence of a world in which capital flow is completely unrestricted is constant economic crisis. … There’s an opportunity in Spain, let’s say, to take advantage of cheap labor and prices. Money flows in, builds huge capacity, then flows out as soon as it finds better opportunity elsewhere. What’s left behind? The Spanish in a crashed economy, and in a world in which the holders of their debt (German bankers et al) are using the EU (remember, capture of government) to make sure that creditors are made whole at the expense of whole populations. Or, to put it more succinctly — Your “economic crisis” is just their “cost of doing business.” Nice to be them.

Saudis join Twitter campaign for higher pay -- A social media campaign demanding better pay in Saudi Arabia has gained a massive following among citizens of the Gulf kingdom, many of whom are facing an increasing struggle to meet their daily living costs. Supporters of the campaign on Twitter - which uses the Arabic hashtag #our_salary_does_not_meet_our_needs - have been very active over the past two months. More than 17 million tweets carrying the hashtag were posted in the campaign's first two weeks in July, which led to it becoming the 16th most popular hashtag in any language.

Egypt for Sale - Yves here. This piece provides an intriguing analysis and a lot of detail to support its thesis that Egypt’s inability to generate the income needed to make payments on IMF loans means the country is likely to have its assets stripped. But be warned that the author clearly is offended by the Arab Spring uprisings and repeatedly, and incorrectly, calls them a mob. As Lambert pointed out: A6M and the various (Otpor-inflected) non-Islamic resistance groups at Tahrir Square came out of union organizing in new factories in the delta and IIRC in piecework in Cairo. So if the enterprises they organized were closing, that would weaken their social base, and so it makes sense that that they were so weak in the aftermath of Tahrir Square, having done so well during it (even discounting for the usual leftist circular firing squad). Nevertheless, those comments are asides and don’t bear on the argument.  As plausible as the rest of the piece sounds, I’m not in a position to judge. A colleague ran it by an Egypt expert who gave it a quick read and deemed it to be reasonable.

Uncertain at the OECD - Paul Krugman - One of the distinguishing features of economic discourse since 2008 has been the remarkably destructive role played by most, though not all, international technocrats. In the face of high unemployment and low inflation, key institutions — the European Commission, the Bank for International Settlements, the OECD — have consistently called for policies that would depress advanced economies even more. What’s been interesting about these recommendations is that they do not, as you might expect, come from a rigid application of conventional economic models. Conventional models, after all, say that contractionary fiscal policy is contractionary, and should not be undertaken at a time when those adverse effects can’t be offset with looser monetary policy. And for sure, conventional models don’t say that you should raise interest rates in the face of high unemployment and low inflation. Yet somehow people at these institutions decided that tightening both fiscal and monetary policy was the thing to do, making up stories on the fly — I wouldn’t call them models — to justify their demands. I guess we should just call these people crats, since the techno got thrown out the window and replaced by intuition, or something.

Unemployment Drops in Developed Countries - The rate of unemployment across 34 developed economies fell in July for the second month this year, and to its lowest level since September 2012, another indication that five years after the start of the financial crisis, rich economies are slowly mending. The Organization for Economic Cooperation and Development Tuesday said the rate of unemployment across its member countries was 7.9%, down from 8.0% in June. The rate of unemployment fell in February from 8.1%, and had remained unchanged since. In total, there were 47.9 million people without jobs across the OECD’s members, a decline of 400,000 from June, but 13.2 million more than in July 2008, two months before the financial crisis began with the collapse of Lehman Brothers. The decline in unemployment, however modest, is another sign that activity in developed countries is beginning to pick up. The Paris-based think tank Monday released leading indicators that pointed to a revival in growth in many large developed economies in coming months, and figures for the second quarter show the combined gross domestic product of developed economies rose by 0.5%, having increased by 0.3% in the three months to March. With global demand still sluggish and business confidence still fragile, the decline in joblessness is unlikely to be rapid. In a report released in July, the OECD said it expects the unemployment rate to be “broadly constant” at 8% until the end of next year, just half a percentage point below its 2009 peak

The Economist House-Price Index - Click for interactive chart

Europe's public health disaster: How austerity kills - If austerity had been a clinical trial, it would have been stopped. As public health experts, we have watched aghast as a slow motion disaster arose from austerity policies in Europe, while politicians continue to ignore the evidence of their disastrous effects. Austerity was designed to shrink debts. Now, three years after Europe's budget-cutting began, the evidence is in: severe, indiscriminate austerity is not part of the solution, but part of the problem -- and its human costs are devastating. In the U.S., Greece, Italy, Spain, the UK and elsewhere in Europe there were more than 10,000 additional suicides from 2007-2010, a figure that is over and above historical trends, with the largest rises concentrated in the worst performing economies.  But suicides and depression are not unavoidable consequences of economic downturns: countries that slashed health and social protection budgets have seen starkly worse health outcomes than nations which opted for stimulus over austerity.

Economists Call ECB’s Bond Buying Plan Unlawful - German critics are again weighing into the public debate about the European Central Bank’s one-year-old bond program, under which the central bank may purchase open-ended amounts of euro-zone government bonds provided countries meet conditions on economic and fiscal reform.  The program is credited with bringing down Spanish and Italian bond yields and easing fears of a euro breakup, even though it has yet to be used. Critics say it blurs the line between fiscal and monetary policy. More than one hundred German economics professors, led by influential economists Manfred Neumann and Roland Vaubel, are now responding to a public defense of the ECB’s Outright Monetary Transactions program, or OMT, launched by a large group of European and American economists a few weeks ago. The attack comes as Germany’s constitutional court is due to rule on the legality of the controversial program under German law later this year.

Italy's economy contracts more than estimated --Italy's economy contracted more than previously estimated in the second quarter of 2013, shrinking 0.3% from the first three months of the year in seasonally-adjusted terms, national statistics institute Istat said Tuesday. Economists had expected the preliminary estimate of a 0.2% quarterly contraction to be confirmed. On an annual basis, Italy's second-quarter gross domestic product shrank 2.1%, compared with the 2.0% contraction previously estimated, Istat said. Still, the eighth consecutive quarterly contraction showed signs Italy's longest-ever postwar recession is abating, due primarily to exports, which reversed their decline earlier in the year. GDP shrank 0.6% in the first quarter of the year from the final three months of 2012. Net foreign trade added 0.4 percentage point to Italy's second-quarter GDP growth--an uptick from the previous three months and offsetting the impact of inventories. Household consumption detracted 0.3 percentage point while public spending and gross fixed investments were unchanged.

Italy Plans to Raise 2013 Debt Ceiling --Italy's Treasury has asked parliament to allow it to issue 98 billion euros ($130 billion) in net debt this year, up from the planned and approved level of EUR80 billion.  The announcement comes as yields on Italy's government bonds tiptoe above those issued by Spain, raising concerns about Rome's commitment to rigor. But the increase is due to the government's decision this year to hasten the paying down of commercial arrears to suppliers, a senior government official said.  Italy plans to settle EUR40 billion in unpaid bills by next year, and Economy Minister Fabrizio Saccomanni has signaled he intends to speed up that process. The extra debt issuance is equivalent to 1.2 percentage points of Italy's annual economic output, but won't be reflected in this year's budget deficit, which tracks actual cash flows.  The cash infusion into the euro zone's third-largest economy should help lift it out of a two-year recession, while tax receipts on the boosted activity should keep the budget deficit in line.  However, that depends on whether the recipients use the money to invest or stash it away.

Italian bank funding more fragile that it looks - The Italian government has not collapsed in a flurry of post-bunga bunga recrimination, at least not yet. With the ECB standing ready, the debt markets are calm, and investors in the banks are feeling good about improvements in asset quality and the direction of earnings. Citi is worried, however, that Italy is much more fragile than it looks. This morning he put out a big call to get out of the way.The reason is a change quietly made by LCH Clearnet last month to back away from guarantees to stand behind Italian repo transactions. In the future, if, say, a bank defaults, LCH’s Italian clearing house will not make whole the losses to counterparties. It won’t swallow the pain as a good central clearer does. Instead it will move to “cash settlement”: any collateral is liquidated and the unlucky lender will only get the “close out value” for any trade. So the central clearing house won’t, er, stand in the center anymore. Wasn’t the point of the big push towards central clearing supposed to stop lenders having to worry about risks like that? Yes, but regulators are also worried about clearing houses as a new point of failure, as we have written about here, and big losses at at LCH’s allied clearing house in Italy — Cassa di Compensazione e Garanzia — could endanger LCH itself.

French public deficit 'to exceed 3.7% target' - Finance Minister Pierre Moscovici confirmed Tuesday that France's public deficit will be higher than the target of 3.7 percent of gross domestic product. "Yes, it will be higher than 3.7 percent" of gross domestic product (GDP), Moscovici said on RMC radio. "We did not want to put in place an austerity plan in a situation of weak growth: in other words the public deficit will be a little higher than expected." He noted that the European Commission had forecast a deficit of between 3.7 and 3.9 percent of GDP this year. In May, reflecting a recent policy switch to better adjust the effort required to economic performance, the European Commission gave France an additional two years to bring its public deficit back under the EU ceiling of 3.0 percent of GDP. It said France should cut the public deficit from 4.8 percent of GDP in 2012 to 3.9 percent in 2013, then 3.6 percent in 2014 and 2.8 percent in 2015.

France Scales Back Growth Forecast, Raises Deficit Estimates - France's Finance Minister, Pierre Moscovici, confirmed Wednesday that the government has scaled back its growth forecast for 2014 and raised its estimates for the state's budget deficit Moscovici said the 2014 budget, set to be officially unveiled on September 25, is based on a GDP growth forecast of 0.9%, down from a previous estimate of 1.2%. Budget deficits are now estimated at 4.1% of GDP of 2013 and 3.6% for 2014, up from previous forecasts of 3.7% and 2.9%, respectively. Speaking to journalists Wednesday in Paris, Moscovici said that the higher deficits reflected a government decision to allow higher social spending to support growth, while focusing its cuts on the structural deficit "We are bringing a budget that is aggressive and just and that supports growth today and prepares for tomorrow," Moscovici said. Moscovici confirmed earlier press reforms that the 2014 budget will trim the deficit by E18 billion, of which E15 billion will be through spending cuts and E3 billion through tax increases. Despite the higher expected deficits, France remains "strictly in line" with its engagements to the EU, Moscovici said.

Euro-Area Industrial Output Declines More Than Forecast - Euro-area industrial output contracted more than economists forecast in July as manufacturers struggled to shake off the legacy of a record-long recession. Factory production in the 17-nation euro area fell 1.5 percent from June, when it gained 0.6 percent, the European Union’s statistics office in Luxembourg said today. That’s more than the 0.3 percent contraction forecast by economists, according to the median of 33 estimates in a Bloomberg News survey. In the year, output fell 2.1 percent. The euro-area economy’s return to growth in the second quarter from its longest-ever recession has been restrained by record unemployment and inflation has remained below the European Central Bank’s 2 percent ceiling for seven months. That may help to explain why economists in a Bloomberg News survey see growth slowing to 0.1 percent in the third quarter after a 0.3 percent expansion in the three months through June. The industrial-output “data call into question the region’s recovery,” said Chris Williamson, chief economist at Markit Economics in London. “There is clearly a risk that GDP could contract again in the third quarter, as some of this second-quarter growth proves to have been only temporary.”

Catalonia independence rally draws more than 1 million  - More than 1 million flag-draped and face-painted Catalans held hands and formed a 250-mile human chain across the northeastern Spanish region Wednesday in a demonstration of their desires for independence.  It was the second Catalonian National Day in as many years marked by a massive turnout to show support for breaking free of recession-beset Spain and its proliferation of internal disputes, corruption scandals and debt woes.Secession proponents and the regional government said more than 1 million supporters of independence joined in the chain of humanity bedecked in clothing and face paint in the red, yellow and blue of Catalonia's flag. The hand-holding lineup stretched from Barcelona's main square, through its Sagrada Familia cathedral, the Camp Nou Stadium soccer venue of FC Barcelona and along streets and highways stretching for a reported 250 miles. Catalonia, population 7.5 million, is one of Spain's wealthiest regions. The independence drive being spearheaded by regional leader Artur Mas is fueled by resentment of a $20 billion annual imbalance between the tax revenues collected in Catalonia and the government services and benefits it gets in return.Mas has threatened to hold a referendum next year on Catalonia's status within the Spanish kingdom, although Spain's Constitution doesn't empower the regions to call votes on sovereignty or national security issues. Prime Minister Mariano Rajoy and King Juan Carlos have urged Catalans to refrain from rekindling the nationalist sentiments that threw Spain into civil war in the 1930s and dictatorship that endured until the 1975 death of Gen. Francisco Franco.

Spain Public Debt Hits Record High in Second Quarter - Spain's accumulated public debt soared to a record high at the end of June, the Bank of Spain said Friday, shattering government targets despite a relentless austerity squeeze. Spain, which boasts the eurozone's fourth largest economy, had racked up an unprecedented public debt of 942.8 billion euros ($1.3 trillion) by mid year, the bank said. The figure was equal to 92.2 percent of the nation's total annual economic output -- up 14.7 percentage points from the same period last year. With just half of the year gone, Spain had already missed its target of limiting the public debt to 91.4 percent of gross domestic product in 2013, the figures showed. Prime Minister Mariano Rajoy's conservative government is battling to rein in the soaring public debt by curbing spending. The ensuing budget cuts have sparked angry street protests as Spaniards endure a two-year recession which pushed the unemployment rate to 26.26 percent in the second quarter of this year. High unemployment leads to lower tax income and bigger social security bills for the state, making it even harder to plug the hole in Spain's public accounts.

In Spain, simply doing nothing is not an option! - The recent IMF proposals to help stimulate growth and job creation in Spain at least deserve serious consideration.In a blog post which sought to defend the recent IMF proposal to for a social compact involving a 10% reduction in Spanish wages and salaries, the EU Economy and Finance Commissioner Olli Rehn cited a line from Bob Dylan – “Something is happening here, but you don’t know what it is”. He was talking about the evident uncertainty surrounding the kind of economic recovery Spain might be having. But the line could equally be applied to the across-the-board response of Spanish society to those very Fund proposals he was defending. From employers to unions to government and opposition the country has spoken with one voice, “something is going on here and we don’t want to know what it is”.I say “don’t want to” since most of the comments appearing in the Spanish press have had little to do with the arguments that are being advanced or even with trying to understand them. Some journalists simply focused their attention on the salaries received by the Fund’s own economists (which recently went up). Others argue, citing the example of the Brazilian representative who refused to sign-off on the latest payment to Greece, that the institution is not democratic, since the emerging countries are not adequately represented. Little does it matter that what these countries are in fact complaining about is too much European influence on Fund policy and too much simplistic optimism.

Portugal government seeks 10 percent public sector pension cut - Portugal's government proposed a bill on Thursday to cut public sector pensions and reduce a gaping hole in the system that is hampering efforts to shift the bailed-out country's finances onto a sustainable footing. Pensions for retiring public servants of more than 600 euros a month will be slashed by around 10 percent on average from the start of 2014, according to the bill, which was approved at a cabinet meeting and will now be presented to parliament. Public Administration Secretary Helder Rosalino told a news briefing that recalculating pensions and contributions would trim the deficit in the public pension system by 1.1 billion euros in 2014 from 4.4 billion euros (3.7 billion pounds) this year. He also said the government proposed to amend a labour bill rejected last month by the Constitutional Court in a blow to the government's spending reduction strategy. The pension and labour reforms are part of the centre-right coalition's efforts to cut state spending to meet the terms of Portugal's 78-billion euro EU/IMF bailout. The lenders' inspectors start their bailout review on Monday. The pension bill aims to bring public sector pensions closer to those for private sector workers, and will affect about two-thirds of some 470,000 contributors to a state pension fund known as Caixa Geral de Aposentacoes, Rosalino said.

Greek Unemployment Hits Record High Of 27.9 Percent (Reuters) - Greece's jobless rate hit a record high of 27.9 percent in June, data showed on Thursday, as the labour market continued to buckle in a deep recession with austerity policies linked to the country's bailout. Unemployment rose from 27.6 percent in May, and was more than twice the average rate in the euro zone of 12.1 percent in July. The latest reading was the highest since Greek statistics service ELSTAT began publishing monthly jobless data in 2006. Such data, however, tends to lag other growth indicators, which Eurobank economist Platon Monokroussos said were painting a slightly less bleak picture. "Recent data for the annual change in employment and new private sector hirings suggest the jobless rate may be approaching a cyclical peak," he said. The government has also suggested that there are tentative signs of Greece having hit bottom.But correcting Greece's economic imbalances has come at a very high cost. Data showed those aged 15 to 24 remained the hardest-hit as the jobless rate in this age group, excluding students and military conscripts, registered 58.8 percent.

‘One or Two More’ Greece Bailouts Likely - The eurozone may need to help Greece with one or even two more aid packages, according to a representative of the European Central Bank (ECB). “We will have to make some extra efforts — certainly once, perhaps twice”, said Luc Coene, a ECB Governing Council member on Wednesday. Greece’s economy is seeing “very slow” improvements, he said, following a €200 billion ($265 billion) bailout from eurozone lenders and another €40 billion ($530 billion) package from the International Monetary Fund. But the country’s debt problems no longer pose an immediate threat to the “whole edifice” of the eurozone. The financial situation is “much better armed” to ward off another crisis, said Coene, who is also the president of Belgium’s National Bank. International experts from the European Commission, European Central Bank and International Monetary Fund will meet in Athens later this month for talks on Greece’s recovery 

Oxfam warns: Austerity threatening to impoverish 25 million more Europeans -Up to 25 million more Europeans are at risk of sinking into poverty by 2025 if governments push on with austerity measures, international aid agency Oxfam warned Wednesday, calling such policies “moral and economic nonsense”. “Europe’s handling of the economic crisis threatens to roll-back decades of social rights,” said Natalia Alonso, head of Oxfam’s EU office. “Aggressive cuts to social security, health and education, fewer rights for workers and unfair taxation are trapping millions of Europeans in a circle of poverty that could last for generations. It is moral and economic nonsense.” “The only people benefiting from austerity are the richest 10 percent of Europeans who alone have seen their wealth rise. “Greece, Ireland, Italy, Portugal, Spain and the UK — countries that are most aggressively pursuing austerity measures — will soon rank amongst the most unequal in the world if their leaders don’t change course.

Almost 1 in 3 Europeans could be poor by 2025 -- Europe could have another 25 million poor people by 2025 as the effects of austerity measures are felt across the continent, a leading poverty charity warned on Thursday. This would bring the total number of people living in poverty across Europe to 146 million, almost a third of the population and it could take up to 25 years to regain the living standards people enjoyed five years ago, according to Oxfam. The charity criticized austerity measures that European countries have adopted, saying they have failed to succeed in shrinking government debt and have instead increased inequality and stunted economic growth. (Read more: German election will kill Europe austerity: Blackstone's Studzinski) Play VideoEU unemployment 'horrendous': Bill Rhodes Bill Rhodes, former senior vice chairman of Citi group, tells CNBC that he expects the euro zone to move from recession into stagnation."Austerity is making an already bad economic situation far worse in the UK and across large parts of Europe. Cuts to social security and public services are combining with falling incomes and rising unemployment to create a deeply damaging situation in which millions are already struggling to make ends meet," said Max Lawson, Oxfam's head of advocacy. Oxfam said that unemployment is too high, wages are falling fast and one in ten working households in Europe now lives in poverty, which could get worse as austerity grips the continent.

UK Realtors Ask Central Bank To Halt Housing Bubble - "The Bank of England now has the ability to take the froth out of future housing market booms, without having to resort to interest rate increases," is the way the UK's realtor association explains their demand that the BoE limit national house price growth to 5% a year. While they would benefit from short-term gains, it seems the Royal Institution of Chartered Surveyors (RICS) sees the dangers of another unsustainable housing boom outweigh them. As The FT reports, RICS adds, "this cap would send a clear and simple statement to the public and the banking sector, managing expectations as to how much future house prices are going to rise. We believe firmly anchored house price expectations would limit excessive risk taking and, as a result, limit an unsustainable rise in debt." Or will it merely lead to further financial engineering and leverage?Via The FT, Estate agents and surveyors have become so concerned about the dangers of another unsustainable housing boom that their trade body is urging the Bank of England to limit national house price growth to 5 per cent a year.

Stephen Hawking's on the team - but why no Bruce Willis? World’s biggest brains get together to work out how to save us all from the end of the world - Some of Britain’s finest minds are drawing up a “doomsday list” of catastrophic events that could devastate the world, pose a threat to civilisation and might even lead to the extinction of the human species. Leading scholars have established a centre for the study of “existential risk” which aims to present politicians and the public with a list of disasters that could threaten the future of the world as we know it. Lord Rees of Ludlow, the astronomer royal and past president of the Royal Society, is leading the initiative, which includes Stephen Hawking, the Cambridge cosmologist, and Lord May of Oxford, aformer government chief scientist. The group also includes the Cambridge philosopher Huw Price, the economist Partha Dasgupta and the Harvard evolutionary geneticist George Church. Initial funding has come from Jaan Tallinn, the co-founder of Skype. “Many scientists are concerned that developments in human technology may soon pose new, extinction-level risks to our species as a whole,” says a statement on the group’s website.

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