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

Saturday, September 21, 2013

week ending Sept 21

A Look Inside the Fed’s Balance Sheet (interactive graphic)The Federal Reserve‘s balance sheet has ballooned in the past year, and even if they start cutting back bond purchases, it’s likely to continue growing. The assets the Fed holds have jumped by over $800 billion, or about 30%, to more than $3.6 trillion since it first announced its latest bond-buying program last September. The central bank has been adding $85 billion a month in Treasurys and mortgage-backed securities since early this year. Many Fed watchers expect the Fed to cut back its purchases at this week’s meeting, but even so it will continue to add to its balance sheet — just at a slower pace. The balance sheet is up from less than $1 trillion prior to the recession. During the downturn the Fed expanded its balance sheet through several programs aimed at keeping markets functioning. As markets stabilized the Fed shifted out of emergency programs and into purchases of U.S. Treasurys, MBS and agency debt securities to drive down interest rates and encourage more borrowing and growth in three separate rounds of what is known as quantitative easing. Earlier in the recovery, MBS and agency debt holdings, which were part of the first round of quantitative easing, had steadily declined as loans were paid off or matured. But with the latest round of bond purchases, the Fed ramped up its securities purchases. The Fed holds more than $1.2 trillion in MBS and agency debt, but owns more Treasurys — over $2 trillion.

FRB: H.4.1 Release-- Factors Affecting Reserve Balances -- Thursday, September 19, 2013: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Goldman and Merrill economists on "Tapering" - From economists Jan Hatzius and Sven Jari Stehn of Goldman Sachs:

• Fed officials will review three key pieces of information next week: (1) economic activity and labor market indicators that have been modestly encouraging, (2) a stabilization in core inflation at levels well below the 2% target, and (3) a tightening of financial conditions since the last meeting, mainly because of higher long-term interest rates.
• We believe the news is consistent with a shift in the mix of monetary policy instruments away from asset purchases and toward forward guidance. ...
• Regarding the asset purchase program, we expect a tapering of $10bn, all in Treasuries, as well as confirmation from Chairman Bernanke that the committee still expects to end QE3 in mid-2014.  
From the Merrill Lynch economic team:  We expect the Fed to delay tapering at its September 17-18 meeting, but a “token taper” of $10 bn is also quite possible. More important, we expect a market-friendly message from the Fed, underscoring a slow, data-dependent exit.

Slackers at the Fed - Paul Krugman -To taper or not to taper, that is the question. Except it’s actually two questions:

  1. 1. Are we getting close enough to “full employment” that it’s time to let up on the gas? How much slack is there in the economy, really?
  2. 2. To the extent that the economy still needs a boost, are purchases of long-term Treasuries the way to do this?

The answer to question 2 is probably no —  but that’s an argument for replacing the current policy with something better, like purchases of MBS and/or stronger forward guidance, not for a taper all by itself, which serves as a sort of forward anti-guidance: it signals, whether the Fed intends this or not, a general shift toward hawkishness. But what about question 1? The measured unemployment rate is down a lot — in fact, at 7.3 percent it’s almost exactly the same as it was in November 1982 1984, when Ronald Reagan won big on claims of restored prosperity. But most of the fall in unemployment reflects lower labor force participation rather than job growth. Even if we focus on prime-age workers, so as to net out demographic effects, the employment story is highly unimpressive:

Give Jobs a Chance, by Paul Krugman - Now the Fed is talking about slowing the pace of these purchases, bringing them to a complete halt by sometime next year. Why?  One answer is the belief that these purchases — especially purchases of government debt — are, in the end, not very effective. There’s a fair bit of evidence in support of that belief, and for the view that the most effective thing the Fed can do is signal that it plans to keep short-term rates, which it really does control, low for a very long time.  Unfortunately, financial markets have clearly decided that the taper signals a general turn away from boosting the economy: expectations of future short-term rates have risen sharply since taper talk began, and so have crucial long-term rates, notably mortgage rates. In effect, by talking about tapering, the Fed has already tightened monetary policy quite a lot.  But is that such a bad thing? That’s where the second argument comes in: the suggestions that there really isn’t that much slack in the U.S. economy, that we aren’t that far from full employment. After all, the unemployment rate, which peaked at 10 percent in late 2009, is now down to 7.3 percent, and there are economists who believe that the U.S. economy might begin to “overheat,” to show signs of accelerating inflation, at an unemployment rate as high as 6.5 percent. Time for the Fed to take its foot off the gas pedal?  I’d say no, for a couple of reasons.

Fed Will Not Reduce Stimulus, Waiting for “More Evidence” of Recovery - In one of the most anticipated announcements in months, the Federal Reserve’s Federal Open Market Committee declared that it would maintain it’s policy of buying $85 billion in government debt and mortgage backed securities per month, despite expectations that it would begin to taper these purchases in response to an improving economy. According to a statement from the Fed, “the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.”

Fed, in Surprise Move, Postpones Retreat From Stimulus Campaign - — The Federal Reserve postponed any retreat from its long-running stimulus campaign Wednesday, saying that it would continue to buy $85 billion a month in bonds to encourage job creation and economic growth. As Congressional Republicans and the White House hurtle toward another showdown over federal spending, the Fed said it was concerned that fiscal policy once again “is restraining economic growth,” threatening to undermine what the Fed had described just months ago as a recovery gaining strength.  The Fed’s decision also may reflect the consequences of yet another premature retreat from its own policies. Mortgage rates have climbed and other financial conditions have tightened since the Fed signaled in June that it intended to reduce its asset purchases by the end of the year, the Fed noted Wednesday.  “The tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and the labor market,” it said in a statement released after a regular two-day meeting of its policy-making committee.  The decision, an apparent victory for the Fed’s chairman, Ben S. Bernanke, and his allies who have argued for the benefits of asset purchases, was supported by all but one member of the Federal Open Market Committee. Esther George, president of the Federal Reserve Bank of Kansas City, dissented as she has at each previous meeting this year, citing concerns about inflation and financial stability.

Fed Watch: No Taper - Yet - The FOMC pulled yet another rabbit out of the hat by holding off on the expected taper, slamming down on analysts (including yours truly) who thought the Fed would pull the trigger today. Two significant factors that held the FOMC in check were fiscal policy and higher interest rates. From the statement:Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen further and fiscal policy is restraining economic growth....Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market.Now, why did financial conditions tighten? Oh yes, I recall - because just talking about tapering is the same as tightening. Remember, unless yields head much lower (they are down around 10bp as I write), much of the damage is already done is already done.Holding off on tapering also achieves two other objectives. The first is to make clear that policy is data dependent:The second - assuming we now have an Octaber to look forward to - is that the Fed can prove it can change policy in meetings not followed by a press conference.

Fed Statement Following September Meeting - The following is the full text of the statement following the Fed's September meeting.

Parsing the Fed: How the Statement Changed - The Federal Reserve releases a statement at the conclusion of each of its policy-setting meetings, outlining the central bank’s economic outlook and the actions it plans to take. Much of the statement remains the same from meeting to meeting. Fed watchers closely parse changes between statements to see how the Fed’s views are evolving. The following tool compares the latest statement with its immediate predecessor and highlights where policy makers have updated their language. This is the September statement compared with July.

Four Takeaways on the Fed’s Economic and Rate Projections - The big headline in Wednesday’s Federal Reserve meeting is its decision not to pull back on an $85 billion monthly bond buying program. But important details of the Fed’s thinking also emerged in its economic and interest-rate projections: Soft growth, low inflation, modest improvement in unemployment and a very long period before short-term interest start rising again.  Here is a closer look at how the Fed sees the economy and rates:

  • –Ten of 17 Fed officials see short-term interest rates at or below 2% by the fourth quarter of 2016. Fourteen of 17 Fed officials don’t see the Fed starting to raise interest rates until 2015 or 2016. The message: The Fed is going to take its time before it starts raising interest rates, and once it does start raising them it intends to move slowly.
  • –Once again the Fed is revising down its economic growth forecasts. The Fed now sees growth between 2% and 2.3% this year, down from 2.3% to 2.6%. It also nudged down its 2014 growth forecast to between 2.9% and 3.1%, from 3.0% to 3.5%.
  • –Even though growth keeps disappointing, the Fed sees unemployment on track to keep falling to between 6.4% and 6.8% in 2014, between 5.9% and 6.2% in 2015 and between 5.4% and 5.9% in 2016. There are two important points related to these projections: 1) Fed officials are getting increasingly used to the idea that the economy doesn’t need to generate as much output as they have expected to reduce unemployment. . 2) Their 6.5% unemployment threshold looks like a very soft target. The Fed has said it won’t even start talking about raising short-term interest rates until the unemployment rate hits 6.5%.
  • –The Fed sees inflation firming. The forecast for this year is between 1.2% and 1.3%, more than the forecast in June of 0.8% to 1.2%. Still, they don’t see it getting back to 2% next year. In other words, they’re little less worried about inflation getting too low, but they do see it remaining below their 2% objective. That’s likely to be floated as another reason to be patient about pulling back on bond buying or raising short-term rates.

Fed Taper End Done In By Deflation and Labor Participation Rate - The Federal Open Market Committee is not going to stop quantitative easing just yet.  This is no surprise considering the weak economic conditions and as we pointed out, an inflation rate below expectations.  The risk of deflation is real.The Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.The tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term. Don't bank on the Fed stopping quantitative easing by December either as we pointed out.  They are continuing to assess market conditions and are basing the decision on sustainable increases in labor market conditions and wanting to see the inflation hit the 2.0% annual target. Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases. The FOMC also released their new economic projections and notice how the PCE index is below the Federal Reserve 2.0% annual target rate.  In other words, they expect inflation to be too low for the short term.

Digging a deeper hole - Looks like our assessment has been wrong. The current FOMC, who has chosen to stay the course on securities purchases, is even more dovish than many had predicted. The Fed is following a dangerous path. Nevertheless the markets love it.  We've seen the damage even a hint of exiting this program did to emerging markets. The deeper the US central bank gets into this hole, the more difficult the eventual exit will become.

FOMC Projections and Press Conference - The key sentence in the announcement was: "the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases". With the downgrade to GDP and inflation (for 2014), it makes sense that the Fed decided to wait for more data. As far as the "Appropriate timing of policy firming", the participants moved out a little with two participants now seeing the first increase in 2016. Bernanke press conference here or watch below.   On the projections, GDP was revised down for 2013 and 2014, the unemployment rate was revised down slightly, and inflation was revised down for 2014.1 Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.  The unemployment rate was at 7.3% in August. 

Taper tiger - SHORTLY after the Federal Reserve hinted in May that it might start to ease up on its monetary stimulus, rich-country bond yields shot up; emerging-market currencies and stockmarkets cratered. Was it all for nothing? On September 18th, at the end of a closely-watched meeting, the Federal Open Market Committee, the Fed’s policy-setting body, chose not to “taper”. Instead, it said it would keep buying $85 billion a month of Treasury and mortgage bonds with newly-created money (the policy of “quantitative easing”, or QE). So what has now held it back? First, the pace of job growth has recently flagged, and the drop in unemployment has been flattered by the absence of people looking for work. The labour-market participation rate sank to 63.2% in August, a 35-year low. Second, fiscal policy continues to work at cross-purposes to monetary policy. Higher taxes and spending cuts have subtracted at least a full percentage point from growth this year. The prospect that spending caps may be lifted when the new fiscal year begins on October 1st has melted away. With Republicans in Congress and Barack Obama unable to agree on how to fund the government or raise the Treasury’s statutory debt ceiling, the risk of a government shutdown loomed large in the minds of Fed officials. But the third and most important restraint on the Fed was the unexpected effect on financial markets of a prospective change in monetary stance. The central bank had always emphasised that tapering did not mean tightening. Provided asset purchases remained above zero, the Fed’s balance-sheet would keep growing and monetary policy would still be loosening.

Fed Watch: Further Post-Mortem - Federal Reserve Chairman Ben Bernanke took many of us to the woodshed today with the unexpected decision to delay tapering until a later date. I am still processing the outcome of the FOMC meeting, and I suspect I will still be processing it a week from now. At the moment, I am wary of overreacting to this meeting, fearing the possibility of being slapped around again at the next meeting. So for the moment I am going to put aside the explanation that the Fed wanted "to send a message" to markets about who dictates monetary policy. Same to for the idea the Fed' s reaction curve has shift measurably. Instead, I think it best to keep it simple - the Fed decided they didn't have enough evidence to expect the current momentum, such as it is, would be sustained and consequently decided to hold pat. It depends, I think, in how you interpret this section of the FOMC statement: Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. I think this means that, in general, the data was broadly consistent with the Fed's expectations. That is, we weren't reading the data wrong. They just decided that they could wait until longer before initiating the taper. And why might they want to do so? Two reasons: Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen further and fiscal policy is restraining economic growth.

Fed’s QE surprise shows problems of forward guidance - The sense of surprise at the US Federal Reserve on Wednesday is a reminder that we are still in the PalmPilot era of forward guidance about monetary policy: the technology exists, but it is clunky, temperamental and some way off the iPad level of usability that everybody expects.Markets reacted with great enthusiasm and some bewilderment after the Fed chose not to “taper” its asset purchases from $85bn a month. It was less the decision that was a surprise – that was perfectly justifiable, given the wobbly state of the economy – but how the chairman Ben Bernanke appeared to back away from his guidance in June. The great innovation of the Fed’s third round of quantitative easing, which began a year ago, was to say it would continue until there was a “substantial improvement in the labour market”. In June, Mr Bernanke tried to clarify what substantial improvement meant, and thus provide better guidance. He said that if the jobs market kept getting better, growth started to pick up over the next few quarters and inflation began to return to target, it would make sense to start reducing purchases later this year and stop them by the middle of 2014 with an unemployment rate of around 7 per cent. But the guidance has turned out to be too specific, in a way that Mr Bernanke and the rate-setting Federal Open Market Committee clearly found intolerable. It made no allowance for the big rise in long-term interest rates triggered by the idea of tapering; it did not account for the possibility of an imminent fiscal shock from Congress; and it leaned too heavily on an unemployment rate that has fallen faster than the Fed expected, given the health of the economy.

Fed’s George: Decision Not to Taper Raises Risks, Clouds Credibility - The Federal Reserve‘s decision this week to keep up its bond purchases risks a spike in interest rates and clouds the credibility that is needed for future policy to be effective, a Fed official warned Friday. As the lone dissenter of the Fed’s policy decision Wednesday, Kansas City Fed President Esther George explained she is worried the Fed’s ongoing efforts to stimulate the economy fail to take into account the economic progress already made and raise future costs. Ms. George has now cast a dissenting vote at each of the Fed’s six policy meetings this year. “Waiting for more evidence at this point, in the face of economic growth, unnecessarily discounts the progress we’ve seen, unnecessarily discounts the costs of this tool,” the central banker said in a speech before the Manhattan Institute for Policy Research in New York. Such costs include potentially sharp market disruptions when the Fed does pull the tapering trigger and excessive inflation because the Fed waited too long to pull back. And those costs may not be worthwhile when the economy is seeing little added benefits from monetary stimulus. “A trillion dollars later, we have weaker GDP, we have lower inflation, we have higher interest rates. Unemployment continues to come down, but a lot of troubling things are under the cover there,” she said. “Our more powerful tool is short-term interest rates.” Furthermore, since Wednesday’s policy decision, Ms. George said the surprise reaction it caused across financial markets raises another challenge: maintaining market participants’ trust. “By delaying, I think the committee will have to think about challenges about credibility and predictability,” Ms. George said.

Goldman Pushes Back Forecast On First Taper To December, First Rate Hike To 2016: FOMC Q&A -- For what it's worth (not much lately), here is Goldman's Jan Hatzius with a Q&A on the Fed's announcement, which now sees the first tapering to start in December, QE to conclude (three months after their prior forecast), and expects the first rate hike to take place in 2016: 8 years after the start of the financial crisis.

  • We now expect the QE tapering process to start at the December 2013 FOMC meeting and to conclude in September 2014, three months later than before. Our baseline is that the first step will consist of a $10bn cut in Treasury purchases. These steps remain data dependent in all respects--timing, size, and composition.
  • A change in the explicit forward guidance for the federal funds rate is also likely, probably at the same time as the first tapering step. Our baseline is an indication that the 6.5% unemployment threshold is conditional on a forecast of a near-term return of inflation to 2%, and that a lower threshold would apply otherwise. But there are also other options, such as an outright inflation floor or an outright reduction in the unemployment threshold.
  • Our forecast for the first hike in the funds rate remains early 2016. The reasons are the large output gap, persistent below-target inflation, and some weight on "optimal control" considerations. The market and most Fed officials see an earlier hike, although the number of FOMC participants projecting the first hike in 2016 rose from 1 to 2 and the "dots"--the projections for the appropriate funds rate at the end of 2016 by FOMC participants--came in below expectations.

Fed Gives Breathing Room to Asian Economies - The U.S. Federal Reserve’s surprise decision not to pull back on a $85 billion monthly bond-buying program provides some respite to Asian economies that have been under pressure due to concerns about an end to U.S. easy-money policies. Asian countries with large current account deficits – notably India and Indonesia – could see the most short-term benefit to their currencies, bonds and stocks from the Fed’s decision to leave its extraordinary monetary policies in place. Both these nations have faced massive selling of their currencies and have had to offer investors much higher rates to borrow money since the Fed intimated in late May it would soon begin winding down its bond buying. That’s because investors, anticipating higher U.S. rates, began to reduce their exposure to more-risky emerging markets. India and Indonesia – along with Brazil and Turkey – were especially vulnerable because they import more than they export, making them reliant on foreign capital inflows to fund the deficit. The Fed’s latest actions “may foster expectations that capital outflows from EM can stop or even reverse,” Barclays said. “This should be particularly supportive for the currencies and rates markets of countries with higher current account deficits.” Both India and Indonesia have tightened monetary policy in recent weeks in an attempt to stop the outflows. Investors may now start to think more monetary tightening – which risked further squeezing economic growth – may not be necessary. “Some of the priced-in expectations of aggressive monetary tightening may be unwound,” Barclays said.

Forget 7% Unemployment as Fed Guidepost -- So about that 7% unemployment rate Federal Reserve Chairman Ben Bernanke cited back in June? Don’t pay so much attention to that. Earlier this year he said that’s where the Fed expected the unemployment rate to be when it ended its signature bond-buying program. But it was a different message that Mr. Bernanke delivered at his press conference Wednesday after he and other Fed officials decided not to start pulling back on the $85 billion-per-month bond-buying program. Mr. Bernanke made no mention of the 7% number until asked about it by a reporter, and then he downplayed the importance of the figure. “There is not any magic number that we are shooting for. We’re looking for overall improvement in the labor market,” he said. When he offered 7% in June, it was meant to be an “indicative number” to give the public a sense of where unemployment “might” be when the bond-buying program ends, he said. He also said that the unemployment rate “is not necessarily a great measure in all circumstances of the state of the labor market overall,” referring to the fact the jobless rate has fallen in part because people are dropping out of the labor force. In June, Mr. Bernanke said the bond-buying program would likely end by mid-2014, at which point the Fed expected unemployment would be about 7%. Now it looks like the jobless rate could be quite a bit lower than that by the middle of next year. Fed officials, in their updated economic projections also released Wednesday, expect the jobless rate to be between 7.1% and 7.3% by the end of this year, and to fall to between 6.4% and 6.8% by the end of 2014.

Shorter Federal Reserve: The Economy Breathes Sort of OK if We Keep it On Life Support -- That’s what the decision to continue Quantitative Easing 3 (QE3), the purchase of 85 billion dollars of treasuries and mortgage backed securities a month, is an admission of. It is also a way of not causing Brazil and India’s currencies to crash out, which just the suggestion of a reduction of QE3 was causing. It is worth reiterating that the purpose of Quantitative Easing is to make the rich richer, and that it has done.  US stock markets increased 150% from their lows, one of those bull markets traders dream of.  However the employment situation has not significantly improved.Median household net worth is down, median income is down, but the rich are richer. This is not to say that QE does no good for the regular economy, it does, but it does far less good than could be done with eighty five billion dollars a month.  A program to, say, retrofit every single federal building for active and passive solar would employ more people and have more of a ripple effect.  Eighty five billion dollars a month (970 billion a year) is a LOT of money. Nonetheless, given its refusal to break up the large banks; the President and Congress’s refusal to actually tax rich people (thus necessitating the Fed buying treasury bonds); and a refusal to allow the housing market to settle to its actual value while supporting underwater homeowners, the Fed is in a bind.  If you refuse to do anything that is primarily intended to help ordinary people, refuse to engage in sufficient measures to break the oil supply bottleneck (and no, Fracking isn’t cutting it); refuse to tax rich people (who have the money); and refuse to engage in any sort of industrial policy while funneling money to industries like banking, insurance, pharma and the military-industrial complex which are ultimately parasitical, why then, it can certainly seem like you have no choice but to continue throwing money at banks and rich people, and hoping some of it gets to the real economy.

Less Tapering Becomes Tightening Credit No Matter What Fed Says - Federal Reserve Chairman Ben S. Bernanke sent bond yields a percentage point higher just by talking about adding stimulus at a slower pace. The rout serves as a warning to monetary policy makers that their exit from record accommodation won’t be easy to control. The jump in yields has pushed up the cost of mortgages for millions of Americans, curbed demand for homes and prompted thousands of job cuts at Bank of America Corp. and Wells Fargo & Co., all at a time when the Fed’s policies are aimed at creating jobs and supporting housing. Bernanke has stressed that any reduction in the amount of money the central bank pumps into the financial system each month doesn’t mean policy is getting any more restrictive. That message hasn’t been heeded by bond investors, demonstrating how hard it will be for the Fed to control long-term interest rates as it moves toward tightening, “Getting out of ultra-low interest-rate policy was never going to be easy, and this is a perfect illustration of why,” “It is possible that this will make it even harder because the market will be even more primed to view inflection points as messy and destructive, and therefore a reason to sell early.”

‘It seems that the Fed now understands that tapering is tightening’ - You’ve seen those who were (ahem) surprised by the US central bank’s decision not to start tapering this month… now read the words of one who got it right: BNP Paribas’ Julia Coronado, the bank’s chief North America economist and ex-forecaster at the Fed.And interestingly, BNP think even December is in doubt:What hasn’t been clear even to seasoned Fed watchers like ourselves is how the Fed is weighing progress (or the lack thereof) on their dual mandates for employment and inflation against worries about the costs and benefits of their unconventional balance sheet policies. Wednesday’s communication made it clear that progress on dual mandates is still dominant and the Fed believes there is still some juice left in the QE orange…As we had expected, the tapering guidance was left far more open-ended and data dependent than in June. Chairman Bernanke indicated the Fed could reduce asset purchases “possibly later this year”. When asked about the 7.0% unemployment rate that he indicated in June was expected to prevail when QE came to an end, he said there is no “magic number we are shooting for. We are looking for overall improvement in the labor market”.This raises questions about our December taper call. We don’t expect as buoyant an H2 as the FOMC; our forecast is for GDP growth of 1.8% q4/q4 in 2013, whereas the Committee’s central tendency forecast is 2.15%. Chairman Bernanke suggested that tapering required three conditions: “growth that’s picking up over time, continuing gains in the labor market, and inflation moving back towards our objective”. We don’t expect these conditions to be well established until H1 2014.

The Fed Has Investors Overjoyed, And It's For All the Wrong Reasons - Mohamed A. El-Erian - If anything, the Fed under Ben Bernanke has made a point of enhancing “transparency.” Mr. Bernanke is the most communicative chairman in Fed history. He and his colleagues are releasing more data and projections than ever before. And Janet Yellen, the Fed’s vice governor and Mr. Bernanke’s likely successor, has led a comprehensive transparency initiative. Yet the Fed has ended up surprising in major ways over the last few months, leading to wild gyrations in markets. The Dow collapsed by 5% between May 21st and June 24th, before surging by 8% to a new record close on Wednesday. Commodity and bond markets have also been quite volatile, with the benchmark 10-year Treasury unusually trading in an almost 50 basis point range. Changes in underlying economic fundamentals do not warrant such volatility. While the economy continues to heal, it is has remained stuck in a multiyear, low-level growth equilibrium that frustrates job creation and worsens income distribution. It could be that the Fed is really worried about the upcoming congressional battles over funding the government and lifting the debt ceiling. As illustrated by the debacle of the summer of 2011, a slippage could undermine economic performance. And we should never underestimate the appetite of our polarized Congress for self-manufactured challenges. Having said this, the Fed usually prefers to be reactive rather than proactive in such situations. It is also hard to argue that the Fed has made a major discovery about the longer-term impact of what is after all a highly experimental policy approach. If anything, our central bankers (and, I would argue, everybody else) are essentially in the dark when it comes to the specific evolution over time of what Mr. Bernanke labeled back in 2010 the “benefits, costs and risks” of prolonged reliance on unconventional monetary policy.

Federal Reserve Program Is Socialism For The Rich - If you have followed any economic news at all you will have heard the term quantitative easing, or QE, which is technocratic shorthand for the Federal Reserve shoveling funds into Wall Street banks to produce a phenomenon known as the “wealth effect.” The wealth effect relies principally on trickery. The hope being that people will see higher asset prices, and in a self-fulfilling prophecy, invest and produce more thinking the economy is better – which will make the economy better.  The reality is the Federal Reserve’s QE program has made the rich a lot richer and done little to nothing for the poor and middle class – besides screwing people living on fixed incomes. In fact, it has now devolved into a redistribution scheme to take money from poor and middle class workers and give it to the rich – or so says billionaire investor Stanley Druckenmiller. In an interview with CNBC related to Fed Chairman Bernanke’s massive cave to Wall Street earlier this week where he refused to stop QE, Druckenmiller revealed what every financially literate American knows – that QE is socialism for the rich.. First of all, as a practitioner of markets I love this stuff. OK, this is fantastic. It’s fantastic for every rich person. This is the biggest redistribution of wealth from the middle class and the poor to the rich ever. Who owns assets? The rich. The billionaires. You think Warren Buffett hates this stuff? You think I hate this stuff? I had a very good day yesterday. OK?

Fed’s Bullard: Small Taper Possible in October - St. Louis Fed President James Bullard said Friday that “a small taper is possible in October” and the decision not to move at the latest meeting was “borderline.” “This was a close decision here in September,” he said on Bloomberg TV. “It’s possible you get some data that can change the complexion for the outlook and make the committee comfortable with a small taper in October.” There’s no press conference scheduled for after the October meeting, Mr. Bullard said, but they could put one on. Mr. Bullard is one of many speakers today. He will have further comments today, and in addition there will be speeches by Kansas City Fed leader Esther George, a persistent opponent of Fed bond buying; Minneapolis Fed boss Naryana Kocherlakota, who supports aggressively easy money policy; and Fed Governor Daniel Tarullo, who will speak on regulatory issues. Mr. Bullard also said he was concerned that in its dual mandate the Fed’s focus has shifted too much toward unemployment levels and away from inflation. Mr. Bullard said that for him it would be a mistake for the Fed to remove accommodation when inflation is below its 2% target, and that to establish credibility the Fed “should defend its inflation target from below.” “If we set them in place and target 2%, we should hit that target and have credibility that we will hit that target,” he said. Adding it’s a concern to him that the Fed “is moving accommodation when inflation is below target and maybe threatening to go lower.”

What Are the Costs to Extending QE Anyway? - Brad DeLong - Toward the end of an otherwise very good think piece (i.e., a think piece that quotes my weblog favorably), the intelligent and thoughtful Cardiff Garcia mysteriously writes: But the downsides to continued QE aren’t trivial either. Which makes me ask: what are the downsides to continued QE? The Federal Reserve buys long-term Treasury debt. The private sector has no less amount of safe U.S. government liabilities to serve as collateral--in fact, the cash or that short-term Treasuries now in private hands are better collateral for cash than the long-term Treasuries. The Federal Reserve now bears some short-term risk, but not if it holds the securities to maturity--which it will. The Federal Reserve has thus promised that it will not let the money stock fall below its long-term Treasury holdings until they mature, which adds to certainty and removes deflation risk. The private sector's limited risk-bearing capacity thus has a reduced quantity of duration risk to bear, and that risk-bearing capacity can be turned to bearing the risks of investment and enterprise. Everybody wins! Or, rather, nearly everybody wins: people who were in the business of bearing duration risk find that the returns to bearing duration risk are lower, and thus that their institutional capital in the form of expertise as to how and in what manner to bear duration risk has been impaired in value by the Federal Reserve's policies. But are those who are in the business of bearing duration risk more morally virtuous than those who are in the business of starting-up risky businesses or selling their labor-power for money? Is there a reason why Federal Reserve policy should be tuned two notches toward enriching those in the business of bearing duration risk and impoverishing those in the business of starting-up risky businesses or selling their labor-power for money?

Woodford and the QE tradeoffs, revisited -- Cardiff Garcia - Matt Klein gets in touch with Michael Woodford — macro theorist of world renown, author of a timely monetarist-cheering Jackson Hole paper, intellectual-space-provider for the NGDP level targeting movement — to ask the economist just why he doesn’t mind the Fed’s plan to begin tapering.  Klein first cites a passage from Woodford’s paper at Jackson Hole last year: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. And this is from Woodford’s email response to Klein, which refers to the above: This explains, in my view, how it was possible for Fed officials to indicate that it would likely be time to begin slowing the rate of purchases later in the year, even while admitting that it was not yet time for the tapering to begin last spring. The point was not so much that they felt confident that they could already predict labor market conditions in the remainder of the year, but rather that they could already predict how large the balance sheet would have gotten by later in the year — and they knew that, barring substantial unexpected developments with regard to economic conditions, they would be concerned by then about allowing the growth of the balance sheet to continue too much further.

The paradox of over-production in a world of QE - The Fed’s taper no-show this week resulted in a plethora of commentaries and articles flagging the risks of the world’s collective addiction to QE. To name a few:

  • 1) Felix Salmon noted the dangers of the growing QE multiple — the incremental sugar hit the market gets from every anticipated unit of QE.
  • 2) Tyler Cowen didn’t like that very much either.
  • 3) Gillian Tett, meanwhile, suggested that all that QE does in its current form is provides credit for existing infrastructure and capacity, rather for new investment.
  • 4) And HSBC’s chief economist Stephen King argued that QE only exacerbates the conditions that lead to savings glut conditions, which arguably created the crisis in the first place.

Either way, the idea that the economy is now somehow dangerously addicted to QE is a pervasive theme, and QE bashing is becoming the definitive vogue in town.

What The Average American Thinks Of QE - Despite the Fed's strongest efforts at improving its 'communication', the average American is relatvely unaware of just what it is that QE does (and is). Reuters reports that a sad 73% of respondents could not define what the crucial-to-the-market's-survival program is with 12% of respondents believing QE was a computer-assisted program that the Fed uses to manipulate the dollar; and another 11% thought it was part of the Dodd-Frank Wall Street reform legislation enacted following the crisis.  With the 'taper' due to be announced today and the 'tapering is not tightening' message being trumpeted loud and clear, we suspect that will not get through to the public either; but as the infamous Michael Woodford noted, it doesn't matter, "the beliefs of the general public... [aren't] the primary channel that the Fed has been relying upon." More relevant, he said, is whether bond traders understand the Fed's intent.  Via Reuters, The Fed's $2.8 trillion "quantitative easing" program has, among other things, lifted stock prices to record highs, driven interest rates to record lows and put a floor under what had been a reeling housing market. Yet barely a quarter of Americans even know what it is. A poll leading up to the Fed's pivotal decision ... found just 27 percent of U.S. adults could pick the correct definition of quantitative easing from among five possible answers.

Hilsenrath Spots "The 2016 Problem" Facing The Fed - As we warned here exactly one month ago, the tapering discussion may be merely a "sideshow to a previously undiscussed main event: the Fed's first forecast of 2016 interest rates." Now, the Fed's mouthpiece-at-large has decided we can handle the truth and the WSJ's John Hilsenrath explains the dilemma - The Fed's updated economic projections could show an economy that appears back to normal by 2016, but their projections of where short-term interest rates will be could show rates still quite low by then. Their challenge: How to justify the low interest-rate plan when their own estimates suggest an economy regaining its health. Crucially, Hilsenrath adds, as the economy improves, the Fed is trying to shift its emphasis from bond buying, which has uncertain costs and benefits, to the low-rate pledge. How will the Fed square an economy near full employment with a federal funds rate that remains historically low? "There is an inconsistency there," said John Taylor - apparently confirming what Rick Santelli asked before - "What is the Fed afraid of?" As we noted in detail here a month ago,"The problem is that at the end of 2016 [the FOMC's] economic forecasts may well show an economy that is close to full employment and price stability. An end-of-2016 funds rate of 4%, which implies 300bp of tightening over the course of 2016, is well in excess of what the market is pricing in....If the Fed presents a 2016 interest rate forecast that is well above the market's expectations—and if the market takes any cue from the Fed—this could tighten financial conditions such that the forecasted acceleration in growth fails to materialize"

Fed Candidate Kohn Warns Easy Policy Leads to Imbalances - Donald Kohn, a candidate to be the next Federal Reserve chairman, Monday said easy monetary policies risk creating financial problems so big that regulators can’t handle them.  “Very easy monetary policy often builds imbalances that may become so large that can’t be countered by regulation,” Mr. Kohn said at an event on financial stability at the Brookings Institution think tank. The former vice-chairman of the Fed also said it’s not yet clear whether the Financial Stability Oversight Council, a panel of top U.S. financial regulators established after the 2008 crisis to help prevent future catastrophes, has the adequate tools necessary and is the right institution to fix major potential problems in the system. The Fed is a key member of the committee. “The jury’s still out,” he said. The comments come as Mr. Kohn’s chances of becoming the next Fed chairman shot up Sunday after the White House’s top pick, former Treasury Secretary Lawrence Summers pulled out of the race. Current Fed vice-chairwoman Janet Yellen is now thought to be the front-runner for the position, but Kohn has by no means been ruled out. Mr. Kohn’s comments provide insight into the candidate’s philosophy on issues of major concern to the lawmakers who approve Fed chairman nominees and to the firms facing increased regulation: how the Fed’s current easy money policies could threaten financial stability and whether regulators have a sufficient grip on those potential threats.

Ding Dong, the Witch is Dead, Summers Withdraws Name from Fed Chair Race - Yves Smith - I was just working on a post saying that Larry Summers campaign to become Fed chairman was in serious trouble, and here he’s gone and done us all the favor of getting the message. Larry has such high regard for himself that I doubt he has the self-awareness for a day of fasting and atonement to have led to a change of heart. His withdrawal was more likely to be based on hardening media opposition and lack of enthusiasm even among his professional peers (polls of academic and Wall Street economists showed a marked preference for Janet Yellen; there was also considerable derision and a wee bond market slump when the Nikkei ran a story that the Administration was indeed going to nominate Summers).

Full Text of Summers Letter Withdrawing From Fed Consideration

Paradigm Shift - It was deeply gratifying to learn today that Lawrence Summers has withdrawn his name from consideration for Chair of the Federal Reserve Board of Governors. Summers was a key architect of the late 20th century neoliberal economic system that failed catastrophically in 2007 and 2008, and he was implicated in some of the most notorious regulatory misjudgments of that era. There is no evidence that Summers has substantially altered the economic philosophy that animated him when he was helping to design and implement that system, so if he had acceded to the job of Fed Chief he would have been well-positioned to block stronger financial regulation and extend the unreconstructed regime of too-big-to-fail banks, loose rules, hegemonic financial sector growth and systemic financial instability that he helped create. Summers’s professional behavior is also a perfect reflection of the compromised, go-go ethos of crony capitalism that has sunken deep roots in our political culture during the past three decades, with its easy back-slapping familiarity and mutually lucrative relationships between government officials and the lords of finance, and its unobstructed two-way flows of personnel between the biggest financial institutions and the government agencies concerned with regulating them. Summers has shown a very healthy appetite for financial sector cash, and had continued the hearty meal right under the public eye, even while being actively considered for the Fed position. It’s disheartening that Summers was ever the President’s top choice, and the fact that he is out by no means assures that needed reforms and progressive changes will be made. But the era of Greenspan, Rubin and Summers has now receded one giant step further back into the annals of history and the insider power structure of that era has taken a heavy political hit which has diminished its aura of invincibility and can help prevent its key remaining figures from doing further damage in the present and future.

Fed Dilemma: Forecasting Inflation Is Hard - As it now stands, inflation is well under the Fed’s 2% target rate. As of the most recent reading in July, the Fed’s favored inflation gauge, the personal consumption expenditures price index, was up 1.4% from a year ago. That’s a firmer pace than what had been seen earlier in the year, but it’s still some distance from the Fed’s goal. Central bankers have argued frequently that they want inflation on target, not above, nor below. By that reckoning, it’s hard to understand how the Fed is contemplating dialing down the level of support it’s providing the economy when it’s undershooting its price target. If the Fed follows the path laid out by Chairman Ben Bernanke, the bond buying could end sometime next year. Officials who favor trimming the bond purchases cite continued economic growth, albeit at modest levels, and a steady decline in the unemployment rate. Most officials continue to believe inflation is weak because of temporary factors and will rise back to target over time. The Chicago Fed report said that over the recent years, inflation has simply not behaved as widely used forecasting models would have predicted. In fact, it’s done the opposite. Bank researchers noted that over 2009 and 2010 inflation picked up at a time when models predicted a “sharp” slowdown was in the offing.

Key Measures Show Low Inflation in August --The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning: According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.0% annualized rate) in August. The 16% trimmed-mean Consumer Price Index increased 0.1% (1.5% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report. Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.1% (1.1% annualized rate) in August. The CPI less food and energy increased 0.1% (1.5% annualized rate) on a seasonally adjusted basis.   Note: The Cleveland Fed has the median CPI details for August here.This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.1%, the trimmed-mean CPI rose 1.7%, the CPI rose 1.5%, and the CPI less food and energy rose 1.8%. Core PCE is for July and increased just 1.2% year-over-year. On a monthly basis, median CPI was at 2.1% annualized, trimmed-mean CPI was at 1.5% annualized, and core CPI increased 1.5% annualized. Also core PCE for July increased 0.9% annualized. These measures indicate inflation is below the Fed's target

Canadian Billionaire Predicts The End Of The Dollar As Reserve Currency; Warns "It's Likely To Get Ugly" - Grab your pre-FOMC popcorn and watch for a brief few minutes as sense is spoken on everything from the reality of the USD reserve currency's dwindling support, the stupidity of Obama's Syrian debacle, China and Russia's deals, the inevitable inflation when "the United States losing the privilege of being able to print at its will."

Fed Cuts Economic Growth Forecast - Confused why the Fed stunned everyone, and is willing to anger the TBAC by soaking up to a whoping 0.4% in 10 Year equivalents from the bond market each week thus crushing bond market liquidity even more? The reason is simple: even further trimming in the Fed's economic forecasts, which now sees 2014 GDP growth of 2.9%-3.1%, well below the 3.0%-3.5% seen in June, driven by yet another reduction in its PCE inflation forecast from 1.4%-2.0% to 1.3-1.8%. For those curious what the first forecast of 2016 data shows, here it is: the FF is seen anywhere between 0.5% to just over 4%, with the "longer run" eventually hitting 4%.

The Fed Marks Down Their Growth Forecast…Again -I’ve already given Ben&Co. a shout out for holding off on the taper, i.e., continuing their monetary stimulus at the same pace instead of beginning to dial back the asset-buying program.  Clearly and appropriately, they were motivated by continued weakness in the macro-economy and the job market.  The recovery remains fragile, and higher interest rates associated with even hints of Fed tightening right now aren’t helping.  Another motivator for today’s surprise move is yet another mark-down of their GDP forecast.  The figure below shows the average Fed forecast for this year’s real GDP growth (Q4/Q4) starting in January 2011 when they thought we’d be cruising at a smart clip by now, all the way through to today’s forecast where they think we’ll be puttering along at-or-slightly-above trend by the end of the year.The figure suggests a couple of points:

  • –Like most forecasters, the Fed underestimated the depth and persistence of the downturn; though they’ve applied both conventional and creative monetary policy to push back hard,
    –Surely the markdowns are partly a function of austere fiscal policy.  That is, in their earlier forecasts for 2013, they could not have foreseen sequestration, the premature ending of the payroll tax break, and other measures that created the fiscal headwinds currently extracting 1-1.5 percentage points off of GPD growth this year.
  • –As I note here, the next Fed chairperson, whoever she may be, needs to consider recalibrating the Fed’s forecasting model, including a bigger role for financial markets, bubbles, and leverage.

Guess What The Fed's Original 2013 GDP Forecast Was - For some reason, today pundits are appalled by the loss of Fed credibility only because Bernanke "surprisingly" U-turned on the taper announcement, catching virtually everyone offguard. Perhaps instead of that, the sophisticated financial community should focus on the core of the problem: the Fed's chronic inability to look even more than a couple of years into the future without being dead wrong about what transpires, even in the absence of a great financial crisis (which the Fed never could predict in the first place of course). Case in point, yesterday's most recently downward 2013 GDP projection. The chart below tracks how the latest and greatest prediction of the 2.15% 2013 GDP (2.0%-2.3%) moved over the past two years.From Guggenheim's Scott Minerd:"Since the U.S. Federal Reserve first began to release economic projections three years ago, it has consistently downgraded its outlook. In the latest Federal Open Market Committee meeting, the Fed further lowered its projections for GDP growth in 2013 to an average of 2.15 percent, compared with an average of 4.15 percent from its initial projections in January 2011."In other words, the Fed started at 4.2%... and ended with half that number. Oh, and that includes the recent GDP-boosting revision, without which GDP growth for the year would have been even lower.

Weak Economic Recoveries Are A Feature, Not A Bug -- Business Insider’s Steven Perlberg passing along this chart from a  new paper on American employment by economists Olivier Coibion, et al who analyzed recessions and recoveries going back more than 20 years and found that “weak” recoveries have increasingly become the rule rather than the exception: Summary: The trend is reminiscent of 1980s Western European recessions dubbed “Eurosclerosis,” leading the authors to ask if the United States is fighting its own bout of “Amerisclerosis.” In lay terms, we might call Amerisclerosis the “jobless recovery.” New normal indeed.

Tapering threatens a stormy outlook for America - Sheila Bair -The storm season will soon be upon the US, both meteorologically and metaphorically. Continued – though slowing – economic growth suggests the Federal Reserve’s anticipated “tapering” of its aggressive bond-buying programme may not be far off, and gale-force winds are possible. We saw a bolt of lightning in June when the stock market dropped 659 points at the mere suggestion by Ben Bernanke, Fed chairman, that the central bank could slow its bond purchases in autumn. Well, what do you expect? When the buyer of an estimated 90 per cent of net new bond issuance announces it is likely to call a halt, markets react. It is already raining in emerging economies. Weekly outflows from emerging bond and equity funds are escalating, reaching a total of $6bn at the end of August. Capital can now chase juicier returns in the US, particularly in the bond market, where 10-year Treasury rates hover around 3 per cent, nearly double the 1.6 per cent the securities were yielding in May. An eventual return to normalised interest rates will be a welcome development for savers, as well as markets, which have been distorted by the Fed’s intrusions. However, the path to normalisation could be challenging, particularly for US megabanks. It is hard to predict the impact. When was the last time the Fed bought $3.4tn of bonds to keep long-term rates low? Right. Never. Megabanks will reap benefits from a return to normality. Increased trading activity in volatile markets will help their investment banking revenues. Rising rates on their loans will benefit their commercial side (and ideally motivate them to lend more). But the downsides are real. All those low-yielding bonds sitting on their balance sheets will lose market value as rates climb, which under new capital rules will eat into their capital base. At the four biggest banks, the value of Treasury and mortgage-backed securities holdings fell by $13bn in the second quarter because of rising rates, with Bank of America taking the biggest hit. At some point, increased rates will put upward pressure on the rates they must pay depositors.

A near debt experience: New crisis approaching? - Central bankers are widely held to be boring. True, central bank bosses can attract vast media speculation and, as Larry Summers just learnt, it’s a harrowing process trying to gain approval. New Central Bankers can be treated like financial rock stars, as newly-appointed Governors in Britain and India have just discovered. Well, at least for the first week... Nevertheless, central bankers are broadly perceived as rather dull, plodding individuals and their excitement at the minutiae of Repo transactions can cure insomnia in many for whom sleep is a difficult state to achieve. The Bank for International Settlements, “the central bankers’ bank” is situated in Basel, a lovely Swiss city but nonetheless not regarded as a hotspot of excitement even amongst the Helvetic Cantons [Switzerland]. However, when somebody at the BIS breaks their silence and leads what amounts to the banking equivalent of the monastic life, then the world ought to be listening. This week William White the BIS Chief Economist has made a chilling pronouncement to freeze the autumnal Swiss air: “This looks to me like 2007 all over again, but even worse.”  Given his office, such a brutal prognostication would be worrying enough. However, bear in mind Mr White’s pedigree - he foresaw the last financial crisis (and was widely ignored at the time). Should we be terrified?

Unpleasant After-Effects of Prolonged Low Interest Rates Starting to Show: There's a notion among central banks of the global economy that goes like this: if you lower interest rates, you will get economic growth. On the surface, it makes sense; easy monetary policies by central banks are supposed to bring confidence to an economy -- they're supposed to encourage consumers and businesses to borrow, which should translate to more jobs created and an improvement in the standard of living. This phenomenon of lowering interest rates to spur the economy has spread through the global economy like wild fire. Interest rates at the central bank of Australia have been trending lower since the financial crisis. In December of 2007, the cash rate (the benchmark interest rate) there was 6.75%. Fast-forwarding to today, this rate is 2.5%. Brazil's central bank has lowered its benchmark interest rate since the end of 2008. The interest rate dictated by the country's central bank stood at 13.75% near the end of 2008; now it stands at nine percent. The benchmark interest rate in South Africa is down almost 50%. While we've been watching this happen, no one is really asking the question how are interest rates being kept low? The answer: to keep the interest rates low central banks print more paper money and stay involved in their bond markets. Since central banks in the global economy started to lower their interest rates, their money supply has gone up significantly. For example, since the last quarter of 2007 to the second quarter of 2013, Brazil's M1 money stock (the amount of notes and coins in circulation plus timed deposits, such as checking accounts) has increased over 52%. ( But in spite of all the money printing and other games being played by central banks in their effort to keep interest rates down, the global economy isn't seeing robust growth. The International Monetary Fund (IMF) has lowered its expectation on growth in the global economy repeatedly.

The Great Recession isn't over yet - A majority of Americans say that the country still hasn't recovered from the financial crisis and many think that another crisis may be on its way. Five years ago this month, the bankruptcy of Lehman Brothers signaled the start of an economic crisis and the beginning of the Great Recession of 2008. For most Americans, the nation is still struggling with that recession, one that many Americans say had a serious impact on them personally. The latest Economist/YouGov Poll finds just 8% saying the country has recovered from the recession. There is a long way yet to go. The recession affected many Americans. More than half say they know someone who lost their job in the financial crisis – and 7% claim they personally lost a job. And when Americans are asked how serious the recession was, 41% describe the impact on them personally as serious, only a few percentage points less than the result in early February 2009. 

Drivers of financial boom and bust may be all in the mind - The research offers the first insight into the processes in the brain that underpin financial decisions and behaviour leading to the formation of market bubbles. Publication of the study coincides with the five year anniversary of the infamous collapse of the Lehman Brothers investment bank in 2008. A 'bubble' happens when active trading of a commodity or asset reaches prices that are considerably higher than its intrinsic value, usually followed by a market crash. The boom and bust of the US 'dot com' sector and the crash in the UK housing market are recent examples that resulted in billions of pounds in financial losses. Although bubbles have been intensely investigated in economics, the reasons why they arise and crash are not well understood and we know little about the biology of financial decision behaviour. Researchers at the California Institute of Technology investigated the problem by bringing together expertise in experimental finance and neuroscience to look at the brain activity and behaviour of student volunteers as they traded shares within a staged financial market. The researchers used functional Magnetic Resonance Imaging (fMRI), a technique to measure the flow of blood in the brain as an indication of activity, to map participants' brain activity as they traded within the experimental market. They found that the formation of bubbles was linked to increased activity in an area of the brain that processes value judgements. People who had greater brain activity in this area were more likely to ride the bubble and lose money by paying more for an asset than its fundamental worth.

U.S. debt now about 73% of GDP, CBO says -- The U.S. national debt is now about 73% of gross domestic product, the Congressional Budget Office said Tuesday. The percentage of debt is higher than any point since around World War II, and twice the percentage it was at the end of 2007, the nonpartisan agency said in its long-term budget outlook. If current laws stay in place, debt will decline "slightly" relative to GDP over the next few years, the agency said. But it warned that growing future deficits will push the debt to 100% of GDP 25 years from now

The new CBO debt study is way worse than the media is telling you - Almost all media reports about the Congressional Budget Office’s new long-term budget analysis will highlight its forecast that the federal public debt, now about 73% of GDP, is on track to reach 100% of GDP in 2038. Now that’s scary enough. As Maya MacGuineas of the Committee for a Responsible Federal Budget puts it: “Today’s report confirms exactly what we have been warning — that the debt is on an unsustainable long-term trajectory.” So over the next 25 years, Americans will be taxed more to pay for a federal government that will more purely become a redistribution, wealth-transfer mechanism. Taxes and spending at record highs. America as a nuclear-armed insurance company.  But here’s the thing: that forecast, as the CBO notes, does not factor in “the harm that growing debt would cause to the economy.”  Hey, that would be a good thing to know, right? Well, you have to dig deeper into the CBO study to find those numbers. And when you take into account stuff like how deficits might “crowd out” investment in  factories and computers and how people might respond to changes in after-tax wages, you find the debt is much, much larger, closer to 200% of GDP.

Interest, Social Security to Eat Up Increasing Share of U.S. Budget - The government likely faces rising costs to fund the national debt that will likely “crowd out” a lot of its ability to spend on military and social programs in coming years, a new report from the Committee for a Responsible Federal Budget warns. The group, which bills itself as a nonpartisan budget watchdog, weighed in just ahead of a Federal Reserve policy meeting at which officials could take the first in a series of steps that will likely lead to higher borrowing costs in the future. At the heart of the report is the notion that after a long stretch of rock-bottom borrowing costs, rates will almost certainly rise over time. Annual deficits and the total national debt, which are cheap to finance now, will become more challenging to pay for in the years to come. Moreover, interest rates will be rising at the same time as government spending related to the retirement of the baby boom generation. Given the projected path of interest rates and the level of government debt over coming years, federal spending to finance government borrowing will rise from 1.3% of GDP today, to 6.4% in 2050, the report said. This projection is based on interest rates moving back toward “historic levels,” the group said in its report.

This Is Not A Crisis - Paul Krugman - It’s not even a picture of a crisis. The new CBO long-term budget projections are out, and while they’re not good, they don’t show crisis levels of debt even looking out a quarter-century. Unless, that is, you believe that debt of 100 percent of GDP is the end of the world even though Britain exceeded that level for a large part of its history: The point is not that we should completely ignore issues of fiscal responsibility. It is that we are nowhere near fiscal crisis; we aren’t even looking at anything like a fiscal crisis 15 or 20 years from now. So budget deficits, entitlement reform, and all that simply don’t deserve to be policy priorities, let alone dominate the national discussion the way they did for the past few years.

The US Federal Deficit Continues to Shrink - The federal budget deficit has been plummeting in size over the last few years; however, judging from polls, most Americans do not know that – indeed, their concern over the deficit has grown even as the annual deficit has shrunk significantly. And it continues to do so: the Congressional Budget Office (CBO) estimated yesterday that the deficit for the first eleven months of this fiscal year fell $400 billion from the comparable period last year.The 35 percent decrease was driven by a combination of decreases in government spending and increases in revenues. Federal outlays fell by $127 billion, and tax receipts increased by $284 billion. This is part of a longer trend. As highlighted by Nobel Prize-winning economist Paul Krugman in August, the budget deficit (as a percent of GDP and in absolute terms) has been falling since it peaked in 2009. But you would not know that from reading the polls alone. Despite the decreasing size of the deficit, 72 percent of Americans surveyed in January 2013 said they felt reducing the budget deficit should be a “top priority” for the president and Congress this year. In January 2009, only 53 percent of Americans said reducing the budget deficit should be a top priority.  But back in 2009, the deficit was higher than it is now. It was about to increase because tax revenues fell due to the recession and the mostly one-year increase in government spending – known as the “stimulus” – to arrest the free fall of the economy and to stem job losses. A poll also found that far more people erroneously believed the deficit was larger in 2012 compared to 2011.

Bernanke Warns That Lawmakers’ Budget Battles Could Tank Economy - Federal Reserve Chairman Ben Bernanke on Wednesday warned that a government shutdown or failure to raise the federal debt ceiling could have “very serious consequences” for the economy and urged the White House and Congress to reach a budget deal. “Our ability to offset these shocks is very limited, particularly a debt limit shock, and I think it’s extraordinarily important that Congress and the [Obama] administration work together to find a way to make sure the government is funded, public services are provided, that the government pays its bills and that we avoid any kind of event like 2011 which had at least for a time a noticeable adverse effect on confidence and on the economy,” Mr. Bernanke said at a press conference. The U.S. Treasury Department has told Congress that the federal government will exhaust its ability to continue borrowing money in mid-October. At that point, the government would only have cash on hand available to finance its operations, including making interest payments on the national debt and paying Social Security, Medicare and veterans’ benefits. The last major showdown in 2011 rattled markets. Before that, the White House and Congress need to strike a spending deal for the new fiscal year, which starts Oct. 1. Barring that, the government would shut down. Mr. Bernanke said that Fed officials discussed the ongoing fiscal debates at a policy meeting Wednesday. The chance of a government shutdown as well as the possibility that Congress won’t raise the debt limit are a concern, he said. “If these actions led the economy to slow, then we would have to take that into account,” Mr. Bernanke said.

Treasury warns Congress not to wait til last minute on debt ceiling (Reuters) - Treasury Secretary Jack Lew on Tuesday warned Congress against waiting until the last minute to raise the nation's limit on borrowing, saying a misstep could irrevocably damage the economy. "We cannot afford for Congress to gamble with the full faith and credit of the United States," Lew told the Economic Club of Washington, a business forum. The government has been scraping up against its $16.7 trillion debt limit since May but has avoided defaulting on any bills by employing emergency measures to manage its cash, such as suspending investments in pension funds for federal workers. Lew repeated a warning he made last month that Treasury would run out of borrowing options around mid-October, when he said that Treasury would be left with only around $50 billion in cash on hand. Default could come soon after that. As America runs lows on cash there is a risk investors could lose confidence in Washington and stop reinvesting in U.S. government debt. Every Thursday, the Treasury pays investors back about $100 billion that investors immediately lend back to the government, a process known as rolling over the debt. "If U.S. bond holders decided that they wanted to be repaid rather than continuing to roll over their investments, we could unexpectedly dissipate our entire cash balance," Lew said.

Obama to face fresh test of resolve over budget talks - Jack Lew, the US Treasury secretary, said on Tuesday that the administration would not negotiate over congressional approval to lift US borrowings, drawing a line in the sand ahead of high-stakes budget talks with Republicans in coming weeks. But after a fortnight in which President Barack Obama has zigzagged between diplomacy and military action on Syria, and backed away from nominating Lawrence Summers to head the Federal Reserve, Republicans plan to test the president’s resolve. Washington faces two fiscal crises in the next month pitting the White House against Republicans in Congress, both of which are littered with partisan mines to make passage difficult in such a short period of time. Congress must approve a new budget by the end of the month or face a government shutdown, and also lift the country’s borrowing limits by around mid-October to fund public spending at the threat of triggering a sovereign default. The stand-off coincided with the release from the non-partisan Congressional Budget Office of its latest dire warning about the long-term fiscal outlook in the US. According to the CBO, federal debt held by the public – now at 73 per cent of gross domestic product – will reach 100 per cent of the economy in 2038, a trajectory it dubbed unsustainable.

This Year's Budget Fight Isn't About The Budget = There are many reasons why the budget fight that will take pace over the next few weeks and months will be more difficult than any of the close-to-debacles that have occurred in recent years.The reasons include John Boehner (R-OH), who was already the weakest and least effective House speaker in modern times, being even weaker; a president with what at best is tepid support from his own party in Congress; an increasingly frustrated tea party wing of the GOP that no longer sees procedural compromises as satisfying; increasingly defiant House Democrats, who see less and less value in supplying votes to enact must-pass legislation when the Republican majority is unable to do it; and a seemingly hopeless split in the House GOP that makes further spending reductions, standing pat at current levels or spending increases impossible. Add to this "crisis fatigue." So many actual or man-made economic and financial disasters have occurred in recent years that the kinds of things that used to scare Congress and the White House into compromising -- like possible federal defaults and government shutdowns -- no longer motivate them to act. But none of these admittedly depressing factors are what makes this year's budget cliffhanger so difficult. This year the biggest complication is that the budget fight isn't really about the budget: It's about ObamaCare, and that makes it hard to see what kind of arrangement will garner enough votes to avoid the kind of shutdown and debt ceiling disasters that have been only narrowly averted the past few years.

Shutdown moves closer to reality - The threat of a government shutdown intensified Tuesday as House Republican leaders moved toward stripping funding from President Obama’s landmark health-care initiative and setting up a stalemate with the Democratic Senate.House Speaker John A. Boehner (R-Ohio) had hoped to keep the government open past Sept. 30 with relatively little fuss. But roughly 40 conservatives revolted. After a strategy session Tuesday, Boehner and his leadership team were being pushed into a more confrontational strategy that would fund the government into the new fiscal year only if Democrats agreed to undermine Obama’s signature legislative achievement.Obama and Senate Majority Leader Harry M. Reid (D-Nev.) have ruled that out, leaving the parties hurtling toward an apparent impasse.  In less than two weeks — with the nation at war and authorities investigating a mass shooting at the Washington Navy Yard — every federal agency from the Pentagon to the FBI is due to shut down unless Congress can reach an agreement. A shutdown would not only disrupt critical government services but also whip up a panic just as lawmakers confront the next major deadline on their fall calendar: the need to raise the $16.7 trillion federal debt limit.Congressional Budget Office Director Douglas Elmendorf said Tuesday that the Treasury Department is likely to run out of cash to pay its bills “sometime between late October and mid-November,” confirming independent estimates. Treasury Secretary Jack Lew has so far been vague about that deadline, telling Congress only that he would exhaust his ability to juggle the books by mid-October.

#cliffgate Update: Is A Shutdown Boehner's Only Way Out? - I'm quickly coming to the conclusion that a government shutdown may be the only way to deal with the coming budget bedlam and #cliffgate.Let's start by reviewing the situation.

  1. As of today there are less than two weeks before fiscal 2014 begins.
  2. None of the FY14 appropriations have been enacted; none have any chance of being enacted.
  3. There are no formal negotiations going on between Congress and the White House, between the House and Senate or between Democrats and Republicans.
  4. The only discussions that seem to be taking place are between the two main factions in the House GOP...and the best thing that can be said about them is that they appear to be going nowhere.
  5. The original plan suggested by the House Republican leadership was flatly rejected by the tea partiers in the House GOP caucus. The tea partiers were energized by their success.
  6. House Speaker John Boehner (R-OH) and Majority Leader Eric Cantor (R-VA) haven't put a new plan on the table since their last plan was rejected by members of their own party a week ago. Boehner has even indicated publicly that he's not sure whether there is a plan than is acceptable to his caucus.
  7. Meanwhile, in keeping with the tradition that the House goes first on CRs, Senate Majority Leader Harry Reid (D-NV) has said he is going to wait for the House to act before moving forward.

Lew Meets Lawmakers, But No One Budges on Debt - Democrats and Republicans left a meeting with Treasury Secretary Jacob Lew Wednesday worried they were talking past each other and that there was no clear path forward for raising the country’s borrowing limit. “There seemed to be no consensus as to how to figure this out,” Sen. Ben Cardin (D., Md.) said after leaving the closed-door meeting of Senate Finance Committee members. “Right now, I don’t see a path,” said Sen. Orrin Hatch (R., Utah). “The secretary did not have any real suggestions other than this is a matter of grave concern.” Mr. Lew went to the Hill to warn lawmakers that the debt ceiling needs to be raised by mid-October or the government could begin falling behind on its payments. But he was met with a skeptical and chilly reception from some Republicans. Mr. Hatch pressed Mr. Lew to explain exactly how much the debt ceiling should be raised, people familiar with the meeting said. Sen. Rob Portman (R., Ohio), a former director of the White House Office of Management and Budget, told Mr. Lew that many Republicans believe the Treasury can prioritize its payments after mid-October to avoid falling behind on interest payments and defaulting. He also said the debt ceiling has been used in the past as a catalyst to get both sides to reach a broader budget agreement. But Mr. Lew said the dynamics changed after 2011, when talks broke down and the government came close to falling behind on its obligations. He said the White House wasn’t going to negotiate on the debt ceiling, saying this was Congress’s responsibility.

Health-Care Defunding Added to Republican Spending Bill -  Republican leaders will include in a stopgap spending measure a provision that would defund President Barack Obama’s health-care law. The measure would expire Dec. 15 while discretionary and mandatory spending on the health law would end permanently, Republican Representatives John Fleming of Louisiana and Tom Cole of Oklahoma said today after a party meeting at the Capitol. With the deadline for reaching a budget deal 13 days away and the government closing in on its debt ceiling, the House could vote on spending measure as soon as tomorrow night. Members could vote next week on raising the nation’s borrowing authority, after canceling a plan to return to their districts. The House will take up a spending plan that could pass with 218 Republican votes, setting up a clash with the Democratic-led Senate and the White House that puts the federal government at risk of a shutdown. In anticipation, the Obama administration is urging agencies to prepare as the president today told business executives Republicans are holding the budget hostage as part of an “ideological fight.”

U.S. debt hike emerges as main battleground over Obamacare (Reuters) - Republicans in the House of Representatives set in motion on Wednesday a plan that ultimately could avert a federal government shutdown on October 1, turning a later battle over the debt ceiling into the main event in the conservative struggle against President Barack Obama's healthcare program. Obama accused Republicans of engaging in extortion by demanding a delay in "Obamacare" as the price of avoiding default that, were it to happen, would smash the U.S. economy. "You have never seen in the history of the United States the debt ceiling or the threat of not raising the debt ceiling being used to extort a President or a governing party," Obama told a group of business leaders. Undaunted, Republicans said Wednesday they would add other demands to their list, including approval of the Keystone oil pipeline. The action on the two separate measures, to continue funding the government and increase the government's borrowing authority by raising the debt ceiling, may begin as early as this week in the House, starting with the funding measure on Thursday or Friday. The debt ceiling, which could come up next week, is far more consequential because it could rattle world markets and lead to a downgrade of the government's credit rating or to default. Without Congress' approval, the government will be unable to borrow money to pay its debts sometime in mid-October, according to the Treasury Department. "A government shutdown, and perhaps even more so a failure to raise the debt limit, could have very serious consequences for the financial markets and for the economy," Fed chairman Ben Bernanke warned at a news conference. In an ominous move, Republicans said they will include in their temporary spending plan a provision they claim will prevent a debt default if Congress does not raise the debt limit on time.

Congress and the budget: holding middle-class America hostage -One of the consistent frustrations of Federal Reserve chairman Ben Bernanke is that Congress and the president have hurt the recovery through bad fiscal policy. A new Congressional Budget Office (CBO) report confirms his fears: if Congress fails to produce a budget and end the sequester in the next few months, it's likely that the economy will suffer and the poor and middle class, who can afford the least financial damage, will be hurt the most.The future doesn't look much brighter at the moment, especially given the CBO's annual long-term budget outlook report (pdf). In the report, the CBO suggests that the country faces a specific cost for Congressional inaction. If Congress continues to delay decisions on spending or taxes, it would cause the economy to lose ground and make next year's budget an even larger task, according to the CBO's analysis. Yet, moving quickly could also weaken the economy further, as consumers would have trouble adjusting to even more cuts or tax increases. The sequester cuts imposed this year have already done some damage, according to analysts. The across-the-board slashes in government spending sharply reduced the federal deficit, and the first round, at around $24bn, went into effect in March.

We Are Now Just Waiting for the Crisis to Ripen - We are going to get very close to a government shutdown — or even temporarily have one — before this funding issue is resolved. My basic conclusion from Speaker John Boehner’s announcement today is that he realizes he can’t do anything until the crisis ripens. Last week House GOP leadership already made their best attempt to address the issue quickly while trying to let conservatives save face. It failed. There are enough House conservatives convinced this Obamacare defunding idea can work — or terrified of looking like they gave up too quickly — to pull off that strategy. Boehner can’t yet convince those Tea Party members to back down, and if he tries to cut a deal with Democrats two weeks out from the deadline, he will be pilloried by conservatives and the base. So Boehner just needs to waste time until the deadline nears and give his Tea Party members a vote which is doomed in the Senate. Once the deadline is truly just around the corner, Boehner should have an easier time convincing the “defund Obamacare” members their plan won’t work. Barring that, he needs to persuade the rest of his caucus to let him cut a deal with Democrats to avoid serious political damage. Boehner needs a looming crisis for either solution, so I don’t expect anything to really happen until government shutdown is almost upon us.

Budget Brinksmanship is Baaack! --  Yves Smith - Here we go again. Washington, and to a lesser degree, Mr. Market are all a twitter over the display of macho in the latest round of the Team Dem versus Team Republican professional wrestling bout budget battle.  In case you’ve managed to tune it out thus far, the Treasury will run into debt ceiling limits around mid-October, so Something Must Be Done. And the current version of attempted Republican hostage-taking is to insist Obamacare be delayed a year or weakened in other respects. This Washington Post piece describes how the Republican see their strategy: To be clear, the GOP leadership has always considered the debt ceiling, not the CR (continuing resolution), to be the place most appropriate to use its leverage. First, if the CR gets passed the threat of a government shutdown and the risk the GOP will be blamed for it goes away… It is also important to keep in mind that what the House sends over to the Senate to start the bidding isn’t all that critical. What is critical is what the Senate does with it and how the House responds to whatever comes back. The New York Times editorial today bemoans how those reckless meanie Republicans are willing to cause a huge train wreck (and arguably hurt themselves worse than the Dems) to force some sort of concession because they haven’t been attentive enough to the calendar and they really might have a shutdown. Key sections: Until now, the only House Republicans pushing for a government shutdown and debt crisis were a few dozen on the radical right, the ones Senator Harry Reid, the majority leader, referred to as “the anarchists.” On Wednesday, however, the full Republican caucus, leadership and all, joined the anarchy movement, announcing plans to demand the defunding of health care reform as the price for keeping the government open past Sept. 30…

The Costs of Debt Limit Brinksmanship - Today I had the chance to testify before the Joint Economic Committee about a perennial challenge, the looming debt limit. Here are my opening remarks. You can find my full testimony here.I’d like to make six points about the debt limit today.First, Congress must increase the debt limit. Failure to do so will result in severe economic harm. Treasury would have to delay billions, then tens of billions, then hundreds of billions of dollars of payments. Through no fault of their own, federal employees, contractors, program beneficiaries, and state and local governments would find themselves suddenly short of expected cash, creating a ripple effect through the economy. A prolonged delay would be a powerful “anti-stimulus” that could easily push our economy back into recession. In addition, there’s a risk that we might default on the federal debt. I expect that Treasury will do everything it can to make debt-service payments on time, but there is a risk that it won’t succeed. Indeed, we have precedent for this. In 1979, Treasury accidentally defaulted on a small sliver of debt in the wake of a debt limit showdown. That default was narrow in scope, but financial markets reacted badly, and interest rates spiked. If a debt limit impasse forced Treasury to default today, the results would be more severe. Interest rates would spike, credit would tighten, financial institutions would scramble for cash, and savers might desert money market funds. Anyone who remembers the financial crisis should shudder at the prospect of reliving such disruptions.

Top CEOs Downgrade Outlook As Washington Threats Loom - The nation’s top business executives view political gridlock in Washington as a bigger threat to the U.S. economy than higher interest rates, at least in the short run, leaders of the Business Roundtable said Wednesday. The group, a lobbying organization for large-company CEOs, said business executives have scaled back expectations for economic growth since the summer. One main reason is the growing prospect that Congress and the White House will struggle to reach a deal this fall to raise the government’s borrowing limit, a development that could rattle financial markets even if the U.S. ultimately avoids defaulting on its debt. The business group’s CEO Economic Outlook Index fell to 79.1 in the third quarter from 84.3 in the summer. That’s still in line with an economy expected to grow by roughly 2.2% in 2013. But CEOs increasingly have a “downside bias,” the group said, a posture that could affect hiring and investment plans. “CEOs clearly remain very concerned about the large-scale economic uncertainty” caused by political squabbling in Washington, Business Roundtable president John Engler told reporters. “Business leaders are troubled by the inability of Washington policy makers to enact policies that promote growth.” Meanwhile, Mr. Engler and the lobbying group’s chairman, Boeing Co. CEO Jim McNerney, said a rise in interest rates since spring isn’t yet viewed as a major threat to businesses or the economy, largely because interest rates are still historically low. They said rates would have to rise significantly more to deal a major blow to business.

Will the BLS release an employment report for September? - Currently the BLS is scheduled to release the September employment report on Friday October 4th.  However, if there is a partial shut down of the government by Congressional Republicans, the employment report will be delayed. Back in 1996, following the partial government shutdown from December 16, 1995 through January 6, 1996, the BLS finally released the December 1995 employment report on January 19, 1996. A similar delay would happen this time if the government is shutdown on October 1st (the fiscal year begins on October 1st). During a "government shutdown", most of the government keeps running and a shutdown doesn't save any money (it is a political stunt). The impact on the economy would probably be minor, but it would be disruptive - and extremely annoying for those of us who use and follow government economic data.  Private data would still be released (ISM surveys, ADP employment report, etc), but all government data would stop (employment, GDP, housing starts, etc.).  If the government stopped paying the bills in mid-October (doesn't raise the "debt ceiling"), the consequences would be serious - but I doubt anyone is that crazy.  The good news is these threats and stunts only happen in off years to give voters time to forget before the next election!

October Shutdown Will Last At Least A Week - As I said in my previous post, none of the individual appropriations for fiscal 2014 have yet been enacted and none have any chance of being enacted. The House earlier today passed a continuing resolution that, in theory would keep the government funded until December 15 and, therefore, avoid a shutdown. But the bill includes a poison pill -- defunding Obamacare -- that Senate Democrats and the White House say they absolutely won't accept in any form. As a result, barely a week before the fiscal year begins, the process for avoiding a government shutdown has barely moved from the situation that existed a week, a month, and six months ago. Because of that, a shutdown has to be considered more likely now than it was when this week started. It's not that what the House did this week wasn't a more-or-less standard legislative maneuver. It was. Or at least it would have been typical had it taken place in July when preliminaries like this usually happen. But a purely symbolic vote 10 days before the fiscal year is about to begin is nothing more than legislative masturbation: It may feel good but it doesn't really accomplish anything other than taking up some time. My reading of the tea leaves is that there are only two ways to avoid a shutdown at this point: If everyone in Washington stops being fierce partisans and starts acting rationally, or if one side totally capitulates to the other. Because the first is so unlikely that it borders being absurd and the second is so unlikely that it approaches being ridiculous, it's time to stop talking about if and start talking about what happens when a shutdown will occur.

Could the Debt Ceiling Fight Eliminate the Trade Deficit and Create Millions of Jobs -Adam Davidson raised this possibility in his discussion of possible ramifications of the debt ceiling battle. He suggested that one possible outcome is that investors and foreign central banks cease to view the dollar as the world's reserve currency. This would lead them to switch their dollar holdings to other currencies. The result would be a decline in the value of the dollar.This is exactly what is needed to make U.S. goods more competitive in the world economy. If the dollar were to fall by 20 percent against the currencies of our trading partners it would have roughly the same effect on the trade deficit as if we would imposed a 20 percent tariff on imports and had a 20 percent subsidy on U.S. exports.The trade deficit is now close to $500 billion a year or 3 percent of GDP. If we had balanced trade it would add roughly $750 billion a year to GDP (@ 4.6 percent of GDP), assuming a multiplier of 1.5 on traded items. This would lead to more than 7 million additional jobs bringing the economy close to full employment.If there is an alternative route to full employment, no one has bothered to write about it. From this perspective, a flight from the dollar as a result of a battle over the debt ceiling is probably the economy's best hope for generating large numbers of jobs any time soon.

Beating Swords Into Solar Panels - A trillion dollars.  It’s a lot of money.  In a year it could send 127 million college students to school, provide health insurance for 206 million people, or pay the salaries of seven million schoolteachers and seven million police officers.  A trillion dollars could do a lot of good.  It could transform or save a lot of lives.  Now, imagine doubling the money; no, tripling it.  How about quadrupling it, maybe quintupling it, or even sextupling it?  Unfortunately, you really will have to imagine that, because the money to do it isn’t there.  It was (or will be) spent on Washington’s disastrous post-9/11 wars in Iraq and Afghanistan. War, the military-industrial complex, and the national security state that go with it cost in every sense an arm and a leg.  And that, in the twenty-first century, has been where so many American tax dollars have gone. That’s because the cost of war always turns out to be more than estimated.  Who could forget the $60 billion high-end figure the Bush administration offered in early 2003 as its estimate for its coming invasion of Iraq? A decade later, we’ve spent $814 billion in Iraq to date with the full price tag yet to come in. Recently, when the Obama administration was planning to launch Tomahawk missiles against Syria, just about nobody even bothered to talk about what it would have cost. (Before Washington even considered such a strike, the Tomahawk program was already costing U.S. taxpayers $36,000 per hour all year long.)

The greatest accomplishment of our time - Let's party like it's 2011: OBAMA: ... my orientation here is real simple. I wanna make sure that we’ve got an economy in which Main Street’s winning. And what that requires is that we’re investing in education, early childhood, that we’re investing in transportation, that we’re investing in the things that we need to grow. If we’re gonna re– if we’re gonna continue to reduce the deficit, and I think a lot of people aren’t aware of the fact that the deficit’s been cut in half since I came into office, it’s continuing on a trend line of further reductions. If we wanna do more deficit reduction, I’ve already– put out a budget that says, “Let’s do it.” I’m willing to reform entitlements. I’m willing to– you know, cut out additional waste that may be there. And I’m spending time, even without pressure from Congress, trying to figure out how we can cut out waste in the system.... If he can get them to take him up on his repeated offer to cut even more and especially the vital social security programs (when they actually need to be raised), he will have fulfilled his Grand Bargain agenda. He certainly seems prepared to grant that deficit reduction remains extremely important and bringing it down is one of his proudest a accomplishments. He can't wait to do more of it. I suppose that's partly a negotiating stance but it's hard to see how any of his yammering over the past five years about the need to cut "entitlements" has bought him any political good will. In fact, this obsession with the deficit has now stuck us with sequestration which is slashing the very areas in which he insists we must invest. Kids are losing their food stamps and Head Start, the elderly are losing Meals on Wheels. There's no money for infrastructure. But apparently we ain't done yet. According to the president we need to cut even more. So you have to assume he believes in it on the merits.

It's time to end the delusion that this White House has done even a fraction of what it should to help the economy - Here's the litany of failure: the president has not pushed through any major stimulus bill since 2009, and most of that was pork-barrel junk. Manufacturing is weak and weakening; the employment gap between the rich and the poor is the widest on record; the economic recovery is actually more like an extended stagnation with 12 million people unemployed; the housing "recovery" will be stalled as long as incomes are low and house prices are high; and quantitative easing as a stimulus, while a heroic independent effort by the Federal Reserve, is past its due date and is no longer improving the country's fortunes beyond the stock market.Shall we continue? We don't have a food stamp bill even though 49 million Americans lack regular access to food. Goldman Sachs analysts have said the sequester is taking a toll on stubbornly growing unemployment: "since sequestration took effect in March, federal job losses have been somewhat more pronounced," they wrote last week; and another debt ceiling controversy – the third of Obama's presidency – looms in only a few weeks with the potential to hurt what meager economic growth we can still cling to.The president could not be more wrong or misleading in the way in which he presents our economic progress. One can perfectly understand economist Dean Baker's horror when he realized, back in August, that Obama's economic team believes it is doing a good job.

When Good Things Happen to Bad Ideas - Paul Krugman  - Jonathan Chait has a rather discouraging post to the effect that the opponents of austerity have won a decisive intellectual victory, and it has made no difference. Yes, I’d noticed.  Over the course of fall 2012 and spring 2013, the opponents of austerity were vindicated on every intellectual front. Interest rates stayed low despite high debt and deficits (and fell in Europe once the central bank began doing its job as lender of last resort). The evidence became overwhelming that cutting spending and raising taxes in a slump depressed output, and by much more than the IMF had previously assumed. The alleged debt cliff, with growth falling off sharply once debt exceeded 90 percent of GDP, turned out not to exist — and even the mild negative correlation between debt and growth seems to be mainly reverse causation. But nothing changed in policy — and the austerians may well come out as political winners despite having been wrong about everything. Why? Well, there are two facts you need to know. One is that economies tend to improve, eventually, even if they’ve been depressed by bad policies. The other is that voters, and to an important extent the chattering classes as well, evaluate politicians not by the absolute level of income, far less by a comparison between how things are with how they should be, but by the recent rate of change.  So in an important sense all the austerians had to do was hang on long enough. Sooner or later there would be an upturn, and they could claim credit.

Taxing Medicare Benefits - In a recent post, I discussed the nontaxation of imputed rent – the income homeowners receive from themselves by virtue of being both landlord and renter – which, judging by the comments, many readers found bizarre. In my continuing series on tax expenditures, this week I want to discuss another form of income that few people recognize as being “income” – the nontaxation of Medicare benefits.First, few people probably think of any government benefits as income in any sense of the term. But if one gets back benefits far in excess of what one pays into a program like Medicare, then one is receiving income.Those who acknowledge this point probably think it doesn’t matter, because they themselves are only getting back about the same as they paid into the Medicare trust fund from the Medicare portion of the payroll tax. That tax is 1.45 percent of wages on both workers and employers (2.9 percent total). Unlike the Social Security tax, there is no wage cap for the Medicare tax. Additionally, starting this year, those with incomes above $200,000 ($250,000 for couples) pay an additional Medicare tax of 0.9 percent. The payroll tax covers only hospitalization. Doctors’ visits are paid for by Medicare Part B premiums, which recipients have deducted from their Social Security benefits on a monthly basis. Most people pay $104.90 a month, with higher premiums based on income.

Subsidizing Spouses - The federal tax code and Social Security both contain provisions that subsidize marriage if one spouse refrains from paid employment. Critics of such provisions have long noted that they discourage married women’s participation in the labor force. They may have a similar effect on married men, especially given recent increases in the percentage of married mothers who earn more than their husbands (more than 23 percent in 2011). At first glance, the debate over such subsidies looks like a clash between those who want to support families and those who want to tax people as individuals. A closer look, however, shows that pro-marriage policies are not necessarily pro-family policies, because they don’t consistently reward effort devoted to caring for dependents such as children and the elderly. A stay-at-home spouse who redecorates the living room, prepares gourmet meals and greets his or her partner at the door with a martini receives the same federal income tax treatment as one who raises several children and cares for sick, disabled or elderly family members.  Neither person really fits the description of a “dependent,” since they are both providing valuable services in return for a share of their spouse’s market income. Yet both qualify for a dependent tax exemption for a spouse who is their primary source of monetary support, allowing a deduction of $3,900 from the family’s taxable income in 2013. The higher the tax bracket, the higher the value of this exemption.

Too big to fail’ is still a threat to the financial system - Five years ago, we were meeting about the possibility that Barclays could acquire Lehman Brothers, which was teetering on the verge of bankruptcy. It soon became clear that neither regulators, legislators nor bankers were equipped to prevent the collapse of a leading global financial institution. When regulatory obstacles prevented the acquisition and Lehman declared bankruptcy, shockwaves channelled throughout the global financial system. Would the market have been calmed by a deal to save Lehman? No one can be sure. A frightening few weeks followed as funding froze and equity markets plunged. In the future, an event such as the Lehman bankruptcy and the turmoil that followed must be preventedIn the five years since, legislators and regulators have made real strides to stabilise the financial system. There are stronger standards for capital and liquidity. Among the 18 largest US bank holding companies, tier one capital ratios averaged 11.3 per cent at the end of 2012, more than double the level at the end of 2008. Bank leverage – which was, we can now see, too high in the boom years – is now 50 per cent lower than it was pre-crisis. There is also greater transparency and standardisation in the derivatives markets, improved consumer protections and more robust mortgage underwriting and securitisation standards. While this progress is encouraging, it has proved insufficient to end the “too big to fail” problem. Political leaders, regulators and banks need to collaborate on the core issues in an internationally-co-ordinated effort to establish a robust resolution regime. Why is finding a solution to this problem so important? Without an international plan to wind down an important bank in an orderly fashion, political and regulatory leaders are compelled to create more rules – often to protect national and regional markets and economies.

Hank Paulson warns of regulatory conflict - Hank Paulson has warned that competing financial regulations could “devolve into financial protectionism”, serving narrow national interests of companies and regulators while hurting the public. The former US Treasury secretary said reforms put in place after the 2008 crisis could lead to “walling off markets, constricting cross-border access to capital and conflicting requirements for global firms” while supporting “regulators, exchange, clearing houses or national financial institutions”. The five years following the crisis have been marked by a global overhaul of the rules of finance. But from capital requirements to derivatives trading, heated disagreement persists between the US and Europe.Mr Paulson, who was chief executive of Goldman Sachs before joining the Treasury under President George W Bush in 2006, said he approved of the sharp increase in US capital requirements enforced by the Federal Reserve. “I’m very unsympathetic to those who think the capital requirements are too high for the large institutions,” he told the Financial Times, adding that he liked the capital surcharge imposed on the biggest banks, including Goldman and JPMorgan, which has been resisted by the industry. He said he was “much more concerned” with the repo market, which investment banks use to fund their operations

Treasury Department’s Disingenuous Answers to Elizabeth Warren on Dodd Frank, Too Big to Fail - Yves Smith  One of the aggravating facts of life in bureaucracies is having to contend regularly with misrepresentation. . A Treasury reply to some questions from Elizabeth Warren is a classic in this genre.The written responses to Warren’s queries came back last week (see the full text at the end of this post). Warren criticized Treasury’s failure to do its own homework on the whether large banks can borrow money more cheaply by virtue of being perceived as being too big to fail. As Bloomberg noted:“The best way to make an objective determination of whether too-big-to-fail continues to exist over time is by measuring the subsidy, and Treasury should develop its own metrics for doing so through the Office of Financial Research,” Warren said today in an e-mailed statement.  This question matters not just because it’s precisely the sort of thing the Office of Financial Research ought to be doing, but also because Treasury has the leading role on the Financial Stability Oversight Council. But peculiarly, Treasury takes the position that it can rely on third-party research. Given the banks’ role in supporting various think tanks and funding finance programs at business schools, one would have to assume that Treasury knows full well that a lot of that “research” is lobbying using charts and data as decoration. By contrast, in the UK, the Bank of England not only prepares an impressively detailed Financial Stability Report twice a year, but when Andrew Haldane was its executive director of financial stability, he gave detailed estimates of the funding cost advantage of the big UK and global banks. But if I were Warren, I’d be at least as unhappy about Treasury’s misdirections. For instance, get a load of this (click to enlarge):

Larry Summers Got a Bad Rap on Stimulus: Obama is the Problem --  William K. Black -- I am a strong supporter of Janet Yellen and believe her support for the fiscal and monetary policies best designed to produce a stronger, prompter recovery from the Great Recession makes her the superior replacement for Ben Bernanke.  The criticism of Larry Summers’ position on fiscal stimulus, however, was generally inaccurate.  Within the Obama/Biden administration, the best known economists (Summers, Christina Romer, and Jared Bernstein) proved dramatically better economists than did the non-economists who eventually came to dominate Obama’s economic policies (Timothy Geithner, Jacob Lew, and William Daley).  Summers, Romer, and Bernstein were strong voices in favor of fiscal stimulus.  The willingness of Summers, Romer, and Bernstein to oppose Obama’s austerian dogmas reflects well on their integrity.  The Obama/Biden administration, of course, has failed to appoint prominent economists as successors to Summers, Romer, and Bernstein who are willing to oppose vigorously Obama’s pro-austerian dogmas. Geithner, Lew, and Daley championed what Obama hopes to be his “legacy” in the history books – the Grand Bargain (sic, Betrayal) that would inflict even greater austerity on the Nation and begin the process of making massive cuts in the safety net.  Had the four horsemen of austerity succeeded in July 2011 in reaching the Grand Betrayal with the Republicans they would have pushed our Nation back into recession and made Obama a one-term president.  Fortunately for the Nation, the Tea Party Republicans’ demands proved so extreme that Obama could not get the Grand Betrayal finalized in July 2011.

J.P. Morgan ‘Whale’ Fine Put at More Than $900 Million - Regulators in the U.S. and U.K. are expected to fine J.P. Morgan Chase more than $900 million for actions tied to its 2012 "London " trading debacle, according to a person familiar with the settlement talks. The Securities and Exchange Commission, Office of the Comptroller of the Currency, the Federal Reserve and the U.K.'s Financial Conduct Authority are expected to charge the company with poor controls surrounding the giant bet, which ultimately cost the company more than $6 billion. The announcement of the settlements is expected to come early Thursday, according to people briefed on the plans. The bank is still wrestling with the Commodity Futures Trading Commission over the trading matter, and criminal prosecutors are still pursuing their own investigations. The CFTC is investigating whether the bank's London traders manipulated the market through its heavy trading in derivatives last year, according to people familiar with the agency. The Federal Bureau of Investigation and Manhattan prosecutors are also gathering evidence for what could result in criminal charges against J.P. Morgan over the London whale trades, people familiar with the situation said. The OCC, J.P. Morgan's front-line regulator, is expected to get the biggest slice of the settlement, about $300 million, said the person familiar with the matter. A Senate investigative panel last year found that J.P. Morgan officials misled OCC examiners about the risks posed by the whale trades.

JPMorgan Offers a Drop in the Bucket for Its “Tempest In a Teapot” -  Since last evening, corporate media has been in a fierce competition to spin another toothless settlement on Wall Street as a win for the new tough cop on the beat, Securities and Exchange Commission Chair, Mary Jo White. It takes quite the creative imagination to frame this as anything more than the continuance of Wall Street’s business model of looting billions and paying back millions. Crime is still the best profit center Wall Street has going for it — having thoroughly dissuaded its customers against trusting its advice on investments. According to leaks, the settlement tab to JPMorgan Chase to make most of its civil regulatory problems disappear regarding the London Whale trades will be $700 to $800 million.  Using the Washington Post’s projection of $750 million, that represents 3.5 percent of the global banking behemoth’s profits from last year. A drop in the bucket. The Washington Post attempts to salvage the pittance with this artful phrase: “The bank may make a rare declaration of wrongdoing in its agreement with the Securities and Exchange Commission, which recently introduced a policy demanding admissions of misconduct in certain types of civil settlements, according to a person familiar with the negotiations.” The Wall Street Journal spins it like this: “An acknowledgment of wrongdoing by the company in the London whale matter would be a high-profile win for the Securities and Exchange Commission, which under Chairman Mary Jo White has begun pushing for settlements that include such admissions.” The SEC has no criminal powers; only civil. “Rare declaration of wrongdoing,” “high profile win”? Or first class sellout?

NEP’s Bill Black on HuffPost: I Don’t Think Holder Takes Holder Seriously - Bill Black’s appearance on Huff Post discussing Eric Holder and the likelihood of prosecutions of banksters. You can view the video here.

Occupy the bookshelf: #OWS turns two …we are somewhat concerned that you, like us, might be suffering from “well-informed futility syndrome”. Why, yes! Yes we are! And frankly we’re worried about some of our readers too… The above is the brutally honest message that greets the reader who reaches the end of the Alternative Banking Group’s Occupy Finance book. Tuesday is the two-year anniversary of the Occupy Wall Street movement, which the book’s launch is timed to coincide with. It’s the birthday cake that took several months and a committee to put together.

Financial Armageddon Looting Machine: Looming Mass Destruction from Derivatives - Ellen Brown - Five years after the financial collapse precipitated by the Lehman Brothers bankruptcy on September 15, 2008, the risk of another full-blown financial panic is still looming large, despite the Dodd Frank legislation designed to contain it. As noted in a recent Reuters article, the risk has just moved into the shadows:[B]anks are pulling back their balance sheets from the fringes of the credit markets, with more and more risk being driven to unregulated lenders that comprise the $60 trillion “shadow-banking” sector.Increased regulation and low interest rates have made lending to homeowners and small businesses less attractive than before 2008. The easy subprime scams of yesteryear are no more. The void is being filled by the shadow banking system. Shadow banking comes in many forms, but the big money today is in repos and derivatives. The notional (or hypothetical) value of the derivatives market has been estimated to be as high as $1.2 quadrillion, or twenty times the GDP of all the countries of the world combined.

After a Financial Flood, Pipes Are Still Broken - And yet, for all the new regulations governing derivatives, mortgages and bank holding companies, a crucial vulnerability remains. It’s found in our vast and opaque securities financing system, known as the repurchase obligation or repo market. Now $4.6 trillion in size, it is where almost every financial crisis since the 1980s has begun. Little has been done, however, to reduce its risks. The repo market, also known as the wholesale funding market, is the plumbing of the financial system. Without it, money could not flow freely, and banks, brokerage firms and asset managers would not be able to conduct their trades and open for business each day. When institutions sell securities in this market, they do so with the promise that they can be repurchased the next day — hence the “repo market” name. By using this market, banks can finance their securities holdings relatively cheaply, money market funds can invest cash productively and institutions can borrow securities so they can sell them short or deliver them in other types of trades. When markets are operating smoothly, most wholesale funding trades are not unwound the next day. Instead, they are rolled over, with both parties agreeing to renew the transaction. But if a participant decides not to renew because of concerns about a trading partner’s potential failure, trouble can arise. In other words, this is a $4.6 trillion arena operating on trust, which can disappear in an instant.

Unfinished Business From the Financial Crisis - The House Financial Services Committee on Wednesday morning is holding a hearing to examine reforms to prevent another meltdown in the money market fund industry. As explained in a wonderfully clear background memo by the staff of the committee chairman, Representative Jeb Hensarling, Republican of Texas, the S.E.C. started in 2010 to require the funds to hold either more cash or more assets like Treasury bonds that could readily be turned into cash, and it is considering further measures. Among the options are requiring money market funds to provide more precise information on the value of their holdings so that investors can see more clearly that these vehicles involve risk and are not guaranteed like bank deposits, or having the money market funds impose a penalty on investors seeking to withdraw cash when the funds’ assets are illiquid, like in times of market stress. These proposals would apply only to funds that serve large investors and not the broad public, and would likewise not apply to money market funds that invest only in United States government obligations (which are assumed to be liquid even in a crisis, as was the case five years ago). The S.E.C. had previously considered but did not approve broader regulations on money market mutual funds put forward in 2012 by Mary L. Schapiro, then the agency’s chief.

Five Years after Market Crash, U.S. Economy Seen as ‘No More Secure’ - Five years after the U.S. economy faced its most serious crisis since the Great Depression, a majority of Americans (63%) say the nation’s economic system is no more secure today than it was before the 2008 market crash. Just a third (33%) think the system is more secure now than it was then. Large percentages say household incomes and jobs still have yet to recover from the economic recession. And when asked about the impact of government efforts to deal with the recession, far more believe that economic policies have benefitted large banks, corporations and the rich than the middle-class, the poor or small businesses. The latest national survey by the Pew Research Center, conducted September 4-8 among 1,506 adults, finds that 54% say household incomes have “hardly recovered at all” from the recession. Nearly as many (52%) say the job situation has barely recovered.By contrast, majorities say that the stock market and real estate values have at least partially recovered from the recession (74% and 63%, respectively). But relatively few say that even these sectors have fully recovered (21% stock market, 4% real estate values).

Do the Democrats Really Want to Bear the Blame for a Crash that Wall Street Will Cause? - This post by Lynn Parramore makes the point that the next crash is coming and probably will be blamed on the Democrats. It’s a great point, but it needs to be pursued further.What if we have another Republican sweep in 2014, like 2010, but worse? Then we’re going to have more policies that increase inequality. Even less regulation, causing even more domination of our politics by corporations and the financial sector. We’ll have more military spending and more wars, along with more shredding and privatization of the social safety net. We’ll have even less environmental regulation, and even more global warming; more drill baby drill, and less and less of public education. At the State level, we’ll have more of the war on women, blacks, seniors, and hispanics; more corruption from corporations and the rich giving “gifts” to officeholders; more voter suppression, even more police brutality and denial of first amendment rights, more religion in our schools accompanied by more guns everywhere, and more Scalias, Alitos, Thomases, and Robertses subjugating everyone to corporations. And what’s frightening about all this is that the people who want to see this kind of America, also are the people with the power to gamble irresponsibly in the international financial innovation products gambling casino, and to bring about the very crash that will be laid at the door of the Democrats. Of course, the Democrats deserve this because when they had the power in early 2009, all through 2010, they cared more about the filibuster in the Senate, and their campaign contributions, and their possibilities of lucrative work after Congress, then they did about economic recovery with full employment, taking the big banks and Wall Street down, and getting truly universal health care through passing an enhanced Medicare for All program.

What we get wrong when we talk about ‘the financial crisis’: The focus on Lehman obscures the fact that there were really three crises. Sure, there was the crisis in the financial markets in late 2008. But there was also the ongoing financial crisis that would have happened even if Lehman’s failure didn’t cause any troubles. Meanwhile, there’s still a crisis of confidence over whether or not our financial markets are actually benefiting the economy as a whole. This isn’t just academic. Emphasizing Lehman biases the conversation over financial reform in a subtle but powerful way. The implication is that if Dodd-Frank can prevent the events of fall 2008 from happening, then our work here is done. That view is dangerously wrong.Lehman Brothers basically became insolvent, and, in effect, suffered a bank run. There was no legal regime that allowed the regulators to kill the firm in an orderly way. AIG failed because its derivatives position became impossible for it to manage. The Commodity Futures Trading Commission (CFTC) has made major progress in bringing the light of transparency to the over-the-counter derivatives market, making sure collateral and price transparency clean up the market. They have hit resistance, though. As the economist Alan Blinder wrote earlier this week, the CFTC’s Gary Gensler “ran into a wall of resistance from the industry, from European regulators, and from some of his American colleagues when he tried to implement even the weak Dodd-Frank provisions for derivatives.”

Why We Didn’t Learn Enough From the Financial Crisis - “Liquidate labor, liquidate stocks, liquidate real estate,” Treasury Secretary Andrew Mellon may or may not have told Herbert Hoover in the early years of the Great Depression. “It will purge the rottenness out of of the system.” This is what has since become known as the “Austrian” view (although most of its modern proselytizers are American): economic actors need to learn from their mistakes, “malinvestment” must be punished, busts are needed to wring out the excesses created during boom times.Within the economic mainstream, there is some sympathy for the idea that crisis interventions can create “moral hazard” by bailing out the irresponsible. But the argument that financial crises should be allowed to wreak their havoc unchecked has few if any adherents. When a financial crisis hit in 2008 that was probably worse than anything the world had seen since the early 1930s, it was this mainstream view that won out. The bailout of the big banks in late 2008, while hugely unpopular with the general populace, has garnered near-unanimous support from the economics profession. In a paper eventually published in the Journal of Financial Economics in 2010, the University of Chicago’s Pietro Veronesi and Luigi Zingales — two economists who aren’t generally big fans of government economic intervention — concluded that even without including the impossible-to-measure systemic benefits, the cash infusions and guarantees orchestrated by Treasury Secretary Hank Paulson created between $73 billion and $91 billion in economic value after costs.

Higher Bank Capital Requirements are Necessary but not Sufficient - William K. Black - The last ditch efforts to save Larry Summers’ prospective nomination to run the Fed and the comments about his withdrawing from consideration have prompted further discussions of financial regulation.  Commercial bank capital requirements during the heights of the bubbles were absurdly low and the capital requirements for investment banks, Fannie and Freddie, sellers of CDS protection, monoline insurers, and mortgage banks were farcical.  The capital requirements for U.S. primary dealers and the largest commercial banks were reduced sharply during the expansion phase of the bubble.  The reduction in the capital requirements for Europe’s largest commercial banks was far more severe than in the United States, so there is a “natural experiment” that can be used to research the effect of reducing capital requirements.The Basel process was originally designed to prevent a regulatory race to the bottom by the “developed” economies through debasing bank capital requirements.  The Basel process was supposed to create a more uniform minimum bank capital requirement.  Basel II, however, embraced reducing capital requirements and ended up producing a much lower bank capital requirement in Europe than the U.S.Basel II’s evisceration of capital requirements proved disastrous.  One of the less understood aspects of the mortgage fraud crisis is how the FDIC’s successful rearguard action saved us from the Fed’s economists’ efforts to push the full reduction in capital requirements of Basel II and delayed U.S. implementation of Basel II by two years.  Europe had no equivalent to the FDIC fighting the madness of Basel II’s sharp reductions in bank capital requirements so it adopted the full reduction and it adopted that reduction two years before the U.S. implemented its considerably less radical reduction in capital requirements.

Wall St. Exploits Ethanol Credits, and Prices Spike - It was supposed to help clean the air, reduce dependence on foreign oil and bolster agriculture. But a little known market in ethanol credits has also become a hot new game on Wall Street.   The federal government created the market in special credits tied to ethanol eight years ago when it required refiners to mix ethanol into gasoline or buy credits from companies that do so. The idea was to push refiners to use the cleaner, renewable fuel, or force them to buy the credits. A few worried that Wall Street would set out to exploit this young market, fears the government dismissed. But many people believe that is what happened this year when the price of the ethanol credits skyrocketed 20-fold in just six months, according to an analysis of regulatory documents and interviews with more than 40 people involved in the market, including industry executives, brokers, traders and analysts. Traders for big banks and other financial institutions, these people say, amassed millions of the credits just as refiners were looking to buy more of them to meet an expanding federal requirement. Industry executives familiar with JPMorgan Chase’s activities, for example, told The Times that the bank offered to sell them hundreds of millions of the credits earlier this summer. When asked how the bank had amassed such a stake, the executives said they were told by the bank that it had stockpiled the credits.

Which came first, the bank failure or the output gap? - Do bank failures really exacerbate output declines? Do they consequently justify extensive responses to prevent future failures? Ben Bernanke famously argued in 1983 that bank failures did exacerbate the Great Depression because of how they impacted credit intermediation channels. His findings helped to justify much of the extraordinary intervention we have seen since 2008. A new working paper by Jeffrey Miron, of Harvard University, and Natalia Rigol, of MIT — Bank failures and output during the Great Depression — respectfully disagrees on the degree of bank failure feedback at work here.From the abstract:This paper examines the relation between bank failures and output by re-considering Bernanke’s (1983) analysis of the Great Depression. We find little indication that bank failures exerted a substantial or sustained impact on output during this period. This is a potentially very important. After all, as the economists note, if failures have a large impact on output, bailouts are potentially desirable even if they come at a cost. But, if failures have a modest impact on output, the case for bailouts is less convincing.

Heads They Win, Tails We Lose - Paul Krugman - Many years ago MIT’s Andy Lo made a simple point about the distortion of incentives inherent in financial-industry compensation. Suppose you’re a hedge fund manager, getting 2 and 20 — fees of 2 percent of investors’ money, plus 20 percent of profits. What you want to do is load up on as much leverage as possible, and make high-risk, high return investments. This more or less guarantees that your fund will eventually go bust — but in the meantime you’ll have raked in huge personal earnings, and can walk away filthy rich from the wreckage.But surely, you say, investors will see through this strategy. They can’t consistently be that stupid or naive, can they?  Hahahaha. What brings this to mind is a new Center for Public Integrity report on the lifestyles of the rich and infamous — finance honchos who brought down their companies and much of the world economy with them. So, Lehman’s Dick Fuld gets to ruminate on what went wrong in his Greenwich mansion or his 40-acre ranch, or maybe his 5-bedroom house in Florida. Jimmy Cayne of Bear Stearns plays bridge from his $25 million apartment in the Plaza Hotel. And so on down the line. So it really was heads they win, tails we lose, with all the incentives being to take maximum risks and let the taxpayers clean up the mess. Luckily, it won’t happen again, because we’ve had comprehensive financial reform. Right? Right?

US corporate credit growth slowing - One bright spot in the story of US loan growth since the recession has been corporate credit. Loans to companies had experinced relatively light default volumes and banks grew this part of their balance sheets faster than other types of credit. But even the corporate sector loan volume has barely kept up with bank deposits. The so-called "loan - deposit ratio" growth for corporate loans has been tepid.  Moreover, this ratio seems to have peaked this summer.Even on an absolute basis (as opposed to fraction of deposits), growth in loans to companies continues to slow. Part of this is driven by poor demand for credit from stronger firms who are hoarding cash. Some of the slowdown is due to banks' reluctance to underwrite weaker credits due to regulatory capital constraints. Whatever the case, the downward trend, which started about a year ago,  remains intact.  

Could rising rates fuel credit growth in the US? - This may seem counterintuitive, but Deutsche Bank’s researches argue that "moderately" higher rates may actually improve lending. This certainly contradicts the traditional school of thought followed by the Fed, who seemingly became spooked by the recent rate spike. In fact loan growth was beginning to slow even as rates touched historical lows. As the chart below shows the 10yr treasury yield of under 1.5% (weekly average) was reached around the time the rate of growth in US lending had peaked. Is it possible that letting rates rise instead of continuing with the “pedal to the metal” stimulus approach, will actually benefit credit growth? DB: - … moderately higher rates are allowing lenders to ease credit standards for borrowers. In point of fact, last month’s Fed Senior Loan Officer Survey (SLOS) showed an easing of standards across all four major lending categories (i.e., commercial/industrial, consumer, residential and commercial real estate loans). To the extent that higher interest rates allow banks to earn a higher return on their investment—it is notable that most of the rise in rates has been due to a steepening of the curve—then higher yields can actually galvanize lending. In other words, extremely low rates will not stimulate the economy much if banks are only lending to their most creditworthy customers. Consequently, higher rates should correspond to more credit provisioning, which all else being equal should be supportive to real GDP growth. With the supply and demand for credit increasing, we view this as a potentially very powerful tailwind to the economy over the next year or so. The fact that credit is more available, albeit at a higher price, is more stimulative to the economy than when the price of credit was cheaper but unavailable.

Making Money Off the Poor - A lot of people are making money off the poor. The Center for Responsible Lending, a North Carolina nonprofit that tracks predatory lending practices, issued a revealing report earlier this month on payday loans, which carry annual interest rates as high as 400 percent. Using data compiled by the Consumer Financial Protection Bureau, the center found that most borrowers repeatedly rolled over or renewed loans. The center’s analysis also found that “the median annual income of a borrower was $22,476, with an average loan amount of $350.” Most crucially, though, the median consumer in our sample conducted 10 transactions over the 12-month period and paid a total of $458 in fees, which do not include the loan principal. One-quarter of borrowers paid $781 or more in fees. You might think these companies are making enough money from their usurious interest rates, but the center’s report makes it clear that payday lenders are dependent for profits on borrowers who take out repeated loans: loans to repeat borrowers generally constitute between 70 and 90% of the portfolio, and for some lenders, even more.”The center cites the following industry analysis, which is remarkably clear on how this scheme plays out in practice:“In a state with a $15 [fee] per $100 [loan] rate, an operator … will need a new customer to take out 4 to 5 loans before that customer becomes profitable. “[T]he theory in the business is [that] you’ve got to get that customer in, work to turn him into a repetitive customer, long-term customer, because that’s really where the profitability is.” Payday loans, the report concludes, “create a debt treadmill that makes struggling families worse off than they were before they received a payday loan.”The payday loan industry operates out of storefronts in poor neighborhoods, but a share of its profits filter into some of the nation’s most prestigious banks.

Unofficial Problem Bank list declines to 700 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for September 13, 2013.  Changes and comments from surferdude808:  The FDIC shuttered two banks this Friday to keep things interesting. The failures and two action terminations caused the Unofficial Problem Bank List to drop to 700 institutions with assets of $246.0 billion. A year ago, the list held 866 institutions with assets of $330.5 billion. Actions were terminated against Nextier Bank, National Association, Evans City, PA ($510 million) and Seattle Bank, Seattle, WA ($223 million). Failures this week were First National Bank, Edinburg, TX ($3.1 billion) and The Community's Bank, Bridgeport, CT ($26 million). The failure in Connecticut is only the second in FDIC's Boston Region since the onset of the financial crisis. Next week, we anticipate the OCC will release its actions through mid-August. 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 700 (the list increased faster than it is decreasing - but it is steadily decreasing as regulators terminate actions and close a few more banks).

Mortgage Lending Faces Big Risks From 2nd Liens, Delinquencies, and Higher Rates - The Office of Comptroller of the Currency (OCC) said the overall forecast for the banking industry reflects slow growth in revenue and core profits.   The recent uptick in longer-term rates has heightened concerns about increasing interest-rate risk and has significantly slowed the mortgage refinance market.OCC highlighted three key risk themes in its most recent Semiannual Risk Perspective that banks should understand and seek to mitigate.  First, strategic risk continues to increase as bank management searches for ways to generate acceptable returns, often looking to new products and services that can present unfamiliar risks they are not prepared to manage.   Second there are challenges that arise in a period of sustained but slow growth as many banks and investors begin to "chase" yield, often taking on more interest rate or credit risk to maximize return. We are beginning to see signs of the classic cyclicality in banking where traditional lagging indicators are improving so bankers start to layer risk back into the system, he said.  One example is that the rate for jumbo mortgages, a traditionally riskier product, recently dipped below that of conforming mortgages.Third is the area of operational risks and those growing in the system today are increasingly sophisticated cyber threats, expanding dependence on technology, and changing regulatory requirements.  As some of the failures that caused the focus operational risk came from the mortgage industry he told the group, that may have given their industry a leg up in appreciating operational risk over other lines of business.

SIFUABS -- This should never, ever happen. And as this couple never missed a mortgage payment, it can happen to anyone: Last year, they got a loan modification with Ocwen Financial Corporation. Then they say they got a call, and later a letter, notifying them Ocwen had sold their loan to Nationstar Mortgage. In June, they got a knock at the door. "They came and knocked on our door. That's how we found out our house had been sold," said Louise Sinclair.  The Sinclairs say although they hadn't received notice prior to that day, the person at the door told them they had two weeks to leave their house because a company called Sage Equities had bought it in foreclosure. They were expected to pay rent in the meantime. Companies like Nationstar aren't honoring modifications when they buy mortgage servicing rights. They try to steal the home instead. This on non-bank servicers like Nationstar. This on how CFPB found abuse like this as a continuing practice.  Private property rights are theoretical at this point.

Lawler: Table of Distressed Sales and Cash buyers for Selected Cities in August --Economist Tom Lawler sent me the table below of short sales, foreclosures and cash buyers for several selected cities in August.  Note: The Sacramento distressed sales shares are SF only, while the all-cash share is for total residential sales.  Earlier this year the Sacramento Association of Realtors stopped showing distressed sales for condos/townhomes, though it reported such data in its press release.  The August press release was not yet available on its website. From CR: Look at the two columns in the table for Total "Distressed" Share. In every area that has reported distressed sales so far, the share of distressed sales is down  year-over-year.  Also there has been a decline in foreclosure sales in all of these cities.   And now short sales are declining year-over-year too!  This is a recent change - short sales had been increasing year-over-year, but it looks like both categories of distressed sales are now declining. The All Cash Share is mostly declining.  When investors pull back in markets like Phoenix (already declining), the share of all cash buyers will probably decline.

Lawler: Updated Table of Distressed Sales and Cash buyers for Selected Cities in August - Economist Tom Lawler sent me the updated table below of short sales, foreclosures and cash buyers for several selected cities in August.   From CR:  Look at the two columns in the table for Total "Distressed" Share. In every area that has reported distressed sales so far, the share of distressed sales is down  year-over-year.  Also there has been a decline in foreclosure sales in all of these cities.    And now short sales are declining year-over-year too.  This is a recent change - short sales had been increasing year-over-year, but it looks like both categories of distressed sales are now declining.The All Cash Share is mostly declining.  When investors pull back in markets like Phoenix (already declining), the share of all cash buyers will probably decline.In general it appears the housing market is slowly moving back to normal.

Higher Rates Hitting Homebuyers - The above chart shows that the belly of the curve (7-10 year treasuries) have been selling off since the mid-spring.  Prices for the ETF have dropped from 108 to 100, leading to a rise in interest rates.  Overall, we're seeing a large sell-off from foreign investors: Worries over the end of the Federal Reserve’s bond-buying programme spurred foreign investors to sell US Treasuries at the fastest pace on record in June. Figures released from the Treasury on Thursday showed that outflows of longer-term US securities, which include government debt as well as equities, reached $66.9bn in June. Foreign investors sold $40.8bn worth of Treasury bonds, the highest monthly sell-off on record, according to data from the so-called “TIC report”.  Rates have risen over 100 basis points in the last 6-7 months, which is bleeding through to the mortgage market.  This rate increase is hitting the home buying market: Following four consecutive months of improvement, builder confidence in the market for newly built, single-family homes held unchanged in September with a reading of 58 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. "While builder confidence is holding at the highest level in nearly eight years, many are reporting some hesitancy on the part of buyers due to the sharp increase in interest rates,” said NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. “Home buyers are adjusting to the fact that, while mortgage rates are still quite favorable on a historic basis, the record lows are probably a thing of the past.”

Home-Loan Drop Pushes Fed Away From Mortgage Bond Taper - A surge in mortgage rates to two-year highs has undercut borrowing, pushing down refinancing by more than 70 percent since last September. Wells Fargo & Co. (WFC) said this month originations may fall 29 percent this quarter, while JPMorgan Chase & Co. said volumes may plunge 40 percent in the second half compared with the first six months of the year. The Fed today would limit the impact from tapering by reducing Treasury purchases rather than mortgage-backed securities, Buying mortgage bonds reduces home loan rates, increases house prices, and pushes up consumer confidence and spending, said Gapen, a former researcher in the Fed’s Division of Monetary Affairs. “There’s a fair degree of consensus that MBS purchases are more effective than Treasuries in terms of stimulating activity,” said Gapen, who expects the Fed to reduce monthly purchases by $10 billion in Treasuries and $5 billion in mortgage bonds. “It’s a more direct route to housing and household balance sheets.”

Why Tapering Mortgage Purchases May Not Be Reducing Support - With the housing market showing a little bit of a drag from rising mortgage rates, a number of economists have suggested that the Federal Reserve consider winding down its purchases of Treasurys — but not mortgage-backed securities — when it embarks on any “tapering.” But the Fed might be able to wind down its purchases of mortgage-backed securities without removing any support from the mortgage market. The Fed has been buying $45 billion of Treasurys and $40 billion of mortgage bonds every month as part of the bond-buying program it launched last year. Mortgage rates have shot up by more than a percentage point since late May, when Fed Chairman Ben Bernanke first hinted that it could begin tapering its purchases of those securities later this year. The quick runup in mortgage rates choked off refinance activity, which is now down by 60% from its May levels. As refinance volumes have dropped, so too will the issuance of mortgage-backed securities by Fannie Mae and Freddie Mac. As a result, if the Fed doesn’t pull back on its mortgage-bond purchases, it will soon find itself buying an even bigger share of overall mortgage-bond issuance — effectively, by doing nothing, the Fed would increase, not decrease, its support of the mortgage market. “For them to have the same impact that they have had over the past year, they need to taper,” said Sam Khater, senior economist at CoreLogic.

Mortgage Lending Reaches 5-Year High - Mortgage lending jumped to a five-year high last year, driven by a sharp rise in refinancing as borrowers rushed to lock in the lowest mortgage rates in at least 60 years, according to a Federal Reserve report. The report, which was released Wednesday by central-bank researchers, found that lenders originated nearly 9.8 million mortgages in 2012, up 38% from 7.1 million in 2011, which had been a 16-year low. Last year's levels, however, remained far short of lending volumes reached during the housing bubble and even before the bubble over a decade ago. The report offers the first comprehensive look at the lending activities of thousands of financial institutions. Researchers analyzed data submitted by 7,400 lenders under the Home Mortgage Disclosure Act. Some 6.6 million loans were to refinance existing mortgages, up 54% from 2011 and the highest level since 2005. Refinancing was buoyed in part by a series of changes to a government initiative that allowed homeowners with federally backed loans to lower their rate even if they didn't have equity in their home. While lending for home purchases increased 13% to 2.7 million mortgages in 2012, it remained below the level reached in every year between 2000 and 2009.

When Too Much Housing is Bad for Our Health - Yves Smith - It’s intriguing that “our economic model is based too much on the housing market” is becoming a meme a mere six years after housing bubbles in most advanced economics were a major driver of the global financial crisis. Apparently, the fact that heroic efforts by the officialdom to restore the status quo ante via aggressive efforts to prop up the real estate prices (well, at least in the US, Spain and Ireland have gotten the Mellonite treatment instead) have instead produced zombie banks and a significantly-ZIRP-QE dependent housing recovery have finally led to some long overdue skepticism. Of course, a big reason housing served as a driver of growth was not just the direct impact of homebuilding. Housing is the foundation of a consumer-oriented society. Bigger houses, after all, require owning more stuff to fill all that space. But the reason the housing-oriented economic model hasn’t been displaced is that numerous constituencies support it. There’s a large group of usual suspects: the “affordable housing” coalition (which ultimately produces less affordable housing by relying on financial subsidies, which raise asset prices), banks, realtors, homebuilders. But there’s also an even older political tradition of using housing as a vehicle for social engineering. Bush’s “ownership society” was that old wine in a new bottle. Right-wing and moderate political leaders felt homeownership was valuable because it would create stable communities and encourage conservative values. The fact that young people, who are finding it hard to secure stable, decently paid employment and buy houses, are polling decidedly left-wing on economic issues, says that the corprocrat’s neglect of the basic duty of capitalism, to generate employment, is going to bite them in the ass, although it may take another five to ten years for this generational shift to change political and economic priorities.

MBA: Mortgage Applications Increase in Latest Weekly Survey -- From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 11.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 13, 2013. The previous week’s results included an adjustment for the Labor Day holiday. ... The Refinance Index increased 18 percent from the previous week. The seasonally adjusted Purchase Index increased 3 percent from one week earlier and is close to the same level as two weeks ago, before the holiday. ... The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.75 percent from 4.80 percent, with points decreasing to 0.39 from 0.46 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. The refinance index bounced around the last two weeks due to the holiday week. But the key is the refinance index is down 65% since early May, we will probably see the refinance index back to 2000 levels soon. The second graph shows the MBA mortgage purchase index. The 4-week average of the purchase index was generally been trending up over the last year (but down over the last few months), and the 4-week average of the purchase index is up about 3% from a year ago.

Weekly Update: Existing Home Inventory is up 21.1% year-to-date on Sept 16th - Here is another weekly update on housing inventory: 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.

Existing Home Sales in August: 5.48 million SAAR, 4.9 months of supply - The NAR reports: August Existing-Home Sales Rise, Limited Inventory Continues to Push Prices Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.7 percent to a seasonally adjusted annual rate of 5.48 million in August from 5.39 million in July, and are 13.2 percent higher than the 4.84 million-unit level in August 2012. Total housing inventory at the end of August increased 0.4 percent to 2.25 million existing homes available for sale, which represents a 4.9-month supply at the current sales pace, down from a 5.0-month supply in July. Unsold inventory is 6.3 percent below a year ago, when there was a 6.0-month supply. This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in August 2013 (5.48 million SAAR) were 1.7% higher than last month, and were 13.2% above the August 2012 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory increased to 2.25 million in August up from 2.24 million in July. Inventory is not seasonally adjusted, and inventory usually increases from the seasonal lows in December and January, and peaks in mid-to-late summer. The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory. Inventory decreased 6.25% year-over-year in August compared to August 2012. This is the 30th consecutive month with a YoY decrease

Comments on Existing Home Sales - First, the higher than consensus headline sales number was not surprising, although this was even above Lawler's estimate (see Lawler: Early Look at Existing Home Sales in August). Second, the strong sales rate in August is not a sign that higher mortgage rates have had no impact on sales.  The NAR reports CLOSED sales, and the usual escrow period is 45 to 60 days.  Mortgage rates didn't start increasing until the 2nd half of May, and were still below 4% in mid-June (see Freddie Mac Weekly Primary Mortgage Market Survey®), so buyers could have locked in rates in early June - and pushed to close in August. I expect sales to decline in September, and a further decline in a couple of months. But that doesn't mean the housing recovery is over. What matters for jobs and the economy are new home sales, not existing home sales.  And I expect the housing recovery to continue.The key number in the existing home sales report is inventory (not sales), and the NAR reported that inventory increased slightly in August from July, and is only down 6.3% from August 2012.  This is the smallest year-over-year decline since March 2011. The key points are: 1) inventory is very low, but 2) the year-over-year inventory decline will probably end soon. With the low level of inventory, there is still upward pressure on prices - but as inventory starts to increase, buyer urgency will wane, and price increases will slow.

FNC: House prices increased 3.9% year-over-year in July - From FNC: FNC Index: Home Prices Continue to Rise, Up 0.7% in July The latest FNC Residential Price Index™ (RPI) shows that U.S. home prices continue to climb higher, rising 0.7% in July. The index is reaching a three-year high as the housing recovery continues. The rapid declines in foreclosure sales and new foreclosure filings have diminished the impact of distressed properties on home prices. ...As of July, foreclosure sales nationwide are approaching the pre-crisis levels. Foreclosure sales accounted for 12.2% of total home sales, down from 17.3% a year ago.  Based on recorded sales of non-distressed properties (existing and new homes) in the 100 largest metropolitan areas, the FNC 100-MSA composite index shows that July home prices increased from the previous month at a seasonally unadjusted rate of 0.7%. On a year-over-year basis, home prices were up a modest 3.9% from a year ago. The two narrower indices exhibit similar month-over-month and year-over-year trends. The 100-MSA composite was up 3.9% compared to July 2012 (about the same YoY change as in June). The FNC index turned positive on a year-over-year basis in July, 2012.This graph shows the year-over-year change for the FNC Composite 10, 20, 30 and 100 indexes.   Even with the recent increase, the FNC composite 100 index is still off 27.3% from the peak.

Four Factors to Watch in Housing’s Rebound -- For the past year, more U.S. housing markets have had the feel of a blowout flea-market sale. Prices were low and financing—while hard to get—was cheap for those who could get it. Once it was clear prices had found a bottom, bidding wars broke out as buyers competed over a shrinking supply of homes to get a good deal. That sent prices up—sharply, in many markets—and for a while, buyers didn’t much mind. But now, mortgage rates are up by a full percentage point over the past four months, and affordability has taken a hit, prompting concerns about a short-term “soft patch” as buyers and sellers adjust. Here’s a look at four keys to the housing puzzle:

  • 1. Housing became less affordable in a short span. Typically in a recovery, sales pick up and then prices follow. But the current recovery has been “flip-flopped,”. “We’ve had pricing accelerate out of the box” as builders took advantage of rising demand and low interest rates while adding little in the way of new construction. Now, with prices up by double-digits from one year ago, rising rates have been “almost like a red light on the frantic price inflation,”
  • 2. Inventories are still depressed. Demand is only part of the equation of course, and some real-estate agents say the biggest drag on sales continues to be the lack of homes for sale. While the number of listings in August was up by 20% from the beginning of the year, the supply of homes for sale is below the already-depressed levels of one year ago. “There’s just not enough inventory to justify price declines,” said Ms. Zelman.

NAHB: Builder Confidence unchanged in September at 58 - The National Association of Home Builders (NAHB) reported the housing market index (HMI) was unchanged in September at 58. Any number above 50 indicates that more builders view sales conditions as good than poor.  (August was revised down from 59 to 58).  From the NAHB: Builder Confidence Unchanged in September Following four consecutive months of improvement, builder confidence in the market for newly built, single-family homes held unchanged in September with a reading of 58 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. HMI component indexes were mixed in September. While the component gauging current sales conditions held unchanged at 62, the component gauging sales expectations in the next six months declined three points to 65 and the component gauging traffic of prospective buyers increased one point, to 47. All four regions posted gains in their three-month moving average HMI scores in September, including a two-point gain to 41 in the Northeast, a four-point gain to 64 in the Midwest, a two-point gain to 56 in the South and a four-point gain to 61 in the West, respectively.
emphasis added

Housing Starts increased in August to 891,000 SAAR - From the Census Bureau: Permits, Starts and Completions - Privately-owned housing starts in August were at a seasonally adjusted annual rate of 891,000. This is 0.9 percent above the revised July estimate of 883,000 and is 19.0 percent above the August 2012 rate of 749,000. Single-family housing starts in August were at a rate of 628,000; this is 7.0 percent above the revised July figure of 587,000. The August rate for units in buildings with five units or more was 252,000. Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 918,000. This is 3.8 percent below the revised July rate of 954,000, but is 11.0 percent above the August 2012 estimate of 827,000. Single-family authorizations in August were at a rate of 627,000; this is 3.0 percent above the revised July figure of 609,000. Authorizations of units in buildings with five units or more were at a rate of 268,000 in August. The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) decreased in August (Multi-family is volatile month-to-month). Single-family starts (blue) increased to 628,000 SAAR in August (Note: July was revised down from 591 thousand to 587 thousand). The second graph shows total and single unit starts since 1968. This was below expectations of 915 thousand starts in August.

New Home Building Ticks Upward - Construction of new homes in the U.S. accelerated in August by nearly 1%, to a seasonally adjusted annual rate of 891,000, The Wall Street Journal reports.The increase was driven largely by a 7% increase in construction of single-family homes, while groundbreaking on multi-family dwellings decreased slightly. New home construction—particularly starts of single-family dwellings—are considered a reliable measure of the health of the real estate market, a key driver of the overall economy. New home construction aside, demand may be softening in the housing market, as buyers face the prospect that the era of record-low mortgage rates may be coming to an end. The Fed is expected to announce this week the scaling back of its bond-buying programs, known as quantitative easing, which have kept mortgage rates artificially low in recent years.

Headwinds & Housing Starts -- Housing starts inched ahead in August to 891,000 from 881,000 in July (seasonally adjusted annual rate), the US Census Bureau reports. The August number was quite a bit lower than the consensus forecast, although it was in line with The Capital Spectator’s average econometric projection (see yesterday’s preview). Thanks to a revision that lowered July’s initial estimate, today’s August number posted a slight gain over the previous month. Nonetheless, it’s clear that higher interest rates are creating headwinds for housing.  The headwinds showed up in last month’s tally of newly issued building permits, which dipped to an annualized rate of 918,000 (seasonally adjusted), or near the lowest pace we've seen so far this year. That a sign that future construction activity may slow further in the months ahead. Yesterday’s update of the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) also suggested that builders were turning a bit more cautious lately. “While builder confidence is holding at the highest level in nearly eight years, many are reporting some hesitancy on the part of buyers due to the sharp increase in interest rates,” noted NAHB Chairman Rick Judson in a press release. “Home buyers are adjusting to the fact that, while mortgage rates are still quite favorable on a historic basis, the record lows are probably a thing of the past.”

Housing Starts, Permits Miss; Demand For Rental Units Continues Slide -- That today's housing starts and permits data disappointed once again (in the case of starts this was the 5th miss in a row) is not surprising: with Starts printing at 891K, this was a miss to "expectations" of 917K, as analyst expectations for the "recovery" begin to be repriced in the face of rising rates. There was of course spin: the prior month was revised from 896K to 883K so the mainstream media could at least present the disappointing number as an increase. This was also the biggest 5 month drop in starts since February 2011. Furthermore, when looking at the internals one thing is obvious - the main driver of the non-existent housing recovery: Wall Street (and foreign)-based, REO-to-Rent subsidized investors in rental properties are finally leaving the scene, as demand for multi-family, aka rental units, dropped from 278K annualized to 252K, a far cry from the recent highs of 356K in March and back to a level first crossed (to the upside) back in September of 2012. This is a confirmation that absent a renewed plunge in rates, the downtrend in housing units is here to stay as the marginal dollar is quickly leaving. Elsewhere, in the world of permits, the number was not only a major miss, down at 918K vs 950K expected, but substantially lower too, sliding from 943K to an upward revised 954K. This matched the lowest number of permits since April, and is higher than only

AIA: Architecture Billings Index increases in August Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From AIA: Strong Conditions Revealed in Architecture Billings Index The Architecture Billings Index (ABI) showed more acceleration in the growth of design activity nationally. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the August ABI score was 53.8, up from a mark of 52.7 in July. This score reflects an increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 63.0, down from the reading of 66.4 the previous month. This graph shows the Architecture Billings Index since 1996. The index was at 53.8 in August, up from 52.7 in July. Anything above 50 indicates expansion in demand for architects' services. This index has indicated expansion in 11 of the last 12 months. Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions. According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.

Rents rising faster than inflation; could hurt seniors - The cost of primary residence rentals has risen by 3% on a year-over-year basis last month. That's roughly double the headline CPI increase from a year ago. The culprit is some combination of higher rates, a cultural shift toward renting (see post), and insufficient growth in the supply of rental properties nationally.If continued, this trend could be particularly difficult on seniors who rely on Social Security payments for income. These payments are linked to the CPI measure, and the headline inflation divergence from the increasing cost of rent could become an issue over time. And the so-called "chained CPI" proposal is likely to make Social Security payments rise even slower (see story). For many elderly Americans, rent represents a large component of their total expenditures. On the other hand, seniors, who rely on a different "basket" of goods and services than the general population, are less likely to benefit significantly from some components of the CPI for which prices are falling. "Personal computers and peripheral equipment" category, which shows a steady price decline, is one example. It is important to track how some vulnerable groups are impacted by what the economists consider "benign" inflation conditions.

CPI increases 0.1% in August, Core CPI 0.1% - From the Bureau of Labor Statistics (BLS): Consumer Price Index - June 2013 The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in August on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.5 percent before seasonal adjustment. ... The index for all items less food and energy increased 0.1 percent in August after increasing 0.2 percent in each of the three previous months. ... The index for all items less food and energy increased 1.8 percent for the 12 months ending August. On a year-over-year basis, CPI is up 1.5 percent, and core CPI is up also up 1.8 percent. Both are below the Fed's target. This was close to the consensus forecast of a 0.2% increase for CPI, and a 0.1% increase in core CPI. Note: CPI-W (used for cost of living adjustment, COLA) is also up 1.5% year-over-year in August. The COLA is calculated using the average Q3 data (July, August, and September). The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 1.5 percent over the last 12 months to an index level of 230.359 (1982-84=100). For the month, the index increased 0.1 percent prior to seasonal adjustment.

Inflation Remains Mild, But Shelter and Medical Care Costs Increase -  The Bureau of Labor Statistics released the latest CPI data this morning. Year-over-year unadjusted Headline CPI came in at 1.52%, which the BLS rounds to 1.5%, down from 1.96% last month (rounded to 2.0%). Year-over-year Core CPI (ex Food and Energy) came in at 1.76% (rounded to 1.8%), up from last month's 1.70%. Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data:The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in August on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.5 percent before seasonal adjustment.  Increases in the indexes for shelter and medical care contributed to the increase in the seasonally adjusted all items index; they also accounted for most of the 0.1 percent increase in the index for all items less food and energy. Within all items less food and energy, the indexes for personal care, tobacco, and apparel rose as well, while the indexes for airline fares, household furnishings and operations, and used cars and trucks declined.  The food index rose slightly in August, with the fruits and vegetable index rising 1.2 percent and four of the six major grocery store group indexes increasing. The energy index declined 0.3 percent, due mostly to a sharp decline in the index for natural gas. The gasoline and electricity indexes also declined slightly, while the index for fuel oil rose. The all items index increased 1.5 percent over the last 12 months. The index for all items less food and energy has risen 1.8 percent over the last year; the 12-month change has remained in the range of 1.6 percent to 2.3 percent since June of 2011. The food index rose 1.4 percent over the last 12 months, a figure that has held steady since May. The energy index declined 0.1 percent over the last 12 months.  More... The consensus forecast was for a 0.2% MoM for Headline and 0.1% for Core CPI. Their YoY forecast for Core CPI was spot-on at 1.8%. They were looking for Headline at 1.6%. The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000.

CPI Barely Budges, Up 0.1% for August 2013 - The August Consumer Price Index increased 0.1% from July.  CPI measures inflation, or price increases.  Take away food and energy out of the picture and inflation still only increased 0.1%, mainly on housing cost increases and medical care.  A 0.1% monthly increase is a low rate of inflation. CPI is now up 1.5% from a year ago as shown in the below graph.  This is also a low annual rate of inflation. Core inflation, or CPI minus food and energy items, increased 0.1%.  Core inflation has risen 1.8% for the last year and since June 2011 has ranged from 1.6% to 2.3%.  Core CPI is one of the Federal Reserve inflation watch numbers and 2.0% per year is their boundary figure.   Graphed below is the core inflation change from a year ago. Core inflation's components include shelter, transportation, medical care and anything not food or energy.  The shelter index is comprised of rent, the equivalent cost of owning a home, hotels and motels.   Shelter increased 0.2% and is up 2.4% for the year. Owning a home increased 0.2% and is up 2.2% for the year.   Rent increased 0.4% for the month and has increased 3.0% from a year ago   Graphed below is rent, where cost increases hits people who can least afford it most. A core inflation cost which almost never drops is medical care.  Medical care increased 0.6% with hospital services jumping 1.9% in a month,  Without medical, CPI would have been zero for August  The Medical care index has increased 2.3% over the last 12 months.  Graphed below is the overall medical care index change from a year ago.

August Inflation Rises 0.1%, Less Than Expected Driven By Lower Utility Prices - If the Fed was looking for any confirmation as it entered its two day meeting that its monetary machinations are boosting inflation, at least according to the BLS' hedonically, seasonally-adjusted CPI indicator, it did not get it. August CPI just printed at a measly 0.1% increase from July, below the 0.2% expected, and down from 0.2% last month. This was the lowest monthly increase in overall inflation since May, and the biggest miss to expectations in 4 months. On a Y/Y basis overall prices roses 1.5%, below the expected 1.6% and well below the 2.0% inflation in July. Core inflation excluding food and energy rose 1.8% in line with the expected number, and higher than the 1.7% a month ago. Perhaps the best news is that according to the BLS, "the index for nonalcoholic  beverages declined in August, falling 0.1 percent." It is unclear what if any hedonic adjustments were used in this particular calculation. As a reminder, the Fed has been "targeting" 2.0% inflation, and failing. So since in the Fed's eyes inflation continues to not be an issue, how long until the Fed proceeds to target NGDP, unanchors inflation expectations, and finally launches Bernanke's helicopter as we speculated recently?

Inflation low and steady as she goes… - In the previous post, capacity utilization is low and steady, and inflation is too. Low inflation is a sign that labor has a liquidity disadvantage to capital. . Here is inflation (all items less food and energy on a quarterly basis). Link to graph #1. Is this a problem? Well… One way to look at inflation is to see it as money growth that was not used for increasing real output. In other words, money is being used to increase employment and production. Money then needs to be distributed among more workers and more production. The result is a suppression in price increases.So would we rather have increased employment and production or inflation? Increased employment is better. However, the problem is that money growth is not leading the economy. A little inflation would show that money growth is maximizing increases in employment and production. But when we see inflation falling, employment and production could be better with a little more money around. Where is the money? The real problem is that the money in the hands of labor is not growing. Labor are the primary consumers for finished goods and services.  Inflation depends upon money growing faster in the hands of consumers than growth in production.

Vital Signs: Look for Inflation in Tune-Ups, Not Tires - The Federal Reserve’s policy statement expected on Wednesday will likely retain language about inflation running below the Fed’s target of 2%. When price pressures finally start to show up, expect the first sign to come from your hairstylist not your shampoo.  Prices continue to rise faster for the services consumers buy rather than the goods they purchase. Goods prices have been held down by advances in factory productivity and competition from imports. Productivity and foreign competition are less of a factor when service prices are determined. Overall goods prices are up 0.1% in year ended in August, while services prices are up a much faster 2.4%. The August consumer price report offers details on the service versus goods gap.

Inflation: A Five-Month X-Ray View: New Update - Here is a table showing the annualized change in Headline and Core CPI, not seasonally adjusted, for each of the past five months. I've also included each of the eight components of Headline CPI and a separate entry for Energy, which is a collection of sub-indexes in Housing and Transportation. We can make some inferences about how inflation is impacting our personal expenses depending on our relative exposure to the individual components. Some of us have higher transportation costs, others medical costs, etc. A conspicuous feature in the table through the latest data is the volatility of energy, essentially the fluctuation in gasoline prices, which is also reflected in Transportation. The range from April to August is quite astonishing. Here is the same table with month-over-month numbers (not seasonally adjusted). The change in energy costs is clearly illustrated, reflected here too in transportation. The chart below shows Headline and Core CPI for urban consumers since 2007. Core CPI excludes the two most volatile components, food and energy. I've highlighted the 2% to 2.5% range that the FOMC targeted in their December 12, 2012 press release, although the Fed has traditionally used the Personal Consumption Expenditure (PCE) price index as their preferred inflation gauge.

The Big Four Economic Indicators: Real Retail Sales - With today’s release of the Consumer Price Index for August I’ve now updated this commentary to include the August Real Retail Sales data. As the adjacent thumbnail illustrates, this indicator has been trending higher over the past year with 11 of the 13 monthly data points showing an advance. The August nominal sales came in at 0.21% month-over-month, with inflation-adjustment reducing the increase to 0.12%. The nominal and real year-over-year advances are 4.67% and 3.10%, respectively. Real Retail Sales is the only one of the Big Four indicators now setting new all-time highs, a distinction it first earned back in April.  The chart and table below illustrate the performance of the Big Four and simple average of the four since the end of the Great Recession. The data points show the percent cumulative percent change from a zero starting point for June 2009. The latest data point is the second for the 50th month. In addition to the four indicators, I've included an average of the four, which, as we can see, was influenced by the anomaly in the Personal Income data points, which reflect 2012 year-end income increases, at the expense of early 2013, as a tax management strategy.

Where Americans—Rich and Poor—Spent Every Dollar in 2012 - Here it is, fresh from the Bureau of Labor Statistics: all of American spending in one big color wheel.Since some of you (inexplicably) don't like pie charts, here's the same data in bars. Averages are misleading, particularly when the rich are running away from the rest. So, digging deeper into BLS data, I broke out percent spending by category for the richest and poorest 20 percent. For the poor, food, clothes, and housing account for more than 60 percent of all spending. The rich have more left over for leisure, insurance, and savings. The term consumption takes on a more literal meaning when you see the difference between rich and poor spending. Cash-hungry families consume more of their income immediately, spending two in three dollars on absolute essentials like food and shirts. The rich are more predisposed to spend toward the future, with eight-times more of their income going toward insurance and even more going toward savings (although the bottom 20 percent includes lots of retirees on Social Security, the next quintile doesn't see much in the way of savings either).

Fed: Industrial Production increased 0.4% in August - From the Fed: Industrial production and Capacity Utilization Industrial production advanced 0.4 percent in August after having been unchanged in July; the gains in August were broadly based. Following a decrease in July of 0.4 percent, which was steeper than previously reported, manufacturing production rose 0.7 percent in August. The output of mines moved up 0.3 percent, its fifth consecutive monthly increase, and the production of utilities fell 1.5 percent, its fifth consecutive monthly decrease. At 99.4 percent of its 2007 average, total industrial production in August was 2.7 percent above its year-earlier level. Capacity utilization for the industrial sector increased 0.2 percentage point in August to 77.8 percent, a rate 0.6 percentage point above its level of a year earlier and 2.4 percentage points below its long-run (1972-2012) average. This graph shows Capacity Utilization. This series is up 10.7 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 77.8% is still 2.4 percentage points below its average from 1972 to 2010 and below the pre-recession level of 80.8% in December 2007. Note: y-axis doesn't start at zero to better show the change. The second graph shows industrial production since 1967. Industrial production increased 0.4% in August to 99.4. This is 18.3% above the recession low, but still 1.5% below the pre-recession peak. The monthly change for both Industrial Production and Capacity Utilization were below expectations. The consensus was for a 0.5% increase in Industrial Production in August, and for Capacity Utilization to increase to 77.9%..

Manufacturing Rebound Led by Autos Supports Growth: Economy - Factories turned out more cars, appliances and home furnishings in August, propelling the biggest increase in U.S. industrial production in six months and indicating manufacturing will contribute more to the expansion.  Output at factories, mines and utilities rose 0.4 percent after no change the prior month, a report from the Federal Reserve showed today in Washington. Manufacturing, which makes up 75 percent of total production, advanced by the most this year. The figures showed strength in housing and autos is rippling through the economy, with a measure of appliance and furniture output climbing to the highest since 2009 and vehicle assemblies growing at the fastest pace in six years. A pickup in global markets and stronger consumer demand would help spark further progress in the sector that struggled earlier this year. “Manufacturing should be a pretty decent contributor to growth over the second half of the year,” said Brett Ryan, a U.S. economist at Deutsche Bank Securities Inc. in New York, whose firm is the second-best forecaster of production for the past two years, according to data compiled by Bloomberg. “You have an elevated level of unfilled orders, so that bodes well for production.”

August 2013 Industrial Production Improves - The headlines say seasonally adjusted Industrial Production (IP) improved in August 2013. Econintersect‘s analysis using the unadjusted data is that IP growth accelerated Headline seasonally adjusted Industrial Production (IP) improved 0.4% month-over-month and up 2.7% year-over-year.

  • Econintersect‘s analysis using the unadjusted data is that IP growth accelerated 1.0% month-over-month, and is up 2.5% year-over-year.
  • The year-over-year rate of growth is trending up using a three month rolling average, and is down using any rolling average between 6 to 12 months.
  • Industrial production is being affected by large movements in utilities.
  • The market was expecting between 0.2% to 0.5% (vs the headline growth of 0.4%).
  • The seasonally adjusted manufacturing sub-index (which is more representative of economic activity) was up 0.7% month-over-month – and up 2.6% year-over-year .
  • Backward revision was all moderately upward for the last 6 months.

IP headline index has three parts – manufacturing, mining and utilities – manufacturing was up 0.7% this month (up 2.6% year-over-year), mining up 0.3% (up 7.5% year-over-year), and utilities were down 1.5% (down 3.9% year-over-year). Note that utilities are 9.9% of the industrial production index.

Industrial Production Up 0.4%, Manufacturing 0.7% for August 2013 - The August 2013 Federal Reserve's Industrial Production & Capacity Utilization report shows a 0.4% increase in industrial production.  Manufacturing alone increased 0.7% for the month, but July manufacturing factory output was revised down to a -0.4% monthly change.  Utilities fell again for the 5th month in a row and August shows a -1.5% decline, while mines increased 0.3%.  The G.17 industrial production statistical release is also known as output for factories and mines.  The graph below shows industrial production index, still not recovered to pre-recession levels, going on five years and seven months. Total industrial production has increased 2.7% from a year ago and is still down -0.6% from 2007 levels, that's over six years.  Here are the major industry groups industrial production percentage changes from a year ago.

  • Manufacturing: +2.6%
  • Mining:             +7.5%
  • Utilities:           -3.9%

Manufacturing output alone shows a 0.7% monthly change, yet is still 2.6 percentage points below it's long run average.  In other words, just because manufacturing had a good month, doesn't mean factory output is by any means healthy.  Below is a graph of just the manufacturing portion of industrial production. Durable goods increased 1.6% for the month, but July was revised down, -0.6%.  This month motor vehicles & parts output, shot up 5.2%, after last month's bust of -4.5% .  From the report we see other durable goods areas had a solid month for a change: In August, the indexes for wood products; computer and electronic products; electrical equipment, appliances, and components; aerospace and miscellaneous transportation equipment; and furniture and related products all posted increases in the range from 1.0 percent to 1.7 percent.

Industrial Production Misses For 5th Month In A Row - While headlines, we are sure, will crow of industrial production's best gain in six months, the sad fact is that the market was expecting more. At +0.4% - against an expectation of +0.5% - this is the 5th month in a row of missed expectations for this significant indicator of economic health. Capacity utilization rose but also missed expectations printing at the worst 6-month rate of change in 10 months. It seems manufacturing and mining got a modest boost (the former bounced more than expected but only thanks to a notable prior revision downward) and Utilities dragged the headline index down - so we await the "it's the weather's fault" remarks.

Industrial Production Rebounds Sharply In August - Industrial production posted a handsome rebound in August after July's essentially flat performance, the Federal Reserve reports. The 0.4% increase for last month is slightly better than The Capital Spectator’s average projection for August, which was published on Friday. More importantly, last month’s advance translates into a significantly stronger year-over-year gain of 2.7% through August, up sharply from the 1.4% annual pace in July. That’s an encouraging sign that industrial output isn’t sliding into a dark phase of deceleration after all, even if recent history appeared to be telling us otherwise.  Note, too, that the manufacturing component enjoyed an even-stronger round of growth last month. Indeed, manufacturing activity expanded by 0.7% in August—the fastest pace since last December. The big news from a business cycle perspective, however, is that the trend in industrial production revived with an impressive turnaround. Industrial output was higher last month by 2.7% vs. the year-earlier level. That’s the fastest annual rate of growth since March.

Vital Signs: Low Operating Rates Equal Low Price Pressures -- To gauge inflationary pressures, the Federal Reserve pays attention to slack in the economy. For labor markets that means, among other factors, the unemployment rate. For the industrial sector, the Fed calculates how much of available operating capacity is being used by manufacturers, mines and utilities. In August, total industry used 77.8% of its available capacity; manufacturing alone tapped 76.8% of capacity. Both operating rates have come back steadily from the extreme low readings of the recession, but they remain well below their long-run averages of 80.2% for all industry and 78.6% in manufacturing. The low utilization rates signal a benign inflation outlook. With demand levels below available operating capacity, there is little chance of bottlenecks or shortages that allow producers to lift their selling prices. Producer prices for finished goods have increased just 1.4% over the past year and prices of intermediate goods are up a mere 0.5%.

Rational Nonexuberence – Part 2 -- In Part 1, [here at AB] I looked at factors that tie closely with Total Capacity Utilization (TCU), and saw no reason to believe that TCU is about to surge.  In Part 2 I’ll be looking at more general ideas that reinforce my lack of optimism.  My underlying assumption is that for TCU to surge, the economy has to surge and pull it along. In this post, Edward Lambert takes a deeper look at capacity utilization, with a strong suggestion that it’s more important to the economy than the 16% contribution that industrial production makes to the total.  So maybe I have my assumption backwards. First a H/T to Mish.  Graph 1 is one He recieved from one of his readers, with the quote: “It seems rather unlikely that private economic activity is poised to accelerate under these conditions.”  Mish concurs, and so do I.  The graph shows Growth in Bank Lending Per Capita (Black) and Real Final Sales Per Capita (Blue).  Both are rolling over from extremely anemic recovery peaks. Next, a huge H/T to Stagflationary Mark at Illusion of Prosperity, who sometimes looks at data and relationships that I would never even think of, and often goads me into a different perspective.  He has graciously allowed me to use some graphs from several of his recent posts.   Graph 2 shows the YoY % change in capital goods orders for non-defense industries.  Mark added a twelve month moving average which is clearly sloping down, and is now at 0%.   In the following graphs, all trend lines and modifications are Mark’s.

NY Fed: Empire State Manufacturing Activity expands at slower pace in September -From the NY Fed: Empire State Manufacturing Survey The September 2013 Empire State Manufacturing Survey suggests that conditions for New York manufacturers improved modestly for the fourth straight month. The general business conditions index edged down two points but, at 6.3, remained in positive territory. The new orders index inched up two points to 2.4 ...Labor market conditions were mostly steady; the index for number of employees retreated three points to 7.5 and the average workweek index edged down to a neutral reading of 1.1. Indexes for the six-month outlook revealed increasingly widespread optimism about future business activity. The future general business conditions index rose for the third straight month, climbing three points to 40.6, its highest level since the spring of 2012. This is the first of the regional surveys for September.  The general business conditions index was below the consensus forecast of a reading of 9.0, but shows continued modest expansion.

Empire Fed Misses; Falls To 4-Month Low As Employment Drops For the second month in a row, the Empire Fed has fallen and missed expectations. At 6.29 (vs 9.1 exp), this is the lowest since May as the average workweek (down from 4.81 to 1.08) and number of employees (down from 10.84 to 7.53)  subindices fall notably. In general the index was not worse because of the effect of the six-months-outlook views (which soared 3pts to 40.6 - its highest since early 2012) when, as usual, current conditions deteriorate but offset by hopium that eventually things will get better, but even there employment (number of employees outlook down from 8.43 to 4.30) was seen as weaker. From the September report: The general business conditions index edged down two points but, at 6.3, remained in positive territory. The new orders index inched up two points to 2.4, while the shipments index jumped nearly fifteen points to 16.4—its highest level in considerably more than a year. The prices paid index was little changed at 21.5, while the prices received index climbed another five points to 8.6. Labor market conditions were mostly steady; the index for number of employees retreated three points to 7.5 and the average workweek index edged down to a neutral reading of 1.1. Indexes for the six-month outlook revealed increasingly widespread optimism about future business activity.

Philly Fed Manufacturing Survey indicates Solid Expansion in September -This was released earlier this morning ... From the Philly Fed: September Manufacturing Survey Manufacturing activity picked up in September, according to firms responding to this month’s Business Outlook Survey. The survey’s broadest indicators for general activity, new orders, shipments, and employment were all positive and higher than in August. The survey's indicators of future activity were significantly higher, suggesting improved optimism about growth over the next six months.The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 9.3 in August to 22.3 this month. The index has now been positive for four consecutive months and is at its highest reading since March 2011. ... The demand for manufactured goods, as measured by the current new orders index, increased 16 points, to 21.2.Labor market indicators showed improvement this month. The current employment index increased 7 points, to 10.3, its highest reading since April of last year. This was above the consensus forecast of a reading of 10.0 for September.
Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through September. The ISM and total Fed surveys are through August.

Vehicle Miles Driven: Population-Adjusted Fractionally Off Its Post-Crisis Low - The Department of Transportation's Federal Highway Commission has released the latest report on Traffic Volume Trends, data through July. Travel on all roads and streets changed by 1.6% (4.2 billion vehicle miles) for July 2013 as compared with July 2012. Travel for the month is estimated to be 263.6 billion vehicle miles. Cumulative Travel for 2013 changed by 0.2% (2.7 billion vehicle miles). Cumulative estimate for the year is 1725.3 billion vehicle miles of travel (PDF report). Both the civilian population-adjusted data (age 16-and-over) and total population-adjusted data are fractionally above the post-financial crisis lows set in June. Here is a chart that illustrates this data series from its inception in 1970. I'm plotting the "Moving 12-Month Total on ALL Roads," as the DOT terms it.  My start date is 1971 because I'm incorporating all the available data from earlier DOT spreadsheets.  Total Miles Driven, however, is one of those metrics that should be adjusted for population growth to provide the most meaningful analysis, especially if we're trying to understand the historical context. We can do a quick adjustment of the data using an appropriate population group as the deflator. I use the Bureau of Labor Statistics' Civilian Noninstitutional Population Age 16 and Over (FRED series CNP16OV). The next chart incorporates that adjustment with the growth shown on the vertical axis as the percent change from 1971.

The Era of Cheap Gasoline is Over - Motor group AAA reports the national average for a gallon of regular unleaded gasoline for Wednesday was $3.50, down more than 30 cents from the same time last year. Refiners are starting to switch to the cheaper winter blend of gasoline, suggesting prices will continue to decline for the rest of the year. That scenario is supported by the recent increase in Libyan oil production and indications military action in Syria is off the table for the time being. The last time the average price for a gallon of regular unleaded gasoline in the United States was below $3.00, however, was the day before Christmas Eve 2010. AAA said that, on average, prices may never be that low again. Midseason refinery issues and security concerns in the Middle East and North America pushed gasoline prices about the $4.00 per gallon mark in the Midwest market this year. A few months and a Labor Day holiday later, and Midwest states like Ohio, Indiana and Michigan are paying almost 50 cents less than they were during the summer. The U.S. Energy Department said the national average peaked at $3.68 in July, but by the time its short-term energy report was published last week, even West Coast consumers were experiencing less pain at the pump.

AAR: Rail Traffic increased in August - From the Association of American Railroads (AAR): AAR Reports Increased Intermodal, Carload Rail Traffic for August The Association of American Railroads (AAR) ... reported increased total U.S. rail traffic for the month of August 2013, with intermodal setting a new record and carload volume increasing overall compared with August 2012. Intermodal traffic in August 2013 totaled 1,031,179 containers and trailers, up 4.4 percent (43,398 units) compared with August 2012. The weekly average of 257,795 units in August 2013 was the highest weekly average for any month in history. Carloads originated in August totaled 1,178,619, up 0.5 percent or 5,285 carloads compared with the same month last year. This graph from the Rail Time Indicators report shows U.S. average weekly rail carloads (NSA). Green is 2013. U.S. railroads averaged 294,655 carloads per week in August 2013, up 0.5% over August 2012 and the highest weekly average for any month since November 2011. August is just the second month in 2013 in which year-over-year total carloads were higher than in 2012. For the past seven months, carloads have deviated only very slightly from the same periods in 2012 ... The commodity category with the largest year-over-year increase in August 2013 was petroleum and petroleum products, with carloads up 18.5% (8,148 carloads) over August 2012 ... [C]oal and grain led the way for carload declines in August 2013, just as they have for many months now. Coal carloads were down 9,915 (2.0%) in August 2013 compared with August 2012, while grain carloads were down 6,570 (9.0%). Note that lumber was up only up 2.7% from a year ago. Graphs and excerpts reprinted with permission. The second graph is for intermodal traffic (using intermodal or shipping containers): Intermodal traffic is on track for a record year in 2013.

Why do Doomers hate Supertrains? - The Doomer mind is obsessed with the fact that we can't be in an economic recovery because household income insn't recovering, at least through the end of last year. Of course, by the same standard, with the exception of one year, we never really recovered from the 1973-74 recession until 1986, and we haven't recovered from the bursting of the tech bubble in 2000 at all.  The real problem with this obsession is that it overlooks *why* median household income continued to fall even after the unemployment rate, and the employment to population ratio both bottomed in 2009. As I've pointed out numerous times over the last couple of years, that has everything to do with the continued high price of gasoline, which went over $3 a gallon apparently permanently in 2010, after a secular rise from $0.92 a gallon in early 1999.  We have an incredibly wasteful transportation system, which forces people to use cars even where a well designed mass transit system would work efficiently, save time and aggravation, and save travelers lots of money. Up until the last few months, we had once-in-lifetime low treasury bond rates. We could have made use of those rates to build, or rebuild, lots of infrastructure, including a transportation infrastructure that helped consumers in the face of likely permanently high gas prices. Or, as Atros puts it simply, SUPERTRAINS! The Doomer obsession with "green shoots!", "printing fiat money!", airquote "recovery!", and the like means they fail to see - in fact, don't want to see - how important the price of gas has been in holding back ordinary consumers, and how important it is for this country to break free of the Oil choke collar.

Obama Touts Gains in Exports Amid Slowing Growth - President Barack Obama on Thursday called U.S. exports one of the “biggest bright spots” in the U.S. economy, but data show his goal of doubling exports by the end of 2014 is likely unreachable unless the world economy dramatically revs up. Mr. Obama, speaking to his Export Council from the White House, praised the growth in exports and said it shows that “‘Made in America’ means something and has provided a boost to our domestic economy and has reminded the world just how competitive we are.” Through July, the most recent trade data available, exports had grown 51% since the president took office. That’s far behind the 75% advance needed at that point to meet to double exports before the end of next year. U.S. exports were roughly on pace to make the goal through September 2011 because sales of products abroad grew steadily as much of the world pulled out of recession. The gains, however, leveled off the past two years, likely reflecting a stagnant European economy and slowdown in other markets, including China. The global economy has shown signs of perking up recently, which should bolster U.S. shipments, but it’s highly unlikely exports could accelerate fast enough to make up for the lost ground.

LA area Port Traffic: Import and Export Traffic Increases in August - Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for August since LA area ports handle about 40% of the nation's container port traffic. The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).  To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average. On a rolling 12 month basis, inbound traffic was up 0.7% in August compared to the rolling 12 months ending in July. Outbound traffic increased 0.6% compared to July. In general, inbound traffic has been increasing slowly, and outbound traffic had been declining slightly (but picked up in August). The 2nd graph is the monthly data (with a strong seasonal pattern for imports). Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year).

Trade - The Trade Deficit is among the rarely discussed causes of the Great Recession; yet, to this observer, it is the primary cause.  The Deficit plummeted further as deregulated banks peddled bad debt and allowed homeowners to use homes as ATM machines.  Everything was done to keep the consumer on a buying spree, buying more and more imports, while manufacturing shrank and exports dwindled. These imports, ironically enough, were products of American and Western multinationals now exporting goods from third world countries. No wonder income inequality soared; the real winners of trade policy and the subsequent buying spree were the top echelons of the multinationals.  Those who insist that CEO billionaires share the wealth with American workers should understand that American workers often had little to do with making the products the multinationals were peddling. A plummeting trade deficit revealed the profound flaws in a poorly conceived and foolishly implemented plan to globalize the world economy.  Globalization failed.   The proponents of globalization are now strangely silent, preferring to discuss other topics. The question is: What went wrong with American Trade Policy?

Voters Won’t Like It, but We Have to Bring Back Free Trade - There was a time, not that long ago, when policymakers and economists didn’t dare question free trade. The open exchange of clothes, cars, oranges, TV sets and everything else was almost universally upheld as a rock-solid route to prosperity. But over the past decade, free trade suffered a near death experience. The whole concept became a whipping boy for all sorts of economic evils. Workers, especially in advanced economies, blamed free trade for job losses to emerging nations and downward pressure on wages. Free trade, though, has unexpectedly sprung back to life, with U.S. President Barack Obama wielding the defibrillator. In a reversal of his previous hesitance — he too once expressed anti-NAFTA sentiments — Obama is pressing hard for a couple of wide-ranging trade deals that would be the most important in two decades. Long-awaited negotiations began in July for a trade agreement between the U.S. and E.U., which would knit together countries with nearly half the world’s GDP into a massive free-trade zone. On the other side of the world, the U.S. is also pushing for the completion of the Trans-Pacific Partnership (TPP), a trade pact that would include nations as far-flung as New Zealand, Peru and Malaysia. These deals, if finalized, “would change the entire trade landscape,” says Bruce Stokes, director of the global-economic-attitudes program at the Pew Research Center in Washington.

The Myth of the "Free Market" and How to Make the Economy Work for Us - Robert Reich - One of the most deceptive ideas continuously sounded by the Right (and its fathomless think tanks and media outlets) is that the “free market” is natural and inevitable, existing outside and beyond government. So whatever inequality or insecurity it generates is beyond our control.  By this view, if some people aren’t paid enough to live on, the market has determined they aren’t worth enough. If others rake in billions, they must be worth it. If millions of Americans remain unemployed or their paychecks are shrinking or they work two or three part-time jobs with no idea what they’ll earn next month or next week, that’s too bad; it’s just the outcome of the market.  In reality, the “free market” is a bunch of rules about (1) what can be owned and traded (the genome? slaves? nuclear materials? babies? votes?); (2) on what terms (equal access to the internet? the right to organize unions? corporate monopolies? the length of patent protections? ); (3) under what conditions (poisonous drugs? unsafe foods? deceptive Ponzi schemes? uninsured derivatives? dangerous workplaces?) (4) what’s private and what’s public (police? roads? clean air and clean water? healthcare? good schools? parks and playgrounds?); (5) how to pay for what (taxes, user fees, individual pricing?). And so on.  These rules don’t exist in nature; they are human creations. Governments don’t “intrude” on free markets; governments organize and maintain them. Markets aren’t “free” of rules; the rules define them.

Paul Krugman Should Trust His Instincts: The Labor Market Recovery Is Weak - Paul Krugman, in his weekend blog post Slackers at the Fed, waffled on his long-held position that the labor market recovery is weak. Krugman was nearly swayed by a Financial Times post by Gavyn Davies who posited that the unemployment rate, which has dropped from 10% in October 2009 to 7.3%, may be the best measure of slack in the labor market. Davies quoted John Williams of the San Francisco Fed as saying “the unemployment rate remains the best overall summary statistic” while “the employment to population ratio blurs structural and cyclical influences”.  With all due respect to Williams and Davies, who are not labor economists, the employment to population ratio, adjusted for demographic changes in the population, is a far superior barometer of the labor market than the unemployment rate. The decline in the unemployment rate in the past year has been misleading because it ignores discouraged jobless workers who have abandoned their job search. Krugman remains skeptical of the drop in unemployment and regularly tracks the employment rate of adults (25 to 54) in his blog. The employment to population ratio for this age cohort of adults too old to be enrolled in school and too young to be retired is about 4 percentage points below pre-recession levels and is a more reliable labor market indicator than the unemployment rate. While some of this employment decline would have occurred regardless of the deep recession and a weak recovery, there is no doubt that the labor market is depressed even after adjusting for longer term trends.

Gender jobs gap: Women have recovered all of the jobs they lost during the recession; men are still 2.14 million jobs short -  It’s been well documented here and elsewhere that the Great Recession had a disproportionately negative effect on working men compared to working women, in terms of significant gender differences favoring women for both job losses and jobless rates, to the extent that the last recession has been commonly called the “mancession.” The chart above shows the percent changes in employment levels by gender since since the onset of the recession in December 2007 and makes the gender disparity of job losses during the recession crystal clear. Both in terms of the absolute number of job losses and the percent reduction in employment, men lost twice as many jobs as women during the recession: 5.7 million male jobs were lost at the cyclical bottom (which represented a 7.3% reduction in employment) compared to a maximum loss of only 2.6 million jobs and a 3.7% reduction in employment for women (see chart above). The bottom chart above shows the huge gender gap in jobless rates favoring women during and especially following the Great Recession. The jobless rate for men exceeded 10% for 21 months between April 2009 and December 2010, and peaked at 11.2% in October 2009. In contrast, the jobless rate for women never exceeded 9%. In every month since the recession began in December 2007, the jobless rate for men has exceeded the jobless rate for women, and the 2.6% gap between the (higher) male and female unemployment rates in May 2009 and January 2010 set a record for the largest monthly gender jobless rate gap in BLS history back to 1948.

Women Waiting Tables Provide Most of Female Gains in U.S -- Unemployment data appear to reflect big advances for women. The jobless rate in August for females 20 years and older was 6.3 percent, the lowest since December 2008, compared with 7.1 percent for men. As recently as January, the rate was 7.3 percent for both genders, according to the Bureau of Labor Statistics. The downside is that the gains have been largely in lower-paying industries such as waitresses, in-home health care, food preparation and housekeeping. About 60 percent of the increase in employment for women from 2009 to 2012 was in jobs that pay less than $10.10 an hour, compared with 20 percent for men, according to a study by the National Women’s Law Center using data from the Bureau of Labor Statistics. Soft Spot The numbers expose a soft spot in an economic recovery that has reduced the overall unemployment rate to 7.3 percent from 10 percent in October 2009. Quality of jobs is an increasing concern for U.S. policy makers and economists since it affects the level of incomes and wage disparities. Of the 125,000 jobs women gained last month, 54,000 were in retail, leisure and hospitality, and just 24,000 in professional and business services. Many of those are part-time, 34 hours or less a week. Food services and drinking places have added 354,000 jobs this year alone. “The place jobs have grown the most has been in these parts of the economy that women have traditionally filled more easily,”

Closer Scrutiny of Participation Rates by Sex and Age -Mainstream media and bloggers have noted the declining participation rate. Few provide much detail. Those who did provide detail, primarily looked at broad categories such as 16-19, 20-24, 25-54, and 55+. There is plenty of ground between age 25 and 54. And what is happening at retirement age and beyond? Lumping everyone 55 and older into a single bucket is problematic. I gave a call to the BLS and found a wealth of information on finer breakdowns that merits a closer look. I passed the data on to reader Tim Wallace who produced the following charts. Notes:

  1. Data is not seasonally adjusted.
  2. Comparison is August of 2013 to August in prior years.
  3. Some of the age groups do not have data for the early years. This explains sharp vertical lines for some years. 
  4. These charts are for males. I will provide a look at female participation rates in a second post.

The Quality of Jobs: The New Normal and the Old Normal - Since the Great Recession of 2008-9, the labor market has recovered at an agonizingly slow pace. Despite 42 consecutive months of gains in private-sector employment, the unemployment rate is still at 7.3 percent; in December 2007 it was only 4.6 percent. The current unemployment rate is higher now than in 2007 across all age, education, occupation, gender and ethnic groups.  That’s despite the fact that about four million workers have left the labor force, driving the labor force participation rate to a historic low, Both hiring and quit rates remain significantly below their pre-recession peaks. Although the share of the long-term unemployed has fallen from its peak of 45 percent in 2011 to 38 percent today, it is still far above its 2001-7 average. And about eight million people are working part-time for “economic reasons,” a euphemism for those who would like a full-time position but cannot find one. The weakness of the labor market is manifest not only in the number of jobs created and the number of unemployed but also in the quality of jobs. Here the news is also bleak. During the recession, employment declined across the board, but 60 percent of the net job losses occurred in middle-income occupations with median hourly wages of $13.84 to $21.13. In contrast, these occupations have accounted for less than a quarter of the net job gains in the recovery, while low-wage occupations with median hourly wages of $7.69 to $13.83 have accounted for more than half of these gains. Over the last year, more than 40 percent of job growth has been in low-paying sectors including retail, leisure/hospitality (hotels and restaurants) and temporary help agencies. Many of these jobs are not only low-wage but also part-time for economic reasons.

Homeless markets in everything, with reference to YouTube, Bitcoin and new service sector jobs - Angie does not have a formal residence, but he does have a job:  The park offers free wireless access, and with his laptop, Angle watches YouTube videos in exchange for bitcoins, the world’s most popular digital currency. For every video he watches, Angle gets 0.0004 bitcoins, or about 5 cents, thanks to a service, called BitcoinGet, that shamelessly drives artificial traffic to certain online clips. He can watch up to 12 videos a day, which gets him to about 60 cents. And he can beef up this daily take with Bitcoin Tapper, a mobile app that doles out about 0.000133 bitcoins a day — a couple of pennies — if he just taps on a digital icon over and over again. Like the YouTube service, this app isn’t exactly the height of internet sophistication — it seeks to capture your attention so it can show you ads — but for Angle, it’s a good way to keep himself fed.

Report Suggests Nearly Half of U.S. Jobs Are Vulnerable to Computerization -- Rapid advances in technology have long represented a serious potential threat to many jobs ordinarily performed by people.  A recent report (which is not online, but summarized here) from the Oxford Martin School’s Programme on the Impacts of Future Technology attempts to quantify the extent of that threat. It concludes that 45 percent of American jobs are at high risk of being taken by computers within the next two decades.  The authors believe this takeover will happen in two stages. First, computers will start replacing people in especially vulnerable fields like transportation/logistics, production labor, and administrative support. Jobs in services, sales, and construction may also be lost in this first stage. Then, the rate of replacement will slow down due to bottlenecks in harder-to-automate fields such engineering. This “technological plateau” will be followed by a second wave of computerization, dependent upon the development of good artificial intelligence. This could next put jobs in management, science and engineering, and the arts at risk. The authors note that the rate of computerization depends on several other factors, including regulation of new technology and access to cheap labor.

Study: “Trade” Deal Would Mean a Pay Cut for 90% of U.S. Workers -The verdict is in: most U.S. workers would see wage losses as a result of the Trans-Pacific Partnership (TPP), a sweeping U.S. "free trade" deal under negotiation with 11 Pacific Rim countries.  That's the conclusion of a report just released by the non-partisan Center for Economic and Policy Research (CEPR).   TPP's corporate proponents have tried to sell the NAFTA-style deal to the U.S. public and policymakers by claiming that it will result in gains for the U.S. economy.   As this week's CEPR report points out, the pro-TPP study projected a meager 0.13 percent increase to U.S. gross domestic product (GDP) by 2025 if the controversial TPP would be signed, passed, and implemented.  By comparison, economists have estimated that Apple's iPhone 5 contributed a 0.25 - 0.5 percent increase to U.S. GDP.   But what would such a paltry GDP rise mean for your pocket?  Answering that requires taking into account the increase in income inequality that typically results from such "free trade" deals. That is, as a result of the TPP, the median U.S. income would fall. It would not just fall in comparison to the incomes of the wealthy (which would rise). It would fall in absolute terms, forcing middle-class U.S. workers to take home less in 2025 than they earn today.  Such wage losses would afflict most U.S. workers.  Rosnick shows that if we assume that trade has contributed just 15% of the recent rise in inequality (a still conservative estimate), then the TPP would mean wage losses for all but the richest 10% of U.S. workers.  So if you're making less than $87,000 per year (the current 90th percentile wage), the TPP would mean a pay cut.  And if you're making more than $87,000 per year, you may still be a tad concerned about how the deal could jeopardize the safety of your food, threaten clean water protections, roll back Wall Street reforms, etc.

Weekly Initial Unemployment Claims increase to 309,000, Four Week Average lowest since October 2007 -The DOL reports: In the week ending September 14, the advance figure for seasonally adjusted initial claims was 309,000, an increase of 15,000 from the previous week's revised figure of 294,000. The 4-week moving average was 314,750, a decrease of 7,000 from the previous week's revised average of 321,750. The previous week was revised up from 292,000. 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 314,750. The 4-week average is at the lowest level since October 2007 (before the recession started). Claims were below the 341,000 consensus forecast. Here is a long term graph of the 4-week average of weekly unemployment claims back to 1971.

Jobless Claims Up Slightly, But Backlog May Be Hiding Improvements -The number of Americans applying for initial jobless benefits increased less than expected last week, offering an encouraging if still muddled sign that gradual growth in employment is continuing, Bloomberg News reports.The slight uptick in claims was likely made worse by a backlog of applications in California and Nevada, which both recently changed their computer systems.Applications for unemployment benefits rose 15,000 to 309,000 in the week ended Sept. 14, still hovering, according to the Wall Street Journal, around the lowest figure since 2007. “The labor market is genuinely improving,” Brian Jones, a senior U.S. economist at Societe Generale, told Bloomberg. “Even if they’re working through the backlog, these numbers seem to have a little bit more behind them than just processing problems.”

More on part time jobs - Moody’s economist Marisa DiNatali discusses the idea of part timers and current times: Though some businesses are claiming that they are hiring more part-time workers to avoid the Affordable Care Act’s employer responsibility requirements, which apply to companies with more than 50 full-time employees, that incentive is limited and research from Moody’s economist Marisa DiNatale indicates that most industries “are actually using fewer part-timers than last year.” The growth in part-time employment, which has been taking place long before the health care law, is rooted in “industries such as restaurants and hospitality that use as much as twice as many part-timers as other companies,” DiNatale concluded.

Industry groups vow to expose union-backed worker centers - Business and labor are going to war over the nonprofit worker centers that union officials increasingly see as the future of their movement. [WATCH VIDEO] The organizing groups are thriving amid the decline in traditional unions, and campaigns, like Fast Food Forward, have made a splash by staging walkouts of fast-food workers who are demanding $15 per hour in wages and the right to unionize. Industry groups have closely tracked the centers and are ready to fight back against what they see as a deliberate effort to move union organizing outside the law. “They have morphed into groups that harass employers, shame companies and hurt business across the country,” said Ryan Williams, an adviser to Worker Center Watch. “They are essentially getting away with skirting labor laws.” Williams, a former spokesman for Mitt Romney’s 2012 presidential campaign and a consultant at FP1 Strategies, said Worker Center Watch is gearing up for a national campaign against the worker centers. It launched a website this week that will closely track the organizing activities. FP1 is also doing work for the Workforce Fairness Institute, which campaigns against unions.

Labor unions are essential — and also in deep decline. Could a new model for unions bring labor back? - Via Economist’s View comes this very interesting piece. It’s a transcript of economist Joseph Stiglitz’s recent address to the AFL-CIO convention. The language is wonderfully clear and straightforward, and it lays out the basic facts about inequality in America and the terrible turn our economy has taken since the crash of ‘08. I particularly appreciated this point, about how inequality is not something that just “happened”, but rather, that it’s something we created politically: We created this inequality—chose it, really—with laws that weakened unions, that eroded our minimum wage to the lowest level, in real terms, since the 1950s, with laws that allowed CEO’s to take a bigger slice of the corporate pie, bankruptcy laws that put Wall Street’s toxic innovations ahead of workers. We made it nearly impossible for student debt to be forgiven. We underinvested in education. We taxed gamblers in the stock market at lower rates than workers, and encouraged investment overseas rather than at home.  Stiglitz argues that unions play a crucial role in creating a more just and functional economy: It will only happen if workers come together.  It will only happen when workers realize that they own much of our country’s capital, through the pension funds, but that we have allowed this capital to be managed in ways that exploit workers and consumers alike.The problem, of course, is that though unions are vitally important to the health of our economy and our democracy, their power is waning.  To get around this, some people have suggested alternatives to traditional unions. Mark Thoma links to this recent New York Times op-ed, by law professor Benjamin I. Sachs, which suggests one of these models: But what if we unbundle the union and allow workers to organize politically without also organizing for collective bargaining? If we shift our aim away from reviving collective bargaining and toward enabling political organizing by underrepresented groups, we would allow workers to organize “political unions” even when they don’t want to organize collective bargaining ones.

Employment gap between rich, poor widest on record - The gap in employment rates between America's highest- and lowest-income families has stretched to its widest levels since officials began tracking the data a decade ago, according to an analysis of government data conducted for The Associated Press. Rates of unemployment for the lowest-income families — those earning less than $20,000 — have topped 21 percent, nearly matching the rate for all workers during the 1930s Great Depression. U.S. households with income of more than $150,000 a year have an unemployment rate of 3.2 percent, a level traditionally defined as full employment. At the same time, middle-income workers are increasingly pushed into lower-wage jobs. Many of them in turn are displacing lower-skilled, low-income workers, who become unemployed or are forced to work fewer hours, the analysis shows. "This was no 'equal opportunity' recession or an 'equal opportunity' recovery," said Andrew Sum, director of the Center for Labor Market Studies at Northeastern University. "One part of America is in depression, while another part is in full employment."

Employment Inequality: Job Gap Between Rich And Poor Widest On Record - The rich aren’t just taking home a huge share of the country’s income. They’re also much more likely to have a job in the first place. The gap between the employment rate for the highest income and lowest income Americans is the widest since data was first recorded ten years ago, according to an analysis by the Associated Press. The poor are still experiencing a Great Depression while the rich have nearly full employment.Unemployment for families at the bottom of the income scale, or those earning less than $20,000, is above 21 percent. That figure “nearly match[es] the rate for all workers during the 1930s Great Depression,” author Hope Yen notes. For the richest making more than $150,000, however, the rate is 3.2 percent, “a level traditionally defined as full employment.”The analysis also shows that middle-income people are getting pushed into lower-wage jobs, displacing low-income workers who are then jobless or forced to work fewer hours. A report found that three in five jobs added since the end of the recession pay less than $14 an hour and low-wage jobs have been replacing mid-wage ones, while high-pay jobs have basically stayed the same.

Weakest US Economic Recovery on Record Means the Rich Get Richer, the Poor Get Poorer - According to a study by economists at the University of California, Berkeley, the Paris School of Economics, and Oxford University, the income gap in the U.S. economy in 2012 was similar to what it was in 1920s! (Source: Associated Press, September 10, 2013.) In 2012, the income of the top one percent of earners increased by almost 20%; for the bottom 99%, their income only increased by one percent.But that's not all... The top 10% of all the income earners in the U.S. economy had more than 48% of all the net earnings in 2012. Going back further, since the Great Recession's end in June of 2009, 95% of all increases in net earnings in the U.S. economy have gone to the top one percent. Dear reader, this is not economic growth, it's just a classic example of the rich getting richer and the poor getting poorer. When a country experiences real economic growth, you will see a steady rise in all incomes.As I stated earlier, in 2012, almost 50% of all the net earnings went to the top 10%, meaning only 50% went to the bottom 90%. Will this increase consumer spending in the U.S. economy? Of course not. The top 10% can only buy so much and the economy can only go so far on that. For economic growth to happen, you need the middle class to be spending.What we are witnessing today is the slowest post-recession recovery most living economists have ever experienced. If you take out the rally in stock prices since 2009, there has been no real economic growth.

Incomes and Poverty Stable as Wage Stagnation Continues - Modest income growth in 2012 barely begins to offset lost decade driven by financial crisis and decade-long wage stagnation This morning, the Census Bureau released its report on income, poverty, and health insurance coverage in 2012. It shows that from 2011 to 2012, median household income for non-elderly households (those with a head of household younger than 65 years old) increased 1.0 percent from $56,802 to $57,353. However, that modest growth barely begins to offset the losses incurred during the Great Recession. Between 2007 and 2011, median household income for non-elderly households dropped from $62,617 to $56,802, a decline of $5,815, or 9.3 percent. Furthermore, the disappointing trends of the Great Recession and its aftermath come on the heels of the weak labor market from 2000-2007, where the median income of non-elderly households fell significantly, from $64,843 to $62,617, the first time in the post-war period that incomes failed to grow over a business cycle. Altogether, from 2000 to 2012, median income for non-elderly households fell from $64,843 to $57,353, a decline of $7,490, or 11.6 percent.

First Impressions of the 2012 Poverty, Income, and Health Insurance Data (with updates) - [The following are some initial impressions from the income, poverty, and health insurance data released by the Census Bureau this morning.  NOTE: these data refer to 2012, so yearly differences, unless otherwise noted, are between 2011 and 2012.  Also, visit throughout the day for CBPP's updates and analyses.) The poverty rate held steady at 15%, the same rate as 2011; the real median household income was also unchanged, at about $51,000. Thus, the good news from today’s 2012 income and poverty results is that for the first year since the great recession hit, things aren’t getting worse.  The bad news is that three years into an economic recovery, they’re not getting better either.  Yes, the economy has expanded over these past few years, but to use a seasonal analogy, today’s report is yet another piece of evidence that this growth has once again done an end run around middle and lower income households on its way to the top of the scale.

  • 1st update: Inequality and Its Impact on Poverty and Income: GDP grew almost 3% last year, yet today’s report shows that the economic recovery has yet to lift the living standards of middle and low income families.  Certainly, arresting the drop in middle-incomes and the rise in poverty that had been the pattern since the downturn took hold in 2008 is a plus and the first step to reversing those unfavorable trends.

Income and Poverty Report Paints a Not So Pretty Picture - Did you know 15% of America lives in poverty and that income for households after adjusting for inflation has declined by 8.3% since 2007?  That America is making 9% less in real dollars than in 1999?  The latest annual Census report for 2012 shows America is still broken and poor.  The report, Income, Poverty and Health Insurance Coverage in the United States, is loaded with more bleak news. Above is a graph of household median and mean income which shows half of America is making almost 10% less than 14 years ago in reality.  The Census likes to focus on households, not individuals, even though in the United States 27% of people live alone.  Households are all people living at one address and most of the statistics amplified are for households in the Census report.  Another amplification by the Census is there is little statistical change in the economic plight of households between 2012 and 2011.  In other words, the economy for most of America was still just as terrible in 2012 as it was in 2011. Below is a graph of the median and mean income for individuals as calculated the by Census.  Median means 50% of individuals make below this amount, 50% above, whereas mean is the average of all income.  What we see is income is less than 1998 adjusted for inflation for individuals.  What to also notice is the divergence between the median and the mean.  Individual income has declined 3.9% when taking the median, where 50% of earners are making less than this figure.  Yet if one takes the average, income has increased 2.1% from 1998 for individuals.  The reason for this disparity between the mean and the median is the super-rich, they bias the average income up from the median and that's why the two diverge.

The Mismeasure of Poverty - THE Census Bureau reported yesterday that the poverty rate in America held stable between 2011 and 2012, at about 15 percent. According to the official measure, poverty today is higher than it was in 1973, when it reached a historical low of 11.1 percent.  To many, this dismaying fact suggests that taxpayers waste billions of dollars a year fighting a war on poverty that has been largely lost. As Representative Paul D. Ryan, Republican of Wisconsin, said earlier this year, “We have spent $15 trillion from the federal government fighting poverty, and look at where we are, the highest poverty rates in a generation, 15 percent of Americans in poverty.”  But this position is wrong, for two reasons. The first is that the official measure is misleading — it measures only cash income, and it does not count benefits from many programs that help the poor. If they were counted, the rate would be closer to 11 percent.  Consider the Supplemental Nutrition Assistance Program, commonly known as food stamps, which was first put into nationwide use in the 1960s. The immediate benefits are easy to calculate: a dollar of SNAP subsidies spent on food frees up a dollar for low-income families to spend on rent, utilities or other needs. When SNAP benefits are counted as income, they lift almost four million people above the poverty line.  The earned-income tax credit is also ignored in calculating the poverty rate. Yet this program offers working low-income families with children about $3,000 a year. When these tax refunds are counted, they reduce the number of people in poverty by about 5.5 million people.  Social Security benefits are counted in the official measure, but their large antipoverty effect receives little attention. The next time critics of the safety net claim that we fought a war on poverty and poverty won, remind them that without these and other programs, poverty would be much higher.

Stagnation for everyone - THE Census released new figures on income and poverty today. (You can see summary slides here.) They're both grim and unsurprising. In 2012 the real median household income in America was flat relative to 2011 and down considerably from the pre-recession level. The poverty rate remains stuck at 15%. Looking beneath the headline figures I found this chart particularly interesting: There's a very interesting story about inequality here. From the 1970s to the late 1990s inequality grew because the incomes of the rich were growing much faster than the incomes of those at the median and below—but incomes at the median and below were growing. Since the late 1990s, however, incomes across the income spectrum have stagnated and declined, from the 10th percentile right on up to the 95th.

The typical American family makes less than it did in 1989: The Census Bureau is out with the annual report on incomes and poverty. And while you might think that after years of stagnant incomes and elevated poverty rates, we would be inured to the depressing facts contained therein, it still somehow has the power to shock. For my money, the most depressing fact about the economy is not the fact that household incomes were basically flat in 2012 (the real median household income was down to $51,017 from $51,100 in 2011, a statistically insignificant change). It wasn't even the fact that 15 percent of the U.S. population was living in poverty, according to the official, flawed definition of the term. Nah, the most depressing result comes when you look at the longer view of household incomes in the United States. This chart shows real median household income over the past 25 years; that is, the money earned, in inflation-adjusted dollars, by the family at the exact middle of the income distribution. ----- In 1989, the median American household made $51,681 in current dollars (the 2012 number, again, was $51,017). That means that 24 years ago, a middle class American family was making more than the a middle class family was making one year ago.

Asian Households Have Highest Income, Blacks the Lowest  -From the Census Bureau’s income and poverty report: Among the race groups, Asian households had the highest median income in 2012 ($68,636). The median income for non-Hispanic White households was $57,009, and it was $33,321 for Black households. For Hispanic households the median income was $39,005. The real median incomes in 2012 of non-Hispanic White households, Black households, Asian households, and Hispanic-origin households were not statistically different from their respective 2011 medians. The real median household income for each of the race and Hispanic-origin groups have not yet recovered to their pre-2001 recession median household income peaks. Household income in 2012 was 6.3 percent lower for non-Hispanic Whites (from $60,849 in 1999), 15.8 percent lower for Blacks (from $39,556 in 2000), 7.7 percent lower for Asians (from $74,343 in 2000), and 11.8 percent lower for Hispanics (from $44,224 in 2000). Comparing the 2012 income of non-Hispanic White households to that of other households shows that the ratio of Asian to non-Hispanic White income was 1.20, the ratio of Black to non-Hispanic White income was 0.58, and the ratio of Hispanic to non-Hispanic White income was 0.68. Between 1972 and 2012, the change in the Black to non-Hispanic White income ratio was not statistically significant. Over the same period, the Hispanic to non-Hispanic White income ratio declined from 0.74 to 0.68. Income data for the Asian population was first available in 1987. The 2012 Asian to non-Hispanic White income ratio was not statistically different from the 1987 ratio.

Male-Female Pay Gap Hasn’t Moved Much in Years - Women earned 76.5 cents for every dollar that men did last year, moving no closer to narrowing a gender pay gap that has barely budged in almost a decade. Male full-time workers notched median annual earnings of $49,398 in 2012, compared with $37,791 for female workers, according to a Census Bureau report Tuesday. In 2011, women earned 77 cents for every $1 men earned. The wage gap narrowed steadily through the 1980s and 1990s but the convergence slowed in the early 2000s. That may signal that two factors credited with advancing gender pay parity — education and legislation — lost some of their firepower. The really golden period was the 1980s, when the wage gap was consistently narrowing. Since then, progress has continued, but it has been more fitful and uneven.”In 1980, women earned 60.2 cents for every $1 men did; by 1990, that had climbed to 71.6 cents. During that time, women were pursuing more education, breaking into higher-paying occupations and racking up more hours on the job. They also were benefiting from the 1963 Equal Pay Act, as well as measures granting equal access to education and prohibiting sex discrimination.

U.S. Household Incomes: A 45-Year Perspective - This morning the Census Bureau released its annual report household income data for 2012. It is posted on the Census Bureau website. What I'm featuring in this update is an analysis of the quintile breakdown of data from 1967 through 2012 (see Table H.3).  Most people think in nominal terms, so the first chart below illustrates the current dollar values across the 45-year period (in other words, the value of a dollar at the time received — not adjusted for inflation). What we see are the nominal quintile growth patterns over the complete data series. In addition to the quintiles, the Census Bureau publishes the income for the top five percent of households. The next chart adjusts for inflation in chained 2012 dollars based on a research variant of the Consumer Price Index, the CPI-U-RS. In other words, the incomes in earlier years have been adjusted upward to the purchasing power of the most recent year in the series. As for the cumulative household income growth by segment over the past 45 years, the adjacent table shows the real, inflation-adjusted, difference between 1967 and 2012.To give us a better idea of the underlying trends in household incomes, I've also prepared charts of the nominal and real percentage growth since 1967. Here is the real version with some annotations. Note in particular the growing spread between the top quintile (and especially the top 5%) and the other four quintiles.

Median Household Incomes by Age Bracket: 1967-2012 -- Earlier today I updated my commentary on household income distribution to include the Census Bureau's release of the 2012 annual data. My focus was on arithmetic mean (average) household incomes by quintile (and the top 5%) over the 45-year history of this data series. The analysis offered some fascinating insights into U.S. household incomes.But the classification misses the implications of age for income. Households are by no means locked into the same quintile over time. Young educated households with professional skills and aspirations will typically move into the higher earning brackets during their financial life cycles. Households dependent on income from unskilled labor and service employment will not see the same financial progress over the years.So let's review the household income data another way, this time focusing on the incomes by the age bracket. The data I'm analyzing is the median household income the age brackets for the heads of household (see Table H.10). I've used the Census Bureau's real (inflation-adjusted) series chained in 2012 dollars based on a research variant of the Consumer Price Index, the CPI-U-RS. In other words, the incomes in earlier years have been adjusted upward to the purchasing power of the most recent year in the series. The first chart shows real household incomes of the six age brackets from 1967 through 2012. But more revealing is a comparison of the cumulative real growth of median incomes for the six age brackets

Number of the Week: Rise of Single Moms Drives Down Overall Income -- $81,455: The median 2012 income for married couples with children, up 16% since 1990 after adjusting for inflation.  New data this week showed once again that it’s been a rough couple decades for the American middle class. Median household income barely budged in 2012, and is actually lower, after adjusting for inflation, than it was in 1989. “This isn’t a lost decade for economic gains for Americans,” the Washington Post’s Neil Irwin wrote on Tuesday. “It is a lost generation.” But the stagnation of median income reflects not just the uneven nature of the economic recovery but also the changing makeup of American society. Median income is often described as the amount earned by the “typical” family. That’s true, but it’s also a bit misleading. Change in median income compares the typical household of the past to the typical household of today — and the typical American family looks a lot different now than it did two decades ago. Back then, Americans as a whole were younger, whiter and less educated than they are today. The median income for all families with children under 18 was just under $60,000 last year, up about 3% since 1990 after adjusting for inflation. But what might once have been considered the “typical” American family — a married couple, living together, with at least one child under 18 — has done quite a bit better: Their median income was $81,455, up nearly 16% from 1990. The trouble is, such families have become significantly less common over time. In 1980, married couples made up 80% of all families with children.  Today, it’s less than two-thirds. The number of families headed by single moms — any mother with no spouse present, regardless of whether she has a live-in partner — has increased more than 30% since 1990, to more than 10 million.

Young People: Underemployed, Earning Less and Living at Home - The Wall Street Journal over the weekend reported on the economic challenges facing young Americans, among the groups hardest hit by the recession and slow recovery. New data from the Census Bureau on Tuesday showed those struggles are far from over. The job market remains tough: Just 21.5% of 18-24 year-olds had a full-time, year-round job in 2012, barely improved from 2011 and down from nearly 30% before the recession. More than a third of young people didn’t work at all in 2012.  Incomes are falling: The median income of households headed by Americans under age 25 fell 1.6% in 2012, even as income for the population as a whole finally stabilized. Their slightly older peers didn’t do much better: Their median income fell 0.9%. (Neither decline was statistically significant, but separate measures of income show a similar trend. Median weekly earnings for young workers were down more than 5% in 2012 from 2007.)  Little wonder, then, that many young people are choosing to stay home: 55% of 18-24 year-olds were living with their parents when the Census survey was conducted last spring, down a bit from the 56% living at home a year earlier, but still high by historical standards.  Tough times are taking a toll on young people’s financial well-being. More than 20% of 18-24 year-olds lived in poverty last year, versus 15% of the population as a whole. Nearly a third lived in households earning less than 150% of the poverty line.

Study: Black People are Worse Off Financially Than Any Other Group in America - The U.S. Census has long been regarded as an accurate barometer of the United States’ demographics and geographical trends. The report, issued every 10 years, is also used to determine government funding and prioritizing of community resources. What many people may not know is that the Census also provides a clear picture about the economic stability of the nation. The most recent U.S. Census report reveals that minorities have the highest poverty rates in the richest nation in the world.  27.2 percent of African-Americans and 25.6 percent of Latinos are at or below the poverty threshold. African-Americans, collectively, are the poorest of all ethnic and racial groups in America. The statistics also show that 46.5 million people live in poverty which accounts for 15 percent of the entire population. Even more startling is the child poverty rate of 21.8 percent. These numbers, which reflect self-reported data, suggest that the economic hardship that has affected the nation has been particularly crushing for the nation’s largest minority group. Many point to disparities in the job, education and prison sectors as the main culprits for the alarming numbers.

The Measure of Our Poverty - - On Tuesday, the Census Bureau revealed that the poverty rate remained stuck at 15 percent last year, the same as the year before and some 2.5 percentage points higher than in 2007 – before the housing bubble burst and sent the United States careening into recession. Critics pounced: how could a measure based on how much people spent on food in the early 1960s — one that ignored entirely the effect of government anti-poverty programs — have any relevance today?  The charge is correct, of course. But it is wrong to suggest that there are fewer poor Americans than the official count shows, or that poverty has improved much over time.  Using modern, sophisticated measures that take into account government programs as well as unavoidable expenses, like child care and out-of-pocket medical costs, the poverty rate has actually been higher over the last three years than the official statistic suggests. The debate over the proper way to measure our deprivation points to a fundamental question: What is poverty? What do we measure it for? Are we measuring the right thing?  In the 1960s, when the government first came up with the concept, it decided you were poor when you had to spend more than a third of your cash income on what it considered the minimally acceptable diet. But this is hardly the only way to do it. Other advanced nations go about it in an entirely different way. In Europe, for instance, few countries measure a poverty line in the American sense of the minimum income needed to avoid extreme hardship.

Has hourly self-employment income stayed relatively constant to hourly payroll income? - The Brookings Institute has just come out with a new paper seeking to explain the decline in labor’s share of national income. The paper is titled, The Decline of the U.S. Labor Share.. Here is a video of Justin Wolfers explaining the basics of the paper.The Brookings Institute paper says that the decline in labor share is over-stated because self-employed people are earning less in labor income. And the decline in self-employment income explains part of the decline in labor share. They say that one third of the decline in labor share can be accounted for by a decrease in self-employment income. The idea is part of understanding what part of self-employment income is labor income and what part is capital income… but I question their basic assumption..It all rests on the assumption that the relative ratio between hourly compensation between self-employed people and those on payroll has not changed over the years. Can that really be a true assumption when productivity from employee work has grown much faster than their hourly compensation? Hasn’t the increased income from increased hourly productivity gone to the “owners” of labor’s work? The self-employed still hire employees who are more productive but not receiving compensation equal to their increased productivity. Aren’t the self-employed reaping increasing benefits from their more productive employees?

The Last Economist to Understand that Bad Policy Has Ill Effects - Nobel Economist James Heckman has a piece in the Opinionator section of the NYT that reveals the lie behind the farce that is Arne Duncan’s “leadership”:  Children raised in disadvantaged environments are not only much less likely to succeed in school or in society, but they are also much less likely to be healthy adults. A variety of studies show that factors determined before the end of high school contribute to roughly half of lifetime earnings inequality. This is where our blind spot lies: success nominally attributed to the beneficial effects of education, especially graduating from college, is in truth largely a result of factors determined long before children even enter school. This comes as a surprise to absolutely no one. The menu at Denny’s adveritises that children who eat breakfast perform 20% better than those who don’t. As Heckman notes, any sane economist would support Earlier and Earlier Interventions:Critics say that early childhood education is expensive and that it is not effective. They are right about the cost, but terribly wrong about the large return on the investment. Quality early childhood programs for disadvantaged children more than pay for themselves in better education, health and economic outcomes.Proof comes in the form of a long-term cost-benefit analysis of effective early childhood programs…. [The Perry Preschool project] did not produce lasting gains in the I.Q.’s of its participants, but it did boost character skills that produced better education, economic and life outcomes. The economic rate of return from Perry is in the range of 6 percent to 10 percent per year per dollar invested, based on greater productivity and savings in expenditures on remediation, criminal justice and social dependency.

State Unemployment and Payrolls for August 2013 - The August state employment statistics show once again when breaking down unemployment and employment by states, there is little change.  In spite of the national unemployment rate decline, 18 states plus D.C. showed their unemployment rate increased.  Seventeen states had monthly unemployment rate declines and 15 of the states had no change at all.  Below is the BLS map of state's unemployment rates for the month.  Nationally, the unemployment rate was 7.3% for August.  There are four states with unemployment rates above 9%.  Congratulations Nevada, you're #1 with a 9.5% unemployment rate.  Illinois is not far behind with a 9.2% unemployment rate, Rhode Island, comes in at 9.1% and Michigan, 9.0%.  California has a 8.9% unemployment rate.  D.C., North Carolina and Georgia all have 8.7% unemployment rates.  Tennessee and New Jersey, 8.5%, with Kentucky at 8.4%.  The states with the lowest unemployment rates are North Dakota at 3.0% and South Dakota with a 3.8% unemployment rate.  The unemployment change from a year ago nationally has declined by -0.8 percentage points.  The biggest improvement has been in Florida, with a -1.6 percentage point change from August 2012.  Nevada's unemployment rate declined by -1.5 percentage points as has California.  Florida and Rhode Island's unemployment rates both dropped by -1.3 percentage points as did West Virginia.  All in all, 36 states plus D.C. showed an unemployment rate decline, 12 states increased and two had no change.  Below is a map of the annual unemployment rate change, from 2012, only this map uses 2012 unemployment averages, versus the rates of 2012. Comparing the two maps should give a feel for which states have improved over the year.

States Post Uneven Labor Market Gains  - The middling, uneven gains in the U.S. labor market were reflected at the state level in August.Eighteen states recorded increases in their unemployment rates last month from July, while 17 registered declines, the Labor Department said Friday. Unemployment held steady in the rest in August.The data show that while a majority of states have significantly decreased their unemployment rates from a year ago, the labor market didn’t gain much momentum late in the summer. The state with the lowest seasonally adjusted unemployment remained North Dakota, fueled by an energy-sector boom. It recorded a 3.0% rate, compared with the national average of 7.3%. Nevada had the highest rate, 9.5%, followed by Illinois at 9.2%.Nevada was a bright spot by one measure. It led the nation in payroll gains, increasing by 1.0% in August. Connecticut and Georgia recorded the largest monthly percentage decline in payrolls, each falling 0.4%.  The state with the largest total gain was New York, adding 34,400 jobs in August. Georgia shed the most jobs, 16,100, followed by Ohio, with payrolls down 8,200. See the full interactive graphic.

BLS: State unemployment rates were "little changed" in August  -- From the BLS: Regional and state unemployment rates were little changed in August Regional and state unemployment rates were little changed in August. Eighteen states and the District of Columbia had unemployment rate increases, 17 states had decreases, and 15 states had no change, the U.S. Bureau of Labor Statistics reported today.... Nevada had the highest unemployment rate among the states in August, 9.5 percent. The next highest rate was in Illinois, 9.2 percent. North Dakota continued to have the lowest jobless rate, 3.0 percent.This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are below the maximum unemployment rate for the recession. The size of the blue bar indicates the amount of improvement - Michigan and Nevada have seen the largest declines and many other states have seen significant declines (California, Florida and more). The states are ranked by the highest current unemployment rate. No state has double digit unemployment and the unemployment rate is at or above 9% in four states: Nevada, Illinois, Rhode Island and Michigan. The second graph shows the number of states with unemployment rates above certain levels since January 2006. At the worst of the employment recession, there were 9 states with an unemployment rate above 11% (red). Currently four states have an unemployment rate above 9% (purple), seventeen states above 8% (light blue), and 30 states above 7% - the most in a year (blue).

Unemployment Rates Rise in a Third of U.S. States - Employers cut jobs in 20 states last month, suggesting modest improvement in the U.S. job market this year is not enough to benefit all areas of the country. The Labor Department said Friday that 29 states added jobs, while Montana showed no net gain or loss in August. Unemployment rates rose in 18 states, fell in 17 and were unchanged in 15. Nationally, the economy added 169,000 jobs in August, a modest gain but hardly enough to suggest a robust job market. The U.S. unemployment rate was 7.3 percent. The tepid hiring gains mean that most states still have fewer jobs than they did when the recession began in December 2007. IHS Global Insight forecasts that only 18 states will have returned to their pre-recession job levels by the end of this year. Overall, the United States still has 1.9 million fewer jobs than before the recession. Hiring has averaged just 155,000 a month since April. That’s down from an average of 205,000 in the first four months. Nevada’s payrolls rose 11,200. Still, its unemployment rate remained 9.5 percent, the highest in the nation. Louisiana added 14,000 jobs. Its unemployment rate was also unchanged, at 7 percent. Illinois had the second-highest unemployment rate at 9.2 percent. North Dakota reported the lowest rate, at 3 percent.

Vital Signs: Some States Face Long Climb Back to Payroll Peaks - The Federal Reserve continues to discuss a return to normal labor markets as one threshold for normalizing monetary policy. But according to one economic forecast group, a few states won’t return to pre-recession employment levels until 2018. IHS Global Insight predicts that only 18 states will have employment levels at or above their previous peaks by the end of this year. Most other states will see a new peak in 2014 or 2015. (Some states, including Alaska, North Dakota and New York, have already seen payrolls rebound to new highs) That leaves about one-fifth of states still lagging in employment at the time when the Fed is widely expected to be raising interest rates. According to the IHS forecasters, eight states will have to wait until 2016. The three longest laggards, says IHS, will be Michigan, Rhode Island and Nevada. These states likely won’t return to peak employment until 2018 — more than one decade since the Great Recession began.

Obama's Economy Hits His Voters Hardest - Each month the consultants at Sentier analyze the numbers from the Census Bureau's Current Population Survey and estimate the trend in median annual household income adjusted for inflation. On Aug. 21, Sentier released "Household Income on the Fourth Anniversary of the Economic Recovery: June 2009 to June 2013." The finding that grabbed headlines was that real median household income "has fallen by 4.4 percent since the 'economic recovery' began in June 2009." In dollar terms, median household income fell to $52,098 from $54,478, a loss of $2,380. What was largely overlooked, however, is that those who were most likely to vote for Barack Obama in 2012 were members of demographic groups most likely to have suffered the steepest income declines. Mr. Obama was re-elected with 51% of the vote. Five demographic groups were crucial to his victory: young voters, single women, those with only a high-school diploma or less, blacks and Hispanics. He cleaned up with 60% of the youth vote, 67% of single women, 93% of blacks, 71% of Hispanics, and 64% of those without a high-school diploma, according to exit polls.  According to the Sentier research, households headed by single women, with and without children present, saw their incomes fall by roughly 7%. Those under age 25 experienced an income decline of 9.6%. Black heads of households saw their income tumble by 10.9%, while Hispanic heads-of-households' income fell 4.5%, slightly more than the national average. The incomes of workers with a high-school diploma or less fell by about 8% (-6.9% for those with less than a high-school diploma and -9.3% for those with only a high-school diploma). To put that into dollar terms, in the four years between the time the Obama recovery began in June 2009 and June of this year, median black household income fell by just over $4,000, Hispanic households lost $2,000 and female-headed households lost $2,300.

Shocking New Research Reveals Obama's Legacy Could Be an America of Aristocrats and Peons - New research from inequality experts Thomas Piketty and Emmanuel Saez has revealed that we now have the biggest gap between the rich and rest of America since economists began tracking data a century ago. This isn’t supposed to happen following an economic crisis. After the Great Depression, Roosevelt’s New Deal programs worked to prevent wealth from piling back up at the top. But in the aftermath of the Great Recession, the top 1 percent has gobbled up nearly all of the income gains in the first three years of the “recovery" — a stupifying 95 percent. Economic inequality is even worse than it was before the crash. In fact, last year the rich took home the largest share of income since 1917 with the exception of only one year: 1928.  Let's take a look at the years from 2009 -2012. While working people were sweating it, the richest Americans have enjoyed a fabulous ride. For example, if you were in the top 1 percent in 2012, lucky you — your income soared on average by 20 percent . And if you were in the top 0.01 percent, you probably bought a bigger yacht because your income was up by more than 32 percent on average . As for everybody else? They shared a measly 1 percent rise. In other words, the rich are getting richer, and the rest of us are frozen in economic purgatory.

Combined net worth of America's richest rises - Forbes on Monday released its annual list of the top 400 richest Americans. While most of the top names and rankings didn't change from a year ago, the majority of the elite club's members saw their fortunes grow over the past year, helped by strong stock and real estate markets. Dolan noted that list's minimum net income increased to a pre-financial crisis level of $1.3 billion, up from $1.1 billion in 2012, with 61 American billionaires not making the cut. Microsoft Corp. co-founder Bill Gates remains America's richest man, taking the top spot on the list for the 20th straight year, with a net worth of $72 billion, up from $66 billion a year ago.Investor Warren Buffett, the head of Berkshire Hathaway Inc., posted another distant second place finish with $58.5 billion, but increased his net worth from $46 billion. Oracle Corp. co-founder Larry Ellison stayed third with $41 billion and was the only member of the top 10 whose net worth was unchanged from a year ago. Brothers Charles and David Koch, co-owners of Koch Industries Inc., stay tied for fourth with $36 billion each, up from $31 billion in 2012.Wal-Mart heirs Christy Walton, Jim Walton, Alice Walton and S. Robson Walton took the next four spots, with holdings ranging from $33.3 billion to $35.4 billion, all increasing from year-ago levels. New York City Mayor Michael Bloomberg, the founder of the eponymous financial information company, rounds out the top 10 with $31 billion, up from $25 billion.

US super-rich hit new wealth record -- According to Forbes magazine the 400 wealthiest Americans are worth a record $2.02 trillion (£1.4tn), up from $1.7tn in 2012, a collective fortune slightly bigger than Russia's economy. In another sign of fizziness at the top of the economy, the cost to enter the billionaires' club has also gone up to levels not seen since the 2008 crash. In 2013, an aspiring plutocrat needs at least $1.3bn to make the Forbes list – the highest since just before the collapse of Lehman Brothers sent stock markets plummeting. Bill Gates has been named as the richest American for the 20th year in a row, with a personal fortune of $72bn. Gates, the university drop-outwho founded Microsoft and has given away $28bn since 1994, saw his fortune grow by $6bn since 2012, partly helped by a rise in Microsoft's stock price since August. In second place is Warren Buffett, the investor feted for his shrewdness, who recently bought Heinz. Buffett, with a fortune of $58.5bn, was one of the biggest gainers in 2013, which helped him retain his place on the list. The outspoken founder of software company Oracle, Larry Ellison, takes third place with a $41bn fortune.The richest woman in the US, and the world, is Christy Walton, who inherited a retail fortune when her husband died in 2005. Walton is estimated to be worth $35.4bn, thanks to her shares in the world's largest supermarket Walmart, which has annual sales of $466bn and employs 2.2 million people worldwide – a workforce bigger than the population of Slovenia. She shares the Walmart fortune with her brother-in law Jim and sister in law Alice, who take sixth and seventh place on the list, with around $33bn each.

Meet America's Growing "Lower Class" - For four decades now, the General Social Survey has asked Americans how they identify themselves from a class perspective. While it was always quite common for less fortunate folks to identify themselves as “working class,” there has always been a reluctance to identify as “lower class.” Until last year that is, when a record amount of Americans identified as such. I believe the reason for the change has to do with how the less fortunate view their future opportunities for upward mobility, and the idea that they are stuck in their position for good. This is very bad and it is a direct result of millions of Americans seeing the oligarchs bail themselves out while leaving the rest of society to rot. . From the LA Times: Roquemore is among the small but surging share of Americans who identify themselves as “lower class.” Last year, a record 8.4% of Americans put themselves in that category — more than at any other time in the four decades that the question has been asked on the General Social Survey, Unemployment surged during the downturn. Millions of homes were repossessed in the years since, and millions more people slipped into poverty. And years after the recession ended, the U.S. Department of Agriculture reported record shares of households were still struggling, at times, to put adequate food on the table. Last year, less than 55% of Americans agreed that “people like me and my family have a good chance of improving our standard of living,” the lowest level since the General Social Survey first asked the question in 1987. An unusually high share of the unemployed  — more than 4 million Americans as of August — have been out of work for six months or longer.

House Votes To Taper Foodstamps --In a tight 217-210 vote, The House voted this evening to 'taper' food stamps by $39 billion over the next decade. This bill - setting up a showdown with Senate Democrats - cuts nearly twice as much as a bill that was rejected in June, and, as USA Today reports, dramatically larger than the $4.5 billion 'trim' that was passed by the Senate earlier in the year. The bill would cause 3 million people to lose benefits while another 850,000 would see their benefits cut, according to the non-partisan Congressional Budget Office.Of course, as long as the Dow is trading at all-time highs, it doesn't really matter... since the number of people on Food stamps in the US is already greater than the population of Spain!As we noted before, 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 just voted to cut food stamps by $39 billion. Here’s how - The House just voted 217 to 210 to approve a GOP bill to cut food-stamp spending by $39 billion over the next ten years. That's roughly a 5 percent cut compared with current law.The House legislation isn't expected to get past the Senate, but it's worth a closer look. The bill would spend $725 billion on food stamps over the next ten years, compared with about $760 billion in the Senate farm bill. The Center on Budget and Policy Priorities has a long analysis looking at how, specifically, the House GOP would rein in food-stamp spending through a variety of restrictions on eligibility. About half the savings come from new curbs on aid to unemployed, childless adults between the ages of 18 and 50. Here's the full rundown of cuts:

Red State Pain - Late Thursday, despite pleas from Catholic bishops and evangelicals, the Republican-dominated House passed a bill that would deprive 3.8 million people of assistance to buy food next year. By coincidence, this is almost the exact amount of people who have managed to remain just above the poverty line because of that very aid, the Census Bureau reported a few days ago. A Republican majority that refuses to govern on other issues found the votes to shove nearly 4 million people back into poverty, joining 46.5 million at a desperation line that has failed to improve since the dawn of the Great Recession. It’s a heartless bill, aimed to hurt. Republicans don’t see it that way, of course. They think too many of their fellow citizens are cheats and loafers, dining out on lobster. Certainly there are frauds among the one in seven Americans getting help from the program formerly known as food stamps. But who are the others, the easy-to-ignore millions who will feel real pain with these cuts? As it turns out, most of them live in Red State, Real People America. Among the 254 counties where food stamp use doubled during the economic collapse, Mitt Romney won 213 of them, Bloomberg News reported. Half of Owsley County, Ky., is receiving federal food aid. Half.

The Big Problems With the GOP’s New $40 Billion Food Stamp Cut - "If at first you don't succeed, double down," seems to be the mantra of the House GOP, at least when it comes to trying to cut the food stamp program. After Republicans failed to pass $20 billion in cuts from what is officially known as the Supplemental Nutrition Assistance Program, or SNAP, they're back with a plan to cut $40 billion that is expected to receive a vote this week. Remember, back in June the GOP tried to pass a farm bill – which usually includes funding for SNAP – but it ran aground when Democrats balked at the level of food stamp cuts while tea party types screamed for even deeper reductions. The House wound up adopting a bill devoid of food stamp funding entirely, and the new GOP plan is an attempt to get something through by appeasing the far right faction of its caucus. But what would cuts that deep mean for those who depend upon food stamps? Well, according to a report released Monday by the Congressional Budget Office, Congress' nonpartisan scorekeeper, the the bill would result in 3.8 million people losing food stamp eligibility in 2014 alone. Another 850,000 each year, meanwhile, would see their benefits reduced by approximately $90 per month. This jibes with another recent estimate by the Center on Budget and Policy Priorities, which found that the House GOP's plan would knock 4 to 6 million people off of the program.

SNAP Notes - Paul Krugman - It has now become dogma on the right that the expansion of the SNAP program represents some kind of explosion of moocherism, not a safety net program providing, you know, a safety net in tough economic times. This despite clear evidence (pdf) that the recent rise in SNAP participation is overwhelmingly a response to the economy.To the extent that there’s any rational argument here at all, I think, it rests on the observation that while SNAP enrollment did fall during the boom of the 1990s, it was flat or rising during the expansion of the middle Bush years. This supposedly shows that the program’s use was being driven by things other than economic factors. But there’s a crucial point such analyses miss: the “Bush boom,” such as it was, never did trickle down to lower-income Americans — the kind of people who might use food stamps. Here’s a chart comparing income, in 2012 dollars, at the 20th percentile (left axis, inverted) with the percentage of the population on SNAP:

White House Extends Minimum Wage to Nearly 2 Million Health Care Workers - The Department of Labor announced Tuesday that it will extend minimum wage and overtime protections to nearly 2 million home health care workers. The direct care workers, who deal with the elderly and disabled, were previously treated under federal law the same as baby sitters. But the workforce involved in home health care has rapidly grown along with the aging population, and the increasingly professional workforce has called for labor laws to reflect the trend. About 90 percent of home health care workers are women, and nearly half are minorities, according to the Department of Labor.

State Inequality Visualizations - One of our graduate students here at the University of Oregon, John Voorheis, put together these animated gifs showing how various measures of inequality have changed state by state from 1977-2012: One of our graduate students here at the University of Oregon, John Voorheis, put together these animated gifs showing how various measures of inequality have changed state by state from 1977-2012: Gini Coefficient. Red implies lower within-state inequality, green implies higher. Theil Coefficient. Top 1% Share. Data in the figures from Voorheis (2013), which corrects for CPS topcoding via Generalized Beta multiple imputation.

Watch the growth of U.S. income inequality with this animated map - Here's a fascinating visualization of how inequality in the United States has evolved over the years. Red means lower inequality within a state, green means higher inequality: The map was created by John Voorheis, a graduate student at the University of Oregon, and was passed along by Mark Thoma of Economist's View. More specifically, the map shows the change in Gini coefficients — a measure of income inequality — within states over time. One notable trend here: The Deep South, as well as New York and California, saw the fastest growth in income inequality over time. Eventually, though, all states start shading green by the late 2000s as inequality grows. The financial crisis, in particular, saw a sharp rise in income inequality. Why is this happening? Back in 2011, the Congressional Budget Office investigated the rise in U.S. income inequality between 1979 and 2007 and concluded that it was driven by two big trends. First, business income has become more heavily concentrated at the top, likely due to the growth of high incomes in privately owned professional firms such as law, medicine, and finance. Second, capital income — dividends, rental income — has become much more unequally distributed as well.

Could You Live on $11,940 a Year? - A couple of months ago, Fox News host Neil Cavuto went on a rant against fast-food workers striking for higher wages, explaining that when he was but a wee pup of 16, he went to work at an Arthur Treacher's restaurant for a mere $2 an hour, setting him on the road to becoming the vigorous and well-remunerated cheerleader for capitalism he is today. For all his economic acumen, Cavuto seemed to forget that there's a thing called "inflation," and the two bucks he earned in 1974 would today be worth $9.47. That's less than the striking fast-food workers are asking for (they want $15 an hour), but significantly more than the $7.25 today's minimum-wage workers make. Not to mention the fact that so many of them are not teenagers but adults trying to survive and support families. (According to the Economic Policy Institute, 88 percent of those who would benefit from an increase in the minimum wage are over the age of 20; that and much more data on the topic can be found here.) Yesterday, the California legislature passed a bill raising the state's minimum wage to $10 an hour, which would make it the highest in the nation. Governor Jerry Brown intends to sign it. Of course, business interests howled that paying people such a handsome wage would destroy the state's economy, which is what they always say whenever the minimum wage is raised, despite the fact that it never seems to happen. The California increase is going to be phased in over two-and-a-half years; the minimum in the state will rise from its current $8 to $9 next summer, then to $10 at the beginning of 2016. Since this issue seems to be coming back to the fore as it does periodically—the mayor of Washington, D.C. just vetoed a living-wage bill that was aimed primarily at Wal-Mart—I thought it might be worthwhile to compare the value of the minimum wage today to what it has been in the past:

Can poor Californians live on $10 per hour? — California may soon have the highest minimum wage out of any state, thanks to a law approved by the state legislature on Thursday. Assembly Bill 10, which Gov. Jerry Brown has endorsed, would raise the state’s minimum wage to $10 per hour by January 2016. After that, the wage would continue to automatically increase every year based on inflation.The Economic Policy Institute (EPI) has studied the effect of a new minimum wage between $9.80 and $10.10 on the California economy, and estimates that it would directly affect between 2.1 million and 2.4 million workers. An additional one million workers would be indirectly affected by the hike, said EPI’s Doug Hall.“The indirectly affected include those workers whose wages would be slightly above the new minimum, whose wages would also be slightly increased,” said Hall. But many full-time workers will likely continue to struggle even after that modest boost goes into effect, in part because California is one of the states with the highest cost of living. The MIT living wage calculator, which “is designed to provide a minimum estimate of the cost of living for low wage families,” finds that a single adult in California needs to earn at least $11.20 per hour in order to be self-sufficient. By 2016, when the state minimum wage rises to $10, the cost of living in California will likely be even higher.

Why New York is Home to So Many of the Working Poor, in Graphs - So what is behind this big shift toward income inequality in New York? Income trends in the city represent an amplified version of our national problems: low-wage jobs without benefits are replacing middle-wage jobs that could support families. Nationwide, middle-wage jobs constituted 60 percent of the jobs lost during the Great Recession and only 22 percent of those regained during recovery, according to analysis from Roosevelt Institute’s Annette Bernhardt at NELP. Meanwhile, low-wage jobs made up only 21 percent of recession job losses and 58 percent of jobs gained since.  The national trend started well before the Great Recession. And in New York, it’s been the same, but worse. A 2012 report from the Federal Reserve found that middle-income jobs comprised 67 percent of employment in downstate New York in the 1980s, but by 2010, that number fell to 55.8 percent.Top that off with the fact that for the last decade, wages have risen for the top 5 percent and stagnated or fallen for middle- and low-income workers, and you begin to see the currents driving our inequality crisis.

Washington Sees Incomes Soar as Most of U.S. Declines - The income of the typical D.C. household rose 23.3% between 2000 and 2012 to an inflation-adjusted $66,583, according to the Census Bureau’s American Community Survey, its most comprehensive snapshot of America’s demographic, social and economic trends. During this period, median household incomes for the nation as a whole dropped 6.6% — from $55,030 to $51,371. The state of Mississippi, which had one of the biggest declines, dropped 15% to $37,095: Nearly one in three people there have an income that is near the poverty line.The Washington, D.C. metro area — which includes the surrounding suburbs in Maryland, Virginia and West Virginia — has it even better, with a median household income of $88,233 that ranks highest among the U.S.’s 25 most populous metro areas. Tampa, Florida’s median income, by contrast, is under $45,000. D.C. isn’t the only gainer, of course. Four U.S. states saw real income increases between 2000 and 2012, including North Dakota, which saw a 17% jump, thanks to its oil-and-gas boom. But a whopping 35 states saw declines, including Indiana (-13%), Georgia (-14%), and Michigan (-19%).As the Journal has noted recently, the U.S.’s lethargic economic recovery is hindering income growth, depriving citizens of spending power and leaving many stuck in poverty. But D.C. — which wasn’t hit as hard as other major U.S. cities by the 2007-2009 recession — is a different story. Its local economy is expanding faster than the broader nation, and its property market is soaring, thanks in part to increased federal-government spending and an influx of federal contractors, lawyers and consultants.

Average Chicago household owes $83,000 for City Hall debt - The average Chicago household owes as much as $83,000 for unfunded pension liabilities and other City Hall debt — well over what the typical family makes in a year. That's the discomforting bottom line in a new study on debts of the city of Chicago, Board of Education and other city governments being released today by the Illinois Policy Institute, a Chicago-based libertarian think tank. Extending and elaborating on recent studies by others, the institute concludes that total debt of the city, other city government entities and the city's share of geographically larger units such as Cook County totaled at least $86.9 billion at the end of last year. About a third of the debt is in the form of long-term bonds for things like building roads and schools, and about two-thirds is money promised to workers for their retirement that the city's pension funds do not have on hand. That $86.9 billion translates to $23,000 for each Chicagoan and $62,000 per household, by the institute's math. But the total pension debt actually is $23 billion higher if, rather than using official figures, you use assumptions by Moody's Investors Service, which recently lowered the city's bond rating two notches. Including those assumptions, total debt comes to $32,000 per person and $83,000 for an average-sized household.

How Detroit went broke: The answers may surprise you – and don’t blame Coleman Young - Detroit is broke, but it didn’t have to be. An in-depth Free Press analysis of the city’s financial history back to the 1950s shows that its elected officials and others charged with managing its finances repeatedly failed — or refused — to make the tough economic and political decisions that might have saved the city from financial ruin.  Instead, amid a huge exodus of residents, plummeting tax revenues and skyrocketing home abandonment, Detroit’s leaders engaged in a billion-dollar borrowing binge, created new taxes and failed to cut expenses when they needed to. Simultaneously, they gifted workers and retirees with generous bonuses. And under pressure from unions and, sometimes, arbitrators, they failed to cut health care benefits — saddling the city with staggering costs that today threaten the safety and quality of life of people who live here. The numbers, most from records deeply buried in the public library, lay waste to misconceptions about the roots of Detroit’s economic crisis. For critics who want to blame Mayor Coleman Young for starting this mess, think again. The mayor’s sometimes fiery rhetoric may have contributed to metro Detroit’s racial divide, but he was an astute money manager who recognized, early on, the challenges the city faced and began slashing staff and spending to address them.  And Wall Street types who applauded Mayor Kwame Kilpatrick’s financial acumen following his 2005 deal to restructure city pension debt should consider this: The numbers prove that his plan devastated the city’s finances and was a key factor that drove Detroit to file for Chapter 9 bankruptcy in July.

Fitch: Detroit Likely to Default on General Obligation Bonds Next Month - Fitch Ratings said it expects Detroit will miss payments on its general-obligation bonds that come due Oct. 1, resulting in a downgrade to default, as it reiterated concerns expressed earlier this year after the embattled Michigan city filed for bankruptcy. Motor City's July's bankruptcy filing--in which it aims to restructure more than $18 billion in debt--marked the U.S.'s largest-ever municipal bankruptcy case. The case has been particularly worrisome for municipal-bond investors because the city's emergency manager has indicated that bondholders could see significant losses, undermining investors' assumption that states and cities would raise taxes as much is necessary to repay them. Fitch had predicted the automobile capital and one-time music powerhouse's general obligation bonds were unlikely to be repaid shortly after the July bankruptcy filing. Fitch already has lowered its ratings on Detroit's water-and-sewer utility debt to default after it missed a debt service payment during June. "Fitch began signaling concern about Detroit with its rating actions in 2005, and the bankruptcy was not unexpected," Amy Laskey, a Fitch managing director, said. "Detroit's economy has been on decline for decades, management has exhibited an unusual lack of cohesion and positive action, and fixed costs have been growing."

Lifelines for Poor Children - What’s missing in the current debate over economic inequality is enough serious discussion about investing in effective early childhood development from birth to age 5. This is not a big government boondoggle policy that would require a huge redistribution of wealth. Everyone knows that education boosts productivity and enlarges opportunities, so it is natural that proposals for reducing inequality emphasize effective education for all. But these proposals are too timid. They ignore a powerful body of research in the economics of human development that tells us which skills matter for producing successful lives. They ignore the role of families in producing the relevant skills. They also ignore or play down the critical gap in skills between advantaged and disadvantaged children that emerges long before they enter school. While education is a great equalizer of opportunity when done right, American policy is going about it all wrong: current programs don’t start early enough, nor do they produce the skills that matter most for personal and societal prosperity. The cognitive skills prized by the American educational establishment and measured by achievement tests are only part of what is required for success in life. Character skills are equally important determinants of wages, education, health and many other significant aspects of flourishing lives. Self-control, openness, the ability to engage with others, to plan and to persist — these are the attributes that get people in the door and on the job, and lead to productive lives. These established findings should lead to a major reorientation of policies for human development. Because skill begets skill, the opportunity for education should begin at birth — and not depend on the accident of birth.

The Parenting Gap for Pre-Preschool - For a number of American children, a preschool program like Head Start is too late and too little. It's too late because it doesn't start until age 3 or 4, and for a number of at-risk groups substantial cognitive gaps are already apparent at that age. It's too little because whatever the merits of Head Start (and I've expressed some skepticism about the program here and here), it's a program that only has the children for a few hours a day. It's time to tackle a more controversial and difficult reality that is blocking equality of opportunity for many American children: the low quality of the parenting they receive. Richard V. Reeves, Isabel Sawhill and Kimberley Howard open up this subject in their essay "The Parenting Gap," which appears in the Fall 2013 issue of Democracy. (A background paper with some statistics and numerical calculations by Reeves and Howard is available here.) Reeves, Sawhill, and Howard discuss some of the evidence that parents with lower levels of income or education provide a lower quality of parenting in terms of time and enrichment For example:  "High-income parents talk with their school-aged children for three hours more per week than low-income parents.They also provide around four-and-a-half extra hours per week of time in novel or stimulating places, such as parks or churches, for their infants and toddlers. Less-advantaged parents are struggling to make a living and often lack a partner to help them build better lives. Less money typically means more stress, tougher neighborhoods, and fewer choices.

Early childhood education for at-risk kids: a powerful policy to combat economic inequality - In many ways, we do education backwards in this country. We skimp and shortchange the poor children who need education the most, while at the same we lavish public moneys on those who need it least. Take, for instance, this article about the outrageous practice of taxpayer subsidies for the legacy admits of rich alumni of elite colleges. In this context, advocacy for educational programs that alleviate, rather than exacerbate, inequality is particularly welcome. That’s why I especially appreciated today’s New York Times’ Opinionator blog, in which economist James Heckman writes a great op-ed about the dramatic impact of early childhood education in the lives of poor children. Heckman, as you may know, is a free market true believer type. But he’s been studying pre-K programs for poor kids for years, and he supports them for conservative reasons: because they are economically rational. Early childhood education for at-risk kids is one of those (relatively) rare government programs that the free market types like because it produces not just equity, but also efficiency. Here’s how the early education programs work. Contrary to what you might think, they didn’t necessarily produce lasting gains in I.Q.’s. But they do teach character and cognitive skills of the sort that I.Q. tests don’t measure. As Heckman argues, these skills are crucial to success in life:

The Case Against Cursive -- Like 32-volume encyclopedias or cassette tapes, cursive writing has become a casualty of technology. Why learn how to draw that funny-looking crooked triple loop when you can just tap the shift key and the letter Z on your mobile phone? Better yet, why bother with uppercase letters at all? they’re not necessary for understanding. Yet misgivings over the eclipse of cursive-writing instruction are provoking a backlash, with some state legislators overriding decisions to drop the lessons. Most American adults were taught that print writing was a step to cursive, the mark of true literacy. School districts that have stopped teaching cursive understand that people will increasingly “write” with keyboards; they don’t require a second, fancier form of handwriting. For these reasons, the Common Core State Standards Initiative sponsored by the National Governors Association excluded cursive from its recommended curriculum, which has been adopted by 45 states. The standards require students to demonstrate proficiency in using a keyboard to type at least a page in a single sitting by the fourth grade.

Mismatches in Race to the Top Limit Educational Improvement -Race to the Top (RTTT) is a competitive grant program intended to encourage and reward states that are “creating conditions for innovation and reform.” When the program was announced in July 2009, the U.S. Department of Education (U.S. ED) asserted that participating states and districts “will offer models for others to follow and will spread the best reform ideas across their States, and across the country” (U.S. ED 2009). The program’s purpose, according to the department, is to advance reforms in four main areas:

  • Adopting standards and assessments that prepare students to succeed in college and the workplace and to compete in the global economy
  • Building data systems that measure student growth and success and that inform teachers and principals about how they can improve instruction
  • Recruiting, developing, rewarding, and retaining effective teachers and principals, especially where they are needed most
  • Turning around the lowest-achieving schools

States were assigned to one of four funding brackets based on their share of the national population of school-age children. Only the four largest states—California, Texas, Florida, and New York—were eligible for the highest award range of $350 million to $700 million. States in the lowest bracket received $20 million to $75 million. The four-year grant period ends in 2014.

Benefits of Good Teachers Last Long Beyond Primary School - The quality of a primary school teacher can have a long-lasting impact on students on characteristics ranging from college attendance to their savings rate, according to research published by the National Bureau of Economic Research. Researchers found that students assigned to high “value-added” teachers, as measured by the teachers’ impacts on their students test scores, in grades 4 to 8 were more likely to attend college, earn higher salaries, live in higher socioeconomic status neighborhoods and have higher savings rates. The researchers also found that these students were less likely to have children as teenagers.In a paper published earlier this year, the researchers found that existing value-added measures, a hotly-debated approach, are a good proxy for a teacher’s ability to raise students’ test scores. Their latest paper indicates that the same value-added metrics are also informative of teachers’ long-term impacts. But the researchers noted that the most important take away from their study is that improving the quality of teaching, whether through value-added metrics or not, is likely to have wide economic and social benefits for students.Using school district records from a large urban school district and federal income tax returns, the researchers tracked approximately one million individuals from early elementary school to early adulthood, measuring outcomes such as earnings, college attendance and teenage births. Among their findings, the researchers reported that a one standard deviation improvement in teacher value-add in a single grade raises the probability of college attendance at age 20 by 0.82 percentage points. Improvements in teacher quality also increased the quality of colleges that students attend, as measured by the average earnings of previous graduates of that college, according to the research

Rahm Emanuel Defends $24 Million In School Upgrades, 'Modernization' Amid Pension Crisis -Chicago Mayor Rahm Emanuel announced plans to spend $24 million in TIF money and capital funds on school improvements. Despite a staggering state and city deficit and ongoing pension crisis, Chicago Mayor Rahm Emanuel is defending his recently-revealed plan to spend $24 million on additions and improvements to several of the city's schools. The mayor wants to spend the cash -- a mix of TIF money and state funds -- to "modernize" and upgrade three schools on the West Side and one on the Northwest Side. Part of Emanuel's plan also includes a brand-new school on the Southeast Side, though it's attracted criticism for being on a potentially chemically toxic site. "We make those investments, but here's the breaking news: There's much more to do than we have the resources, and we're going to continue to make the tough choices, even though there are more needs than we can meet," Emanuel told reporters Tuesday, according to the Tribune. A CPS official said due to the nature of the funding sources, the money can only be used for investments and improvements and not for plugging the estimated $1 billion CPS budget deficit. The City Council's Progressive Caucus introduced an ordinance mandating surplus funds from the city's 165 TIF districts be used to reverse some of the deep budget and staffing cuts at CPS that took hold this summer. The Sun-Times points out that by setting aside the $24 million in TIF funds for the improvements, the mayor has effectively torpedoed the ordinance before it has a chance to go anywhere.

Income Inequality and College Tuition - Catherine Hill, President of Vassar, at the Washington Post explaining the rapid increase in tuition at elite colleges: Increased access to higher education would help moderate the expansion in income inequality over time. Yet the increasing inequality itself presents obstacles to achieving this goal. Real income growth that skews toward higher-income families creates challenges for higher education. The highest-income families are able and willing to pay the full sticker price. Schools compete for these students, supplying the services that they desire, which pushes up costs. Restraining tuition and spending in the face of this demand is difficult. These students will go to the schools that meet their demands. Hence the proliferation of climbing walls and luxury dorms at selective and highly selective colleges (one college president told me that the climbing wall is a highlight of the college tour at both the private colleges he has led). Highly selective education is a positional good, and wealthy families have become enormously wealthier over the past 30 years and have been having fewer children: what are they going to do with all that money?Compete with each other to get their children into the best possible position, thus bidding up the price of highly elite colleges, making it unaffordable for others.

The Untold Story of Citibank’s Student Loan Deals at NYU -- An institutionalized wealth transfer system is playing out at New York University, a nonprofit organization subsidized by the U.S. taxpayer.  Forgivable mortgage loans for multi-million dollar luxury homes have been doled out by NYU to an inner circle of administrators and elite faculty. The University’s President, John Sexton, has received an interest rate of less than one-quarter of one percent from NYU to finance a multi-million dollar beach residence on Fire Island. All this while NYU students carry the greatest burden of debt of any nonprofit university in the country – a figure placed at $659 million in 2010 by the Department of Education and now estimated to be well over $1 billion due to a poorly understood debt compounding trick called “capitalized interest.”  While the unconscionable mortgage loans at NYU have received significant press attention and a Congressional probe by Senator Chuck Grassley, the unseemly details of just how NYU students amassed all this debt and the conflicts of interest between the university’s preferred lender, Citibank, and the Chairman of NYU’s Board, Martin Lipton (who has inexplicably held that post for the past 15 years), have failed to make it to the front pages of mainstream media.

Trillion-Dollar Student Loan Fiasco to Force Our Next Debt Crisis? - Last week I wrote about how auto loans have reached their highest level since the third quarter of 2007 and how easy access to these loans was pushing car sales higher. (See "Scary Story on the Booming Auto Sales No One is Talking About.") Yes, ballooning auto loans are a problem, but there is a bigger ticking debt time bomb... Student debt in the U.S. economy is taking the shape of a bubble. The U.S. government has effectively become the biggest creditor to students. It has gotten to a point where it is forcing the big banks to move away from issuing student debt. Take JPMorgan Chase & Company (NYSE/JPM), for example. This bank has decided that it will stop accepting student loans applications on October 21of this year. Richard Hunt, President of the Consumer Bankers Association, said that the government giving student debt is creating "less competition in the marketplace." Sure, on the surface it's a good idea. The government issuing student debt promotes education. But there's a problem. Student debt in the U.S. economy has increased significantly. It currently sits around the $1.0-trillion mark -- with a majority of that student debt guaranteed by the U.S. government. If we see defaults on this student debt, we will see the U.S. government rapidly increasing its national debt as it deals with the student debt fiasco.We are already seeing a sharp increase in the delinquency rate on student debt. According to the Federal Reserve Bank of New York, in the second quarter of 2013, the 90-day-plus delinquency rate on student debt was almost 11%. (Source: Federal Reserve Bank of New York, August 2013.) We all know the jobs market in the U.S. economy is dismal. Considering this, I ask one question: will graduates from colleges be able to pay off the debt they have incurred if they will most likely only be able to find a job in a low-wage-paying sector? I can see the delinquency rate on student debt skyrocketing.

Monday Map: Funded Ratio of State Public Pension Plans - Increasingly, the “defined benefit” model of retirement plan (where the employee is paid a lifetime annuity, based on years of service and final salary) is being replaced by the “defined contribution” model of retirement plan (where the employee owns and controls an investment account). One of many reasons for this shift is the tendency of DB plans to be underfunded (promises to pay exceeding available assets), which is structurally impossible for a DC plan. One estimate of private sector DB plan underfunding is over $300 billion. State and local public employees, for the most part, have DB retirement plans. Much discussion has occurred in recent years to estimate how underfunded they are: the estimates start at $1.3 trillion and go up from there. The difficulty is that calculating the amount depends on your estimate of future rate of return. Most plans themselves project they will earn 7 to 8 percent on their investments, and critics say that is too optimistic. The organization State Budget Solutions this month produced one such estimate, using a 3.2 percent rate of return (the 15-year Treasury bond yield rate). This calculates to public employee pension plans having only 39 percent of the assets they need to cover their promised payments—a $4.1 trillion gap. A map of their state-by-state funding ratio estimates is below.

August Update: Early Look at 2014 Cost-Of-Living Adjustments suggests 1.5% increase - The BLS reported this morning: The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 1.5 percent over the last 12 months to an index level of 230.359 (1982-84=100). For the month, the index increased 0.1 percent prior to seasonal adjustment.The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) increased 1.4 percent over the last 12 months. For the month, the index increased 0.1 percent on a not seasonally adjusted basis. :Currently CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and not seasonally adjusted.Since the highest Q3 average was last year (2012), at 226.936, we only have to compare to last year.  This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year. Currently CPI-W is above the Q3 2012 average. If the current level holds (average of July and August), COLA would be around 1.5% for next year.   Last year gasoline prices increased sharply in August and September - pushing up CPI-W for those months, and this year gasoline prices are down a little in September.  So CPI-W will probably not increase as much this year in September as in September 2012.

Payroll Taxes May Have to Go Up - According to the CBO, benefits are projected to continue to grow for Medicare and Social Security and that means higher payroll taxes. The CBO’s long term projections show that “[f]ederal spending for the major health care programs and Social Security would increase to a total of 14 percent of GDP by 2038, twice the 7 percent average of the past 40 years.”The major health care programs and social security are likely to overtake all other components of spending by 2070 if no changes are made. By the CBO's calculations for Social Security, people born in the ‘40s, ‘50s, and 60’s are likely to pay more in than they get out. This is largely because “benefits for earlier generations were considerably larger than their payroll taxes.” Those in the ‘70s and ‘80s are projected to receive more than they paid into the program.As the system (and current tax and spending policy) is designed currently, it isn’t sustainable. Projections through 2038 show that the gap between spending and revenues will continue to grow under current law. Either way, something must change going forward:

Heartless: Nevada Dumps 1,500 Mental Patients Via One-Way Greyhound Ticket to California - A new lawsuit filed by the city of San Francisco on behalf of the state of California alleges that over the past five years, the state of Nevada has dumped 1,500 mental patients onto other states by putting them them on Greyhound busses and sending them over state lines with no prior arrangements with families or other mental hospitals once they arrive.   According to the federal class action lawsuit that the city of San Francisco is spearheading, nearly all of the patients bussed to California need continuous medical care—none of which Nevada state arranged, and all of which cost the city of San Francisco at least $500,000.

Walgreen Moves Health Coverage to Private Exchange - Drugstore chain Walgreen will become the latest big employer to send its workers shopping for their health insurance instead of providing a few choices for them. The Deerfield, Ill., company says it will start giving workers a contribution toward the cost of coverage and then send them to a private health insurance exchange where they will pick from as many as 25 plans. Employers normally pay most of the coverage cost, and Walgreen Co.’s contribution won’t change. It says the move offers more choices for workers and will make them better health insurance consumers, which can help control costs. Employers have struggled for years with health care costs that climb faster than inflation. Sears Holdings Corp. is among the companies that have already shifted to this relatively new approach.

ObamaCare Staggers Toward the October 1 Finish Line (5) - Tonight I want to focus on only two topics: First, the utterly supine nature of the AFL-CIO as led by Richard Trumka.* Obama can’t armwrestle Putin, and Obama couldn’t consummate his bromance with Larry Summers by installing Summers at the Fed. But by gawd, Obama can still whip Big Labor into line! Here’s the backstory from [sigh] Ezra Klein: A particular issue of contention has been so-called “Taft-Hartley plans” — multi-employer health-care plans that unions run, and that aren’t eligible for subsidies under the terms of the Affordable Care Act. The plans cover about 20 million Americans, and the government treats them as employer-based health-care plans for tax purposes. A recent letter signed by the powerful Teamster, UNITE-HERE, and UFCW unions warned that “under the ACA as interpreted by the Administration, our employees will be treated differently and not be eligible for subsidies afforded other citizens.” Ah! A “strongly worded letter”! Continuing: “As such, many employees will be relegated to second-class status and shut out of the help the law offers to for-profit insurance plans.” The unions argue this will decimate membership in their plans as employers dump union workers onto public exchanges. And that’s not a bug, either. It’s a feature. So of course the administrations stiffs them: A senior administration official tells me that the administration “does not see a legal way for individuals in multiemployer group health plans to receive individual market tax credits as well as the favorable tax treatment associated with employer-provided health insurance at the same time.” A Treasury Department letter is being released that lays out the administration’s reasoning in more detail.

Obamacare Software Can't Reliably Determine Enrollees' Eligibility For Subsidies - The centerpiece of President Obama’s new health law is a collection of government-sponsored insurance exchanges, in which people who shop for coverage on their own can purchase health insurance, and gain a taxpayer-funded subsidy if their income is low enough. The exchanges are set to roll out on October 1, in less than two weeks. In other words, it’s crunch time. And in this morning’s Wall Street Journal comes word that the exchange software, for which the government has spent upwards of $88 million, still can’t correctly calculate the amount of subsidies that an individual applicant is eligible for. “There’s a blanket acknowledgment that rates are being calculated incorrectly,” one senior insurance executive told the WSJ. “Our tech and operations people are very concerned about the problems they’re seeing and the potential of them to stick around.”The WSJ article was authored by Christopher Weaver, Timothy Martin, and Jeniffer Corbett Dooren. “If not resolved by the Oct. 1 launch date,” they report, “the problems could affect consumers in 36 states where the federal government is running all or part of the exchanges. About 32 million uninsured people live in those states.”

ObamaCare Clusterfuck: 12 days left until enrollment, and the Federal Exchanges can’t calculate prices correctly - Wall Street Journal: Less than two weeks before the launch of insurance marketplaces created by the federal health overhaul, the government's software can't reliably determine how much people need to pay for coverage, according to insurance executives and people familiar with the program.If not resolved by the Oct. 1 launch date, the problems could affect consumers in 36 states where the federal government is running all or part of the exchanges. About 32 million uninsured people live in those states, but only a fraction of them are expected to sign up in the next year.  Yeah, and no wonder. Who's going to risk a perjury rap and sign up to spend thousands of dollars on a website that's known to be buggy? I mean, imagine that buying insurance really was like buying a flat-screen TV. Would you buy a flat-screen TV with no price sticker, or, worse, randomly changing price stickers? "Wow, I'd swear that was $499. That was what was on the box five minutes ago. Did somebody change it?" "Oh, honey, that's just a bug.

Obamacare will question your sex life - ‘Are you sexually active? If so, with one partner, multiple partners or same-sex partners?” Be ready to answer those questions and more the next time you go to the doctor, whether it’s the dermatologist or the cardiologist and no matter if the questions are unrelated to why you’re seeking medical help. And you can thank the Obama health law. “This is nasty business,” says New York cardiologist Dr. Adam Budzikowski. He called the sex questions “insensitive, stupid and very intrusive.” He couldn’t think of an occasion when a cardiologist would need such information — but he knows he’ll be pushed to ask for it. The president’s “reforms” aim to turn doctors into government agents, pressuring them financially to ask questions they consider inappropriate and unnecessary, and to violate their Hippocratic Oath to keep patients’ records confidential. Embarrassing though it may be, you confide things to a doctor you wouldn’t tell anyone else. But this is entirely different. Doctors and hospitals who don’t comply with the federal government’s electronic-health-records requirements forgo incentive payments now; starting in 2015, they’ll face financial penalties from Medicare and Medicaid. The Department of Health and Human Services has already paid out over $12.7 billion for these incentives.

Doctors As Sex Police: Baseless Obamacare Lie Jumps To Fox News - In a New York Post op-ed, McCaughey claimed that the health care law will "turn doctors into government agents" by requiring them to ask supposedly "intrusive" questions about their patients' sexual history. McCaughey's op-ed, which cited no evidence to support her claims, was parroted by Fox & Friends First co-host Ainsley Earhardt who said, "Thanks to Obamacare, doctors will be forced to ask patients about their sex life, even if it has nothing to do with the medical treatment that they are seeking at the time":As Wonkette pointed out, McCaughey offered no evidence for her claims that the ACA changes existing practices. In fact, despite her fearmongering, sexual history questions are routine medical practice. The Centers For Disease Control calls such questions "an important part of a regular medical exam or physical history" and recommends that "[a] sexual history needs to be taken during a patient's initial visit, during routine preventive exams, and when you see signs of sexually transmitted diseases (STDs)." In fact, the very questions that McCaughey claims doctors will now be pressured to ask are the exact questions the CDC recommends doctors ask their patients.   In a post on The Incidental Economist, Aaron Carroll, a professor of pediatrics and director of the Center for Health Policy and Professionalism Research, accused McCaughey of inventing inaccurate "reasons to dislike Obamacare," pointing out that doctors ask about sexual history "because having multiple sexual partners greatly increases your risk of sexually transmitted infections. They're looking out for my health, and want to advise me best on how to manage it":

ObamaCare: Will Making a Little More Income Cost You Thousands? - Yesterday, in launching the first tool that's specifically designed to help you determine if it is better to pay the ObamaCare income tax rather than health insurance using cost information that you obtain directly from your state's health insurance marketplaces, we made an offhand comment about some of the validation testing we did: Our tool turns out to be surprisingly accurate - although it's not designed to do so, we've validated the "loss-of-subsidy" effect on the out-of-pocket cost of health insurance for making one penny more than ObamaCare's subsidy eligibility level that CNBC described here... What is the "loss-of-subsidy" effect? It's really a marginal tax rate effect. For people who choose to buy health insurance in the age of ObamaCare, it is the unexpectedly large price they would pay for losing the tax credit subsidy that might make health insurance more affordable if they should find themselves making just a little extra income in a given year than they expected, crossing a critical threshold where they stop being eligible to benefit from the subsidy tax credit.  The really perverse thing is that it doesn't matter where the extra income might come from. You or someone else in your household might get a raise, or a bonus, or a new job, et cetera. Normally, these things would be considered to be good things. Or at least they would be in a sane world. But in the new age of ObamaCare, perhaps not so much. You might come to believe that little extra money you might otherwise choose to make to make your household better off is really radioactive.

The Republican Study Committee has a “replace” plan - For years now, we have heard that those opposed to Obamacare had a plan to “repeal and replace” it. They’ve certainly been working on the “repeal” part. We’ve not heard a word about “replace”. That’s not terribly surprising. Reforming the health care system to cover more people and to reduce the rate of growth of health spending is hard. The Affordable care Act (ACA), love it or hate it, was designed to do these things. The law’s opponents have claimed it costs too much, will result in rationing, and limit freedom. Today, a group of House conservatives presented their version of a replacement plan, endorsed by the Republican Study Committee. In short, it throws poor Americans under the bus.The centerpiece of the plan is a universal, standard tax deduction of health insurance premiums, up to $7,500 for an individual and $20,000 for a family. This would level a playing field that is uneven today. Today, only insurance purchased through work is tax deductible. People who don’t get insurance through their jobs don’t get a deduction. There are two problems with the House plan though. The first is that it will obviously cost a lot of money. How much is not clear, but it won’t be insignificant. How will that be paid for? The second is that a tax deduction is much more valuable to someone who makes a lot of money than someone who makes little. But people with large incomes aren’t the ones who need help affording coverage. It’s those at the lower end of the socioeconomic spectrum who need the most assistance. Because of their low marginal tax rates, a tax deduction is of very little help.

Most Depressing Brain Finding Ever - Kahan conducted some ingenious experiments about the impact of political passion on people's ability to think clearly. His conclusion, in Mooney's words: partisanship "can even undermine our very basic reasoning skills.... [People] who are otherwise very good at math may totally flunk a problem that they would otherwise probably be able to solve, simply because giving the right answer goes against their political beliefs."  In other words, say goodnight to the dream that education, journalism, scientific evidence, media literacy or reason can provide the tools and information that people need in order to make good decisions. It turns out that in the public realm, a lack of information isn't the real problem. The hurdle is how our minds work, no matter how smart we think we are. We want to believe we're rational, but reason turns out to be the ex post facto way we rationalize what our emotions already want to believe.

Scientists under Attack - Genetic Engineering in the magnetic Field of Money TRAILER: Ãrpád Pusztai and Ignacio Chapela have two things in common. They are distinguished scientists and their careers are in ruins. Both scientists choose to look at the phenomenon of genetic engineering. Both made important discoveries. Both of them are suffering the fate of those who criticise the powerful vested interests that now dominate big business and scientific research. (Time: 3:19)Statements made by scientists themselves prove that 95% of the research in the area of genetic engineering is paid by the industry. Only 5% of the research is independent. The big danger for freedom of science and our democracy is evident. Can the public -- we all -- still trust our scientists?

Gonorrhea Among Drug-Resisting Germs Sickening Millions -More than 2 million people in the U.S. are sickened by antibiotic-resistant germs each year, and at least 23,000 die, according to the first report from the Centers for Disease Control and Prevention to rank the threats.  Three bacteria, including drug-resistant gonorrhea, are classified as urgent threats with the potential to become widespread. Another 11 bacteria and a fungus are referred to as serious perils by the CDC report.  Bacterial resistance was identified shortly after antibiotics were first used in the 1940s. Now, the antibiotic pipeline has largely dried up, leaving doctors without new weapons against the illnesses -- a “nightmare,” Solomon said. “The cushion of new antibiotics is gone,” . “We’re right at the edge of this cliff where we’re approaching the post-antibiotic era.”  The three most serious threats are C. difficile, which causes life-threatening diarrhea, carbapenem-resistant Enterobacteriaceae, which includes E.coli and affects mostly people in health-care settings, and gonorrhea, a sexually transmitted infection, according to the report

CDC Threat Report: ‘We Will Soon Be in a Post-Antibiotic Era’ - The U.S. Centers for Disease Control and Prevention has just published a first-of-its-kind assessment of the threat the country faces from antibiotic-resistant organisms, ranking them by the number of illnesses and deaths they cause each year and outlining urgent steps that need to be taken to roll back the trend. The agency’s overall — and, it stressed, conservative — assessment of the problem:

  • Each year, in the U.S., 2,049,442 illnesses caused by bacteria and fungi that are resistant to at least some classes of antibiotics;
  • Each year, out of those illnesses, 23,000 deaths;
  • Because of those illnesses and deaths, $20 billion each year in additional healthcare spending;
  • And beyond the direct healthcare costs, an additional $35 billion lost to society in foregone productivity.

“If we are not careful, we will soon be in a post-antibiotic era,” Dr. Tom Frieden, the CDC’s director, said in a media briefing. “And for some patients and for some microbes, we are already there.” The report marks the first time the agency has provided hard numbers for the incidence, deaths and cost of all the major resistant organisms.  It also represents the first time the CDC has ranked resistant organisms by how much and how imminent a threat they pose, using seven criteria: health impact, economic impact, how common the infection is, how easily it spreads, how much further it might spread in the next 10 years, whether there are antibiotics that still work against it, and whether things other than administering antibiotics can be done to curb its spread.

Third World Watch: Deadly Brain Amoeba Found in US Tap Water -  Yves Smith  - For six years, we’ve discussed off and on how income inequality hurt the health of citizens, even in the top income strata. The US now ranks 27th in life expectancy among 34 advanced economies, down from 20 in 1990.  But in addition to the considerable health dangers of stress and weak social bonds, more obvious public health risks may be coming to the fore. Strained municipal budgets means reduced public services, and they can have direct health impact, such as frequency of garbage pickup, the level of staffing of emergency services, the number of hospital beds per capita (consider what happens if you have a natural disaster or disease outbreak and the number of sick and injured exceed the capacity of local facilities). The public water supply in a New Orleans parish is now a health hazard. From NBC: A deadly brain amoeba that’s killed two boys this year has been found in a U.S. drinking water supply system for the first time, officials said Monday — in a New Orleans-area system.. “We have never seen Naegleria colonizing a treated water supply before,” said Dr. Michael Beach, head of water safety for the CDC. “From a U.S. perspective this is a unique situation.” N. fowleri is a heat-loving amoeba that’s usually harmless, unless it gets up someone’s nose…. There, the amoeba reproduces and the brain swelling and infection that follows is almost always deadly.

Report links antibiotics at farms to human deaths  -- The Centers for Disease Control on Monday confirmed a link between routine use of antibiotics in livestock and growing bacterial resistance that is killing at least 23,000 people a year.The report is the first by the government to estimate how many people die annually of infections that no longer respond to antibiotics because of overuse in people and animals. CDC Director Thomas Frieden called for urgent steps to scale back and monitor use, or risk reverting to an era when common bacterial infections of the urinary tract, bloodstream, respiratory system and skin routinely killed and maimed. "We will soon be in a post-antibiotic era if we're not careful," Frieden said. "For some patients and some microbes, we are already there."The discovery of penicillin in 1928 transformed medicine. But because bacteria rapidly evolve to resist the drugs, and resistance is encouraged with each use, antibiotics are a limited resource.  Along with the annual fatalities, the report estimated at least 2 million antibiotic-resistant infections occur each year. Frieden said these are "minimal estimates" because they count only microbes that are resistant to multiple antibiotics and include only hospital infections, omitting cases from dialysis centers, nursing homes and other medical settings.

Americans Are 110 Times More Likely to Die from Contaminated Food Than Terrorism - In 2011, the year of Osama bin Laden's death, the  State Department reported that 17 Americans were killed in all terrorist incidents worldwide. The same year, a single outbreak of listeriosis from  tainted cantaloupe killed 33 people in the United States. Foodborne pathogens also sickened 48.7 million, hospitalized 127,839 and caused a total of  3,037 deaths. This is a typical year, not an aberration.  We have more to fear from contaminated cantaloupe than from al-Qaeda, yet the United States spends $75 billion per year spread across  15 intelligence agencies in a scattershot attempt to prevent terrorism, illegally spying on its own citizens in the process. By comparison, the Food and Drug Administration (FDA) is  struggling to secure $1.1 billion in the 2014 federal budget for its food inspection program, while tougher food processing and inspection regulations passed in 2011  are held up by agribusiness lobbying in Congress. The situation is so dire that Jensen Farms, the company that produced the toxic cantaloupe that killed 33 people in 2011,  had never been inspected by the FDA. In the past 10 years, outbreaks of  foodborne illness have affected all 50 states, with hundreds of food recalls annually involving many of America's leading brands, including Whole Foods, Trader Joe's, Taylor Farms Organics, Ralph's, Kroger, Food 4 Less, Costco, Dole, Kellogg's and dozens of others. There have been multi-state recalls of contaminated cheese, organic spinach, salad greens, lettuce, milk, ground beef, eggs, organic brown rice, peanut butter, mangoes, cantaloupe and hundreds of other popular foods.

Genetically modified alfalfa confirmed in Washington test sample - Alfalfa seed and plant samples taken from an Eastern Washington farm contain a low level of genetic modification, even though the farmer reportedly did not want to grow such crops, the state Department of Agriculture announced Friday.  The agency said the samples showed a low-level presence of a genetic trait called Round-Up Ready, meaning they are able to tolerate the well-known herbicide. The tests did not reveal the percentage of Round-Up Ready presence in the samples. The testing was ordered after a hay farmer who intended to grow alfalfa that was not genetically modified had his crop rejected by a broker who found evidence of genetically modified pesticide resistance. The results were shared with the farmer and with the U.S. Department of Agriculture, he said. The federal agency will make its own decision on whether to take any action in the case, he said. State Sen. Maralyn Chase, D-Shoreline, said the incident shows the dangers of genetically modified crops.  "Our state's farmers are becoming collateral damage to the reckless practices of the agriculture industry in this country," Chase said. "More than 60 of our trade partners throughout the world have bans on the import of unlabeled GMO foods."

Misgivings About How a Weed Killer Affects the Soil - The local differences over glyphosate are feeding the long-running debate over biotech crops, which currently account for roughly 90 percent of the corn, soybeans and sugar beets grown in the United States. Now, some farmers are taking a closer look at their soil. First patented by Monsanto as a herbicide in 1974, glyphosate has helped revolutionize farming by making it easier and cheaper to grow crops. The use of the herbicide has grown exponentially, along with biotech crops. The pervasive use, though, is prompting some concerns. Critics point, in part, to the rise of so-called superweeds, which are more resistant to the herbicide. To fight them, farmers sometimes have to spray the toxic herbicide two to three times during the growing season. Then there is the feel of the soil.Dirt in two fields around Alton where biotech corn was being grown was hard and compact. Prying corn stalks from the soil with a shovel was difficult, and when the plants finally came up, their roots were trapped in a chunk of dirt. Once freed, the roots spread out flat like a fan and were studded with only a few nodules, which are critical to the exchange of nutrients. In comparison, conventional corn in adjacent fields could be tugged from the ground by hand, and dirt with the consistency of wet coffee grounds fell off the corn plants’ knobby roots. “Because glyphosate moves into the soil from the plant, it seems to affect the rhizosphere, the ecology around the root zone, which in turn can affect plant health,”

House Extends Monsanto Protection Act – Real News Video - On Tuesday, the House of Representatives released a bill to extend the agricultural spending bill known as the "Monsanto protection act". This bill allows Monsanto to continue to sell their crops even if a federal court deems it illegal.  With us to discuss the controversial bill is Colin O'Neil. He's the director of government affairs at the Center for Food Safety, a national organization founded to protect human health and the environment.

Crop insurance subsidizes big financial firms, not just farmers - The House and the Senate have not yet agreed on a Farm Bill, but both houses of Congress propose to shrink the role of traditional crop subsidies and expand the role of crop insurance. Crop insurance may sound like a good thing, because it brings to mind an image of market-oriented insurance instruments that ameliorate the production and price risks of farming, much like automobile insurance spreads the risk of using automobiles.  However, the reality is far different.  Rather than merely facilitating insurance markets with actuarially fair premiums, federal crop insurance policies use taxpayer money to subsidize large for-profit insurance companies. A report by David Lynch in Bloomberg last week explains: The government subsidies show how a program created to safeguard the nation’s farmers has evolved into a system that in most years all but guarantees profits for insurers. In 2012, taxpayers spent $14 billion paying more than 60 percent of farmers’ insurance premiums, the companies’ operating costs and the lion’s share of claims triggered by a historic drought, according to the Congressional Research Service (.pdf).

Why the Advanced Biofuel Industry is Struggling - Last week, The Economist posed the following question: “What happened to biofuels?” The biofuels in question are so-called second generation biofuels that are produced from trees, grasses, algae, — in general, feedstocks that don’t also have a use as food. The appeal is obvious to anyone concerned about the world’s dependence on petroleum, and further worried that a major shift to biofuels will cause food prices to rise. So let’s address that question. The problem is that this is a terribly expensive process, and so there are only a handful of commercial plants around the world that use either natural gas or coal (South Africa, which had its roots in their inability to secure petroleum because of sanctions resulting from their apartheid policies). We do have a small trickle of advanced biofuels that are beginning to collect EPA credits. In other words, for the first time the EPA is officially approving batches of these fuels for sale into the market. This first took place last year with a batch of 20,069 gallons from a company that subsequently went bankrupt. And therein lies the challenge. Of course this stuff can be produced. But can it be produced economically? The answer to that is no, the approaches that have been taken to date are nowhere near that point regardless of the hype to the contrary.

Brazil data suggests spike in Amazon deforestation (Reuters) - Preliminary data released Tuesday by Brazil's space agency suggests Amazon deforestation spiked by more than a third during the past year, reversing a steady decline in destruction of the world's largest rainforest. If substantiated by follow-up data typically compiled by the end of the year, the increase would confirm fears by scientists and environmental activists who warn that farming, mining and Amazon infrastructure projects, coupled with changes to Brazil's long-standing environmental policies, are reversing progress made against deforestation. Last year, Amazon deforestation was shown to be at a record low.  The likely increase in deforestation has prompted concerns that Brazil may have let its guard down and provided an opening for loggers, ranchers and others eager to develop parts of a forest that is seven times the size of France.Brazil's space agency, which tracks destruction of the rainforest using monthly satellite imagery, detected almost 2,766 square kilometers (1,067 square miles) of forest clearings from August 2012 through July 2013. The total area, more than twice the size of the city of Los Angeles, is 35 percent higher than the area cleared in the previous year, the agency said.

Yes, The Summer Of 2013 Did Break Records -- It may not have been as bad as summers past, but this summer was still one for the record books in much of the U.S. Whereas last year, two-thirds of the Southeast was abnormally dry or in a drought, the region was drenched with heavy rainfall this season, with Florida experiencing its wettest summer ever — a record it had just set last year. Several Southeast cities had their wettest Julys on record, with rainfall levels in just a few months rivaling what they typically see in a year — as of August 19, Atlanta had recorded 50.43 inches of rain, already surpassing the city’s average of 49.68 inches per year. The rains seriously hurt crops in some parts of the Southeast, with some watermelon farmers losing half their crops.

What's causing global warming? Look for the fingerprints - Scientists are a skeptical bunch. . With this said, it often surprises people that scientists are in such strong agreement about human impacts on the Earth's climate. Many studies, including research by Doran and Zimmerman, Anderegg and colleagues, and more recently by my colleague's team, Cook et al., have shown conclusively that the world's climate scientists agree, to about 97 percent, that humans are significantly impacting the climate. But many people ask, how can they be so sure? There are a number of reasons why we know humans are causing many of the changes we are seeing today. Among them, is the use of attribution studies, often called "fingerprinting". Scientists look at the patterns of climate change and ask, do they have the fingerprint of natural variation, or humans?One of the most well-known climate change attribution scientists is Dr. Benjamin Santer. He and his team have developed tools to separate natural climate variations from human-induced changes by using a number of different tools. Their latest work was just published in the Proceedings of the National Academy of Sciences and is titled "Human and Natural Influences on the Changing Thermal Structure of the Atmosphere".

Dialing Back the Alarm on Climate Change - Later this month, a long-awaited event that last happened in 2007 will recur.  I refer to the Intergovernmental Panel on Climate Change's (IPCC) "fifth assessment report," part of which will be published on Sept. 27. There have already been leaks from this 31-page document, which summarizes 1,914 pages of scientific discussion, but thanks to a senior climate scientist, I have had a glimpse of the key prediction at the heart of the document. The big news is that, for the first time since these reports started coming out in 1990, the new one dials back the alarm. It states that the temperature rise we can expect as a result of man-made emissions of carbon dioxide is lower than the IPCC thought in 2007. Admittedly, the change is small, and because of changing definitions, it is not easy to compare the two reports, but retreat it is. It is significant because it points to the very real possibility that, over the next several generations, the overall effect of climate change will be positive for humankind and the planet. Specifically, the draft report says that "equilibrium climate sensitivity" (ECS)—eventual warming induced by a doubling of carbon dioxide in the atmosphere, which takes hundreds of years to occur—is "extremely likely" to be above 1 degree Celsius (1.8 degrees Fahrenheit), "likely" to be above 1.5 degrees Celsius (2.4 degrees Fahrenheit) and "very likely" to be below 6 degrees Celsius (10.8 Fahrenheit). In 2007, the IPPC said it was "likely" to be above 2 degrees Celsius and "very likely" to be above 1.5 degrees, with no upper limit.

The 5 stages of climate denial are on display ahead of the IPCC report - The fifth Intergovernmental Panel on Climate Change (IPCC) report is due out on September 27th, and is expected to reaffirm with growing confidence that humans are driving global warming and climate change. In anticipation of the widespread news coverage of this auspicious report, climate contrarians appear to be in damage control mode, trying to build up skeptical spin in media climate stories. Just in the past week we've seen:

Interestingly, these pieces spanned nearly the full spectrum of the 5 stages of global warming denial.

Can't See the Forest for the Trees: The Climate Bomb - Later this month in Stockholm The United Nations panel on climate change will release its long awaited report replete with predictions on our climate. Media moles and self-acclaimed pundits are writing about temperatures rising between 7.2 and 9 degrees (F) (4 and 5 deg C) later this century as if Earth's life support system can handily absorb these deadly numbers. By all accounts that we've seen the forthcoming report will err on the lowest 'worst case scenario' because economies of the world are teetering on recession. Earth's remaining natural resources are being depleted faster now than ever before and our beleaguered environment and all the blatant telltales are being dismissed as meaningless by all governments, globally. Moreover, it would appear, that the Laws of Ecology are not applicable to Homo sapiens because special interest groups worldwide continue to bully lawmakers, who in turn grant more subsidies to exploit the remaining natural resources i.e. forests and seas. Yet there is no regard whatsoever for the essential life-sustaining services these tremendous terrestrial and aquatic ecosystems provide. The Laws of Ecology are exact and all life relies upon healthy worldwide ecosystems. There are three inviolable laws of Earth's life support system: The strength of an ecosystem depends upon its biodiversity; all species are interdependent; and all natural resources are finite. The truth is that Earth's biosphere is very sick. Each day Earthlings are spewing in excess of 85 million metric tons of heat-trapping greenhouse gasses in to our atmosphere. This has irrefutably forced nature to the edge of its resilience or the modern vernacular its 'tipping point.' Since the 1850s Earth's temperature has risen about 1.5 degrees (F) (0.8 deg C). For most humans this is a meaningless number, but for nature and its life support systems adding an additional 3.6 degrees (F) (2 deg C) is end game!

How to Survive a Mass Extinction - Even One Caused by Us - -- Scatter. Adapt. Remember. This is how the upbeat new apocalyptic book by science writer Annalee Newitz, the lead editor of the engaging tech/science/entertainment Web site io9, summarizes the strategies that could allow the human species to persist if faced with the kind of epic disruptions to Earth’s environment that have periodically erased the majority of living things.  Click here for an audio sample from the book on organisms that unleashed planetary catastrophes in the past (along with the usual array of super-volcanoes and asteroid impacts).  As I first wrote in 1992, an organism — Homo sapiens — is jogging important Earth systems right now, but unlike the cyanobacteria that transformed the atmosphere through the great Oxygen Catastrophe some 2.4 billion years ago, we’re aware (to some extent) of what we’re doing with the greenhouse buildup.  Can we survive ourselves? I explored this and other questions about planetary hard knocks with Newitz by video hookup the other day. I think you’ll enjoy the discussion:

How Close do You Live to America’s Dirtiest Power Plants? - Our energy comes from 6,000 power plants which together produce about 40 percent of the country’s carbon dioxide emissions, the main greenhouse gas driving climate change. But a handful of very large, very dirty plants are responsible for a disproportionate share of the problem. A new report from two think tanks — the Frontier Group and the Environment America Research & Policy Center — takes a look at this small group of heavy polluters. The researchers found that the 50 dirtiest power plants in the U.S. are responsible for 30 percent of the energy industry’s CO2 emissions, and a full two percent of all emissions worldwide — these 50 plants were responsible for more climate change than all but six countries in the world.The top 100 dirtiest plants in America produce 3.2 percent of the world’s carbon emissions — or roughly the same amount as all passenger vehicles in the U.S. Do you live near one of these very heavy polluters? We mapped them — take a look. Mouse over each for more information, and use the tools on the top left of the map to zoom.

Arctic sea ice "recovers" to its 6th-lowest extent in millennia - As Suzanne Goldenberg reported in The Guardian yesterday, Arctic sea ice appears to have reached its annual minimum extent, at approximately 5.1 million square kilometers. This is the 6th-lowest extent since the satellite record began in 1979.  But in fact, scientists have also reconstructed Arctic sea ice extent data much further into the past. For example, Walsh & Chapman from the University of Illinois have estimated sea ice extent as far back as the year 1870 using a vast array of data (for example, records kept by the Danish Meteorological Institute and Norwegian Polar Institute, and reports made from ocean vessels) Going back even further in time, a study published in the journal Nature in 2011 used a combination of Arctic ice core, tree ring, and lake sediment data to reconstruct Arctic conditions going back 1,450 years. The result is shown below.

Illinois dam costing billions more than expected as delays mount - Last December, a 5,000-ton concrete shell named SS5 was in the water ready to be dropped into the Ohio River like a giant Lego piece by the world's largest catamaran barge. Then the river rose. The swift waters threatened to sabotage dam building and endanger divers working 50 feet down with 3-inch visibility. So the Army Corps of Engineers canceled the operation, yet another in a string of setbacks that has plagued construction of Olmsted Locks and Dam for more than 20 years. Eight months later, SS5 remains perched on the shoreline along with partially built shells, evidence of a failure that haunts taxpayers and ripples across the nation’s inland waterway system. A Post-Dispatch review of thousands of pages of documents and more than two dozen interviews reveal a project plagued by cost overruns, delays and engineering challenges stemming largely from the corps’ stubborn insistence on an innovative construction method that met its match in the unruly Ohio River. A project that should have been completed years ago has quadrupled in cost because of management failures for which the Corps of Engineers has yet to be held accountable.

Historic Flooding Across Colorado - Over the past few days, a 4,500-square-mile area across Colorado's Front Range has been hit by devastating floods, leaving at least six dead, forcing thousands to evacuate, and destroying thousands of homes and farms. Record amounts of rainfall generated flash floods that tore up roads and lines of communication, leaving many stranded, and hundreds still listed as missing. Evacuations are still underway as weather conditions have improved slightly. Forecasters predict drier weather by mid-week. Gathered here are recent images of the devastation in Colorado. [32 photos]

Colorado Flooding: Deaths, Dramatic Rescues, Fracking & Broken Oil Pipeline -  Boulder County activists are concerned -- and rightly so -- with flooded oil and gas wells in northeast Boulder County, and southwest Weld County in Colorado.Residents in Colorado no doubt barely had a chance to catch their breath between the extreme drought conditions, and the torrential rains that led to devastating flash-flooding in many areas. Further complicating evacuations and rescue efforts, as well as eventual recovery work; An uncooperative Mother Nature, broken oil and gas industry pipeline, wells, fracking and operating oil and gas facilities.The Denver Post reported on Saturday: "Oil drums, tanks and other industrial debris mixed into the swollen river flowing northeast. County officials did not give locations of where the pipeline broke and where other pipelines were compromised. While the water levels in the South Platte appear to be receding slightly, bridges over the South Platte have been closed as water overflowed the bridges at least as far east as Morgan County. One pipeline has broken and is leaking, Weld County Emergency Manager Roy Rudisill. Other industry pipelines are sagging as saturated sediment erodes around the expanding river."Fracking and operating oil and gas facilities in floodplains is extremely risky. Flood waters can topple facilities and spread oil, gas, and cancer-causing fracking chemicals across vast landscapes making contamination and clean-up efforts exponentially worse and more complicated." Indeed, why is there such a heavy presence of the fracking, oil and gas industries in a floodplain? It's as if there was no forethought at all to the potential complications of flash-flooding.

Is there a media blackout on the fracking flood disaster in Colorado? -- I will update this post as residents send me pictures and video. We need the national news stations to go cover the environmental disaster that’s happening in Colorado right now.This picture taken by a resident is from yesterday. Post from yesterday shows leaking tank floating down the river. Lafayette-based anti-fracking activist Cliff Willmeng said he spent two days “zig-zagging” across Weld and Boulder counties documenting flooded drilling sites, mostly along the drainageway of the St. Vrain River. He observed “hundreds” of wells that were inundated. He also saw many condensate tanks that hold waste material from fracking at odd angles or even overturned.“It’s clear that the density of the oil and gas activity there did not respect where the water would go,” Willmeng said. “What we immediately need to know is what is leaking and we need a full detailed report of what that is. This is washing across agricultural land and into the waterways. Now we have to discuss what type of exposure the human population is going to have to suffer through.”A spokesman for the Colorado Oil and Gas Conservation Commission said the agency is aware of the potential for contamination from flooded drilling sites, but there simply is no way to get to those sites while flooding is ongoing and while resources are concentrated on saving lives. Apparently all sides agree that there is a contamination risk. So I hope the industry apologists will, at least, stop using my bandwidth trying to convince us otherwise.

Colarado's Oil and Gas Infrastructure Drowning in Climate-Driven Floodwaters -According to reports, massive flooding across Colorado over the last week is wreaking havoc with the state's oil and gas infrastructure as cresting rivers and heavy rainfall submerged drilling and storage facilities, allowing the release of fuel and toxic chemicals. The human toll of the floods—as well as widespread damage to roads, bridges, and communities—has dominated headlines, but as Grist's John Upton has documented, the impact on the state's fracking and oil infrastructure has gone widely ignored by media outlets. As Upton reports: Fracking infrastructure has been inundated and its toxic contents have spilled out. Pipelines that transport fossil fuels are sagging and snapping under pressure. Tanks that store chemicals and polluted water are being overwhelmed and toppling over. Oil and gas wells are flooding. The industry has shut down operations in all of the major flood zones, but they say making accurate assessments about the extent of the damage, or the kinds of chemicals that may have been released will be impossible until the waters fall and proper inspections can be done.

Colorado Floodwaters Cover Fracking And Oil Projects: ‘We Have No Idea What Those Wells Are Leaking’ - Colorado flooding has not only overwhelmed roads and homes, but also the oil and gas infrastructure stationed in one of the most densely drilled areas in the U.S. Although oil companies have shut down much of their operations in Weld County due to flooding, nearby locals say an unknown amount of chemicals has leaked out and possibly contaminated waters, mixing fracking fluids and oil along with sewage, gasoline, and agriculture pesticides.  “You have 100, if not thousands, of wells underwater right now and we have no idea what those wells are leaking,” East Boulder County United spokesman Cliff Willmeng said Monday. “It’s very clear they are leaking into the floodwaters though.”Photographs shared by East Boulder County United, a Colorado environmental group that opposes hydraulic fracturing, show many tanks have been ruptured and others floating in the flood. At least one pipeline has been confirmed broken and leaking. No one, from oil companies to regulators, seems to know the exact extent of the damage yet as they survey the damage. But Executive Director of the Colorado Department of Natural Resources Mike King told the Denver Post that, “The scale is unprecedented.” Meanwhile, the Colorado Department of Public Health has advised everyone to stay away from the water, as it is possibly contaminated by “raw sewage, as well as potential releases from homes, businesses, and industry.” Encana and Anadarko said they responded by shutting-in or closing down several hundred of their wells, a precaution until they assess the full damage.  But asked what kind of plan companies have in place to account for the epic flooding seen in Colorado this past week, Encana spokesman Doug Hock told ThinkProgress, “Well, this was a hundred year event so I don’t know if per say we can say we did.”

Colorado frack-site flooding - September 2013 on Vimeo: Historic flooding across large portions of Central and Eastern Colorado has caused an unprecedented amount of damage. Along with the rise in water levels came elevated concern over the tens of thousands of frack wells that scar the region's landscape. In one of the hardest hit areas, Weld County, there are over 20,000 frack wells alone.

Is Colorado’s Fracking Industry at Threat from the Floods? - Colorado is currently experiencing some of the worst flooding it has ever seen, and as one of the most densely fracked areas in the United States, people are now beginning to worry about the stability of those fracking sites and wells, many of which have been completely covered by the floodwater. Photos and video footage continues to be published online showing evidence of flooded fracking sites still in operation, toppled or displaced condensate tanks (which hold waste fracking fluid), smaller tanks and barrels floating in the waters, and leaking unknown fluids, and various pieces of drilling debris scattered throughout the stateAccording to the Huffington Post, the historic floods affecting Colorado have already taken the lives of eight people with hundreds more still missing. It has destroyed, or damaged nearly 20,000 homes, 50 bridges, and forced more than 10,000 people to evacuate the region. Only now, as the state officials begin to make plans to rebuild, will the scale of the impact on the fracking industry be revealed. Cliff Willmeng, an anti-fracking activist and spokesman for East Boulder County United, explained that there are “hundreds, if not thousands, of wells underwater right now and we have no idea what those wells are leaking. It’s very clear they are leaking into the floodwaters, though.” The oil and gas industry has assured that the floods should not affect the fracking sites in any way. Tisha Schuller, the CEO and President of the Colorado Oil and Gas Association, said that “none of the fracking sites have been left open during the flood and we don't have any major issues going on. There were no fracking sites affected by the flood.” However at least one pipeline has already been confirmed to be broken and leaking, and as the floodwaters subside it is only expected that more broken infrastructure and leaks will begin to surface.

Two of Weld’s biggest producers report spills amid flood - Two of Weld County’s largest oil and gas companies on Wednesday reported oil and gas spills into floodwaters, as they and state regulators spent their days in the air and on the ground working to determine damage to operations within flood zones. Officials from Anadarko reported a 5,250-gallon spill near Milliken at the confluence of the South Platte and St. Vrain rivers; and Noble Energy was able to put a stop to two natural gas releases, while it worked to contain a third.“Anadarko is responding and has absorbent booms in the water,” reported Todd Hartman, spokesman for state Department of Natural Resources, in a news release on Wednesday. “The COGCC responded this afternoon and will, along with the Colorado Department of Public Health and Environment, continue to monitor the cleanup work. We will provide more information about this release when we have it.”Several companies so far have reported to the Colorado Oil and Gas Conservation Commission that they are shutting down well production and inspecting facilities in the wake of the flood.“Every minor incident has been reported to the COGCC, and we’re committed that if there’s anything that comes up of any significance, we’ll report it, we’ll respond to it and inform the public,” said Tisha Schuller, president of the Colorado Oil and Gas Association, whose own family was evacuated from the Four Mile Canyon area west of Boulder.

In The Wake Of Colorado’s Devastating Floods, 5,250 Gallons Of Crude Oil Spill Into Major River - After historic floods ravaged Colorado late last week, the state is now facing serious long-term consequences. The Denver Post reported on Wednesday evening that at least 5,250 gallons of crude oil spilled from two tank batteries into the South Platte River. Anadarko Petroleum, the second-largest operator in the region, is working with local officials to contain the spill, but authorities are unsure when the spill occurred or exactly how much crude leached into the river.The incident is the first to confirm the fears of many Coloradans that the state’s flooded oil and gas infrastructure is a major environmental catastrophe waiting to happen. As Think Progress reported on Tuesday, the floods hit one of the most densely drilled areas in the U.S. and residents have expressed serious concern “that unknown amount of chemicals has leaked out and possibly contaminated waters, mixing fracking fluids and oil along with sewage, gasoline, and agriculture pesticides.” While the extent of the damage — and potential spills — remains largely unknown, initial reports indicate the Anadarko spill could be the first of many. According to the Denver Post, “Weld County authorities on Saturday said at least one oil and gas industry pipeline had broken and was leaking into the South Platte … [and] they said at least two other pipelines were compromised as they sagged in flood-saturated soils.”

Colorado flooding triggers oil spills, shutdowns - (AP) -- Colorado's flooding shut down hundreds of natural gas and oil wells in the state's main petroleum-producing region and triggered at least two spills, temporarily suspending a multibillion-dollar drilling frenzy and sending inspectors into the field to gauge the extent of pollution. Besides the possible environmental impact, flood damage to roads, railroads and other infrastructure will affect the region's energy production for months to come. And analysts warn that images of flooded wellheads from the booming Wattenberg Field will increase public pressure to impose restrictions on drilling techniques such as fracking."The only real impediment to growth in this area would be if this gives enough ammunition to environmentalists to rally support for fracking bans, which they had started working on before this." Two spills were reported by Anadarko Petroleum Corp. — 323 barrels (13,500 gallons) along the St. Vrain River near Platteville, and 125 barrels (5,250 gallons) into the South Platte River near Milliken, federal and state regulators said. The St. Vrain feeds into the South Platte, which flows across Colorado's plains and into Nebraska. In both cases, the oil apparently was swept away by floodwaters. Both releases involved condensate, a mixture of oil and water, Environmental Protection Agency spokesman Matthew Allen said. The environmental damage still was being assessed, but officials in Weld County, where the spills took place, said the oil was among a host of contaminants caught up in floodwaters washing through communities along the Rocky Mountain foothills. County spokeswoman Jennifer Finch said the major concern there is raw sewage.

Fracking industry puppets spew obscene lies in Colorado while people drown - Two months before my community and so many others were overwhelmed this week by epic rains, our state’s chief oil and gas regulator, Matt Lepore, appeared onstage in nearby Loveland with representatives of the fossil fuel industry. During that event, Lepore — an industry-lawyer-turned-public-official — proceeded to berate citizens concerned about the ecological impact of fracking and unbridled drilling. More specifically, he insisted that those asking fossil fuel development to be governed by the precautionary principle are mostly affluent and therefore unconcerned with the economic impact of their environmentalism. Today, parts of the same city where Lepore delivered his diatribe remain inundated. Same thing for “thousands of oil and gas wells and associated condensate tanks and ponds,” according to the Boulder Daily Camera. Already, there is at least one confirmed oil pipeline leak. At the same time, the Denver Post reports that “oil drums, tanks and other industrial debris mixed into the swollen (South Platte) river.” Some of this has been caught on camera, as harrowing photos of partially submerged oil and gas sites now hit the Internet. It all suggests that there’s a very real possibility of a slow-motion environmental disaster, one whose potential damage to water supplies, spread of carcinogenic chemicals and contamination of agricultural land should concern both rich and poor.

Flooded oil and gas wells spark fears of contamination in Colorado - As Colorado reels from a prolonged flooding disaster that has killed at least eight people and left hundreds unaccounted for, environmental groups warn of potential contamination by ruptured oil and gas industry infrastructure. In Weld County, which has seen some of the worst of the rains, activists point to photos of destroyed wells, tanks and pipelines posted on social media sites. They claim that years of “fracking,” the process of drilling for shale gas through hydraulic fracturing, has made the area northwest of Denver and Boulder vulnerable to contamination in the event of flooding."Weld County, where the South Platte River has been flooding uncontrollably, has almost 20,000 active oil and gas wells," Gary Wockner, Colorado program director for Clean Water Action, told Al Jazeera."It's the most heavily drilled county in the U.S., and it's seeing some of the worst flooding," he said. "Oil and gas and chemicals associated with drilling are going to be spread across a wide swath of landscape."There are hundreds of active oil and gas wells built in the South Platte River floodplains alone that are at risk of contaminating the floodwaters. Already there have been reports of a ruptured natural gas pipeline and overflowing crude-oil wells. By Wednesday evening, the Denver Post was reporting that crews had placed absorbent beams into the South Platte River south of the town of Milliken, where it said 5,250 gallons of oil had spilled into the river.Ahead of that news, industry representatives had attempted to downplay any risk, suggesting that the pictures of broken pipes and underwater wells amount to a “social media frenzy.”

Safely Diluted, Or Not?  -- There’s nothing like a flood to undo the notion that we are safely dealing with the numerous contaminants that we spew out daily, which in many cases, enable us to live our modern lifestyles. They all spread out equally when water does the joining: gasoline, former toxic waste sites, sewage, mine tailings, benzene, lead and other heavy metals, radioactive contaminants, arsenic, asbestos, and harmful bacteria and viruses. In the aftermath of our Boulder historic flood, there is a must-read article titled “Boulder County floods: What’s in the water?” by Joel Dyer, describing the contaminants that entered the flood water which spread over everything, spilled into our houses, and across the organic farms. How much of the fall vegetable crop in our county will have to be discarded? How many consumers will opt against buying it? Besides the flooding in the fracking region of Weld County, gasoline and oil has spilled from storage, stations, and drowned vehicles. A lesser known story was the breaking of a dam on Thursday at what is now called the Rocky Mountain Arsenal Wildlife Refuge. It required the evacuation of an industrial, residential, and farming region of Commerce City. In Dyer’s words, “A dam broke at a lake on the Rocky Mountain Arsenal, sending waters flooding across that property, a large parcel of land that at one time was considered to be one of the most contaminated places in the world due to having been a dump for such contaminants as nerve gas and other military waste from facilities like Rocky Flats.” We report on the death toll from the floods, now at ten. But care must be taken in this time of receding water and sewage infested basements, that no further deaths occur due to illnesses related to bacteria, Hepatitis, and other diseases. The chemicals, metals, and other contaminants? Those we’ll have to live with wherever they park themselves.

BP Oil Spill Cleanup Workers Are At Higher Risk Of Sickness, Cancer - The people who worked to clean up the Gulf of Mexico after the 2010 Deepwater Horizon oil spill are at an increased risk of getting cancer, leukemia, and a host of other illnesses, according to a new study released Tuesday in the Journal of American Medicine. More than 170,000 workers were hired to clean up the nearly 5 million barrels of oil that poured out of the ocean’s floor, rising to the surface in oil slicks and globules. Not only were they exposed to the toxic oil itself — as the report points out, oil contains the carcinogen benzene — but they spent days working with the nearly 2 million gallons of dangerous dispersants used to break up the oil. At the time of the spill, cleanup crews reported feeling dizzy and fatigued, suffering headaches and nausea. Workers have also reported increases in asthma and coughing up blood. Long term, those could be the least of their worries. Workers who participated in the report were found to be at an increased risk for cancer, as well as kidney and liver damage. The toxicity can seep into a workers’ bone marrow, too, affecting their production of red blood cells:

Frackademia: The People & Money Behind the EDF Methane Emissions Study -- The long-awaited Environmental Defense Fund (EDF)-sponsored hydraulic fracturing ("fracking") fugitive methane emissions study is finally out. Unfortunately, it's another case of "frackademia" or industry-funded 'science' dressed up to look like objective academic analysis.If reliable, the study -- published in the prestigious Proceedings of the National Academy of Sciences and titled, "Measurements of methane emissions at natural gas production sites in the United States" -- would have severely reduced concerns about methane emissions from fracked gas.The report concludes 0.42% of fracked gas -- based on samples taken from 190 production sites -- is emitted into the air at the well pad. This is a full 2%-4% lower than well-pad emissions estimated by Cornell University professors Robert Howarth and Anthony Ingraffea in their ground-breaking April 2011 study now simply known as the "Cornell Study."A peak behind the curtain show the study's results -- described as "unprecedented" by EDF -- may have something to do with the broad spectrum of industry-friendly backers of the report which include several major oil and gas companies, individuals and foundations fully committed to promoting the production and use of fracked gas in the U.S.One of the report's co-authors currently works as a consultant for the oil and gas industry, while another formerly worked as a petroleum engineer before entering academia.

Gas Leaks in Fracking Disputed in Study - Drilling for shale gas through hydraulic fracturing, or fracking, appears to cause smaller leaks of the greenhouse gas methane than the federal government had estimated, and considerably smaller than some critics of shale gas had feared, according to a peer-reviewed study released on Monday. The study, conducted by the University of Texas and sponsored by the Environmental Defense Fund and nine petroleum companies, bolsters the contention by advocates of fracking — and some environmental groups as well — that shale gas is cleaner and better than coal, at least until more renewable-energy sources are developed. More than 500 wells were analyzed. The Texas study concluded that while the total amount of escaped methane from shale-gas operations was substantial — more than one million tons annually — it was probably less than the Environmental Protection Agency estimated in 2011. In particular, it indicated that containment measures captured 99 percent of methane that escaped from new wells being prepared for production, a process known as completion. The Environmental Protection Agency has begun to require drillers to control leaks during completions, which are believed to be one of the major sources of methane losses at fracking wells. Although controls will not be required until January 2015, a number of companies already capture escaped gases at wells being prepared for production.

Study Of Best Fracked Wells Finds Low Methane Emissions, But Skips Super-Emitters - The good news: A sample of what are probably the best fracked wells in the country finds low emissions of methane, a potent heat-trapping gas. The bad news: The study likely missed the super-emitters, the wells that are responsible for the vast majority of methane leakage. The ugly news: Same as ever — natural gas from even the best fracked wells is still a climate-destroying fossil fuel. If we are to avoid catastrophic warming, our natural gas consumption has to peak sometime between in the next 10 to 15 years, according to studies by both the Center for American Progress and the Union of Concerned Scientists. If natural gas is a bridge fuel, it has got to be a very short bridge. Otherwise it is merely “a bridge to a world with high CO2 Levels,” as climatologist Ken Caldeira put it last year.  The EDF FAQ explains why the University of Texas at Austin (UT) study is important: Methane, the primary component of natural gas, is a powerful greenhouse gas — 72 times more potent than carbon dioxide over a 20-year time frame. The largest single source of U.S. methane emissions is the vast network of infrastructure that supplies natural gas. These emissions, if not controlled, pose a significant risk to the climate and regional air quality. In the near term, the opportunity to maximize the lower carbon characteristics of natural gas compared to other fossil fuels rests on whether methane emissions are well understood and whether they can be sufficiently controlled.This is important work and what seems like small changes in percentages can have a large impact.

OilPrice Intelligence Report: Fracking - Beware the Numbers -  A new study on methane and fracking released this week is a big deal—or it should have been—but it’s a topic that is as polarizing as the circus-like debate over climate change, or worse yet, global warming. Depending on who has read the report and on which side of the fracking fence they fall, the methane study tells us either that fracking isn’t as bad as we thought for the environment, or that this is the definitive evidence we need to catapult us into the anti-fracking club.Predictably, the pro-fracking camp will read good news for fracking here because it can be interpreted as a friend to the climate because it’s making it possible to replace dirty coal with plentiful natural gas and has in all likelihood contributed to a 12% drop in US carbon dioxide (CO2) emissions since 2005. Equally as predictable, the anti-fracking camp will hone in on the methane leaks from shale, which—depending on how much methane is actually leaking out—would contribute to worsen climate change. This camp will recognize the uncertainty about the actual level of methane leaks from shale. The study, conducted by the University of Texas, makes its conclusions by taking detailed measurements from select wells around the country and measuring the level of methane leaks.  What they found based on these samples is that shale is leaking methane at relatively low levels.So the real story here is that we still don’t know whether fracking is better for the climate, or potentially worse. That’s what the study really tells us, irrespective of selective camp hearing.

What Cows Can Tell Us About The Dangers Of Fracking - Evidence on the way fracking affects the health of humans is scarce, in large part because drilling companies go to great lengths to keep that information hidden. That’s why two Cornell University researchers turned to cows to find out just how toxic fracking pollution is. The results were alarming, if not exactly surprising.The study found that consequences ranged from near-immediate death to stillbirths and genetic defects in offspring that persisted for years after exposure to fracking wastewater.  While the authors noted that theirs was not a controlled experiment, which wouldn’t be feasible, two cases provided naturally-occurring control groups. On one farm, 60 head of cattle drank from an allegedly wastewater-polluted creek while 36 drank clean water. Of the 60, “21 died and 16 failed to produce calves the following spring. Of the 36 that were not exposed, no health problems were observed, and only one cow failed to breed.” But Bamberger and Oswald didn’t just look at livestock. They also include cases of humans and their “companion animals” suffering the effects of pollution. In one case, two homeowners “located within two miles of approximately 25 shale gas wells” saw multiple instances of wastewater dumping and spillage. A child was hospitalized for arsenic poisoning and missed a year of school, and family members tested positive for phenol, a sign of benzene poisoning, and complained of “extreme fatigue, headaches, nosebleeds, rashes, and sensory deficits.” In addition, a horse died of suspected heavy metal poisoning, and a dog and goat experienced spontaneous abortion and stillbirths.

How the Fracking Boom Impacts Rural Ohio – The shale gas drilling boom is not just a theoretical possibility for the 28,587 people of Carroll County, OH. They are already living with dramatic changes to the county’s woods and fields and rolling hills. This photo tour provides a glimpse of what it looks like when fracking comes to rural Ohio. This is a close-up view of an active drilling site in Carroll County, OH. It’s a noisy industrial place, full of the roar of diesel engines and clanking machinery. The work is episodic—drilling for a few weeks then operations to frack the well by pumping frack fluids under high pressure to prop open cracks in the shale to allow gas to flow. Carroll County is at the epicenter of fracking in Ohio. The sparsely populated county just southeast of Canton has more than 300 wells permitted for horizontal hydraulic fracturing in the Utica/Point Pleasant shale formation. Soon there could be several thousand wells. A few weeks ago, I was able to fly over the county in a small plane to get a view of the impacts. The slideshow above presents the highlights of what I saw from the air and the ground—a variety of photos of well sites and gas processing facilities under construction.

Sierra Club California statement on terrible, altered fracking regulatory bill SB4 (Pavley) signed by Governor Frackinator —Governor Jerry Brown today signed Senate Bill 4 (Pavley), a fracking disclosure bill that went askew during the last week of the legislative session.  The bill’s positive regulatory direction and disclosure requirements were undercut by late session amendments that free fracking from rigorous environmental review and oversight until 2015.  This bill also includes provisions that will hinder public access to information about fracking fluid quantities.   Sierra Club California Director Kathryn Phillips released the following statement:We knew the Governor would sign SB 4 so it’s not a surprise.  But it is still disappointing.  This bill landed far away from its intent and its problems outweighed its benefits by the time the governor had negotiated amendments with the oil industry. “California’s political leaders need to call for a time out.  We need a moratorium on fracking.  It makes no sense in this time of climate change to be advancing a technology that will create more greenhouse gas emissions, pollute water, foul the air, and make our economy even more dependent on oil.  We need clean energy solutions, not filthy fracking.

As U.S. Imports Less Oil, Current Account Deficit Narrows - The U.S. current account deficit narrowed to a four-year low, partly reflecting the country’s diminishing appetite for foreign oil. The current account deficit, the broadest measure of U.S. international transactions, decreased to $98.89 billion in the second quarter of the year, the Commerce Department said Thursday, the lowest level since the third quarter of 2009. The U.S. has to borrow from overseas to make up the gap in trade and financial transactions. Petroleum imports from April to June fell to the lowest level since the end of 2010. A U.S. energy boom has boosted domestic production of oil and natural gas and curtailed demand for overseas products. U.S. exports of goods and services, meanwhile, gained ground despite sluggish growth overseas. The report also showed diminishing overseas demand for some U.S. assets. Notably, foreigners sold off Treasury holdings, possibly reflecting uncertainty about changes in Federal Reserve policy or the U.S. fiscal outlook. Still, the annualized current account deficit was 2.4% of total economic output in the second quarter, down from 2.5% in the first quarter and the lowest level since 1998. The peak was 6.5% of gross domestic product in 2005, according to calculations by High Frequency Economics. If the trend is sustained, the U.S. government, businesses and consumers won’t have to borrow as much from overseas in coming quarters.

Despite US Shale Oil Boom, The World Is More Dependent Than Ever On The Gulf - Saudi Arabia is pumping out more crude that at any time since the 1970s and in Kuwait and The UAE, oil production levels have hit record highs. As The FT reports, the US might be 'drowning' in oil, but the world is still dependent on Saudi Arabia for the marginal barrel. This is crucial since, "whatever is happening in the US, the Gulf states remain critical to the global oil trade,” says Credit Suisse's Jan Stuart, "the fact they are producing so much shows that the global oil balance is far more stretched than consensus would have you believe." The trigger for the jump in Gulf production has been huge disruption to supplies from Libya; and with the three large Gulf producers meeting 17.1% of global demand (it has never topped 18%), the dependence on the Gulf appears to be growing. The concern remains, despite apparent nonchalance, that consuming nations like the US, China, and India will be stifled should production disruptions last.

The Crisis at Fukushima’s Unit 4 Demands a Global Take-Over - We are now within two months of what may be humankind’s most dangerous moment since the Cuban Missile Crisis. There is no excuse for not acting. All the resources our species can muster must be focused on the fuel pool at Fukushima Unit 4. Fukushima’s owner, Tokyo Electric (Tepco), says that within as few as 60 days it may begin trying to remove more than 1300 spent fuel rods from a badly damaged pool perched 100 feet in the air. The pool rests on a badly damaged building that is tilting, sinking and could easily come down in the next earthquake, if not on its own. Some 400 tons of fuel in that pool could spew out more than 15,000 times as much radiation as was released at Hiroshima. The one thing certain about this crisis is that Tepco does not have the scientific, engineering or financial resources to handle it. Nor does the Japanese government. The situation demands a coordinated worldwide effort of the best scientists and engineers our species can muster. Why is this so serious? We already know that thousands of tons of heavily contaminated water are pouring through the Fukushima site, carrying a devil’s brew of long-lived poisonous isotopes into the Pacific. Tuna irradiated with fallout traceable to Fukushima have already been caught off the coast of California. We can expect far worse. Tepco continues to pour more water onto the proximate site of three melted reactor cores it must somehow keep cool. Steam plumes indicate fission may still be going on somewhere underground. But nobody knows exactly where those cores actually are.

The REAL Fukushima Danger - The fact that the Fukushima reactors have been leaking huge amounts of radioactive water ever since the 2011 earthquake is certainly newsworthy.  As are the facts that:

But the real problem is that the idiots who caused this mess are probably about to cause a much bigger problem.Specifically, the greatest short-term threat to humanity is from the fuel pools at Fukushima. If one of the pools collapsed or caught fire, it could have severe adverse impacts not only on Japan … but the rest of the world, including the United States.   Indeed, a Senator called it a national security concern for the U.S. The radiation caused by the failure of the spent fuel pools in the event of another earthquake could reach the West Coast within days. That absolutely makes the safe containment and protection of this spent fuel a security issue for the United States. Nuclear expert Arnie Gundersen and physician Helen Caldicott have both said that people should evacuate the Northern Hemisphere if one of the Fukushima fuel pools collapses.

When Coal Comes To Town: Western Communities Brace For Coal Export Explosion - Over the past few years, six new West Coast coal export terminals have been proposed to move U.S. coal to Asia, primarily China. Currently there are no U.S. coal export facilities on the West Coast, and the modest but growing export trade in U.S. coal headed for Asia is shipped from terminals in British Columbia. Three of the U.S. terminal plans have fallen by the wayside, but the three that remain, in Cherry Point, Washington, Longview, Washington, and Boardman, Oregon, would have the capacity to ship close to 120 million tons of coal per year.A study prepared last summer by three transportation experts for the Western Organization of Resource Councils determined that at full capacity, those six terminals would be able to ship 170 million tons of coal. According to the report, “Heavy Traffic Ahead,” that would mean an additional 57 coal trains passing through Billings on average every day.  With the three remaining terminal plans, the coal train traffic would be almost 70 percent of what the study projected for the original six terminals, meaning that freight train traffic in Billings could roughly triple from what it is today. That could bring the total stalled traffic time on the three Billings streets that cross the train tracks to about seven hours a day.

Libyan Prime Minister Hopes Arrest of Strike Leaders will End Oil Protests: Last month, claiming that the National Oil Company had been benefitting from corrupt sales, armed groups, the same that helped to overthrow the dictator colonel Muammar el-Qaddafi two years ago, have worked to restrict Libya’s oil industry. In objection to the illicit dealings of the state-owned oil company, and in order to add power behind their demands to gain autonomy for the eastern regions of the country, the militias seized some of the country’s major oil export terminals and oil fields; trying to pressure the government to meet their demands. The guards of the oil fields and facilities then took advantage and spread the protests west, making their own demands for higher wages from the government. Currently protests and strikes across the country have reduced Libya’s daily oil production to one-tenth its capacity, severely pressuring the economy, and affecting global oil supplies at a time when prices have already started to rise as a result of the problems in Syria, and other parts of the Middle East. Oil is vital to the Libyan economy, accounting for 95% of the country’s export earnings, and 75% of the government’s total revenues, but the strikes are now costing an estimated $130 million a day in lost oil revenue. On Wednesday, finally fed-up of the protests across his country, Prime Minister Ali Zeidan, issued arrest warrants for the strike leaders, hoping to bring an end to disruptions once and for all. “I won’t let anyone hold Libya and its resources hostage to these groups for long,” he said, although political analysts don’t believe that he will be able to enforce the arrests whilst most of the national military and police forces remain poorly trained and ineffective.

Russia has only 7 years before oil crisis? -- Russia is facing difficult times. Britain's largest bank HSBC forecasts that revenues from oil exports will drop significantly. In seven years. The British believe the oil sources will be depleted and will not be able to provide the current level of income. The Russian side is taking steps to maintain production at the current levels in anticipation of such a turn. HSBC Bank forecasts a decline in oil production by 13 percent in the period from 2020 to 2025. It is assumed that in 2021 the budget will experience the first losses amounting to approximately $2.1 billion. The negative trend in the following years will only increase. To compensate for the depletion of old oil fields, Russia will have to increase its oil production at least by 40 million tons. At this time, the reserves of the opened oil fields are estimated at 10 million tons, which is about 67 percent of the substitution. According to some experts, the oil production in 2016 and 2017 in Russia will grow by two percent a year. The peak of oil production will occur in 2018-2019. The British HSBC clarified that the development of new oil fields should be carried out in the best possible conditions for the taxpayers. Oil companies leading the development of these fields will be provided with tax breaks, but this, in turn, will adversely affect the country's budget the due to the decreased revenues. According to Deputy Minister of Energy Kirill Molodtsov, this year the level of oil production in Russia should reach 520 million tons of oil. In 2012, this number was slightly lower, 518 million tons of oil. In some regions the decline of oil production has already started. For example, in the Khanty-Mansi Autonomous District, a leader in oil production, the production has been decreasing since 2008.

The peak in world oil production is yet to come - World oil production stagnated between 2005 and 2007, which given rapid growth in demand from emerging economies sent oil prices shooting up. Some observers suggested that production might never rise much above the levels seen in 2005. Among those who raised this possibility, two of the more thoughtful have changed their mind. Euan Mearns last month summarized what he saw as three (or four) nails in the coffin of peak oil. And Stuart Staniford, an early editor and contributor for the Oil Drum, declared a few weeks ago that the data have spoken. Certainly world oil production did not stop growing in 2005. Last year's total was estimated by the EIA to be 4.8 million barrels higher each day than it had been in 2005. About a third of the growth between 2005 and 2012 came in the form of natural gas liquids, chief among which are ethane and propane. These are useful hydrocarbons, but you can't use them to power your car. The growth in NGL production has been a big benefit to industrial users of these chemicals; for motorists, not so much. Another important source of gain has been biofuels, which themselves require a significant energy input to produce. Actual field production of crude oil, which accounted for 87% of the total liquids produced in 2005, accounted for only 41% of the growth since 2005. It's also interesting to look at where the growth in field production came from. U.S. production grew by 1.3 mb/d and Canada by 770,000 b/d. Between them, these two countries could account for more than 100% of the 2.0 mb/d increase in world crude oil production since 2005, Production from all of the other countries in the world combined actually fell a little between 2005 and 2012. Significant gains in places like Iraq, Russia, and Angola were more than offset by declines in the North Sea, Mexico, and Iran.

Easy-to-extract oil to be depleted in Kazakhstan -- Kazakh Minister for Oil and Gas Uzakbay Karabalin said that the period of easy-to-extract oil was coming to an end in Kazakhstan, Trend reports. He added that rising oil prices had impact on petroleum industry too. He said that the prices had increased over 3-fold in ten years and two-fold since 2008. Karabalin said that Kazakhstan was among the top 10 oil-rich states and will be extracting oil in the next 50 years. Kazakhstan had enough oil to keep three refineries running and the home market of petroleum happy. The minister noted that the petroleum had such disadvantages as high prime cost and the peculiarity of Kazakh oil, high transportation fees, need for renewable of raw materials and high export attractiveness. The Kazakh government passed the project of the concept for efficient management of natural resources today.

China to Invest $28 Billion in Venezuelan Oil --China and Venezuela concluded two large oil investment deals ahead of the Venezuelan President’s visit to China this weekend.Venezuela's Oil Minister Rafael Ramirez announced on his Twitter account earlier this week that China has agreed to invest US$14 billion in an oilfield in Venezuela’s Orinoco Belt.“In a meeting with Sinopec, we agreed to develop the Junin 1 field in the Orinoco Oil Belt,” Ramirez said, referring to China’s state-owned oil company. "Development of the Junin 1 field requires an investment outlay of $14 billion for production of 200,000 barrels per day of oil,” he added.On Wednesday, Ramirez used his Twitter account to announce another US$28 billion oil development deal.“We agreed with CNPC to develop a new project in the Junin 10 block … to produce 220,000 barrels per day with investment of $14 billion,” Ramirez said, Reuters and the Wall Street Journal reported. The second announcement was later confirmed by a spokesperson at Venezula’s state-owned energy company Petróleos de Venezuela (PdVSA), according to the Wall Street Journal. Reuters noted that CNPC already holds stakes in two other oil development projects in the Orinoco belt region. The same report said that PdVSA had begun developing Junin 10 by itself after deals with France's Total and Norway's Statoil fell through.

In China, Change—and Uncertainty—Are in the Air -Concerns over China’s economy are all over the news—stories like “Feeling the Heat from China Slowdown,” “China’s Economic Hard Landing,” and “China’s Slowdown Digs a Hole for US Industrials” are now everywhere. One of the most pressing questions is, will China face a massive slowdown in economic growth? Here, we explain why this is such a concern and consider what possibilities exist for continued growth. Until the global economic crisis hit in 2008, China had performed well in terms of net exports and consumption, producing a prodigious amount of goods for itself and the rest of the world. After the crisis hit, China bolstered its level of GDP growth even in the face of slowing export demand from abroad by increasing government stimulus. Over this period, too, fixed investment in real estate and manufacturing continued to rise. Fixed asset investment is still growing: Fixed Assets Investment by Industry, Accumulated to This Month (100 million yuan) As government stimulus declines (with new stimulus limited in size), fixed investment faces a likely slowdown, and export demand struggles to regain its pre-crisis level, China faces a rush to “rebalance.”Exports are not back to pre-crisis levels:  The new administration was to focus on building domestic consumption within a period of five to ten years—now the pressure is on to make it appear immediately. This is a nearly impossible task. With fewer jobs being created and no additional ongoing sources of income for citizens, consumption is doomed to slow in the short run. This would increase unemployment and poverty, and reduce Chinese trade demand from the rest of the world. Global growth would fall.

Half The World's Richest Women Are Chinese - While Chinese stocks are underperforming their Japanese neighbors', the decision of which Asian language to learn (in order to potentially better your future) is clear. As Hurun Research notes, half of the richest women in the world (with assets in excess of $1 billion) are from China - including 3 from the Top 5 and 6 of the Top 10. Asia was home to the highest number of billionaires this year with most of them operating in real estate sector.  The total wealth of the 1453 billionaires amounted to a staggering US$5.5 trillion, the equivalent of China’s GDP and the so-called 'Ten-Zero-Club' - individuals with over USD10bn - grew by 25 to 108 people. The USA still ranks #1 (exceptionally) for the country with the most billionaires - at 409! Via Shanghai Daily, One out of four on the list of 50 richest women in China is involved in real estate business. And 18 percent of them are in the financial sector. Also from the real estate sector is Chen Lihua, 72, of Fu Wah International, who ranks No. 2 on the list with 37 billion yuan of self-earned wealth. According to Hurun, half of the richest women in the world with assets valued in excess of US$1 billion are from China, including three among the top five and six among the top ten.

China’s transformation frays traditional family ties, hurting many seniors -  The elderly couple sat on their metal frame bed surrounded by the detritus of their lives: hopelessly worn-out shoes, empty tin cans, dried-out corncobs, plastic bags, filthy clothes, all strewn across the uneven dirt floor. Their five daughters have all moved away from the village of Luzhai in eastern China and are working with their husbands in China’s booming cities. Ma Jinling, 81, and his wife, Hou Guiying, don’t own a phone or know where their children are living; their daughters rarely visit and even more rarely help financially.  “When we run out of money for our medical bills, we just stop treating ourselves. “We can live like this, it’s okay. But please, don’t let us become really ill.” Decades of societal turmoil — radical communism followed by rampant capitalism — have frayed the ties that once bound China’s families together extremely closely. In a country famous for its Confucian traditions of filial obedience, tens of millions of elderly Chinese are being left behind by the country’s transformation, suffering poverty, illness and depression. It has become such a serious problem that the Chinese government put into effect a law in July allowing parents to sue their children if they failed to visit and support them.

China's credit boom is spiralling out of control, warns Fitch - China's massive credit boom is rapidly growing to unsustainable levels and over-extended financial institutions risk being pushed over the edge by rising interest rates, according to rating agency Fitch. Fitch warned that China's credit-fuelled expansion continued unabated, despite talk of contracting credit. "To the extent people think there's deleveraging underway, or growth is coming back in a strong way - nothing has really changed," said Charlene Chu, senior director at Fitch Ratings. "The bottom line is we continue to be in the middle of this very large credit boom." According to Fitch's calculations, annual new credit in China climbed to 21 trillion yuan (£2.15 trillion) in August, up from 19 trillion yuan in August 2012, the fifth year that net new credit has exceeded more than one-third of GDP. "It is difficult to see how a situation in which credit – already twice as large as GDP – continues to grow by twice as fast can be sustainable indefinitely," the report said. The rating agency calculated that even in a positive scenario - where credit growth slowed by 2 percentage points to 12pc annually, while nominal GDP held steady at 11pc, the country's credit-to-GDP ratio would rise to 250pc by the end of 2017, almost double pre-crisis levels in 2008.

China’s Trade Policies Get a Bum Rap - For years, China has been the subject of global criticism for what’s seen as a warped trade and exchange-rate policy that produces big current account surpluses at the expense of others. Trade surpluses in China, the argument go, produces job losses in the U.S. and elsewhere.  Germany, another big trade surplus country, often gets a pass. That’s because Germany’s trade surplus is seen as the reward for smart policies and frugality. Forget the conventional wisdom, say two senior economists at the Bank for International Settlements, the central bank organization in Switzerland. Not only is Germany’s current account surplus now much larger than China’s as a percentage of GDP, Germany hasn’t used currency policy – it is part of the euro zone — to do much about it. China, meanwhile, has allowed its currency to appreciate over the past decade, which has made its exports more expensive and helped drive down its current account surplus, the widest measure of trade flows.  “Germany’s surplus surpassed that of the larger Chinese economy, and is three times larger in relation to the GDP, “ write Guonan Ma and Robert McCauley in a September paper. “It is an irony of this contrast that the much-criticized renminbi management has produced an adjustment in the direction that serves to narrow China’s current account surplus, while the free-floating euro has interacted with domestic cost trends to maintain Germany’s competitiveness” and its surplus.  The growth of the two countries’ trade surpluses in the 2000s had a lot in common, the two economists argue. Both countries kept wages down, although for different reasons, which made their exports more competitive.

Japan’s Consumption Tax: Take it Slow and Steady - Japan’s consumption tax rate is scheduled to increase substantially in April (from 5% to 8%).  The motive is to address the long-term problem of very high debt.  (Takatoshi Ito has stated the case in favor of the tax increase.)  Prime Minister Shinzō Abe has apparently decided to go ahead with it.   Many observers, however, are worried that the loss in purchasing power resulting from the sharp increase in the sales tax rate will send the Japanese economy back into recession. Japan’s fiscal problems in recent years have resembled those of the United States and many other countries.   The economy is weak, but the Bank of Japan can’t make monetary policy much more expansionary than it already is.  This calls for fiscal stimulus in the short run.  But the long-term fiscal outlook is troublesome, due to big debts that were run up in the past.    What is required is easy fiscal policy today together with plans to achieve fiscal rectitude in the long run.   The difficulty with this St. Augustine approach — “Lord make me chaste, but not yet” — is of course that announcements of future discipline are normally not at all credible.  Politicians often say that they will achieve budget surpluses in the future, but seldom do so. 

Abe, still between a rock and a hard place on sales tax -- As the FT’s Jonathan Soble noted last week, part of what appears to have persuaded Abe to press ahead raising the sales tax to 8 per cent from 5 per cent next April was the “the risk that delaying would scare investors by making the government appear unwilling or unable to tackle the debt”. On the other side is the contractionary effects of the sales tax itself, which the Japanese government reportedly plans to offset with a stimulus of up to Y5tn. Jo McBride of the Japan Pensions Industry Database, via The Yomiuri Shimbun and Tokyo blogger Michael Cucek, points out that this reported Y5tn would be equivalent to two-thirds of the revenue raised from the tax increase.Both McBride and Cucek are worried that this will effectively mean introducing a regressive tax to direct towards pet LPD projects — same as it ever was. The latter writes:It is not impossible that a government can spend and invest the people’s money in a fashion generating a higher rate of return than if the people were left to make random, desires-based decisions on their own. Singapore and its People’s Action Party government can reasonably claim to such exalted and enlightened taxation and spending policies. The ruling part[y] of this blessed land, however, is the LDP — a party that despite numerous attempts at internal reform and new corporate outreach is still enmeshed in ties with the dregs of the economy — the tax avoiders, the deadbeat borrowers, the uncompetitive producers, the protected industries and entire sectors (new road construction) that have no economic reason for existence.

Japan PM Adviser Worried Tax Hike Will Dent Abenomics - Etsuro Honda, one of Japanese Prime Minister Shinzo Abe’s closest economic advisers, isn’t happy that the premier appears to have made up his mind to go ahead with a planned sales tax hike in April.Arguing that the plan to raise the 5% tax to 8% next spring is a case of too-much, too-fast and will put the brakes on the economy just as it is showing budding signs of exiting 15 years of deflation, Mr. Honda has made his opposition well-known. He is instead calling for a more gradual rise of one percentage point every year, saying that the economy should be able to withstand a more incremental pace. “Three percentage points will be a serious blow and its impact on consumer sentiment will be devastating,” Mr. Honda warned in a recent interview.

Analysis - Japan faces record-long trade deficit, little sign can reverse trend (Reuters) - Japan is on course for its longest run of trade deficits, effectively marking the end of the nation's decades-long reliance on exports from the likes of electronics giant Sony and automaker Toyota as a driver of growth and income. Trade figures due on Thursday are likely to show that Japan produced its 14th consecutive deficit in August, matching a 1979-1980 record run during the global oil shock. Economists say the deficits will continue. When Prime Minister Shinzo Abe's reflationary policies weakened the yen after he took power last December, many economists had anticipated a so-called J-curve effect, where a spike in import costs would over time be more than offset by gains in exports. But a closer look at trade statistics shows that the currency's 15 percent decline since the beginning of this year has failed to produce the export turnaround needed to bring the trade balance back into the black and there is little indication it will do so in the future, posing new policy challenges. "I cannot tell when the trade deficit will end," said Norio Miyagawa, a senior economist at Mizuho Securities Research & Consulting Co. "What's worrying more is that Japan's export competitiveness may be waning." With trade acting as a drag rather than an engine of growth, there is more pressure on Abe to reform the domestic economy. But so far, the structural reform part of the prime minister's "Abenomics" policy agenda has disappointed, unlike his radical monetary easing and fiscal stimulus, which have buoyed the stock market and business mood.

Japan trade deficit swells 25% in August — Japan's trade deficit swelled to a larger-than-forecast 960.3 billion yen ($9.8 billion) in August, the 14th straight month of red ink, as imports outpaced the growth in exports, customs data showed Thursday. Boosted by higher fuel costs, imports rose 16% from a year earlier to 6.74 trillion yen ($68.7 billion) while exports climbed 14.7% to 5.78 trillion yen ($58.9 billion). The deficit was a quarter bigger than the 768.4 billion yen gap seen in August 2012. Japan's trade accounts fell into deficit as costs for importing crude oil and natural gas soared following the closure of nuclear plants after the March 2011 earthquake and tsunami on its northeastern coast led to meltdowns at the Fukushima Dai-ichi plant. Costs of imported fuel, which comprise more than a third of all imports, rose nearly 18% in August, despite a slight decline in volume. The value of total imports of food, raw materials and manufactured goods also rose at a double-digit pace from the same month a year earlier, while import volumes of most declined. Ultra-easy monetary policy has weakened the yen, boosting exports, but the increase has not been enough to offset surging import costs. Economists had forecast the deficit at around 600 billion yen for August.

Singapore’s Exports Fall As West’s Recovery Slow to Reach Asia - Disappointing export data from Singapore Tuesday reinforces the picture of an uneven recovery in the United States and Europe that has yet to filter through to much of Asia. “The global macroeconomic picture is better but it’s more of a story for next year than this year,” “Singapore is very plugged into final demand in the U.S. and Europe, and that may pick up only next year.” Singapore’s non-oil domestic exports fell 6.2% on-year in August, according to data from the trade promotion agency International Enterprise Singapore. That followed a 1.9% contraction in July, revised down from an initial estimate of minus 0.7%. Nine economists surveyed by Dow Jones had predicted median growth of 2.4%. None of the economists surveyed had expected exports to decline. Partly it may reflect the nature of the recovery in the United States, which is patchy and driven by housing and energy – two sectors that don’t require heavy imports from Asia. Recovery in the eurozone, meanwhile, differs widely from country to country and is flattered by statistical comparisons to last year’s weak growth. Singapore’s export data reflect the “generally tepid recovery story in Asia,”

UN Conference on Trade and Development: Report 2013 - The UN Conference on Trade and Development released its 2013 report on September 12, and it is both an invigorating read and a welcome break from the stagnant and conservative thinking that dominates most US economic discussion. The full report can be downloaded from the UNCTAD website, and a much shorter overview of the report is also available. You can also listen to this podcast of a public event at the London School of Economics marking the release of the report last Thursday. The Podcast features Richard Kozul-Wright, who heads the unit on Economic Integration and Cooperation Among Developing Countries at UNCTAD, and Robert Wade, professor of Political Economy and Development in the Department of International Development at LSE. Here is an UNCTAD synopsis of the report’s main messages.  I have highlighted the remarks that struck me as most important:

Indian Inflation Unexpectedly Quickens Before Rajan Review - Indian inflation unexpectedly accelerated to a six-month high in August as the rupee’s slide stoked import costs, adding pressure on central bank Governor Raghuram Rajan to sustain efforts to support the currency. The wholesale-price index rose 6.1 percent from a year earlier, compared with July’s 5.79 percent climb, the Commerce Ministry said in New Delhi today. The median estimate of 25 analysts in a Bloomberg News survey was for a 5.7 percent gain. Rajan unveils his first monetary-policy decision this week after becoming governor on Sept. 4 and inheriting interest-rate increases from July aimed at aiding the currency. He’s pledged to contain inflation expectations and stepped up efforts to boost foreign-exchange reserves, prompting a climb in the rupee that’s pared its drop versus the dollar in 2013 to 12.5 percent. “Monetary tightening can’t be reversed until we start seeing a consistent decline in inflationary pressures,”

Rajan, onions, and the Fed - Yup, India’s WPI inflation (the most closely watched measure over here) picked up by 6.1 per cent year on year, up from 5.79 per cent in July when the expectation was for something around 5.6 per cent. Food drove the measure up, led by vegetable prices and in particular, those pesky onions, which jumped a rather silly 245 per cent due to monsoon-type problems. As the FT’s Victor Mallet wrote in Delhi: India produces about 15m tonnes of onions a year, and the vegetable is regarded as an essential part of almost every meal.Onion shortages have been credited with bringing down two Indian governments since 1980, and ministers usually try to avert price spikes and the ensuing public anger by outlawing hoarding and hurriedly approving imports, even from India’s regional rival Pakistan.“It’s obviously something that could have political implications given that you can’t make a good curry without onions,” said Rajeev Malik, senior economist at CLSA. “Food inflation does matter.” And while core inflation remains relatively subdued (see Chart 1 below from Cap Econ) this run up in food and WPI inflation puts Rajan in an even tighter spot.

India Struggles to Avoid Curse of Stagflation - As India continues to struggle with high inflation even as the economy slows, some worry it could be sliding toward a painful period of stagflation. The dreaded S-word was coined around 50 years ago to describe an economic rut of stagnation and inflation where weak demand hurts growth but doesn’t rein in prices. While the Indian economy is far from stagnant, recent data have been discouraging. Data Monday showed India’s wholesale inflation hit a six-month high of 6.1% in August as food and fuel prices soared. Consumer inflation already has been hovering near double-digit levels for months and was at 9.52% in August, the government reported last week. Economists expect inflation to fall later this year as favorable monsoon rains help lower food prices, but some say inflation could stick at unusually high levels as the weaker rupee boosts the local price of imports. Inflation is often the result of an overheating economy, but India’s economy has been cooling in recent years. Shabby infrastructure — potholed roads, overcrowded ports and airports and a perennial national power shortage — places further hurdles in the way of expansion. Infrastructure bottlenecks make it more expensive to produce and deliver goods, adding to inflation. India’s gross domestic product grew just 4.4% in the quarter to June. That was its weakest expansion in more than four years and less than half of the 9+% growth the economy recorded in the fiscal year ending in March 2011. Last year’s 5% GDP growth was the worst in over a decade.

India Central Bank Raises Key Rate - India's central bank surprised markets by raising its key lending rate by a quarter percentage point Friday, in a bid to guard against inflation fueled partly by the local currency's sharp fall against the dollar in recent months.The Reserve Bank of India raised its repo rate to 7.5% from 7.25%."Bringing down inflation to more tolerable levels warrants raising the…repo rate by 25 basis points immediately," the Reserve Bank of India said in its mid-quarter review of monetary policy. The RBI, however, eased some of the liquidity-tightening measures it had taken to prop up the rupee, given a recovery in the currency in recent days. It reduced the rate at which it lends funds to banks through its marginal standing facility, by three quarters of a percentage point, to 9.50%. The marginal standing facility is an emergency funding facility for banks, which was increasingly being used since the summer.  The RBI also relaxed rules on the cash reserve ratio, which is the percentage of deposits that banks must hold as cash with the central bank. The central bank said banks would have to maintain cash equivalent to 95% of the CRR through the reporting two weeks, from 99.0% earlier. The CRR currently stands at 4.0%.

RBI springs its own surprise - New RBI governor Raghuram Rajan followed the Fed’s decision to not taper with his own unexpected move — the RBI raised its key interest rate by 25 basis points, citing the threat of rising inflation. On the muddy eventual impact, from Capital Economic (our emphasis): In terms of the direct effect on the economy though, the tightening impact of the rate move has been offset by the decision to roll back the liquidity tightening measures. The measures were introduced to defend the rupee but they did not appear effective. Local interest rates spiked after they were introduced, but the currency continued to fluctuate in line with shifts in global sentiment. However, the tightening measures were always presented as “exceptional” and temporary and the currency’s rally since early September and the delay to Fed tapering have provided the RBI with an opportunity to rethink. What this means for growth will largely depend on how local interest rates respond to today’s decision. The one-month interbank rate spiked by over 300bp following the introduction of the liquidity tightening in July. So it is possible that their partial reversal will outweigh the effects of policy rate hikes. Slightly lower short-term interest rates would help growth, but would not be enough to jolt the economy out of the slow lane. After all, India’s economy was struggling long before July.

New Leader of India’s Central Bank Focuses on Inflation Fight - India’s central bank under its new governor, Raghuram Rajan, raised rates Friday, following through on a promise to return to its core mission: fighting inflation.Central banks from Indonesia to Brazil and Turkey have raised rates in recent weeks to help stop massive falls in their currencies as foreign investors pulled out of emerging markets.  But the RBI’s decision Friday to raise its key policy rate by 0.25 percentage point to 7.5% looks a lot less panicky.That’s because it came two days after the U.S. Federal Reserve said it would continue to buy $85 billion in bonds each month, continuing to supply the global economy with easy credit.  Fears the Fed would wind back this program, raising U.S. interest rates, sparked a pullback from emerging markets starting in the summer. The Indian rupee has been among the world’s hardest hit currencies, falling last month to a record low of over 68 to the U.S. dollar.  But the rupee and other currencies have staged a comeback in recent days as investors took heart from the Fed’s decision to continue with its bond-buying program for now. The RBI’s decision to raise rates in this environment gives the impression Mr. Rajan is acting on his own terms.

Rajan's Indian Funeral Pyre - Raghuram Rajan has been in his job at the head of the Reserve Bank of India for just a few weeks now and already changes are being made as the 23rd President. He plans to make sweeping changes to the financial system and bring the hierarchical administrative make-up of the sector to its knees by introducing liberal laws that will allow banks to open up branches without gaining prior permission from the Indian central bank. He wants to free up money for the economy to inject it into the private sector.

  • Today Rajan has raised the repo interest rate (the rate which the central bank lends to commercial banks) from 7.25% to 7.5%, while maintaining the quantity of bank deposits that must be kept in cash (the cash reserve ratio) the same.
  • Inflation is reaching levels that are causing the Indian economy great strife and currently it stands at 6.1%, the highest for the past half year.

Putting up the repo rate means that Rajan is worried about the hike in inflation, but he was expected to do nothing of the sort under pressure from the government and industrialists that wanted money and they wanted it now to get the economy growing. Analysts weren't expecting it either. It's always good to be where the people that are watching don't expect you to be.

The Rupee Is No Longer Asia's Worst Currency - New figures from Nomura Holdings show the Indonesian rupiah to be Asia’s worst performing currency. The rupiah has weakened almost 14% since the start of June, compared with a 10% slide in the Indian rupee.The rupiah’s fall is a result of Indonesia’s record current-account deficit. The Bank of Indonesia has embarked on an aggressive tightening policy and has also eaten into the country’s foreign-currency reserves in a bid to protect the rupiah. More interest-rate rises are likely. Bloomberg quotes a Sept. 13 report from Credit Suisse Group, which says: “The need to defend the currency while also improving the current-account deficit leaves the country with one option — to raise interest rates.”

Jakarta reviews curbs on mining exports as deficit balloons - Indonesian policymakers are scrambling to ease nationalistic resource rules that threaten to slash mining exports from January and potentially widen a current account deficit already at a near-record high. The deficit, which reached US$9.8 billion in the second quarter, or more than 4 per cent of GDP, has become enemy No 1 for President Susilo Bambang Yudhoyono's administration, and any policies that worsen the situation have come under fire. Regulations initially passed more than a year ago to allow Indonesia to seize more control over its natural resources are being reviewed as the government looks to bolster exports to offset a bulging import bill. "For exports, this is an emergency," Energy and Mineral Resources Minister Jero Wacik told reporters recently. "What is important is that the balance of imports and exports improves for our country."

Weak Rupiah and Global Economy Enlarge Indonesia's Budget Deficit - The outcome of Indonesia's 2014 budget deficit is expected to be higher than initially planned in the 2014 State Budget Draft (RAPBN 2014). In the 2014 draft, the deficit is proposed to amount to IDR 154.2 trillion (USD $13.6 billion), or 1.49 percent of Indonesia's gross domestic product (GDP). However, the government's latest estimate indicates a widening of the deficit to IDR 209.5 trillion (USD $18.5 billion), equivalent to 2.02 percent of GDP. The wider deficit is mainly caused by Indonesia's depreciating rupiah as well as the weak global economy. The combination of the weakening rupiah and international financial turmoil results in expensive government expenditures, particularly subsidy spending. Moreover, state income from the tax sector is assumed to decline sharply. In total, the government expects state revenues to fall by IDR 22.2 trillion compared to the figure that is mentioned in the 2014 State Budget Draft. The greatest decline is seen in tax income, which is believed to fall by IDR 35.9 trillion compared to the original assumption. However, this decrease is slightly obscured by an increase in non-tax state revenues. The latter is likely to increase by IDR 17.1 trillion from the initial target. In contrast, state spending will increase by IDR 33 trillion from the figure proposed in the 2014 State Budget Draft. The largest increase in spending occurs in energy subsidies, especially fuels. As such, the sharply weakening rupiah this year is a major concern as it results in expensive oil imports. Lastly, fund transfers from the central government to the regional governments decreases by a total of IDR 11.6 trillion.

How to Put a Stop to Sweatshop Abuse -The April 24 collapse of the Rana Plaza building, just outside of Dhaka, Bangladesh’s capital city, killed over 1,100 garment workers toiling in the country’s growing export sector.  In the United States, the largest single destination for clothes made in Bangladesh, newspaper editors called on retailers whose wares are made in the country’s export factories to sign the legally binding fire-and-safety accord already negotiated by mostly European major retailers. Even some of the business press chimed in. The business press, however, also turned their pages over to sweatshop defenders, contrarians who refuse to let the catastrophic loss of life in Bangladesh’s export factories shake their faith in neoliberal globalization. Tim Worstall told Forbes readers that “Bangladesh simply cannot afford rich world safety and working standards.” Economist Benjamin Powell, meanwhile, took the argument that sweatshops “improve the lives of their workers and boost growth” out for a spin on the Forbes op-ed pages. For sweatshop apologists like Worstall and Powell, yet more export-led growth is the key to improving working and safety conditions in Bangladesh. “Economic development, rather than legal mandates,” Powell argues, “drives safety improvements.” Along the same lines, Worstall claims that rapid economic growth and increasing wealth are what improved working conditions in the United States a century ago and that those same forces, if given a chance, will do the same in Bangladesh. But their arguments distort the historical record and misrepresent the role of economic development in bringing about social improvement. Working conditions have not improved because of market-led forces alone, but due to economic growth combined with the very kind of social action that sweatshops defenders find objectionable.

A Wake-Up Call For Asia --If there's one thing which stands out about the West since 2008, it's this: there's been almost no substantive economic reform. There's been a lot of money printed, talking up of prospects (forward guidance in central banker parlance), huge subsidies to save certain sectors, but little restructuring of economies to put them on a more sustainable footing. Where the financial crisis showed the dangers of relying on ever-expanding debt to fund consumption, that reliance has only increased since. Asia isn't immune from criticism on the reform front either. Much of the region has been busy congratulating itself for avoiding the worst of 2008, while ignoring the growing problems at home. China has fallen into the western-style trap of relying on more debt to produce enough economic growth to ward off a serious downturn. India's in trouble after backtracking on the broad-ranging reforms of the early 1990s which fuelled an average 6% GDP growth over the past two decades. Meanwhile, Indonesia - considered the rising star of Asian economies only a short time ago - has slowed quickly after keeping interest rates too low for too long and failing to sufficiently cut spending on the likes of energy subsidies. Unlike the West though, the problems in Asia - barring Japan - appear soluble. But the time for reform is now if Asia's to take the next leap forward in its economic development. Today we're going to look at what Asia needs to do to get back on track.

Fed unemployment mystery holds key to global markets  - Traders across the world are on tenterhooks, poised to launch a buying spree if the US Federal Reserve cuts its unemployment target below 6.5pc at its watershed meeting on Wednesday. Little else matters. Equity, credit, and exchange markets have already priced in a $10bn (£6.3bn) cut in the Fed’s $85bn rate of bond purchases each month. They expect tapering of US Treasury bonds rather than mortgage bonds in order to keep the housing recovery alive. The neuralgic issue is whether the Fed lowers its unemployment target or “threshold”. This would mean loose money for longer, shaping the trajectory of interests rates far into the future. “The real drama is if the Fed does more than taper,” said HSBC’s Daragh Maher. The Fed has a two-phase trigger. It aims to wind down bond purchases to zero as the headline jobless rate nears 7pc, and then start to raise rates at 6.5pc. The problem is that unemployment has been dropping faster than expected. It is already 7.3pc and could hit 7pc soon. This would be fine if the economy was roaring back and creating jobs, but it is shedding jobs at a disturbing pace. Headline unemployment is dropping only because people have stopped looking for work. America lost 347,000 jobs over the past two months, with the labour “participation rate” falling from 63.5pc to 63.2pc, the lowest since the late 1970s when fewer women worked.

Bernanke Buys Time for Brazil to India as Rupee Leads Rally -The Federal Reserve’s surprise decision to refrain from scaling back monetary stimulus provided a respite to investors in emerging markets, where currencies are in the midst of their worst rout in two years. “It certainly takes some of the immediate pressure off the more vulnerable countries. Emerging markets will continue to correct on the upside as the result.” The rupee strengthened 2.6 percent against the dollar at 12:18 p.m. in Hong Kong and Thailand’s baht appreciated 2.1 percent, heading for the biggest gain in six years. The Malaysian ringgit increased 2.3 percent and one-month non-deliverable forwards on the rupiah rose 2.2 percent. The Jakarta Composite index jumped 4.4 percent and India’s S&P BSE Sensex Index added 2.9 percent.  The Brazilian real and Turkish lira jumped more than 2 percent yesterday, while the Indian rupee led gains in Asia today, after the Fed said it will keep buying $85 billion of debt a month. Indonesia’s Jakarta Composite Index advanced the most since October 2011 and JPMorgan Chase & Co.’s index for dollar-denominated bonds in developing nations posted the biggest rally in almost three months. The decision came at a time when economic data from China to Brazil are showing signs of improvement and helps countries most dependent on foreign financing such as Brazil and India.

BIS: Global credit excesses worse now than pre-GFC - Over the weekend, the Bank for International Settlements (BIS) former chief economist, William White, delivered a similar prognosis, arguing that credit excesses across the globe have reached or surpassed levels seen shortly before the Lehman crisis five years ago. From the Telegraph:…a hunt for yield was luring investors en masse into high-risk instruments, “a phenomenon reminiscent of exuberance prior to the global financial crisis”…“This looks like to me like 2007 all over again, but even worse,” said William White, the BIS’s former chief economist, famous for flagging the wild behaviour in the debt markets before the global storm hit in 2008.“All the previous imbalances are still there. Total public and private debt levels are 30pc higher as a share of GDP in the advanced economies than they were then, and we have added a whole new problem with bubbles in emerging markets that are ending in a boom-bust cycle,” said Mr White, now chairman of the OECD’s Economic Development and Review Committee.…nobody knows how far global borrowing costs will rise as the Fed tightens or “how disorderly the process might be”…The BIS enjoys great authority. It was the only major global body that clearly foresaw the global banking crisis, calling early for a change of policy at a time when others were being swept along by the euphoria of the era. Mr White said the five years since Lehman have largely been wasted, leaving a global system that is even more unbalanced, and may be running out of lifelines. “The ultimate driver for the whole world is the US interest rate and as this goes up there will be fall-out for everybody. The trigger could be Fed tapering but there are a lot of things that can go wrong…”

How Did Advanced Economies Get in So Much Debt? - The U.S., Japan and Europe risk drowning in debt, with public obligations in rich countries hitting levels close to the historical peak reached in World War II.How did the most advanced countries in the world get it so wrong? Overly optimistic budget projections, poor data on government liabilities and a flawed understanding about how shocks can hurt public finances, the International Monetary Fund says in a new policy paper published Tuesday. Two graphs in the paper are revealing. In one, the IMF calculates that between 2007 and 2010, unanticipated debt increases totaled more than 26% of rich countries’ gross domestic product. Another shows how far off European Union members were from hitting their budget targets before the crisis.

One-Hundred-Year Bond Wiped Out by 21-Cent Plunge: Mexico Credit - Three years after Mexico took advantage of the Federal Reserve’s unprecedented stimulus effort to sell the world’s longest-dated government debt, the Latin America nation’s timing is proving to be prescient. Mexico’s bonds due 2110 have plunged 21.2 cents since Fed Chairman Ben S. Bernanke said on May 22 that policy makers may taper their monthly asset purchases of $85 billion. On a total return basis, the 17.4 percent decline was the most among investment-grade sovereign notes maturing in 30 years or more, according to data compiled by Bloomberg. At 92.94 cents on the dollar, the 100-year bonds currently trade below their issue price of 94.276 cents and yield 6.19 percent. While Mexico locked in a fixed rate of 5.75 percent annually to borrow $2.7 billion for a century, bondholders have been blindsided by a jump in Treasury yields spurred by concern the Fed will curb its bond-buying program as soon as today. The correlation between the 30-year U.S. notes and the 100-year bonds reached an all-time high this month. Modified duration, which measures a bond’s sensitivity to rate changes, was 16 for Mexico’s 100-year notes, compared with 13.8 for Brazil’s longest-dated dollar-denominated notes, which mature in 2041.

Canadian household leverage still growing - As discussed a few months back (see post), Canadian households continue amass higher levels of debt. At this point in the cycle, consumer leverage should have stabilized - particularly given tighter lending standards imposed by the government. However household credit outstanding as a fraction of disposable income hit another record last quarter. The good news is that Canadians' net worth has been improving and the debt growth remains slow relative to pre-recession levels. That doesn't mean the situation is without risks. Canada's household leverage is now materially higher than that of other nations who love credit, namely the UK, Spain, and the US. The overall consumer debt levels are also rising as a fraction of the nation's GDP. Somewhat surprisingly, Canadian seniors are now getting quite comfortable with high debt levels as well. It's a dangerous trend. CBCNews: - The increase in debt among seniors was the biggest year-over-year of all age groups.  "That's what scary about this," he said. "Seniors are carrying more debt into retirement. They are trying to maintain a lifestyle they had pre-retirement but on post-retirement income, and if income has dropped, they are increasing their debt to cover off their spending. It's a very dangerous strategy."  He added another possible cause is that seniors are supporting their grown children in greater numbers.Furthermore, Canadian households are becoming increasingly exposed to real estate. This makes Canada vulnerable to an economic downturn, as falling property values could quickly erode wealth and increase delinquencies.

In Front of Their Noses - Paul Krugman - Antonio Fatas, like me, is boggled by the OECD’s apparent inability even to contemplate the possibility that Europe’s poor economic performance is the result of fiscal austerity.  At one level, of course, it’s perfectly understandable. The OECD in general, and Pier Carlo Padoan, in particular, as chief economist, were among the biggest and earliest cheerleaders for austerity; you can see why they don’t want to admit that they were in fact cheerleading Europe into disaster.Still, it’s kind of depressing. What we’ve just had in the eurozone is as close to a natural experiment on fiscal policy as you’re ever likely to see, and the results overwhelmingly support a Keynesian view. You might expect some acknowledgement, some revision of views. But that’s not the way the world works. George Orwell knew all about it: The point is that we are all capable of believing things which we know to be untrue, and then, when we are finally proved wrong, impudently twisting the facts so as to show that we were right. Intellectually, it is possible to carry on this process for an indefinite time… To see what is in front of one’s nose needs a constant struggle. And not many influential people are into that kind of struggle

France under pressure to make further cuts to meet its targets - THE EUROPEAN Commission and rating agency Standard & Poor’s (S&P) piled pressure on France yesterday to overhaul its finances more rigorously after the EU gave the Socialist government more leeway to meet targets. French Finance Minister Pierre Moscovici has said the Eurozone’s second-biggest economy cannot be reformed any faster, fending off criticism that it is dragging its feet. President Francois Hollande’s government amended labour laws earlier this year and outlined an overhaul of the indebted pension scheme last month. “France is going in the right direction but more ambition wouldn’t do any harm, especially on the question of France’s competitiveness,” Commission chief Jose Manuel Barroso said yesterday.

French debt 'to hit nearly 2 trln euros' --France's public debt is expected to hit nearly two trillion euros ($2.7 trillion) by the end of 2014, or 95.1 percent of GDP, far higher than previous government estimates, the Le Figaro daily reported Tuesday. The revelation came as France's public auditor warned that the "spiral of social debt" -- referring to the country's generous healthcare, family and pension schemes, which contribute to its overspending -- was "abnormal and particularly dangerous." Previously, the government had said France's overall public debt would stand at 94.3 percent of gross domestic product (GDP) next year. French Finance Minister Pierre Moscovici did not reject the new figure when asked about it on France 2 television Tuesday, admitting public debt would reach "maximum" levels in 2014 before coming back down. At the end of 2012, the debt amounted to 90.2 percent of GDP, and the new figure will be a rise of more than 120 billion euros over two years, according to Le Figaro's report.

Italy Cuts Growth Forecasts, Keeps '13 Deficit Target - Italy has slashed growth forecasts for this year and next amid an ongoing slump and continued political uncertainty in Europe's third-largest economy. The government said Friday in Rome that Italy's economy will contract by -1.7% this year, a steeper slide than the -1.3% it had previously forecast in April. Growth in 2014 was also pared to 1% from a prior estimate of 1.3% and the deficit target raised to 2.5% of GDP from 1.8%.Prime Minister Enrico Letta warned that the country's finances were on course to breach the 3% Maastricht budget deficit rules, but vowed to institute new measures to ensure that it would be met by the end of the year. He blamed the country's ongoing political crisis and the recent rise in government bond yields for the weakness in Italy's public accounts.A E4 billion auction of new 3-year bonds last week drew an average yield of 2.72%, the highest for a comparable sale since last October. The extra yield, or spread, that investors demand to own Italian bonds over 10-year German bunds is trading at 246 basis points while benchmark 10-year Italian government bonds, known as BTPs, now trade 8 basis points higher - at 4.41% - than similar paper issued by Spain. That spread hit 13 basis points earlier this week, the highest in around 18 months.

Banks to repay 7.9 billion euros of ECB crisis loans - (Reuters) - Banks will return 7.91 billion euros ($10.71 billion) of crisis loans early to the European Central Bank next week, the ECB said on Friday, driving the amount of excess liquidity down and closer to the threshold where market interest rates could rise. By repaying the ECB's crisis funds early, banks also reduce the level of excess liquidity - the level of cash beyond what they need to cover their day-to-day operations - in the system. Excess liquidity is now at 215 billion euros, the lowest level since late 2011, shortly before the ECB flooded the market with more than 1 trillion euros in long-term refinancing operations (LTROs) to ease banks' funding strains. After the repayment next week - the biggest amount since May - the level will fall further if banks do not increase their uptake in new liquidity operations. Short-term money market rates are seen to rise closer to the main refinancing rate, currently at 0.5 percent, once excess liquidity in the system falls below a threshold estimated to be in the range of 100 billion to 200 billion euros. The ECB is monitoring this development carefully as higher bank-to-bank borrowing costs could undermine the euro zone's fragile recovery.

EU food aid cuts to hit Portuguese poor - Spending cuts to EU food aid programmes could leave Portugal's growing ranks of poor with even emptier plates, experts say. Western Europe's poorest country is likely to lose 40% of the €20 million in food aid it gets from Brussels every year, according to Isabel Jonet, who heads the Food Banks charity. Her institution supports 390,000 poor people out of Portugal's 10.5 million population. They have been helped by the EU's "Food for the Needy" program which is due to be replaced by the Fund for European Aid. The new fund will have fewer resources for food, Jonet said. And the cash-strapped government has made no preparations to deal with the problem, she added. "Unlike in other countries, Portugal does not yet have a plan to make up for the changes or for a delay in the new scheme coming through, so there may be an interruption in our distribution of food," Jonet said. The number of those in need in Portugal has risen, as unemployment has hit record highs this year. The economy has struggled through its worst recession in decades due to austerity measures imposed under an €8 billion EU and International Monetary Fund bailout.

A golden opportunity for education - The start of the school year this September has been marred by anger, a good deal of complaining, clashes of interests, streamlining efforts and cobbled reforms to the overall educational system.The overriding sense, however, is one of deep-seated insecurity among parents for the future of their children and for that of the Greek educational system more generally. We have also seen a lot of confusion and a huge waste of energy on discussions that lead nowhere in the present circumstances, when everything is more or less up in the air. The heated debate regarding the importance of religious studies and Ancient Greek studies on the secondary school curriculum is a post-modern farce of the violent clashes sparked in Athens at the turn of the 20th century by a disagreement between academics and politicians championing the use of demotic Greek and those who wanted the language to retain its ancient roots that took on widespread social dimensions. Of course, there is an analogy to be made, as Greece at that time was also experiencing a deep crisis that was financial, social and cultural in its nature and that affected the direction the entire country was to take. Clinging to tradition or rejecting it outright are knee-jerk reactions typical to societies in a state of fear and confusion. The sense of insecurity felt by the entire country right now is being expressed in powerful ways, either by sinking deeper into its clutches or by lashing out at others. Education, culture and the identity of a nation that these two pillars form, are also suffering from the same bipolar behavior.

Greeks cannot take more austerity, foreign minister warns - The Greek population cannot suffer more cuts in the name of austerity, Foreign Minister Evangelos Venizelos warned on Tuesday, amid talk that Athens might need yet another bailout to plug its finances. "We cannot think about new cuts to pensions and wages. From 2010 to 2012, Greek incomes fell by over 35 per cent, something that is unique and unacceptable in peacetime," Venizelos told the Italian news agency ANSA, during a visit to Rome, where he met his Italian counterpart Emma Bonino. His comments came as Greek riot police scuffled with hundreds of protesting social security staff trying to break through a police barricade outside the Ministry of Labour in central Athens. Since 2010, Greece has received 250 billion euros (350 billion dollars) in international loans. After six years of recession, unemployment is close to 30 per cent while public debt stands at 160 per cent of gross domestic product.

Mortgage Delinquencies Hit New Record High In Spain; Builder Default Rate Hits 29%; Recovery? Really? - Readers know I have been extremely skeptical of reports that Spain is in some sort of economic recovery. Today, more evidence is in that recovery talk is pure nonsense. Via translation from El Economista, please consider Questions Regarding the Banking Improvement The widespread expectations that the Spanish banking has begun its recovery were seriously questioned on Wednesday with July arrears data. The overall delinquency rate hit a new record high in 12% (and clearly exceed 14% if you include the credit transferred to the bad bank ), with the rate reaching for promoters a terrible 31%. But more worrying is the escalation in mortgage delinquencies which reached 5% for the first time. This is a very strong acceleration, since a year ago this rate was at 3.23%."The Spanish stop eating before you stop paying the mortgage" is a well known topic. Well now this argument is floundering on the evidence.The builder default rate has reached 29% in the amount of 18.624 billion euros. Growth in builder defaults has a lot to do to reclassify restrictions imposed by the Bank of Spain. This phenomenon will continue in the coming months, because until September 30 banks do not have to start formally adopt reclassification measures. Well fancy that. Delinquencies have been understated and the lies are just now admitted.Actually, that's progress. But let me ask: How much more "progress" is coming?

They Have Made A Desert, And Called It Reform - Paul Krugman -- It was, I suppose, predictable that Europe’s austerians would claim vindication at the first hint of an upturn. Still, Wolfgang Schäuble’s piece in the FT, in which he claims complete vindication because Europe has had one, count it, one quarter of growth is pretty awesome even relative to expectations. Bear in mind that the record on jobs looks like this: It takes quite a lot of chutzpah — do they have that word in Germany? — to claim that this is a record of successful preparation for structural transformation. What about all the livelihoods, and in some cases lives, destroyed? What about the millions of young Europeans who still see no hope of getting a decent job? I’d take particular professional exception to Schäuble’s claim that Europe is following the recipe of Sweden in the early 1990s and Asia in the late 1990s. Those recipes involved large currency devaluations, not the slow,grinding “internal devaluation” supposedly happening in Europe’s periphery. And as I’ve stressed a number of times, the Asian economies bounced back fast, with nothing like the seemingly endless depression in much of Europe: What we have to realize here, however, is that at this point it’s not just a matter of ideology: egos and careers are at stake. The evidence suggests that Europe’s austerians did a terrible thing, ruining the lives of millions. They will never admit it; they will seize on anything that gives them an out.

Exclusive: 50,000 people are now facing eviction after bedroom tax - More than 50,000 people affected by the so-called bedroom tax have fallen behind on rent and face eviction, figures given to The Independent show. The statistics reveal the scale of debt created by the Government’s under-occupancy charge, as one council house tenant in three has been pushed into rent arrears since it was introduced in April. Figures provided by 114 local authorities across Britain after Freedom of Information (FoI) requests by the campaign group False Economy show the impact of the bedroom tax over its first four months. The total number of affected council tenants across Britain is likely to be much higher than the 50,000 recorded in the sample of local authorities that responded to the FoI.

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