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

Saturday, October 5, 2013

week ending Oct 5

FRB: H.4.1 Release-- Factors Affecting Reserve Balances -- Thursday, October 03, 2013: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed's Fisher says he feels 'angst' about Fed's balance sheet (Reuters) - When the time comes for the Federal Reserve to reduce its massive balance sheet, one of the big worries is the potential volatility and instability that paring those assets could bring to financial markets, a top Fed official said on Thursday."When you are on the buy side things look great," Dallas Fed President Richard Fisher said at a conference on uncertainty at the regional Fed bank. "When you are on the sell side, when we get to that point, things look different." The Fed's bond-buying program has swollen the central bank's balance sheet to more than $3.5 trillion. Fisher, who has opposed the bond-buying, said that he and his colleagues feel "angst" at size of the balance sheet and the potential challenges when it comes time for the Fed to reduce it.

A New Strategy for the Fed - What has interested me is the Fed's apparent difficulty communicating the way it anticipates to tighten monetary policy over the next five years conditional on economic performance and outlook. To be fair, this isn't at all an easy task.  The Fed has to think about the likely range of economic scenarios. It has to think about the timing of the start of the exit -- that is, tapering its monthly bond purchases. It has to think about the pace of the exit -- that is, do they hike every other meeting in 2015 and 2016, as they did in 2004 and 2005? It has to think about the endpoint -- that is, where does the federal funds rate end up in a world of full employment and unicorns?  Above all else, it has to think about how it conditions the start, pace, and end of the monetary exit on economic data. How aggressively do they respond to clear changes in economic performance? How quickly do they respond when changes in economic performance are, as always, obscured in the short run by noise? What indicators do they use, implicitly and explicitly, to condition the path of monetary policy? The Fed has responded with what is, all things considered, a reasonably effective method of forward guidance. The centerpiece of it is the Evans' rule: The federal funds rate is to remain at extraordinarily low levels at least until the Fed's preferred measure of inflation (headline year-over-year change in the personal consumption expenditures price index) surpasses 2.5 percent or the standard unemployment rate falls below 6.5 percent. The Fed has emphasized that these are thresholds, not triggers -- that is, they're not under any obligation to raise rates when unemployment falls, and they are only disallowed from earlier rate increases. On top of the Evans' rule, you have its forward guidance on tapering bond purchases. There was a 7.0-percent unemployment threshold for the end of tapering, but I do not think this commitment is still valid. It is a tighter policy than I believe the Fed desires and, in any case, also out of line with the "no-obligation, only-disallowance" framework the Fed has established for increases in the policy rate.

Tugging on the Fed's Cape - The Fed’s surprising decision last week not to start reducing its  monthly purchases of government securities – or, not to start “tapering” its “quantitative easing” (QE) – is an acknowledgement that its efforts to achieve its dual goals of maximum employment and price stability have fallen short.  Indeed, the question that needs to be asked is whether it is even possible for the Fed to achieve its goals given the unhelpful fiscal policy coming out of Congress. Underlying the Fed’s decision not to taper are two worrying realities.  The first is that despite massive monetary accommodation, including three rounds of quantitative easing (QE) over the last three years, the economy is still not strong enough to weather, at least in the Fed’s view, even a modest withdrawal of monetary stimulus   At its meeting last week, the Fed downgraded its economic forecast to reflect slower-than-anticipated growth in recent months.   The unemployment rate at 7.3 percent remains well above acceptable levels.  And inflation at 1.5 percent continues to run below the Fed’s longer term target of 2 percent, indicating that deflationary forces are still at work in the economy. The second and even more worrying reality for the Fed is that fiscal policy, the domain of the executive and legislative branches, is a serious drag on economic growth and may become an even more disruptive headwind as Congress wrangles over the budget and debt ceiling.  Further budget cuts or tax increases would weaken economic growth and hurt job creation.  The last round of cuts resulting from the budget sequester are estimated to be trimming economic growth by nearly 0.7 percent over the course of this year, according to the Congressional Budget Office.

The Taper and Its Shadow: Central Bankers Need to Explain the Risks of Further Quantitative Easing - DeLong -The central banks of the North Atlantic have promised that they will not raise the short-term safe nominal interest rates they control until the economies under their stewardship show substantial economic recovery. So far the economies have not done so: they continue to be battered by the destructive fiscal headwinds of austerity, by uncertainty over whether the Republican Party will in fact attempts to crash the credit of the United States, by broken systems of residential finance, and by uncertainty about how the burdens of necessary structural adjustment are to be allocated. With all that, it would seem premature for central banks to even begin to talk about adopting a less stimulative monetary posture. Yet the central banks of the North Atlantic are doing so. They are are saying that their tolerance for continuing to enlarge their balance sheets by purchasing long-term bonds for cash is very limited indeed--the so-called "taper".The problem is that financial markets simply do not believe the central bankers when they say that a present desire to "taper" is completely unconnected with any future desire to raise short-term interest rates. Financial markets think, not unreasonably, the same central bankers who grasp now for excuses to cut off quantitative easing now will also grasp for excuses in the future to say that things have changed and that forward guidance promises should not be kept. And financial markets will continue to think this, unless and until central bankers come up with reasons for believing that further extensions of quantitative easing do in fact run substantial risks.

Fed’s Rosengren: Must Not Cut Stimulus Prematurely -- In an economy still surrounded by storm clouds, the Federal Reserve should not make the mistake of pulling back on its easy money policies prematurely, and it should stand ready to do more if needed, a U.S. central bank official said Wednesday. The policymaker, Federal Reserve Bank of Boston President Eric Rosengren, said that he “strongly and unequivocally” supported the Fed’s decision last month to press forward with its $85 billion-a-month bond-buying stimulus program because recent data has proved disappointing. “Most of the risks to the outlook remain on the downside,” the official said. If the economy doesn’t pick up like the Fed expects, “we should not reduce the monetary policy accommodation. Doing so risks slowing the sectors of the economy that have shown the greatest strength–the interest-sensitive sectors that have been most responsive to policy actions,” Mr. Rosengren said. The official said if the economy does accelerate along the lines officials expect, there should be “only a very slow removal of accommodation over the next several years.” But he also said “should the economy unexpectedly slow down, we can and should provide more accommodation than is currently anticipated.”

Easing policy could be extended: Fed’s Rosengren - — The Federal Reserve ‘s easy policy stance, including its bond-buying program, could last for “several years” to make sure that the economy is on track for solid growth and moderate inflation, a Fed official said on Wednesday.  “If the economy evolves as expected, policy should in my view include only a very slow removal of accommodation over the next several years,” Eric Rosengren, president of the Boston Federal Reserve Bank, said in a speech to a business group in Burlington, Vt.  Rosengren’s timetable appears much longer than the mid-2014 termination date for the bond-buying program suggested by Fed Chairman Ben Bernanke earlier this year. Rosengren, one of the more dovish Fed officials and a voting member this year, said he was a strong supporter of the Fed’s decision not to start tapering at its meeting last month. “It would have been premature to begin reducing the rate of Fed asset purchases,” he said.

Fed’s Lockhart: Prolonged Shutdown Makes October Taper Less Likely - A government shutdown that drags on for days or weeks would make the Federal Reserve less likely to begin winding down its bond-buying program at its October meeting, Federal Reserve Bank of Atlanta President Dennis Lockhart said Thursday. “If this lasts for several more days” or weeks, Mr. Lockhart said, “by the end of October we will still be looking at a very ambiguous situation.” Mr. Lockhart, who doesn’t currently serve as a voting member of the Fed’s policy-making Federal Open Market Committee, said the loss of economic data due to the shutdown makes it more difficult to evaluate the state of the economy and “compound[s] the murkiness of the situation.” He particularly highlighted the delay of the monthly jobs report, which was scheduled for Friday but has now been delayed. “Less data is not helpful in gauging where the economy is and where it’s going,” Mr. Lockhart said Thursday. “So that would tend to make me somewhat more cautious.” Speaking on the sidelines of a conference hosted by the Atlanta Fed, Mr. Lockhart said he was watching private-sector data such as this week’s ISM reports and yesterday’s jobs estimates from payroll processor ADP. But he said there is no replacement for government data, which he called “essential.” But Mr. Lockhart said it’s still possible the Fed will act at its meeting at the end of the month. “I think there are circumstances in which it could be a decision meeting,” Mr. Lockhart said. “There’s no reason to take it off the table.”

Fed’s Williams Sees No Urgency to Taper - A Federal Reserve official who’s been supportive of the central bank’s aggressively easy-money policies indicated he sees no urgency to dial down the level of stimulus soon.The economy remains mired “in a situation where U.S. unemployment is still too high and inflation is too low,” said Federal Reserve Bank of San Francisco President John Williams. "The appropriate stance of monetary policy is very accommodative and that will continue to be the case for quite some time,” the official said. He added “as the U.S. economy continues to improve, it will be appropriate for the Fed to start trimming its asset purchases and eventually stop them altogether.”And when the economy does pick up and the Fed sees joblessness and inflation near their desired levels, “the stance of monetary policy will need to be normalized,” the central banker said. His comments came from the text of a speech in San Diego. The official spoke in the wake of the central bank’s monetary policy meeting held last month that surprised markets when the Fed decided to press forward with, rather than trim, its $85 billion per month bond buying stimulus program.  M. Williams has in speeches over this year suggested Fed bond buying could be cut at some point before the close of the year, before being wound down next year. His speech Thursday did not suggest any likely timing for the Fed to ease back on the level of stimulus it’s now providing the economy.

No Tapering Soon if the Fed Looks at Labor - The Federal Reserve's Sept. 18 decision to stay the course on its asset purchases surprised and confused many market participants, who felt the central bank had sent contradictory signals about its intentions. In fact, the Fed has behaved in a way completely consistent with Chairman Ben Bernanke's public comments, at least since July. A careful look at the labor market numbers suggests that if the Fed sticks to the chairman's words, there will be no significant tapering any time soon. Before July, the Fed announced on a number of occasions that a 6.5% unemployment rate would indicate that it is time to start raising interest rates and winding down its easy-money policies. The unemployment rate has fallen significantly from its high of 10% in October 2009 to the mid-sevens. But the labor market is still sickly because, as I pointed out in these pages in June, the employment rate—the proportion of the working-age population that has jobs—has made little progress. The employment rate is the best single indicator of labor-market health, and it is still hovering at around 58.5%, down significantly from its pre-recession levels of over 63%. The economy is adding jobs, but just barely staying ahead of population growth. Rather than making up for ground lost during the recession, the economy is still treading water. Mr. Bernanke and other Fed governors are clearly aware of the distinction between the unemployment and employment rates. In his July 17 congressional testimony, Mr. Bernanke said that "if a substantial part of the reductions in measured unemployment were judged to reflect cyclical declines in labor force participation rather than gains in employment (my emphasis), the [Federal Open Market] Committee would be unlikely to view a decline in unemployment to 6.5% as a sufficient reason to raise its target for the federal funds rate." The jobs report for August showed the decline in labor-force participation and employment rates that the Fed feared.

Fed Too Familiar With Lost Labor Seeking New Message for Policy - It’s becoming increasingly clear why Federal Reserve Chairman Ben S. Bernanke should have avoided linking the central bank’s policy decisions to specific unemployment rates. Bernanke said in June he expected the Fed would complete its bond buying when the jobless level was around 7 percent, and policy makers have pledged since December they won’t consider raising interest rates as long as it exceeds 6.5 percent. With a decline in August to 7.3 percent for the wrong reason -- Americans giving up on finding work -- Fed officials are being forced to shift their guideposts. The flawed measure has contributed to the market’s confusion over the direction of monetary policy, and Fed officials now are struggling with how to minimize it as a policy benchmark without damaging their credibility, according to Ethan Harris. The Federal Open Market Committee’s Sept. 18 decision not to taper its $85 billion in monthly bond buying surprised investors across the globe. “Picking the unemployment rate as the key growth-side indicator was a huge mistake for the Fed,” “It was supposed to be a marker that the average Joe could look at and say, ‘Ah! OK, now we’ve hit a broad-based recovery.’ Now, they’ve almost immediately abandoned it.” 

Fed’s Kocherlakota: Must Do ‘Whatever It Takes’ to Aid Job Market - Minneapolis Fed leader Narayana Kocherlakota repeated on Friday his call for the central bank to do whatever it can to get the unemployment rate to fall quickly. Mr. Kocherlakota has been a steadfast support of aggressive action, and he repeated his call for the Fed to do even more than it currently is to bring down the unemployment rate quickly. “There is considerable monetary policy capacity” still available to the Fed, even with the Fed’s short-term interest rate target pegged at zero percent, and the balance sheet swollen to historic levels, Mr. Kocherlakota said. He said the Fed must do “whatever it takes in the next few years” to lower an unacceptably high unemployment rate. He noted that even though the jobless rate had fallen since the end of the recession, it remains high, and the amount of progress suggested by the jobless rate drop actually overstates the level of improvement. Mr. Kocherlakota repeated that the Fed must be “willing to continue to use the unconventional monetary policy tools that it has employed in the past few years.” He added “doing whatever it takes will mean keeping a historically unusual amount of monetary stimulus in place–and possibly providing more stimulus.”

Fed Watch: On Communication - We can get the October FOMC preview out of the way early: No data + fiscal turmoil = no taper. No reason to waste much time on the October meeting. Probably true for December as well at this rate. What is still worth spending time on is diagnosing the challenges of the Fed's communication strategy. Sooner or later, that problem will rear its ugly head again. To help narrow the field, I am going to propose four central problems complicating the Fed's communication strategy: 1.) Unemployment targets. The unemployment rate revealed itself to be a poor choice of a policy variable for two reasons. First, it was the only data for which their forecasts turned out to be too pessimistic. Second, they don't completely understand the dynamics that resulted in overly pessimistic forecasts. 2.) Lack of experience with unconventional tools. Federal Reserve Governor Jeremy Stein's recent speech is a must read for insights into the transmission of monetary policy. Not just once, but two or three times. 3.) Fine tuning. The Federal Reserve appears to believe they can fine tune the asset purchase program with small changes up or down. This seems silly given point two above - you can't fine tune something you don't understand. Just talking about tapering was 100bp+. So who knows what a mere "$10 billion" means? And what is the threshold for small changes? Do we need significant shifts in data, or is being "broadly consistent" with the Fed's forecast sufficient? 4.) Lack of a central voice. I think that the lack of a central voice for monetary policy is a critical failure at the moment.

Fed Withdraws Whopping $58 Billion In Liquidity In Latest Reverse Repo Test - It appears there is just a little excess liquidity sloshing around out there. Moments ago the Fed announced that as part of its most recent overnight reverse repo "liquidity withdrawal preparedness test", some 87 entities provided the Fed with a whopping $58.2 billion in overnight liquidity in exchange for Treasury collateral at a 0.01% stop out rate. This was the largest amount in liquidity soaked up (or, alternatively, collateral provided) by the Fed in its recent history of Temporary Open Market operations going back to 2012.

The Government May Shut Down, But These 18 October POMOs Will Proceed Come Hell Or Selective Default - As pointed out earlier, the Federal Reserve does not depend on Congressional appropriations, and will not see any cutbacks due to a shutdown which with every passing hour seems more inevitable. It also means that even if the entire US government were to be shutdown, the daily wealth effect injection into the stock market for the benefit of the 0.01% will continue and the confidence show must go on. Specifically, as was released moments ago by the NY Fed, Bernanke will inject another $45 billion in the capital markets courtesy of 18 distinct bond-monetizing POMO operations over the next 31 days. These will take place regardless of anything else that may happen to the government, which perhaps better than anything else, shows who is truly in control of this country and on whose behalf they operate.

Does the Federal Reserve Care About the Rest of the World? - Many economists are accustomed to thinking about Federal Reserve policy in terms of the institution’s dual mandate, which refers to price stability and high employment, and in which the exchange rate and other international variables matter only insofar as they influence inflation and the output gap – which is to say, not very much. This conventional view is heavily shaped by the distinctive circumstances of the last three decades, when the influence of international considerations on Fed policy has been limited. I discuss how the Federal Reserve paid significant attention to international considerations in its first two decades, followed by relative inattention to such factors in the two-plus decades that followed, then back to renewed attention to international aspects of monetary policy in the 1960s, before the recent period of benign neglect of the international dimension. This longer perspective is a reminder that just because the Fed has not attached priority to international aspects of monetary policy in the recent past is no guarantee that it will not do so in the future.

Is Hyperinflation Just Around The Corner? -- In his parting act, Federal Reserve Chairman Ben Bernanke has decided to continue printing some $85 billion per month (6 percent of GDP per year) and spend those dollars on government bonds and, in the process, keep interest rates low, stimulate investment, and reduce unemployment. Trouble is, interest rates have generally been rising, investment remains very low, and unemployment remains very high. Bernanke’s dangerous policy hasn’t worked and should be ended. Since 2007 the Fed has increased the economy’s basic supply of money (the monetary base) by a factor of four! That’s enough to sustain, over a relatively short period of time, a four-fold increase in prices. Having prices rise that much over even three years would spell hyperinflation. And while Bernanke says this is all to keep down interest rates, there is a darker subtext here. When the Treasury prints bonds and sells them to the public for cash and the Fed prints cash and uses it to buy the newly printed bonds back from the public, the Treasury ends up with the extra cash, the public ends up with the same cash it had initially, and the Fed ends up with the new bonds. Yes, the Treasury pays interest and principal to the Fed on the bonds, but the Fed hands that interest and principal back to the Treasury as profits earned by a government corporation, namely the Fed. So, the outcome of this shell game is no different from having the Treasury simply print money and spend it as it likes. The fact that the Fed and Treasury dance this financial pas de deux shows how much they want to keep the public in the dark about what they are doing. And what they are doing, these days, is printing, out of thin air, 29 cents of every $1 being spent by the federal government.

How I learned to stop worrying and love the bubble - Paul Krugman had an insightful post this week on secular stagnation. It alluded to the fact that bubbles may increasingly be coming to our rescue by inadvertently propping up our economy in a way that usually boosts employment.An extract:We might try to figure out why we seem to need leverage and bubbles to have full employment, and try to fix it. More thoughts on that on another day. But what if that isn’t an option?One answer could be a higher inflation target, so that the real interest rate can go more negative. I’m for it! But you do have to wonder how effective that low real interest rate can be if we’re simultaneously limiting leverage. Another answer could be sustained, deficit-financed fiscal stimulus. In that case the government can run a primary deficit even while keeping the debt-GDP ratio constant – and the higher the level of debt, the higher the allowable deficit.. The main point is simply that the weirdness of our current situation may well go on much longer than anyone currently imagines. As we noted in the widow’s cruse economy, this makes sense if you realise that during a depression the best outcome is if people are employed doing something rather than nothing, because the job itself is a monetary distribution mechanism. And most of the time that something can be anything providing it doesn’t lead to yet more non-distributable oversupply. If the government is not able to pick up the slack with welfare projects, grand social engineering, scientific endeavours, or even defence spending — it’s understandable why during a depression burdened by over-capacity, we’re more likely to direct capital to pointless ventures that reflect fads, frivolities or are based on nothing more than an emperor’s new clothes type collective delusion or mania.

Is low inflation bad? - Even if inflation (CPI less food and energy) stays steady between 1% and 2%, there really is no problem. Prices are still rising. Paul Krugman would like to see inflation rise because that would lower real interest rates. But that is not going to happen, and he shouldn’t be expecting that it will.Is there a danger of deflation? No… Inflation will stay steady and low. But then, is there a danger of deflation in a subsequent recession? Yes, there is a danger, but prices will bounce back. The US does not have the same demographics as Japan. The problem in the economy is not inflation. Most Americans are just plain and simple not making enough money. So why don’t we have deflation? Business is providing goods and services at stable prices. Consumers don’t have the money to pull prices up, and prices have a strong resistance to go near zero percent inflation. Prices will remain stable.

Fed Survey Finds Fixed-Income Market Conditions Deteriorated May-July - Markets conditions for U.S. Treasurys and other securities worsened earlier this year as investors awaited word on the Federal Reserve‘s bond-buying program, according to a Fed survey out Thursday. “During the period of heightened market volatility beginning in May and extending into early July, dealers indicated that liquidity and functioning generally deteriorated across a number of fixed-income markets, including those typically perceived to be the most liquid and deep, such as the markets for U.S. Treasury and agency securities,” the Fed’s Senior Credit Officer Opinion Survey said. The survey doesn’t mention the Fed’s easy money policies, and other factors also were likely at play in markets during the time period. But in May the central bank signaled it could start to wind down its $85 billion-a-month bond purchase program, creating uncertainty across markets. Fed officials surprised investors last month when they decided to continue the program unchanged while determining the direction of the economy and fallout from rising interest rates. The quarterly survey queried credit officers in a series of special questions related to Treasurys, Treasury inflation-protected securities, or TIPS, high-grade corporate bonds, high-yield corporate bonds, and agency mortgage-backed securities.

Fools and Fixers - Paul Krugman  - Lydia DePillis has an interesting piece interviewing Paul Stebbins — a CEO who was very involved with Fix the Debt — in which Stebbins acknowledges that business is part of the problem in Washington, and proceeds to illustrate, unintentionally, just why that is. You see, if he’s any indication, big business is completely clueless about both the economics and the politics of the situation. In the world according to Stebbins, debt and deficits are at the heart of America’s economic problem. He doesn’t even make the case — he just claims that it’s obvious according to the facts. No notion whatsoever that we might have slow growth because we’re reducing the deficit too fast; no acknowledgment that the empirical case for debt panic has collapsed. You get the sense that he’s completely unaware of the actual debates that have taken place about economic policy, probably unaware of how much the actual deficit and forecasts of future debt have changed. So he’s angry at Washington for not facing up to a fake problem. In short, this particular CEO comes across as completely out of touch with the reality of our economic and political situation. And then he wonders why politicians won’t listen to people like him.

How a Debt-Ceiling Crisis Could Become a Financial Crisis - Come mid-October, the United States will have only $30 billion of cash on hand. On any given day, its net payments can reach as high as $60 billion. That means that unless Congress raises the debt ceiling, allowing the Treasury to issue new debt, the United States may find itself unable to make all of its payments — stiffing government contractors, or state and local governments, or even its bondholders. Economists widely agree that such an unprecedented event would have profound effects for the markets, likely precipitating a stock-market sell-off and setting off a round of global financial turbulence. But it has always been a little unclear just how it may play out. The Treasury might announce it would be forced to delay some payments, promising to do what it could to make sure bondholders were made whole. But then what? The team at RBC Capital Markets has put together a terrifying play-by-play for the Alphaville blog of The Financial Times. It shows how a debt-ceiling breach would translate quickly into a credit crunch and financial crisis with some disconcerting similarities to 2008. Get ready for some scary reading:  Let us be perfectly clear: crossing the debt ceiling would be catastrophic. The Treasury’s systems do not clearly mark what scheduled payments are for what reasons, so it is impractical to try to prioritize payments. And clearing systems like Fedwire do not allow defaulted securities to flow, so the system would seize. In order for the clearing systems to work, the Treasury would need to notify the market of a default almost a day before the default happened (to give everyone time to modify payments), and that is not going to happen because the Treasury will not want to declare default while Congress still has time to pass a bill. Also the Fed does not take defaulted securities as collateral at the discount window, even if those securities are still trading at par

America flirts with self-destruction - Is the US a functioning democracy? This week legislators decided to shut down a swath of the federal government rather than allow an enacted health law go into operation at the agreed moment. They may go further; if they do not vote to raise the so-called “debt ceiling”, they risk triggering default on US government debt – a fate far worse than the shutdown or fiscal sequestration. If the opposition is prepared to inflict such damage on their own country, the restraint that makes democracy work has gone. Why has this happened? What might be the result? What should the president do? The first question is the most perplexing. The Republicans are doing all of this in order to impede a modest improvement in the worst healthcare system of any high-income country. The Patient Protection and Affordable Care Act (known as “Obamacare”) is modelled on one introduced in 2006 in Massachusetts by then governor Mitt Romney. Its apparently criminal aims are to cover 32m uninsured people and ensure coverage of those with pre-existing conditions. True, the programme is complex. But it builds on a defective system. That most working people get insurance through their employers is an obstacle to labour market flexibility since it complicates decisions about leaving a job, particularly for people with chronic medical conditions. It is a form of serfdom. The idea that one should close the government – or risk a default – to stop universal insurance, which other high-income countries take for granted, seems mad. Maybe this shows how much some Republicans loath Barack Obama. Half of the legislators who called on John Boehner, the Republican speaker of the House of Representatives, to defund the health law come from the old south. Its dislike of the federal government may be part of the explanation. Republicans might fear not that the programme will fail, but that it will work, cementing the credibility of government.

Fitch: U.S. debt ceiling in focus after government shutdown - A formal review of the rating with potentially negative implications would be triggered if the US government has not raised the federal debt ceiling in a timely manner prior to when the Treasury will have exhausted extraordinary measures and cash reserves. According to official comments by the US Treasury secretary, extraordinary measures could be exhausted by 17 October. In such a scenario, the Treasury would be forced to dramatically cut back on current spending with adverse implications for the economic recovery. Even if it were to prioritise debt service - something the Treasury has repeatedly stated it has neither the legal authority nor logistical capability to do - it would likely incur arrears on a range of payment obligations and thus continue to incur debt, but in a disorderly and disruptive manner. Even if the debt limit is not raised in a timely manner we believe there is sufficient political will and capacity to ensure that Treasury securities will continue to be honoured in full and on time. Nevertheless, investor confidence in the full faith and credit of the US would be undermined in such a scenario. This "faith" is a key underpinning of the US dollar's global reserve currency status and reason why the US 'AAA' rating can tolerate a substantially higher level of public debt than other 'AAA' sovereigns.

White House warns of ‘catastrophic’ consequences if debt ceiling hit - If the shutdown continues to Oct. 17th, when the Treasury says the government will run out of money, White House Press Secretary Jay Carney told MSNBC the consequences would be “catastrophic without question.” “What we see with this Republican strategy is a willingness to threaten the very foundation of the world’s greatest economic power, the economy that basically stabilizes the entire world economic system and that is a very risky proposition,” he said on Morning Joe. Carney said he fears Republicans will use the same strategy they employed in the shutdown debate over the debt ceiling. “It’s like seeing the preview to a movie, at least that’s our fear,” he said. ”If they don’t get what they want on Obamacare—essentially try and change the results of last year’s election—or default on the economy, we are in a very serious situation.”

Fed’s Williams Says Dangerous Not to Raise Debt Ceiling -  Federal Reserve Bank of San Francisco President John Williams said any failure by the U.S. to raise the debt ceiling would be “very dangerous,” while estimating a two-week government shutdown would shave 0.25 percentage point off fourth-quarter economic growth. A U.S. debt default would undermine confidence in the economy and dollar, Williams said today to reporters after a speech in San Diego. “We’re hoping cooler heads will prevail.” Congress and the White House, while deadlocked over the budget in the third day of a partial government shutdown, must also agree on raising the country’s $16.7 trillion debt ceiling. Treasury Secretary Jacob J. Lew said the U.S. has begun final extraordinary measures intended to avoid breaching the limit, which will be exhausted no later than Oct. 17. A U.S. debt default would be an “unthinkable” event that also would undermine economic growth and cause faith in U.S. debt to “be a mirage rather than accepted fact,” Dallas Fed President Richard Fisher said today in a speech in Dallas.

The Loss of U.S. Pre-eminence - Simon Johnson -- The United States became a superpower in the 1940s and, 70 years later, stands on the brink of losing that status. It rose to global pre-eminence at short notice, and its decline can occur just as abruptly. This week’s partial government shutdown both reminds us that the United States has reached such a precarious position and shows us exactly how things can now unravel as it approaches the really big confrontation over the debt ceiling. Now really stupid fiscal policy threatens to bring the United States down. The primary cause of any public finance crisis is not the ability of people to pay their taxes, it’s their willingness to pay their taxes — or, as in the current situation in the United States, the willingness of their elected representatives to finance the government. And this willingness is always tied closely to the legitimacy of the government. Does enough of the population think that the people with political power won it in a fair manner and, consequently, are they willing to accept policies with which they do not necessarily agree? The United States faces a serious fiscal crisis not because of the continuing sequester or the partial government shutdown per se, but rather because of what those experiences indicate about what will be considered acceptable tactics in the imminent fiscal confrontation over raising the debt ceiling.

Merrill Lynch: Downward Revision to Forecast "Breaking Bad" - From Merrill Lynch: Macro viewpoint: Breaking bad: We have changed our call: our base case is now for either a two-week shutdown or for more than one shutdown. With weak growth momentum and more damage from Washington, we are lowering 3Q growth to 1.7% and 4Q to 2.0%. We are also pushing Fed tapering to Jan 2014.There has been no change in rhetoric despite public opinion polls that strongly oppose the shutdown and that are particularly critical of Republicans. ... Most respondents also disagree with the strategy of shutting down the government over the health care law: basically by 3-to-1 in polls by Quinnipiac University, CBS News and CNBC.. We believe it would take truly extraordinary circumstances for the President to agree to undercut his proudest legislative achievement; even a small concession would likely lead to further demands at each budget deadline....Our new baseline assumes a two week shutdown, but no violation of the debt ceiling. ... We also continue to fear a much worse outcome. Recall that the failure to pass a continuing resolution cuts government spending by roughly one percent of GDP, while failure to raise the debt ceiling requires balancing the budget – a 4% of GDP cut in spending. ... Failure to raise the debt ceiling by the end of October would be catastrophic, in our view.

Obama Should Ignore the Debt Ceiling - THE United States government is likely to shut down nonessential services tomorrow, after House Republicans voted before dawn yesterday to attach a one-year delay of President Obama’s health care law (and a repeal of a tax to pay for it) to legislation to keep the government running. The Democratic-led Senate is expected to refuse. House Republicans also said last week that they would not agree to lift the debt ceiling unless implementation of the health law was delayed by one year. So the government is also headed toward a mid-October default on its debts — and a full-blown constitutional crisis. Failure to raise the debt will force the president to break a law — the only question is which one. The Constitution requires the president to spend what Congress has instructed him to spend, to raise only those taxes Congress has authorized him to impose and to borrow no more than Congress authorizes.  If President Obama spends what the law orders him to spend and collects the taxes Congress has authorized him to collect, then he must borrow more than Congress has authorized him to borrow. If the debt ceiling is not raised, he will have to violate one of these constitutional imperatives. Which should he choose?

It Increasingly Looks Like Obama Will Have To Raise The Debt Ceiling All By Himself - With no movement on either side and the debt ceiling fast approaching, there's increasing talk that the solution will be for Obama to issue an executive order and require the Treasury to continue paying U.S. debt holders even if the debt ceiling isn't raised. Here's Greg Valliere at Potomac Research: We think three key elements will have to be part of the final outcome: First, a nasty signal from the stock market. Second, a daring move from Barack Obama to raise the debt ceiling by executive order if default appears to be imminent. Third, a capitulation by Boehner, ending the shut-down and debt crisis in an arrangement between a third of the House GOP and virtually all of the Democrats. Valliere isn't the only one seeing this outcome. Here's David Kotok at Cumberland Advisors: We expect this craziness to last into October and run up against the debt limit fight. In the final gasping throes of squabbling, we expect President Obama to use the President Clinton designed executive order strategy so that the US doesn’t default. There will then ensue a protracted court fight leading to a Supreme Court decision. The impasse may go that far. This is our American way.

Three Budget Battles, Three Different Economic Risks - The latest budget fight in Washington is really three different conflicts coming together: a government shutdown, a default risk tied to a failure to raise the debt ceiling and another round of federal budget cuts known as the sequester. Two of them are modest (though still meaningful) risks to economic growth; one of them, a debt default, could devastate the economy. A rundown: The federal government goes into a partial shutdown Tuesday unless Congress comes to an agreement before the current fiscal year ends. The government has a playbook (written into the law) for a shutdown, which has occurred 17 times before. It would send a substantial share of the non-security workforce home and disrupt services across the government. More than 800,000 federal workers would be furloughed, according to agency plans submitted to the White House. (The federal government has about 2.8 million civilian workers, or just over 2 million excluding the U.S. Postal Service.) Over at WashWire, see a detailed summary of how government services would be affected.   If a shutdown represents a controlled government pullback, a default would be its homicidal, out-of-control cousin. Without congressional action, the U.S. could be unable to pay all of its bills. The federal government reached its $16.7 trillion borrowing limit in May. Since then, the Treasury Department has been using emergency measures to buy time. That time expires by October 17, leaving about $30 billion in cash on hand (along with incoming tax revenue) to pay government bills. The U.S. could be forced to default on some of its obligations in the weeks that follow. As part of the deal to resolve the 2011 debt-ceiling battle, House Republicans and the White House agreed to a series of budget cuts that neither side ever expected to be implemented. They were wrong.The budget cuts eventually started in March. They cut spending across the discretionary federal budget, with cuts that varied by agency. Many departments implemented furloughs over the past seven months alongside other spending cuts. A new round of cuts, on top of existing reductions, is scheduled to take effect in the coming fiscal year..

House Republicans More than Double Down; Shutdown Looks Likely - The House of Representatives took up the clean CR bill–the budget patch that keeps the government funded for another month-and-a-half–and quickly blew up the process by larding the bill up with unacceptable provisions.  If their bill passes, which it likely will, it virtually assures the absence of a budget for FY14 which begins on Tues, and thus a partial government shutdown. According to the WaPo: “Their new proposal also includes a measure that would continue to pay U.S. military forces, eliminating one of the most politically sensitive impacts if a shutdown comes.”  Perhaps the Senate will try to pass this separately, but it’s not clear why they should make the shutdown go down any easier for these obstructionists. Here are two critical CBPP pieces on components of  the House R’s bill: this one’s on the one-year delay in the health care law, and this one’s on the repeal of a tax to help fund the bill. Their behavior is utterly shameful, with no concern or regard for the damage of their actions.  And this looks to me like a warmup for debt ceiling deadline in a couple of weeks.  If there was any doubt who’s in control over there in the House, it should be dispelled by now.  The patients are running the asylum.

#Cliffgate Update: Now A 90% Chance Of A Shutdown - It was virtually inevitable that House Republicans would amend the Senate-passed continuing resolution with changes the Senate has already said it won't accept. To understand why, I need to again refer back to something I posted more than two years ago, right after I was the first speaker at the first meeting of the House tea party caucus. (You can read all the details here.)  I was talking informally with a number of the members of Congress who had been there after the meeting ended. There was unanimous agreement among those members that the biggest thing the House GOP had done wrong during the 1995 and 1995-96 shutdowns was that it had given in to Bill Clinton too early. The GOP would have gotten a much better deal, they told me, if it had pushed harder and been willing to keep the government closed longer. Pushing until the very, very last minute has been one of the mainstays of the House GOP's negotiating strategy on budget issues ever since . With one exception -- House Speaker John Boehner (R-OH) unilaterally deciding nine days before the deadline to cut a deal with the White House to extend the reduction in the payroll tax -- every budget decision since 2011 has gone up to, and in some cases beyond, the deadline.

The Medical Device Excise Tax -  Last night the Tea Party crowd in the House passed a couple of resolutions. Most of today’s endless political mania is over the Faustian choice between either eliminating a centrist health care reform on the eve of when it will actually start helping people or watching the government shut down. The other resolution would repeal the Medical Device Excise Tax and it actually has the support of a few Democrats who just happened to be bought and paid for by the medical device sector. I just listened to one of them say that the tax will cause these firms shift production offshore. Paul N. van de Water rebutted this ridiculous claim yesterday: the excise tax creates no incentive whatever for medical device manufacturers to move production overseas. The tax applies to imported as well as domestically produced devices. Thus, sales of medical devices in the United States will be equally subject to the tax whether they are produced here or abroad, and the tax will not make imported devices any more attractive to domestic purchasers. In  Paul did an admirable job of addressing some of the other claims from the medical device sector so let me turn to a more subtle point about this alleged 2.3% tax rate. Section 4191 notes the tax is applied to the wholesale price as opposed to the retail price even though companies like Medtronic and Johnson & Johnson sell into the retail market. So the law allows for a constructive price, which is effectively the arm’s length price between the manufacturing division and the distribution division. The government seems to think that this price should be around 75% of the retail price, which is likely about right. If these companies accept this government position, their effective tax rate would be only 1.73% not 2.3%.

Impact of a government shutdown on federal agencies - A government shutdown next week would interrupt some services and potentially jeopardize the paychecks of more than 800,000 federal workers. The Office of Management and Budget has asked agencies to begin making contingency plans. Their first stop will be their plans from 2011. The federal government does not stop functioning completely, and by law, certain agencies must operate with unsalaried employees. They include those that deal with national security and the safety of people and property, as well as those that manage benefits such as Social Security payments. Here’s what some agencies have said about their plans this time around.

Shutdown Would Shave U.S. Growth as Much as 1.4 Pctg. Points in Q4 - A shutdown of the U.S. government would reduce fourth-quarter economic growth by as much as 1.4 percentage points depending on its length, economists say, as government workers from park rangers to telephone receptionists are furloughed. Mark Zandi of Moody’s Analytics Inc. estimates a three-to-four week shutdown would cut growth by 1.4 points. Zandi projects a 2.5 percent annualized pace of fourth-quarter growth without a shutdown. A two-week shutdown starting Oct. 1 could cut growth by 0.3 percentage point to a 2.3 percent rate, according to St. Louis-based Macroeconomic Advisers LLC.A shutdown would slow the expansion because output lost when workers are furloughed subtracts from gross domestic product. The combined prospect of a budget standoff between the White House and Congress and haggling over the debt ceiling could have a bigger impact on the economy as businesses hold off on investment and households delay spending.

Bill Clinton Says Obama Should Call the Bluff of Republicans - Former President Bill Clinton, whose Democratic administration was the last to experience a partial government shutdown in 1996, said he wouldn’t negotiate with Republicans on the eve of another shutdown. “I think there are times when you have to call people’s bluff,” Clinton said in an interview with ABC’s “This Week with George Stephanopoulos,” in which he said Republican tactics to undermine the 2010 health-care law seem “almost spiteful.” He recalled some “extremely minor” negotiations during his administration’s partial closures and said that, in this case, there isn’t an opportunity for real talks. “The current price of stopping it is higher than the price of letting the Republicans do it and taking their medicine,” he said. “If they’re going to change the way the Constitution works and fundamentally alter the character of our country and damage the future of a lot of kids, you just have to say no.”

House stands firm against Obamacare, Senate won’t budge. Shutdown looms — Republicans rallied around a budget plan early Sunday to keep the government open but delay the new health care law for a year, storming toward a showdown with Democrats that looked increasingly likely to shut down the government when the current fiscal year ends Monday night. Republicans in the House of Representatives showed unusual unity in endorsing the plan. The House, in a rapid-fire series of votes that stretched past midnight, voted 248 to 174 to permanently repeal a 2.3 percent medical device tax that helps fund the health care law, then voted 231 to 192 to delay the law for a year. The House was also expected to approve a measure to assure military personnel will be paid if the government shuts down. The votes followed a day when Republicans, divided about whether to risk a shutdown or fold and fight another time, came together behind a carefully-crafted effort to put pressure on Democrats. The Senate is not scheduled to return to session until Monday afternoon, 10 hours before the fiscal year ends. Democrats who control the Senate said they wouldn’t negotiate or consider the House proposal, leaving no apparent path to compromise on either side in the waning hours before money runs out for many parts of the government not on automatic spending such as Social Security or considered essential such as the military.

Dems say shutdown is inevitable - The weekend's fierce debate over government spending is certain to conclude with President Obama signing a “clean” government-funding measure into law, Democratic leaders said Saturday night. The question remains when. “We all know the end of this story. The president's going to sign a clean CR,” Rep. Robert Andrews (D-N.J.) said, referring to a continuing resolution to fund the government. . “We know that it's going to happen, we just don't know when it's going to happen,” Andrews added following a meeting of the House Democratic Caucus in the Capitol. Andrews, who heads the Democrats' Steering and Policy Committee, forecast that the Republican bill expected to pass through the House late Saturday night would be stripped of the GOP ObamaCare amendments by Senate Democrats and returned to the lower chamber within 48 hours as the same “clean” proposal the Senate passed on Friday. But it won't be done in time to prevent a government shutdown, he predicted. “Sen. [Harry] Reid can move quite quickly to strike the provisions the House is adding to this bill. And when the Senate reassembles, he will,” Andrews said. “So this is really just a trailer for the movie you're going to see again in a certain number of hours. “I don't think it's very likely that all of that will happen before midnight on Monday – just the way things work around here,” he added. “In candor … when the clock strikes midnight on Monday the place is shutting down.”

Senate May Approve Funding Military Paychecks in Shutdown -The U.S. Senate will likely pass legislation to keep paying military salaries even if lawmakers are unable to avert the first government shutdown since 1996, Sen. Tim Kaine (D., Va.) said. Mr. Kaine said on Fox News Sunday the Senate would in all likelihood pass a bill to fund military pay in a shutdown. The House of Representatives approved such legislation early Sunday. An aide to Senate Majority Leader Harry Reid (D., Nev.) confirmed Sunday that he intends to try to pass the House bill on military salaries on Monday. The House and Senate are at loggerheads over how to fund the government in the next fiscal year before a midnight Monday deadline. House Republicans are seeking a one-year delay of the health law known as Obamacare and a repeal of a tax on medical devices. Senate Democrats have said they will reject any changes to the health law, and President Barack Obama would veto such a bill.

Shutdown crisis shows Washington breakdown - Democrats on Capitol Hill are not eager to see the president take a leading role in any dealmaking to keep the government open or to negotiate a new federal debt ceiling. In the view of many Democrats, Obama has shown that he has neither the appetite nor the aptitude for such delicate talks. They say, for instance, that he gave away too much in earlier rounds, which produced — among other things — the current arrangement under which discretionary spending is being affected by automatic spending cuts known as the sequester. When the White House raised the possibility of assembling congressional leaders at the White House this past week, Senate Majority Leader Harry M. Reid (D-Nev.) quickly extinguished that idea, said Democratic sources on both ends of Pennsylvania Avenue. Congressional Democrats think the best place for Obama, at least for now, may be on the golf course, where he was Saturday. Republicans have made their own reckonings with the past, and that is one reason so many — particularly newer members of Congress — are willing to risk so much in what by all appearances is a futile effort to block or stall the health-care law. Sunday marks the fifth anniversary of that day the House rejected a $700 billion rescue plan for the nation’s financial system, sending the stock market into a tailspin at a moment of high anxiety. Although the bill passed a few days later, anger about the bailout — known as TARP — became a rallying point for the populist right and helped light the fire that ultimately became the tea party movement. It also helped end the careers of some of the establishment Republicans who supported it.

DC works overtime on blame with shutdown less than 24 hours away  - As the nation careened closer towards a government shutdown Tuesday, the political protagonists traded blame Sunday over whose fault it will be if federal-salaried workers are furloughed and some federal services are shuttered. The Republican-controlled House of Representatives was in recess Sunday after voting in the pre-dawn hours to keep the government funded through Dec. 15 but delay implementation of the Affordable Care Act. The Democratic controlled Senate remained in weekend recess, refusing to come back until its scheduled return at 2 pm Monday. And President Barack Obama, who spent the day Saturday playing golf, remained out of site Sunday. “Tomorrow, the Senate will do exactly what we said we would do and reject these measures," said Adam Jentleson, a spokesman for Senate Majority Leader Harry Reid, D-Nev. “At that point, Republicans will be faced with the same choice they have always faced: put the Senate's clean funding bill on the floor and let it pass with bipartisan votes, or force a Republican government shutdown.” House Speaker John Boehner, R-Ohio, accused the Senate of trying to milk the shutdown clock – which tolls Monday at midnight - by not taking up the House measure until 2 p.m. on Monday. That would give both deliberative houses of Congress only 10 hours to avert a shutdown.

Rebels Without a Clue, by Paul Krugman - This may be the way the world ends — not with a bang but with a temper tantrum. Today we have a weak economy, with falling government spending one main cause of that weakness. A shutdown would amount to a further economic hit. Still, a government shutdown looks benign compared with the possibility that Congress might refuse to raise the debt ceiling.  First of all, hitting the ceiling would force a huge, immediate spending cut, almost surely pushing America back into recession. Beyond that, failure to raise the ceiling would mean missed payments on existing U.S. government debt. And that might have terrifying consequences.  No sane political system would run this kind of risk. But we don’t have a sane political system; we have a system in which Republican leaders who know better are afraid to level with the party’s delusional wing. .Meanwhile, reasonable people know that Mr. Obama can’t and won’t let himself be blackmailed in this way... After all, once he starts making concessions to people who threaten to blow up the world economy unless they get what they want, he might as well tear up the Constitution. But Republican radicals — and even some leaders — still insist that Mr. Obama will cave in to their demands. But what if even the plutocrats lack the power to rein in the radicals? In that case, Mr. Obama will either let default happen or find some way of defying the blackmailers, trading a financial crisis for a constitutional crisis.  This all sounds crazy, because it is. But the craziness, ultimately, resides not in the situation but in the minds of our politicians and the people who vote for them. Default is not in our stars, but in ourselves.

Who will notice a US government shut down? Public workers, foreign governments and people with the flu – The US government will, after a congressional vote last night, almost certainly shut down when the new fiscal year begins on October 1.But “shut down” doesn’t really capture the impact of what’s more like a spending freeze that will gradually spread through the government like ice forming in water. That means its effects may creep up on citizens who don’t interact with the bureaucracy daily. Initially, a shutdown will be little more than a symbol of US dysfunction, but each passing day will make its economic impact more tangible, especially if prolonged squabbling spooks consumer and business confidence. The government doesn’t shut down “essential” services that protect life or would be more costly to suspend than keep going. That means soldiers stay on duty (though their pay is delayed) and nuclear reactors stay open, but most financial regulators  and trade negotiators are sent home without pay. Medicare and Social Security will keep paying out, since they are paid for out of trust funds, though the checks may be late arriving. Many departments and contracts will be able to continue using money that is already appropriated before that, too runs out. Here are the first people who will notice the shutdown:

Agencies Prepare to Send Workers Home as Shutdown Looms --With the clock ticking and no budget deal in sight, federal agencies prepared to send more than 800,000 workers home without pay, and large swaths of the government were set to temporarily close. Absent an agreement, workers who are furloughed will have to report to their agencies Tuesday morning for a half-day of preparations for the shutdown. Most will have up to four hours to wrap things up, and then be sent home until further notice. Those who are deemed essential, or—in the language of government, "excepted"—will be guaranteed back pay after the fact. In past shutdowns, Congress has agreed to pay those furloughed as well, but given the cost-cutting zeitgeist of 2013, that was hardly guaranteed this time. A Wall Street Journal review of agencies' shutdown plans found that more than 800,000 workers would be furloughed. In all, the federal government employs just under 2.9 million civilian employees.

What Are The Unintended Consequences Of A Government Shutdown? - When it comes to the intended consequences of a goverment shutdown, they are rather simple: a shut down government (which to many is the best news possible). So what about the unintended consequences? Here is Bank of America with a quick summary of what would begin to happen at 12:01 am tonight, and continue for the duration of the shutdown. The shutdown will likely add to the budget deficit. It is costly to stop and start programs. The 1995-96 shutdown directly added $1.4 bn to the deficit (about $2.5 bn in today’s dollars) Moreover, the shock to growth will undercut tax revenues. In addition, ironically it does not impact the implementation of Obamacare since it is an entitlement similar to Medicare. However, there is some chance it could delay US economic data releases: in 1996, the December employment report was delayed two weeks as a result of the shutdown then. The Federal Reserve and the Post Office, both of which do not depend on Congressional appropriations, will not see any cutbacks due to a shutdown.

In Shutdown, Pentagon Would Remain Vigilant, Possibly Unpaid =m Troops in Afghanistan will continue their patrols. Navy warships will remain on stand-by in the Mediterranean. And construction of the Pentagon’s major weapons programs, like the next generation fighter jet, will go on. Because of the unique role the Pentagon plays in protecting the country, defense officials are planning to exempt large numbers of people and projects from the work stoppages that would result from a government shutdown. That means all 1.4 million active duty military personnel will remain on the job, along with large numbers of civilians working with them. But they won’t get their paychecks during a shutdown until government funding has resumed.  The most visible Defense Department impact: Half of the civilian workforce — 400,000 employees — would be told to take unpaid time off. In addition, the impasse in Washington could force the Pentagon to freeze some work with military contractors and to cancel travel plans. About two-thirds of the civilian employees were required to take six unpaid days off earlier this year as a result of the automatic spending cuts imposed under so-called sequestration. While traveling to Asia, Defense Secretary Chuck Hagel called the prospect of a shutdown “astoundingly irresponsible.”

Shut Happens -- It's 12:01am, do you know where your government is?

#Cliffgate Begins: Why The Shutdown Will Last At Least A Week - What all of the legislative maneuvering means is that the federal government shutdown many (or perhaps most) people thought would be avoided has started and will be in effect for a while. It also means that the question has now changed from "Will there be a shutdown?" to "How long will it last?". Here's what you need to know about the logistics of the shutdown. Federal agencies and departments will have until noon today EDT to lock the doors and shutter the windows, so if there's some resolution of the situation by lunch time there will be no appreciable impact of the lapse in appropriations that began at midnight October 1. For example, although few will realize it and the buildings are likely to be empty, you should still be able to get into the Smithsonian. The real impact will start to be felt at 12:01 pm October 1 as agencies and departments cease operating. Calls will no longer be returned, visas and passports applications will no longer be accepted, tax refund checks will no longer be processed, invoices from contractors will stop being paid, etc. That will continue until the shutdown ends. As I said 10 days ago, , I'm projecting that the shutdown will last at least a week because it will take that long for the impact of the shutdown to start to be felt and, therefore, to make ending it more politically acceptable.

Government shutdown: 800,000 workers go without pay, and it doesn't stop there: The game of chicken failed. Neither side blinked. Now millions will pay the price. Americans watched a colossal failure by Congress overnight -- and the shut down of their government. For weeks, the House and the Senate blamed and bickered, each claiming they're standing up for what the public wants. In the end, it led to the one outcome nobody wanted -- one that will stop 800,000 Americans from getting paid and could cost the economy about $1 billion a week. "Agencies should now execute plans for an orderly shutdown due to the absence of appropriations," the Office of Management & Budget said in a note it sent to federal employees. This is the first time the government has shut down in nearly 18 years. The last time it did, the stalemate lasted 21 days. Now, the Republican-controlled House and the Democrat-controlled Senate,will try to see if they can reconcile their two versions of the spending plan at the heart of the issue. So far, each has refused to budge. House Republicans insist the spending plan for the new fiscal year include anti-Obamacare amendments. Senate Democrats are just as insistent that it doesn't. Obamacare, as President Barack Obama's signature healthcare plan is known, isn't directly tied to funding the government. But it's so unpopular among a group of Republicans that they want it undercut, if not outright repealed. 

This Shutdown Is Different From Most Others -- The popular and far more dramatic term used by the media and elected officials to describe what happens when new funding for an agency or department isn't enacted before the existing funding expires is "shutdown."But the technical term used by federal budget geeks is "lapse in appropriations." That's what's happening now: Appropriations have lapsed. Although almost everyone has focused on the lapses that occurred in 1995 and 1996, they actually occurred a number of times in the 1970s and 1980s.You haven't heard much about them for several reasons:

  • 1. Most of these lapses were short or happened over a weekend. They were barely noticed at the time and are not memorable now.
  • 2. The lapses were not typically government-wide. Instead, they only happened to one or two agencies or departments.
  • 3. In many ways most important, until Carter Attorney General Benjamin Civiletti issued memorandums in 1980 and 1981 that set up new rules and standards, agencies and departments that suffered an appropriations lapse were allowed to continue to operate as if there was no lapse at all.

In other words, using today's terminology, there were shutdowns before 1980, but the agencies and departments didn't actually shutdown.

GOP Members of Congress Use Fiscal Showdown as Leverage to Damage Middle-Class Economic Security, One More Time - At the beginning of the year, Andrew Fieldhouse and I tried to document lots of the ways that the GOP House had managed to smother a full recovery from the Great Recession. The list was pretty impressive, but a key theme was that the GOP kept using the leverage of various fiscal decision points (reaching the debt ceiling, the expiration of tax cuts, the drawdown of the Recovery Act, etc…) to push for austerity on the spending side of government. And their tactic worked—the current economic recovery has seen historically slow growth in public spending, and by now the entire gap between today’s economy and a healthy one can be attributed to this austerity, full stop. When we wrote our list, I had hoped any strategic gain to the GOP Congress stemming from throttling the recovery was over—the 2012 election had come and gone, and going forward from there it is not exactly obvious why slow economic growth is damaging to just one party or the other. Obviously, I was wrong.The new exploitation of external fiscal deadlines (the need for a “continuing resolution” to fund federal governmental operations after October 1 and reaching the debt ceiling in mid-October) concerns both a further ratcheting down of spending, but also the delay of the Affordable Care Act (ACA). So why would GOP members of Congress want to hold the normal functioning of government hostage to insuring that vulnerable Americans don’t get health insurance?

#Cliffgate Update: The Ultimate Irony Of The Shutdown Is... - I'm not sure whether this makes me laugh, cry or wince.

  • 1. House Republicans refused all year to appoint conferees on the fiscal 2014 budget resolution.
  • 2. Senate Democrats tried multiple times to pass a motion requesting a conference with the House on the 2014 budget resolution, but Senate Republicans each time prevented it from happening.
  • 3. Late yesterday, the roles completely reversed. House Republicans requested to go to conference with the Senate on a 2014 continuing resolution that's needed in part because the two houses were unable to conference on the budget resolution, but Senate Democrats said they will not agree to the House request.

Remember when Republicans were worried about ‘economic uncertainty’? - A government shutdown, and the prospect of a default on the national debt, is pretty much the definition of economic uncertainty. Contracts are put in limbo. Future interest rates are unknown. A new healthcare system lies in the balance. And meanwhile, a whole host of issues that businesses need resolved in order to plan several years in advance -- environmental regulation, immigration policy, the tax code -- go almost entirely unaddressed.These are the conditions brought upon us by a small core of Republicans who can't let go of their opposition to a law their colleagues passed three years ago. And yet, not long ago, many of those same Republicans were declaring that uncertainty is the economy's biggest threat.

What They Say Versus What They Mean - Paul Krugman -- Over at Wonkblog, Lydia DePillis asks, “Remember when Republicans were worried about ‘economic uncertainty’?” Actually, no, I don’t. I remember when they claimed to be worried about economic uncertainty — but it was completely obvious even at the time that this was nothing but an attempt to put a new, quasi-academic gloss on the same old same old. What they really meant was that the economy will boom only once we get rid of the Islamic atheist Kenyan socialist, and install someone who will be nice to rich people. It’s a lot like the austerity debate, where it was obvious all along that all the carping on debt was really a way to go after the welfare state — a point demonstrated forcefully by the hostile reaction of people like Olli Rehn when the French began reducing their deficit by raising taxes rather than slashing benefits. The point is that there are a lot fewer good-faith economic arguments out there than a naive observer might think — and that’s precisely because powerful forces are doing their best to hoodwink said naive observers. So, goodbye “economic uncertainty”. The truth is that nobody ever took it seriously.

48 Ways a Government Shutdown Will Screw You Over - The midnight deadline came and went without a deal from House Republicans and Senate Democrats (except for one small bill, on military pay). Welcome to the Shutdown. Here's a quick guide to who and what will be most affected:

What A Government Shutdown Means For You - Here is what a government shutdown means for you:

  • All national parks and zoos will be closed, but animals will be fed and cared for by Sens. Saxby Chambliss (R-GA) and Tom Harkin (D-IA)
  • No trash collection in Washington, D.C., which means the only solution is for residents to eat their own garbage
  • Those who died and are honored in the Holocaust Museum will become de-memorialized and will no longer be resting in peace
  • Old man with giant beard who walks hundreds of steps to light the gas lamp in the Statue of Liberty every night will be unemployed
  • You will still be able to send and receive mail, but any attempt to poison government officials will have to be held off until they return to their offices after the shutdown ends
  • This probably won’t have any actual effect on your marriage, but it’s better to blame it on this than facing what the real issues are
  • Any harm that may occur to you during the shutdown will still affect your body in real life. Essentially, if you die in the shutdown, you die for real.

91% Of The IRS Has Been Furloughed: Here Is Who Else Got The Government Shut Down Axe - For all the drama surrounding today's political drama (which came and went largely unnoticed by a stock market hypnotized by the Federal Reserve), the bottom line is that the key impact of last night's historic government shutdown has been nothing more (or less) than the temporary unpaid leave of absence, i.e. furloughs (with all accrued, owed payments promptly being remitted once the government is unhalted) of some 815,932 civilian government workers, out of a total of 2 million, or a 41% furlough rate. As the WSJ tabulates "some agencies, such as the Bureau of Labor Statistics, are seeing all but a handful of their employees go home without pay. Others, such as the Federal Bureau of Investigation and the Department of Homeland Security, kept the vast majority of their workers on the job. Certain divisions of government, such as the U.S. Postal Service and the Federal Reserve, don’t operate under the normal appropriations process and their staffing remained unaffected." Then again one wonders: with 91% of the IRS' total 94,516 workers stuck at home, downloading porn, is the government shutdown really such an evil outcome?  The table below shows the total number of furloughed workers by government agency, as well as the furlough percentage. For a sortable, interactive version of the table, visit the WSJ.

Government Workers Told Not To Work On "Any Projects, Tasks, Activities Or Respond To Emails Or Voicemails" - Dear government workers: welcome to the private sector. This is what it feels like to have job insecurity. For the past 7 hours, some 800,000 suddenly idle Federal workers received furlough notices but were told they will still have to report to work for about four hours Tuesday even though the government is shutting down. Or, rather "work." As AP reports, various federal agencies said employees would be limited to doing work related to the shutdown, including changing voicemail messages, posting an out-of-office message on email, securing work stations and documents and completing time cards. At the Environmental Protection Agency, for example, employees were told they cannot work on "any projects, tasks, activities or respond to emails." The more cynical ones out there may ask: just how is that any change? More on today's shutdown chronology from AP: The U.S. Department of Housing and Urban Development said it will close its offices at 1:30 p.m. Other agencies, such as the Labor Department, expect most employees to be gone by mid-day, but haven't set a specific time. Once they head home, furloughed employees are under strict orders not to do any work. That means no sneaking glances at Blackberries or smart phones to check emails, no turning on laptop computers, no checking office voicemail, and no use of any other government-issued equipment.

US shutdown has other nations confused and concerned - As the United States approached a budget crisis that will shut down many federal services and affect more than 700,000 workers, other countries looked on with a mixture of puzzlement and dread. For most of the world, a government shutdown is very bad news - the result of revolution, invasion or disaster. Even in the middle of its ongoing civil war, the Syrian government has continued to pay its bills and workers' wages. That leaders of one of the most powerful nations on earth willingly provoked a crisis that suspends public services and decreases economic growth is astonishing to many. American policymakers "are facing the unthinkable prospect of shutting down the government as they squabble over the inconsequential accomplishment of a 10-week funding extension", Mexico's The News wrote in an editorial. In the United States, however, government shutdowns - or the threat thereof - have become an accepted negotiating tactic, thanks to the quirks of the American federal system, which allows different branches of government to be controlled by different parties. It was a structure devised by the nation's founders to encourage compromise and deliberation, but lately has had just the opposite effect. Elsewhere in the world, such shutdowns are practically impossible. The parliamentary system used by most European democracies ensures that the executive and legislature are controlled by the same party or coalition. Conceivably, a parliament could refuse to pass a budget proposed by the prime minister, but such an action would likely trigger a failure of the government and a new election

How Big a (Macroeconomic) Deal is the Government Shutdown? - I have been getting versions of this question a lot. It is very hard to answer with any precision, so, below are some very imprecise thoughts.First, the shutdown would have to go on for quite a long-time (say at least a month) to affect the trajectory of aggregate macroeconomic statistics like gross domestic product (GDP) or employment growth. For one, the majority of what the federal government spends money on (including the health insurance coverage expansions contained in the ACA!) will not be affected by the shutdown. Transfers payments like Social Security, Medicare, Medicaid, Food Stamps, etc…will continue to flow, as will essential discretionary spending.Given the relatively restricted scope of the shutdown in terms of government spending, it stands to reason that it would have to go on for a a month or so before there would be enough of a mechanical fiscal drag to start significantly affecting the path of macroeconomic aggregates. A very, very rough back-of-the-envelope estimate would be that the strictly mechanical impact of a month of the shutdown would subtract 0.1-0.2 percentage points off of GDP growth for (fiscal) 2014.* So, if the government shutdown lasts a month and the economy was set to grow 3 percent in 2014 without the shutdown, the mechanical drag from the shutdown would result in actual growth of 2.8-2.9 percent. Of course, if one focused on the effect of the shutdown only in the fourth quarter of (calendar) 2013, it will matter quite a bit more (multiply that 0.1-0.2 by 4, so, a one-month shutdown would reduce fourth quarter GDP growth by about 0.4-0.8 percent, which is not peanuts for a quarterly growth number).

Vital Signs: How Much Will Shutdown Drag on Growth? - How the government shutdown will play out is still very uncertain. But the U.S. economy has faced shutdowns before. If the standoff persists, year-end gross domestic product growth is at risk because the shutdown started on the very first day of the fourth quarter. Looking at the 1995-96 experience, a shutdown lasting a few weeks will be a drag on growth. Nondefense federal spending in the fourth quarter of 1995 sliced about 0.4 percentage point from that quarter’s GDP growth. Some of that missed output was made up in subsequent quarters, but real nondefense government spending didn’t return to its pre-shutdown level until the first quarter of 1997. The critical difference between then and now is that the late-1990s economy was strong, powered by new technologies. Growth from the private sectors easily offset the shutdown drag. The current recovery is quite mild and a substantial drop in the federal government spending will be harder to absorb.

Dollar Seen as Shutdown Loser as Growth Hit Spurs QE - The first U.S. government shutdown in 17 years is stoking speculation that the longer it lasts, the more likely the Federal Reserve will delay reducing its monetary stimulus program, boosting emerging-market currencies at the expense of the dollar. At least $300 million a day in economic output will initially be lost because lawmakers can’t agree on a budget, according to IHS Inc. (IHS) A two-week shutdown starting Oct. 1 could cut growth by 0.3 percentage point to a 2.3 percent rate, according to St. Louis-based Macroeconomic Advisers LLC. The Fed’s stimulus programs have weighed on the greenback, with the Bloomberg Dollar Index falling 0.9 percent since Sept. 17. That was the day before the central bank decided to keep printing cash to buy $85 billion of bonds a month because it has yet to see signs of sustained economic growth. The Bloomberg JPMorgan Asia Dollar Index (ADXY) is up 0.3 percent in that period. “If the fiscal issue drags on, the Fed is likely to be less willing to reduce stimulus in the economy. The dollar will suffer if that is the case,”

Shutdown Will Cost U.S. Economy $300 Million a Day, IHS Says - A partial shutdown of the federal government will cost the U.S. at least $300 million a day in lost economic output at the start, according to IHS Inc. While that is a small fraction of the country’s $15.7 trillion economy, the daily impact of a shutdown is likely to accelerate if it continues as it depresses confidence and spending by businesses and consumers. Lexington, Massachusetts-based IHS, a global market research firm, estimates that its forecast for 2.2 percent annualized growth in the fourth quarter will be reduced 0.2 percentage point in a weeklong shutdown. A 21-day closing like the one in 1995-96 could cut growth by 0.9 to 1.4 percentage point, according to Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia. “Government spending touches every aspect of the economy, and disruption of spending, more than the direct loss of income, threatens to damage investor and business confidence in ways that can seriously harm economic growth,”

The Shocking Cost to Taxpayers of a Shutdown - Estimates on the economic impacts of the shutdown vary from $40 to $80 million a day, but share one similar prognostication: a government shutdown is bad for the economy. After a bruising half decade of crawling back from recession, it’s unclear just how bad it would be. Morgan Stanley’s Vincent Reinhart and Ellen Zentner estimated the shutdown would have a direct impact on gross domestic product growth. "Compensation of non-defense employees and civilian defense employees makes up about one-fifth of real federal spending and about 1.5 percent of GDP. Eliminate a third of that in a shutdown as non-exempt workers stay home, and GDP is haircut 0.5 percent. Annualized, this reduces quarterly GDP growth by around 0.15 percentage points per week of shutdown," they wrote in an analysis of the shutdown. Meanwhile, Mark Zandi of Moody’s Analytics believes that a shutdown lasting three to four weeks would cut growth by 1.4 points. Without a shutdown, Zandi predicts that the economy would grow by 2.5 percent for the year. A prolonged shutdown would slide that growth to 2.3 percent. According to the Congressional Research Service, the last government in 1995 and early 1996 shutdown, which lasted 26 days, removed $1.4 billion from the economy ($2.1 billion in today’s dollars). Federal government contractors were hit especially hard, CRS found.

The U.S. Government Has Shut Down. Unfortunately, How the U.S. Governs Hasn’t. - David Dayen - But before you, like many Democratic partisans, say “but everything’s changed, Democrats would never hold the government hostage over gun control,” consider the various policy reasons for government shutdowns over the past 37 years. There were four shutdowns over abortion funding in the 1970s, a Democratic-led shutdown over funding for the notorious MX missile in 1982, a Democratic-led shutdown over a Supreme Court civil rights ruling in 1984, a Democratic-led shutdown over expanding Aid to Families with Dependent Children (that’s welfare) in 1986, and a Democratic-led shutdown over aid to the Contras and the Fairness Doctrine(!) in 1987. So shutdowns were for quite a while part of the normal business of government. And as I said, there’s a cruel logic to them. When Congress and the White House are held by different parties, Congress has no bigger chip at their disposal than the power of the purse. So they use that, over and over again, to extract often unrelated policy concessions from the executive branch. It may have stopped for a while for various reasons, but it’s back because it’s a very inviting way for a Congressional majority to assert their will. The other complaint I hear is “but Republicans lost the election!” That may be true – it’s even sort of true in the House, where Democratic candidates actually yielded more votes than Republicans – but as Ian Milhiser points out, House Republicans certainly believe that they were elected too, and divine the popular will accordingly: The common thread here is the peculiar system of government we have in the United States, which allows for a divided government where each side can lay claim to a popular mandate, and each side can also veto the other’s work to act on that mandate. This is simply not a problem in Parliamentary democracies, where a disagreement over budget priorities would lead to an election, not sending federal workers home. And then one party wins that election, and gets to implement their agenda, and after a while the public can decide whether they liked it or not, and vote accordingly, and allow for implementation of the next agenda. It’s very novel: democratic accountability.

Shutdown Spectacle: 'America Is Already Politically Bankrupt' - As the United States government shutdown enters its second day, Washington is the target of both ridicule and concern overseas. German commentators describe the situation as a "specifically American problem" with far-reaching consequences. The illustration on the cover of German business daily Handelsblatt on Wednesday morning fairly well encapsulates the way the US federal government shutdown is being perceived across the Atlantic. The Statue of Liberty stands bound in chains, her torch hand hanging listlessly by her side. Across it reads the headline: "The Blocked World Power." Many Germans have found it hard to understand American lawmakers' inability to resolve their budget disagreements in time to prevent a shutdown of all nonessential government services, which went into effect at midnight on Monday night. "What Washington currently offers up is a spectacle, but one in which the spectators feel more like crying," writes the conservative daily Frankfurter Allgemeine Zeitung. "Because Republicans and Democrats, House and Senate, Congress and president could not agree on a stop-gap budget, hundreds of thousands of federal employees were sent on involuntary leave and many agencies were forced to shut down," continues the editorial. "The main actors in this dispute, which brings together many factors, both ideological and political, took a huge risk and, unhindered, proceeded to validate everyone who ever accused the political establishment in Washington of being rotten to the core -- by driving the world power into a budgetary state of emergency. The public is left wondering how things could have been allowed to get to this point and why there is so much poison in the system."

House Republicans Present Plan to Break Spending Impasse - House Republicans offered a way to break a stalemate over federal spending as the first government shutdown in 17 years led to the furlough of about 800,000 employees and shuttered offices, parks and museums. House Republican leaders presented a plan to their members that would call for passing a series of stopgap spending bills through Dec. 15 for individual agencies or programs, said a Republican aide and a person in the meeting with knowledge of the meeting.The approach would blunt the most visible effects of the shutdown on veterans and national parks without resolving broader issues. The U.S. Senate this morning rejected the latest version of a House spending bill on a straight party-line vote. It was the third time in less than 24 hours that the Senate rebuffed Republican spending legislation that included provisions to curtail President Barack Obama’s Affordable Care Act.

House Republicans’ Plan to Break Impasse Draws Criticism - A House Republican proposal to break a stalemate over federal spending was swiftly criticized by Democrats and White House officials, extending the impasse that forced the first U.S. government shutdown in 17 years. House Republican leaders presented party members with a plan today to pass stopgap spending bills through Dec. 15 for individual agencies, said Representative Peter King of New York. The measures would fund the Washington, D.C., government, the Department of Veterans Affairs and National Park Service, said Representative Kevin Brady of Texas. “A piecemeal approach to funding the government is not a serious approach,” White House spokesman Jay Carney said today. The spending proposal shows “the utter lack of seriousness on the part of Republicans.”

House G.O.P. Pushes Piecemeal Approach as Democrats Stand Firm - House Republicans are likely to try again on Wednesday to pass three piecemeal spending bills that would reopen parts of the government, as each party tries to force the other to crack under mounting public pressure to end the two-day-old shutdown.  The Republicans suffered embarrassing losses on Tuesday night when the three bills — to finance veterans’ programs, national parks and museums, and federally financed services in Washington — failed to get the two-thirds majorities required to pass under fast-track procedures. Aides to the Republican leadership said the bills would be introduced on Wednesday under ordinary rules that require only simple majorities, and they should easily pass. But Democrats are likely to be granted procedural votes of their own, which would be an opportunity to test how many Republicans would defy their leadership and vote to reopen the entire government without crippling President Obama’s health care law — the standoff that shut down the government at 12:01 a.m. on Tuesday. As public anger grows, more Republicans are coming forward to call for such a rebellion.

Gov't shutdown: No progress on ending stalemate - -- The political stare-down on Capitol Hill shows no signs of easing, leaving federal government functions — from informational websites, to national parks, to processing veterans' claims — in limbo from coast to coast. Lawmakers in both parties ominously suggested the partial shutdown might last for weeks. A funding cutoff for much of the government began Tuesday as a Republican effort to kill or delay the nation's health care law stalled action on a short-term, traditionally routine spending bill. Republicans pivoted to a strategy to try to reopen the government piecemeal but were unable to immediately advance the idea in the House. National parks like Yellowstone and Alcatraz Island were shuttered, government websites went dark and hundreds of thousands of nonessential workers reported for a half-day to fill out time cards, hand in their government cellphones and laptops, and change voicemail messages to gird for a deepening shutdown. The Defense Department said it wasn't clear that service academies would be able to participate in sports, putting Saturday's Army vs. Boston College and Air Force vs. Navy football games on hold, with a decision to be made Thursday. And the White House said Wednesday that President Barack Obama would have to truncate a long-planned trip to Asia, calling off the final two stops in Malaysia and the Philippines.

Washington braces for prolonged government shutdown -  Washington began bracing for a prolonged government shutdown on Tuesday, with House Republicans continuing to demand that the nation’s new health-care law be delayed or repealed and President Obama and the Democrats refusing to give in. There were signs on Capitol Hill that Republicans — knowing that blame almost certainly will fall most heavily on them — are beginning to look for ways to lift some of the pressure. House GOP leaders pushed a new approach to end the impasse, offering to fund some parts of the government — including national parks, veterans benefits and the D.C. government. The goal was to put Democrats on the spot by trying to make them vote against programs that are popular among their constituents. Senate Democratic leaders and the White House quickly rejected the piecemeal strategy. And in a series of evening votes, Democrats helped defeat the measures on the House floor.

Government Shutdown Hits Native Americans Hard - While some communities may be spared from immediate effects from the government shutdown, that’s not true for anyone who is part of a Native American tribe. Thanks to the fact that a good number of their programs rely heavily on federal grant money, basic services in many tribes are being cut off, the Associated Press reports.  The services that are taking the hit include nutrition programs, financial assistance for low-income Native Americans, payments to vendors who provide foster care, and residential care for children and adults. Nutrition programs in particular are feeling the blow, which provide food to an average of 76,500 people a month in an estimated 276 tribes. During the previous shutdown in 1995, assistance payments for the poor, which total about $42 million a year, were delayed for about 53,000 Native American recipients.Some tribes will cover the gap created by a lack of federal funds with their own money, which could risk opening deficits. But for others, the services will “take a direct hit,” reporter Matthew Brown writes. That’s due to a combination of losing federal money for programs that are heavily subsidized as well as tribal money that isn’t available because it’s being held by the Department of the Interior. “Essential” activities like law enforcement, firefighting, and some social services will not be impacted.

How the Shutdown Is Devastating Biomedical Scientists and Killing Their Research - The federal shutdown’s effects on science and medicine are many. There’s halted food safety inspections, kids with cancer who won’t be able to join clinical drug trials, and suspension of disease outbreak monitoring. Conservation studies have been thrown into disarray and at least one NASA Mars mission is at risk of being delayed for years. But one area where the devastating effects aren’t getting much public attention is the thousands of researchers and billions of dollars dedicated to understanding human disease and development. I talked to a government biomedical scientist about the shutdown’s effect. Because the scientist was instructed not to speak with the media, this person will remain anonymous. Below is an edited version of what the scientist told me. I don’t think the public realizes the devastating impact that this has on scientific research. Scientific research is not like turning on and off an assembly line. Experiments are frequently long-term and complicated. They involve specific treatments and specific times. You can’t just stop and restart it. You’ve probably just destroyed the experiment. You also can’t necessarily recover. You can’t begin an experiment all over again. If you do, you’ll be set back months — if there’s even time and personnel to do it. But often, science moves rapidly, times change, and you can’t re-initiate the experiments. It’s an enormous loss to scientific research, an enormous loss of time and personnel.

Pentagon Spent $5 Billion on Weapons on Eve of Shutdown - The Pentagon pumped billions of dollars into contractors' bank accounts on the eve of the U.S. government's shutdown that saw 400,000 Defense Department employees furloughed. All told, the Pentagon awarded 94 contracts yesterday evening on its annual end-of-the-fiscal-year spending spree, spending more than five billion dollars on everything from robot submarines to Finnish hand grenades and a radar base mounted on an offshore oil platform. To put things in perspective, the Pentagon gave out only 14 contracts on September 3, the first workday of the month. Here are some of the more interesting purchases from Monday's dollar-dump.

Government shutdown: Why many Republicans have no reason to deal -  The prevailing wisdom ahead of the government shutdown was that tea party lawmakers who agitated for it would fold within a few days, once they got an earful from angry constituents and felt the sting of bad headlines. House GOP leaders called it a “touch the stove” moment for the band of Republican rebels, when ideology would finally meet reality.  But there’s another reality that explains why that thinking may well be wrong, and the country could be in for a protracted standoff: Most of the Republicans digging in have no reason to fear voters will ever punish them for it. The vast majority of GOP lawmakers are safely ensconced in districts that, based on the voter rolls, would never think of electing a Democrat. Their bigger worry is that someone even more conservative than they are — bankrolled by a cadre of uncompromising conservative groups — might challenge them in a primary.

The government shutdown could end today. All it would cost is John Boehner’s speakership - Here’s an interesting political conundrum: The federal government could re-open tomorrow. But it would end John Boehner’s speakership. There are currently 19 House Republicans on the record in support of a “clean” continuing resolution, meaning one without any other extraneous measures — like the defunding or delaying of Obamcare — attached. Combine those nineteen with the 200 Democrats who would almost certainly vote as a bloc in support of such a clean CR and you get 219 votes — a majority of the House. The bill has already been passed by the Democratic-controlled Senate, so it would go to straight to President Obama who would sign it. Shutdown over. Easy. Except one little thing, which is that the only way for that scenario to happen is for Boehner to allow a piece of legislation supported by roughly 7 percent of his conference to come to the House floor for a vote. And, doing that on something as high-profile as a government shutdown/Obamacare, would almost certainly signal either the symbolic (or maybe even practical) end of his speakership.

Obama Issues Statement, "Not Going To Negotiate" After All - Earlier, on CNBC, Obama said he is "prepared to negotiate." As it turns out, he may have been confused about the meaning of the bolded word because less than four hours later, the White House issued a statement in which "The President made clear to the Leaders that he is not going to negotiate over the need for Congress to act to reopen the government." Tonight, the President hosted a meeting with the members of the Congressional Leadership that lasted for over an hour. The President made clear to the Leaders that he is not going to negotiate over the need for Congress to act to reopen the government or to raise the debt limit to pay the bills Congress has already incurred. The President reinforced his view that the House should put the clean government funding bill that has been passed by the Senate up for a vote – a bill that would pass a majority of the House with bipartisan support. The House could act today to reopen the government and stop the harm this shutdown is causing to the economy and families across the country. The President remains hopeful that common sense will prevail, and that Congress will not only do its job to reopen the government, but also act to pay the bills it has racked up and spare the nation from a devastating default. The President is glad that the Leaders were able to engage in this useful discussion this evening.

Clean CR: Democrats need to reject it. - Nothing is for sure, but I think it's pretty clear that Republicans are going to cave in the government shutdown fight. As of 24 hours ago, some House Republicans and zero Senate Democrats were dissenting from their party leadership's strategy. What's more, it's an open secret that the House GOP leadership's strategy isn't even the strategy they initially wanted—it's a strategy they reluctantly adopted under pressure from members of their caucus. But while it's obvious Democrats would have accepted a "clean" Continuing Resolution to keep the government open yesterday, I think they ought to reject one today. The reason is the much scarier debt ceiling showdown facing us in a couple of weeks. Congress will be doing us no favors if it gets the government back up and running only to plow into a catastrophe in the middle of the month. An agreement on a Continuing Resolution ought to also increase the debt ceiling—or even better, abolish it altogether—to ensure that the federal government is fully authorized to continue operations. Letting Republicans "back down" on funding the government only to pick a brand new fight with higher stakes over the same issues two weeks later would only deepen the chaos and uncertainty.

CEOs All At Sea - Paul Krugman - First, CEOs still talk as if debt and deficits were the central issue of economic policy. They never deserved that place; they certainly don’t deserve it now that the deficit has clearly been falling too fast and the debt outlook is stable for the next decade. Yet they can’t let go of the notion that a grand bargain on the budget — as opposed to an end to destructive austerity — is what we need.Second, many CEOs are, I believe, genuinely naive about the people they deal with. They believe, for example, that Paul Ryan actually cares about deficits. They haven’t grasped, or refuse to grasp, the reality that the whole thing about deficits was really about using economic crisis as an excuse to tear down the social safety net. Finally, they’re still trying to position themselves as the middle ground between extremists on both sides, when the reality is that we have a basically moderate Democratic party confronting a radical Republican party that doesn’t play by any of the normal rules. If you insist on thinking of Ted Cruz and Elizabeth Warren as somehow symmetrical figures, you’re already so out of touch with political reality that there’s no way you’re going to have useful influence.

Why have markets ignored Washington risk?  Turning to the latest political shenanigans in Washington, risk committees all over the financial world are undoubtedly thinking hard about how to hedge these risks. No-one believes that a temporary shut-down in some government activities is critical, but the debt ceiling is seen as a different matter entirely. A default by the US government on its debt payments could be very disruptive, and set in train a series of events which would be hard for the authorities subsequently to control. However, the risk committees will have started with a strong pre-disposition to believe that the US democratic process will not entirely take leave of its senses, though much brinkmanship could be involved in the meantime. They will also know that the US political process has it within its power to end the uncertainty at very short notice when political calculations change. This is not a case of “can’t pay”, it is a case of “won’t pay”. To a sensible outside observer, it seems improbable that enough members of Congress would act against the interests of the US to trigger a “won’t pay” catastrophe....Hopefully, though, another feedback loop – between the politicians and their voters – will kick in before the markets need to react.

The GOP Lost the Election but Is Winning Fiscal Policy - Congressional Republicans may or may not suffer politically from the government shutdown and upcoming debt ceiling fight, but in terms of policy they have already secured a significant and lopsided victory in the battle over the budget, whether they realize it or not. Repeal of the Affordable Care Act seems pretty unlikely (not just because the President is wildly unlikely to repeal his signature legislation in return for something his opponents also claim to want — raising the debt limit — but also because he seems determined to learn from his 2011 mistake and is unlikely to grant any concessions in return for not defaulting on financial commitments). Still, below all the shutdown/debt limit/ACA drama, the discretionary budget number that Senate Democrats are offering to Republicans (the “clean” continuing resolution) represents a near-complete capitulation to GOP demands. Despite having lost the popular vote for the Presidency, Senate, and House, Republicans were not only able to extract major concessions on discretionary spending, but to exceed even their original demands, as Dylan Matthews observes: “So we’ve been cutting spending at a faster pace than Paul Ryan wanted to when Republicans took over Congress.” This figure by Michael Linden and Harry Stein illustrates the situation (they call this a “compromise,” but I’m not sure that’s the best choice of labels):

Yesterday's Most Important Shutdown-Ending Event Didn't Happen In Washington - All government shutdown-concerned eyes yesterday seemed to be on the two meetings that took place at the White House. Financial company CEOs met with the president in the morning and congressional leaders in the late afternoon.But the real shutdown news was being made in Connecticut, where United Technologies announced that it would furlough 2000 workers each of the next two weeks if the shutdown continues.The reason these nonfederal workers will stop being paid? Because the Defense Contract Management Agency is closed and its inspectors aren't available to review the Black Hawk helicopters the company is making for the Pentagon.If they happen, the layoffs will occur in Stratford, Connecticut; West Palm Beach, Florida, and Troy, Alabama. This is exactly the kind of news that will rapidly change the politics of the shutdown and make it easier/mandatory for a member of Congress who so far has supported the shutdown or refused to admit defeat to insist the government be reopened.

Year-End Rush to Use It or Lose It Leads to Bad Government Spending - U.S. government agencies face use-it-or-lose-it budget rules each fiscal year. They either spend the funds Congress has allocated or return them to the Treasury. The result? Not just more spending, but often bad spending, according to a new paper published by the National Bureau of Economic Research. Monday is the last day of the federal government’s fiscal year. Of course, it isn’t yet clear when Congress will fund the 2014 fiscal year. But even when the process proceeds normally, it appears to lead to a less-than-ideal use of taxpayer funds. The paper, by Harvard University‘s Jeffrey Liebman and the University of Chicago‘s Neale Mahoney, supplants anecdotal evidence on spending with hard data. First, the authors examined contract-level information on 14.6 million purchases, totaling $2.6 trillion in government expenditures, from 2004 to 2009. That shows timing: spending in the last week of the year is almost five times higher than the average week during the rest of the year. Next, they checked the performance of 686 major information-technology projects, accounting for $130 billion in spending. That offers an assessment of the project. “These data show a sharp drop-off in quality at the end of the year. Projects that originate in the last week of the fiscal year have 2.2 to 5.6 times higher odds of having a lower quality score,” Messrs. Liebman and Mahoney said.

Shutdown Savings and the Debt Ceiling - Could the government shutdown now under way actually help avert, or at least delay, the much bigger threat of a debt default by Washington? After all, with much of the government shuttered and not spending, the logic goes, there will be more cash left in government coffers, thus extending the day of reckoning for the debt ceiling. It’s an appealing theory. Unfortunately, it doesn’t hold in practice. That’s because the government will continue spending on what are considered mandatory programs like Social Security, Medicare and interest on the debt during the shutdown. On the other hand, the savings from shuttered “discretionary” programs won’t be enough to move the needle substantially. The Treasury said last week that Congress had until Oct. 17 to raise the ceiling for how much the federal government can borrow, or risk leaving the country on the precipice of default. If the debt ceiling isn’t raised by then, the Treasury estimates it will be left with about $30 billion in cash, which would quickly be used up.

Treasury Turns To Final Emergency Debt Measures - The U.S. Treasury on Tuesday said it is turning to the final emergency measures it has at its disposal to stay under the federal government’s borrowing limit.Treasury Secretary Jacob Lew in a letter to Congress said the government would suspend reinvestment in the Exchange Stabilization Fund, an account created to promote exchange rate stability, and tap a civil service retirement and disability fund. These are the last of a series of so-called extraordinary measure the Treasury has available to stay under the $16.7 trillion debt limit. Treasury had planned to take the steps, so the debt limit deadline remains unchanged. Mr. Lew said the government would run up against the borrowing cap “no later” than Oct. 17 unless Congress raises it.“There are no other legal and prudent options to extend the nation’s borrowing authority,” Mr. Lew said Tuesday. The announcement comes less than a day into the first partial government shutdown in 17 years and just ahead of a fight over raising the borrowing limit. The shutdown won’t materially affect the Oct. 17 deadline unless it continues for an “extended period of time,” Mr. Lew said.

Treasury Says U.S. Default Has Potential to Be Catastrophic -  A default caused by Congress failing to raise the $16.7 trillion federal debt limit “has the potential to be catastrophic,” the U.S. Treasury Department said in a report today. “The U.S. dollar and Treasury securities are at the center of the international financial system,” according to the report. “A default would be unprecedented and has the potential to be catastrophic: Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.” Postponing a debt-ceiling increase “to the very last minute is exactly what our economy does not need,” Treasury Secretary Jacob J. Lew said in the report. Lew has said the Treasury projects that it will exhaust its “extraordinary measures” to stay under the debt limit by Oct. 17 and will then have about $30 billion in cash on hand.

Obama Warns Wall Street On Debt Ceiling - Ordinarily, you don’t hear sitting Presidents make comments about the financial markets or the impact that events in Washington might potentially have on those markets. The reason for that is, I think, rather self-evident. Statements that people like this make have the potential to “spook” the market and have real implications for investors in the real world, including the millions of Americans who have their retirement savings invested in 401(k) accounts an IRAs. That’s why it struck me as rather unusual to hear President Obama make these statements on CNBC: Wall Street needs to be genuinely worried about what is going on in Washington, President Barack Obama told CNBC in a White House interview Wednesday.While gridlock in D.C. is nothing new, “this time I think Wall Street should be concerned,” Obama said. “When you have a situation in which a faction is willing to default on U.S. obligations, then we are in trouble,” Obama said.In the interview, Obama expressed his exasperation with the tea party faction of the Republican party, saying that their reflexive hostility to “civil” negotiation threatens not only the functioning of government, but the wider health of the economy. I am exasperated with the idea that unless I say that 20 million people, ‘you can’t have health insurance, they will not reopen the government.’ That is irresponsible,” he said.“If we get into the habit where one party is allowed to extort, … then any president who comes after me we be unable to govern effectively,” Obama said. One thing I know that the American people are tired of, and I have to assume businesses are tired of, is this constant governing from crisis to crisis,”  

Bankers Warn Obama, Don't Mess With The Debt Ceiling (Again) - 15 Bankers just paid a visit to the White House, listened to President Obama, and explained what a total disaster it would be if the US debt-ceiling is breached and Treasuries technically default. While the politicians exclaimed how bad a government shutdown would be, the banks have turned the panic dial to 11 as Goldman's Lloyd Blankfein noted, bankers are “in a position to really know early what the consequences are,” and it would be catastrophic. The irony that the firm which the government is trying to fine $20 billion for selling fraudulent debt and giving bad advice is now providing the same government with advice on its own bad debt, is not lost on us as Dimon was among the visitors but it is Blankfein's warning, echoing Obama, that will get the headlines, "they shouldn't use the threat of causing the U.S. to fail on its obligation to repay debt as a cudgel." Via Bloomberg, Blankfein - "You can litigate these policy issues, you can relitigate these policy issues in a public forum, but they shouldn't use the threat of causing the U.S. to fail on its obligation to repay debt as a cudgel."

Mounting Wall Street fears of US default -  Wall Street leaders expressed mounting fears on Wednesday over the prospect of the first default by the US of its debt obligations as the impasse continued on Capitol Hill on the second day of the government showdown. “There is precedent for a government shutdown, but there is no precedent for a default,” said Lloyd Blankfein, the chief executive of Goldman Sachs, after a meeting between President Barack Obama and top Wall Street chief executives. He was citing the threat of default if Washington’s feuding lawmakers fail to agree to extend the borrowing limit by October 17. A highly anticipated meeting Wednesday evening between Mr Obama, John Boehner, the Republican Speaker of the House, and other leaders ended without any sign of progress. “They will not negotiate,” Mr Boehner said, standing outside the White House. “At some point we have to allow the process to work out.” Moments later, Harry Reid, the top Senate Democrat, accused Mr Boehner of not accepting a “lifeline” that had been thrown his way after Democrats promised to begin negotiations on a long-term budget once the Republican moved to pass a “clean” short-term budget that ended the shutdown. Mr Reid said spending levels, healthcare and agriculture, among other issues, were on the table. Mr Boehner has rejected the offer.

Obama Sets Conditions for Talks: Pass Funding and Raise Debt Ceiling - In their first meeting since a budget impasse shuttered many federal operations, President Obama told Republican leaders on Wednesday that he would negotiate with them only after they agreed to the funding needed to reopen the government and also to an essential increase in the nation’s debt limit, without add-ons. The president’s position reflected the White House view that the Republicans’ strategy is failing. His meeting with Congressional leaders, just over an hour long, ended without any resolution. As they left, Republican and Democratic leaders separately reiterated their contrary positions to waiting reporters. The House speaker, John A. Boehner, Republican of Ohio, said Mr. Obama “will not negotiate,” while the Senate majority leader, Harry Reid, Democrat of Nevada, said Democrats would agree to spending at levels already passed by the House. “My friend John Boehner cannot take ‘yes’ for an answer,” Mr. Reid said. The meeting was the first time that the president linked the two actions that he and a divided Congress are fighting over this month: a budget for the fiscal year that began on Tuesday and an increase in the debt ceiling by Oct. 17, when the Treasury Department will otherwise breach its authority to borrow the money necessary to cover the nation’s existing obligations to citizens, contractors and creditors. Only when those actions are taken, Mr. Obama said, will he agree to revive bipartisan talks toward a long-term budget deal addressing the growing costs of Medicare and Medicaid and the inadequacy of federal tax revenues.

Debt Ceiling Chicken and Trench Warfare - Yves Smith  - In the US, despite all the media frenzy over the Federal shutdown, the attention of the insiders has already moved to the real cliffhanger: the debt ceiling impasse, which starts to bind on October 17. Treasury is already fulminating how putting the sanctity of payments on Treasury bonds in doubt is a seriously bad idea. We also have the curious spectacle of Grover Norquist making the rounds of Vichy Left outlets (see Ezra Klein and Huffington Post) to condition liberals as to where the political professionals see a budget deal shaking out.. Congress passes a continuing resolution to buy a couple of months to negotiate the prize sought by both parties, the middle class shellacking Grand Bargain that “reforms”, as in erodes, Medicare and Social Security.  The wee problem here is that the two sides wanted that last year.  But a deal never came together. Boehner could not deliver the House. Obama wanted some token tax increases on the rich and the Republicans would have none of it.  So what has happened since then? The Tea Partiers, in classic Mafia style, have lowered their bid as time goes on. They’ve added a delay to ObamaCare to their demands and appear unwilling to make other concessions. In addition, Obama has been hoist on the petard of the sequester. He had hoped it would apply enough pressure to both his left flank and to the less doctrinaire Tea Party types to help him get his have old people die faster safety net cuts through. But the sequester didn’t inflict enough pain. Now the shutdown has upped the ante. But even though polls show that most Americans oppose using the shutdown as a way to force changed to Obamacare, the flip side is that those polls may not be germane to the block of intransigent Republicans in the House.

Is grand bargain the only way out? - Many pragmatic House Republicans have come to a simple conclusion: Navigating their way out of this fiscal mess won’t be easy. They think their best chance to fund the government, raise the debt ceiling and extract any concession from President Barack Obama is to strike a big budget deal.  Yes, the grand bargain is back. It’s about the only common thread these days that runs from House Republican leadership down through the rank and file. Most House Republicans privately concede they’re fighting a battle they’re unlikely to win, and to avoid a prolonged shutdown and a disastrous debt default, Washington has to create a package so big that lifting the borrowing limit and funding the government is merely a sideshow.

Republicans Said to Plan Debt-Limit Measure Amid Shutdown  - House Republican leaders plan to bring up a measure to raise the U.S. debt-limit as soon as next week as part of a new attempt to force President Barack Obama to negotiate on the budget, according to three people with knowledge of the strategy. The approach would merge the disputes over ending the government shutdown and raising the debt ceiling into one fiscal fight. “I’d like to get one agreement and be done,” House Majority Whip Kevin McCarthy told reporters today without offering details. Republican leaders are attempting to pair their party’s priorities with a debt-limit increase, a plan they shelved last month to focus on a stopgap measure to fund the government in the new fiscal year. The goal is to have a bill ready in coming days, even without resolving the partial government shutdown, according to a Republican lawmaker and two leadership aides who asked not to be identified to discuss the strategy. There’s no incentive for the Republican-controlled House to take up a Senate-passed short-term measure without add-ons because many lawmakers don’t yet feel the effects of the government shutdown now in its second day, the people said.

Republicans turn to the debt ceiling for leverage - Fears were mounting Wednesday that a fight over the government’s debt ceiling will overtake the budget battle that has paralyzed Washington, threatening to trigger an unprecedented US default. Republican lawmakers, frustrated that they have not won any concessions from Democrats over health care reform, have threatened to roll the two issues together. That signalled not only that the government shutdown could run for two weeks, but also that there could be a battle to the brink over the borrowing limit that would frighten global markets. Showing the same concern, the US Treasury Secretary Jacob Lew warned again Tuesday that the government will run out of money by October 17, placing it in a position of reneging on payments. With a monthly deficit of around $60 billion to address, Lew said in a letter to House Republican leader John Boehner that time is running out to raise the ceiling. By October 17, he said, “we will be left to meet our country’s commitments at that time with only approximately $30 billion.” “If we have insufficient cash on hand, it would be impossible for the United States of America to meet all of its obligations for the first time in our history.”

GOP: Crazy Like Foxes - I think one of the major misunderstandings (willful, in many cases) of this budget mess is that it’s about Republicans just running around willy-nilly screaming “nonononono” like toddlers having a temper tantrum. I know it looks that way, but that’s not what’s happening. This is a strategy. And it’s one they’ve even written down. Jonathan Chait wrote about this in a widely read piece Monday in which he explains what they’ve been up to: If you want to grasp why Republicans are careening toward a potential federal government shutdown, and possibly toward provoking a sovereign debt crisis after that, you need to understand that this is the inevitable product of a conscious party strategy.In January, demoralized House Republicans retreated to Williamsburg, Virginia, to plot out their legislative strategy for President Obama’s second term. Conservatives were angry that their leaders had been unable to stop the expiration of the Bush tax cuts on high incomes, and sought assurances from their leaders that no further compromises would be forthcoming. The agreement that followed, which Republicans called “The Williamsburg Accord,” received obsessive coverage in the conservative media but scant attention in the mainstream press. (The phrase “Williamsburg Accord” has appeared once in the Washington Post and not at all in the New York Times.) But the decision House Republicans made in January has set the party on the course it has followed since.

Government Shutdowns Threaten To Become The New Normal - President Obama must continue to refuse to negotiate policy while the government is shut down. If he does not hold firm on this principle, these mindless and grossly inefficient closures threaten to become the new normal. Real shutdowns—and not just vague threats of closures– could well become a standard part of the annual budget process. And it may not end there. If shutdowns become routine, attention-seeking lawmakers (are there any other kind?) will only escalate their threats. Breaching the debt limit then becomes the next target of opportunity. In just two weeks, we may be there as well. This is not an argument for retaining the Affordable Care Act or any of its provisions—the issue ostensibly behind the current stalemate. It is an argument for not slipping into ever-more paralyzing fiscal gridlock. In this case, the process matters far more than the immediate policy controversy. Already much of Washington and Wall Street has become dangerously blasé about the current shutdown. Oh, a few days or a week—no big deal. If it goes longer than that, they insist, then we’ll worry. This is an exceedingly dangerous view that ignores the reality that every parent learns the hard way: Unchecked bad behavior begets worse behavior.

Aggressive Blunderers - Paul Krugman - Jonathan Chait argues that blame for what looks more and more like a shutdown merging with a debt ceiling crisis rests not with Tea Party radicasl but with the Republican leadership: “The House leadership has evinced every tic of classic aggressive blunderers.” Unfortunately, I think this is right. Just last week we had Paul Ryan blithely assuring National Review that “nobody believes” that Obama will refuse to make concessions over the debt ceiling, and citing examples from the past that anyone who has actually been following the issue knows have no relevance to what’s happening now. In other words, GOP leaders fundamentally misjudged the situation (and Obama’s incentives). And now they have backed themselves into a position where they don’t know how to back down — they have to extract concessions or they’ll have been “disrespected,” in a situation where Obama simply can’t make any concessions without destroying his own credibility and betraying the fundamental norms of governance.

Obama warns world markets there is no guarantee U.S. will avoid defaulting on its debts - An 'exasperated' Barack Obama offered no guarantees the U.S. would avoid an unprecedented default during a crisis meeting with Wall Street bankers yesterday.The President said it could not be taken for granted that the political infighting over the federal shutdown would ease in time to raise the legal debt limit before the October 17 deadline.Speaking on CNBC last night, he said: 'I think this time is different. I think they should be concerned.'When you have a situation in which a faction is willing to default on U.S. obligations, then we are in trouble.'

Treasury Says U.S. Default Impact May Last More Than Generation - A U.S. government default caused by Congress failing to raise the $16.7 trillion federal debt limit could have catastrophic consequences that might last decades, the Treasury Department said in a report today. “Not only might the economic consequences of default be profound, those consequences, including high interest rates, reduced investment, higher debt payments, and slow economic growth, could last for more than a generation,” the Treasury said in the report. The Obama administration is trying to step up the sense of urgency in Congress over the debt ceiling and the partial government shutdown that began Oct. 1. Treasury Secretary Jacob J. Lew is projecting that the U.S. will exhaust its “extraordinary measures” to stay under the limit no later than Oct. 17 and will then have about $30 billion in cash. “In the event that a debt limit impasse were to lead to a default, it could have a catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth -- with many private-sector analysts believing that it would lead to events of the magnitude of late 2008 or worse, and the result then was a recession more severe than any seen since the Great Depression,” the Treasury said in the report.

Lagarde: Failure To Raise U.S. Debt Ceiling Could 'Seriously Damage' Global Economy --The U.S. risks "seriously damaging" the global economy if lawmakers fail to raise the government's borrowing limit in the coming weeks, the head of the International Monetary Fund, Christine Lagarde, warned Thursday. With a weak global recovery facing headwinds from the euro zone, bouts of market volatility and slowing output in emerging markets, "the ongoing political uncertainty over the budget and the debt ceiling does not help," Ms. Lagarde said in prepared remarks for a speech at George Washington University. "The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the U.S. economy, but the entire global economy," she said. The U.S. political impasse only further hobbles the transition of the global economy from the worst global economic recession since the 1930s to a full recovery, the IMF managing director said in a speech ahead of a major meeting of finance ministers and central bankers next week. She said that while the shift from recession to recovery usually takes a year or two, "The transitions I am talking about today are different. They will likely play out over the rest of the decade, if not longer."

No Way Out of Recession Sparked by Failure to Raise Debt Ceiling - If U.S. lawmakers fail to raise the federal government’s borrowing limit this month they will cause a “very, very severe recession with no obvious way out,” Moody’s Analytics Chief Economist Mark Zandi said Friday. With the government unable to enact fiscal policies and the interest rates set by the Federal Reserve already near zero, “there would be no policy levers” to use against the resulting recession, Mr. Zandi said in a conference call with clients. Mr. Zandi’s comment’s echo recent warnings from Wall Street titans like Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein and from the White House. The U.S. Treasury has said it will run out of room to maneuver to remain below the $16.7 trillion debt limit “no later” than Oct. 17 unless Congress raises it. That deadline is fast approaching, even as the government entered its fourth day of shutdown because of deep-seated disagreements among lawmakers over spending. If the debt ceiling isn’t raised, Treasury will have to match its ongoing expenditures to its revenue on a day-by-day basis. Since the government spends more than it takes in, the inability to borrow money will take billions of dollars out of the economy that it injects through daily operations and spending. The situation could also eventually lead to a government default if the Treasury is unable to make payments to its creditors.

U.S. failure to pay bills hurts everyone - Jack Lew - An increase in the debt limit simply allows us to pay our bills. Without a debt limit increase, our government will — in a matter of days — not have the resources it needs to make good on its commitments.  Only Congress has the power to lift the debt limit. That means only Congress can clear the way for our government to meet all of its financial obligations. The United States has met all its financial obligations for more than 200 years. We are a nation that keeps our word. We are a nation that stands behind our full faith and credit. Some claim that the United States does not need to meet every one of its commitments. They argue that the government could pay certain bills and let others go unpaid without consequences. The United States cannot be put in a position of having to choose which commitments it should meet. How could we possibly decide among supporting our veterans, maintaining food assistance for children in need, or sending Medicare payments to hospitals?

US default by any other name - In the endless saga over US fiscal policy, attention has shifted from the closure of some parts of the government (which happened on Tuesday) to the possibility that the Treasury Department will reach the limit of its extraordinary measures to work around the debt ceiling on or around 17 October. The negotiating tactics of the White House are now clear. They are painting the scenario in which the debt ceiling remains frozen as completely catastrophic, perhaps hoping that market disruptions will increase pressure on the Republicans to waive through the necessary legislation. Markets, however, have so far been reluctant to co-operate. (See this earlier blog.)In a letter to Congress on 25 September, Treasury Secretary Jack Lew described the ensuing situation as “default by another name”, and Goldman Sachs CEO Lloyd Blankfein has said that “there is no precedent for a default”.Investors hate the word “default” but they need to be careful about its exact meaning here. Most observers, including the major investment banks, think it very unlikely that the US would ever choose to default on any payments due on its sovereign debt, even if the debt ceiling is left permanently unchanged after 17 October. The government could, however, go into arrears on many of its normal payments after that date. This would have serious contractionary effects on the economy, and might lead credit agencies to downgrade their ratings on US sovereign debt.

Boehner Pledges to Avoid Default, Republicans Say -  Speaker John A. Boehner has privately told Republican lawmakers anxious about fallout from the government shutdown that he would not allow a potentially more crippling federal default as the atmosphere on Capitol Hill turned increasingly tense on Thursday.Mr. Boehner’s comments, recounted by multiple lawmakers, that he would use a combination of Republican and Democratic votes to increase the federal debt limit if necessary appeared aimed at reassuring his colleagues — and nervous financial markets — that he did not intend to let the economic crisis spiral further out of control.  They came even though he has so far refused to allow a vote on a Senate budget measure to end the shutdown that many believe could pass with bipartisan backing. They also reflect Mr. Boehner’s view that a default would have widespread and long-term economic consequences while the shutdown, though disruptive, had more limited impact.

Speaker Boehner Telling Colleagues ‘Grand Bargain’ Back In Play -- The end result of the shutdown could be not only a victory for extortion tactics by the minority party, but also long lasting damage to the safety net with cuts to Social Security and Medicare. Speaker John Boehner is telling his Republican colleagues that negotiations are taking place behind the scenes on the so-called ‘Grand Bargain’. It became clear, members say, that Boehner’s chief goal is conference unity as the debt limit nears, and he’s looking at potentially blending a government-spending deal and debt-limit agreement into a larger budget package“It’s the return of the grand bargain,”. “There weren’t a lot of specifics discussed, and the meetings were mostly about just checking in. But he’s looking hard at the debt limit as a place where we can do something big.”President Obama had his legs taken out from under him last time this deal came around by his fellow Democrats in the House who were told explicitly by their constituents cutting Social Security and Medicare is unacceptable. But all indications were Obama wanted the deal.Per sources, entitlement reforms, such as chained CPI, an elimination of the medical-device tax, and delays to parts of Obamacare are all on the table as trades for delaying aspects of sequestration and extending the debt limit. Camp, especially, is pushing to have a tax-reform framework included. It’s not too late for Democrats to snatch defeat from the jaws of victory.

Bipartisan House Group Offers Compromise to End Shutdown Impasse -  A bipartisan group of lawmakers is proposing to House Republican and Democratic leaders a compromise to end the government shutdown by repealing a medical device tax and maintaining across-the-board spending cuts. Representatives Charlie Dent, a Pennsylvania Republican, and Ron Kind, a Wisconsin Democrat, are leading a group of 20 lawmakers who sent House Speaker John Boehner and Minority Leader Nancy Pelosi a letter today offering the compromise.While the medical device proposal has drawn support from Democrats in both chambers, Charles Schumer, the Senate’s No. 3 Democrat, said his party won’t accept a bill to fund the government that contains measures related to President Barack Obama’s health-care law. The offer comes as more than a dozen House Republicans who want to drop attempts to undermine the health-care law and reopen the government are meeting among themselves and with Boehner.

Stop “the Great Betrayal” – Kabuki Update - It now looks like the big media and leaders in both parties are no longer focusing on the Government Shutdown crisis, but are now moving on to the notion that the shutdown is melding with the upcoming probable breaching of the debt limit to create a combined mother of all fiscal crises. Along with this, the media and many politicians, encouraged by the President’s standing “strong, strong, strong,” are now directing attention away from whether ObamaCare will be delayed or compromised, to other types of ransom the Administration might pay in return for both re-opening the Government and also providing an increase of an undetermined amount in the debt limit. Meanwhile there are reports that under increasing Wall Street pressure John Boehner is preparing to negotiate with House Democrats and allow a vote to pass a CR and a clean debt limit increase bill, in return for concessions he can take back to his caucus. TINA does not apply in this case, and the President’s choices are not limited to just refusing to negotiate or giving in to ransom demands whether focused on Obamacare, the Keystone Pipeline, entitlement cuts,“tax reform frameworks” or any other measures that give “tea party” Republicans “the respect” they think is due them. By continuing to frame things in this way, the media and politicians in both parties are echoing the Administration’s framing of the situation and absolving the President of his share of the blame for the debt limit crisis. They are also preparing the way for a compromise, that will, almost certainly, result in hurtful cuts to Government spending including renewed consideration of “the Great Betrayal,” also known as the Grand Bargain, and probably passage of the chained CPI cuts to Social Security over the objections of a large majority of the American people.

10 reasons why a grand budget bargain is a total fantasy right now - Chris Krueger of Guggenheim Washington Research Group has a crackerjack research note out this morning that shatters any illusions there will be a mega-budget deal between Democrats and Republicans. Here’s some of his analysis:

    • 1. No Trust.
    • 2. No Time.
    • 3. No Down Payment or Trigger. For Republicans, a “down payment” is essential to begin any negotiation that would reopen the government (and perhaps raise the debt ceiling).  For Obama and most Congressional Democrats, a “down payment” is a fancy word for a ransom.
    • 4. No Mitch McConnell - McConnell is currently waging a bitter re-election campaign in Kentucky with both a Tea Party primary and a general election opponent.
    • 5. No Staff. Grand bargains are not produced with skeleton crew staffs.
    • 6. Entitlement Reform. For Obama, entitlement reform is probably close to a 1:1 trade between provider cuts and beneficiary cuts. This will be a very tough sell with Republicans.
    • 7. Revenues Very Hard. Obama will likely only give on entitlements for substantial revenues (close to a 1:1 ratio), which will be a non-starter with most Congressional Republicans.
    • 8. House GOP.  If the current House GOP leadership overextends itself by going for too big a deal, it is not difficult to see broad replacements of the current leadership with more Tea Party-focused lawmakers.
    • 9. Jack Lew. His relations with Congressional Republicans are less than stellar; in a nutshell: they don’t trust him and he doesn’t trust them.
    • 10. 2014. A huge deal on deficit reduction would likely eliminate any chance for Democrats to retake the House.

Boehner Seeks Republican Unity on Debt-Ceiling Increase -  U.S. House Speaker John Boehner is trying to unite Republicans around a plan to reopen the federal government, raise the debt ceiling and achieve as many of the party’s priorities as they can. There’s one major problem: the 232 members of his caucus can’t agree on how to do that. Boehner is under pressure from multiple factions in his own party during a House Republicans’ meeting that began at 10 a.m. today in Washington, on the fourth day of a partial government shutdown that shows no signs of ending. He told members that he wouldn’t allow a U.S. default, according to a person in the room speaking on condition of anonymity to discuss the private meeting.  “The speaker has been trying to unify us for a long time,” Representative Devin Nunes, a California Republican and Boehner ally said yesterday. “The problem is it’s impossible as long as we have people out telling their constituents that there is a magical way to get 67 senators and 290 House members to override a presidential veto.”

It’s Groundhog Day Over the Debt Ceiling - In the absence of Congressional action, and barring some extraordinary measures, the debt ceiling is set to be breached sometime in the next several weeks, and the U.S. stands to gain nothing by not raising it.The debt limit “debate” is not about limiting the size of government, entitlement reforms, or tax reform. The proof of that is that there are no major items like that on the table right now.  Instead, Republicans in Congress are yet again debating whether Congress should authorize the government to pay for spending—wait for it—that Congress has already authorized the government to undertake! Yes, it really is that silly of a situation. It is also cowardly—if the Republicans don’t want the spending to occur, they should specify the spending cuts, not put the United States in a literally impossible position by saying “you must spend this amount of money, but you are not authorized to finance that spending via taxes or borrowing.” When other countries authorize spending, they typically proceed by implicitly authorizing the increase in borrowing needed to fund such spending. Of the advanced economies, only Denmark has a mechanism like our debt ceiling, and it has never been used as a negotiating tactic for spending cuts.

Three Not-So-Crazy Ways Out of the Debt Ceiling Crisis -The possibility that Congress won’t reach an agreement to raise the debt ceiling has gotten economists and legal experts thinking of ways to get around the debt ceiling without Congress’ approval. Here are three possible strategies:

  • 1. The Trillion-Dollar Coin: This idea takes advantage of a loophole in the law which allows the Treasury to mint platinum coins without limit. The purpose of the law is to allow the creation of commemorative coins, but there’s nothing in the law that would prevent the minting a coin of any value. Therefore, to get around the debt ceiling, Balking suggests minting two platinum coins worth $1 trillion dollars and then just depositing them at the Federal Reserve in order to write checks based on the value.
  • 2. The 14th Amendment: Another potential option is for the President to declare the debt limit unconstitutional because of in the 14th amendment. It states, ”the validity of the public debt of the United States, authorized by law . . . shall not be questioned.” The 14th Amendment was written to prevent Southern congressmen from threatening to default on U.S. debt unless the Confederacy’s debt was paid off too.
  • 3. Premium Treasury Bonds: While the previous two strategies for obviating the debt ceiling were prevalent during the last debt-ceiling showdown, the idea of issuing so-called “premium” Treasury bonds is newer. The idea was first raised earlier this year by Matthew Levine at Dealbreaker. Understanding the idea requires knowing a little bit about how bonds are sold. Bear with:

Making sense of the market in US CDS -- Matt Levine had an excellent post last week on the bizarre market in credit default swaps on the USA — a market which people only ever look at during times of crisis or potential crisis. The nihilists are out in force today, using this market to confirm their priors, but the problem is that it’s very, very hard to look at US CDS, or to look at the yield on short-dated Treasury bills, and draw anything much in the way of meaningful conclusions.  One reason why is that Treasury bills are unique in many ways, including the weirdest way of all: as worries about the creditworthiness of the US government increase, the price of Treasury securities tends to go up, rather than down. Even if the US hits the debt ceiling, that won’t hurt the price of US debt; instead, general nervousness will only cause investors to flow into Treasuries and out of riskier assets. Which is to say, out of everything else.  And although Levine has managed to piece together a scenario under which a temporary technical default on US debt could cause a real payout for holders of US CDS, I don’t think that scenario really explains the price action either. The problem with it is that the government would still need to miss an interest payment on its Treasury securities, and there’s no way that it’s ever going to do that, whatever happens to the debt ceiling.

The shutdown and the economy - The US federal government impasse is clearly having a material impact on the economy.  The impact is both direct - from government employees and many companies that do business with the federal government -  and indirect from the hit to the American consumer and consumer spending. Here is part what the direct impact looks like: Yahoo/Finance: - The shutdown of the federal government represents both a direct setback for the economy and a symbolic arrow pointing to one of the economy’s weakest sectors. Economic forecasting firm IHS Global Insight estimates that every week the government remains shuttered will reduce GDP by $1.6 billion. That's not a huge hit in the grand scheme of things, but the economy is weak to start with, and it’s not usually considered prudent to trip a limping patient.The furlough of as many as 800,000 federal employees—punctuated by the government’s failure to publish the monthly jobs report for September on schedule, due to the shutdown--will further weaken a sector that’s already detracting from employment. The indirect impact on the other hand is harder to quantify, but if the situation is not resolved soon, it will overshadow the direct impact. One can already see what the sutdown is doing to consumer confidence from some high frequency sentiment surveys. The Gallup Economic Confidence Index for example is at the lowest level in over a year.  Those who believe that the politicians responsible for this madness are trying to help US households and small businesses should just look at the chart below.

Estimated Macro Impacts of the Shutdown -Four business days into the shutdown, and we have already exceeded in length 90% of the government-wide shutdowns that have occurred. What is the macro impact? In an accounting sense, by end-of-Monday, the impact should be to shave off 0.2 ppts of 2013Q4 q/q annualized growth; a two week closure has a 0.4 ppts impact. On the one hand, these estimates presuppose that when the closure ends, Federal compensation for workers is not disbursed retroactively. If they are disbursed, the impact should be mitigated. On the other hand, no second round effects on consumption are incorporated -- that is no multiplier for government consumption are assumed. And as we know, when we are in a liquidity trap, multipliers tend to be large. [1] While these are not incredibly large numbers, when forecasted Q4 growth is already fairly low, one might very well worry if one believes in nonlinearities (e.g., stall speed).  The Goldman Sachs note also mentions the impact of heightened policy uncertainty on growth. I myself am skeptical of the impact -- I think deficient aggregate demand is much more important -- but for those who think it is important, here is a picture of the current situation.

Goldman Sachs: When will Shutdown End? - Some thoughts from Alec Phillips at Goldman Sachs: Will the Federal Shutdown End with a Debt Ceiling Increase?  In our view, the most likely outcome of the current fiscal dispute is an agreement that combines an increase in the debt limit and a "continuing resolution" that reopens the federal government. We would expect this to pass no earlier than the end of next week (i.e., October 11-12) and more likely sometime around the Treasury's projected deadline of October 17. Other outcomes are possible, but we believe they have lower probabilities. It is possible that political pressure to end the shutdown could build, but polling thus far does not indicate this has happened yet. It is also possible that if the effort to resolve the two issues together fails, the shutdown could remain unresolved even after the debt limit has been increased. This is a possibility, but we see it as less likely than a combined continuing resolution and debt limit increase.And Phillips also mentions: Congress is scheduled to go on recess the week of October 13, but this would presumably have to be cancelled if the debt limit had not yet been addressed. In the past, seemingly intractable political disputes have often been resolved around the start of planned congressional recesses.

Shutdown Means Workers Furloughed as Death Benefits Halted -  At some agencies, almost everyone was let go, according to planning documents filed with the White House. At the Bureau of Labor Statistics, which compiles the closely watched monthly employment report, just 3 of its 2,409 workers were set to stay through the shutdown. The Federal Election Commission exempted only its four commissioners. The Census Bureau, where Young is employed, planned to have 35 of its 15,641 employees working. “We’re sick and tired of them using federal government employees as political pawns,” said Cesar Anchiraico, 37, a statistician with the agency, who said he set aside enough money to get through 14 days without his $2,500 bi-weekly paycheck. “We’re the casualties. They don’t care. They still get their paychecks.” Those lost wages will begin a ripple effect through the U.S. economy, costing at least $300 million a day in lost output, according to IHS Inc. (IHS), a forecasting company. While that’s a fraction of the country’s $16.7 trillion economy, the effects may grow over time as consumers and businesses defer purchases and abandon expansion plans.

Troops Forage for Food While Golfers Play on in Shutdown -  Grocery stores on Army bases in the U.S. are closed. The golf course at Andrews Air Force base is open. All 128 employees of the Saint Lawrence Seaway Development Corp. are working, while 3,000 safety inspectors employed by the Federal Aviation Administration are off the job. The Food and Drug Administration is reviewing new pharmaceuticals. The National Institutes of Health is turning away new patients for clinical trials. The seeming randomness of the U.S. government’s first shutdown in 17 years can be explained in part by anomalies in the spending Congress does and doesn’t control. Activities funded by fees from drug, financial-services and other companies are insulated from year-to-year budget dysfunction. The ones that get a budget from Congress get hit. “What’s really happening in America is that the appropriations process has completely failed,” Government is supposed to collect taxes, the president is supposed to propose each year how to spend the money, and Congress has the final say with the constitutional power of the purse. Instead, Congress has had to resort to a so-called continuing resolution -- a catchall bill to keep the government operating on life support while negotiations continue -- in each of the past 16 years. There have been 93 continuing resolutions passed since 1998, covering operations for as little as 21 days in 1999 to the full years of 2007 and 2011, according to the Congressional Research Service.

Defense Companies Warn Thousands Of Layoffs Imminent Due To Shutdown - Military contractors are warning government officials that they are only days away from furloughing thousands of workers if the government’s partial shutdown continues. The Sikorsky helicopter unit of United Technologies United Technologies says it will furlough 2,000 workers on Monday due to the absence of federal inspectors from its plants who audit and approve various stages in the production process. UTX’s Pratt & Whitney engine business expects to furlough an additional 2,000 at week’s end if the shutdown continues. Some industry employees have already begun to head home. Linda Hudson, CEO of fifth-ranked Pentagon contractor BAE Systems BAE Systems, Inc., told employees in an internal communication yesterday that, “The impact on our Intelligence & Security sector has been significant, with about 1,000 employees already excused from work at their customer sites.” (BAE and the other companies mentioned here contribute to my think tank.)

Americans don’t care about the government shutdown because it’s in slow-motion - Over in Washington, America’s politicians are hurling blame at each other for the stalemate that has forced the US government to shut down for the first time in 17 years. Newspapers and television stations have been dominated by the ongoing game of brinkmanship, with front page headlines screaming “Shutdown” and – in the case of New York’s Daily News – decrying Congress as the “House of Turds”. As time ticks by, economists have become increasingly fearful that the stand-off could bleed into negotiations over America’s debt ceiling and – bizarrely – leave the most powerful and wealthy nation in the world unable to pay its bills. But these are not the strangest things about this week. The strangest thing is how little ordinary people seem to care. No one was talking about the shutdown on Tuesday morning, in a New York coffee shop, shortly after America woke up and learned that the government had been suspended. No one was talking about the shutdown at a conference I went to that day. No one was talking about the shutdown in the offices of the companies I visited, and a straw poll of New Yorkers suggests there were very few people talking about the shutdown in other offices either. Some didn’t know it had happened until a day or two after the blackout started.

U.S. government shutdown likely to drag on into next week -  There will be little if any progress toward ending the government shutdown this weekend, pushing the standoff that has idled more than 800,000 federal workers into its second week. House Republicans plan several votes over the next two days — but none that would restore funds to the entire government. Instead, they will continue passing bills to pay for individual popular programs. By Monday, the House will have voted to restore funds to natural disaster emergency recovery, nutritional assistance for children, national parks, medical research, the District of Columbia and veterans services. The body will also vote to pay members of the National Guard and Reserves. Many of those bills have already passed with support from House Democrats. Senate Democrats and President Barack Obama say they want the government fully funded before any new negotiations can take place. Democratic Senate Majority Leader Harry Reid has vowed to reject the piecemeal approach, Obama is promising vetoes, and the administration’s Office of Management and Budget is brushing away the GOP approach.

Remember Sequestration?  - Congressional Republicans have insisted on defunding, delaying or repealing the Affordable Care Act as a condition of keeping the government running. Congressional Democrats have refused to negotiate over the health care law, and much of the federal government has shut down. This is being cast as a catastrophe for the G.O.P., whose internal party divisions have been laid bare in weeks of tense budget negotiations. But in many ways, the shutdown represents a victory for Republican budget priorities. Conservatives have made the choice between the budget and the health law. That means there has been very little wrangling over the budget itself — indeed, many Democrats would go ahead and pass a bill financing the government at current levels.What would be so bad about that, from a Democratic perspective? It might mean locking in the $1 trillion in long-term budget cuts known as sequestration. Federal agencies — from the National Cancer Institute to the State Department to the Commodity Futures Trading Commission — are operating on very thin budgets, in historical terms. The Pentagon took the worst of the blow, with defense absorbing about $43 billion in cuts in the 2013 budget year. These cuts were never meant to happen. Sequestration was never supposed to go into effect. It was intended to force Congress to come to the table and negotiate a smarter package of deficit reduction, probably one focusing on the fast-growing programs like Medicare that pose a long-term budget problem.

Sequestration, Political Settlement, and Effective Government - Legislators are scrambling to avoid a government shutdown by negotiating a deal that is acceptable to a Republican House majority, Democratic Senate majority, and the namesake of “Obamacare.”  Whether this enthralling episode will end in fire or in ice (or more happily), a number of fiscal conservatives are quietly celebrating the likelihood that the so-called “sequester” will survive as the accepted spending baseline in these negotiations.  They say that this product of the bitter debt ceiling negotiations of 2011, which was originally derided as “dumb” and mean-spirited, has proven to be simple and benign. While it’s fair to say that sequestration hasn’t brought the doom its opponents had sometimes predicted, triumphalism on its behalf is nevertheless quite misguided.  Those who think that, in spite of both parties’ reservations, sequestration is now a settled part of the law, are simply fooling themselves.  Delaying, modifying, or outright cancelling the remaining scheduled years of sequestration will be bargained over in every budget season, as has been the case recently. Beyond the partisan wrangling and media coverage, one major issue consequence is rarely discussed: sequestration creates lingering policy uncertainty, which has real costs in terms of governance, even if they do not show up in budget line-items.

Note to Fiscal Policymakers: Multipliers are Definitely Still Large - In a post on Wonkblog from yesterday morning, Dylan Matthews has an excellent interview with Michael Linden, a budget expert at the Center for American Progress. It’s definitely worth reading—not least for Linden’s correct (and therefore deeply depressing) point that in terms of discretionary spending, “We’ve already essentially adopted the Ryan budget.” But, the simplistic Keynesian in me demands I disagree with something Dylan says about the influence of fiscal policy in the current economy: “In 2009 it was easy to see how the multiplier on government spending, the GDP bang for the buck, would be pretty high. There were a lot of unused resources in the economy that government spending could spring into action. But during good economic times, the multiplier should be around 0. Obviously, we’re somewhere in between now, but where on the spectrum do you think we are?” This is actually all pretty correct until that last sentence, particularly the “somewhere in between now”. Linden makes a very good empirical rebuttal to this by noting that today’s output gap is much, much closer to where it was in 2009 than zero, and, even this current output gap may well understate how much slack actually exists, since CBO has been steadily marking down potential output for reasons that may reverse if the economy recovered (see figure below from the famous DeLong/Summers fiscal policy paper).

Don’t ignore rate rise risk to banks - Five long years ago, there was widespread hand-wringing about the fact that regulators and bank risk managers – like generals – always tend to fight the last war. Most notably, in the run-up to the 2008 Lehman crisis, there had been endless debate about the perils of hedge funds and risky leveraged loans. But when disaster actually struck, it was not the hedge funds or risky leveraged loans that created havoc. Instead, the culprits were supposedly safe triple A assets and entities such as conduits that had previously been ignored – partly because of that obsession with hedge funds. Could the financial world now repeat the same mistake, and keep fighting old wars? It is a question worth pondering, particularly as debate bubbles about a possible US technical default in the Treasuries market. For the past few years, interest rates have been at rock bottom levels, and it is widely assumed this will continue. Last week, for example, Citigroup analysts were predicting: “Treasuries drifting higher in 2014, Bunds stable and [Japanese government bond] yields falling in mid 2014”. Thus banking strategies and investment trades that rely on low rates have sprung up in all corners of the financial system, and many of these seem unhedged. But at some point the cycle will change, either because the central banks eventually tighten policy (in a good scenario), or markets panic (say, after a “technical” default). This may not happen for a long time; but the risk cannot be ignored. And yet – oddly – the issue of interest rate risk gets far less focus in the new regulatory architecture than credit risk. Hence the strange situation where even as regulators urge banks to be careful with mortgage loans, they are encouraging them to load up with sovereign bonds. As Jens Weidmann, Bundesbank president, pointed out in a Financial Times editorial this week, this poses all manner of long-ignored dangers.

US Banks Stuffing ATMs With 20-30% More Cash In Case Of Panicked Withdrawal - Even as the fearmongering over the debt ceiling hits proportions not seen since 2011 (when it was the precipitous drop in the market that catalyzed a resolution in the final minutes, and when four consecutive 400 point up and down DJIA days cemented the deal - a scenario that may be repeated again), some banks are taking things more seriously, and being well-aware that when it comes to banks, any initial panic merely perpetuates more panic, have taken some radical steps. The FT reports that "two of the country’s 10 biggest banks said they were putting into place a “playbook” used in August 2011 when the government last came close to breaching the debt ceiling. One senior executive said his bank was delivering 20-30 per cent more cash than usual in case panicked customers tried to withdraw funds en masse. Banks are also holding daily emergency meetings to discuss other steps, including possible free overdrafts for customers reliant on social security payments from the government.

Will the Financial Markets Crash Before October 17, or After? - Last week, Wall Street economic analysts responded to the usual surveys as to what they thought the upcoming employment numbers would be.    But there was no word on how many of the respondents recognized that there would in fact probably be no number at all on October 4, because the Labor Department would have been closed by the government shutdown. It seems to me that this minor blind-spot is symbolic of a failure of Wall Street to focus adequately, until now, on the long-impending government shutdown and still-impending October 17 deadline for raising the national debt ceiling.  Both sides in Washington are firmly dug in, and don’t plan to back down.  If the politicians don’t get their act together  and the debt ceiling is really not raised, the results will be very bad indeed.   I actually mean “if the Republicans don’t get their act together.”  I think President Obama is fully credible when he says he will not let one faction in one party in one house of congress, in one branch of the government, threaten to blow us all  up if they don’t get their way on the Affordable Care Act. Some continue to imagine that the government could stay within the debt ceiling but meet its obligations out of incoming tax revenue.  This is wrong.  Even if there were enough tax revenue to service the treasury debt for awhile, there would not be anywhere near enough to meet all the other legal obligations that the federal government has already incurred under the congressionally passed budget.  If the government doesn’t pay Staples the money that is owed for office supplies that it bought last month, that is a legal default just as much as if it fails to service its bonds.   The US has never defaulted on its obligations before.

No Measley Shutdown Can Keep Congress from Sucking Up to Wall Street: Just because the government has shut down doesn’t mean Congress will cease its central function of making Americans’ lives miserable. While everyone watches the legislative back-and-forth on the budget, the House may vote this week to thwart a key new Labor Department protection affecting $10.5 trillion in retirement funds. Basically, House Republicans want to allow the financial services industry to continue to steal from your 401(k) and IRA plans. And far too many Democrats want to help them. The Labor Department proposal, known as the “fiduciary rule,” would change the ethical standards by which employer-based retirement products like 401(k)’s and IRAs are marketed and sold. The rule has not been updated since 1975, before 401(k)’s and IRAs even existed. The Labor Department wants to broaden the definition of a “fiduciary” to cover all financial advisers who offer individual investment advice for a fee. UNDER THE RULE, THEY would BE LEGALLY REQUIRED TO work in the best interest of their clients. For example, a fiduciary would not be able to push investment products on customers in which they have a financial stake. The agency defines the goal of the proposal as “to ensure that potential conflicts of interest among advisers are not allowed to compromise the quality of investment advice that millions of American workers rely on, so they can retire with the dignity that they have worked hard to achieve.”

Why do Conservatives Oppose Prosecuting Elite Corporate Frauds? - Bill Black: -There are at least four principles that virtually all conservatives purport to support – except when the potential defendant is socially elite. I have written previously about two of these principles on several occasions – the need for accountability and “broken windows” theory that calls for the prosecutors to make the prosecution of even minor street crimes a high priority if they have, even indirectly, a material effect on the community. The third principle is that it is vital to punish in order to deter crime. Gary Becker, the very conservative Nobel laureate in economics, emphasized this point (again, in the context of street crime). Under Becker’s theory of crime our current practices of allowing elite banksters to become wealthy through leading the “sure thing” of accounting control fraud with immunity from the criminal laws will predictably lead to new, larger epidemics of fraud that will continue to cause our recurrent, intensifying financial crises. The fourth principle, the one this column addresses, is the conservative love of “creative destruction” – a concept made famous by the economist Joseph Schumpeter. I have a simple proposition – there is no more creative destruction than putting a control fraud out of business through a prosecution, receivership, or enforcement action. I have never met personally a conservative, however, who agrees with that proposition in the context of a large, elite corporation. When blue collar workers complain that their clothing manufacturing firm was put out of business by a rival firm that locates its plants in Bangladesh and is able to charge less for their goods because they pay their workers a pittance and “save” money by building factories that are death traps the conservative answer is to tell the U.S. workers to stop whining and light a candle on the altar devoted to the worship of capitalism celebrating the “creative destruction” of their jobs.

JPMorgan Settlement Complicated By Washington Mutual: Sources - JPMorgan Chase & Co's possible $11 billion settlement of government mortgage probes has been complicated by a dispute with the Federal Deposit Insurance Corp over responsibility for losses at the former Washington Mutual Inc, said people familiar with the matter. The dispute, between the largest U.S. bank and the FDIC, could leave the federal agency on the hook for billions the bank is expected to pay as part of the settlement and substantially reduce the amount of the penalty JPMorgan actually pays to the government, some analysts said. JPMorgan is seeking a "global" settlement of federal and state mortgage-related probes that could involve a payment of $7 billion in cash plus $4 billion for consumers, according to other people familiar with negotiations. Last week, Chief Executive Jamie Dimon met with U.S. Attorney General Eric Holder to discuss a possible global settlement, and a source said the broad outlines could be reached any day. JPMorgan is also in talks with the U.S. Securities and Exchange Commission, the U.S. Department of Housing and Urban Development and the New York Attorney General's office.

Justice’s Deceit on the JPMorgan Settlement, and Why Ed DeMarco Should Get Some Apologies - David Dayen: The moral bankruptcy of the Justice Department’s fake crusade against JPMorgan Chase was always fairly obvious, considering that the Attorney General is holding private meetings with Jamie Dimon, the chief potential suspect in a criminal case (hey, at least those talks were “constructive”). Just yesterday, Dimon walked into the White House to meet with the President, afforded the respect of an elder statesman. The idea that he’s under “attack” is absurd. But this has now burst into the open with Justice’s desire to stick the FDIC with half the bill: JPMorgan Chase & Co’s possible $11 billion settlement of government mortgage probes has been complicated by a dispute with the Federal Deposit Insurance Corp over responsibility for losses at the former Washington Mutual Inc, said people familiar with the matter[...]Some fear the FDIC, under pressure from the Justice Department to join a global settlement, might agree to assume liability, a move that would effectively force another government agency to absorb billions of dollars in losses [...]“If the FDIC were to indemnify JPM as part of the government deal, it would likely reduce the rumored $11 billion by about $3.5 billion,” said Joshua Rosner, managing director of Graham Fisher, an independent research consultancy. “That would be an absurd outcome.” It’s worse than Josh says. As reports have noted, $4 billion of that fine goes to “mortgage relief,” allowing JPMorgan to game the rules (as every bank did in the National Mortgage Settlement) to “pay” their fine with other people’s money, get credit for routine actions like bulldozing homes or waiving deficiency judgments, and other “take air out of the books” actions. So the hard money fine is $7 billion. And the FDIC would take on fully HALF of that, despite the fact that, at the time, JPMorgan swore up and down that there would be no federal cost from the WaMu transaction.

 CLO issuance hits highest level since before financial crisis - Sales of sliced-and-diced corporate loans have reached a fresh post-crisis record as investors clamour for higher returns from the structured financial products. A spurt in sales last week has helped push US issuance of so-called “collateralised loan obligations” so far this year to at least $55.41bn, according to S&P Capital IQ LCD – the highest since the $88.94bn sold in 2007, just before the financial crisis. The record sales will be cheered by bankers who had warned that the collapse of the CLO market after the crisis would leave companies unable to refinance their older loans and potentially spark a wave of corporate defaults. Many of the traditional buyers of CLOs – such as complex bank-operated special investment vehicles – went belly-up after 2008, causing issuance of CLOs to all but disappear in the following year. But bundled corporate loans have enjoyed a comeback in the US as banks, pension funds and insurance companies seek ways to boost returns in the face of the Federal Reserve’s continued low interest rates. CLOs package together “leveraged loans” issued by highly-indebted companies and then slice them into different pieces, or tranches. Investing in CLOs can give investors higher returns than placing their money in similarly-rated structured products, such as commercial mortgage-backed securities.

Gensler refuses to budge on derivatives - Call it Gensler’s last stand. Most of his staff have been sent home because of the government shutdown, he is facing significant pressure to delay or moderate sweeping new derivatives rules and he is due to leave office by the end of the year. But Gary Gensler, chairman of the Commodity Futures Trading Commission, is sitting in the darkened headquarters of the agency in Washington and refusing to budge. “Though it’s dark at the CFTC, we are bringing some additional light to the swaps market,” Mr Gensler said. Mr Gensler added that the implementation of new rules designed to shift more bilaterally-traded derivatives to transparent electronic platforms this week had gone better than many had expected. “We’re hearing from market participants that it’s gone more smoothly than they would have thought,” he said. Banks and investors have highlighted multiple issues with the new system in recent days, including the fact that some European trading venues are being captured by the US rules against the wishes of the companies, their home regulators and the European Commission. Mr Gensler said he would not back down, referring to a previous exemption from rules granted to Enron, the energy company, before its disastrous failure in 2001. “We’re not going to create a new Enron loophole,” he said.

Record $217 Corporate Bond Issuance in September; Verizon Leads the Way With Largest Bond Deal Ever at $49 Billion - Corporations are scrambling to raise cash to complete buyouts or simply because they can. Barron's reports September Sees Record $217 Bln Corporate Bond Issuance September isn’t completely finished just yet and it’s already produced a record $217 billion in U.S. corporate bond issuance, an 18% bump from the previous single-month record, according to Janney Montgomery Scott. The secondary market fed off the activity of the primary market, translating to $394 billion in total trading, about 70% of which was in investment grade credits. Five days ago Bloomberg reported Verizon to Sprint Lead Record Month for U.S. Bond Issuance. Sales of corporate bonds in the U.S. reached an all-time high this month, with phone companies Verizon Communications Inc. and Sprint Corp. leading offerings of about $193.7 billion.Verizon issued $49 billion on Sept. 11 in the biggest corporate bond deal ever while Overland Park, Kansas-based Sprint raised $6.5 billion on Sept. 4 in the largest high-yield sale since 2008, according to data compiled by Bloomberg. Offerings broke the previous monthly record of $177.3 billion set in September 2012.Following the Fed’s surprise decision to leave the program untouched, yields on the Bank of America Merrill Lynch U.S. Corporate & High Yield Index dropped to a six-week low of 4.05 percent yesterday.

Q3 M&A deal volume worst since 2009 - Except for a few high profile mega-deals, such as Dell and Verizon Wireless, mergers and acquisitions volume remains light both in the US and globally. In particular private equity buyout activity has been weak and declining. That's one of the reasons corporate loan supply remains tight (see discussion). Of particular concern is the Q3 slowdown in deals. It's driven by the uncertainty created through Fed's "taper talk" as well as the dysfunctional behavior of the US federal government. TheStreet: - Deal volumes for the third quarter sank to their lowest levels in three years as a lack of corporate confidence on the economic outlook continues to erode M&A appetite.  There were just 2,235 deals announced in the third quarter, the worst since the same period in 2009, according to Dealogic, as uncertainty caused by the government shutdown, an end to Federal Reserve stimulus and a raft of new capital and regulatory requirements bite.

Apple Now Holds 10% of All Corporate Cash: Moody’s — Apple’s $147 billion cash hoard now counts for nearly 10% of all corporate cash held by nonfinancial companies, according to an analysis by Moody’s. U.S. nonfinancial companies held $1.48 trillion in cash as of June 30, according to Moody’s review of the more than 1,000 companies it rates. Cash stockpiles have grown by about 2% from $1.45 trillion at the end of last year, and up 81% from $820 billion at the end of 2006. Corporate cash is still concentrated in just a few hands, with the top 50 holders accounting for 62% of the total.  The companies with the five largest cash holdings – Apple, Microsoft Corp., Google Inc. , Cisco Systems Inc. and Pfizer Inc. – held more than one quarter of the cash. Despite dividends and buybacks Apple, has about 9.5% more cash than it did at the end of last year.  Billionaire investor Carl Icahn pressed the company’schief executive Tim Cook for another $150 billion buyback at a dinner last night.  Apple has nearly double the cash hoard of its next closest rival, since Microsoft has the second-largest cash stockpile at $77 billion.

Trading in Junk Bonds Declines Most Since 2008 - Junk-bond trading in the U.S. has fallen the most since 2008 as the Federal Reserve keeps investors guessing on when it will slow bond purchases that bolstered demand for the debt. Daily transactions in speculative-grade notes have averaged $4.87 billion since June 30, 18.1 percent less than volumes in the first half of the year and the biggest drop-off since the credit crisis five years ago, according to data from Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Investment-grade trading, which has been supported by Verizon Communications Inc.’s record $49 billion sale last month, is down 13.6 percent during the same period. High-yield bond investors are showing greater restraint than in the first half, when yields plunged to the lowest on record and buyers demanded the least compensation relative to Treasuries since October 2007. Trading in the third quarter appeared to have been “turning into a full-scale rout”

Buy Low, Sell High -- My It’s the Economy column for the next issue of The New York Times Magazine looks at one venue through which the financial crisis helped the rich get richer and simultaneously wounded the middle class: real estate. There’s a perception out there that the housing bubble was primarily driven by homes at the high end. Supposedly too many Americans tried to reproduce Versailles, building and buying homes with zillions of bathrooms, shoe closets, Jacuzzis and eight-car garages. Yes, there were highly telegenic examples of lavish McMansions. But in fact the homes that went into foreclosure between 2007 and 2012 were primarily in the lowest-price tier when they were purchased, and most were located in middle- and lower-income areas, according to calculations from Redfin, a technology-powered real estate brokerage.  In other words, middle- and lower-income families bought at inflated prices; lost their homes; ended up paying record-high housing rents because so many people lost the ability to own at once, pushing rents up; and of course ended up with their credit scarred for the better part of a decade.

Bubble Trouble: Record Junk Bond Issuance, A Barrage Of IPOs, “Out Of Whack” Valuations, And Grim Earnings Growth - Wolf Richter - When Blackstone’s global head of private equity, Joseph Baratta, said Thursday night that “we” were “in the middle of an epic credit bubble,” the likes of which he hadn’t seen in his career, he knew whereof he spoke.Junk bond issuance hit an all-time record of $47.6 billion in September, edging out the prior record, set in September last year, of $46.8 billion, according to S&P Capital IQ/LCD. Year to date, issuance amounted to $255 billion, blowing away last year’s volume for this period of $243 billion. The year 2012, already in a bubble, set an all-time record with $346 billion. This year, if the Fed keeps the money flowing and forgets about that taper business, junk bond issuance will beat that record handily. Junk-bond funds got clobbered in July and August as retail investors briefly opened their eyes and realized what they had on their hands and fled, and they went looking for yield elsewhere, but there was still no yield in reasonable places, and so they held their noses and picked up these reeking junk-bond funds again. Cash inflow doubled over the last week to $3.1 billion, the most in ten weeks.These retail investors were fired up by the Fed’s refusal to taper even a little bit, giving rise to the hope that it might actually never taper, that this is truly QE Infinity, Wall Street’s wet dream come true – on the theory that the Fed is mortally afraid that any taper would blow over the sky-high financial-markets house of cards it has constructed over the last five years. And the retail cash returned to these junk-bond funds and just about refilled the hole that had been dug during the summer.

Occupy vaporware - What happens when a group of anarchists starts a bank? The answer is that nothing happens: the bank never opens. What happens when a group of anarchists starts a bank? The answer is that nothing happens: the bank never opens. One of the legacies of the Occupy movement is a bunch of groups, all looking to take on the financial system in various different ways. There’s the Alt Banking working group, for instance, which recently released a book; there’s Occupy the SEC, which is still issuing erudite and hard-hitting comment letters, most recently on money-market fund reform; there’s Strike Debt, which runs Rolling Jubilee, an attempt to buy up debt on the cheap, and then retire it. Rolling Jubilee recently responded to criticism from Yves Smith; they promise a lot more details about what they’ve been up to coming up in mid-November, and explain that as “an all-volunteer project”, their project “takes time”. Still, they’ve done what they said they were going to do: they’ve raised more than $600,000, and retired tens of millions of dollars in debt. And then there’s the Occupy Money Cooperative, which describes itself as being “a cooperative company that offers low-cost, transparent, high quality financial services to the 99%”. It’s also the one group which has basically achieved nothing to date. It got some high-profile press in the NYT today, complete with an illustration of what a future, hypothetical Occupy Card might look like. The NYT article, in turn, prompted a slightly weird defense of Occupy Money from Hamilton Nolan at Gawker, saying that even though it’s “still more of an idea right now than a reality”, it’s still a good idea in principle.

Unofficial Problem Bank list declines to 690 Institutions -- This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for September 27, 2013.  The FDIC broke its reporting pattern by not releasing its enforcement action activity for the previous month on the last Friday of the current month. Guess we will get it next week. Otherwise, there two removals during the week that leave the Unofficial Problem Bank list with 690 institutions and $240.5 billion of assets. A year ago, the list held 874 institutions with $335 billion of assets. During the month of September 2013, the list dropped by a net 17 institutions after 14 action terminations, two unassisted mergers, two failures, and one addition. Assets fell by $10.2 billion, which made was the third consecutive month for the list to shrink by more than $10 billion. It may be challenging for the monthly asset removal rate to stay above $10 billion as the average size of institutions on the list has fallen to $349 million. Thus, about 28 institutions would need removal while the average monthly removal rate for the past year is 23 institutions.

Mortgage Settlement Monitor Lets Servicers Steal From Customers for Two Years Before Stepping In With Toothless Metrics -- David Dayen- Joseph Smith, the National Mortgage Settlement Oversight Monitor, created four additional servicing metrics on Wednesday, in what has to be seen as an admission of what we’ve known for a good while – that the servicers are violating the spirit, if not the specific terms, of the settlement.  In particular, servicers have been denying a prompt decision on a loan modification for borrowers, as well as the ban on dual tracking, by never completing any loan modification applications. Here’s the statement from Smith:  These four new metrics address a number of persistent issues involving the loan modification process, single points of contact and billing statement accuracy. They will better hold the banks accountable to the commitments they made in the Settlement to improve their operations in these areas. In particular, I have been extremely concerned about ongoing dual tracking issues. One of the metrics will address the issue of when a loan modification application is considered ‘complete,’ which has led to some of these problems. First of all, in one paragraph, Smith names just about every important consumer protection put into the settlement as among the “persistent issues.” Being on the payroll and all, Smith isn’t going to come out and say it, but he’s acknowledging failure. If servicers aren’t offering a single point of contact (I know Yves questioned whether they ever can), aren’t ending dual tracking, aren’t posting accurate billing statements (!) and aren’t giving loan modifications in a timely and efficient manner, then they basically haven’t skipped a beat since the misconduct that was part of the impetus for the settlement in the first place.

New York Sues Nation’s Top Mortgage Lender - The New York attorney general is preparing a lawsuit against Wells Fargo for disregarding the terms of a multibillion-dollar settlement that was meant to stop foreclosure abuses. The bank is the nation’s largest home lender.  The lawsuit, expected to be filed early Wednesday according to the New York Times, says that the bank didn’t comply with the servicing standards laid out by a broad deal between five of the nation’s largest banks and 49 state attorneys general last year.  The settlement sprung from an investigation that began in 2010 when Americans accused banks of relying on mass-produced documents to wrongfully evict homeowners. New York attorney general, Eric T. Schneiderman, sent a warning to Bank of America and Wells Fargo in May, announcing that he had found both banks in violation of the mortgage settlement. The announcement prompted negotiations between the New York prosecutor’s office and the banks. While Bank of America resolved its issues without litigation, Wells Fargo has not.

Wells Fargo Sued by New York Over Mortgage-Service Accord - Wells Fargo & Co. (WFC) was sued by New York state over claims the bank failed to uphold terms of a $25 billion mortgage-servicing settlement aimed at helping distressed homeowners avoid foreclosure. Wells Fargo and Bank of America Corp. were accused by New York Attorney General Eric Schneiderman of violating the provisions of the national accord by continuing to impose unnecessary delays on borrowers seeking to modify the terms of their loans.Schneiderman filed the suit today in federal court in Washington in the form of a motion to enforce the settlement against San Francisco-based Wells Fargo. Bank of America has agreed to changes aimed at bringing the Charlotte, North Carolina-based lender into compliance with the deal, Schneiderman said at a press conference in Manhattan. “We’re here because we need some extra help from the banks to make sure the national mortgage settlement is doing what it is intended to do,” Schneiderman said. The banks took “radically different courses” in response to the attorney general’s efforts, he said.

Calpers concerned about Richmond, California’s mortgage plan (Reuters) - As Richmond, California, moves forward with a plan to help struggling homeowners by using its power of eminent domain to seize underwater mortgages, the list of those concerned about it is growing - and now includes the pension fund for many of the very same city workers pushing the plan.The $268 billion California Public Employees' Retirement System, the nation's largest public pension fund, joins banks and other investors in worrying that Richmond's plan will undermine the value of its holdings.Calpers holds about $11 billion in income-producing mortgage-backed securities, though it calculates it has just $27,000 in exposure to mortgages targeted by Richmond. "We are sympathetic to homeowners but as fiduciaries our focus must be in the best interests of our members," Calpers spokesman Joe DeAnda told Reuters in the fund's first public statement on Richmond's plan. "We are watching the issue closely and have some concerns about the precedent this may set and the impact to investors."Meanwhile, the Service Employees International Union, which represents 452 of Richmond's roughly 900 employees, most of whom are members of Calpers, is a full-throated backer of the first-of-its-kind eminent domain plan.

Freddie Mac: Mortgage Serious Delinquency rate declined in August, Lowest since April 2009 - Freddie Mac reported that the Single-Family serious delinquency rate declined in August to 2.64% from 2.70% in July. Freddie's rate is down from 3.36% in August 2012, and this is the lowest level since April 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  These are mortgage loans that are "three monthly payments or more past due or in foreclosure".   I'm frequently asked when the distressed sales will be back to normal levels, and that will happen when the percent of seriously delinquent loans (and in foreclosure) is closer to normal.  Since very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. Although this indicates some progress, the "normal" serious delinquency rate is under 1%.   At the recent rate of improvement, the serious delinquency rate will not be under 1% until 2016 or so.  Therefore I expect a fairly high level of distressed sales for 2 to 3 more years (mostly in judicial states).

Fannie Mae: Mortgage Serious Delinquency rate declined in August, Lowest since December 2008 - Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in August to 2.61% from 2.70% in July. The serious delinquency rate is down from 3.44% in August 2012, and this is the lowest level since December 2008.  The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.Earlier Freddie Mac reported that the Single-Family serious delinquency rate declined in August to 2.64% from 2.70% in July. Freddie's rate is down from 3.36% in August 2012, and this is the lowest level since April 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%. Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure". The "normal" serious delinquency rate is under 1%.v Maybe serious delinquencies will be back to normal in late 2015 or 2016.

FHA Drops a $1.7 Billion Bail Out Bombshell on Friday Night - The FHA is getting a $1.7 billion bail out from the Treasury.  Seems those reverse mortgages have managed to accrue $5 billion in losses.  The news was disclosed in a letter to Congress, not even a press release.  Most of us know the drill.  Have to issue news but want no one to read it?  Release it at 5pm on a Friday.    Federal Housing Administration Commissioner via a letter to Congress, who doesn't need to approve the bail out.  The FHA insures loans and is now tightening the rules on reverse mortgages to start this Tuesday.  The $1.7 billion bail out is about 10% of FHA's revenues. Those changes include a 15 percent reduction in the maximum amount a borrower can access via a reverse mortgage. The FHA will also begin collecting 2.5 percent of the home's value in an upfront mortgage-insurance premium rather than the 2 percent it has charged for those taking out 60 percent or more of their proceeds in the first year of a loan. And starting Jan. 13, borrowers will have to pass a financial assessment to measure whether they can handle insurance and property-tax payments. If not, funds will be set aside to cover those costs and prevent a default. Even though the $1.7 billion bail out is projected to be a one time event, House Republicans are already on the prowl to shut down the FHA as a result. There are many older people surviving due to these mortgages and without reverse mortgages won't be able to pay their bills.  Surprise, people in retirement are taking on more and more debt.

"Vampire" foreclosures could damage housing market - Foreclosures are scary enough, and now we have "vampire" foreclosures. RealtyTrac coined the term phrase in a new report to describe a growing number of homes around the U.S. that have been seized by a bank, but are still lived in by the original owners. An estimated 47 percent of bank-owned homes across the nation are still occupied by the previous owner, according to the real estate information company. In some cities, such as Houston, Miami, Los Angeles and Chicago, up to 65 percent of bank-owned homes are considered vampire foreclosures. These homes, along with the 20 percent of foreclosures known as "zombies," where a homeowner has abandoned the property during the foreclosure process, will eventually have to come to market, said Daren Blomquist, vice president of RealtyTrac. "This distressed inventory is artificially being held back so that in the short-term, it's helping boost the home prices and the housing recovery in general," Blomquist said. "But the red flag there is that eventually these homes are going to have to hit the market. They're not going to just disappear." At some point, banks will want to sell these properties, particularly as home prices increase and they can get more bang for their buck. Combine the vampires, which number 250,000 nationwide, with the zombies, which number about 150,000, and you've got about 400,000 homes poised to hit the market. That's about 10 percent of the current volume of home sales.

How Tighter Mortgage Standards Are Holding Back the Recovery - The housing recovery faces headwinds because it’s too hard to get a mortgage today, which in turn is restraining economic growth, and the government is partly to blame, according to a paper from a top economist and a former White House policy adviser. The authors are quick to note that they aren’t advocating a return to the anything-goes school of lending that prevailed from 2004 until 2007, but they argue that the pendulum has swung from too far in the other direction. The paper was written by Jim Parrott, a former housing advisor in the Obama White House who is now a senior fellow at the Urban Institute, a left-leaning think tank, and Mark Zandi, chief economist of Moody’s Analytics. The clearest sign of tighter credit standards are seen in average credit scores, which in June stood nearly 50 points above their pre-housing bubble levels. Credit scores are not only higher, but they also understate the quality of recent borrowers, who have earned these scores during a much tougher environment. In the early 2000s, borrowers had an easier time building their credit because unemployment was low and home prices were rising. In other words, a 750 credit score coming out of the financial crisis counts for more it did ten years ago. Easing lending standards to return credit scores to pre-bubble levels would boost home sales by around 450,000 units and new single-family home construction by around 275,000 units, according to estimates from Zandi. The increased construction and the benefit of higher home prices, he forecasts, would over time reduce the unemployment rate by 0.4 percentage points.

Opening Up the Credit Box - No, I’m not asking for everyone to start inflating the next bubble.  I’m simply recognizing, as do Jim Parrott and Mark Zandi is this new paper, that credit constraints still abound, particularly in the housing market.Potential homebuyers are…grappling with exceedingly tight mortgage credit conditions. All but those with the most pristine balance sheets find it difficult to obtain loans. The average credit score on loans to purchase homes this year is over 750, some 50 points higher than the average credit score, and 50 points higher than the average among those who took loans for home purchases a decade ago, before the housing bubble. (see figure below) In a WSJ article on their paper, Nick Timiraos writes: Easing lending standards to return credit scores to pre-bubble levels would boost home sales by around 450,000 units and new single-family home construction by around 275,000 units, according to estimates from Zandi. The increased construction and the benefit of higher home prices, he forecasts, would over time reduce the unemployment rate by 0.4 percentage points. Why is credit still so tight and what can be done to help?  Parrot and Zandi (P&Z) identify “put backs” as part of the problem, specifically, the lack of regulatory clarity on the put-back rules.  A put-back is what happens when a mortgage insurer, which these days means Fannie, Freddie, or the FHA, forces the original lender to take back the credit risk associate with a loan that they–the lender–thought was now insured by one of the government guarantors.

The First Economic Victim of the Shutdown - Aside from the furloughed federal workers, the housing recovery may be the first economic victim of the government shutdown. Over the last two years, housing has gone from being a headwind to a major boon to U.S. economic growth. As Warren Buffett once told me, “if we can fix housing, we can fix the economy.” But the shutdown has put the majority of the IRS as well as a good chunk of the Federal Housing Administration out of work. If they can’t process data, mortgages can’t move through the system, and homebuyers could potentially get stuck in limbo. That’s why the nascent housing recovery could be in danger. “Lenders processing loans that need tax transcripts, social security number verification, or FHA home loans face longer delays and reduced functionality from HUD, IRS, and the Social Security Administration,” says David H. Stevens, the president and CEO of the Mortgage Bankers Association, who yesterday called for an end to the shutdown, citing “confusion and fear among borrowers about whether they will be able to close on a home purchase or refinance.” He added, that there were significant impacts on multifamily lenders, as well as rental housing properties that need FHA financing. “The furloughs can disrupt time-sensitive mortgage transaction deals by interfering with borrower lock agreements and causing interest rate disparities from the time of closing to the time the loan is securitized.”

Shutdown: Impact on Mortgage Lending - From mortgage banker Lou Barnes: The shutdown itself can't be quantified. ...We are still taking applications, locking rates, processing our little hearts out, and closing. Our principal problem: in the post-Bubble spasm authorities decided that ALL borrowers should produce two years' tax returns (not just the few self-employed, or owners of rental property, or those needing investment income to qualify). And authorities decided that neither the borrowers nor their CPAs could be trusted to give us true copies, so we must pull transcripts from the IRS (the dreaded 4506T). The IRS is shut. When it re-opens it will have to process a backlog growing by the hour. Are the authorities helping by waiving the transcript, or granting good faith safe harbor? NooOOOooo. Many lenders -- to their great credit -- seem willing to defer the risk to post-closing. However, home sales and closings will suffer soon, if only by expired rate locks.  Time to end the shutdown.

Shutdown will stall home loans for thousands - Beginning next week, thousands of home buyers will be unable to get approvals for their mortgages because of the government shutdown, potentially undercutting the nation’s resurgent housing market. Without paperwork from the Internal Revenue Service, the Social Security Administration and in many cases the Federal Housing Administration, banks and other mortgage lenders will be less willing to make loans, if they can make them at all. For instance, lenders rely on the IRS to confirm borrowers’ income and on Social Security to confirm their identity.Every day that government offices remain shuttered will delay an ever-larger fraction of mortgage closings, industry leaders say, jeopardizing mortgage and interest-rate approvals and spooking sellers. About 15,000 new home mortgages and 18,000 refinancings on average are completed across the country each day. On Friday, House Republicans continued to insist on changes to President Obama’s health-care program as a condition for funding the government. But with attention on Capitol Hill shifting to an Oct. 17 debt-ceiling deadline, there was no end in sight to the government shutdown, nor relief for prospective home buyers. “Most people don’t really think about, ‘Well my loan is going to be underwritten by a federal agency,’ ” said Marj Rosner, vice president and sales manager at Long & Foster, a real estate firm. “But the government has a huge imprint here.” Major lenders are scrambling to figure out whether they can risk making some loans without the federal paperwork and assessing whether they should require additional documentation from borrowers because the IRS has no one working who can verify income.

Why the US Mortgage Market Will Remain Heavily Dependent on Government Support - Yves Smith - In Senate Banking Committee testimony today, Georgetown law professor Adam Levitin explains why the private label (non-government guaranteed) mortgage market is a textbook case of what Nobel prize winning economist George Akerloff called a “market for lemons”. While that conclusion is not news to those who’ve been following the financial crisis and its aftermath, Levitin reaches a second conclusion that many policymakers have been keen to finesse: that the US mortgage market, even if private mortgage securitizations were reformed (which they have not been), is bound to remain heavily dependent on Federal guarantees. The implication is that the pet dream of Republicans, to kill the GSEs, isn’t realistic unless they want to kill the housing market as it goes through a brutal transition period to more on-balance sheet bank lending. The reason is not simply securitization allowed for mortgages to be issued much more cheaply due to eliminating the cost bank equity and FDIC insurance. A bigger reason is that the 30 year fixed interest rate mortgage with an unrestricted borrower right of prepayment would never exist absent government support. So it should be no surprise that the various mortgage insurance “reform” programs are simply to have supposedly better GSEs replace Fannie and Freddie but still wield a government guarantee

MBA: Mortgage Applications Decrease in Latest Weekly Survey, Mortgage Rates Decline - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 0.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 27, 2013. ...The Refinance Index increased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier. .. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.49 percent, the lowest rate since June 2013, from 4.62 percent, with points decreasing to 0.34 from 0.41 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. The refinance index is up sharply over the last three weeks as rates have declined. However the index is still down 63% from the levels in early May. The second graph shows the MBA mortgage purchase index. The 4-week average of the purchase index has fallen since early May, and the 4-week average of the purchase index is only up 1.4% from a year ago.

Average U.S. 30-year Mortgage Rate Down to 4.22 Percent - Average U.S. rates on fixed mortgages fell for the third straight week to their lowest point in three months, as a decline in consumer confidence and the onset of the government shutdown forced rates down. Mortgage buyer Freddie Mac said Thursday that the average rate on the 30-year loan dropped to 4.22 percent from 4.32 percent last week. The average on the 15-year fixed loan declined to 3.29 percent from 3.37 percent. Both are the lowest averages since early July. Rates began to fall last month after the Federal Reserve held off slowing its $85-billion-a-month in bond buys, which have kept rates low. They fell further this week as the shutdown prompted investors to sell stocks and buy Treasury bonds. Mortgage rates tend to follow the yield on the 10-year Treasury note. The 10-year note traded at 2.63 percent Thursday morning, down from 2.71 percent on Sept. 23.

Trulia: Asking House Prices suggest "Slowdown" in Sales Price Increases - This was released earlier today: Trulia Reports Asking Home Prices Slow Down in Hottest Housing Markets - Nationally, asking home prices rose 3.0 percent quarter-over-quarter (Q-o-Q) in September – the smallest Q-o-Q change since February. However, the downward trend is harder to spot in the more volatile monthly changes and smoothed out yearly changes. Asking prices rose 2.0 percent month-over-month (M-o-M) and 11.5 percent year-over-year (Y-o-Y), but year-over-year changes should start to shrink in the coming months. At the metro level, 89 of the 100 largest metros had Q-o-Q price increases in September, down from 97 in June....Nationally, rents rose 3.0 percent Y-o-Y in September, down from 3.9 percent Y-o-Y in June. Locally, rent rose more slowly in September than in June in 18 of the 25 largest rental markets, including Seattle, Denver, and Houston. However, rents rose faster in September than in June in Portland, San Diego, Phoenix, and several other metros.“Asking home prices give us the first look at where home sale prices are headed, and they point to a slowdown,” said Jed Kolko, Trulia’s Chief Economist. “After rising rapidly in the first half of 2013, asking prices in two thirds of the largest metros are cooling. In fact, asking prices are falling – not just rising more slowly – in 11 of the 100 largest metros, the most markets to see prices slip in six months.” Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and this suggests further house price increases over the next few months on a seasonally adjusted basis (but the year-over-year increases will probably slow). More from Kolko: Asking Prices Slowing in Two Thirds of the Largest Metros

CoreLogic: House Prices up 12.4% Year-over-year in August -The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic Reports Home Prices Rise by 12.4 Percent Year Over Year in August Home prices nationwide, including distressed sales, increased 12.4 percent on a year-over-year basis in August 2013 compared to August 2012. This change represents the 18th consecutive monthly year-over-year increase in home prices nationally. On a month-over-month basis, including distressed sales, home prices increased by 0.9 percent in August 2013 compared to July 2013. Excluding distressed sales, home prices increased on a year-over-year basis by 11.2 percent in August 2013 compared to August 2012. On a month-over-month basis, excluding distressed sales, home prices increased 1 percent in August 2013 compared to July 2013. Distressed sales include short sales and real estate owned (REO) transactions. The CoreLogic Pending HPI indicates that September 2013 home prices, including distressed sales, are expected to rise by 12.7 percent on a year-over-year basis from September 2012 and rise by 0.2 percent on a month-over-month basis from August 2013. Excluding distressed sales, September 2013 home prices are poised to rise 12.2 percent year over year from September 2012 and by 0.7 percent month over month from August 2013.

Housing Market Is Heating Up, if Not Yet Bubbling, by Robert Shiller - Home prices have been rising rapidly, so much so that there is talk that we are entering another national bubble. In fact, according to the S.& P./Case-Shiller Composite-10 Home Price Index, which Karl Case and I developed, home prices in the United States were up 18.4 percent in real, inflation-corrected terms in the 16 months that ended in July. During the housing bubble that preceded the 2008 financial crisis, the largest 16-month increase wasn’t much bigger: 22.7 percent, for the period ended in July 2004.  Is it possible that we are lapsing into what I call a bubble mentality — a self-reinforcing cycle of popular belief that prices can only go higher?  Some answers arise from a study that Professor Case and I have been conducting since 2003. Under the auspices of the Yale School of Management, we’ve been sending out annual questionnaires to random samples of recent home buyers in four United States cities: Boston, Milwaukee, Los Angeles and San Francisco. Last year, we reported on our project at the Brookings Institution in a paper we wrote with Anne Thompson of McGraw-Hill Construction.  We updated the survey in May and June. The results suggest that though we are not in a bubble now, there are troubling signs that we may be heading toward one.

Reis: Apartment Vacancy Rate declined to 4.2% in Q3 2013 - Reis reported that the apartment vacancy rate declined in Q3 to 4.2% from 4.3% in Q2.  In Q3 2012 (a year ago) the vacancy rate was at 4.7%, and the rate peaked at 8.0% at the end of 2009. Some data and comments from Reis Senior Economist Ryan Severino: Vacancy declined by 10 basis points during third quarter to 4.2%. Although vacancy compression has clearly slowed over the last few years, the decline of 10 basis points is an improvement versus last quarter when vacancy was unchanged. Over the last four quarters national vacancies have declined by 50 basis points, on par with last quarter's year‐over‐year decline in vacancy.  The national vacancy rate now stands 380 basis points below the cyclical peak of 8.0% observed right after the recession concluded in late 2009.  Almost four years removed from the advent of the apartment market recovery, demand for apartment units remains robust. The sector absorbed 40,392 units in the third quarter, well outpacing absorption from one year ago during 3Q2012 and up from the 33,634 units that were absorbed during the second quarter of 2013. . Conversely, construction activity continues to increase. Completions during the third quarter were 34,834 units, an increase relative to last quarter's 28,891 units and the 21,237 units that were delivered during the third quarter of 2012. This is the highest level of quarterly completions since the fourth quarter of 2009.  Nonetheless, despite the increase in construction activity, robust demand continues to outpace new completions, intimating that most new units are being rapidly absorbed.  Asking and effective rents both by 0.9% and 1.0%, respectively, during the third quarter. ... . even with tepid rent growth during the recovery period, national asking and effective rents once again reached all‐time high levels, at least on a nominal basis.

Reis: Office Vacancy Rate declines slightly in Q3 to 16.9% - Reis released their Q3 2013 Office Vacancy survey this morning. Reis reported that the office vacancy rate declined to 16.9% in Q3 from 17.0% in Q2.  This is down from 17.2% in Q3 2012, and down from the cycle peak of 17.6%. Vacancies declined by 10 basis points during the third quarter to 16.9%. This is a marginal improvement after last quarter when the vacancy rate did not change. On a year‐over‐year basis, the vacancy rate fell by just 30 basis points, in line with last quarter's year‐over‐year decline. Occupied stock increased by 6.652 million SF in the third quarter. ... On the construction side, this quarter 4.099 million SF were completed, down from last quarter's mini‐spike of 8.049 million SF. While last quarter's bump in construction activity appears to be an aberration, construction activity for office has been slowly if inconsistently trending upward. Year‐to‐date, the market has developed 15.161 million SF. Asking and effective rents both grew by 0.3% during the third quarter. This marks the third consecutive quarter in a row with slowing asking and effective rent growth. Though in reality, rental growth rates are so low that the quarter‐to‐quarter differences are rather minor and could simply be idiosyncratic. Nonetheless, asking and effective rents have now risen for twelve consecutive quarters.

Reis: Regional Mall Vacancy Rates decline slightly in Q3 - Reis reported that the vacancy rate for regional malls declined slightly in Q3 to 8.2%, down from 8.3% in Q2. This is down from a cycle peak of 9.4% in Q3 2011. For Neighborhood and Community malls (strip malls), the vacancy rate was unchanged in Q3 at 10.5%, the same as in Q2. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011. [Strip Malls] National vacancies remained unchanged in the third quarter for neighborhood and community centers. ... Vacancies for neighborhood and community centers now stand at 10.5%, down 30 basis points year over year, and just a paltry 60 basis points below the peak vacancy rate of 11.1% which was recorded two years ago, during the third quarter of 2011. [Regional] Malls have generally experienced a stronger recovery relative to their smaller brethren shopping centers; national vacancies peaked at 9.4% in the third quarter of 2011, and have descended at a faster pace than neighborhood and community center vacancies. Third quarter mall vacancies stand at 8.2%, down 10 basis points from the second quarter and down 50 basis points year over year. Asking rents grew by 0.4% in the third quarter and 1.4% from twelve months prior. This is the tenth consecutive quarter of rent increases at the national level for regional malls.This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.  In the mid-'00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.

Restaurant Performance Index declines in August - From the National Restaurant Association: Restaurant Performance Index Edged Down in August Amid Fading Operator Expectations Due to a softer outlook among restaurant operators for sales growth and the economy, the National Restaurant Association’s Restaurant Performance Index (RPI) declined for the third consecutive month. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.5 in August, down 0.2 percent from July’s level of 100.7. Despite the recent declines, the RPI remained above 100 for the sixth consecutive month, which signifies expansion in the index of key industry indicators.The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 100.7 in August – up 0.6 percent from July and the first increase in three months. In addition, the Current Situation Index stood above 100 for the fifth consecutive month, which signifies expansion in the current situation indicators. A majority of restaurant operators reported positive same-store sales in August, and the overall results were an improvement over July’s performance. ... Restaurant operators also reported stronger customer traffic levels in August.  The index declined to 100.5 in August from 100.7 in July. (above 100 indicates expansion).

US consumer under constant uncertainty assault -One can list numerous reasons for tepid economic expansion in the US. One explanation is that the US households and businesses are relentlessly bombarded with issues that generate uncertainty. Many of these issues carry the so-called economic "tail risks" - non-zero probability of a severe economic deterioration. In a vulnerable economy and after facing the financial crisis and the Eurozone crisis, tail risks are no longer brushed off. Unlike in the 90s for example, it doesn't take much these days to slow consumer spending and trigger companies to resume hoarding cash. If these mini-shocks could be avoided and the economy left to heal itself, chances of growth would improve significantly. Unfortunately the bombardment continues, with the bulk of uncertainty generated by the federal government. One only needs to look at the high-frequency consumer sentiment metrics to see the full picture. And people wonder why the 2013 GDP growth is projected to be around 1.5%.

Economic Confidence Plummets - Economic confidence has taken a nosedive in the last few days, reaching its lowest three-day rolling average since December 2011.Gallup Results for the latest Gallup poll are based on telephone interviews conducted Oct 1-3, 2013, on the Gallup Daily tracking survey, with a random sample of 1,542 adults, aged 18 and older, living in all 50 states and the District of Columbia. The margin of sampling error is plus or minus 3 percentage points.That’s according to Gallup’s daily economic confidence index, one of the few datapoints that has captured economic conditions since the government shutdown began on Tuesday. The nadir over the last five years was in late 2008 and early 2009, improving over the next several years before plummeting in summer 2011. Summer 2011, mind you, was the last time we had a major debt-ceiling crisis. Here’s what happened to confidence then, based on some other competing metrics of economic sentiment charted in a recent Treasury Department report: Gallup’s Economic Confidence Index is based on the answers of survey respondents to two questions, asked daily: one about current economic conditions and another about whether the economy is getting better or worse. About 15 percent of Americans say the economy is in excellent or good shape, with 43 percent saying it is poor. On the second question, 67 percent say the economy is getting worse.

Chart of the Day: US economic confidence plunges as Washington bickers over budget -- From Gallup: Americans’ confidence in the U.S. economy has dropped sharply as the partial government shutdown caused by Congress’ inability to pass a spending bill has become reality. Gallup’s Economic Confidence Index’s three-day rolling average stands at -34 for Oct. 1-3, down 14 points from Sept. 27-29, and the lowest such average since December 2011.Economic confidence had already been dropping prior to this week’s official shutdown, with a slide to -19 for the month of September, compared with -13 in August. But a significantly sharper decline in confidence has been evident over the past three days just as the government partially closed down — leading to the current -34 three-day average. From a broader perspective, economic confidence reached its five-year nadir in late 2008 and early 2009. Confidence improved later in 2009, 2010, and early 2011, but fell sharply again in the summer of 2011, when the nation faced a looming crisis over the possibility of default. That situation was solved only at the last minute on Aug. 2 of that year with a congressional agreement signed into law by President Barack Obama. The U.S. government faces a similar debt ceiling deadline on Oct. 17.

Consumer prices likely up 0.1% in September, YoY up only 1.1%  - For the last few months I have been using the change in the price of a gallon of gas to forecast that month's CPI in advance. My point has been, that all you really need to know about inflation is the price of gasoline. So far each prediction has turned out to be within 0.1% of the actual number. Yesterday the E.I.A. reported for the final week of September, so we can estimate the inflation rate now. My method is to take the change in the price of a gallon of gas and divide by ten, then add 0.1% to 0.2% to account for core inflation, or else divide by 16 to be more conservative, to arrive at the non-seasonally adjusted inflation rate. In August the average price of a gallon of gas was $3.57.4 This month it was $3.53.2. That is a -1.2% decline. Dividing by 10 gives us -0.12%, and adding 0.1% to 0.2% gives us -0.02% to +0.08%. Dividing by 16 gives us a -0.08% decline, and adding 0.1% to 0.2% gives us +0.02 to +0.12%. The seasonal adjustment for September last year was +0.07%. This gives us a final seasonally adjusted inflation rate that rounds to +0.1% +/-0.1%. That will replace last September's +0.5% inflation rate, so that the YoY inflation rate will be +1.1%, 0.1% above the lowest YoY inflation rate for the last 50 years outside of the great recession. This inflation rate is also subdued enough to suggest that real YoY wages have probably increased again in September, and may be closing in on their all-time high set in 2010.

The Definitive Rich Vs Poor Chart: "The Rich Hold Assets, The Poor Have Debt" - This chart from Citi's Matt King pretty much sums it up (and contrary to what Magic Money Tree growers will tell you, debt is not wealth).   Why is it important? Simple - contrary to the Fed's flawed DSGE models, it is the poor who are more likely to consume. And logically with their purchasing power being funneled to the rich with every $85 billion in monthly debt monetization, they purchase less and less. As the slow but steady contraction in the economy over the past five years has proven beyond a reasonable doubt.

Weekly Gasoline Update: Regular Down Eight Cents - It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, the average for Regular fell eight cents over the past week and Premium six cents. Regular and Premium are 36 cents and 33 cents, respectively, off their interim highs in late February.  According to, Hawaii is the only state averaging above $4.00 per gallon, unchanged from last week. No states are reporting average prices in the 3.90-4.00 range -- down from two last week.

Gasoline Prices down 35 cents per gallon year-over-year - Gasoline prices are down about 35 cents year-over-year at $3.42 per gallon nationally. Some of the year-over-year price decline is related to slightly lower Brent oil prices, but most of decline is because there were refinery and pipeline issues last year at this time. In California, prices spiked last September, and are down about 80 cents year-over-year this September (put Los Angeles into the graph below to see the huge spike last year). Prices are close to the current EIA forecast (from two weeks ago): EIA's forecast for the regular gasoline retail price averages $3.44 per gallon in the fourth quarter of 2013, 11 cents per gallon higher than in last month's STEO. The annual average regular gasoline retail, which was $3.63 per gallon in 2012, is expected to be $3.55 per gallon in 2013 and $3.43 per gallon in 2014. As in the case of crude oil, the current value of futures and options contracts suggests a wide uncertainty in market expectations. WTI oil prices have been declining over the last month, with WTI at $102.87 per barrel.  Brent is at $108.63. A year ago, WTI was in the low $90s, and Brent was around $111 per barrel.The following graph is from Note: If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent

U.S. Light Vehicle Sales decline to 15.2 million annual rate in September - Based on an estimate from WardsAuto, light vehicle sales were at a 15.24 million SAAR in September. That is up 2.4% from September 2012, and down 4.9% from the sales rate last month. Some of the decline in September (and strong August) was related to the timing of the Labor Day holiday.  This was below the consensus forecast of 15.8 million SAAR (seasonally adjusted annual rate). This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for September (red, light vehicle sales of 15.24 million SAAR from WardsAuto).This was the lowest sales rate since April, but followed a strong August - August was the first time the sales rate was over 16 million since November 2007.The growth rate will probably slow in 2013 - compared to the previous three years - but this will still be another solid year for the auto industry. The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Domestic Vehicle Sales Plunge; Miss By Most Since Jan 2009 - We already noted the apparently 'transitory' weakness in GM's numbers and huge surge in channel-stuffing; but now the full numbers are in and it is not pretty. The annualized domestic vehicles sales collapsed (by the most in 29 months) to 11.66 million - it's lowest in 11 months - missing expectations by the most since January 2009. Stone McCarthy offers some hope that this does not signal "peak autos" for this cycle as they note, "it would appear that sales for September were pulled into August due to the extra selling days for August, stemming from the manner in which the Labor Day weekend fell on the calendar this year. Recall that August sales were firmer relative to expectations and now we have September being weaker."

AAR: Rail Traffic increased in September - From the Association of American Railroads (AAR): AAR Reports Increased Intermodal, Carload Traffic for September and the Week The Association of American Railroads (AAR) today reported increased total U.S. rail traffic for the month of September 2013, with intermodal and carload volume increasing overall compared with September 2012. Intermodal traffic in September totaled 1,027,522 containers and trailers, up 4.4 percent (43,055 units) compared with September 2012. The weekly average of 256,881 intermodal units in September was the second-highest monthly average of any month in history. The three highest-volume intermodal weeks in history for U.S. railroads occurred last month; only the Labor Day holiday prevented it from being the highest-volume intermodal month in history.  “Those who follow the rail industry know that carloads of grain and coal can rise or fall by substantial amounts for reasons that have little or nothing to do with the state of the economy,” said AAR Senior Vice President John T. Gray. “Not so with most other rail traffic categories, however.” This graph from the Rail Time Indicators report shows U.S. average weekly rail carloads (NSA).  Green is 2013. U.S. rail carloads totaled 1,159,784 in September 2013, an average of 289,946 per week and up 0.7% (7,595 carloads) over September 2012. A 0.7% increase isn’t much, but it’s the first time since the end of 2011 that there’ve been two straight months with year-over-year monthly increases in total carloads. With the exception of January, carloads each month in 2013 have tracked 2012 extremely closely....

Talks on Private Air-Traffic Control Turn Serious in U.S. -Discussions about removing government management of the U.S. air-traffic control system are the most serious in two decades, prompted by budget cuts and uncertain funding for converting to satellite navigation. Leaders of the U.S. air-traffic controllers’ union and a private-pilot lobbying group, once fierce opponents of taking control of the system away from the Federal Aviation Administration, have endorsed talks on other ways to manage and pay for aviation safety. Putting U.S. air-traffic operations under private or semi-private management -- arrangements adopted by more than 30 other industrialized nations -- may have significant impacts for companies like Excelis Inc. (XLS), Harris Corp. (HRS) and Lockheed Martin Corp. (LMT), which have government contracts to build parts of the $42 billion satellite-navigation network known as NextGen.

Chicago PMI increases to 55.7 From the Chicago ISMLed by gains in Production, New Orders and Supplier Deliveries, the Chicago Business BarometerTM gained 2.7 points in September to 55.7. The Barometer has gained in each of the past three months, the longest run of monthly increases for more than three years. Activity has recovered from April’s three year low of 49.0, although is still only consistent with modest economic growth....New Orders were up for the second consecutive month to the highest level since February. ...Employment softened for the third consecutive month and was the only barometer component to fall in September. Inventories continued to contract and Prices Paid fell substantially after rising in the past four months.  “While the pick-up is welcomed, growth is far from solid. The easing in the employment component is a notable setback this month, underlying the fragility of the recovery,”

Chicago PMI Jumps To 4-Month High Even As Employment Tumbles To 5-Month Low -- For the first time in 4 months, Chicago PMI printed better than expected with its highest level since May. Production and New Orders rose but in keeping with the new normal, the employment sub index fell for the 3rd month in a row to 5 month lows. It seems the good news that was "expected" as the market ramped higher into the release has been stymied by good news is bad news reality as all the opening ramp gains have faded. Headline at 4-month highs...and Employment drops to 5-month lows...Hope of bad news appears to have been stymied...Charts: Bloomberg

Vital Signs: Busier Manufacturers in Midwest - Economists have long noted some correlation between the factory data associated with the Chicago chapter of the Institute for Supply Management and the U.S. factory survey done by the national ISM.  According to the MNI Chicago Report published by MNI Indicators in partnership with ISM-Chicago, factory activity in the Midwest continues to expand this month. The top-line business barometer increased to a 4-month high of 55.7 in September from 53.0 in August. A reading above 50 denotes expansion.Production was particularly robust this month, with that index jumping to 58.0 from 53.0. Employment, however, slowed for the third consecutive month. On Tuesday, the U.S. ISM will report its manufacturing survey. Even with the upbeat Chicago report, forecasters expect the ISM’s top-line purchasing managers’ index to slow to 55.0 a bit in September from 55.7. The reason? The U.S. PMI already jumped in July and August to levels not seen since mid-2011, so a little giveback would not be unusual this month. Even so, a reading of 55.0 would be a healthy level for the PMI.

Dallas Fed: "Texas Manufacturing Activity Picks Up" - From the Dallas Fed: Texas Manufacturing Activity Picks Up Texas factory activity expanded in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 7.3 to 11.5, suggesting output increased at a slightly faster pace than in August. ... Perceptions of broader business conditions improved further in September. The general business activity index jumped nearly 8 points to 12.8, its highest reading in a year and a half. The new orders index was 5, largely unchanged from its August level. ... Labor market indicators reflected continued employment growth but flat workweeks. The September employment index was 10, its third reading in a row in solidly positive territory. .. Expectations regarding future business conditions remained optimistic in September. The indexes of future general businessactivity and future company outlook showed mixed movements but remained in strongly positive territory. Indexes for future manufacturing activity also remained solidly positive, and the index for future employment spiked 10 points to 21.9.

Dallas Fed Soars To 20-Month High As Employment Stagnates - At 12.8, the Dallas Fed manufacturing survey printed at its highest since Feb 2012 - handily beating the 5.6 expectation. Driven by a surge in production and Capacity Utilization, the headline - as they all seem to do - shows some worrying sub-index movements. New Orders expanded at a slower pace for the 3rd month in a row, volume of shipments fell to a 4 month low, and employment-related indices were all weak (wages fell, number of employees fell, and average workweek fell). Even the outlook (six months ahead) fell back from last month's level.

ISM Manufacturing index increases in September to 56.2 - The ISM manufacturing index indicated faster expansion in September. The PMI was at 56.2% in September, up from 55.7% in August. The employment index was at 55.4%, up from 53.3%, and the new orders index was at 60.5%, down from 63.2% in August. From the Institute for Supply Management: August 2013 Manufacturing ISM Report On Business® "The PMI™ registered 56.2 percent, an increase of 0.5 percentage point from August's reading of 55.7 percent. September's PMI™ reading is the highest of the year, leading to an average PMI™ reading of 55.8 percent for the third quarter. The New Orders Index decreased in September by 2.7 percentage points to 60.5 percent, and the Production Index increased by 0.2 percentage point to 62.6 percent. The Employment Index registered 55.4 percent, an increase of 2.1 percentage points compared to August's reading of 53.3 percent, which is the highest reading for the year. Here is a long term graph of the ISM manufacturing index.,This was above expectations of 55.0% and suggests manufacturing expanded at a faster pace in September.

ISM Manufacturing PMI at Year High, 56.2% for September 2013 -The September ISM Manufacturing Survey shows PMI increased 0.5 percentage points to 56.2%.  Seems the survey results are holding and PMI is now at the highest level for the year, although of course the latest Congressional economic sabotage through shutdown and debt ceiling hostage taking hasn't hit the manufacturing sector yet.  New orders did slow but due to the previous past months of improvement, the employment index increased and is at it's highest level since July 2012.  The ISM manufacturing index is important due to manufacturing's economic multiplier effect.  While manufacturing is about an eighth of the economy, it is of scale and spawns all sorts of additional economic growth surrounding the sector.  This is a direct survey of manufacturers and every month ISM publishes some responder's comments.  Most comments imply demand is increasing or flat.  Increase in demand, comments such as work is picking up, is great news.  We cannot recall when manufacturers reported increase demand in the comments.  The comment which stood out was from computer and electronics manufacturing, and this is sad, very sad that squeezing labor has so much focus for this sector.  Yet the comment does not imply good news for U.S. workers for assuredly U.S. manufacturers will simply try to find a worse country where labor gets even less wages than China. Rising costs of China labor has us re-evaluating our current position in that country Back to the index, new orders decreased -2.7 percentage points to 60.5%.  This is still strong growth, the index is in the 60's, and new orders is coming off of last month's blow out increase, maintaining highs not seen since April 2011.  Below is the correlation with the Census Bureau. A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders.

Manufacturing ISM Rejects Earlier PMI Data, Spikes To Highest Since April 2011 - Since the entire world now follows in the footsteps of China, its data fudging example and its Schrodinger economy which is both growing and contracting at the same time, it was very much expected that in the aftermath of the MarkIt US PMI, which missed expectations earlier, that the ISM's own Manufacturing Report on Business would smash expectations of a decline from 55.7 to 55.0, instead printing at 56.2 or the highest since April 2011. And since the data on construction spending is not available due to the whole government shutdown thing, the mood for the day will now be set as one of exuberant enthusiasm for manufacturing, yet one where the "other" PMI will be referenced when predicting how much longer the Fed will not taper for.Breakding down the components, there was an increase in Employment which rose to the highest reading of the year, Inventories and Prices, yet Exports, Imports and most importantly the leading New Orders all declined, with the latter printing at, 60.5,  the lowest in the past 5 months.

ISM Mfg. Index Rises In September. On The Other Hand...The modest rise in the ISM Manufacturing Index in today’s September update surprised most economists, based on consensus forecasts that anticipated a decline. But the advance to 56.2 last month--the fourth consecutive gain for this benchmark--matched yesterday's average econometric projection via The Capital Spectator. More importantly, this early look at September’s macro profile suggests that economic growth remains the prevailing wind for evaluating the business cycle. Assuming, of course, the fiscal follies in Washington don’t roll on for too long and bite too deeply. As of Tuesday afternoon New York time, the United States federal government remains closed for business, save for what’s deemed essential and necessary. It remains to be seen how long this goes on, which is why it’s so hard at the moment to estimate what the economic blowback will be. But at least there’s still a sign of forward momentum in the September economic trend, or so today’s ISM data suggest. Both the headline number and the employment component in the numbers du jour increased last month. The critical new-orders slice of the data dropped, but for the moment that doesn’t look troubling since this part of the survey is still running at a relatively high level.

Growth at U.S. Service Firms Slows From 8-Year High — Growth at U.S. service companies slowed in September from an eight-year high in August, as sales fell sharply, new orders dipped and hiring weakened. The Institute of Supply Management says its service-sector index fell to 54.4 in September, down from 58.6 in August. August’s reading was the highest since December 2005. Any reading above 50 indicates expansion. A measure of sales fell seven points to 55.1, indicating much slower growth. And a gauge of hiring also dropped sharply to 52.7 from 57 in August. The report measures growth in service industries, which cover 90 percent of the workforce, including retail, construction, health care and financial services.

ISM Non-Manufacturing Index in U.S. Fell to 54.4 in September -  The Institute for Supply Management’s U.S. non-manufacturing index fell to 54.4 in September from 58.6 the prior month, the Tempe, Arizona-based group said today. The median forecast in a Bloomberg survey called for a drop to 57. Estimates of the 75 economists ranged from 55 to 59. A reading greater than 50 indicates expansion. The figure includes industries that range from utilities and retail to health care, housing and finance and make up almost 90 percent of the economy. Another report today showed fewer Americans than forecast filed applications for unemployment benefits last week, indicating U.S. employers were maintaining staff counts in the days leading up to the government shutdown. Jobless claims rose by 1,000 to 308,000 in the week ended Sept. 28, the Labor Department said in Washington. The median forecast of 50 economists surveyed by Bloomberg called for a rise to 315,000.

ISM Non-Manufacturing Index at 54.4 indicates slower expansion in September - The August ISM Non-manufacturing index was at 54.4%, down from 58.6% in August. The employment index declined in September to 52.7%, down from 57.0% in August. Note: Above 50 indicates expansion, below 50 contraction. From the Institute for Supply Management: September 2013 Non-Manufacturing ISM Report On Business®  "The NMI™ registered 54.4 percent in September, 4.2 percentage points lower than August's reading of 58.6 percent. This indicates continued growth at a slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 55.1 percent, which is 7.1 percentage points lower than the 62.2 percent reported in August, reflecting growth for the 50th consecutive month but at a significantly slower rate. The New Orders Index decreased by 0.9 percentage point to 59.6 percent, and the Employment Index decreased 4.3 percentage points to 52.7 percent, indicating growth in employment for the 14th consecutive month. The Prices Index increased 3.8 percentage points to 57.2 percent, indicating prices increased at a faster rate in September when compared to August. According to the NMI™, 11 non-manufacturing industries reported growth in September. The majority of the respondents' comments continue to be positive; however, there is an increase in the degree of uncertainty regarding the future business climate and the direction of the economy." This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. This was below the consensus forecast of 57.0% and indicates slower expansion in September than in August.

ISM Non-Manufacturing Business Activity: Significantly Slower Growth Rate - Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 54.4 percent, signaling slower growth than last month's 58.6 percent. Today's number came in below the forecast of 57.4 percent and's 57.2 percent consensus.  Here is the report summary:The NMI™ registered 54.4 percent in September, 4.2 percentage points lower than August's reading of 58.6 percent. This indicates continued growth at a slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 55.1 percent, which is 7.1 percentage points lower than the 62.2 percent reported in August, reflecting growth for the 50th consecutive month but at a significantly slower rate. The New Orders Index decreased by 0.9 percentage point to 59.6 percent, and the Employment Index decreased 4.3 percentage points to 52.7 percent, indicating growth in employment for the 14th consecutive month. The Prices Index increased 3.8 percentage points to 57.2 percent, indicating prices increased at a faster rate in September when compared to August. According to the NMI™, 11 non-manufacturing industries reported growth in September. The majority of the respondents' comments continue to be positive; however, there is an increase in the degree of uncertainty regarding the future business climate and the direction of the economy.  Like its much older kin, the ISM Manufacturing Series, I have been reluctant to focus on this collection of diffusion indexes. For one thing, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

Non-Manufacturing ISM Tumbles, Worst Print Since June, Employment Index Has Biggest Drop Since 2009 - So much for the summer sugar rush. While last month's Non-manufacturing ISM print, and yesterday's Mfg ISM set the stage for a blowout expectation in today's September Non-Manufacturing ISM update, nobody expected a tumble from 58.6 to 54.4, resulting in the biggest miss in the index since April 2011, the lowest print since June 2013 and even the ISM's Nieves reporting that there has been "significant slowing." To be sure, this follows last month's spike to the highest print of the second Great Depression, but the drop shown below, shows this was all largely a one-time aberration. The leading Business Activity index cratered from 62.2 to 55.1 confirming the August spike was merely an a mirage, but what's worse is that the all important Employment Index (and remember: Services are far more important to the US economy than manufacturing) tumbled from 57.0 to 52.7, the lowest print since May, and biggest one month drop since March 2009!

Vital Signs: Nonmanufacturers Downshift in September - After posting a stellar performance in August, the nonmanufacturing sector was expected to show giveback in September. But the downshift was sharper than economists forecasted and included a much weaker reading on jobs. The Institute for Supply Management reported its purchasing managers’ index for nonmanufacturing—mostly service providers—fell to 54.4 last month from a lofty 58.6 in August. Economists had expected the September PMI to slow but only to 57.0. The low point of the report: The employment index fell to a four-month low of 52.7. Although the Labor Department has postponed the September payrolls report until after the government shutdown, the ISM index suggests a mediocre jobs gain whenever the report is released.

What We Mean When We Talk About Middle-Out Economics - President Obama and others like to frame economic policy as growing the economy from the ‘middle-out.’ Last week, my colleague, Josh Bivens and I published a paper arguing that the fiscal policy debate this fall needs go beyond rhetoric and put actually improving middle-class living standards front-and-center. We attempted to explore what, if taken seriously, a ‘middle-out’ approach would look like. A ‘middle out’ approach to fiscal policy would first and foremost focus on creating jobs and ensuring a full recovery from the Great Recession. Relative to other recessions, government spending in recent years has been steeply contractionary. Four years into the current recovery, government spending is still 15 percent below what it would have been had it just matched typical growth during previous recoveries. Further, had the historical average of public spending been replicated in the current recovery, roughly 90 percent today’s output gap would be closed and there would be 5 million additional jobs. Given that share of “prime-age workers” employed remains 4 percentage points below the 2007average, and is still no higher than it was in June 2009, the official beginning of the recovery from the Great Recession, ending austerity should be the number 1 priority of policymakers this fall. At the very least, fiscal policymakers should repeal “sequestration”—the automatic spending cuts negotiated in 2011 that nearly everybody now realizes are unnecessarily dragging on growth. Research has shown that repealing the $91 billion in scheduled cuts necessitated by sequestration for 2014 would generate between 900,000 and 995,000 jobs.

Technology isn't taking all of our jobs - Are machines stealing our jobs? Automated teller machines handle transactions formerly done by bank tellers; accounting software does tasks that bookkeepers used to do; and e-commerce cuts out sales clerks. According to MIT professors Erik Brynjolfsson and Andrew McAfee, technology is causing persistent unemployment and a slow recovery from the Great Recession. But according to the Occupational Employment Survey conducted by the Bureau of Labor Statistics, there were more bank tellers, more bookkeepers, and more sales clerks in 2009 than there were in 1999—three-quarters of a million more despite the recession. How can this be? The answer is important because it determines what kind of policies will hasten the economic recovery. Something similar is happening in quite a few occupations today. Because ATMs perform many teller transactions, fewer tellers are needed to operate a bank branch. But because it costs less to operate a branch office, banks dramatically increased the number of branches in order to reach a bigger market. More bank branches means more tellers, despite fewer tellers per branch.

A Wave of Sewing Jobs as Orders Pile Up at U.S. Factories - Like manufacturers in many parts of the country, those in Minnesota are wrestling with how to attract a new generation of factory workers while also protecting their bottom lines in an industry where pennies per garment can make or break a business.  Here, they are recruiting at high schools, papering churches and community centers with job postings, and running ads in Hmong, Somali and Spanish-language newspapers. And in a moment of near desperation last year — after several companies worried about turning down orders because they did not have the manpower to handle them — Minnesota manufacturers hatched their grandest rescue effort of all: a program to create a skilled work force from scratch.  Run by a coalition of manufacturers, a nonprofit organization and a technical college, the program runs for six months, two or three nights a week, and teaches novices how to be industrial sewers, from handling a sewing machine to working with vinyl and canvas.  Eighteen students, ranging from a 22-year-old taking a break from college to a 60-year-old former janitor who had been out of work for three months, enrolled in the inaugural session that ended in June. The $3,695 tuition was covered by charities and the city of Minneapolis, though students will largely be expected to pay for future courses themselves.  After the course, the companies, which pay to belong to the coalition, sponsored students for a three-week rotation on their factory floors and a two-week internship at minimum wage. Then the free-for-all began as the members competed to hire those graduates who decide to pursue a career in industrial sewing.

Labor Department’s BLS Prepares to Halt Operations Despite Looming Jobs Report -- The Labor Department is making plans to halt the vast majority of its operations in a government shutdown, including furloughing all but three of the 2,400 workers at the Bureau of Labor Statistics, the agency that would release the closely watched jobs report on Friday. “In the event there is a lapse in appropriations, we will engage in an orderly shutdown Tuesday morning,” Labor Department spokesman Stephen Barr said Monday. “During a lapse in appropriations we will suspend all program operations and our public websites won’t be updated.” Mr. Barr wouldn’t comment on the department’s plans for the jobs report if a shutdown lasted only a day or two. He also declined to say if the department would seek any special permission from the White House to release the jobs report. The possibility of special release, even in the event of a shutdown, was raised in a memo BLS Commissioner Erica Groshen sent to her superiors earlier this month. That memo,  That memo, released Friday, referenced the publishing of the consumer price index report after the government shut down in 1995. The reason cited at the time: “the risk of disclosure” of data during a shutdown was deemed to be “unacceptable.”Former BLS Commissioner Keith Hall said last week that by the Tuesday before the jobs report is released, government analysts typically have already calculated the prior month’s unemployment rate. The survey that would determine September’s rate was conducted earlier this month. Mr. Hall said in the days before that report’s release, analysts are usually still processing figures reported by businesses that would determine the payroll numbers released in the report.

U.S. Companies Add 166,000 Jobs in September | A survey shows U.S. businesses added 166,000 jobs last month, a sign of only modest improvement in hiring.Payroll company ADP said Wednesday that employers added just 159,000 jobs in August and 161,000 in July, both slightly lower than the previous estimates. The figures are taking on greater importance because they may be the only measure of the September job market for some time. The Labor Department will have to delay its September jobs report, scheduled for Friday, if the government shutdown goes past Wednesday. The ADP report covers hiring only in the private sector. The figures often diverge from the government’s more comprehensive jobs report. The economy has been growing too slowly to rapidly boost hiring. It expanded at 1.8 percent annual rate in the first half of the year. Growth is expected to have stayed weak in the July-September quarter at an annual rate of about 2 percent. Most economists forecast that growth will pick up in the final three months of the year to a rate of 2.5 percent or higher.

ADP: Private Employment increased 166,000 in September - From ADP: Private sector employment increased by 166,000 jobs from August to September, according to the September ADP National Employment Report®. ... August’s job gain was revised down from 176,000 to 159,000....Mark Zandi, chief economist of Moody’s Analytics, said, "The job market appears to have softened in recent months. Fiscal austerity has begun to take a toll on job creation. The run-up in interest rates may also be doing some damage to jobs in the financial services industry. While job growth has slowed, there remains a general resilience in the market. Job creation continues to be consistent with a slowly declining unemployment rate.”This was a little below the consensus forecast for 175,000 private sector jobs added in the ADP report. Note:  The BLS was to report on Friday, and the consensus was for an increase of 178,000 payroll jobs in September, on a seasonally adjusted (SA) basis.

ADP Employment Report Shows 166,000 Private Sector Job Gains for September 2013 - ADP's proprietary private payrolls jobs report shows a gain of 166,000 private sector jobs for September 2013.  ADP revised their August job figures down by 17,000 to 159 thousand jobs.  Since the government shut down will cause the BLS September jobs report to not be released, below we compare BLS job figures to the initial ADP release.  The ADP report does not include government, or public jobs. Since the September BLS employment statistics won't be released, we can estimate how much the private sector jobs would have been from ADP.  Both ADP and the BLS revise their initial monthly private sector job figures, so to get a guess at what the BLS initial September report would have been, we can look at the last few months of differences between ADP and BLS private payrolls.  The August, July and June difference from the initial releases was -24.4, 38.7 and -13.7 thousand private sector jobs, so it is reasonable to assume the difference would have been at most 40,000 jobs in private payrolls, either direction.  We can also assume government jobs, which ADP does not report on gains or losses were below 20 thousand for September.  This gives a guesstimate that the BLS September jobs would have been between 106,000 to 216,000 for the month.  In other words, September payrolls as reported by the BLS were probably enough to keep up with population growth and the best possibility was just moderate job gains.  Graphed below is the difference between the initial ADP and BLS private payrolls figures as they were released.  NPPTTL is ADP and USPRIV is BLS and the dates are the publication date of that series at the moment of release.  In other words, the below graph shows the initial difference before revisions.

ADP: Private Payrolls Rose 166k In September - Private payrolls increased 166,000 last month on a seasonally adjusted basis, according to today’s release of the ADP Employment Report. That’s a bit more than August’s 159,000 advance, although the pace remains sluggish compared with recent history in terms of monthly comparisons. On a brighter note, the year-over-year change in private payrolls turned higher again in September, rising 1.88% last month vs. the year-earlier level. That's the fifth straight month of improvement for the annual rate of increase, according to ADP numbers. As a result, last month's year-over-year gain is the highest in more than a year. Overall, the ADP data implies that Friday’s official payrolls report from the government would also dispatch slightly better numbers from the previous month... if the report was released. Thanks to the government shutdown, however, Friday’s Labor Department update looks set to remain a mystery until further notice. "The job market appears to have softened in recent months," says Mark Zandi, chief economist of Moody’s Analytics, which helps prepare the ADP report. In a press release (pdf) issued with today’s update, he explains that "fiscal austerity has begun to take a toll on job creation. The run-up in interest rates may also be doing some damage to jobs in the financial services industry. While job growth has slowed, there remains a general resilience in the market. Job creation continues to be consistent with a slowly declining unemployment rate."

Surveys versus Data: Today's 160K Employment Estimate: One of the potential casualties of the government shutdown is that the Bureau of Labor Statistics will be closed and will not issue its employment report for September. However, all is not lost as ADP issued its employment report for September,showing an increase of 166,000 which was shy of the 180,000 consensus. Historically speaking, going back to 2001, the average difference between the numbers of jobs reported by ADP is 21,992 less than what is normally reported by BLS. For example, in August, ADP reported 113,926 jobs whereas BLS reported 136,133 for a difference of 22,206. The tendency of this difference since the beginning of 2012 has been closer to 22,200.  Therefore, if we use this average we can solve for what the jobs number for September from the BLS is most likely to be. For the month of September ADP reported total employment of 114,092. If we add the 22,200, the recent tendency of the difference, then the BLS report should be close to 136,293, which would equate to a monthly increase in payrolls of 160,000. The current consensus range is 155,000 to 240,000 - so a print of 160,000 would be well below consensus and a bit of a disappointment. The chart below shows the historical difference in the reports, with the current estimate for the BLS report for September included.

Vital Signs: Searching for Clues on September Payrolls - With expectations that the Bureau of Labor Statistics won’t release its employment report Friday, the jobs survey from Automatic Data Processing takes on greater importance for a timely look at the U.S. labor market. ADP said that the private sector added 166,000 jobs in September, less than the 178,000 expected by economists. The ADP numbers, compiled by Moody’s Analytics, show job growth slowing over the past two months, probably reflecting fiscal austerity and rising interest rates. Will the September payroll numbers, when finally released, show a similar slowdown? Economists, who have a median forecast of 181,000 new jobs, are not sure. Since ADP’s methodology was overhauled last fall, the initial readings of ADP and the BLS data have had an absolute difference of 38,000. That gap suggests September nonfarm payrolls may have jumped as much as 204,000 or grown as little as 128,000. But we won’t know until the government re-opens.

US Payroll to Population Rate at 43.5% in September - Gallup - The U.S. Payroll to Population employment rate (P2P), as measured by Gallup, fell slightly to 43.5% in September, from 43.7% in August. P2P has declined more than a percentage point from the 45.1% found in September 2012.Gallup's P2P metric estimates the percentage of the U.S. adult population aged 18 and older who are employed full time by an employer for at least 30 hours per week. P2P is not seasonally adjusted. These results are based on Gallup Daily tracking interviews with approximately 30,000 Americans, conducted Sept. 1-30 by landline and cellphone. Gallup does not count adults who are self-employed, working part time, unemployed, or out of the workforce as payroll-employed in the P2P metric. Because of seasonal fluctuations, year-over-year comparisons are helpful in evaluating whether monthly changes are due to seasonal hiring patterns or true growth (or deterioration) in the percentage of people working full time for an employer. While the P2P rate for September is down from the same month last year, it is similar to what Gallup found in September 2011 and 2010 -- meaning there has been essentially no growth in full-time employment for an employer since at least 2010, the first year Gallup polled on this measure. The employment situation improved in the late summer and early fall of 2012, with the P2P rate in August through October increasing by more than one point over the same months in 2011. That momentum slowed in the winter, and the P2P rate has stayed the same or slightly declined for eight out of nine months this year, compared with the same months in 2012.

Vital Signs: Steady Unemployment, but Only Because of Part-Time Work - It’s a rare first Friday of the month when no payroll report comes out. But if the report had come out, it is likely the September jobless rate would have held at 7.3%, says Gallup. The polling firm conducts its own survey of jobs and joblessness in the U.S. Its definitions and methods differ from those of the Bureau of Labor Statistics, the grand arbiter of labor markets, but at least Gallup released September data. What the Gallup survey shows is that the employment situation was little changed in September. Its seasonally adjusted jobless rate fell to 7.9% after it popped to 8.6% in August. Gallup says its data suggest “when the report is released, the BLS will likely report no change in the unemployment rate.” One troubling part of the Gallup data is the persistence of workers who cannot find full-time employment. That trend will limit consumer spending. According to Gallup, 9.4% of part-time workers wanted full-time jobs, up from 8.6% saying that in September 2012. “This suggests the decline in the unemployment rate is actually due to more Americans taking part-time jobs rather than gaining the full-time employment they want,” the report says.

Weekly Initial Unemployment Claims increase slightly, Four Week Average lowest since May 2007 -- The DOL reports: In the week ending September 28, the advance figure for seasonally adjusted initial claims was 308,000, an increase of 1,000 from the previous week's revised figure of 307,000. The 4-week moving average was 305,000, a decrease of 3,750 from the previous week's revised average of 308,750.  The previous week was revised up from 305,000. 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 305,000. The 4-week average is at the lowest level since May 2007 (before the recession started). Claims were below the 313,000 consensus forecast. Here is a long term graph of the 4-week average of weekly unemployment claims back to 1971. The current level of weekly claims is consistent with a solidly growing economy.

New Jobless Claims Rise by 1000, But the 4-Week Average Moves Lower - The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 308,000 new claims number was a 1,000 increase from the previous week's 307,000. The less volatile and closely watched four-week moving average, which is usually a better indicator of the trend, fell by 3,750 to 305,000, the lowest since the week ending on May 26, 2007.Here is the opening of the official statement from the Department of Labor:In the week ending September 28, the advance figure for seasonally adjusted initial claims was 308,000, an increase of 1,000 from the previous week's revised figure of 307,000. The 4-week moving average was 305,000, a decrease of 3,750 from the previous week's revised average of 308,750. The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending September 21, an increase of 0.1 percentage point from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending September 21 was 2,925,000, an increase of 104,000 from the preceding week's revised level of 2,821,000. The 4-week moving average was 2,837,250, a decrease of 4,750 from the preceding week's revised average of 2,842,000.  Today's seasonally adjusted number came in well below the forecast of 325K. Here is a close look at the data over the past few years (with a callout for the past year), which gives a clearer sense of the overall trend in relation to the last recession and the trend in recent weeks.

Jobless Claims Beat For 5th Week In A Row But Continuing Claims Surge Most In 11 Months - While all other government data releases are halted, the DOL has been kind enough to keep its Initial Claims random number generator running, and this week, following several weeks of "computer system update" distortions, reported the fifth consecutive week of expectations beats with a print of 308K, below the 315K expected, but above the upward revised 307K from last week. Alas, the number is once again completely meaningless as the DOL said Federal furloughs will not show up in claims data, which means that all of the up to 800,000 newly filing government workers will remain completely under the radar, and forcing even more people to wonder just what is the utility of any government data, even when the government is generous enough to not be shut down.

Initial Unemployment Claims Imply Payroll Growth for Septmber 2013 - The DOL reported people filing for initial unemployment insurance benefits in the week ending on September 28th, 2013 was 308,000, a 1,000 increase from the previous week of 307,000.  Since the monthly unemployment report will not be released due to the shutdown, we show below the correlation of initial unemployment claims to payroll growth.  The more important statistic of initial unemployment insurance claims is the four week moving average on those filing for benefits.  The four week moving average decreased 3,750 to 305,000.   In the below graph we see the four week moving average is now at pre-recession 2007 levels.  If anyone recalls, even before the Great Recession the job market was not so hot, yet this is finally, a positive sign, going on five years and ten months.  The four week moving average is graphed below from January, 2007.Below is the mathematical log of initial weekly unemployment claims.  A log helps remove some statistical noise, it's kind of an averaging and gives a better sense of a pattern.  As we can see, we have a step rise during the height of the recession, but then a leveling, then a very slow decline, or fat tail.  That fat tail has taken over six years to return to early recession levels, so the time it has taken to drop might still be a concern.   There are a lot of people out there who are not counted in labor force statistics who need a job.

Employment Situation - Tomorrow (Friday), at 8:30 AM ET, the BLS will NOT release the employment report for September. The consensus was for an increase of 178,000 non-farm payroll jobs in September, and for the unemployment rate to be unchanged at 7.3%.Although the employment report will be delayed, here is a summary of recent data:
• The ADP employment report showed an increase of 166,000 private sector payroll jobs in September. This was below expectations of 175,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any particular month. But in general, this suggests employment growth slightly below expectations.
• The ISM manufacturing employment index increased in September to 55.4% from 53.3% in August. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs increased about 10,000 in September.
• The ISM non-manufacturing employment index decreased in September to 52.7% from 57.0% in August. A historical correlation between the ISM non-manufacturing index and the BLS employment report for non-manufacturing, suggests that private sector BLS reported payroll jobs for non-manufacturing increased by about 145,000 in September.
Taken together, these surveys suggest around 155,000 jobs added in September, somewhat below the consensus forecast.

Other Ways to Get Your Jobs Data - Here’s one potential beneficiary of the government shutdown: all the alternative labor market indicators that are fighting for attention thanks to the data vacuum left by the shuttered Labor Department. Every month ADP, the Conference Board, the National Federation of Independent Business and other outfits release their own measures of hiring and layoffs. But no matter how many press releases they send, none get nearly as much attention as that lavished upon the Labor Department’s official employment report, usually released on the first Friday of the month.  Now all the alternative measures are increasing their press blasts (at least that is my impression, based on the state of my e-mail in-box), and other organizations like policy research groups are using the occasion to draw attention to their own metrics and reports. Here are some other indicators released this week, in case you’re hungry for labor market data:

Number of the Week: Here’s What Jobs Report Would Have Said - 156,000: The numbers of jobs added in September, according to an amalgamation of several private sources of labor market data. Like the National Zoo’s panda cams, the Bureau of Labor Statistics‘ jobs report was a victim of the government shutdown. Absent the BLS report, other data, mostly from private sources, offer hints about last month’s job markets. The cumulative result: probably no surprise pop in payrolls or unexpected worsening in unemployment. Three sources give estimates on private hiring using different ways to arrive at their numbers. Automatic Data Processing reported a gain of 166,000. Job search engine said 164,000 jobs were added. While the Liscio report still has not made an official estimate, its survey “is consistent with another 150,000 increase in private employment.” Trimtabs Investment Research said the total U.S. economy added 159,000. Using all four estimates and adjusting for government layoffs that have averaged 5,000 a month so far in 2013, total payrolls look to have grown by just 156,000 in September, far less than the 181,000 projected by economists.

Will Shutdown Screw Up Next Month’s Jobs Report Too? - The federal government shutdown already shelved a key piece of economic data: Friday’s jobs report. A prolonged government closure could cause more damage to other data — more than simply delaying reports. A shutdown lasting several weeks could create headaches in compiling the next jobs report, scheduled for release on November 1, said Keith Hall, a former commissioner of the Bureau of Labor Statistics. Government analysts are due to start the next survey of households in mid-October, asking people across the U.S. about their employment status during the week of the 12th.If federal employees are out much past October 15, the survey would be conducted later than normal, said Mr. Hall, a senior research fellow at George Mason University. That could delay the report and skew the data. “If you’re asking about two or three weeks ago, will people accurately remember which week they applied for a job or had an interview?” he asked. “That answer is really important to determining who is categorized as unemployed.”

Laying Off America's Spies -- As the political gridlock that has resulted in unexpected furloughs for approximately 800,000 American federal employees grinds on, here is an interesting memo from our pals at the NSA:  Nsa Furlough Letter  Despite the fact that there are exemptions to the involuntary furloughs that include activities that are related to national security and the protection of property, apparently, thousands of staff members at the NSA are not considered "essential" since their duties are not "excepted".  Interestingly, in the letter it states that "If you believe that this action is taken as a reprisal for whistleblowing, you may file a complaint with either the MSPB (Merit Systems Protection Board) or the Office of Special Counsel...."  Even during a Washington-wide shutdown, the NSA is concerned about offending the whistleblowers in its midst.  That's touching, isn't it?

Long-term unemployment is a catastrophe - Short-term unemployment is actually lower than it was in 2007. Indeed, the percentage of the labor force that had been unemployed for five weeks or less didn't grow all that much during the economic meltdown. What changed was what happened after or within those five weeks. In 2007, they typically ended with a job. In 2009 and 2010, they more often ended with another few weeks of unemployment. The result is that if you break down the unemployment rate by duration, the problem appears to be almost entirely about long-term unemployment:The percentage of the labor force unemployed for 27 weeks or more is finally decreasing, after peaking at about 4.3 percent in April 2010 and hanging around 4 percent until September 2011. But it's unclear how much of that decline is due to those workers finding jobs versus dropping out of the workforce. There are ways to remedy this, and get that top category shrinking faster, and AEI's Michael Strain and Kevin Hassett and CEPR's Dean Baker have some interesting ideas. Direct job creation along the lines of the TANF Emergency Fund — perhaps the most effective part of the stimulus package — would probably help a lot, as would looser monetary policy through NGDP targeting or helicopter drops or negative interest rates. But even if policymakers adopted those measures, some of the damage may be too hard to repair. Long-term unemployment leads to an erosion of skills, dissociation from the labor market and other forms of "scarring" that last for many, many years. Brad DeLong and Larry Summers argue convincingly that this and other forms of what economists call "hysteresis" (basically, the long-term damage produced by short-run recessions) could have permanently increased the unemployment rate even at times when the economy is operating at full steam, and could have reduced how fast the economy can even go when it's at full steam.

Forget Unemployment, Time to Worry About ‘Mal-Employment’ - : Some academics, like Harvard’s Rosabeth Moss Kanter, think that the mismatch between the skills that are needed in today’s work force and the skills kids graduate with is responsible for as much as a third of the growth in unemployment since the Great Recession. There’s also a vigorous debate going on about whether we should be pushing liberal arts degrees in a world in which the majority of new jobs are going to require science, technology and math skills. So I was interested to stumble on a study by a pair of Drexel University academics in the Continuing Higher Education Review that looks at this question. The results are sobering for liberal arts types. While college graduates as a group did much better during the financial crisis and recession than those with only a high school degree (who suffered double-digit declines in employment), even young college grads are suffering from usually high rates of what’s called “mal-employment”—meaning, they are doing things that are much more menial than what their education trained them to do. Political scientists are working as bartenders, and English majors are doing time as retail clerks. Channel one of the plot lines from Girls, and you’ve got the idea. From 2000 to 2010, mal-employment rose by 9.3 percentage points for college graduates between the ages of 20 and 24. Nearly four out of ten young people in that group are now under-employed, and humanities and liberal arts majors fared the worst as a group.

Slow Takeoff for Young Workers - The proportion of young people in the labor market is dropping, while the share of older people int he labor market is rising. This figure shows that back in 1980, about 50% of all 18 year-olds were in the labor market; by 2012, it was about 30%. However, those in their 50s, 60s, and older are more likely to be in the labor market than they were in 1980. In fact, the share of young people in the labor market has fallen to a 40-year low. While the decline has been especially pronounced in recent years, it clearly dates back several decades. The usual explanation is a combination of a positive and a negative factor. The positive factor is that more young people are attending colleges and universities, and so are not in the labor force in their early 20s. The negative factor is that the kinds of jobs that were were available to those without a college degree back in the 1960s and 1970s--blue-collar jobs with significant skills that offered the prospect of lifelong economic advancement--have become increasingly scarce.Today's young adults are getting a slower start on adult life. I As a result, it is taking young people longer to start climbing the career ladder. This graph shows the earnings of someone at each age level compared to median earnings, for 1980 and for 2012. In 1980, for example the typical 18 year-old had earnings that were about one-quarter of the median income, but the typical 26 year-old had earnings that were equal to the median income. However, in 1980 earnings dropped off quite sharply when people reached their early 60s. In 2012, the typical workers reach the median level of earnings until age 30--four years later than their counterparts in 1980.

Is Obamacare causing a boom in part-time jobs? Probably not - MKM Partners economist Michael Darda on the part-time jobs issue: Yet, there is very little evidence that anything unusual is going on with part-time employment which has been falling in a seesaw pattern since the recession ended. There has been a lot of misinformation on this issue, largely due to 1) the political spat over the ACA and 2) the tendency for the part-time labor share to rise in the first few months of the year only to fall back again. Although the part-time labor share remains historically high, it has been falling in a jagged fashion since the trough of the recession with the entirety of the previous surge occurring during the Great Recession. There does not appear to be any shift in the trend since 2010 when the ACA became law. In fact, the ratio has been coming down faster than it did after the last two recessions. Indeed, as Mark Perry has noted, if you take out one outlier month, the 2013 growth in part-time employment falls from 59% to 19% of jobs added. Moreover, over the past 12 months, part-timers have only made up 13% of job gains, which is less than usual.

Obamacare Isn’t Causing an Increase in Part-Time Employment, In One Chart - One of the more baffling messages in the current debate over the economy and “Obamacare” is the hue and cry over the trend in part-time employment. The fact is that since the end of the Great Recession, the trend in part-time employment has been down, not up. The black line in the chart below shows the share of part-time workers in the labor force. The light blue region shows the level of workers who are part-time due to economic reasons. The navy blue region show the level of workers who are part time due to “non-economic” reasons (health, child care responsibilities, etc.). The vertical bars denote recessions, from peak to trough.

The Tax Equation in the Health Care Law - Beginning this week, families can use the Affordable Care Act’s marketplaces to enroll for health insurance coverage that begins Jan. 1, and in many cases receive federal assistance with their premiums and other health costs on the basis of their expected income for calendar year 2014.Because people who work part time or are unemployed for part of the year have less annual income than people who work full time and all year, working less means qualifying for more generous subsidies. By working part time or not at all, participants in the marketplaces will also create fewer penalties for employers who don’t make affordable coverage available once those penalties go into effect in 2015.  These new rules will make it less rewarding to be a full-time worker and a little less burdensome to be unemployed or underemployed. In my testimony in June before the Subcommittee on Human Resources of the House Ways and Means Committee, I quantified these new disincentives in terms of marginal tax rates — the percentage of compensation lost from paying taxes and replacing benefits associated with not working. Such workers (hereafter “midwage workers”) will see their marginal tax rates increase by an average of five percentage points between now and 2016, taking into account that many people will not take part in programs for which they are eligible for help. Before the Affordable Care Act, the compensation for each additional hour of work by a midwage worker was, on average, split 55 percent for the employee and 45 percent for the government (the government got its part by receiving more taxes from the employee, and paying fewer benefits, such as unemployment insurance payouts and food stamps, to the employee). Under the act, the split will be 50-50.

Farmers in U.S. West face labor shortages in fields -- With the harvest in full swing on the West Coast, farmers in California and other states say they can't find enough people to pick high value crops such as grapes, peppers, apples and pears. In some cases, workers have walked off fields in the middle of harvest, lured by offers of better pay or easier work elsewhere. The shortage and competition for workers means labor expenses have climbed, harvests are getting delayed and less fruit and vegetable products are being picked, prompting some growers to say their income is suffering. Experts say, however, the shortage is not expected to affect prices for consumers. But farmworkers, whose incomes are some of the lowest in the nation, have benefited, their wages jumping in California to $2 to $3 over the $8 hourly minimum wage and even more for those working piece rate. The shortage -- driven by a struggling U.S. economy, more jobs in Mexico, and bigger hurdles to illegal border crossings -- has led some farmers to offer unusual incentives: they're buying meals for their workers, paying for transportation to and from fields, even giving bonuses to those who stay for the whole season. And a few have stationed foremen near their crews to prevent other farmers from wooing away their workers. "In the past, we were overrun with farmworkers. But not anymore," said labor contractor Jesus Mateo, whose crews saw a 20 percent pay increase. "Employers have to do something to attract them. The fastest workers can now earn more than $1,000 per week."

Employee or Independent Contractor? Employer Fraud Costs Workers - Misclassification of employees as independent contractors is a serious problem in the Texas construction industry—so serious that my local decided to do an undercover investigation, using covert workers to infiltrate job sites. The conditions they found were severe. “The workers sometimes wouldn’t even get paid that week. They were scared to report the violations to anyone. They feared their boss and the government due to deportation,” said Philip Lawhon, assistant business manager/organizer for Electrical Workers (IBEW) Local 520. “One of our members said that it reminded him of working in Mexico. He said, ‘I came to America to get away from these types of issues.’” More than 40 percent of construction employees are misclassified as independent contractors, according to  the Build a Better Texas report, released earlier this year by the Workers Defense Project. It’s a problem for the workers who get misclassified: many labor laws do not cover them, exposing them to abuse. It’s a problem for legitimate employers, who are undercut by the unscrupulous ones. And it’s a problem for all Texas residents, as cities and the state lose out on tax revenue, and social safety nets—already stretched thin—are forced to help out the cheated workers.

BS Jobs and BS Economics - David Graeber’s peculiar article on bullshit jobs (noted earlier by Tyler) does have one redeeming feature, a great example of poor economic reasoning:…in our society, there seems a general rule that, the more obviously one’s work benefits other people, the less one is likely to be paid for it.  Again, an objective measure is hard to find, but one easy way to get a sense is to ask: what would happen were this entire class of people to simply disappear? Say what you like about nurses, garbage collectors, or mechanics, it’s obvious that were they to vanish in a puff of smoke, the results would be immediate and catastrophic. A world without teachers or dock-workers would soon be in trouble…This, of course, is just the diamond-water “paradox”–why are diamonds, mere baubles, so expensive while water, a necessity of life, is so cheap?–the paradox was solved over a hundred years ago by…wait for it…can you guess?….the marginal revolution. Water is cheap and its value low because the supply of water is so large that the marginal value of water is driven down close to zero. Diamonds are expensive because the limited market supply keeps the price and marginal value high. Not much of a paradox. Note that, contra Graeber, there is nothing special about labor in this regard or “our society.”

Why Have Americans’ Income Expectations Declined So Sharply? - Data from the Thomson Reuters/University of Michigan Surveys of Consumers (Michigan survey) suggests that Americans' income expectations declined sharply in the 2008-09 recession and remain depressed. The reasons for this marked increase in pessimism are important because theory suggests that income expectations are a fundamental determinant of consumer spending and may help us understand the slow economic recovery.In this article, I examine two related questions about income expectations:

  • Was the decline concentrated among households with certain characteristics, or was it much more widespread in the population?
  • Did the decline reflect the more adverse experiences of certain households, or was it reflective of a more general malaise?

I used the monthly individual-level data from January 2007 to April 2012 in the Michigan survey to answer these questions.

I worked all week for free?!: The horrifying, true story of $0 paychecks - In the annals of degrading, infuriating labor practices, this one may take a prize: Meet the cleaning workers who received … zero-dollar paychecks. Now, defying alleged deportation threats and protesting those empty paychecks, a handful of striking guest workers from Jamaica are demanding accountability from the boss who hired them, the companies whose buildings they were cleaning, and the Florida politicians like Marco Rubio who took those companies’ cash. “The promises made by our employer, Mister Clean, they were so enticing that we borrowed money to get here, over $2,000,” striker Dwight Allen told Salon in a recent interview. But “when we got here … we realized that all of the promises were all false. “We had to sleep on the floor in overcrowded apartments,” said Allen, while paying their boss rent that sometimes exceeded the low wages and limited hours he provided them. “After getting a paycheck of zero dollars and zero cents” due to rent being deducted, said Allen, “we would still be getting texts from his wife saying that we still have balance of x amount” in remaining rent unpaid. When workers began organizing, he said, “we were threatened in writing from our boss.”

Take the Food Out of Food Stamps - Why give poor people grocery vouchers when it would be simpler, easier, cheaper, and more helpful to give them money instead?The logistical downsides of the current system are many. Scroll over to the Agriculture Department’s Supplemental Nutrition Assistance Program (SNAP) page, and you’ll find lots of links to explainers of various things. Here’s how you apply to make your store eligible to accept SNAP benefits as payment. Here’s how you check the status of your application. Since liberals love farmers markets almost as much as they love anti-poverty programs, there’s a special program for food stamps at farmers markets. You can even find information on how to train your staff to deal with customers using SNAP benefits.By contrast, nobody has to apply for eligibility to accept money. Nor do stores need special training programs for what to do when customers want to pay with money. Farmers markets are all set up to accept money already. Money, basically, is a great way to pay for things. So if the idea is to help poor people buy more stuff, the best way to fulfill that mission is to give poor people some money.

The Other Deadline Congress Missed: Welfare Just Lapsed  - Congress didn’t just miss the deadline on Monday night to pass a continuing resolution that would keep the government open. It also missed the deadline to reauthorize the Temporary Assistance for Needy Families (TANF) program, formally known as welfare. The TANF block grant that the federal government gives to states to share the cost of welfare programs was scheduled for reauthorization in 2010, but rather than reauthorizing it then Congress instead extended it multiple times. The most recent extension was part of a continuing resolution passed in March that funded the government through the end of September 2013, so it expired Monday night along with all other government funding. That means that as of Tuesday, states stopped receiving the funds from the block grant. This shouldn’t impact beneficiaries, however — at least in theory. Benefits are typically paid on the first of the month. According to the advocacy organization CLASP, states have funds that they can use to cover the cash assistance and other programs until the block grant is reauthorized. “In practice, there’s nothing that should stop the benefits from going out,” Elizabeth Lower-Basch, policy coordinator at CLASP, told ThinkProgress. Most actually float the money, paying out benefits and then requesting the money from the federal government afterward.

WIC benefits for low-income mothers, infants, and children expected to stop during government shutdown - USDA's Food and Nutrition Service (FNS) has posted a document explaining the contingency plan (.pdf) for nutrition assistance in the likely event that the federal government is shut down this week. In the document, the major nutrition assistance program most in jeopardy appears to be WIC, the Special Supplemental Nutrition Program for Women, Infants, and Children.  Except in cases where states have some state-level money in hand, WIC participants may stop getting benefits in October.   It should be noted that WIC has long had bi-partisan support, including heartfelt support from leading Republicans.  The program provides a targeted package of selected nutritious supplemental foods, not a general food subsidy.  The program provides no support for adults without children -- for example, no support whatsoever for single men who could be out getting a job.By contrast, the SNAP program appears to be funded in October even with a shutdown, because it is mandatory spending.  And school meals programs appear likely to continue in October because of the way the program expenses are reimbursed, as the contingency plan explains. Niraj Chokshi has a brief report this week at the Washington Post.

Number of Americans relocating across the country nears record low in slump following recession - The rate of Americans picking up and moving each year is near a record low despite indications last year that the recession-era trend might be improving. Census data showed an improvement last year in people moving from one house to another. The important indicator of economic strength saw record highs during the boom years and the improvement was cause for optimism in the country’s besieged housing sector. But the bump now appears to have been short-lived as 2013 data sinks back to near 2011’s lows. According to data assembled by Trulia, post-housing bubble lows came in 2011 when 11.6 percent of Americans picked up and moved. Back during the 1950s and 1960s—as families moved en masse to booming cities in California and elsewhere in the West—the rate hovered around 20 percent each year.

Lower Farm Earnings Hold Back Incomes in Plain States - Lower farm earnings were a drag on U.S. incomes in the second quarter of the year, hitting plains states particularly hard. Nationwide, average incomes grew a very modest 1.0% from April to June after falling 1.3% in the first three months of the year, the Commerce Department said Monday. The partial rebound helped households boost spending and supported the economy across much of the country.Sunbelt states Florida and Arizona saw the strongest growth in incomes at 1.5%. Florida may be benefiting from an improving real estate market — property income accounted for more than half of the state’s second quarter personal income growth. But a big drop in farm earnings, nationwide they were down 14.6%, hurt the Midwest. Personal income shrank in in Nebraska, Iowa and South Dakota. Minnesota and North Dakota had the lowest growth. Commerce Department economist Carrie Litkowski said the fall in farm earnings reflects a decline in crop output, possibly due to lower commodity prices. Inventories also have bounced around after Central and Southern Plains and much of the Corn Belt were hit by a severe drought in 2012. That wiped out stocks, which farmers quickly rebuilt in the first part of this year. The pace of restocking slowed in the second quarter.

New York's Annual Cost Per Inmate Tops $167,000 - New York is indeed an expensive place, but experts say that alone doesn't explain a recent report that found the city's annual cost per inmate was $167,731 last year — nearly as much as it costs to pay for four years of tuition at an Ivy League university. They say a big part of it is due to New York's most notorious lockup, Rikers Island, and the costs that go along with staffing, maintaining and securing a facility that is literally an island unto itself. "Other cities don't have Rikers Island," said Martin Horn, who in 2009 resigned as the city's correction commissioner, noting that hundreds of millions of dollars are spent a year to run the 400-acre island in the East River next to the runways of LaGuardia Airport that has 10 jail facilities, thousands of staff and its own power plant and bakery. The city's Independent Budget Office annual figure of $167,731 — which equates to about $460 per day for the 12,287 average daily New York City inmates last year — was based on about $2 billion in total operating expenses for the Department of Correction, which included salaries and benefits for staff, judgments and claims as well as debt service for jail construction and repairs.

Detroit bankruptcy weighs down banks around the world - The list of creditors in Detroit’s historic bankruptcy filing includes a number of European financial institutions that stand to lose millions, according to reports and banking documents examined by The Detroit News. European banks are facing hundreds of millions of dollars in potential losses from purchases of Detroit debt as a result of the city’s Chapter 9 filing in July. Several struggling foreign banks that were seized by their government regulators during the 2008 European financial crisis had Detroit debt among the bad assets on their balance sheets. Those losses and the city’s bankruptcy filing — coupled with the financial rules imposed on foreign major banks in the wake of Europe’s financial woes — mean banks today wouldn’t be likely to buy as much Detroit debt as in years past, said Robert Brooks, professor of financial risk management at the University of Alabama. “The ability of a bank to take a huge speculative position on a single municipality is not going to happen,” Brooks said. “It’s going to be flagged by regulators.” Many European banks saw U.S. municipal debt as essentially risk-free — and, in fact, in many recent municipal bankruptcies, cities have repaid all or most of their general obligation debt. With recent developments, however, foreign bankers are less likely to look at taking on Detroit loans.

Bankrupt Cities Seek Crowdfunding For Garbage -- Want to fund your "grilled cheesus" project? Need money to continue your "edible cup" business? Kickstarter is the platform of choice. But now, with the muni bond market suffering from outflows in retail funds and bankruptcies mounting across the nation, cities are increasingly turning to 'crowd-funding'. As Bloomberg reports, Central Falls (which filed for bankruptcy 2 years ago) is using Citizinvestor to seek $10,044 in funds for 5 new trash cans. "Even with attractive yields, there aren't a lot of people lining up to get involved with places that have gone through bankruptcy," ... Via Bloomberg Brief, The city of about 19,000 wants $10,044 to put five trash cans in Jenks Park, which is currently “littered with garbage and debris," according to the campaign on the website Citizinvestor, a site where residents can fund municipal projects. The initiative so far has $295 through 11 donations. The decision to circumvent capital markets may foreshadow similar steps by other cities when they exit court protection, such as San Bernardino and Stockton in California and Detroit, which filed a record municipal bankruptcy in July. “Even with attractive yields, there aren’t a lot of people lining up to get involved with places that have gone through bankruptcy,"

The Push for Universal Pre-K - I’ve touched on some of the reasons for resistance to increased public investment in children in earlier posts. Sometimes the issue is framed as one of disagreement over social cost-benefit analysis, but many economists, most famously James Heckman of the University of Chicago, offer powerful evidence of a high social rate of return in the form of improved outcomes for children. The net benefits loom even larger when the value of increased work flexibility for parents is added in. The bigger issue is who will pay the costs and who will enjoy the benefits. Loyalties based on age, race and ethnicity, gender, citizenship and class have a fragmenting effect. Mothers are more affected than fathers, who account for a smaller share of the overall time and money devoted to children. Self-interest also comes into play. Some nonparents feel they shouldn’t be required to help subsidize parents.Most families worry more about their own budgets and the relative well-being of their own children than the growth of the overall economy or average child outcomes. Persistently high unemployment and the decline of middle-class jobs increase apprehensions about competition among members of the next generation. Will there be enough future demand for all this human capital we are urged to invest in?  On the other hand, universal pre-K eases economic stress on parents and improves human resources. It helps counter economic forces that are both driving up the relative cost of child-rearing and increasing economic inequality.

8-year-old suspended from Florida school for using fingers as gun during game - An 8-year-old Florida boy was suspended from school for pretending to use his finger as a gun. Bonnie Bennett told WKMG-TV that her son was suspended Friday from Harmony Community School in Osceola County after playing cops and robbers with another student. “There was nothing in his hand,” Bennett said. “He used his thumb and index finger. It was a game. He made no threatening advances or threats to harm anyone. No words were said.” Bennett said she wouldn’t have been upset if the boy had been punished some other way, but she’s concerned that the suspension will cause her son to be classified as a “violent offender.”

In bid to help prevent violence, Justice Department awards grants for in-school officers - In the next few months, every high school in Modesto, Calif., might get its own designated cop to help keep students safe – and it’s far from alone nationwide.  In an attempt to keep schoolchildren safer, the U.S. Department of Justice on Friday said it was handing out $44 million in grants to help provide 356 school resource officers to 141 cities and counties around the country. Some grants recipients had been named previously; Friday’s announcement included all winners. While the grants go to law enforcement agencies, they are intended to help place more police officers in schools. In Modesto, for example, the grant is for $1 million to fund eight new school resource officers in the California city’s school district.  “Not only do they deter crime, but they provide opportunities for positive relations between students and law enforcement,” said Karen Servas, a Modesto City School District grant writer. The district collaborated with the Modesto Police Department in the grant-writing process, and the partners got the amount they asked for. Details for spending the grants have not yet been made; in addition, the Modesto City Council has to approve the program, which requires grantees to match every dollar two-to-one.

FACT SHEET: Homeless Students in New York City -- Homelessness is experienced by thousands of students in New York City.  Every New York City neighborhood has schools with homeless students.  Homelessness can affect a students education.

  • ■ 71,271 students were homeless during the 2011–12 school year (SY), 40% more than four years earlier.1
    ■ 6.9% of all students were homeless during SY 2011–12, three times the national rate and more than the rates of other major cities, including Los Angeles (2.3%) and Chicago (4.3%).2
  • ■ 41% of homeless students lived in shelter.
    ■ 44% were living doubled-up with family or friends.
    ■ 15% were unsheltered, living on the streets.3
  • ■ A higher proportion of homeless students in a school district corresponds to a lower graduation rate.4
    ■ On average, students in DHS shelters attended school less frequently (83.3%) than housed students (90.5%). New York public schools require 90% attendance for promotion to the next grade level.5
    ■ Homelessness corresponds with use of special education services. One in five (20.7%) students in special education programs is homeless.6

Charter School Gravy Train Runs Express To Fat City - On Thursday, July 25, dozens of bankers, hedge fund types and private equity investors gathered in New York to hear about the latest and greatest opportunities to collect a cut of your property taxes. Of course, the promotional material for the Capital Roundtable’s conference on “private equity investing in for-profit education companies” didn’t put it in such crass terms, but that’s what’s going on. (Getty Images via @daylife) Charter schools are booming. “There are now more than 6,000 in the United States, up from 2,500 a decade ago, educating a record 2.3 million children,” according to Reuters. Charters have a limited admissions policy, and the applications can be as complex as those at private schools. But the parents don’t pay tuition; support comes directly from the school district in which the charter is located. They’re also lucrative, attracting players like the specialty real estate investment trust EPR Properties EPR Properties (EPR). Charter schools are in the firm’s $3 billion portfolio along with retail space and movie megaplexes. Charter schools are frequently a way for politicians to reward their cronies. In Ohio, two firms operate 9% of the state’s charter schools and are collecting 38% of the state’s charter school funding increase this year. The operators of both firms donate generously to elected Republicans

It Sucks to Be a College Debt-Burdened Millennial - More than a third of American millennials are living with their parents, according to a Pew Research Center study released August 1. When the recession began in 2007, 32 percent or 18.5 million of millennials -- defined as 18- to 31-year olds -- had not left the nest. Today, it is 36 percent, or 21.6 million. Even those college graduates earning enough that they don't need to refill their parents' empty nests are finding that their college debt is disqualifying them for buying their first home. As a result, while first-time home buyers typically make up more than 40 percent of the home buying population, the share is currently at or below 30 percent. The amount of student debt has tripled since 2004 and stands today at nearly $1 trillion. Students depend on loans because federal Pell grants are puny and most students don't get them: only 42 percent of students get federal grants and they cover less than one third the cost of a four-year-public school versus 69 percent in 1980 x. What's even more despicable is that only 22 percent of undergrads at flagship universities get Pell Grants according to a 2012 article in Money, "25 Secrets to Paying for College."

Student-loan defaults rise in U.S. -- About one in seven borrowers defaulted on their federal student loans, showing how former students are buckling under higher-education costs in a weak economy.The default rate, for the first three years that students are required to make payments, was 14.7 percent, up from 13.4 percent the year before, the U.S. Education Department said Monday. Based on a related measure, defaults are at the highest level since 1995.The fresh data follows the announcement by President Barack Obama's administration that it would seek to restrain skyrocketing college expenses by tying federal financial aid to a new government rating of costs and educational outcomes. The rising number of defaults shows the pain of borrowers, said Rory O'Sullivan, policy and research director at Young Invincibles, a Washington nonprofit group."Our generation is behind in the economic recovery and not recovering as fast as we need to," said O'Sullivan, whose group represents the interests of people ages 18 to 34. "It's financial disaster for borrowers. Defaults can dramatically affect their credit rating and make it harder to borrow in the future."Today's report covers the three years through Sept. 30, 2012. The default rate, which includes graduates and those who dropped out, shows the share of borrowers who haven't made required payments for at least 270 consecutive days.

Student Loan Defaults Surge To Highest Level In Nearly 2 Decades - Recent college students are defaulting on federal loans at the highest rate in nearly two decades, reflecting "crisis" levels of student debt and a lackluster economy that leaves graduates with bleak employment prospects. One in 10 recent borrowers defaulted on their federal student loans within the first two years, the highest default rate since 1995, according to annual figures made public Monday by the Department of Education. A separate gauge, measuring defaults occurring within the first three years of required payments, showed that more than one in seven borrowers with federal student loans went into default, an event that can trigger invasive debt-collection methods that include fees, wage garnishments, and withheld IRS tax refunds. “The growing number of students who have defaulted on their federal student loans is troubling,” Education Secretary Arne Duncan said. Duncan said the department will work to “ensure that student debt is affordable.” As in previous years, for-profit colleges had higher default rates than any other sector of higher education. The industry, in the Education Department’s crosshairs since 2009, is braced for an onslaught of renewed scrutiny as federal lawmakers and policymakers attempt to rein in the amount of taxpayer-financed loans and grants going to schools with dubious track records.

Student Loan Default Rates Skyrocket to the Highest Level in 18 Years - One in seven borrowers defaulted on their federal student loans, according to figures released Monday by the U.S. Department of Education. The default rate—representing the first three years borrowers are required to shell out payments—rose from 13.4 percent to 14.7 percent. Defaults are now at the highest level since 1995, a sheer sign recent graduates face a financial future both crippling and dim. The percentage of borrowers who defaulted on their federal student loans within two years of starting repayment also increased for the sixth year in a row, climbing to 10 percent, up from 9.1 percent the year prior. “The growing number of students who have defaulted on their federal student loans is troubling,” said U.S. Secretary of Education Arne Duncan in a statement. “The Department will work with institutions and borrowers to ensure that student debt is affordable.” For-profit colleges laid claim to the highest default rates than any other sector, with two-and three-year default rates ringing in at 13.6 and 21.8 percent, respectively. Public institutions followed in their wake, with similarly, steadily rising rates.

Two years after bankruptcy, California city again mired in pension debt (Reuters) - Less than two years after exiting bankruptcy, the city of Vallejo, California, is again facing a budget crisis as soaring pension costs, which were left untouched in the bankruptcy reorganization, eat up an ever-growing share of tax revenues. Vallejo's plight, so soon after bankruptcy, is an object lesson for three U.S. cities going through that process today - Detroit, Stockton and San Bernardino, California - because it shows the importance of dealing with pension obligations as part of a financial restructuring, experts say. The Vallejo experience may be particularly relevant to Stockton, which is further along in its bankruptcy case than Detroit and San Bernardino and has signaled its intention to leave pension payments intact. All three current bankruptcies are considered test cases in the titanic battle between Wall Street and public pension funds over whether municipal bondholders or current and retired employees should absorb most of the pain when a state or local government goes broke. "Any municipal bankruptcy that doesn't restructure pension obligations is going to be a failure because pension obligations are the largest debt a city has," said Karol Denniston, a municipal bankruptcy attorney in San Francisco. "A city like Vallejo can be reasonably managed but it is still going to be flooded out because it cannot be expected to keep up with its pension obligations."

Your Pension Is Under Attack From All Sides. Here’s 10. -Sometimes it seems you can never write enough about our various pension plans, and the threats to them. Matt Taibbi's Looting the Pension Funds brings it all back with a vengeance, the things I've written about pensions in the past year, and Nicole's recent article on Detroit etc. Put together, we get a broader context.Over the past week, I've read yet another slew of reports on what's going wrong with pensions. You can see it happening in real time wherever and whenever you care to look. For many people that's probably not a favorite pastime, because it instills fear in their hearts. But I think it's better to look than to avert one's eyes, because the difference between what you expect and what you're actually going to receive grows bigger by the day. Negative growth, that is. In order to get a better overview, I made a list of points that are threats to pensions. The fact that there are 10 of them is purely coincidental and it's by no means complete; do let me know what I left out. While I focused mainly on US public pension funds, most of what follows, in some degree or another, is just as valid in US private plans and in Europe and Japan. Not all plans are set up the same way, in fact there are too many differences to list, but one overall trend can be identified across the board: pension funds are irresistible to the predatory financial system, since they are what I called earlier this year: The Last Remaining Store Of Real Wealth, and what Matt Taibbi defines his way: With public budgets carefully scrutinized by everyone from the press to regulators, the black box of pension funds makes it the only public treasure left that's easy to steal ...

Wealth Patterns and Retirement Readiness - Throughout the grim economic statistics of the last five years, I've felt especially badly for those who were near or into retirement. This last group is old enough that spending many more years in the labor market wasn't a realistic option, even if jobs had been available. Meanwhile, they saw the value of their retirement nest eggs slashed by falling house and stock prices, and have watched while their savings and money market accounts brought them only ultra-low interest rates. LaVaughn Henry offers some evidence on these points in "Are Households Saving Enough for a Secure Retirement?". One rough-and-ready measure of how older generations are doing is to look at the accumulation of national wealth. Here's actual household wealth, with the brown line showing the actual pattern and the green line showing a steady-growth trend over time. Notice that wealth went above trend in the dot-com boom of the late 1990s, but at the end of that period wealth returned to more-or-less the long-term trend. However, in the housing bubble of the mid-2000s, household wealth not only went further above trend, but then fell to well below trend and has been slower to rebound. How do wealth patterns look for near-retirement Americans in particular? This graph shows the ratio of wealth-to-income for four different age groups at three different years. Clearly, those in the 55-64 age bracket were feeling a lot better about their retirement prospects in 2007 than they were in 2010.

U.S. Postal Service defaults on $5.6 billion for future health benefits (Reuters) - The U.S. Postal Service on Monday defaulted yet again on a prepayment for the healthcare of its future retirees as its finances remain in the red and legislative reform remains elusive. The agency has blamed the payments, more than $5 billion a year as mandated by Congress to prefund the Postal Service's future retirees' healthcare, for contributing to annual losses of billions of dollars. The requirement was set in 2006 when the agency was still thriving and before the economic crisis. But those massive payments, along with tumbling mail volumes, have since pushed the agency's finances to a precarious position. Last year, the mandate accounted for a large portion of the Postal Service's $16 billion net loss. "Without passage of comprehensive legislation as outlined in our five-year business plan, current projections indicate that we will have a dangerously low level of liquidity in the foreseeable future. Therefore, we will be unable to make the required $5.6 billion retiree health benefits prefunding payment due today," a spokeswoman for the agency said in an email.

Millions of poor Americans will not benefit from health reform - A sweeping national effort to extend health coverage to millions of Americans will leave out two-thirds of the poor blacks and single mothers and more than half of the low-wage workers who do not have insurance, the very kinds of people that the program was intended to help, according to an analysis of census data by The New York Times.This is not a massive failure of the design of the Affordable Care Act. It’s due to the Supreme Court ruling that the Medicaid expansion was optional. Nobody thought that such a ruling was likely.However, one could argue that it was possible to have anticipated that potential outcome and, therefore, the ACA’s designers should have sought a more robust design. Medicare for all — or at least for Medicaid eligible individuals — would have been more robust. Allowing the would-be Medicaid eligible access to subsidies for exchange coverage would have been more robust. But wait. That’s possible! Arkansas has received approval to do just that. So the design is quite robust. Flexible even.. So, is that reasonable or not? Are the limits so onerous to warrant denying so many poor Americans benefits almost all other, wealthier Americans enjoy?*

Shocker: 26 States Refusing to Expand Medicaid Will Leave Nearly Eight Million of America's Poorest Uninsured  The New York Times reported today that even as Obamacare rolls out, nearly eight million poor Americans will be left without health coverage, thanks in large part to the fact that 26 Republican-controlled states have refused to expand Medicaid coverage. Not surprisingly, two thirds of those affected by the political intransigence are poor black Americans and single mothers—the very people that the program was crafted to aide. Says the Times: The law was written to require all Americans to have health coverage. For lower and middle-income earners, there are subsidies on the new health exchanges to help them afford insurance. An expanded Medicaid program was intended to cover the poorest. In all, about 30 million uninsured Americans were to have become eligible for financial help. But the Supreme Court’s ruling on the health care law last year, while upholding it, allowed states to choose whether to expand Medicaid. Those that opted not to leave about eight million uninsured people who live in poverty ($19,530 for a family of three) without any assistance at all.

The Cruelty of Republican States in One Chart - Many people are talking today about this article in today's New York Times, which focuses on the particularly cruel doughnut hole created when the Supreme Court allowed states to opt out of the expansion of Medicaid in the Affordable Care Act. The problem is that if you live in a (mostly Southern) state run by Republicans, you have to be desperately poor to qualify for Medicaid under existing rules. But it isn't until you get to 133 percent of the poverty level ($31,321 in yearly income for a family of four) that you're eligible for subsidies to buy insurance on the exchanges, because when the law was written the idea was that everyone under that income would get Medicaid. When all those Southern states decided to refuse the Medicaid expansion in order to shake their fist at Barack Obama, they screwed over their own poor citizens. So millions of people will be caught in the middle: not poor enough to get Medicaid, but too poor to get subsidies on the exchanges. But when we say "not poor enough," what we're talking about is people who are, in fact, extremely poor. And you'll be shocked to learn that in those states, the poor are disproportionately black. Could that have anything to do with it? Heavens, no! In any case, I thought it might be worthwhile to lay out in one handy chart how, state by state, this will affect people. Under pre-ACA law, each state sets its own eligibility level for Medicaid. In more liberal states, these levels are fairly high; for instance, Massachusetts gives Medicaid to families up to 133 percent of poverty, New York up to 150 percent, and Minnesota up to 215 percent. But in conservative states, the levels are far stingier; as someone in the Times article says, "You got to be almost dead before you can get Medicaid in Mississippi."

California Cuts Medicaid Payments Amid Wave of New Users - When Ruth Haskins, a gynecologist in Folsom, California, does a pelvic exam and pap smear on a woman with insurance, she gets $95 to $200. If the patient is elderly, federal Medicare pays $36. For the low-income on Medicaid, the state gives $25, and it’s about to go down.  The reduction comes as Medi-Cal, California’s Medicaid program for 8.5 million people too poor to afford health care, is on the verge of adding 1 million participants under President Barack Obama’s health-system overhaul, according to the state Health Care Services Department.  Finding doctors willing to treat them may be harder. The biggest U.S. state by population is projecting its first budget surplus in almost a decade and spending $1.5 billion to expand Medi-Cal. Yet many physicians, as well as dentists and pharmacies, will see their fees cut 10 percent under a 2011 deal by Governor Jerry Brown to balance an $86 billion budget.

Race to get Obamacare online sites running goes to the wire (Reuters) - Just days before the launch of the new U.S. state health insurance exchanges that are the centerpiece of the Affordable Care Act, a nationwide push is still under way to test and patch the technology behind the online sites. Officials working on the sites have acknowledged that information technology (IT) failures will prevent many of them from functioning fully for weeks, and perhaps longer. That will slow the government's drive to enroll millions of uninsured Americans under President Barack Obama's healthcare reform law starting Tuesday. From a political standpoint, a successful opening day will shape perceptions of Obama's signature policy initiative. But the system's functioning is to a large extent beyond the control of politicians and policy experts, and instead sits in the hands of the battalions of coders working for IT sub-contractors. Opponents of the healthcare reform known as Obamacare say the computer problems bolster their view that the 2010 law is a "train wreck" and should be delayed or repealed. The Obama administration insists the exchanges will be open for business on October 1, even if some uninsured Americans may not be able to buy coverage right away. More importantly, they say, the new health plans will begin to provide health coverage on January 1, as planned.

Obamacare and The Bad News Bears - Yesterday, when I read the new HHS report on premiums in the individual exchanges in 36 states, I was impressed by the good news. In the marketplaces where people who do not have access to employer-sponsored insurance will be purchasing their own coverage, rates will be much lower than expected. This is true even in Red States that have resisted Obamacare. Then I began to read what the press had to say about the report, and found myself frustrated by the misleading, fear-mongering response. It sometimes seems as if the mainstream media is bent on downplaying any good news about reform.  Even the New York Times – a highly-respected publication that is often viewed as “liberal” – took a dour view, warning that “the data” in the HHS report on premiums “provides only a partial picture of the reality that consumers will face  … The figures, almost by definition, provide a favorable view of costs, highlighting the least expensive coverage in each state.”  What Times reporter Robert Pear overlooks is the fact that the vast majority of individuals shopping in the exchanges live in middle-income or low-income households. (More affluent Americans tend to have access to comprehensive insurance through their employer, a spouse or their parents.) What folks purchasing their own coverage in the state marketplaces want to know is what the least expensive Bronze and Silver Plans will cost. Those are the plans they will be buying, and that is why the HHS report focuses on those policies.

A Health Care Fight That Punishes Federal Workers - One can think of the Affordable Care Act as a highly complex patch on the even more complex and fragmented health insurance system.  Thinking of it that way helps explain why even people who have no ideological dog in the hunt have such difficulty getting their mind around this complex legislation, especially from a worm’s-eye view. It does not help that Americans are bombarded daily with misleading information about the act. Viewing the law from a distance, one discerns two main objectives:

    • 1. To facilitate easier and affordable access to health insurance to Americans who do not now have health insurance (and that latter phrase warrants emphasis).
    • 2. To help reorganize the delivery of health care in the United States to enhance its cost-effectiveness by lowering the cost of producing a given level or quality of care or by enhancing the quality of care for a given cost, or both.

To the best of my knowledge, nowhere in its many pages does the law, either in its spirit or its wording, suggest that any employer — including the federal government — who currently sponsors health insurance for its employees and who makes contributions to the premiums for that coverage may no longer do so come Jan. 1.  And yet, seemingly serious adults appear to believe that the law forces the federal government to drop such coverage for certain employees. Among them are the editors of The Wall Street Journal, Michael Cannon of the libertarian Cato Institute and Robert Moffitt, et al of the Heritage Foundation.

Wonkbook: Obamacare’s October surprise: The Obama administration has been a bit afraid of October 1st. After all, no major product launches without a hitch, and Obamacare is more major, and facing more politicized scrutiny, than almost any product the federal government has ever launched. The fear was that things would go wrong on October 1st and the press, looking for dramatic stories of Obamacare glitches, would swarm the anecdotes, giving the public the impression that the law was a failure even as most of it was working fine and the bugs were being quickly fixed. But with a government shutdown and a looming debt-ceiling crisis obsessing the media and the country, the media simply has less bandwidth to cover the rollout of the health-care law. That gives the administration, as well as the states, a bit more breathing room to find and fix bugs in the early days without seeing the law declared a failure. The downside for the law is that less focus on Obamacare means fewer people hearing that the insurance marketplaces have gone live, and thus fewer people knowing they should go and sign up for coverage. The Obama administration, some of the states, and a consortium of outside actors all have plans to promote the law through paid media in the coming weeks and months, but the launch could've earned them a lot of valuable free media. But all of this speaks to why the Republican Party is so frightened. Until now, Obamacare has been an abstraction. You can repeal an abstraction. Tomorrow, it becomes a reality. And reality is a lot harder to repeal.

Creating a New Responsibility: Between the political posturing in Washington, and the excellent nuts-and-bolts reporting of the major news organizations, it is easy to lose sight of what is about happen on Tuesday. When the Affordable Care Act takes effect, October 1, requiring most US citizens to obtain health insurance one way or another or pay a tax penalty for going without, a new obligation of citizenship will have been recognized by law. The responsibility to take care of oneself will have been joined, however loosely, to the long-established right to emergency medical care. Something like 25 million citizens, more than half of those who are currently uninsured, will enter into a relationship with a medical practice within the next few years. They’ll join more than 250 million Americans who are currently insured in the biggest undertaking to improve public health since the days of city sanitation and the war on communicable disease more than a century ago. In many states, collective well-being will begin to improve almost immediately (the initial enrollment period extends through the end of March). In other states, especially those in the Southeast, where Republican governors have dug in against implementation of the law, a more complicated political game will play on. Everywhere, changes within the enormous health care sector, already underway, will gather momentum. No wonder the fuss is so great.

Obamacare Exchanges Debut With Demand High on Slow Sites - The Obamacare insurance exchanges struggled to handle a flood of consumer interest that closed the U.S. website for much of the day, and caused start-up delays for most of the marketplaces run by the states. In New York, officials said the exchange had 2.5 million visitors in the first half hour and California reported seeing as many as 10,000 hits a second. While Republicans pounced on the breakdowns as evidence the law doesn’t work, President Barack Obama said the volume “gives you a sense of how important this is to millions of Americans.” The problems offered a frustrating debut for the system at the center of the Affordable Care Act’s efforts to cover more of the 48 million uninsured Americans. The exchanges are supposed to help consumers access federal subsidies and choose from a menu of private insurance plans that take effect Jan. 1, when the law requires all Americans to obtain insurance.

Obamacare Launch Day Plagued By Website Glitches - President Barack Obama said the launch of Obamacare's health insurance exchanges would be rocky. He was right.During the first few hours of a six-month enrollment period for health coverage via the online marketplaces, both state-run health insurance exchanges and, which is the portal for residents of more than 30 states, were plagued by crashes, long load times and error messages. The exchanges, also called marketplaces, are intended for people who don't get health benefits at work or are uninsured. By noon -- about four hours after the official launch time and about 12 hours after appeared to go live -- visitors to the website were greeted by messages such as "Health Insurance Marketplaces: Please Wait." They were unable to create an account to begin comparing health insurance plans on price and benefits or to learn whether they qualify for financial assistance. At times, the registration process began but halted. The wait time was more than 22 minutes when The Huffington Post called the federal call center.

Exchanges still overwhelmed - The portal to sign up for coverage through ObamaCare's new insurance exchanges remained stymied by heavy traffic Wednesday — the second day of the six-month enrollment window.  A White House official said on Wednesday that had received more than 6 million visits, including the 4.7 million it ultimately clocked on Tuesday. And the Health and Human Services Department said the heavy traffic — not programming errors — was to blame for the difficulty consumers had accessing the site. The website remained overwhelmed on Wednesday. Visitors faced long waits to access the site's registration process, and some were still unable to create accounts. The problems aren't making life any easier for the Obama administration, but President Obama himself repeatedly predicted "glitches" in the rollout, and as officials have noted this week, consumers still have until Dec. 15 to sign up for coverage that begins Jan. 1 — the same time it will take effect if they sign up this week.

Reform Turns Real, by Paul Krugman - At this point, the crisis in American governance has taken on a life of its own. ... But this confrontation did start with a real issue: Republican efforts to stop Obamacare from going into effect. It’s long been clear that the great fear of the Republican Party was not that health reform would fail, but that it would succeed. And developments since Tuesday, when the exchanges on which individuals will buy health insurance opened for business, strongly suggest that their worst fears will indeed be realized: This thing is going to work. Wait a minute, some readers are saying. Haven’t many stories so far been of computer glitches...? Indeed, they have. But everyone knowledgeable about the process always expected some teething problems, and the nature of this week’s problems has actually been hugely encouraging for supporters of the program. ...The glitches, for the most part, to be the result of the sheer volume of traffic, which has been much heavier than expected. And this means that one big worry of Obamacare supporters — that not enough ... would ... sign up — is receding fast. What we still don’t know, and is crucial for the program’s longer-term success, is who will sign up. Will there be enough young, healthy enrollees to provide a favorable risk pool and keep premiums relatively low? Bear in mind that conservative groups have been spending heavily — and making some seriously creepy ads — in an effort to dissuade young people from signing up for insurance. Nonetheless, insurance companies are betting that young people will, in fact, sign up, as shown by the unexpectedly low premiums they’re offering...

Why Do People Prefer the Affordable Care Act Over Obamacare? - Affordable Care act versus Obamacare Act. I will give you, there is nothing within this bill that is easy to understand. Along with Maggie Mahar and others, I took the time to read the act and attempt to understand it which even today causes me fits. As shown in this clip, many people can distinguish between the words Affordable Care Act and Obamacare; but they fail to distinquish the content and understand they are the same. Kudos to the propagandist to associate a black President with a particular Law. There should be a Goebbels award somewhere for this type of achievement in skewing  the true intent of an act to just a person’s name. Would it sell better if we called it the Boehner Act or McConnell Act? People are acting against the interests of the whole and their own self interests because of a name. When you get right down to it and you know a large percentage of people within the wealthiest and richest in income nation in the world go without healthcare, why would you object to a plan to provide it because of the name even if it was not single payer, Medicare for all, or Universal etc.?  Maybe we should change the Link to Affordable Care Act to Black Man Care Act? Perhaps then, we might understand the true beliefs of a Congress who would shut down a government and people who might pick one over the other without knowing they are both the same. Hat Tip to Digsby for providing the clip.

Wonkbook: Obamacare’s Web site is really bad - "A couple of weeks ago, Apple rolled out a new mobile operating system, and within days, they found a glitch, so they fixed it," Obama said. "I don’t remember anybody suggesting Apple should stop selling iPhones or iPads or threatening to shut down the company if they didn’t." But the Obama administration doesn't have a basically working product that would be improved by a software update. They have a Web site that almost nobody has been able to successfully use. If Apple launched a major new product that functioned as badly as Obamacare's online insurance marketplace, the tech world would be calling for Tim Cook's head. The good news for Obamacare is that lots of people want to sign up. Lots and lots of people. Many more, in fact, than anyone expected. The bad news is that the Obama administration's online insurance marketplace -- which serves 34 states -- can't handle the success. "The amount of demand is really driving the issues," a senior administration official told me. "But we’re adding capacity every hour." Yes, the overwhelming crush of traffic is behind many of the Web site's failures. But the Web site was clearly far, far from prepared for traffic at anywhere near these levels. That's a planning flaw: The Obama administration badly underestimated the level of interest. The fact that the traffic is good news for the law doesn't obviate the fact that the site's inability to absorb that traffic is bad news for the law.

Key Part Of Obamacare Website Going Dark This Weekend - The federal government will take down a critical part of, the Obamacare web portal, for a portion of the coming weekend as programmers feverishly work to fix major glitches that are impeding enrollment and marring the debut of the centerpiece of President Barack Obama's health care reform law. Since went live on Oct. 1, visitors have faced widespread and persistent problems accessing the website. The site is supposed to let the uninsured and people who buy their own health insurance directly compare health plans by price and benefits and learn whether they qualify for financial help. The Obama administration has cited higher-than-expected traffic to the site as the cause of the problems, and claims to have made progress during the health insurance exchanges' first four days. The administration will not allow users to fill out applications for coverage on between the hours of 1 a.m. and 5 a.m. EDT Saturday, Sunday and Monday mornings, allowing programmers to write fixes to the website, the Department of Health and Human Services announced late on Friday. This part of the website was down early Friday morning as well, Joanne Peters, a spokeswoman for the department, disclosed on Twitter after the announcement.

That Thing About Congress Being ‘Exempted’ from Obamacare? Huge Whopper Lie. - This is one of the trickiest political lies to come along in quite some time, so bear with me as we walk through it. You might’ve heard just about every Republican member of Congress, along with Fox News and AM talk radio, shrieking about how President Obama has “exempted” Congress from Obamacare. The point they’re trying to make is that Obamacare is so awful and so ridiculous that the Obama administration has offered Congress a Get-Out-Of-Obamacare-Free card. Taking it one step further, they’re insisting that if Obamacare isn’t good enough for Congress, why should the American people be forced to endure its awfulness? The people should be exempted, too, which means the elimination of the individual mandate, and, without the mandate (a Republican idea by the way), premiums would skyrocket and the law would explode. Political sabotage, pure and simple. During his filibuster and Meet the Press appearance, Sen. Ted Cruz (R-TX) mentioned this “exempt” talking point numerous times. And in final hours before the government shutdown Monday night, Speaker John Boehner, among others, took to the floor of the House of Representatives and shouted, “Get rid of the exemption for Members of Congress! It’s a matter of fairness for all Americans!” It’s difficult to encapsulate in any language, living or dead, the sheer intellectual violence of this lie.

Calling Obama's Bluff on the Affordable Care Act --With the closure of the government on Tuesday, President Obama on Monday said he is open to fresh ideas on health care reform. Taking him at his word, here are three ideas "to make sure the Affordable Care Act works better."

  • Allow All Plans on the Exchanges. Mr. President, when you were lobbying for the bills that became the Affordable Care Act, you repeatedly promised Americans that, if they liked their current health insurance, they could keep it. It turns out that under your administration's implementation of the Act, most Americans cannot purchase the exact same health insurance they had just a few years ago. Let's broaden them to allow them to carry all plans, including the ones many Americans used to have just a few years ago
  • End the employer mandate. Mr. President, employers are not required to provide food, clothing, or housing to employees. Why make them provide health insurance? Rather, raise the $140 billion over 10 years in employer penalties through some other means. One suggestion: eliminating those green energy grants and tax incentives that make electricity more expensive will get you 85 percent of the needed revenue.
  • Give everyone subsidies to buy insurance. The Internal Revenue Service is already overwhelmed figuring out which nonprofits qualify for tax-exempt status. The subsidy process is made more complex because the insurance is received a year after enrollment. Americans will enroll on October 1 for coverage in 2014. But they only know their 2012 income from the tax return they filed on April 15, 2013. If their income is higher in 2014, they will lose part of their premium subsidy, and the IRS by law is supposed to reclaim it the following year. In addition, the IRS has to calculate penalties (taxes) for those who choose not to buy insurance. Rather, give everyone a refundable tax credit to use to purchase their own plans, with the amount varying by income. Congress could pay for this by ending the tax-free status of employer-provided health insurance

Why the Health Care Law Scares the G.O.P. - This spring, the Missouri Chamber of Commerce urged the state Legislature to accept the federal government’s plan to expand Medicaid for the poor and disabled.   Pragmatism suggested accepting the expansion. Washington would pay the extra cost entirely for three years and pick up 90 percent of the bill thereafter.  Missouri’s Republican-controlled Legislature — heavy with Tea Party stalwarts — rejected Medicaid’s expansion in the state anyway.   Today, the same forces that blocked the expansion of Medicaid in Missouri are going all out in Washington in a bid to undo all of the Affordable Care Act. Bowing to the vehemence of its Tea Party faction, the House G.O.P. forced a government shutdown when Senate Democrats refused to delay or defund the president’s health overhaul. Flawed though it may turn out to be, Obamacare, as the Affordable Care Act is popularly known, could fundamentally change the relationship between working Americans and their government. This could pose an existential threat to the small-government credo that has defined the G.O.P. for four decades.

ObamaCare’s Shameful and Lethal Three-year History — and Future - When the ACA was passed it was estimated by its proponents that it would cover 35 million more people than before. Now these same proponents are using the figure 31 million new people covered instead. Meanwhile the population of the United States has grown by 9 million people, and due to the effect of the crash of 2008, millions of people who were insured before the crash are now uninsured. So, though there are no hard figures on this it is likely that estimates of 30 million still uninsured are on the low side. And when we consider that HHS, today, for actuarial reasons, is marketing to the young and healthy, and not the vulnerable and disengaged, it seems quite possible that the 45,000 fatalities per year will not decrease significantly, if at all.Even if the projection of 31 million new people covered is accurate by say 2017, we will still have as many (assuming further population growth) as 28 million uncovered people then, because the Democrats chose to pass the ACA rather than the Conyers/Kucinich enhanced Medicare for All bill, HR 676. So, 9 years after the effort to pass universal health care started in 2009, we would still have 28,000 fatalities per year to cope with and 28 million going to emergency rooms for care that is too little and often too late (assuming that regulations and laws are not changed to tighten up or eliminate ER access, using the ACA as a pretext).Furthermore, it’s perfectly possible that the current 31 million new coverage projection is still too optimistic about the future. Many states are still fighting the ACA and will not implement its Medicaid provisions. Some 17 million out of the 31 million new people covered were going to go into the expanded Medicaid program. But with State Governors in Southern and some Western Red States refusing to allow that Medicaid expansion to occur, we may end up with only 9 million new Medicaid enrollees nationwide. Many others will try to game the system because they are willing to accept the risk of mandate violations and fines rather than pay the cost of the lousy insurance offered for basic plans in the ACA. All in all, that 31 million may well turn into 17 million or so before all this is done. And then we would have taken 9 years of passage, waiting, and implementation and would still have as many as 40 million people uncovered in 2017, and 40,000 annual fatalities.

A Single-Payer System, Like Medicare, is the Cure for America's Ailing Healthcare - Bernie Sanders - I start my approach to healthcare from two very basic premises. First, healthcare must be recognized as a right, not a privilege. Every man, woman and child in our country should be able to access the healthcare they need regardless of their income. Second, we must create a national healthcare system that provides quality healthcare for all in the most cost-effective way possible. Tragically, the United States is failing in both areas. It is unconscionable that in one of the most advanced nations in the world, there are nearly 50 million people who lack health insurance and millions more who have burdensome co-payments and deductibles. In fact, some 45,000 Americans die each year because they do not get to a doctor when they should. In terms of life expectancy, infant mortality and other health outcomes, the United States lags behind almost every other advanced country. Despite this unimpressive record, the US spends almost twice as much per person on healthcare as any other nation. As a result of an incredibly wasteful, bureaucratic, profit-making and complicated system, the US spends 17% of its gross domestic product – approximately $2.7tn annually– on healthcare. While insurance companies, drug companies, private hospitals and medical equipment suppliers make huge profits, Americans spend more and get less for their healthcare dollars.

Obamacare: The Gift To Insurers That Will Keep on Giving - One way is to look at what Obamacare is, and what it is not. It most definitely is the legislative manifestation of the insurance industry's biggest wishes of all, providing massive no-strings-attached subsidies to the industry, and using government power to force citizens to become the industry's permanent customers. It also is not what the insurance industry most fears - it is not only not a single-payer system, it doesn't even include a public option that would allow people to altogether avoid the rapacious private-insurance industry. It also does not prevent insurance companies from employing their typical devil-in-the-details tactics - the kind that provide the patina of health insurance while limiting access to actual health services. Asking exactly why Obamacare was structured like this is another way to see that the law is really a gift to insurers hidden in the gaudy wrapping of altruism. That's because the answer to that critical "why" question is simple: the law was written by the insurance industry.  Remember, the primary architect of Obamacare was Liz Fowler - the insurance industry executive who temporarily took a government post to write the new law, and then quickly moved back into health care lobbying. She was ably assisted by an battalion of her fellow insurance industry cronies, who in 2009 deployed their army of lobbyists to shape the underlying health care legislation. She was also backed up by many other Obama administration officials who worked on the legislation and then immediately headed to the lucrative world of insurance-industry lobbying.

As A Result Of Obamacare, Employer-Based Health Insurance Is Becoming Extinct - Barack Obama promised to fundamentally transform America, and when it comes to health care he has definitely kept his promise.  Thanks to Obamacare, health care spending is up, health insurance premiums are up, the number of hours Americans are working is down and employer-based health insurance is becoming an endangered species.  Of course employer-based health insurance will not disappear completely any time soon, but it has been steadily shrinking for over a decade, and Obamacare will greatly accelerate that decline. If you go back to 1999, 64.1 percent of all Americans were covered by employment-based health insurance.  That was pretty good.  Today, only 54.9 percent of all Americans are covered by employment-based health insurance, and now thousands upon thousands of U.S. employers are considering reducing the scope of the health plans they offer to employees or eliminating them altogether due to Obamacare.  If you are thinking that this sounds like a potential nightmare for millions of Americans families, you would be exactly right.There have already been widespread reports of companies dropping health insurance, but nobody knows for sure how widespread the carnage will be.  According to Businessweek, the surveys that have been done up to this point have come up with widely varying results... A Deloitte study last year suggested 10 percent of employers would stop offering group health plans. A widely criticized McKinsey report from 2011 put the number as high as one-third. The Congressional Budget Office’s latest projections suggest 8 million fewer people will be covered by employer plans five years from now under the ACA than without it. Many of them will get policies through health insurance exchanges instead.But what everyone does agree on is that employer-based health coverage will continue to diminish.

I’ve been avoiding this all day, but now I’m getting angry - A friend sent me this story: At the NIH, Director Francis Collins said about 200 patients who otherwise would be admitted to the NIH Clinical Center for clinical trials each week will be turned away. This includes about 30 children, most of them cancer patients, he said. Do you know who goes to the NIH itself for cancer care? People for whom no other options exist. They are usually the people with the worst disease, who don’t have much hope anywhere else. They go to the NIH to get cutting edge experimental treatment.  As Congress sits around this week playing for “optics” and trying to “win some points”, I hope they take a few minutes to consider what the parents of these kids must feel like. Just reopen the government; you can all feel free to being your bickering again then. But this is unbearable.

Half Of US Population Accounts For Only 2.9% Of Healthcare Spending; 1% Responsible For 21.4% Of Expenditures - One aspect where social inequality has gotten less prominence, yet where the spread between the "1%" and everyone else is perhaps most substantial is in realm of healthcare spending: perhaps the biggest threat to the long-term sustainability of the US debt picture and economy in general. The numbers are stunning. According to the latest data compiled by the Agency for Healthcare Research and Quality, in 2010, just 1% of the population accounted for a whopping 21.4% of total health care expenditures with an annual mean expenditure of $87,570. Just below them, 5% of the population accounted for nearly 50% of all healthcare spending. Just as stunning is the "other" side: the lower 50 percent of the population ranked by their expenditures accounted for only 2.8% of the total for 2009 and 2010 respectively. Perhaps in addition to bashing the "1%" of wealth holders, a relatively straightforward and justified exercise in the current political climate, it is time for public attention to also turn to the chronic 1% (and 5%)-ers who are the primary issue when it comes to the debt-funding needed to preserve the US welfare state. The spending distribution in chart format:

Why are Nurses at Vanderbilt Medical Center Cleaning Bathrooms? Health care's Fight Between Labor and Capital | Portside: Hospital budget cuts became viscerally visible earlier this month when Vanderbilt Medical Center announced that nurses must now perform housekeeping duties - cleaning patients' rooms and bathrooms. In case you missed the video of the internal announcement secretly recorded by a nurse that aired on Nashville's WSMV television station, here it is. It is hard to think of a worse way to demoralize professionals who want to practice at the top of their license. Invoking Florence Nightingale's name as a spoonful of sugar to help the budget medicine go down is no salve for deep wounds of disrespect. For patients, they are at greater risk, an inevitable outcome as nurses spend less time at the bedside. All of this begs the question, "Where does all the money go in hospitals, who is getting it, and what are they really doing with it?"

Multifocal Breast Cancer in Young Women with Prolonged Contact between Their Breasts and Their Cellular Phones - We report a case series of four young women—ages from 21 to 39—with multifocal invasive breast cancer that raises the concern of a possible association with nonionizing radiation of electromagnetic field exposures from cellular phones. All patients regularly carried their smartphones directly against their breasts in their brassieres for up to 10 hours a day, for several years, and developed tumors in areas of their breasts immediately underlying the phones. All patients had no family history of breast cancer, tested negative for BRCA1 and BRCA2, and had no other known breast cancer risks. Their breast imaging is reviewed, showing clustering of multiple tumor foci in the breast directly under the area of phone contact. Pathology of all four cases shows striking similarity; all tumors are hormone-positive, low-intermediate grade, having an extensive intraductal component, and all tumors have near identical morphology. These cases raise awareness to the lack of safety data of prolonged direct contact with cellular phones.

iOS 7 nausea and cybersickness: What causes it, and why it’s a sign of things to come - It seems that Apple’s new iOS 7 is so advanced that it’s actually causing cybersickness — nausea caused by the combination of a high-resolution screen, the parallax effect on the Home screen, and the zooming in and out of apps.  Some victims say that using iOS 7 is like trying to read in a car, causing the same associated symptoms: dizziness, headaches, and even that nasty feeling of needing to vomit. Medical doctors and psychologists say that cybersickness is becoming more prevalent as frame rates and display resolutions increase. The iOS 7 nausea can be partially mitigated by changing some settings, which we’ll discuss below, but with downgrading to iOS 6 now disabled Apple has left many customers high and dry.There has to be a way to turn this off,” wrote one iOS 7 user on the Apple Support site. “The zoom animations everywhere on the new iOS 7 are literally making me nauseous and giving me a headache. It’s exactly how I used to get car sick if I tried to read in the car,” wrote another.Just like motion sickness, cybersickness is caused by disagreement between your eyes and the movement perceived by your balance system (the vestibular system in your inner ear). Historically, cybersickness is most commonly associated with huge IMAX cinema screens or 3D cinema — where your brain thinks you’re moving but you’re not — but it can also apply to smaller displays as well, such as the iPhone or iPad.

Charged With the Crime of Filming a Slaughterhouse - On February 8, a 25-year-old animal rescue worker named Amy Meyer and a colleague pulled into a parking lot across the street from the Dale T. Smith and Sons Meat Packing Company in Draper, Utah, a suburb south of Salt Lake City. They crossed the street and stepped onto a strip of public land on the roadside, stopping short of a barbed wire fence that demarcated the boundary of the property of the slaughterhouse. Across a small field, the building housing the killing floor stood in plain sight. Through two large open doors facing the road they stood on, they could see cows being led onto the plant’s disassembly line. Outside the building, a forklift was pushing a live cow—possibly a sick, “downer” cow, which are illegal to slaughter. Despite the fact that she stood firmly on public property and was not an employee of the slaughterhouse, when Meyer took out her camera and began to film, she set herself up to become the agricultural industry’s first-ever “Ag Gag” criminal.

Food Safety an Issue as China Firm Buys US Pork Producer - Last week, the shareholders of Smithfield Foods, a Virginia-based pork producer, approved the company’s sale to China’s Shuanghui International for $4.7 billion. Shareholder support of this decision topped 96% and the landmark vote represents the largest Chinese purchase of an American firm to date. This would be fine if not for China's track record of colossally alarming food safety scandals, particularly considering that a subsidiary of Shuanghui International was found in possession of pigs that had been fed the poisonous additive clenbuterol in 2011. Should this concern consumers in the United States? After all, the Department of Agriculture reported that the U.S. imported 4.1 billion pounds of food products from China by the end of last year, including fish, produce and even artificial vanilla.Fortunately, it is unlikely that Shuanghui International is about to flood U.S. markets with maggot-infested sausages. Rather, according to Minxin Pei, the company may be more interested in supplying the Chinese market with safe pork products. As Pei explained on CNN, demand for pork in China is six times higher than in the U.S. and America’s safe pig farms will help Shuanghui provide unlaced meat to Chinese consumers. So if Pei is right, rather than tainted bacon coming our way, it appears China will get some respite from a myriad of potential last meals.

Shutdown Closes Parks, Food Inspectors Stay on Job (Q&A) -  The Democrats and Republicans in Congress failed to reach a budget deal before the end of the fiscal year, triggering the first partial U.S. government shutdown in 17 years. From today, businesses and individuals will see major disruptions in some services, as hundreds of thousands of federal workers get furloughed. Visitors to National Parks will be turned away, government economic reports won’t be released, some federal websites will go offline and Internal Revenue Service call centers will be shuttered. Essential operations and programs with dedicated funding would continue, including food-safety inspections, mail delivery, air-traffic control and Social Security payments. Here’s a guide:

World Food Prices Continue to Decline on Cheaper Cereal - World food prices fell for the fifth consecutive month in September, driven by falling international prices for cereals, according to data from the United Nations on Thursday, and analysts believe they still have further to fall. Reuters The U.N.’s Food and Agriculture Organization’s food-price index measures the monthly change in the international prices of a basket of food commodities. While the most recent food price spike in 2011 was triggered by a lack of cereal supply, the recent declines in food prices are mainly due to higher expected supplies of corn this year. The FAO index averaged 199.1 points in September, 1% lower than in August and 5.4% lower since the start of the year. Global cereal production, which includes wheat and corn, is expected to be 8% higher over 2012’s level, at 2.49 billion tons. The U.S., the world’s largest corn producer, is responsible for the bulk of the increase, expected to harvest a record crop of 348 million tons—that’s 27% higher than the previous year. U.S. corn supplies have been tight since the size of last year’s harvest was hit by severe drought. But after high acreage seeded with corn this spring and largely favorable summer weather, the U.S. Department of Agriculture forecasts record U.S. corn output this year. That should push corn prices lower. Current levels mark a drastic turnaround since food prices soared to new heights in early 2011 amid global supply constraints for cereals, sugar and cocoa.

FAO: Global Hunger Continues to Fall, Even as Population Continues to Rise --  In a newly released FAO report, approximately one in eight people around the globe are suffering of chronic hunger. However, the number continues to fall.  The recent figure was estimated to be 842 million for the time period of 2011-13, down from 868 million for the years 1010-12. The total number of undernourished has fallen by 17 percent since 1990–92, while population has risen by 32 percent, or 1.7 billion, over that same time period.  The FAO lists the areas experiencing the largest numbers of hunger:Sub-Saharan Africa remains the region with the highest prevalence of undernourishment, with modest progress in recent years. Western Asia shows no progress, while Southern Asia and Northern Africa show slow progress. Significant reductions in both the estimated number and prevalence of undernourishment have occurred in most countries of Eastern and South Eastern Asia, as well as in Latin America.  The causes of hunger in each region vary, and are complex. There are no simplistic explanations, and there are no simplistic resolutions.  There is reason for optimism in increasing food production in Sub-Saharan Africa in the future, and in the past 20 years the percent of undernourished there has declined from 33 percent to 25 percent.

As Planet Warms, US Watersheds Go Thirsty - A shocking one in ten U.S. watersheds is in a state of "stress" as the nation-wide demand for water outstrips nature's ability to provide, with this trend expected to worsen as the climate continues to warm, an alarming new study from the University of Colorado at Boulder finds.  “By mid-century, we expect to see less reliable surface water supplies in several regions of the United States,” The researchers evaluated water supply and need for all the 2,103 watersheds in the continental U.S. and found that 193 are already in a state of stress, meaning they simply do not have enough surface water to meet the demand.They also evaluated extreme water stress from 1999 to 2007 and used this data to predict future patterns, and the prognosis is not good. "[T]he lowest water flow seasons of recent years—times of great stress on rivers, streams, and sectors that use their waters—are likely to become typical as climates continue to warm," a statement about the research reads. In most parts of the United States agriculture is the biggest drain on water supply. However, large cities, as well as power plants which require water for cooling, can also have a large role in depleting watershed supply. These developments leave the U.S. west particularly vulnerable, because the margin between supply and demand is very small in a region dependent on imported and stored water.

GMO Herbicide Tolerance: Failure and Destruction - One of the original propaganda lies of GMOs was that they would require less spraying of poison. But in country after country it’s the same story – poison use has radically escalated. In Argentina herbicide use escalated from 30 million liters a year to over 300 million during the GMO era. In just five years following commercialization herbicide use in Brazil doubled. In India the use of insecticides, after a brief dip immediately following the widespread commercialization of Bt cotton, has surged to a level exceeding the status quo ante. A superb 2013 report* by a team led by Jack Heinemann documented that herbicide use in the US and Canada has escalated to 107% of the pre-GMO level, bucking the general Western trend of decreasing use (including in these countries prior to the mid-90s). Meanwhile use of both herbicides and insecticides continues to plummet in Europe, which has largely eschewed GMO cultivation in favor of conventional modes of production.  This proves that when flacks claim GMOs reduce the slathering of poisons, it’s a lie. On the contrary, they increase the dumping of poison on our food and soil, and the poisoning of our air, water, and general environment. In fact, this proves that the goal of the GMO regime was to increase poison use all along. Which stands to reason, since it would defy common sense that poison companies would introduce a technology which would reduce the use of their product. Monsanto’s propaganda for Roundup was always absurd on its face.

Diesel exhaust stops honeybees from finding the flowers they want to forage - Exposure to common air pollutants found in diesel exhaust pollution can affect the ability of honeybees to recognise floral odours, new University of Southampton research shows. Dr. Newman, a neuroscientist at the University, comments: "Honeybees have a sensitive sense of smell and an exceptional ability to learn and memorize new odours. NOx gases represent some of the most reactive gases produced from diesel combustion and other fossil fuels, but the emissions limits for nitrogen dioxide are regularly exceeded, especially in urban areas. Our results suggest that that diesel exhaust pollution alters the components of a synthetic floral odour blend, which affects the honeybee's recognition of the odour. This could have serious detrimental effects on the number of honeybee colonies and pollination activity."

IPCC -- Despite hiatus, climate change here to stay - Global warming will be irreversible for centuries, latest report warns. Without drastic emission reductions or controversial technical climate fixes, global warming is more than likely to continue throughout the 21st century and might severely alter our planet’s natural environments and the living conditions of billions of people, the United Nation’s Intergovernmental Panel on Climate Change (IPCC) warns in its latest report today.  Even if carbon-dioxide emissions were to cease overnight, the half a triillion tonnes of carbon that have been pumped into the atmosphere since major industrialization began around 1850 will affect Earth’s biosphere, glaciers and oceans for centuries to come, the group says. A summary for policymakers of the IPCC's latest report, on the physical basis of climate change, was released in Stockholm after four-days of marathon negotiations between lead authors and government representatives from 195 countries, each of whom has to agree every line and figure in the final 36-page report.  In 18 headline messages, the summary lays out that observed changes since 1950 unequivocally point to climate change that is "unprecedented over decades to millennia". Relative to the 1986-2005 period, the global mean surface temperature is projected to further increase by between 0.3 and 4.8 °C by the end of the century, depending on future economic and technological development. As glacier melt in Greenland and in parts of Antarctica is accelerating, sea-level rise — in the range of 26 to 82 centimetres by 2100 according to the latest IPCC projections — will increase the risk of flooding at many coastlines. The report also warns of increasing ocean acidification, a stark threat to marine biodiversity, and disruptions of the global water cycle and local fresh water availability due to changing precipitation patterns.

It's still our fault -- the IPCC climate-change report - It has been a long time coming. But then the fifth assessment of the state of the global climate by the Intergovernmental Panel on Climate Change (IPCC), a United Nations body, was a behemoth of an undertaking.  The first tranche of the multi-volume report—an executive summary of the physical science—was released in Stockholm on September 27th. And it is categorical in its conclusion: climate change has not stopped and man is the main cause. It may be the last report of its kind: a growing chorus of experts thinks a more frequent, less bally-hooed and more up-to-date assessments would be more useful. It is certainly the first since negotiations for a global treaty reining in carbon emissions collapsed in Copenhagen in 2009; the first since questions were raised about the integrity of the IPCC itself following mistaken claims about the speed of glacier melt in the Himalayas and, most important, the first since evidence became incontrovertible that global surface air temperatures have risen much less quickly in the past 15 years than the IPCC had expected. A lot is riding on its findings, from the public credibility of climate science to the chances of a new global treaty.

Why is the IPCC AR5 so much more confident in human-caused global warming? - The fifth Intergovernmental Panel on Climate Change (IPCC) report states with 95 percent confidence that humans are the main cause of the current global warming. Many media outlets have reported that this is an increase from the 90 percent certainty in the fourth IPCC report, but actually the change is much more significant than that. In fact, if you look closely, the IPCC says that humans have most likely caused all of the global warming over the past 60 years. Here is the relevant statement from the fourth IPCC report in 2007: "Most of the observed increase in global average temperatures since the mid-20th century is very likely [90 percent confidence] due to the observed increase in anthropogenic greenhouse gas concentrations Now here is the statement from the fifth IPCC report: "It is extremely likely [95 percent confidence] more than half of the observed increase in global average surface temperature from 1951 to 2010 was caused by the anthropogenic increase in greenhouse gas concentrations and other anthropogenic forcings together." Did you spot the differences? The 2007 IPCC statement focused on human greenhouse gas emissions, while the 2013 statement pertains to all human influences on the climate. This includes the cooling effect from human aerosol emissions (pollutants that scatter sunlight). Cooling from human aerosol emissions offsets about one-third of the warming from human greenhouse gas emissions. The new IPCC statement says that even taking that aerosol cooling effect into account, humans are still the main cause of the global warming over the past 60 years.

Climate report: How the science has moved on - "Human influence on the climate system is clear." With these words, Thomas Stocker of the University of Bern in Switzerland summed up the new assessment of climate science by the Intergovernmental Panel on Climate Change (IPCC).. New Scientist breaks down the most important new findings. The past six years have been a golden age for ice studies. "Polar regions have been changing very rapidly, providing data for our projections on sea ice, snow cover, ice sheets and sea level rise," says David Vaughan of the British Antarctic Survey in Cambridge, UK, the lead author of the cryosphere chapter. New understanding of how big ice sheets on Greenland and Antarctica might break up has forced the IPCC to almost double its estimates of likely sea level rise by the end of the century – to as much as 1 metre. But the authors controversially dismissed the work of scientists who think it could be 2 metres or more. "Those predictions are based on extrapolation, but we have better information than that now, based on knowledge of ice processes," says Tony Payne of the University of Bristol, UK, lead author on sea level change. Vaughan agrees. "We are now more confident that ice sheet collapse isn't going to happen in the next few decades." But the Antarctic ice sheets could have an Achilles heel, such as Pine Island glacier. "If anything scary happens it will be in Antarctica," says Payne.

IPCC Claims the Oceans are Dying to Save Us from Ourselves - The United Nations Intergovernmental Panel on Climate Change (IPCC) released its latest report on Friday, in which it stated that the evidence that climate change is caused by human activity has become a fact. It also stated that without the oceans, who have been absorbing most of the CO2 and the negative effects of climate change, at cost to their own health, we would be suffering far more severe weather. Some people claim that the planet has actually started to cool, but the IPCC state that it is still heating up, and that the fact that the rate of warming may have slowed, does not mean that the climate is cooling.  According to the report each of the past three decades, has been warmer than all previous decades since 1850, and that the 30 year period between 1983 and 2012 has been the warmest in the Northern Hemisphere for 1,400 years. The IPCC claims that without the 320 million cubic miles of seawater across the planet that absorb 93 percent of the heat trapped by rising greenhouse gas levels, the climate change we are experiencing would be many times worse.

Melting Arctic Permafrost Looms as Major Factor in Warming, Climate Change - A heavyweight boxer in the climate change match is missing from the fifth climate assessment report released by the Intergovernmental Panel on Climate Change (IPCC) on Friday. Permafrost, which is frozen ground that doesn't melt during the summer, covers 24 percent of the land in the northern hemisphere. It also stores approximately 1.5 trillion tons of carbon – twice the amount of carbon currently in the atmosphere. When the organic matter that makes up permafrost thaws, the carbon it contains becomes exposed to the elements, which can escape into the air in the form of heat-trapping gases with the potential to knock out efforts to slow down global warming with a one-two punch. This effect, called the permafrost carbon feedback, is not present in the global climate change models used to estimate how warm the earth could get over the next century.  But research done in the past few years shows that leaving the permafrost effect out of the climate models results in a far more conservative estimate of how our climate will change. Scientists predict that greenhouse gas from permafrost alone could lead to an additional 1.5 Fahrenheit degrees of warming by the end of this century, on top of day-to-day human emissions.

IPCC: 30 years to climate calamity if we carry on blowing the carbon budget -The world's leading climate scientists have set out in detail for the first time how much more carbon dioxide humans can pour into the atmosphere without triggering dangerous levels of climate change – and concluded that more than half of that global allowance has been used up.  If people continue to emit greenhouse gases at current rates, the accumulation of carbon in the atmosphere could mean that within as little as two to three decades the world will face nearly inevitable warming of more than 2C, resulting in rising sea levels, heatwaves, droughts and more extreme weather. This calculation of the world's "carbon budget" was one of the most striking findings of the Intergovernmental Panel on Climate Change (IPCC), the expert panel of global scientists who on Friday produced the most comprehensive assessment yet of our knowledge of climate change at the end of their four-day meeting in Stockholm.The 2,000-plus page report, written by 209 lead authors, also found it was "unequivocal" that global warming was happening as a result of human actions, and that without "substantial and sustained" reductions in greenhouse gas emissions we will breach the symbolic threshold of 2C of warming, which governments around the world have pledged not to do.

Climate Change Report “Gives No Reason for Optimism” - Amidst rumours that global warming has slowed over the past 15 years, the new report by the Intergovernmental Panel on Climate Change (IPCC) states that each of the last three decades has been warmer than any preceding decade since 1850. The warming of the climate is “unequivocal,” says the IPCC. “The atmosphere and ocean have warmed, the amounts of snow and ice have diminished, sea level has risen, and the concentrations of greenhouse gases have increased.” The IPCC Working Group 1 Fifth Assessment Report (AR5) Summary for Policy Makers – Climate Change 2013: The Physical Science Basis was released Friday Sept. 27 in Stockholm. The full in-depth report will be published Monday Sept. 30, as the first of the four volumes of the AR5. Brazilian climatologist Carlos Nobre, one of the lead authors of the Fourth Assessment Report, published in 2007, said the new report “gives no reason for optimism.”“This report is a reality shock." -- Carlos Nobre “Each of the last three decades has been successively warmer at the Earth’s surface than any preceding decade since 1850. In the Northern Hemisphere, 1983–2012 was likely the warmest 30-year period of the last 1,400 years,” the new summary says. “The globally averaged combined land and ocean surface temperature data, as calculated by a linear trend, show a warming of 0.85°C over the period 1880–2012”, it adds.

Climate change? Try catastrophic climate breakdown - Already, a thousand blogs and columns insist the Intergovernmental Panel on Climate Change's new report is a rabid concoction of scare stories whose purpose is to destroy the global economy. But it is, in reality, highly conservative.Reaching agreement among hundreds of authors and reviewers ensures that only the statements which are hardest to dispute are allowed to pass. Even when the scientists have agreed, the report must be tempered in another forge, as politicians question anything they find disagreeable: the new report received 1,855 comments from 32 governments, and the arguments raged through the night before launch.  In other words, it's perhaps the biggest and most rigorous process of peer review conducted in any scientific field, at any point in human history. There are no radical departures in this report from the previous assessment, published in 2007; just more evidence demonstrating the extent of global temperature rises, the melting of ice sheets and sea ice, the retreat of the glaciers, the rising and acidification of the oceans and the changes in weather patterns. The message is familiar and shattering: "It's as bad as we thought it was." What the report describes, in its dry, meticulous language, is the collapse of the benign climate in which humans evolved and have prospered, and the loss of the conditions upon which many other lifeforms depend. Climate change and global warming are inadequate terms for what it reveals. The story it tells is of climate breakdown.

What the new IPCC report says about sea level rise - If governments achieve drastic emissions cuts from 2020 onward (RCP2.6), sea levels are projected to rise by between 26 and 54 cm on 1986-2005 levels by the end of the century. The average within that range - shown as a line through the middle of the left-hand grey box - is 40cm. Under scenarios where emissions stabilise by the end of the century (RCP4.5) or soon after (RCP6.0), sea levels are projected to rise by between 32 and 62 cm (47cm on average). Under a scenario where emissions continue to rise rapidly (RCP8.5), sea levels are projected to rise by between 45 and 82 cm, or 62cm on average. Sea level rise doesn't happen uniformly around the world. But 70 per cent of coastlines worldwide will experience close to this global average, the report says. Some regions will experience considerably more or less, but overall, the report says, 95 per cent of the ocean's area will experience sea level rise.

Latest IPCC Climate Report Puts Geoengineering in the Spotlight -- Attempts to counter global warming by modifying Earth's atmosphere have been thrust into the spotlight following last week's report from the United Nations’ Intergovernmental Panel on Climate Change (IPCC).Mention of ‘geoengineering’ in the report summary was brief, but it suggests that the controversial area is now firmly on the scientific agenda. Some climate models suggest that geoengineering may even be necessary to keep global temperature rises to below 2 °C above pre-industrial levels.Most geoengineering technologies generally either reflect sunlight — through artificial ‘clouds’ of stratospheric aerosols, for example — or reduce the amount of greenhouse gases in the atmosphere. The latter approach, described as ‘negative emissions’, involves capturing carbon dioxide with strategies that range from building towers to collect it from the atmosphere to grinding up rocks to react with CO2 and take it out of circulation.Critics say that the technologies are unproven, will have unforeseen impacts and could distract from attempts to limit emissions of greenhouse gases. But advocates point to language in the summary for policy-makers produced by the IPCC working group that assessed the scientific evidence for climate change as evidence that reducing emissions will not be enough. The document notes that a “large fraction” of anthropogenic climate change is irreversible except with a “large net removal of CO2 from the atmosphere over a sustained period”. Under some climate models, keeping temperature rise below 2 °C will require negative emissions.

The 5 Most Sobering Charts from the IPCC Climate Report - The first installment in the U.N. Intergovernmental Panel on Climate Change’s latest scientific assessment on climate science came out on Friday, and it’s loaded with dense terminology, expressions of uncertainty, and nearly impenetrable graphics. But we'll make it simple for you. Here’s what you need to know, in number and chart form. 1.6°F: Amount that globally averaged combined land and ocean surface temperatures increased between 1901-2012. 0.54°F to 8.64°F: How high global average surface temperatures are likely to climb by 2081-2100 relative to 1986-2005 levels, depending on future amounts of greenhouse gases in the air. The report found that the global mean surface temperature change by 2100 is likely to exceed 2.7°F relative to the period betwen 1850-1900 in all but one of the emissions scenarios. Map of multi-model mean results for different greenhouse gas concentration scenarios of annual mean surface temperature change in 2081– 2100. The report also found that the past 30 years have been the warmest three decades since instrument records began during the 19th century, and that in the Northern Hemisphere, the past 30 years have likely been the warmest in more than 1,000 years. 10.2 to 32 inches: How much mean global sea level is projected to increase by 2081-2100. The scenario with the highest amounts of greenhouse gases in the atmosphere shows a mean sea level rise range between 21 and 38.2 inches, which would be devastating for numerous highly populated coastal cities at or near current sea levels, from New York to Hong Kong. Projections of global mean sea level rise over the 21st century relative to 1986–2005 from the combination of the computer models with process-based models, for greenhouse gas concentration scenarios. The assessed likely range is shown as a shaded band.

Have the Media Failed Us on Climate Change? - With the release of the UN Intergovernmental Panel on Climate Change's Fifth Assessment Report in Stockholm on Friday, there were awealth stories for journalists to pursue. Scientists are now more certain than ever that humans are causing global warming. Sea level rise projections have been increased—extremely bad news for coastal mega-cities. And researchers have  given a stark warning about the irreversibility of much of global warming, and how it will literally play out over a millennium.  But in recent weeks, we've seen a flood of media coverage advancing dubious claims pushed by global warming skeptics, including:

* A large number of news article headlines framed around an alleged global warming "pause" that scientists have dismissed as statistically meaningless and insignificant.
* A British tabloid, The Mail on Sunday, portraying the sixth lowest Artic sea ice level on record as a "rebound" that undermines climate science—a claim that then reverberated in conservative media and even made its way to the halls of Congress.
*Contrarian opeds in major papers minimizing the dangers of climate change and even suggesting that it might be beneficial.

Granted, this problem isn't new: There's a long history of the press relying on phony "balanced" coverage to cast doubt on what scientists know about the climate. That was the case even before the major cutbacks in science and environmental reporting at many media outlets over the past decade.

Bloomberg, Steyer, Paulson team up to gauge global warming’s economic toll - The goal of the new Tom Steyer-Hank Paulson-Michael Bloomberg climate initiative has been revealed: make the case that failing to act on global warming is far more expensive than cutting emissions. The New Yorker reported last month that the billionaire ex-hedge fund chief Steyer, George W. Bush-era Treasury Secretary Paulson and outgoing New York City Mayor Bloomberg were launching some sort of bipartisan effort.  On Tuesday Bloomberg Markets Magazinefilled in some of the details: “The three men agreed to join forces to persuade investors, policy makers and the public that the consequences of unchecked carbon emissions would eventually blow away whatever short-term costs are involved in curbing the pollution,” the magazine reports.

World leaders must act faster on climate change - Governments and businesses should be left in no doubt about the dangers of delaying further cuts in greenhouse gas emissions following the publication of the new assessment report by the Intergovernmental Panel on Climate Change. A summary of the report, approved by 195 governments on Friday, points out that if we want a 50 per cent chance of avoiding global warming of more than 2C, which countries have agreed would be dangerous, we cannot emit in total more than between 820bn and 1,445bn tonnes of carbon dioxide and other greenhouse gases over the next century. Given that we are currently emitting 50bn tonnes of emissions every year, even if we stay at today’s levels we will use up our entire budget in 15 to 25 years. And if we carry on increasing annual emissions at the present rate, we will exhaust it even quicker. The report reveals clearly how slow, weak action increases the risks because greenhouse gases continue to accumulate in the atmosphere, and the installation of long-lasting high-carbon capital and infrastructure locks in future emissions. It is this brutal arithmetic that should persuade companies, communities, cities and nations to seize the opportunities for sustained and sustainable growth offered by hastening their transition to a low-carbon economy. In the private sector, the process of discovery is under way, creating cleaner and more energy-efficient technologies. But businesses need greater clarity and consistency from policy makers. For governments, the stark fact is that after less than 1C of warming we are seeing fundamental changes to the world’s climate, which could soon be transformed beyond anything modern humans have experienced, potentially causing mass migration and endless conflict. This should focus minds as they choose policies for emissions reductions and prepare for international climate negotiations in Warsaw this year. They are working towards the 2015 UN climate change summit in Paris, at which they hope to sign a treaty ensuring global action to reduce emissions by enough to give a good chance of avoiding the 2C threshold.

Carbon Pricing: The Price Is Wrong -  For U.S. climate activists to succeed, they must demand serious government spending on energy efficiency and renewables—spending comparable to the current war budget. Calling for hundreds of billions in annual green public investment has potential for the popular appeal needed to build a powerful grassroots climate movement. That investment would be the best policy as well. Massive clean energy spending would not only provide jobs and economic growth on a grand scale. It is the most effective way to reduce greenhouse gas pollution. It is widely, though not universally, acknowledged that solving the climate crisis will require public investment and subsidies, efficiency regulations and clean energy requirements, plus a price on greenhouse gas emissions. (The idea behind a carbon price: polluters pay per unit of greenhouse gas pollution released.) But, in practice, policy advocates tend to fetishize the carbon price and drop other requirements. Charles Komanoff and James Handley of the Carbon Tax center describe a carbon tax as the “sine qua non of effective climate policy”.[ii] Mainstream environmentalism tends to favor cap-and-trade over carbon fees, which indirectly results in a price on carbon. Between carbon tax and cap-and-trade advocates, most climate change opponents prioritize carbon pricing. In policy discussions, however, most environmental economists start with cap-and-trade or a carbon fee, and many never discuss anything else. What is wrong with this? The climate crisis cannot be solved without huge infrastructure investments: wind turbines, solar panels, transmission lines, smart grid upgrades, trains, electric cars and efficiency improvements. Historically new infrastructure has never been built solely or largely as profit seeking, risk taking behavior in response to what economists call price signals.

IPCC digested: Just leave the fossil fuels underground - Hundreds of thousands of words will be written about the latest report from the UN's Intergovernmental Panel on Climate Change. Here, in 10 words, is the bottom line: we have to leave most fossil fuels in the ground. It really is that simple. To get a sense of how we're doing, let's take a look at Norway. On the face of it, Norway is doing much more than most countries to tackle climate change. It already gets almost all its electricity and nearly 60 per of all the energy it consumes from renewable sources, and aims to increase this proportion to 67 per cent by 2020.  But Norway is one of the biggest oil and gas exporters in the world. Besides exploiting its own reserves, the government also owns 67 per cent of the energy company Statoil, which is investing in Canadian tar sands, among other projects.In reality, as well as contributing to global emissions thanks to its exports, Norway's own greenhouse gas emissions are higher than they were in 1990. Its plan for going carbon neutral largely relies on buying in carbon credits rather than reducing its actual emissions to zero. Norway was also banking on carbon capture and storage to help, but this week it ditched a major CCS project amid spiralling costs. The story is much the same across the world: no country with fossil fuels has any intention of leaving them untouched. On the contrary, these countries are not only scrabbling to extract every bit of conventional coal, oil and gas they can get their hands on, they're also tapping or planning to tap all kinds of unconventional resources, from tar sands to methane hydrates.

New EPA Emissions’ Regs Pack Little Punch on Climate - The Environmental Protection Agency (EPA) rolled out restrictive new greenhouse gas emissions standards for new power plants at the end of September, but they are unlikely to have much of an impact on the nation’s overall climate change-fueling carbon emissions. Allowed under provisions of the Clean Air Act, the rules released in September cap carbon emissions at future coal-fired power plants to 1,100 pounds of carbon dioxide per megawatt hour and 1,000 pounds of carbon dioxide per megawatt hour for new natural gas power plants. That won’t be difficult for natural gas power plants because the average gas-fired power plant emits about 800 pounds of CO2 per megawatt hour, the EPA estimates. The EPA expects coal fired-power plants to use  existing carbon capture technology to ensure that new coal plants are dramatically cleaner than the average existing coal-fired power plant, which emits about 1,800 pounds of CO2 per megawatt hour. The technology the EPA expects new plants to install would be similar to carbon capture technology installed on coal-fired power plants across the country for more than a decade, capturing at least 50 percent of a power plant's carbon emissions, according to the EPA's proposal.  The proposed rules aren’t expected to apply to many power plants, however. The U.S., which ranks second in the world behind China for total coal consumption and production, had 36 coal-fired power plants in the planning or early construction stages by the end of 2012, though the status of some of those plants were unknown, according to a 2012 analysis by the World Resources Institute.

Japan’s new global warming goal may not reduce emissions - Japan is planning to cut greenhouse gas emissions by about 6 to 7 percent by 2020 from 2005 levels, but the new goal, based on no nuclear reactors being online, may be criticized by the international community as it may not represent a decrease from 1990 levels. Environment Minister Nobuteru Ishihara, industry minister Toshimitsu Motegi, Chief Cabinet Secretary Yoshihide Suga and other related ministers discussed the proposed goal on Oct. 1. The target will be finalized ahead of the 19th session of the Conference of the Parties to the U.N. Framework Convention on Climate Change, to be held in Poland in November, sources said. Japan’s greenhouse gas emissions in 2005 were about 7 percent more than in 1990. The new figure is based on the assumption that no nuclear energy will be used because all of the nation’s 50 reactors currently remain offline in the wake of the Fukushima nuclear disaster. In 2009, then Prime Minister Yukio Hatoyama announced that Japan would cut greenhouse gas emissions 25 percent by 2020 from 1990 levels on the assumption that the ratio of nuclear energy would be increased. The government, led by the Democratic Party of Japan, maintained the goal even after the Fukushima No. 1 nuclear power plant was crippled in the wake of the Great East Japan Earthquake and tsunami on March 11, 2011. Prime Minister Shinzo Abe in January called for the 25 percent target to be thoroughly reviewed by the COP19 in November. The Environment Ministry maintained that a numerical target is necessary, while the industry ministry argued that it is impossible to present a specific figure as long as the ratio of nuclear power remains undetermined.

International trade in embodied carbon soars - Carbon emissions in the US are at their lowest level in nearly 20 years, and here in the UK we're not doing so badly either. It just goes to show that weaning ourselves off fossil fuels isn't so hard after all. Or does it? A new study shows that much of the decrease in emissions has occurred because we have let other countries do our dirty work. When the international trade in fossil fuels and the embodied carbon in products we buy are taken into account, our carbon emissions don't look so rosy. Perhaps we don't deserve that pat on the back after all. There are three distinct places in the carbon chain where it makes sense to tot up carbon emissions: at the point of fossil fuel extraction, where the fossil fuels are burned, or where the products made using fossil fuels are consumed. Most countries tot up their combustion emissions, but tend to ignore the embodied carbon emissions in the products they import. Robbie Andrew, from the Center for International Climate and Environmental Research in Oslo (CICERO), Norway, and his colleagues decided to work out how significant this omission was.

What You Need To Know About The Biggest Free Trade Agreement Ever And How It Affects Climate Change - President Obama planned this week to embark on a multi-stop trip to Asia, with the goal of concluding talks on a Trans-Pacific Partnership trade pact. The Trans-Pacific Partnership (TPP) is well on its way to becoming the largest Free Trade Agreement in the world, and it has major implications for efforts to curb climate change and protect the environment.  But thanks to the government shutdown, two of those stops have been canceled and the others are in question.  The Green Party of New Zealand, the Australian Greens and the Green Party of Canada have released a joint declaration on the TPP, observing that more than just another trade agreement, the TPP provisions could, among other things, hinder the ability of future governments to legislate for the good of public health and the environment.The Sierra Club warns that the TPP, “may allow for significantly increased exports of liquefied natural gas without the careful study or adequate protections necessary to safeguard the American public. It would also likely cause an increase in natural gas and electricity prices, impacting consumers, manufacturers, workers, and increasing the use of dirty coal power.” A recent DeSmogBlog piece picks up on this theme. It explains that currently, before natural gas from the U.S. can be exported the Department of Energy is required by law to determine if exporting the gas is in the “public interest,” a process that is open to public input where concerns about increased prices or community impacts from the production progress can be raised. But thanks to a 1992 amendment to the Natural Gas Act, “any LNG imports or exports to America’s free trade partners is automatically considered to be in the public interest.” According to the Sierra Club’s Ilana Solomon, the TPP is expected to apply to Liquefied Natural Gas — which would mean exports to treaty countries would get automatic approval without public hearings. This includes countries like Japan, the world’s biggest LNG importer.

Researchers Find Historic Ocean Acidification Levels: ‘The Next Mass Extinction May Have Already Begun’ The oceans are more acidic now than they’ve been at any time in the last 300 million years, conditions that marine scientists warn could lead to a mass extinction of key species.  Scientists from the International Programme on the State of the Ocean (IPSO) published their State of the Oceans report Thursday, a biennial study that surveys how oceans are responding to human impacts. The researchers found the current level of acidification is “unprecedented” and that the overall health of the ocean is declining at a much faster rate than previously thought.  “We are entering an unknown territory of marine ecosystem change, and exposing organisms to intolerable evolutionary pressure,” the report states. “The next mass extinction may have already begun.” Acidification causes major harm to marine ecosystems, especially coral, which has a hard time building up its calcium carbonate skeleton in acidic water. Coral reefs serve as nurseries to many young fish, so they’re essential both to ecosystem health and the survival of the fishing industry. Similarly, acidic ocean waters can hamper shellfish larvae’s ability to grow shells. Acidification is already hurting the shellfish industry — in the U.S., northwestern and East Coast shellfish industries have struggled to adapt to increasingly acidic waters. And pteropods, tiny sea snails that are a keystone species in the Arctic and are an essential food source for many birds, fish and whales, are also threatened by acidity — they too require strong calcium carbonate shells to survive.

Ocean acidification due to carbon emissions is at highest for 300 million years The oceans are more acidic now than they have been for at least 300m years, due to carbon dioxide emissions from burning fossil fuels, and a mass extinction of key species may already be almost inevitable as a result, leading marine scientists warned on Thursday. An international audit of the health of the oceans has found that overfishing and pollution are also contributing to the crisis, in a deadly combination of destructive forces that are imperilling marine life, on which billions of people depend for their nutrition and livelihood. In the starkest warning yet of the threat to ocean health, the International Programme on the State of the Ocean (IPSO) said: “This [acidification] is unprecedented in the Earth’s known history. We are entering an unknown territory of marine ecosystem change, and exposing organisms to intolerable evolutionary pressure. The next mass extinction may have already begun.” It published its findings in the State of the Oceans report, collated every two years from global monitoring and other research studies.

We're Killing The Oceans Even Faster Than We Thought - (Reuters) - The world's oceans are under greater threat than previously believed from a "deadly trio" of global warming, declining oxygen levels and acidification, an international study said on Thursday. The oceans have continued to warm, pushing many commercial fish stocks towards the poles and raising the risk of extinction for some marine species, despite a slower pace of temperature rises in the atmosphere this century, it said. "Risks to the ocean and the ecosystems it supports have been significantly underestimated," according to the International Programme on the State of the Ocean (IPSO), a non-governmental group of leading scientists. "The scale and rate of the present day carbon perturbation, and resulting ocean acidification, is unprecedented in Earth's known history," according to the report, made with the International Union for Conservation of Nature. The oceans are warming because of heat from a build-up of greenhouse gases in the atmosphere. Fertilizers and sewage that wash into the oceans can cause blooms of algae that reduce oxygen levels in the waters. And carbon dioxide in the air can form a weak acid when it reacts with sea water. "The ‘deadly trio' of ... acidification, warming and deoxygenation is seriously affecting how productive and efficient the ocean is," the study said

Scientists Recommend Having Earth Put Down - Claiming that it is the humane thing to do, and that the planet is “just going to suffer” if kept alive any longer, members of the world’s scientific community recommended today that Earth be put down. “We realize this isn’t the easiest thing to hear, but we’ve run a number of tests and unfortunately there’s really nothing more we can do for Earth at this point,” said leading climatologist Dr. Robert Wyche of Colorado State University’s Department of Atmospheric Science. “Earth’s ecosystems have hung in there for a while, and you have to hand it to the old gal for staying alive this long, but at this point the chances of a recovery are, I’m sorry to say, incredibly unlikely. It might be time to say goodbye.” “Earth is in a lot of pain, folks,” Wyche continued. “Time to think about sending it off peacefully, for its own sake.” While admitting that the prospect of saying goodbye to the terrestrial planet is very difficult, Wyche explained to reporters that letting nature take its course would only prolong the inevitable. Wyche also stressed that if Earth is not put down, humanity would ultimately be responsible for its continuing care, which would be “increasingly difficult as time goes on.” Scientists reportedly also made several heartfelt assurances that the procedure would be quick and virtually painless.

Coal Use Falling, Proof of Progress to Low-Carbon Future - Although it is easy to get caught up in the vastness of the volume of fossil fuels we continue to consume, we are increasingly being presented with positives as we move – albeit slowly – along a path toward a lower carbon-emitting future. So here are a few hat-tips towards said precedents of progress from recent days…from China coal to California cool.What first ignited this latest random walk was an article about how Chinese coal imports are cooling. As economic growth slows in China, it tag-teams with public anger over air pollution to put pressure on coal demand. The government is seeking to reduce the country’s energy intensity – a.k.a. the amount of energy used per unit of economic output – with lower consumption being the low-hanging fruit of solutions. This is being reflected in the expectation for lower coal imports going forward (see at right). Nevertheless, China is not only the largest global producer of coal, but its coal consumption outweighs that of every other nation in the world…..combined. Quite a feat. All the while, the entire growth in incremental coal consumption for the past five years has come from China and India (India a little, China a lot – see below), while the rest of the world has seen coal demand peter off. The vehemence in this pace of growth has led the IEA to project that coal consumption will challenge oil as the top global energy source by 2017. From this point, however, its reign will wane as an increasing emphasis is placed on other more clean-burning fuels.

Risky Repair of Fukushima Could Spill 15,000 Times the Radiation of Hiroshima, Create 85 Chernobyls - Here’s what Fukushima unit 4 looks like today: Notice that it has no roof. The spent fuel rods (and about 200 “fully loaded” unspent rods — remember that “reactor 4 had been de-fueled” prior to the accident) are stored in a water-containing chamber high off the ground in a crumbling room and building without a roof. How will “they” get the damaged fuel rods out of that crumbling room?This is the problem today. There are about 1300 fuel rods stored in that room, packed together vertically in racks. Think of a pack of cigarettes standing upright with the top of the pack removed. Normally, the movement of fuel rods is done by a computer-driven machine that reaches into the room from above and removes or replaces a fuel rod by drawing it upward or lowering it downward.The machine knows to the millimeter where each fuel rod is located. Also, the rods are undamaged — perfectly straight.The problem is that this pack of cigarettes is crumpled, and the process must done manually. Therefore, the likelihood that some of the fuel rods will break is high. If that happens and fuel rods are exposed to the air — BOOM. What does “boom” look like?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.

New radioactive leak reported at crippled Fukushima nuclear plant - A new radioactive water leak has been discovered at Japan’s crippled Fukushima nuclear plant, its operator said on Wednesday, according to Japanese news agencies. Tokyo Electric Power (TEPCO) said the highly radioactive water had leaked at the Fukushima No. 1 plant from a different storage tank to the one where a similar leak was found in August, Jiji and Kyodo news agencies reported. It was not clear how much water had leaked from the 450-ton tank. TEPCO said it had determined that contaminated water had accumulated within barriers around the tank, and may have flowed past the barriers. The barriers were installed to block water from spreading when a leak occurs in the storage tanks at the plant, which was heavily damaged by a March 2011 earthquake and tsunami. In August, some 300 tons of toxic water was discovered to have leaked from a separate tank, with part of it believed to have flowed into the Pacific Ocean.

Spain Suffers from Hundreds of Earthquakes Caused by Offshore Drilling; Largest Quake is Magnitude 4.2; Citizens Complain of Cracks and Tremors Whipping Their Homes - An investigation is underway in Spain as to the cause of hundreds of recent earthquakes in the Cataluña region in Spain. The energy minister says "It appears that there is a relationship between gas injection and earthquakes". Via Mish-modified translation ... Jose Manuel Soria, the Minister of Industry, Energy and Tourism said that it appears that there is a direct relationship between the injection of gas into the underground Castor warehouse and earthquakes.The minister's remarks come after another night of earthquakes on underground warehouse environment. According to the National Geographic Institute, last night during 23 earthquakes have occurred. Two of them, at one in the morning and half an hour later, recorded a magnitude of 4.1 on the Richter scale. The other earthquakes were registered a magnitude of between 1.7 and 2.9 on the Richter scale, according to the sources. The most intense ground motion since records began these earthquakes related to the Castor project came in early Tuesday with a magnitude of 4.2.The Castor project, with an investment of 1,200 million euros, aims to harness an old oil well 1,750 meters below sea level to supply up to a third of the gas demand of the system for 50 days, but apparently, gas injection since September 13 has caused hundreds of earthquakes, most low intensity. Several experts geologists have claimed that many earthquakes are due to "induced seismicity" by the Castor project, caused by the injection of gas into the rock. However, there is no consensus about its risks and evolution. Here is a rather curious "as is" Google-Translated headline: "The government did not heed the request of the Government to make a seismic report"

Quakes rattle Spain, offshore gas storage project blamed: Hundreds of small earthquakes which have rattled Spain's eastern coast were blamed Wednesday by green groups and geologists on a large offshore gas storage plant that started operating in June. More than 300 earthquakes have struck the Gulf of Valencia, a zone not normally known for seismic activity, over the past month, according to Spain's National Geographic Institute. The strongest, a 4.2 magnitude earthquake, hit in the early hours of Tuesday. It did not cause any damage but frightened residents. Inmaculada Ramirez, a shop owner in the coastal town of Vinaros which faces the offshore gas storage plant, said she was woken up by the earthquake. "The windows shook as if a train was flying overhead or a very long train was passing by," the 55-year-old told AFP by telephone. Ten earthquakes with a magnitude between 1.4 and 2.9 were registered on Wednesday. The wave of earthquakes prompted the government to halt an injection of gas into a giant offshore storage plant on September 16 in the Gulf of Valencia, while scientists study whether they triggered the tremors. The Castor storage plant aims to store gas in a depleted oil reservoir 1.7 kilometres (1.05 miles) under the Mediterranean Sea and send it via a pipeline to Spain's national grid.

NY’s fracking future hinges on opaque health review Process clouded by secrecy, group sues to open records  It was one year ago that state officials added a twist to the protracted controversy over whether and where to allow fracking in New York. National news reports in August and September of 2012 suggested that a decision to permit fracking in certain areas was imminent by or shortly after Labor Day. Labor day came and went, and instead of a decision on fracking, we got an announcement from DEC Commissioner Joe Martens that he would ask the health commissioner to assess whether the administration’s four year environmental assessment on which permitting would be based had sufficiently covered the potential for health problems. To do this, the Department of Health hired three outside specialists to critique the state’s draft review – a 1,500-page document called the Supplemental Generic Environmental Impact Statement - -and make recommendations about where to go from there. The dilemma in New York, which sits over the Marcellus and Utica shales, is emblematic of a global controversy involving future energy sources, the economy, and public health: Is fracking safe and how do we know?

The Shale Boom: Interview with Tyler Cowen - Thanks to the shale boom, markets already perceive the trade balance optimizing, energy prices are cheaper than they would otherwise be and we’ve even cut carbon emissions. And we are only getting started, according Tyler Cowen, New York Times best-selling author and one of the most influential economists of the decade.  While we aren’t likely to get past the American public’s irrationality over gas prices at the pump and their confusion about why this hasn’t translated into lower gas prices, that doesn’t change the fact that our shale boom is only just beginning to affect the global economy. The only question is who will be the next to latch on to this revolution.  Cowen gives us the long view in his most recent book, “Average is Over: Powering America Beyond the Age of Great Stagnation”, and in an exclusive interview with, he discusses:
•    Why energy-intensive investment is our real future
•    Why peak oil isn’t an issue for at least 3 decades
•    Why Syria is impossible to predict
•    Why US gas exports are a win-win situation
•    How the US shale boom has benefited the economy
•    How the shale boom is just getting started
•    What the general public doesn’t get about gas prices
•    Why we can’t do much to stop energy market manipulation
•    Who’s right about climate change? Wait and see…

Can Fracking Save the US Economy? - America’s government may be closed, but its energy sector is open for business. We are overtaking Russia as the world’s largest oil and gas producer. Other countries with large reserves of natural resources have governments that are functional, yet their institutions and technology limit their production. Russia’s Kremlin is open, Saudi Arabia’s King Abdullah reigns supreme, and Chinese president Hu Jintao has his country firmly under control. But America is producing more oil because private sector brains trump government bureaucracy — and much of America’s oil is on private lands. Despite delays over permits, the oil and gas industry has been able to outperform its foreign counterparts. That American oil and gas production are booming is no thanks to Uncle Sam

Geology beats technology: Shell shuts down oil shale pilot project - The belief that technology can always overcome natural limits just took a big hit this week when Royal Dutch Shell PLC decided to shut down its pilot oil shale project in western Colorado after 31 years of experimentation. The ostensible reason is that the company has opportunities elsewhere. Shell says it wants to shift resources away from the intransigent rock and move it to profitable opportunities.The prize for anyone who profitably unlocks these deposits is huge, an estimated 800 billion barrels of recoverable resources. So why isn't oil shale yielding to the mighty combination of deep pockets, sophisticated technology and high prices?  A clue comes from one sentence in coverage in The Denver Post: "Full-scale production would probably have required building a dedicated power plant." In simple terms, it takes energy to get energy. Shell's process requires copious amounts of electricity to heat the rock in place through boreholes in order to release the waxy hydrocarbons embedded in it. In this pilot project, the subterranean rock was heated for three years before liquids were captured and brought to the surface for further processing.

Groundbreaking Report Calculates Damage Done by Fracking - As federal policy makers decide on rules for fracking on public lands, a new report calculates the toll of this dirty drilling on our environment, including 280 billion gallons of toxic wastewater generated by fracking in 2012 — enough to flood all of Washington, DC, in a 22-foot deep toxic lagoon. The Environment America Research & Policy Center report, Fracking by the Numbers, is the first to measure the damaging footprint of fracking to date. “The numbers don’t lie—fracking has taken a dirty and destructive toll on our environment,”  “If this dirty drilling continues unchecked, these numbers will only get worse.” “At health clinics, we’re seeing nearby residents experiencing nausea, headaches and other symptoms linked to fracking pollution,” said David Brown, a toxicologist who has reviewed health data from Pennsylvania. “With billions of gallons of toxic waste coming each year, we’re just seeing the ‘tip of the iceberg’ in terms of health risks.”The report measured key indicators of fracking threats across the country, including:

  • 280 billion gallons of toxic wastewater generated in 2012—enough to flood all of Washington, DC, in a 22-foot deep toxic lagoon
  • 450,000 tons of air pollution produced in one year
  • 250 billion gallons of fresh water used since 2005
  • 360,000 acres of land degraded since 2005
  • 100 million metric tons of global warming pollution since 2005

Fracking also inflicts other damage not quantified in the report—ranging from contamination of residential wells to ruined roads to earthquakes at disposal sites.

Report: Fracking Creates Billions Of Gallons Of Toxic — Sometimes Radioactive — Byproduct - Fracking wells in the U.S. generated 280 billion gallons of toxic wastewater in 2012, according to a new report. That’s enough, as the Guardian notes, to immerse Washington D.C. in 22 feet of toxic water.  The report, published Thursday by Environment America, noted the toxic wastewater produced by oil and natural gas operations often contains carcinogens and even radioactive materials. The report also pointed out the weaknesses of current wastewater disposal practices — wastewater is often stored in deep wells, but over time these wells can fail, leading to the potential for ground and surface water contamination. In New Mexico alone, chemicals from oil and gas pits have contaminated water sources at least 421 times, according to the report. Those toxic chemicals are exempt from federal disclosure laws, so it’s up to each state to decide if and how the oil and gas companies should disclose the chemicals they use in their operations — which is why in many states, citizens don’t know what goes into the brew that fracking operators use to extract oil and natural gas. The report also noted the vast quantities of water needed for fracking — from 2 million to 9 million gallons on average to frack one well. Since 2005, according to the report, fracking operations have used 250 billion gallons of freshwater. This is putting a strain on places like one South Texas county, where fracking was nearly one quarter of total water use in 2011 — and dry conditions could push that amount closer to one-third.

Study Finds Radioactive Fracking Waste in Pennsylvania Creek - Elevated levels of radioactivity have been found in a western Pennsylvania creek where treated water from fracking is discharged. High concentrations of salts and metals were also found, Science Daily reports.“Radium levels were about 200 times greater in sediment samples collected where the Josephine Brine Treatment Facility discharges its treated wastewater into Blacklick Creek than in sediment samples collected just upstream of the plant,” Levels of salinity in the discharged waste from the Josephine Brine Treatment Facility were also up to 200 times higher than allowable levels under the Clean Water Act, and 10 times saltier than ocean water, Vengosh told Live Science. Industry sometimes pumps wastewater deep into the ground to injection wells in order to dispose of it, but sometimes the fracking waste is treated and released into the environment. The Duke study tested shale gas wastewater from hydraulic fracturing as well as stream water from above and below the discharge site from the treatment facility. “The radioactivity levels we found in sediments near the outflow are above management regulations in the U.S. and would only be accepted at a licensed radioactivity disposal facility,” said Robert B. Jackson, professor of environmental science at Duke.

More Bad News For Fracking: IPCC Warns Methane Traps Much More Heat Than We Thought - The Intergovernmental Panel on Climate Change (IPCC) reports that methane (CH4) is far more potent a greenhouse gas than we had previously realized.This matters to the fracking debate because methane leaks throughout the lifecycle of unconventional gas. Natural gas is, after all, mostly methane (CH4). We learned last month that the best fracked wells appear to have low emissions of methane, but that study likely missed the high-emitting wells that result in the vast majority of methane leakage. Back in August, a NOAA-led study measured a stunning 6% to 12% methane leakage over one of the country’s largest gas fields — which would gut the climate benefits of switching from coal to gas.  We’ve known for a long time that methane is a far more potent greenhouse gas than carbon dioxide (CO2), which is released when any hydrocarbon, like natural gas, is burned. But the IPCC’s latest report, released Monday (big PDF here), reports that methane is 34 times stronger a heat-trapping gas than CO2 over a 100-year time scale, so its global-warming potential (GGWP) is 34. That is a nearly 40% increase from the IPCC’s previous estimate of 25.

Oilprice Intelligence Report: Driving Oil’s Ups and Downs: When the Fed decided last week to maintain its Quantitative Easing, oil prices responded with a $2/barrel rise. But this has been balanced by the diplomatic progress made on Syria, and with Iran in the form of the potential easing of sanctions.  Friday morning—just a day after the UN Security Council agreed to a resolution calling for Syria to hand over its chemical weapons—benchmark oil for November delivery fell 34 cents to $102.69 per barrel in electronic trading on the New York Mercantile Exchange. In London, Brent crude fell 13% to $109.08 per barrel, largely on the redu ction of anxiety over Syria. There has been a general downward trend in oil prices since the removal of the specter of a US strike on Syria, but Thursday had seen benchmark crude gain 37 cents to close at $103.03 per barrel on the Fed’s announcement and optimism over the US economy. Leading up to that, oil had dropped 5% over the prior five trading sessions. But it’s not just the Fed’s pump priming or Syria that are dictating the current trend. We have Libya, Sudan, Iraq and Nigeria to consider (among others). Traders have a short-sighted knee-jerk reaction to Libya, which is descending further and further into chaos and whose horrifyingly impotent government is incapable of controlling the country, let alone its oil-producing regions. Still, oil prices recover quickly on news that Libya may soon restore order over its hijacked ports to resume supplies. (But the likelihood of maintaining that order is slim, at best). Iraq is likewise descending into chaos and sectarian conflict, and here the relaxation over the situation in Syria will not be a cure. Then we have the long-delayed start of production at Kazakhstan’s supergiant Kashagan oil field.

Record Oil Outputs in Saudi Arabia Fail to Ease Shortage Anxiety: Saudi Arabia, along with OPEC neighbors Kuwait and the United Arab Emirates, exported a record high of crude oil this August. Despite pumping out 10.2 million barrels per day, the fastest rate in 32 years, Saudi Arabia was unable to offset OPEC’s 0.8 percent decrease in oil production, attributed largely to instability in Libya and tough sanctions on Iran. As a number of OPEC countries face stagnant or falling production and oil prices creep steadily upwards, the question of whether Saudi Arabia can offset further shortages is more pressing than ever. Saudi Arabia has traditionally acted as a “swing producer,” utilizing its significant spare capacity to stabilize oil prices and thus buffer the effects of geopolitical upheavals that could otherwise upset the global supply of oil (such as the Libyan civil war in 2011 and the Gulf War in the early 1990s). However, the price of oil has sharply increased from $22-28 per barrel—in the period lasting from the 1980s until 2003—to a high of $134 per barrel in July 2008. The Brent Crude currently sets the price per barrel at $109, a number that could easily increase if OPEC supplies did not match global demand.

Iranian Crude may be Vital as Global Producers Fail to Meet Targets - There has been considerable comment this week over the telephone call between President Obama and the President Rouhani of Iran.. However the cynical side of me does wonder if there is more driving this than simply the change of personalities. There are two points that need to be considered, as a possible new relationship between the two countries might slowly coalesce out of the mists of diplomatic effort. Firstly the major driver seen in moving Iran toward a more positive position is said to be the increasing bite that sanctions, and particularly oil sanctions, are having on their economy. As sanctions have tightened, so Iranian oil production has fallen, with reports suggesting that oil exports have fallen from 2.2 mbd to May’s value of 0.7 mbd. The reduction in income that this has had on the Iranian economy is significant, with the currency officially devalued to half, though the effect has been more of an 80% fall from peak, as inflation has reached 42%.  Easing sanctions to allow more oil flow would significantly improve the situation, although there is concern, expressed for example at CNN, that the increase in oil flow would weaken the positions of the Kingdom of Saudi Arabia and Iraq. They suggest that the advent of Iranian oil (presuming that they can bring 1.5 mbd to the market relatively quickly) is foreseen as having a potential impact on the United States in that it may, at least transiently, produce a glut in the market. That would drive down prices, until such time as KSA could drop production and bring the supply and demand back into balance, raising prices back to around $100.

China Manufacturing Growth Slower Than Expected - Chinese manufacturing activity ticked up more slowly than expected in September, according to a survey Monday, a sign the gradual recovery in the world’s No. 2 economy from an extended slowdown could be more fragile than thought. A survey by HSBC Corp. showed that manufacturing activity expanded marginally this month, rising to 50.2 from August’s 50.1. But it surprised analysts by coming in much lower than the 51.2 in a preliminary version earlier this month. The index uses a 100-point scale on which numbers below 50 indicate contraction. HSBC said the reading was still positive because although it expanded only slightly, it showed further improvement from July, when the index hit an 11-month low. “Clearly the recovery is not as strong as we thought,”

Faltering Chinese factory growth adds to rebound fears - China’s manufacturing growth this month was much weaker than initial estimates, according to an industrial survey that raises concerns about the durability of the economy’s rebound. The purchasing managers’ index published by HSBC edged up to 50.2 in September from 50.1 in August. While that points to mild expansion for the vast Chinese manufacturing sector, it is well below the preliminary survey result of 51.2 that had been announced just last week. “The rate of growth (in the manufacturing sector) slowed to a fractional pace. Furthermore, growth of new work was unchanged from the previous month and only slight,” HSBC said. The preliminary result had fuelled optimism that China’s recovery was in full swing after a shaky first half of the year, but the final result suggests the recovery could easily falter. The Chinese government deployed a “mini-stimulus” in July, using tax cuts for small businesses, assistance for exporters and increased investment in railway construction as tools to prop up the economy. Beijing has also taken a breather in its three-year property market tightening campaign, even as housing prices have soared in the biggest cities. Yet the PMI survey suggests that while these various measures have helped stabilise the economy, there has been no major pick-up.

China Services Index Increases in Sign of Sustained Rebound - A Chinese services-industry index rose to a six-month high, adding to signs that the world’s second-biggest economy will sustain a rebound after a two-quarter slowdown. The non-manufacturing purchasing managers’ index rose to 55.4 in September from 53.9 in August, the Beijing-based National Bureau of Statistics and Federation of Logistics and Purchasing said today. A number more than 50 indicates an expansion. An increase in tourist numbers for a current week-long Chinese holiday points to robust consumption. Gains in non-manufacturing industries help Premier Li Keqiang shift the economy away from dependence on exports and investment, with the next phase of that strategy to be mapped out at a Communist Party meeting in November. “The rising service PMI suggests that the recovery in 3Q13 was quite broad based even if the recovery was led by fixed asset investment in transport and urban infrastructure.,”

Local government debt in China exceeds US$3tn - China's local government debt "black hole" has exceeded 20 trillion yuan (US$3.3 trillion), according to a researcher at the Chinese Academy of Social Sciences. Liu Yuhui from the CASS Institute of Finance and Banking told the Chinese-language Lanzhou Evening News that local government debt is out of control and still growing. Last year, the country's overall debt ratio increased by 16%, Liu said, adding that even though the central government appears to have the debt under control in the short term there remain major uncertainties in the long run. Industry insiders claim that the Ministry of Finance and the China Banking Regulatory Commission are hoping to use market-oriented strategies to regulate local government debt, including the implementation of a budget and the establishment of a market-based risk assessment and credit rating system. Sources said the Ministry of Finance intends to test and evaluate credit ratings for local governments in six provinces and major cities before opening up the concept to the rest of the country. The aim is eventually require all local governments to be subjected to credit evaluations when issuing debt in the future.

Japan PM Says Sales Tax to Increase in April - Prime Minister Shinzo Abe decided Tuesday to go ahead with a much debated sales tax hike needed to offset Japan‘s soaring public debt. The sales tax will rise to 8 percent in April from the current 5 percent, Abe announced at a policy meeting of ruling party and top government officials. The Cabinet is due to approve the increase later in the day. The Cabinet is also expected to give a green light for tax breaks and other stimulus measures meant to counter the wallop to consumer demand from the tax hike. In opting to press ahead with the tax increase, Abe judged the world’s third-largest economy robust enough to withstand that blow. Holding back might have provoked a backlash from international investors worried over Japan’s ability to handle its public debt, which is the highest among developed nations as a percentage of GDP. Experts say the tax increase is crucial to getting government finances under control. The decision comes after a survey showed improved business confidence among Japanese companies. Results from the Bank of Japan’s “tankan” quarterly survey showed large manufacturers were especially upbeat, with a reading of positive 12, up from 4 in the July survey.

Japan to raise sales tax, cushion blow with stimulus -final draft (Reuters) - Japan's Prime Minister Shinzo Abe will announce that he is raising the nation's sales tax in April while cushioning the economy with a $50 billion stimulus package, according to a final draft of the government measures seen by Reuters on Monday. The tax increase to 8 percent from 5 percent, to be announced on Tuesday, is the government's first attempt in more than 15 years to rein in Japan's runaway public debt. The stimulus package - including public works spending for the 2020 Tokyo Olympics, tax breaks for corporate capital spending and an early end to a corporate tax add-on that funds reconstruction from the 2011 earthquake and tsunami - is worth 5 trillion yen ($50.89 billion), according to the draft. A source involved in the process said the size of the package could increase somewhat, depending on final handling of the reconstruction tax. Most of the contents had been widely expected, but one surprise was that the package does not mention possible future cuts in the corporate tax rate.

In historic step, Japan PM to hike tax; will cushion blow to economy (Reuters) - Japan's Prime Minister Shinzo Abe will take a step on Tuesday that none of his predecessors has tried in more than 15 years - making a dent in the government's runaway debt. Abe, riding a wave of popularity with economic policies that have begun to stir the world's third-biggest economy out of years of lethargy, will announce that the government will raise the national sales tax to 8 percent in April from 5 percent, a final draft of the government economic plan, seen by Reuters, shows. But at the same time he will soften the blow to the nascent recovery. As the tax increase is set to raise an additional 8 trillion yen ($81.42 billion) a year, Abe will also announce an economic stimulus package that, according to the draft, is worth 5 trillion yen. A source involved in the process said the size of the package could increase somewhat, depending on how some corporate tax issues are dealt with. The tax increase marks the first serious effort since 1997 to rein in Japan's public debt, which recently blew past 1,000 trillion yen ($10.18 trillion). At more than twice the size of the economy, this is the heaviest debt load in the industrial world.

Demand-driven inflation remains elusive in Japan - Japan's National Statistics Bureau published the latest inflation figures last week. As expected, prices continue to rise, presumably lifting the nation from its prolonged cycle of deflationary pressures. But as discussed earlier, prices are generally not rising due to stronger domestic demand - which is what the nation really needs. Instead a large portion of price increases is generated by weaker yen and costlier imports. And that could undermine consumer confidence.Reuters: - Some analysts expect core consumer inflation to exceed 1 percent by the end of this year mostly on rising energy and food prices. That may weigh on personal consumption, which would also feel the pain from an expected sales tax hike in April. "The rise in prices of daily necessities is negative for household sentiment and consumption," On the other hand prices on many domestically manufactured products (such as household appliances) as well as domestic services continue to fall.  The problem with domestic demand continues to be negative real wage growth. You can't have sustainable inflation without rising household incomes. And serious labor reform may be the only way to correct that trend (see post).

Japan Monetary Base Hits Record High For 7th Month -- Japan's monetary base hit a record high for the seventh straight month in September, continuously supported by the Bank of Japan's bold monetary easing, Bank of Japan (BOJ) data showed Wednesday. The monetary base, or the combined balance of currency in circulation and commercial financial institutions' current account deposits at the BOJ, stood at 185,555.1 billion yen at the end of September, up 43.4 percent from a year before. Japanese news agency Jiji Press reports that compared with the end of August, the monetary base expanded 4.9 percent. The BOJ aggressively buys Japanese government bonds under its "quantitative and qualitative" monetary easing policy regime launched in April. Thanks to this, the balance of financial institutions' current account deposits at the end of September jumped 2.2-fold year on year to 97,412.6 billion yen. As a result, the monetary base increased about 30 percent from the end of March, just before the start of the BOJ easing regime. Under the current policy, the BOJ aims to lift the monetary base to 200 trillion yen by the end of this year and to 270 trillion yen by the end of 2014, in a bid to help Japan achieve 2 percent inflation

Bank of Japan warns of severe global impact from U.S. fiscal standoff (Reuters) - A prolonged U.S. budget standoff would hit global markets very hard, the Bank of Japan warned on Friday as it said it was ready to top up its existing massive stimulus if the recovery underway in the world's third-largest economy was threatened. But for now, BOJ Governor Haruhiko Kuroda saw no need to ease policy further as Japan was on the path to escape deflation and, if international risks receded as hoped, government fiscal stimulus would further boost growth next year. The U.S. budget deadlock and fears of an unprecedented U.S. default dragged Tokyo shares to a four-week low and boosted the yen, casting a cloud on an otherwise upbeat outlook for Japan's export-driven economy. "If this continues for a long time, this could destabilize financial markets and worsen sentiment," Kuroda told reporters after a two-day policy review meeting, adding that the BOJ was ready to respond to any sudden shocks. He declined to comment on the possibility of a U.S. debt default, but said the consequences of a prolonged standoff on global markets would be "severe." "We sincerely hope a solution is reached at an early date," Kuroda said. Through its massive holding of U.S. government debt, Japan is one America's biggest creditors.

Trans-Pacific Partnership Talks Headed For Finish Line Amid Official Secrecy - Prime Minister Stephen Harper and Trade Minister Ed Fast are headed to Malaysia and Indonesia this week, and one of the main issues on their agenda is a trade deal that would cover one-third of the world’s international commerce.  But what the Trans-Pacific Partnership (TPP) will contain is so far a matter of rumour, conjecture and guesswork — nowhere more so than in Canada, where the government has kept a tight lid on news coming out of the talks.Negotiations on the TPP, covering 12 Pacific Rim countries including Canada, are expected to be completed by the end of the year. Kyodo News reports that officials from the negotiating countries will issue a statement next week announcing negotiations are headed for the finish line. Along with Canada and the U.S., negotiating countries include Australia, Japan and Mexico, but not China. The Financial Times describes the TPP as being “billed as a 21st century trade deal aimed at setting new high standards for future agreements.” But critics, such as the Council of Canadians, say it sets a new standard for prioritizing “corporate rights” over the rights of consumers. Particularly worrying for some consumers’ advocates are reports that the deal will force participating countries to significantly tighten controls over the internet.

Obama No-Show a (Minor) Blow for Asia Trade Talks - President Barack Obama‘s absence from a meeting of leaders from Asia Pacific dealt a symbolic blow to efforts to forge a regional trade pact. But Mr. Obama’s no-show, due to the drama of debt-ceiling talks in Washington, has little practical effect on the trade talks. Before news of Mr. Obama’s cancellation, the U.S. already was trying to dial down expectations of a trade deal on the sidelines of the Asia-Pacific Economic Cooperation meeting in Bali, Indonesia. Mr. Obama was to have attended an APEC leaders’ summit there on Monday and Tuesday.Michael Froman, the U.S. trade representative, told The Wall Street Journal earlier Friday that finalizing a trade deal at the current meeting wasn’t possible.Mr. Froman said the parties negotiating the deal were in the end-game of talks but weren’t at the finish line yet. He said the talks, though, were still on track. For sure, negotiators in the trade talks–known as the Trans-Pacific Partnership–still have to overcome some obstacles. Mr. Obama’s presence would have shown how much store the U.S. puts in the Asian region. If Obama does not go to Asia at all, U.S. allies and partners in the region will worry that the United States is incapable of sustaining high-level engagement due to political paralysis at home.

"A Corporate Trojan Horse": Obama Pushes Secretive TPP Trade Pact, Would Rewrite Swath of U.S. Laws | Democracy Now!: video with transcript - As the federal government shutdown continues, Secretary of State John Kerry heads to Asia for secret talks on a sweeping new trade deal, the Trans-Pacific Partnership. The TPP is often referred to by critics as "NAFTA on steroids," and would establish a free trade zone that would stretch from Vietnam to Chile, encompassing 800 million people — about a third of world trade and nearly 40 percent of the global economy. While the text of the treaty has been largely negotiated behind closed doors and, until June, kept secret from Congress, more than 600 corporate advisers reportedly have access to the measure, including employees of Halliburton and Monsanto. "This is not mainly about trade," says Lori Wallach, director of Public Citizen’s Global Trade Watch. "It is a corporate Trojan horse. The agreement has 29 chapters, and only five of them have to do with trade. The other 24 chapters either handcuff our domestic governments, limiting food safety, environmental standards, financial regulation, energy and climate policy, or establishing new powers for corporations."This is a rush transcript.

Trade Deals Must Allow for Regulating Finance - Yves here. In serious policy discussions, the rules of engagement are to to take rationales offered by each side at face value. So as useful as this article is in setting forth some high level but well supported reasons why the provisions of the Trans Pacific Partnership that would weaken financial regulations are a bad idea, it also has the unfortunate side effective of reinforcing a false narrative about the TPP and its European cousin. These pacts are not about trade. Trade is already substantially liberalized. Weakening national regulation is their main objective. . Cross posted from Triple Crisis World leaders who are gathering for the APEC summit next week had hoped to be signing the Trans-Pacific Partnership Agreement (TPP). The pact would bring together key Pacific-rim countries into a trading bloc that the United States hopes could counter China’s growing influence in the region.But talks remain stalled. Among other sticking points, the U.S. is insisting that its TPP trading partners dismantle regulations for cross-border finance. Many TPP nations will have none of it, and for good reason. The U.S. stands on the wrong side of experience, economic theory, and guidelines issued by the International Monetary Fund. Indeed, it’s the U.S. that could learn a few lessons from the TPP countries when it comes to overseeing cross-border finance.

The Trans-Pacific Partnership: We Won’t be Fooled by Rigged Corporate Trade Agreements - This week, President Obama will attend the Asia-Pacific Economic Coordination (APEC) meeting in Bali, Indonesia where he is expected to announce his goal of having the Trans-Pacific Partnership signed into law by the end of 2013. Obama will host a meeting of the leaders of the Trans-Pacific Partnership (TPP) nations during the APEC conference.The Obama administration has been negotiating the TPP in secret for more than three years. Unlike past trade agreements, the text of the TPP is classified and members of Congress have restricted access to it. If they do read the text, they are not allowed to copy it or discuss any specifics of it. However, more than 600 corporate advisers have direct access to the text on their computers.The final formal round of negotiations was held in Brunei this August and since then, there have been informal meetings to try and finalize sections of the agreement. As far as the President is concerned, the TPP is entering the home stretch. All he needs now is for Congress to vote to grant him Fast Track, also known as Trade Promotion Authority, and it’s a done deal. Fast Track would allow the President to sign the TPP before it goes to Congress. Members of Congress would then have a short time period to hold an up or down vote and would be prohibited from making amendments. Without Fast Track, which was used to pass NAFTA and the World Trade Organization (WTO), it is unlikely that the TPP could be signed into law

Why world trade growth has lost its mojo - One of the main motors behind the growth of the world economy in recent decades, the expansion of world trade, seems to have entirely lost its mojo. In the next few weeks, there will be vital multilateral negotiations ahead of the WTO’s Ninth Ministerial Conference in Bali on 3-6 December, which will attempt to salvage something from the Doha Round. And there will be further negotiations towards the US-inspired Trans Pacific Partnership, which is still supposed to be completed this year. With protectionism now on the rise, it is crucial that something is salvaged from these talks. World trade volume has been virtually stagnant in the 12 months ended mid 2013. Zero growth in world trade is normally a sign of impending global recession, not of a sluggish expansion. Furthermore, there are extremely strong reasons for believing that growth in trade is one of the principal contributors to supply-side gains in global GDP, so a slow-down in underlying trade growth involves permanent losses in welfare. What has gone wrong, and what does it mean for the future? In part, the weakness in world trade has clearly been due to the cyclical slowdowns in the eurozone in 2012, and in the BRICs in 2013. Because trade between the member states inside the eurozone is counted as part of world trade, the euro crisis has had a particularly large effect. But this effect should have been reversing by the middle of 2013, so it is disturbing to see that the decelerating trend in trade flows has continued (though there have been tentative signs of revival in the last couple of months).

Takeaways from South Korean Trade Data - South Korea’s trade data on Tuesday showed the country’s all-important exports slipped back into negative territory in September after two months of expansion. A look beyond the headline figures shows a more sanguine picture for Asia’s fourth largest economy, even if it is far from firing on all cylinders. The main reason behind the 1.5% fall in exports in September from a year earlier was that the Korean Thanksgiving holiday fell during the week this year, resulting in two fewer work days than last year. Barclays and Nomura calculate 8.4% growth in exports when adjusted for the lost days. Even with the distortion, exports of ships soared 60% as the industry recovers from a deep slump, while semiconductor shipments jumped 21%. South Korean chipmakers enjoyed higher memory product prices after a fire at chip plant in China last month and also strong demand for new lower-priced iPhone models. The average value of South Korea’s daily exports hit a record high of $2.24 billion in September. The average value of exports has been on a gradual uptrend, rising from $1.97 billion in August and $1.83 billion in July.South Korean shipments to the U.S., Japan and the E.U. all fell last month, but exports to emerging markets, including China, maintained growth. Exports to China rose 1.4% as the country absorbed around 29% of overall South Korean exports. Another indicator of South Korea’s recovery is the HSBC purchasing managers’ index. It was near expansionary territory for the first time since slipping below that level in June. The September reading was a seasonally-adjusted 49.7, up from 47.5 in August. A reading above 50 indicates expansion in manufacturing activity, while a reading below that signals contraction. “The stronger PMI shows that Korea’s manufacturing sector remains on track for recovery towards year end,” HSBC economist Ronald Man said in a report on the data.

Record Defaults Seen on $40 Billion Recast Loans: India Credit - Restructured loans are defaulting at a record rate at Indian banks amid forecasts the worst economic slowdown in a decade will deepen, according to the investment banking unit of the nation’s biggest lender. As much as 20 percent of renegotiated credit in India’s banking system is now classified as in default, according to SBI Capital Markets Ltd. Such loans, which give borrowers a moratorium on payments, longer maturities or lower interest rates, more than doubled since 2009 to 2.5 trillion rupees ($40 billion) at the end of June, data from the Corporate Debt Restructuring Mechanism show. Bad loans are rising as Goldman Sachs Group Inc. predicts India’s economy will grow 4 percent this fiscal year, after a 5 percent gain in the prior period that was the smallest since 2003. The yield on State Bank of India’s 9.95 percent rupee debt due 2026 rose 74 basis points this quarter to 9.54 percent, the most since the notes were issued in 2011. That on Bank of China Ltd.’s 2020 dollar bonds fell 57 basis points to 4.09 percent. “Nobody expected the slowdown to last this long while recasting the debt,”

India Government Faces Tightrope Walk as Budget Gap Swells - The Indian government's budget deficit for the April-August period has reached about three-fourths of its target for the year ending March, setting the stage for a tightrope walk for New Delhi to manage its finances as the economy is slowing and its expenses are rising. Avoiding overshooting the deficit target will be particularly difficult this year as the country prepares for federal elections, which must be held by May next year. Government spending toward populist welfare programs aimed at pleasing voters usually increases close to elections. The government, for instance, recently implemented a food-security program that guarantees cheap grain for nearly 70% of the country's 1.2 billion people. Analysts say this would increase India's annual food-subsidy bill by $4 billion. By the end of August, the gap between the government's revenue and expenses has reached 74.6% of its target for the fiscal year, according to data released Monday. Expenses during the first five months were about 40% of the aim for the year, while revenue was way short at 23% of the target. The government aims to limit the deficit within 4.8% of gross domestic product, compared with 4.9% last year. The deficit was 65.7% of the government's target at this time last year.

India Targets $3.2Bn Public Spending Cut to Avoid Junk Credit Status - India will have to significantly cut its government spending in order to reach its budget deficit target and to avoid a downgrading of the country's credit rating to 'junk' status. Finance minister P. Chidambaram may have to reduce at least 200bn Indian rupees ($3.2bn, £2bn, €2.4bn) in order to restrict the budget deficit for the fiscal year ending in March 2014 to 4.8% of the gross domestic product, Reuters reported citing two officials at India's finance ministry. "With oil subsidies up by about 300 billion rupees, the government may have to cut expenditure by around 200 billion rupees in addition to usual savings of around 300 billion rupees at the end of the year," Reuters quoted a senior finance ministry official as saying. Chidambaram will make a final decision at the end of October, when he gets the details of revenue collection in the country, according to the officials.

U.S. Shutdown Could Be Good for India - Investors in India have so far been mostly indifferent to the shutdown of the U.S. government, but if the U.S. political deadlock persists, they may have eventually reason to cheer. The longer the U.S. federal government remains shut, the bigger the negative impact on U.S. economic growth, analysts said. That would make it tough for the U.S. Federal Reserve to end its bond-buying program that has flooded global markets with cash in recent years. When the U.S. government tapers its bond buying program is important to India and other emerging markets which have become addicted to the easy money. Fears of a Fed taper earlier this year sent the rupee crashing to record low against the dollar which in turn has made imported goods more expensive and triggered more inflation. In response, the RBI halted its rate-cutting cycle and raised its key lending rate, damaging hopes of a quick rebound in growth rates in India. If the U.S. government shutdown lasts for longer than two weeks, the impact on U.S. gross domestic product growth in 2013 could be 0.8 to 1.0 percentage points. “This will further push back expectations of Fed tapering from December to next year and would lead to more capital inflows which would help the rupee,”

World Bank says remittances from migrant workers top $414 billion - Money that migrant workers send to their families and homelands is far more valuable to developing countries than foreign aid and is expected to grow 6.3 per cent this year, a new World Bank study said Wednesday. Migrants are expected to send $414 billion in remittances home this year to developing countries, the study said, and the figure will likely surpass $500 billion by 2016. That makes remittance funds almost four times more important to developing countries than official foreign aid from governments, which the United Nations says amounts to about $126 billion a year. The current global total of remittances to all countries is $549 billion. India gets $71 billion in remittances, the biggest benefactor from such funds. China got $60 billion, the Philippines $26 billion, Mexico $22 billion, Nigeria $21 billion and Egypt $20 billion. Money sent home by migrants is crucial to some nations. Almost half of Tajikistan's gross domestic product comes from remittances, the study said. Kyrgyzstan gets 31 per cent of its GDP from remittances; Lesotho and Nepal, 25 per cent; and Moldova, 24 per cent. Growth of remittances has been robust all around the world except in Latin America and the Caribbean, where the recent recession in the United States hampered the regional economy.

Indonesia rate hikes urged as high inflation challenges rebalancing efforts - With the economy slowing, monetary policy in Indonesia is becoming tangled in a trap that echoes the dark days of the Asian financial crisis in early 1998, when Indonesian policymakers faced a stark choice: the economy or the currency. Unwelcome as it is, even depreciation – the IMF’s standard prescription to ward off a balance-of-payments crisis due to its effect of making exports cheaper and imports more expensive – isn’t working. The rupiah has lost more than 11% of its value since July, overtaking India as the emerging markets’ (EMs) worst-performing currency, but has stabilized of late, recovering in recent trade to 11,203 to the dollar. What’s more, consumer price inflation has doubled this year to a four-year high of 8.8%, with analysts predicting it could hit double digits, despite the central bank hiking interest rates twice in the past month. Until Fed-tapering panic erupted in May, the country was able to finance its current-account deficit despite rising imports and falling commodities export prices, thanks to capital inflows chasing higher real rates in Indonesia. However, that support from external liquidity conditions has dried up, placing the capital and financial account balance under pressure, forcing Indonesia to dip into its foreign-exchange reserves to fund the deficit and support the currency

East / Southeast Asia's Demographic Bifurcation- There's are always interesting demographic discussions about the "West and the Rest," but there are also interesting demographic variations within regions.Take the Asia-Pacific: While Japan is emblematic of the problems with a shrinking population, it will soon be joined in that situation by a number of East Asian neighbors absent large rises in fertility or large-scale inward migration: "Japan was largely the only country that was aging and shrinking in terms of its labor force and population in the previous decade. But in the coming decade, several Asian countries – including China, South Korea, Hong Kong [...] will see their labor forces shrink. This will have important implications for GDP [gross domestic product] growth, consumer spending and asset prices, judging from Japan's experience..." Japan is home to the fastest aging population in the world, with almost a quarter of its population over the age of 65. The country has struggled with sluggish growth stemming from a shrinking workforce, which has put pressure on the government to boost productivity levels.  OTOH, you have the more demographically promising Southeast Asian countries that have not yet reached a similar stage in the demographic transition as their wealthier northern neighbors: The U.N. sees the working-age population in Indonesia and the Philippines peaking in 2058 and 2085 respectively, later than previously anticipated. At the same time it brought forward forecasts for other Asian countries including China, where the working-age population is expected to peak in 2015, and its total population, currently around 1.3 billion people, is seen decreasing after 2030.

Manufacturing PMIs around the world - The composite, headline index for global manufacturing improved slightly, to 51.8 from 51.6. The output index and the input price index were both up, but new orders and employment were down. The decline in the new orders index does not bode well for the near-term PMI numbers. The employment index is now just barely above the 50 threshold.Manufacturing conditions improved in both advanced and emerging economies, but more among the former than among the latter. The average composite PMI in advanced economies was 52.6 in September, up from 52.4 in August. The corresponding numbers in emerging and developing economies were 50.7 and 50.6, respectively. Eighty-seven percent of advanced economies posted a composite index above 50, versus 55% among emerging and developing countries. The largest improvements corresponded to Canada, South Korea, Taiwan, Australia, the Netherlands, Sweden, India, Indonesia, Vietnam, and Turkey. The largest declines were posted by Greece, Denmark, and South Africa.Overall, the numbers overall speak of lackluster, although expansionary, conditions in the manufacturing sector. The sector seems to be expanding at a faster rate in advanced than in emerging economies. Find the Markit press releases for September here.

Global economy in ‘epic scale’ change, says IMF’s Lagarde - The global economy is experiencing “transitions on an epic scale”, the International Monetary Fund managing director said on Thursday, warning that turbulence in emerging markets could knock 0.5 to 1 percentage point off their growth. Christine Lagarde’s remarks show the damage done to emerging markets by a recent round of “taper talk”, over the possibility of the US Federal Reserve slowing the pace of its asset purchases and their vulnerability to future changes in the pattern of global capital flows. “The immediate priority is to ride out the turbulence as smoothly as possible,” said Ms Lagarde. “Currencies should be allowed to depreciate. Liquidity provision can help deal with dysfunctional market behaviour. Looser monetary policy can also help.” But she warned that countries with inflationary pressures – such as Brazil, India, Indonesia and Russia – have less scope to use monetary policy and that high debt and deficits mean many developing countries have little space for fiscal stimulus either. “Overall, the global outlook remains subdued,” said Ms Lagarde, in her traditional speech ahead of the annual World Bank and IMF meetings in Washington next week. “In many of the advanced economies, however, we are finally seeing signs of hope. Growth is looking up, financial stability is returning, and fiscal accounts are looking healthier.”

The Rut We Can’t Get Out Of - We are in an age of global oversupply: an oversupply of global labor (hence high underemployment); an oversupply of global productive capacity (hence ultra-low inflation); and an oversupply of global capital (hence low interest rates). This explains why, around the middle of each of the past three years, activity petered out after predictions earlier in the year that the economy would finally achieve escape velocity. The jobs created have been mainly low wage and part time. Growth in domestic manufacturing is still slow, and business spending has fallen, though corporations are flush with profits. Debt-saddled households continue to see real incomes deteriorate (even with very low inflation). Sales of new homes have suddenly reversed course. Rents are falling in several markets where home prices have recently increased. Even the seemingly unflappable stock market has been seesawing because of the uncertain economic signals. Why do we seem unable to get out of this rut? In short, our policy makers are still fighting the last war. We are no longer faced with a world in which supply-side economic remedies — easy money, reduced taxation, fiscal belt-tightening and deregulation — can spur new capacity and the creation of well-paying private sector jobs. A “reverse supply shock” that resulted from the sudden emergence, especially in the 1990s, of the productive potential of enormous, previously walled-off populations from Eastern Europe to Latin America to East and South Asia, helped fuel successive bubbles.

Canada July budget deficit widens on hit to revenues (Reuters) - Canada had bigger budget deficits in July and in the April-July period than it did in the same periods last year due to a sharp drop in corporate income tax revenues, which the government said would be reversed in August. The federal budget deficit widened to C$1.98 billion ($1.92 billion) in July, compared with a shortfall of C$1.35 billion in July 2012, the Department of Finance said on Friday in a monthly report. The government ran a C$158 million surplus in the month of June. Revenues from corporate income taxes plunged 73.7 percent in July, down C$1.3 billion, "reflecting timing issues which lowered July revenues but are expected to raise August revenues," the government said. The government's books will take into account some July corporate income tax revenues in August, unlike last year, a finance ministry spokesman said. Overall, revenues fell 2.6 percent in the month to C$19.8 billion, while program expenses clawed 0.1 percent higher to C$19.3 billion. Public debt charges increased by C$0.1 billion, or 3.8 percent in the month. In the first four months of the fiscal year, from April to July, the deficit stood at C$4.54 billion, up from C$4.16 billion a year earlier.

Sovereign wealth funds: transparently inadequate - Capital markets are in awe of sovereign wealth funds. Many high-profile investments of recent years – the rescue of western banks, buying trophy assets or scooping up natural resources – have involved an SWF as lead investor or chief moneybags. That is helping these institutions to go more mainstream. But as capital markets have changed to adapt to SWFs, it seems that the funds themselves are slower to adapt to the norms of the capital markets.  GeoEconomica, a Geneva political risk consultancy, of the 26 funds that drew up the Santiago principles in 2008 reveals a very mixed picture. The principles commit the funds – which manage a combined $3tn – to basic standards of good governance and financial disclosure. None is yet in full compliance; the average across the spectrum is 70 per cent. The most compliant with the principles – which concern issues such as policy mandates; the relationships among owners, supervisors and managers; and disclosure surrounding returns – are the SWFs of Norway, New Zealand, Australia, Chile, Alaska and Timor-Leste (which has a petroleum fund). No surprises there – Norway’s $750bn “oil fund” is a global standard for governance and disclosure. Bringing up the rear, with less than 60 per cent compliance, are several Middle Eastern SWFs, Russia, Mexico and a handful of others. Developing-world SWFs can usually talk the talk when it comes to investing. The audit suggests that fewer can actually walk the walk.It turns out that their mixed record on accountability can now be added to their mixed record on investment returns. The world’s SWFs are not as reliable a guide to investing as they, or their co-investors, might think.

What Merkel’s Third Term Means for Europe - The German economy is facing a barrage of problems whose impact will be felt very, very soon. When it is, no German Chancellor, however concerned she might be about her legacy, will dare tell the Bundestag that Germany ought to fund a European Marshall Plan named after her good self.First among these impending problems is the anticipated diminution of Chinese demand for Germany’s capital goods. As Chinese investment tapers off, courtesy of the simple fact that its current level is unsustainable given the level of effective demand for China’s output, Germany’s capacity to replace falling demand from the Eurozone (mainly from Italy and Spain) with additional demand from China will wane substantially.There is also a brewing crisis due to the high, and rising, cost of energy; the ‘fuel’ behind Germany’s export-oriented heavy industry. In Texas, where I now live and work, German corporations (e.g. BASF) are building gigantic new production facilities at the expense of investing in Germany. As the energy price differential between Germany and the U.S., but also Germany and the rest of Europe, rises, the German economy will increasingly feel the pinch.Merkel’s third term will also be plagued by a political backlash that will be difficult enough to cope with even without a Merkel Plan for the Eurozone. The country’s demographics are putting a strain on German hospital, pension and social security systems. Meanwhile, the growing masses of Germans living in poverty and working dead-end, soul destroying ‘micro-jobs’ are unlikely to take kindly to a massive Merkel Plan for countries which the German press and an assortment of German politicians, including many of Merkel’s colleagues, have been painting for three years now as profligate, debt-driven, unworthy Eurozone partners.

Germany As Currency Manipulator - Paul Krugman - Ian Fletcher makes a good point. In talking about trade and secular stagnation, I described Germany, with its huge surpluses, as not a currency manipulator. As Ian said, however, the euro can be seen as a de facto foreign exchange intervention to keep the de facto Deutsche mark weak. Before 2008, the euro encouraged private capital outflows from Germany to the periphery. Since then, both official rescue packages and also lending among national central banks in the euro area can be seen as taking the place of these private flows. The interbank portion is shown in this chart from Pimco:  The general point is that if we imagine a euro breakup, I think everyone would agree that the new mark would soar in value, making German manufacturing much less competitive. The German public imagines that it is being cruelly exploited for the benefit of lazy southerners; arguably, what’s really happening is more like China’s purchases of dollars, which are intended not to subsidize America but to boost industry.

Swiss Regulators Probing Alleged Currency Manipulation - Swiss regulators said they’re investigating several banks for allegedly colluding to manipulate the $5.3 trillion-a-day foreign exchange market.  The Swiss Financial Market Supervisory Authority “is coordinating closely with authorities in other countries as multiple banks around the world are potentially implicated,” it said yesterday in a statement. Separately, the competition commission said it opened a preliminary probe on Sept. 30 after receiving allegations of collusion among banks to manipulate some foreign-exchange rates.  The probes come after Bloomberg News reported in June that dealers at banks pooled information through instant messages and used client orders to move benchmark currency rates. Britain’s Financial Conduct Authority said that month it was reviewing the allegations. The U.S. Commodity Futures Trading Commission has also been reviewing potential violations of the law with regards to foreign currency markets, according to a person familiar with the matter who asked not to be identified.

France Protects Booksellers from Amazon through Legislation - According to an article on today: France’s parliament has passed a law preventing internet booksellers from offering free delivery to customers, in an attempt to protect the country’s struggling bookshops from the growing dominance of US online retailer Amazon. The report highlights a risk that Amazon faces - its cost leadership in France is seen as a threat against which local bookshops need to be protected through legislation. Rather than be seen as an isolated incident, this perhaps is an indication that Amazon has reached a size where its action will attract law makers’ attention.

Smoke and mirrors: The meaning of the Polish government's pension manouvre - WHEN is a debt not a debt? When the money is promised to prospective pensioners. That appears to be the underlying message of a package unveiled this month by the Polish government. The Polish pension system, set up in 1999, has two tiers, in which workers make mandatory contributions into a state system (ZUS) and into funds run by private fund managers (OFEs), with their retirement income determined by a complex formula. The authorities are planning to absorb the government bonds held by OFE schemes, cancel them and thereby reduce the state’s debt-to-GDP ratio by around eight percentage points. The government says the pension rights of OFE scheme members will be unaffected. The headline debt-to-GDP ratio will indeed fall, which might impress the markets. But in effect, Poland intends to replace an outright liability (the bonds) with a contingent liability (the state-pension promise). Fitch, a ratings agency, dismissed the reforms as “broadly neutral” for the country’s debt rating. But if Fitch is right, what is the point of the reform in the first place? One possible explanation is that the Polish government was approaching a debt-to-GDP ratio of 55%, a threshold it had legally promised not to cross. But the government has said it will lower the threshold to take account of the impact of the pension reform.

Berlusconi ministers resign; Italy gov't in crisis - Italy's fragile coalition government was pushed into a full-fledged crisis Saturday after five ministers from former Premier Silvio Berlusconi's political party announced their resignations. The move drew the ire of Premier Enrico Letta, who accused Berlusconi of a "crazy" gesture aimed at covering up his personal affairs. The five-month-old government has teetered for weeks since the high court confirmed Berlusconi's tax fraud conviction. Berlusconi's center-right People of Liberty Party is in an unusual coalition of rival forces with Letta's center-left Democratic Party, and the resignations signals the end of the alliance. The resignations must be formally submitted to President Giorgio Napolitano, who must decide if there is any way to continue the government or if new elections must be held.

Italian coalition in disarray after Berlusconi’s ministers quit -- Italy's left-right coalition government was on the edge of collapse on Saturday night after former prime minister Silvio Berlusconi pulled out his five ministers from the alliance he formed with Enrico Letta's Democrats last April. Mr Berlusconi, leader of the centre-right Forza Italia party, said the resignations were a response to the government's decision on Friday to increase in sales tax from next month. Mr Letta, prime minister, rejected Mr Berlusconi's explanation as an "enormous lie", and called the decision "mad and irresponsible and aimed exclusively at covering up his personal affairs" -- a reference to Mr Berlusconi's criminal conviction for tax fraud which is likely to lead to a ban on holding public office. The unprecedented coalition of the two parties -- forced upon both sides by elections last February that ended in deadlock -- has been hanging by a thread since Mr Berlusconi lost his final appeal against tax fraud on August 1. The crisis gathered pace on Wednesday night. Just as Mr Letta was in New York telling investors on Wall Street that Italy was "young, virtuous and credible", Mr Berlusconi's parliamentarians threatened to stage a mass resignation if a senate committee voted on October 4 to strip their leader of his seat in the upper house. The way ahead is fraught with difficulties for Mr Letta and his ally Giorgio Napolitano, head of state, with little time to prevent a serious fallout on financial markets on Monday. Rumours were already spreading last week that Italy was heading for another downgrade by a major rating agency.

Italy turmoil puts fiscal targets at risk: Fitch  -- The potential collapse of Italy's coalition government endangers the country's short- and medium-term budget targets and could endanger the country's BBB-plus credit rating, Fitch Ratings said on Monday. The party of former Italian Prime Minister Silvio Berlusconi over the weekend said all five of its ministers would resign from the cabinet of Prime Minister Enrico Letta. In a news release, the ratings firm said it was reiterating that "prolonged uncertainty over economic and fiscal policies, reduced confidence that [the debt-to-gross domestic product ratio] will fall from 2014 and failure to comply with the constitutional requirement of a balanced budget are potential rating triggers for Italy's BBB-plus/Negative rating." Continued turmoil could also call into question the ability of the European Union and the European Central Bank to provide support through the euro zone's rescue fund or the ECB's bond-buying program, Fitch said. The yield on Italy's 10-year government bond yield rose 0.08 percentage point to 4.65%, according to Tradeweb.

Berlusconi's Party Allies Rebel - Italian newspaper Ansa reports that leaders of Silvio Berlusconi's PDL party say the party would likely support current prime minister Enrico Letta in a possible confidence vote tomorrow. Italian deputy prime minister and PDL member Angelino Alfano said his party should vote in favor of Letta, and that there are no divisions within the party, according to Ansa. PDL senator Carlo Govanardi said in a phone interview with Bloomberg that his "bias is to vote" for Letta, and that his fellow party members will also likely vote in favor of Letta.

Italy in Disarray as ECB Pledge Keeps Nation From Brink - Italy’s government is on the verge of collapse and two of its most senior executives have lost the confidence of shareholders. Thanks to Mario Draghi’s promises, bond investors see the turmoil as more of a blip than a crisis. Yields barely budged yesterday even after Prime Minister Enrico Letta spent the weekend fighting Silvio Berlusconi’s efforts to topple his government.Without Draghi “little would have stood in the way of catastrophe,” “Italy would be facing very high refinancing rates, difficulties in issuing bonds at auctions, and the clear prospect of going out of the euro or defaulting on its debt.” Italy’s politicians are benefitting from the unintended consequences of ECB President Draghi’s promise last year to “do whatever it takes” to backstop the euro. While Draghi, the country’s former central banker, is pushing Italian officials to revamp their economy, the pledge has convinced some investors that, no matter how dysfunctional the country becomes, the ECB will bail it out in the end.

Italy's 2012 GDP Contracted More Sharply Than Forecast --Italy's economy contracted more sharply in 2012 than previously expected, the national statistics institute Istat said Thursday as it made modest revisions to the national accounts of the past few years. Italy's gross domestic product fell 2.5% in 2012, which is more than the 2.4% drop previously estimated in March. Fixed investments fell more than its Spring estimate. The budget deficit was 659 million euros ($896 million), narrower than previously estimated but was unchanged as a percentage of GDP at 3.0%, Istat noted. The narrower-than-expected deficit was because taxes at EUR754.8 billion last year were some EUR1.3 billion more than estimated in the spring. Public spending at EUR801.8 billion was EUR674 million higher than expected. Istat also revised its 2011 figures, showing that the total tax tax intake was somewhat less than previously estimated, while total public spneding was a bit more.

The Hostage-Taker: Berlusconi Pushes Italy to Brink - He plunged Italy into two decades of political turmoil that turned it from a top-tier industrial nation to a crisis-ridden, over-indebted country in desperate need of reforms. Two decades of permanent election campaigning that always focused on the same subject -- for or against Berlusconi. There was never time, and never a political majority, for reforms. As a result, government debts ballooned until they became unmanageable. Berlusconi's friends are telling Italian newspapers that the four-time prime minister is appalled at the '"politicized judges" in this "half-baked democracy" that want to "finish him off." He's having dreams about being led off in handcuffs while the people of Italy rise up and take to the streets across the country to resist his arrest. A Convicted Criminal Berlusconi is an economic criminal whose conviction can no longer be appealed. Italy's highest court sentenced to him to four years in jail which is likely to be commuted to house arrest due to his advanced age and diverse legal factors. He will have to give up his seat in the Senate and stay out of politics for a yet-to-be-determined period. But he doesn't want to retire, so he's going for broke again. He still has an influential TV empire, vast wealth and enough personal vigor. It's hard to believe, but up to 30 percent of Italians would vote for him now, and who knows -- that percentage could increase following an election campaign. His plan is to topple the government, which depends on seats from his party, and to enforce an early election as soon as possible. That would enable him to avoid the looming eviction from the Senate and, if he wins the election, it would allow him to pass tailormade laws to get him out of his predicament. The current crisis is Berlusconi's only chance to save his political career.

Italy’s Youth Unemployment Reaches New All-Time High - While euro zone unemployment maintained a steady 12% in August, Italy’s jobless rate rose from 12.1% to 12.2%. But it was youth unemployment that took the worst hit in the euro zone’s third largest economy, reaching a new all-time high of 40.1% from 39.7% in July, reports the Guardian. The rise comes at a time of political instability in Italy. The Italian center-right party, headed by Silvio Berlusconi, pulled out of Prime Minister Enrico Letto’s coalition government on Sept. 28 after five months of shaky cooperation. Italy’s coalition government has been particularly unstable since Berlusconi’s tax fraud conviction was upheld by a top Italian court on Aug. 1, reports Reuters. In addition to its high levels of youth unemployment, Italy is also struggling to manage a two-year-long recession and a two trillion euro ($2.7 trillion) public debt.

Italian Jobless Rate Returned to All-Time High in August  - Italy’s unemployment rate rose more than forecast in August, returning to an all-time high reached in May as companies remained concerned that the economy may not exit soon from its longest recession since World War II. Joblessness increased to 12.2 percent from a revised 12.1 percent in July, the Rome-based national statistics office Istat said in a preliminary report today. The August rate was higher than the 12.1 percent median of five estimates in a Bloomberg survey. In May the rate reached the highest since the data series began in the first quarter of 1977. The unemployment rate for people between the ages of 15 and 24 rose to a historic high of 40.1 percent from 39.7 percent, Istat said today. Italian Industrial production unexpectedly dropped in July, contradicting forecasts and expectations that the two-year long recession will come to an end in the second half of 2013. Crisis: Greece; 60% of people under 24 are jobless, Eurostat - Greece's rates of unemployment remain the highest in Europe, GreekReporter writes quoting the latest Eurostat figures released today. More precisely, Greece comes first with unemployment at 27.9% followed by Spain with 26.2% and for one more time the figures show that unemployment mainly hits the young under 24 years old. According to Eurostat data, unemployment reaches 61.5% among the young. In all the 28 countries of the European Union, unemployment remained stable at 10.9% in September, despite the optimism for a gradual exit from the financial crisis. The unemployment percentage in the Eurozone also stayed unchanged at 12%. In total, it is estimated that the unemployed in the EU reached 26.6 million citizens and in the Eurozone 19.2 million citizens.

The missing millions - IN THE early 1980s the distressing persistence of high unemployment in Europe was labelled “Eurosclerosis”. Some now wonder whether “Amerisclerosis” is the right word to describe America’s labour market. It is true that unemployment has slowly dropped from a peak of 10% in late 2009, to 7.3% at present. But this decline overstates the health of the jobs market. The labour-force participation rate, the share of the working-age population either working or looking for work, has plunged from 66% in 2007 to 63.2% in August, a 35-year low. If those people who have simply dropped out of the labour force were classified as unemployed, the headline jobless rate would be much higher. This drop in the participation rate is striking by international standards, too. Among 34 (mainly rich-country) OECD countries, only in Ireland and Iceland did participation rates fall farther between 2007 and 2012. In Italy and Britain, where unemployment rates have risen by a roughly similar amount as in America, labour-force participation rose (see left-hand chart).

Learning the Wrong Lessons About Austerity - NYTimes editorial - After a deep, three-year recession, the economy of the 28 countries that make up the European Union collectively grew 0.4 percent in the three months that ended in June, the best quarterly figure since early 2011. That is hardly a cause for celebration for most Europeans who have experienced little to no discernible change in their lives in recent months. The union’s unemployment rate, for instance, was 10.9 percent in August, and has not budged since May.  Even so, some European policy makers are insisting that this faint recovery shows that their austerity policies — cutting government spending and raising taxes — are working. In a speech last month, George Osborne, the British chancellor of the Exchequer, said that economists who had called for a more gradual reduction in his country’s fiscal deficit “have lost the argument.” Wolfgang Schäuble, the German finance minister, insists that “the euro zone is clearly on the mend both structurally and cyclically.”  They’re wrong — and, worse, wrong in a way that can only hurt the prospects of millions of Europeans who are struggling to find work. Even under the best case economic scenarios envisioned by most analysts, the unemployment rate will fall only very gradually if the continent’s governments do not change their policies. More than one-fifth of Europeans younger than 25 are unemployed and many will likely remain jobless for years.

Spain's Retail Sales Fall 4.2%, 38 Consecutive Negative Months - Somewhere along the line the economic situation in Spain will bottom, but there are no real signs yet that a recovery is underway. Courtesy of El Confidencial, via translation, please consider Retail sales fell by 4.2% and totaling 38 months in negative Retail trade sales fell by 4.2% in August compared with the same month in 2012, expanding by 2.5 points year July's decline of 1.7%.  The National Statistics Institute (INE) reports  38 months of consecutive annual decreases.  Employment in the retail sector fell by 1.9% in the eighth month of the year, two percentage points less than in July, with declines in all modes of distribution. The largest decreases were scored small chains and department stores, where employment contracted by 4.7% and 3.7%, respectively. The Spanish government has been talking recovery for several months, so where is it?

Pensions, Unemployment, Interest on Public Debt, Consume 54% of Spain's Budget; Debt Hits 100% of GDP; Expect Plan "B" - On Monday, Spain reported that its debt-to-GDP ratio would hit 100% in 2014. Spain's public debt will soar to nearly 100 percent of output at the end of 2014, the government said Monday, despite massive spending cuts that have triggered angry street protests.  Spain's ratio of debt to gross domestic product (GDP) will hit 99.8 percent at the end of next year after rising to 94.2 percent at the end of 2013, higher than previously forecast, according to details of the government's 2014 budget presented in parliament. The debt ratio has soared from 40.2 percent of GDP in 2008, when the end of a decade-long property boom triggered an economic slump that caused unemployment to jump and tax revenues to plunge.  Prime Minister Mariano Rajoy's conservative government had forecast in its 2013 budget that the debt-to-GDP ratio would stand at 90.5 percent at the end of this year. Pensions will rise by just 0.25 percent in 2014, the minimum allowed under a pension reform approved by the cabinet on Friday that will stop indexing payouts to inflation.  Here's an interesting chart of Spain's budget allocation courtesy of La Vanguardia.

Euro-Area September Inflation Slows More Than Forecast on Energy - Euro-area inflation slowed for a second month in September, led by falling energy prices, and remained below the European Central Bank’s 2 percent ceiling for an eighth month. Consumer prices rose an annual 1.1 percent after a 1.3 percent increase in August, the European Union’s statistics office in Luxembourg said in a preliminary estimate today. The median forecast in a Bloomberg News survey of 34 economists was for 1.2 percent growth. The core inflation rate, which excludes volatile food and energy costs, was 1 percent. The ECB forecasts that inflation will average 1.5 percent this year and 1.3 percent in 2014. ECB President Mario Draghi reaffirmed his pledge last week to keep key interest rates low for an extended period of time “based on a subdued outlook for inflation” and “broad-based weakness” in the economy. The central bank is forecast to hold its benchmark rate at a record low 0.5 percent on Oct. 2, a separate Bloomberg survey shows. Inflation in Germany, Europe’s largest economy, was unchanged at 1.6 percent in September, data on Sept. 27 showed. The Bundesbank said last week that slowing inflation is helping to support an “extraordinarily good” consumer climate in Germany.

It was dovish as usual from European Central Bank President Mario Draghi today as he took his monetary policy announcements on the road to Paris from Frankfurt.No fireworks were expected, but in a world where nuances have become the new datapoints, any hints of change are closely watched. Here are the key takeaways from today’s show:

  • 1)      Mr. Draghi  stuck to September’s script — the euro zone is recovering slowly and unevenly, and with plenty of downside risks.  Some member states need to get their fiscal houses in order more quickly.  We know, Mr. Draghi, we know.
  • 2)      Markets still strongly suspect that the combination of weak growth and docile inflation means that the ECB will at some point take some of the vast arsenal of monetary weapons which it keeps assuring us that it has off the table, where it assures us that they all are, and actually use one. But we aren’t really any the wiser as to whether or when they will be used, or which one will be chosen.
  • 3)      The ECB isn’t going to war against a stronger euro. Indeed Mr. Draghi said the Bank was watching but didn’t target the exchange rate.
  • 4)      Rate hikes aren’t visible no matter how far out you might look. The ECB stuck to its forward guidance and markets expect the ECB to stay dovish longer than the U.S. Federal Reserve.
  • 5)       Banks can expect liquidity help if they need it, but the ECB doesn’t want this to make up for any lack of capital.

Do not kid yourself that the eurozone is recovering - Europe’s political leaders have seized on the first uptick in European economic indicators as evidence that their policies are working. Who would have thought that? Eurozone gross domestic product expanded 0.3 per cent in the second quarter of this year. It will probably have expanded again in the third quarter. So if you define the end of a recession as two consecutive quarters of positive growth, you might be tempted to forecast that the recession will end at precisely midnight on Monday with the end of the quarter. If you do this, you are either a fool or someone with an agenda to peddle – or both. A recession is a broad-based downturn in economic activity. The focus on two consecutive quarters of GDP is at best a shorthand back-of-the-envelope indicator for a normal business cycle. But this is not a normal business cycle. Just look at the order of magnitudes involved. Comparing the first half of 2007 and the first half of 2013, real GDP contracted by an accumulated 1.3 per cent in the eurozone, 5.3 per cent in Spain and 8.4 per cent in Italy. In the same period investment was down by an accumulated 19 per cent in the eurozone – and 38 per cent in Spain and 27 per cent in Italy. Between the first quarter of 2007 and the first quarter of 2013, employment fell 17 per cent in Spain and 2 per cent in Italy. I would not call the end of the recession until we see a sustained improvement in growth and employment. Once the recession ends, I would expect that we will get back to the pre-recession trendline.

How the Eurozone Might End - A central bank without a state to back it up, together with member states now without the chief instruments of a central bank to back them, once liquidity dried up with the near-collapse of the West’s financial sector Europe experienced a domino-effect insolvency of some eurozone banking sectors and states. The false choice that suddenly gripped Europe’s leaders was either to accept the awful truth that the architecture of the euro was faulty and that large banking losses and public debts had to cancel each other out, or to do what, sadly, they did. This was to “extend and pretend” by having the eurozone’s surplus nations pile huge new lo ans on the insolvent deficit states on condition that the latter agreed to reduce their national incomes, for that is what universal austerity accomplished.For five years, Europe’s leaders stuck to their “extend and pretend” strategy. From 2011 onwards, and especially in 2013 when a banking union was proclaimed in name so as to prevent its implementation in practice, the writing was on the wall: the eurozone would disintegrate unless banks, debt and investment flows were somehow ‘Europeanised’. The final stage of deconstruction began when the credit crunch reached its crescendo in the north of Italy and set in motion the process of “re-conversion”, as the eurozone’s disintegration was euphemistically called. The government in Rome, under immense pressure from businesses threatening to shift en masse their operations to the U.S. and to Eastern Europe, announced the introduction of an electronic unit of account in which tax payments would be made to the Italian state by businesses and households, allowing the government room to provide liquidity and tax breaks without the consent of either the ECB or, indeed, Brussels.

ECB's Draghi: willing to act to support economy - European Central Bank head Mario Draghi said the eurozone economy is still fragile and the bank is willing to use "all available instruments" to keep market interest rates from rising and hurting a fledgling recovery. He said the bank would even consider offering a third round of cheap, long-term loans to banks. The money injection would boost the flow of credit in the economy, hopefully helping growth in the 17-country currency bloc. "We view this recovery as weak, as fragile, as uneven," Draghi said at a news conference. Yet the ECB took no action Wednesday. It left its benchmark interest rate unchanged at a record low 0.5 percent and shied away from any new stimulus measures, such as the credit offering. Concern about a potential rise in market interest rates is a global phenomenon caused by expectations the U.S. Federal Reserve will scale back its stimulus program. The program has been keeping market rates down, not just in the U.S. but worldwide.

Euro-Area September Services Output Expands More Than Estimated - Euro-area services output expanded more than initially estimated in September, as the 17-nation currency bloc’s economic recovery gained momentum. An index based on a survey of purchasing managers in the services industry rose to 52.2, exceeding a Sept. 23 estimate of 52.1 and up from 50.7 in August, London-based Markit Economics said today. The gauge has been above 50, indicating growth, for two months. Today’s services data come after the euro-zone economy emerged from its longest-ever recession in the second quarter and economic confidence rose for a fifth month in September. The jobless rate fell to 12 percent in July from a record 12.1 percent a month earlier, and held at that level in August. At the same time, economists in a Bloomberg News survey see growth slowing to 0.2 percent in the third quarter after a 0.3 percent expansion in the three months through June. Economists surveyed by Bloomberg predict the unemployment rate will peak at 12.3 percent by the end of this year before falling to 12 percent in 2015.

Services Maintain Growth After Best Quarter Since 1997 - U.K. services growth maintained its pace of expansion in September, capping the best quarter for the industry in 16 years with an increase in confidence and hiring. A gauge of activity was at 60.3 after reaching a seven-year high of 60.5 in August, Markit Economics said today in London. The median estimate of 24 economists in a Bloomberg survey was 60.5. A reading above 50 signals expansion. Euro-area services grew more than initially estimated and a Chinese gauge rose to a six-month high, separate reports showed. U.K. construction and manufacturing also expanded last month, and Bank of England Markets Director Paul Fisher said yesterday there has been a “significant shift” in the recovery. Markit said its surveys point to expansion of as much as 1.2 percent in the third quarter after 0.7 percent in the three months through June.

How a Banking Scandal Is Bolstering Britain’s Economy - You may remember back in July how we wrote about compensation from mis-sold payment protection insurance in the U.K. giving the economy a much-needed boost. Banks operating in the U.K. had set aside billions of pounds to compensate customers who’d been been sold insurance that would pay their mortgages, for example, if they were fired or got sick. The Office for Budget Responsibility, the government’s official forecaster, said that the compensation was so big it would provide “some short-term support to household consumption growth.” One economist, Alan Clarke at Scotiabank, says the compensation payments have been more successful at stimulating the U.K. economy than quantitative easing. U.K. lenders have already paid £11.5 billion ($18.7 billion) to millions of customers, and have set aside another £7.3 billion for future payments. But the payments are not just creating one-off windfalls: the PPI industry is also creating much-needed employment. As we report over on, claims have been coming in at such a clip that it’s created tens of thousands of new jobs to handle them.

UK economy growing at fastest rate in the developed world -  Figures released today indicated that output across the services sector, which accounts for the majority of the economy, rose at the strongest pace for 16 years between July and September. Separately, house prices were shown to be rising at 6.2 per cent, more than twice the rate of inflation, helped by the imminent launch of the Government’s Help to Buy cheap credit scheme and also the healing economy. Experts said the startling pick-up in the services sector, which accounts for three-quarters of national output and includes caterers, banks, accountants and lawyers, suggested that GDP growth would be 1.2 per cent for the third quarter of 2013. This would be enough to outstrip America, France and Germany and could be ahead of Brazil and India, until recently two of the fastest growing emerging economies. Britain’s economy last rose by as much as 1.2 per cent in a three month period in the autumn of 2007, when the credit crisis began.

Britain should not take its credit status for granted - - Rogoff -  I am puzzled by commentators who are certain that governments had it all wrong, at every step, in balancing stimulus and stability in the aftermath of the crisis. One often sees claims, for example, that the UK borrowed heavily in the distant past with little ill effect. So today’s leaders were foolish not to engage in even heavier borrowing and stimulus. These people seem to believe everything will be fine when it comes to public debt: they assume “all’s for the best in the best of all possible worlds”. According to the debt panglossians, UK leaders watched as the economy stagnated, rationing stimulus out of a baseless concern over credit risks. Even though the UK ran one of the largest deficits of any advanced country, the panglossians say it should have borrowed more. Perhaps, but their logic is based on a shallow reading of the evidence – and on amnesia about recent risks to eurozone stability. They do have some very solid points on their side, particularly when it comes to high-return infrastructure projects. Such projects, if done at a reasonable cost, pay for themselves. Governments should have done more, and not just to stimulate demand. There are good neoclassical arguments for higher government spending in a slack economy when resources are cheaper. But debt panglossians are far too confident that the UK’s credit status is bulletproof, and too dismissive of the risks.

Payday loans being used to feed desperate families, charity says - Borrowers are turning to payday lenders to pay for essentials like food, energy and housing costs, and are being granted loans even when they are not in a position to pay them back, according to research by a debt charity. Although the loans are marketed as a quick, flexible way to get cash for items like home improvements and holidays, almost four out of five people who turned to Christians Against Poverty (Cap) with problem debts, including payday loans, said they had used them for food. Half said they had paid gas and electricity bills with them, while a third had borrowed to meet rent or mortgage costs. The payday loans market has boomed in recent years and many high streets now have a plethora of lenders. Borrowing is designed to be over a period of days or weeks, and interest rates and charges are high so any debts can quickly snowball. Critics also warn that borrowers can get trapped in a spiral of debt, using new loans to repay existing borrowing. The £2bn sector is currently under scrutiny of the Competition Commission, which is considering whether firms are offering consumers a fair deal. Later this week the Financial Conduct Authority will outline how it intends to police payday lenders when it begins to regulate them in April 2014.

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