FRB: H.4.1 Release--Factors Affecting Reserve Balances--November 14, 2013: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks
The End of Asset Purchases: Is That the Big Question? - Atlanta Fed macroblog - Last Friday, Atlanta Fed President Dennis Lockhart delivered a speech at the University of Mississippi, the bottom line of which was reported by the Wall Street Journal's Michael Derby: Federal Reserve Bank of Atlanta President Dennis Lockhart said Friday that central bank policy must remain very easy for some time to come, although he cautioned the exact mix of tools employed by the central bank will change over time..."Monetary policy overall should remain very accommodative for quite some time," Mr. Lockhart said... "The mix of tools we use to provide ongoing monetary stimulus may change, but any changes will not represent a fundamental shift of policy"...That's a pretty accurate summary, but Derby follows up with commentary that feels somewhat less accurate: The big question about Fed policy is what the central bank does with its $85 billion-per-month bond-buying program. It had widely been expected to start slowing the pace of purchases starting in September, but when it didn't do that, expectations went into flux. Ahead of the jobs data Friday, many forecasters had gravitated to the view bond buying would be trimmed some time next spring. Now, a number of forecasters said the risk of the Fed slowing its asset buying sooner has risen. Now, the views that I express here are not necessarily those of the Federal Reserve Bank of Atlanta. But in this case, I think I can fairly claim that what President Lockhart was saying was that the big question is not "what the central bank does with its $85 billion-per-month bond-buying program."
Dallas Fed president Richard Fisher: QE won't last forever: The Federal Reserve's monetary stimulus program cannot continue forever, Richard Fisher, President of the Federal Reserve Bank of Dallas told CNBC on Tuesday. "We've changed and impacted the markets because of our intervention and I understand there's sensitivity, but markets should also bear in mind that this program cannot go on forever," he said. "The balance sheet is $4 trillion and there are limits to what the Federal Reserve can do," Fisher added. "Every bond we buy comes back to us in terms of excess reserves," said Fisher, who is set to become a voting member of the Fed from next year. "Our balance sheet has become bloated and at some point, we will have to taper back on the pace of purchases but that doesn't mean we'll stop. We'll have less accommodation as opposed to the current $85 billion a month," he added. The Fed has come under fire by critics for not being clear enough with its forward guidance and confusing investors as to when tapering will occur and how long interest rates are likely to stay low.
No Sign Of Tapering In Base Money Supply Data - The inflation-adjusted year-over-year pace in so-called high-powered money—M0, as some label it—is rising at the fastest rate since 2009, when the Federal Reserve was winding down its initial monetary response to the Great Recession. The news that the growth in base money--a slice of money supply that the Fed controls directly--is accelerating arrives during a new round of chatter that the central bank will soon begin tapering its asset-buying program in the wake of last week's upbeat economic reports. Some analysts now predict that a tapering announcement could come as early as next month, at the next FOMC policy meeting. Maybe, although a new Bloomberg survey advises that economists overall expect that the March 2014 meeting is the more likely date for a change in the monetary weather. Meanwhile, there’s nary a hint of tapering in the latest base money data. In fact, it looks like monetary policy stimulus is becoming more aggressive, or so the current numbers show. As the first chart shows, the monetary base (measured in real annual changes) tends to contract on the eve of recessions. The comparison below ends at December 2007, at the start of the Great Recession. Not surprisingly, the real monetary base annual change was negative by nearly 3% at 2007's close, which marked the start of the worst economic downturn since the Great Depression. In short, inflation-adjusted base money changes are a valuable tool for tracking the business cycle.
Update: Four Charts to Track Timing for QE3 Tapering - Here is an update of the four charts I'm using to track when the Fed will start tapering the QE3 purchases. In general the year-end data might be "broadly consistent" with the June (and September) FOMC projections. However I suspect the FOMC is very concerned about the low level of inflation, and also the decline in the employment participation rate. The December FOMC meeting is on the 17th and 18th. The first graph is for the unemployment rate. The current forecast is for the unemployment rate to decline to 7.1% to 7.3% in Q4 2013. The second graph is for GDP. The current forecast is for GDP to increase between 2.0% and 2.3% (the FOMC revised down their forecast from 2.3% and 2.6% in June). This is the increase in GDP from Q4 2012 to Q4 2013. The third graph is for PCE prices.The fourth graph is for core PCE prices The current forecast is for core prices to increase 1.2% to 1.3% from Q4 2012 to Q4 2013.
Fed’s Kocherlakota: Expectations of Fed Taper Are ‘Puzzling’ - Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said Tuesday market speculation about a reduction in the pace of the Fed’s bond-buying stimulus program is “puzzling” in light of the current economic challenges. In a St. Paul, Minn., speech, the central banker repeated his call for the Fed to provide substantial amounts of stimulus to the economy in a bid to drive down still-high levels of unemployment. He said the Fed must do “whatever it takes” and that “will mean keeping a historically unusual amount of monetary stimulus in place–and possibly providing more stimulus.” Mr. Kocherlakota, who doesn’t currently have a voting slot on the monetary-policy-setting Federal Open Market Committee, is one of the central bank’s strongest advocates of an aggressive approach to helping the economy. He supports the Fed pressing forward with its $85-billion-a-month bond-buying program, and he wants the central bank to lower the jobless threshold it put in place to offer guidance about the timing of future short-term interest-rate hikes. The official spoke in the wake of last Friday’s release of better-than-expected October jobs report. That report threw the outlook for the Fed’s $85-billion-a-month bond-buying policy in flux. Many forecasters had begun to expect the Fed wouldn’t trim asset buying until some time in spring. Now some observers believe the Fed may be able to slow its easy money efforts at its meeting next month.
Two Fed officials say aggressive policy action still needed (Reuters) - The Federal Reserve should keep monetary policy ultra-easy given the economy's tepid growth and an uncertain outlook for jobs growth, two senior officials said on Tuesday, reinforcing views that the U.S. central bank will not taper bond buying before next year. At the same time, last month's government shutdown may undermine the reliability of economic data through December, said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta. That could provide another reason not to expect policy action when the Fed holds its next policy meeting, on December 17-18, though Lockhart would not rule it out. "Monetary policy overall should remain very accommodative for quite some time," he told an economic forum in Montgomery, Alabama. "Even though the economy is growing, and we're making progress on unemployment, there are real concerns about whether the recent modest pace of GDP is enough to maintain employment momentum." Narayana Kocherlakota, president of the Minneapolis Fed, spoke even more strongly about the need for aggressive action to foster growth. "Reducing the flow of (bond) purchases in the near term would be a drag on the already slow rate of progress of the economy toward the committee's goals," Kocherlakota told the Chamber of Commerce in St. Paul, Minnesota. "Inflation remains weak, or very low by historical standards, by the (Fed's) goal of 2 percent per year, so there is no reason to be afraid of monetary stimulus," he said.
Fed Debates Low-Rate Peg - The Fed has said for months it won't raise short-term interest rates from near zero until the unemployment rate, which was 7.3% in October, falls below 6.5%, as long as inflation doesn't move above 2.5%. Fed officials believe the promise, known as "forward guidance," helps hold down long-term borrowing rates, which in turn encourages borrowing, investment and spending. There are several ways they could strengthen their message. One idea under discussion is to lower that unemployment threshold from 6.5%, which could mean keeping rates down longer. Fed staff research suggests the economy and job market might grow faster, without much additional risk of inflation, if the Fed promised to keep rates near zero until the unemployment rate gets as low as 5.5%. Goldman Sachs economists predict the Fed will lower the threshold to 6% as early as December and reduce the bond-buying program at the same time. Minutes of recent Fed meetings show officials have been debating the idea for several months and recent comments by officials show it is in the mix of discussions ahead of the Fed's next policy meeting on Dec. 17 and 18, though such a move may or may not happen then.
Fed’s Plosser: Wrong to Use Monetary Policy to Target Job Market - Federal Reserve Bank of Philadelphia President Charles Plosser called on Thursday for a broad redefinition of what the central bank does, arguing the institution needs to stop trying to affect short-term changes in the labor market and focus instead on what it can control, inflation. Mr. Plosser, who has long been uneasy with the Fed’s aggressive efforts to pump up growth and unemployment, offered his critique of central bank policy-making on the same day the Fed’s second-in-command, Janet Yellen, was set to testify at a Senate committee hearing on her nomination to succeed Fed Chairman Ben Bernanke, whose term ends in January. Ms. Yellen is a strong supporter of using the tools at the Fed’s disposal to help lower levels of unemployment most consider too high. The problem, as Mr. Plosser explained in the text of a speech prepared for delivery before a conference at the Cato Institute in Washington, is that there are and should be limits on what the Fed can do. He continues to worry that the unprecedented paths taken by the central bank over recent years undermine its credibility and reduce the effectiveness of its policies. “We have assigned an ever-expanding role for monetary policy, and we expect our central bank to solve all manner of economic woes for which it is ill-suited to address,” Mr. Plosser said in his speech. “We need to better align the expectations of monetary policy with what it is actually capable of achieving.” To do this, Mr. Plosser said the Fed should pursue price stability as its “sole” mandate, or at least the paramount goal. Currently the Fed is charged by congress with keeping prices stable and promoting the maximum sustainable job growth. The official also wants the Fed to hold only Treasury debt. Central bank stimulus currently consists of an $85 billion-per-month Treasury and mortgage bond-buying program in addition to its zero-percent short-term rate regime.
Richard Duncan: Fed Targeting 20,000 on the Dow - Richard Duncan—author, former specialist at the World Bank and consultant to the IMF—says the Federal Reserve plans to stimulate the stock market by 10-15% each year for the next two years. “My opinion is that credit growth will remain insufficient to drive economic growth and, therefore, the Fed is going to have to continue [its efforts] through fiat money creation; and their goal is 10-15% appreciation of the stock market a year in order to create a wealth effect and push up asset prices to create consumption and to drive the U.S. and global economy,” he explained in a recent interview with Financial Sense. If Richard’s analysis is correct, that means the Fed has a target of around 20,000 on the Dow before backing off its quantitative easing program.
Fed Watch: Missing Piece in the Communication Strategy - Minneapolis Federal Reserve President Narayana Kocherlakota's recent speech made clear that a full understanding of the cost/benefit trade-off for quantitative easing is a missing piece in the communication strategy. Frustratingly, he didn't try to fill it, which leaves me hoping the incoming Chair Janet Yellen will do so. Kocherlakota describes a goal-oriented approach to monetary policy that he believes was essential to ending the period of high inflation in the 1970's and 80's: First, the Committee formulated and communicated a clear goal: It intended to bring inflation down as quickly as possible. Second, on an ongoing basis, the Committee did whatever it took to achieve that goal, even if those actions had short-term economic costs. What this means for policy in the current context: The Committee has to stick to its formulated approach—that is, it must do whatever it takes to achieve its communicated goal... ...Doing whatever it takes in the next few years will mean something different. It will mean that the FOMC is willing to continue to use the unconventional monetary policy tools that it has employed in the past few years. Indeed, it will mean that the FOMC is willing to use any of its congressionally authorized tools to achieve the goal of higher employment, no matter how unconventional those tools might be. Confusion arises when one realizes the Fed does not intent to use all of its available tools to meet its goals. In particular, there is no inclination to expand the pace of asset purchases, and is instead every inclination to end the program. They are looking forward to normalizing policy by shifting the focus to forward guidance on interest rates.
McKinsey lays out tapering blowback - McKinsey Global Institute has produced an in-depth document that states the obvious on the affects of QE and the likely problems with its withdrawal. If one accepts that house prices and bond prices are higher today than they otherwise would have been as a result of ultra-low interest rates, the increase in household wealth and possible additional consumption it has enabled would far outweigh the income lost to households. However, while the net interest income effect is a tangible influence on household cash flows, additional consumption that comes from rising wealth is less certain, particularly since asset prices remain below their peak in most markets. It is also difficult today for households to borrow against the increase in wealth that came through rising asset prices. We should point out that other factors are also at work here beyond just low interest rates. Ultra-low interest rates appear to have prompted additional capital flows to emerging markets, particularly into their bond markets. Purchases of emerging-market bonds by foreign investors totaled just $92 billion in 2007 but had jumped to $264 billion by 2012. This may reflect a rebalancing of investor portfolios and a search for higher returns than were available from bonds in advanced economies, as well as the fact that overall macroeconomic conditions and credit risk in emerging economies have improved. In some developing economies, including Mexico and Turkey, the percentage increases in capital inflows into bonds have been even larger. Emerging markets that have a high share of foreign ownership of their bonds and large current account deficits will be most vulnerable to large capital outflows if and when monetary policies become less accommodating in advanced economies and interest rates start to rise.
Winners and Losers From Stimulus -- As Wall Street tries to gauge when the Federal Reserve might start tapering its stimulus program, a new study from the McKinsey Global Institute illustrates just how deep the impact of such efforts has been since 2007. But it also makes clear that the benefits haven’t been distributed equally. Government borrowers were the biggest winners, with the United States, Britain and countries in the euro zone saving $1.6 trillion, largely from rock-bottom interest rates. Similarly, nonfinancial companies also came out well, saving $710 billion as borrowing costs dropped. The results were mixed for big banks, although institutions in the United States benefited more than those in Europe, since the rates they paid on deposits fell much more. The big losers were households, McKinsey found, giving up $630 billion in net interest income in the United States, the euro zone and Britain, as interest rates for savers plunged.The so-called quantitative easing began in the wake of the financial crisis, with the latest round featuring $85 billion a month in purchases of Treasury securities and mortgage-backed bonds. The McKinsey findings are very likely to fuel arguments that the Fed stimulus, like the bailout efforts authorized by Congress in the fall of 2008 for the big banks, benefited Wall Street and big business at the expense of Main Street, and did little for the overall economy.
Confessions of a Quantitative Easer - Andrew Huszar - I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time. Five years ago this month, on Black Friday, the Fed launched an unprecedented shopping spree. By that point in the financial crisis, Congress had already passed legislation, the Troubled Asset Relief Program, to halt the U.S. banking system's free fall. Beyond Wall Street, though, the economic pain was still soaring. In the last three months of 2008 alone, almost two million Americans would lose their jobs. The Fed said it wanted to help—through a new program of massive bond purchases. There were secondary goals, but Chairman Ben Bernanke made clear that the Fed's central motivation was to "affect credit conditions for households and businesses": to drive down the cost of credit so that more Americans hurting from the tanking economy could use it to weather the downturn. For this reason, he originally called the initiative "credit easing."
Do Fed critics really think the US economy would be stronger with tighter monetary policy? -- In a Wall Street Journal op-ed today on tomorrow’s Janet Yellen confirmation hearing, former Federal Reserve governor Kevin Warsh highlights and questions “some of the prevailing wisdom at the basis of current Fed policy. He calls quantitative easing “an untested, incomplete experiment. He worries that “long periods of free money and subsidized credit are associated with significant capital misallocation and malinvestment.” He frets that the “Fed’s weak tea crowds out stronger policy measures that can only be taken by elected officials.” He warns that “aggressive easing by the Fed can be contagious, inclining other central banks to ease as well to stay competitive.”
- 1.) But nowhere in all of Warsh’s Austrian-infused — “malinvestment” — highlighting and questioning is there any consideration of the counterfactual.
- 2.) Why, despite significant fiscal drag from back-to-back years of nominal declines in federal outlays and heavy tax hikes in 2013, is job growth actually stronger this year than last year?
As economist Mike Darda puts it: “If the choice is between the current policy mix in the U.S. and/or the Eurozone/pre-2013 Japan model of tight money, zero nominal GDP growth, deflation and a chronic debt overhang, one would think the choice is pretty clear.”
Pushing on a string: US monetary policy is less powerful during recessions - Most industrialized countries have been trying to cut public borrowing without impeding recovery from the Great Recession. Central banks have attempted to square this circle by loosening monetary policy. For example, UK finance minister George Osborne has stated that “theory and evidence suggest that tight fiscal policy and loose monetary policy is the right macroeconomic mix” for countries with excessive private and public debt (Mansion House speech 2012). A number of recent studies have found that fiscal policy is particularly powerful in recessions – tax hikes and spending cuts harm growth more when the economy is already weak. But if monetary policy is still effective, these big negative effects could in principle be offset by lower interest rates. In our new paper we find that, at least in the US, this is not the case: official interest rates have no discernible effect on the economy during recessions. This means a crucial ingredient – the ability to stimulate a recession-hit economy by cutting policy rates – may be missing from the prevailing policy mix. ...
Yellen Signals Continued QE Undeterred by Bubble Risk - Janet Yellen indicated she’ll press on with the Federal Reserve’s unprecedented monetary stimulus until she sees a robust recovery, downplaying risks the policy is inflating asset bubbles.“I don’t see evidence at this point, in major sectors of asset prices, misalignments,” she said yesterday during her confirmation hearing to be the next Fed chairman. “Although there is limited evidence of reach for yield, we don’t see a broad buildup in leverage, where the development of risks that I think at this stage poses a risk to financial stability.” Yellen signaled her determination to use bond buying to strengthen the economy and drive down the nation’s 7.3 percent unemployment rate. Testifying to the Senate Banking Committee as benchmark U.S. stock indexes rose to records, she sought to dispel concerns from senators that the central bank’s policy is pumping up the values of equities and housing to such an extent that it jeopardizes market stability.
In Yellen Hearing, Senators Push for Fed Changes— The questions that Janet L. Yellen faced on Thursday from senators considering her nomination to lead the Federal Reserve made two things fairly clear: The job is hers, and it’s not going to be easy. Democrats and Republicans on the Senate Banking Committee treated Ms. Yellen as if she were already the Fed’s chairwoman, skipping over questions about her qualifications and instead venting broad frustrations about the slow pace of economic growth. Ms. Yellen, the Fed’s vice chairwoman since 2010, faced particularly sharp questions about the limited success of the Fed’s efforts to stimulate the economy. Members of both parties questioned whether the Fed’s policies had mostly benefited the wealthy, while doing little to improve life for most Americans. The Fed’s campaign to hold down interest rates was described as “an elitist policy” by Senator Bob Corker, a Tennessee Republican, and as “a sort of trickle-down economics” by Senator Sherrod Brown, an Ohio Democrat. “It’s not clear to the many Americans who have not seen a raise in a number of years, that this policy increases wages and incomes for workers on Main Street,” Mr. Brown said. “During your time as chair, tell us how you will ensure that the Fed’s monetary policy directly benefits families on Main Street.” Ms. Yellen, 67, avoided any surprises in her calm and careful responses, which hewed closely to the Fed’s official positions and her own past remarks. She made clear that she was committed to continuing the Fed’s stimulus campaign, which she said had “made a meaningful contribution to economic growth.”
On the Design of Monetary and Macroprudential Policies – NY Fed - The financial crisis, recession, and slow recovery have emphasized the interactions between financial markets and the real economy. These developments have also motivated macroeconomists, central bankers, and financial regulators to think of new policy instruments that could help limit “systemic” or “systemwide” financial risks, as the Bank for International Settlements and the Financial Stability Board describe them. But apart from finding the right tools, policymakers are also interested in understanding how such instruments should be set in conjunction with monetary policy. In this post, we discuss the issues that arise when deciding how to design institutions for monetary and macroprudential policymaking. It turns out that the answer to this question hinges on a key issue in monetary policy: the ability of a decisionmaker to make binding commitments regarding his or her future behavior.
A Note On Hysteresis And Monetary Policy - Paul Krugman -- After I published Friday’s column, featuring the Wilcox et al estimates of the long-term damage done by the Great Recession (“hysteresis”, in the econ jargon), several people at the IMF research conference — Christy Romer in particular — told me that they were worried that this stuff might give ammunition to Fed hawks, who will say “See, there isn’t that much slack in the economy, so it’s time to tighten.” Actually, something like this has happened in the UK fiscal debate, so it’s a real issue.But here’s the answer: you have to consider the interaction between the high likelihood of hysteresis and uncertainty about how much damage has been done so far. Suppose that sustained economic weakness really does do a lot of damage, but that it hasn’t done as much so far as Wilcox et al estimate. In that case, the worst possible thing you could do would be to slam on the brakes because you imagine that the economy is at capacity. You might well be braking much too soon — and in so doing imposing huge future costs on the economy. Or to put it another way, you could be turning downbeat estimates of economic capacity into a self-fulfilling prophecy. The lesson you should be taking here is, don’t tighten, don’t taper, don’t exit, until you see the whites of inflation’s eyes. We don’t know how much capacity the economy has, but we do have strong reason to suspect that running the economy below potential is a very, very bad idea
PCE Price Index Update: The Core Measure Remains Well Below the Fed Target -- the October Personal Income and Outlays report for September was published Friday by the Bureau of Economic Analysis. The latest Headline PCE price index year-over-year (YoY) rate of 0.92% is a decline from last month's adjusted 1.13%. The Core PCE index of 1.19% is fractionally lower than last month's adjusted 1.21%. As I pointed out last month, the general disinflationary trend in core PCE (the blue line in the charts below) must be troubling to the Fed. After years of ZIRP and waves of QE, this closely watched indicator has consistently moved in the wrong direction since early 2012 and has been flatlining in recent months. The adjacent thumbnail gives us a close-up of the trend in Core PCE since January 2012. The first chart below shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. I've also included an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. I've highlighted 2 to 2.5 percent range. Two percent had generally been understood to be the Fed's target for core inflation. However, the December 12 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place. I've calculated the index data to two decimal points to highlight the change more accurately. It may seem trivial to focus such detail on numbers that will be revised again next month (the three previous months are subject to revision and the annual revision reaches back three years). But core PCE is such a key measure of inflation for the Federal Reserve that precision seems warranted.
Low inflation creating a QE trap - Weak inflation readings in the US continue provide the Fed with the rationale to maintain securities purchases in what amounts to a "QE trap". With the PCE inflation measure once again below one percent, the FOMC doves fear that "taper" could bring about deflationary pressures. The risk of course is that inflation measures remain benign and what was meant to be a short-term policy measure extends beyond anyone's expectations.Scotiabank: - The Fed’s preferred measure of inflation — the price deflator for total personal consumer expenditures — came in at +0.9% y/y in September. We feel that markets are underestimating the importance of this observation to the Fed. That is tied with April for the softest inflation reading since October 2009 when the US economy was just beginning to emerge from recession. The forward looking inflation measure derived from TIPS yield (breakeven), has now also turned lower after a recent upward movement. Similarly, we've seen a slump in commodity prices (see discussion), which is another signal of weak inflation readings.With inflation measures remaining this low, many argue (see story) that there is no rush to begin exiting the current monetary policy. The fact that the US monetary base is now 4.5 times greater than it was 5 years ago and capital markets are now fully addicted to ongoing stimulus does not seem add any urgency for these economists. The longer this goes on, the more difficult will be the exit, making it harder for the Fed to pull the trigger. Welcome to the QE trap.
Weak Inflation Not Surprise It Appears to Be, Cleveland Fed Says - If Federal Reserve officials have been surprised by the unexpected persistence of weak inflation, perhaps they shouldn’t be. Cleveland Fed research released Friday argues that even as price pressures have managed to fall far short of central bank forecasts, central bankers haven’t necessarily made any fundamental mistakes as they’ve tried to predict the price pressure outlook. “The unanticipated falloff in inflation should simply serve as a useful reminder of the uncertainty that always surrounds forecasts,” They noted the missed forecasts “still fell well within a normal range of uncertainty” inherent to current forecasting methods. They added real world events played a big role as well: “Most of the deviation from the original forecast was a response to other economic developments.” For some time now, Fed officials have been predicting that inflation will rise back to their official 2% target. September’s numbers were a black eye to that forecast. As measured by the overall personal consumption expenditures price index, prices were up 0.9% that month from a year ago, after rising by 1.1% in August. Stripped of food and energy, the core PCE price index was up 1.2% from September 2012. The report notes that in early 2012, policymakers expected inflation to be at 1.7% in 2013. The Cleveland Fed researchers said that because the models still appear to work, there’s reason to be confident that things will ultimately play out as policymakers expect. “Our model projects that core PCE inflation has bottomed out and will gradually rise over time toward the FOMC’s long-term inflation goal of 2%,”
Fed’s Plosser: Mild Deflation Not Necessarily a Bad Thing - Federal Reserve Bank of Philadelphia President Charles Plosser said Thursday he would like to see the central bank target a lower rate of inflation, adding he wouldn’t be too concerned if the economy entered a period of deflation. “It’s not obvious a period of mild deflation is such a bad thing,” Mr. Plosser said in response to a question after speaking at the Cato Institute. In his speech, Mr. Plosser said the Fed needs to stop trying to effect short-term changes in the labor market and focus instead on what it can control, inflation. He said unsuccessful efforts to noticeably influence labor-market outcomes can undermine credibility. Meanwhile, inflation is running far below the Fed’s target of 2%. According to the price index for personal consumption expenditures, the Fed’s preferred inflation gauge, prices rose 0.9% in September from a year earlier. Mr. Plosser said he saw no reason the Fed couldn’t target a zero inflation rate, which other Fed officials have argued against because of a greater risk of deflation. Many economists believe that falling prices bring economic stagnation.
Greenspan’s dilemma revived - Deficit continues to be a dirty word in the US (despite *those* findings about the holier-than-thou Clinton surpluses not being all that great), whilst the idea that the US is an unsustainable deficit spender increasingly propagates in mainstream circles.But, as Ethan Harris at Bank of America Merrill Lynch shows on Monday, nothing could be further from the truth. In reality the US deficit is contracting at a relatively speedy rate: Which leaves the following as the most notable point being made by Harris, in reference to the natural unemployment rate (NAIRU):If inflation persists below 1.5%, we would expect the interest rate forecast to drop further. We also expect the FOMC to cut its unemployment rate guidepost for hiking rates from 6.5% to 5.5% or lower. Ultimately, the Fed may decide to “overshoot” the inflation-neutral NAIRU to force inflation back up to target.This in itself could become ever more crucial in the months to come. In short, it echoes exactly the same sort of dilemma Alan Greenspan faced all the way back in 1996. Do you raise rates despite little obvious inflationary pressure and risk stagnating growth? Or do you give the notion of a “new economy” — the idea that technological change is fuelling a boom in productivity and alleviating inflationary pressures — the benefit of the doubt?Janet Yellen, it must be said, is uniquely positioned to make that call if she is confirmed. Not only was she there the first time around, she may have had more input on Greenspan’s ultimate decision than many remember. Call it something akin to mea culpa dotcom crash hindsight
The Fed’s Low Rate Message Is Sinking In -- Sometimes it’s newsworthy when something doesn’t happen. That’s the case in the past few days in interest rate futures markets, where investors are betting short-term interest rates will stay extraordinarily low far into the future. During the summer, as the Federal Reserve talked about pulling back on its $85 billion monthly bond-buying, investors in the futures markets saw that as a signal the Fed would raise short-term interest rates sooner than previously expected. Now investors expect the Fed to hold the line on rate increases even though expectations have reemerged that it will begin to scale back its bond buying in the next few months. Consider, for example, the December 2014 fed funds future contract. Trading in this contract suggests investors expect the federal funds rate – an overnight borrowing rate — to be 0.165% on average during the month of December 2014. The expected fed funds rate had reached 0.49% in early September. In the Eurodollar futures markets, where investors make trades based on where they see 3-month borrowing rates, the expected rate is 0.41%, compared to an expected rate of 0.85% in early September.
Yellen Says Economy Performing ‘Far Short’ of Potential - Janet Yellen, nominated to be the next chairman of the Federal Reserve, said the economy and labor market are performing “far short of their potential” and must improve before the Fed can begin reducing monetary stimulus. “A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases,” Yellen, the Fed’s vice chairman, said in testimony prepared for her nomination hearing tomorrow before the Senate Banking Committee. “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.” The remarks show Yellen is committed to the central bank’s strategy of attempting to boost the economy and lower 7.3 percent unemployment, more than four years after the economy began to recover from the longest and deepest recession since the Great Depression. She also signaled support for capital and liquidity rules to help reduce the perception that some banks are too big to fail.
Q3 GDP and October Employment: A Continuing Recovery From a Hugely Costly Recession (15 graphs accompany text) This week brought a wealth of new readings on the economy with the nearly simultaneous release of the first estimates of GDP for the third quarter from the BEA and the October Employment Situation report from the BLS. Both showed an economy that is steadily improving in spite of significant obstacles created by the global economic environment and by the political environment in Washington. We begin this post with a summary of the the labor market data, followed by the estimates of third quarter GDP. We finish with an updated estimate of the costs of this recession to date. The size of the loss is the most sobering information in this post.
Q3 2013 GDP Details: Residential Investment increases, Commercial Investment very Low - The BEA released the underlying details for the Q3 advance GDP report Friday. The first graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, Brokers’ commissions and other ownership transfer costs, and a few minor categories (dormitories, manufactured homes). A few key points:
1) Usually the most important components are investment in single family structures followed by home improvement. However home improvement has been the top category for twenty consecutive quarters, but that is about to change. Investment in single family structures should be the top category again soon.
2) Even though investment in single family structures has increased significantly from the bottom, single family investment is still very low - and still below the bottom for previous recessions. I expect further increases over the next few years.
3) Look at the contribution from Brokers’ commissions and other ownership transfer costs. This is the category mostly related to existing home sales (this is the contribution to GDP from existing home sales). If existing home sales are flat, or even decline due to fewer foreclosures, this will have little impact on total residential investment.
Economic False Positives - A first look at US third quarter 2013 GDP and October Jobs Reports gives the impression that the US economy is mending and might soon begin to recover. But a closer inspection shows that the reports indicate an economy still mired in a ‘stop-go’ trajectory at best and a jobs market able to produce low pay, often contingent service jobs. Moreover, trends within the reports suggest even the already tepid results in the reports will likely wane, once again, in the coming quarter and months. Here’s why. The official, preliminary GDP numbers for July-September indicate a 2.8% US growth rate. The truth is always in the details, however. And a closer look at the composition and trends within GDP are nowhere near so rosy. First and most important, no less than 0.71 of that 2.8% is due to what is called inventory accumulation by nonfarm businesses, which rose more than twice as fast as the 0.30 in the second quarter 2013 following a mere 0.06% in the first quarter. In other words, businesses have been accelerating their stocking up of goods in anticipation of a subsequent rise in consumer household spending in the U.S. However, as indicated below, that spending is decelerating rapidly—not rising—and along several fronts. It would not be the first time in the past few years that businesses falsely anticipated the take off of consumer spending and ramped up prematurely, only to have to contract just as dramatically when spending did not materialize. Another problem with the recent 2.8% GDP 3rd quarter 2013 number is that it reflects a major redefinition of what constitutes GDP that was introduced this past July 2013 by the Bureau of Economic Analysis, the US agency responsible for GDP reporting. In that change and redefinition, the BEA added for the first time business Research & Development costs to the business investment contribution to GDP. In other words, ‘costs’ not ‘output’, as previously has always been the case, now contribute to GDP. This was clearly one way to artificially raise what has been a declining trend in US business investment in the US for the past decade. Applying the redefinition retroactively, this GDP redefinition added no less than $550 billion to 2012 GDP last year. And for the most recent quarter, it added further to US GDP’s 2.8% rate.
September's 8.0% Trade Deficit Increase Should Lower Q3 GDP -- The U.S. September 2013 monthly trade deficit jumped from last month with a 8.0% increase and now stands at -$41,778 billion. August was revised just slightly lower by $100 million to -$38,701 billion. The jump in the trade deficit should lower Q3 GDP upon the next revision. We estimate the September trade deficit will lower Q3 GDP by 0.3 percentage points. Graphed below are imports and exports graphed and by volume, note the global trade collapse in 2009 due to the recession. Imports are in maroon and exports are shown in blue, both scaled to the left. We can also see what bad trade treaties has wrought by the below graph as well as the implosion to global trade the great recession wrought. The September trade deficit should lower Q3 GDP which was originally reported to be 2.8% growth. In the advance GDP report real goods imports increased 1.8% while real goods exports increased 6.4%. The advance GDP report showed an annualized $1,394.7 million in real good exports with a $1,998.4 million in real goods imports for Q3. For Q2 the BEA reported $1,373.4 real goods exports and $1,989.6 real goods imports. Real means adjusted for inflation using 2009 chained dollars. Calculating the new Q3 real goods figures using the Census accounting method, there were $1,979.5 million real goods imports with $1,398.9 million in real goods exports. For Q2 we get $1,391.6 million in real goods exports and $1,964.3 million in real goods import, annualized.. This gives a Q3 2.1% change in real exports with a 3.1% change in real imports, a far cry from the originally reported change for real goods in the GDP report. Doing a reality check with the real goods trade figures reported on a Census basis, we get a 6.6% change in real imports and a 10.2% change in exports for Q2. The BEA reported a 9.4% change in real goods exports and a 7.5% change in real goods imports. The reason for the difference between the BEA's figures and our estimates from Census tables are import and export price deflators. Import and export price indexes are a magic sauce used to adjust for price differentials of imports and exports from various regions and we did not adjust with these indexes. This is why our figures do not match exactly what the effect revisions and the September trade figures will have on GDP.
Why Stronger Summer GDP Is Horrible News- Horrible news: gross domestic product growth over the summer may have been even stronger than we first thought. Some economists now say the U.S. economy likely grew above a 3% annual rate in the third quarter, higher than the government’s initial reading of 2.8%, after a report Friday showed a larger-than-expected gain in certain September inventories. J.P. Morgan Chase and Barclays economists upgraded their estimates to 3.1%. Pierpont Securities economist Stephen Stanley pegged the growth rate at 3%. Macroeconomic Advisers boosted their tracking estimate to a whopping 3.3% A 3% pace would be the fastest since the first quarter of 2012, marking a modest improvement for an economy that has largely been stuck in a sluggish 2% expansion since the recovery began in mid-2009. GDP growth has exceeded 3% only four times since the recession’s end. But the development is a perfect example of how the headline figures in economic reports often obscure troubling trends below the surface. The buildup in inventories, for example, essentially means many goods produced by the economy over the summer went unsold, and are now left on stores’ shelves. Meantime, a Commerce Department report Thursday showed the government likely underestimated the negative impact of the trade deficit in its third-quarter GDP estimate. The U.S. trade gap with other countries widened 8% in September from August, as exports fell and imports climbed, the agency said Thursday. The takeaway: With inventories now stocked at higher-than-expected levels, firms will have less incentive to order more goods from factories in the fourth quarter unless sales pick up significantly. Many economists expect fourth-quarter GDP growth to clock in at a rate of between 1.5% and 2%–in other words, back to the same sluggish pace that’s marked most of the four-plus year recovery. Some predict even slower growth.
Chicago Fed: "Economic activity slightly improved in September" - The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic activity slightly improved in September: The Chicago Fed National Activity Index (CFNAI) increased to +0.14 in September from +0.13 in August. The index’s three-month moving average, CFNAI-MA3, increased to –0.03 in September from –0.15 in August, marking its seventh consecutive reading below zero. September’s CFNAI-MA3 suggests that growth in national economic activity was slightly below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year. emphasis added This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967. Click on graph for larger image. This suggests economic activity was slightly below the historical trend in September (using the three-month average).
Chicago Fed: Slightly Stronger Economic Growth In September -The US economy grew a bit faster in September, according to today’s delayed update of The Chicago Fed National Activity Index, a macro benchmark based on 85 indicators. "The index’s three-month moving average, CFNAI-MA3, increased to –0.03 in September from –0.15 in August, marking its seventh consecutive reading below zero," the Chicago Fed reports. Although the expansion remains a touch "below trend," as indicated by CFNAI-MA3’s marginally negative value, the current -0.03 level is the highest since February. That's a sign that economic growth, while still moderate, shows no imminent signs of deterioration, or so the September numbers suggest. CFNAI-MA3's rise to -0.03 for September is a modestly stronger improvement than expected, based on The Capital Spectator’s average econometric forecast. Meanwhile, three of the four main categories of indicators that comprise the Chicago Fed National Activity Index delivered positive contributions in September. Based on the guidelines published for this index, today’s update shows that recession risk was low in September. The current -0.03 level of CFNAI-MA3 value is well above the critical -0.70 mark. Only when CFNAI-MA3 falls below -0.70, after a period of economic expansion, would a decline reflect "an increasing likelihood that a recession has begun," .
Chicago Fed: Economic Activity Slightly Improved in September "Economic Activity Slightly Improved": This is the headline for today's release of the Chicago Fed's National Activity Index for September. The index is positive for the second consecutive month after being negative (meaning below-trend growth) for five consecutive months and 12 of the last 19. Here are the opening paragraphs from the report: The Chicago Fed National Activity Index (CFNAI) increased to +0.14 in September from +0.13 in August. Two of the four broad categories of indicators that make up the index increased from August, and three of the four categories made positive contributions to the index in September. The index's three-month moving average, CFNAI-MA3, increased to –0.03 in September from –0.15 in August, marking its seventh consecutive reading below zero. September's CFNAI-MA3 suggests that growth in national economic activity was slightly below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year. The CFNAI Diffusion Index increased to +0.05 in September from –0.06 in August. Forty-seven of the 85 individual indicators made positive contributions to the CFNAI in September, while 38 made negative contributions. Forty-two indicators improved from August to September, while 43 indicators deteriorated. Of the indicators that improved, 11 made negative contributions. [Download PDF News Release] The Chicago Fed's National Activity Index (CFNAI) is a monthly indicator designed to gauge overall economic activity and related inflationary pressure. It is a composite of 85 monthly indicators as explained in this background PDF file on the Chicago Fed's website. The index is constructed so a zero value for the index indicates that the national economy is expanding at its historical trend rate of growth. Negative values indicate below-average growth, and positive values indicate above-average growth. The first chart below shows the recent behavior of the index since 2007. The red dots show the indicator itself, which is quite noisy, together with the 3-month moving average (CFNAI-MA3), which is more useful as an indicator of the actual trend for coincident economic activity.
The 40-Year Slump - Since 1947, Americans at all points on the economic spectrum had become a little better off with each passing year. The economy’s rising tide, as President John F. Kennedy had famously said, was lifting all boats. Productivity had risen by 97 percent in the preceding quarter-century, and median wages had risen by 95 percent. As economist John Kenneth Galbraith noted in The Affluent Society, this newly middle-class nation had become more egalitarian. The poorest fifth had seen their incomes increase by 42 percent since the end of the war, while the wealthiest fifth had seen their incomes rise by just 8 percent. Then, it all stopped. In 1974, wages fell by 2.1 percent and median household income shrunk by $1,500. To be sure, it was a year of mild recession, but the nation had experienced five previous downturns during its 25-year run of prosperity without seeing wages come down. What no one grasped at the time was that this wasn’t a one-year anomaly, that 1974 would mark a fundamental breakpoint in American economic history. In the years since, the tide has continued to rise, but a growing number of boats have been chained to the bottom. Productivity has increased by 80 percent, but median compensation (that’s wages plus benefits) has risen by just 11 percent during that time. The middle-income jobs of the nation’s postwar boom years have disproportionately vanished. Low-wage jobs have disproportionately burgeoned. Employment has become less secure. Benefits have been cut. The dictionary definition of “layoff” has changed, from denoting a temporary severance from one’s job to denoting a permanent severance.
Why U.S. Economic Growth is Getting Harder - The formula for economic growth is clear enough: more workers, improved human capital as measured in education and experience, high levels of capital investment, and ongoing adoption of new technologies, all mixed together in a market-oriented economic environment that provides incentives for work and innovation. The problem for the U.S. economy is that all of these factors are looking shaky for the decade or two ahead. Brink Lindsey lays out the issues in "Why Growth Is Getting Harder,". For example, when it comes to the quantity of labor in the U.S. economy, it's become well-known that that the share of adults who have jobs or are looking for them--the "labor force participation rate"--has been dropping for most of the 21st century and dropping faster in the Great Recession and its aftermath. Lindsey offers an interesting graph of per capital hours worked. This measure takes into account changes in the share of adults working, as well as changes in the work week. Looking at this graph, and thinking about the ongoing retirement of the Baby Boom generation, it's hard to think that a surge in hours worked will be a main driver for future US economic growth.When it comes to capital investment, it's been true for decades that the US is a low saving and low investment economy by the world standards. Maybe at some point in the future these trends will turn, so that Americans save more and the U.S. government borrows substantially less, both leading to more funds for domestic investment. But it's hard to look at this long-run pattern and think that a surge of saving and physical capital investment will be a main driver for long-run U.S. growth.
Slowing the growth of U.S. debt - Martin Feldstein - The recently established House-Senate budget negotiating committee presents the opportunity to solve two major national problems: preventing the future explosion of the national debt and increasing current growth and employment. These problems have to be solved together. Because monetary policy can do very little to stimulate demand, to have faster growth and more jobs, we need a program of infrastructure spending and pro-investment tax changes. But it would be irresponsible to add to the near-term deficit without limiting the future growth of the national debt, which otherwise threatens the long-term health of the U.S. economy. Although the increased revenue resulting from the 2012 tax law and the sequester-driven spending cuts have together reduced the near-term budget deficit, the national debt remains above 70 percent of gross domestic product, double its pre-recession level. The debt ratio will stay at that level for the next few years but begin rising rapidly as the aging population drives up the cost of Social Security and Medicare. The Congressional Budget Office (CBO) estimates that absent changes to spending or taxes, the U.S. budget deficit will exceed 100 percent of gross domestic product (GDP) by 2038 — and continue rising. Under the CBO’s more realistic “alternative fiscal scenario,” it could be nearly twice as high by 2038. Preventing an explosion of the national debt requires slowing the growth of the benefits of middle-class retirees. All other forms of government spending on defense and non-defense programs have been cut to the lowest share of GDP in four decades.
America is $17 Trillion in Debt — Here’s Why You Shouldn’t Be Worried -- Daily and dogmatically, politicos and pundits bemoan the size of the “national debt.” “Who will pay for this reckless spending?” they grieve. Surely, the youth — students, our children and grandchildren — will inherit our collective sins. Fix the Debt and The Can Kicks Back howl that increasing outlays today require higher taxes and suffering down the road. Hearing such cries, many young people don “fiscal responsibility” as a mantle of maturity.Despite the appeal of such posturing, it’s utterly unwarranted — even harmful. The U.S. government can’t “go broke.” Ever. The government doesn’t face the same fiscal pressures as you or me. The U.S. fiat currency isn’t pegged to gold or other currencies, and there’s no hard cap on dollars in the world. Hence, there’s no inherent affordability issue. It's common to ask Washington to "balance its checkbook," but although the government faces constraints like inflation, it can always lend or spend money into existence. Congress can only “default” voluntarily — for example, by not raising the debt ceiling.You may disagree that this should be the case, but it’s been operational reality since 1971. As Fed Chairman Ben Bernanke has indicated, when the government spends, the Treasury simply asks the Federal Reserve to credit and debit bank accounts with keystrokes. The dollars don’t come from anywhere (not taxes, not bonds).
U.S. October budget deficit $92 billion: Treasury -- The U.S. government recorded a budget deficit of $92 billion in October, the Treasury Department reported Wednesday. Receipts were $199 billion, an October record and an 8% increase from the same month a year ago. Spending was $291 billion, a decrease of 5%. October is the first month of the government's fiscal year, which runs through September.
To shoot oneself in the foot, US Treasury style - Definition here. It’s something that comes to mind when reading Gillian Tett’s latest on who really owns the bulk of the Treasury market. As Tett notes, referencing the work of Sandy Hager, a postdoctoral research fellow at the London School of Economics: Back in the 1970s, for example, the richest 1 per cent of Americans “only” held 17 per cent of all the federal bonds that were in private sector hands. This was partly because during the second world war and in the immediate aftermath there was a strong attempt to distribute Treasuries widely. But since the 1980s, the proportion of debt owned by the top 1 per cent started to rise sharply, hitting 30 per cent in 2000 and 42 per cent in 2013. The last time it was this high was in 1922, when the ratio was 45 per cent. Which needless to say exposes the real Achilles heel of a political movement calling for lower debt levels, less government intervention and “default if we don’t get our way! ” while being backed by some of the wealthiest one percenters in the US.That is presuming, of course, that the most cunning of the Tea Party billionaires haven’t countered the trend by diversifying their wealth into something less dollar-based. As Tett notes, what matters the most is the polarisation in society that this creates. The rich now have a greater interest than usual in fiscal reform because they think this is a means to preserving the sanctity and reputation of their wealth. Millions of poor Americans, on the other hand, don’t have any skin in the default game at all. That said, they do remain the clearest beneficiaries of the government spending associated with that debt.
What If China Dumps US Treasury Bonds? Paul Krugman inches toward MMT - Randy Wray - Our deficit hysterians love to raise the specter of China. Supposedly Uncle Sam is at the mercy of the Chinese, who have a stranglehold on the supply of dollars necessary to keep the US government above water. Can anyone, please, explain to me how the sovereign issuer of the US dollar—Uncle Sam—could ever run out of his supply of dollars? Please, give me one coherent explanation of how that could happen. So far as I know, every single dollar the Chinese have comes from the USA. There are two sources: US lending and US spending. China loves the second: Chinese work hard to produce stuff to sell to America so they can get dollars. Folks, all the dollars the Chinese have came from the US. There is no net supply of dollars from China. They get dollars from net exports to the US. These end up at the Bank of China. The Bank of China rationally prefers to earn interest on dollar holdings, so these are converted to US treasuries. This is nothing more than a balance sheet operation on the books of the Fed: Bank of China reserves at the Fed are debited and Bank of China treasuries are credited. There’s no net flow of dollars to the US Treasury. If the fear mongers are correct, China might decide to reverse that operation: exchange the treasuries for reserves at the Fed. And then, who knows what. Maybe China will choose to buy Greek treasuries? I doubt it, but so what. There are plenty of holders of Greek treasuries who want to unwind into the safest asset in the world—Uncle Sam. If China wants to play the dupe, there are plenty of others willing to take the other side.
A deficit of deficit credibility -- As Izzy said recently, ‘deficit’ continues to be a dirty word in the US (despite *those* findings…) which makes this paragraph from Andrew Smithers either raunchy or worrying:As retained profits of corporate business in Q2 2013 amounted to 2.3% of GDP, it seems likely that they would fall to near zero if the CBO’s forecast for the fiscal deficit were to prove accurate and such a fall is likely to be accompanied by large falls in dividends. It’s a sectoral, chart heavy, analysis which bears repeating. The basic idea is that in the national accounts, the cash surpluses and deficits of the household, business, foreign and government sectors must add up to zero. One surplus or deficit has to be balanced out somewhere else. So if the CBO says the Federal Budget deficit will fall by 2 percentage points of GDP over the next two years (estimates vary, granted) there must be an equal fall in the combined cash surpluses of other sectors of the economy.Smithers notes that in the past the offsetting fall in cash flow has occurred predominantly in the business sector (he’s assuming there’s not going to be real help coming from the cash flows of the household and foreign sectors) and argues that “this pattern is highly likely to be repeated over the next few years”.
Sizing Up the Fiscal Future - Simon Johnson - From the tone and volume of some voices during the recent fiscal confrontation in Washington, you might draw the implication that the United States has a clear and pressing need to reduce its budget deficit. Yet in any objective sense, much of the anxiety about fiscal issues is greatly exaggerated. There are some longer-term issues to be confronted, mostly related to the aging of American society. But the precise scale of those problems is hard to determine with great precision from 20-to-40-year forecasts. How much of a fiscal adjustment should you make because long-term forecasts do not look good? A little, yes, but it would be wise not to overreact. The best place to start any analysis of federal government finances is with publications of the Congressional Budget Office. The C.B.O.’s latest long-term forecast appeared in September, and the headline numbers are not rosy. Federal government debt held by the private sector – the right measure on which to focus – will rise to above 100 percent of gross domestic product by the late 2030s. There is a great deal in this report that is both sensible and sobering. For example, the C.B.O. now does its own forecasts of life expectancy, rather than relying on estimates published by the Social Security trustees. In the C.B.O.’s view, average life expectancy (at birth) will be 84.9 years in 2060 (see Box A-1 on Page 106). That’s great news – the current number is 82.8 years (for a male born this week) – but also has implications for the budget, as this person will draw a pension from Social Security. (You can learn more than you might want to know about your life expectancy, based on your current age, from the Social Security Administration website.)
Why The Most Important Budget Event Of The Year Has Had No Impact -- I'm willing to bet that most of you -- part of a readership that is far more interested in the federal budget than any group of typical Americans -- didn't know that the deficit was significantly lower in fiscal 2013 than it was in 2012. For the record, the Treasury reported a little over a week ago that the 2013 deficit was $680 billion, a 38 percent drop from the approximately $1.1 trillion deficit in 2012 and 48 percent less than the $1.4 trillion deficit in 2009. The 2013 deficit was 4.1 percent of GDP, the smallest since 2008. Fiscal 2013 was the fourth consecutive year the deficit has fallen as a percent of GDP. And the 4.1 percent-of-GDP deficit was almost a third less than the 6.0 percent that had been projected when the White House submitted its fiscal 2014 budget to Congress less than 6 months ago. This actually was an extraordinary change in the deficit outlook and one that merited more than the perfunctory attention it received.
Fed’s Yellen: Balance Budget Effort in 1990s Set Model for This Congress -- Janet Yellen said Congress should look toward the deal struck in the 1990s as a guide for how to reduce federal spending without harming the economy. President Bill Clinton and Republican lawmakers balanced the federal budget in a way “that I think would set a model for this Congress,” Ms. Yellen said during the hearing before the Senate Banking Committee to be the next leader of the Fed. She was an economic adviser to President Clinton. “We didn’t see an adverse impact because fiscal tightness was phased in over a number of years,” she said. That stands in contrast to the current Congress. Lawmakers allowed deep, across-the-board budget cuts to come into place earlier this year and have so far failed to reach a broader consensus on tax and spending policy. “Some of the near-term reductions in spending that we have seen have certainly detracted from the momentum of the economy and demand,” she said. Ms. Yellen said it would be helpful “for deficit-reduction efforts to focus on achieving gains in the medium-term horizon while not subtracting from the impetus that we need to keep a fragile recovery moving forward.”
Martin Feldstein Doesn't Get The Joke -Eminent economist Martin Feldstein, former chairman of the Council of Economic Advisors during the Reagan Administration, had an op-ed in The Washington Post earlier this week that shows he just doesn't understand what's happening with the budget conference.Here's the money quote: The key to a political compromise is to recognize that raising revenue does not require increasing tax rates. Substantial revenue could be raised by limiting the government spending built into the tax code." Feldstein accurately notes that this would give congressional Democrats enough of what they want in a budget deal to agree to changes in mandatory programs, especially "slowing the growth of Social Security and Medicare." But this analysis is based on Feldstein totally misreading the current budget tea leaves. He is assuming that there is a desire to compromise on the budget in Congress and that there's a strong desire to come up with a new significant deficit reduction plan that, in Feldstein's words, "would cause the national debt to grow more slowly than GDP until the ratio of debt to GDP is again down to 50 percent." Feldstein's math may be true but his understanding of the politics of the current budget debate absolutely is wrong. There is little to no interest in a major additional deficit reduction plan on Capital Hill at the moment.
Expect Lots Of Budget Smoke, Little Fire Over Next 2+ Months - House and Senate budget conferees will formally get together again this week. This will be their first meeting since the ceremonial opening session on October 30 featured nothing more than politically self-serving opening statements, Expect nothing to happen at this meeting...unless you believe that a further hardening of the positions each side stated at the last meeting represents something happening. it's simply too early in the process for anyone to offer a concession of any kind. The meeting will also be way too public for anything like a serious discussion, let alone an actual negotiation, to take place. As I've said before, a budget conference committee of 29 representatives and senators is so unlikely to be able to agree on anything that, unless they want to go hungry, they had better delegate to a single staffer the authority to decide what to order for lunch. That's especially true if the lunch discussion takes place in an open hearing where CSPAN and others are broadcasting the deliberations. Expecting little to happen should be the mantra for everyone following the budget events scheduled for the next few months. Here, in chronological order, is what's ahead.
Democrats will fight for infrastructure investment and unemployment benefits in budget talks - Greg Sargent reports that Democrats are looking ahead to the upcoming budget talks, ready to fight for several key priorities:“We’re going to be focused on stepping up our investment in infrastructure, on replacing the job killing sequester, and on extending unemployment,” Dem Rep. Chris Van Hollen, a top party strategist and the ranking Dem on the House Budget Committee, told me. “If we don’t address that issue, more than a million Americans who are still looking for work will have no means of supporting their families.”Important priorities, all. Investing in infrastructure both creates jobs and makes it less likely that bridges collapse into rivers. The sequester—well, "job killing sequester" is about the size of it. And with the jobless rate stubbornly high and not enough jobs to go around, unemployment benefits are vitally important for helping struggling families make ends meet, not to mention that unemployment funding provides economic stimulus. One of the "compromises" the Ezra Klein wing of the punditocracy is floating for Democrats to offer involves giving up on getting new revenue, since Republicans remain hysterically opposed to even the most popular tax on those who can afford it most. This, of course, falls into the category of "why would you compromise in advance when dealing with a party that will just see that as weakness and demand more" as well as the self-evident stupid policy category. And, Sargent reports, Van Hollen is not on board with the idea. So the budget fight won't be easy, but at least it sounds like congressional Democrats are starting out in the right place.
Could there be a bipartisan truce on infrastructure? - Could there be a bipartisan truce on infrastructure? Just a week after the shutdown ended, House Republicans who were blasting Democrats on spending overwhelmingly passed an infrastructure bill to repair the country’s waterways, at the cost of an estimated $8.2 billion. Now President Obama has re-upped his $50 billion plan to invest in the country’s aging ports, bridges, and power lines. Though a plan of such magnitude is unlikely to pass any time soon, infrastructure projects could become a priority in the current 2014 budget talks. “We should be building, not tearing things down,” Obama said in New Orleans on Friday, criticizing the recent government shutdown for interfering with an economy that is finally showing some signs of life. “These self-inflicted wounds don’t have to happen, we shouldn’t be endangering ourselves–we should be investing.” Obama stressed the need to make investments to bolster growth, reviving the plan he proposed earlier this year to close tax loopholes to pay for infrastructure spending. “We’re relying on old stuff. We shouldn’t just have old stuff—we should have some new stuff,” the president said, citing the need for a modernized air traffic control system, ports, power grids, and bridges. “The longer we delay, the more we’ll pay—the sooner we take care of business, the better,” he added, listing a farm bill and immigration reform as other priorities.
Squeezing Federal Spending - Is spending out of control in Washington? The answer depends on how you define your terms. There’s enough data to spin this any way you want. But let’s try to be objective. What we’ll find is a spending trend of late that’s in decline. It’s anyone’s guess if this will endure. As always, the answer relies on political decisions, which are constrained at the moment due to the automatic budget cuts that are currently the law of the land. For now, let’s consider what the current numbers tell us about the trend in budgetary matters.Federal net outlays, measured on a year-over-year basis, are in retreat at the moment. As Michael Darda at MKM Partners observed last week in a research note (pdf), we’ve recently witnessed the “sharpest fiscal compression since the 1950s.” The decline isn’t unprecedented, but it’s a rare bird in post-World War II history. As Darda reminds, the last time the annual pace of federal outlays went negative was during the demobilization after the Korean War. Turning to federal net outlays as a percent of US GDP offers a slightly different perspective, but here too we can see that spending relative to the economy is trending lower. Outlays dropped to roughly 21.8% of GDP through the end of the 2012 fiscal year. That’s the lowest since FY 2008 and roughly in line with levels from the early 1980s.
Debts, Deficits, and Social Security: Once Again - Now as most of us know the U.S. government has run budget deficits in almost all years for decades. But there was a brief exceptional period in the late 90′s when the top line figure for the federal budget showed a surplus on a combined basis between ‘on budget’ and ‘off budget’ surplus/deficits. Moreover in FY 1999 we saw surpluses in both the General Fund and in Off Budget Funds, which latter primarily consisted of increases in assets to the Social Security Trust Funds. Now it doesn’t take a genius to figure out that surpluses on both the General Fund and Off Budget/Social Security sides should result in a reduced number for ‘Total Public Debt Outstanding’ and we could easily confirm that by entering the dates for the last day of FY 1998 and FY 1999 into the Treasury’s Debt to the Penny website. Please be my guest. OOps when I did it I got the following results:
September 30, 1998 $5,526,193,008,897.62
September 30, 1999 $5,656,270,901,633.43
Yes indeed. In FY 1999 the General Fund ran a surplus, and Social Security ran a surplus, and the combined figure for THE Federal deficit/surplus was a surplus. Yet ‘Total Public Debt Outstanding’ went UP by $130 billion. And the explanation is actually pretty easy. But so too is the following conclusion: Public Debt is NOT the Sum of Federal Deficits. The two figures track but are NOT identical. Which has implications for the debate over Social Security. Because certain debt and deficit numbers just don’t move in the ways that ‘simple’ logic would have it. And so too certain proposals to move those numbers by programmatic cuts.
Social Security: Do We Need a Grand Bargain? - Despite having run large cash-flow surpluses for decades and despite being disallowed by law from paying benefits in excess of what current receipts and past surpluses allow, Social Security is often dragged into discussions of “grand bargains” to reduce long-run projected budget deficits. GOP proposals for Social Security reform generally call for benefit reductions and no revenue increases. President Obama’s recent budget proposals have unfortunately also included benefit cuts with no new revenue dedicated specifically to Social Security (though there is significant new revenue overall in his proposals). In the context of Social Security reform and retirement security policy in general, however, this formula of targeting long-run actuarial balance for Social Security primarily through benefit cuts makes little sense, either substantively or politically. Substantively, the 401(k) revolution has been considerably less than even a qualified success, with inequality of retirement assets growing over time. Politically, recent polls confirm that Americans do not want lower Social Security benefits and are even willing to pay for keeping benefits at current levels (or even higher). In a 2013 Pew Research Center poll, 87 percent of the respondents thought Social Security spending should remain the same or be raised. A poll by the National Academy of Social Insurance shows that 82 percent of Americans support increasing Social Security taxes on workers and 87 percent support raising taxes on the wealthy.Proposals for Social Security reform include using “chained” CPI to calculate annual cost-of-living adjustments, increasing the “normal” retirement age, increasing the eligibility age, and privatization. Let’s examine each of these in turn.
Medicare: Do We Need a Grand Bargain? - For those professing concern over long-run budget deficit projections, it makes some sense to focus on Medicare, as health care expenditures (public and private) have been increasing faster than GDP for several years. Net spending on Medicare is projected to grow from about 3 percent of GDP today to 5 percent by 2030, according to the Congressional Budget Office. Rather than looking at this as a problem with the overall U.S. health care system in containing costs, many in Congress view it simply as a federal government spending problem and do not realize (or care) that squeezing Medicare will shift the cost elsewhere. But much like cuts to Social Security, simply cutting back the benefits offered by Medicare makes no sense substantively or politically. Substantively, Medicare actually does a better job than private insurers at containing health costs. So shifting costs onto households and off Medicare is simply inefficient. Politically, most Americans do not want Medicare spending reduced, with 82 percent supporting increased spending or no spending change. However, when faced with specific reforms to reduce spending on Medicare, 60 percent support reducing benefits for high-income seniors, but only 35 percent support raising the eligibility age. Proposals for Medicare reform include means-testing, raising the eligibility age, and vouchers/premium support. Let’s examine each of these in turn.
Taxes: Do We Need a Grand Bargain? - Almost everyone agrees that broadening the tax base is good tax policy, and it is at the heart of all tax reform proposals. Holding all else equal, base broadening will increase tax revenues. The big question in Washington is what to do with the additional tax revenues? The GOP wants to use all of the revenues to decrease tax rates, lowering top tax rates to 25 percent. Most Democrats want some or all of the revenues to go for deficit reduction. The GOP and President Obama want to reduce the 35 percent corporate tax rate. Further, many GOP policymakers want tax reform to be distributionally neutral—that is, not affect the after-tax distribution of income. The public, however, appears to have different ideas regarding taxes. According to an April 2013 Gallup poll, 61 percent of Americans think that upper-income people pay too little in taxes. Furthermore, 66 percent think corporations pay too little in taxes. Slightly over half of the respondents (52 percent) agreed that the government should “redistribute wealth by heavy taxes on the rich.” All this suggests that the public is not too keen on the idea of distributionally neutral tax reform. Instead, most Americans want the wealthy to bear a greater share of the tax burden, and almost surely would not want revenue raised by closing tax loopholes to finance cuts in top income tax rates. The House, the Senate, and the president are far from agreement on whether or not additional revenue will be part of any “grand bargain.” In fact, GOP insistence that not a single penny be raised on net from tax changes has been a constant sticking point in negotiations (and Rep. Paul Ryan reiterated this stance recently). Most people think the tax code could be substantially improved by reform. And there is talk that tax reform instructions could be part of an agreement produced by the budget conference committee, so it’s worth looking at some of the issues and proposals for income tax changes.
54 Million Federal Tax Returns Had No Income Tax Liability in 2011 - The percentage of nonpayers (taxpayers who owe zero income taxes after taking their credits and deductions) began to climb significantly after the Tax Reform Act of 1986, which increased the value of the standard deduction and nearly doubled the size of the personal exemption. But the number of nonpayers has soared in recent years because of the expansion and creation of credits such as the Earned Income Tax Credit, the Child Credit, and various energy and education credits. In 2011, roughly 54 million federal income tax filers had no income tax liability after deductions and credits. This amounts to 37 percent of the roughly 145 million tax returns filed that year. While high, this is not as high as 2009 when 58 million income tax filers, nearly 42 percent, were nonpayers. By contrast, the low point for nonpayers was 1969, when only 16 percent of filers had no income tax liability.
A Carbon Tax Would Cut The Deficit By $1 Trillion - A carbon tax of $25 per ton of emissions would cut the deficit by $1 trillion over a decade, according to the Congressional Budget Office (CBO). The finding was part of a report CBO just put out detailing 103 different ways — in terms of both cutting spending and raising revenue — the U.S. government could reduce its deficit. At a total haul of $1.06 trillion by 2021, the carbon tax was far and away the biggest deficit reducer of any option listed. It’s a policy that enjoys widespread support amongst politicians, industry spokespersons, economists, and polling of the general public. But it’s also on the legislative back-burner — save for efforts by Rep. Henry Waxman (R-CA) and a handful of other concerned legislators — while the Obama Administration attempts to cut carbon emissions through the regulatory authority of the Environmental Protection Agency. But a carbon tax would be conceptually simpler, would leave businesses free to figure out how they want to reduce their emissions, and would incentivize them to find the most cost-effective way to get those cuts. The regulatory route doesn’t provide that same flexibility, though it comes with greater certainty (as does a cap-and-trade system) in how much carbon emissions will go down. With the tax, government sets the price and then finds out how much emissions drop. Specifically, CBO modeled a tax of $25 for every ton of carbon put out by most sectors of the economy, including electricity generation, manufacturing, and transportation. The tax would increase at a rate of two percent every year, adjusted for inflation. As a result, CBO projected carbon emissions would fall ten percent from their current level.
President Obama Taps Another Wall Street Law Firm Partner to Head a Regulator - President Obama is about to do it again – appoint one of those revolving door Wall Street lawyers to head a critical top post at one of Wall Street’s key regulators. This time it’s the Chair of the Commodity Futures Trading Commission (CFTC). According to multiple leaks in the business press today, this afternoon the President will nominate Timothy Massad to head the CFTC – a man who spent 27 years at Cravath, Swaine & Moore, a core part of Wall Street’s legal muscle. Massad is not coming directly from Cravath this time around. On June 30, 2011, Massad was confirmed by the U.S. Senate to serve as the Department of Treasury’s Assistant Secretary for Financial Stability. If confirmed to head the CFTC, Massad will play a critical role in the regulation of derivatives, an area that has received heavy pushback from his former law firms’ clients. The agency is also involved in investigating major Wall Street firms for rigging the Libor interest rate benchmarks and collusion on the pricing of foreign currencies. Investigations of other potential commodity manipulations are also underway.
Why it matters who regulates Wall Street - Today, President Obama is going to nominate a new head of a major financial regulatory agency. His job, unfortunately, will largely be to avoid making ripples and enforce new regulations that Wall Street lobbyists have written. The president's nominee is Timothy Massad, a former Wall Street securities lawyer who joined the Treasury Department a few years back to help run the bank bailouts. He's an administration insider, and in his new position he's unlikely to be as controversial as the man he's replacing. That man, Gary Gensler, has run what is America's smallest, and yet maybe its most important, agency to protect against future financial crises: the Commodity Futures Trading Commission, or CFTC. The CFTC, under Gensler, has been a darling of the few remaining policymakers who listened to the complaints of Occupy Wall Street. The agency has been largely openly antagonistic towards Wall Street in the sense that it has insisted on more regulation of derivatives, the Jekyll-and-Hyde financial instruments that are as speculative as they are about reducing risk. The financial crisis showed us that derivatives, which are meant to help investors hedge against risk, are often abused as vehicles of profitable speculation. The question that is before Congress right now is: how do you allow derivatives while curbing the abuse?
Elizabeth Warren vs. the Democratic elites | MSNBC - Chris Hayes discusses Senator Warren's keynote at a Roosevelt Institute and Americans for Financial Reform conference on financial reform.
Elizabeth Warren: The System Is Broken - Four seminal events occurred yesterday which carry dramatic overtones for next year’s midterm elections and the Presidential race in 2016. U.S. Senator Elizabeth Warren delivered a speech warning her Congressional colleagues in strident tones that Wall Street is now more dangerous than it was five years ago when it crashed. Warren, again, called for the restoration of the Glass-Steagall Act to prevent another financial calamity.Gallup released a poll showing the approval rating of Congress had fallen to nine percent, the lowest reading in the 39 years the firm has been asking the question.A Quinnipiac University poll reported President Obama’s popularity has fallen to the lowest point of his presidency, with a majority of Americans, 54 percent, now disapproving of his performance. And, finally, Americans for Financial Reform together with the Roosevelt Institute issued a 126-page report in conjunction with the speech by Senator Warren, outlining their own dire predictions for financial stability under the current Wall Street structure. Eleven separate scholars contributed to the study, including Jennifer S. Taub, whose upcoming book, Other People’s Houses: How Decades of Bailouts, Captive Regulators, and Toxic Bankers Made Home Mortgages a Thrilling Business will be available from Yale Press in 2014.
Elizabeth Warren to Regulators, Congress: End ‘Too Big to Fail’ - It’s been more then five years since the financial sector collapsed, triggering a deep recession that many Americans are still struggling to shake off. Not so the big banks. They’re larger, more powerful and more dangerous than ever before, Senator Elizabeth Warren warned Tuesday at an event examining the state of financial reform since the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010.Warren’s speech was an indictment not only of the financial institutions that “have fought to delay and hamstring the implementation of financial reform,” after “exploiting consumers, larding their books with excessive risk, and making bad bets,” but also of the regulators and lawmakers—many from her own party—who are refusing to hold the financial sector to account. “Who would have thought five years ago, after we witnessed firsthand the dangers of an overly concentrated financial system, that the ‘too big to fail’ problem would only have gotten worse?” Warren said.
Judge Rakoff Blasts Breuer, Prosecution of Companies Rather than Individuals in Bar Speech - Yves Smith - Absent sitting on the Supreme Court, it is difficult for a single judge to effect much change. Yet Jed Rakoff, in sending the SEC back to the woodshed in two separate cases over its failure to get factual admissions, meaning admissions of misconduct, on civil settlements of SEC cases, singlehandedly embarrassed the SEC and the Department of Justice into seeking these statements (for instance, numerous media reports indicate that the Administration wants that sort of confession as part of its pending settlement with JP Morgan). Rakoff threw down another gauntlet in a New York Bar Association speech on Tuesday. I’m taking the liberty of quoting it at length because his rebuke is a breath of fresh air and roused the Department of Justice to issue a “we really are doing our job” response. But if, by contrast, the Great Recession was in material part the product of intentional fraud, the failure to prosecute those responsible must be judged one of the more egregious failures of the criminal justice system in many years. Rakoff then pointed to the fact that the FCIC and numerous government officials had discussed fraud in connection with the crisis and went further: While officials of the Department of Justice have been more circumspect in describing the roots of the financial crisis than have the various commissions of inquiry and other government agencies, I have seen nothing to indicate their disagreement with the widespread conclusion that fraud at every level permeated the bubble in mortgage-backed securities. He then goes through their litany of excuses (his word). Ooh, it’s hard to pin fraud on top executives in big complex companies! Poppycock, says Rakoff: Who, for example, were generating the so-called “suspicious activity” reports of mortgage fraud that, as mentioned, increased so hugely in the years leading up to the crisis? Why, the banks themselves.
Wall Street feeds the ravenous debt beast again - FT.com: Those were the days when underwriting standards had reached rock bottom, “cov-lite” entered the lexicon of Wall Street, and loans of dubious credit quality were repackaged into complex “investment grade” securities, tranched and sold on to yield-chasing investors. A naive observer might expect that the global financial crisis would have put paid to such practices. But “never again” is not a maxim of Wall Street. Here bankers operate under a more pragmatic rule, best described as “when the ducks quack, feed them”. The current era of permanently low interest rates has made the ducks hungrier than ever. Investors are desperately seeking income. Leveraged loans and high-yield bonds fill the bill. This year, for the first time in history, more than $1tn worth of such securities will be issued, according to JPMorgan, the bank. These risky loans and bonds are sold to retail investors through mutual funds and exchange traded funds, which have witnessed record inflows this year. They are packaged into collateralised loan obligations, which offer the buyers of equity tranches the prospect of a double-digit yield. Underwriting standards are deteriorating. Covenant-lite loans – that is, bank loans without restrictive covenants intended to protect creditors – accounted for around half of all new issuance this year. In the heady days of 2007, the cov-lite share of new issuance peaked at a mere 25 per cent.
Treasuries Not Good Enough as Swaps Collateral in CFTC Rule - Rules under consideration by federal regulators could require clearinghouses to back up Treasuries pledged as collateral in the $693 trillion over-the-counter derivatives market with credit lines, according to industry executives. The Commodity Futures Trading Commission, moving to toughen safeguards in a market blamed for worsening the credit crisis, is weighing a regulation that would mandate Treasury collateral be subject to a “prearranged and highly reliable funding arrangement,” according to documents on its website. Federal Reserve officials told banks and exchanges that the language means bonds must be covered by credit lines, according to three industry executives briefed on the matter. “CME estimates that liquidity facility costs would approximately double” if the rule is passed, according to a letter that CME Group Inc., owner of the Chicago Mercantile Exchange, sent to the CFTC. “These increased costs would likely either be passed on to end customers or cause many clearing members to exit the customer clearing business entirely.” While Treasuries are considered to be among the safest investments, policy makers are concerned liquidating them will require too much time during a crisis -- up to a day, according to a government official familiar with the Fed’s thinking. The 2008 financial crisis showed even that can be too long during times of stress.
Ex-Moody’s staff raise alarm over ABS ‘meltdown’ - FT.com: A former senior executive at Moody’s has warned that credit rating agencies are using “deluded” processes to calculate the risks of asset-backed securities. He fears this could trigger another financial meltdown. William Harrington, who spearheaded analysis on derivatives between 1999 and 2010 at Moody’s Investors Services, said rating agencies are “glossing over” risks when assigning ratings to asset-backed securities by failing to take into account adequate counterparty risk. He said: “It is a situation where you keep putting more untenable assumptions into the system, but little by little that story is unravelling. It might not take a counterparty default to create all the little leaks that cause the boat to sink.” Asset-backed securities, which include mortgage, credit-card and car loans bundled together, fuelled the financial crisis when the US subprime mortgage-backed security market collapsed in 2007. However, institutional investors such as pension funds and insurers, have begun to increase their exposure to ABS once again, as low interest rates force them to search for alternative sources of yield. Underpinning Mr Harrington’s fears is the fact that recent legal decisions in the US have failed to uphold “flip contracts”. They are written into structured finance deals to ensure that if a counterparty goes bankrupt, noteholders are given priority with payment obligations. This undermines the triple A ratings many asset-backed securities receive, according to Mr Harrington, creating “a major systemic problem that could lead to another asset-backed meltdown”.
Wall Street Isn’t Worth It - David Graeber’s denunciation of “bullshit jobs” resonated with many, producing a string of responses. Alex Tabarrok and Brad DeLong have suggested that the apparent inverse relationship between earnings and the social value of work done is simply an illustration of “diamond-water” paradox, that prices and wages are determined by marginal, rather than absolute values and that marginal values reflect scarcity as well as utility. Peter Frase refutes this claim in both empirical terms and as a resurrection of the discredited marginal productivity ethics of the 19th century. I’d like to look at a specific question raised by the discussion of private returns and social value, namely: can Wall Street, in its present form, be justified? That is, does the share of income flowing to corporations and professional workers in the financial sector reflect their marginal contribution to the total value of social output, so that, if their work ceased to be done and their skills were allocated elsewhere, we would all be worse off? I argue that society as a whole would be better off if the financial sector were smaller, and received much smaller returns. A political strategy based on cutting the financial sector down to size has more promise for the Left than any alternative approach now on offer, and is a necessary precondition for a broader attempt to make the distribution of wealth and power more equal.
U.S. Investigates Currency Trades by Major Banks - From their desks at some of the world’s biggest banks, traders exchanged a series of instant messages that earned them the nickname “the cartel.” Much like companies that rigged the price of vitamins and animal feed, the traders were competitors that hatched alliances for their own profits, federal investigators suspect. If those suspicions are correct, the group of traders shared a mission to alter the price of foreign currencies, the largest and yet least regulated market in the financial world. And ultimately, they flooded the market with trades that potentially raised the cost of currency for clients but aided the banks’ own investments. Now the instant messages, along with similar activity among other traders, are at the center of an international investigation into banks like Barclays, the Royal Bank of Scotland and Citigroup, according to recent public disclosures by the banks and interviews with investigators who spoke on the condition of anonymity. The investigators secured the cooperation of at least one trader, a development that has not been previously disclosed. Although the investigation is at an early stage, authorities are already signaling the likelihood of a legal crackdown. “The manipulation we’ve seen so far may just be the tip of the iceberg,” the United States Attorney General, Eric H. Holder Jr., said in a rare interview discussing an active investigation. “We’ve recognized that this is potentially an extremely consequential investigation.”
The Department of Justice’s Willful Blindness to the Willful Blindness of CEOs (Steve Cohen Edition) - Bill Black - The best thing that the Department of Justice (DOJ) could do immediately to restore faith in the criminal justice system is to prosecute Steven Cohen, the head of SAC. The indictment of SAC charges that many SAC officers committed crimes due to: “institutional practices that encouraged the widespread solicitation and use of illegal inside information.” That indictment supports that claim with detailed allegations. For example, paragraph 6 states that “employees were financially incentivized to recommend to [Cohen] ‘high conviction’ trading ideas” that would inherently come from insider information. Providing “high conviction” tips to Cohen was a job requirement and a code phrase that signaled to Cohen that he could invest his funds with confidence due to the insider information. Paragraph 7 observes that “the predictable and foreseeable result … was systematic insider trading.” Paragraph 11 explains that SAC investment managers had a duty to provide Cohen with “high conviction” deals and that Cohen made fulfilling this duty a top priority. Paragraph 13 explains that the managers’ bonuses largely depended on the “high conviction” tips they made to Cohen.Many paragraphs of the complaint provide examples of Cohen trading on the basis of insider information, exhibiting willful blindness in the face of strong indications that his managers are providing him with illegal tips, and making enormous profits or avoiding huge losses. Paragraph 2 indicates the resultant magnitude of Cohen’s wealth (over $9 billion).
How to Prosecute the Elite Bank CEO that Led the Frauds that Drove the Crisis -- William K. Black - Step one: Understand the three “control fraud” epidemics that drove the crisis. Control fraud occurs when the person that controls a seemingly legitimate entity uses it as a “weapon to defraud.” In finance, accounting is the “weapon of choice.” Lenders engaged in accounting control fraud display the four “ingredients” of the fraud “recipe.”
- Grow massively by
- Making loans at a premium yield that are so bad that they will produce losses
- Employing extreme leverage and
- Providing only trivial allowances for loan and lease losses (ALLL)
The recipe produces three “sure things.” The lender will report record profits in the near term, the controlling officers will promptly be made wealthy through modern executive compensation, and the firm will suffer catastrophic losses. The recipe is also an ideal means to hyper-inflate a financial bubble in real estate, which can delay loss recognition for many years. Minor variants on this recipe drove the savings and loan debacle and the Enron-era frauds. An honest home lender would never engage in two fraudulent loan origination practices that became epidemic – appraisal fraud and making endemically fraudulent “liar’s” loans.
The Looming Bond Fund Crash - Two charts in a recent presentation by Citi’s credit product strategist, Matt King, tell the story of a structural fault line in the financial markets. King illustrates how the assets of US mutual funds invested in investment grade and high-yield debt have trebled since 2008, from $300 to $900 billion, reflecting investors’ increasingly desperate search for interest income in low-rate environment. But the infrastructure supporting bond trading has weakened. The banks that act as intermediaries between the bond market’s buyers and sellers have seen their holdings drop from $286 billion to $69 billion—by 76 percent—to levels last seen in 2002. And King reminds us that bond prices are much more prone to jumps and “cliff effects” than share prices: as an example, note the 2006-08 behaviour of Lehman Brothers’ equity and of the company’s 2016 euro-denominated bond (illustrated in the chart below).
Default ‘Wave’ of $1.6 Trillion Looming for Junk, Fridson Says - Almost $1.6 trillion of junk bonds globally will default between 2016 and 2020, according to Martin Fridson, chief executive officer of New York-based FridsonVision LLC, a research firm specializing in speculative-grade debt. With historical evidence indicating default rates will surge between 2014 and 2016 and persist, implying a rate of more than 30 percent cumulative during four years, Fridson estimated in a report for Standard & Poor’s Capital IQ Leveraged Commentary and Data that the face value of total defaults will be $1.576 trillion. That’s a market value of $752 billion, according to Fridson, who started his career as a corporate debt trader in 1976. “When the default tidal wave eventually hits, it will be very big,” Fridson said in an e-mail. “No one realizes how much distressed debt is going to be available for investment when it finally hits.” The extra yield relative to government securities investors demand to hold the debt rated below Baa3 at Moody’s Investors Service and less than BBB- by Standard & Poor’s has widened to 438 basis points from 431 basis points on Nov. 1, the narrowest since May 22, according to the Bank of America Merrill Lynch U.S. High Yield Index. Junk defaults worldwide fell to 2.8 percent at the end of last month from 3.2 percent in October 2012, unchanged from September, according to a Moody’s report dated Nov. 8.
Banks may lose perk as Fed mulls cutting rate on excess cash - Talk that banks may lose an interest rate perk for parking excess cash with the Federal Reserve was revived on Thursday, after Janet Yellen said the U.S. central bank may consider cutting the rate. The Fed introduced the Interest on Excess Reserves rate (IOER) during the depths of the financial crisis in 2008 as a means of helping the central bank control short-term interest rates. Excess reserves at the Fed have ballooned to around $2.3 trillion, from near nothing before their introduction, Fed data shows. The Fed pays banks 0.25 percent interest on excess cash held at the Fed, much higher than the market Fed funds rate for banks lending to each other overnight, currently about 0.09 percent. The rate has been criticized, however, for encouraging banks to park cash idly with the central bank instead of using funds to lend to companies and consumers that many say is needed to stimulate the economy and reduce unemployment. Yellen, who has been nominated to succeed Fed chair Ben Bernanke at the end of January, said on Thursday that cutting excess reserves is "something that the FOMC has discussed, and the board has considered, on past occasions, and it is something we could consider going forward."
Need a corporate loan? Forget your bank - tap the shadow banking system instead - Here is a simple question: what percentage of US banks' balance sheets is taken up by loans to businesses? The answer may surprise some. It's just under 11.5%, down from about 16% some 10 years back. Banks began preferring real estate loans (particularly commercial real estate) to corporate credit in the early part of last decade. That didn't work out so well (see post). Since the financial crisis, banks' deleveraging sent the number to new lows. The percentage began to rise in 2011 but has stalled again this year.The result of Basel-based regulation since the 90s is the reliance on corporate ratings for capital requirements. Loans of companies without a strong rating or with no rating at all require significantly more capital to hold on balance sheets. And loans to companies with strong ratings pay such a low rate these days, it eats into banks' profitability. This is especially true for the middle market and lower middle market companies. Outside of basic inventory, equipment, and receivables short-term financing, banks remain cautious. It doesn't mean however that credit to companies is not available. In fact multiple lenders have been stepping into banks' domain. BDCs, CLOs, credit/mezzanine funds, bond funds, etc. have been providing credit to businesses in the US. That transformation to non-bank lenders over the past decade has been quite spectacular - especially in the middle market.When you hear all the pundits talk about "shadow banking", they usually miss the fact that most corporate loans now come from outside the banking system.
Occupy Wall Street activists buy $15m of Americans' personal debt - A group of Occupy Wall Street activists has bought almost $15m of Americans' personal debt over the last year as part of the Rolling Jubilee project to help people pay off their outstanding credit. Rolling Jubilee, set up by Occupy's Strike Debt group following the street protests that swept the world in 2011, launched on 15 November 2012. The group purchases personal debt cheaply from banks before "abolishing" it, freeing individuals from their bills. By purchasing the debt at knockdown prices the group has managed to free $14,734,569.87 of personal debt, mainly medical debt, spending only $400,000. "We thought that the ratio would be about 20 to 1," said Andrew Ross, a member of Strike Debt and professor of social and cultural analysis at New York University. He said the team initially envisaged raising $50,000, which would have enabled it to buy $1m in debt. "In fact we've been able to buy debt a lot more cheaply than that." These sales occur for a fraction of the debt’s true values – typically for five cents on the dollar – and debt-buying companies then attempt to recoup the debt from the individual debtor and thus make a profit. The Rolling Jubilee project was mostly conceived as a "public education project", Ross said. "We're under no illusions that $15m is just a tiny drop in the secondary debt market. It doesn't make a dent in the amount of debt."Our primary purpose was to spread information about the workings of this secondary debt market."
The Mis-guided Efforts of the Occupy Money Cooperative - The Occupy Money Cooperative (OMC) is one of the many groups that spun-off from the Occupy movement of 2011. Started by former British diplomat Carne Ross and a handful of banking and corporate professionals, the OMC's stated goal is to create a nationwide, member-owned financial institution. As a first step in this process, the Cooperative is now raising money to launch their own pre-paid debit card. While some have lauded this foray into the world of consumer finance, others have charged that the OMC is not offering anything of real value to the un-banked, much less anything truly revolutionary. And the critics have a point. While the Occupy Money card will have lower fees than comparable services, it will still be a pre-paid debit card, which are notoriously bad deals for consumers. Even with it's low (by industry standards) fees, the Occupy card will still charge customers to put money on the card or check their balance at an ATM. There's even a fee for having a withdrawal denied at an ATM. While the fee schedule for the Occupy card is somewhat better than those for comparable cards, it is obvious that an account at a credit union (or even a local bank) is far superior, and cheaper, than any pre-paid debit card, even one with the Occupy name on it.
Unofficial Problem Bank list declines to 661 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for November 8, 2013. Changes and comments from surferdude808: Very quiet week for the Unofficial Problem Ban List with only one removal that pushes the institutions list count to 661 with assets of $228.8 billion. It has been since the middle of July 2013 when there was such few changes to the list. A year ago, the list held 860 institutions with assets of $328.2 billion. Next week, we anticipate the OCC will release its enforcement action activity through mid-September 2013.
FHFA Will Secure Up to $28 Billion From Banks in Its MBS Lawsuit - David Dayen - An analysis at Bloomberg Law puts some numbers down that I hadn’t seen all in one place previously. The headline effort is to pin down what other banks being sued by the FHFA over mortgage-backed securities passed to Fannie and Freddie with poor underwriting will have to pay, given the standard set by the JPMorgan Chase settlement for $4 billion. The report, by Nela Richardson, actually botches that job by adding the $1.1 billion that FHFA simultaneously received from JPMorgan through reps and warranties on raw mortgages, and doing the calculations based on a $5.1 billion award. Only the $4 billion has anything to do with the lawsuit, which was about $33 billion in Fannie and Freddie purchases of MBS. In other words, FHFA netted about 12 cents on the dollar from JPMorgan. Redoing Richardson’s work, you can calculate how much that means other banks would be expected to pay FHFA in any settlement if they paid 12 cents on the dollar: GE Capital, Citi, Wells Fargo and UBS have already settled with FHFA in this case. The UBS deal was made public; it was $885 million, slightly above the JPMorgan benchmark (about 14 cents on the dollar). Wells disclosed in a regulatory filing that they paid $335 million. We can safely assume the Citi and GE settlements are in the ballpark of 12-14 cents on the dollar. The Wall Street Journal calculated the numbers based on a 13-cent expectation a few weeks ago. Overall, these numbers feel pretty accurate, as early leaks of the proposed Bank of America settlement are in line with the 12-cent figure. Adding everything up, you find that FHFA can expect to recoup anywhere between $24.5 billion and $28 billion from the 17 banks. That’s in cash, not some fake headline number with a significantly diminished value.
Bank of America Fined $864 Million for Mortgage Fraud - The U.S. government is seeking to have Bank of America Corp. pay nearly $864 million in damages after the company was found liable for mortgage fraud. U.S. attorney Preet Bharara filed a request Friday that said the fine estimated the total losses the government incurred from the thousands of defective loans it bought from Countrywide Financial during the housing boom. The request also asked that Rebecca Mairone, a former Countrywide executive, be hit with a penalty, the Associated Press reports. Bank of America, which acquired Countrywide in 2008, and Mairone were found liable of mortgage fraud for selling bad loans to government-controlled companies Fannie Mae and Freddie Mac between 2007 and 2008. The government said the penalties were necessary ”to send a clear and unambiguous message that mortgage fraud for profit will not be tolerated.”
JPMorgan Chase Reaches $4.5 Billion Settlement - JPMorgan Chase & Co. said Friday it has reached a $4.5 billion settlement with investors over mortgage-backed securities. The settlement covers 21 major institutional investors. The mortgage-backed securities were issued byJPMorgan and Bear Stearns between 2005 and 2008. New York-based JPMorgan acquired the failing investment bank Bear Stearns in March 2008. The deal is the latest in a series of legal settlements over JPMorgan’s sales of mortgage-backed securities in the years preceding the financial crisis. As the housing market collapsed between 2006 and 2008, millions of homeowners defaulted on high-risk mortgages. That led to billions of dollars in losses for investors who bought securities created from bundles of mortgages. Those securities were sold by JPMorgan and other big Wall Street banks. JPMorgan also has been negotiating with the U.S. Justice Department to settle a civil inquiry into its sales of mortgage-backed securities. The bank reached a tentative deal last month to pay $13 billion, but the negotiations have hit a stumbling block. As part of the $13 billion deal, $4 billion will resolve U.S. government claims that JPMorgan misled mortgage finance giants Fannie Mae and Freddie Mac about risky mortgage-backed securities. That part of the deal was announced on Oct. 25.
White House Economist: Federal Mortgage Backstop Needed in Overhaul - The government should provide an explicit federal guarantee of certain mortgage-backed securities in order to ensure mortgages are available “at reasonable rates in good and bad economic times,” a top White House economist said in a speech Wednesday that sketched out in greater detail the Obama administration’s aims of any replacement of Fannie Mae and Freddie Mac. Private investors should stand at the center of a revamped housing-finance market because private sector competition can provide better prices and services for consumers, said James Stock, a member of the White House Council of Economic Advisers. “But financial markets are not perfect,” he said. “And the government has a role in reducing the impact of financial-market failures on real economic activity, especially when those failures are exacerbated by a cyclical downturn.” Mr. Stock said any overhaul must include features that make the market “cyclically resilient,” or able to withstand market downturns without the kind of collapse that forced the government to take over Fannie and Freddie in 2008. The speech didn’t specify what kind of institutions should take the place of Fannie and Freddie, or how those institutions should be structured. Fannie and Freddie don’t make mortgages but instead buy them from lenders and bundle them together, issuing them as securities to investors. They also provide guarantees to make investors whole when borrowers default. Those roles have helped create deep, liquid markets for mortgage bonds and have facilitated the broad availability of the 30-year fixed-rate mortgage.
Why Wall Street Hedge Funds are Trying To Force Treasury to Hand Over Fannie Mae and Freddie Mac - When mortgage giants Fannie Mae and Freddie Mac were taken over by the Bush Administration in 2008, the nearly $200 billion bailout was the largest in history. Since that time however, and aided by the rapid recovery of the housing market, the two housing giants have once again become profitable, and as of last week they had paid the government in dividends an amount equal to to the original bailout. Don’t call it payback though. The federal government still owns the 80% stake in the companies it bought five years ago, and the risk taxpayers took in 2008 when it bought those stakes entitles them to far more than just getting their money back. That being said, the government is surely glad that Fannie and Freddie are throwing off cash once again, especially as it’s helping dampen the budget deficit. But not everyone is pleased about Fannie and Freddie’s newfound profitability, or at least that the money is going in Treasury coffers. According to a report today in the Financial Times, a group of private investors are preparing to put forward a proposal which would transfer the housing giants back into private hands, and ultimately end a dispute over the remaining privately-held Fannie and Freddie stock which was not eliminated during the original bailout.
Lawler: Preliminary Table of Distressed Sales and Cash buyers for Selected Cities in October - Economist Tom Lawler sent me the preliminary table below of short sales, foreclosures and cash buyers for several selected cities in October. First, from Lawler on October sales: While I don’t yet have enough local data to produce a precise estimate of national existing home sales for October, my “best guess” right now based on the data I have is that existing home sales (as measured by the NAR) ran at a seasonally adjusted annual rate of 5.08 million in October, down 4.0% from September’s seasonally-adjusted pace. It’s worth noting that pending sales in most areas showed substantially slower YOY growth in October compared to September, and quite a few areas showed a YOY drop – suggesting that November sales could be weak/down as well. Look at the first two columns in the table for Short Sales Share. Short sales are down sharply from a year ago, and will probably really decline in early 2014. It appears that the Mortgage Debt Relief Act of 2007 will not be extended again next year. Usually cancelled debt is considered income, but a provision of the 2007 Debt Relief Act allowed borrowers "to exclude certain cancelled debt on [a] principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief." (excerpt from IRS). This relief expires on Dec 31, 2013. Complete all short sales by the end of this year! Total "Distressed" Share. In most areas that have reported distressed sales so far, the share of distressed sales is down year-over-year. Also there has been a significant decline in foreclosure sales in all of these cities. The All Cash Share (last two columns) is mostly declining year-over-year. When investors pull back in markets like Phoenix (already declining), the share of all cash buyers will probably decline.
Lawler: Updated Table of Distressed Sales and Cash buyers for Selected Cities in October - Economist Tom Lawler sent me an updated table below of short sales, foreclosures and cash buyers for several selected cities in October. On short sales from CR: Look at the first two columns in the table for Short Sales Share. Short sales are down sharply from a year ago, and will probably really decline in early 2014. It appears that the Mortgage Debt Relief Act of 2007 will not be extended again next year. Usually cancelled debt is considered income, but a provision of the 2007 Debt Relief Act allowed borrowers "to exclude certain cancelled debt on [a] principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief." (excerpt from IRS). This relief expires on Dec 31, 2013. Complete all short sales by the end of this year! Total "Distressed" Share. In all areas that have reported distressed sales so far, the share of distressed sales is down year-over-year. Also there has been a significant decline in foreclosure sales in most of these cities. The All Cash Share (last two columns) is mostly declining year-over-year. When investors pull back in markets like Phoenix (already declining), the share of all cash buyers will probably decline. In general it appears the housing market is slowly moving back to normal.
Beware The Looming "Wave Of Disaster" From Home Equity Payment Resets - Of all the screwed up, misallocated parts of the U.S. economy, the housing market continues to be one of the biggest potential train wrecks. While the extent of the insanity in residential real estate should be clear following the article I published yesterday, there are other potential problems just on the horizon. One of these was written about over the weekend in the LA Times. In a nutshell, the next several years will start to see principal payments added to interest only payments on a large amount of second mortgages taken out during the boom years. The estimate is that $30 billion in home equity lines will reset next year, $53 billion in 2015, and then ultimately soaring to $111 billion in 2018.From the LA Times:Some mortgage and credit experts worry that billions of dollars of home equity credit lines that were extended a decade ago during the housing boom could be heading for big trouble soon, creating a new wave of defaults for banks and homeowners. That’s because these credit lines, which are second mortgages with floating rates and flexible withdrawal terms, carry mandatory “resets” requiring borrowers to begin paying both principal and interest on their balances after 10 years. During the initial 10-year draw period, only interest payments are required. But the difference between the interest-only and reset payments on these credit lines can be substantial — $500 to $600 or more per month in some cases.According to federal financial regulators, about $30 billion in home equity lines dating to 2004 are due for resets next year, $53 billion the following year and a staggering $111 billion in 2018. Amy Crews Cutts, chief economist for Equifax, one of the three national credit bureaus, calls this a looming “wave of disaster” because large numbers of borrowers will be unable to handle the higher payments.
MBA: Mortgage Applications decrease 1.8% in Latest Weekly Survey - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly SurveyMortgage applications decreased 1.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 8, 2013. This week's results are compared to a revised level from last week. That decline, initially reported as -7.0 percent, was revised to -2.8 percent....The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. ...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.44 percent, the highest level in a month, from 4.32 percent, with points increasing to 0.44 from 0.42 (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 slightly over the last two months as rates have declined from the August levels. However the index is still down 59% from the levels in early May. The second graph shows the MBA mortgage purchase index.
Vital Signs: Refi Activity Runs Out of Steam --Applications to refinance a mortgage have fallen sharply since mortgage rates started rising last spring. Even though interest rates have slipped back, refi activity remains low compared to earlier activity. For the week ended November 8, refi applications are down about 57% from year ago levels. The Federal Reserve had hoped their policy of keeping long-term interest rates low would allow many homeowners to refinance their existing loans. Lower monthly house payments would free up money that could be spent elsewhere. The strategy worked in previous years, but that source of cash seems to be drying up in the second half of 2013.
Freddie Mac: Fixed Mortgage Rates Climbing - From Freddie Mac today: Fixed Mortgage Rates Climbing Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates moving higher for the second consecutive week on stronger than expected data releases including the employment report for October. The 30-year fixed-rate mortgage is at its highest level since September 19, 2013, when it averaged 4.50 percent. ... 30-year fixed-rate mortgage (FRM) averaged 4.35 percent with an average 0.7 point for the week ending November 14, 2013, up from last week when it averaged 4.16 percent. A year ago at this time, the 30-year FRM averaged 3.34 percent. 15-year FRM this week averaged 3.35 percent with an average 0.7 point, up from last week when it averaged 3.27 percent. A year ago at this time, the 15-year FRM averaged 2.65 percent. The high this year for 30 year rates in the Freddie Mac survey was 4.58%, and the high for 15 year rates was 3.60%. This graph shows the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey® compared to the MBA refinance index. The refinance index dropped sharply earlier this year, and then rebounded a little (down 59% from early May).
Mortgage Payments Rise To 40% Of Consumer Incomes: A Five Year High - Still think houses are extremely affordable? Still think rents, especially for rental stream-securitized offerings by Blackstone et al to widows and orphans , will continue rising in perpetuity? Think again. As the following chart from Bloomberg Brief shows, mortgage payments as a % of average consumer incomes has risen to 40%, up from the higher 20% as recently as a year ago, is still rising, and is now back to levels last seen in 2008. Bloomberg has more: The average monthly mortgage payment Mortgage Payments Now 40 Percent of Average Consumer Incomes for a new home in the U.S. rose by $300 between December and August, providing a potential red flag for U.S. Federal Reserve officials debating when to reduce their special asset purchases. The rise was due to a combination of rising home prices and mortgage rates. In August an average monthly mortgage payment of $1,287.57 equates to about 40 percent of consumers’ average income, up from 31 percent in December, placing additional strain on household finances. While this jump is substantial, it is still far below the housing bubble peak of 65 percent registered in June 2006.
Downpayment requirements fall for 30-year, FRMs -- Downpayment requirements on 30-year, fixed-rate purchase mortgages continued to decline as home prices rose, LendingTree claimed in a new report. n"Lenders are putting more focus on purchase mortgages and are adjusting minimum requirements to attract borrowers," said Doug Lebda, LendingTree founder and CEO. "With home values improving, the risk of borrowers defaulting on loans has decreased, giving lenders more confidence to lend with less cash down from qualified borrowers." Click here for a helpful infographic.
Weekly Update: Housing Tracker Existing Home Inventory up 2.2% year-over-year on Nov 11th -- Here is another weekly update on housing inventory ... for the fourth consecutive week, housing inventory is up year-over-year. This suggests inventory bottomed early this year.There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer. The Realtor (NAR) data is monthly and released with a lag (the most recent data was for September). However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years. This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012 and 2013. In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year. Inventory in 2013 is now above the same week in 2012 (red is 2013, blue is 2012). We can be pretty confident that inventory bottomed early this year, and I expect the seasonal decline to be less than usual at the end of the year - so the year-over-year change will continue to increase.
FNC: House prices increased 6.2% year-over-year in September -- From FNC: FNC Index: Home Prices Show Fastest Quarterly Growth Since Recovery Began The latest FNC Residential Price Index™ (RPI) shows strong growth of home prices during the third quarter of 2013 as the housing recovery continues to broaden across the country. The index, constructed to gauge the price movement among the underlying non-distressed home sales, increased 2.5% between the second and third quarters, making the third-quarter growth the fastest in the current recovery. Rising home sales and relatively low foreclosure sales are the key drivers of continued increases in home prices. As of September, foreclosure sales nationwide accounted for 13.4% of total home sales, up slightly from August’s 12.7% but down from 16.6% a year ago. Based on recorded sales of non-distressed properties (existing and new homes) in the 100 largest metropolitan areas, the FNC 100-MSA composite index shows that September home prices increased from the previous month at a seasonally unadjusted rate of 0.5%. On a year-over-year basis, home prices were up a modest 6.2% from a year ago, or 5.7% if measured quarterly. The 30-MSA and 10-MSA composites exhibit similar month-over-month price momentum but faster accelerations in year-over-year growth at 6.7% and 6.8%, respectively. This graph shows the year-over-year change for the FNC Composite 10, 20, 30 and 100 indexes. Even with the recent increase, the FNC composite 100 index is still off 25.4% from the peak.
Obamacare’s Tax on Home Sales is Nothing New - There is a news story floating around called “Little-Known Tax Funding Obamacare,” from My9NJ news. The story reports on an Affordable Care Act tax on those who sell their home: “if you are single with an adjusted gross income of $200,000 or file jointly with an income of $250,000 or more, you may be impacted. Once you sell your home, any profits over the first $500,000 are already subject to a capital gains tax. And now those profits will have an additional 3.8% tax to fund Obamacare.” While it is true that the media has not discussed this at length, the existence of the tax was well-known late last year and earlier this year. This “net investment tax” is an additional 3.8 percent tax levied on the sale of any asset that results in a capital gain as long as your adjusted gross income is over $200,000 for singles and $250,000 for married couples. This includes the sale of homes over a certain value. In a report we published in February of this year, we outlined the effect of this tax plus the expiration of parts of the Bush Tax Cuts on marginal tax rates on capital gains.
Why the Blind Optimism Behind the Housing Recovery Won't End Well: The news headlines are saying the U.S. housing market is witnessing robust growth and flipping homes for profit is back. While many are now saying there is growth in the U.S. housing market and that it will continue, I disagree with them, based on many different factors...all of which I want my readers to know about. Yes, home prices have gone up, but that's about it for positive developments. The housing market still suffers, and there are problems that need to be fixed before it sees a full-on recovery. The delinquency rate on single-family residential mortgages in the U.S. remains staggeringly high. In the second quarter of this year, it was 9.41%. Yes, again; it has declined from its peak of 11.27% in the first quarter of 2010, but it's still almost 140% higher than its historical average of 3.94%! As I have been harping on about in these pages; institutional investors jumped into the U.S. housing market buying residential homes in bulk, and as a result, prices increased. But we didn't see first-time home buyers run towards the housing market—an increase in first-time home buyers is essential for any economic recovery.
U.S. Homeownership Rate Fell in Postrecession Period - The U.S. homeownership rate fell by 1.7 percentage points to 64.7% in the 2010-2012 period, versus the previous three-year period, according to new data to be released Thursday by the U.S. Census Bureau. Among the nation’s most populous 50 counties, Arizona’s Maricopa County, which includes Phoenix, saw the largest decline in the homeownership rate, which decreased by 4.7 percentage points. New York’s Westchester County, immediately north of New York City, saw the smallest such decline, at 0.4 percentage point. Oklahoma City was the only metropolitan area among the country’s 50 largest metro areas that didn’t see any decline in the homeownership rate in the three-year period ending in 2012, compared to the three-year period ending in 2009. Thursday’s report analyzes data from the Census Bureau’s American Community Survey for 2010-12. The District of Columbia and New York had the lowest homeownership rates, at 41.6% and 53.9%, respectively. West Virginia had the nation’s highest homeownership rate, at 72.9%.
'Generation Wait': Share of young adults who move hits 50-year low - U.S. mobility for young adults has fallen to the lowest level in more than 50 years as cash-strapped 20-somethings shun home-buying and refrain from major moves in a weak job market. Among adults ages 25-29, just 4.9 million, or 23.3 percent, moved in the 12 months ending March 2013. That's down from 24.6 percent in the same period the year before. It was the lowest level since at least 1963. The peak of 36.7 percent came in 1965, during the nation's youth counterculture movement. Demographers say the delays in traditional markers of adulthood — full-time careers and homeownership — may prove to be longer-lasting. Roughly 1 in 5 young adults ages 25 to 34 is now disconnected from work and school. The overall decline in migration among young adults is being driven largely by a drop in local moves within a county, which fell to the lowest level on record. While homeownership across all age groups fell by 3 percentage points to 65 percent from 2007 to 2012, the drop-off among adults 25-29 was much larger — more than 6 percentage points, from 40.6 percent to 34.3 percent.
Just Released: Deleveraging Decelerates and Household Balances Increase - NY Fed - Today, the New York Fed released the 2013:Q3 Quarterly Report on Household Debt and Credit. The data show the first substantial increase in outstanding balances since 2008, when Americans began reducing their debt. As of September 30, 2013, total consumer indebtedness was $11.28 trillion, up 1.1 percent from its level in the previous quarter, although still considerably below the peak of $12.67 trillion in 2008:Q3. This quarter, the increase was boosted by nearly across-the-board growth. Balances on mortgages, auto loans, student loans, and credit cards all increased. Balances on home equity lines of credit (HELOCs) were the only exception, with a $5 billion decrease. To better convey the implications of these balance changes, this post briefly updates our previous deleveraging analyses. Delinquency rates overall have been steadily improving since the crisis. Overall 90+ day delinquency rates are at 5.3 percent, much improved from the peak of 8.7 percent reached during 2010:Q1. New foreclosures have finally reached precrisis levels and are now at the lowest levels since 2005, with 168,000 individuals seeing a foreclosure notation added to their credit reports in 2013:Q3.
NY Fed: Household Debt increased in Q3, Delinquency Rates Improve - Here is the Q3 report: Household Debt and Credit Report Aggregate consumer debt increased in the third quarter by $127 billion, the largest increase seen since the first quarter of 2008. As of September 30, 2013, total consumer indebtedness was $11.28 trillion, up by 1.1% from its level in the second quarter of 2013. Overall consumer debt remains 11% below its peak of $12.68 trillion in 2008Q3.Mortgages, the largest component of household debt, increased by 0.7% in the third quarter of 2013. Mortgage balances shown on consumer credit reports stand at $7.90 trillion, up by $56 billion from their level in the second quarter. Balances on home equity lines of credit (HELOC) dropped by $5 billion (0.9%) and now stand at $535 billion. Household non-housing debt balances increased by 2.7%, with gains of $31 billion in auto loan balances, $33 billion in student loan balances, and $4 billion in credit card balances....About 355,000 consumers had a bankruptcy notation added to their credit reports in 2013Q3, roughly flat compared to the same quarter last year.Here are two graphs from the report: The first graph shows aggregate consumer debt increased in Q3. This suggests households (in the aggregate) may be near the end of deleveraging. If so, this is a significant change. The second graph shows the percent of debt in delinquency. In general, the percent of delinquent debt is declining, but what really stands out is the percent of debt 90+ days delinquent (Yellow, orange and red).
The Latest on Real Disposable Income Per Capita - Earlier today I posted my latest Big Four update which included Friday's release of the September data for Real Personal Income Less Transfer Payments. Now let's take a closer look at a rather different calculation of incomes: "Real" Disposable Personal Income Per Capita. The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. This indicator has been significantly disrupted by the bizarre but not unexpected oscillation caused by 2012 year-end tax strategies in expectation of tax hikes in 2013. The September nominal 0.45% month-over-month and 2.18% year-over-year numbers put us above the trend we saw near the end of last year prior to the forward pull of income and subsequent plunge to manage expected tax increases. However, when we adjust for inflation, the real MoM change is trimmed to 0.36%, and the real YoY is a less encouring 1.24%. The BEA uses the average dollar value in 2009 for inflation adjustment. But the 2009 peg is arbitrary and unintuitive. For a more natural comparison, let's compare the nominal and real growth in per capita disposable income since 2000. Nominal disposable income is up 55.5% since then. But the real purchasing power of those dollars is up only 18.9%.
What’s “Scarce” These Days? Borrowers, Spenders, and (Hence) Profitable Investments. - What’s scarce these days? Certainly not supply. In an 80%-service economy suffering high unemployment and a unprecedentedly low labor/population ratio, higher demand for massages is not gonna slam against resource-supply constraints. And in the goods sector, there’s just-in-time inventory/supply chains (making it essentially a service industry). If Apple gets an extra million iPhone orders, supply constraints won’t prevent those orders being filled (or cause a price increase). So what is scarce? Borrowers. Spenders. People to buy those massages and iPhones. I’ve gone on at length about the shortage of loan demand, even in the depths of the so-called “credit crunch.” (See Related Posts at the bottom of that post for yet more.)How about spenders? Let’s consider what it could be, could have been. If wages had increased since the 70s at the same rate as worker’s productivity, median wages today would be about $90,000 a year — nearly double what they in fact are.You really gotta ask: would there be more spending (hence demand, hence production) if that reality were…today’s reality?Would savers and entrepreneurs have more incentive to invest in risky ventures if hundreds of millions of Americans were enjoying those kinds of incomes, and spending to match? As Francis Coppola, John Aziz, and others have been explaining at length of late, economics today should be concentrating on the study of abundance.
Wal-Mart Sales Dip as Low Income Americans Curtail Spending - Walmart posted its third straight quarterly decline in United States sales on Thursday, pushing its stock price down 1.3 percent in pre-market trading and signaling a reluctance to spend among the company’s low-income customer base.U.S. sales at the world’s largest retailer, including both in-store and online, declined 0.3 percent in the third quarter ending Oct. 31. “That low-end customer is just not willing to step out and buy those discretionary items,” an analyst told Reuters. With an end to the payroll tax holiday and stagnating wages, low-income customers have been reluctant to open their wallets.
Real reason stores are opening on Thanksgiving - It used to be the only consumption that took place on Thanksgiving happened around the dinner table. But retailers are changing the game. Target (TGT) announced Monday that it will open at 8 p.m. on Thanksgiving, Best Buy (BBY) announced Friday that it will open at 6 p.m., and Kmart (SHLD) announced last week that it will open at 6 a.m. on Thanksgiving and not close until 11 p.m. on Black Friday. They’re some of the dozens of other retailers, including Macy’s (M) and Walmart (WMT) that over the past few years have chosen to open on Thanksgiving. The message is clear: Turkey Day is now just another shopping day. According to data from comScore, online spending on Thanksgiving Day increased 32% from 2011 to 2012 (and over the past five years has increased 132%). Meanwhile Black Friday online spending increased just 28% over last year and 96% over the past five years and Cyber Monday spending increased 17% over last year and 100% over five years. “Thanksgiving has become a marquee day for online shopping,” .
Hotel Occupancy Rate increases 2.5% year-over-year in latest Survey -From HotelNewsNow.com: STR: US results for week ending 9 November
The U.S. hotel industry posted positive results in the three key performance measurements during the week of 3-9 November, according to data from STR. In year-over-year measurements, the industry’s occupancy increased 2.5 percent to 64.1 percent. Average daily rate rose 3.1 percent to finish the week at US$111.35. Revenue per available room for the week was up 5.7 percent to finish at US$71.34.The 4-week average of the occupancy rate is close to normal levels.Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average for the year 2000 through 2013.
Good Month for Wholesale Sales in September 2013 - September 2013 wholesale sales and inventories data had a good month. This data series is very noisy, and has been on a roller coaster of one good month / one bad month. Consider that the rolling average of sales growth is accelerating while inventories are within acceptable ranges for periods of expansion. Econintersect Analysis:
- unadjusted sales rate of growth accelerated 3.9% month-over-month
- unadjusted sales year-over-year growth is up 6.8% year-over-year
- unadjusted sales (but inflation adjusted) up 4.9% year-over-year
- the 3 month rolling average of unadjusted sales accelerated 1.4% month-over-month, and up 6.1% year-over-year
- unadjusted inventories up 2.3% month-over-month, inventory-to-sales ratio is 1.19 which is historically is mid-range for non-recessionary periods for Septembers.
US wholesalers boost stockpiles for 3rd month - U.S. wholesalers increased their stockpiles in September for the third straight month, an indication that they expect more demand from businesses and consumers. Wholesale stockpiles rose a seasonally adjusted 0.4 percent, the Labor Department said Friday. That follows an increase of 0.8 percent in the previous month. August’s increase was the highest in seven months. Sales at wholesale businesses rose 0.6 percent in September, up from 0.4 percent in August. Stockpiles of computer equipment and machinery increased. Inventories of consumer items such as groceries, clothing and beer, wine and other alcoholic beverages also rose. Strong restocking helped drive the economy’s 2.8 percent annual growth rate in the July-September quarter. Rising stockpiles contributed 0.8 percentage point to growth. Rising stockpiles boost growth because it means factories have produced more goods. And rising sales among wholesalers shows businesses are unlikely to get caught with too many unsold goods on their shelves.
U.S. wholesale inventories rise in line with forecasts - (Reuters) - U.S. wholesale inventories rose in line with expectations in September, reinforcing the view that much of the strength in economic growth during the third quarter came from businesses restocking their shelves. The Commerce Department said on Friday wholesale inventories rose 0.4 percent in September, matching the median forecast in a Reuters poll of analysts. Gross domestic product expanded at a 2.8 percent annual pace in the July-September period, though nearly a third of that growth came from inventory building. Most analysts expect a significant slowdown in the fourth quarter and for businesses unwind some of that restocking. A government shutdown that left hundreds of thousands of people out of work for weeks in October is expected to also dent fourth quarter growth. Wholesale inventories in September were boosted by a sharp increase in stocks of professional equipment and computers, while dealers reduced stocks of autos in their dealerships. Sales at wholesalers increased 0.6 percent, beating economists' expectations.
The Big Mac Economy: How the Hamburglar Stole the GDP (New Update) - Extending our research on the use of the Big Mac Index, as created by The Economist, we applied the rise in the price of a Big Mac in relation to the overall economy. While Big Mac prices rose over last year, they declined the past three months. The burger, as a representation of GDP, may be stealing more than calories from consumers. Last week the Bureau of Economic Analysis (BEA) reported that the economy grew 2.8%. This was above the 2% expected, and increased from 2.4% in the second quarter of 2013. Despite the better than expected headline, there was underlying weakness. As Wells Fargo Economics Group indicated "Once again, real GDP headlines misrepresent the pace of growth. GDP rose 2.8 percent in Q3, but underlying demand was 2.0 percent with consumer spending and housing pluses. Inflation came in high at 1.9 percent."For the first time in years, the deflator used for inflation was reasonably close to the Consumer Price Index (CPI). When looking at GDP with all its components, we can see that companies ramped up spending on inventories and government spending improved slightly after several months of decline. Doug Short graphically represents the components of GDP. Inflation boosts the growth rate of each of the components of GDP. When the price of food or gasoline increases, GDP increases. This is more accurately called "real" GDP. Thanks to The Economist, we have come to look at the price of the Big Mac as a good indication of inflation. The Big Mac includes beef, dairy (cheese), wheat (bun), cost of labor, and the cost of real estate. As a result, I believe it is a good representation of inflation. However, our analysis of the Big Mac indicates that the escalation of the price of a Big Mac has grown in recent quarters much faster than the official government rate of inflation (CPI-U). Consequently, here is a view of GDP in light of our analysis of prices using the Big Mac Index.
The oil choke collar disengages: gas prices near 3 year low - As you all know by now, I think one of the big hidden stories in the economy for the last decade has been the Oil choke collar, where growth causes energy prices to spike, causing growth to slow, causing energy prices to decline, meaning that energy prices have acted as a governor limiting US economic growth in particular. Several years ago, I suggested that trends in exploration, efficiency, alternative fuels and conservation would finally have enough combined impact that the choke collar might start to disengage in 2013. It looks like that is happening. In the last few days, gas prices have declined to the point where gas is no cheaper than at any point in 2011 and 2012. It is at a near 3 year low, as shown on this graph from Gas Buddy:
September 2013 Trade Gap is $41.8 Billion - BEA: The U.S. monthly international trade deficit increased in September 2013 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit increased from $38.7 billion in August (revised) to $41.8 billion in September as exports decreased and imports increased. The previously published August deficit was $38.8 billion. The goods deficit increased $3.0 billion from August to $61.3 billion in September; the services surplus decreased $0.1 from August to $19.5 billion in September.Exports of goods and services decreased $0.4 billion in September to $188.9 billion, reflecting decreases in exports of goods and exports of services.
- • The decrease in exports of goods reflected decreases in industrial supplies and materials, in other goods, and in consumer goods that were mostly offset by an increase in foods, feeds, and beverages.
- • The decrease in exports of services reflected a decrease in travel. An increase in other transportation, which includes freight and port services, was partly offsetting.
- Imports of goods and services increased $2.7 billion in September to $230.7 billion, reflecting an increase in imports of goods. Imports of services decreased.
- • The largest increases in imports of goods were in industrial supplies and materials, in automotive vehicles, parts, and engines, and in capital goods.
- • The decrease in imports of services reflected a decrease in travel.
U.S. Trade Gap Widens More Than Forecast to $41.8 Billion - The trade deficit in the U.S. widened more than forecast in September to a four-month high, reflecting a pickup in imports of consumer goods and capital equipment. Exports declined for a third month. The gap in goods and services trade increased 8 percent to $41.8 billion from a revised $38.7 billion in August, the Commerce Department reported today in Washington. The median forecast in a Bloomberg survey of 72 economists called for a $39 billion deficit. The U.S. imported more mobile phones, while shipments of automobiles from overseas producers reached a record, indicating American companies were confident domestic demand would be sustained. Limited progress in foreign markets has held back demand for U.S.-made goods, indicating it will take time for the economy to get a bigger boost from trade. “It’s an indication that domestic demand is still picking up with the increase in imports,” “Our expectation going forward would be that, for the first time in a long time, trade will be one of the things that’s helping to underpin economic growth in the United States.” Estimates in the Bloomberg survey ranged from deficits of $37 billion to $41.6 billion after a previously reported $38.8 billion shortfall in August. The report, initially scheduled for Nov. 5, was delayed by a 16-day partial shutdown of the federal government.
September Trade Balance Worse Than Worst Estimate; Trade Deficit With China Hits Record - Despite the great shale revolution, US exports posted a $0.4 billion decline to $188.9 billion in October driven by decreases in industrial supplies and materials ($1.3 billion), other goods ($0.2 billion), consumer goods ($0.2 billion), and capital goods ($0.1 billion). This was offset by a $2.7 billion increase in imports to $230.7 billion broken down by increases in industrial supplies and materials ($0.9 billion); automotive vehicles, parts, and engines ($0.9 billion); capital goods ($0.8 billion); and consumer goods ($0.6 billion). End result: a September trade balance of $41.8 billion, which was higher than the highest forecast of $41.6 billion among 72 economists queried by Bloomberg, and the highest deficit print in 4 months. The major deficits broken down by grography: with China $30.5 ($29.9), European Union $8.0 ($9.8), Germany $6.1 ($5.4), OPEC $5.9 ($7.3), Japan $5.5 ($6.4), Mexico $5.3 ($4.9), Canada $3.2 ($2.4), Saudi Arabia $3.2 ($3.6), Korea $2.1 ($1.7), Ireland $1.8 ($1.9), India $1.7 ($1.6), and Venezuela $1.3 ($1.5).*This was the largest trade deficit gap with China posted on record. *More from the report: September exports of $188.9 billion and imports of $230.7 billion resulted in a goods and services deficit of $41.8 billion, up from $38.7 billion in August, revised. September exports were $0.4 billion less than August exports of $189.3 billion. September imports were $2.7 billion more than August imports of $228.0 billion. In September, the goods deficit increased $3.0 billion from August to $61.3 billion, and the services surplus decreased $0.1 billion from August to $19.5 billion. Exports of goods decreased $0.2 billion to $132.1 billion, and imports of goods increased $2.8 billion to $193.4 billion. Exports of services decreased $0.2 billion to $56.8 billion, and imports of services decreased $0.1 billion to $37.3 billion.
Trade Deficit increased in September to $41.8 Billion -- The Department of Commerce reported this morning: [T]otal September exports of $188.9 billion and imports of $230.7 billion resulted in a goods and services deficit of $41.8 billion, up from $38.7 billion in August, revised. September exports were $0.4 billion less than August exports of $189.3 billion. September imports were $2.7 billion more than August imports of $228.0 billion. The trade deficit was larger than the consensus forecast of $38.9 billion.The first graph shows the monthly U.S. exports and imports in dollars through September 2013. Imports increased and exports decreased slightly in September. Exports are 14% above the pre-recession peak and up 1% compared to September 2012; imports are just below the pre-recession peak, and up about 1% compared to September 2012 (mostly moving sideways). The second graph shows the U.S. trade deficit, with and without petroleum, through September. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. Oil averaged $102.00 in September, up from $100.26 in July, and up from $98.90 in September 2012. Prices will probably decline in October and November. The petroleum deficit increased in September, but has generally been declining and is the major reason the overall deficit has declined since early 2012. The trade deficit with China increased to $30.5 billion in September, up from $29.1 billion in September 2012. A majority of the trade deficit is due to China.
Import Prices Fall on Cheaper Energy, Weaker Yen - Prices of goods imported into the U.S. fell in October at the fastest pace in more than a year. Reuters Overall import prices fell by 0.7% in October from a month earlier, largely driven by lower petroleum costs, the Labor Department said Friday. That was largely in line with expectations and marked the largest decline since June 2012. Prices were down 2% over the past year. Excluding all fuels, import prices were unchanged for the month but declined 1.3% over the last year. That was the largest annual drop since October 2009, the Labor Department said. Falling import prices typically reflect weak demand abroad containing inflation pressures, a development that in turn has helped keep inflation at historically low levels in the U.S. “With the prices of imported goods largely flat, domestic firms will have limited pricing power and that implies continued low or even decelerating inflation,” said Joel Naroff, president of Naroff Economic Advisors Inc. Stimulus efforts by some central banks have helped make a variety of goods cheaper for American importers. Prices from Japan, for example, continued to trend down in October, declining 3.2% over the past year — the largest 12-month drop since the spring of 2002. And prices for imported cars –a large share of which comes from Japan – dropped 1.4% since October 2012, the biggest decline since the Labor Department started collecting that data in 1981.
NSA Spying Crushes US Tech Companies in Emerging Markets (“An Industry Phenomenon,” Says Cisco’s Chambers) - Wolf Richter - Cisco CEO John Chambers had a euphemism for it during the first quarter earnings call: the “challenging political dynamics in that country,” that country being China. But then there was India and others, including Russia where NSA leaker Edward Snowden is holed up, and where sales outright collapsed. It led Cisco to chop its guidance. Overall revenues, instead of rising, would drop 8% to 10%. Or, the worst since January 2009 when “the world was about to collapse.” It was in between the lines everywhere, but never once did Chambers, or anyone else on his team, mouth the acronym NSA. It was off limits. And that’s exactly how another tech giant, IBM, had dealt with its own China revenue fiasco. During IBM’s earnings call a month ago, CFO Mark Loughridge tried to put a positive spin on it but got tangled up in rigmarole that no one believed. In China, hardware sales, nearly half of IBM’s business there, had fallen off a cliff: “We were talking 40%, 50%,” he said. They’d expected to see double-digit growth rates! Sales had collapsed so fast that IBM didn’t even have time to concoct a credible excuse – but like Cisco, it never once mentioned the NSA [my take.... NSA Revelations Kill IBM Hardware Sales in China]. Clearly, these tech heroes of ours are trying not to point the finger (too obviously) at one of their largest customers, the US government, and particularly not at what they only call the Customer whose ballooning budgets fill the big trough they all feed on.
Fed: Industrial Production decreased 0.1% in October -- From the Fed: Industrial production and Capacity Utilization Industrial production edged down 0.1 percent in October after having increased 0.7 percent in September. Manufacturing production rose 0.3 percent in October for its third consecutive monthly gain. The index for mining fell 1.6 percent after having risen for six consecutive months, and the output of utilities dropped 1.1 percent after having jumped 4.5 percent in September. The level of the index for total industrial production in October was equal to its 2007 average and was 3.2 percent above its year-earlier level. Capacity utilization for the industrial sector declined 0.2 percentage point in October to 78.1 percent, a rate 1.1 percentage points above its level of a year earlier and 2.1 percentage points below its long-run (1972-2012) average. This graph shows Capacity Utilization. This series is up 11.1 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 78.1% is still 2.1 percentage points below its average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007. The second graph shows industrial production since 1967. Industrial production decreased 0.1% in October to 99.98. This is 19.4% above the recession low, but still slightly, 0.8%, below the pre-recession peak. The monthly change for both Industrial Production and Capacity Utilization were below expectations. The consensus was for a 0.1% increase in Industrial Production in October, and for Capacity Utilization to be at 78.3%.
And Another Miss: Industrial Production Contracts 0.1% On Expectations Of A Rise - Now it is the turn of Industrial Production which as the Fed just reported declined by -0.1% in October, a drop from the upward revised 0.7% increase in September driven by a -1.6% collapse in mining and a -1.1% drop in Utilities, while pure manufacturing rose a modest 0.3% in October, just above the 0.1% from September. And confirming the increasing slack, Capacity Utilization dipped once again, from the 78.3 in September, to 78.1 once again driven by a notable drop in Mining Capacity down from 90.5 to 88.7. The lack of a pick up in the economy is shown below: From the report: The production of consumer goods decreased 0.1 percent in October after having increased 0.8 percent in September; in October, the index stood 2.5 percent above its level of a year earlier. The output of durable consumer goods fell 0.2 percent: Gains for home electronics; appliances, furniture, and carpeting; and miscellaneous goods were outweighed by a decrease in the index for automotive products, which nevertheless stood more than 11 percent above its year-earlier level. The index for consumer nondurables was unchanged, as a small increase in the output of non-energy nondurables offset a small decline in the output of consumer energy products. Among non-energy nondurables, gains for foods and tobacco, for clothing, and for paper products were partially offset by a loss for chemical products.
Industrial Production Unexpectedly Fell In October - US industrial activity dipped last month, falling 0.1% in October vs. forecasts that called for a slight rise. The decline was due mostly to lower ouput in mining and utilities. By contrast, the manufacturing component of industrial production advanced 0.3% in October, a modestly higher pace over September’s 0.1% rise. The fact that growth picked up a bit in the cyclically sensitive manufacturing slice of today’s report suggests that the weaker headline number may be noise in terms of the business cycle implications. Recent history from the perspective of the monthly numbers doesn’t look impressive, but it doesn’t look obviously threatening either, thanks to the relative strength in manufacturing activity. Keep in mind too that today's mild pullback in the headline number may be payback after September's relatively strong gain--the most since February. In fact, the year-over-year change in industrial production was only marginally lower last month: +3.2% for October 2013, or down slightly from 3.3% in the previous month. The steady pace of annual growth tells us that nothing much has changed in this indicator’s broad trend in today's data. Even better, the 3.2% annual pace for October is bumping up against the highest rate in recent history. As a result, there’s nothing especially ominous in today’s release as it relates to the business cycle. Even by the pre-Great Recession standards, today's year-over-year gain looks pretty good.
Vital Signs: Talk About the Weather - The unexpected 0.1% drop in October industrial production can be traced in part to a large drop in utility output. But swings in energy demand are often a reflection of volatile weather, rather than a long-run trend. Utility output spiked during the 2013 winter months only to drop during the summer. The largest share of the industrial sector, manufacturing, shows steadier growth this year. Factory output is up more than 3% in the 12 months ended in October, thanks to gain in auto assemblies, computers and plastics.
Capacity Utilization Telling a Strange Story - Capacity utilization is telling a very unusual story. Information technology –computers & peripherals, communication equipment and semiconductors — is operating at recession levels. Part of the story is import tablets and smart phones displacing personal computers. But there has to be more to the story. Meanwhile, the rest of industry appears to be operating at near full operating rates. Manufacturing excluding info tech capacity is only a few percentage points below its 2007 peak. Given the long run downward slope of capacity utilization this is probably effectively full utilization.
Just Released: November Empire State Manufacturing Survey Shows a Decline in Activity - NY Fed - The results of this morning’s November Empire State Manufacturing Survey point to slightly weaker conditions in New York’s manufacturing sector. After five consecutive months of positive readings, the survey’s headline general business conditions index moved below zero, declining four points to -2.2. The index had been slowly drifting down since July, and was only slightly positive in October. The report also pointed to declines in new orders and unfilled orders. One hopeful sign in the report is that the six-month outlook remained quite optimistic. The November report, coupled with October’s lackluster results, raises the question whether the modest gains we saw in the manufacturing sector at the national level through the third quarter are now beginning to fade. Results from other Federal Reserve manufacturing surveys were mixed in October, with the Philadelphia and Dallas Feds’ reports emerging as particularly strong, and the Kansas City Fed’s report indicating modest growth, while Richmond’s and New York’s were fairly weak. So it will be especially informative to see what the array of regional manufacturing surveys and the national ISM manufacturing report will show for November as they are released over the next few weeks.
NY Fed: Empire State Manufacturing Activity declines in November = From the NY Fed: Empire State Manufacturing Survey The November 2013 Empire State Manufacturing Survey indicates that manufacturing conditions weakened somewhat for New York manufacturers. The general business conditions index fell four points to -2.2, its first negative reading since May. The new orders index also entered negative territory, falling thirteen points to -5.5 ...The prices received index fell to -4.0; the negative reading was a sign that selling prices had declined—their first retreat in two years. Labor market conditions were also weak, with the index for number of employees falling four points to 0.0, while the average workweek index dropped to -5.3. Despite the negative readings registered by many of the indexes for current activity, indexes for the six-month outlook continued to convey a strong degree of optimism about future business conditions. This is the first of the regional surveys for November. The general business conditions index was below the consensus forecast of a reading of 5.5, and shows contraction for the first time since May.
Empire State Manufacturing Contracts: General Business Conditions Lowest Since January - This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions disappointed expectations, posting a contractionaly reading of 2.21, down from 1.52 last month. This is the lowest reading since the contractionary -7.78 in January. The Investing.com forecast was for 5.0. As Investing.com points out, "The Empire State Manufacturing Index rates the relative level of general business conditions New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state." Here is the opening paragraph from the report.The November 2013 Empire State Manufacturing Survey indicates that manufacturing conditions weakened somewhat for New York manufacturers. The general business conditions index fell four points to -2.2, its first negative reading since May. The new orders index also entered negative territory, falling thirteen points to -5.5, and the shipments index moved below zero with a fourteen-point drop to -0.5. The prices paid index fell five points to 17.1, indicating a slowing of input price increases. The prices received index fell to -4.0; the negative reading was a sign that selling prices had declined—their first retreat in two years. Labor market conditions were also weak, with the index for number of employees falling four points to 0.0, while the average workweek index dropped to -5.3. Despite the negative readings registered by many of the indexes for current activity, indexes for the six-month outlook continued to convey a strong degree of optimism about future business conditions. Here is a chart illustrating both the General Business Conditions and Future General Business Conditions (the outlook six months ahead):
Empire Manufacturing Collapses To Lowest Since January -- The headline Empire manufacturing data missed expectations by the most since January (the 4th month in a row) and plunged to its lowest since January. Across the board sub-indices collapsed (every one of them) into contraction with shipments down from over 13 to -0.5, and New Orders down from 7.75 to -5.5. "Hope" didn't save it this time either as the outlook droped to 3 month lows. Labor market conditions were subdued. The index for number of employees drifted downward for a third consecutive month, coming in at 0.0 in November in a sign that employment levels were flat (falling at fastest rate in 2013). The average workweek index fell nine points to -5.3, pointing to a decline in hours worked.
NFIB: Small Business Optimism Index Declines in October -- From the National Federation of Independent Business (NFIB): October Small Business Optimism Takes a Tumble Fall arrived literally this month, as small-business optimism dropped from 93.9 to 91.6, largely due to a precipitous decline in hiring plans and expectations for future small-business conditions. ... The stalemate in early October over funding the government ... left 68 percent of owners feeling that the current period is a bad time to expand; 37 percent of those owners identified the political climate in Washington as the culprit—a record high level. Job creation was up in October. NFIB owners increased employment by an average of 0.11 workers per firm in October after September’s decline. This graph shows the small business optimism index since 1986. The index decreased to 91.6 in October from 93.9 in September. This decline was expected due to the shutdown of the government, and optimism will probably increase again in November or December.
Small Business Sentiment Drops: ’’Fall Arrived Literally This Month’’ - The latest issue of the NFIB Small Business Economic Trends is out today (available here). The November update for October came in at 91.6, down 2.3 points from the previous month's 93.9. Today's overall number is at the 13.1 percentile in this series -- down in the lowest quintile in its history. Since its initial recovery following its Great Recession trough, this index has been stuck in an extremely volatile range for the past three years. Since January of 2011, it has repeatedly bumped a ceiling around the 94 level and then retreated. Here is an excerpt from the opening summary of the report:Fall arrived literally this month, as small business optimism dropped from 93.9 to 91.6, largely due to a precipitous decline in hiring plans and expectations for future smal -business conditions. Of the ten Index components, seven turned negative, falling a total of 27 percentage points. The stalemate in early October over funding the government as well as the failed "launch" of the Obamacare website left 68% of owners feeling that the current period is a bad time to expand; 37% of those owners identified the political climate in Washington as the culprit—a record high level. The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings of the past four years.
Small Business Optimism Sinks On "Precipitous Decline in Hiring Plans"; Is Lack of Credit an Issue? - The National Federation of Independent Business (NFIB) reports Small Businesses Optimism Takes a Tumble largely due to a precipitous decline in hiring plans. Fall arrived literally this month, as small business optimism dropped from 93.9 to 91.6, largely due to a precipitous decline in hiring plans and expectations for future smal -business conditions. Of the ten Index components, seven turned negative, falling a total of 27 percentage points. The stalemate in early October over funding the government as well as the failed “launch” of the Obamacare website left 68% of owners feeling that the current period is a bad time to expand; 37% of those owners identified the political climate in Washington as the culprit—a record high level. Is Lack of Credit an Issue? The short answer, as I have commented numerous times before, is "no". Six percent of the owners reported that all their credit needs were not met, unchanged from September. Twenty-eight percent reported all credit needs met, and 53% explicitly said they did not want a loan. Only 2% reported that financing was their top business problem. Twenty-eight percent of all owners reported borrowing on a regular basis, down 2 points and a record low. A net 6% reported loans “harder to get” compared to their last attempt (asked of regular borrowers only), up 1 point from September.
Post Office Reports Loss of $5 Billion for Year - The U.S. Postal Service said Friday it lost $5 billion over the past year, and postal officials again urged Congress to pass legislation to help the beleaguered agency solve its financial woes. The agency's seventh straight annual loss came despite its first growth in revenue since 2008. Operating revenue rose 1.2 percent to $66 billion, thanks to growth in the post office's package delivery business and higher volume in standard mail. But that was not enough to offset long-term losses in first class mail — the post office's most profitable service — where revenues declined by 2.4 percent. "We've achieved some excellent results for the year in terms of innovations, revenue gains and cost reductions, but without major legislative changes, we cannot overcome the limitations of our inflexible business model," Postmaster General Patrick Donahoe said. The Postal Service has struggled for years with declining mail volume, but the lion's share of its financial plight stems from a 2006 congressional requirement that it make annual $5.6 billion payments to cover expected health care costs for future retirees. It has defaulted on three of those payments.
U.S. Unemployment Benefit Applications Dip to 339K — The number of people applying for U.S. unemployment benefits slipped 2,000 last week to a seasonally adjusted 339,000, the fifth straight decline that shows businesses see little need to cut jobs.The Labor Department says the less volatile four-week average fell 5,750 to 344,000. The average has dropped 11 percent in the past year. Applications, which are a proxy for layoffs, are back near pre-recession levels after spiking in early October because of the partial government shutdown and the processing backlogs in California. The steady declines are the latest sign that companies are firing very few workers.
Weekly Initial Unemployment Claims decline to 339,000 - The DOL reports: In the week ending November 9, the advance figure for seasonally adjusted initial claims was 339,000, a decrease of 2,000 from the previous week's revised figure of 341,000. The 4-week moving average was 344,000, a decrease of 5,750 from the previous week's revised average of 349,750. The previous week was up from 336,000. 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 344,000. Some of the recent increase was due to processing problems in California (now resolved) and the four-week average will probably decline further.
Why the unemployment rate isn't always key - The tale of the economic recovery is in the numbers. It just depends which stat you’re following. University of Oregon economist Mark Thoma contends you shouldn’t be paying attention to the unemployment rate alone. Thoma, writing in a CBS MoneyWatch column, says the rate is falling in part because more and more people are leaving the workforce. Oregon & the Economy has written a lot about that issue and what’s causing it. So what dataset does Thoma turn to instead of the unemployment rate? The employment-to-population ratio counts people in and out of the workforce, so it’s not swayed by workers who simply stop looking for jobs. Thoma says that metric tells a different story: The unemployment rate has fallen steadily from a peak of 10 percent in October 2009 to 7.3 percent as of last month. However, the employment-to-population ratio was 62.7 percent at the start of the recession in December 2007, fell to a low of 58.2 percent in November 2010 and has only increased to 58.3 percent in October of this year. According to this measure of labor market performance, in other words, there hasn't been much improvement in the job market.
Update: When will payroll employment exceed the pre-recession peak? - Two years ago I posted a graph with projections of when payroll employment would return to pre-recession levels (see: Sluggish Growth and Payroll Employment from November 2011). In 2011, I argued we'd continue to see sluggish growth. On the graph I posted two lines - one with payroll growth of 125,000 payroll jobs added per month (the pace in 2011), and another line with 200,000 payroll jobs per month. The following graph is an update with reported payroll growth through October 2013.The dashed red line is 125,000 payroll jobs added per month. The dashed blue line is 200,000 payroll jobs per month. Both projections are from November 2011. So far the economy has tracked just below the blue line (200,000 payroll jobs per month).Right now it appears payrolls will exceed the pre-recession peak in mid-2014. Currently there are about 1.5 million fewer payroll jobs than before the recession started, and at the recent pace of job growth it will take about 8 months to reach the previous peak. Of course this doesn't include population growth and new entrants into the workforce (the workforce has continued to grow).
U.S. Payroll to Population Rate Increases Slightly in October: The U.S. Payroll to Population employment rate (P2P), as measured by Gallup, rose slightly to 43.8% in October, from 43.5% in September. P2P in 2013 continues to lag behind 2012; P2P last month is down almost two percentage points from the 45.7% found in October 2012. Because of seasonal fluctuations, year-over-year comparisons are often helpful in evaluating whether monthly changes are attributable 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 October 2013 is down from the same month last year, P2P was higher in October 2012 than in any other month since Gallup began tracking the metric in January 2010. P2P in 2012 trended higher than in 2010-2011, especially in the last few months before Election Day, but fell sharply beginning in November. Average monthly P2P this year (43.9%) is now higher than it was in 2010 (43.5%) and 2011 (43.6%), but below the 2012 average of 44.4%.
Job Market Doldrums Continue - On this last Friday (11/8), the Bureau of Labor Statistics of the U.S. Department of Labor released its newest number on conditions in labor markets. The number that got the most attention was the growth of employment. To quote their website, “Total nonfarm payroll employment rose by 204,000 in October, and the unemployment rate [U3] was little changed at 7.3 percent...” (The full report is at http://www.bls.gov/news.release/empsit.nr0.htm) The news of 204 thousand extra jobs should be treated carefully. Nobody should be excited (assuming, of course, that anything in economics can be exciting). What really demands our attention is the changes that occur from year to year. After all, month-to-month numbers can involve all sorts of temporary changes that indicate nothing about the trend. So looking at the increase in employment from October 2012 to October 2013, the number is 194 thousand per month, which is slightly less exciting than 204 thousand.
More importantly, even though by this measure job creation has been rising since early 2013, the October-to-October increase in hiring was significantly slower than what we saw in early 2012. Job creation may catch up with what happened then, but when the demand for products is growing slowly that also means bad conditions for job-seekers. (According to the Bureau of Economic Analysis of the U.S. Department of Commerce, real GDP grew only 2.8% in the third quarter. It’s likely to turn out to be worse than that, once we see more accurate estimates. GDP must increase more than about 3% for an entire year to truly lower unemployment rate.)
On The Labor Force Participation Rate - I was blown out by the Labor Force Participation Rate (LFPR) data released Friday. Down 4 tics to 62.8%. That sounds like no big deal, but it is. Either there is something out of whack with the data, and it will be revised, or there will have to be some serious rethinking by the folks who develop long-term economic models, and also at the Federal Reserve. Consider the short term consequences. The Fed has hung its monetary hat on an unemployment rate of 6.5%. We have been told, time and again, that if the magic number of 6.5% unemployment is reached, the madness of US monetary policy will be relaxed. Should the LFPR continue to drop, the hurdle rate for changes to Fed policy will come sooner than is anticipated. The Atlanta Fed has an interactive tool that looks at this (Link). It takes into consideration the variables of the unemployment picture and produces a report of how many jobs are needed per month over a given period, to achieve the 6.5% level. A few examples: As you can see, the Fed's target can be reached in the next 12 months if the LFPR falls a bit further. I'm quite certain that should things unfold like this the new head of the Fed, Janet Yellen, will change the 'rules' and ignore the 6.5% target and continue along with ZIRP and QE. But if she does that, it will be at her (and our) risk.
Record Low Labor Participation Rate Not Due to Retirement or School - The October unemployment report showed a record low labor participation rate of 62.8%, graphed below. Many dismiss these record low labor participation rates by claiming more people are retiring and young people are just in school. Is this true or is something more sinister going on? Are people simply dropped out of the labor force who in fact really need a job are is it as they say, older Americans are enjoying their golden years, no longer needing to work and all the kids are just lining the higher education halls? It is true the labor participation rate has declined since 2000, about a percentage point from that time until just before the recession. Yet after October 2007 the labor participation rate has declined by 3.2 percentage points, a much faster rate than before the recession. The labor participation rate is a ratio of the population, not locked up somewhere, sick or in the military, age 16 or older, who are participating in the labor force by either looking for a job or have one. To take a look at the finite details of labor participation, we must use raw data for seasonally adjusted labor statistics are not available at this level of granularity. To get any sort of validity from using not seasonally adjusted data, we must compare figures to one year ago to remove seasonality from the patterns. Labor markets are highly seasonal, think summer jobs and temporary holiday help and one gets the idea. For this analysis, we're going to use October as our month to compare to past years since this is the most recent month available for labor statistics. Bear in mind there is a month to month margin of error with the BLS current population survey unemployment statistics. Below is the labor participation rate, not seasonally adjusted, for just the month of October going back to 1999.
Vital Signs: Productivity’s Pitifully Poor Performance - If productivity were a student, it might not even earn a Gentleman’s C. Output per hour worked in the nonfarm business sector increased at an annual rate of 1.9% last quarter, but when compared to year-ago levels, productivity has flat-lined in each quarter of 2013. Average growth in 2011 and 2012 wasn’t much better. The recent year-over-year stagnation partly reflects quarterly declines posted at the end of 2012 and early 2013. But unless output picks up, growth in fourth-quarter productivity may be slowing again. Businesses added a large number of new workers in October, but economists are forecasting only so-so output growth for the entire quarter. Weak productivity is putting pressure on businesses’ cost structure and profit margins. Unlit labor costs slipped at a 0.6% annual rate in the third quarter, but over the past year they are up 1.9%. That’s a faster pace than the rate at which businesses are able to raise their selling prices, as suggested by the very modest pace of inflation.
10 Uncomfortable Truths About The Growing Unemployment Crisis In America -- Did you know that there are more than 102 million working age Americans that do not have a job? Yes, I know that number sounds absolutely crazy, but it is true. Right now, there are more than 11 million Americans that are considered to be "officially unemployed", and there are more than 91 million Americans that are not employed and that are considered to be "not in the labor force". When you add those two numbers together, the total is more than 102 million. Overall, the number of working age Americans that do not have a job has increased by about 27 million since the year 2000. But aren't things getting better? After all, the mainstream media is full of headlines about how "good" the jobs numbers for October were. Sadly, the truth is that the mainstream media is not being straight with the American people. As you will see below, we are in the midst of a long-term unemployment crisis in America, and things got even worse last month. In this day and age, it is absolutely imperative that people start thinking for themselves. Just because the media tells you that something is true does not mean that it actually is. If unemployment was actually going down, the percentage of the working age population that has a job should actually be going up. As you are about to see, that is simply not the case. The following are 10 facts about the growing unemployment crisis in America that will blow your mind...
Don’t Blame the Robots for Slow Job Growth In 2000s - There is a lot of talk about robots these days, as if technological change has led to weak job creation, caused wage inequality, and even caused the profit share of the economy to increase as workers’ share (compensation) falls. We have definitely had problems with employment growth and growing wage inequality, alongside a profit boom not just during the Great Recession and its aftermath but since 2000—and for wage inequality, for two decades prior. Is technology driving all this? I think not. This post tackles the issue of whether robots slowed job growth in the 2000s (my colleague Josh Bivens has addressed this previously, but for the recovery). In the near future I will be addressing whether robots are responsible for our current wage inequality. Spoiler alert: they aren’t.
The Threat of Artificial Intelligence - If the New York Times’s latest article is to be believed, artificial intelligence is moving so fast it sometimes seems almost “magical.” Self-driving cars have arrived; Siri can listen to your voice and find the nearest movie theatre; and I.B.M. just set the “Jeopardy”-conquering Watson to work on medicine, initially training medical students, perhaps eventually helping in diagnosis. Scarcely a month goes by without the announcement of a new A.I. product or technique. Yet, some of the enthusiasm may be premature: as I’ve noted previously, we still haven’t produced machines with common sense, vision, natural language processing, or the ability to create other machines. Our efforts at directly simulating human brains remain primitive. The futurist and inventor Ray Kurzweil thinks true, human-level A.I. will be here in less than two decades. My estimate is at least double that. But a century from now, nobody will much care about how long it took, only what happened next. It’s likely that machines will be smarter than us before the end of the century—not just at chess or trivia questions but at just about everything, from mathematics and engineering to science and medicine. There might be a few jobs left for entertainers, writers, and other creative types, but computers will eventually be able to program themselves, absorb vast quantities of new information, and reason in ways that we carbon-based units can only dimly imagine. And they will be able to do it every second of every day, without sleep or coffee breaks.
All Can Be Lost: The Risk of Putting Our Knowledge in the Hands of Machines - Doctors use computers to make diagnoses and to perform surgery. Wall Street bankers use them to assemble and trade financial instruments. Architects use them to design buildings. Attorneys use them in document discovery. And it’s not only professional work that’s being computerized. Thanks to smartphones and other small, affordable computers, we depend on software to carry out many of our everyday routines. We launch apps to aid us in shopping, cooking, socializing, even raising our kids. We follow turn-by-turn GPS instructions. We seek advice from recommendation engines on what to watch, read, and listen to. We call on Google, or Siri, to answer our questions and solve our problems. More and more, at work and at leisure, we’re living our lives inside glass cockpits.
"It's Not Just Harder To Get A Job - It's Harder To Get A Good Job" - For many in the US, as WSJ reports based on the bifurcated 'recovery' in the US, the recession never ended, "we're still in it... it feels like like we're still in it and it's getting worse." Simply out, America's jobs recovery is proceeding on two separate tracks - a pattern that is persisting far longer than after past economic rebounds and lately has been growing worse. For those with decent jobs, wages are rising, albeit slowly, and job security is the strongest it has been since before the recession. But many others - the young, the less educated and particularly the unemployed - are experiencing hardly any recovery at all. As we have vociferously explained, hiring remains weak, and the jobs that are available are disproportionately low-paying and often part-time. Via WSJ, Despite three years of steady job gains, and four years of economic growth, many Americans have yet to experience much that could be described as a recovery. That sort of pattern isn't unusual in the aftermath of a recession, but it usually eases as growth picks up steam.
We still are our jobs, but no longer by choice - Simon Kuper writes in the Financial Times that because of “the economic crisis and technological change,” we are no longer are jobs. He argues that since workers have lost so much leverage, they often can no longer choose the professions they truly want to be in, and even if they are in their professions of choice, those careers are becoming less fulfilling because of their increasing demands, sinking pay, and vanishing job security. You can see the loss of worker leverage in this chart from the St. Louis Fed: Workers’ share of compensation has plunged to a record low compared to that of the owners of capital, such as property and stocks, and is only barely starting to recover. But now that workers have lost leverage due to high unemployment, they also have less time to pursue outside interests. Making enough money to eat, have a roof over your head, and support your family usually takes precedence over everything else. And those necessities have become more precarious. So work is becoming an even bigger part of people’s identities, but not by choice.
Training For The Unemployed Suffocated By Sequestration - Haphazard cuts to already-underfunded job training programs are preventing community organizations from providing local companies with the workers they need, Focus: HOPE’s Ryan Dinkgrave said Wednesday at a briefing on Capitol Hill organized by NDD United. Dinkgrave’s organization, Focus: HOPE, provides a variety of anti-poverty services to vulnerable people in the Detroit area who wish to better themselves, and sequestration impairs his organization’s ability to train adult students for long-term, sustainable careers. Workforce development programs amount to just 0.42 percent of all federal spending at present, Dinkgrave said. Unlike business travelers and other squeaky wheels, the career-minded unemployed people who enroll in workforce training programs haven’t escaped sequestration’s across-the-board cuts. Two-thirds of the programs surveyed by the National Skills Coalition in July said they would have to turn away people who would normally be admitted. More than a third of workforce training programs expected to lose a full 25 percent or more of their funding, and half expected to lay off staff.
Xanthe, Job Creator - The house made me do it. Become a job creator. I had no choice. I am never going to sell it and get back its price, much less my efforts at keeping it going at all. Herein my portfolio of job creation.
Masonry. Very expensive. Bricks were coming loose on second floor – and my masonry employees and I decided we should probably do the whole of the upper portion on the street side, rather than replace here and there. There were at least five employees working on the masonry at one time.They did a beautiful job. Moreover, it was necessary. But as I say it was quite expensive. This work lasted about three weeks.
Plumbing. Did I mention when the house was built? 1888. Plumbing is a huge concern in this house. My plumber employees and I have even become friends. The top guy invited me to his daughter’s first communion. I have had to do excavation and continuous here and there touch-ups. I live in the land of plumbing terror. As in: Please dear God make me get through this winter and sell the house in the Spring for l/3 of what I bought it for without another plumbing bill.
Heating and Cooling. Every year the heating and cooling system is checked. The men come out in Spring for cooling and autumn for the furnace. This has been going on for the last ten years without fail. Even so, there is the occasional dreaded call in the middle of February when something doesn’t work. And they show up – thank God. So if one considers new parts, footies, etc. – I am also employing certain manufacturers. Same for all the employees and their moving parts.
Roofing. Level roof – no incline, decline. New roof second year. At least 5 employees. They were around for about a week. Check out roof every other year or so – and we have a reunion.
Women Are Not Out of the Jobs Deficit Created By the Recession Yet—Still 3.6 Million Jobs Short - During the Great Recession and its aftermath, women lost more than 2.7 million jobs. Women have since gained back close to 2.9 million jobs, for an additional 171,000 jobs. Does this mean American women have seen a full economic recovery? Unfortunately, not even close.Due to normal population growth, the labor market needs to add jobs each month. The figure shows the “jobs gap”—the number of jobs needed to get back to the pre-recession unemployment rate –for both women and men. Since 2007, the number of jobs for women should have increased every month by over 50,000; the labor market should have added over 3.7 million jobs for women since the recession began. Despite surpassing their pre-recession employment level, women are still 3.6 million jobs in the hole. Men lost more than 6 million jobs in the Great Recession and its aftermath. They have since gained back less than 4.4 million jobs, which means men are still 1.7 million jobs below where they were in December 2007. Furthermore, the number of jobs for men should have increased by around 40,000 each month. This means the labor market should have added a total of 2.7 million jobs for men since the recession began, so men are still 4.4 million jobs in the hole. (Note: the monthly “hold-steady” number is lower for men than for women, since men’s labor force has been growing more slowly than women’s for most of the last half-century.)
The Trend Toward Part-Time Employment Continues to Weaken ... But Very Slowly - The monthly employment report is among the most popular and controversial of the government's economic reports. The latest one released Friday even more controversial than most, with its stronger-than-expected new jobs but a rise in the unemployment rate from 7.2% to 7.3%. One of the reasons the monthly employment report is so controversial is that it's an incredible hodgepodge of data from bipolar sources: the Current Population Survey (CPS) of households and the Establishment Survey of businesses and government agencies. For example, the Nonfarm Employment number comes from the establishment data, but the unemployment rate is calculated from household data. And, of course, the October data was skewed in various ways by the government shutdown. Additional complications are the substantial revisions to both the CPS and Establishment data, and the complexities of seasonal adjustment, which is available for many, but not all, of the data series. Let's take a close look at some CPS numbers on Full and Part-Time Employment. Buried near the bottom of Table A-9 of the Household Data are the numbers for Full- and Part-Time Workers, with 35-or-more hours as the arbitrary divide between the two categories. The Labor Department has been collecting this since 1968, a time when only 13.5% of US employees were part-timers. That number peaked at 20% in January 2010. The latest month is only slightly lower at 19.0%, unchanged from the previous month. Here is a visualization of the trend in the 21st century, with the percentage of full-time employed on the left axis and the part-time employed on the right. We see a conspicuous crossover during Great Recession.
Real Hourly Wages and Hours Worked: Off Their Interim Highs -- Here is a look at two key numbers in Friday's monthly employment report for October: Average Hourly Earnings. Average Weekly Hours The government has been tracking the data for Production and Nonsupervisory Employees for decades. But coverage of Total Private Employees only dates from March 2006. Let's examine the broader series, which goes back far enough to show the trend since before the Great Recession. I want to look closely at a five-snapshot sequence. First, here is a chart of the Average Hourly Earnings. I've included a linear regression through the data to highlight the trend. Hourly earnings increased at a faster pace through 2008, but the pace slowed from early 2009 onward. But the hourly earnings above are nominal (not adjusted for inflation). Let's look at the same data adjusted for inflation using the Consumer Price Index. Since the government series above is seasonally adjusted, I've used the seasonally adjusted CPI, and I've chained the series to the dollar value of the latest month of hourly wages so that the numbers reflect the purchasing power in today's dollars. As we see, the difference is amazing. The decline in real wages at the onset of the recession accords with our expectations. But why the rise in the middle of the recession when the Financial Crisis began unfolding in earnest? Let's add another data series to the mix: Average Hours per Week. About eight months into the recession, hours per week began to fall. The number bottomed a few months before the recession ended and then began increasing a few months after it ended. For a better understanding of the relationship between hourly earnings and the average work week, let's overlay the two. We see a striking inverse correlation during the Financial Crisis. And by the Fall of 2010, the two began to reverse their directions.
Wage Statistics Show The Rich Get Richer Again in 2012 -The rich get richer and income inequality in America continues with no end in sight. The latest evidence is from the social security administration The gap between rich and the rest of us continues to grow.The social security administration keeps statistics on average and median wages as reported on Federal income taxes and contributions to deferred compensation plans. They use income tax data to calculate your social security benefits. Below is a chart of the average wage and median wage from 1990 to 2012. Median means 50% of all wage earners earned that wage or less.The average wage has increased 110.7% since 1990, yet the median wage has only increased 89.8%. The reason the average wage has increased more than the median is the super rich. Average wages are calculated by taking the total compensation in America and dividing by the number of wage earners. The reason the median and average wage diverge is because those few at the top making millions push the average wage amount much higher.To see this disparity of how most of America is working for peanuts, below is a graph of wage earners by income bracket. A full 15.2% of wage earners make less than $5,000 per year. A whopping 24.2%, of all wage earners make less than $10,000 per year and almost a third, 32.2%, of American wage earners make under $15,000. Think about trying to rent a one bedroom apartment never mind feed oneself with these kinds of wages
Low Wage Workers Weren’t Always Left Behind -- The U.S. economic recovery is leaving low-wage workers behind. It hasn’t always been that way. As the Wall Street Journal noted in a page-one story today, the recovery has been much stronger for higher-wage workers than for low-wage ones. This chart, a version of which ran with the story, makes the pattern clear: The higher-paying the industry, the better the wage growth over the past four years. On one level, that pattern isn’t surprising: With unemployment still high at 7.3% (and other measures of the labor market showing even greater weakness), there’s lots of competition for entry-level jobs. That gives employers little incentive to raise pay, especially for low-skill jobs.But it turns out, recoveries haven’t always looked this way. Go back to the recovery after the brutal recession of the early 1980s, for example, and low-wage industries actually showed stronger earnings growth than higher-wage industries. (This chart is based on a less detailed breakdown of industries than the others, due to data availability issues.) That may have been driven at least in part by the economy-wide shift away from manufacturing during the 1980s, which continued even as the economy as a whole recovered.
Poverty, Government and Social Class -- Last week, two new reports deepened our knowledge of poverty and efforts by the federal government to alleviate it. The first is by the Census Bureau, which annually calculates the poverty rate based on a formula devised in the 1960s that has been updated only for inflation since then. The latest official data were released on Sept. 17 and put the poverty rate at 15 percent of the population. This figure is up sharply since 2000, when the poverty rate was 11.3 percent of the population. Although the economic crisis contributed to the rise in poverty, the rate was rising well before it struck in 2008. In 2007, the poverty rate was 12.5 percent. (For historical data, see Page 52 in “Income, Poverty, and Health Insurance Coverage in the United States: 2012.”) The original poverty threshold was essentially arbitrary and based largely on food consumption data from the Department of Agriculture. On Nov. 6, the Census Bureau published data based on the supplementary poverty measure for 2012. It shows a poverty rate of 16 percent, one percentage point higher than the official measure. The supplemental report also shows what the impact on poverty is of various government programs and personal expenses. Thus we see that if the Social Security program did not exist, the poverty rate would be 24.4 percent, 8.4 percentage points higher than the 16 percent supplemental rate. In other words, Social Security reduces the poverty rate by about a third. Items below 16 percent add to the poverty rate.On Nov. 7, the Congressional Budget Office published a report that breaks down federal taxes and spending for individuals and looks at what the federal government does in the aggregate to change household incomes. The data are for 2006.
Boehner: No formal talks on immigration bill: — Speaker John Boehner said Wednesday that the House will not hold formal, compromise talks on the Senate-passed comprehensive immigration bill, a fresh signal from the Republican leadership that the issue is dead for the year. The slow, relatively quiet death came more than four months after the Senate, on a bipartisan vote, passed a far-reaching bill that would provide a path to citizenship for the 11 million immigrants living in the country illegally and tighten border security. That fanfare for that bill was quashed by strong opposition among House Republican rank and file who reject a comprehensive approach and question offering citizenship to people who broke U.S. immigration laws to be in this country. House incumbents also are wary of primary challenges from the right. One of the clearest signs that any action was unlikely was word that Sen. Marco Rubio, R-Fla., who had worked for months on the Senate bill, had abandoned the comprehensive approach. Rubio had taken political heat from conservatives after Senate passage of the immigration bill. Boehner, R-Ohio, reiterated that the House is focused on a piecemeal approach to dealing with the issue. But he declined to say whether lawmakers will consider any legislation this year or whether the issue will slip to 2014, when the politics of congressional elections further diminish chances of action.
World’s No. 1 Jailer: No other country on the planet puts more of its citizens in cages for life for nonviolent drug offenses than the United States of America - It’s been well-documented that the US is the World’s No. 1 Jailer, and imprisons far more of its people than any other country on the planet (716 per 100,000 population), including countries generally thought to be repressive like Myanmar (120 per 100,000), Iran (284 per 100,000), Syria (58 per 100,000), or Cuba (510 per 100,000). It’s also been documented that America’s cruel and failed War on Drugs, launched by President Nixon in 1971, is largely responsible for the country’s shameful status as the World’s No. 1 Incarcerator, see chart above. A new report released this week from the American Civil Liberties Union ”A Living Death: Life without Parole for Nonviolent Offenses” examines a very disturbing trend that contributes to America’s notoriety as the World’s No. 1 Jailer – the increasing number of nonviolent offenders in the US who are being sentenced to life in prison without parole. As Reason.com reported “The ACLU found, perhaps unsurprisingly, that the War on Drugs, mandatory minimums, and “tough-on-crime” policies are to blame” for the more than 3,000 prisoners in America serving life sentences without parole (LWOP) for nonviolent drug and property crimes.
Talking Points for the 99% (Part 1) (This is the working draft of a short, targeted eBOOK directed specifically at the millennials—the huge generation of energetic, creative, and cooperatively inclined young people who might, just maybe, rise up and demand a new understanding of the American economy. The eBOOK has three goals: (1) explain the basics of MMT to those who’ve never heard of it (2) unveil, at least partially, the misinformation network of the status-quo, and (3) suggest the scale of very real collective benefits a new understanding actually makes possible. Any suggestions about fine-tuning—or fundamentally altering, if necessary—the basic message of the essay are welcomed. How is it the 1% exerts such complete and dominant control over our national agenda? And by what means can the 99% claim the collective power that, by democratic rights, should be firmly in their hands? The answers obviously have something to do with money—after all, the 1% are defined by various monetary measurements: the top 1% own 42% of the total financial wealth in the U.S. economy; the top 1% own 35% of all privately held stock, 64% of all financial securities, and 62% of all business equity. If all those percentages have a numbing affect, here’s another way to frame it: The top 400 families in America own more financial wealth than the bottom 150 MILLION families combined! The 1% clearly control the money, and they use that money not only to make more money but to exert political power in a myriad of ways. But implicit in this perspective is a profound misunderstanding about money itself—and it is this key misunderstanding which oppresses the 99% far more than the income disparity itself: Not only is the misunderstanding relentlessly exploited by the 1% to maintain their advantage—more insidiously, it prevents the 99% from even seeing the paths of opportunity available to it.
Talking Points for the 99% (Part 2) It is often said that what is most obvious is the most difficult thing to see, and such is the case with sovereign fiat currencies. The answer to the question just posed is that the sovereign government spends the Dollars it issues. What does it spend the Dollars on? It buys goods and services from the citizens—bridges and jet planes and medical services, for example—and the citizens, we now understand, are happy to provide those goods and services in exchange for the fiat Dollars because (once again):
- They are going to need some of those Dollars to pay their taxes with, and
- They know that they will be able to use the Dollars to purchase goods and services from other citizens for exactly the same reason.
In other words, sovereign spending happens first and taxes are collected afterwards—and the reason the taxes are collected at all is not so the sovereign can spend further, but to ensure that the citizens will continue to want to sell goods and services in exchange for the fiat currency. As the sovereign pays the citizens fiat Dollars to make things, and build things, and provide services (like medical research and weather forecasting, for example), the citizens accumulate Dollars in their private accounts, and they use those Dollars as a means of exchange for goods and services amongst themselves. Banks leverage those fiat Dollars with loans that create bank deposits in “bank-dollars”. “Bank dollars” are just as good as real fiat Dollars because, by law, the banks are required to convert the “bank dollars” to fiat Dollars on demand.
Progressive Sheepdogs, Democrat Sheep: Broken Promises; the Minimum Wage - Black Agenda Report - If President Obama and his party didn't even try to deliver on their 2008 campaign promise of a minimum wage hike when they had the White House and both houses of Congress on lockdown in 2010 and 2011, what does their sudden rediscovery of the minimum wage mean now, when they know they can move nothing through Congress? Are they and their sheepdogs, the so-called “progressive Democrats” just yanking our chain again? As a presidential candidate back in 2007 and 2008, Barack Obama promised to ram a hike in the minimum wage through Congress by 2011. Like the president's promises to renegotiate NAFTA and enact labor law reforms to make union organizing possible again, it wasn't one of those high profile pledges he repeated at every opportunity in front of every audience. He didn't have to, that's not the way it works. From that point, it's the job of your sheepdogs, the Democrat “progressives” campaigning for you to keep the herd of your base voters in line by putting those words in your mouth a lot more often, and with a lot more emphasis than you actually place upon them. Inevitably, once in office the corporate Democrat (is there any other kind?) breaks his or her promise to his poor and apart from their votes which they've already given away, powerless constituents. At this point, his other sheepdogs, the “pragmatic” Democrats wisely bark at the herd about how naïve and foolish they are, that they don't really understand how politics works, that this one president or mayor or whatever can't save them or change the world, or do much anything really.
Giving All Americans a Basic Income Would End Poverty - A simple idea for eliminating poverty is garnering greater attention in recent weeks: automatically have the government give every adult a basic income. The Atlantic's Matt Bruenig and Elizabeth Stoker brought up the idea a few weeks ago when they contemplated cutting poverty in half and Annie Lowrey revisited it today in the New York Times. Real wages have been stagnant in America for decades now and income inequality has grown immensely.In the aftermath of the Great Recession, it’s only gotten worse. The Census Bureau reported in September that the 15 percent of Americans (46.5 million) live below the poverty line. Government benefits like food stamps and TANF help lift some of them above the line, but millions still live below it. How would it work? It’s exactly how it sounds. The government would mail every American over the age of 21 a check each month. That’s it. Everyone is free to do what they like with it.
What are some of the biggest problems with a guaranteed annual income? -Maybe this isn’t the biggest problem, but it’s been my worry as of late. Must a guaranteed income truly be unconditional? Might there be circumstances when we would want to pay some individuals more than others? Many critics for instance worry that a guaranteed income would excessively reduce the incentive to work. So it might be proposed that the payment be somewhat higher if low income individuals go get a job. That also will make the system more financially sustainable. But wait — that’s the Earned Income Tax Credit, albeit with modifications. Might we also wish to pay more to some individuals with disabilities, perhaps say to help them afford expensive wheelchairs? Maybe so. But wait — that’s called disability insurance (modified, again) and it is run through the Social Security Administration.As long as we are moving toward more cash transfers, why don’t we substitute cash transfers for some or all of Medicare and Medicaid health insurance coverage benefits, especially for lower-value ailments? But then we are paying more cash to the sick individuals. That doesn’t have to be a mistake, but it does mean that an initially simple, “dogmatic” payment scheme now has multiplied into a rather complex form of social welfare assistance, contingent on just about every relevant factor one might care to cite
How McDonald’s and Wal-Mart Became Welfare Queens - It seems that welfare queens are back in the news these days. The old stereotype was an inner-city unwed mother -- that’s dog-whistle-speak for black -- having multiple babies to get ever bigger welfare checks (throw in a new Cadillac and the myth is complete). Regardless, welfare reform of the 1990s ended that narrative. No, the new welfare queens are even bigger, richer and less deserving of taxpayer support. The two biggest welfare queens in America today are Wal-Mart and McDonald's. This issue has become more known as we learn just how far some companies have gone in putting their employees on public assistance. According to one study, American fast food workers receive more than $7 billion dollars in public assistance. As it turns out, McDonald's has a “McResource” line that helps employees and their families enroll in various state and local assistance programs. It exploded into the public when a recording of the McResource line advocated that full-time employees sign up for food stamps and welfare. Wal-Mart, the nation’s largest private sector employer, is also the biggest consumer of taxpayer supported aid. According to Florida Congressman Alan Grayson, in many states, Wal-Mart employees are the largest group of Medicaid recipients. They are also the single biggest group of food stamp recipients. Wal-mart’s "associates" are paid so little, according to Grayson, that they receive $1,000 on average in public assistance. These amount to massive taxpayer subsidies for private companies. Why are profitable, dividend-paying firms receiving taxpayer subsidies? The short answer is, because they can. The longer answer is more complex and nuanced.
Encouraging Paid Employment - Last summer, a surfer dude in California named Jason used food stamps to buy lobster. He became the star of a Fox News documentary dramatizing the contention that excessively generous public assistance undermines the work ethic. When he wasn’t practicing with his rock band, he was probably dozing off in a hammock, instead of a mere safety net.The slackers of the world will always be with us. The big question is: Are public policies causing them to proliferate? In narrower, more technical terms, are means-tested benefits significantly discouraging labor supply? In earlier posts, I have asserted that conventional economic models frame this question too narrowly. Here, I want to emphasize that many public assistance programs are carefully designed to encourage paid employment — especially when there are jobs to be found.
House Dems Can Block GOP Food Stamp Cuts—By Killing the Farm Bill - The food stamps program—which helps feed one in seven Americans—is in peril. Republicans in the House have proposed a farm bill—the five-year bill that funds agriculture and nutrition programs—that would slash food stamps by $40 billion. But by taking advantage of House Republicans' desire to cut food stamps as much as possible, Democrats might be able to prevent cuts from happening at all. To pull it off, Democrats would have to derail the farm bill entirely, which would maintain food-stamp funding at current levels. Here's how it would work, according to House Democrats who've considered the idea. It's an idea rooted in the last food stamp fight: In June, the House failed to pass a farm bill that cut $20 billion from the food stamp program. The bill went down because 62 GOP conservatives thought the $20 billion in cuts weren't deep enough, while 172 Democrats thought they were too drastic. After the bill failed, House conservatives passed a much more draconian food stamps bill with $40 billion in cuts. But that bill was dead-on-arrival in the Democrat-controlled Senate.
Too Much Of Too Little - The 4-year-old grabbed a bag of cheddar-flavored potato chips and a granola bar. The 9-year-old filled a bowl with sugary cereal and then gulped down chocolate milk. Their mother, Blanca, arrived at the refrigerator and reached into the drawer where she stored the insulin needed to treat her diabetes. She filled a needle with fluid and injected it into her stomach with a practiced jab. For almost a decade, Blanca had supported her five children by stretching $430 in monthly food stamp benefits, adding lard to thicken her refried beans and buying instant soup by the case at a nearby dollar store. She shopped for “quantity over quality,” she said, aiming to fill a grocery cart for $100 or less. But the cheap foods she could afford on the standard government allotment of about $1.50 per meal also tended to be among the least nutritious — heavy in preservatives, fats, salt and refined sugar. Now Clarissa, her 13-year-old daughter, had a darkening ring around her neck that suggested early-onset diabetes from too much sugar. Now Antonio, 9, was sharing dosages of his mother’s cholesterol medication. Now Blanca herself was too sick to work, receiving disability payments at age 40 and testing her blood-sugar level twice each day to guard against the stroke doctors warned was forthcoming as a result of her diet.
Neoliberalism: Breaking Your Legs and Taking Your Crutches -- Harry Browne famously wrote that government “knows how to break your legs, hand you a crutch, and say, ‘See, if it weren’t for the government, you wouldn’t be able to walk.’” But with deficits and recessions looming, governments have been getting stingier when it comes to handing out crutches. The U.S. House of Representatives recently passed a bill cutting billions of dollars from food stamp programs. These cuts will impact many Americans. The New York Times reports nearly four million people would be removed from the food stamp program under the House bill starting next year. The budget office said after that, about three million a year would be cut off from the program. But while government cuts back on helping poor Americans afford food, they are not letting up on their numerous interventions that keep poor and working people impoverished. Across the country, occupational licensing laws raise prices for consumers and prevent workers from pursuing self-employment. Cities across the country have shut down hair braiders, food trucks, and other small businesses frequently founded by members of economically vulnerable groups. In California, police conduct violent sting operations to arrest people doing unlicensed house painting, carpentry, and landscaping. Gaining the required licenses requires time and money that most poor and working people just don’t have.Other ways poor people try to make a living are outright criminalized. Drug dealing, sex work, and panhandling are all peaceful and voluntary ways of attempting to make a living, but police assault, kidnap, and cage people who engage in these survival crimes.
NYC Food Bank Head: 40% Of Veterans Need Food Assistance — Veterans are returning to New York City from their service only to be faced with going hungry, the head a city food bank said. As WCBS 880′s Monica Miller reported, Margarette Purvis, president and CEO of the Food Bank for New York City, tried to raise awareness about the plight of former service members during a speech in the Bronx on Sunday. "On this Veterans Day, when we’re waving our flags — I need every New Yorker to know — 40 percent of New York City veterans are relying on soup kitchens and pantries,” Purvis said. That amounts to 95,000 people. “That is not a guesstimate; that is a fact,” she said. Purvis added that matters will only get worse now that $5 billion has been cut to the Supplemental Nutrition Assistance Program, or SNAP.
Harsher cuts are on their way -- Winter is coming, and the automatic cuts known as sequestration means that poor families across the country will have less money to heat their homes. Last week, the government gave out 10% less to states for the Low Income Home Energy Assistance Program, as compared to the previous year—a decrease that’s partly due to looming sequestration cuts in 2014. For Maine, whose funding got cut 3%, that means families are receiving $129 less in heating aid just as the temperature has started to drop. “That doesn’t buy enough heat to get through the winter,” “The only thing you can tell them is to close off the rest of the house and stay in one room.” It’s a reminder that the worst is yet to come for many programs if the across-the-board cuts continue, as agencies run out of stopgap measures that have kept them afloat for the last year and more reductions make themselves felt. Unless Congress reverses the cuts, defense discretionary spending will be cut by an estimated $19 billion in 2014 and non-defense spending will be cut $12 billion more, according Michael Linden, managing director for economic policy at the Center for American Progress. That’s on top of the cuts that have already occurred since March, when sequestration began. The reductions shrank defense spending by $9 billion this year, and non-defense spending by $36 billion, as compared to 2012.
California's unemployment benefits fund is mired in debt -- Late payments, glitch-prone computers and swamped call centers aren't the only problems bedeviling California's unemployment insurance program. The insurance fund that pays state jobless benefits — run by the Employment Development Department — owes nearly $10 billion to the federal government. That's because the state has been paying far more in jobless benefits than it receives in employer-paid taxes, and the feds make up the difference. "The whole system is really whacked out right now and needs a fix," said Assemblyman Curt Hagman (R-Chino Hills). "Every time you peel off a layer of this EDD, there's an additional problem waiting to be tackled." Hagman is vice chairman of the Assembly Insurance Committee, which last week held an oversight hearing into the EDD's operations. California has been wrestling with its unemployment insurance debt for almost five years, and now it projects that the debt won't be repaid for at least a decade. That's unless Gov. Jerry Brown's administration and the Legislature come up with a new way to pay for the employer-financed program.
California land grab threatens cities from Oakland to LA suburbs — Cerritos, the Los Angeles suburb that lays claim to having the world's biggest auto mall, is one of 36 California cities, including Oakland and bankrupt San Bernardino, facing a state land grab that mayors say will devastate their finances. Controller John Chiang has ordered the city of 50,000 about 20 miles southeast of Los Angeles to liquidate $171 million in assets including land leased to dealers at the auto mall and a performing-arts center. The city's redevelopment agency held the property before the state dissolved blight-fighting districts in 2011. Chiang, a Democrat, said three dozen cities improperly took over similar assets when Gov. Jerry Brown, a 75-year-old Democrat facing a budget gap, scrapped their development agencies to free about $1 billion. Cities were to sell the holdings to repay bonds for the projects and use the rest to help cover state obligations to schools, health care and public safety, according to Chiang's website.
Washington governor signs Boeing incentive bills: Gov. Jay Inslee gave final approval Monday to a package of tax breaks for Boeing Co. in hopes of landing the company's new 777X, signing legislation at Seattle's Museum of Flight at Boeing Field. Now attention is focused on a contract vote later this week by the Machinists union. Boeing has sought the tax benefits — valued at $9 billion through 2040 — and a broad new contract with the machinists as part of a long-term deal to build the 777X in the Puget Sound. In unusual swiftness, lawmakers returned to Olympia last week for a special session dedicated to Boeing, approving the legislation ahead of the union vote. Some machinists have indicated opposition to the contract because it includes concessions — and a large crowd of workers gathered Monday afternoon to rally against the proposal in Everett. Political leaders, including many Democrats who are closely aligned with unionized workers, have declined to encourage machinists how to vote but have asked them to consider the broader impact on jobs and future generations. "I do know that the competition is very tough and that there are a lot of people rooting for our failure," said U.S. Sen. Patty Murray, D-Wash., when asked about the union vote. Asked whether the machinists could get another chance if they reject the current contract proposal, Murray said Boeing was moving quickly on its decisions: "We have the opportunity to build this plane here. I hope we take it."
Seattle Suburb Passes Highest Minimum Wage in Country - The Real News Network video - On November 5, voters from the Seattle suburb of SeaTac passed Proposition 1, which calls for a $15 an hour minimum wage for airport, hotel, and restaurant workers. That is the highest minimum wage in the US. These airport jobs, like baggage handlers, ramp workers, jet fuelers, concessionaires, these are jobs that paid $16, $18 an hour back in the 1970s and the 1980s. They used to be living-wage jobs. Even our local congressman Adam Smith recalls growing up in the home--his father was a baggage handler and was able to support a family and buy a home on a baggage handler's salary. That's all changed. The major airlines outsourced those jobs and turned them into minimum-wage jobs, which impoverished a whole community. So SeaTac saw its grocery store become a Goodwill and its video store become a pawnshop because the impoverishment of those jobs hurt the whole community.
State and local government austerity is over - This "good news" is happening in many state and local areas (not all). This is a significant change from state and local governments being a headwind for the economy to becoming a slight tailwind. Here are two graphs that show the aggregate austerity is over. The first graph shows the contribution to percent change in GDP for residential investment and state and local governments since 2005. The blue bars are for residential investment (RI), and RI was a significant drag on GDP for several years. Now RI has been adding added to GDP growth. The red bars are the contribution from state and local governments. Although not as big a drag as the housing bust, there was an unprecedented period of state and local austerity (not seen since the Depression). Now state and local governments have added to GDP for two consecutive quarters, and I expect state and local governments to continue to make small positive contributions to GDP going forward. The second graph shows total state and government payroll employment since January 2007. State and local governments lost jobs for four straight years. (Note: Scale doesn't start at zero to better show the change.) In 2013, state and local government employment is up 74 thousand through October. Here is a table of the annual change in payrolls for state and local governments.
Major U.S. Cities Still Not Recovered From Crisis - Thirty major U.S. cities face a tough and uncertain road to recovery, according to a report released Monday by the Pew Charitable Trusts. The revenues collected by a majority of the cities analyzed by Pew were still below their precrisis peaks, even as populations and costs have generally gone up. “For many of these large cities, the impact of the housing crisis on local revenue could have just been starting, several years after the worst of the nationwide collapse,” says Pew, a research nonprofit.The findings by Pew are largely in line with a recent series by The Wall Street Journal on the financial health of U.S. cities. The 30 cities analyzed by Pew and their metropolitan areas make up 49% of U.S. gross domestic product, the nonprofit says. Pew looked at cities such as New York City, Boston, Chicago, San Franciso, Phoenix and Los Angeles. The Journal examined the filings from the 250 largest U.S. cities by population that had published their 2012 financial reports as of August. The analysis found that many of the nation’s largest cities are financially fragile as they cope with steep drops in state and federal aid, rising pension and health-care costs and sluggish property-tax revenue. The data for the Journal series were provided by Merritt Research Services LLC, an Iowa research firm that mines cities’ financial filings. The Journal series on U.S. cities’ financial health looked in detail at Allentown, Pa.; Springfield, Ill.; Fresno, Calif; Providence, R.I., and New Orleans The Pew study found that property-tax collections could continue to decline, straining cities.
Monday Map: State Credit Ratings - Today’s map shows Standard & Poor’s (S&P) credit ratings for each of the 50 states. States are rated from AAA (the best and most creditworthy) to D (default on financial obligations). While no state is ranked worse than A-, there is still variation among them. California formerly held the title as the worst-rated state in our last version of this. Illinois now holds that title. Here’s the breakdown of state rankings:
- 13 states are ranked AAA, indicating that these states have “extremely strong capacity to meet financial commitments";
- 15 states have a AA+ ranking;
- 16 states are ranked AA;
- 4 states have a AA- rating;
- One state (California) is ranked A; and
- Only one state is ranked A-, the lowest rank among states (Illinois).
More states consider toll roads to raise infrastructure dollars - Cash-strapped states are scouting for ways to pay for critical road work, and increasingly, the result for motorists is the same: You're going to have to pay a toll.In the past, state and federal gas taxes largely covered the cost of building and maintaining roads. But the federal gas tax, currently 18.4 cents per gallon, has not changed in 20 years. Meanwhile, people are driving less and vehicles are becoming more fuel efficient. Nobody likes to pay tolls, but raising the gas tax is even less popular - and a tax hike would be an uphill battle at a time when Congress can't seem to agree on anything, said Patrick Sabol, an infrastructure analyst with the Brookings Metropolitan Policy Program. At least with tolls, Sabol said, people feel they are paying directly for roads they travel, instead of paying taxes to build and maintain roads they may never use.
The Day The Bubble Became Official, And Everyone Was Happy (Except Twitter Casualties) - Wolf Richter - Twitter’s IPO shook up San Francisco. People are waiting for the tsunami of money. Everyone talks about it. And everyone talks about their gift to Twitter. Like all good corporate citizens, Twitter got a huge tax break from San Francisco, and that money is currently being extracted from everyone’s pockets. In April 2011, the Board of Supervisors voted to give Twitter and other companies that would relocate to Central Market Street or the Tenderloin – not the most polished areas of town – a six-year exemption from San Francisco’s 1.5% employment tax. Twitter had threatened to leave and do whatever, if it didn’t get it. Voilà. Corporate extortion works every time. Only new hires would be impacted. At the time, the gift was estimated to be worth $22 million. So Twitter moved into its new digs, and the headcount jumped, and salaries went up, and there has been some turnover, and now the gift has grown to $56 million – and continues to grow. Twitter too has become a corporate welfare queen. But not everyone is happy, given the hoopla of the IPO, the billions involved, and the soaring rents in San Francisco as newly hired employees of startups with no revenues stand in line to rent whatever is available, rent not being much of an issue with their inflated salaries. So evictions jumped 38% between March 2010 and February 2013, the last period for which data is available; “Ellis Act” evictions – named after the state law that allows landlords to evict tenants when they want to sell their property – jumped 170%. Housing has been booming! And people are being pushed out of the city. So on Thursday, as Twitter’s valuation settled on $31.7 billion, residents of San Francisco, who not only have to pay for Twitter’s gift, but are now facing ballooning rents or eviction, demonstrated in front of Twitter’s headquarters. “People over profit,” a sign said. “No to evictions,” another said. Or “$56 million in tax breaks – Are you Twittin’ me?”
In downsized Flint, desperate retirees vs. struggling taxpayers - In cities, villages and townships across Michigan, the same battle is brewing with municipal retirees insisting that their former employers hold to guaranteed pensions and generous health-care benefits, and taxpayers saying they shouldn’t have to pay higher taxes to keep unaffordable promises that their elected leaders made in the past. If Michigan’s municipalities are to survive, they must reduce their legacy costs, and soon, he said. . “Someday somebody’s going to have to pay it. Yes, it could be the taxpayers. It could be the recipients. Somebody’s going to have to pick up the cost.” In 2011, more than 300 Michigan cities, townships and villages faced nearly $13 billion in unfunded retiree health-care costs, and another $3 billion in pension liabilities, according to a study this year co-authored by Eric Scorsone, a Michigan State University economics professor. It’s a bill that is increasingly leaving these local governments, which represent roughly two-thirds of Michigan residents, unable to deliver basic services, such as police and fire protection. In most of these towns and cities, officials agreed to provide these so-called legacy benefits years or even decades ago, but failed to set aside enough money to keep those promises. “It’s easy for me sitting here in 2013 to say, ‘What were they thinking?’” Scorsone said. “I don’t want to assess blame. We were a richer state back then. Even when there was a recession, we got back to normal in a fairly short time.”
Defeat of School Tax Stings Colorado Democrats - They had $10 million in contributions, a barrage of advertising and support from the usually warring factions of the educational establishment. But Democratic leaders in this swing state were dealt a stinging defeat on Tuesday as voters resoundingly rejected an effort to raise taxes by $1 billion a year to pay for a sweeping school overhaul. The outcome, a warning to Democrats nationally, was a drubbing for teachers unions as well as wealthy philanthropists like Mayor Michael R. Bloomberg of New York and Bill and Melinda Gates, who pumped millions of dollars into the measure, and it offered a sharp rebuke to Gov. John W. Hickenlooper and the Democratically led legislature, who have recently tugged Colorado to the left with laws on gun control and clean energy. Had the referendum passed, the current flat state income tax rate of 4.6 percent would have been replaced with a two-tier system. Residents with taxable incomes below $75,000 would have paid 5 percent; taxable incomes above $75,000 would have been taxed at 5.9 percent. The measure would have poured money into poor, rural school districts, expanded preschool, bought new technology and encouraged local innovations like longer school days and school years, supporters said. But the promise of higher teacher salaries and full-day kindergarten failed to resonate with voters, even in many reliably blue corners of the state and areas where the money would have had the greatest benefit. The state voted 65 percent to 35 percent against the overhaul, known as Amendment 66.
The Real 21st-Century Problem in Public Education is Poverty -- A new study showing explosive growth in student poverty suggests, though, that we have misidentified the problem. What if we have actually been teaching the right skills in US schools all along – math and reading, science and civics, along with creativity, perseverance and team-building? What if these were as important a hundred years ago for nurturing innovative farmers and developers of new automobiles as they are now for creating the next generation of tech innovators? What if these are the very characteristics of US schools that have made us such a strong public education nation, and the current shift toward a narrower agenda just dilutes that strength? What if, rather than raising standards, and testing students more, the biggest change we need to address is that of our student body? The October 2013 Southern Education Foundation study indicates clearly that poverty, which has long been the biggest obstacle to educational achievement, is more important than ever. It is our true 21st century problem. In 2000, students who were eligible for free or reduced-price meals made up at least half of the student body in four states. Just eleven years later, over half of public school students are poor in 17 states, including every Southern state but Virginia and Maryland, and most Western states. Student poverty is the dominant reality in schools in three of the biggest states – California, Texas and Florida—and nearly the majority in New York, Michigan and Illinois. The 21st century has sharply increased the proportion of parents who are unemployed, whose jobs do not pay enough to provide basic food, shelter, clothing and health care for their children, and/or whose immigrant status limit their capacity to navigate the education system and restrict them to a shadow economy.
Colleges May Penalize Students Over Preference on Financial Aid Applications - College applications aren't fraught enough, so here's something else to worry you. The order in which you list your preferred colleges on federal financial aid applications could be used against you. Colleges are keenly interested in what's known as "FAFSA position" -- the order in which high school students list their prospective institutions on the Free Application for Federal Student Aid (FAFSA). Students can list up to 10 schools to receive their financial aid information, and the ones they list first strongly predict which enrollment offers they're likely to accept, college consultants say. The Department of Education releases each student's line-up to all of his or her prospective colleges. That allows the institutions to see how they rank with students and exactly which schools they are competing against. Most applicants don't realize this information is shared, and they have no idea their lists could be used to affect their admissions offers or their financial aid packages
Stop Penalizing Poor College Students - THE Pell grant program is the federal government’s main strategy for helping low-income students finish college, but the way the program is designed makes it harder for those same students to graduate on schedule. The problem is that the program provides support for only 12 credit hours per term, which the government defines as full time for financial aid purposes. To complete a bachelor’s degree in four years, though, students need to enroll for 15 or 16 credit hours. Categorizing students as full time even though they aren’t taking enough credits to graduate, the Pell program works against the interests of the very people it seeks to help. At a vast majority of selective private colleges and 35 out of 50 public flagship universities, students pay a flat amount each term that covers the courses they need to graduate on schedule. When Pell grants were created in 1972, it was presumably this pricing system that the designers had in mind for the full-time grant, with 12 hours as a minimum floor. But three-quarters of Pell grant recipients today enroll in community colleges, vocational schools, for-profit institutions or other nonselective institutions. For these students, prices are typically set à la carte by the credit hour. Since Pell students get no additional federal support, the 12-hour floor essentially becomes a ceiling. Few can pay without help so they stick with what the program allows, which essentially makes it impossible for them to graduate on time.
Rethinking the Rise of Inequality - Many Americans have come to doubt the proposition that college delivers a path to prosperity. In a poll conducted last month by the College Board and National Journal, 46 percent of respondents — including more than half of 18- to 29-year-olds — said a college degree was not needed to be successful. Only 40 percent of Americans think college is a good investment, according to a 2011 poll by the Pew Research Center. On a pure dollars-and-cents basis, the doubters are wrong. Despite a weak job market for recent graduates, workers with a bachelor’s degree still earn almost twice as much as high school graduates. College might be more expensive than ever, but a degree is worth about $365,000 over a lifetime, after defraying all the direct and indirect costs of going to school. This is a higher payoff than in any other advanced nation, according to the Organization for Economic Cooperation and Development. Still, the growing skepticism about the value of a degree has fed into a deeper unease among some economists about the ironclad trust that policy makers, alongside many academics, have vested in higher education as the weapon of choice to battle widening income disparities and improve the prospects of the middle class in the United States. It has given new vigor to a critique, mostly by thinkers on the left of the political spectrum, that challenges the idea that educational disparities are a main driver of economic inequality.
Harvard's deficit skyrockets to $34 million - Harvard University's deficit grew fourfold in the past year.The number skyrocketed to $34 million in the 2013 fiscal year, compared to last year's $7.9 million shortfall, according to a report released by the university Friday night. The deficit comes as the top Ivy League institution's revenue grew 5%, but its expenses increased by 6%. The report placed some blame on the "chilling" impacts of cuts in the federal budget on research grants. At the same time, salaries, wages and benefits, which represents half of the university's operating expense, also increased. Another big cost for the university is servicing its $5.7 billion debt, which the report said it was working to reduce. "Colleges and universities around the country continue to face substantial pressure, and Harvard is no exception," The report said that though it has grown, the deficit was "manageable," because it's less than 1% of the school's revenue, which totaled $4.2 billion. While the university did face these cost and economic hurdles, the university endowment's 11.3% positive investment return and a 17% uptick in the amount of donations to the school did help boost revenue. About a fifth of Harvard's revenue comes from student tuition. The university warned it will face "increasingly complicated yet unavoidable choices" as it deal with the deficit in coming years.
Universities Say Sequestration Cuts Are Damaging Scientific Research - Eighty-one percent of research universities say budget sequestration cuts are directly hampering their scientific research activities, according to a new survey released Monday.The series of blunt, across-the-board government spending cuts took effect this past March, after lawmakers were unable to agree on a more strategic and thought-out form of deficit reduction. (Whether such deficit reduction was even necessary is another can of worms entirely.) The Association of American Universities (AAU), the Association of Public and Land-grant Universities (APLU), and the Science Coalition (TSC) ran the survey among 171 research universities they collectively represent. Forty-three percent responded to the survey, and its margin of error was +/- ten percent. Specifically, the study found that 70 percent of the surveyed institutions had delayed research projects and were dealing with fewer federal grants for new research. Twenty-eight percent reported an inability to purchase research equipment and instrumentation, 19 percent had cancelled field and experimental work, and 38 percent had delayed it.
Women Gain in Some STEM Fields, but Not Computer Science - A few weeks ago, I wrote about ways to get more women interested in computer science. One of the points that came up frequently in my reporting is that some other STEM (science, math, engineering and technology) fields have actually been quite successful attracting more women. A report this week from the National Science Foundation lays out these trends nicely: As you can see, a majority of bachelor’s degrees in some STEM fields — psychology, biosciences, social sciences — were actually given to women in recent years. And women’s participation in these fields has also risen, on net, since 1991, even if there has been some erosion in biosciences in recent years. Women receive less than half of physical sciences degrees, but they earn a much higher share than they did two decades ago. Now take a look at the trends in computer science and engineering. Engineering is slightly more female-heavy than it was in 1991, but not much: 15.5 percent then versus 18.4 percent in 2010, the most recent year in the report. Computer science actually is more male-dominated today than it was two decades ago: Women received 29.6 percent of computer science B.A.’s in 1991, compared with 18.2 percent in 2010.
Where Are the Graduates of University of the People? - WHEN it opened in 2009 to some media fuss, University of the People was a free-culture concept in a competitive, proprietary universe. It charged no tuition and was open to anyone who could do the work. Professors volunteered their time. Now, four years later, the first students are reaching graduation, raising a question no R.O.I. calculator has yet sought to answer: What is a free online degree worth? Online learning has caught fire since the early days of “distance education,” and massive open online courses have injected technological polish and a hip ethos to Web courses, but University of the People remains the only tuition-free online college granting degrees. University of the People has an annual budget of $1 million, 14 paid staff members and 300 volunteers. It runs on donations from foundations, including the Hewlett and the Gates foundations and the Carnegie Corporation, plus fees students pay to apply (from $10 to $50) and take exams ($100 each), although waivers are available. Mr. Reshef, an Israeli businessman in the education field, has contributed $3.5 million of his own money. Curriculum is shaped by unpaid deans with day jobs at New York University and Columbia and is purposefully low tech, using open-source, text-based materials that students access and respond to asynchronously. “We use the simplest technology that is most available,” Mr. Reshef said. A quarter of students don’t have broadband and can’t play video; 6 percent use only mobile devices.
The Real Reason New College Grads Can’t Get Hired - It’s because college kids today can’t do math, one line of reasoning goes. Or they don’t know science. Or they’re clueless about technology. These are all good theories, but the problem with the unemployability of these young adults goes way beyond a lack of STEM skills. As it turns out, they can’t even show up on time in a button-down shirt and organize a team project. The technical term for navigating a workplace effectively might be “soft skills,” but employers are facing some hard facts: The entry-level candidates who are on tap to join the ranks of full-time work are clueless about the fundamentals of office life. A survey by the Workforce Solutions Group at St. Louis Community College finds that more than 60% of employers say applicants lack “communication and interpersonal skills” — a jump of about 10 percentage points in just two years. A wide margin of managers also say today’s applicants can’t think critically and creatively, solve problems or write well. Another employer survey, this one by staffing company Adecco, turns up similar results. The company says in a statement, “44% of respondents cited soft skills, such as communication, critical thinking, creativity, and collaboration, as the area with the biggest gap.” Only half as many say a lack of technical skills is the pain point.The National Association of Colleges and Employers surveyed more than 200 employers about their top 10 priorities in new hires. Overwhelmingly, they want candidates who are team players, problem-solvers and can plan, organize and prioritize their work.
Federal Student Loans Surpass $1 Trillion; Delinquency Rate Soars To All Time High - There is a reason why US consumer revolving (credit card) credit growth is getting lower and lower and lower and at last check posted a mere 0.2% annual increase. That reason is that as the NY Fed disclosed moments ago, federal student loans officially crossed the $1 trillion level for the first time ever. Notably: the quarterly student loan balance has increased every quarter without fail for the past 10 years! And just to prove that while credit card balances are plunging due to more stringent bank repayment requirements, this is more than offset by borrowers shifting to student loans, where the delinquency rate on student loans is soaring and has just hit an all time high of 11.83%, an increase of almost 1% compared to last quarter. Even according to just the government lax definition of delinquency, a whopping $120 billion in student loans will be discharged. Thank you Uncle Sam for your epically lax lending standards in a world in which it is increasingly becoming probably that up to all of the loans will end up in deliquency.
Are You Repaying Your Federal Student Loans? - The cost of all that pomp and circumstance is catching up with recent grads. According to figures released Thursday from the Federal Reserve Bank of New York, the amount of education loans outstanding nationwide, which has increased every quarter since the New York Fed began tracking these figures in 2003, rose $33 billion to $1.027 trillion. Meanwhile, the share of student-loan balances that were 90 or more days overdue rose to 11.8% from 10.9%, even as delinquencies on other debts dropped. Student-loan balances have roughly tripled since 2004, and roughly 9% of all consumer debt is now student loans, up from 3% a decade ago. Mid-November marks about six months since most of this year’s crop of college and professional-school graduates tossed their caps—and for those who graduated with outstanding federal student loans, it means the end of an optional six-month payment-free grace period that follows graduation. In other words, mandatory federal student-loan payments are about to kick in for the youngest group of borrowers. The six-month grace period begins the day after a student stops attending school on at least a half-time basis, according to the U.S. Department of Education, which administers direct loans. (The same grace period applies to students still enrolled on a less-than-half-time basis or those who withdraw from their academic program, according to the DOE.) This year’s college graduates will be paying interest on their direct loans fixed at 3.86%, while graduate or professional-school graduates will pay 5.41% interest, the DOE says.
Sugar Daddies and College Babies: UNR Students Dating Away Their Debt - Welcome to the world of sugar daddies and college babies. More and more college girls are dating away their debt by spending time with wealthy, significantly older men. According to Fidelity, the average debt after college graduation is $35,200. For many of these girls, it's business -- they go on regular dates, and in return, they get a financial allowance. However, many say this is no different from prostitution. We found a few UNR students who were willing to share their experience with us. They asked to stay anonymous. Kylie, who is using a pseudonym, is one of these girls. She is 20, a full-time junior at UNR and she brings in about $240,000 a year by going out with older men once a month. She's a sugar baby, and her three sugar daddies -- a doctor and two stockbrokers -- fly in to Lake Tahoe once a month to meet her. "Each month I get around $20,000 from my three sugar daddies," said Kylie. It's a deal that hundreds of thousands of college girls across the nation are making, and they are able to do this through SeekingArrangment.com -- a self-advertised dating site that connects young girls to wealthy, older men.
Retired union workers facing 'unprecedented' pension cuts - Hundreds of thousands of retired union workers are facing pension cuts that could slash their monthly payments in half — or even more. The proposed cuts are part of a desperate effort to head off insolvency at multiemployer pension plans, pensions that typically provide benefits for workers at several companies. It's an unconventional move: Pension law has long maintained that cutting the benefits of those already retired is off-limits. Current law allows troubled multiemployer plans to reduce the benefits that employees earn going forward, cut early retirement and disability benefits and hike employer contributions instead. But things have gotten so dire that a coalition of employers and labor unions is asking Congress to change the law. Multiemployer pension plans cover more than 10 million workers and retirees in the trucking, construction, retail, mining, manufacturing and other industries. Historically, the plans were considered more secure since multiple employers pay into the plans instead of relying on the fortunes of just one company. But in the past decade, many plans have struggled with supporting an aging workforce, and large employers have been pulling out of the plans. In addition, many are still dealing with significant losses incurred during the recession. Related: Pensions ask retirees to pay back tens of thousands The proposal would allow cuts for those plans that are closest to insolvency. According to the Pension Benefit Guaranty Corporation, which insures pension plans, up to 10% of the roughly 1,500 multiemployer plans will run out of money in coming decades.
Unless Social Security Is Expanded with Increased Funding, We Face An Unprecedented Crisis of Millions of Baby Boomers In Poverty - A majority of Americans, especially women and people of color, will spend their final years living in poverty in coming decades unless Social Security is improved and expanded—not cut back as Republicans and President Obama seek—and there are many fair ways to accomplish that, experts told a congressional briefing last week. “Real people are wildly in favor of Social Security, wildly supportive of it. And this is a voting issue in 2014.” Lake’s remarks came after a series of stunning presentations describing why the country was on the brink of a staggering retirement crisis unlike anything Americans have heard about from debt-obsessed Republicans or the White House. The takeaway is that there needs to be a new and entirely different political discussion—and congressional response—about what Social Security provides after a lifetime of work or an unexpected tragedy, so millions of Americans don't become desperately poor. “There is a retirement income crisis. It’s huge. Two-thirds of working Americans cannot maintain their standard of living in retirement—and that assumes they work until 65,” said Syracuse University’s Eric Kingson, co-director of Social Security Works, which convened the day-long session with Sen. Tom Harkin, D-Iowa. “Somewhere in the discussion about Social Security we forget that its purpose is to assist the American people… The end is the kind of society we want; the kind of support we want.”
Social Security Is Especially Important to Minorities - CBPP - A recent analysis by economist Eugene Steuerle and colleagues concludes that African Americans and Hispanics as a group each pay more in Social Security taxes in a given year than they receive in benefits. If true, this stems more from the age composition of the population (as explained below) than from the structure of Social Security. The fact remains that Social Security is particularly important for minorities. Social Security’s benefit formula is weighted in favor of low-wage workers, who are disproportionately black and Hispanic; they receive higher monthly benefits as a percentage of their earnings than do higher-wage workers. Low earners are also more likely to become eligible for Social Security disability benefits and for the survivor benefits paid to the young families of breadwinners who die.Although higher earners tend to live longer and collect retirement benefits for a longer time, this only partly offsets the first two factors. The Congressional Budget Office has found that the ratio of lifetime benefits to payroll tax contributions is almost three times as high for people in the bottom fifth of the earnings distribution as for those in the top fifth. Using a similar approach, Urban Institute researchers have estimated that blacks and Hispanics receive more benefits over their lifetimes, relative to their contributions, than do whites.Social Security represents 90 percent or more of income for 35 percent of elderly white beneficiaries, 42 percent of Asian Americans, 49 percent of blacks, and 55 percent of Hispanics. (See graph.)
How To Save Entitlements Without Really Trying - Anyone who earns a paycheck knows the Federal Insurance Contributions Act, or FICA tax, is deducted to pay for Social Security and Medicare. In 2013, 7.65 percent of your paycheck will go to those two programs (6.2 percent to Social Security, and the rest to Medicare). Businesses must also pay the same amount for each employee.But these payroll taxes apply only to earnings of up to $113,700 a year, which is this year’s cap (it rises from year to year). Any earnings above that are not subject to FICA taxes. If you earn $227,400 in 2013, for example, you would only pay FICA taxes on half of that.The median income in the United States in 2012 was just over $51,000, according to the Census Bureau. This means that more than half of Americans already pay FICA taxes on all of their income. Raising or eliminating the payroll tax cap would not alter most paychecks at all—as few as 5 percent of Americans would pay more. Since most employees would see no change, employers would not have to pay much more either.
Cuts in Hospital Subsidies Threaten Safety-Net Care - The uninsured pour into Memorial Health hospital here: the waitress with cancer in her voice box who for two years assumed she just had a sore throat. The unemployed diabetic with a wound stretching the length of her shin. The construction worker who could no longer breathe on his own after weeks of untreated asthma attacks and had to be put on a respirator. Many of these patients were expected to gain health coverage under the Affordable Care Act through a major expansion of Medicaid, the medical insurance program for the poor. But after the Supreme Court in 2012 gave states the right to opt out, Georgia, like about half the states, almost all of them Republican-led, refused to broaden the program. Now, in a perverse twist, many of the poor people who rely on safety-net hospitals like Memorial will be doubly unlucky. A government subsidy, little known outside health policy circles but critical to the hospitals’ survival, is being sharply reduced under the new health law. The subsidy, which for years has helped defray the cost of uncompensated and undercompensated care, was cut substantially on the assumption that the hospitals would replace much of the lost income with payments for patients newly covered by Medicaid or private insurance. But now the hospitals in states like Georgia will get neither the new Medicaid patients nor most of the old subsidies, which many say are crucial to the mission of care for the poor.
Early Obamacare data to signal how many still waiting to enroll (Reuters) - The Obama administration will release healthcare enrollment numbers for Obamacare's rocky October rollout this week that could be more important for what they fail to say, than for what they do. President Barack Obama's Democratic administration, which is under intense pressure from Republicans to release the data, has signaled that the total will be low after weeks of technical problems with the federal website, HealthCare.gov. But that will only underscore the huge number of people believed to be waiting for a chance to obtain benefits, according to policy experts and congressional aides. The 2010 Patient Protection and Affordable Care Act, or ACA, aims to provide health benefits to millions of uninsured Americans. It mandates that most Americans at least be enrolled for health insurance by March 31 or pay a fine. Analysts say the October number should offer an early indication of whether Obama's landmark health initiative is proving more popular with poor people who qualify for Medicaid or with working-class families eligible for subsidized private insurance through new online marketplaces that have been set up in all 50 states.
Medicaid signups an early Obamacare bright spot - The underdog of government health care programs is emerging as a rare early success story of President Obama's technologically challenged health overhaul. Often dismissed, Medicaid has signed up 444,000 people in 10 states in the six weeks since open enrollment began, according to Avalere Health, a market analysis firm that compiled data from those states. Twenty-five states are expanding their Medicaid programs, but data for all of them was not available.Meanwhile, private plans offered through troublesome online markets are expected to have enrolled a much smaller number of people. Around 50,000 people so far have successfully enrolled in a private health insurance plan via HealthCare.gov, the Obamacare federal website, according to the Wall Street Journal and CBS News' confirmation from industry analysts. Combined with the reported enrollment data from state-run Obamacare marketplaces, the enrollment levels in the new health insurance programs appear, so far, to fall well below the Obama administration's expectations.
Health Care Thoughts: Which Law to Violate? - Citing a state notice statute, the Insurance Commissioner of California has convinced Blue Shield NOT to cancel policies which are not grandfathered under the ACA. The policies will be extended until March 31, giving hundreds of thousands of policy holders more time to shop. So in order to meet California law, B/S will violate federal law. Given all of the involved parties are Democrats, I don’t look for any blowback from the feds. Policy holders who take advantage run the risk of paying double deductibles in 2014. So the law is the law unless it is not convenient……
Obamacare Website Enrollment 90% Below Government Expectations - The administration had estimated that nearly 500,000 people would enroll in October, according to internal memos cited last week by Rep. Dave Camp (R., Mich.); but as WSJ reports, initial reports suggest that fewer than 50,000 people successfully navigated the troubled federal health-care website to enroll in private health insurance plans as of last week. The figures represent an improvement from the website's first days. On Oct. 1, when it opened, only six people signed up for coverage, according to internal administration memos but remains 90% below expectations with only 4 months until seven million are expected to have signed up for private coverage when the open-enrollment period is set to end. Via WSJ, Initial reports suggest that fewer than 50,000 people successfully navigated the troubled federal health-care website to enroll in private health insurance plans as of last week, two people familiar with the matter said Monday. The early tally falls far short of internal goals set by President Barack Obama's administration in the months leading up to the opening of the HealthCare.gov site Oct. 1, and the low number has worried health insurers that are counting on higher turnout. The administration had estimated that nearly 500,000 people would enroll in October, according to internal memos cited last week by Rep. Dave Camp (R., Mich.). An estimated seven million were expected to gain private coverage by the end of March, when the open-enrollment period is set to end.
Healthcare.gov Enrollments to Date are Pathetic - Yves Smith - No wonder the Administration has been tap dancing about results of the Obamacare launch. The Wall Street Journal reports that fewer than 50,000 people have enrolled in Obamacare through the Federal website to date. Mind you, this is a full six weeks after the launch date, so enrollments have averaged under 10,000 per week. This contrasts with the Administration’s estimate of 50,000 enrollments for the month of October (the assumption was that most people would put off making a commitment until closer to the deadline). Recall that the enrollment target is 7 million, and the enrollment period has been extended till March 31. By contrast, the 14 states that have their own sites are having a bit more success, with 49,000 enrollees among them, according to Avalere, a consulting firm. The Administration is trying cheerily to say that late-in-the-game signups are normal. But even so, only 1/10th of the target population has created accounts (the figure bruited about is 750,000) and reports to date suggest that that may well include duplicate accounts. And of course, the difficult of enrolling is producing adverse selection: for the most part, only highly motivated people, as in those who have high medical costs, are anxious enough to keep pushing with the site so difficult to use.
NY Enrolls Nearly 50,000 Into Health Exchange, On Par With Entire Federal Site - More than 48,000 New Yorkers have enrolled in the state's health-care exchange and nearly 200,000 have finished the application process to get insurance through the system, the state Health Department announced Tuesday. That's up from 37,000 that had enrolled as of Oct. 23. New Yorkers may be having an easier time enrolling on the state site than the troubled federal site, which is healthcare.gov. The Wall Street Journal reported Monday that fewer than 50,000 people had enrolled on the federal site, citing anonymous sources. The federal government had hoped for 500,000 enrollees in October. The federal government has been besieged by problems with its own health exchange site, which is handling the enrollment for 36 states. New York has its own site, and it was overwhelmed by visitors when it first launched. The website had more than 30 million hits in the first week it opened, but the problems appear to have subsided. The New York site, called NY State of Health, has enrolled 48,162 New Yorkers since Oct. 1, and 197,011 customer completed the full application process to potentially begin receiving health insurance on Jan. 1. The enrollment period runs through March 31. The state said that 88 percent of those determined eligible for insurance were qualified for private insurance.
Michael Olenick: Comprehensive Review of ObamaCare Plans Reveals Not Only High Cost for Atrocious Coverage, but Also Apparent Violations of ACA Requirements -- Yves here. From what Lambert and I can tell, Michael Olenick is the first to publish any sort of comprehensive analysis of Obamacare plans. And when you read his piece, you will see why were are likely to continue to be subjected to barrages of cherry-picked anecdotes in lieu of analysis. His three-person family in his Florida zip code has 132 plans available to them. As he describes, the one mechanism that Obamacare stipulated to simplify the shopping task a bit, that of showing what the each plan would pay out under two specific treatment situations, was not disclosed for the overwhelming majority of plans on the healthcare.gov site. That meant that Olenick had to find the the information elsewhere and input it into his comparison. But the most stunning part is the degree to which the plans fall short of their stipulated “actuarial” payouts. At least for Olenick’s family, the plans fall well short of the mandated level of reimbursements (for instance, a bronze plan is touted as covering 60% of expected medical costs). It’s unlikely that Olenick’s family would produce results that are out of line with results for states with similar regulations (note that some states have additional requirements that will influence plan structure and pricing). It is finally important to recognize that the overwhelming majority of reporters and commentators have not been gone the route Olenick has, of obtaining actual detailed plan data for a particular family or individual. Instead, for the most part, they have relied on a dataset provided by the Centers for Medicare and Medicaid Services for every health care plan in the Federal marketplace. It has the appearance of being comprehensive, as Charles Ornstein tells us in his post “Not a good price calculator“"
HealthCare.gov unlikely to be fixed by deadline - Software problems with the federal online health insurance marketplace, especially in handling high volumes, are proving so stubborn that the system is unlikely to work fully by the end of the month as the White House has promised, according to an official with knowledge of the project. The insurance exchange is balking when more than 20,000 to 30,000 people attempt to use it at the same time — about half its intended capacity, said the official, who spoke on the condition of anonymity to disclose internal information. And CGI Federal, the main contractor that built the site, has succeeded in repairing only about six of every 10 of the defects it has addressed so far.Government workers and technical contractors racing to repair the Web site have concluded, the official said, that the only way for large numbers of Americans to enroll in the health-care plans soon is by using other means so that the online system isn’t overburdened. This inside view of the halting nature of HealthCare.gov repairs is emerging as the insurance industry is working behind the scenes on contingency plans, in case the site continues to have problems. And it calls into question the repeated assurances by the White House and other top officials that the insurance exchange will work smoothly for the vast majority of Americans by Nov. 30.
If You Like Your Plan, Too Bad. -- A central promise of the Affordable Care Act was "if you like your health care plan, you'll be able to keep your health care plan, period." However, since the program's rollout at the beginning of October, it has become clear that many Americans are being dropped from their plans by their insurance providers. This should not surprise anyone, especially the government. On June 17, 2010, the Administration projected that up to 69 percent of employer plans and over 67 percent of individual plans would be terminated by 2013 because of the loss of their grandfathered status.These projections mean that since 2010, the government has expected between 71 million and 125 million people to be dropped from their health insurance plans by the end of 2013 because of the Affordable Care Act.
Anthem Blue Cross extends some canceled health insurance policies -- Amid an uproar over widespread cancellations of health insurance policies, Anthem Blue Cross of California said it is granting a two-month extension through February to 104,000 customers. California's largest for-profit insurer is offering more time to a small portion of its canceled policyholders because the insurance giant didn't send termination notices in time under state rules. This move comes at a time when an estimated 1 million Californians and several million more nationwide stand to lose their existing health insurance at the end of the year because it doesn't meet all the requirements of the Affordable Care Act. Under the healthcare law, these consumers are guaranteed replacement coverage regardless of their medical history, and some may qualify for federal premium subsidies. Still, many people resent being required to switch — and possibly pay more — after President Obama repeatedly told Americans that they could keep their health plan if they liked it. In response to that backlash, Obama apologized last week to those affected consumers and he said his administration is looking into potential fixes for the situation. Meantime, at the state level, the California Department of Insurance has been reviewing insurance companies' termination letters to ensure customers were given adequate warning.
The Greater Grandfathering of old policies in the ACA: The many cases of people receiving cancellation letters from their health insurance companies which include the claim that the policy will be cancelled as of January 1 because of the ACA and which offer insurance at much higher premiums have caused a political crisis for Obama nd other Democrats. I have a number of confused thoughts on the issue. The bottom line is that I am enthusiastic about the the Landrieu/Merkeley proposal (click the link the post is excellent) for reformed reform. I will start with policy — what is to be done. One option is to stay the course, weather the storm, grow a spine and check guts.The ACA mandates insurance for almost everyone and defines a minimum level of health insurance which counts (this is clearly necessary or else the mandate would be meaningless). Policies which are not up to ACA standard are in fact being cancelled. The ACA also says that any plan which existed when it was signed into law counts as health insurance. Existing plans were grandfathered. Obama referred to this provision when he (accurately using the present tense) said in 2009 that “If you like your health insurance plan, you can keep it”. But the definition of what is an old grandfathered plan and what is a new plan (signed by the same policy holder and insurance company) is very complicated (HSS FAQ after FAQ addresses the question). One possible reform proposal would be to replace the phrase amounting to “when the PPACA act is signed into law” with “November 9 2011″ say. This would make the almost universal interpreation of what Obama said in 2009 true too.
Takeaways: Obamacare by the numbers - There was no way the early Obamacare enrollment numbers were going to look good — and they sure didn’t. And once you get beyond the White House’s sales pitch, it only gets worse. The Obama administration did everything possible to dress up the ugliness of the first month of Obamacare enrollment numbers — adding in people who haven’t even paid and throwing in figures that have nothing to do with actual signups. The one true bright spot is there seems to be interest, so enrollment could pick up in the coming months, just like the White House always said it would. (PHOTOS: 10 Sebelius quotes about the Obamacare website) But perception has a way of becoming reality — and what most Americans will hear is that the 106,000 people who selected health plans in the first month is a long, long way from the goal of 7 million Americans covered in the first year. If that’s all that people hear, the Obama administration will have to work extra hard to get young and healthy people to sign up — if they haven’t all been chased away by now. Here are the top takeaways from the first enrollment numbers:
Can Obamacare survive an enraged middle class? - So far, millions of Americans have lost their health-insurance coverage thanks to Obamacare. Those most affected are younger, healthy citizens as well as the middle class. Yes, this middle class includes many liberals. ProPublica has published an article describing the plight of two liberal Democrats who lost their coverage because their comprehensive plan still “did not meet the requirements of the Affordable Care Act”. The couple now must pay exorbitant rates for worse coverage. Since they are of the middle class, they make too much money to qualify for subsidies to help defray the cost of a new plan. (If you are single, the cut-off for subsidies is a salary of $46,000 a year. The cut-off for a family of four is $94,000 a year.) Unlike most government programmes, which conduct their wealth-siphoning out of the public eye, the effects of Obamacare are starkly visible, especially to those it needs to exploit the most. You can complain about welfare and affirmative action all you want; still, to most people, those programmes are abstractions that don’t alter everyday life in any substantial way. But there really is nothing quite like being a hard-working, tax-paying, law-abiding citizen and receiving a letter in the mail from your health insurance company saying you’ve been dropped – thanks to a law you were told would help you. The letter instantiates, to that upstanding citizen, the fact that he is now merely a sacrificial tax lamb. Millions of little tax lambs have received such letters, and even the most capable spin doctors can’t hide this nasty fact. In fact, the more creative they get with their spin, the more the victims of Obamacare will become enraged that their hardship is being trivialised.
Democrats Threaten to Abandon Obama on Health Provision - Anxious congressional Democrats are threatening to abandon President Obama on a central element of his signature health care law, voicing increasing support for proposals that would allow Americans who are losing their health insurance coverage because of the Affordable Care Act to retain it. The dissent comes as the Obama administration released enrollment figures on Wednesday that fell far short of expectations, and as House Republicans continued their sharp criticism of administration officials at congressional hearings examining the performance of the health care website and possible security risks of the online insurance exchanges. In addition, a vote is scheduled Friday in the Republican-controlled House on a bill that would allow Americans to keep their existing health coverage through 2014 without penalties. The measure, drafted by Representative Fred Upton, the Michigan Republican who is the chairman of the Energy and Commerce Committee, is opposed by the White House, which argues that it would severely undermine the Affordable Care Act by allowing insurance companies to continue to sell health coverage that does not meet the higher standard of Mr. Obama’s health care law. But a growing number of House Democrats, reflecting a strong political backlash to the rollout of the law, are warning the White House that they may support the measure if the administration does not provide a strong alternative argument.
House Democrat On Obamacare "I Don't Know How Obama Fucked This Up So Badly" - For five years, congressional Democrats have sprung to his defense when Obama's been in trouble. Now though, amid the dismal reality of Obamacare, Politico reports a familiar refrain from Democratic sources: Obama's "if-you-like-it-you-can-keep-it" promise on insurance policies is his "Read my lips, no new taxes" moment — a reference to the broken promise that came to damage President George H.W. Bush’s credibility with his fellow Republicans. His one-time allies are no longer sure that it's wise to follow him into battle, leaving Obama and his law not only vulnerable to existing critics, but open to new attacks from his own party. Democratic sources say, Obama can expect that lawmakers will be quicker to criticize him — and distance themselves from his policies. Via Politico,[Instead of his "fix" and talking points for Obamacare], the White House chief of staff might have been better off revealing a U.S. map with the president’s plan for saving congressional Democrats’ seats — or just apologizing for letting so many Democrats walk out in public and repeat wildly inaccurate White House claims about the health of the enrollment website and Americans’ ability to keep their insurance plans if they liked them... President Barack Obama’s credibility may have taken a big hit with voters, but he’s also in serious danger of permanently losing the trust of Democrats in Congress...“I don’t know how he f—-ed this up so badly,” said one House Democrat who has been very supportive of Obama in the past.
Having the Backbone to Set Minimum Standards For Health Insurance - Robert Reich - Democrats are showing once again they have the backbones of banana slugs. The Affordable Care Act was meant to hold insurers to a higher standards. So it stands to reason that some insurers will have to cancel their lousy sub-standard policies. But spineless Democrats (including my old boss Bill Clinton) are caving in to the Republican-fueled outrage that the President “misled” Americans into thinking they could keep their old lousy policies — and are now urging the White House to forget the new standards and let people keep what they had before. And some congressional Republicans are all too eager to join them, and allow insurers to offer whatever crap they were offering before — exposing families to more than $12,700 in out-of-pocket expenses, canceling policies of people who get seriously sick, failing to cover prescription drugs, and so on. Can we please get a grip? Whenever industry standards are lifted — a higher minimum wage, safer workplaces, non-toxic foods and drugs, safer cars — people no longer have the “freedom” to contract for the sub-standard goods and services. But that freedom is usually a mirage because big businesses have most of the power and average people don’t have much of a choice. This has been especially the case with health insurance, which is why minimum standards here are essential
Obamacare Fix: Keep Plans - President Barack Obama offered a proposal Thursday aimed at making it easier for Americans whose health insurance plans were slated to be cancelled at the end of the year keep the same coverage through 2014. Obama’s announcement is an attempt to head off a mounting push from moderate and red state Democrats who are threatening to attempt an end-around the White House on health care. It’s also a response to the reaction to his repeated claims that people would be allowed to keep their current health care plans. “I completely get how upsetting this can be for Americans … I hear you loud and clear,” Obama said in the White House briefing room, before laying out his proposal, which allows insurers to “extend plans that would otherwise cancelled into 2014.” Facing a growing rebellion from members of his own party, Obama chose to put the onus back on insurance companies by encouraging them to reinstate plans that they had already told customers they planned to cancel heading into 2014. Insurers can re-enroll only those whose plans were slated to be cancelled, and not take in new customers, as Rep. Fred Upton (R-Mich.) has proposed in a bill slated for a Friday floor vote. Insurers, meanwhile, will be informed that they have the option of choosing to reach out to consumers whose plans have been cancelled and offer to provide them for an additional year. Risk pools would be adjusted to offset the change.
Obama vows to fix health ‘fumble’ - US President Barack Obama has announced a one-year reprieve for millions of Americans facing cancelled insurance coverage under his healthcare law. A contrite Mr Obama said his administration "fumbled the rollout" of his flagship domestic achievement. But insurers, who axed policies that do not meet the new minimum conditions, raised doubts over Mr Obama's fix.In recent weeks insurance companies have sent letters to their customers announcing the cancellation of coverage that does not meet the new requirements of the law. On Thursday, Mr Obama bowed to a wave of anger from consumers and members of Congress who have lambasted him for not keeping his promise that people would be able to hold on to their existing health plans. He said that insurers could renew for 12 months the policies that have been cancelled, though the companies are not required to take that step. Under the change, firms that extend those plans will be required to tell customers what medical care they do not cover, and inform them that better insurance options may be available.
‘World War III’ Between Obama and the Insurance Industry - The brief, bizarre and tentative friendship between President Obama and the health insurance industry is so over, thanks to the president's plan to allow insurers to keep offering plans they've already cancelled. As one anonymous source put it: Dem source: "World War III just broke out between WH and insurance industry." #deathspiral. On Thursday morning Obama announced that he would allow a one-year grace period for insurers to offer Americans to keep their non-Obamacare-compliant plans through 2014. So if insurers won't, or can't, keep those plans on the market, then it's not the president's fault. (Update: And now some state regulators are siding with the insurance industry. The National Association of Insurance Commissioners, which is made up of the chief insurance regulators from all 50 states and the District of Columbia, also issued a statement written by its president, Louisiana's Republican insurance regulator Jim Donelon, who argued that "this decision continues different rules for different policies and threatens to undermine the new market." The president's plan gives state regulators the power to approve or deny the extension of plans in their state, making them susceptible to blame as well.
The individual market “fix” and Obamacare - Obama’s “fix” for the individual market has a lot of potential holes, apart from whether it’s even legal. First, state insurance commissioners need to decide whether or not to implement the policy. At least some states (Washington and Arkansas) won’t. Even if states adopt the provision, there’s nothing to suggest they would compel insurers to continue offering their plans into 2014, so they may be canceled anyway. Industry expert Bob Laszewski had this to say earlier in the week: Cancellation letters have been sent. Their computer systems took months to program in order to be able to send the letters out and set up the terminations on their systems. Even post-Obamacare, the states regulate the insurance market. The old products are no longer filed for sale and rates are not approved. I suppose it might be possible to get insurance commissioners to waive their requirements but even if they did how could the insurance industry reprogram systems in less than a month that took months to program in the first place, contact the millions impacted, explain their new options (they could still try to get one of the new policies with a subsidy), and get their approval? But let’s set all that aside, and say that insurers in some states bend to consumer demand and decide to extend plans. There’s fear that it would cause selection into exchange plans to be too adverse because many of the “good risks” will stay in plans that were supposed to be canceled. Would this be catastrophic to reform, writ large? Probably not.
House Approves Bill That Allows Policy Renewals — Defying a veto threat from President Obama, the House approved legislation on Friday that would allow insurance companies to renew individual health insurance policies and sell similar ones to new customers next year even if the coverage does not provide all the benefits and consumer protections required by the new health care law. The vote was 261 to 157, with 39 Democrats bucking their party leadership and the White House to vote in favor of the bill. Hours after the vote, Mr. Obama and top aides met for over an hour with insurance executives after industry leaders complained Thursday that they had been blindsided by a White House reversal on canceled policies. The president described the meeting as a “brainstorming” session about how to ensure changes to the health care law go smoothly. The insurance representatives, from more than a dozen companies, said they would work with the administration to protect the financial viability of the new marketplaces, but did not say how.
UnitedHealth drops thousands of doctors from insurance plans - UnitedHealth dropped thousands of doctors from its networks in recent weeks, leaving many elderly patients unsure whether they need to switch plans to continue seeing their doctors, the Wall Street Journal reported on Friday. The insurer said in October that underfunding of Medicare Advantage plans for the elderly could not be fully offset by the company's other healthcare business. The company also reported spending more healthcare premiums on medical claims in the third quarter, due mainly to government cuts to payments for Medicare Advantage services. The Journal report said that doctors in at least 10 states were notified of being laid off the plans, some citing "significant changes and pressures in the healthcare environment." According to the notices, the terminations can be appealed within 30 days. Tyler Mason, a UnitedHealth spokesperson, was not immediately available for comment when reached by Reuters. The insurer told the WSJ that its provider networks were always changing and that it expected its Medicare Advantage network to be 85 percent to 90 percent of its current size by the end of 2014.
The sinking ship of Obamacare - Let’s recap: If you like your insurance policy, you can keep it. No, wait. If you liked your policy, it was probably worthless anyway. Scratch that. If your junk policy was canceled and you still want it, you can keep it. Er, get it back. So now President Obama has apologized for real. On Thursday, he told Americans, “I hear you loud and clear” (Do I hear an echo?) and announced that insurance companies can ignore the law for a year. The several million Americans whose policies were canceled, or were scheduled to be canceled, can keep them — or get them back — assuming state regulators and insurance companies comply. It isn’t clear whether insurers can, or will, based on the assurances of someone whose credibility isn’t exactly soaring. Meanwhile, the newest promise dovetails with another earlier delay granted to businesses with at least 50 employees (just 3.6 percent of employers), which were given another year to comply with the Affordable Care Act (ACA). With the computer-crash rollout preventing people from signing up, businesses temporarily exempted from compliance and policyholders either reinstated or facing yet another broken promise (for which the insurance companies will be blamed), is there anyone left to love Obamacare? In the wake of Obama’s latest tweak, two salient questions have emerged: Can the ACA survive? Can the president even do what he just did, legally?
Despite a Botched Rollout, the Health-Care Law Is Worth It - The botched rollout of the Patient Protection and Affordable Care Act (commonly called the ACA or “ObamaCare”) has been an unmitigated disaster. Choose your favorite adjective: horrible, embarrassing, inexcusable. They all fit. But a badly designed website doesn’t signify a badly designed policy. The goals, principles and major design features of the ACA are barely affected by the government’s health-exchange website catastrophe. If you liked the basic ideas before, you still should. If you didn’t, you still shouldn’t. Unfortunately, that simple message may not penetrate the public consciousness. I fear that what is being sloughed off by some ACA supporters as merely bad PR might wind up being a great deal more damaging. Remember, in politics, spin is often more important than reality. Many Republicans have been unremittingly hostile to the ACA since it passed Congress. They have never stopped trying to kill or obstruct it, and they have not been constrained by the truth. (Remember “death panels”?) The website debacle hands them a gift: a line of attack that is true and legitimate.While Americans either read about or experience the website’s failures firsthand, the enemies of health-care reform are telling them that ObamaCare is a failure. And since virtually no one actually understands how the new law works, the verdict sounds plausible. Thus tech “glitches” make the law’s critics look better and make the administration look like the gang that couldn’t shoot straight.
Why Obamacare’s Troubled Rollout Might Force the Cooperation Health Reform Needs - We’re six weeks into the implementation one of the key provisions of the Affordable Care Act, the rollout of the healthcare marketplaces. It’s been a tough month, dominated by failures of rather astonishing proportions. But sooner or later, Healthcare.gov will work, and Republican governors will grasp that bipartisan cooperation with the Obama administration is in their best interest.First, let’s acknowledge the failures. The most obvious occurred within the Obama administration itself, whose Department of Health and Human Services botched the launch of the online marketplace. For those of us who worked so hard over many years to secure passage of health reform, this was humiliating. We argued for years that the individual and small-group insurance market required greater transparency, along with closer regulation by competent, activist federal government. Almost everyone expected the rollout to include some embarrassing glitches. But few people expected the deep bureaucratic failure that actually occurred.ACA supporters draw different lessons from this experience. Technocratic centrists seek organizational strategies to make government IT management and procurement better-emulate its innovative counterparts in the private sector. Those further left note that universal social insurance is more straightforward to explain and to actually implement. These critiques do not conflict. Both have considerable validity. Both deserve greater attention in the design of future social policies.
Rolling Jubilee – Third Debt Buy - Strike Debt has just abolished $13.5 million in medical debt! We are pleased to announce that Rolling Jubilee has purchased and abolished two additional portfolios totaling $13.5 million in medical debt, abolishing debt for 2,693 individuals across 45 states and Puerto Rico! These debts ranged from $50 to over $200,000, including several accounts over $100K. These individuals will no longer be hounded into paying this debt. They have been informed via letters like this one. To date, the Rolling Jubilee has raised over $600,000 and abolished $14.7 million in debt. Every penny spent has gone towards the process of offering mutual aid to debt resisters by purchasing and abolishing debt. For more information about the debt purchases and updates on our finances, please see our transparency page. Aside from helping out thousands of debtors, the Rolling Jubilee has widely publicized the predatory workings of the debt-buying marketplace. As a result of our work, many more people now know that collectors have only paid pennies for the debts they harass us for in full. Knowledge like this provides moral ammunition for confronting debt collectors and standing up to lenders. We have shown that lenders are perfectly willing to write your debts off – they’re just not willing to write them off to you… Unless you force them to. We hope that this knowledge inspires debtors everywhere to not just do what the lenders demand of them, but instead to use their leverage to strike a better deal – or simply refuse payment altogether.
Johnson & Johnson $2.2 Billion Settlement Just a Slap on the Wrist - When profit is the name of the game, why let teenage boys growing breasts or elderly nursing home patients suffering strokes stand in the way? On Monday, the U.S. Department of Justice announced that pharmaceutical giant Johnson & Johnson agreed to pay out $2.2 billion to settle civil and criminal complaints related to illegal marketing of the antipsychotic drug Risperdal, among other products. The $2.2 billion figure seems large at first glance. However, compared to the money that the company made off of the drug, it’s just another cost of doing business in an out-of-control pharmaceutical industry hell-bent on bringing in massive profits no matter the consequences for the patients who take the drugs. According to the allegations, J&J subsidiary Janssen promoted Risperdal between 1999 and 2005 to treat teenagers, mentally disabled patients and elderly people suffering from dementia despite the fact that it had only gained FDA approval to treat schizophrenia in adults during that time. The company also paid kickbacks to doctors and pharmacists for prescribing the drug and downplayed or covered up evidence of its most serious side effects, according to the DOJ complaint.
J&J Said to Reach $4 Billion Deal to Settle Hip Lawsuits - Johnson & Johnson (JNJ) will pay more than $4 billion to resolve thousands of lawsuits over its recalled hip implants in the largest settlement of U.S. legal claims for a medical device, three people familiar with the deal said. The accord will resolve more than 7,500 lawsuits in federal and state courts against J&J’s DePuy unit, said the people, who requested anonymity because they weren’t authorized to speak publicly about the settlement. Patients who have had hips replaced claimed in the cases that the implants were defective. The company will pay an average of $300,000 or more for each of those surgeries, the people said. The agreement doesn’t bar patients whose artificial hips fail in the future from seeking compensation from J&J, they said. That means the settlement is uncapped in terms of its total value, according to the people. The settlement is expected to be announced next week in federal court in Toledo, Ohio. The agreement “resolves a lot of litigation that could have dragged on for years and cost J&J much more money in the long run,”
The Devolution of the Seas - Of all the threats looming over the planet today, one of the most alarming is the seemingly inexorable descent of the world’s oceans into ecological perdition. Over the last several decades, human activities have so altered the basic chemistry of the seas that they are now experiencing evolution in reverse: a return to the barren primeval waters of hundreds of millions of years ago.
A visitor to the oceans at the dawn of time would have found an underwater world that was mostly lifeless. Eventually, around 3.5 billion years ago, basic organisms began to emerge from the primordial ooze. This microbial soup of algae and bacteria needed little oxygen to survive. Worms, jellyfish, and toxic fireweed ruled the deep. In time, these simple organisms began to evolve into higher life forms, resulting in the wondrously rich diversity of fish, corals, whales, and other sea life one associates with the oceans today. Yet that sea life is now in peril. Over the last 50 years -- a mere blink in geologic time -- humanity has come perilously close to reversing the almost miraculous biological abundance of the deep. Pollution, overfishing, the destruction of habitats, and climate change are emptying the oceans and enabling the lowest forms of life to regain their dominance. The oceanographer Jeremy Jackson calls it “the rise of slime”: the transformation of once complex oceanic ecosystems featuring intricate food webs with large animals into simplistic systems dominated by microbes, jellyfish, and disease. In effect, humans are eliminating the lions and tigers of the seas to make room for the cockroaches and rats.
Can crop rotations cure dead zones? - It is now fairly well documented that much of the water quality problems leading to the infamous "dead zone" in the Gulf of Mexico (pictured above) come from fertilizer applications on corn. Fertilizer on corn is probably a big part of similar challenges in the Chesapeake Bay and Great Lakes. This is a tough problem. The Pigouvian solution---taxing fertilizer runoff, or possibly just fertilizer---would help. But we can't forget that fertilizer is the main source of large crop productivity gains over the last 75 years, gains that have fed the world. It's hard to see how even a large fertilizer tax would much reduce fertilizer applications on any given acre of corn. However, one way to boost crop yields and reduce fertilizer applications is to rotate crops. Corn-soybean rotations are most ubiquitous, as soybean fixes nitrogen in the soil which reduces need for applications on subsequent corn plantings. Rotation also reduces pest problems. The yield boost on both crops is remarkable. More rotation would mean less corn, and less fertilizer applied to remaining corn, at least in comparison to planting corn after corn, which still happens a fair amount.
Ethanol Investigation: The Secret, Dirty Cost Of Obama's Green Power Push: — The hills of southern Iowa bear the scars of America's push for green energy: The brown gashes where rain has washed away the soil. The polluted streams that dump fertilizer into the water supply. Even the cemetery that disappeared like an apparition into a cornfield.As farmers rushed to find new places to plant corn, they wiped out millions of acres of conservation land, destroyed habitat and polluted water supplies, an Associated Press investigation found. Five million acres of land set aside for conservation — more than Yellowstone, Everglades and Yosemite National Parks combined — have vanished on Obama's watch. Landowners filled in wetlands. They plowed into pristine prairies, releasing carbon dioxide that had been locked in the soil. Sprayers pumped out billions of pounds of fertilizer, some of which seeped into drinking water, contaminated rivers and worsened the huge dead zone in the Gulf of Mexico where marine life can't survive. The consequences are so severe that environmentalists and many scientists have now rejected corn-based ethanol as bad environmental policy. But the Obama administration stands by it, highlighting its benefits to the farming industry rather than any negative impact.
New Report Finds US Ethanol Mandate is Destroying the Environment - In 2005, ex-President George W. Bush signed the Energy Policy Act which included the Renewable Fuels Standard, requiring oil companies to add ethanol to their gasoline, and whilst running for presidency in 2007 Barack Obama positioned corn ethanol as one of the pillars for his proposed plan to combat global warming. It was believed that corn ethanol would help to reduce carbon emissions from burning gasoline, and also help to reduce the US’s demand for imported crude oil to make gasoline. But an investigation carried out by the Associated Press, has discovered that ethanol is actually damaging to the environment on a level much more severe than the government is willing to admit. Farmers, who rushed to plant more corn in order to take advantage of the artificial demand created by the ethanol mandate, cleared millions of acres of protected land, destroying habitats and polluting local water supplies. Al Jazeera America wrote that since Obama took office five million acres of land have been converted from conservational land to corn farming, more than the combined area of Yellowstone, Yosemite and the Everglades national parks.
Anti-Ethanol Policy AP Story: “They’re Raping the Land” -- K McDonald - Finally. I’ve felt a bit like a lone voice in the wilderness. The agricultural writer-activists like Michael Pollan and much of media, too, have been wasting their time by promoting anti-GMO legislation, blaming many of agriculture’s ills on GMO crops because they hate Monsanto. But the real problem has been ethanol policy. Many of the unsustainable agricultural environmental problems which the U.S. is guilty of today, name any one of them, stem from it. In just the few years since mandated use of corn ethanol has created a new and unprecedented demand for corn, the detrimental environmental consequences have been enormous while most of America has turned a blind and apathetic eye. So finally today, a lengthy story by the AP — which has lambasted ethanol policy and Obama for endorsing it — is splashed prominently across the pages of every newspaper in America. See: Making corn-based ethanol badly hurting environment: AP and DO NOT miss the corresponding time-line of ethanol policy A Timeline of Recent Ethanol Events. The AP story hits Obama hard. They blame him for this ethanol mess and rightfully so. You can’t be a good effectual president and keep claiming that you weren’t aware of “the problem” — whatever the subject may be.
Breaking Down The Numbers On Ethanol: Inside The Associated Press Biofuels Report - The Associated Press released a scathing new report on environmental degradation driven by American biofuel policy on Tuesday — which promptly got it into an online brawl with Fuels America, a group representing much of the U.S. biofuel industry. The dispute revolves around a few key environmental and climate-related drawbacks that can bedevil biofuel production. One is that natural forests and grasslands pull more carbon out of the atmosphere than cropland. So the more land that’s converted to agriculture to grow biofuel feedstocks, the more the climate advantage of those biofuels decreases. Along the same lines, agricultural production involves carbon emissions of its own — tractors and machinery and such — that further reduce biofuels’ climate advantage. Yet another factor the dispute didn’t touch is food prices: most biofuel is currently manufactured from corn and soybeans, which double as human food sources. So as government policy drives up demand for such biofuels, the price of those foods also increases, which leads to greater food insecurity — especially for the global poor.
Q: What do you get when you cross environmentalists with Tea Partiers?* - A: Common ground on the bad environmental economics of the ethanol mandate. The summary:
This week, the EPA is expected to announce changes to the ethanol mandate, a 2007 law that requires energy companies to mix billions of gallons of ethanol into gasoline and diesel fuels. After six years in the mix, corn-based ethanol has lost its popularity, and a diverse group of critics is calling for the law's repeal.
Why are environmentalists in favor of a rollback/repeal? Though ethanol fuel releases less carbon dioxide than other kinds of gas, many question if the side effects of production are worth it...Growing corn requires fertilizer, which requires natural gas to make. Fertilizer also has contaminated rivers and drinking water, says the report. And ethanol factories usually burn coal or gas, which dumps carbon dioxide into the atmosphere.
Why are Tea Partiers in favor of a rollback/repeal? Other opponents complain the mandate — like any energy subsidy — is free market poison, claiming it "distorts fuel markets and will raise gasoline prices, especially as the increased blending requirements collide with declining demand for gasoline," reports Politico.
For First Time, E.P.A. Proposes Reducing Ethanol Requirement for Gas Mix - NYTimes.com: The Environmental Protection Agency on Friday proposed reducing the amount of ethanol that is required to be mixed with the gasoline supply, the first time it has taken steps to slow down the drive to replace fossil fuels with renewable forms of energy. The move was expected, but it drew bitter complaints from advocates of ethanol, including some environmentalists, who see the corn-based fuel blend as a weapon to fight climate change. It was also unwelcome news to farmers, who noted that the decision came at a time when a record corn crop is expected, and the price of a bushel has fallen almost to the cost of production. “We’re all just sort of scratching our heads here today and wondering why this administration is telling us to burn less of a clean-burning American fuel,” said Bob Dinneen, president of the Renewable Fuels Association. Farmers, ethanol producers and high-tech companies trying to make renewable fuels from wastes have all invested heavily in the ethanol industry, with an expectation of a heavy demand, advocates said. But the E.P.A. said that a big part of the problem was that automobile fuel systems and service stations were not set up to absorb more than about 10 percent ethanol. Most cars on the road, according to the automakers, and most fuel pumps, according to service station groups, are limited to the current mixture, called E10, and there has been little demand by consumers for more.
IMF Takes Aim at Thailand’s Costly Rice Subsidies - The International Monetary Fund urged Thailand to drop its multibillion-dollar rice subsidy program and scale back some other fiscal stimulus measures to reach a balanced budget and make room for spending on projects that enhance growth.The IMF’s recommendations, part of its annual consultations with Thailand, come after Thailand extended its rice subsidy program for a third year in October.The program, under which the government buys rice from local farmers for a set price above market rates, was launched in 2011 after Prime Minister Yingluck Shinawatra took office. It was a bid to stimulate spending in rural areas and support Thai farmers, a key constituency for Ms. Yingluck’s Pheu Thai Party.The government also hoped that by hoarding rice supplies it could drive up global prices. But the plan backfired as other exporters such as India and Vietnam filled the void in the market, displacing Thailand from its perch as the world’s biggest rice exporter. The subsidy program left Ms. Yingluck’s administration with a big bill and millions of tons of unsold rice. The government has spent about 670 billion baht, or $21.2 billion since the program began buying rice at premiums of 35%-50% above market rates. In July, the Commerce Ministry reported losses of 136 billion baht, or $4.3 billion, in the 2011-‘12 crop year, the most recent for which they provided estimates.“It is inevitable for the government to incur losses as long as the scheme remains unchanged,” the IMF said.
A Jolt to Complacency on Food Supply - For a look at what climate change could do to the world’s food supply, consider what the weather did to the American Corn Belt last year. Plants withered, prices spiked, and the final harvest came in 27 percent below the forecast. The situation bore a striking resemblance to what happened in Europe in 2003, after a heat wave cut agricultural production for some crops by as much as 30 percent and sent prices soaring. Whatever their origin, heat waves like these give us a taste of what could be in store in a future with global warming. Among those who are getting nervous are the people who spend their lives thinking about where our food will come from. "The negative impacts of global climate change on agriculture are only expected to get worse,” said a report earlier this year from researchers at the London School of Economics and a Washington think tank, the Information Technology and & Innovation Foundation. The report cited a need for “more resilient crops and agricultural production systems than we currently possess in today’s world.” This may be the greatest single fear about global warming: that climate change could so destabilize the world’s food system as to lead to rising hunger or even mass starvation. Two weeks ago, a leaked draft of a report by the United Nations climate committee, known as the Intergovernmental Panel on Climate Change, suggested that the group’s concerns have grown, and that the report is likely to contain a sharp warning about risks to the food supply.
WSJ: Gulf States Saudi Arabia, Yemen, Qatar Vulnerable to food supply disruptions - Oil-rich but water-poor Saudi Arabia is wisely giving up efforts to grow its own grain, but wealthy Gulf Arab states as a whole are failing to pursue all the right strategies in securing food for their 50 million people, who depend on imports for more than 80% of their meals, according to a new study by London-based Chatham House. Gulf Cooperation Council countries face tiny water supplies and desert heat that make agricultural self-sufficiency flatly unsustainable, the report out this week says. GCC food imports meanwhile remain vulnerable not just to any trade-disrupting regional conflicts and price shocks, but climate change and what will be Gulf countries’ own increasingly uncertain revenues from oil, Chatham House says. The study does not look at Yemen, which for thousands of years was the green farming spot of the Arab peninsula. Many of the threats warned of in the report – conflict, declining water supply for agriculture, and dwindling revenues – have hit Yemen, so that nearly half that country’s 20 million population is going hungry, and 58% of children under 5 are stunted, according to some U.N. organizations and the Oxfam relief group. Saudi Arabia, at some 30 million residents the Arab Gulf’s most populous nation, already is phasing out what had been a major, but water-depleting, domestic grain-growing program by 2016. The government aims to build a one-year stockpile of grain instead, and is building silos and flour mills. On the import side, the study noted, regional instability raises the risks for the two import “chokeholds” for the GCC: the Strait of Hormuz, which Iran has threatened to shut down, and the Suez Canal, in politically and economically unsteady Egypt.
Climate Change Is Altering Rainfall Patterns Worldwide -- Global precipitation patterns are being moved in new directions by climate change, a new study has found. The research, published yesterday in the journal Proceedings of the National Academy of Sciences, is the first study to find the signal of climate change in global precipitation shifts across land and ocean. "It's worth saying that this is another grain of sand on that vast pile of evidence that climate change is real and is occurring," said study co-author Kate Marvel, a climate scientist at Lawrence Livermore National Laboratory. Climate models predict that the addition of heat-trapping gases in the atmosphere will shift precipitation in two main ways. The first shift is in a strengthening of existing precipitation patterns. This is commonly called "wet get wetter, dry get drier." Warmer air traps more water vapor, and scientists expect that additional water to fall in already wet parts of the Earth. "But because precipitation has to be balanced by evaporation, we expect a [corresponding] increase in dry regions," Marvel said. The second shift is a change in storm tracks, which should move away from the equator and toward the poles as atmospheric circulation changes.
Climate Change Is Messing With Rainfall Across The Entire Planet - The redistribution of rainfall predicted by climate change modeling is playing out in real life, a new study by Lawrence Livermore National Laboratory has found.The research, published Monday in the journal Proceedings of the National Academy of Sciences, is the first study to find the signal of climate change in global precipitation shifts across land and sea. According to The Australian, large-scale studies to date have overlooked the 77 percent of global rainfall that occurs over the oceans.The initial change has resulted in wet areas, such as the tropics, becoming wetter, while drier regions such as deserts have become more arid. The effect is expected to worsen as climate change continues to worsen. According to the study, greenhouse gasses affect the distribution of precipitation through two mechanisms. Increasing temperatures that are expected to make wet regions wetter and dry regions drier (thermodynamic changes) and changes in atmospheric circulation patterns will push storm tracks and subtropical dry zones toward the poles. “Both these changes are occurring simultaneously in global precipitation and this behavior cannot be explained by natural variability alone,” said lead author Kate Marvel. “External influences such as the increase in greenhouse gases are responsible for the changes.” The study also found that ozone depletion had played a significant role in the movement of atmospheric circulation patterns toward the poles.
NOAA: Panel Warns of ‘Catastrophic’ Gap in Weather Satellite Data -- Unless it acts quickly, the U.S. faces the likelihood of a "catastrophic" reduction in weather and climate data starting in 2016, resulting in less reliable weather and climate forecasts, a federally-commissioned review panel said on Thursday. The review team, which was comprised of veterans of the weather, space, and aerospace industries, found that the National Oceanic and Atmospheric Administration (NOAA) has made progress fixing major problems in its satellite programs since the last outside review was completed in 2012, but that the agency has not done enough to mitigate the impacts of a satellite data gap.
2013 Set To Be One Of The Hottest Years Ever -- This year is on track to be one of the hottest since record keeping began, according to a report released Wednesday by the World Meteorological Association (WMO). The report also found that global sea levels reached a record high in March 2013 and extreme weather events continued to devastate communities around the world.Rising sea levels are already wreaking havoc on coastal communities, making them a target for increased storm surges and coastal flooding. The most recent example of this trend is the tragic toll of Typhoon Haiyan in the Philippines, possibly the most powerful storm ever recorded. “Although individual tropical cyclones cannot be directly attributed to climate change, higher sea levels are already making coastal populations more vulnerable to storm surges. We saw this with tragic consequences in the Philippines,” Michel Jarraud, head of the WMO, told Agence France-Presse.Kevin Trenberth of the National Center for Atmospheric Research and Jeff Masters with Weather Underground echoed that sentiment in an interview with PBS on Wednesday. While the lack of records for typhoons make it difficult to detect patterns in previous storms, future predictions for climate change are clear: “As you warm up the oceans, you will tend to make the strongest storms stronger,” Masters said.
Climate Change May Magnify Toxic Chemical Dangers -A draft summary of the Intergovernmental Panel on Climate Change's latest report on the impacts of global warming leaked into the blogosphere last Friday. The draft highlights concerns ranging from melting sea ice to diminishing crop yields to health dangers from hunger and heat waves. What it does not address, however, is the added possibility that climate change could magnify the havoc wrought by long-lasting and pervasive toxic chemicals.Two of the greatest threats to global health, some scientists say, could be closely connected. "We just barely missed the deadline for the IPCC," Hooper referred to a series of studies he and other scientists published in January, after the cut-off for consideration by the climate group in its fifth assessment report (which could change before the final version is due in March). The new studies highlight how global warming may affect the movement and levels of chemicals such as organochlorine pesticides in the environment, as well as how a changing climate might weaken the ability of animals and humans to tolerate those chemicals. "Climate change could also make these compounds available in a more toxic form, for a longer period of time or at a higher concentration in the body," added Hooper.The science is only just emerging and carries with it a lot of uncertainty, open questions and what Hooper called "layers upon layers upon layers of complexities."
Concentrations of warming gases break record - The levels of gases in the atmosphere that drive global warming increased to a record high in 2012. According to the World Meteorological Organization (WMO), atmospheric CO2 grew more rapidly last year than its average rise over the past decade. Concentrations of methane and nitrous oxide also broke previous records Thanks to carbon dioxide and these other gases, the WMO says the warming effect on our climate has increased by almost a third since 1990. The WMO's annual greenhouse gas bulletin measures concentrations in the atmosphere, not emissions on the ground. Carbon dioxide is the most important of the gases that they track, but only about half of the CO2 that's emitted by human activities remains in the atmosphere, with the rest being absorbed by the plants, trees, the land and the oceans. Upsetting the balance Since 1750, global average levels of CO2 in the atmosphere have increased to 141% of the pre-industrial concentration of 278 parts per million (ppm). According to the WMO there were 393.1ppm of carbon dioxide in the atmosphere in 2012, an increase of 2.2ppm over 2011. This was above the yearly average of 2.02ppm over the past decade. "The observations highlight yet again how heat-trapping gases from human activities have upset the natural balance of our atmosphere and are a major contribution to climate change,".
Climate change and aerosols: new research - New research published today in Nature gives us a better idea of how much aerosols produced by people are influencing climate change. Aerosols — tiny particles produced naturally and by burning fossil fuels — work against warming by greenhouse gases to cool the Earth. This led scientists to speculate that aerosols were “masking” warming, and that without aerosols in the atmosphere the Earth would be heating up much faster. The study released today shows that aerosols produced by people are not as important as once thought. Aerosols have two sources: natural emissions such as those from volcanoes, bushfires and the ocean; and unnatural sources such as burning fossil fuels and sulphate emissions. They can be solids such as smoke and sea salt, liquids such as water, or gases such as sulphur dioxide (SO2).Through their interaction with clouds, aerosols reflect more of the sun’s energy back into space, meaning that their overall effect is to cool the Earth. Scientists measure this cooling through “radiative forcing”. Aerosols from both natural and human sources have an overall forcing of -1.16 Watts per square metre. But this cooling effect of aerosols is dwarfed by the warming effect of increased greenhouse gases. That’s why the Earth is heating up. Knowing these influences is vital for understanding the Earth’s “climate sensitivity” — how much the planet will warm in the future.
Greenhouse gas emissions flows -- I recently had cause to remember and appreciate this 2008 graphic from the World Resources Institute (WRI). Ordinarily, there is confusion between various statistics one reads about economic sectors (such as transportation, energy, agriculture), about economic activities and end uses (such as heating residential buildings, heating commercial buildings), and about gasses (such as carbon dioxide and methane). The graphic still doesn't answer one of my questions -- I am trying to reconcile environmental accounts that (a) place food distribution with the corresponding manufacturing and distribution sectors or (b) attribute all of these costs to food itself. Nonetheless, it is a good data visualization.
Emissions drive oceans ‘acid trip’ - BBC - The world's oceans are becoming acidic at an "unprecedented rate" and may be souring more rapidly than at any time in the past 300 million years. In their strongest statement yet on this issue, scientists say acidification could increase by 170% by 2100. They say that some 30% of ocean species are unlikely to survive in these conditions. The researchers conclude that human emissions of CO2 are clearly to blame. The study will be presented at global climate talks in Poland next week. In 2012, over 500 of the world's leading experts on ocean acidification gathered in California. Led by the International Biosphere-Geosphere Programme, a review of the state of the science has now been published. This Summary for Policymakers states with "very high confidence" that increasing acidification is caused by human activities which are adding 24 million tonnes of CO2 to oceans every day. Pickled waters The addition of so much carbon has altered the chemistry of the waters. Since the start of the industrial revolution, the waters have become 26% more acidic.
The Rapid Pickling Of The World’s Oceans Affects More Than Just Shellfish - According to research just released by a panel of over 500 of the world’s leading experts on ocean acidification, increased levels of carbon dioxide in the atmosphere are acidifying the oceans at an “unprecedented rate, faster than at any time in the last 300 million years. Since the start of the industrial revolution, oceans have become 26% more acidic. By 2100, ocean acidification is predicted to increase by 170 percent if current rates of greenhouse gas emissions continue. More acidic water will make the oceans unlivable for about 30 percent of ocean species. About one quarter of annual CO2 emissions from human activities currently end up in the ocean, or about 24 million tons of CO2 every day. Some of the species most at risk are mollusks like oysters and clams, and corals, but any species that needs a hard shell to survive may be affected. Oyster farmers in the Northwest are already seeing the impact. The global cost of the decline in mollusks could be $130 billion by 2100. Coral reefs are already imperiled by warming oceans which cause coral bleaching. But ocean acidification alone is likely to cause reef building to cease by the end of the 21st century on the current CO2 emissions trajectory. All the fish that depend on corals for habitat will also be indirectly affected by ocean acidification. Other commercially important species like crab and lobster have not been shown to be adversely affected by more acidic oceans, but rising water temperatures do make lobsters extremely vulnerable to shell disease.
Ocean acidification could trigger economic devastation - Coral reefs, shellfish, and even top predators such as tuna could be devastated as human carbon-dioxide emissions continue to acidify the world’s oceans. These and other impacts of anthropogenic ocean acidification are laid out in a new expert assessment, released today. Oceans act as a huge carbon sink, sucking up much of the CO2 released to the atmosphere. But taking up more carbon increases the acidity of the water, with wide-ranging effects on marine organisms. The authors of the report, released today from the Third Symposium on the Ocean in a High-CO2 World, review the current science on the effects on marine organisms, and write that there is a “medium confidence” level that shellfish harvests will decline. There is also a medium confidence level that economic damage will result from impacts on coral reefs, with tourism, food and shoreline protection suffering. The size of this is unclear but one estimate is for $1 trillion in damage from coral loss alone. How larger species will fare as oceans acidify is less clear. The report gives only a “low confidence” rating to the idea that top predators and fin fish catches will be reduced. But any losses in this area could hit hard the 540 million people whose livelihoods depend on such fisheries.Scientists also have a “very high confidence” that the ocean’s capacity to take up carbon decreases as waters acidify. So even larger cuts in human greenhouse gas emissions than currently envisaged may be needed to meet targets set to limit global warming as a result, the authors write.
Virus killing dolphins, and now whales, along U.S. east coast - A virus described as measles-like has been killing dolphins, and now whales, along the U.S. east coast in 2013. Bottlenose dolphins began dying of the virus in June of this year, and the virus has been steadily moving southward as the dolphins migrate south for winter. Now the disease has spread from New York to Florida, with a total of 753 bottlenose dolphins washed ashore from July 1 until November 3, according to the National Oceanic and Atmospheric Administration (NOAA). Historic averages for this same time frame, in the same geographic area, is only 74. NOAA said on its website:… an Unusual Mortality Event (UME) has been declared for bottlenose dolphins in the Mid-Atlantic region from early July 2013 through the present. Elevated strandings of bottlenose dolphins have occurred in New York, New Jersey, Delaware, Maryland, Virginia, North Carolina and South Carolina. All age classes of bottlenose dolphins are involved and strandings range from a few live animals to mostly dead animals with many very decomposed. Many dolphins have presented with lesions on their skin, mouth, joints, or lungs.
Global Warming Since 1997 Underestimated by Half - A new study by British and Canadian researchers shows that the global temperature rise of the past 15 years has been greatly underestimated. The reason is the data gaps in the weather station network, especially in the Arctic. If you fill these data gaps using satellite measurements, the warming trend is more than doubled in the widely used HadCRUT4 data, and the much-discussed “warming pause” has virtually disappeared. Obtaining the globally averaged temperature from weather station data has a well-known problem: there are some gaps in the data, especially in the polar regions and in parts of Africa. As long as the regions not covered warm up like the rest of the world, that does not change the global temperature curve.But errors in global temperature trends arise if these areas evolve differently from the global mean. That’s been the case over the last 15 years in the Arctic, which has warmed exceptionally fast, as shown by satellite and reanalysis data and by the massive sea ice loss there. This problem was analysed for the first time by Rasmus in 2008 at RealClimate, and it was later confirmed by other authors in the scientific literature. The “Arctic hole” is the main reason for the difference between the NASA GISS data and the other two data sets of near-surface temperature, HadCRUT and NOAA. I have always preferred the GISS data because NASA fills the data gaps by interpolation from the edges, which is certainly better than not filling them at all.
Global warming since 1997 more than twice as fast as previously estimated, new study shows - A new paper published in The Quarterly Journal of the Royal Meteorological Society fills in the gaps in the UK Met Office HadCRUT4 surface temperature data set, and finds that the global surface warming since 1997 has happened more than twice as fast as the HadCRUT4 estimate. This short video abstract summarizes the study's approach and results. The study notes that the Met Office data set only covers about 84 percent of the Earth's surface. There are large gaps in its coverage, mainly in the Arctic, Antarctica, and Africa, where temperature monitoring stations are relatively scarce. These are shown in white in the Met Office figure below. Note the rapid warming trend (red) in the Arctic in the Cowtan & Way version, missing from the Met Office data set. NASA's GISTEMP surface temperature record tries to address the coverage gap by extrapolating temperatures in unmeasured regions based on the nearest measurements. However, the NASA data fails to include corrections for a change in the way sea surface temperatures are measured - a challenging problem that has so far only been addressed by the Met Office.
The Inequality of Climate Change - Typhoon Haiyan has left at least 10,000 dead and hundreds of thousands homeless in the Philippines. And it has once again underscored for many development experts a cruel truth about climate change: It will hit the world’s poorest the hardest. “No nation will be immune to the impacts of climate change,” said a major World Bank report on the issue last year. “However, the distribution of impacts is likely to be inherently unequal and tilted against many of the world’s poorest regions, which have the least economic, institutional, scientific and technical capacity to cope and adapt.” That is the firmly established view of numerous national governments, development and aid groups and the United Nations as well. “It is the poorest of the poor in the world, and this includes poor people even in prosperous societies, who are going to be the worst hit,” The reason is twofold. First is the geography of climate change itself. The higher the latitude, the bigger the temperature increase. And generally, the farther from the equator, the wealthier the country — meaning rich countries like Norway and Canada might see a disproportionate impact from global warming. Changes in physical and biological systems and surface temperature, 1970-2004. Source: Intergovernmental Panel on Climate Change. But poorer, lower-latitude regions are expected to face desertification and more-intense storms. The increase in the sea level might be 15 to 20 percent higher in the tropics than the global average, meaning flooding for coastal cities in regions like southern Asia.
National Geographic Maps Our Coastline After We Melt All Earth’s Ice, Raising Seas Over 200 Feet - Homo sapiens sapiens, the species with the ironic name, is not known for long-term thinking. So if the prospect of Sandy-level storm surges happening every year (!) in a half century or so isn’t enough to get us to stop using the atmosphere as an open sewer for carbon pollution, then the prospect we are going to melt all of the Earth’s landlocked ice and raise sea levels more than 200 feet over the next couple of millenna or so ain’t gonna do the trick. Still, National Geographic has been one of the few major magazines to consistently warn the public about the risks posed by unrestricted carbon pollution. And who better to be alarmed about how we are going to destroy the nation’s geography than National Geographic? Unsurprisingly, the deniers and confusionists, including Bjorn Lomborg himself, have suggested that somehow Nat Geo’s concern is misplaced. Sadly, it isn’t. The best science suggests that on our current CO2 emissions path, by 2100 we could well pass the tipping point that would make 200+ feet of sea level rise all but unstoppable — though it would certainly take a long time after 2100 for the full melt-out to actually occur.
World Headed for a High-Speed Carbon Crash - If global carbon emissions continue to rise at their current rate, humanity will eventually be left with no other option than a costly, world war-like mobilisation, scientists warned this week. Emissions need to peak and decline by 2020 to have a chance at keeping global temperature rise to less than 2.0 degrees C, according to the Emissions Gap Report 2013, involving 44 scientific groups in 17 countries and coordinated by the U.N. Environment Programme (UNEP). Even if nations meet their current climate pledges under the Copenhagen Accord, CO2 emissions in 2020 are likely to be eight to 12 billion tonnes higher than what is needed to stay below 2C at a reasonable cost, the report concluded. Failure to close this “emissions gap” by 2020 will require an unprecedented global effort to crash carbon emissions. “Waiting brings huge additional costs,” No country has offered to do anything beyond their 2009 Copenhagen commitments. Nor is anyone expecting new offers at next week’s UNFCCC Conference of the Parties (COP 19) in Warsaw. Very few country leaders will attend COP 19, making this a technical negotiation on the shape of new climate treaty that will only come into force in 2020. In the six years remaining before 2020, not only do countries need to increase their reduction commitments, some countries have to actually put policies in place to meet their Copenhagen commitments. China, India, Russia and the European Union are on track, but the U.S. and Canada are not, the report found.
IPCC chairman: we may "pass on a lousy, spoilt and defiled planet" - The chairman of the United Nations' climate panel has warned the world to act on global warming to avoid passing "on a lousy, spoilt and defiled planet" to future generations.Rajendra K Pachauri, the chairman of the Intergovernmental Panel on Climate Change (IPCC), spoke out as typhoon Haiyan slammed into the Philippines causing hundreds of deaths and widespread destruction.While Pachauri said it was not possible to blame any single disaster on the steep rise in carbon emissions, the increased frequency of extreme weather events was consistent with scientific predictions.Speaking in Copenhagen, Pachauri criticised those who claim higher global temperatures would be beneficial to human society. While he said some countries may benefit in the short term, the impacts would be disastrous over time and hit the most marginalised communities. Pachauri called for a grassroots movement to put pressure on politicians to act and warns that they risk the voters' wrath if they fail to respond.
Capitalism and the Destruction of Life on Earth: Six Theses on Saving the Humans - When, on May 10, 2013, scientists at Mauna Loa Observatory on the big island of Hawaii announced that global CO2 emissions had crossed a threshold at 400 parts per million for the first time in millions of years, a sense of dread spread around the world - not only among climate scientists.CO2 emissions have been relentlessly climbing since Charles David Keeling first set up his tracking station near the summit of Mauna Loa Observatory in 1958 to monitor average daily global CO2 levels. At that time, CO2 concentrations registered 315ppm. CO2 emissions and atmospheric concentrations have been climbing ever since and, as the records show, temperatures rises will follow. Crossing this threshold has fueled fears that we are fast approaching "tipping points" - melting of the subarctic tundra or thawing and releasing the vast quantities of methane in the Arctic sea bottom - that will accelerate global warming beyond any human capacity to stop it: Why are we marching to disaster, "sleepwalking to extinction" as The Guardian's George Monbiot once put it? Why can't we slam on the brakes before we ride off the cliff to collapse? I'm going to argue here that the problem is rooted in the requirements of capitalist reproduction, that large corporations are destroying life on Earth, that they can't help themselves, they can't change or change very much, that so long as we live under this system we have little choice but to go along in this destruction, to keep pouring on the gas instead of slamming on the brakes. The only alternative - impossible as this may seem right now - is to overthrow this global economic system and all of the governments of the 1% that prop it up and replace them with a global economic democracy, a radical bottom-up political democracy, an ecosocialist civilization.
Rate-design wars are the sound of utilities taking residential PV seriously - Imagine walking into your supermarket with a bag of zucchini from your garden and saying that you’d like to trade them straight up for an equal quantity of zucchini next month. You can, of course, eat the zucchini you grow, the manager might say, but once you start trading zucchinis with the store, you can’t expect to get the same price on sales to the store as you pay on purchases from the store. The margin the store makes between the wholesale and retail price is what pays for the building, heating and cooling, labor, and other costs that are mostly fixed with respect to the amount you buy. The same economics applies in electricity, only more so. The retail price, especially in California, is covering a lot more than just the incremental cost of providing an extra kilowatt-hour to you. In economic terms, price is above the marginal cost of the incremental unit of energy, much further above than for goods you buy at the supermarket. That price gap is paying for past losses from failed deregulation, costly nuclear power, expensive contracts with large scale renewables producers, and local distribution systems that carry power from the grid to your house, as well as metering consumption, billing and account collection. As a result, when you consume less electricity, the cost the utility saves is much less than the revenue they lose.
Tea Party’s Green Faction Fights for Solar in Red States -Here’s a riddle to vex the Washington political class: When do Tea Party Republicans stand together with Sierra Club environmentalists? The answer is on their support for solar energy against the monopoly power of traditional utilities in some of the most conservative U.S. states.A Georgia splinter group known as the Green Tea Coalition, which is part of the broader anti-big-government movement, is reviving the Republican link with the Sierra Club that dates back more than a century to President Theodore Roosevelt’s work to protect the environment. Its influence is being felt in other states, from Arizona in the West to North Carolina on the East Coast. “Some people have called this an unholy alliance,” said Debbie Dooley, founder of the coalition and a co-founder of the Atlanta Tea Party Patriots. She’s working with the Sierra Club to fight for solar and against nuclear power in Georgia. “We agree on the need to develop clean energy, but not much else. America's Power Grid Loses Its Grip The alliance is a danger for utilities such as Southern Co.’s Georgia Power unit and Pinnacle West Capital Corp.’s Arizona Public Service, which are resisting the spread of solar energy as a threat to their business model. What’s uniting the environmental and Republican groups is the view that plunging prices for solar panels may mean consumers don’t need to buy all their electricity from utilities and their giant centralized generation plants.
TVA to Close 8 Coal-Powered Units in Alabama and Kentucky - The nation’s largest public utility voted Thursday to close six coal-powered units in Alabama and replace two more in Kentucky with a new natural gas plant. At the board meeting in Oxford, Miss., Tennessee Valley Authority CEO Bill Johnson said increasingly stringent environmental regulations and flat power demand have made it necessary to rethink how the utility generates electricity. “This is a personal nightmare for me,” said Peter Mahurin, a board member from Bowling Green, Ky., said of the decision. “But I must support what I believe to be in the best interest of TVA’s customers.” In fiscal year 2013, coal accounted for 38 percent of TVA’s portfolio while natural gas made up 8 percent. Johnson said he would like to see those numbers closer to 20 percent each over the next decade.
Forests could face threat from biomass power 'gold rush' - Britain's new generation of biomass power stations will have to source millions of tonnes of wood from thousands of miles away if they are to operate near to their full capacity, raising questions about the claims made for the sustainability of the new technology. Ministers believe biomass technology could provide as much as 11% of the UK's energy by 2020, something that would help it meet its carbon commitments. The Environment Agency estimates that biomass-fired electricity generation, most of which involves burning wood pellets, can cut greenhouse gas emissions by up to 90% compared with coal-fired power stations. Eight biomass power stations, including one in a unit in the giant Drax power station, are operating in the UK and a further seven are in the pipeline. None operates near capacity. But now environmental groups are questioning where the new plants will source their wood if the technology takes off. A campaign group, Biofuelwatch, calculates in a new report that the UK could end up burning as much as 82m tonnes of biomass each year – more than eight times the UK's annual wood production. If Drax were to operate at full capacity, it alone would get through 16m tonnes of wood a year, according to the report, which claims a Europe-wide demand for biomass is triggering a "gold rush" for wood pellets that could have implications for global land use. The report highlights the example of Portugal, where 10% of the country is now covered by eucalyptus plantations much of which is used for biomass energy production.
Dueling forecasts: Why our energy future is actually a risk management problem - Optimistic, but unwarranted, energy supply forecasts permeate the media (courtesy of the oil and gas industry) even as the occasional dire scenario gets coverage. But, it is well to remember that none of people making forecasts can know the one thing they all desperately want to know: the future.The most important thing you need to understand about forecasts--any forecast--is that their accuracy deteriorates rapidly, the further they go into the future. Surprisingly, almost no one who makes public energy supply forecasts acknowledges this; otherwise, we would see what statisticians call error bars--very large ones--in all these forecasts. In layman's terms, the further out a forecast goes, the wider the range of possible outcomes--so much so that for long-term forecasts the range of outcomes is far more important than the middle estimate.But, this kind of waffling doesn't get headlines. Humans are evolutionarily disposed to listen to those who sound the most confident in their pronouncements, not those who are hesitant and full of equivocation. There is reason to believe that overconfidence is an evolutionary advantage, and that this explains its persistence in human society. In addition, research has shown that those projecting confidence engender loyalty even if their forecasts are wrong more often than those who couch their predictions in the language of uncertainty. You can get some of the advantages of being right without actually being right. People like to feel that they are certain even though that feeling often turns out to be false.So, the lay public is treated daily to an orgy of often contradictory soothsaying and tends to respond as follows: "Come back to me when you know for certain." But, that's just the problem. We can't know anything about the future for certain, and yet we must plan for it. So, how do we go about doing that?
Removing Fuel Rods Poses New Risks at Crippled Nuclear Plant in Japan - It was the part of the Fukushima Daiichi nuclear power plant that spooked American officials the most, as the complex spiraled out of control two and a half years ago: the spent fuel pool at Reactor No. 4, with more than 1,500 radioactive fuel assemblies left exposed when a hydrogen explosion blew the roof off the building. In the next 10 days, the plant’s operator, the Tokyo Electric Power Company, is set to start the delicate and risky task of using a crane to remove the fuel assemblies from the pool, a critical step in a long decommissioning process that has already had serious setbacks. Just 36 men will carry out the tense operation to move the fuel to safer storage; they will work in groups of six in two-hour shifts throughout the day for months. A separate team will work overnight to clear any debris inside the pool that might cause the fuel to jam when a crane tries to lift it out, possibly causing damage. . “We hope to be done by the end of next year.” The attempt to remove the fuel rods underscores the complicated, potentially hazardous work that lies ahead at the plant, which was crippled by explosions and by meltdowns in three of its reactors in the wake of the earthquake and tsunami in March 2011. Though Tepco has shored up the reactor building, it is still dangerous to have the fuel high up in a damaged structure that could collapse in another quake, experts warn. But removing it poses dangers, too. The fuel rods must remain immersed in water to block the gamma radiation they emit and allow workers to be in the area, and to prevent the rods from overheating. An accident could expose the rods and — in a worst-case scenario, some experts say — allow them to release radioactive materials beyond the plant.
Fukushima animation shows how difficult clean-up is going to be - The Fukushima animation below is TEPCO-produced, so beware the spin and the feel-good “nothing to see here” certainty. (Also beware the nice American offering guarantees at the end; he has the sound of a paid shill, who exist in great and secret numbers. I may check on him later; if you get the goods on him first, please let me know in the comments. His name is Dr. Dale Klein, chairman of the “Nuclear Reform Monitoring Committee.”) UPDATE: Excellent. Commenter John Deever has the goods on Dr. Klein. He’s indeed a shill. More at the link. Do read the entire thread; lots o’ info. Thanks, John, and thanks to all of you.But the video below will give you a great working view of what the site and the spent fuel containment pool looks like in pristine condition. I found it an invaluable aid to understanding other Fukushima discussions.Watch; this TEPCO-produced video is short. I’ll have comments after you’re done. You’ll need to keep these images in mind when you watch the second video, showing what that spent fuel pool looks like now.
Removal of Fukushima Fuel Rods Hits a Bump … BEFORE It Even Starts - Tepco’s efforts to remove the radioactive fuel rods – already extremely dangerous and difficult – have hit a bump before they’ve even started. Enenews rounds up the developments here: Yomiuri Shimbun translated by EXSKF, Nov. 12, 2013: On November 12, TEPCO disclosed that there were three fuel assemblies [...] in the Spent Fuel Pool of Reactor 4 [...] that were deformed and would be difficult to remove. Fukushima Minyu translated by EXSKF, Nov. 13, 2013: According to TEPCO, one of the damaged fuel assemblies is bent at a 90-degree angle [literal meaning: bent in the shape of a Japanese character "く"; actual angle could be less]. It was bent 25 years ago when a mistake occurred in handling the fuel. The other two were found to be damaged 10 years ago; there are small holes on the outside from foreign objects. And here: Japan Times, Nov. 14, 2013: Earlier this week, Tepco found three damaged assemblies that will be difficult to remove, but officials said the damage appeared to have occurred before the March 11 disasters.
Anti-nuclear citizens groups targeted in massive cyber-attack - Anti-nuclear citizens groups around Japan were left reeling from a blizzard of e-mail traffic--more than 2.53 million messages--that had all the hallmarks of a coordinated cyber-attack. At least 33 groups were targeted in the campaign carried out from mid-September to early November. Experts said there was little doubt that a computer program developed exclusively for the purpose was used in the attack. It ranks as Japan’s first cyber-attack to target specific citizens groups. Lawyer Yuichi Kaido, who is acting on behalf of those groups, told The Asahi Shimbun he is considering filing a criminal complaint against the senders of the e-mails on grounds of forcible obstruction of business--that is, if the perpetrators can be found.
Saudis Plan Major Investment In Nuclear Technology (podcast & transcript) Saudi Arabia intend to build 16 nuclear power plants over the next twenty years. Weekend Edition Sunday host Rachel Martin talks to Thomas Lippman of the Middle East Institute about the Saudi's nuclear ambitions and what they mean for nuclear nonproliferation efforts.
The Untold Story Of The Dangerous New Experiment Coal Companies Want To Bring To America - Few people have heard of coal gasification, which is the process of creating synthetic natural gas out of coal by setting it on fire and injecting it with oxygen and water. But even fewer people have likely heard of underground coal gasification, which is the process of doing that while the coal is still deep underground. Some of the people that are hearing about it the most are in Campbell County, Wyoming, where an Australian company’s proposed underground coal gasification project is just one step away from becoming the only one of its kind in the country. Local residents and environmental groups are fighting the project, saying it is an untested process that only promises to contaminate their already dwindling water supply with deadly benzene. If approved, the project — located in part of a major regional aquifer — would likely receive federal exemption from the Safe Water Drinking Act, a law that protects the quality of drinking water. On Nov. 14, the Wyoming Environmental Quality Council will review Linc Energy’s application for a “state research and development” license to drill thousands of feet into Wyoming’s portion of the Powder River Basin. Unlike most areas where coal is accessible in a mountainside or somewhat near the surface of the ground, the coal targeted by Linc’s project is buried so deeply that regulated surface mining is impossible.
Top climate scientists call for fracking ban in letter to Gov. Jerry Brown - (letter embedded) - Twenty of the nation's top climate scientists have sent a letter to Gov. Jerry Brown, telling him that his plans supporting increased use of the controversial practice of hydraulic fracturing, or "fracking," will increase pollution and run counter to his efforts to cut California's global warming emissions. The letter is the latest example of the increased pressure that environmentalists and others concerned about climate change have been putting on Brown in recent months. Their argument: the governor can't say he wants to reduce global warming while expanding fossil fuel development in California. "If what we're trying to do is stop using the sky as a waste dump for our carbon pollution, and if we're trying to transform our energy system, the way to do that is not by expanding our fossil fuel infrastructure," said Ken Caldeira, an atmospheric scientist at the Carnegie Institution for Science at Stanford University. Caldeira signed the letter along with other prominent climate scientists, including James Hansen, the former head of NASA's Goddard Institute for Space Studies; Richard Houghton, acting president of Woods Hole Research Center in Massachusetts; and physicist Michael Mann, a professor of meteorology at Penn State University. The letter called for Brown to place a moratorium on fracking, as New York Gov. Andrew Cuomo has done.
Coast Guard Proposal to Allow Barges to Haul Fracking Wastewater Draws Fire From Environmentalists - The U.S. Coast Guard released plans that would allow wastewater from shale gas to be shipped via barge in the nation’s rivers and waterways on October 30 — and those rules have kicked up a storm of controversy. The proposal is drawing fire from locals and environmentalists along the Ohio and Mississippi rivers who say the Coast Guard failed to examine the environmental impacts of a spill and is only giving the public 30 days to comment on the plan. Three million people get their water from the Ohio River, and further downstream, millions more rely on drinking water from the Mississippi. If the Coast Guard's proposed policy is approved, barges carrying 10,000 barrels of fracking wastewater would float downstream from northern Appalachia to Ohio, Texas and Louisiana.Environmentalists say a spill could be disastrous, because the wastewater would contaminate drinking water and the complicated brew of contaminants in fracking waste, which include corrosive salts and radioactive materials, would be nearly impossible to clean up. The billions of gallons of wastewater from fracking represent one of the biggest bottlenecks for the shale gas industry. Traditionally, oil and gas wastewater is disposed by pumping it underground using wastewater disposal wells, but the underground geology of northeastern states like Pennsylvania makes this far more difficult than in states like Texas, and Ohio has suffered a spate of earthquakes that federal researchers concluded were linked to these wastewater wells.
Colorado Town's Fracking Ban Results Change: 17 Votes In Favor - Broomfield, Colorado’s fracking ban isn’t assured victory, but the latest count is in its favor. While an election night tally had it losing by 13 votes, outstanding military and overseas ballots have flipped the outcome, with 17 votes in favor of the ban as of Thursday night. But that slim margin will trigger a recount, since Colorado law requires one if the margin of victory is within half a percent of the total number of votes cast on the winning side. With the latest count at 10,350 in favor of the ban and 10,333 against, a margin of fewer than 51 votes would be enough to trigger a recount. The recount could begin as early as Monday, said Michael Susek, Broomfield’s elections administrator. Three other Colorado towns, Fort Collins, Boulder, and Lafayette, passed similar measures on November 5th that would either ban or put a moratorium on fracking for five years. Broomfield’s measure would put a five-year ban on fracking if it passes.
Is Fracking A Civil Right? A New Court Case May Decide - Horizontal drilling, hydraulic fracturing, drilling for oil, exploring for natural gas: None of that is allowed in Mora County, New Mexico. On April 29, the Mora County Commission made history and passed a first-of-its-kind ordinance banning the exploration and extraction of oil, natural gas, and hydrocarbons from its land. The ordinance, called the “Mora County Community Water Rights Local Self-Government Ordinance,” passed the commission on a 2-1 vote. “All Mora County residents possess the fundamental right and inalienable right to unpolluted natural water,” the ordinance says. “This right shall also include the right to energy practices that do not cause harm, and which do not threaten to cause harm, to people, communities, or the natural environment.” But the ordinance may not last. A statewide oil and gas association and three Mora County landowners sued the county and its commissioners in federal court on Monday, claiming the ban on extracting natural resources violates three of their civil and Constitutional rights — including freedom of expression. The plaintiffs, led by the Independent Petroleum Organization, assert that Mora is using its purported environmental concerns as a veil for the real purpose of the ordinance, which they say is to “eliminate the constitutional rights and privileges of corporations.”
Meet the Newest Anti-Fracking Activist: Pope Francis - Pope Francis has already become a favorite of progressives with his fairly open-minded statements on homosexuality and birth control. But that adoration may go into overdrive, now that the Pope has adopted a new role as an environmental crusader, too. On Monday, the Pope was photographed with environmental activists holding T-shirts with anti-fracking slogans. The photographs were taken after a meeting in the Vatican on Monday in which the Pope spoke with a group of Argentine environmental activists to discuss fracking and water contamination. He reportedly told the group he is preparing an encyclical -- a letter addressing a part of Catholic doctrine -- about nature, humans, and environmental pollution.In the pictures, one of the men standing with the Pope is movie director and Argentine politician Fernando 'Pino' Solanas, known for his activism against "environmental crimes" and his film "Dirty Gold" about mega-mining. In particular, Solanas is a vocal opponent of an August agreement between the Argentine government and Chevron to develop shale oil and gas, which he calls "the largest environmental disaster in the Amazon."
Fracking executive confirms: Homeland Security thinks fracktivists are terrorists - According to comments made by Mark Grawe, Chief Operating Officer at EagleRidge Energy (EagleRidge), Denton, Texas, residents who object to his company’s reckless operations way too close to their homes, schools and parks are terrorists worthy of inclusion on the Department of Homeland Security’s watch list. Wednesday night Grawe attended a Home Owners Association meeting in Mansfield where EagleRidge has drilled and fracked several wells very close to a neighborhood, schools and playgrounds. Grawe went on to tell the Mansfield residents that some people in Denton are “preaching” civil disobedience and that they are on “the watch list” but not his watch list. When another resident asked whose watch list, Grawe said “Homeland Security.” The U.S. Department of Homeland Security Watchlist Service (WLS) is a database of known or suspected terrorists compiled by the Terrorists Screening Center (TSC).
Shale’s Effect on Oil Supply Is Forecast to Be Brief - The boom in oil from shale formations in recent years has generated a lot of discussion that the United States could eventually return to energy self-sufficiency, but according to a report released Tuesday by the International Energy Agency, production of such oil in the United States and worldwide will provide only a temporary respite from reliance on the Middle East. The agency’s annual World Energy Outlook, released in London, said the world oil picture was being remade by oil from shale, known as light tight oil, along with new sources like Canadian oil sands, deepwater production off Brazil and the liquids that are produced with new supplies of natural gas. “But, by the mid-2020s, non-OPEC production starts to fall back and countries from the Middle East provide most of the increase in global supply,” the report said. A high market price for oil will help stimulate drilling for light tight oil, the report said, but the resource is finite, and the low-cost suppliers are in the Middle East. “There is a huge growth in light tight oil, that it will peak around 2020, and then it will plateau,” said Maria van der Hoeven, executive director of the International Energy Agency. The agency was founded in response to the Arab oil embargo of 1973-74, by oil-importing nations. The agency’s assessment of world supplies is consistent with an estimate by the United States Energy Department’s Energy Information Administration, which forecasts higher levels of American oil production from shale to continue until the late teens, and then slow rapidly.
IEA: Shale Boom is Only Temporary , We’ll Soon be Relying on the Middle East Again – Claims that the shale boom in the US will eventually see the country become energy self-sufficient seems to have received its biggest blow yet after the International Energy Agency, in its latest World Energy Outlook report, stated that shale oil will only be a temporary trend, and very soon the world will return to rely on the Middle East for its oil. The World Energy Outlook admitted that shale had transformed the global oil industry, and that the light tight oil produced was helping to usher in a new abundance of oil. High oil prices will drive further exploration and production of tight oil “but, by the mid-2020s, non-OPEC production starts to fall back and countries from the Middle East provide most of the increase in global supply.” We expect the Middle East will come back and be a very important producer and exporter of oil, just because there are huge resources of low-cost light oil. Light tight oil is not low-cost oil.” An earlier report released by the US Energy Department’s Energy Information Administration, also suggested that US tight oil production will be high until the end of the decade, and then quickly fall off. The NY Times wrote that the energy outlook has attempted to make predictions about the energy industry up until 2035, expecting no new energy breakthroughs, although it believes that costs will continue to fall for renewable energy. Supposedly by 2035 renewable energy will account for 18% of global energy produced, up from 13% in 2011, and that the growth would be even higher if it were not for the fact that many households are replacing wood (considered a renewable source) stoves for cooking or heating in favour of fossil fuels such as natural gas.
The Hub: Saint John end point of ‘Energy East’ readies for crude revolution -- “Our biggest competitors in North America come from the Gulf Coast and they all have access to this lower-cost midcontinent crude,” says Irving CEO Paul Browning. The company has booked capacity on Energy East, but won’t say how much. “When the pipeline arrives here and as we bring in other sources of this lower-cost crude, it allows us to be globally competitive and allows us to think about exporting our petroleum products, not just outside of Canada, but outside of North America,” Mr. Browning says. First, though, TransCanada must navigate an increasingly divided landscape. Energy East has won a measure of political support from provincial leaders in Alberta, New Brunswick and Ontario, yet the project is unfolding against a backdrop of deep public skepticism over pipelines. A rival plan to carry Alberta crude east, Enbridge Inc.’s Line 9 reversal and expansion, has been marred by controversy; federal regulators cancelled public hearings in Toronto this fall amid security concerns, forcing Enbridge to submit its final arguments in writing. Bigger proposals such as Keystone XL and Northern Gateway face an uncertain future.
Pipelines are Safer than Rail, Period -- After the Nov. 8 oil tank train derailment in Alabama, it is time to reconsider the approval of new pipeline construction in North America. Pipelines are the safest way of transporting oil and natural gas, and we need more of them, without delay. Every time I write this, the rail industry attacks me. Then, three or four months later, another rail accident involving hazardous materials hits the headlines. In Pickens County, Alabama, approximately 25 rail cars derailed, bursting into flames. The volume of oil spilled was fortunately contained by a beaver dam, which slowed the flow of oil. Rail cars burned for days, impeding the accident investigation. The latest accident comes four months after a rail accident in Lac-Mégantic, Quebec, where the derailment of 73 rail cars carrying crude oil from North Dakota to Maine claimed 47 lives. Rail cars became detached from the parked engine, slid backwards into the town of Lac- Mégantic, and exploded. In both June and September, rail cars carrying flammable material derailed in Calgary, Alberta, where, fortunately, no lives were lost. If oil had been carried through pipelines instead of by rail, the accidents — and deaths — would have likely not occurred.
Massive Natural Gas Pipeline Explodes In Texas Town, Causing Evacuation Of 800 Residents - A massive explosion of a 10-inch Chevron natural gas pipeline near a drilling rig in Milford, Texas, led the company to ask law enforcement to evacuate the entire town on Thursday. Milford, in rural Ellis County, is about halfway between Dallas and Waco. The cause is still unknown, and the fire is expected to rage for another day. At 9:30 a.m. CST, huge gouts of flame shot into the air at a what appeared to be a drilling rig, according to local affiliate FOX 4. Black smoke was visible for at least 20 miles around. Some vehicles at the worksite appeared to be seriously damaged. No injuries have been reported so far. Chevron’s statement simply describes an “incident at a Chevron pipeline” and offered no further details.This shot, courtesy of local affiliate NBCDFW from a helicopter feed 5 miles away from Milford, shows the black cloud blotting out the sky.
The Scariest Real Estate Advertisement On Craigslist - An unusual real estate advertisement appeared on Craigslist Tuesday. The ad starts as any listing for a rural area might, billing the property as “Heavily forested land with berry bushes and nut trees and hardwoods in rural mountainous setting with forks and creek.” But by the second sentence, it takes a surprising turn, describing land in Blaine, Kentucky that seemingly sits near or on several different dirty fuel projects:Free gas available and royalties. Somewhere between 80 and 125 acres. Surveyed. Lease unavailable… Radioactive soils, history of discharges to land and water including land farming, present discharges to protected waterways. Flooding due to Yatesville Dam hydrologic gate failures. Anyone with chemical sensitivies should not consider this property and its resulting oozing rashes consistent with chemical burns and breathing problems probably from air discharges from Abarta Gas Plant emmissions. This property is not suitable for farm animals, pets, children, adults, fishing, swimming, hiking or farm animals. Really, it’s not suitable for building or habitation. It’s not suitable for 4-wheeling or hunting as above ground corroded gathering lines that feed to the transmission line on the ridgetops are all combustible and highly flamable. Majestic old standing lumber is not safe to fell or remove due to the magnitude of the condemnation by the gathering field. The unmarked pipes are not maintained and pose a serious risk of leakage and spills. The abandoned crusty ones are very toxic.
Big Oil, Big Profits, Big Tax Breaks - Once again, it’s been a good quarter for Big Oil. The big five oil companies—BP, Chevron, ConocoPhillips, ExxonMobil, and Shell—reported $23 billion in combined profits for their third quarter of 2013. That’s $175,000 per minute. Together, these five companies earn more in one minute than 95 percent of Americans earn in a year. These profits were slightly lower this third quarter compared to 2012, primarily due to lower (but not low) oil and gasoline prices. Gasoline averaged $3.63 per gallon in the first 10 months of 2013, slightly less than last year’s record of $3.68 per gallon. Even though profits were lower, the big five companies continue to enrich their largest shareholders and senior executives by using a large share of profits to buy back their own stock. This past quarter, the combined buybacks of the companies (save ConocoPhillips) were nearly $10 billion, or 43 percent of the four companies’ total profits. In addition, these five companies are sitting on more than $71 billion in cash reserves. Big Oil is swimming in an endless river of profits and continues to invest millions of dollars to lobby Congress against eliminating their special tax breaks. Environment & Energy Daily reported on October 30 that: Oil and natural gas lobbyists have spent more than a year urging lawmakers to maintain targeted tax breaks for extracting and transporting their products, but there are signs of a growing fear within the industry that impending legislation to overhaul the tax code for the first time in a generation would eliminate most of those incentives in order to lower the top-line rate paid by all companies.
America Produced More Oil Than It Imported For The First Time Since 1995 - The United States produced more crude oil than it imported in October for the first time in almost 20 years, the federal Energy Information Administration announced Wednesday. U.S. crude oil production averaged 7.7 million barrels per day in October while 7.6 million barrels per day were imported. Total petroleum net imports were the lowest since February 1991. The U.S. also produced more oil in September than it has in any one-month period over the last 24 years. The U.S. remains the world’s largest consumer of oil and the largest importer of crude oil. Also this week the International Energy Agency released its annual World Energy Outlook, which argues that the oil production boom from hydraulic fracturing will begin trailing off by the mid-2020s. Loren Steffy, who writes about the crossroads of energy and money for Forbes, writes that to finance the domestic drilling boom, U.S. producers have loaded up on debt, currently reaching the highest average in more than a decade. With Saudi Arabia and other Gulf States still the world’s low-cost oil producers, he believes that “financial considerations are likely to have a bigger role in defining the end of the fracking boom than the sheer availability of reserves.” Maria van der Hoeven, executive director of the International Energy Agency, told the New York Times that they expect the Middle East to come back and be a very important producer and exporter of oil. “By the mid-2020s, non-OPEC production starts to fall back and countries from the Middle East provide most of the increase in global supply,” van der Hoeven said. “Light tight oil is not low-cost oil.”
Traders Claim Oil Price Manipulation - The big story this week is about four New York Mercantile Exchange (NYMEX) traders who are suing some supermajor oil companies and trading houses for manipulating the North Sea Brent crude oil market. The traders were spurred on by an inquiry by the European Commission into the same, but so far the only thing that is clear to anyone is that no one truly understands oil prices. The traders allege that supermajors Royal Dutch Shell, BP and Statoil, along with trading houses Morgan Stanley, Vitol, Trafigure Beheer, Trafigure and Phibro Trading joined forces to manipulate Brent crude oil prices and Brent futures contracts traded on NYMEX between February 2011 and September 2012. The European Commission’s inquiry was launched in May and focused on suspected anti-competitive agreements for the submission of prices to Platts. The European inquiry hasn’t reached any conclusions—and isn’t really likely to reach anything concrete.Platts, a unit of McGraw Hill, runs a global price reporting service that is rather ambiguous in its setting of dated Brent physical oil price benchmarks. The Platts benchmark affects derivatives prices for traders because it is based on transactions, bids and offers made between very specific times (4:00-4:30pm London time) for crude delivery in 10-25 days. It is a tiny window that is pretty easy to manipulate simply by determining whether it’s better to make offers to execute transactions a minute before or after.Brent is a global benchmark for two-thirds of all the crude oil supplies traded internationally. Physical volumes are traded less these days, but futures contracts are huge.
IEA warns of future oil supply crunch - FT.com: The International Energy Agency has sounded the alarm about a potential oil supply crunch and higher prices as key Gulf producers delay investment in the face of surging US shale output. In a strident warning against complacency in the oil market, the developed world’s energy body said key Gulf producers have been adopting a “wait and see approach” to investment, because of the perception that the US shale revolution would produce an “abundance of oil”. "I am really worried that we are giving the wrong signals to the Middle East, which may end up with us not having investment in a timely manner,” said Fatih Birol, chief economist at the IEA. “The wait and see behaviour is definitely not in the interest of consumers or global oil markets because it may mean significantly higher prices in the future.” Mr Birol was speaking as the Paris-based IEA unveiled its annual outlook for the energy market. Its 2012 forecast that the US would be a net oil exporter by 2030 helped bring shale oil production to global attention. But this year the organisation downplayed the significance of US production growth, with Mr Birol calling shale “a surge, rather than revolution”. The IEA still expects US oil output to reduce the world’s dependence on Middle Eastern oil in the near term: it now forecasts that the US will displace Saudi Arabia as the world’s biggest oil producer in 2015, two years earlier than it had estimated just 12 months ago. But it expects US light tight oil production, which includes shale, to peak in 2020 and decline thereafter, even as global demand continues to grow to 101m barrels a day by 2035, from around 90m b/d today.
France Blocks U.S. Pivot To Persia - France has been and is a major nuclear proliferator in the Middle East. While it worked and works to enable some countries to build nuclear weapons it wants to deny any and all civil nuclear capabilities to others. The primary reasons are greed and a certain craving for its former grandeur which today is no longer supported by the necessary economic and military means.
FAS: Nuclear Weapons - Israel - France and Israel signed a revised agreement calling for France to build a 24 MWt reactor and, in protocols that were not committed to paper, a chemical reprocessing plant. This complex was constructed in secret, and outside the IAEA inspection regime, by French and Israeli technicians at Dimona, in the Negev desert.
Saudi Gazette, Oct 3, 2013 France ready to be KSA’s strategic partner in nuke, renewable energy France has been the first country to sign government to government agreement on nuclear and energy because we do think that taking it into account the huge program the Saudi government wants to implement in the nuclear field and France has a lot to bring in terms of the best nuclear technology in the world.”
France 24 Hollande backs Israel on Iran nuclear threat A day after Benjamin Netanyahu urged France to take a tough stance on Iran, French President François Hollande spoke to the Israeli Prime Minister by phone and promised French support.
Guardian Geneva talks end without deal on Iran's nuclear programme Three gruelling days of high-level and high-stakes diplomacy came to an end in Geneva with no agreement on Iran's nuclear programme, after France blocked a stopgap deal aimed at defusing tensions and buying more time for negotiations.
Iran Nuclear Programme Deal Fails Due To French Block: New Saudi-French Alliance Emerging? - While most pragmatists knew well in advance that optimism over an Iran nuclear programme deal emerging out of Geneva was very much displaced, few anticipated what the actual reason for the failure would be. Indeed, most had expected that the staunchest opponent to the deal, Israel PM Netanyahu who moments ago appeared on Face the Nation and made his case (saying Iran would have given up "almost nothing") would have used his influence over the US as a key member of the 5+1 group of nations (US, Russia, China, France, Britain and Iran) to block any Iranian detente with the US, even though none other than John Kerry has been urging for the Iranian deal for weeks. So when news hit that it was France who had scuttled a deal with a last minute block, many were surprised. FT reports: “There was a possibility to reach an agreement with the majority of 5+1 but there was a need to have the consent of all and as you have heard . . . one of the delegations had some problems,” Mohammad Javad Zarif said in a Facebook post referring to the six nations involved in the talks – the US, Russia, China, France, Britain and Iran. Three days of intense negotiations in Geneva, which went into early Sunday morning, failed to produce an interim agreement over Iran’s nuclear programme despite earlier optimistic predictions.
Kerry warns against Iran sanctions - The US secretary of state, John Kerry, warned Congress on Wednesday against hurting a historic opportunity for a nuclear pact with Iran by pressing ahead with new sanctions while international negotiators seek to prevent Tehran from being able to assemble an atomic weapons arsenal. Kerry said the United States and other world powers are united behind an offer they presented to Iranian negotiators in Geneva last week. But he said new action now from US lawmakers could shatter an international coalition made up of countries with interests as divergent as France, Russia and China, endangering prospects for a peaceful end to the decade-long nuclear standoff with the Islamic republic. The countries worry that Tehran is trying to assemble an atomic weapons arsenal. Iran insists its programme is solely for peaceful energy production and medical research. "We put these sanctions in place in order to be able to put us in the strongest position possible to be able to negotiate. We now are negotiating," Kerry told reporters ahead of testifying before the Senate banking committee. "And the risk is that if Congress were to unilaterally move to raise sanctions, it could break faith in those negotiations, and actually stop them and break them apart." With nuclear negotiations set to resume in Switzerland next week, the Obama administration dispatched Kerry and the vice-president, Joe Biden, to Congress on Wednesday to seek more time for diplomacy. They faced scepticism from members of Congress determined to further squeeze the Iranian economy and wary of yielding any ground to Iran in the talks.
China Uncensored (Beijing's Most Dangerous Pastime—Breathing): Air pollution so bad the spy cameras can't see anything -- from China Uncensored: Beijing is being gassed with "crazy bad" air pollution. Did I say air pollution? I meant to say, "heavy fog." That's what China's media calls it. But don't think that doesn't mean the Chinese regime isn't doing anything about it! The smog has made it next to impossible to spy on people! What good are China's network of more than 20 million cameras if they can't see through toxic clouds of smog that can be seen from outer space!?! https://www.youtube.com/watch?v=oR8d1PZvYRI
Chinese new lending tanks - This was out late yesterday but is important. New yuan lending figures for October were released and dived, from Bloomie: Aggregate financing was 856.4 billion yuan ($140.6 billion), the People’s Bank of China said yesterday in Beijing, below all nine projections in a Bloomberg News survey. New local-currency loans of 506.1 billion yuan compared with the 580 billion yuan median estimate of analysts. M2, the broadest measure of money supply, rose 14.3 percent from a year earlier. Here are the charts. First aggregate finance: And the shadow bank share: China is tightening credit and, if sustained, this will flow through to growth in Q1 2014, exacerbating the downside already locked in with the depleting stimulus pipeline.
Local $1.6 Trillion Debt Pile Impedes Rate Freedom: China Credit -- Chinese local governments’ $1.6 trillion in bank borrowings are a major obstacle to the freeing up of interest rates in the world’s second-largest economy, according to BNP Paribas SA and Capital Economics Ltd. The financing arms of municipal authorities owed lenders 9.7 trillion yuan ($1.6 trillion), or 14 percent of all loans, in mid-2013, according to China Banking Regulatory Commission figures. Most have weak credit profiles, Moody’s Investors Service said in a Nov. 5 report, noting that only 53 percent of 388 such companies it surveyed in June had enough cash to cover estimated debt payments and interest this year without refinancing. If rates are liberalized and advance quickly, “it will make it very difficult for the government to roll over debt as the cost of doing that will be rising fast,” “I won’t bet on deposit rates being fully liberalized within the next year or two.”
Why China’s one-child policy reversal comes too late to boost its economy -- China’s decision to loosen its one-child policy is a moral triumph but unlikely to be an economic one. In theory, a higher fertility rate would give China more workers to financially support the elderly and create a younger, more economically dynamic society. But here’s the problem: China’s fertility rate is 1.55, even lower in urban areas. It’s an extremely low 0.7% in Shanghai, for instance. Continuing urbanization will continue to push down the overall fertility rate. And research suggests that once a nation’s fertility rate falls below a certain level, it is nearly impossible to reverse the trend. As Jonathan Last writes in What To Expect When No One’s Expecting: Fertility trends have the turning radius of battleship not a go-kart. And the further fertility drops, the more unbendable the downward trend becomes. It is difficult to change direction from a rate of 1.75. Below a sustained rate of 1.50, there are no examples of a country returning to replacement level. Singapore would seem to be a relevant example, given that three quarters of its residents are ethic Chinese. In the 1960s, as Last notes, Singapore’s government began a sustained campaign to lower the nation’s fertility rate through a public relations campaign — “Stop at Two” — liberal abortion policy, and financial incentives. In 1976, the fertility rate hit the government’s 2.1 target. But then it kept dropping, falling to 1.74 by 1980 with the biggest drop among the most educated. By 2000, Singapore was directly paying parents to have more kids: $9,000 for the second child, $18,000 for the third. Families also got housing preferences. But nothing worked.
Michael Pettis: Forget the Plenum – from Naked Capitalism - Yves here. Pettis highlights the difficulties of restructuring the Chinese economy to feature more small business lending and consumption and calls them “political.” I’m not sure I agree fully. While withdrawing the heroin from current favored sectors is difficult both practically and politically (you will gore a lot of powerful oxen), I believe he misses the issues on the other side of the ledger, that of increasing consumption and smaller commercial lending. Fostering more consumption isn’t just a matter of creating better social safety nets (although that is a critical component); it also depends on having retail infrastructure and larger average home sizes. For instance, one of the not-often-enough recognized constraints to increasing consumption in Japan it its bubble years was the small size of Japanese homes and apartments. They simply could not own all that much stuff. On the small business side, that too requires the building of infrastructure and skills. I’ve remarked in passing elsewhere that one of the reasons we don’t see more small business lending despite the Fed’s fond hopes that pushing on a string will work is that the overwhelming majority of banks no longer do small business lending. Except at small banks, branches sell products and loans are scored against templates set at high levels in the bank. Character-based lending and the use of knowledge of the local market have gone out the window. But Chinese banks need to build the skills that have been largely thrown out the window in the US, and then train staff and build the needed systems and oversight. That’s infrastructure that takes time and effort to construct.
Larry Summers: In China and India, Beware of ‘Asiaphoria’ - With the top leaders of China’s Communist Party scheduled to release today their economic strategy for the coming decade, they would do well to consider the warning of former U.S. Treasury Secretary Lawrence Summers: Don’t count on fast growth to continue, and don’t get seduced by what he and fellow economist Lant Pritchett dub “Asiaphoria.” Messrs. Summers and Pritchett, both Harvard economists, have long worked together on theories of economic growth. At a recent San Francisco Federal Reserve conference, they warned that rapid growth in India and China could come to a fast, unexpected halt. “Hitching the cart of the future global economy to the horse of the Asian giants carries substantial risks,” they write. The two economists don’t claim to have found specific roadblocks that will halt either country’s progress. Rather, they argue that the growth patterns of wealthy and developing countries over the last century or so suggest that “episodes of super-rapid growth tend to be of short duration and end in decelerations back to the world average growth rate.” Since China and India are already on extended rolls– though India’s has slowed recently– that would put them in danger of a bad fall. “The single most robust and striking fact about cross-national growth rates is regression to the mean,” they write – using economist jargon to argue that a couple of decades of fast growth is no guarantee of continued rapid growth. Just the opposite. Such growth is bound to end, as country growth rates fall to near the global average.
Japan effect eclipses Fed taper concerns - FT.com: If you cannot see the wood for the trees, then how do you expect to see the elephant in the room? One of the casualties of the market’s obsession with the Federal Reserve’s monetary easing “non-taper” has been a loss of perspective. The world has forgotten that the real monetary shock of 2013 has been the change in policy by the Bank of Japan. In the words of the Bank for International Settlements’ annual report, when the world’s third-largest central bank decides “to double the size of its monetary base, double its holdings of Japanese government bonds and exchange traded funds and more than double the average maturity of its government bond purchases”, investors ought to sit up and take note, especially when it comes with a 20 per cent currency depreciation. This is “unilateral QE” with a vengeance – of a similar magnitude to the Fed’s QE3 but applied to an economy a third the size of the US. Japanese monetary policy is never going to be the same again, with consequences that will extend beyond Japan’s borders.The main reason why Japan is still a sideshow in the minds of investors is because that is exactly where it has been for the past 20 years. Many asset managers have only known Japan as a taker, rather than a maker, of the global narrative. The sharp rise in the Nikkei in the first few months of this year may have been impressive, but it is the seventh occasion in 21 years when the market delivered six-month returns in excess of 30 per cent; the previous six were all false dawns. Even the most recent move has failed to establish a turning point for Japanese stocks relative to a dollar global equity benchmark. The decision to raise the consumption tax and the difficulty in delivering supply-side reforms still suggest a market to “rent” rather than “own”.
Japanese GDP growth halves in third quarter - FT.com: The rate of growth in Japan’s economy roughly halved between the second and third quarters, the government reported on Thursday, as weaker consumption and exports offset big rises in public spending and property investment. According to Cabinet Office estimates, the real value of goods and services produced by the world’s third-largest economy grew at an annualised rate of 1.9 per cent between July and September. That marked a deceleration from the stimulus-boosted first half, when all three engines – consumption, investment and exports – fired simultaneously to produce quarter-on-quarter growth of 4.3 per cent in the first three months and 3.8 per cent in the second. However, Japan still recorded growth above its potential level, which most economists estimate at between 0.5 per cent and 1 per cent. And many expect a pick-up in the current quarter and in the first three months of 2014, as households boost spending and investment before an increase in the rate of consumption tax, effective from next April. “A good cycle has begun,” said Akira Amari, economy minister, in remarks to reporters. “It is important that domestic demand has made a steady contribution.” The third-quarter slowdown is “little cause for concern,” “In the latter half of the fiscal year [to April 2014] we’ll probably see a lot of front-loaded spending before the tax increase, especially in residential construction activities and in big-ticket durable goods.”
Slowdown in Japan Raises the Pressure on Abe — Prime Minister Shinzo Abe of Japan is now under more pressure to deliver on his much-promoted effort to improve the country’s long-term growth prospects, after a government estimate on Thursday showed that the economy had slowed in the quarter that ended in September. Recent delays on measures that would liberalize Japan’s labor market or level the playing field for Internet-based start-ups have raised questions about how committed Mr. Abe remains to his proposals, especially when they encroach on powerful vested interests. According to the preliminary figures released on Thursday by the government’s Cabinet Office, exports and consumer spending displayed signs of weakening after strong overall growth in the first half of the year. Japan’s gross domestic product slowed to an annualized rate of 1.9 percent in the quarter, down from 3.8 percent in the previous quarter. Growth had benefited from a bold monetary and fiscal push by Mr. Abe’s government to stimulate the economy. The government estimate exceeded the average rate of 1.6 percent predicted by economists polled by Nikkei. The economists also forecast that growth would pick up somewhat in the fourth quarter. Still, the slowdown takes some of the shine off what had been a bright spot for an otherwise lackluster year for the global economy. On a quarterly basis, the Japanese economy grew 0.5 percent from the previous three months.
Japan Consumer Sentiment Falls Most Since Quake in Hit to Abe - Japan consumer confidence dropped in October the most since a record earthquake in 2011, showing the challenges Prime Minister Shinzo Abe faces in sustaining a recovery in the world’s third-biggest economy. A sentiment index unexpectedly fell 4.2 points to 41.2, with gauges of views of livelihoods, employment, and incomes declining, the Cabinet Office said today in Tokyo. A typhoon in mid-October around the time the survey was conducted may have lowered the consumer mood. Abe needs to maintain economic momentum so far driven by fiscal and monetary stimulus ahead of an April increase in the sales tax that he announced on Oct. 1. Growth is forecast to slow to an annualized 1.7 percent in the third quarter from 3.8 percent in the previous three months, according to a separate Bloomberg survey. “The decision to raise the sales tax has hurt consumer sentiment,” said Shuichi Obata, senior economist at Nomura Securities Co. in Tokyo. The sentiment index was forecast to rise to 45.5, according to a survey of five economists by Bloomberg News.
Think Weaker Yen Means Cheaper Exports? Think Again - When the dollar jumps against the yen, one might assume that made-in-Japan goods would become a lot more affordable for U.S. consumers. After all, the dollar’s value has risen 25% against the yen from a year earlier, when the prospects of a radical shift in Japan’s economic policy set off a sharp reversal in the two currencies’ exchange rate. But when you look at the average price that Americans are actually paying for imported Japanese goods, there doesn’t seem to be much of change. The Bank of Japan’s index measuring the prices of Japanese exports, based on currencies by which their importers promised to pay when signing trade contracts, fell only 2.0% from November through this October. Roughly half of Japanese exports are settled in U.S. dollars. Despite the generally held view that the weak yen can quickly boost Japanese exports by making them more price-competitive in the global markets, many Japanese companies cut their export prices gradually. They typically employ what is known as “pricing-to-market,” where they basically set the prices of their exports to match prevailing levels in their target markets, and adjust prices so that they are in line with exchange rates at a measured pace. Since the ultimate goal of most companies is to make money rather than boost the amount of goods sold, other economists say that if consumers overseas are willing to buy Japanese products at current prices, firms will be most willing to oblige.
One-off Factors Weighing on Export Data - The recent slowdown in Japanese export volumes has been a source of mystery to investors, who assumed the sharply weaker yen would give shipments overseas a shot in the arm. With the correction in the yen’s hyper-strength having mostly run its course by last March, the expectation was that export volumes would then start growing. But Japan’s exports declined 2.4% in the July-September period from the previous quarter, according to preliminary gross domestic product data released Thursday. Officials say, however, that while the weak yen did help exports, economic conditions and policy decisions in destination countries can trump the exchange-rate factor. If such factors are one-off developments, that could mean there’s still room for export optimism. Take Thailand, for example. Japanese exports there had been robust until recently due to ongoing reconstruction activities after the devastating floods in 2011 and generous government incentives for new car purchases. But with the program having expired in December, orders dried up after a backlog of orders was met and imports started to go down. “Once the Thai government’s car-buying incentives ended, the market quickly lost their impact on overall demand,”
The TPP, if Passed, Spells the End of Popular Sovereignty for The United States - You’ve heard of popular sovereignty, right? It’s embodied in the Preamble of the United States Constitution.[1] A popular website (“We Speak Student”) explains in its Constitution FAQ: The principle of popular sovereignty is the idea that a government’s power derives only from the consent of the people being governed. The Constitution’s first three words—”We the People…”—establish from the very start that the United States government draws its authority and legitimacy directly from the people. Making it all the more remarkable, or not, that our political class — Barack Obama, Hillary Clinton, Max Baucus and Orrin Hatch, a bipartisan caucus, the Chamber of Commerce, and the Editorial Board of The New York Times, to name a few of the usual suspects — would pursue an agreement, the Trans Pacific Partnership (TPP) that sells out popular sovereignty to transnational investors, and allows them to rule us. I know your friends think this sounds like nutty black helicopter stuff, but it’s true! It’s true! (Tell them to watch Yves on Bill Moyers, in a really sharp transcript.) So bear with me, please, as I work through the thesis. First, I’ll look at how TPP replaces popular sovereignty with transnational investor rule, in two ways. Next, I’ll take a very quick look at the state of play. Finally, I’ll suggest that all is not lost, and in fact the TPP can be defeated.
House Pushing Back on Trade Deal; More Detail on How Secret Arbitration Panels Undermine Laws and Regulations -- Yves Smith --Wow, this is amazing. Word has apparently gotten out even to Congressmen who can normally be lulled to sleep with the invocation of the magic phrase “free trade” that the pending Trans Pacific Partnership is toxic. This proposed deal among 13 Pacific Rim countries (essentially, an “everybody but China” pact), is only peripherally about trade, since trade is already substantially liberalized. Its main aim is to strengthen the rights of intellectual property holders and investors, undermining US sovereignity, allowing drug companies to raise drug prices, interfering with basic operation of the Internet, and gutting labor, banking, and environmental regulations. The update from the New York Times: The Obama administration is rushing to reach a new deal intended to lower barriers to trade with a dozen Pacific Rim nations, including Japan and Canada, before the end of the year.But the White House is now facing new hurdles closer to home, with nearly half of the members of the House signing letters or otherwise signaling their opposition to granting so-called fast-track authority that would make any agreement immune to a Senate filibuster and not subject to amendment. No major trade pact has been approved by Congress in recent decades without such authority. Many members have had a longstanding opposition to certain elements of the deal, arguing it might hurt American workers and disadvantage some American businesses. Those concerns are diverse, including worries about food safety, intellectual property, privacy and the health of the domestic auto industry. Others say that they are upset that the Obama administration has, in their view, kept Congress in the dark about the negotiations, by not allowing congressional aides to observe the negotiations and declining to make certain full texts available. This development is more significant than it might appear. “Fast track” authority limits Congress’s role in trade negotiations. The Administration presents a finished deal, and individual members have only an up or down vote. At that point, because the pending agreements have been misleadingly presented as “pro trade,” dissenters will be depicted as anti-growth Luddites.
House Democrats Reject Fast-Track Power For TPP -- As information leaks about secret provisions of the Trans-Pacific Partnership (TPP), opposition to the sovereignty-killing trade agreement is building in Congress. More than 150 House Democrats have publicly stated they oppose giving President Obama fast-track trade authority for TPP. It appears some in Congress have learned their lesson from NAFTA and the WTO – that “free trade” is a scam that destroys economies and turns all power over to transnational corporations who don’t give a damn about the host countries. In a letter to President Obama, the lawmakers said White House trade promotion authority (TPA) would further limit their power to help shape the Trans-Pacific Partnership (TPP) and other trade pacts, which have major domestic policy implications.“Given our concerns, we will oppose ‘Fast Track’ Trade Promotion Authority or any other mechanism delegating Congress’ constitutional authority over trade policy that continues to exclude us from having a meaningful role in the formative stages of trade agreements and throughout negotiating and approval processes,” the letter reads.The letter spells out a deep division between neoliberal Democrats like Obama and an increasingly progressive base of the Democratic Party. There is also the matter of separation of powers which was also mentioned in the letter. Members of Congress have been cut out of the negotiating process and denied access to documents.“Unfortunately, in my view, it appears the Trans-Pacific Partnership treaty will continue to move trade policy in the wrong direction,” DeLauro said. “It is past time for members of Congress, as representatives of the people, to reassert our authority when it comes to these trade agreements.”
151 House Dems Tell Obama "We Won't Fast-Track TPP" - Earlier today, Rosa DeLauro (CT-03) and George Miller (CA-11) led a group of 151 Democrats, 3/4 of the caucus, in expressing their concern with the Trans-Pacific Partnership negotiation process and opposing the fast-track authority that the president wants for the final deal. The text of their letter is below: This letter came on the same day that Wikileaks released the text of one of the most controversial chapters of the TPP, that dealing with intellectual property rights. The chapters reveals the US's efforts to restrict Internet freedom and access to lifesaving medicines throughout the Asia-Pacific region as well as at home. In a press release, Public Citizen minced no words in its condemnation of the TPP: "The Obama administration’s proposals are the worst--the most damaging for health–-we have seen in a U.S. trade agreement to date. The Obama administration has backtracked from even the modest health considerations adopted under the Bush administration,” said Peter Maybarduk, director of Public Citizen’s global access to med icines program. “The Obama administration’s shameful bullying on behalf of the giant drug companies would lead to preventable suffering and death in Asia -Pacific countries. And soon the administration is expected to propose additional TPP terms that would lock Americans into high prices for cancer drugs for years to come.”
Bill Keller Advises Obama To ‘Crack Some Heads’ To Pass TPP -- Bill Keller, the former Executive Editor of the New York Times and current columnist for the same, has some advice for President Barack Obama. In order to, as Keller puts it, “salvage his presidency” Obama must destroy accountability for corporations. This is ironically claimed to be some bizarre argument for domestic prosperity. The biggest item awaiting some Washington juice is the Trans-Pacific Partnership, an immense, stalled, Asian free-trade agreement that would do more to counter burgeoning China than any number of battleships.Like most free-trade agreements, it has opposition, from critics who fear it would insufficiently protect labor, consumers, the environment and intellectual property. It’s time for the administration to cut some deals, crack some heads and open up those Asian markets.For whom? Keller doesn’t say. Though it seems as though he believes, counter to all available evidence, that free trade deals are beneficial to the American people. Tell that to Detroit. But more to the point, does Keller know something we don’t? Does he have access to secret documents that even members of Congress can not get a hold of? If this plan is beneficial why not allow an open debate in the free market of ideas? Keller doesn’t say.What Mr. Keller may not know is that TPP is not just an effort to “open up those Asian markets”, it is much more that. TPP seems actually to be a quiet coup that would suck power out of democratically accountable institutions and hand that power over to corporate tribunals.
Trans-Pacific Partnership Chapter Released By WikiLeaks -- A trade agreement Canada intends to sign will have “far-reaching implications for individual rights and civil liberties,” WikiLeaks says. The group known around the world for publishing state secrets has released a draft chapter of the Trans-Pacific Partnership, a trade deal being negotiated under what it calls an “unprecedented level of secrecy.” Critics say the agreement favours corporate interests over consumers. The leaked intellectual property chapter of the Trans-Pacific Partnership Agreement proposes sweeping reforms including to pharmaceuticals, publishers, patents, copyrights, trademarks, civil liberties and liability of internet service providers. “If instituted, the TPP’s IP regime would trample over individual rights and free expression, as well as ride roughshod over the intellectual and creative commons,” WikiLeaks’ Editor-in-Chief Julian Assange, said in a press release. “If you read, write, publish, think, listen, dance, sing or invent; if you farm or consume food; if you’re ill now or might one day be ill, the TPP has you in its crosshairs.” Canada joined TPP negotiations along with Mexico last October. It also includes other Pacific Rim countries Australia, Brunei, Chile, Japan, Malaysia, New Zealand, Peru, Singapore, the United States, and Vietnam but not China. The member countries together represent a market of 792 million people and a GDP of $27.5 trillion, or 40 per cent of the world economy.
Secret Trade Treaty Exposed -- The Trans-Pacific Partnership is a trade treaty going on in secret. Trade treaty drafts and negotiations are so secret to even comment on one of these trade deals will cost $2000. WikiLeaks recently released an excerpt of the secret deal, a feat most amazing they obtained even a portion of the terms. Thank you WikiLeaks and we hope they obtain more parts of trade treaties being crafted in secret by large multinational corporations in future. The leak is on intellectual property and it would change the Internet as we know it if enacted. The Trans-Pacific Partnership trade treaty is referred to as TPP. Since the beginning of the TPP negotiations, the process of drafting and negotiating the treaty’s chapters has been shrouded in an unprecedented level of secrecy. Access to drafts of the TPP chapters is shielded from the general public. Members of the US Congress are only able to view selected portions of treaty-related documents in highly restrictive conditions and under strict supervision. It has been previously revealed that only three individuals in each TPP nation have access to the full text of the agreement, while 600 ’trade advisers’ – lobbyists guarding the interests of large US corporations such as Chevron, Halliburton, Monsanto and Walmart – are granted privileged access to crucial sections of the treaty text. The pharmaceutical companies are having a field day, raising drug prices for the entire globe. They do this through patents and thus monopoly rights on manufacture of the particular drug. Normally patents expire and this expiration paves the way for generics production of the drug in question. The document released by Wikileaks shows Big Pharma would be allowed to re-issue patents on drugs where that patent is about to expire, thus extending their monopoly and control of the price of that drug. Generally speaking patents stop generics from being made and sold and allows Pharmaceutical companies to charge exorbitant prices on drugs where they control manufacture and supply. Bill Moyers gives an example of a cancer drug and how India bucked multinational pharmaceutical companies on their monopoly by denying a patent extension: The trade agreement patent terms are so outrageous even the AARP is opposing TPP and pointing out the disaster to health care costs this trade agreement would bring.
Wikileaks Disclosure of Trade Deal Chapter Shows It Will Kill People and Internet; House Opposition is Widespread - Yves Smith - We posted on the New York Times news story that opposition in the House to authorization of “fast track” authority to the Administration on its pending Pacific and Atlantic trade deals was stiffening right just before a related story broke: that Wikileaks had disclosed the end of August draft of one of the critical chapters of one of the deals. We wrote yesterday that this deal, the Trans Pacific Partnership, already looked to be in trouble given both Congressional and foreign opposition. The Administration has conducted the talks with an unheard-of degree of secrecy, with Congressional staffers in most cases denied access to the text and even Congressmen themselves facing unheard-of obstacles (Alan Grayson reported that the US Trade Representative created an absurd six weeks of dubious delays in his case). But perversely, 700 corporate representatives got privileged access so they could influence negotiations. It’s not hard to see whose interests are really being served in these deals. The Wikileaks disclosure could well have struck the fatal blow to this toxic pact. As we’ll see below, it may have been dead anyhow. Obama’s relationship with his own party is already on the rocks as a result of Obamacare (not just the rollout but the increasing recognition that the program has more fundamental flaws), so he has limited political capital available to whip Democratic Congressmen back into line. The opposition is more deep-seated and broad-based than I had realized (for instance, 18 of the 21 ranking full committee members in the House are against it). So the TPP looked to be on the Syria incursion path.But it’s hard not to believe that the Wikileaks revelations will galvanize opposition among the other prospective members of the pact. It’s hard for democratic countries to agree to a deal that has been revealed will kill their citizens in order to enrich America’s Big Pharma incumbents. And that statement is not an exaggeration. Wikileaks disclosed the end of August version (apparently two drafts behind current text) of the intellectual property chapter, which includes the section on drugs and surgical procedures.
TPP Exposed: WikiLeaks Publishes Secret Trade Text to Rewrite Copyright Laws, Limit Internet Freedom - Democracy Now; video & transcript - WikiLeaks has published the secret text to part of the biggest U.S. trade deal in history, the Trans-Pacific Partnership (TPP). For the past several years, the United States and 12 Pacific Rim nations have been negotiating behind closed doors on the sweeping agreement. A 95-page draft of a TPP chapter released by WikiLeaks on Wednesday details agreements relating to patents, copyright, trademarks and industrial design — showing their wide-reaching implications for Internet services, civil liberties, publishing rights and medicine accessibility. Critics say the deal could rewrite U.S. laws on intellectual property rights, product safety and environmental regulations, while backers say it will help create jobs and boost the economy. President Obama and U.S. Trade Representative Michael Froman reportedly wish to finalize the TPP by the end of the year and are pushing Congress to expedite legislation that grants the president something called "fast-track authority." However, this week some 151 House Democrats and 23 Republicans wrote letters to the administration saying they are unwilling to give the president free rein to "diplomatically legislate." We host a debate on the TPP between Bill Watson, a trade policy analyst at the Cato Institute, and Lori Wallach, director of Public Citizen’s Global Trade Watch.
The Most Nefarious Part Of The TPP Proposal: Making Copyright Reform Impossible - So with yesterday's revealing of the IP chapter of the TPP, there are plenty of great analyses out there of what's in there, but I wanted to highlight some parts that are the most nefarious and downright slimy in that they represent parties (mainly the US) pretending to do one thing while really doing another. These are tricks pulled by a dishonest, shameful USTR, entirely focused on making his corporate buddies richer at the expense of everyone else. Remember, our current USTR, Michael Froman, has a long history of this kind of crap. While he hasn't been there throughout the negotiating process, it shouldn't be surprising that he "delivers" this sweetheart deal to a few legacy industry players. Watch closely, and you'll see supporters of TPP, and especially USTR employees, make the claim that nothing or almost nothing in the TPP will require legal changes in the US. They'll say that this is just about "harmonizing" norms across borders to make it easier for businesses to do business internationally. This is a lie.
Philippine Economy Can Weather the Storm; Inflation Likely to Rise - The devastation wrought by Typhoon Haiyan could shave as much as 1.4% off Philippine economic output this year and drive up inflation, but won’t significantly slow the country’s economic momentum, HSBC wrote in a report Tuesday. It also said the disaster highlighted the country’s infrastructure shortcomings and exposed the urgent need for the government to boost public-works investment. The Philippines has been one of the fastest-growing economies in Asia this year — gross domestic product grew 7.6% in the first half of the year — and that strength is likely to continue, Ms. Nguyen said. Data out Tuesday showed exports rose strongly in September, up 4.9% on-year and 10.1% from the previous month, driven by electronics.Typhoon Haiyan slammed into the eastern Visayas region last Friday and cut a swathe of devastation through the center of the archipelago, leaving thousands of people dead and as many as 20,000 homes destroyed – destruction remarkable even for a country beset by frequent natural disasters. The damage was most severe in the provinces of Leyte and Samar, agricultural areas that aren’t major contributors to the Philippine economy.
Cat bonds wouldn’t have helped the Philippines - Super Typhoon Haiyan might well have been the biggest and strongest storm in recorded history, with wind speeds exceeding 200mph and hurricane-force winds extending more than 50 miles from the storm’s eye. Moody’s estimates that half of the Philippines’ sugar cane crop has been destroyed, along with a third of its rice-growing fields. Most devastatingly, thousands of people were killed by the storm. At the same time, however, Haiyan is not a particularly devastating financial catastrophe. For all that the afflicted areas had the bad fortune to get hit just as the storm was at its peak strength, they were a long way from Manila, the commercial heart of the Philippines. The loss estimates of about $14 billion are large, but not crazily so given that the Philippines generally suffers about $5 billion per year in storm damage. Like most natural disasters, then, this one is not a huge economic disaster. And while all developing countries can make good use of financial inflows, it’s not clear that the Philippines needs money right now more than it normally does. The national accounts are strong, and Haiyan won’t hurt them significantly. Which means it’s probably no big deal that all those talks back in 2011, about the Philippines issuing some kind of catastrophe bond, never amounted to anything. If the Philippines had issued a cat bond back then, the value would have been for some tiny fraction of $14 billion, and even if it paid out in the wake of Haiyan, the money wouldn’t actually help a great deal — after all, Haiyan is already causing a huge influx of capital into the country.
In Singapore, Calls for Poverty Line Amid Rising Inequality - Already, the government is stepping up social spending to help low-income citizens squeezed by stagnant wages and rising costs. But policy makers should go further, the researchers say, and better define what it means to be poor in one of Asia’s leading financial centers. “Singapore does not have an official poverty line … Most Singaporeans are not aware of the scale and depth of poverty in Singapore,” the Singapore Management University’s Lien Center for Social Innovation said in a report published Monday. “It is time for Singapore to join comparably developed nations in officially defining and measuring poverty.” Today, Singapore is the second-most unequal economy in the developed world, behind Hong Kong, having pulled in wealth over the past decade with investor-friendly and liberal immigration policies, according to United Nations data. More than 17% of the city-state’s resident households have at least US$1 million in disposable wealth, while its Gini coefficient—an income-inequality measure in which zero indicates total equality and one represents complete inequality—had risen to 0.478 last year from 0.442 in 2000, a faster increase than in other developed nations. Meanwhile, the poor have been left behind. About 110,000 to 140,000 families in Singapore—between 10% to 12% of total resident households comprising citizens and permanent residents—earn less than 1,250 Singapore dollars a month (US$1,000) and are “unable to meet basic needs in the form of clothing, food, shelter and other essential expenditures,”
Vietnam Shows How To Clean Up The Banking System: Ex-Banker Faces Death Penalty For Fraud -- The lack of prosecution of bankers responsible for the great financial collapse has been a hotly debated topic over the years, leading to the coinage of such terms as "Too Big To Prosecute", the termination of at least one corrupt DOJ official, the revelation that Eric Holder is the most useless Attorney General in history, and even members of the judicial bashing other members of the judicial such as in last night's essay by district judge Jed Rakoff. And naturally, the lack of incentives that punish cheating and fraud, is one of the main reasons why such fraud will not only continue but get bigger and bigger, until once again, the entire system crashes under the weight of all the corruption and all the Fed-driven malinvestment. But what can be done? In this case, Vietnam may have just shown America the way - use the death penalty on convicted embezzling bankers. Because if one wants to promptly stop an end to financial crime, there is nothing quite like the fear of death to halt it. Bloomberg reports that a Vietnam court will consider the death penalty for a Vu Quoc Hao, the former general director of Agribank Financial Leasing Co. who is charged with embezzling 531 billion dong. While that sounds like a whole lot of dong, converted into USD it is only $25 million, or what Goldman would call "weekend lunch money." Just imagine how much cleaner Wall Street would be, where the typical bank fraud is generally in the billions, if bankers and other white collar criminals had the fear of death if caught manipulating petty prices or outright stealing amounts that are considered petty cash by most of the 0.001%.
Afghanistan's poppy farmers plant record opium crop, UN report says - Afghanistan's farmers planted a record opium crop this year, despite a decade of western-backed narcotics programmes aimed at weaning farmers off the drug and cracking down on producers and traffickers. For the first time over 200,000 hectares of Afghan fields were growing poppies, according to the UN's Afghanistan Opium Survey for 2013, covering an area equivalent to the island nation of Mauritius.Violence and political instability means there is unlikely to be any significant drop in poppy farming in the world's top opium producer before foreign combat troops head home next year, a senior UN official warned. "This is the third consecutive year of increasing cultivation," "The assumption is that the illicit economy is to gain in importance in the future."
Why power theft in India is a complex problem - Why should I be scared of the government when electric current doesn't scare me? asks Loha Singh, who purloins electricity and provides illegal connections for a living in Katiyabaaz (Powerless), a riveting new documentary on power theft in India.
Biting the hand that feeds: India's small towns favor opposition - In just a few years, handouts for farmers by Congress have helped turn the once-deprived village into a thriving retail centre, selling everything from glittery bangles to satellite dishes. The Congress party-led government pours at least $20 billion a year into rural India in addition to free education and health and cheap food. Cheap fertilizer, seeds and electricity, 100 days of guaranteed paid work a year and new rural roads have given farmers cash to spend. These funds have helped create an emerging middle class, mostly in semi-urban and small towns, which one estimate has put at almost a quarter of India's 1.2 billion people. But many in this new middle class believe the next step up the income ladder will come when the opposition Bharatiya Janata Party (BJP) and Narendra Modi, its candidate for prime minister and currently the chief minister of neighboring Gujarat state, will be in power. That bodes ill for Congress ahead of a general election that must be held by May.
India Child-Labor Ban Led to Poorer Families, More Children Working - A ban on child labor sounds like a policy move that would yield nothing but favorable results. But a new paper on the fallout from such a measure in India finds that isn’t the case. The title — “Perverse Consequences of Well Intentioned Regulation: Evidence from India’s Child Labor Ban” — captures the conclusion that families’ welfare diminished rather than improved after India’s 1986 prohibition against labor by children under age 14. The authors focused on particular jobs that the ban prohibited children from doing, such as working in mines, handling toxic substances, making cigarettes or providing food at rail stations. The ban didn’t extend to agriculture or family businesses, but the legislation set forth limits on how many and which hours children could work. Penalties for flouting the law included fines or prison time. After the ban, the authors found, child labor actually increased — while wages for children, relative to those of adults, decreased. In addition, since fewer children were being paid, families became poorer, consumed and spent less and all told, found themselves struggling more financially than they had before the ban.
Higher Inflation Numbers Add Upward Pressure to India's Rates -- As I’ve previously noted, the Indian Central Bank is in the middle of literally the worst policy bind a central bank faces: slowing growth and high unemployment. The cure for slow growth is lower interest rates, the implementation of which leads to higher inflation. Conversely, the cure for high inflation is higher interest rates, leading to lower growth. There really is no way to win. India’s new central bank head has opted to increase interest rates, as shown in this chart: Over the long run, this is probably the better path as inflation fighting credentials are hard to obtain and very easy to lose. And, once inflation is ingrained in the economy, it is extremely difficult to get rid of. But, the slower growth that is bound to result will not make his job any easier.Nor will the latest inflation numbers from the Indian statistics agency: Provisional annual inflation rate based on all India general CPI (Combined) for October 2013 on point to point basis (October 2013 over October 2012) is 10.09% as compared to 9.84% (final) for the previous month of September 2013. The corresponding provisional inflation rates for rural and urban areas for October 2013 are 10.11% and 10.20% respectively. Inflation rates (final) for rural and urban areas for September 2013 are 9.71% and 9.93% respectively The possibility of further rate hikes has increased thanks to this report.
Sharp Inflation Revision Poses Challenge for Indian Policymakers - Worsening inflation numbers — and a steep upward revision to earlier figures – are raising doubts about whether India’s central bank is getting the kind of accurate information it needs to formulate effective policy. Reserve Bank of India Governor Raghuram Rajan gestures during a press conference in Mumbai on November 13, 2013. India’s main inflation gauge, the wholesale inflation rate, rose to an eight-month high of 7% in October, the government said Thursday. Even more worrisome, however, was an adjustment to August inflation data, to 6.99% from 6.1%. That surprise jump, together with frequent revisions to other data, poses a challenge for policymakers struggling to avert a stagflation crisis. “The sharp upward revision in the August print obviously has some pretty serious ramifications for policy making,” said Sujan Hajra, an economist at Anand Rathi Securities. Mr. Hajra said such revisions could potentially lead to policy missteps, adding that he expects the inflation readings for September and October to be revised higher as well, by about a half-percentage point each. Revisions in Indian data aren’t rare. Most advanced economies provide provisional numbers that are subsequently updated as more data is collected, but India often sees unusually large swings in the reported numbers. Analysts attribute it to inefficient data reporting and collection.
Poor countries want space programs more than rich ones do -- This week's launch of India's spacecraft to Mars should not come as a surprise. Five years ago, the country sent a mission to the Moon. And going ahead, the Indian Space Research Organisation (ISRO) has bolder aims. In 2015, it plans to send a probe to Venus and then another to the Sun. A reusable launch vehicle is already in the works, something that NASA is letting SpaceX develop. These achievements, however, haven't stopped detractors from asking why India is doing this when a third of its people live below the international poverty line. The simple answer is because it makes economic sense, as technological and social development go hand in hand. This reasoning has been embraced throughout the developing world. Investment from poor countries has helped double global government spending on space programs in the last few years. It was $73 billion in 2012 but only $35 billion in 2010, according a report by the space market consultancy Euroconsult. In that time, NASA's budget fell from $18.7 billion to $17.7 billion. Countries like Bangladesh, Laos, Indonesia, Malaysia, Thailand, and Vietnam are leading the charge. More than 70 countries now have space programs of some sort. India's success in space has proven to these countries that modest investments can provide big gains. The Mars Orbiter Mission, for instance, cost only $73 million. NASA's next mission, which will not do a lot more, is going to cost $671 million.
Venezuela expands crackdown on price-gouging --Venezuelans mobbed appliance and other stores Monday to cash in on price cuts ordered by the leftist government as local elections loom. President Nicolas Maduro, who ordered the crackdown over the weekend against inflation he says is running at 54 percent, appealed for calm. He accused the opposition of trying to provoke violence at stores sanctioned for allegedly raising prices illegally. So far 28 people have been arrested, and warrants were issued for 10 more. Three stores have been occupied by Venezuelan authorities. The measure initially affected appliance stores but over the weekend Maduro, successor to the late firebrand Hugo Chavez, expanded it to textiles, footwear, toys, hardware and automobiles. He also said he would use special powers that he is seeking from the National Assembly to impose caps on private sector profits. “I am going to ask for norms and the maximum penalty allowed under the constitution for these types of crimes because we have to stabilize the functioning of the economy,”
Punish Companies That Pillage - — Pillage is a war crime. And yet, when it comes to natural resources, companies doing business in war zones have largely been free to plunder with impunity — until now. This month, Swiss authorities opened an investigation against one of the world’s leading gold refiners, Argor-Heraeus, for pillaging gold from the Democratic Republic of Congo. In the middle of the last decade, according to a criminal complaint filed by Trial (Track Impunity Always), a legal advocacy group based in Geneva, the company refined three tons of gold that had been bought by companies based in Britain and the Channel Islands. The companies had acquired the gold from a Ugandan company, which had bought the gold from Congolese rebels, according to the complaint. The word “pillage” evokes campaigns of barbarity centuries ago, but legally speaking, it just means theft during war. Yet corporate pillage of natural resources has gone largely unaddressed in the modern era, even though, particularly since the end of the Cold War, the illegal exploitation of such resources has financed atrocities throughout the world. “Blood diamonds” financed wars in Angola and Sierra Leone, illicit timber contributed to bloodshed in Liberia, and coltan destined for Western cellphones, laptops and game consoles fueled violence in Congo. Organizations like Global Witness have documented these illicit resource flows for years, naming and shaming Western companies.
Vital Signs: World Economy Projected to Grow 3.1% in 2014 - China’s economy will likely grow at its slowest pace in years in 2014, as it continues to transition to a more balanced growth model, a leading forecaster said. Despite the deceleration in China, the world economy will likely still rebound modestly next year, mainly due to the recovery in mature economies like Europe and the U.S., according to the Conference Board. In its Global Economic Outlook, released Tuesday, the Conference Board projects that China’s growth rate will slow to 7% in 2014, compared with 7.5% in 2013. That would mark China’s slowest rate of economic expansion in more than a decade, based on data which includes official government estimates. This deceleration will also drag down developing economies’ pace of growth, which is expected to slow to 4.6% in 2014, from 4.7% in 2013, according to the report. Despite the less rapid economic expansion in the world’s second-largest economy, global economic growth should still accelerate slightly in 2014. The Conference Board projects that world economic growth will pick up to 3.1% in 2014 from a “disappointing” annual growth rate of 2.8% in 2013. A sharp uptick in economic activity in the euro zone is the main factor behind the improved global outlook for next year, as the region appears to be emerging out of the recession that plagued it for much of the past two years, the Conference Board said. It expects the euro-zone economy to grow 0.8% in 2014, after contracting 0.3% in 2013, according to the report. The U.S. is the second-largest contributor to the global economy’s expected modest rebound in 2014. The Board projects the world’s largest economy will post an annual growth rate of 2.3% in 2014, compared with 1.6% in 2013.
Wealth of world’s billionaires doubles since 2009 - The collective wealth of the world’s billionaires hit $6.5 trillion, a figure that is nearly as large as the gross domestic product of China, the world’s second-largest economy. The number of billionaires has grown to 2,170 in 2013, up from 1,360 in 2009, according to the report. The vast enrichment of this social layer has been driven by surging stock markets, fueled by the “easy money” and money-printing operations of the US Federal Reserve and other central banks. This process is intensifying. Last week the European Central Bank, responding to a deterioration of economic conditions in Europe, cut its benchmark interest rate in half, from 0.5 to 0.25 percent, sending a new wave of cash into financial markets. The day after Wealth-X released its report, Twitter, the social networking service, held its initial public offering, creating 1,600 paper millionaires in a single day, as its stock doubled within hours, according to the financial analysis firm PrivCo. The wealth report reflects the parasitic growth of the financial sector throughout the world economy. Seventeen percent of billionaires got their wealth from the finance, banking, and investment sectors, more than any other, while only eight percent are associated with manufacturing. The vast expansion in the incomes of the super-rich comes even as social services are being slashed in the US, Europe and throughout the world. Earlier this month, food stamp benefits were reduced for the first time in US history, and extended unemployment benefits are scheduled to expire entirely at the end of the year.
‘Fragile Five’ Struggle to Take Advantage of Fed Taper Reprieve - The Federal Reserve’s decision in September to maintain for now its extraordinary support for the American economy has given emerging markets extra time to prepare for the U.S. central bank’s eventual policy tightening. The verdict is mixed on whether the “Fragile Five” — as Morgan Stanley dubbed India, Indonesia, Turkey, Brazil and South Africa – have done enough to prepare for the Fed’s eventual tapering, which some analysts now believe could come as early as December. Indonesia’s surprise move Tuesday to raise interest rates — its third raise since August – shows the depth of concern over a yawning current-account deficit that hastened investors’ rush for the exit this summer. Benchmark rates in Jakarta are now a full percentage point higher than they were when tapering worries mounted in May. But that’s not all: In June the government took the politically sensitive step of cutting fuel subsidies to pare its budget deficit, and in August said it would raise taxes on imported luxury cars and other goods and discourage oil imports. In India, Raghuram Rajan quickly made his mark after taking over as central bank governor in September, raising rates at his first two policy meetings and outlining ambitious plans to strengthen the economy and financial sector. A special foreign-exchange swap window that the Reserve Bank of India set up in late August to provide dollars to state-run oil refiners has taken some pressure off the rupee. As of Monday, the swap window had taken in $17.5 billion, boosting the rupee well off its summer lows. Outside of Asia, Brazil and Turkey also have raised interest rates to tackle inflation and attract investor flows. Brazil additionally launched an aggressive currency intervention program, while Turkey has stepped into the market repeatedly to sell dollars. South Africa hasn’t taken any special measures, focusing instead on reviving growth. And some worry that elections scheduled for next year in Brazil, India, Indonesia and Turkey may impede more thorough reforms.
EU and US resume trade deal talks: The EU and US have begun a second round of negotiations towards creating the world's biggest free-trade deal. Talks on the Transatlantic Trade and Investment Partnership (TTIP) had been set for October, but were postponed because of the US government shutdown. Relations have become strained after claims that the US listened to German leader Angela Merkel's mobile calls. US Secretary of State John Kerry last week urged European leaders not to allow the row to disrupt the talks. Together the US and EU account for about $30 trillion (£18.7tn) of annual output - almost half the world's total. The EU says a deal could bring annual benefits of 119bn euros ($159bn; £99bn) for its 28 member states. It is hoped that an agreement could be reached by the end of 2014.
With the euro strength against the yen, Germany competes on brand - Germany's trade figures continue to surprise to the upside. The latest merchandise trade number came in at €18.9bn, while according to Econoday, economists were expecting €15.5bn.The question of course is how does Germany do this given that it is competing directly with Japan in global markets. And Japan has had one key advantage - a weakening currency, which makes its product cheaper. The chart below shows the value of the euro in terms of yen (EUR/JPY), with the euro now at recent high against the yen.Is there a different product mix between Germany and Japan? Certainly. But according to CIBC the product overlap with Japan is the highest for Germany vs. other Eurozone nations. Machinery, electronics and cars represent a substantial component of both nations' exports. So how does Germany compete so successfully in spite of this currency disadvantage? The answer seems to be that Germany can compete on brand strength even at higher prices. CIBC: - The [euro] strength against the yen will persist, a challenge largely for German exporters as they compete closely in areas such as autos and electronics. However, with many consumers prepared to pay a premium for German engineering, its exports are often less sensitive to price changes.
Race to Bottom Resumes as Central Bankers Ease Anew: Currencies - The global currency wars are heating up again as central banks embark on a new round of easing to combat a slowdown in growth. The European Central Bank cut its key rate last week in a decision some investors say was intended in part to curb the euro after it soared to the strongest since 2011. The same day, Czech policy makers said they were intervening in the currency market for the first time in 11 years to weaken the koruna. New Zealand said it may delay rate increases to temper its dollar, and Australia warned the Aussie is “uncomfortably high.” “It’s a very real concern of these countries to keep their currencies weak,” . ECB President Mario Draghi, “persistently since earlier this year, has been trying to talk down the euro,” Merk said. The ECB lowered its benchmark rate on Nov. 7 by a quarter-point to a record 0.25 percent, a reduction anticipated by just three of 70 economists in a Bloomberg survey. Draghi said the cut was to reduce the risk of a “prolonged period” of low inflation and the euro’s strength “didn’t play any role” in the decision. Euro-region consumer-price inflation has remained below the ECB’s 2 percent ceiling for the past nine months. With the outlook for the global economy being downgraded by the International Monetary Fund and inflation slowing to levels that may hinder investment, countries and central banks are revisiting policies that tend to boost competitiveness through weaker currencies. Mantega’s ‘War’ The moves threaten to spark a new round in what Brazil Finance Minister Guido Mantega in 2010 called a “currency war,” barely two months after the Group of 20 nations pledged to “refrain from competitive devaluation.” “We’re seeing a new era of currency wars,”
Central Banks Risk Asset Bubbles in Battle With Deflation Danger - Central banks are finding it’s easier to push up stock and home prices than it is to prevent inflation from falling short of their targets. While declining costs for everything from gasoline to coffee can be good news for consumers, disinflation makes it harder for borrowers to pay off debts and businesses to boost profits. The greater danger comes when disinflation turns into deflation, which leads households to delay purchases in anticipation of even lower prices and companies to postpone investment and hiring as demand for their products dries up. “There is definitely a whiff of disinflation again taking hold globally,” Federal Reserve Chairman Ben S. Bernanke and his central-bank counterparts are trying to avert the deflationary danger by pumping up their economies with lower interest rates and monetary stimulus. They have bet the run-up in stock and home prices they’ve engineered would boost consumer and corporate confidence and spur faster growth and higher inflation. Now they’re having to maintain or intensify their aid -- running the risk those efforts do more harm than good by boosting equity and property prices to unsustainable levels. “You have a wall of liquidity” that’s “leading to asset inflation and eventually to bubbles,” Nouriel Roubini said Nov. 7 on Bloomberg Television’s “Street Smart.”
Credit-easing steps by central banks, at a glance - The European Central Bank on Thursday announced a surprise cut in its benchmark interest rate to try to accelerate a tepid recovery in the 17 countries that use the euro. The rate was cut to a record low 0.25 percent from 0.5 percent. A lower rate makes it cheaper for banks to borrow from the ECB. The goal is for banks to charge less for companies to borrow to expand and hire. Here are some steps major central banks around the world have taken to try to bolster their banking systems and economies:
- _ FEDERAL RESERVE - Interest rates: Plans to hold its key short-term rate at a record low near zero at least as long as the U.S. unemployment rate stays above 6.5 percent and the inflation outlook remains mild. Other steps: Buying $85 billion a month in bonds indefinitely to try to keep long-term rates low to encourage borrowing and spending.
- _ BANK OF ENGLAND - Interest rates: Has kept its benchmark rate at a record low of 0.5 percent since 2009. Other steps: Has pumped 375 billion pounds ($600 billion) into the British economy since January 2009.
- _ BANK OF JAPAN Interest rates: Has kept its benchmark interest rate at zero to 0.1 percent. Other steps: Governor Haruhiko Kuroda has said he plans to do whatever he can to end deflation and invigorate the Japanese economy.
- _ RESERVE BANK OF AUSTRALIA Interest rates: Has cut its benchmark interest rate to a record low 2.5 percent because of slower growth and weakening commodity prices. The 2.5 percent policy rate is the lowest since the central bank was established in 1960.
ECB Following Path of Japan, Including Similarly Ridiculous Statements - Rather than writeoff bad loans at European banks, the ECB has chosen the bury your head in the sand, extend-and-pretend path of Japan. This is despite the fact the Japanese plan has taken multiple decades without producing meaningful results. For example, ECB Executive Board member Benoit Coeure says "ECB Can Cut Rates Further, Offer Liquidity". The European Central Bank can trim interest rates further and provide the banking system with liquidity, ECB Executive Board member Benoit Coeure said on Saturday after last week's rate cut to a record low."We can still cut interest rates if needed, and as we said clearly last Thursday we can provide liquidity to the euro zone financial system if needed to ensure they don't have problems refinancing," he said on France Inter radio. "All that's possible, but what counts is that the banks transmit the decrease in the cost of refinancing to the economy," he said. What Good Can Additional Rate Cuts Do? Let's be realistic. The ECB's lending rate is .25%. Although the ECB can cut rates 25 more times, 1 basis point at a time, the idea that such a move can produce anything meaningful is ridiculous. Japan made similar moves multiple times, cutting rates a few basis points at a time. It served no purpose other than to let the Bank of Japan say "we are acting".
Mario and the Austerians - Krugman - Just an obvious point that I’m not sure enough people have been making: Mario Draghi’s surprise rate cut is, in effect, a repudiation of the nascent triumphalism of Europe’s austerians. Those who follow these things probably noticed that just a few weeks ago the austerians — Olli Rehn in particular, but many others too — were hailing signs of a bit of economic growth this quarter as vindication of their policies for the past four years. Yes, it was silly — I mean, I could keep hitting myself in the head, then slow the pace of the punishment,and I would start to feel better. Does this mean that hitting myself in the head was good for me? Still, there it was. But then the ECB took a look at more relevant indicators: unemployment still rising, core inflation dropping below 1 percent (Japan here we come). And it seems to have gotten very worried. Put it this way: the ECB wouldn’t be slashing rates if it thought Europe had turned the corner.
ECB split stokes German backlash fears - FT.com: Divisions at the heart of the European Central Bank over last week’s rate cut have revived fears in Frankfurt of a German popular backlash against the bank’s policy making, even as the ECB faces decisions critical to the eurozone’s future. People involved in the policy debates said divisions between northern and southern representatives on the ECB board have been mounting since market pressures on the eurozone relaxed, with council members freed up to revert to national interests. Last week, two German members of the ECB’s 23-member governing council led a six-man revolt against Thursday’s move to cut the bank’s benchmark lending rate by 25 basis points. The cut was quickly followed by public broadsides from Germany’s influential conservative economist Hans-Werner Sinn and some mainstream financial media. Among those who voted with the two Germans on Thursday were the heads of the Dutch and Austrian central banks. One senior official said at least a quarter of the governing council is splitting from Mario Draghi, ECB president, on many major policy initiatives. Officials said the bank’s leadership was even more concerned that growing anti-ECB sentiment in Germany could hamper Mr Draghi’s ability to move aggressively against signs of deflation and on other issues sensitive to Berlin. These include the future of the EU’s “banking union” and the provision of new cheap long-term loans to struggling eurozone banks. “This indeed can be a problem for the coming difficult decisions,” said one person involved in the discussions. “It shows a big problem: that the ECB is heavily losing trust and confidence in the largest country of the euro area, namely Germany.”
The ECB and the Germans - Eurointelligence - The initial German reaction to the rate cut was muted, as we reported on Friday morning. But the reactions have since become fiercer when it became clear that both Jens Weidmann and Jorg Asmussen had opposed the rate cut – plus four other central bankers. The FT quotes another anonymous central banker as saying that the German opposition could become a problem for the difficult decisions has yet to make. The article says there were also signs of a growing anti-Italian sentiment in German policy circles, quoting a vicious attack by Wirtschaftswoche, which says that the eurozone was now run by the Bank of Italy. Roger Bootle writes in the Daily Telegraph that there is a chance of outright deflation in the eurozone. He is pointing to number of recent data, wage growth, fall in producer price, exchange rate trends. If in addition, the eurozone imports deflation through falling commodity prices, the descent into deflation would come sooner. And as we know from Japan, a hesitant central bank becomes part of the problem. The only way out for the eurozone crisis is higher inflation. But Germany will not agree to this. The risk of default and euro exit is thus still present. In his FT column, Wolfgang Munchau writes that the only surprise about last week’s rate cut was that so few people expected it. By Mario Draghi’s own admission, the ECB is now expecting to miss its medium-term inflation target for the first time. Munchau says the ECB has all the tools available to fight deflation, though without the support of appropriate fiscal policies, the instruments would have to become progressively extreme. He does, however, not think that outright deflation is likely, but he sees a longish period of extremely low inflation, and low nominal GDP growth.
Germany's Lack of Reciprocity - Paul Krugman -- Huge tensions over the ECB rate cut, with a split on the board and many German economists protesting. As usual, a lot of it is about the perception that those lazy southern Europeans are getting a free ride: A commentary by the chief economist of the financial weekly Wirtschaftswoche called the decision a “diktat from a new Banca d’Italia, based in Frankfurt”. Why can’t those Italians etc. pull up their socks the way we did?What Germans — economists as well as the general public — still don’t seem to get is how much Germany’s success at emerging from its late-90s doldrums depended on a somewhat inflationary boom in southern Europe. And they therefore also don’t realize how much damage Germany is imposing by refusing to allow higher eurozone inflation.
How much does the ECBs rate cut really matter? - The common reaction from the blogosphere and the financial press to the ECB’s rate cut last Thursday was that the ECB brought a powerful weapon to bear using interest rate policy. Bloggers such as Scott Sumner, Ashok Rao and Paul Krugman all the way through to Martin Feldstein in the FT saw it as an important step in the right direction towards a more expansionary monetary policy, albeit a belated one given the hawkishness of the ECB over the last couple of years. Professor Sumner, in particular, saw it as proof that the ECB could still steer aggregate demand through varying interest rates. The basic reasoning is that the rate cut will lower short-term money market interest rates, and therefore shift the cost of funding downwards across the entire yield curve, giving a boost to spending in the Eurozone at a time when it is sorely needed. However this fails to account for how central banks try to manage short-term interest rates – because of current conditions in Eurozone money markets, the rate cut will likely have a surprisingly marginal impact. The key point is that though the ECB’s interest rate was not at its effective lower bound, short-term Euro rates have been, so that the rate cut will not feed through into the real economy. It was not the same as a quarter percentage point cut during normal, non-depressionary times, but much less potent. First though, we have to be clear on exactly how the ECB has been trying to shift interest rates.
Germany’s Weidmann Defends ECB Against Charges It’s Hurting Savers - The European Central Bank’s decision to slash its interest rate to an all-time low last week has caused considerable popular backlash in Germany, a country with a traditionally high savings rate and where worrying about inflation borders on a national obsession.“Retirement Savings Crumbles Under Low Interest Rates,” was the headline in Bild, Germany’s largest newspaper by circulation, read following the decision.Hans-Werner Sinn, a vocal conservative German economist known for his criticism of the ECB, argued the euro zone crisis countries need higher interest rates, not lower, forcing them to save more and implement urgently needed reforms. ECB President Mario Draghi “is abusing the euro system by granting southern countries cheap loans that they wouldn’t otherwise get on the capital markets,” he told Bild.ECB Executive Board member Benoit Coeure tried to defend the bank’s action this week in an opinion piece in Handelsblatt, a major German business daily. There, the French central banker argued that higher interest rates wouldn’t necessarily benefit savers as these would deepen the recession and hurt job prospects, also in Germany. “And if you are jobless you can hardly save for your old age,” he said.But Deutsche Bundesbank President Jens Weidmann took the message to his own people on Wednesday when he addressed a conference of German bankers. While concerns about a “creeping expropriation of German savers” is understandable, “there is no specific discrimination of German savers,” he told the crowd.
Germany’s Neighbors Admonish It Over Surplus - Germany, which has often scolded other countries for accumulating too much debt and not being competitive enough in the global economy, now finds its own economic policy under heavy attack. The European Commission on Wednesday began an extensive review into whether Germany’s huge trade surplus, which stood at 45.9 billion euros, or $61.7 billion, in the second quarter of this year, is threatening the rest of the bloc, a question with fundamental implications for world growth. Though couched in diplomatic language, the critique on Wednesday from the European Commission’s president made clear that resentment toward Germany in the euro zone had boiled up from the fringes of the region’s heavily indebted countries to become part of the official conversation in Brussels. There was also criticism Wednesday from within Germany itself. The government’s own Council of Economic Experts accused political leaders of undercutting future growth by failing to invest enough in education and by undoing changes to the labor market that had helped cut unemployment in half. The United States drew attention to the issue last month when it called on Germany to do more to stimulate domestic demand, to become a better customer for the rest of Europe’s goods and services rather than just a consummate seller of German products.
Europe's (Low) Inflation Problem - Paul Krugman --Just a quick chart that I think illustrates the problem of German non-reciprocity especially clearly. Remember, during the years before 2007, we saw immense imbalances emerge within Europe, with Germany moving into massive surplus while Spain and others moved into massive deficit. Then it became necessary to unwind these imbalances, with much moralizing from the Germans to the effect that others should be able to do what they did.But Germany operated in a highly favorable external environment, with fairly high inflation in southern Europe allowing it to make big gains in competitiveness — in effect, internal devaluation — without needing deflation. Unfortunately, Spain isn’t being offered the same kind of chance. Here’s inflation rates in two periods, as measured by GDP deflators (I chose that because it was easiest to pull up from the IMF database; it won’t matter much if you use another measure): Spain has actually had lower inflation post-crisis than Germany did pre-crisis — but it hasn’t achieved much gain in competitiveness, because German and overall Eurozone inflation have been so low. This is a huge failure of policy.
The Money Trap, by Paul Krugman - And here we go again. Not long ago, European officials were declaring that the Continent had turned the corner, that market confidence was returning and growth was resuming. But now there’s a new source of concern, as the specter of deflation looms over much of Europe. And the debate over how to respond is turning seriously ugly. So it’s a source of great concern that European inflation has started dropping far below target; over the past year, consumer prices rose only 0.7 percent, while “core” prices that exclude volatile food and energy costs rose only 0.8 percent. Something had to be done, and last week the E.C.B. cut interest rates. As policy decisions go, this had the distinction of being both obviously appropriate and obviously inadequate: Europe’s economy clearly needs a boost, but the E.C.B.’s action will surely make, at best, a marginal difference. Still, it was a move in the right direction. Yet the move was hugely controversial, both inside and outside the E.C.B. And the controversy took an ominous form, at least for anyone who remembers Europe’s terrible history. For arguments over European monetary policy aren’t just a battle of ideas; increasingly, they sound like a battle of nations, too.
ECB ready to print, Germany ready to scream - The doves are seizing control of the European Central Bank. They are already laying the ground work for a blitz of Anglo-Saxon QE, whatever the Germans, Dutch, Austrians, and Finns (?) have to say about such wicked Latin conduct. Welcome to the next fascinating phase of the EMU opera buffa, opera tragica. The ECB's Peter Praet – the board member in charge of setting economic policy debates – has given an astonishing interview to Brian Blackstone at The Wall Street Journal, opening the floodgates for bond purchases. It is clear that the slide towards deflation and Euroland's fizzling recovery have caused a revolt at long last. The ECB's Latin (plus) majority simply refuses to accept Bundesbank orders any more. "If our mandate is at risk we are going to take all the measures that we think we should take to fulfil that mandate. That's a very clear signal," said Mr Praet."The balance sheet capacity of the central bank can also be used. This includes outright purchases that any central bank can do. The rules do not exclude that you intervene in the markets outright.” "For some decisions it's easier than others [to gain consensus]. One thing is clear: the Governing Council has been able to decide. That's really the message."
Employment Slack Gives Central Banks Plenty of Room To Keep Rates Low -The charts below show the unemployment rate for the EU, US and UK, respectively. The EU and US’ combined GDP is nearly $28 trillion dollars, accounting for a large portion of the world’s economic output. The UK, while somewhat smaller, is still one of the world’s 10 largest economies. Low unemployment leads to upward wage pressure, as employers are forced to offer higher salaries to attract a diminishing pool of potential employees. As the charts below show, there is currently a large pool of available talent which actually helps to contain employment related costs. So long as unemployment remains at these levels, upward wage pressure will be more or less contained. This helps to keep inflation at bay, thereby allowing central banks to keep rates at low levels.
Skeptics See Euro as Working Against European Unity - Five years of crisis have laid bare deep differences in national policies, politics and priorities across the European Union. The 28-member bloc is increasingly confronting a more fundamental problem: whether it is too unwieldy to address the multiplying array of challenges it faces. And in many ways, the most divisive issues involve the 17-member subset of the union that was supposed to give them something in common — the euro currency. The notion that the European Union has structural deficiencies has been debated almost since its founding. The tension between economic integration and political harmonization is nothing new. But as the global financial crisis is beginning to fade, Europe’s troubles persist, exacerbated by the fissures of the currency union that have impeded the region’s economic recovery. [T]he big worry lately is the specter of deflation, a doom loop of falling prices, wages and profits that, once under way, is a tailspin hard to pull out of. The fear of years of stagnation was the main impetus for the European Central Bank’s decision to reduce interest rates, over the objections of Germany, which worries that looser money will only encourage profligacy by its weaker euro neighbors. It is not evident, though, that anything has been gained by the austerity policies that Germany long preached, which have been a drag on economic growth; government debt in the euro zone has risen sharply over the last half decade. Perhaps worst of all, the various economic afflictions have reinforced the kind of nationalism and xenophobia that the broader European Union project was supposed to chase away.
EU baulks at measures to tackle debt pile - As the Eurozone’s weakest members crawl out of their longest recession in modern history, their prospects of recovery are weighed down by a crushing mountain of debt far heavier than before four years of financial crisis. Italy, Greece, Ireland and Portugal all have public debt well in excess of annual economic output and risk a Japanese-style “lost decade” of grindingly low growth and high unemployment as they slowly repay their way out of trouble. The average ratio of debt to GDP (gross domestic product) in the 17-nation single currency area stands at 95 per cent — lower than in the US and far less than Japan but dangerously high for ageing societies that cannot individually print money or devalue. The official European Union (EU) line is that each bailed-out country must clean up its own mess and grow its way back to health without debt relief or mutualisation, except perhaps for Greece, which has long been declared a special case. “As Margaret Thatcher used to say: TINA — There Is No Alternative,” Graham Bishop, an economic consultant, said. Fiscal discipline and pro-market reforms to liberalise labour contracts, break trade union wage bargaining power and curb welfare and pensions are the only road to salvation, he argued.
ECB Caught Using Fictional Rating System for Italian Bonds Used as Collateral for Loans - Spiegel online has an article on the non-transparent as well as fictional way the ECB treats Stripped Bonds (Strips) of Italian Banks handed over to ECB as collateral for loans. Currently ECB rates various Italian Strips with an “A” rating, though no rating agency rates Italian bonds, let alone Strips, with an A. ECB claims it is correct, because a tiny rating agency, DBRS, still rates Italian bonds with an A. However, DBRS said to Spiegel upon being questioned, that this particular rating was not to be applied to Strips. Two hours later DBRS sent an email to Spiegel, claiming that they (Spiegel) must not use this information in public. Via Google Translate from Der Spiegel please consider The strange standards of the ECB: According to information obtained by SPIEGEL ONLINE, the European Central Bank (ECB) has very unusual standards when it comes to the valuation of government bonds, on deposit as collateral for loans. Specifically, it's about 116 Italian government bonds without coupon interest rate, known as stripped bonds or short strips. They are currently valued by the ECB and the Italian national central bank with a grade of "A" - although rating agencies actually do not assign that grade. By assigning an "A" rating, the ECB favors those banks that submit such papers as collateral when they borrow money from the central bank. This especially favors Italian financial institutions.
France: A troubled Republic - Watch France. Its mood is fractious. President Francois Hollande has the lowest approval rating of any president since the founding of the Fifth Republic 55 years ago. There is an incipient taxpayer's revolt. There are 3.3 million people out of work. Growth is anaemic and France's credit rating has just been downgraded for the second time in two years. In Brussels and Berlin, it is the country which worries officials and politicians more than any other in Europe. Yesterday President Hollande was booed on the Champs Elysees. The occasion was a solemn event to remember the fallen from World War One. That did not stop cries of "Hollande resign" and "Socialist dictatorship" from a small group of protestors. The interruptions, which were resented by most in the crowd, reflect a rebellious mood in France. The protests have been widely condemned in France, but a former defence minister under the last President, Nicolas Sarkozy, whilst condemning the protests, added that "the anger of the French people is immense" and saying "there is a pre-insurrectional mood in the country". The strain is showing. Francois Hollande twists and turns as he tries to reduce the budget deficit while resisting cutting public spending, which is the highest in Europe. Here is his dilemma: he fears that reducing spending, embracing far-reaching pension reforms or freeing up the labour market will bring his natural supporters onto the streets in anger. So he has favoured increasing taxes rather than spending cuts.
France to Create More Troubles for the Eurozone? - My take on the eurozone is that the smaller financially-troubled countries will eventually lead the bigger countries into a further economic slowdown and cause more problems for the eurozone. We can see this right now. While Germany, the biggest economic hub in the eurozone, has kept strong ground, France, the second-largest economy in the eurozone, has become a victim. According to the National Institute of Statistics and Economic Studies, manufacturing output in France declined 1.1% in the third quarter from the second quarter of 2013, and dropped two percent on a year-over-year basis. Demand in the country is in the slumps; manufacturers of electrical and electronic equipment witnessed a decline of 1.9% in output, and manufacturers of food products and beverages saw their output plummet 2.3% year-over-year. (Source: National Institute of Statistics and Economic Studies, November 8, 2013.) But the misery for the French economy doesn't end with those bleak output figures. Standard & Poor's (S&P), the credit rating agency, recently slashed the credit rating of France one notch lower. The statement from S&P: "We believe the French government's reforms to taxation, as well as to product, services, and labor markets, will not substantially raise France's medium-term growth prospects." ( "S&P lowers France credit rating, cites slow reform pace," Reuters, November 8, 2013.) The French economy facing a further economic slowdown shouldn't be overlooked by investors here in the U.S. economy. As I repeatedly say in these pages, the U.S. economy isn't isolated from what happens elsewhere in the global economy.
The Plot Against France, by Paul Krugman - On Friday Standard & Poor’s downgraded France. The move made headlines, with many reports suggesting that France is in crisis. But markets yawned: French borrowing costs, which are near historic lows, barely budged. So what’s going on here? The answer is that S.& P.’s action needs to be seen in the context of the broader politics of fiscal austerity. And I do mean politics, not economics. For the plot against France — I’m being a bit tongue in cheek here, but there really are a lot of people trying to bad-mouth the place — is one clear demonstration that in Europe, as in America, fiscal scolds don’t really care about deficits. Instead, they’re using debt fears to advance an ideological agenda. And France, which refuses to play along, has become the target of incessant negative propaganda. Let me give you an idea of what we’re talking about. A year ago the magazine The Economist declared France “the time bomb at the heart of Europe,” with problems that could dwarf those of Greece, Spain, Portugal and Italy. In January 2013, CNN Money’s senior editor-at-large declared France in “free fall,” a nation “heading toward an economic Bastille.” Similar sentiments can be found all over economic newsletters. Given such rhetoric, one comes to French data expecting to see the worst. What you find instead is a country experiencing economic difficulties — who isn’t? — but in general performing as well as or better than most of its neighbors, with the admittedly big exception of Germany. Recent French growth has been sluggish, but much better than that of, say, the Netherlands, which is still rated AAA. According to standard estimates, French workers were actually a bit more productive than their German counterparts a dozen years ago — and guess what, they still are.
Non-Crisis France - Paul Krugman - A few people have asked a pretty good question, albeit in fairly belligerent tones: How can I say that France isn’t doing too badly, when I also say that the euro has been such a problem? The answer lies in the nature of the euro problem; France is not Spain. What happened when the euro was created was a flood of capital out of the core, mainly Germany, to the periphery, especially Spain. The counterpart of this move was the emergence of huge current account surpluses in the core, huge deficits in the periphery. The problem now is that correcting these imbalances is very hard given a common currency. Here’s the usual picture — but this time with France added: France, which didn’t get a big, unjustified confidence boost from the euro, wasn’t part of this process — it was neither a big lender nor a large borrower. So it doesn’t have the peripheral adjustment problem. You can also look at inflation: The first decade of the euro left Spain very overvalued, Germany very undervalued. France was in between, so there was no big news either way. To use the jargon, the euro area suffered from very large asymmetric shocks — but France, which roughly tracked the euro average, wasn’t subject to these shocks.
Exclusive: German parties reach deal on banking union – sources (Reuters) - Angela Merkel's conservatives and the Social Democrats (SPD) have struck a deal on the contours of a European banking union under which a body attached to European finance ministers, not the European Commission, would decide when to close failing banks. Several sources involved in coalition talks between the parties told Reuters the two camps had also agreed funds from the European Stability Mechanism (ESM) should not be directly available for winding down financial institutions. The sources said a number of legal questions needed to be resolved but the goal is to sign off on the agreement early next week so Finance Minister Wolfgang Schaeuble can go to a meeting with his EU colleagues on Thursday with a firm German position on the issue. The EU wants to agree a deal on bank resolution by year end but uncertainty over Berlin's stance after September's election that led to complex coalition talks has sowed doubts about whether it can meet the deadline. "The talks on this issue are going full steam ahead. Both parties are still far from an agreement on the questions of procedure and content," SPD spokesman Benjamin Seifert said. In Brussels, a spokeswoman for Michel Barnier, the European commissioner responsible for the banking union reform, said he was open to the idea that the agency for the closure of failed banks would not be linked to the Commission. After the ECB's demand on Friday for a single fund to pay for the cost of bank failures, she said this was important for the "credibility of the overall system".
Eurozone industrial output turns lower: Eurostat: Weaker-than-expected September eurozone industrial output, a key measure of manufacturing activity, points to a slowdown in what is already a weak recovery, official data and analysts said Wednesday. Industrial output in the 17-nation eurozone fell 0.5 percent from August when it rose 1.0 percent, worse than analyst estimates for a drop of around 0.3 percent. The eurozone snapped a record 18-month recession in the three months to June with growth of 0.3 percent and it had been expected initially to maintain that pace when the figures come out on Thursday. However, recent data has trended lower, suggesting that the recovery is losing momentum to the point some analysts expect third quarter growth of just 0.1 percent. The industrial production report "indicates that the sector will have dragged on growth in the third quarter," Capital Economics said in a commentary. Capital Economics, which put the consensus estimate at a fall of 0.3 percent, noted that the September "drop was broad-based, with every component falling apart from energy." Significantly, "the core economies slumped," with Germany down 0.8 percent after a rise of 1.8 percent in August as France shed 0.4 percent after a gain of 0.7 percent. Gains in weaker periphery countries such as Spain and Italy were positive but not enough to outweigh the bad news. Overall, Thursday's figures are expected to "show quarterly growth decelerating to only 0.1 percent,"
Greece, lenders at odds over how to close 2 billion euro 2014 budget gap (Reuters) - Greece and its international lenders remain at odds over how to close a 2 billion euro gap in Greece's 2014 budget, and the issue could drag on into next year, delaying further loans to Athens, a senior euro zone official said. A team of officials from the 'troika' of the International Monetary Fund, the European Commission and the European Central Bank visits Athens regularly to check on progress on its bailout commitments and decide whether to release subsequent loan tranches, without which Greece would default. The latest inspection began in September but was paused, only to resume on Nov 4 after Athens provided the lenders with information enabling them to discuss the financing of the 2014 budget. But the talks have made no progress since then. "The Greek authorities and the troika are still billions of miles apart on the fiscal gap for 2014," the official with direct knowledge of the talks said on condition of anonymity. "There is no movement," the official said. "We also do not have closure yet on the final disbursement of the last review," the official said, referring to a tranche of 1 billion euros ($1.3 billion).
“Mommy, take us home and we will never ask for food again” -- The dire situation of Greek families facing economic hardship crossed the big ocean and reached the United States. In an article with heartbreaking examples, The Huffington Post highlights the plight of many families who cannot feed their children, the malnutrition spreading among elementary and high-school children and the many civic initiatives to give a helping hand and a warm meal to the thousands in need. “Mommy, take us home and we will never ask for food again!” With this heartbreaking cry, a girl residing at a nursery in the Kallithea area of Athens tugs on her mother’s skirt and begs her to take her and her two siblings back home. The mother, visiting to cuddle and play with her children at the nursery that is providing them with food and shelter, runs away crying as she can not afford to take her children with her. “But, sweetheart, we have nothing to eat at home,” she replies. Undaunted, the child continues with a seriousness way beyond her years, “Mommy, take us home and we will never be hungry again, I promise you!”This story, along with many other similar tales of destitute families unable to feed and clothe their children, has become so common in Greece that UNICEF reports an unbelievable 600,000 of the country’s young are malnourished and living below the poverty line.
EU youth jobless crisis – the human cost - Tepid economic growth in the European Union and people working longer as pension ages are raised means 5.6 million under the age of twenty five are without work in the region. And it is getting worse, in the last four years the overall employment rates for young people declined three times as much as for over twenty fives. In Greece and Spain the youth jobless rate is not far off 60 percent, according to the latest statistics. In the wider European Union, the figure is 23.5 percent. At the other end of the scale just 7.7 percent of young Germans are without a job. Youth organisations and trade unions told the Paris meeting’s host – President Hollande – more needs to be spent on the problem. “We are calling for a more social Europe that addresses its responsibilities in terms of social matters and employment, not only in terms of budget cutting,” July’s jobs summit in Berlin proposed spending six billion euros over the next two years. The European Foundation for Living and Working Conditions estimates the cost to the EU in benefits paid out and lost output is over 150 billion euros a year from having so many young people not in work or education or training.
Eurozone Recovery Hits Snag in Third Quarter - Official figures show that the recovery from recession in the 17-country eurozone continued in the third-quarter of the year — but only just. Eurostat, the EU’s statistics agency, says Thursday that the region posted economic growth of 0.1 percent during the July to September period compared with the previous three-month period. That was in line with market expectations but below the previous quarter’s 0.3 percent growth. The eurozone emerged from its longest-ever recession in the second-quarter, but the Eurostat figures dash hopes that the recovery might accelerate. The weak economic backdrop is one reason why the European Central Bank cut its main interest rate last week to a record-low 0.25 percent. Thursday’s figures show the recovery has run out of steam in the core economies such as Germany and France.
German Economy Slows in Q3 as Exports Drag - German economic growth slowed in the third quarter as exports weighed on the economy. The Federal Statistical Office said Thursday that Europe’s largest economy grew by a quarterly rate of only 0.3 percent in the July to September period, down from the 0.7 percent growth recorded in the second-quarter. Individual growth components are slated for release later in the month but the office said “positive contributions were made only by domestic demand.” It added that “the balance of exports and imports… had a downward effect on GDP growth.” ING analyst Carsten Brzeski said factors like low unemployment, increasing wages and strong external demand for German products indicate the country’s “economy remains the stronghold of the Eurozone.”
French recovery fizzles, German growth slows - The French economy contracted by 0.1 percent, snuffing out signs of revival from robust growth in the previous three months. It had been expected to post quarterly growth of 0.1 percent and has now shrunk in three of the last four quarters. German growth slowed to 0.3 percent, from 0.7 in the second quarter, but Europe's largest economy clearly remains in much better shape. Its performance matched forecasts. Spain reported last month that it had pulled clear of recession in the third quarter, albeit with quarterly growth of just 0.1 percent, putting an end to a recession stretching back to early 2011. A senior Italian official told Reuters this week the euro zone's third largest economy probably contracted by 0.1 or 0.2 percent in Q3 but would return to growth in the last three months of the year, expanding by as much as 0.5 percent and ending nine quarters of slippage.
With France stalling, euro zone recovery comes to near halt (Reuters) - The euro zone economy all but stagnated in the third quarter of the year with France's recovery fizzling out and growth in Germany slowing. The 9.5 trillion euro economy pulled out of its longest recession in the previous quarter but record unemployment, lack of consumer confidence and anaemic bank lending continue to prevent a more solid rebound. In the three months to September, the combined economy of the 17 countries sharing the euro grew by a slower than expected 0.1 percent. In the previous quarter it rose 0.3 percent - the first expansion in 18 months. The euro fell to a session low in response. The French economy contracted by 0.1 percent, snuffing out signs of revival in the previous three months. It had been expected to post quarterly growth of 0.1 percent and has now shrunk in three of the last four quarters. German growth slowed to 0.3 percent, from a robust 0.7 in the second quarter, but Europe's largest economy clearly remains in much better shape.
Euro Zone Economy Stalls as Germany and France Backtrack — The euro zone economy marked time in the third quarter of the year, growing just 0.1 percent from the second quarter, a report on Thursday showed, disappointing hopes that a full-fledged recovery was finally taking hold after five years of recession and stagnation. The economy of the 17-country currency bloc stagnated as output slowed in Germany, Europe’s largest economy, and declined in France, the second largest, Eurostat, the statistical agency of the European Union, reported on Thursday from Luxembourg. The report was in line with economists’ expectations, and financial markets took the news in stride. On an annualized basis, Europe’s 0.4 percent growth compares poorly with the United States’ annualized 2.8 percent third-quarter growth and the 1.9 percent Japan reported Thursday. China, the world’s fastest growing major economy, expanded at a robust 7.8 percent rate in the third quarter.
Italy Contracts in Third Quarter as Recession Enters Third Year -- Italy’s recession, the country’s longest since World War II, entered its third year after gross domestic product fell in the three months through September. GDP declined 0.1 percent from the second quarter, when it dropped 0.3 percent, national statistics institute Istat said in a preliminary report in Rome today. That matched the median forecast of 21 economists in a Bloomberg News survey. From a year earlier, the economy shrank 1.9 percent. The slump, combined with a third-quarter contraction in France, indicates the euro-area economy is continuing to struggle to recover from the debt crisis. Istat’s acting chairman, Antonio Golini, told lawmakers on Oct. 29 that Italy’s GDP will decline 1.8 percent this year. That’s more than the 1.4 percent contraction the statistics office projected in May. “Acceleration in activity is not in the cards anytime soon,” “Business confidence indicators have been relatively upbeat in the third quarter, but hard data remained in contraction territory.” Germany’s economy, the euro area’s biggest, lost momentum in the third quarter, with growth cooling to 0.3 percent from 0.7 percent. France, the region’s second-biggest economy, unexpectedly contracted 0.1 percent. Unemployment In Italy, joblessness rose more than forecast in September to a record 12.5 percent, with youth unemployment at 40.4 percent. While industrial production rose in September for the first time in three months, it fell 1 percent in the third quarter.
A Garbage Collectors' Strike Is Turning Madrid Into A Very Gross Place: Trash is piling up in Madrid as garbage collectors hold firm on a strike. Collectors who work in Madrid's public parks have been striking since Nov. 5 in protest of pay cuts and a planned layoff. On Wednesday, Madrid's city council said it will end its municipal cleaning contracts with private companies if the strike continues. Here's what it looks like in Madrid.
Deflation fears stalk eurozone as Spain reports fall in prices - Spain became the latest European country to report sliding prices, underlining fears that with inflation already at 0.7% across the 17 country single currency area in October, sky-high unemployment and a prolonged economic malaise may be dragging the eurozone towards a Japanese-style deflationary slump. Madrid said prices in the crisis-hit country declined by 0.1% in the year to October, adding Spain to a list of countries – including Ireland, Greece and Cyprus – that are already mired in deflation. Europe's policymakers insist the eurozone as a whole does not face a threat of falling prices. Jens Weidmann, the president of the Bundesbank, told an audience of German co-operative banks yesterday: "To say it very clearly: the European Central Bank council does not expect a deflation scenario."But the very fact that Weidmann, who is known for his fierce anti-inflation stance, felt forced to make such a strenuous denial was revealing. While consumers in Britain are in the grip of a "cost of living crisis", as they struggle to cope with rocketing bills, across the Channel in the eurozone it is the spectre of falling prices that is starting to loom large. When the European Central Bank unexpectedly cut interest rates to a record low of 0.25% last week it was widely interpreted as a strike against deflation. The bank's president, Mario Draghi, conceded: "We may experience a prolonged period of low inflation." But some commentators fear the ECB may have done too little, too late.
EU Inflation Rate Falls to Four-Year Low - —The annual rate of inflation in the 28-member European Union fell to its lowest level in four years during October, adding to fears the bloc could be in danger of entering a damaging and prolonged period of falling prices. The EU's official statistics agency said Friday consumer prices rose 0.9% in the 12 months to October, a lower annual rate of inflation than the 1.3% recorded in September, and the lowest since October 2009. Eurostat also confirmed that the annual rate of inflation in the 17 countries that share the euro was 0.7% in October, the lowest level since November 2009. Eurostat's preliminary estimate, released Oct. 31, prompted a quick response from the European Central Bank, which cut its benchmark interest rate to a record low of 0.25% last week. Europe's low inflation comes as policy makers in Japan appear finally to be making some progress in tackling the outright deflation that has persisted there for more than a decade. The latest figures indicate that falling inflation rates are a broader issue for economies throughout Europe, many of which are struggling to return to growth. Eurostat reported Thursday that the combined gross domestic product of the 17 euro-zone members grew by just 0.1% in the third quarter, while the combined GDP of the EU's 28 members grew by just 0.2%.
Job Crisis: Unequal Allies Tackle Youth Unemployment - A deeply unpopular French President François Hollande and a triumphant Chancellor Angela Merkel met in Paris with other EU members to discuss Europe's unemployment crisis. More money seems forthcoming -- but it's unclear whether it will suffice. The high-profile round of talks, which also included directors of various European trade unions and youth organizations, as well as the head of the European Investment Bank (BEI), is the second act in a European political spectacle. In early July, the German chancellor summoned the EU's political elite to Berlin to confront the pressing problem of joblessness among 15- to 24-year-olds. Then, as now in Paris, Merkel warned that "the fate of Europe" was at stake. According to the European Commission, there are 7.5 million young people in the EU who lack both employment and training. With a youth unemployment rate of 7.7 percent, Germany is well under the European average of 23.5 percent. France hovers just above, at 25 percent, while Greece and Spain have reached frightening record levels of more than 50 percent.
Switzerland’s Proposal to Pay People for Being Alive - This fall, a truck dumped eight million coins outside the Parliament building in Bern, one for every Swiss citizen. It was a publicity stunt for advocates of an audacious social policy that just might become reality in the tiny, rich country. Along with the coins, activists delivered 125,000 signatures — enough to trigger a Swiss public referendum, this time on providing a monthly income to every citizen, no strings attached. Every month, every Swiss person would receive a check from the government, no matter how rich or poor, how hardworking or lazy, how old or young. Poverty would disappear. The proposal is, in part, the brainchild of a German-born artist named Enno Schmidt, a leader in the basic-income movement. Go to a cocktail party in Berlin, and there is always someone spouting off about the benefits of a basic income, just as you might hear someone talking up Robin Hood taxes in New York or single-payer health care in Washington. And it’s not only in vogue in wealthy Switzerland. Beleaguered and debt-wracked Cyprus is weighing the implementation of basic incomes, too. They even are whispered about in the United States, where certain wonks on the libertarian right and liberal left have come to a strange convergence around the idea — some prefer an unconditional “basic” income that would go out to everyone, no strings attached; others a means-tested “minimum” income to supplement the earnings of the poor up to a given level.
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