week ending Nov 2

FRB: H.4.1 Release-- Factors Affecting Reserve Balances -- Thursday, October 31, 2013: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed Balance Sheet Not Seen Returning to Normal Until at Least 2019 - The Federal Reserve’s balance sheet, which is fast approaching $4 trillion in total assets, won’t return to normal until sometime between mid-2019 and mid-2021, according to new projections prepared by central bank researchers. The research suggests the Fed could go as long as 6.5 years without generating enough income to make annual remittances of cash to the U.S. Treasury as it normally does, though that is in an extreme scenario that the researchers don’t envision. The Fed’s holdings of Treasury and mortgage securities have soared since it began experimenting with bond buying programs during the 2008 financial crisis. Fed staff economists prepare simulations of how the Fed’s holdings and profits might evolve in the coming years.In the baseline scenario prepared by the economists, the Fed would not sell its growing portfolio of mortgage and Treasury securities, and would instead let the portfolio gradually shrink as the bonds mature. Fed Chairman Ben Bernanke suggested that was the Fed’s preferred strategy at a press conference in June. In this scenario, the Fed’s balance sheet would eventually shrink to a more normal level by August 2020, meaning the financial system would no longer be flooded with the trillions of dollars of excess cash that the Fed has pumped into banks. In this scenario, the Fed would continue generating income and would in sum turn over $910 billion in profits to the Treasury between 2009 and 2025.In other scenarios, however, the Fed could take a bigger hit. For instance, if interest rates rise two percentage points more than the Fed is expecting, to 6.9% on 10-year Treasury notes rather than 4.9% as expected, the Fed could go for a stretch without making enough money to make payments to the Treasury.

Storm clouds for the Fed - The Federal Open Market Committee, the Fed's primary policy-setting arm, projects that growth will pick up next year and remain fairly strong in 2015, driving down the unemployment rate. At the same time, it predicts inflation will continue to be subdued.If these happy forecasts are accurate, the Fed's job won't be all that tough. As the Fed's current chairman, Ben Bernanke, has signaled, the Fed would slow its purchase of assets under the quantitative easing program, eventually curtailing them altogether sometime in 2014. The following year, it would start to increase the federal funds rate and let the large stock of mortgage-backed securities on its balance sheet dwindle as households refinance or pay off their existing mortgages. No outright sales of assets would be required.But given the Open Market Committee's lackluster forecasting record, that happy scenario is far from certain, which means the Fed could have to confront an array of tough decisions.One of the toughest will be how long to continue purchasing government securities under the quantitative easing program. The Fed already owns more than a third of longer-term marketable Treasury debt and roughly a quarter of the mortgage-backed securities guaranteed by the federal government. If the current pace of purchases continued until the end of 2014, the Fed could own close to half of the outstanding longer-term Treasuries and about a third of federally guaranteed mortgage-backed securities. By removing such a large share of these securities from circulation, the Fed would run the risk of impairing the operation of these crucial markets and of fueling bubbles by pushing investors to hold riskier assets.

As stimulus tab rises for Fed, worries grow it may require a bailout — The Federal Reserve has taken unprecedented steps to stimulate the economic recovery from the Great Recession, but the tab has risen to such tremendous proportions — fast approaching $4 trillion — that some worry the central bank ultimately could require its own taxpayer rescue. The Fed's total assets on its balance sheet have more than quadrupled to $3.8 trillion since 2008 amid a massive bond-buying effort. And there are few signs that the growth will stop any time soon. That could put the finances of the world's most powerful central bank at risk if historically low interest rates were to rise sharply — something top Fed officials said they do not expect but that critics warn is very possible. It also could inhibit the ability of central bank officials to respond to future economic and financial crises. "It's really pretty cut-and-dried as far as the arithmetic goes: If you buy bonds and interest rates go up, you're going to take a capital loss on those bonds," said James D. Hamilton, an economics professor at UC San Diego. "The more they buy, the bigger their balance sheet, the bigger the loss they're going to face." The continuing lackluster recovery from the Great Recession, combined with the economic hit from the partial federal government shutdown this month, have analysts predicting that there's little chance Fed policymakers will vote to scale back the program until early 2014 at the soonest. If that's the case, the Fed's balance sheet would swell to more than $4 trillion. And as the number gets bigger, the risks also rise.

Fed Keeps $85 Billion QE Pace Looking For Stronger Growth -  The Federal Reserve decided to press on with $85 billion in monthly bond purchases, saying it needs to see more evidence that the economy will continue to improve. “The recovery in the housing sector slowed somewhat in recent months,” the Federal Open Market Committee (FDTR) said today at the end of a two-day meeting in Washington. “Fiscal policy is restraining economic growth.” Ben S. Bernanke is pushing unprecedented accommodation into the final months of his Fed chairmanship as he seeks to shield the four-year economic expansion from the impact of this month’s partial U.S. government shutdown. The 16-day closing resulted in the furloughs of as many as 800,000 federal workers and delayed release of data the Fed says it needs to evaluate the economy. “Taking into account the extent of federal fiscal retrenchment over the past year, the committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy,” the committee said. The Fed repeated that it will “await more evidence that progress will be sustained before adjusting the pace of its purchases.”

Fed Statement Following October Meeting - The following is the full text of the statement following the Fed’s October meeting

Three Takeaways on the Fed’s Policy Statement – December Taper Not Off the Table - The Federal Reserve emerged from its October meeting effectively in a wait-and-see mode on the economy and policy, making few substantive changes to its statement. Here are a few key takeaways:

• –LITTLE CHANGE IN THE ASSESSMENT OF THE ECONOMY: The housing sector has “slowed somewhat,” the Fed said. That’s a downgrade from September when officials said it had been strengthening. The labor market had shown “some further improvement,” the Fed said, an ever-so-slight downgrade from the “further improvement” the Fed noted in September.
• –FINANCIAL CONDITIONS IMPROVING: The Fed dropped its reference to financial conditions having tightened in recent months, as it noted in September. That’s a nod of approval to rising stock prices and the recent drop in long-term interest rates. The Fed also removed a reference to its concern about higher mortgage rates, which have dropped since the last meeting.
• –STILL AN EYE ON TAPERING: The Fed retained language it used in September which suggested officials had an eye on pulling back from their bond buying program if the economy improved. It noted “underlying strength” in the broader economy and said it chose to “await more evidence” on the economy’s performance before adjusting the bond-buying program.

Fed Watch: A Bit on the Hawkish Side - I fear I need to re-evaluate my conviction that March is the earliest to expect the Fed to begin tapering asset purchases. That conviction was largely based on the belief that the Fed needed to see both stronger and sustainable data to justify tapering. But the bar might be much lower, with only sustainable data necessary. In other words, the Fed may pull the trigger on tapering if incoming data simply suggests the economy is not falling over a cliff. Thus December and certainly January may be more alive than I had believed.The view of the degree of hawkishness in Fed policy is largely dependent on how one views this line from the October FOMC statement, a line that made its first appearance in September: Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.  That line suggests that the Fed largely sees the "stronger" condition to ending tapering as having been met. Yes, I understand where you might think that is crazy. And yes, I realize this implies that the Fed has given up attempting to accelerate economic activity, instead content with accepting the new normal. And yes, I understand that one interpretation of the most recent employment report is that the economy is losing momentum. But note that the Fed does not see the world this way.

Fed’s Bullard: Further Job Market Gains Will Lead to Taper - Federal Reserve Bank of St. Louis President James Bullard said Friday that if labor markets continue to improve, the central bank will be able to cut back on its bond-buying stimulus campaign, in the first set of public comments by an official in the wake of this week’s Federal Reserve monetary policy meeting. “To the extent that key labor market indicators continue to show cumulative improvement, the likelihood of tapering asset purchases will continue to rise,” Mr. Bullard said in a presentation prepared for delivery at a hometown speech. That is because the Fed’s “criterion of substantial improvement in labor markets gets easier and easier to satisfy on a cumulative basis as labor markets continue to heal,” the official said. Mr. Bullard, who is a voting member of the monetary policy-setting Federal Open Market Committee, gave no timetable for his outlook for cutting back on what is now an $85 billion-per-month effort of bond buying. The Fed met over Tuesday and Wednesday of this week in a gathering that saw central bankers pressing forward with a campaign many had expected only very recently to be trimmed back. Many economists now believe the still-tepid state of the jobs market, coupled with the potential impact of the government shutdown, could keep the Fed on its current course until next spring. Some observers still believe it is possible policymakers could cut back on bond purchases before that. In his speech, Mr. Bullard repeated that central bank stimulus efforts are “data dependent” and, because of that, the outlook can change as more information about the economy becomes available. Mr. Bullard has been a strong supporter of Fed bond-buying. He has in the past been skeptical of any moves to pull back given that inflation continues to remain well under the Fed’s 2% target.

The Fed's Choice: A Balance Sheet That Is $4.5 Trillion Or $5 Trillion... Or Much More --  Now that an October taper is out of the question, bored investors, in a world in which fundamentals no longer matter, are looking forward to the next possible FOMC meetings and potential taper announcement dates, with three specific dates sticking out: December/January, which are really one cluster, and June, as possible announcement dates. Why are these dates important: because while a September tapering announcement would have resulted in a $4 trillion final Fed balance sheet (assuming the tapering proceeded to a full QE halt) before even more QE was unleashed, any subsequent taper dates imply a nice round number to the final Fed balance sheet at the end of 2014: either $4.5 trillion, assuming a January 2014 taper, or $5 trillion if the Fed waits until June to announce a tapering.  This can be seen on the following chart from Bank of America. BofA commentary: Markets will be especially focused on the discussion around the timing and conditions of tapering. Our Chart of the day illustrates three scenarios, the first of which is a useful reference despite not actually happening: a September 2013 start to tapering that follows the June “framework” laid out by Chairman Ben Bernanke for a mid-2014 end to asset buying. In that case, the Fed’s asset holdings would have grown to around US$4tn. A January start and a slower pace of unwind results in nearly US$4.5tn in Fed assets, while a June start (and similar slow pace to conclude) yields nearly US$5tn. Those are sizable differences.

Tapering Without Tears—How to End QE3 - With Hamlet-like indecision, Mr. Bernanke has agonized over when and how the Fed might best begin to reduce its latest quantitative-easing program, known as QE3. The Fed is currently buying about $85 billion per month of long-term financial instruments, notably $45 billion in U.S. Treasury bonds. The idea is to stimulate economic growth and job creation by holding down interest rates and spurring households and businesses to spend and invest. On May 22, Mr. Bernanke broached the possibility that the Fed might begin tapering QE3. Although carefully hedged by suggesting that the Fed would wait to taper until the unemployment rate fell to 6.5%, his comments unsettled world financial markets. Over the next four days, long-term interest rates rose sharply, and foreign and domestic stock markets fell.  Subsequently, a chastened Fed chairman, and the Federal Open Market Committee chose not to taper. After these disclaimers, the bond market partially recovered.Yet there is no doubt that the U.S. needs to break out of its near-zero interest-rate trap in order to avoid perpetual stagnation, where real returns on new investments are also driven toward zero. But is there an efficient way out of the trap that the Fed has set for itself? I believe there is. The Fed can start by raising short-term interest rates, currently near zero, while leaving QE3 on hold. Because the overnight policy rate is unambiguously under the Fed's control, the Fed should announce a schedule of slowly phasing in higher short-term rates that would end after two years, when rates reach some modest upper bound of, say, 2%.

BNP Warns "You Can Never Leave" From The Fed's "Hotel California" -- Via BNP's Paul Mortimer-Lee, In the 1977 Eagles song, Hotel California, a luxury hotel appears inviting and offers a tired traveller comforting relief from his journey. It turns out to be something of a nightmare, however, and he finds that "you can check out anytime you like, but you can never leave". Does that sound a little bit like QE and the Fed? The FOMC signalled its intention to check out of QE at its June meeting, but by September, it found it could not leave. The backup in yields that the announcement had sparked, together with worries about fiscal fisticuffs in Washington, was damaging an already not-very-vigorous recovery and hurting confidence. So, the Fed took a rain check. Is that not just like QE1 and QE2, the scheduled ends of which had to be reversed within relatively short periods?The question now is whether or not we should expect repeated market obstacles to a QE3 exit.

To end a drought, have everyone carry umbrellas - Michael Darda sent me the following email:  Ronald McKinnon in the WSJ today offers a good (sad?) example of how economists mix up cause and effect and give disastrous policy advise as a consequence. Yes, low rates are associated with weak growth, but it doesn’t stand to reason that they therefore are the cause of it. Moreover, if equilibrium rates are low, raising rates prematurely is quite unlikely to “spur faster growth” and would simply serve to depress the business cycle. Assuming the Fed both raised the IOER/Fed funds and kept QE going at its current pace, we would likely have a step up in money/safe asset demand relative to current and expected money supply (thus a further decline in velocity) and slower NGDP. On an A to F scale, this was an F. Here is the WSJ story that Michael was commenting on:  Yet there is no doubt that the U.S. needs to break out of its near-zero interest-rate trap in order to avoid perpetual stagnation, where real returns on new investments are also driven toward zero. But is there an efficient way out of the trap that the Fed has set for itself? I believe there is. The Fed can start by raising short-term interest rates, currently near zero, while leaving QE3 on hold.

Is There Any Appropriate Reaction to This from Fama? – DeLong -   Fama To Santelli: QE Is A Neutral Event: Nobel prize winner Eugene Fama was on CNBC earlier today to discuss the Federal Reserve and its extraordinary monetary policy. Pragmatic Capitalism's Cullen Roche flagged this heated exchanged between Fama and CNBC's Rick Santelli. Santelli asked specifically about the effects of the Fed's quantitative easing program and the risks associated with it. [Fama answered:]"What they are doing... the effects are being greatly inflated by the accounts. What they've doing is issuing a lot of short-term debt--$85 billion a month--and using it to buyback long-term debt with the goal of lowering the interest on long-term debt. Now they take credit for lowering interest on short-term debt. But in fact what they've been doing should've raised rates on short-term debt." The profound cluelessness as to what is going on in financial markets today is mind-numbing. I mean, we could understand a finance economist not understanding labor market institutions or events, or an industrial organization specialist not understanding monetary economics. But this is cluelessness about finance on the part of a finance economist. It goes on. Fama argued that the Fed was not affecting the economy that much. Santelli, however, continued to pursue the idea that there are risks associated with the Fed's actions. [But Fama:] "They're basically neutral events. I don't think they do very much."

Of Course Monetary Policy is an Asset Swap... Nobel Laureate Eugene Fama made waves in the past few days when he called QE a "neutral event". Fama argued that because QE was just the exchange of one kind of interest bearing asset (money that collects IOER) for another (long term treasuries and agency MBS), the policy could have no effect. In my view, his comments were mistaken because they focused on microeconomic intuition and thus ignored the macroeconomic effects of monetary policy. Fama's main argument was that monetary policy changed character at the zero lower bound. Starting in 2008, the Federal Reserve started paying interest on excess reserves. Once the Fed started to pay IOER, excess reserves held by banks became interest bearing assets. As a result, now when the Fed conducts QE, all it is really doing is taking the private sector's long term bonds and assets and exchanging them for short term (interest bearing) cash. So no new currency makes it into the economy, and as such QE can have no effect. The set up is correct, but not the conclusion. By ignoring the role of expectations at the zero lower bound, Fama glosses over the real reason why QE matters. Scott Sumner explained this a few weeks ago: So QE works for very simple reasons. Permanent monetary injections are effective even at the zero bound. QE programs are a signal that central banks would prefer at least slightly faster nominal GDP growth. Slightly faster nominal GDP growth requires that at least a small portion of the currency injection be permanent. So by signaling a preference for slightly faster nominal GDP growth, central banks are implicitly signaling a preference to have at least a small portion of the QE program be permanent (for any given IOR rate). Markets believe the central banks (and why shouldn’t they?) And hence asset prices react to the QE program.

A natural long-term rate - WHEN Federal Reserve officials released their latest round of economic projections last month, they included a striking revelation. Three years from now, the Fed reckons, America will be back at full employment with a jobless rate very close to its long-term level of about 5.5%. Yet monetary policy will still be exceptionally easy, by historical standards. Fed officials reckon the federal-funds rate will be just 2% by the end of 2016, zero in real terms. In previous decades, real rates ranged from 1% to 5% when unemployment was that low. Depending on whom you ask, such a prolonged period of negative or zero real rates is proof that the Fed is either dangerously irresponsible or admirably resolute. Both interpretations imply that the Fed is in control. But the truth is more subtle. The central bank may tweak rates from month to month but, in the long run, deeper factors determine the “natural” rate of interest, and the central bank defies them at its peril.

Central Banks Make Swaps Permanent as Crisis Backstop - Central banks in advanced economies from the U.S. to Europe and Japan said emergency currency-swap lines established during the global financial crisis will be made permanent, providing safeguards against future turbulence. Temporary, bilateral arrangements between the European Central Bank, the Federal Reserve, the Bank of Canada, the Bank of England, the Swiss National Bank, and the Bank of Japan will be converted into standing facilities, allowing lenders access to global currencies when needed, according to statements today from the central banks. “Since the financial crisis it’s clear that central banks are coordinating much more closely. This makes permanent something that was born as an emergency reaction to that crisis.” Officials are strengthening the ties that were forged after credit markets first seized up in 2007 by making dollars, euros and other currencies available around the clock to anyone who needs them. The decision comes as the Fed prepares to start tapering its monetary stimulus for the U.S. economy, which threatens to drive global market rates higher.

The Next Battle at the Fed - With the Administration’s stunning decision to name Janet Yellen to chair the Federal Reserve, at least one major government institution will weigh in strongly on the side of economic recovery, right? Well, maybe. First, of course, Yellen has to be confirmed. That, thankfully, seems a good bet. But there is also the problem of three vacancies on the seven-member Fed Board of Governors, which President Obama will soon fill. If the wrong people are appointed to these jobs, Yellen’s ability to aggressively use low interest rates to strengthen the recovery will be destroyed. But why would Obama do that? The Treasury and Wall Street crowd who dearly wanted Larry Summers rather than Yellen will now be focusing on the three other seats. If they can’t get their man in as chair, at least they can narrow the options of the woman who got the job. The same insiders who pressed Obama to go out on a limb for Summers will be pushing hard for Wall-Street-friendly nominees for the other posts. With the Yellen nomination controversial among conservatives, safe and orthodox appointees for the other slots would be balm for the usual suspects. While the position of chair was a high-profile argument within the Democratic Party that progressives won, the other seats on the Fed’s governing board fly well below the radar.

In Fed and Out, Many Now Think Inflation Helps -  Inflation is widely reviled as a kind of tax on modern life, but as Federal Reserve policy makers prepare to meet this week, there is growing concern inside and outside the Fed that inflation is not rising fast enough.Some economists say more inflation is just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment. The Fed has worked for decades to suppress inflation, but economists, including Janet Yellen, President Obama’s nominee to lead the Fed starting next year, have long argued that a little inflation is particularly valuable when the economy is weak. Rising prices help companies increase profits; rising wages help borrowers repay debts. Inflation also encourages people and businesses to borrow money and spend it more quickly. The school board in Anchorage, Alaska, for example, is counting on inflation to keep a lid on teachers’ wages. Retailers including Costco and Walmart are hoping for higher inflation to increase profits. The federal government expects inflation to ease the burden of its debts. Yet by one measure, inflation rose at an annual pace of 1.2 percent in August, just above the lowest pace on record. “The Fed, in a break from its historic focus on suppressing inflation, has tried since the financial crisis to keep prices rising about 2 percent a year. Some Fed officials cite the slower pace of inflation as a reason, alongside reducing unemployment, to continue the central bank’s stimulus campaign.

Accelerating Inflation? - Today the New York Times has an excellent page 1 story by Binyamin Applebaum indicating that more and more economists favor the encouragement of inflation as a way to fight the persistent stagnation that the U.S. economy has been suffering from since the Big Financial Flop of 2008 and the resulting Great Recession.  As Paul Krugman notes in his blog, this policy is what he's been advocating for awhile. This pro-inflation company includes even Kenneth Rogoff, the Chicken Little of government debt. One argument against this view is that of economists who "warn that the Fed could lose control of price as the economy recovers." The idea is that inflation will accelerate (speed up) in a way that gets us back to the conditions that the U.S. last saw during the 1970s. What's left out is the fact that the official (U3) unemployment rate is currently at 7.2%, which is significantly higher than almost all estimates of the inflation-barrier unemployment rate, also known as the NAIRU.  Worse, the ratio of paid employment to the potentially working population has stayed distressingly low since the Great Recession (even when corrected for the population's changing age profile). It's true that the official unemployment rate has edged downward, but this is largely an illusion: as unemployed people stop looking for jobs (discouraged by the bad job situation), the statisticians count them as having dropped out of the labor force and therefore as no longer unemployed. If all of those workers who left the labor force were counted as "unemployed," the unemployment rate would be much higher. Heidi Shierholz of the Economic Policy Institute has shown this by looking at real-world data.

Faster Inflation Would Help…Really! -- Very interesting piece in today’s NYT on how more inflation would actually be helpful right about now.  That’s probably counter-intuitive to a lot of readers so let me elaborate. To be clear, none of us would be calling for faster price growth were it not for the fact that inflation is really low.  This chart from the NYT piece plots the price measure that the Federal Reserve watches most closely—the core PCE—which was last seen growing at around 1.2%, technically termed bupkis by seasoned inflation watchers.  This is clearly a function of weak demand, hardly any wage pressures, and no pricing power by firms. In fact, there are various ways in which higher inflation can help at a time like this.  Most importantly, it lowers the real rate of interest.  True, interest rates are low right now—the one controlled by the Fed is about zero.  But last I checked, if you look at historical relationships between economic variables and interest rates, we actually need borrowing rates to be less than zero, and that’s where higher inflation comes in..  That could motivate investors to undertake new projects, from factory expansions to a home loan for an addition on your house. Second, higher inflation reduces debt burdens (since debts are typically repaid in nominal dollars) and, as a few retailers point out in the piece, it also increases profit margins. I’m quoted in there as supporting all of the above points, but still being worried about the impact of higher prices on real wages.  So let me say a bit more about that

The Fed, Inflation, and Wages - If the Fed were to pursue a policy of deliberately promoting a higher rate of inflation, it is not necessarily the case that the higher inflation would precede a rise in wages, as suggested in Binyamin Appelbaum's Economix post. The point of a higher inflation policy is to convince businesses that prices will be higher in the future than they would have thought otherwise. This should not cause businesses to directly raise their prices. If they thought they could raise their prices, they presumably would have already done so. Rather, it would likely change their investment behavior. They know what it costs to invest in new machinery, research and development, new software, etc. If they think they will be able to sell the products that come from this new investment at a higher price in the future, then they will be likely to undertake more investment today.This would increase investment in the economy and also the demand for labor. Businesses would also be prepared to pay higher wages to workers to carry through this investment. This would allow them to pull workers away from other firms, as well as hiring currently unemployed workers. If this led to upward pressure on wages, all firms would be seeing higher costs, which then lead to the higher prices that the Fed was trying to bring on. By this logic, higher inflation is the result of higher wages.  Of course this will not apply to all workers. First, the reason some workers will not be a position to have wages keep pace with inflation is that there is little demand for their labor. In other words, these are workers who are already in a precarious position. The second point is that we don't know how to carry through economic policies that don't result in some people losing.

Rentiers, Entitlement, and Monetary Policy - Paul Krugman - Bill Gross is at it again, coming up with yet another reason for the Fed to tighten despite a still-depressed economy and inflation falling well below target. He is, of course, not alone — it has actually been amazing how wide a variety of reasons people in or close to the financial industry have come up for tight money in an economy that seems to need to opposite. Many of the people making these arguments started with dire warnings about runaway inflation; but when inflation failed to materialize, they didn’t change their policy views, they came up with new rationales for doing exactly the same thing. This kind of behavior — ever-shifting rationales for an unchanging policy (see: Bush tax cuts, invasion of Iraq, etc.) — is a “tell”. It says that something else is really motivating the policy advocacy. So what is going on here? When I read Gross and others, what I think is lurking underneath is a belief that capitalists are entitled to good returns on their capital, even if it’s just parked in safe assets. It’s about defending the privileges of the rentiers, who are assumed to be central to everything; the specific stories are just attempts to rationalize the unchanging goal. The thing to realize here, then, is that nothing about our current situation says that rentiers are entitled to their rent. And it’s a perversion of alleged free-market thinking to suggest otherwise.

Key Measures Shows Low Inflation in September - The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning: According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.1% annualized rate) in September. The 16% trimmed-mean Consumer Price Index also increased 0.2% (2.2% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.  Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.2% (2.2% annualized rate) in September. The CPI less food and energy increased 0.1% (1.5% annualized rate) on a seasonally adjusted basis.  Note: The Cleveland Fed has the median CPI details for September here. This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.0%, the trimmed-mean CPI rose 1.7%, the CPI rose 1.2%, and the CPI less food and energy rose 1.7%. Core PCE is for August and increased just 1.2% year-over-year. On a monthly basis, median CPI was at 2.1% annualized, trimmed-mean CPI was at 2.2% annualized, and core CPI increased 1.5% annualized. These measures indicate inflation remains below the Fed's target.

Fed’s Lacker Admits Inflation Fears Proved Unfounded - One of the Federal Reserve‘s biggest inflation fighters confessed Friday he’s been caught off guard when he sees how calm price pressures have been in the face of epic levels of central bank stimulus. Speaking in Philadelphia, Federal Reserve Bank of Richmond President Jeffrey Lacker said, “I have been surprised by the stability of inflation and inflation expectations.” “Given the expansion of our balance sheet, if you told me we were heading to a $4 trillion balance sheet, $4 trillion of outside money in the system, and that inflation expectations have remained stable, and apparently as a result inflation itself has remained remarkably stable, I wouldn’t have put 99% probability on that. I would have put much less probability on that,” Mr. Lacker said in response to audience questions. Mr. Lacker has been a persistent critic of central bank efforts to drive up growth and lower unemployment via rock bottom interest rates and campaigns of bond buying. One of his most persistent concerns has been that Fed actions will drive up price pressure to levels considered unacceptable to the central bank. To that end, Mr. Lacker was a dissenter at monetary-policy-setting Federal Open Market Committee meetings when he last held a voting role in 2012. Many other opponents of Fed actions have also feared the central bank would itself be the author of a surge in inflation. Currently, price pressures remain well below the Fed’s 2% inflation target.

Does Expansionary Monetary Policy Cause Asset Price Booms; Some Historical and Empirical Evidence: In this paper we investigate the relationship between loose monetary policy, low inflation, and easy bank credit with asset price booms. Using a panel of up to 18 OECD countries from 1920 to 2011 we estimate the impact that loose monetary policy, low inflation, and bank credit has on house, stock and commodity prices. We review the historical narratives on asset price booms and use a deterministic procedure to identify asset price booms for the countries in our sample. We show that “loose” monetary policy – that is having an interest rate below the target rate or having a growth rate of money above the target growth rate – does positively impact asset prices and this correspondence is heightened during periods when asset prices grew quickly and then subsequently suffered a significant correction. This result was robust across multiple asset prices and different specifications and was present even when we controlled for other alternative explanations such as low inflation or “easy” credit.

Former Dept. Secretary of the U.S. Treasury Says Critics of MMT are “Reaching” --Stephanie Kelton -- A few weeks ago, I had a lengthy e-mail exchange with Frank N. Newman, former Deputy Secretary of the U.S. Treasury. Frank’s books (here and here) are so closely aligned with MMT thinking about deficits, debt, monetary operations, etc. that I wanted to get his thoughts on one of the most common criticisms of MMT. MMT recognizes that the currency itself is a simple public monopoly and that the issuer of the currency must spend (or lend) it into existence, before it can be used to pay taxes or buy bonds. The implication? Governments that issue sovereign money are not revenue constrained. Critics have argued that MMT has this all wrong because the system requires the government to have numbers on its balance sheet before it can spend — i.e. the government is not allowed to run an overdraft and is, therefore, constrained by cash on hand. Here’s what Frank Newman thinks of that critique: I recall from my time at the Treasury Department that the assumption was always that there was money in the fed account to start with. Nobody seemed to know where it came from originally or when; perhaps it was established in biblical times. But as a matter of practice, if the treasury wanted to disburse $20bn a given day, it started with at least that much in its fed account. Then later would issue new treasuries and rebuild its account at the fed. In my view, this is still consistent with the MMT perspective that you mentioned, and in my own book the explanation starts the cycle with government spending, thus adding to the money supply, and then issuing treasuries for roughly equivalent amount, thus restoring the money supply and the Treasury’s Fed account to the levels they were prior to that round of spending. Every cycle is: spend first, then issue treasuries to replenish the fed account. The fact that Treasury started the period with some legacy funds in its Fed account is not really relevant to understanding the current flow of funds in any year.

This Isn't Capitalism -- It's Growthism, and It's Bad for Us - Imagine a country called CapitalismStan. Imagine that country’s proud emblem was a great invisible hand. In every town square, its flag flew proudly. Prices were its idols; markets were its temples; products its litanies; and all knew what the great hand stood for: the undying ideals of competition, self-reliance, riches. A man’s worth was his wealth; the measure of people’s time was how much they earned; together, millions worked, hour after painstaking hour, on what they called “innovation”; good works divinely ordained by their titans; the markets. Yet something was wrong in CapitalismStan. That very society was foundering. Its middle class was collapsing. It had already had a lost decade; and was starting on another. Its young had become a lost generation, desperately seeking opportunity. Median incomes had stagnated for decades. The economy spun headlong into a great recession; and then it “recovered”; but during the “recovery”, the richest 1% captured 95% of the gains. Millions faced chronic unemployment and poverty. Social mobility was low and decreasing. Life expectancy was dropping. In short, life in CapitalismStan was getting shorter, nastier, unhappier, and harder. Meanwhile, other rich nations—notably those which did not worship the invisible hand so completely, totally, obediently, and unflappably—had prospered.

Slower Growth: It’s Not Just Government - There’s a bit of meme I hear growing that sure, when it comes to economic growth right now, the government sector is a real drag, but otherwise we’re doing pretty well.  The Federal Reserve policy statement on Wednesday kinda sorta goes there:“Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy.”I disagree.  The chart below shows year-over-year changes in real growth in gross domestic product for the total economy and minus the government.  You can see how the stimulus (increased government spending) helped offset some of the Great Recession back in August 2009.  And lately, when you take out the fiscal drag, the private economy is clearly growing faster. But it too has decelerated, and of course, despite silly declarations to the contrary (“the government doesn’t create jobs!” — except that there are currently 22 million government jobs), the two sectors are highly interdependent.  And they’re both (a) decelerating and (b) growing too slowly.

The meager 1.6% GDP growth in 2013 is partially self-inflicted - More evidence is emerging that the US economic activity has slowed recently. In addition to the manufacturing output decline (see Twitter chart) and slower home sales (chart), the latest private payrolls number from ADP now shows a decline in job creation.The US is now on track to reach only 1.6% real GDP growth for 2013 - in spite of the extraordinary amount of central bank stimulus. The sad part about this weakness is that to some extent it has been self-inflicted. Policy uncertainty, including "taper"-related fears and the recent dysfunction in Washington have continued to impede growth in the United States. The chart below shows the Conference Board's consumer confidence index. Consumer expectations, which tend to influence larger expenditures and investment, have been particularly vulnerable to "internally generated" shocks. Corporate spending and hiring is not far behind the consumer.

No Wonder We’re Stuck in a Slog - I know I’ve been going on about fiscal drag a lot lately, but a) it’s been historically large, as I’m about to show, b) it’s a big reason we’re stuck in the current econo-slog, and c) I’m not nearly as repetitive as the folks who go on so loudly and incorrectly about how badly we need to cut our near-term deficits.  Moreover, as the picture shows, they’re winning. The Treasury today released the data for the fiscal year 2013 budget deficit, which amounted to $680 billion, or 4.1% of GDP, down about $400 billion from last year’s deficit, which was 6.8% of GDP.  The 2.7 percentage point drop came from 1.5 ppts higher tax receipts and 1.2 ppts lower outlays (both relative to GDP). That’s the largest one year decline in the budget deficit since 1969.  The deficit is down 6 percentage points of GDP since 2009—the largest four-year decline since 1950.  We’re engaged in a level of budget austerity that would make a European policy maker proud.

U.S. National Debt: $1.1 Million Per Taxpayer (Steve Forbes) Each U.S. taxpayer now has a federal-debt liability of $1.1 million—and rising. The public tends to focus on the total national debt, which just passed the $17 trillion mark—up from $10.6 trillion when President Obama took office. But that figure pales in comparison to the federal government’s long term unfunded liabilities—money the government is obligated to pay over and above the revenues it is estimated to receive. According to the U.S. Debt Clock, total long term unfunded liabilities are at $126 trillion, a $1.1 million liability for each U.S. taxpayer. The main driver of that astronomical number is two of our major entitlement programs: Social Security and Medicare.

Attention: Deficit Disorder and the Real Crisis Ahead - The ongoing political deadlock over the U.S. government deficit and the national debt is slowly digressing into one of the most devastating economic pains that a financially sovereign government can inflict on itself and on its own people. With the exception of the readers of New Economic Perspectives and MMT-oriented blogs (here, here, here, here, here, and here among others), the vast majority of the public suffers from an acute form of deficit disorder, which can be diagnosed in a variety of ways, but most commonly you will notice that the subject is convinced that:

1. the government should balance its budget and pay off its debt in the same way that responsible individuals, households, and businesses do;
2. government deficits crowd-out private sector investments;
3. government deficits cause inflation;
4. government deficits promote inefficient and wasteful government programs; and/or
5. the national debt is a burden on future generations and a form of taxation without representation.

The good news is that these deficit disorder symptoms can be easily relieved with a daily dose of MMT readings. Warning: as you begin to heal from this deficit disorder, you may feel nauseated when exposed to mainstream news reports about the deficit.  On a more serious note, however, this national deficit disorder is blinding us from seeing the real infrastructure and education deficits that are slowly destroying quality of life for generations to come. Here, I want to argue that the real crisis ahead of us is going to be a crisis of healthcare provisioning with serious social and economic consequences for the U.S. and the global economy.

Deficit Disorder Symptoms–via Naked Capitalism/New Economic Perspectives- Linda Beale - Yves Smith over at Naked Capitalism has an insightful re-post today on the way the right in particular–and most in the media and public–talk about deficits and misunderstand the relative importance of failures to invest in physical and capital infrastructure (roads, education…) versus the relative unimportance of the US government deficit and national debt.  See Attention: Deficit Disorder and the Real Crisis Ahead, Economic failure exists when (1) young people can’t get jobs, (2) old people can’t get health care and sufficient income to manage after retirement, and (3)  everybody else can’t manage well using potholed roads, unreliable energy distribution systems, casino-capitalism banks, and holding jobs in industries that treat CEOs (even those who stumble) like Gods and workers like peons. We already face situations (1) and (3) in most aspects of our lives.  If the flat-world GOP politicians have their way in cutting benefits of Social Security and Medicare rather than increasing the payments expected from those who have made off like bandits under the reaganomics winner-take-all system that has exacerbated inequality and moved us into a have/have-not economy, we will soon face (2).  When economic failure of that dimension exists, it is the ultimate burden to thrust upon the backs of our children and grandchildren.  In our case, it would represent the result of our short-sighted instant gratification desire to harvest carbon-based energy come what may; “develop” coastlines (more and more for second or sixth homes for the ultra-rich) and wilderness and wildlife refuges for the wealthy few at the expense of most other people and the rest of the world’s living beings;  while “protecting” gigantic, too-big-to-fail multinational enterprises like the big banks, Big Pharma, Big OIL and Big IP from having their workers unionize and demand a fair share of the revenues that those very workers generate and “simplifying” the tax code so that it collects less revenue, particularly from the ultra well off.

Should the US be treated like an emerging market? - After a partial government shutdown, a near-miss on a potential debt default and a Chinese ratings agency downgrade, why doesn't the U.S. get treated like an emerging market? Pundits have compared the U.S. with developing nations for years, citing issues ranging from crumbling infrastructure to healthcare to education, but in the wake of the 16-day government shutdown and near-default on the national debt, the comparison has moved away from the fringes. Chinese rating agency Dagong cut its rating on U.S. debt to parity with Brazil, with a negative outlook. "If any other country on the planet played the government game that was just played in the States, the currency would have been destroyed and the bonds would trade up to distress levels. The only reason it didn't is no one can afford to let that happen," said James Sullivan, JP Morgan's head of Asean equity research. "Why aren't people selling down Treasurys more aggressively than they did? Because no one can afford to let the dollar fail. And the too-big-to-fail argument, at least for me, is a driver of why it doesn't," he said, citing the dollar's status as a reserve currency.

What Are Foreign Exchange Reserves Held In? - Following up on the dollar's status as an international currency (and how threats of default are not helpful), here is what we know about the dollar's role as a reserve currency. Figure 1: Share of foreign exchange reserves held in USD (blue), EUR (black) and USD plus 60% of unallocated (red), and IMF estimated share in USD (green +). Source: IMF COFER for 1999Q1-2013Q2 and IMF (estimates, 1965-2003).  In other words, we really don't know how much of reserves are held in USD, although we can guess (60% seems a popular guess for the share of unallocated reserves in USD). It appears that USD shares are stabilizing after eight years of decline 2001-2009. Figure 2 depicts the levels of reserves. Note the increasing portion in green, which is the unallocated share.   It's interesting to note the deceleration in overall reserve accumulation. More on that in a (near) future post.

The Confidence Gnomes - Paul Krugman -- The popular story — put out by everyone from Alan Greenspan to Erskine Bowles — runs like this:

• 1. Loss of investor confidence
  2. ??????
  3. Greece!

What I keep asking is for someone to explain step 2 in a way that’s consistent with the fact that America, Britain, and Japan — unlike Greece — have their own currencies, and central banks that control short-term interest rates. Are you saying that they will raise these rates, and if so, why? Are you saying that long rates will become delinked from short rates? Why, and why can’t central banks prevent this just by buying long-term debt?  So far, nobody has answered this challenge clearly. They simply assert that this is how it will happen, or they switch arguments in midstream, suddenly bringing in the specter of bank collapse or something else. Just tell me what’s supposed to be happening to monetary policy!And don’t tell me that this is what experience shows. There simply aren’t historical precedents for the claimed crisis — a debt crisis in a country that has its own currency and borrows in that currency. France in the 20s comes closest, but it didn’t play out anything like modern Greece. Japan right now is, in effect, an example of a country benefiting by reducing confidence in the future real value of its debt

Report: Budget Deficit Declines Sharply in Fiscal 2013 - The Treasury released the Fiscal 2013 Final Monthly Treasury Statement. As expected, the Government ran a $75 billion surplus in September (end of fiscal year), and the budget deficit in 2013 declined sharply to 4.1% of GDP from 6.8% of GDP in fiscal 2012.This graph shows the actual (purple) budget deficit each year as a percent of GDP, and an estimate for the next nine years based on estimates from the CBO.  NOTE: This includes updated GDP estimates from the BEA.  The deficit should decline further over the next couple of years (I think the CBO is pessimistic on 2014). After 2015, the deficit will start to increase again according to the CBO, but there is no urgent need to reduce the deficit over the next few years.

Congratulations, America! Your deficit fell 37 percent in 2013.: Now the Treasury and Office of Management and Budget is out with the final budget results. Surprise! The deficit fell quite a bit in 2013. The federal government took in $680 billion less revenue than it spent, or about 4.1 percent of gross domestic product. In 2012, those numbers were $1.087 trillion and 6.8 percent of GDP. That means the deficit fell a whopping 37 percent in one year. This is the first sub-$1 trillion and sub-5 percent of GDP deficit since the 2008 fiscal year, which ended the very month that Lehman Brothers fell and a deep crisis set in. What's behind it? Most of all, there was more revenue. Government receipts totaled $2.774 trillion, up $325 billion from 2012, and rising to 16.7 percent of GDP from 15.2 percent. That reflects in part a stronger economy that increased income and payroll taxes. It also includes the expiration of a payroll tax holiday that increased tax receipts, and higher rates for upper-income Americans agreed to for this calendar year. There was less spending, amid the drawdown of U.S. involvement in Afghanistan, lower unemployment insurance benefits due to an improving economy, and the enactment government enacted budget cuts called for in the 2011 debt ceiling deal, including the sequestration automatic spending cuts that began in March. Overall outlays were $3.454 trillion, the treasury said, falling $84 billion compared with the 2012 fiscal year. That fall moves government outlays from 22 percent of GDP to 20.8 percent.

US budget deficit down to $680B, lowest in 5 years - Yahoo News: — For the first time in five years, the U.S. government has run a budget deficit below $1 trillion. The government said Wednesday that the deficit for the 2013 budget year totaled $680.3 billion, down from $1.09 trillion in 2012. That's the smallest imbalance since 2008, when the government ran a $458.6 billion deficit. It's still the fifth-largest deficit of all time. The deficit is the gap between the government's tax revenue and its spending. It narrowed for the budget year that ended on Sept. 30 because revenue rose while spending fell. Revenue jumped 13.3 percent to $2.77 trillion. Government spending declined 2.4 percent to $3.45 trillion. A stronger economy created more jobs and income over the past year, which generated greater tax revenue. At the same time, the Obama administration and Congress agreed in January to end a temporary cut in Social Security taxes and also to raise income taxes on the wealthy. And spending fell in part because of across-the-board cuts that took effect in March.

An Upward Redistribution of Income, not an Improving Economy Explains the Drop in the Deficit | Beat the Press: In an article about congressional negotiations aimed at reducing the deficit and eliminating jobs, the Washington Post explained that there had been a sharp drop in the size of the deficit since the Republicans took over Congress in 2011: "Since then [January, 2011], a series of budget deals — and an improving economy — have dramatically slowed federal borrowing. On Wednesday, the White House budget office announced that the government recorded a $680­ billion deficit in the fiscal year that ended in September, less than half the size of the shortfall President Obama inherited in 2009 when measured as a percentage of the economy." Actually, the sharp drop in the deficit cannot be explained by economic growth over the last three years. In January of 2011, the Congressional Budget Office projected year over year growth for 2011, 2012, and 2013 of 2.7 percent, 3.1 percent, and 3.1 percent, respectively. In fact growth was 1.8 percent in 2011, and 2.8 percent in 2012. We don't yet have full year data for 2013, but GDP growth is virtually certain to be under 2.0 percent. Since the economy has grown considerably slower than was predicted, growth cannot explain the lower than projected deficits. The explanation instead is the cuts made to the budget, as well as the ending of the Bush tax cuts for high income households. The upward redistribution of income, along with the sharp rise in the stock market, has also increased revenue.

Is Deficit Panel Already Doomed? - The U.S. budget deficit is worse than ever. Taxes already have been raised, so efforts to narrow the shortfall should focus only on spending. The only fair deal is a straight trade: relief from the cuts under sequestration in return for reductions to entitlements. Yet there’s no incentive for Democrats to go along. All of these statements are accepted by the public and important politicians. All are false. History suggests the new House-Senate budget committee, due to report by Dec. 13, will strike out. The Bowles-Simpson panel’s deficit-reduction proposals in 2010 didn’t lead anywhere, Congress’ two budget committees haven’t met in years, and a special leadership-designated “supercommittee” designed to prevent automatic cuts under sequestration reached a stalemate. The 29-member panel that convenes this week must contend with this record of failure, a task compounded by misinformation. A starting -- and false -- premise of the public, and some politicians, is that the deficit is spiraling out of control. In a national survey by Bloomberg News last month, Americans said, by a margin of 59 percent to 10 percent, the deficit was getting worse; this belief was held by 93 percent of Tea Party supporters. In fact, the deficit, which reached a staggering $1.55 trillion in the 2009 fiscal year, has declined every year since and is less than half as big today.

Don't Take This Week's Budget Conference Committee Meeting Seriously - The speculation about what the conference committee -- the 29-person House-Senate committee that has until December 13 to negotiate a budget deal and which will meet for the first time this Wednesday -- will do will be intense all this week. In fact, if history is any indication, every interest group in town will be so certain that the one thing it most cares about will be given away in the opening session that it will denounce what the conference committee does even before the first meeting begins. And pundits across the political spectrum will be predicting that the conference committee will defy expectations and a big budget deal of some kind not only is possible but actually likely. The technical term for all of this is B.S. The meeting on Wednesday is just the opening session. The 29 members of the conference committee won't do anything other than preen for the cameras and give 5-minute opening statements. 29x5 = almost two and a half hours of vapid oral essays that will have no bearing at all on the deliberations. The conference committee has 29 members. When is the last time a congressional group that large has been able to come up with any kind of serious compromise on spending and taxes? Recent budget history has repeatedly proven that one of two things is most likely to happen. The first is that the full conference committee will continue to meet and, like the anything-but-super-committee, come up with nothing. The second is that a much smaller group -- as in two people, neither of which may even be conference committee members -- negotiates separately and then presents their plan to the committee for formal ratification approval.

Forget the Conference: A Sequester Is Still Likely -- As I posted yesterday, House and Senate budget conferees will meet for the first time this week as they begin a process that has a built-in December 13 deadline. It's either budget agreement by that Friday the 13th or bust. Bust is far more likely. Here's why.

• 1. There is no agreement about the problem. Almost all previous successfully concluded budget deals have been based on at least a tacit up front agreement about what the two sides are trying to accomplish. Without that this time, Republicans and Democrats will spend a great deal -- maybe even most -- of their time arguing about what they should be debating rather than the possible answers.
• 2. There's no need for a deal #1. This is not a situation where the political or economic world will collapse if a deal doesn't get done. The debt ceiling has already been raised, taxes won't be raised automatically, the government won't shut down, Wall Street isn't threatening higher interest rates if there's no deal to reduce the deficit, etc.
• 6. The sequester is the least objectionable alternative #2. Yes, everyone would like to replace the sequester with something else. The problem is that virtually everything else -- Medicare, Social Security and Medicaid changes, for example -- is less politically acceptable to Democrats than the sequester. Revenue increases are equally as unacceptable to Republicans. Other than gimmicks there's not much else.
• 7. Military spending is not as sacrosanct as it used to be #1. We are indeed already hearing about dire consequences if military spending is cut with another sequester. But House and Senate Republicans have already repeatedly demonstrated a willingness to throw the Pentagon under the budget bus if the only alternative is a tax increase and there's little reason to expect the situation to be different now than it has been the past few years.
• 9. A grand bargain on the budget is now acknowledged to be pure fantasy. I've been saying this for quite a while. House Budget Committee Chairman Paul Ryan (R-WI) and Senate Majority Leader Harry Reid have now said the same thing.
• 10. There's not much time. Six weeks may seem like an eternity when it comes to considering legislative changes, but given the Thanksgiving holiday, the actual amount of time available for serious discussions will be extremely limited.

How Sequestration Gets Even Worse Next Year - In 2013, sequestration’s automatic, across-the-board cuts shaved $85 billion from government programs, reducing overall spending from over $1 trillion to $986 billion. That figure will drop to $967 billion next year if sequestration remains in place. Meanwhile, the accounting gimmicks and emergency measures many agencies have used this year to shield programs from the harm won’t be available any longer. For example, while Congress passed a bill that allowed the Federal Aviation Administration (FAA) to move funds around and undo furloughs that were hampering air travel, that meant the agency took $253 million from its construction budget. But it will have to install buffer areas at the end of all runways by 2015 by law, “impossible if its construction money continues to be redirected,” The Department of Defense will have to cut $52 billion in 2014. While the Navy found $1 billion in unspent money from prior years and canceled some contracts to reduce the impact this year, next year those tactics won’t be available and “every ship in the fleet is expected to be affected.” The Army deferred maintenance on a variety of equipment and vehicles but another $73 million in maintenance costs will hit next year. The Commodity Futures Trading Commission, which regulates some crucial financial markets, staved off furloughs this year by delaying new hires, using up money from 2012, and transferring $10 million in funds. But the chairman of the agency just announced that the next year will bring as many as 14 furlough days for its employees. . The schools on or near military bases and Native American reservations that receive federal Impact Aid were hit by sequestration right away, and in order to absorb the second round 96 out of 298 are laying off teachers and 112 are laying off support staff, 46 are eliminating extracurricular activities, and eight have outright closed schools. Head Start had to kick preschoolers out of their classrooms when the cuts began in March and this school year they had to remove 57,000 children from of the program. Public schools had generally avoided the cuts for the 2012-2013 school year but had to factor them in for 2013-2014, which has meant that more than half have fired personnel.

Obama's Top Economic Adviser Tells Democrats They'll Have to Swallow Entitlement Cuts - This morning, Gene Sperling, director of the White House’s National Economic Council, appeared before a Democratic business group for what was billed as a speech about the economy after the shutdown, followed by a Q&A session. The White House didn’t push this as a newsmaking event, so it didn’t get much billing. But I went anyway, and I was struck by what Sperling had to say, especially about the upcoming budget negotiations that are a product of the deal to reopen the government. In his usual elliptical and prolix way, Sperling seemed to be laying out the contours of a bargain with Republicans that’s quite a bit different that what most Democrats seem prepared to accept. What stood out to me was how he kept winding back around to the importance of entitlement cuts as part of a deal, as if he were laying the groundwork to blunt liberal anger. Right now, the official Democratic position is that they’ll accept entitlement cuts only in exchange for new revenue—something most Republicans reject. If Sperling mentioned revenue at all, I missed it. But he dwelt at length—and with some passion—on the need for more stimulus, though he avoided using that dreaded word. He seemed to hint at a budget deal that would trade near-term “investment” (the preferred euphemism for “stimulus’) for long-term entitlement reform. That would be an important shift and one that would certainly upset many Democrats.

The right way to make a federal budget - Bernie Sanders -  A budget panel composed of Democratic, Republican and independent members of the Senate and House is working on ways to avoid another government shutdown like the nightmare we all were just forced to endure. As a member of that committee, I realize that our $17-trillion national debt and $700-billion deficit are serious problems that must be addressed. But I also realize that real unemployment remains close to 14%, that tens of millions of Americans with jobs are paid horrendously low wages, that more Americans are now living in poverty than ever before, that wealth and income inequality in the U.S. is greater than in any other major country and that the gap between the very rich and everyone else is growing wider. How did we go from healthy surpluses to terrible deficits?  In 2001, President Clinton left office with a $236-billion surplus. The nonpartisan Congressional Budget Office foresaw a 10-year budget surplus of $5.6 trillion, enough to erase the national debt by 2011. It didn't work out that way. Instead, under President George W. Bush, wars were launched in Afghanistan and Iraq without paying for them. The cost of those wars, estimated at up to $6 trillion, was tacked onto our national credit card. Then Congress passed and Bush signed an expensive prescription drug program. It also was not paid for. Then Bush and Congress handed out big tax breaks to the wealthy and large corporations. That drove down revenue. So did the recession in 2008, which was caused by a deregulated Wall Street. All that turned big surpluses into big deficits.

No Grand Bargain: Why Dems Think They Won't Have to Budge on Sequester Demands -- During the recent government shutdown and debt ceiling crisis, Republicans had grand ideas—defunding Obamacare, for example—that they eventually had to abandon when their approval ratings took a nasty turn. But they ended up selling their base on one minor victory, crowing that they had forced President Barack Obama to the bargaining table to hammer out big budget issues. Now, as the budget conference they demanded holds its first public meeting Wednesday, Republicans and Democrats are disavowing prospects for any "grand bargain," offering nothing more than hope that a limited deal to shut off sequestration, the automatic budget cuts agreed to during the 2011 debt ceiling negotiations, might be on the table. Democrats are hoisting the threat of further public-relations debacles to convince Republicans that reconfiguring sequestration is in their best interest. The new budget conference committee, a panel of 22 senators and seven representatives, is a byproduct of the agreement to end the government shutdown and raise the debt ceiling. That continuing resolution kept the government funded through January 15 and created a bipartisan, bicameral budget conference that must present a proposed budget to Congress by December 13. The conference will meet publicly at the Capitol on Wednesday morning but intends to negotiate privately, unlike the 2011 super committee that was notable for grandstanding at public hearings and made little progress toward an actual agreement.

Setting a low bar for budget talks -  Don’t expect the budget negotiating committee convening on Capitol Hill Wednesday to arrive at any sweeping resolution that tackles long-term government spending, entitlement programs or the Tax Code. If anything happens — which is highly uncertain — it will be because members of the negotiating panel want to go small and avoid the pitfalls that have left Washington gridlocked for several years by trying to tackle all of the problems at once.The negotiating panel was established earlier this month as part of the deal to reopen the government and avert a debt default. The committee is charged with reaching an agreement by Dec. 13 — the first in a series of upcoming fiscal deadlines. Funding for the government dries up in January and the debt ceiling must be lifted again in February. The first attempt at meeting those deadlines rests with the 29 members of the conference committee. Optimism is in short supply. No one involved in the process thinks the group will be able to reach a bipartisan, long-term “grand bargain” in just a few weeks. Instead, most members talk about agreeing to “a number” — a spending figure for the current fiscal year. That would allow the Appropriations committees to take the work from there or for another continuing resolution to be drafted.

War brews on spending cuts - With Congress finally beginning post-shutdown budget talks this week, advocates are trying to put a face on the huge, disparate range of domestic programs that have fallen under sequestration’s axe. The cause has drawn together thousands of advocates battling the automatic cuts to a mind-boggling range of federal spending, from mental health care on Native American reservations, to public defenders, to Census data collection. The automatic cuts affect all programs that must have their funding renewed every year, in contrast to “mandatory” spending that’s automatically doled out to Medicare, food stamps, and the like. They are equally divided between defense programs and “non-defense” discretionary spending (NDD)—the catch-all term for everything else. “No one knows what NDD is—it’s a very wonky term,” Beginning in March, sequestration was supposed to be so terrible it would force Congress to come together and pass a $1.2 deficit reduction deal that dealt with the real drivers of spending: not discretionary cuts but entitlement spending, as well as revenue. But it hasn’t turned out that way: The automatic cuts have become the status quo—now in place until mid-January—and the politics of sequestration haven’t treated everyone equally. Defense lobbyists have presented a united, vocal front on Capitol Hill—and it’s politically risky to be seen to weaken the nation’s defenses. A few domestic programs have received attention from lawmakers as well: Head Start, cancer research, and law enforcement. All are perennial favorites in Washington with broad public support, making them attractive poster children for the battle against budget cuts.

Another temporary funding bill? - We’re definitely not getting a grand bargain and now, Sen. Pat Toomey said he expects another temporary funding bill. The 29-member committee of 22 senators and seven representatives will sit down Wednesday afternoon to begin negotiating a budget deal. They’ve got six weeks to hammer out a deal and reconcile the differences between the House of Representatives budget and the Senate’s budget. “Honestly, it’s very, very difficult to imagine that we could resolve all the differences,” the Pennsylvania Republican said on Morning Joe, reminding the panel that the budgets are light years apart, particularly on revenue—the House budget includes no new revenue while the Senate includes a trillion dollars in new tax revenue.So what might actually result? Another temporary funding bill and an end to shutdowns. “What we could do is reach an agreement on funding the government for the rest of the fiscal year and avoid any kind of drama in January when the current funding bill expires,” he said. Additionally, he hopes to pass a bill that would fund the government even through future Congressional stalemates like the recent budget battle that left the federal government shutdown for 16 days.

Perils in Philosophy for Austerity in the U.S. -  The Grand Bargain is off the table. Even before representatives of the Democratic-controlled Senate and the Republican-run House sat down to their first official budget reconciliation meeting on Wednesday, it was hard to find anybody in Washington who believed a deal could be reached to bridge the chasm between the two parties’ tax and spending plans.  Republicans might be chastened, their popularity at rock bottom. But they seem as unwilling as ever to retreat from their position that the budget deficit must be reined in via spending cuts alone. The deficit, said Senator Charles E. Grassley, Republican of Iowa, is a “one-sided problem” of overspending. Both the White House and Senate Democrats remain adamant that new tax revenue should play a part in closing the gap. A modest bargain might be within reach to undo a small slice of the indiscriminate spending cuts that befell the discretionary budgets for military programs and domestic agencies, which are on schedule to scale back government spending by about $1 trillion over a decade. This could be paid for over the long term by, say, raising Medicare premiums for high-income Americans. But that is about the best Congress can probably do. “The very least this conference should be able to do,” said Senator Patty Murray, Democrat of Washington and chairwoman of the Senate Budget Committee, “is find a way to come together around replacing sequestration and setting a budget level for at least the short-term.”

The Myth of the Exploding Federal Government, Part 1 - Two sets of negotiations on Capitol Hill — on the budget’s spending and tax priorities and on the Farm Bill, which includes renewing SNAP — raise important questions about the size and role of government.  People who believe that future deficit reduction must come solely from spending cuts sometimes claim that the federal government is exploding in size.   Similarly, people who favor big cuts in safety net programs like SNAP sometimes claim that these programs are growing out of control.  We’ve updated two papers showing that the data don’t support either the first claim or the second one.Let’s look at the first claim first.  (We’ll address the second in part 2.)  While total federal spending as a share of the economy rose considerably in the recession, it has already fallen dramatically from its 2009 peak.If we continue current policies, federal spending outside of interest payments on the debt is projected to decline in the decade ahead as the economy recovers.  In fact, this spending (which analysts call “primary outlays”) has already fallen from 23.9 percent of gross domestic product (GDP) in 2009 — at the bottom of the recession — to a projected 20.2 percent of GDP in 2013.  It is projected to fall further, to 19.5 percent of GDP or lower in the latter part of this decade.

The Myth of the Exploding Federal Government, Part 2 - -- Part 1 of this post showed that, contrary to claims that the federal government is exploding, total federal spending as a share of the economy has already fallen dramatically from its 2009 peak and federal spending outside of interest payments on the debt is projected to decline in the decade ahead as the economy recovers.  The claim that safety net programs are growing out of control isn’t true, either, as our updated analysis shows.   In fact, virtually all of the recent growth in spending for low-income programs is due to two factors:  (1) the economic downturn and (2) rising costs throughout the U.S. health care system, which affect costs for private-sector care as much as for Medicaid and other government health care programs.  Lawmakers should bear these facts in mind as they struggle over how to address the nation’s long-term fiscal challenges.The first cause — increased spending on safety net programs because of the recession — is both appropriate and temporary.  Congressional Budget Office (CBO) projections show that federal spending on low-income programs other than health care has started to decline and will fall substantially as a percent of gross domestic product (GDP) as the economy recovers.  By the end of the decade, it will fall below its average level as a percent of GDP over the prior 40 years, from 1973 to 2012.  (See graph.)  Since these programs are not rising as a percent of GDP, they do not contribute to our long-term fiscal problems

The collapse of US infrastructure spending, charted - The chart is from a new note by economists at BCA Research, who add: In the five and ten years ended 2012, real government non-defense investment in structures declined at annualized rates of 3.3% and 2.4% respectively (Chart 6). We include state and local governments in this measure because they account for three-quarters of government non-defense capital spending, heavily financed by federal grants. There are reasonable debates to be had about the necessity (or non-necessity) of making credible commitments to future fiscal consolidation. We’re not convinced they should be a top priority right now, but such commitments can be useful. They help reinforce the case for stimulative fiscal policy in recessions or weak recoveries — and if you prefer a wonky perspective, try Caballero & Farhi’s claim that they also bolster the government’s capacity for safe asset issuance. Fine. But that’s different from arguing that tax and spending policies right now should focus on, or even care about, reducing the budget deficit. And there’s a good chance that we’ll look back with regret at the tightening represented in the chart above, which has taken place during a time when interest rates have been scraping the ground. It’s also likely that much of the investment that has been forgone in the name of fiscal consolidation will have to be made eventually anyways — only it will be made when rates are higher, exacerbating the long-term fiscal outlook rather than improving it. 

US Infrastructure Spending Plunges - Yves Smith - I’m normally not big on “one chart says it all” posts, but this one is so striking I made an exception. Hat tip FT Alphaville: Now FT Alphaville sort of cheerily remarks that most of the missed spending will be made up someday, but it will cost more since interest rates will be higher when the projects are finally financed.  But of course, that doesn’t factor in the real economy costs in the meantime: delays due to breakage of various sorts (everything from potholes taking lanes out of commission and necessitating inefficient emergency patch-up to accidents of various sorts). And this underspending comes when we already were under-investing in infrastructure. After a bridge collapse in 2007 that killed 13 people, the media seized on what had been a long-standing issue of under-investment in bridges. The result of all this scrutiny and alarm? The number of structurally bridges is indeed down, but “barely,” per Transportation for America: We hope you had a chance to check out our new report released yesterday on the state of our nation’s bridges? 1 in 9 US bridges — about 66,500 in total — are rated structurally deficient and in urgent need of repairs, maintenance or even replacement. And though we’ve gotten about 0.5 percent better nationally in the last two years, from 11.5 to 11 percent deficient, that’s only a difference of about 2,400 deficient bridges. Anyone who travels at all can see how shoddy America has become. Our airports and train stations are a disgrace by international standards. Decades of underinvestment in the New York City subways has been somewhat reversed, but it will never be pleasant. Too many roads across the US are clearly overdue for resurfacing. I saw one road in Maine where the locals had slapped tar on either side of the yellow center line. They apparently didn’t have budget to repaint the road markings, so they resurfaced around them. Aiee!

Watch Out for Individual Tax Reform Timing Gimmicks - House Ways and Means Committee Chairman Dave Camp has said he will unveil tax reform legislation by the end of this year that he aims to be “revenue-neutral.”  But, a revenue-neutral package would be inadequate because tax reform should generate revenue to help cut long-term deficits.  Further, appearances of “revenue neutrality” can be deceptive, if policymakers use timing gimmicks to generate illusory savings. Such gimmicks would appear to pay for permanent rate reductions and other tax cuts during the first decade but would lead to higher deficits later.  Timing gimmicks shouldn’t be a part of responsible individual tax reform proposals.  (There are similar risks in corporate tax reform, as we’ve previously explained.)One of the worst gimmicks, we explain in our new paper, is treating as tax increases changes that raise revenues initially but lose as much or more revenues later.  For example, President Bush and Congress in 2006 liberalized the rules regarding Roth retirement saving accounts.  The provision raised $6.4 billion in the initial decade, but it expanded deficits by over $12 billion in the second decade, and by another $30 billion in the decade after that (see chart).  Congress used the revenue that this gimmick produced over the first ten years to pretend to partially “pay for” other deficit-increasing tax cuts in the 2006 legislation, such as an extension of dividend and capital gains tax cuts.

The Great American Ripoff: The High Cost of Low Taxes - BillMoyers.com: The American people pay a similar amount for social services – health care, retirement security, disability and unemployment insurance and the like – as citizens of European countries with supposedly lavish social safety nets.But there are two significant differences. First, we pay a hugely disproportionate share of the costs out-of-pocket*, through the private sector. And when things go badly – when misfortune hits — the safety net that we fall back on is truly pathetic in comparison. Call it the great American rip-off. Delinking taxes from the services they pay for has arguably been the modern conservative movement’s greatest success. No politician has ever been booed off a stage for promising to cut taxes. But decades of public opinion polling shows that, with a few exceptions, Americans are actually quite fond of the goods and services the public sector provides. They may be wary of the idea of “big government” in the abstract, but they like well-maintained infrastructure, safe food and clean water, efficient firefighting and policing, Medicare and Social Security and virtually every other government-provided service you can name.This paradox is well known to politicians and policymakers, and has caused a good deal of hand-wringing among those who favor a progressive tax system that raises enough funds to cover the services Americans expect. But there’s another consequence of anti-tax demagoguery: low, low taxes come with a steep cost. In fact, a lower tax bill – especially for federal taxes — actually works against the economic interests of most Americans.

Top Tax Rate Starts at $457,600 in 2014 as IRS Adjusts - The top U.S. marginal tax rate of 39.6 percent will apply to taxable income of married couples exceeding $457,600 in 2014, up 1.7 percent from this year, the Internal Revenue Service said today. The top rate will start at $406,750 for individuals, up from $400,000 this year. Taxpayers will start having taxes withheld from paychecks at those rates in January 2014 and will pay them when they file their tax returns in 2015. The tax agency released brackets and inflation adjustments for dozens of tax provisions that are automatically changed annually. The inflation adjustments are the first since Congress created a seven-bracket income-tax structure in January. The per-person standard deduction will rise to $6,200 from $6,100 and the personal exemption will be $3,950, up from $3,900. The per-person estate-tax exclusion, which is now pegged permanently to inflation, will be $5.34 million, up from $5.25 million. Inflation didn’t increase enough to spur increases in some thresholds. For example, the tax-advantaged contribution limit for 401(k) retirement plans will remain at $17,500. 

Carried Interest -- a tax privilege for the rich whose end time has come -- I should have written about this long ago, but a recent "dealbook" by my former colleague Steven Davidoff, A Chance to End a Billion-Doillar Tax Break for Private Equity, New York Times (Oct. 23, 2013) reminded me of the import of a recent court decision--Sun Capital Partners (No. 12-2312 First Circuit Cout of Appeals July 2013), --important for its implications for the private equity industry's privileged "carried interest" tax treatment (income to managers currently treated as preferentially taxed capital gains rather than ordinary compensation income) and the assumed treatment of the pension obligations of employees of companies taken over by those funds (ability of private equity funds to disavow a company's pension obligations to its ordinary workers through bankruptcy).   As Davidoff notes, private equity managers claim that changing the carried interest privilege would result in less investment and ultimately harm economic growth.  That's an argument long used by the right to justify the capital gains privilege, but certainly controversial (at least), since uninvested money will earn even less than invested money that is taxed at a slightly higher rate. Given the hugely outsized earnings by equity fund managers--in the hundreds of millions and even billions annually--it seems unlikely that a higher tax rate would sharply reduce investment.  They'd still have after-tax income equal or more than most CEOs.  And as I've noted frequently here, getting carried interest taxation right would be at least one step towards ensuring that the tax system performs its most important justice function by reducing, rather than exacerbating, the income inequality dynamic that harms the kind of broad-based economic growth that underlies a sustainable economy. 

Pimco's Gross urges 'privileged 1 percent' to pay more tax | Reuters: (Reuters) - Bill Gross, manager of the world's largest bond fund, urged fellow members of the "privileged 1 percent," earning the highest incomes, to support higher U.S. taxes on carried interest and capital gains to help the economy. Gross, co-founder and co-chief investment officer of Pacific Investment Management Co., said in his latest investment outlook letter on Thursday that the super wealthy "should be paddling right alongside and willing to support higher taxes on carried interest, and certainly capital gains readjusted to existing marginal income tax rates." Carried interest refers to a large portion of the investment gains realized by private equity managers and executives at some venture capital firms, real estate and hedge funds. The gains are taxed at a top rate of 20 percent instead of the nearly 40 percent top rate on ordinary income paid by the highest earners. Easy credit policies have also allowed the rich to make billions of dollars, Gross said. Gross, who oversees roughly $2 trillion in assets, noted that billionaires Warren Buffett and Stanley Druckenmiller, founder of Duquesne Capital Management and one of the best performing hedge fund managers of the past three decades, have advocated similar proposals. "The era of taxing 'capital' at lower rates than 'labor' should now end," Gross said.

Over 10 Percent Of America's Largest Companies Pay Zero Percent Tax Rates: Among companies listed on the S&P 500, almost one in nine paid an effective tax rate of zero percent — or even lower — over the past year, according to an analysis by USA Today. There are 57 separate companies listed on the index that paid a zero percent rate from the past year. Those companies include both household names like Verizon and News Corp. and lesser-known corporate giants like the data storage manufacturer Seagate (market value $15.9 billion) and Public Storage (market value $29.5 billion). Many of the companies USA Today identified in its analysis as paying negative rates make the list because they lost money, but several were profitable. Previous analyses have shown that the typical corporation pays a lower effective tax rate than most middle-class families, and a far lower one than the statutory corporate tax rate against which business interests disingenuously rail. Getting to a zero percent tax rate despite turning a profit requires creative accounting, but not lawbreaking. The corporate tax code allows companies to avoid tax liability even in years when they turn a profit. Some of the profitable companies on the newspaper’s list, such as General Motors, achieved a zero percent rate by banking tax credits from previous years when business was bad. But the more common gambit involves moving revenues from parent companies to offshore subsidiaries based in tax haven countries in the Caribbean, Europe, and elsewhere. 

A New View of the Corporate Income Tax - One of the least well-known aspects of tax policy-making is the distribution table, which is produced by the Joint Committee on Taxation, a Congressional committee, for every major tax bill. The tables show how the legislation affects taxpayers at different income levels. It is a generally understood, if unstated, rule that tax cuts should be evenly distributed in percentage terms while tax increases should primarily fall on the well to do.  A lot of the complexity of the tax code results from efforts to make the distribution tables look right. There are two key problems: those with low incomes generally don’t pay federal income taxes, while the wealthy pay a lot. Below is a typical distribution table for federal income taxes in 2013 from the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, that generally follows the Treasury’s methodology. These data do not include other taxes such as the payroll tax, corporate tax or estate tax. The table shows the share of total income taxes paid; a negative number indicates that a particular income group gets a net refund from programs like the earned income tax credit. In the aggregate, households earning less than $50,000 pay no federal income taxes; those making more than $1 million pay 34.2 percent of all federal income taxes. Thus a reduction in the top tax rate, a widely shared Republican goal, will necessarily cut taxes for the wealthy considerably.Raising taxes on this group to offset that cut, so that the wealthy don’t benefit too much, means identifying tax provisions that primarily benefit them and restricting them in some way. This inevitably adds complexity to the tax code.

Robin Hood Tax: How Reformers Sabotage Themselves with Terrible Branding -  Yves Smith - If I were a still a Wall Street type, I don’t think I could have done a better job of sabotaging an effort to impose transaction taxes on big financial firms than the left has managed to do itself with lousy branding.  By way of background, transaction taxes are a perfectly legitimate concept, in fact, they were first proposed by a Serious Economist called James Tobin as a way to dampen hot-money currency speculation and are thus often called Tobin taxes. This is Tobin’s own explanation of the logic of this type of levy:  The idea is very simple: at each exchange of a currency into another a small tax would be levied – let’s say, 0.5% of the volume of the transaction. This dissuades speculators as many investors invest their money in foreign exchange on a very short-term basis. If this money is suddenly withdrawn, countries have to drastically increase interest rates for their currency to still be attractive. But high interest is often disastrous for a national economy, as the nineties’ crises in Mexico, Southeast Asia and Russia have proven. My tax would return some margin of manoeuvre to issuing banks in small countries and would be a measure of opposition to the dictate of the financial markets. So what happens? The left goes and screws it up.  When I first heard of “Robin Hood taxes” which seems to be the preferred messaging for financial transaction taxes, I had no idea what they were talking about. This is just about the worst possible remotely accurate labeling that could have been chosen. How about “speculation tax” or “Wall Street casino tax”?   If you make it about raising revenue, the targets (the banks) can take the position that they are being unfairly targeted. In fact, the fact that Robin Hood was a thief plays right into the banks arguing that this is really a Willie Sutton tax: they’re being targeted because “That’s where the money is,” meaning they are being targeted because they are successful, as opposed to because they are engaging in socially undesirable activity.

Corporate America’s Hidden Hand in Government Programs - A glitch earlier this month that kept food stamp recipients in 17 states from accessing their benefits drew attention to the role office giant Xerox plays in electronic benefits transfers. Last week, USA Today reported that Verizon is being tapped by the White House to help iron out wrinkles in the new healthcare-exchange web platform.Whether ordinary consumers realize it or not, companies most of us are familiar with do a lot of the heavy lifting when it comes to keeping government benefits programs running smoothly. “Over the past 15 years or so, you’ve seen an increasing use of for-profit companies in determining eligibility, placement into work, distribution and verification,” says Jessica Bartholow, a legislative advocate at the Western Center on Law and Poverty.The distribution of benefits like Social Security and food stamps via cards instead of paper checks or vouchers opened the door for big businesses to play a role. Besides Xerox, financial services giants JP Morgan Chase and FIS work on the EBT distribution of safety net programs like food stamps. Comerica Bank was tapped by the Treasury Department five years ago to issue a prepaid debit card for people on Social Security or receiving SSI benefits who didn’t have a bank account where their money could be deposited.

Barack Obama mounts big push to bolster FDI in US - FT.com: President Barack Obama and his senior cabinet officials are mounting a big push to bolster foreign investment in the US – amid evidence that America is falling behind other countries in the race for global capital. The move by Mr Obama to pitch America as open for business is more aggressive than usual from the White House, reflecting a growing realisation in Washington that the case for investing in the world’s biggest economy is no longer self-evident. High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/c5119344-3f0a-11e3-b665-00144feabdc0.html#ixzz2j1IZ2FMY In 2000, the US held 37 per cent of the worldwide inward stock of foreign investment but by 2012, that share had dwindled to just 17 per cent. The US attracted $166bn in foreign direct investment in 2012, a 28 per cent decline compared with 2011 and slightly below 2010 levels. This year’s performance could be even weaker, since in the first six months of 2013, the US brought in $66bn in foreign investment, well behind the $84bn of the first half of 2012. The FDI push comes after this month’s fiscal crisis – involving a 16 day government shutdown and a brush with debt default – that has raised eyebrows around the world about the US ability to manage its economy and caused nervousness in global markets. Mr Obama and senior figures in his administration will ask foreign investors to shrug off the country’s political paralysis and weak economic recovery this week, when they speak at a conference in Washington, the first of its kind by the commerce department, uniting foreign investors with US economic development agencies and state and local officials.

U.S. to Redouble Efforts to Attract Foreign Direct Investment - U.S. embassies around the world will soon be spearheading the effort to attract foreign investors as the Obama administration looks for new ways to energize the U.S. economy. For the first time, U.S. commercial missions in 32 countries will be instructed to make foreign investment a priority, in addition to promoting the sales of U.S. goods and services, National Economic Council Director Gene Sperling said. President Barack Obama will detail the plans Thursday at a conference hosted by SelectUSA, a program he created two years ago to attract foreign investment to the U.S. “President Obama has made a core part of his economic agenda the notion that we should be making the United States a magnet for job creation,” Mr. Sperling said. The U.S. has long been a top destination for foreign direct investment – long-term investment that typically involves opening subsidiaries or purchasing large stakes in local companies – but its share of the total has been in decline as more money goes to developing countries. In 2012, the U.S. received $168 billion in such investment. Faced with a weak economic recovery in 2010, Mr. Obama made boosting the sale of U.S. products abroad and attracting foreign investment top priorities. He pledged to double U.S. exports over the next five years and established SelectUSA to coordinate local efforts around the country to attract foreign investors. According to the government, the U.S. affiliates of foreign firms employed 5.3 million workers in 2010 with average compensation of more than $77,000.

One Federal Website That Works - The Consumer Financial Protection Bureau has just unveiled a sophisticated website aimed at making financial regulations easier to find and understand. Let’s hope other agencies at every level of government take notice.  The CFPB is an independent agency dreamed up by now-Senator Elizabeth Warren in 2007 and authorized by the Dodd-Frank Act in 2010. Its job is to help consumers get the information they need to understand the terms of their agreements with financial companies. The bureau also writes rules, supervises companies and enforces federal consumer-protection laws.  This young agency has been a technology leader. It has asked for -- and received -- extensive online help from consumers in redesigning mortgage disclosures and student financial forms to make them easier to understand. It has built an online list of about 1,000 frequently asked questions and answers on consumer finance that almost a million people have consulted. And now it is working to change the way Americans interact with the regulatory state itself.  Meet www.consumerfinance.gov/eregulations, rolled out earlier this month. Texts of official government rules are notoriously difficult to follow. Multiple cross-references to other rules make it necessary to consult many different resources. Experienced rule readers can find official interpretations; others can’t. CFPB’s new user-friendly site makes all available information visible and easily accessible.

House Passes Deregulation Bill Written by Citigroup - The Latest edition of the Black Finance and Fraud Report on TRNN. The House of Representatives has passed a deregulation bill written by Citigroup – supported by both parties.

Slow-motion regulatory explosion update - In the latest instalment in an occasional series — Dodd-Franking — let’s check in on the progress of regulators writing the 398 different sets of rules required by the signature piece of post-crisis financial reform legislation. Davis Polk have maintained their place as the Systemically Important Financial Illustrator of choice. The final rulemaking deadline specified by Dodd-Frank passed in the third quarter, and of the 280 such deadlines it breaks down thus: two-fifths finalised and passed, two-fifths proposed after the deadline passed, and one fifth not even proposed yet. What’s the holdup? Well derivative reformers have had their hands full. But about that banking reform…To be fair, the Volcker Rule has proved rather hard to pin down, and regulatory keyboards have not been quiet. The original 848 page bill had prompted more than 15m words of new regulation as of its third birthday in July, a legal leverage ratio of 42 words to every one in the original law. Indeed, the pace of rulemaking has actually been quite consistent, so we should expect the final chapter in a work equivalent to 70 copies of Tolstoy’s War and Peace right around Christmas 2017.

C.F.T.C. Approves Tighter Commodity Trading Rules - In October 2011, as the futures broker MF Global teetered on the brink of collapse, it dipped into client accounts in an effort to avert bankruptcy. But the action failed to save the broker, and its implosion left thousands of clients short a total of $1.6 billion. Two years after MF Global’s bankruptcy, regulators have sought to restore confidence in the industry, tightening rules that force brokerage firms to better safeguard client money.The Commodity Futures Trading Commission voted 3 to 1 on Wednesday to finish rules proposed a year ago to protect customers, including measures to close loopholes, reinforce internal risk controls and force brokers to provide more information to clients. “This new information is critical in today’s world of high-frequency trading,” said Gary S. Gensler, chairman of the commission. “Thus, with these reforms, the commission will get additional tools to oversee the markets’ largest day traders and high-frequency traders.” The new rules are part of a wider shift in policy to better regulate the futures industry after years of lighter-touch policy.

Regulators Opening New Major Front With Banks on Foreign Exchange Trading Probe -- Yves Smith -- The Financial Times story revealing that regulators in Switzerland, Hong Kong, the UK and US have starting probing foreign exchange markets, based on evidence that currency traders were rigging markets, is thin on details because the inquiries are still underway. Nevertheless, these investigations have the potential to unearth a Libor-level scandal. The allegations started with Barclays but appear to engulf many of the major players in the foreign exchange market. Some details: Barclays has suspended six traders as part of its internal inquiry into alleged rigging of the foreign exchange market, including its chief currency trader in London, in the latest rate-manipulation scandal to hit the bank…Authorities around the world – including those in Switzerland, the UK and the US Department of Justice – have opened preliminary investigations into whether some of the biggest banks in the world rigged the $5.3tn currency market.Citigroup and JPMorgan on Friday became the latest banks to confirm they were working with regulators on investigations into foreign exchange trading. UBS, and Deutsche Bank have previously disclosed that regulators have asked them for information and Royal Bank of Scotland, which previously handed over instant-message chats to regulators, has suspended two traders in connection with the inquiry. The probe originated with Swiss regulators and as this video indicates, the allegations appear to involve rate rigging in relationship to derivatives prices as well as separate allegations that traders were front-running customer orders.

Fannie Mae Sues Banks for $800 Million Over Libor Rigging - Fannie Mae sued nine banks, alleging that their manipulation of the benchmark London interbank offered rate, which four of them have admitted, cost the mortgage-financing company about $800 million. The U.S. government-owned firm alleged that the banks, including Bank of America Corp., JPMorgan Chase and Citigroup Inc. (C), acted to suppress the rate though quotes they submitted to the British Bankers Association, according to the complaint filed yesterday in Manhattan federal court. Global authorities have been investigating claims that more than a dozen banks altered submissions used to set benchmarks such as Libor to profit from bets on interest-rate derivatives or to make the lenders’ finances appear healthier.  The alleged suppression of the rate caused Washington-based Fannie Mae to lose as much as $332 million on interest-rate swaps with Barclays,  UBS, Royal Bank of Scotland, Deutsche Bank AG, Credit Suisse Group AG, Bank of America, Citigroup and JPMorgan, according to the complaint. “Defendants initially took these and other overt acts described above to further the corrupt agreement between them and to carry out a common plan to execute a fraud on Fannie Mae and to benefit defendants,” the company claimed.

JPMorgan settlement move spurs rivals to act - FT.com: Global banks have started to approach New York’s attorney-general about paying billions of dollars to settle charges they mis-sold mortgage-backed securities that were at the heart of the financial crisis, following JPMorgan Chase’s tentative agreement to a $13bn settlement. “I have already had expressions of interest from other institutions,” Eric Schneiderman, New York attorney-general, said in an interview with the Financial Times. “It is my hope that [JPMorgan’s deal] is the first of a series of settlements that collectively will be the largest financial settlement in the history of the US,” he added as JPMorgan confirmed a portion of the pact – a $5.1bn settlement with the Federal Housing Finance Agency. Mr Schneiderman, who is co-chairman of the working group that is investigating sales of mortgage-backed securities, has been at the forefront of the drive to hold banks to account for the financial crisis. He declined to identify which institutions had contacted his office but at least nine banks, including Royal Bank of Scotland, Credit Suisse and Bank of America, are under investigation for mortgage securities sales in the lead-up to the financial crisis, as previously reported by the FT. JPMorgan’s $13bn settlement is comprised of cash and homeowner relief, including the renegotiation of mortgages for borrowers who owe more money than their house is worth. Mr Schneiderman said he viewed JPMorgan’s tentative deal as “a template” for future settlements. “Some banks may provide more consumer relief or more cash. The idea is it’s time to pay up for the misconduct that caused the bubble and crash of the American housing market,” he said. “The idea that runs through all of our work in this area is to get money to people who are hurt,” he added.

JPMorgan Still Isn’t Sure What It Bought in 2008 - You may have heard that JPMorgan Chase & Co. is paying a lot of people billions of dollars to settle those people's lawsuits over bad mortgages that Washington Mutual sold them back in the day. Some people think that this is unfair to JPMorgan, since it wasn't selling the bad mortgages,* WaMu was. Why should JPMorgan pay for the sins of WaMu?  Well, because it bought WaMu, is the reasonable answer. When you buy a company you assume its liabilities. "There are always uncertainties in deals," notorious bank-hater Jamie Dimon once said. “Our eyes are not closed on this one.” This one being WaMu.**But here is a bonkers story about how, in certain rooms, JPMorgan is saying something else: That it assumed only certain specific liabilities of Washington Mutual, and only for the dollar amounts that WaMu had on its books. Your $1,385.41 checking account? Fine, they'll take it. Your large but uncertain lawsuit over fraudulent mortgage bonds? Nope, that's the Federal Deposit Insurance Corporation's problem: JPMorgan bought WaMu out from an FDIC receivership, and it didn't explicitly agree to take over those liabilities, so they stay with the FDIC. And if someone sues over those mortgages -- and someone has! -- and if JPMorgan settles those lawsuits -- and it plans to! -- then it's going to go sue the FDIC for its money back.  This theory is blazingly nuts, but here we are. I mean, I'm not your lawyer, nor am I JPMorgan's lawyer, and I guess its actual lawyers are pretty good. Still, my money is on nuts.

Criminal Investigation of Madoff and JPMorgan Shines Harsh Light on NYU - Last week the business press reported that the U.S. Department of Justice may assert charges against JPMorgan Chase for its role in perpetuating the Bernard Madoff Ponzi scheme which defrauded investors out of $17 billion in actual funds and $64 billion in paper losses based on the falsified values shown on client statements. Unnamed sources said the Justice Department may agree to a deferred prosecution agreement in exchange for an outside monitor or, in the alternative, charge JPMorgan’s banking division with violations of the Bank Secrecy Act for failing to report its Madoff suspicions to Federal authorities. Interestingly, JPMorgan did report its suspicions to a government regulator – in the United Kingdom, not in the U.S. Such a development would also raise serious new questions about how the Board of Trustees of NYU handles conflicts of interest. The Board is already under withering criticism from a group of 400 faculty members. In July, the faculty group issued a letter demanding that Martin Lipton, Chairman of the Board for the past 15 consecutive years, step down over a raft of conflicted actions which came to a head when Ariel Kaminer of the New York Times reported in June in a front page article that NYU, a taxpayer subsidized nonprofit, was doling out forgivable mortgage loans on vacation homes to an elite group of faculty and administrators.

We Discuss the JP Morgan “Settlement” on Democracy Now -  Yves Smith - I was glad to get the chance to discuss the misnamed JP Morgan settlement on Democracy Now yesterday. It’s misnamed because it’s not a single settlement, but a series of settlements, mainly if not entirely FHFA and state actions, bundled together, plus fines. Plus as you will see soon that’s far from the only way it’s been misreported! I had been booked to get a much bigger chunk of the hour, but if you saw the show, Glenn Greenwald was up first, and he likes giving detailed and energetic answers, and Amy Goodman was happy to give him as much rope as he wanted. So on the one hand, I only got a few minutes on the main show. The flip side is coming right after Greenwald probably means I got more viewers than I would have most days.  We had a second, much longer chat for her website, so I hope you’ll look at both clips.

JPMorgan Proposed Mortgage Accord Said to Meet Resistance - JPMorgan Chase & Co. (JPM)’s proposed terms to settle state and federal probes of the bank’s mortgage-bond sales were rejected by the Department of Justice this week, said two people familiar with the negotiations. The Justice Department told JPMorgan it won’t agree to language the firm submitted Oct. 27, said the people, who asked not to be named because the talks are private. The government would bar JPMorgan from trying to recover part of the costs from the Federal Deposit Insurance Corp. and opposed the company’s bid to avoid criminal liability in cases that don’t involve residential mortgage-backed securities, one person said. JPMorgan, led by Chief Executive Officer Jamie Dimon, is trying to complete a $13 billion settlement outlined in talks earlier this month. Part of the deal was finished with the Federal Housing Finance Agency last week, as the New York-based bank agreed to pay $4 billion to settle claims it sold faulty mortgage bonds to Fannie Mae and Freddie Mac. (FMCC) The Justice Department and JPMorgan, the biggest U.S. bank, also differ on whether to include an additional $1.1 billion payment in the FHFA pact as part of the total settlement, one person said.

JPMorgan’s $13 billion settlement deal with Justice Dept. at risk of falling apart - Settlement talks between the Justice Department and JPMorgan Chase are in danger of breaking down over the bank’s demands that it avoid future criminal charges and that another government agency pay some of the $13 billion price tag, according to a person familiar with the negotiations. Federal prosecutors have been working with JPMorgan for months to resolve allegations that the bank knowingly sold securities made up of low-quality mortgages in the lead-up to the financial crisis. As of last week, the nation’s largest bank had agreed to a tentative $13 billion settlement that would expunge multiple government probes. Details of the agreement were being hashed out, but now the sides have reached an impasse. Officials at the Justice Department and JPMorgan declined to comment.Troubles came to a head Sunday night, when attorneys for JPMorgan proposed a deal that would give the bank protection from future criminal investigation, according to a person familiar with the talks who was not authorized to speak publicly. Attorney General Eric H. Holder Jr. has long refused to grant the bank a waiver from criminal prosecution, reinforcing the point in a face-to-face meeting with JPMorgan chief executive Jamie Dimon. Federal prosecutors assumed that aspect of the deal was settled and were bothered when attorneys asked that the bank be released from future criminal prosecution, the person said.

Large Banks to Be Tested on New Standard - —Major U.S. banks hoping to reward shareholders will have to show the Federal Reserve they could successfully weather a sharp economic downturn that triggers a global recession and the "instantaneous and unexpected" default of their largest counterparty as part of this year's round of "stress tests." The latest hypothetical scenarios unveiled by the Fed on Friday reveal ongoing concerns about the sizable trading operations of banks such as Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. and their continued reliance on short-term lending and derivatives markets. As part of their recurring internal tests, eight large banks must now calculate how their short-term lending and derivatives books would be affected by the sudden failure of their largest counterparty. The biggest banks would have to ensure they have enough capital to withstand the collapse of a counterparty to which they are heavily exposed, such as another bank, money-market mutual fund or other entity. While Fed officials have looked at banks' exposure to other institutions previously, they said the new test was added to make sure firms are conservatively capitalized, especially given their outsize role in financial markets.

New Tools! More Pure Bank Profit! - Inquiring minds are monitoring the Fed's Balance Sheet. One more week like this and the FED balance sheet will be $1 trillion more than last year at this time. Currently now at $980 billion with this past week adding $20 billion. Breakdown From Year Ago

• Total Credit: +980.711 Billion to $3.796 Trillion
• US Treasuries: +448.877 Billion to $2.106 Trillion
• Mortgage Backed Securities: +525.072 Billion to $1.401 Trillion

Of US treasuries, the Fed added (and holds) precisely $0 in short-term bills. Of US Treasuries, the Fed added 16 Billion in Inflation Indexed notes Obviously inflation is not a concern to the Fed. Bank profits are. The Fed is pumping money into the economy at at rate of $85 billion a month. Banks cannot use the money and are not lending it. The money piles up as excess reserves and the Fed (taxpayers) pays interest on excess reserves. Nonetheless, the Fed has a clever idea! It proposes a new tool to pay banks even more interest on money banks don't lend and cannot use (as an alternative to shrinking money supply). With little fanfare or analysis by mainstream media as to what is really happening, Bloomberg reports Fed Gets Bigger in Markets as QE Prompts New Tools. The Federal Reserve is getting more involved in debt markets as it tries to compensate for the impact of its almost $4 trillion balance sheet on short-term interest rates. Policy makers are testing a new tool intended to improve their control of near-term borrowing costs. The facility would allow banks, broker-dealers, money-market funds and some government-sponsored enterprises to lend the Fed unlimited amounts of cash overnight at a fixed rate in exchange for borrowing Treasuries in so-called reverse repo transactions.

Unofficial Problem Bank list declines to 670 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for October 25, 2013.  Changes and comments from surferdude808:  The FDIC got back to issuing its enforcement action activity for the previous month on the last Friday of the current month. So we got their release today that led to several changes to the Unofficial Problem Bank List. For the week, there were eight removals and one addition that leave the list at 670 institutions with $234.0 billion of assets. A year ago, the list had 856 institutions with assets of $326.4 billion. For the month of October 2013, the list fell by 20 institutions after five additions and 25 removals, which were mostly action terminations. During the month, 24 actions were terminated, which is the second highest monthly count after 25 actions were terminated in April 2012.

Alan Greenspan owes America an apology - Dean Baker -  Alan Greenspan will go down in history as the person most responsible for the enormous economic damage caused by the housing bubble and the subsequent collapse of the market. The United States is still down almost 9m jobs from its trend path. We are losing close to $1tn a year in potential output, with cumulative losses to date approaching $5tn.  These numbers correspond to millions of dreams ruined. Families who struggled to save enough to buy a home lost it when house prices plunged or they lost their jobs. Many older workers lose their job with little hope of ever finding another one, even though they are ill-prepared for retirement; young people getting out of school are facing the worst job market since the Great Depression, while buried in student loan debt. The horror story could have easily been prevented had there been intelligent life at the Federal Reserve Board in the years when the housing bubble was growing to ever more dangerous proportions (2002-2006). But the Fed did nothing to curb the bubble. Arguably, it even acted to foster its growth with Greenspan cheering the development of exotic mortgages and completely ignoring its regulatory responsibilities. Most people who had this incredible infamy attached to their name would have the decency to find a large rock to hide behind; but not Alan Greenspan. He apparently believes that he has not punished us enough. Greenspan has a new book which he is now hawking on radio and television shows everywhere.

DataQuick: Q3 California Foreclosure Starts Decline, Down 58.6% from Q3 - From DataQuick: California Foreclosure Starts Second-Lowest Since Early 2006 The number of California homeowners entering the foreclosure process fell last quarter to the second-lowest level in seven and a half years. The drop-off is the result of a stronger job market, home price appreciation, and a variety of government foreclosure avoidance efforts, a real estate information service reported.  Lenders filed 20,314 Notices of Default (NoDs) during the July-through-September period. That was down 21.1 percent from 25,747 during the previous quarter, and down 58.6 percent from 49,026 in third-quarter 2012, according to San Diego-based DataQuick. Last quarter's NoDs were the lowest since 18,568 were filed in the first quarter of this year, and the second-lowest since 18,856 were filed in first-quarter 2006."Cleanup of the foreclosure mess is ongoing, but it's difficult to imagine a huge new wave. We still get asked about the long-feared 'shadow inventory' of distressed properties that some people predicted would trigger another big surge in foreclosures. Such warnings, which go back years, often reflected a worst-case scenario and didn't account for the breadth and depth of the government's eventual intervention in the crisis. This graph shows the number of Notices of Default (NoD) filed in California each year.   For 2013 (red), the bar is an estimated annual rate (since the California "Homeowner Bill of Rights" slowed foreclosure activity early this year, the estimated rate is Q1+Q2 + 2 times Q3).  It looks like this will be the lowest year for foreclosure starts since 2005, and also below the levels in 1997 through 1999 when prices were rising following the much smaller housing bubble / bust in California.

New York Foreclosures Soar a Year After Sandy - One year after Hurricane Sandy made landfall on the U.S. eastern seaboard, RealtyTrac today reported that foreclosure activity in the first nine months of 2013 is up 33 percent compared to the first nine months of 2012 in the 7-county region including the five boroughs of New York and Long Island. “Some people have gotten insurance money, some people still can’t get the money. It’s a big mish-mash. Nothing is uniform. People there are still hurting, but things are pretty good all around.” Queens County reported the highest level of foreclosure activity through September 2013, up 61 percent from the same time period last year. Default notices in particular were up 71 percent, while auction notices increased 24 percent and bank-owned (REO) properties increased 26 percent from the previous year. Foreclosure activity also increased in Richmond County (Staten Island), up 40 percent during the first nine months of 2013, with bank-owned properties rising 170 percent from the same period last year. Default notices were up 43 percent in the county although scheduled auctions fell 15 percent. Nassau and Suffolk counties (Long Island) likewise have seen overall increases in foreclosure activity so far this year, up 24 percent in Nassau County up 28 percent in Suffolk County. Activity levels were also up in Bronx County (39 percent) and Kings County (28 percent) through September. The only county showing a significant decrease in foreclosure activity during the same time period was New York County (Manhattan) where although the hurricane did make landfall and caused significant flooding, foreclosures were down 21 percent with the number of bank-owned properties dropping 82 percent and scheduled auctions falling 53 percent.

HAMP's Redefault Rate at 27% and Likely to Rise - Over the life of the government’s Home Affordable Modification Program (HAMP), 1.25 million homeowners have received permanent HAMP modifications, and 27 percent of those have later redefaulted on their loans, according to a quarterly report to Congress from the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP). In its report released to lawmakers this week, SIGTARP berated Treasury for not heeding the office’s previous recommendations regarding HAMP, stressing that the inspector general expressed concern in April that “the number of homeowners who have redefaulted on HAMP permanent mortgage modifications is increasing at an alarming rate.” About 184,000 homeowners (29 percent) who received HAMP modifications through TARP rather than through the GSEs have redefaulted, costing taxpayers $972 million in incentives paid to servicers and investors for those workouts, according to SIGTARP. Among borrowers participating in the GSEs’ HAMP programs, just under 154,000 (26 percent) have redefaulted (HAMP incentives on GSE loans are paid by the GSEs themselves). Additionally, about 10 percent of all active permanent HAMP modifications were one or two months delinquent as of the end of August. “The longer a homeowner remains in HAMP, the more likely he or she is to redefault out of the program,” SIGTARP stated. The redefault rate among the oldest HAMP modifications is 48.3 percent, according to SIGTARP’s report. Homeowners who fall three months behind on their modified payments redefault out of the program and fall “often into a less advantageous private sector modification or even worse, into foreclosure,” SIGTARP said. About 32 percent receive another modification, often a proprietary one, and about 13 percent work out a short sale or deed-in-lieu of foreclosure with their servicer. About 22 percent of HAMP redefaulters enter foreclosure.

Freddie Mac: Mortgage Serious Delinquency rate declined in September, Lowest since April 2009 - Freddie Mac reported that the Single-Family serious delinquency rate declined in September to 2.58% from 2.64% in August. Freddie's rate is down from 3.37% in September 2012, and this is the lowest level since April 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  These are mortgage loans that are "three monthly payments or more past due or in foreclosure".  I'm frequently asked when the distressed sales will be back to normal levels, and that will happen when the percent of seriously delinquent loans (and in foreclosure) is closer to normal.  Since very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. Although this indicates some progress, the "normal" serious delinquency rate is under 1%.   At the recent rate of improvement, the serious delinquency rate will not be under 1% until late 2015 or 2016.  Therefore I expect an above normal level of distressed sales for 2 or 3 more years (mostly in judicial states).

Fannie Mae: Mortgage Serious Delinquency rate declined in September, Lowest since December 2008 -- Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in September to 2.55% from 2.61% in August. The serious delinquency rate is down from 3.41% in September 2012, and this is the lowest level since December 2008. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%. Earlier this week, Freddie Mac reported that the Single-Family serious delinquency rate declined in September to 2.58% from 2.64% in August. Freddie's rate is down from 3.37% in September 2012, and this is at the lowest level since April 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  These are mortgage loans that are "three monthly payments or more past due or in foreclosure".The Fannie Mae serious delinquency rate has fallen 0.86 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in about 2 years. Note: The "normal" serious delinquency rate is under 1%.

JPMorgan’s $13B Penalty Could Be A Huge Blow to Struggling Homeowners - JPMorgan's $13 billion settlement with the Justice Department is supposed to be punishment for the bank's violations in the sale of mortgage-backed securities. But it could end up far worse for the struggling homeowners some of the money is supposed to assist. While JPMorgan could be allowed to write off the penalty as a tax deduction, ordinary people who receive mortgage relief as part of the settlement could get hit with a giant tax bill, making the debt relief benefit irrelevant, if not actively harmful. This is because Congress, through their sheer inaction, will soon allow this type of mortgage relief to be taxed as income. This is an unintended consequence of the Justice Department's settlement with JPMorgan Chase, but they have a chance to avoid letting this topsy-turvy outcome occur. They could insert language into the settlement so the mortgage relief is not taxed, but given who participates in such negotiations—bank lawyers, not homeowners—it’s highly unlikely. And it shows once again how utterly tilted the justice system is toward the rich and connected.

The Smart Money Denies They’re The Smart Money As They Franticly Sell Their Crown Jewels Before The Bubble Blows - And Blackstone Group, the world’s largest “alternative investment” firm, is doing exactly that, feverishly, relentlessly, hand over fist, at peak valuations, cashing out, maximizing its profits. That's how capitalism is supposed to work. On the front burner: Brixmor Property, a REIT that owns 522 shopping centers, mostly neighborhood affairs anchored by grocery stores. Its IPO just priced at $20 a share, valuing it at about $6 billion – almost six times 2012 revenues of $1.17 billion. Another crown jewel Blackstone is selling: Hilton Hotels, which filed for a "much anticipated IPO" in September, as the Wall Street Journal called it in its way of hyping IPOs. It could be the largest real-estate IPO this year, and the largest hotel IPO ever. entertaining analysis of the Hilton LBO, read David Stockman's..... Bernanke’s (Untough) Love Child: The $27 Billion Affair At The Hilton]. Next is La Quinta. Blackstone has already received a number of bids for the hotel chain, with a final round of bids expected in the next few weeks – though it might still get rid of it through an IPO if it brings more money that way. Then there is Extended Stay America, now getting groomed to be slipped into your portfolio as well. One heck of a double-dip saga. Blackstone first bought it in 2004 for $3.1 billion, most of it funded with debt. In June 2007, at the peak of the prior credit bubble, Blackstone sold that over-indebted jewel for $8 billion.

Here’s What Happens When Wall Street Builds A Rental Empire - There's no escaping the stench of raw sewage in Mindy Culpepper's Atlanta-area rental home. "You can not get in touch with them, you can't get them on the phone, you can't get them to respond to an email," said Culpepper, whose family has lived with the problem since the day they moved in five months ago. "My certified letters, they don't get answered." Most rental houses in the U.S. are owned by individuals, or small, local businesses. Culpepper's landlord is part of a new breed: a Wall Street-backed investment company with billions of dollars at its disposal. Over the past two years, Colony American and its two biggest competitors, Invitation Homes and American Homes 4 Rent, have spent more than $12 billion buying and renovating at least 75,000 homes in order to rent them out. This new incursion by hedge funds and private equity groups into the American single-family home rental market is unprecedented, and is proving disastrous for many of the tens of thousands of families who are moving into these newly converted rental homes. In recent weeks, HuffPost spoke with more than a dozen current tenants, along with former employees who recently left the real estate companies. Though it's not uncommon for tenants to complain about their landlords, many who had rented before described their current experience as the worst they've ever had.

A Closer Look At The Decrepit World Of Wall Street Rental Homes - Though it’s not uncommon for tenants to complain about their landlords, many who had rented before described their current experience as the worst they’ve ever had. A former inspector for American Homes 4 Rent who worked in the Dallas office said he routinely examined homes just prior to rental that were not habitable. Though it wasn’t his job to answer complaints, he said he fielded “hundreds of calls” from irate tenants.- From the Huffington Post’s excellent article: Here’s What Happens When Wall Street Builds A Rental EmpireThis is a topic that I have been writing extensively on since America Meet Your New Slumlord: Wall Street, which received a huge amount of attention in the alternative media world. I knew from the start that everything that Wall Street touched has turned into a scheme primarily focused on parasitically funneling wealth and resources away from society at large to itself. This is no different. They call it a “new asset class.” I call it Wall Street serfdom. What makes this article even more interesting is that it’s not simply greed, it is also obvious that these Wall Street firms have no idea what the fuck they are doing. For example: Former employees said their former colleagues can’t keep up with the volume of complaints. The rush to buy up as many homes as possible has stretched resources to the point of breaking, these people said. My advice to people out there in the rental market, is they should try to avoid Wall Street rentals. The three main companies highlighted in this article are: Invitation Homes (owned by Blackstone), Colony American and American Homes 4 Rent. Unfortunately, it appears these companies may try to hide their presence in certain markets so you may have to do additional digging.

Six Ways to Ensure Qualified Borrowers Can Get Mortgages - So how should policymakers correct course? Ranieri & Co. lay out a series of fixes for any new housing-finance regime. Here are six:

• –First, homeownership (and mortgage lending) should focus on building equity. Home buyers, they argue, should be educated on buying a slightly smaller home with lower payments, or a loan with a faster amortization schedule, that allow them to build equity more quickly.
• –Second, home-equity mortgages — or second mortgages — need more strings attached. The owner of the first-lien should have the ability to approve a second mortgage, and the ability to take equity out of a house with a second mortgage should be limited to money used for “life events” such as a health-care crisis or a college education.
• –Third, the mortgage market needs to overhaul the process of what’s known as “servicing,” by which companies collect payments on behalf of investors.
• –Fourth, regulators will need to implement rules that allow for more flexibility in determining a borrower’s ability to repay a loan.
• --Fifth, policymakers should focus more attention on home-rental programs that provide renters with an “option to own.”
• –Finally, the authors argue in favor of maintaining healthy securitization markets, where large amounts of loans are pooled together and then sold off to investors. The authors argue against a move toward “risk-based” pricing, which they say accomplishes the opposite of what securitization was initially intended to do — to smooth out regional and other differences in borrowing costs.

MBA: Mortgage Applications increase 6% in Latest Weekly Survey -- From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 6.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 25, 2013. ...The Refinance Index increased 9 percent from the previous week. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. ...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.33 percent, the lowest rate since June 2013, from 4.39 percent, with points decreasing to 0.26 from 0.41 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. The refinance index is up over the last seven weeks as rates have declined from the August levels. However the index is still down 57% from the levels in early May. The second graph shows the MBA mortgage purchase index. The 4-week average of the purchase index has fallen since early May, and the 4-week average of the purchase index is now down about 4% from a year ago..

Weekly Update: Housing Tracker Existing Home Inventory up 0.3% year-over-year on Oct 28th - Here is another weekly update on housing inventory ... for the second consecutive week, housing inventory is up slightly year-over-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 increasing, and is now slightly 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.

Case-Shiller: Comp 20 House Prices increased 12.8% year-over-year in August -- S&P/Case-Shiller released the monthly Home Price Indices for August ("August" is a 3 month average of June, July and August prices). From S&P: Home Prices Rise Further in August 2013 According to the S&P/Case-Shiller Home Price Indices Data through August 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices ... showed that the 10-City and 20-City Composites increased 12.8% year-over-year. Compared to July 2013, the annual growth rates accelerated for both Composites and 14 cities. On a monthly basis, the 10-City and 20-City Composites gained 1.3% in August. Las Vegas led the cities with an increase of 2.9%, its highest since August 2004. Detroit and Los Angeles followed with gains of 2.0%. ... In August 2013, the 10- and 20-City Composites posted annual increases of 12.8%. “The 10-City and 20-City Composites posted a 12.8% annual growth rate,”  Thirteen cities posted double-digit annual gains. Las Vegas and California continue to impress with year-over-year increases of over 20%. Denver and Phoenix posted 20 consecutive annual increases; Miami and Minneapolis 19. Despite showing 26 consecutive annual gains, Detroit remains the only city below its January 2000 index level. The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000). The Composite 10 index is off 23.1% from the peak, and up 0.9% in August (SA). The Composite 10 is up 16.7% from the post bubble low set in Jan 2012 (SA). The Composite 20 index is off 22.3% from the peak, and up 0.9% (SA) in August. The Composite 20 is up 17.3% from the post-bubble low set in Jan 2012 (SA). The second graph shows the Year over year change in both indices. The Composite 10 SA is up 12.2% compared to August 2012. The Composite 20 SA is up 12.8% compared to August 2012. This was the fifteenth consecutive month with a year-over-year gain

US home price growth at seven-year high - FT.com: US home prices rose at their strongest annual pace in more than seven years in August, while monthly figures confounded expectations of a slowdown spurred by higher interest rates. The Standard & Poor’s/Case-Shiller index, which tracks property values in 20 metropolitan regions across the US, rose 12.8 per cent in August from the same month in 2012 – the fastest since February 2006. This beat analysts’ expectations of a 12.4 per cent rise and followed a 12.3 per cent jump in the year to July. Monthly prices adjusted for seasonal variations rose 0.9 per cent in August, from a 0.6 per cent uptick the prior month, surpassing expectations of a 0.7 per cent increase. Homebuyers competing for fewer properties and a drop in the number of distressed homes on the market helped push prices upward in August. “The shrinking share of distressed sales creates a virtuous cycle: as fewer homes are sold on the cheap, home values rise, which lifts more homeowners above water, which shrinks the share of distressed sales further,”

Case-Shiller Beats: Bankrupt Detroit Among Top 5 Fastest Appreciating Housing Markets - If yesterday's collapse in September existing home sales was indicative that Housing is tumbling and it means the Fed will not taper until mid 2014 sending the S&P to a new record high, today's August Case Shiller, which beat expectations of a M/M increase of 0.65% with a 0.93% print, and an increase of 12.82% Y/Y, probably means that the economy is very strong and will send the S&P to an even newer recorder high, since both bad and good news send only one signal to algos: buy. What is amusing is that while the NAR's September fiasco was attributed to "concerns" over a government shutdown, the two month delayed Case Shiller print, which was for August, will be spun as no fears of a government shutdown in August, or something.

Case-Shiller Housing Price Index Shows Bubble Like Annual Gains Again - The August 2013 S&P Case Shiller home price index shows a seasonally adjusted 12.8% price increase from a year ago for over 20 metropolitan housing markets and a 12.7% change for the top 10 housing markets from a year ago.  Once again price increases are on high for homes.  Home Prices, not seasonally adjusted, are now comparable to June 2004 levels and are quite bubbly in many cities.  America is now only 20-21% away from the peak of the housing bubble.  Graphed below is the yearly percent change in the composite-10 and composite-20 not seasonally adjusted Case-Shiller Indices, where the annual change for both was 12.8%. This is the largest annual increase in home prices in seven years.  Home prices only increased greater in February 2006, right before the start of the great fall.  Below is a graph of the annual change in the S&P Case-shiller home price composite-20 and composite-10 indexes.  Notice how in March 2006, annual increases are at a cusp and early 2006 is the start of a long slide down.  If we are having housing bubble déjà vu, let's hope the pattern does not continue.  Below are all of the composite-20 index cities yearly price percentage change, using the seasonally adjusted data.  Las Vegas is a bubbling cauldron of trouble as prices have increased over 29% from a year ago.  Remember, Nevada has the worst unemployment rate in the nation, so it is unfathomable these are real people buying these homes and not investors and flippers.   San Francisco is also on fire, a 25.4% annual home price increase.  There are reports San Francisco is so unaffordable workers are bused in from long distances where they can afford the rent.  California generally has returned to complete unaffordable housing and if anyone recalls California was a ground zero for the bubble collapse.  Overall home prices are soaring out of reach again for the majority Americans, nationwide.

Comment on House Prices: Real Prices, Price-to-Rent Ratio, Cities - It appears house price increases have slowed recently based on agent reports and asking prices (a combination of a little more inventory and higher mortgage rates), but this slowdown in price increases is not showing up yet in the Case-Shiller index because of the reporting lag and because of the three month average (the August report was an average of June, July and August prices). I expect to see smaller year-over-year price increases going forward and some significant deceleration towards the end of the year or in early 2014. I also think it is important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $276,000 today adjusted for inflation.  That is why the second graph below is important - this shows "real" prices (adjusted for inflation). The first graph shows the quarterly Case-Shiller National Index SA (through Q2 2013), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through August) in nominal terms as reported. In nominal terms, the Case-Shiller National index (SA) is back to Q4 2003 levels (and also back up to Q4 2008), and the Case-Shiller Composite 20 Index (SA) is back to April 2004 levels, and the CoreLogic index (NSA) is back to October 2004. The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices. In real terms, the National index is back to Q4 2000 levels, the Composite 20 index is back to December 2001, and the CoreLogic index back to June 2002. In real terms, house prices are back to early '00s levels.This graph shows the price to rent ratio (January 1998 = 1.0). On a price-to-rent basis, the Case-Shiller National index is back to Q4 2000 levels, the Composite 20 index is back to May 2002 levels, and the CoreLogic index is back to February 2003.

Vital Signs: Expect a Breather in Home Prices’ Rapid Run -- The turnaround in home prices has been a key support to the consumer sector. Rising prices are making homeowners feel wealthier and more confident about the economy. According to S&P/Case-Shiller data out Tuesday, home prices in 20 major U.S. cities were up 12.8% in the year ended in August. That was the largest gain since early 2006 when the housing bubble was done inflating. But S&P noted monthly gains have begun to weaken, which means the yearly gains should start to slow as well. Rising mortgage rates are tempering demand which is holding down prices. On Monday, the National Association of Realtors said pending home sales—which reflect contracts signed but not closed—fell in September to their lowest levels since December 2012. Home values are unlikely to start falling again. But smaller price gains could put a lid on any rebound in economic sentiment now that the government shutdown is over.

Zillow: Case-Shiller House Price Index expected to show 13.2% year-over-year increase in September - The Case-Shiller house price indexes for August were released Tuesday. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.   It looks like another very strong month ... From Zillow: Sept. Case-Shiller Expected to Continue Showing Eye-Popping Annual AppreciationThe Case-Shiller data for August came out this morning, and based on this information and the September 2013 Zillow Home Value Index (ZHVI, released Oct. 17), we predict that next month’s Case-Shiller data (September 2013) will show that both the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 13.2 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from August to September will be 0.8 percent for both the 20-City Composite and the 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for September will not be released until Tuesday, Nov. 26. The Zillow Home Value index showed the first signs of moderation in home value appreciation, with several of the largest metros showing month-over-month declines in September. Case-Shiller indices have also shown slowdowns in monthly appreciation but have not yet recorded monthly declines. The following table shows the Zillow forecast for the September Case-Shiller index.

California Housing Bubble 2.0 in Pictures - Fantastic, everybody made some good money in the past 18 months thanks to the Fed’s aggressive monetary policy — or, to be specific Twist, QE3, and QE4 — which dropped mortgage rates from 5.5% to sub 3.5% almost overnight in late 2011.  This made it so everybody could instantly “afford” 20% more house.  Over the next year this increase in “purchasing power” pushed house ‘prices” higher.  Throw in top aggressive Wall Street and private all-cash “investors” regularly paying 10% to 20% over appraised value / list price for their buy-to-flip/rent schemes and viola’…everybody who owns a home is a lot more “wealthy” — on paper — than 18 months ago. This note is to throw out some compelling data on where housing actually sits relative to the bubbly years.  And that although it may look different, conditions may be quite similar.   Greed and fear, as they relate to financial assets and decision making, are powerful emotions.   When you see them driving markets, step back, breathe, have a drink, and a think.

Pending Home Sales Index declines 5.6% in September - From the NAR: Pending Home Sales Continue Slide in September The Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 5.6 percent to 101.6 in September from a downwardly revised 107.6 in August, and is 1.2 percent below September 2012 when it was 102.8. The index is at the lowest level since December 2012 when it was 101.3; the data reflect contracts but not closings...[Lawrence Yun, NAR chief economist] notes this is the first time in 29 months that pending home sales weren’t above year-ago levels. “This tells us to expect lower home sales for the fourth quarter, with a flat trend going into 2014. The PHSI in the Northeast dropped 9.6 percent to 76.7 in September, and is 6.4 percent below a year ago. In the Midwest the index fell 8.3 percent to 102.3 in September, but is 5.7 percent higher than September 2012. Pending home sales in the South slipped 0.4 percent to an index of 116.2 in September, but are 2.0 percent above a year ago. The index in the West dropped 9.0 percent in September to 97.3, and is 9.8 percent lower than September 2012. Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in October and November.

Pending Sales of Existing Homes Slump by Most in Three Years - Fewer Americans than forecast signed contracts to buy previously owned homes in September, the fourth straight month of declines, as rising mortgage rates slowed momentum in the housing market. The index of pending home sales slumped 5.6 percent, exceeding all estimates in a Bloomberg survey of economists and the biggest drop in more than three years, after a 1.6 percent decrease in August, the National Association of Realtors reported today in Washington. The index fell to the lowest level this year. Mortgage rates last month reached two-year highs and some homeowners are reluctant to put properties up for sale as they wait for prices to climb, leading to tight inventories. Those forces are pushing some would-be buyers to the sidelines and slowing the pace of recovery in real estate, giving Federal Reserve policy makers reason to delay reducing stimulus when they meet this week. “We’ll be in this weakness for a little bit, maybe even going into the fourth quarter,” “This is a clear signal to the Fed as to what happens when you try to play with nascent housing recovery. The minutes indicated they were really concerned about it.”

Home Sales Collapse At Fastest Rate In 40 Months; Stocks Spike - Despite seemingly gigantic cognitive dissonance in the face of this report, the pending home sales data collapsed in September (and remember this is before the shutdown and was heralded at the time as buyers rushing to buy before the risk of the shutdown slowed acceptances). Affordability, argued by some serial extrapolators as still being 'relatively' positive - has drastically weighed on housing at the margin just as we argued previously. This is the first annual drop in 29 months, the biggest drop in 40 months, and the biggest miss against expectations in 40 months. Even the typically full of spin, NAR Chief economist had to admit "this tells us to expect lower home sales for the fourth quarter, with a flat trend going into 2014." Apparently, if one is to believe the spin, overheard everywhere in September: "Hmm, government may shut down next month - let's not buy a house."Of course, NAR Chief Economist seems to have found an excuse by time-shifting his narrative... . “Declining housing affordability conditions are likely responsible for the bulk of reduced contract activity,” he said. “In addition, government and contract workers were on the sidelines with growing insecurity over lawmakers’ inability to agree on a budget. A broader hit on consumer confidence from general uncertainty also curbs major expenditures such as home purchases.”Umm no Larry... because in our world September is before October and no one was talking about shutdown's impact then OR even pricing it in any way...

Housing Will Not Save the Economy - When it comes to the U.S. economic recovery, the conventional wisdom is that it’s all about housing. That’s where the majority of Americans keep the majority of their wealth. It’s 15% of the economy and has been driving what upswing we’ve seen so far—investment in residential housing has been expanding by over 10% a year, and contributing around a half a percentage point to our overall annual GDP growth. But the housing news has started to turn sour. September sales are down sharply, in part because of a rise in mortgage interest rates. And there’s little doubt that October’s numbers will be bad too, because of the shutdown and the disruption to mortgage applications. Prices are still up, but they tend to lag the other data. It’s quite possible we’ll see a slowdown in those gains too. Population growth means that the longer term outlook for housing is still fairly bright (a recent Goldman Sachs report on the topic noted that the U.S. is creating around 1.3 million new households a year, and many of them will want their own picket fences). But as I’ve written before, I think the idea that housing can create a recovery is the tail wagging the dog.

Goldman's Hatzius: How Much Risk to Homebuilding? - Goldman Sach chief economist Jan Hatzius wrote today (research note): How Much Risk to Homebuilding? A few excerpts:   The housing news has deteriorated recently across a broad set of indicators, and the FOMC accordingly downgraded its assessment of the housing market in Wednesday's post-meeting statement. How much should we worry about our forecast that residential investment will continue to grow 10-15% and directly contribute 1/2 percentage point to real GDP growth next year?  The risks to our housing forecast are on the downside in the near term, but there are three reasons why we still take a positive view beyond the next 1-2 quarters. First, there is a clearly identifiable reason for the recent weakness, namely the sharp increase in mortgage rates. Some of this increase has reversed recently, and barring another shock the impact should be mostly complete by early 2014. Second, the fundamental supply-demand picture for housing still looks positive. If the population grows at the rates projected by the Census Bureau and the size of the average household trends sideways to slightly lower--in line with historical trends--we estimate that household formation should climb to 1-1.3 million and steady-state housing demand to 1.3-1.6 million. Third, while home sales and starts have disappointed recently, house prices have continued to rise at double-digit rates, with few signs of deceleration. This suggests that the supply/demand balance in the housing market still looks favorable. That said, we continue to expect that home price appreciation will slow over the next year.

Lawler on Homebuilders: Home Orders Off Significantly Last Quarter - From housing economist Tom Lawler: The Ryland Group reported that net home orders in the quarter ended September 30, 2013 totaled 1,592, up 5.6% from the comparable quarter of 2012 (which included 7 net orders in areas where operations had been discontinued). The company’s sales cancellation rate, expressed as a % of gross orders, was 23.0% last quarter, compared to 19.9% a year ago. The company’s community count at the end of September was up 20.9% from a year ago. Home closings totaled 1,883 last quarter, up 42.4% from the comparable quarter of 2012, at an average sales price of $298,000, up 12.9% from a year ago. The company’s order backlog at the end of September was 3,376, up 36.5% from last September. Ryland said that its controlled lots at the end of September totaled 39,698, up 49.1% from last September. Standard Pacific Homes reported that net home orders (ex jvs) in the quarter ended September 30, 2013 totaled 1,110, up 12.2% from the comparable quarter of 2012. The company’s sales cancellation rate, expressed as a % of gross orders, was 19.7% last quarter, compared to 14.0% a year ago. The company’s average community count last quarter was up 7.7% from a year ago. Home deliveries last quarter totaled 1,217, up 41.3% from the comparable quarter of 2012, at an average sales price of $420,000, up 13.8% from a year ago. The company’s order backlog at the end of September was 2,165, up 55.3% from last September.  Here is a summary of selected stats released so far by large, publicly-traded builders.

Q2 2013: Mortgage Equity Withdrawal Strongly Negative - The following data is calculated from the Fed's Flow of Funds data and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is little MEW right now - and normal principal payments and debt cancellation. For Q2 2013, the Net Equity Extraction was minus $75 billion, or a negative 2.4% of Disposable Personal Income (DPI). This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.  There are smaller seasonal swings right now, perhaps because there is a little actual MEW (this is heavily impacted by debt cancellation right now). The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding declined further in Q2. Mortgage debt has declined by over $1.3 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance. With residential investment increasing, and a slower rate of debt cancellation, it is possible that MEW will turn positive again in the next year or two.

Fed: Household Debt Service Ratio near lowest level in 30+ years - The Federal Reserve released the Q2 2013 Household Debt Service and Financial Obligations Ratios today. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations. These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households. The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt. The financial obligations ratio (FOR) adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio.The homeowner mortgage FOR includes payments on mortgage debt, homeowners' insurance, and property taxes, while the homeowner consumer FOR includes payments on consumer debt and automobile leases.

Borrowing Money with Upstart - Founded last year by former Google employees, it’s a crowdfunding marketplace where people looking to start a business, say, or pursue more education can raise cash from investors. In exchange, they pay some of what they earn over the next five or ten years—what percentage you have to pay is determined by how much you want to raise and by the Upstart algorithm’s assessment of your earnings potential. For thirty thousand dollars today, you might end up paying out, say, two per cent of your income for the next five years. Economists call this kind of deal a human-capital contract. Such contracts sound like a libertarian fantasy—they were popularized by Milton Friedman—but they’ll likely become more common. Other companies, like Lumni and Pave, are doing similar things, and the demand is there, because the biggest challenge that young Americans face these days is debt. Student-loan debt is $1.2 trillion, thanks to the rising cost of college and dwindling state support for education. The average college graduate in 2012 owed twenty-seven thousand dollars in student loans, and people who go to graduate or professional schools usually owe far more than that. The average twentysomething owes forty-five thousand dollars. Getting the money to start a business, meanwhile, seems harder than ever. A Kauffman Foundation study found that almost sixty per cent of small businesses rely on credit cards to finance their operations.

The Prophet - Every week, at least six million people tune in to The Dave Ramsey Show on the radio. The program, which is wholly owned by Ramsey’s private company, the Lampo Group, airs on more than 500 stations. It has been called the “most listened to non-political talk radio show” in America. Then there are Ramsey’s frequent stage shows, which he delivers to audiences of thousands in stadiums and megachurches like the one in Texas. And finally there’s Ramsey’s Financial Peace University, a hugely popular video-based course that lays out his trademark, biblically inspired approach to debt and money in nine facilitated sessions. It convenes in weekly meetings at evangelical churches and on military bases across the country. There’s also the occasional series run at a hospital or jail. So what does Ramsey have to say to these millions of people? On the subject of debt, his advice can be summed up in one word: abstinence. Just say no, Ramsey says, to credit cards. No to student loans. No to anything you cannot afford with cash, with the exception of a fixed-rate 15-year home mortgage. Lenders, he says, are a scourge on the American public, and borrowers are their slaves. “Debt has so sunk its claws into our culture, we believe we are here to work, play, make payments, and die,” he told his rapt audience in Houston. “It’s a life of desperation. You feel like a gerbil in a wheel. We borrow … then everything hits the wall: the marriage, the kids. It’s a NASCAR car crash.”

Retail Sales declined 0.1% in September - On a monthly basis, retail sales declined 0.1% from August to September (seasonally adjusted), and sales were up 3.2% from September 2012. From the Census Bureau report:The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $425.9 billion, a decrease of 0.1 percent from the previous month, but 3.2 percent above September 2012. ... The July to August 2013 percent change was unrevised from +0.2 percent. This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales are up 28.5% from the bottom, and now 12.6% above the pre-recession peak (not inflation adjusted) Retail sales ex-autos increased 0.4%. Excluding gasoline, retail sales are up 25.6% from the bottom, and now 13.1% above the pre-recession peak (not inflation adjusted). The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail sales ex-gasoline increased by 4.1% on a YoY basis (3.2% for all retail sales). This was slightly below the consensus forecast of no change for retail sales, however sales ex-autos were at forecast.

A Drop In Auto Purchases Pinches Retail Sales In September - If you ignore the 2.2% decline in auto sales last month, today’s update on September retail sales looks ok. But cherry-picking the numbers offers a thin if not misleading veil of comfort at the moment. Indeed, the year-over-year change in retail spending dipped last month to a rate that’s close to the slowest pace in three years. Is this a sign of trouble? No one really knows at this point. It’s possible that all the talk last month of a government shutdown and the possibility of a Treasury default skewed the data. Some optimists also reason that the relative shortage of shopping days last month is a factor. Deciding what’s really going on will take a few more monthly updates to sort it all out. Meanwhile, there’s enough weakness in today’s data if you include auto numbers to keep the crowd wondering what happens next. Looking at the headline numbers on a monthly basis certainly provides no comfort. Indeed, the September profile appears to be the latest in a string of deteriorating monthly updates that’s left us in a shallow hole, as the chart below shows.  Far more troubling is the sight of the year-over-year change slipping dangerously close to the lowest gain since 2010. September’s annual growth in retail spending is effectively tied at 3.2% with March’s increase and both months share the dark distinction of dipping to the lowest point since August 2010. The margin of comfort, in sum, is wearing thin. Granted, a 3.2% rise isn’t horrible. But given the change in the direction of late, it’s reasonable to wonder if that moderate pace is headed for lower still.

Retail Sales Down -0.1% on Autos for September 2013  - September 2013 Retail Sales decreased by -0.1% on auto sales, which plunged -2.4% from the previous month.  Motor vehicle dealers sales have still increased 5.8% from a year ago.  Without all motor vehicles & parts sales, September retail sales would have shown a 0.4% increase.  Retail sales on the whole have only increased 3.2% from a year ago, although the quarter shows a 4.5% increase in comparison to Q3 of the previous year.   Retail sales are reported by dollars, not by volume with price changes removed.  Retail trade sales are retail sales minus food and beverage services.  Retail trade sales includes gas, and is down -0.2% for the month and has increased 3.1% from last year.  People are shoppin' less it seems. Total retail sales are $425.9 billion for August.  Below are the retail sales categories monthly percentage changes.  These numbers are seasonally adjusted.  General Merchandise includes super centers, Costco and so on.  Online shopping making increasing gains, increasingly important in overall retail sales.  Online shopping continues to expand as nonstore retail sales have increased 8.9% from last year. Below is a graph of just auto sales.  We see how the recession just decimated auto sales and also how autos have had a pretty good run since that time.  Notice the recent downturn in auto sales.  While auto manufacturers have warned the government shutdown would slow sales, it is unclear why sales declined.  Some are quoted as claiming a supply shortage while others are blaming less shopping days in September, which hardly seems to be reality considering labor day was on the 2nd.

September Retail Sales Come In Line With Expectations As Unclothed Americans Buy iPads -- The total Seasonally Adjusted retail sales for September dipped modestly by 0.1%, on expectations of an unchanged print. Excluding autos the number was exactly in line with expectations at 0.4%, while ex autos and gas was also a very modest miss of 0.4% vs Exp. 0.5%. Still, hardly bad enough to send the S&P500 futures into the stratosphere. The biggest outliers by business category were motor vehicles which tumbled -2.2 in September, the biggest decline since October 2012 (did the US government suddenly stop making NINJA loans?), Miscellaneous stores and Clothing stores, down 1.2% and -0.5% respectively, while electronics and appliance stores rose 0.7% in September. In short: Americans may have no clothing as we enter the winter season, but at least they have the new iPad. So while noted the number was hardly bad enough to send stocks surging, the ES-leading EURJPY pair seems to have found a third-wind bid in an attempt to expand the S&P500 multiple by at least another 0.1-0.2x today: could it be that algos just noticed that unadjusted retail sales tumbled by 9% from August to September.

September Advance Retail Sales Disappoint, But Core Sales Were Fine - The Advance Retail Sales Report released this morning shows that sales in September came in at -0.1% month-over-month, a decline from August's 0.2%. Today's headline number came below the Investing.com forecast of a 0.1% gain. Core Retail Sales (which excludes Autos) were up 0.4%, an increase from last month's 0.1%. Investing.com was spot-on in their forecast for 0.4%.  The first chart below is a log-scale snapshot of retail sales since the early 1990s. I've included an inset to show the trend in this indicator over the past several months. Here is the Core version, which excludes autos. Here is a year-over-year snapshot of overall series. Here we can see that the YoY series is off its peak in June of 2011 and has been relatively range-bound since April of last year. Here is the year-over-year performance of at Core Retail Sales. Here is an overlay of Headline and Core Sales since 2000.Bottom Line: The Advance retail sales came in weaker than expected, but the core number met the Investing.com forecast. The overall year-over-year trend for both headline and core has been weakening since mid-2011.

Retailers Brace for Reduction in Food Stamps - WSJ.com - Retailers and grocers are bracing for another drain on consumer spending when a temporary boost in food-stamp benefits expires Friday. The change will leave 48 million Americans with an estimated $16 billion less to spend over the next three years and comes just months after the expiration of a payroll tax cut knocked 2% off consumers' monthly paychecks. On the business side of the equation, the cuts will fall particularly hard on the grocers, discounters, dollar stores and gas stations that depend heavily on low-income shoppers. Weak spending in that stressed consumer segment has already led retailers including Wal-Mart Stores Inc. & Target Corp. position to lower their sales forecasts for the rest of the year ahead of holidays. Food stamp use started to soften at Kroger's stores in late August and early September, the company said. But it expects consumers to make up for the cuts by using more cash to buy their groceries and is sticking to projections of 3% to 3.5% same-store sales growth this year, Chief Executive David Dillon said. Enrollment in food-stamp benefits surged during the recession and in its wake, increasing by 70% from 2007 to 2011 before leveling off. The government's stimulus program increased Supplemental Nutrition Assistance Program, or SNAP, benefits across the board by 13.6% in 2009.As that temporary increase expires on Friday, benefits for a family of four receiving a maximum allotment will drop by 5.4%, the equivalent of about $36 a month, or $420 a year, according to the U.S. Department of Agriculture.

U.S. Light Vehicle Sales decline to 15.17 million annual rate in October - Based on an estimate from WardsAuto, light vehicle sales were at a 15.17 million SAAR in October. That is up 5.9% from October 2012, and down slightly from the sales rate last month. Some of the weakness in October was related to the government shutdown. This was below the consensus forecast of 15.4 million SAAR (seasonally adjusted annual rate). This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for October (red, light vehicle sales of 15.17 million SAAR from WardsAuto). This was the lowest sales rate since April, and was probably related to the government shutdown. The growth rate will probably slow in 2013 - compared to the previous three years - but this will still be another solid year for the auto industry. The second graph shows light vehicle sales since the BEA started keeping data in 1967.

GM "Stuffs Channels" At Fastest Pace In Its Post-Bankruptcy History; Volt Sales Plunge 32% -- Moments ago, General Motors reported its October domestic car deliveries number, which at 226,402, was 31K better, or 15.7% higher, than the 195,674 from a year earlier, better than the 7.9% increase expected. Unlike the ISM, GM was quick to point the counterfactual, namely that sales picked up because, you guessed it, confidence returned once the government reopened in the second half of the month. "Chevrolet, Cadillac and Buick-GMC all performed well in the month, and the sales tempo really picked up after the government shutdown ended,” said Kurt McNeil, vice president, U.S. sales operations. Apparently, like houses, Americans just can't buy cars if the government isn't around to hold their hand. Joking aside, one thing that was not mentioned in the otherwise blemish-free GM sales report, is that the biggest reason for the surge in GM "deliveries" was because the car company once again resorted to that old faithful gimmick: dealer channel stuffing. At 728K units in dealer inventory at month end, or 87 days supply, this was the highest number since March 2013, but far more disturbing, the monthly rate of increase was the highest since GM's emergency as a "new" company from bankruptcy. And just to complete the picture, combining the past two month channel stuffing, we get 99,168 GM cars parked at dealer lots: the biggest two month jump in the restructured company's history.

Planned Obsolescence, as Myth or Reality - The new iPhone is out. That means, as I wrote in a column for the coming issue of The New York Times Magazine, that conspiracy theories again abound about ways that older models start to become more unattractive and dysfunctional around the time that a shiny new upgrade is available.Among the evidence that Apple is supposedly engaging in the great capitalist sin of “planned obsolescence” — that is, deliberately limiting the useful life of a product so that consumers will be forced to replace it – is the slowing of older models. The iPhone 5S and 5C models coincided with a release of a new iPhone operating system, which happens to make the iPhone 4 and 4S very sluggish. When my iPhone 4 notified me that the operating system was available for download, there was no warning that the software might affect the speed of my model. There’s also the matter of the battery, which, like all rechargeable batteries, has a finite number of charges and generally runs down much faster by the time service providers offer a subsidized upgrade. Apple makes it difficult for customers to remove and replace iPhone batteries at home, since the batteries are sealed into the phone body with special five-point screws. Having your battery replaced by Apple instead costs $79, just $20 less than the typical subsidized price for a new iPhone 5C. These are ways in which your old phone looks unattractive not only compared with the new models, but compared with itself just a year or two earlier.

Producer Price Index: YoY Headline Inflation Is Down, Core Unchanged - Yesterday's release of the September Producer Price Index (PPI) for finished goods declined -0.1% month-over-month, seasonally adjusted, in Headline inflation Investing.com had posted a MoM consensus forecast of 0.2%. Core PPI rose 0.1% from last month, which matched the Investing.com forecast.  Year-over-year Headline PPI is up only 0.30%, a drop down from last month's 1.38%. The 1.20% Core PPI, unchanged from the past two months, remains at its lowest YoY since June 2010. Here is the essence of the news release on Finished Goods: In September, the 0.1-percent decline in the finished goods index is attributable to prices for finished consumer foods, which fell 1.0 percent. By contrast, the indexes for finished energy goods and for finished goods less foods and energy moved up 0.5 percent and 0.1 percent, respectively.  Finished foods: Prices for finished consumer foods fell 1.0 percent in September, the largest decline since a 1.0-percent decrease in April 2013. A 17.9-percent drop in the index for fresh and dry vegetables accounted for two-thirds of the September decline. Lower prices for carbonated soft drinks and processed poultry also contributed to the decrease in the finished consumer foods index. (See table 2.) Finished energy: The index for finished energy goods advanced 0.5 percent in September following a 0.8-percent rise in August. One-third of the September increase is attributable to a 6.0-percent jump in the index for home heating oil. Higher prices for residential natural gas also were a factor in the advance in the index for finished energy goods.  Finished core: The index for finished goods less foods and energy inched up 0.1 percent in September after no change in the prior month. A 0.6-percent increase in prices for motor vehicles led the advance in the finished core index.   More... Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. As we can see, the YoY trend in Core PPI (the blue line) declined significantly during 2009 and stabilized in 2010, increase in 2011 and then began falling in 2012. Now, as we move toward the last quarter of 2013, the YoY rate is about the same as in mid-2010. The more volatile Headline number is the lowest since the early months of the recovery from the Great Recession.

Wholesale Prices in U.S. Unexpectedly Fall as Food Costs Ebb -  Wholesale prices in the U.S. unexpectedly dropped in September as food costs retreated, an indication inflation remains tame. The 0.1 percent decrease in the producer price index followed a 0.3 percent gain the prior month, a Labor Department report showed today. The median estimate in a Bloomberg survey of 80 economists called for a 0.2 percent advance. The so-called core measure, which strips out volatile food and fuel, increased 0.1 percent after being unchanged in August.  Soft global demand has limited cost increases for raw and finished materials, restraining the pricing power of U.S. companies. That’s helping to hold the line on inflation, which the Federal Reserve sees running below its 2 percent objective in the near-term, giving policy makers room to maintain monetary stimulus when they meet this week.

CPI Drops, Misses By Most In 14 Months -- If there was another reason for the Fed to keep its foot 'through' the floor, it is the fact that despite a record growth in the Fed balance sheet YoY, CPI (ex food and energy) dropped to 1.7% and missed by its biggest margin in 14 months. This is the 2nd lowest print in two-and-a-half years. Perhaps most dismally, real hourly wages rose at only 0.9% year-over-year - around half the rate of inflation. Overall, energy costs rose the most MoM (+0.8%) while Apparel fell 0.5% MoM (its biggest drop in 6 months as we suspect the JCP-driven sales deflation has begun already); and given Sebelius' testimony today we note that healthcare costs are up 2.4% YoY (almost triple the rate of wage increase). CPI YoY Ex Food and Energy saw its biggest miss in 14 months... As overall CPI also dropped with Energy and utilities costs rising the most...

Retail gas prices hit lowest level of 2013: AAA The average U.S. price for a gallon of regular unleaded gasoline stood at $3.28 on Monday, the lowest price of 2013, according to AAA. The motorist and leisure travel group also said it expects gas prices to fall even further, approaching the end of the year "as sufficient, flat demand, the shift to cheaper winter-blend gasoline and falling crude-oil prices likely mean cheaper prices at the pump."

Consumer Confidence Falls Sharply - — U.S. consumer confidence fell sharply in October as consumers turned gloomier in their outlook for the future, according to a private sector report released on Tuesday. The Conference Board, an industry group, said its index of consumer attitudes dropped to 71.2 in October from a revised 80.2 in September, previously reported as 79.7. Economists had expected a reading of 75.0 in October. The expectations index also sank, down to 71.5 in October from a revised 84.7 in September. Consumers were also less optimistic about their current standing, with the present situation index down to 70.7 in October from a revised 73.5 in September.

Consumer Confidence Decreases Sharply in October - The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through October 17. The 71.2 reading was below the 73.1 consensus reported by Briefing.com and 9.0 below the September 80.2 (previously reported at 79.7). The index is at its lowest level since April. The government shutdown was clearly the key driver in the plunge. Here is an excerpt from the Conference Board report."Consumer confidence deteriorated considerably as the federal government shutdown and debt-ceiling crisis took a particularly large toll on consumers' expectations."  Consumers' assessment of current conditions declined moderately. Those claiming business conditions are "good" decreased to 19.0 percent from 20.7 percent, however, those claiming business conditions are "bad" edged down to 23.0 percent from 23.9 percent. Consumers' appraisal of the job market was less favorable than last month. Those saying jobs are "plentiful" was virtually unchanged at 11.3 percent from 11.4 percent, while those saying jobs are "hard to get" increased to 35.8 percent from 33.6 percent.  Consumers' expectations, which had softened in September, decreased sharply in October. Those expecting business conditions to improve over the next six months fell to 16.0 percent from 20.6 percent, while those expecting business conditions to worsen increased to 17.5 percent from 10.3 percent.  Consumers' outlook for the labor market was also more pessimistic. Those anticipating more jobs in the months ahead decreased to 15.3 percent from 16.1 percent, while those anticipating fewer jobs increased to 22.7 percent from 19.1 percent. The proportion of consumers expecting their incomes to increase rose to 15.8 percent from 15.1 percent, however, those expecting a decrease rose to 15.4 percent from 13.9 percent.   [press release]

Consumer Confidence Plunges Most In 2 Years - Following the lowest UMich confidence print in 2013, Gallup's economic confidence collapse, and Bloomberg's index of consumer comfort signaling major concerns among rich and poor in this country (in spite of record highs in stocks), today's Conference Board Consumer Confidence data  continues to confirm a problem for all those 'hoping' for moar multiple expansion. From 80.2 in September, confidence collapsed to 71.2 (the largest MoM drop in 2 years) to its lowest in six months, and notably below expectations. As we have noted in the past a 10 point drop in confidence has historically led to a 2x multiple compression in stocks (which suggests the Fed will need to un-Taper some more to keep the dream alive). Hope for the future dropped to 7-month lows but what is perhaps most intriguiging, just as with the Bloomberg surveys, we are seeing the wealthiest cohorts confidence plunging (even as stocks soar to new highs). It would appear the Fed has lost its wealth effect inpiration.

Weekly Consumer Comfort Index Tumbles To Lowest Since October 2012 - If US consumers were miraculously supposed to regain all their confidence when the government reopened (even if companies completely ignored said shutdown according to the epic jump in the Chicago PMI - the biggest jump in 30 years), so far that has failed to happen based on the latest weekly Bloomberg consumer comfort index, which moments ago hit -37.6 down from -36.1 a week earlier, its lowest print since October 2012. With this drop the index has extended its five-week retreat that accelerated during the federal government’s partial shutdown and has slowed – but not stopped – in the two weeks since. Today the index is 21.3 points worse than its long-term average and 6.3 points worse than this year’s average. And what is more worrisome for The Fed, they have lost "the rich" as the comfort of the highest income survey participants has fallen to its lowest in 7 months - collapsing back to its 'normalized' divide with the 'poor'.

If Prices Go Up, Incomes May Lag - My Sunday article about  the benefits of moderate inflation drew a lot of skeptical responses, many about the premise that rising prices would lead to rising wages. This is an old and well-established concern. “People dislike inflation because they assume that wages will not keep pace,” Robert Shiller wrote in a 1996 paper describing the results of a multinational survey. And it is important for two reasons. First, it highlights one of the most powerful arguments against increasing inflation while the economy is weak. If the Fed drives up inflation, prices would rise first. Even if wages follow, the very people who most need help would feel the short-term pain most acutely. It would feel something like a temporary national sales tax. Second, there’s no guarantee that incomes would keep pace with higher inflation. To be clear, inflation by definition increases total income. Someone ends up holding the new money. The question is about distribution: Are workers able to secure the raises necessary to keep pace with inflation, or does the extra money simply pad profits? In some cases, it is clear that incomes will not rise in the short term.

Monthly U.S. Trade Deficit Barely Budged in August 2013 -The U.S. August 2013 monthly trade deficit barely budged from last month, a 0.4% increase and now stands at -$38,803 billion.  America still runs a surplus in services, now at $19.417 billion, but the goods deficit is still massive and this month was -$58.220 billion.  The China trade deficit is on track to hit another annual record and this month maintained it's highs with a not seasonally adjusted -$29.891 billion China trade deficit  The China trade deficit alone was 49% of the not seasonally total goods deficit, on a Census accounting basis.  The U.S. hit a new record annual 2012 $315 billion trade deficit.  The 2013 the trade deficit with China to date is -$207.679 billion with four more months to go.   The below graph shows how highly cyclical the monthly trade deficit with China is.  Country trade statistics are not seasonally adjusted, yet this time last year the 2012 cumulative China trade deficit was -$203.067 billion. 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. In real dollars, or adjusted for inflation, the goods trade deficit is flat with last month as shown in the below graph.  September historically has not shown much change from August, so if we assume a real valued goods trade deficit for September of -$48 billion, the change from Q2 to Q3 would be just -1.0% or very little change from Q2 in the growth of the goods trade deficit.  In Q2, the change in imports and exports basically cancelled each other out resulting in the trade deficit not being a drag on the economy.  Unless there is a September surprise in the monthly trade figures or import/export prices, it is a safe bet than the trade deficit won't be the Q3 GDP bummer as it commonly is.  The government shutdown on the other hand, is expected to negatively impact GDP by 0.3 percentage points of growth lost.

Fed: Industrial Production increased 0.6% in September - From the Fed: Industrial production and Capacity Utilization Industrial production increased 0.6 percent in September following a gain of 0.4 percent in August. For the third quarter as a whole, industrial production rose at an annual rate of 2.3 percent. Manufacturing output edged up 0.1 percent in September following a gain of 0.5 percent in August, and increased at an annual rate of 1.2 percent for the third quarter. Production at mines moved up 0.2 percent in September and advanced at an annual rate of 12.9 percent for the third quarter. The output of utilities rose 4.4 percent in September following declines in each of the previous five months. The level of the index for total industrial production in September was equal to its 2007 average and was 3.2 percent above its year-earlier level. Capacity utilization for total industry moved up 0.4 percentage point to 78.3 percent, a rate 1.9 percentage points below its long-run (1972-2012) average
This graph shows Capacity Utilization. This series is up 11.0 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 78.3% is still 1.9 percentage points below its average from 1972 to 2010 and below the pre-recession level of 80.8% in December 2007. The second graph shows industrial production since 1967. Industrial production increased 0.6% in September to 100.0. This is 19.4% above the recession low, but still 0.8% below the pre-recession peak. The monthly change for both Industrial Production and Capacity Utilization were above expectations. The consensus was for a 0.4% increase in Industrial Production in September, and for Capacity Utilization to increase to 78.0%.

Industrial Production Finally Hits Pre-Recession Levels in September 2013 - The September 2013 Federal Reserve Industrial Production & Capacity Utilization report shows a 0.6% increase in industrial production.  Manufacturing alone barely grew, a 0.1% gain for the month, while utilities roared up by 4.4% after falling for five months in a row.  Mining increased 0.2%.  Industrial production finally reached pre-recession levels this month.  The G.17 industrial production statistical release is also known as output for factories and mines.  The graph below shows industrial production index. Total industrial production has increased 3.2% from a year ago.  For the first time, finally, industrial production is equal to 2007 levels for the total index.   That is six years.  Here are the major industry groups industrial production percentage changes from a year ago.

• Manufacturing: +2.6%
• Mining:             +6.6%
• Utilities:           +2.5%

Manufacturing output alone shows a 0.1% monthly change, yet is still 4.0 percentage points below it's 2007 level average.  Generally speaking factory output is by no means healthy.  Below is a graph of just the manufacturing portion of industrial production. Within manufacturing, durable goods increased 0.5% for the month and the growth was 2.7%, annualized, for Q3.  Motor vehicles & parts output is alive, with a 2.0% monthly gain after August's 5.2% gain.  Machinery also had a good month with a 1.5% increase. Nondurable goods manufacturing decreased by -0.3%,  This is the third month in a row for nondurable goods output to decline.  Nondurables also had a bad quarter, with an annualized decline of -0.3% for Q3.  Printing and support had their largest decline on record, -1.1%.  Seems the paperless society is potentially hitting the printing industry hard.

U.S. Factory Output Rises Just 0.1 Percent in September  — U.S. factories barely boosted their output in September, adding to other signs that the economy was slowing even before the government shutdown began on Oct. 1. Manufacturing production rose only 0.1 percent, the Federal Reserve said Monday. That’s down from a 0.5 percent gain in August, which was slightly lower than previously reported. Automakers boosted their output in September, but the gain was offset by declines at makers of computers, furniture and appliances. Overall industrial production increased 0.6 percent in September, mostly because of a 4.4 percent jump in utility output. Utilities had fallen for five months. But September was unseasonably warm, likely increasing air conditioning use. Mining output, which includes oil production, rose 0.2 percent, its sixth straight increase. Factory output is the largest component of industrial production. It had shown signs of rebounding over the summer, raising hopes that factories would help drive economic growth in the second half of the year. But several reports suggest businesses and consumers had both grown more cautious right before the 16-day partial government shutdown. And overall hiring has slowed. Those factors could keep the economy weak until next year.

Manufacturing Production Disappoints As Utilization Rises To 5-Year High - Industrial Production data for September rose by 0.6%, beating expectations by the most in 11 months as pre-government shutdown data was 'helped' by a revision lower in August (from 0.4% to 0.2% growth). Manufacturing production rose only 0.1% (missing expectations of +0.3%) as gains in car makers' output was offset by declines in comptures, furniture, and applicances. Capacity Utilization surged to 5 year highs with its biggest beat of expectations since Dec 2010. All-in-all, a strangely mixzed bag of great and dismal data once again... Good enough 'trend' to warrant 'taper'? who knows... but we posit the cyclical trend remains and the government shutdown likely renegs some of this better-than-expected data when we see it.

First fall in US manufacturing output since 2009 as the Eurozone pulls ahead - The US government's dysfunction that created tremendous uncertainty recently is now filtering through the economy. The impact on manufacturing is already visible, as the output of US factories takes a dive in October. Chris Williamson (Chief Economist)/Markit: - The flash PMI provides the first insight into how business fared against the backdrop of the government shutdown in October, and suggests that the disruptions and uncertainty caused by the crisis hit companies hard. The survey showed the first fall in manufacturing output since the height of the global financial crisis back in September 2009.  Congratulations go to the elected officials in Washington who helped cause this mess. Just to put into perspective, here is the equivalent indicator for the Eurozone - a group of nations that has been struggling with recession until quite recently. Note that a measure above 50 indicates growth in output, showing that the Eurozone manufacturing output growth is now stronger than it is in the US.

Dallas Fed: Texas Manufacturing Activity Strengthens in October -- From the Dallas Fed: Texas Manufacturing Activity Strengthens Texas factory activity picked up further in October, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 11.5 to 13.3, suggesting output increased at a slightly faster pace than in September. Other measures of current manufacturing activity also indicated a slightly stronger expansion in October. The new orders index came in at 6.2, slightly above its September level, and marked a sixth consecutive month of increased demand. ...The general business activity index remained positive but fell to 3.6 after rising sharply to 12.8 in September. The company outlook index posted a fifth consecutive positive reading but moved down to 5.4.Labor market indicators reflected continued employment growth and longer workweeks. The October employment index was 9.6, largely unchanged from its September level. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Dallas Fed Dumps From 19-Month High; Misses By Most In 6 Months - Last month was all ponies and unicorns as hope was extrapolated that a 19-month high in the Dallas Fed meant this time was different and not entirely cyclical as we have pointed out again and again. Once again it seems the government-budget-based hope has collapsed as even optimism for the future dropped to its lowest in 4 months. This is the biggest miss of expectations on six months and the lowest print in 5 months. Reflecting the margin pressures that we discussed previously, prices received dropped dramatically as price paid soared.

Chicago PMI increases sharply to 65.9 -- From the Chicago ISM:  The October Chicago Business Barometer rose to 65.9 in October from 55.7 in September, led by double digit gains in New Orders, Production and Order Backlogs. October’s gain placed the Barometer at the highest level since March 2011 with companies seemingly unaffected by the government shutdown. New Orders soared to their highest level in nine years, adding to two prior months of gains while Production expanded to its highest level since February 2011. Order Backlogs leapt out of a contractionary phase to the highest since March 2011. In line with expansion in New Orders and Production, Employment rose to its highest since June 2013, but remained well below the level of New Orders and Production.This was well above the consensus estimate of 55.0. 

Chicago PMI Explodes Most On Record To 31-Month High; Biggest Beat Ever -  Chicago, it would seem, felt not just no bad impact from the government shutdown (that so many asset managers and CEOs have proclaimed as the reason for any slowdown - and the need to avoid a Taper) but it roared to its highest since March 2011. This blew expectations away by the most on record (8-sigma). New orders are at the highest level since October 2004. October’s advance in the Barometer was its biggest monthly increase in over 30 years and only the third time in the past decade the Barometer has risen for four consecutive months. US equities are not happy about this apparent 'taper-on' improvement (and have dropped 8 points on the release) - though it appears seasonals are playing a major part.

Vital Signs: Midwest Manufacturers Produce October Surprise -- Surveys of purchasing managers in Chicago and Milwaukee show factory activity was strong in October. The Chicago business barometer jumped 10.2 points to 65.9, the highest reading since March 2011. The Milwaukee purchasing managers’ index increased to 57.1, the best since June 2012. In Chicago, respondents said the activity jump was linked to inventory replenishment and increased customer demand (new orders are at highest level in 9 years). In Milwaukee, new orders and production were up strongly. While the gains, especially in Chicago, may overstate the strength in the factory sector, the solid readings in the Midwest open the door for the national Institute for Supply Management’s PMI report, scheduled for Friday, to beat expectations for slightly slower growth in October.

U.S. Manufacturing Expands at Best Pace in 2 ½ Years — U.S. factory activity expanded in October at the fastest pace in 2 ½ years, suggesting businesses kept spending last month despite the partial government shutdown. The Institute for Supply Management, a trade group of purchasing managers, says its manufacturing index rose in October to 56.4. That’s up from 56.2 in September. A reading above 50 indicates growth. It was the fifth straight gain for the index. A measure of new orders rose slightly, while a gauge of production fell but remained at a high level. Factories added jobs, though at a slower pace than the previous month.

ISM Manufacturing Index Inches Higher For October - Manufacturing output surprised the crowd with an upbeat number in today’s ISM Manufacturing report for October. This cyclical slice of the US economy expanded a slightly faster rate last month, according to ISM's index, leaving this benchmark at 56.4--its highest level in 2-1/2 years. That's something of a shock vis-a-vis the consensus forecast, which warned of a substantial decline for this benchmark to 55.0. That overall prediction from economists contrasts with yesterday’s econometric projection on these pages that anticipated a steady reading for today's October’s release by way of a slight uptick to 56.3.   But the larger message is that it’s important to consider what the data implies when considering how future economic reports will stack up. Subjective analytics by dismal scientists have a useful role when looking ahead, but there’s also a good case for starting with a relatively objective foundation by letting the data speak for itself. That's hardly flawless, even if the last two projections suggest otherwise, although it's not chopped liver either. But let’s leave the finer points of forecasting for another day and consider today’s ISM report.  Clearly, the news du jour is encouraging, although it also comes with plenty of caveats. The headline ISM Manufacturing Index inched higher in October to levels last seen in early 2011. It’s tempting to take the numbers at face value and declare that all’s well in the land of macro. But a closer look at today’s report suggests a bit more caution is in order. In particular, the employment component slipped, as the chart below shows. True, it’s a mild retreat, although this week’s soft numbers on private payrolls for October via ADP also suggest that the economy’s forward momentum on the all-important issue of creating jobs is still stuck in low gear.

ISM Manufacturing Index Rose 0.2% in October - Today the Institute for Supply Management published its October Manufacturing Report. The latest headline PMI at 56.4 percent is an increase from 56.2 percent last month and is the best reading since April 2011, thirty months ago. Today's number beat the Investing.com forecast of 55.0. Here is the key analysis from the report:Manufacturing expanded in October as the PMI™ registered 56.4 percent, an increase of 0.2 percentage point when compared to September's reading of 56.2 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.  A PMI™ in excess of 42.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the October PMI™ indicates growth for the 53rd consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the fifth consecutive month. Holcomb stated, "The past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through October (53.3 percent) corresponds to a 3.5 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI™ for October (56.4 percent) is annualized, it corresponds to a 4.4 percent increase in real GDP annually." Here is the table of PMI components.

ISM Manufacturing index increases in October to 56.4 - The ISM manufacturing index indicated faster expansion in October. The PMI was at 56.4% in October, up from 56.2% in September. The employment index was at 53.2%, down from 55.4%, and the new orders index was at 60.6%, up from 60.5% in September. From the Institute for Supply Management: October 2013 Manufacturing ISM Report On Business® Economic activity in the manufacturing sector expanded in October for the fifth consecutive month, and the overall economy grew for the 53rd consecutive month, . "The PMI™ registered 56.4 percent, an increase of 0.2 percentage point from September's reading of 56.2 percent. The PMI™ has increased progressively each month since June, with October's reading reflecting the highest PMI™ in 2013. The New Orders Index increased slightly in October by 0.1 percentage point to 60.6 percent, while the Production Index decreased by 1.8 percentage points to 60.8 percent. Both the New Orders and Production Indexes have registered above 60 percent for three consecutive months. The Employment Index registered 53.2 percent, a decrease of 2.2 percentage points compared to September's reading of 55.4 percent. The panel's comments are generally positive about the current business climate; however, there are mixed responses on whether the government shutdown and potential default have had any effect on October's results." Here is a long term graph of the ISM manufacturing index. This was above expectations of 55.0% and suggests manufacturing expanded at a faster pace in October.

Manufacturing ISM Prints At Highest Since April 2011; "No Impact From Government Shutdown" - So much for the government shutdown - as one of the just released manufacturing ISM respondents so candidly put it, "The government shutdown has not had any impact on our business that I can determine, nor has it impacted any supplier shipments." And speaking of the ISM itself, it naturally rejected everything that the Markit PMI noted, and printed at 56.4, beating expectations of a 55.0 print, the 5th beat in a row, and the highest print since April 2011. Sadly, it was not 66.4 or 76.4 to at least partially "confirm" the Chicago ISM surge. So while virtually all ISM components rose, with exports spiking by 5 points to 57.0, it was the employment index that dipped yet again, from 55.4 to 53.2, the lowest since June, but in the New Normal who needs jobs when one has Schrodinger diffusion indices to confuse everyone on a daily basis. Either way, while stocks did not like yesterday's exploding Chicago PMI and dipped on fears of a December taper, today's 2 years ISM high is one of those good news is good news instances, and ES soars as usual. In chart format:

ISM Manufacturing PMI Another Year High, 56.4% for October 2013 - The October ISM Manufacturing Survey shows PMI increased 0.2 percentage points to 56.4% to another year high.  Seems the survey results held in spite of the economic sabotage government shutdown although production figures declined by -1.8 percentage points.  Increases in Inventories and slowing Supplier Deliveries is the reason PMI increased.  The ISM manufacturing index is important due to manufacturing's economic multiplier effect.  While manufacturing is about an eighth of the economy, it is of scale and spawns all sorts of additional economic growth surrounding the sector.  PMI is a composite index using five of the sub-indexes, new orders, production, employment, supplier deliveries and inventories, equally weighted.  This is a direct survey of manufacturers and every month ISM publishes survey responders' comments.  Comments were varied with textile products proclaiming business is booming to some manufacturers reporting the government shutdown affected them to some mentioning big box stores were giving discounts on their products, thus boosting their sales.  New orders increased -0.1 percentage points to 60.6%.  This is strong growth, the index is in the 60's, and staying there.  Below is the correlation with the Census Bureau. A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders.The Census reported September durable goods new orders increased by 3.7%, where factory orders, or all of manufacturing data, will be out later this month, but note the one month lag from the ISM survey.  Additionally, due to the shutdown, we only have new orders for all manufacturing up to July due to the shutdown, August and September will be released on November 4th.  The ISM claims the Census and their survey are consistent with each other. 

Vital Signs: Factories Are Booking More Orders - U.S. factory order books are growing fatter, like a goose destined for the Christmas buffet. The Institute for Supply Management says its new orders index stood at 60.6 in October, establishing a three-month string of 60-plus reading, the best performance since early 2011. Despite slowdowns abroad, export demand has expanded this year and improved to its best level in more than a year. With new orders flowing in, factories in October reported an increase in their order backlogs. Growing unfilled orders should support growth in production and the improved employment readings. After the ISM employment index struggled in the second quarter, it has returned to expansionary territory. The positive job reading hints that when the Labor Department releases its delayed October payrolls report on November 8, the numbers will show factory jobs increased again—if only a bit—last month.

Markit PMI shows "modest" manufacturing expansion in October - The Markit PMI is at 51.8 (above 50 is expansion). This was down from 52.8 in September, and up from the October flash reading of 51.1. From MarkIt: PMI at one-year low, as output growth eases sharply The U.S. manufacturing sector grew at its slowest rate for a year in October, according to the final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™). At 51.8, down from 52.8 in September, but above the earlier flash estimate of 51.1, the PMI suggested that the rate of expansion was only modest....Manufacturing employment in the U.S. rose for the fourth consecutive month in October. Overall, the rate of job creation accelerated to a moderate pace, but was nonetheless weaker than at the start of the year. “While better than the earlier flash reading, the final PMI data indicate that the U.S. manufacturing sector ground to a near standstill in October.

Final US Manufacturing PMI Prints At Lowest In One Year, Makes Mockery Of Chicago "Data" -- If anyone needed confirmation that yesterday's soaring Chicago PMI data (to the highest since March 2011) was a typical "Made In Chicago" fabrication, then look no further than today's final MarkIt US Manufacturing PMI, which instead of soaring as its Chicago counterpart, tumbled from 52.8 to 51.8, the lowest print since October of 2012 as the report indicated "only modest improvement in business conditions", "output growth weakest for over four years", and "new orders increasing at the slowest pace since April." Then again, in the New Normal world in which data reports separated by 24 hours are expected to indicate diametrically opposite things, this is quite normal, and if nothing else, absolutely bullish. Why? Who knows, but cratering Manufacturing Output is surely beneficial to the stock market, if not the actual economy.

U.S. Manufacturing: Output Steady, Jobs Slide - Serious discussion of the U.S. manufacturing sector is based on three claims:
1) If you measure the output of the U.S. manufacturing sector in terms of the value-added in that sector, there is no trend up or down in recent decades. As Lawrence and Edwards write: "Measured in 2005 dollars, manufacturing share of gross US output was 17.5 percent in 1947 and 17.3 percent in 2005. Between 1947 and 2005 the share averaged 17.3 percent and was essentially trendless ..." Value-added is calculated by taking the total revenues of a firm and then subtracting the value of purchased inputs of goods and services: thus, it includes not only profit but costs of labor and depreciation incurred by the firm itself in the course of production.
2) The number of jobs in manufacturing has fallen over time; in particular, the total number of U.S. manufacturing jobs didn't change much in the 1990s, but the U.S. manufacturing sector lost 5.8 million jobs from 2000-2010. However, Lawrence and Edwards point out if you look at the proportion of total U.S. jobs that are in manufacturing, it looks like a straight-line drop over time.
3) The manufacturing sector has a particular importance in any advanced economy. As Lawrence and Edwards write: "[M]anufacturing activity is strongly associated with economic growth, because manufacturing serves as the fulcrum of supply chains that combine and process raw materials and services to produce goods.1 In addition, the sector is among the most dynamic—accounting for about 70 percent of US spending on business research and development—and it regularly outstrips the rest of the economy in productivity growth."

The US capital stock: old and busted, but why? - Two charts and some commentary from Credit Suisse that caught our eye today:US net business investment has rebounded – but, at around 1.5% of GDP, still only stands at the trough levels seen during the past two recessions. As a consequence of depressed levels of business investment over the past six years, the age of the US capital stock is at a record high, pointing to significant pent – up replacement demand.The idea that increasingly obsolescent capital would push up the natural rate of interest and eventually drive an accelerating recovery isn’t new. It just keeps not happening.That doesn’t mean it won’t eventually happen, but those charts are also telling a complicated longer-term story. The peaks reached by net business investment as a share of GDP have been declining in each economic recovery since the early 1980s. And the capital stock had aged to record levels several years before the crisis, with the sharp upward move starting around 2000. This trend also appears to have started even earlier before an interruption in the late 1990s. Combined with the decline in government infrastructure spending throughout the past decade, it’s no wonder that everything feels, in the words of Michael Mandel, “decrepit and worn-out”.

The US Is Quietly Losing Its Innovation Edge to China - I am not a supporter of the faddish idea that America is in decline. Despite all the hullabaloo about the rise of China, the United States still boasts the most formidable military force and the largest, most innovative economy. The past decade, however, has witnessed the rapid erosion of the financial and institutional underpinnings of innovation in the United States. Our free market system rewards risk takers at the expense of the general public, many of our politicians (and the political system itself) seem to have lost their ability to be effective, and our kids lag globally in math and science. Simply, we have been increasingly unable to innovate, compete, and get things done. As Tom Friedman observed, “too many of our poll-driven, toxically partisan, cable-TV-addicted, money-corrupted political class are more interested in what keeps them in power than what would again make America powerful, more interested in defeating each other than saving the country.”

The September Jobs Report (dozen charts) The BLS (after reopening from the government shutdown) released the Employment Situation report for September, leaving the broad landscape of the economic recovery pretty much unchanged. The Great Recession is still casting a long shadow over the labor market as employment growth continues to be anemic and the employment/population and labor force participation remain at the lowest levels in more than thirty years. As we noted in an earlier blog, the weakness in the labor market continues to play against the Federal Reserve’s earlier attempts to provide forward guidance about asset purchases and interest rates based on thresholds for the unemployment rate. Non-farm employment increased by 142,000, below most economist’s expectations. The private sector added only 126,000 jobs, of which 100,000 came from the service sector: the largest gains in Transportation and Warehousing (23.4k), Retail Trade (20.8K) and Temporary Help Services (20.2K). Given that the next report will come out on Friday November 8  (less than a month from this report) and that it will be influenced by the shutdown, it is unlikely to be very informative.While a 142,o00 monthly employment gain is well below ‘normal recovery’ standards, the pace of improvement in the labor market has been consistent now for several years. Most labor market indicators have either returned to their pre-recession levels or are slowly nearing them. Consider the growth in non-farm employment:While the level of employment has not yet reached its pre-Great-Recession peak in nearly six years, it has been climbing steadily. The monthly net employment gain has averaged 179,000 since January 2011. The unemployment rate in September ticked down slightly from 7.3% to 7.2%. Initial claims, obviously affected by the recent shutdown spiked up, but the trend down is also indicative of an consistently improving labor market.Interestingly, labor productivity measured by total output divided by the total number of labor hours looks very similar to all previous recoveries except for the 2001 cycle. Even as employment fell 5% below its peak level, productivity continued to rise.

ADP: U.S. Companies Add Just 130K Jobs in October -— A private survey shows U.S. businesses added just 130,000 jobs in October, as the 16-day partial government shutdown slowed an already-weak job market.Payroll processor ADP also said Wednesday that companies created just 145,000 jobs in September, far below the 166,000 it had reported earlier this month. The job market had been weakening even before the shutdown started Oct. 1. Employers were also worried about a standoff over raising the federal borrowing limit. The September job figures were the fewest for the ADP survey since April. Hiring was especially sluggish among companies with fewer than 500 employees. Job creation at services companies fell to 107,000 in October from 130,000 last month. “The ADP data are pointing to some negative effects from the turmoil in Washington,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics. The shutdown, which began on Oct. 1, led some private contractors that do business with the government to temporarily lay off workers. It also may have prompted some companies to hold off on adding new workers.

ADP: Private Employment increased 130,000 in October - From ADP: Private sector employment increased by 130,000 jobs from September to October, according to the October ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. September’s job gain was revised down from 166,000 to 145,000.Mark Zandi, chief economist of Moody’s Analytics, said, "The government shutdown and debt limit brinksmanship hurt the already softening job market in October. Average monthly growth has fallen below 150,000. Any further weakening would signal rising unemployment. The weaker job growth is evident across most industries and company sizes.” This was a little below the consensus forecast for 138,000 private sector jobs added in the ADP report.  Note: ADP hasn't been very useful in predicting the BLS report on a monthly basis. The BLS report for October will be delayed until next Friday, November 8th, due to the government shutdown

ADP: Slower Payrolls Growth In October - Payrolls increased this month by the smallest amount since April, according to this morning’s update of the ADP Employment Report. The 130,000 gain for October is near the slowest pace of growth in recent years for this data series and so today’s release raises new concerns for the economy’s outlook. “Any further weakening would signal rising unemployment,” says Mark Zandi, chief economist of Moody’s Analytics, which partners with ADP to produce the payrolls data. “The weaker job growth is evident across most industries and company sizes,” he notes in a press release (pdf) that accompanies today’s report. It’s possible that the weak numbers in October are related to the fiscal war that consumed Washington in the first half of this month. “The government shutdown and debt limit brinksmanship hurt the already softening job market in October,” Zandi observes. On the bright side, the year-over-year increase of roughly 1.8% for ADP payrolls endures in the data du jour. This relatively steady annual trend suggests that the recent slide in the monthly comparisons is noise. Nonetheless, next month’s update will be closely watched for a downside crack in the year-over-year change. A sharply lower number, if it comes to that, would provide a more-disturbing sign for the labor market and the economy overall.

The ADP Employment Report Trick or Treat Surprise is 130,000 Jobs - Happy Halloween!  ADP's proprietary private payrolls jobs report have given us all a fright with a gain of only 130,000 private sector jobs for October 2013.  The scary October surprise continues as ADP revised September's job figures down by 21,000 to 145 thousand jobs.  This report does not include government, or public jobs.  While the official BLS employment report and ADP often differ, an ominous government shutdown cloud might well be brewing over America's job market.  Delving deeper into ADP's report, jobs gains were in the service sector were 107,000 private sector jobs, unusually low for the private service sector.  The goods sector gained 24,000 jobs.  Professional/business services jobs grew by 20,000.  Trade/transportation/utilities showed the strongest growth with 40,000 jobs.  Financial activities payrolls lost -5,000 jobs.  Construction work was most of the goods sector job growth with 14,000 jobs added.   Manufacturing gained 5,000 jobs for the month.  Graphed below are the month job gains or losses for the five areas ADP covers, manufacturing (maroon), construction (blue), professional & business (red), trade, transportation & utilities (green) and financial services (orange).  Moody's called it as they see it, the government shutdown hurt way more than previously estimated on private sector job growth.  Zandi is also warning that payrolls gain are so low they cannot keep up with the never ending increasing labor supply growth, hence unemployment can rise.  Thanks Congress!

Vital Signs: Private Hiring Slowed Well Before the Shutdown - Private companies have eased off on adding workers since the summer. Without a reversal, the trend in job growth could be too weak to hold down the unemployment rate. According to payroll processor Automatic Data Processing, private businesses added just 130,000 jobs in October, down from 145,000 slots created in September. Private-sector job gains have been shrinking since June—well before the budget dispute closed the federal government. “Average monthly growth has fallen to below 150,000,” says Mark Zandi, chief economist at Moody’s Analytics that compiles the ADP data, says, “Any further weakening could signal rising unemployment.” That’s because the economy would not be creating enough jobs to absorb new entrants into the labor force who would join the millions still left jobless by the recession. Because of the shutdown, the Bureau of Labor Statistics will not release the official October jobs numbers until November 8. Already, some economists think the shutdown, seasonal factors and general economic weakness could mean total payrolls increased by less than 100,000 this month.

Ratio of Job Seekers to Job Openings Slips Below 3-to-1 for First Time in Nearly Five Years, but Is Still as High as in Worst Month of Early 2000s Downturn: The Job Openings and Labor Turnover Survey (JOLTS) data showed that the total number of job openings increased by 75,000 in August. That, along with the upward revision of 119,000 job openings to earlier data, brought the August level of job openings to 3.9 million. However, there were 11.3 million job seekers in August (unemployment data are from the Current Population Survey and can be found here). That means there were 2.9 job seekers for every job opening in August. In other words, for nearly two out of every three job seekers, there simply were no jobs. August was the first time in nearly five years that the ratio of job seekers to job openings fell below 3.0-to-1, but the level is still extremely high. To put today’s ratio of 2.9-to-1 in perspective, it matches the highest the ratio ever got in the early 2000s downturn (the ratio stood at 2.9-to-1 in September 2003). In a labor market with strong job opportunities, the ratio would be close to 1-to-1, as it was in December 2000 (when it was 1.1-to-1).Furthermore, the improvement in the ratio of job seekers to job openings in this recovery overstates the improvement in job opportunities. Most of the decline in the number of job seekers is because more than 5 million would-be workers are sidelined; they are neither employed nor looking for work due to the weak labor market. These “missing workers” are thus not counted as unemployed, but many will become job seekers when a robust jobs recovery finally begins, so job openings will be needed for them, too. [However, many are older people who are leaving the work force voluntarily.]

Number of the Week: Why Don’t More People Want a Job? -- 34.3%: Share of Americans over age 16 who say they don’t want a job, up from about 30% two decades ago.Americans aren’t just leaving the labor force — those who have left it are drifting further away. Economists studying the labor market have traditionally focused on two types of people: those who have jobs (the employed) and those who are trying to find them (the unemployed). Together, those groups make up what is known as the “labor force.” As close observers of the economy already know, the labor force has been shrinking as a share of the population, a trend that began in the early 2000s, accelerated in the recession and has continued during the weak recovery. The so-called “participation rate” — the share of the population that’s working or looking for work — now stands near a three-decade low. Such measures, however, treat all those out of the labor force as a single group, lumping together retiring Baby Boomers and stay-at-home moms with laid-off factory workers. The Labor Department publishes estimates of “discouraged workers” — those who have given up looking because they can’t find a job — but it uses a narrow definition. Someone who decides to take care of the kids rather than keep looking for work might not count as discouraged — even if the person wants a job and plans to look for one in the future. But in a new paper, economists Regis Barnichon and Andrew Figura divide up those out of the labor force using a simpler standard: whether or not the person says they want a job. And they uncover an interesting previously unnoticed trend: As a share of all those “not in the labor force,” the number of people who want a job has been generally declining since the early 1980s. Three decades ago, more than 10% wanted a job; on the eve of the latest recession, the share dipped below 6%.

Fewer Americans Seek Unemployment Aid for 3rd Week - The number of Americans applying for unemployment benefits fell 10,000 last week to a seasonally adjusted 340,000, a sign that employers are laying off very few workers.The Labor Department said Thursday that the four-week average rose 8,000 to 356,250, the highest since April. The 16-day partial government shutdown and backlogs in California due to computer upgrades inflated the average. Still, a government spokesman said those unusual factors did not affect last week’s first-time applications, which appeared to be free of distortions for the first time in two months. Applications are a proxy for layoffs. They have fallen for three straight weeks and are close to the pre-recession levels that were reached in August. Fewer applications are typically followed by more job gains. But hiring has slowed in recent months, rather than accelerated. The economy added an average 143,000 jobs a month from July through September. That’s down from an average of 182,000 in April through June, and 207,000 during the first three months of the year. Hiring likely weakened even further in October because of the shutdown, which ended on Oct. 16. In addition to government contractors, other companies also likely cut jobs, such as restaurants and hotels located near national parks, which were closed. Some economists are forecasting that job gains in October could be 100,000 or less.

Weekly Initial Unemployment Claims decline to 340,000 - The DOL reports: In the week ending October 26, the advance figure for seasonally adjusted initial claims was 340,000, a decrease of 10,000 from the previous week's unrevised figure of 350,000. The 4-week moving average was 356,250, an increase of 8,000 from the previous week's unrevised average of 348,250. The previous week was unrevised at 350,000. 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 increased to 356,250 - the highest level since April. Some of the recent increase was due to processing problems in California (now resolved) and some probably related to the government shutdown. The four-week average will probably decline next week.

Has the Great Recession created behavioral changes in the labor markets? - The US civilian unemployment rate, which clocked at 7.2% last month, has been declining at the fastest rate in nearly two decades. The focus however has been on other labor market indicators. One of those is the employment-population ratio, the proportion of the US working-age population that is employed (discussed here). With declines in the unemployment rate one would expect an increasing fraction of working-age population getting back to work. The ratio however has remained nearly constant since the recession.The dispersion between the two measures is quite clear if one plots them on a year-over-year basis. Most would interpret this divergence as an indicator of Americans leaving the workforce in large numbers, particularly as their unemployment benefits run out. But that's not the full story. The question is whether the Great Recession had created "behavioral changes" in the labor markets. Here are a few points worth addressing with respect to the flows in and out of the workforce (based on recent work by Robert Mellman/JPM):
1. Are people more likely to get discouraged and leave the workforce after the Great Recession than in the past? The answer is quite surprising. The "dropout rate" is actually similar to historical trends. JPMorgan: - Despite the background of high unemployment, drop-out rates of the unemployed are surprisingly similar to prior expansions. 
2. Then why have so many people left the workforce? The answer is simple. Taking roughly the same "dropout rate" as before but applying it to a much larger number of unemployed people than in the past will create a large total "drop-out" pool.

Hey, Americans are working really hard! -- Check this out: Since the end of the Great Recession, Americans are working longer weeks than before, even though paid working hours per week are still at or below their pre-recession levels. JP Morgan economist Mike Feroli explains the discrepancy and what it means for US economic growth:The average workweek has increased in the recovery, even though workers may not be getting paid for staying late or showing up early. The workweek can’t increase forever, at least it can’t go beyond 168 hours. A leveling off of the workweek at current levels would remove a source of output growth, and measured productivity growth would come down.Added to that, if the labor market improves and hiring rates pick up, the fear factor that is keeping workers in their offices nights and weekends may dissipate, and a “take this job and shove it” mentality would pull measured productivity growth even further down. In either case, measured productivity growth will face some headwinds going forward, which means that for a given amount of GDP growth we will need to see a disproportionate increase in hours worked, which will continue to push the unemployment rate lower.

Why It’s a Good Thing More People Are Quitting Their Jobs - Go ahead, tell the boss where to put it. That’s what more Americans are doing, according to an analysis of employment data by the outplacement firm Challenger, Gray & Christmas, Inc.—and it’s a good thing. Why? Labor mobility is one indicator of a strengthening economy. Of the 4.37 million workers who quit in August, more than half were voluntary, which is up 11% over the previous year. “[It] suggests that more are being lured away by other employers or that they are confident enough in their job prospects that they can leave before securing a new position,” said John A. Challenger, the firm’s ceo. Or, they really, really, can’t stand the job they have. In either case, if people are leaving their jobs for better options, either real or perceived, you can bet that money is one of the issues. Real wage growth has been stagnant in the U.S. for a decade, which is one reason our economy continues to putter along, given that consumer spending is such a large component on GDP. Pressure on employers to lift wages ultimately lifts spending.

Still No Evidence Obamacare Is Forcing Large Numbers Into Part-Time Work - One of the most common arguments against President Barack Obama’s signature health law is that it will drive employers to shift from full-time to part-time workers. That’s because the law requires most midsize and larger employers to provide health insurance to employees who work at least 30 hours per week. Some companies say they’re already cutting workers’ hours. As we pointed out last week, there’s little evidence of a broad-based shift, at least so far. Most significantly, there’s been no meaningful increase in the share of workers saying they usually work less than 30 hours at their primary jobs. But some observers have noted that in its data, the Labor Department rounds workers’ hours up to the next whole number. That means someone who works 29.5 hours would be reported as working 30 hours. So if companies are cutting workers’ hours back to just under the 30-hour cutoff — as some report doing — it might not be reflected in government statistics. But if that’s happening, it isn’t showing up in the data. About 5 million Americans reported working exactly 30 hours per week in their primary job in September, or a bit under 4% of all workers. That figure has been largely unchanged for the past two years. And the share of employees working 30 hours or less has actually trended slightly downward over the past year.

Average Job Creation "Cost" In 2013: $553,000 There was a time when the Fed's QE was, at least on paper, supposed to generate jobs (the broad inflation will come on its own, in due course). After all, the prospect of injecting $85 billion in liquidity into a market with the sole goal of pushing the stock markets that benefit the purchasing power of about 10% of the population would hardly have received broad approval even by the co-opted Congress. So, to all those who still naively claim Fed is not the sole reason for the market's relentless march higher, those billions in liquidity must go into the economy, and specifically into job creation, right?  As a result, we decided to back into what the average private sector job has ended up costing the US population in pure dollar terms (which in turn ultimately manifests itself in terms of unsustainable government debt and pent up inflation) via the Fed's monetary pathway. Well, according to the ADP data released earlier, in which a paltry 130K private sector jobs were created in a month in which the Fed, as always, injected $85 billion, the bottom line came to a whopping $654K per job (since government jobs are always a net drain, we exclude those from the calculation). And taking the average job growth throughout 2013, this number, as can be seen on the chart below, is a laughter-inducing $553K!

Retirees Replaced by Lower Paid Weigh on U.S. Growth - Retired Ford Motor Co. worker Tony Fransetta scrimps on every expense after earning about a third of his previous pay since leaving the auto company in 1990. As millions of baby boomers join Fransetta in retirement, income growth will provide less oomph for the economy in the next 20 years. The labor force that remains will include a growing share of workers with less earning power. Together, the trends will act as a brake on consumer spending, limiting the economy’s long-term growth potential. “If we don’t change, we are grinding to a halt,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $340 billion of assets. “The capability of the economy, its potential to grow, is far less.” Decades of accelerating earnings ended in the last recession, and the outlook for a return to the growth rates of the past is less than promising as more Americans reach retirement age.

For Some, Joblessness Is Not a Temporary Problem - MOST Americans who lose their jobs these days are able to find new ones quickly. But those who do not are likely to remain unemployed for a long time. In some other industrialized countries, long-term unemployment has risen to record levels, even as overall unemployment has begun to decline. “For people who have been out for a long time, it becomes very difficult to get back into jobs. People lose motivation. They lose employment skills.” In the United States, as can be seen in the accompanying charts, the percentage of the labor force that has been out of work for more than a year — and is still seeking employment — is down to 1.9 percent from a peak of 3 percent reached in 2010. But that proportion is still higher than at any time before 2009. More than a quarter of the unemployed workers in the United States say they have been out of work for at least a year, and that does not count those who have given up looking, since they are no longer counted as unemployed. That is down from nearly a third at the peak of the recession, but far higher than it had ever been before the recession that began in 2007. The United States figures on long-term unemployment, while bad by precrisis levels, are actually better than in many other countries. For the euro zone countries, nearly half of those who were unemployed in the second quarter of this year had been out of work for at least a year. In Greece, the figure was 65 percent. Even in prosperous Germany, the figure was 45 percent. In Britain, it was 37 percent.

The Part-Time Employment Story: Fact Versus Fiction: A few days ago my friend Jeff Miller, the CEO of New Arc Investments and mastermind of A Dash of Insight, posted a thoughtful assault on the many financial pundits who have argued that "the big employment theme for this year has been an assertion that new jobs were of low quality and mostly part-time." Jeff included a chart from one of my monthly updates cited in his commentary. Jeff explains: It is pretty obvious from this chart that the part-time story is based upon the recession, not anything that has happened after 2009. We hope that Doug's commentary will soon catch up with the evidence. I was a bit surprised to discover that Jeff considers my recent commentary on the trend in part-time employment to be incongruent with the evidence. My commentary included a close-up chart of full- and part-time employment since 2007 in a section entitled The Impact of the Great Recession. I introduced the chart with the following observations: Here is a closer look [at full- and part-time employment] since 2007. The reversal began in 2008, but it accelerated in the Fall of that year following the September 15th bankruptcy of Lehmann Brothers. In this seasonally adjusted data the reversal peaked in early 2010. Over three-and-a-half years later the spread has narrowed a bit, but we're a long way from returning to the ratio before the Great Recession. And here is close-up chart I was referencing:Has Obamacare kept part-time employment higher than it would have been? Jeff says that "Personally, I think there is some tendency to part-time employment from ObamaCare." That's pretty much what I wrote in my employment update on the topic:

The hollowing-out of the middle class: It's a guy thing - I've been having a hard time getting my head around the 'hollowing out of the middle class' theme that were seeing so much of. What, exactly, does that mean? And is it actually happening? In a Maclean's post a couple of months ago, I tried looking at it in terms of the proportion of the income distribution that was within a certain distance of the median, and this is what I got: If the middle class were hollowing out, I would have expected to see a trend to smaller proportions of incomes 'close' to the median. But I don't see that trend in the data. Soon after that post, Kevin Milligan brought this paper to my attention, which includes these remarkable graphs: The lower right-hand graphs tell a pretty stark tale: for both sexes in the 25 years between 1981 and 2006, the higher you were in the income distribution, the faster your wages were rising. For men, the picture is particularly striking: the only income growth occurred for those above the median. The dynamics are pretty clear: these income distributions were spreading out.

Newt’s revenge: Child labor makes a comeback - But a report being released Thursday suggests Americans dramatically underestimate the scope and ambition of Republicans’ post-2010 push to ratchet workplace laws to the right – involving over a dozen states, a tangled web of under-the-radar coordination, and a broad constellation of weakened protections, from unemployment benefits to child labor laws. “People in any given place, if they’re dealing with a minimum wage repeal in New Hampshire or something, mostly experience that as if it comes from a particular legislator in their state, and it’s explained as a response to the conditions in their state,” report author Gordon Lafer told Salon. “So when you put all the pieces together over the 50 states, one of the things you see is how concerted an effort it is, and how cookie-cutter the legislation is – and how much it’s not being driven by individual legislators, but by a national corporate lobby.” Lafer, a University of Oregon political economist who’s served as a policy adviser in the U.S. House, wrote the paper for the Economic Policy Institute, a D.C.-based progressive think tank whose funders have included foundations and unions.

End corporate welfare for McDonald's. Better yet, raise the minimum wage - You've got to feel for McDonald's. Every time the misunderstood corporation tries to offer its' low-wage employees a hand, it backfires. First the fast food giant was ridiculed this past summer for dispensing helpful budgetary advice to its struggling workers (in a nutshell: get another job). Now the company is in hot water again after a recorded call to its' McResource helpline, in which an employee who reported not being able to make ends meet was advised to sign up for food stamps and other government assistance programs, went viral online.  While it's not news that hugely profitable corporations like McDonald's are only too happy to rely on the American taxpayer to subsidize the non-living wages they pay their workers, (Salgado earns $8.25 an hour) the blasé nature of the phone call still sparked considerable outrage, but not from budget conscious Republicans.  Perhaps I'm being unreasonable, but it seems to me that when Republicans are so vocal about how much they hate government programs like SNAP benefits (aka food stamps) and Medicaid and indeed anything that makes life a little more feasible for low-income or no-income Americans, they should surely be able to work up a small sweat at such a blatant example of the system being gamed. Just last month congressional Republicans voted unanimously to cut $39bn from the food stamp program, and I surely don't have to waste words here outlining their opposition to any form of government subsidized healthcare. Why then, when they have made their objection to welfare programs abundantly clear are they seemingly okay with hugely profitable corporations exploiting these programs while they underpay their workers?

Means-Tested recovery: Over 108,000,000 Americans received means-tested benefits in latest report from Census Bureau, more than are currently employed full-time - The Census Bureau released some interesting data in October.  One of the pieces of data that we knew was coming was the continuing decline of household income.  This decline is in line with the growing income disparity that is occurring in the US.  Another piece of data made this trend abundantly clear.  The comprehensive data showed for the 2011 year that more Americans received means-tested government benefits than actually were employed.  As usual, we can only examine data after the fact and the Census is releasing this data in October of this year.  Yet it gives us a better perspective on what kind of recovery this is.  This information only confirms other trends like the 1 out of 6 Americans on food stamps.  Hard to believe?  Only if you keep your eyes closed to the real status of the economy.This is not a threshold that you want to cross.  According to the Census Bureau 108,592,000 Americans in the fourth quarter of 2011 were recipients of one or more means-tested benefit programs:

The Marginal Tax Rate Mess - After years of partisan debate over marginal tax rates on the rich, it seems we are now destined for even more acrimony over implicit marginal tax rates on the poor. When families receiving such means-tested benefits as food stamps or housing subsidies earn more income, their benefits are reduced. That’s what means-testing means. The reduction in benefits is accurately described as an implicit tax. The only way to avoid such an implicit tax is either to provide universal benefits or no benefits at all. On a fundamental level, means-tested programs represent an uncomfortable compromise between those who want governments to help their citizens, those who don’t, and all those in between. Almost anyone anywhere on the political spectrum would, relieved of opportunities for strategic maneuver, agree that the current configuration of means-tested programs (including the Affordable Care Act) is not nearly as equitable or efficient as it could be. The same criticism should be leveled at the current state of debate over means-tested programs, seldom characterized by open discussion of conceptual differences or clear articulation of basic assumptions. The conceptual mess is, hopefully, easier to clean up than the policy mess. Pursuing this hope, I compare my views with those of my fellow Economix blogger Casey Mulligan, whose views on most matters economic are diametrically opposed to mine.

$5B food stamp cut hits Friday - Poor families across the country will have a harder time stretching their food budgets after Friday, as stimulus funding for the Supplemental Nutrition Assistance Program (SNAP) automatically expires. The 13.6 percent boost in SNAP benefits the American Reinvestment and Recovery Act instituted in April 2009 ends Nov. 1. The Center on Budget and Policy Priorities found that the cuts translate into $29 per month less for an average family of three. They will be left with $319 per year or $1.40 per person per meal, based on cost estimates from the Department of Agriculture's "Thrifty Food Plan."Since the funding increase came from federal dollars, every SNAP recipient will experience reduced benefits. (See GovBeat's maps of SNAP cuts by state and SNAP participation by state and congressional district).  Ending the additional funding will save the government $5 billion in 2014, says CBPP.There's concern, though, that these cuts will affect more than just the 48 million SNAP recipients. CBPP has found that every $5 of food stamps generates up to $9 of economic activity.

America's new hunger crisis - Food activists expect a “Hunger Cliff” on November 1, when automatic cuts to food stamp benefits will send a deluge of new hungry people to places like the River Fund Food Pantry, which are already strained. “I thought we were busy now; I don’t know what it will be like then, because all of those people getting cut will definitely be accessing a pantry,” said Das. “It definitely will be a catastrophe.” Those cuts were never supposed to be catastrophic; instead they were intended to gradually wind food stamp spending back down to normal levels, after boosting them in response to the 2008 financial collapse. In the aftermath of that collapse, as employment stagnated and poverty increased, food stamp use exploded: From a little over 26 million users in 2007 to almost 47 million in 2012, an increase of 77%. At the same time, the average benefits per person rose from $96.18 to $133.41.

SNAP Expenditure Reductions - From CBPP (10/24): The 2009 Recovery Act’s temporary boost in Supplemental Nutrition Assistance Program (SNAP) benefits ends on November 1, 2013, which will mean a benefit cut for each of the nearly 48 million SNAP recipients — 87 percent of whom live in households with children, seniors, or people with disabilities. The November 1 benefit cut will be substantial. A household of three, such as a mother with two children, will lose $29 a month — a total of $319 for November 2013 through September 2014, the remaining 11 months of fiscal year 2014. (See Figure 1.) The cut is equivalent to about 16 meals a month for a family of three ...What are ramifications for expenditures? Figure 1 shows the evolution from 2010 through 2014, including the CBO's February 2013 baseline.Note that the impending drop is pretty steep. It is even steeper after accounting for inflation, as in Figure 2. The House is seeking to cut an additional $40 billion over the next ten years, while the Senate is seeking only $4.5 billion in cuts. [1] What are the macro implications? From the Wall Street Journal:Retailers and grocers are bracing for another drain on consumer spending when a temporary boost in food-stamp benefits expires Friday. The change will leave 48 million Americans with an estimated $16 billion less to spend over the next three years and comes just months after the expiration of a payroll tax cut knocked 2% off consumers' monthly paychecks.  Estimates of the multipliers for SNAP expenditures center around 1.5 [2]. While not a big amount overall, it's just one more bit of fiscal drag (and a particularly uncharitable one paid for by the lowest income groups). But I guess it's important to keep tax rates low for the top income quintile at all costs.

Veterans: Food stamp cuts for veterans ‘unacceptable’ and ‘revolting’ - An estimated 900,000 U.S. military veterans will lose some or all of their Supplemental Nutritional Assistance Program (SNAP) benefits on Friday. According to Think Progress, the program — more commonly known as food stamps — will be cut by $5 billion thanks to budget shortfalls caused by the Nov. 1 expiration of 2009 stimulus funding initiated by President Barack Obama. Veteran pilot and Iraq War soldier Rep. Tammy Duckworth (D-IL) and Jon Soltz, Iraq War Veteran and Chairman of VoteVets.org told Raw Story that the cuts coming Friday are unnecessary and unconscionable. Duckworth called the cuts “unacceptable” and Soltz questioned why Republicans in Congress are so “hell-bent” on hurting people in need. “Cutting assistance to veterans is completely unacceptable,” said Rep. Duckworth. “Congress needs to find ways to cut costs, but compromising our care to veterans is not one of them. We must honor those who served our country and continue to provide the benefits they need. I am hopeful that my colleagues can come together and right this wrong by reinstating funds to the SNAP program to help our veterans.”

As Cuts to Food Stamps Take Effect, More Trims to Benefits Are Expected - Starting Friday, millions of Americans receiving food stamps will be required to get by with less government assistance every month, a move that not only will cost them money they use to feed their families but is expected to slightly dampen economic growth as well. Cuts to the Supplemental Nutrition Assistance Program, popularly referred to as food stamps, reflect the lapse of a temporary increase created by the administration’s stimulus program in 2009. They are slated to go into effect separately from continuing negotiations over renewal of the federal farm support program, which looks likely to further cut funds for food stamps, which this fiscal year are expected to come to about $76.4 billion. The Republican-controlled House version of the farm bill proposes cutting $39 billion from the program over the next decade; the Democratic-controlled Senate would cut $4 billion over the same period. The food stamp cuts scheduled to go into effect on Nov. 1 will reduce spending by $5 billion in the 2014 fiscal year, and another $6 billion over the 2015 and 2016 fiscal years. They are expected to shave 0.2 percentage point from annualized consumption growth in the fourth quarter of 2013 and trim an estimated 0.1 percentage point off the annual growth rate of the nation’s gross domestic product, according to estimates by Michael Feroli, the chief United States economist at JPMorgan Chase. Those drags may seem small, but right now projections for gains in fourth-quarter gross domestic product hover around an annual rate of just 2 percent.

Slashing the Food Stamps Program - Even as negotiations proceed in Congress over a new farm bill likely to contain a large cut in food stamps, needy Americans who rely on the program are confronting an immediate drop in benefits.As of today, the boost to the federal food stamps program included in the 2009 Economic Recovery Act expires, abruptly slashing benefit levels that were already inadequate for millions of poor children and their families, as well as impoverished disabled and elderly people, who will now find it significantly harder to afford adequate food.The callous Republican obsession with eviscerating the program is only partly to blame. Today’s cut is the product of a shabby deal Democrats made in December 2010, which accelerated the sunset of the benefit increase contained in the economic stimulus plan.  Essentially, Congressional Democrats, cajoled by the Obama White House, gambled that they could restore the lost money before the cut became effective — a convenient but unrealistic bet given that Republicans were about to take control of the House. Anti-hunger advocates expressed concern at the time about the bargain and its potential to seriously hurt food-stamp recipients not too far down the road — a worry, unfortunately, that has now become reality.

Food Stamps Cut To $1.40 Per Meal - One might not think that $11 dollars less per month in food stamps for an individual is not a big deal.  But considering the maximum monthly amount one could have is $200 a month, now $189, it is.  A whopping 15% of the population are on food stamps and now will experience a 5.4% cut in benefits, just in time for the holidays.  As of July 2013, 47,637,407 people were receiving SNAP benefits.  That is one out of 6.6 people in the United States who need food stamps to survive.  As Economist Chinn points out this is a fairly steep cut.  For a family of three receiving maximum benefits, it equates to losing 16 meals a month, a family of four loses 21 meals and this is assuming they can eat on $1.70 a day.  The food stamp cuts mean benefits will average less than $1.40 per meal per person according to the CBPP.  Anyone try to make a meal for $1.40 that is nutritious with all of the food groups?  One small Apple costs 50¢ and one green pepper costs at least 60¢.  In other words, anyone aware of prices knows a good meal cannot be had for $1.40.  The cuts reduce food stamp spending by $5 billion in fiscal year 2014 and these cuts continue to a total of $16 billion by the end of fiscal year 2016.  This means in 2014, a family of four will experience a 5.4% drop in food stamp benefits.  This is dramatic when food stamps do not cover enough food for the month already.  Chinn shows how dramatic the cuts are when accounting for inflation.  Below is his graph showing the sudden decline by showing the inflation adjusted monthly food stamp expenditures for fiscal year 2010 up to July 2013, in blue, against the CBO projected food stamp expenditures for with the cuts, in red.  Chinn assumed a 1.7% annual inflation rate, which is actually low.  In other words if inflation goes to 2.0% as projected, the cuts in terms of real buying power are even more draconian.  As we can see in Chinn's graph, the cliff dive cuts will not just impact millions of people in the United States needing to eat, but the overall economy as well.

Families brace as billions in food stamp cuts set in -- Benefit cuts to food stamp recipients kick in Friday, a move by Congress that will siphon $5 billion off a program that helps one in seven Americans put breakfast, lunch and dinner on the table. As president of the Food Bank for New York City, Margaret Purvis expects those cuts will draw even more people to organizations that already provide 400,000 meals a day to hungry city folks. "Our members are panicking," she said as time wound down before the benefit decreases go into effect. "We're telling everyone to make sure that you are prepared for longer lines." Needy Americans who receive food stamps through the Supplemental Nutrition Assistance Program are expected to suffer an average loss of $36 a month from a $275.13 per household benefit. There are a near-record 47.6 million Americans, representing 23.1 million households, on the program. The cost of the program will hit $63.4 billion in 2013. SNAP allocations built into President Barack Obama’s 2009 stimulus bill are coming to an end, leading to the cuts. Over the past few years, a bipartisan group of Democrats and Republicans have voted in favor of the cuts in exchange for increased education funding and school nutrition programs.

US emergency food providers brace as $5bn food stamp cuts set in - Inside a three-storey yellow brick building in East Harlem, at the north-east corner of Central Park, a brisk operation is under way to put food on the tables of some of the most needy families in the US. Clients place orders in a waiting room in the basement, or online from home, reducing the need for long lines in the cold. One floor up, scores of volunteers pack shopping bags from giant tubs of fresh fruit, vegetables and other foodstuffs. When an order is ready, smiling schoolgirls call the names of clients and hand over the goods. New York Common Pantry (NYCP), the city's largest single-site emergency food provider, served 25% more people in the past three months than in the same period last year. It has 200 volunteers to serve 38,000 individuals. Staff fear the worst is yet to come. "We're bracing ourselves,” says Grimaldi. “We certainly know that we are going to see another increase in numbers by the end of the month." Grimaldi is not alone. Other emergency food providers in the US are preparing for an influx of struggling families across the country who have been warned their Supplemental Nutritional Assistance Program, or Snap benefits, will be cut on Friday. Feeding America, the hunger relief charity, describes the scale of the cuts, $5bn a year, as representing about 2 billion meals a year and warns that the effect will be "close to catastrophic". The US Department of Agriculture estimate there are 47 million people on food stamps, a number that includes 22 million children and 9 million people who are elderly or have a serious disability, according to a recent report by the CBPP. There are 1.9 million people on Snap benefits in New York alone.

Billionaires’ Row and Welfare Lines - The stock market is hitting record highs.  Bank profits have reached their highest levels in years.  The market for luxury goods is rebounding.  A report last week in The New York Times says that developers are turning 57th Street in Manhattan into “Billionaires’ Row,” with apartments selling for north of $90 million each.  And there’s no shortage of billionaires. Forbes’s list of the world’s billionaires has added more than 200 names since 2012 and is now at 1,426. It’s a great time to be a rich person in America. The rich are raking it in during this recovery.  But in the shadow of their towering wealth exists a much less rosy recovery, where people are hurting and the pain grows.  The unemployment rate is falling, but for the wrong reason: an increasing number of people may simply be giving up on finding a job. The labor force participation rate — the percentage of people over 16 who either have a job or are actively searching for one — fell in August to its lowest rate in 35 years.   Measure of America recently released a study finding that a staggering 5.8 million young people nationwide — one in seven of those ages 16 to 24 — are disconnected, meaning not employed or in school, “adrift at society’s margins,” as the group put it.  Median household income continues to fall, according to recent data from the Census Bureau. The data showed, “In 2012, real median household income was 8.3 percent lower than in 2007, the year before the most recent recession.”

A War on the Poor, by Paul Krugman - John Kasich, the Republican governor of Ohio, has done some surprising things lately. First, he did an end run around his state’s Legislature — controlled by his own party — to proceed with the federally funded expansion of Medicaid that is an important piece of Obamacare. Then, defending his action, he let loose on his political allies, declaring, “I’m concerned about the fact there seems to be a war on the poor. That, if you’re poor, somehow you’re shiftless and lazy.”  Republican hostility toward the poor and unfortunate has now reached such a fever pitch that the party doesn’t really stand for anything else — and only willfully blind observers can fail to see that reality.  The big question is why. But, first, let’s talk a bit more about what’s eating the right.  Read the founding rant by Rick Santelli of CNBC: There’s nary a mention of deficits. Instead, it’s a tirade against the possibility that the government might help “losers” avoid foreclosure. Or read transcripts from Rush Limbaugh or other right-wing talk radio hosts. There’s not much about fiscal responsibility, but there’s a lot about how the government is rewarding the lazy and undeserving. Republicans in leadership positions try to modulate their language a bit, but it’s a matter more of tone than substance. They’re still clearly passionate about making sure that the poor and unlucky get as little help as possible, that — as Representative Paul Ryan put it — the safety net is becoming “a hammock that lulls able-bodied people to lives of dependency and complacency.”

Basic Income and the Atavistic Appeal of Austerity - Basic Income, the proposal that the government provide each and every citizen an income sufficient to meet his or her minimal needs, sounds utopian, maybe even ridiculous. Soon it will merely seem impractical and a little later, it will be recognised as obvious, inevitable and necessary. Basic income may well prove to be the best tool to preserve our capitalist system.   These days capitalism and technology have made us so efficient that creating goods and services requires ever less labour.  A dozen workers can make steel it used to take hundreds to produce.  Three men and a tractor can pick as much cotton as 1000 sharecroppers.   The personal computer is doing to office workers what the internal combustion engine did to the horse 100 years ago, making them obsolete.  On the micro level, of course, this is wonderful.  Productivity increases mean you can make more stuff with fewer inputs.  On a macro level, however, it is problematical.  Since my workers are your customers, if I hire fewer workers (or am able to pay them less) they spend less in your shop, which means you buy less inventory and fire some of your workers and this demand deficit ripples through the economy, creating a gap between potential and actual output. A guaranteed basic income, giving citizens money they will spend straight away creates demand and ultimately stimulates the animal spirits of the private sector.  If you think about it a bit, it is a no brainer.

D.C.’s Minimum Wage Amendment Act of 2013: Testimony Before the D.C. City Council Committee on Business, Consumer, and Regulatory Affairs - Testimony of David Cooper, Economic Analyst, Economic Policy Institute, before the Washington, D.C. City Council Committee on Business, Consumer, and Regulatory Affairs, Committee on Finance and Revenue

Testimony Before the D.C. Council Hearing on Raising the Minimum Wage and Extending Paid Sick Days to Restaurant Workers - The following written testimony was submitted by Elise Gould, EPI Director of Health Policy Research, to the D.C. Council hearing on October 28, 2013, concerning raising the minimum wage and extending paid sick days to restaurant workers.

Will Puerto Rico go bust?: An island in dire straits | The Economist: OUR correspondents discuss how the American territory came to owe $70 billion. Unable to declare bankruptcy and unlikely to receive a federal bail-out, what will Puerto Rico do next?

Study: State deficits will grow even if tax hike made permanent - A new study predicts the state will continue to face deficits for years to come even if the temporary income tax increase is made permanent. If a major portion of the tax hike is allowed to expire at the end of 2014 as the law now stipulates, the problems will be even worse, says the Fiscal Futures Project of the Institute for Government and Public Affairs. “It seems clear that Illinois’ current revenue and spending policies are unsustainable,” the report concludes. “Illinois has a chronic structural fiscal problem and must either take action to reduce spending, increase revenue, or some combination to avoid fiscal imbalances for years to come.” The study comes as the question of whether to make the income tax hike permanent is likely to be a major issue in next year’s races for governor and legislative offices. In January 2011, lawmakers voted to temporarily increase the state income tax to 5 percent for individuals and 7 percent for corporations. Prior to that, the rate was 3 percent for individuals and 4.8 percent for corporations.

Map: State Gasoline Tax Rates - Gas taxes are generally used to fund transportation infrastructure maintenance and new projects. While gas taxes are not a perfect user fee like tolls, they are generally more favorable than other taxes because they at least loosely connect the users of roads with the costs of enjoying them. However, some of our recent analysis shows that many states do not rely on gas taxes and tolls as much as they could, and instead fund substantial amounts of transportation from other sources like income and sales taxes. For example, Virginia’s Governor McDonnell (R) spearheaded a plan this year that problematically raised sales taxes to pay for new transportation funding increases.  This week’s Monday Map takes a look at state gasoline tax rates. The data comes from a recently updated report by the American Petroleum Institute, and there are some interesting changes since our last map on gas taxes. California is now in 1st place with the highest rate of 53.2 cents per gallon, and is followed closely by Hawaii (50.3 cents/gallon), New York (49.9 cents/gallon), and Connecticut (49.3 cents/gallon). On the other end of the spectrum, Alaska has the lowest rate at 12.4 cents per gallon, but New Jersey (14.5 cents/gallon) and South Carolina (16.8 cents/gallon) aren’t far behind. These rates do not include the additional 18.4 cent federal excise tax.

New York to Create Nation’s First State-Based Strategic Gasoline Reserve - At the end of October 2012 Superstorm Sandy hit the US East Coast, disrupting the delivery of refined products to the tri-state area.  In preparation to ward against such disruptions to fuel supply in the case of another hurricane in the future, the state of New York passed a law that requires nearly all gas stations on Long Island, in New York City, Westchester, and the Rockland Counties to have back-up generators installed that can provide power during an emergency. Several gas stations closed down last year, not because they had run out of fuel to sell, but because they had no power to pump the fuel out of the underground tanks.  The second part of the state of New York’s plan to protect against fuel supply disruptions in the future, is to store 3 million gallons of fuel in an emergency reserve. On Saturday, Governor Andrew Cuomo announced that his government would start a $10 million pilot program to create a Strategic Gasoline Reserve to be stored in tanks on Long Island. It will be the first ever state-based fuel reserve in the US.

After a wave of Sandy disaster, a trickle of aid to victims - Congress rushed to send $60.4 billion in emergency money to aid Superstorm Sandy victims, saying people’s lives depended on getting the full amount out the door as fast as possible — but a year after the storm, the tally shows very little has been spent. Officials initially pressed for $80 billion in federal aid, but Congress cut that by about a quarter and passed two bills in January to get the money flowing. But as of Aug. 31, the most recent financial report from the federal Sandy task force shows that only about one-fifth of the money has been obligated and little more than $5 billion, or 11 percent, has been paid out. Federal agencies say they have been trying to push out the money as quickly as possible but that Sandy spending is proceeding at the usual pace for disasters, which means it could take years to account for all of the money Congress has approved.

Occupy City Hall - WSJ.com: The Occupy movement that in 2011 pitched street camps in the U.S. from Wall Street to San Francisco posited a tale of two Americas and class resentment unseen for many decades. The movement faded, but if the opinion polls are right, New York voters are about to elect the Occupy movement to run America's largest city. Bill de Blasio, the Democratic nominee, is leading Republican Joe Lhota by more than 40 points. Conventional wisdom holds that this is happening mainly because New Yorkers are "tired" of Mayor Mike Bloomberg. Losing access to 16-ounce cups of soda is insufficient reason for what is likely to happen to New York. The Big Apple is on the verge of electing a man whose explicit agenda is the repudiation of the conservative reforms achieved by a generation of city leaders from both parties, which transformed New York from a terrifying urban joke into the nation's municipal crown jewel.

Detroit Will be Democracy's Decisive Battle - Black Agenda Report - Detroit is the battleground chosen by Wall Street to crush the last vestiges of American democracy by creating “the template for direct corporate rule.” Finance capital recognizes that it can no longer coexist with democratic institutions, which are most easily destroyed by attacking Black rule in the cities. “If we don't do something real soon, I think you'll have to agree that we're going to be forced either to use the ballot or the bullet. It's one or the other in 1964. It isn't that time is running out -- time has run out!” – Malcolm X, Cleveland, April 3, 1964. The principle of one-person, one vote – or any meaningful franchise, at all – is no longer operative for the majority of Black people in the state of Michigan, whose largely African American cities are run by emergency managers accountable to no one but Rick Snyder, the venture capitalist in the governor’s mansion. The same bell is tolling for every urban center in the land, as hegemonic finance capital creates the template for direct corporate rule through the systematic destruction of Detroiters’ citizenship rights. The 82 percent Black metropolis has been reduced to a Bantustan in both the economic and political senses of the term. Surrounded by some of the richest counties in the nation, the impoverished city exemplifies a national racial wealth gap that is more profound than that which existed in South Africa at the height of apartheid, as detailed by Jon Jeter in this issue of BAR (See “Worse Than Apartheid: Black in Obama’s America”). The Emergency Manager law, passed by the Republican state legislature after rejection by voters in a referendum, makes the Bantustan analogy complete, with a Black corporate lawyer overseeing the dismantling of every mechanism of local democracy.  “The same bell is tolling for every urban center in the land.”

Is DIP financing the best option for Detroit? -- Last Monday, the Detroit City Council unanimously rejected a $350m debtor-in-possession (DIP) financing that would have been arranged and purchased by Barclays. Detroit’s state-appointed emergency manager, Kevyn Orr, has aggressively championed the deal as a means of releasing the city’s casino revenues, which are a stable and recurring resource that could be applied to eliminating blight and improving city services.  Proceeds from the DIP financing, structured as two separate loans, would provide $230m to settle the out-of-the-money swaps at roughly 75 cents on the dollar (this loan is called the Swap Termination Note) and $120m for service improvements (the Quality of Life Note). The city council’s rejection of the DIP resolution was largely dismissed as a symbolic gesture intended to send a message to the bankruptcy judge. Under the state’s emergency management law, the council has seven days to offer an alternative plan to the emergency financial assistance board. The council has not yet produced an alternative plan. The city council’s concerns about the DIP loan are hardly misplaced. The terms are extraordinarily rich. The city risks a penalty interest rate and acceleration in the event of default, and the term sheet details dozens of events of default. The structure appears to assume Detroit will have affordable market access at a later date, which most market participants would agree is optimistic. Finally, the city could perhaps obtain a more favorable outcome by challenging the secured status of the swaps in bankruptcy court.

U.S. municipal bond funds with Puerto Rico exposure down by $8.3 billion (Reuters) - U.S. municipal bond funds with at least 5 percent exposure to Puerto Rico debt have experienced an $8.3 billion decline in their net assets in 2013, according to Lipper Inc data. The 16.3 percent decline from $50.6 billion at the end of 2012 comes as U.S. and state regulators investigate whether the funds adequately disclosed their exposure to Puerto Rico. Muni bond funds with less than 5 percent exposure have declined only 10 percent to $476.5 billion, according to Lipper. The Caribbean island's chronic fiscal deficits have rattled a corner of the $3.7 trillion U.S. municipal bond market, which also is absorbing Detroit's fall into bankruptcy. Municipal bond investors have pulled money from U.S. mutual funds as Puerto Rico bond prices have plummeted. The S&P Municipal Bond Puerto Rico Index is down 15.25 percent this year, a barometer of how falling bond prices have weighed on U.S. mutual funds, among the top buyers of the debt.

The Number Of Homeless Students In The United States Hits A Record: More than 1.1 million students in the United States were homeless last year, a record high, according to new data released by the U.S. Department of Education. During the 2011-12 school year, there were 1,168,354 homeless students enrolled in preschool or K-12, a 10 percent increase over the previous year. A total of 55.5 million students were enrolled in preschool or K-12 that year, meaning nearly 2 percent of all students were homeless. According to First Focus, a children’s advocacy organization, “the number of homeless children in public schools has increased 72 percent since the beginning of the recession.” The states with the largest increase in student homelessness include North Dakota (212 percent), Maine (58 percent), and North Carolina (53 percent). It’s important to note that the number of homeless students in the United States doesn’t capture the full extent of youth homelessness. Many young homeless people are infants, weren’t properly identified as homeless by the survey, or have dropped out (or been kicked out) of school. ----- the situation could soon become even worse if food stamps are cut. Currently, 45 percent of food stamp recipients are children. In 2011 alone, 4.7 million households were lifted out of poverty thanks to food stamps. If Republicans succeed in their quest to cut the program, the number of children living in poverty would increase substantially. And even if the GOP is held at bay, automatic cuts to food stamps will kick in on November 1, returning the program to pre-stimulus levels and likely resulting in even more homeless students in the wealthiest country in the world. 

Segregation in American schools still problematic - — As American schools struggle with issues of race, diversity and achievement, a new study in the American Sociological Review has split the difference in the ongoing discussion of resegregation. Yes, black, white and Hispanic students were less likely to share classrooms in 2010 than in 1993, but no, that increase in segregation is usually not the result of waning efforts to reduce it.  "People have a general idea that at the national level, there is widespread resegregation, based on the minority-white composition of the average school,A significant part of the reduction in classroom diversity is simply a result of the increasing share of the Hispanic population and the declining share of whites, Fiel says. "Blacks and Hispanics have attended schools with a smaller proportion of whites over time, but the composition of schools depends on the composition of the area. "If an area is 50-50 black and white, like some metropolitan areas and non-metropolitan counties, you can't do anything to make the average black student's school more than 50 percent white or less than 50 percent black," he says.  Focusing on 1993-2010, he compared the racial makeup of schools to that of their surrounding areas, and calculated how school composition would look if all schools were desegregated to match local populations. "The difference between the actual change in school composition and the change in the hypothetical desegregated world is due to changes in policies that promote or reduce segregation," Fiel says. Viewing it this way — as a comparison of ideal to actual — brought Fiel to a surprising conclusion. Even though minorities are attending schools with fewer whites, "the exposure of blacks and Hispanics to whites was actually higher than would be expected," given a massive change in the composition of the student population. "That's the major finding."

Detroiters on hook for millions used to renovate schools now empty or demolished - Over the next 27 years, Detroit property owners will be on the hook to pay more than $437.8 million for renovations made to schools that now sit unused, trashed or demolished, a boon to scrappers and home to vagrants and feral cats. Voters approved $2.1 billion in bonds in 1994 and 2009 to pay for capital improvements on Detroit Public Schools buildings and still owe $1.5 billion. Today, 110 of those buildings are empty or have been torn down, but Detroiters still have to pay for the $106 million spent on renovations plus interest, according to a Free Press analysis. They’ll be paying off that tab until 2040. Meanwhile, they also still have to repay $331.8 million, plus interest, that was spent building or renovating schools that DPS is now renting out or has sold — mostly to its competitors.A majority of children who live in Detroit do not attend DPS, so the district has shut down about two-thirds of its schools over the past decade — costly proof that it has lost its war against historic enrollment declines despite modernizing facilities. The huge debt on unused schools adds to the financial burden for property owners in a city sagging under the nation’s largest municipal bankruptcy.

Hole grows deeper for Illinois teachers' pension fund - The Illinois Teachers' Retirement System says its unfunded liability rose by $3.65 billion during its fiscal year despite above-target investment returns. A TRS news release blames the shortfall on chronic underfunding by the state. The state's largest public pension fund says it earned 12.8 percent on its investments last year -- beating both internal benchmarks and the 8 percent return assumption that's used to value liabilities. The unfunded liability, though, grew to $55.73 billion on June 30 from $52.08 billion a year earlier. That number means the fund has just 40.6 percent of the money needed to cover its obligations, as calculated under state law. Some economists say the underfunding is really much worse because the state is using unrealistic assumptions. Illinois has the nation's worst-funded public pension plans, and the hole keeps getting deeper. The teachers' fund says it has never received a "full actuarial contribution" from the state since it was founded in 1939.

Illinois Teachers Pension Fund is 40% Funded, Drops Deeper Into Hole Despite Investment Return of 12.8%; What's the Solution? In spite of a 12.8% annual return, with an 8% return assumption, the Illinois Teachers Retirement System (TRS) fell another $3.5 billion in the hole. TRS pension underfunding grew to $55.73 billion as of June 30, 2013. Via email, the Illinois Policy Institute explains the growing liability.  First, TRS only has $0.40 in the bank for every dollar it should have today to make necessary pension payouts in the future. That means the high investment returns in 2013 were earned on less than half of the assets that TRS should have. TRS acknowledged this in a recent press release:"Despite these strong returns, TRS cannot invest its way out of the funding hole we are in,” Ingram added. “This increase in the System’s unfunded liability, even with good investment results, is another wake-up call to state officials and our members that TRS long-term finances continue to head in the wrong direction."

Detroit pension cuts 'function of mathematics' -investment banker (Reuters) - Cuts to Detroit's public pensions and retiree healthcare were inevitable given the city's sagging finances, a top consultant for the city testified on Friday during the third day of a trial to determine whether the city is eligible for bankruptcy. Money owed to Detroit workers and retirees is a key factor in the case, which will also hear testimony by Kevyn Orr, Detroit's state-appointed emergency manager. Orr is expected to explain efforts to negotiate with the city's numerous creditors, including retirees and pension funds, before deciding to file for the largest-ever Chapter 9 municipal bankruptcy on July 18. A key claim made by attorneys representing the city's unions, retirees and pension funds is that Orr and his team were intent on filing for bankruptcy and did not make best efforts to negotiate with them prior to the bankruptcy filing. They also claim that plans to cut pensions would violate the Michigan Constitution. On Friday, city financial consultant Kenneth Buckfire said he did not have to recommend to Orr that pensions for the city's retirees be cut as a way to help Detroit navigate through debts and liabilities that total $18.5 billion. Buckfire said it was clear that the city did not have the funds to pay the unsecured pension payouts without cutting them. Buckfire, a Detroit native and investment banker with restructuring experience, later told the court the city plans to pay unsecured creditors, including the city's pensioners, 16 cents on the dollar.

Detroit Pensioners Face Miserable 16 Cent On The Dollar Recovery - It is the same kind of violent and anguished repricing that all unsecrued creditors in the coming wave of heretofore "denialed" municipal bankruptcy filings will have to undergo. Starting with Detroit, where as Reuters reports, the recovery to pensioners, retirees and all other unsecured creditors will be.... 16 cents on the dollar!...  or less than what Greek bondholders got in the country's latest (and certainly not final) bankruptcy. From Reuters: On Friday, city financial consultant Kenneth Buckfire said he did not have to recommend to Orr that pensions for the city's retirees be cut as a way to help Detroit navigate through debts and liabilities that total $18.5 billion. Buckfire said it was clear that the city did not have the funds to pay the unsecured pension payouts without cutting them. Buckfire, a Detroit native and investment banker with restructuring experience, later told the court the city plans to pay unsecured creditors, including the city's pensioners, 16 cents on the dollar.

Still Feel Confident About Collecting Your Pension After This? Illargi -  If you have trouble understanding what is going on here, please do read Nicole Foss’ Promises, Promises … Detroit, Pensions, Bondholders And Super-Priority Derivatives  from early September. Here’s one quote from that article: Promises that cannot be kept will not be kept. It is as simple as that. To complicate matters, however, the architecture of the financial system prioritizes promises, in a perhaps counter-intuitive, and certainly self-serving, manner. This will make the task of allocating extremely scarce resources to stakeholders lower down the financial food chain very much more difficult. It is time for a good look at the range of promises made, the competing needs of the recipients, the leverage enjoyed by powerful players in shoring up their own position, and the real world implications for municipalities far beyond Detroit.If your answer to that question is still affirmative, I suggest you take a good hard look at what’s coming out of Detroit these days. Why don’t we just call it a bail-in model, not unlike Cyprus, where the waters are tested for forcing parties who historically thought they were safe from cuts, find they no longer are.And if you think Detroit is the only American city that has these kinds of problems, think again. It’s merely the first, count on it. It’s not just an American issue either, of course, and although retirements plans are set up in myriad different ways, they have one thing in common: they are in essence pyramid schemes, eat your heart out Charles Ponzi, and it’s just a matter of time before the walls start crumbling. But it’s not just that. The game is stacked and fixed in favor of certain parties at the cost of others. We can all grasp how, without even knowing any details, because we should know how America, and the world at large, works these days. All games are fixed.

Report: Pension Crisis Risks Crippling Illinois - Illinois pays six-figure salaries to nearly 5,000 teachers who will not set foot in a classroom this year via the state’s beleaguered pension system, according to a new study. Lawrence Wyllie, former superintendent of the Lincoln-Way school system, draws nearly $300,000 each year in retirement and there are 99 more officials who are paid more than $15,000 per month from the system, according to a new report from OpenTheBooks.com.The large payouts Illinois distributes to retired school administrators and teachers is driving the pension system further underwater, according to Adam Andrzejewski, who founded the transparency group. The Teacher’s Retirement System (TRS), the largest pension program in the state, has seen its debt grow explosively in recent years. The system reported that it is nearly $56 billion short of meeting its retirement payments over the next 30 years—up 7 percent from 2012.These payouts will grow: Every retiree receives annual 3 percent boosts each year for cost-of-living adjustments.School employees contribute about $700 million to the system over their lifetimes, according to the report, but first year pensioners alone withdraw $561.5 million in a given year. The average retiree will have withdrawn his lifetime contribution within 15 months of retirement.

California Agencies Gamble on Pension Bonds to Cover Debts – and Lose -Desperate to cover a $40 million shortfall in its pension fund for retired police officers and firefighters, the city of Richmond, Calif., turned to an exotic loan. But instead of tightening spending after it issued the $36 million pension obligation bond in 1999, city leaders increased the retirees’ pensions. Today, Richmond still owes more than $12 million on the bond, plus about $5 million in interest, and its pension fund remains roughly $12.5 million short. To narrow that gap and cover the debt, the city is dipping into proceeds from a supplemental property tax on residents and businesses. The city’s fiscal approach has residents like Joe Bako scratching their heads. “When you’re short on funds, you don’t start spending more,” said Bako, 33. Some public officials and investment bankers have portrayed pension obligation bonds as a good way to shore up pension funds. The proceeds can be invested in the stock market, reaping returns potentially higher than the bonds’ interest rate. But that gamble is not panning out so far for at least five pension obligation bonds issued by California public agencies between 1999 and January, an analysis by The Center for Investigative Reporting has found.

New Retirement Trend: One-Third of Americans Need to Work Until 80 - According to the just-released annual Wells Fargo & Company Middle Class Retirement Study, about 60% of middle-class Americans say that getting monthly bills paid is their top concern. This number stood at 52% in the 2012 study. (Source: Wells Fargo & Company.) But there are more depressing results of the survey... 34% of middle-class Americans say that they will work until they are 80 years old, because they will not have enough money saved up for retirement! In 2012, the number of respondents with a similar opinion stood at 30%; and in 2011, this number was at 25%. While the U.S. economy is supposed to be in recovery mode, the trend shows more Americans will need to work after retirement. Based on the results of the study, the Wells Fargo Institutional Retirement and Trust issued a statement saying, "We do this survey every year and for the past three years, the struggle to pay bills is a growing concern and the prospect of saving for retirement looks dim, particularly for those in their prime saving years." (Source: Ibid.) No kidding. While the stock market has more than doubled since 2009, while real estate prices are rising again, while Washington and the mainstream are telling us the U.S. economy is improving, Americans are becoming more "doom-and-gloomish." According to the results of the CNN/ORC International poll released late last week, only 29% of Americans say that economic conditions are good right now—the lowest level of the year..

Some Americans Think They’ll Work Until They’re Dead - More than a third of middle-class Americans believe they will never retire and will work until they’re too sick to do so or dead, according to a recent poll. Wells Fargo interviewed 1,000 Americans aged 25 to 75 with household incomes between $25,000 and $99,000. Along with the 37 percent who said they’ll never retire, another 34 percent said they believed that they will not retire until age 80. That’s up from 25 percent just two years ago. And one-third of those surveyed said they believe their primary source of retirement income will come from social security. That’s probably because almost half of those people said they don’t have a written retirement plan. And investment isn’t their answer. Only 24 percent said they’re confident in the stock market, and 45 percent said the stock market would not benefit them.

Most Americans adding debt faster than savings - More than half of Americans with 401(k) accounts are accumulating debt faster than they are putting away money for retirement, according to a new report. The study, by HelloWallet.com, found that the average 401(k) user puts around 11 percent of his income away for retirement every year, through savings and social security taxes. But such savings remains "stubbornly low," according to the personal finance site, which said that the typical worker nearing retirement has roughly only two years of replacement income stashed away. That is about 15 years less than people tend to live after they retire. For many Americans, the financial impact of this lack of savings has been compounded by heavier borrowing. From 1992 to 2010, people now nearing retirement, meaning those age 50 to 65, increased their total debt by 69 percent. For a fifth percent of these households, the debt was from mortgages, which have the potential to increase in value. But the remaining 80 percent of the debt was from credit cards, accumulated installment debt like auto loans and other revolving debt such as home equity loans, according to HelloWallet. As a result, 60 percent of U.S. households with a 401(k) or other defined contribution plan added more debt than they put away money for retirement, a group the report refers to as "debt savers." Because most people participating in defined contribution plans make more than the median U.S. income of around $50,000 a year, most of the debt savers have higher incomes. Almost 78 percent of them make more than the median, and 44 percent earn more than $90,000 a year.

Dangerous High-Wire Act Most Retirees Are Facing - With American households just north of $11 trillion in debt, individuals have long struggled with a basic financial choice: pay down their loans faster or save more for goals like retirement. There’s no right answer. Certainly, paying off debt is a good thing. But if your mortgage expense is just 4% and stocks are rising 17% a year, as has been the case the past five years, aren’t you better off carrying the debt and adding money to your 401(k)? Of course, non-mortgage debt like personal loans and credit cards is much more expensive—and the markets aren’t always this generous. Still, if you make credit card repayment the priority you may never get around to saving anything, especially if once the credit cards are paid down you simply run them up again. So in many ways we have become a nation of debt savers—people who continue to borrow even as we build savings on the other side of the ledger. This is a delicate balancing act, and a lot of folks are taking a spill. Counting employer matches, Americans in aggregate put $300 billion a year into 401(k) plans. That’s far more than the new debts they ring up. But on an individual basis, three in five are accumulating debt faster than they are funding their retirement accounts, reports HelloWallet, an online financial firm. Over the past 20 years every cent of the $2.5 trillion that employers have contributed as part of a 401(k) match has been offset with additional consumer debt, the report found.

Social Security Keeps 22 Million Americans Out Of Poverty: A State-By-State Analysis — Social Security benefits play a vital role in reducing poverty.  Without Social Security, 22.2 million more Americans would be poor, according to the latest available Census data (for 2012).  Although most of those whom Social Security keeps out of poverty are elderly, nearly a third are under age 65, including 1 million children.  (See Table 1.)  Depending on their design, reductions in Social Security benefits could significantly increase poverty, particularly among the elderly. Almost 90 percent of people aged 65 and older receive some of their family income from Social Security.[2]   Without Social Security benefits, 44.4 percent of elderly Americans would have incomes below the official poverty line, all else being equal; with Social Security benefits, only 9.1 percent do.  These benefits lift 15.3 million elderly Americans — including 9.0 million women — above the poverty line. Social Security reduces elderly poverty dramatically in every state in the nation, as Figure 1 and Table 2 show.  Without Social Security, the poverty rate for those aged 65 and over would meet or exceed 40 percent in 39 states; with Social Security, it is less than 10 percent in the large majority of states.  Social Security lifts more than 1.2 million elderly people out of poverty in California and Florida, >nearly 900,000 in New York and Texas, almost 800,000 in Pennsylvania, and over half a million in Ohio, Illinois, Michigan, and North Carolina.

Social Security Recipients to See Small Cost-of-Living Adjustment - The tens of millions of Americans collecting Social Security checks will receive a 1.5% cost-of-living increase in January, one of the smallest bumps on record due to tame inflation. Bloomberg News The Social Security Administration said Wednesday the annual adjustment will affect more than 57 million Americans who receive Social Security benefits and eight million people who receive Supplemental Security Income – mainly the poor and disabled. Millions of retired civilian workers and military members who receive federal pensions are affected as well. The annual increase means the average monthly Social Security retirement check will rise by $19 to nearly $1,294. The adjustment is based on a Bureau of Labor Statistics report that measures how much Americans pay for everything from food to housing to gasoline. The figure is based on how much certain prices climb from July through September, compared with a year earlier, in an effort to keep benefit payments at pace with inflation.

Social Security Benefits To Go Up By 1.5 Percent — Social Security benefits for nearly 58 million people will increase by 1.5 percent next year, the government announced Wednesday. The increase is among the smallest since automatic adjustments were adopted in 1975. It is small because consumer prices haven’t gone up much in the past year. The annual cost-of-living adjustment, or COLA, is based on a government measure of inflation that was released Wednesday morning. The COLA affects benefits for more than one-fifth of the country. In addition to Social Security payments, it affects benefits for millions of disabled veterans, federal retirees and people who get Supplemental Security Income, the disability program for the poor. The amount of wages subject to Social Security taxes is also going up. Social Security is funded by a 12.4 percent tax on the first $113,700 in wages earned by a worker, with half paid by employers and the other half withheld from workers’ pay.  The wage threshold will increase to $117,000 next year, the Social Security Administration said. Wages above the threshold are not subject to Social Security taxes.

Cost of Living Adjustment: 1.5%, Contribution Base for 2014: $117,000 - With the release of the CPI report this morning, we now know the Cost of Living Adjustment (COLA), and the contribution base for 2014. Currently CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). Here is a discussion from Social Security on the current calculation (1.5% increase) and a list of previous Cost-of-Living Adjustments. Note: this is not the headline CPI-U. The contribution and benefit base will be $117,000 in 2014. NOTE on CPI-chained: There has been some discussion of switching from CPI-W to CPI-chained for COLA. This will not happen this year, but could happen in the next year or two, and the switch would impact future Cost-of-living adjustments, see: Cost of Living and CPI-Chained.

There Will Be a 1.5% Increase in Social Security Benefits Next Year - The Social Security administration announced there will be a 1.5% increase in social security benefits next year.  The cost of living adjustment is fairly low, but if chained CPI had passed Congress and was used, the situation for social security increases would be much worse.  The 2014 low increase in benefits should be no surprise for the official inflation figures have been tame.  Monthly Social Security and Supplemental Security Income (SSI) benefits for nearly 63 million Americans will increase 1.5 percent in 2014. The 1.5 percent cost-of-living adjustment (COLA) will begin with benefits that more than 57 million Social Security beneficiaries receive in January 2014. Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2013.  The below graph shows the COLA, (cost of living adjustment) per year in green including the 2014 1.5% COLA increase.  CPI-W stands for the consumer price index for wage earners and is used to calculate COLA.  The CPI-W monthly figures are in blue and are not seasonally adjusted numbers. The third quarter CPI-W values, used to calculate COLA, are graphed in red.  The COLA is a strange brew indeed in how it is calculated.  The COLA is taken from not seasonally adjusted CPI-W data, using only the previous year's third quarter, i.e. the months of July, August and September, to calculate.  The magic formula for how increases are calculated, upon which so many depend, is: The average CPI-W for the third calendar quarter of the prior year is compared to the average CPI-W for the third calendar quarter of the current year, and the resulting percentage increase represents the percentage that will be used to adjust Social Security benefits beginning for December of the current year. SSI benefits are adjusted by the same percentage the following month (January).Notice in the above graph how low a 1.5% increase is in comparison to most years.  Also notice the big drop around 2008 for the consumer price index for wage earners (CPI-W), the blue line.  That's when the great recession deflation hit and resulted in no increase in benefits for two years in a row.  .  The thing is, if Congress and the Obama administration have their way, cost of living adjustments for social security could be much, much worse

Cost of Living Adjustment: 1.5%, Contribution Base for 2014: $117,000 - With the release of the CPI report this morning, we now know the Cost of Living Adjustment (COLA), and the contribution base for 2014. Currently CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). Here is a discussion from Social Security on the current calculation (1.5% increase) and a list of previous Cost-of-Living Adjustments. Note: this is not the headline CPI-U. The contribution and benefit base will be $117,000 in 2014. NOTE on CPI-chained: There has been some discussion of switching from CPI-W to CPI-chained for COLA. This will not happen this year, but could happen in the next year or two, and the switch would impact future Cost-of-living adjustments, see: Cost of Living and CPI-Chained.

Raising the Medicare age is now a REALLY bad idea - We’ve written so many times on how raising the Medicare eligibility age to 67 is a bad idea that we hesitate to do so again. (See the FAQ.) But a recent revision by the CBO of federal savings it would generate compels us to do this one more time. Implementing this option would reduce federal budget deficits by $19 billion between 2016 and 2023, accord to new estimates by CBO and the staff of the Joint Committee on Taxation (see Table 1). That figure represents the net effect of a $23 billion decrease in outlays and a $4 billion decrease in revenues over that period. The decrease in outlays includes a reduction in federal spending for Medicare as well as a slight reduction in outlays for Social Security retirement benefits. However, those savings would be substantially offset by increases in federal spending for Medicaid and for subsidies to purchase health insurance through the new insurance exchanges and by the decrease in revenues. Do you get that? Phasing this in starting in 2016 could save $19 billion over the next 8 years. That’s less than $3 billion a year.  Why isn’t it more? Well, once again, the more people you kick of Medicare, the more you get on Medicaid. . More people will also need exchange insurance, too, which means more people needing subsidies. That will also increase federal expenditures. And we’re not even counting the increase to state expenditures for the added Medicaid, the increased cost to employers who have to provide insurance, the increased cost to all Americans in higher premiums for adding those elderly people to the private risk pools, or the increased out of pocket expenses to those seniors. (We covered these costs in prior posts.) If this was a bad deal before, it’s worse now.

Raising The Medicare Age, Revisited - Paul Krugman - Back in 2011, we almost had a “grand bargain” whose centerpiece would have been a rise in the Medicare eligibility age. Liberals were horrified, but it actually would have happened if Republicans hadn’t balked at the idea of any revenue increases at all. Now we learn that it would have been not just cruel and a betrayal of promises, but bone-stupid too. Many of us pointed out that raising the Medicare age would actually raise the cost of health care, that any apparent savings to the Federal government would result simply from shifting costs onto others — and because Medicare has lower costs than private insurance, this would result in a net loss. But now CBO has redone its analysis, and finds that raising the Medicare age would barely reduce federal spending. The basic reason is selection bias: many seniors get Medicare before 65 because of disability or specific medical conditions. The ones who have to wait until the headline age are, on average, relatively healthy and hence relatively cheap. So here’s my question: will people stop talking about raising the Medicare age? My prediction is that they won’t — because it wasn’t really about saving money in the first place. Degrading the safety net and pushing people into more expensive private insurance weren’t bugs, they were features. The usual suspects, I predict, will just keep pushing for the same thing, and dismiss the evidence.

ACA: self imposed redistribution from poor to rich states - At present, 24 States (and DC) have decided to move ahead with the Medicaid expansion provided for in Obamacare, and 21 have rejected expansion, while 6 are still considering their options. If the current decisions hold, it will result in a self-imposed redistribution of money from poorer (and typically Red states), to richer (and typically Blue ones). According to an analysis I have done using Kaiser Family Foundation data–in 2016 alone–the 24 expanding states will receive $30.3 Billion additional federal dollars, while those not expanding will forego an additional $35.0 Billion they could have had (the fence sitters have an aggregate $15.2 Billion at stake in 2016). This represents a huge redistribution of federal money from non-expanding to expanding states. The table below highlights the biggest self imposed losers, and winners, again for 2016 alone (there are predictable impacts on state uninsured rates). States that are not expanding Medicaid have historically received more in federal spending per dollar of federal taxes paid by the state ($2.18) as compared to States that are expanding ($1.85) and those that are considering expansion ($1.53), all in 2009, a year with a very large federal deficit. In year 2000, the last year of a federal surplus, those states rejecting expansion received $1.36 in federal spending per tax dollar paid as compared to $1.10 for those undertaking expansion (the fence sitters were net donor states, $0.87). While the Medicaid program is not the only means through which richer states have cross subsidized poorer ones, it has been a large and consistent source of such flows. By choosing not to expand Medicaid, the poorer, mostly politically “red” states are redistributing money toward the richer, mostly politically “blue” ones.

Why Is Obamacare Complicated? - Paul Krugman -- Mike Konczal says most of what needs to be said about the underlying sources of Obamacare’s complexity, which in turn set the stage for the current tech problems. Basically, Obamacare isn’t complicated because government social insurance programs have to be complicated: neither Social Security nor Medicare are complex in structure. It’s complicated because political constraints made a straightforward single-payer system unachievable. It’s been clear all along that the Affordable Care Act sets up a sort of Rube Goldberg device, a complicated system that in the end is supposed to more or less simulate the results of single-payer, but keeping private insurance companies in the mix and holding down the headline amount of government outlays through means-testing. This doesn’t make it unworkable: state exchanges are working, and healthcare.gov will probably get fixed before the whole thing kicks in. But it did make a botched rollout much more likely. So Konczal is right to say that the implementation problems aren’t revealing problems with the idea of social insurance; they’re revealing the price we pay for insisting on keeping insurance companies in the mix, when they serve little useful purpose.

More Obamashock! Glitches Hit Paper, Phone Applications; Obamacare Glitch Great Quotes - I posted my personal experiences on Obamacare, as well as those of a reader, in Tips on Navigating Obamacare Costs on HealthCare.Gov - My Personal Experience - Obamashock! Just in case anyone thought "ObamaShock!" was an isolated incident, the Weekly Standard reports Millions of Americans Are Losing Their Health Plans Because of Obamacare. While the Affordable Care Act was making its way through Congress in 2009 and 2010, President Obama famously promised the American people over and over again that if you like your health plan, you can keep it. “Let me be exactly clear about what health care reform means to you,” Obama said at one rally in July 2009. “First of all, if you’ve got health insurance, you like your doctors, you like your plan, you can keep your doctor, you can keep your plan. Nobody is talking about taking that away from you.” But the president's promise is turning out to be false for millions of Americans who have had their health insurance policies canceled because they don't meet the requirements of the Affordable Care Act.  According to health policy expert Bob Laszewski, roughly 16 million Americans will lose their current plans.

Despite Glitches, Obamacare Profit Windfall To Insurers Well Underway - While politicians and pundits alike inside the beltway beat up the White House over computer system glitches, health insurance companies still project robust revenue growth and profits from a boom in business from newly insured Americans under the Affordable Care Act.Take this week’s third-quarter earnings report and financial projections of Wellpoint (WLP), one of the nation’s largest health insurers, which earlier this week raised its earnings guidance for the third time this year.  Amid a flurry of stories about the troubled launch of the federal health insurance marketplace web site known as healthcare.gov, Wellpointsaid its improved outlook is due in part to gains from the Affordable Care Act.  Wellpoint is the parent of a number of Anthem and Blue Cross and Blue Shield branded plans and a key player in offering benefits to the growing population of consumers that are purchasing private coverage on exchanges as well as those covered by Medicaid insurance for the poor, which is also expanding under the Affordable Care Act.Though health plans are frustrated at the slow sign up, their earnings forecasts and balance sheets reflect largely robust growth. Other health plans like Aetna Aetna (AET), Humana Humana (HUM) and UnitedHealth Group UnitedHealth Group (UNH) are optimistic, according to public statements of their executives.

The Big Kludge, by Paul Krugman - The good news about HealthCare.gov, the portal to Obamacare’s health exchange, is that the administration is no longer minimizing its problems. That’s the first step toward fixing the mess — and it will get fixed, although it’s anyone’s guess whether the new promise of a smoothly functioning system by the end of November will be met. We know, after all, that Obamacare is workable, since many states that chose to run their own exchanges are doing quite well.  But while we wait for the geeks to do their stuff, let’s ask a related question: Why did this thing have to be so complicated in the first place?  The proximate answer was politics: Medicare for all just wasn’t going to happen, given both the power of the insurance industry and the reluctance of workers who currently have good insurance through their employers to trade that insurance for something new. Given these political realities, the Affordable Care Act was probably all we could get — and make no mistake, it will vastly improve the lives of tens of millions of Americans.  Still, the fact remains that Obamacare is an immense kludge — a clumsy, ugly structure that more or less deals with a problem, but in an inefficient way.

How My Experience with Healthcare.gov Shows “Better” Software May Not Be the Solution - I initially tried to sign up October 1, the day the exchange site opened, and every day after. Initially I’d sometimes get to the third screen of the account creation process – the one that asks security questions – but the questions were blank so I was thwarted from creating a login. One time the questions were there and I did create a login but I was never able to use it again. Coming to the conclusion that the system reserved the username but lost the password – which later came out in the popular press but was never acknowledged by the government – I tried a new username. Finally, after weeks, I could log in. My sense of accomplishment was palpable: soon I could view unaffordable mandatory health insurance plans that cover 60-70% of my costs but include guaranteed insurance industry profits. This is progress! After answering some odd questions to verify my identity the system told me I might not be who I say I am. My hopes were raised – maybe a random person wanted to purchase health insurance for my family and pay the full price – but I had to call a phone number to progress. After an hour on hold with Equifax a phone operator confirmed the system actually did verify my identity but, for whatever reason, told me to call in anyway. Apparently this is a common “glitch.” I’ll admit that the Equifax rep displayed the patience of Buddha, single-handedly increasing my feelings of goodwill toward Equifax, which was not hard because I had no goodwill toward Equifax before the call. However, I never figured out why a credit bureau is involved in taking applications for health insurance. Being verified I marched onward in my quest for medical insurance.

Health Site’s Woes Could Dissuade Vital Enrollee: the Young and Healthy -- “I was able to create an account on Oct. 2, and I haven’t been able to get into there since,” said Mr. Jackson, a sports journalist living in Ohio, a note of annoyance in his voice. “I’ll try at random times, like late at night or early in the morning. I sign in. It just goes to a blank screen.” The economists and policy wonks behind the Affordable Care Act worry that the technical problems bedeviling the federal portal could become much more than an inconvenience. If applicants like Mr. Jackson decide to put off or give up on buying coverage, rising prices and even a destabilized insurance market could result. The enrollment of people like Mr. Jackson, who is 32, is vital for the health care law — and, for that matter, the entire health care system — to work. Younger people, who tend to have very low anticipated medical costs, are supposed to help pay for the medical costs of older or sicker enrollees. Without them, so-called risk pools in Ohio and other states might become too risky, forcing insurers to raise premiums. Those higher premiums could dissuade more of the young and healthy from signing up, forcing insurers to raise prices again. Economists call the process “adverse selection” and warn that in its worst iteration it could lead to a “death spiral” of falling enrollment and climbing prices.

Why the Cadillac tax matters  - I’ve enjoyed (more than I should) the excitement around Austin’s posts on Senator Cruz’s health care subsidies. This is partly because we originally made this point more than two years ago. But since you’re all paying attention now, I think it’s worth a brief explanation on why the Cadillac tax matters. The first thing the Cadillac tax does is apply downward pressure on the cost of health insurance. In other words, it tries to get companies to avoid plans that cost more than $40,000 a year (what do you get with that?) and instead shunt more money into wages instead of benefits. But the second thing it does is limit the “subsidy” that goes to the well-off. In other words, think of that 40% tax on amounts above the Cadillac tax limits as a means of recouping the ~40% subsidy that people are getting for their insurance. In other words, the Cruz family would get a subsidy only on the first $27,500 of their insurance. The subsidy they would then get is still a LOT ($9900 by my calculation), and would cover a number of people on Medicaid, but at least there would be a limit. Unless you think people who do get $40,000 a year just in health insurance deserve more than $10,000 from the government in subsidies to help pay it.

7 Million Insured versus 2.7 Million Millenials - The argument has been the ACA depends on a number of the young to sign up for healthcare insurance on the PPACA or at least this is what S.E. Cupp believes and suggested on This Week with George Stephanopoulis. “There’s two problems, one is the technological, sort of mechanics of this. Obamacare relies on Millennials, these young invincibles who have never bought health insurance in the past, to suddenly change their behavior and buy something they don’t think they need. And in some cases can’t afford. That mechanical issue remains to be seen and the web site rollout has affected that. But it also reads as an inability to speak their language. Donna, you might call an 800 number and sit on the phone for 20 minutes  .  .  .  Millennials are not used to that. They do not meet in person with Insurance agents  .  .  .  They need a website that works, tat gets them  .  .  . ” Howard Dean: I would have to disagree with S.C. This has been written on by many, many people, so I am not just picking on her. It is not true that if young people do not sign up the program is not going to work. That is false and the reason it  .  .  . George Stephanopoulis delivered a supposed coup de grâce with his support of SE Cupp’s statement:  “Wait a minute the White House just said that they have to have about 1/3 of the people 2.7 million of the 7 million people have to be young people.”

Valium for Obamacare Worriers - Paul Krugman - Suppose that healthcare.gov isn’t fixed by the end of next month. How bad is it for Obamacare? Would the program be doomed? No, says Jonathan Cohn, because there are two layers of protection against poor signup. First, there is a system of cross-subsidies to insurance companies that was intended to prevent companies from surreptitiously gaining an advantage by only signing up healthy people (hey, our policy is available to anyone — but you have to sign up in our sixth-floor walkup office.) As it turns out, this system would end up compensating insurance companies in general if the risk pool is worse than expected. Second, the subsidies to individuals are designed to hold health costs down to 8 percent of income, which means that they will rise if costs are higher than expected. Neither of these would be a good thing, since they would increase the budget cost, but they do mean that Obamacare’s survival probably isn’t on the line.Actually, the biggest reason Obama and co. should be anxious to fix these things now, I’d argue, isn’t the fate of the program itself, which can survive even large early wobbles, but the midterm elections. If Obamacare is fixed, Republicans will be in the position of attacking a program that is benefiting millions of Americans; if it isn’t, they can still run against the legend, not the fact.

The outsourcing customer is always wrong - The corporate executives who testified at a House hearing on the botched rollout of the federal healthcare portal apparently sprayed themselves with Teflon before heading to Capitol Hill. Blame for the fiasco did not stick to these contractors as Republican members of the Energy & Commerce Committee sought to implicate the Obama Administration and the Democrats focused on defending the Affordable Care Act. Representatives from four contractors -- CGI Federal, QSSI, Serco and Equifax -- took advantage of the situation by denying any serious shortcomings on their part. In fact, they each claimed that their individual pieces of Healthcare.gov were working fine and claimed to be puzzled as to why the overall system was not working properly. When pressed, they implied that the federal agency that had commissioned their work -- the Centers for Medicare and Medicaid Services -- had not given them adequate time for testing. In other words, they acted as if they were innocent bystanders at someone else's train wreck. Yet these were companies that received the lion's share of the lucrative contracts awarded by CMS for the creation of the federal portal. CGI and QSSI alone received a total of $143 million.

Obama accused of breaking promise to consumers as health plans cancel policies -  A new controversy over the president’s health-care law is threatening to overshadow the messy launch of its Web site: Notices are going out to hundreds of thousands of Americans informing them that their health insurance polices are being canceled as of Dec. 31. The notices appear to contradict President Obama’s promise that despite the changes resulting from the law, Americans can keep their health insurance if they like it. Republicans have seized on the cancellations as evidence that the law is flawed and the president has been less than forthright in describing its impact.“The real problem is that people weren’t told the truth,” New Jersey Gov. Chris Christie (R) said Tuesday on “CBS This Morning.” “You can remember, they were told that they would be able to keep their policies if they liked them. Now you hear hundreds of thousands of people across the country being told they couldn’t.” Administration officials say the canceled insurance will be replaced by better policies. But the new line of attack comes as the administration continues to grapple with its problem-plagued Web site, HealthCare.gov.

The failure to factcheck ‘You can keep it’  - In the last few days GOP criticism and media coverage has come to focus on a different concern: the termination notices that many consumers enrolled in health insurance plans purchased on the individual market are receiving, often accompanied by offers to buy new insurance at a substantially higher price.These notices contradict President Obama’s oft-stated promise that Americans who like their healthcare plan would be able to keep it as reform was implemented. Still, they should come as no surprise — this outcome was anticipated by health policy experts both within and outside the administration. Unfortunately, most media coverage before this week did not explain how the process was likely to play out or hold the president accountable for making promises he could never keep. Obama repeatedly promised that Americans could keep their existing health insurance plan between 2008 and 2010, as this compilation video by New York magazine makes clear: Moreover, those promises have not been retracted. Obama’s claims are still all over the White House website, including so-called “reality checks” like this:

Obamacare's biggest problem is that young people aren't signing up - Though this should come as no surprise: based on the early returns on Obamacare enrollments, many of the predictions of failure, including those made by both Howard Dean and Warren Buffet back in 2010, are becoming reality. And it has nothing to do with website glitches. The glitches and problems with the website are actually, for the moment a blessing for Democrats and Obama himself. They serve as a temporary smoke screen to the real problems which will soon become evident and which were inherent in the law itself, a law for those not aware, that was primarily written by the insurance industry (see the PBS documentary on Frontline) after Obama gave in to their demands and dropped the public option. Obamacare won't be the signature accomplishment of his presidency as his supporters like to trumpet, but his signature failure.

Obamacare's Success In Enrollment Numbers: 6 People By End Of Day One; 248 By Day Two - It is now clear why according to the Obama administration there were no glitches plaguing the Healthcare.gov website administering Obamacare: because a whopping six people managed to sign up on the first day it was launched - the same day the government proudly reported previously it had received 4.7 million unique visitors - a conversion factor of, well, Div/0. By the end of the second day: 248 happy participants in a socialized healthcare ponzi scheme. It is also clear why there was nobody happier than the president when the republican party decided to shut down government on the same day as Obamacare was rolled out: because if public attention had focused on the absolute and now confirmed, disaster that the healthcare law's rollout had been, then everyone, not just the Tea Party, would be demanding a substantial delay in Obamacare.  The enrollment data comes even after the Obama administration has said it cannot provide enrollment figures from HealthCare.gov because it doesn't have the numbers. "We do not have any reliable data around enrollment, which is why we haven't given it to date," Health and Human Services Secretary Kathleen Sebelius told lawmakers on Wednesday. Turns out she did - as Reuters and ABC report, the documents, which are labeled "war room" notes and appear to be summaries of issues with the problematic website beginning on October 2, indicate a mere six enrollments had occurred by that morning - the day after the website was launched and almost immediately crashed. You can read the documents HERE, HERE and HERE.

Insurers Oppose Obamacare Extension as Danger to Profits -  Allowing Americans more time to enroll for health coverage under Obamacare may raise premiums and cut into profits, insurers are telling members of Congress in a bid to stop such a move.Extending the enrollment period would have a “destabilizing effect on insurance markets,” said Robert Zirkelbach, a spokesman for the Washington-based lobbyist group American’s Health Insurance Plans. Allowing younger, healthy Americans to sign up later, as they probably would, means less revenue for insurers counting on those premiums to help defray the cost of sicker customers, threatening industry profits. “If you can enroll at any point in the year, then you can just wait until you get sick,” Brian Wright, an analyst with Monness Crespi Hardt in New York, said in a telephone interview. “This isn’t the industry crying foul and exaggerating the issue, this is actually one of those issues where there is a well-grounded reason for the concerns.” It’s a message the industry is taking to Congress after Republicans there, along with at least 10 Democrats, have suggested enrollment be extended beyond its current March 31 deadline because of issues with healthcare.gov, the federal health insurance website that’s been plagued by software miscues.

Time to Investigate Those Insurance Company Letters - As a follow-up to this post, I want to talk about the thing that spawns some of these phony Obamacare victim stories: the letters that insurers are sending to people in the individual market. People all over the country are getting these letters, which say "We're cancelling your current policy because of the new health-care law. Here's another policy you can get for much more money." Reporters are doing stories about these people and their terrifying letters without bothering to check what other insurance options are available to them.  There's something fishy going on here, not just from the reporters, but from the insurance companies. It's time somebody did a detailed investigation of these letters to find out just what they're telling their customers. Because they could have told them, "The premium is going up, just as your premium has gone up every year since forever." But instead, they're just eliminating those plans entirely and offering people new plans. If the woman I discussed from that NBC story is any indication, what the insurance company is offering is something much more expensive, even though they might have something cheaper available. They may be taking the opportunity to try to shunt people into higher-priced plans. It's as though you get a letter from your car dealer saying, "That 2010 Toyota Corolla you're leasing has been recalled. We can supply you with a Toyota Avalon for twice the price." They're not telling you that you can also get a 2013 Toyota Corolla for something like what you're paying now.

Where is the outrage over employer-sponsored coverage in the “rate shock” debate? - I’ve been keeping pretty close tabs on the “rate shock” debate—as a healthy twenty-something, it behooves me to know what other people are saying I should think. (I jest, but you all have some pretty firm opinions on that.) It’s a complicated issue, and prophecies about young adult enrollment, including my own, have relied on broad strokes and guesswork. But one thing in particular has been grating on me: when it comes to complaints about redistribution and overly-generous benefits in health insurance, why is the echo chamber limited to the individual market? Where is the outrage over employer-sponsored insurance?Some 90% of people with private insurance receive it through an employer, and those plans are generally priced using “pure” experience-rating. This means the company serves as one giant risk pool, and a firm’s youngest employees have the exact same insurance premium as their eldest colleagues. The practice has roots in tradition and history; unions started negotiating these kinds of contracts after World War II, and other plans followed suit. But it’s also a matter of law: HIPAA and the ADA prohibit premium variation by health status. Age rating is constrained somewhat—though not entirely—by the Age Discrimination in Employment Act.Yet, I’ve seen exactly zero Obamacare opponents railing to amend the employer-based practices that require most young healthies to pay more than their “fair share.” No one is plying Congress to amend HIPAA or the ADA so young invincibles can pay premiums appropriate to their health status. No one is calling out employers on their “redistributionist” policies, even though uniform insurance premiums force a substantial transfer from the young to the old. It makes histrionics over Obamacare’s 3:1 age band hard to take seriously. ...

The American Health Care System Sucks - Politicians say a lot of dumb things, but perhaps the dumbest thing they say is that the U.S. has "the finest health care system in the world." Senate Minority Leader Mitch McConnell (R-Ky.) said that in 2012, echoing a common Republican talking point in opposition to health care reform. No. Stop saying this. The American health care system sucks. We spend about twice as much money per person as our peer countries to achieve roughly the same health care outcomes — and despite all that spending, 48 million people in America lack health insurance coverage. Health care spending in the U.S. is astronomical. In 2010, Americans consumed nearly $8,000 worth of health care per capita, twice as much as most other rich countries. The second-highest spending country, Switzerland, spent $2,640 less per person than we did.

Yes It Sucks - And I'll add one more point. We actually spend more public money than many (most?) of our peer wealthy nations on health care, mostly Medicaid, Medicare, and veteran benefits. They get universal health care for their public expenditures. We get health care for just the elderly, the extreme poor, and some veterans.

The President Wants You to Get Rich on Obamacare - During the past year, anxiety about the onset of Obamacare has created a chill in some parts of the economy. While large health care businesses — insurance companies, for instance, and hospital chains — have poured significant resources into preparing for millions of new customers, countless investors have appeared spooked by the perpetual threats to repeal, or at least revise, the law. According to Thomson Reuters, private equity investment, usually the lifeblood for entrepreneurialism, has dropped by an astonishing 65 percent in the health care sector this year.  Scully has been trying to assuage these worries, but the nervous questions keep coming at him. Before he even began his speech, one attendee said he feared that only three million new patients, far fewer than estimated, would be signing up for insurance. “No way,” Scully said. “Way more — way more. At least 15 million, maybe 20 million. The Democrats have a huge incentive to make this work.” Another asked if Scully was worried about Congressional repeal. “It’s just not going to happen,” he said. When Scully finally began his speech, he noted that the prevailing narrative among Republicans — assuming that many in the room were, like him, Republican — was incorrect. “It’s not a government takeover of medicine,” he told the crowd. “It’s the privatization of health care.” In fact, Obamacare, he said, was largely based on past Republican initiatives. “If you took George H. W. Bush’s health plan and removed the label, you’d think it was Obamacare.”

White House glitches go beyond Obamacare - FT.com: How could Mr Obama have let things get so out of hand? Republicans and Democrats alike grasp for ideological explanations. The former say that any government-run health programme is destined to fail. They overlook most of the rest of the developed world and also America’s own public systems – not to mention Nasa putting people on the moon. Liberals, on the other hand, blame Republicans for repeatedly trying to defund the ACA and for so demagogically misrepresenting it. They also stress that it is an unusually tough project because the exchanges are required to work with hundreds of private companies. Both underestimate the US government’s ability to do complex things when it wants to. The simple explanation is that Mr Obama’s White House is dominated by a coterie of insiders who have learnt that their boss does not like to hear bad news. Nor are friendly whistleblowers made to feel welcome. Whether on Syria, spying revelations or the White House’s preferred candidate to head the Federal Reserve, the president has been caught off guard by recent crises. This is well into his fifth year in office. Even George W Bush grew in his job during his second term – to a large extent by freezing out Dick Cheney, the vice-president, as Peter Baker shows in his new book, Days of Fire. No doubt, Mr Bush had much further to grow after the monumental errors of his first term. But Mr Obama gives few signs of having found a learning curve. Although he will never again face election, the White House continues to behave as though he will. The problems with Obamacare are a feature, not a bug, of his administration.

Sorry liberals, Obamacare’s problems go much deeper than the Web site - Ezra Klein - There's been a rash of commentary from some on the left who've decided that the real problem with Obamacare isn't the crippling technological issues that have made it impossible for almost anyone to enroll in the federally run health-insurance exchanges but the media's coverage of those problems. It's not the crime, it's the lack of a cover-up. ...A failure in the press coverage of the health-care exchange's rocky launch has been in allowing people to believe that the problem is a glitchy Web site. This is a failure of language: "The Web site" has become a confusing stand-in phrase for any problem relating to the law's underlying infrastructure. No one has a very good word to describe everything that infrastructure encompasses. It's the problems in that infrastructure -- indeed, much more than "just a Web site" -- that pose such deep problems for the law. As Sarah Kliff and I wrote in our overview of the health-care launch's technical issues, the challenges right now can be grouped into three broad categories: problems with the consumer experience on the HealthCare.gov Web site, problems with the eligibility system, and problems with the hand-off to insurers.

Five Reasons Obamacare Legislation Failed; The Worst Legislation Money Can Buy; Putting the Patient in the Driver's Seat - Five Reasons Obamacare Legislation Failed:

1. Lobbyists wrote the ACA legislation. When Nancy Pelosi stated "We have to pass the health care bill so that you can find out what is in it", she was referring to you , me, and Congress. An extremely tiny number of people knew what was in the bill: lobbyists for hospitals, lobbyists for insurance companies, lobbyists for HMOs, and lobbyists for major pharmaceutical companies. 
2. President Obama was more concerned about his legacy than anything else. He wanted Obamacare at any and all costs and was willing to sign any piece of legislation, no matter how poor.
3. Politicians in general do not have the public's vested interest in mind. They have their own reelection efforts in mind.
4. Lobbyists and industry PACs donate massive amounts of money to politicians from both parties. That is why we do not allow drug imports from Canada. That is why there is an explicit law that prevents government from bargaining with drug companies on prescription drugs. That is why the US pays the highest drug costs and highest healthcare costs of any nation on the planet. 
5. Republicans for the most part were more concerned over stopping Obamacare than improving the healthcare of citizens of the United States. The irony here is Obamacre is essentially the same as Romneycare.

So here we are, stuck with the worst legislation imaginable.

Can Republicans Investigate Obamacare Without Making Fools of Themselves? - The latest from Capitol Hill is a Republican push to investigate the Obamacare rollout and get to the bottom of what happened. Greg Sargent comments: “House GOP leaders are looking to revive their majority’s political strength by focusing on the nuts and bolts of legislating, a policy agenda centered on jobs and economic growth — and concerted oversight of Obamacare, a law still unpopular with many Americans.”  ....Serious Congressional oversight would be absolutely welcome here. The question is, are House Republicans capable of supplying it? Obamacare’s problems are inexcusable, and there should be accountability for them. There are real and legitimate problems here that could be exposed. But when it comes to supplying genuine oversight, previous House GOP probes — into Benghazi and the IRS scandal — devolved into circus stunts. Those investigations got knocked off kilter by lurid and fanciful charges that seemed directed at a hard right audience that remains firmly in the grip of the conservative closed information feedback loop.

Latest Legal Challenges to the Health Law: A Guide - A ruling Tuesday confirmed what few would have predicted months ago: The latest set of legal challenges related to the Affordable Care Act is to be taken seriously. A federal district judge in Washington, D.C., cleared the way for a lawsuit that says the text of the statute prevents the administration from offering subsidies to low- and middle-income individuals who buy health insurance though online exchanges run by the federal government. Judge Friedman’s decision comes on the heels of an August ruling by one of his counterparts in Oklahoma, who declined to throw out a similar lawsuit filed by Oklahoma’s attorney general, Scott Pruitt. Earlier this month, Indiana’s attorney general filed a lawsuit along with 15 school districts, who are employers, saying that a rule by the Internal Revenue Service -  which last year made clear that subsidies should extend to coverage acquired through federal exchanges – represents a violation of “the clear directives of the statute.” A fourth lawsuit is pending in Virginia. That case, as well as the one in Washington, is in the hands of Michael A. Carvin, a partner at the law firm Jones Day who was also among the lawyers that challenged the law’s mandate that most individuals buy health insurance. The Competitive Enterprise Institute, a libertarian think tank, is coordinating the suits and helping with their legal costs, a spokeswoman said.

Health Care Thoughts: If you like your health care plan…… “If you like your doctor, you will be able to keep your doctor. Period. If you like you health care plan, you will be able to keep your health care plan. Period. No one will take it away. No matter what.” quote President Obama A bold claim when made, highly unlikely then and very demonstrably false now. If you like your health care plan, if your health care plan fits your needs, if your health care plan is priced right but does not meet “essential coverage” requirements, it is being canceled (or repackaged and repriced). Up to 85% of the individual policy market may be in jeopardy, with policy holders scrambling to find coverage by January 1. Some small businesses will fall into the same trap. The convergence of a mediocre economy, a weak labor market and ACA is causing employers to embark on a massive “risk shift,” pushing higher deductibles and co-pays down to employees. Maybe the same policy number, but decidedly different economics. Can I keep my doctor? Maybe. As coverage networks are redrawn, and in many cases narrowed, many will not be able to keep their physician coverage. Period. The blow up of healthcare.gov may turn out to be one of our smaller problems.

Obama Always Knew His Messaging Around Health Care Reform Was a Lie - Even though one of President Obama’s most commonly repeated promises about his health care law was that “if you like your current insurance you can keep it” he always knew this was not true for the individual market. On a policy level this change is not completely a bad thing. Some of the insurance being sold in the individual market is full of loopholes and some people in the individual market will get a better deal on the exchanges, but as a matter of trust this is a serious issue. Obama for years knowingly sold his signature health care law on a distortion. Obama could have promised to make many people’s insurance better or give people more options, but instead he decided to make one of biggest selling points for the law something he know could never be true. Allowing everyone to keep their same plan was always an impossible promise to meet. Everyone in the policy community know this was a lie. This is not a new revelation. Creating a new set of regulations was always guaranteed to cause many insurance companies to drop or change policies, that is kind of the whole point. It was so clear that there was no way to live up to this promise the administration didn’t even bother to try. Knowing this band-aid was going to need to be pulled off eventually the administration set the grandfather conditions so narrowly almost no policies would be covered.The scandal is not that reform will change people’s insurance. After all, the point of any “reform” is to change things. The scandal is that Obama lied the whole time and kept lying even after his administration set the rules making sure this impossible promise would never be kept.

Obamacare losers could pack political punch - Millions of married, older, white, college-educated, GOP-leaning Americans have quickly seen their political profile rise after their health insurance companies sent them cancellation letters with the launch of the giant new health care law. It’s not a huge segment of the population — estimates show between 10 million to 19 million people bought health insurance from what Health and Human Services Secretary Kathleen Sebelius dubbed the “Wild West” individual marketplace.But the ones who are making the most anti-Obamacare noise are part of this group (think of the self-employed, small business owners, freelance writers, musicians and taxi cab drivers) that share one politically pertinent common denominator. Their complaints — amplified in recent weeks by Republicans and reporters — demonstrate one of the first tangible stumbles of the Affordable Care Act.  “It’s not theoretical anymore,” said Virginia-based health industry consultant Robert Laszewski. “You can spin in the White House press room, but these are people who will be sitting down with their friends and families at Thanksgiving sharing stories about their cancellation letters. That’s going to be the only thing that counts.”

Why ObamaCare Will Fail to Solve Our Health Care Crisis - In what is perhaps the greatest corporate scam ever, not only did the health insurance corporations write the federal health law, called the Affordable Care Act (ACA), to enhance their profits, but now they also have the government and non-profit groups doing the work of marketing their shoddy products. The foundation of the ACA, the mandate that uninsured individuals purchase private insurance if they do not qualify for public insurance, begins in 2014 and the state health insurance exchanges where people can purchase that insurance opened on October 1. A new non-profit organization called Enroll America was created to organize and train grassroots activists to seek out the uninsured (they even provide maps) and assist them in using the exchanges. Billions of public dollars and tremendous efforts are being spent to create new health insurance markets, advertise them, subsidize their products and actively solicit buyers for them. But the United States, as the only industrialized nation to use a market-based health care system, has already proven over the past 40 years, that this system doesn’t work. It is the most expensive, leaves the most out and leads to poor health outcomes. It means that people only receive the health care they can afford, not what they need. Market competition does not improve health outcomes because it consists of health insurance corporations competing for profit by selling policies to those who are the healthiest and denying and restricting payment for care. And regulation of insurers doesn’t work either. Although rules in the ACA give the appearance of changing insurance company behavior, insurers are already working around them.

Dead Man Walking — We met Tommy Davis in our hospital's clinic for indigent persons in March 2013 . He and his wife had been chronically uninsured despite working full-time jobs and were now facing disastrous consequences. The week before this appointment, Mr. Davis had come to our emergency department with abdominal pain and obstipation. His examination, laboratory tests, and CT scan had cost him $10,000 (his entire life savings), and at evening's end he'd been sent home with a diagnosis of metastatic colon cancer. Mr. Davis had had an inkling that something was awry, but he'd been unable to pay for an evaluation. As his wife sobbed next to him in our examination room, he recounted his months of weight loss, the unbearable pain of his bowel movements, and his gnawing suspicion that he had cancer. “If we'd found it sooner,” he contended, “it would have made a difference. But now I'm just a dead man walking.”In our clinic, uninsured patients frequently find necessary care unobtainable. An obese 60-year-old woman with symptoms and signs of congestive heart failure was recently evaluated in the clinic. She couldn't afford the echocardiogram and evaluation for ischemic heart disease that most internists would have ordered, so furosemide treatment was initiated and adjusted to relieve her symptoms. This past spring, our colleagues saw a woman with a newly discovered lung nodule that was highly suspicious for cancer. She was referred to a thoracic surgeon, but he insisted that she first have a PET scan — a test for which she couldn't possibly pay.

Doctors Use Euphemism for $2.4 Billion in Needless Stents -  The American College of Cardiology is changing its guidelines for when implanting coronary stents is appropriate -- by banishing the term “inappropriate.” Next year, the main U.S. heart-doctor group will remove the word it has used since 2009 to describe cases where people don’t need the metal-mesh tubes in their blood vessels. The label has become a liability in treatment disputes with insurers and regulators, said Robert Hendel, who led the effort that updated the wording. “The term ‘inappropriate’ caused such a visceral response,” said Hendel, a cardiologist at the University of Miami. “A lot of regulators and payers were saying, ‘If it’s inappropriate, why should we pay for it, and why should it be done at all?’” The cardiology group replaced the “Inappropriate” label with “Rarely Appropriate.” Another category -- cases in which there’s medical doubt -- will switch from “Uncertain” to “May be Appropriate.”

Unnecessary Surgeries? You Bet! Doctors Treat Patients as ATMs; US Healthcare System Explained in Six Succinct Points -- There is little to no incentive in the healthcare industry to hold down costs. Worse yet, the rewards for performing unnecessary surgeries is huge, while the risks of doing them are essentially nonexistent. Here are a couple of articles that show what I mean. Bloomberg reports Prostate Cancer Radiation Therapy Rises as Doctors Profit.  A study published in the New England Journal of Medicine suggests that profits urologists make from referring patients to their own radiation facilities play an outsized role in the treatment decisions. One third of men whose doctors own radiation equipment get the therapy at a cost of about $35,000 per treatment course. The same doctors prescribed the therapy for just 13 percent of their patients before they had their own equipment and could profit directly. The Washington Post reports Spinal fusions serve as case study for debate over when certain surgeries are necessary. By some measures, Federico C. Vinas was a star surgeon. He performed three or four surgeries on a typical weekday at the Daytona Beach, Fla., hospital that employed him, and a review showed him to be nearly five times as busy as other neurosurgeons. The hospital paid him hundreds of thousands in incentive pay. In all, he earned as much as $1.9 million a year. Yet given his productivity, some hospital auditors wondered: Was all of the surgery really necessary?

Trouble at the lab [Data Skepticism]  - From Trouble at the lab, Oct. 19, 2013, The Economist: Over the past few years various researchers have made systematic attempts to replicate some of the more widely cited priming experiments. Many of these replications have failed. The idea that the same experiments always get the same results, no matter who performs them, is one of the cornerstones of science’s claim to objective truth. If a systematic campaign of replication does not lead to the same results, then either the original research is flawed (as the replicators claim) or the replications are (as many of the original researchers on priming contend). Either way, something is awry.… The numbers will make you a militant data skeptic:

• Original results could be duplicated for only 6 out of 53 landmark studies of cancer.
• Drug company could reproduce only 1/4 of 67 “seminal studies.”
• NIH official estimates at least three-quarters of publishing biomedical finding would be hard to reproduce.
• Three-quarter of published paper in machine learning are bunk due to overfitting.

Those and more examples await you in this article from The Economist.

12% of Your Spices May Be Contaminated With 'Filth' - Great, the FDA has identified one more thing for people to worry about in the kitchen: spices. The most comprehensive testing yet finds that 7% of spices imported into the country are contaminated with salmonella, reports the Los Angeles Times. That's twice as high as other foods inspected by the agency. More unappetizing news: 12% of imported spices are contaminated with what the FDA describes as "filth"—think insects, rodent hair, and animal excrement, reports the New York Times. The agency identified leafy seasonings such as basil and oregano as at the highest risk for salmonella, reports Bloomberg, and it said Mexico shipped the highest percentage of contaminated spices, followed by India. An FDA official called the findings a "wake-up call" for the spice industry. “It means: ‘Hey, you haven’t solved the problems.'”

9 Ohio, W.Va. Residents Sue DuPont Co. Over Cancer - Nine Ohio and West Virginia residents who have cancer and other diseases have filed federal lawsuits this month against chemical giant DuPont, alleging the company knowingly contaminated drinking-water supplies with a chemical used by one of its plants. The lawsuits, filed Oct. 8 and this week, are among about 50 such cases — including one alleging wrongful death — filed against DuPont since April, when a court-appointed science panel found probable links between exposure to perfluorooctanoic acid, also known as C8, and kidney cancer, testicular cancer and thyroid disease, among others. DuPont uses C8 at its plant near Parkersburg, W.Va., on the Ohio line but plans to stop making and using the chemical by 2015. C8 is a key ingredient in Teflon, the coating used on cookware, clothing and other products. The recent litigation is the latest in a yearslong battle between DuPont and residents of the Mid-Ohio Valley, in the heart of Appalachia along the Ohio River. About 80,000 area residents filed a class-action lawsuit against the company in 2001. It resulted in a settlement in which DuPont agreed to pay as much as $343 million for residents’ medical tests, the removal of as much C8 from the area’s water supply as possible and a science panel’s yearslong study into whether C8 causes disease in humans. 

Thailand suffers worst dengue epidemic in more than 20 years: – Thailand is experiencing its largest dengue epidemic in more than two decades, with a record number of people infected by the mosquito-borne disease and 126 fatalities so far this year, health experts said on Thursday, pointing to climate change as a factor behind the spike in cases. "We are experiencing the highest number of cases in over 20 years, but the fatalities are not alarming compared to previous years, which shows our medical response is improving," said Sophon Mekthon, deputy director-general at the Ministry of Public Health. More than 136,000 cases of dengue fever, the world's fastest-spreading tropical disease, have been confirmed so far this year, with the highest concentration of cases in and around the capital Bangkok and in the northern province of Chiang Mai. Health officials say that unseasonably wet and warm weather due to climate change has made the situation particularly bad this year, reporting a more than a 50 percent increase in infections compared to 2012. Dengue is transmitted by the bite of an Aedes mosquito infected with any one of the four types of dengue virus. Symptoms typically range from a mild to a high fever with severe headaches, muscle pain and rash. There is currently no approved vaccine or specific drug treatment for the virus. Current approaches to treating the condition are focused on alleviating symptoms.

The Bangladesh poor selling organs to pay debts - Kalai, like many other villages in Bangladesh, appears a rural idyll at first sight. But several villagers here have resorted to selling organs to pay back microcredit loans that were meant to lift them out of poverty. Journalist Sophie Cousins reports on an alarming consequence of the microfinance revolution. Microcredit in Bangladesh:

• As of December 2011, more than 34 million Bangladeshis had accessed microcredit since 1997, when it began collecting data
• Of those 34 million, more than 26 million live under the poverty line - on less than $1.25 a day
• There are currently 20.65 million borrowers in Bangladesh
• It is estimated the sector constitutes around 3% of GDP

Tiny Plastic Beads Are Invading The Great Lakes. Here - Several months ago, scientists warned that tiny microbeads, a common ingredient in facial cleansers, were flowing into the Great Lakes, with no way to remove the potentially harmful plastic. Now, a new study provides evidence of the microplastics in the world's largest surface freshwater source -- and gives scientists a fighting chance to get microbeads out of consumer products.  "We found high concentrations of micro-plastics, more than most ocean samples collected worldwide," said Marcus Eriksen, who has a doctorate in science education and was the lead author on the paper. Scientist used a manta trawl (essentially, a net) to collect samples from 21 points in lakes Erie, Huron and Superior. All but one contained plastic. Much more plastic was found in Lake Erie, the most populated of the three lakes. Two of its eight samples, downstream from Erie, Pa., Cleveland, Ohio and Detroit, contained 85 percent of all the microplastic particles collected in the entire study. At one point, they found 466,000 particles per square kilometer, with an average of 43,000 particles per square kilometer. Most of these particles, which are used in bath products to scrub skin and are meant to wash down the drain, are less than one millimeter in size.

Pie Graphs of Australia’s Groundwater Use Vs. Economic Return - A very interesting report has been released regarding the increasingly important role that groundwater is playing in Australia. The National Centre for Groundwater Research and Training (NCGRT) of Australia commissioned Deloitte Access Economics to do the study. Because Australia is beginning to outgrow its surface water resources, and because climate change may cause more erratic rainfall, it is expected that Australia’s groundwater will be increasingly relied upon for agriculture, mineral, and energy production in the future.  Since the competition for resources usually comes down to a combination of policy and economics, the following pie graphs help to demonstrate why agriculture will be the sector that gets squeezed out as the demand for groundwater becomes more competitive.The first graph, below, shows that agriculture (irrigation and livestock) now uses sixty percent (or more) of Australia’s groundwater.This second graph shows that agriculture’s use of groundwater yields only fourteen percent (4.7 billion dollars) of the revenue generated by groundwater usage in Australia, whereas mining and energy yields over seventy percent of the revenue.

Propane Shortage, Heavy Rains Leave Corn Farmers Wet Behind the Ears - Farmers in the upper Midwest are used to dealing with drought, disease and pests. Now, they are grappling with a different problem: a propane shortage. Unusually heavy rains have left corn from this year's bumper harvest soggier than normal. Farmers are struggling to acquire enough propane to fuel the giant, oven-like machines that dry corn before it is stored to prevent rot. The dash for the gas has helped send U.S. domestic propane prices to an 18-month high and is slowing the corn harvest, already delayed because of wet weather during planting.The propane shortage is keeping farmers in parts of the upper Midwest from finishing collection of their corn, because they have no way to quickly dry the kernels. About 59% of the U.S. harvest has been completed, behind the historical average of 62% for this point in the year, the U.S. Department of Agriculture said Monday. "Until somebody comes up with a solution to this propane problem—or we get some bright, sunny weather—we just can't do anything," said Richard Syverson, a 57-year-old farmer near Benson, Minn. He stopped harvesting because he can't get hold of the 1,500 gallons of propane he uses daily—the equivalent of more than 300 of the tanks used in backyard grills—to run his corn dryer. "I have bills to pay, so I'd like to get this crop in so I know where I am financially," Mr. Syverson said. "It's cloudy and it's gloomy and people are in a bad mood." 

Climate Change Seen Posing Risk to Food Supplies -  An international scientific panel has found that climate change will pose sharp risks to the world’s food supply in coming decades, potentially reducing output and sending prices higher in a period when global food demand is expected to soar.That finding is by far the starkest warning that the United Nations-appointed group, the Intergovernmental Panel on Climate Change, has ever issued regarding the food supply. Its last report, in 2007, was more sanguine, essentially finding that climatic warming and the rising level of carbon dioxide in the air would boost agricultural production across large areas, though that report did cite some risks.The warning is contained in a draft report that leaked on Friday. The document is not final and not scheduled for release until after an editing session in Yokohama, Japan, in March.The draft report warns that sweeping impacts from climate change are already being seen across the planet, and that these are likely to intensify as human emissions of greenhouse gases continue to rise. Echoing past findings, the draft report points out that land ice is melting worldwide, leading to a rise of the sea that is putting coastal communities at increased risk of flooding. It describes a natural world in turmoil as plants and animals attempt to migrate to escape rising temperatures, and warns that many could go extinct. Saving a significant fraction of the world’s biological diversity may require far more aggressive human management of natural systems, the report declares.

Amazon Rainforest is ‘at Higher Risk of Tree Loss’ - Researchers say the southern part of the Amazon rainforest is at a far higher risk of dieback than the models used in the most recent report by the Intergovernmental Panel on Climate Change (IPCC). The research team, led by Professor Rong Fu of the University of Texas, say that this is because the forest is drying out much quicker than projected. If the damage is severe enough, they say the loss of rainforest could cause the release of large volumes of carbon dioxide into the atmosphere, and could also disrupt plant and animal communities in one of the world’s most biodiversity-rich regions, as outlined in the Proceedings of the National Academy of Sciences. The team used ground-based rainfall measurements from the past three decades. Findings showed that since 1979, the dry season in southern Amazonia lasted about a week longer in each decade. At the same time, the annual fire seasons have become longer. The researchers say the most likely explanation for the increasingly longer dry seasons is global warming.

Risk of Amazon Rainforest Dieback Higher than IPCC Projects - A new study suggests the southern portion of the Amazon rainforest is at a much higher risk of dieback due to climate change than projections made in the latest report by the Intergovernmental Panel on Climate Change. If severe enough, the loss of rainforest could cause the release of large volumes of the greenhouse gas carbon dioxide into the atmosphere. It could also disrupt plant and animal communities in one of the regions of highest biodiversity in the world. This new study suggests that beyond monitoring fires during the peak season, we may need to extend our analysis to evaluate whether or not we are seeing more fires in months that have typically been considered ‘low-risk’ Using ground-based rainfall measurements from the last three decades,  a research team found that since 1979, the dry season in southern Amazonia has lasted about a week longer per decade. At the same time, the annual fire season has become longer. The researchers say the most likely explanation for the lengthening dry season is global warming. “The dry season over the southern Amazon is already marginal for maintaining rainforest,” says Fu. “At some point, if it becomes too long, the rainforest will reach a tipping point.” The new results are in stark contrast to forecasts made by climate models used by the IPCC. Even under future scenarios in which atmospheric greenhouse gases rise dramatically, the models project the dry season in the southern Amazon to be only a few to ten days longer by the end of the century and therefore the risk of climate change-induced rainforest dieback should be relatively low.

Escaping the warmth: The Atlantic cod conquers the Arctic - As a result of climate change the Atlantic cod has moved so far north that it’s juveniles now can even be found in large numbers in the fjords of Spitsbergen. This is the conclusion reached by biologists of the Alfred Wegener Institute, Helmholtz Centre for Polar and Marine Research (AWI), following an expedition to this specific region of the Arctic Ocean, which used to be dominated by the Polar cod. The scientists now plan to investigate whether the two cod species compete with each other and which species can adapt more easily to the altered habitats in the Arctic.

Unprecedented warming uncovered in Pacific depths - The effects of climate change are being felt almost a kilometre down in the biggest ocean on Earth. A new record of water temperatures shows how the Pacific has warmed and cooled since the last ice age. It shows that the ocean has warmed 15 times faster in the last 60 years than at any time in the previous 10,000. The fact that the heat of global warming is penetrating deep into the oceans is yet more evidence that we are dramatically warming the planet, To take the temperature of the ancient Pacific, Rosenthal's team turned to the preserved remains of single-celled organisms called foraminifera. Each "foram" builds a hard shell around itself, and the amount of magnesium in the shell varies depending on the temperature of the surrounding water. By measuring the amount of the mineral in the shells, it is possible to work out the temperature of the water in which the forams lived. Rosenthal examined preserved forams found in sediments from the seas around Indonesia. These seas receive water from the north and south Pacific, so their temperature should reflect the average across the entire Pacific. Rosenthal found that after a period of warming following the end of the last ice age, the Pacific steadily cooled by 2.1 °C over the next 9000 years. Temperatures then shot up at an unprecedented rate: increasing by 0.25 °C in 200 years. The timing of the uptick reflects the onset of the industrial revolution.

The Sun Has Cooled, So Why Are The Deep Oceans Warming?: Key Points: In keeping with scientific expectations, the ongoing emission of greenhouse gases from human industrial activity is causing the Earth to build up heat - a process known as the increased (enhanced) greenhouse effect. Though this is not widely-known, the increased greenhouse effect traps more of the sun's energy in the ocean, causing the upper ocean to grow warmer over time. Despite a much smaller increase in warming of the global atmosphere since the year 2000, the ocean, and the deep ocean in particular, has warmed rapidly. The following series of posts will explain the fundamentals of the wind-driven ocean circulation, including a natural multidecadal oscillation in the circulation that, when it intensifies, is responsible for removing heat from the surface ocean and mixing it into deeper layers below. The combination of the greenhouse gas-forced warming of the surface ocean, and the intensified (but temporary) vertical mixing of heat into the deeper layers, is consistent with the deep ocean warming which has been measured.

Acidification of oceans threatens to change entire marine ecosystem - Ocean acidification due to excessive release of carbon dioxide into the atmosphere is threatening to produce large-scale changes to the marine ecosystem affecting all levels of the food chain, a University of B.C. marine biologist warned Friday. Chris Harley, associate professor in the department of zoology, warned that ocean acidification also carries serious financial implications by making it more difficult for species such as oysters, clams, and sea urchins to build shells and skeletons from calcium carbonate. Acidic water is expected to result in thinner, slower-growing shells, and reduced abundance. Larvae can be especially vulnerable to acidity. “The aquaculture industry is deeply concerned,” Harley said. “They are trying to find out, basically, how they can avoid going out of business.” While there is potential for, say, commercial oyster growers to reduce acidity for larvae in land-based facilities, the greater marine environment doesn’t have that luxury. “For wild populations, you can’t just take part of their lifecycle and babysit it,” he said. Lab studies at the University of B.C. also show that acidic water can impair the ability of salmon to grow and smell properly, which has implications for their ability to find native spawning streams. Research in Australia’s coral reefs has found that acidity can erode a fish’s ability to sniff out their best habitat and to avoid predators. Development of small creatures such as pteropods — free-swimming snails that are food for salmon — will also be stunted by acidity. 

They're Taking Over! - Jellyfish stings are often not much more than a painful interlude in a seaside holiday—unless you happen to live in northern Australia. There, you might be stung by the most venomous creature on Earth: the box jellyfish, Chironex fleckeri. Box jellyfish have bells (the disc-shaped “head”) around a foot across, behind which trail up to 550 feet of tentacles. It’s the tentacles that contain the stinging cells, and if just six yards of tentacle contact your skin, you have, on average, four minutes to live—though you might die in just two. Seventy-six fatalities have been recorded in Australia since 1884, and many more may have gone misdiagnosed or unreported.  On the night of December 10, 1999, 40 million Filipinos suffered a sudden power blackout. President Joseph Estrada was unpopular, and many assumed that a coup was underway. Indeed, news reports around the world carried stories of Estrada’s fall. It was twenty-four hours before the real enemy was recognized: jellyfish. Fifty truckloads of the creatures had been sucked into the cooling system of a major coal-fired power plant, forcing an abrupt shutdown. Japan’s nuclear power plants have been under attack by jellyfish since the 1960s, with up to 150 tons per day having to be removed from the cooling system of just one power plant. Nor has India been immune. At a nuclear power plant near Madras, workers removed and individually counted over four million jellyfish that had become trapped on screens placed over the entrances to cooling pipes between February and April 1989. That’s around eighty tons of jellyfish.

IPCC’s New Estimates for Increased Sea-Level Rise - Recently released sea-level rise findings from IPCC project greater increases than earlier forecast, but continuing uncertainties persist, and drawing direct comparisons with past estimates is difficult. Estimates for higher sea-level in coming decades are one of the major “take home” messages from the newly released IPCC report. Projected sea-level rise had been a particularly controversial aspect of the 2007 IPCC Fourth Assessment Report, with many scientists decrying the absence of modeling of dynamic ice sheet movements and arguing that models had underestimated historical sea-level rise. As a result, many had expected treatment of sea-level rise to be the focus of much attention on the new report, and that has been the case. Understanding why sea-level rise now is forecast to be greater, and why substantial uncertainties remain, requires examining the different causes of sea-level rise and the different ways of estimating future sea-level rise using both physical models and evidence from Earth’s geologic past. Global sea levels have increased fairly steadily over the past 130 years, with some acceleration evident over the past few decades. The figure below shows observations both from tide gauges (from 1880 to 2009) and satellites (1993 to 2013), with measurement uncertainty reflecting incomplete coverage of tide gauges shown in grey. 

IPCC's 'carbon budget' will not drive Warsaw talks, says Christiana Figueres  - A key finding of the UN climate panel's latest report on climate change is too politically "difficult" to drive international climate talks in November, according to the UN's climate chief. Last month, the Intergovernmental Panel on Climate Change (IPCC) calculated how much carbon dioxide the world could emit in future without going over 2C of warming – and showed that, at current rates, this "budget" would be exhausted within 30 years. It effectively put a limit on the amount of CO2 that the human activities such as burning fossil fuels can produce, without risking what scientists regard as dangerous climate change. But Christiana Figueres, executive director of the UN Framework Convention on Climate Change, said carbon budgets were a good scientific exercise but said that they could not be the basis for negotiations. "I don't think it's possible," she told the Guardian in an interview. "Politically it would be very difficult. I don't know who would hold the pen [in setting out allocations of future budgets]."

EIA: U.S. Biodiesel Production and Ethanol Export Numbers - This 4-year chart from the EIA shows us that corn ethanol export amounts have fallen off in 2013 as compared to recent years.  When you look at the following graph through July 2013, you can see how much biodiesel production has been increasing over the past year. I found it interesting that 11 percent of the biodiesel feedstocks used in July were from corn and that 25 percent of the biodiesel feedstocks were from smaller sources than tallow.

• • U.S. production of biodiesel was 128 million gallons in July 2013. This was an increase from production of 113 million gallons in June 2013. Biodiesel production from the Midwest region (Petroleum Administration for Defense District 2) was 64% of the U.S. total. Production came from 111 biodiesel plants with operable capacity of 2.1 billion gallons per year.
• • Producer sales of biodiesel during July 2013 included 87 million gallons sold as B100 (100% biodiesel) and an additional 40 million gallons of B100 sold in biodiesel blends with diesel fuel derived from petroleum.
• • There were a total of 978 million pounds of feedstocks used to produce biodiesel in July 2013. Soybean oil was the largest biodiesel feedstock during July 2013 with 480 million pounds consumed. The next three largest biodiesel feedstocks during the period were corn oil (108 million pounds), yellow grease (97 million pounds), and tallow (45 million pounds).

Climate After Growth -- In this provocative paper, PCI Executive Director Asher Miller and Transition Movement Founder (and PCI Fellow) Rob Hopkins make a convincing case for why the environmental community must embrace post-growth economics and community resilience in their efforts to address the climate crisis. executive summary | download (9MB)

Boston Considers Requiring Developers To Prepare For Climate Change -  Developers in Boston will soon be required to address how they’ll deal with threats of climate change before they construct large buildings, if a new proposal is passed in the city.  The proposal, which is part of the city’s new Climate Ready Boston report and will be presented before the Boston Redevelopment Authority board next month, would require developers in Boston to complete a climate-proofing checklist which would include documenting how the building would survive in the event of a flood or power outage and how it would conserve energy. If the proposal is approved, the city will recommend existing buildings complete the checklist as well, but they won’t be required to. Right now, new buildings need to complete a sustainability checklist, a requirement that’s part of the city’s plan to reduce emissions by 25 percent below 1990 levels by 2020. So far, the city has reduced emissions by 11 percent.  The new rules come a year after Superstorm Sandy pummeled the East Coast. Boston wasn’t hit quite as hard as parts of New Jersey and New York, but Massachussetts still experienced major power outages. But Boston’s proximity to the water makes it vulnerable to sea level rise and future storms — research has shown that seas on the East Coast are rising three to four times faster than the global average, and sea level rise of a few feet could put large areas of Boston underwater.

The role of geoengineering in dealing with climate change - In his new book, climate scientist David Keith offers A Case for Climate Engineering. (I wrote a bit about solar radiation management recently.) He advocates spraying sulfate aerosols into the atmosphere where the particles would then reflect sunlight back into space. A bit less sunlight hitting the planet would help offset global warming from carbon emissions. Here is a bit from a Boston Review chat with Keith on how SRM pairs with reducing carbon emissions:Geoengineering without emissions reductions just digs a deeper hole. Emissions reductions are a necessary part of any sensible climate policy. It is possible to make big progress cutting emissions if we implement policies that include a significant price on carbon emissions and strong incentives for clean energy innovation. But while it is in our power to end the phony war on carbon and begin serious work to drive emissions toward zero, it would be extraordinarily hard to bring emissions near to zero in less than half a century, and even if we did, substantial climate risk would remain from the carbon that has accumulated in the atmosphere, carbon that will keep changing the climate for centuries to come.. But solar geoengineering can do nothing to limit the very long-term risks associated with carbon buildup in the atmosphere. Thus there is a sense in which emissions reductions and solar geoengineering are complementary.

Naomi Klein: How science is telling us all to revolt - If we are to avoid that kind of carnage while meeting our science-based emissions targets, carbon reduction must be managed carefully through what Anderson and Bows describe as “radical and immediate de-growth strategies in the US, EU and other wealthy nations.” Which is fine, except that we happen to have an economic system that fetishises GDP growth above all else, regardless of the human or ecological consequences, and in which the neoliberal political class has utterly abdicated its responsibility to manage anything (since the market is the invisible genius to which everything must be entrusted).So what Anderson and Bows are really saying is that there is still time to avoid catastrophic warming, but not within the rules of capitalism as they are currently constructed. Which may be the best argument we have ever had for changing those rules.In a 2012 essay that appeared in the influential scientific journal Nature Climate Change, Anderson and Bows laid down something of a gauntlet, accusing many of their fellow scientists of failing to come clean about the kind of changes that climate change demands of humanity. On this it is worth quoting the pair at length: . . . in developing emission scenarios scientists repeatedly and severely underplay the implications of their analyses. When it comes to avoiding a 2 °C rise, “impossible” is translated into “difficult but doable,” whereas “urgent and radical” emerge as “challenging” – all to appease the god of economics (or, more precisely, finance). For example, to avoid exceeding the maximum rate of emission reduction dictated by economists, “impossibly” early peaks in emissions are assumed, together with naive notions about “big” engineering and the deployment rates of low-carbon infrastructure. More disturbingly, as emissions budgets dwindle, so geoengineering is increasingly proposed to ensure that the diktat of economists remains unquestioned.

China, US could help push new U.N. climate deal - experts: The world’s two biggest climate polluters, China and the United States, may have new impetus to push toward a global deal to curb climate change at U.N. negotiations in Warsaw next month, experts told a conference in London on Monday. Worsening air pollution - which led to the shutdown of Harbin, a city of 11 million, in northern China this week - is putting growing pressure on China’s leadership to curb dirty power plants and cut emissions, experts said, while the United States is finding progress on its emission reduction goals easier as it transitions from coal energy to shale gas. As negotiators start hammering out a new 2015 deal to tackle climate change, “China is going to set the level of ambition of the agreement,” predicted Nick Mabey, the head of E3G, an independent London-based policy group that aims to accelerate a global transition to sustainable development. But a daunting series of obstacles - from a lingering economic slowdown across many parts of the world to failure to build a widespread sense of urgency to act on climate change - means negotiators will struggle to find backing for an agreement that is both ambitious and quick enough to halt the worst impacts of global warming, climate experts said. “We will get an agreement. But we must make sure it is a meaningful agreement,” Christiana Figueres, executive secretary of the United Nations Framework Convention on Climate Change (UNFCCC), told the conference at London's Chatham House thinktank on “delivering concrete climate change action”. Right now, “the conversation is still not about the urgency” of action on climate change, she admitted.

How Climate Change Threatens The Ability Of Global Populations To Rise Out Of Poverty - Much of the world’s potential for further economic growth is in countries at “high” or “extreme” risk from climate change. That’s the conclusion of a new Climate Change Vulnerability Index (CCVI), which looked at the impacts of climate change over the next three decades and across 193 countries. The 2014 CCVI, which is put together annually by the global risk analytics firm Maplecroft, looked at a host of social, economic, and environmental factors, which fell under three major criteria. One, exposure to extreme weather, rising sea levels, and other disruptions due to climate change. Two, how much capability a given nation has to adapt to those upheavals. And three, how vulnerable people are in terms of population patterns, development, natural resources, agriculture, war, or conflict. The countries facing “extreme risk” include rapidly developing south Asian countries like India and Pakistan where hundreds of millions of poor people are attempting to rise into the global middle class, as well as nations in sub-Saharan Africa that are home to some of the world’s most economically vulnerable populations. The 67 countries classified as both “extreme” and “high” risk are projected to nearly triple their economies — from a combined $15 trillion to $44 trillion — by 2025, and will be home to over 5 billion, according to the report.

Report suggests slowdown in CO2 emissions rise: Global emissions of carbon dioxide may be showing the first signs of a "permanent slowdown" in the rate of increase. According to a new report, emissions in 2012 increased at less than half the average over the past decade. Key factors included the shift to shale gas for energy in the US while China increased its use of hydropower by 23%. However the use of cheap coal continues to be an issue, with UK consumption up by almost a quarter. The report on trends in global emissions has been produced annually by the Netherlands Environment Assessment Agency and the European Commission's Joint Research Centre. It finds that emissions of carbon dioxide reached a new record in 2012 of 34.5bn tonnes. But the rate of increase in CO2 was 1.4%, despite the global economy growing by 3.5%. This decoupling of emissions from economic growth is said to be down to the use of less fossil fuels, more renewable energy and increased energy savings.

Attacks On Clean Energy Failed Across The Country: Report -- Efforts to roll back renewable energy standards in the states this year have largely failed despite the best efforts of conservative groups, according to a new report. At least 37 bills have been introduced in 2013 to eliminate or weaken states' renewable portfolio standards (RPS), which set a minimum requirement for how much energy a state's utilities must draw from renewable sources like solar and wind. The new report from ProgressNow and a coalition of national environmental and state-based progressive groups found that only one of those efforts has passed so far this year. "They have almost no success," said Brian Wietgrefe, national research director at ProgressNow. "It's because it works -- the policies work."Thirty-seven states have some manner of RPS in place. But a number of conservative groups, including the Heartland Institute and Grover Norquist's Americans for Tax Reform, have been driving efforts to amend or entirely remove those standards.

Institutional Investors Concerned About “Unburnable Carbon” Fallout -- The “carbon bubble” is a concept that has been gaining momentum over the past year. In brief, the theory claims that in order to avoid catastrophic climate change, the world must remain within its “carbon budget”—the volume of CO2 that can be emitted before the Earth’s temperature is pushed over the 2°C benchmark agreed upon by the international community. However, according to the IEA, “no more than one-third of proven reserves of fossil fuels can be consumed prior to?2050 if the world is to achieve the 2°C goal, unless carbon capture and storage (CCS) technology is widely deployed.” Following this theory to its logical end, the remaining two-thirds of global fossil fuel reserves are “unburnable”—that is, worthless.  Addressing the market implications of this reality, HSBC published a report that found that a carbon-constrained future could dramatically reduce the market value of major fossil fuel firms—up to 60%, depending on demand repercussions.   A group of 70 investors representing over $3 trillion in assets is pressing 45 major oil, gas, and coal companies on what they plan to do about this looming threat to their business model. In a letter sent to British Petroleum executives, they state that it is “important to understand how current and probable future policies to make these emissions reductions will impact capital expenditures and current assets in the oil and gas sector and how the physical impacts of unmitigated climate change will impact the sector’s operations.”

Stranded Fossil Fuels? Institutional Investors Concerned About “Unburnable Carbon” Fallout - from naked capitalism.  Yves here. Given the almost innate bullish bias of equity investors, when they start worrying about something, that means it actually has non-trivial odds of happening. So the idea that investors think it’s possible that a lot of current proven fossil fuels won’t be lifted is an unexpected bit of good news on the climate change front. Whether this comes to pass soon enough to save our collective bacon is another question entirely. The “carbon bubble” is a concept that has been gaining momentum over the past year. In brief, the theory claims that in order to avoid catastrophic climate change, the world must remain within its “carbon budget”—the volume of CO2 that can be emitted before the Earth’s temperature is pushed over the 2°C benchmark agreed upon by the international community. However, according to the IEA, “no more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2°C goal, unless carbon capture and storage (CCS) technology is widely deployed.” Following this theory to its logical end, the remaining two-thirds of global fossil fuel reserves are “unburnable”—that is, worthless.

Investors warn moves to curb climate change will hit fuel demand - Investors managing assets worth about $3tn have written to the world’s largest oil, gas and coal companies, calling on them to prepare for a possible decline in demand for fossil fuels caused by policies to fight the threat of climate change.The letters, signed by 72 investors including several US state pension systems and fund managers such as Scottish Widows and Aviva, warn the companies that they may be investing in production capacity that will never be used.The correspondence reflects growing concern among many investors about the prospect that fossil fuel reserves will be “stranded assets”, which cannot be extracted and used without causing dangerous global warming. The letters were sent to 45 companies, including large oil and gas producers such as ExxonMobil, Royal Dutch Shell and BP, and mining groups including BHP Billiton, Rio Tinto and Peabody Energy. They urge the companies to carry out a “risk assessment” of the consequences of a global move to cut greenhouse gas emissions by 80 per cent by 2050, a reduction that has been estimated as giving a reasonable chance of limiting the rise in global temperatures to an acceptable 2°C.

Investors: Can Oil Companies Thrive in Warming World? - Will ExxonMobil, Peabody Energy and the world’s 43 other largest fossil fuel companies be able to thrive in a business climate heavily affected by global warming? That’s a question a coalition of investors, led by the sustainable business advocacy group Ceres, is asking those companies, demanding to know if they can be viable if markets or government-imposed mandates prevent them from burning all of their proven carbon reserves.  “Investors are asking fossil fuels companies, what is your plan B?” said Ceres president Mindy Lubber during a conference call with reporters on Thursday. “If you’re unable to use major portions of your fossil fuels reserves, where do you go?” The idea that ExxonMobil, for example, won’t be able to burn all its oil, or Peabody Energy won’t be able to mine and burn all its coal reserves, comes from the Intergovernmental Panel on Climate Change and the International Energy Agency’s suggestions that an effective way to limit global warming to 2°C is for nations to set a carbon budget that demands significant portions — possibly two-thirds — of proven fossil fuel reserves to be left unmined and unburned.

Tepco split looms as utility lacks ability to deal with Fukushima disaster - More than 30 months after an earthquake triggered the world’s worst nuclear disaster in a quarter of a century, Prime Minister Shinzo Abe is being told by his party that Japan’s response is failing. Plant operator Tokyo Electric Power Co. isn’t up to the task of managing the cleanup and decommissioning of the atomic station in Fukushima. That’s the view of Tadamori Oshima, head of a task force in charge of Fukushima’s recovery and former vice president of Abe’s Liberal Democratic Party. “I’d like them to form a strong, unified authority” to deal with the disaster, Oshima said Thursday after releasing a report on the recovery effort that will be taken to Abe. It indicates the government should take over the task and shoulder the bulk of the costs by treating the cleanup as a public works project.  Tokyo Electric is handling an estimated $112-billion cleanup of the nuclear plant wrecked by an earthquake and tsunami in 2011. At the same time it’s trying to operate as a company generating power for its 29 million customers. The tasks are not compatible as the utility doesn’t have motivation to invest in Fukushima as it’s a lost cause compared with businesses that will make money.

Weapons-Grade Plutonium Price Hits All-Time High - The price of weapons-grade Plutonium surged $200 over the past three weeks to an all-time high of just over $4,000 per gram, according to an international survey. And with the start of terrorist season just around the corner, prices are not expected to drop anytime soon. "This latest price surge smashes the record high for the third time this year," said independent terrorism economist Omar McNalley. "At this point, you have to think it's starting to be priced out of the range of your average terrorist." Indeed, according to the Bureau Of Labor Statistics, the purchasing power of the average terrorist for Plutonium and other nuclear materials has declined steadily over the past decade, with more and more nuclear threats coming from firms with established terrorism programs. However, Homeland Security officials warn against thinking the war against terrorism will be won on cost alone. "The same amount of nuclear material is moving into the wrong hands now as was a year ago," said Homeland Security Advisor John Brennan. "It's just moving into fewer hands. Allows us to keep a closer eye on it, but it's still out there."

Is There A Radioactive Waste Land In Your Back Yard? -- While nearly three years after the Fukushima disaster the world is finally focused, rightfully so, on the epic ecological and radioactive clusterfuck unfolding in Japan, where in a desperate effort to distract the population from what is going on in its back yard, the Premier has launched the most ridiculous monetary experiment doomed to failure, the reality is that the US itself harbors a veritable waste land of radioactive fallout, much of it hidden in plain sight.  As the following interactive map from the WSJ shows, of the 517 active sites in the continental US, found on the Department of Energy's listing of facilities "considered" for radioactive cleanup through its Formerly Utilized Sites Remedial Action Program, some 43 have a "potential for significant radioactive contamination" through the time of the study.From the WSJ: During the build-up to the Cold War, the U.S. government called upon hundreds of factories and research centers to help develop nuclear weapons and other forms of atomic energy. At many sites, this work left behind residual radioactive contamination requiring government cleanups, some of which are still going on.The Department of Energy says it has protected the public health, and studies about radiation harm aren’t definitive. But with the government's own records about many of the sites unclear, the Journal has compiled a database that draws on thousands of public records and other sources to trace this historic atomic development effort and its consequences.Find out if your state, city, or town is located next to a potential dormant and largely secret Fukushima, using the following handy interactive map.

Energy Boom Puts Wells in America's Backyards - Across the U.S., new oil and gas wells have turned millions of people into the petroleum industry's neighbors. For many, the oil and gas companies are welcome newcomers bearing checks. Others consider the new arrivals loud, smelly and disruptive. The drilling boom is firing up resentment in some communities when one person's financial windfall means their neighbors abut a working well. The Wall Street Journal analyzed well location and census data for more than 700 counties in 11 major energy-producing states. At least 15.3 million Americans lived within a mile of a well that has been drilled since 2000. That is more people than live in Michigan or New York City. The arrival of the Oil Patch in the nation's backyards is a result of an extraordinary U.S. energy boom driven largely by hydraulic fracturing, or fracking, a practice that makes it possible to tap into dense, previously impenetrable shale formations to extract fossil fuels. Fracking enabled the drilling of the Niobrara Shale in Colorado, as well as the Marcellus Shale in Pennsylvania, the Barnett Shale in Texas and others. Nationwide some 23 counties, with more than four million residents, each had more than three new wells per square mile, according to the 2010 Census and well-location information from DrillingInfo, a data provider to the oil industry. Comparisons to well density in earlier eras is difficult, due to incomplete records from a century's worth of drilling.

Business: Former Chesapeake CEO McClendon returns to the game in Ohio's Utica Shale -- Aubrey McClendon is buying oil and gas acreage in Ohio and may have found a position in the most productive portion of the Utica Shale field, six months after being forced out as CEO of Chesapeake Energy Corp. McClendon's new company, American Energy Partners LP, has bought acreage in three counties in southeast Ohio, according to analysts and public documents. That puts him in the same part of the field as GulfPort Energy Corp. and Anadarko Petroleum Corp., which have reported promising results from wells in the Utica this year. [...] The company will drill its first wells later this year and plans to run 12 drilling rigs, according to a news release. There are challenges, though. Until now, the anticipated Ohio shale gas boom has been stuck in neutral, awaiting the completion of a entire network of new infrastructure to gather and isolate ethane and other natural gas liquids (NGL) components, and completion of long-distance pipeline links to move products to petrochemical plants and export terminals. Led by MarkWest Energy Partners, companies have committed more than $6 billion in NGL gathering and processing plants in Ohio and West Virginia to complete the infrastructure buildout. But even with this surge of activity, analysts have predicted that Utica NGL production would outpace existing and announced pipeline and processing capacity through 2017 or 2018.

New York Shale Play Gets Major Downgrade -- The real reason New York State has not allowed high-volume hydrofracking for natural gas in its Marcellus shale is that there is almost no gas that can be economically extracted, according to four retired professionals turned fracking analysts. Their argument contradicts the gas industry’s narrative – widely accepted as fact by many landowners, investors, politicians and state regulators – that shale gas is a potential economic “game-changer” for poor, rural upstate New York. For the past four years, two governors have repeatedly extended the state’s de facto moratorium on fracking while they tinkered with the rules. Since last fall, Gov. Andrew Cuomo has said he is waiting for the results of a vaguely defined health study, frustrating pro-gas groups with his apparent lack of urgency. But the four analysts now argue that it’s geology – not health – that best explains Cuomo’s foot-dragging. In the governor’s cost-benefit analysis, they say, meager potential economic gains from drilling are not worth the environmental and political risk. “The vast majority of the New York Marcellus shale is too thin (less than 150 feet thick) and too shallow (less than 4,500 feet) to yield economically recoverable natural gas,”

Will Utica, Marcellus remain non-starters in Empire State? New theory holds geology, not politics, thwarts NY fracking -- A collection of factors stalled the Pennsylvania shale gas rush at the New York state border, including grass roots opposition, a market glut, the threat of local bans and --  above all -- the state’s reluctance to complete permitting guidelines without more information about health impacts. That, at least, is the familiar version of the story recounted through the popular press. But a group of activists – some uniquely qualified – are building an argument that something more profound and fundamental is at work: A lack of gas.  “Simply put, we now know that the Marcellus is likely only marginally productive in a few townships by the border - and may not be economic there until after 2020,” said Chip Northrup. “The Utica may not be here at all - or in a few pockets.”   The argument isn’t really about whether there is gas under New York – geologists agree that multiple gas-bearing formations, conventional and otherwise, lie beneath upstate’s countryside from the Catskills to the Allegany region. It’s a question of whether the broad mantels of Devonian shale, which hold prospects of drilling, fracking, and infrastructure development on an unprecedented scale, are economically viable under current or future market conditions.

U.S., Canada Lead World in Shale Gas Production - According to the "Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States" analysis prepared by Advanced Resources International for the EIA, in comparison with 2011 figures, 41 countries were now assessed to have recoverable shale gas reserves, up from 32 two years ago. The number of basins with recoverable shale reserves increased from 41 in 2011 to 48 in 2013, and the number of formations containing shale gas nearly doubled in the same time period, from 69 in 2011 to 137 in 2013. Worldwide, estimates of “technically recoverable resources” of shale gas also increased, from 6,622 trillion cubic feet in 2011 to 7,299 tcf two years later. Shale/”tight oil” estimates also rose, more than 1,000 percent, from 32 billion barrels in 2011 to an impressive 345 bb. The report’s most arresting statistic is that in only two years, estimates of U.S. potential shale gas reserves soared by nearly 50 percent. “The shale gas resources assessed in this report, combined with EIA's prior estimate of U.S. shale gas resources, add approximately 47 percent to the 15,583 trillion cubic feet of proved and unproven non-shale technically recoverable natural gas resources. Globally, 32 percent of the total estimated natural gas resources are in shale formations, while 10 percent of estimated oil resources are in shale or tight formations.”

When will the Shale Bubble Burst?: Most of us are aware by now that the introduction of widespread hydraulic fracturing into the oil and gas business has resulted in a rapid growth in U.S. production. U.S. crude output is up by nearly 2.5 million barrels a day (b/d) since mid-2007 and natural gas production is up by 25 percent. The key question of course is how long production will continue to grow before it inevitably declines. Optimists maintain that we have just scratched the surface of our shale oil reserves and that production will continue increasing for years, if not decades. Realists are not so sure, noting that not only is fracked oil very expensive, requiring circa $80 a barrel to cover the costs of extraction, but that production from fracked oil wells drops off quickly so that new wells have to be drilled constantly to maintain production. Until recently information about just how fast our fracked oil wells were depleting was rather hard to come by, so that the hype about the US becoming energy independent and a major oil exporter became conventional wisdom for most...There are two key questions which will determine how much longer these shale oil plays will continue growing. One is: How many economically viable sites are left to drill? The other is: How long it will it be before production from the 10,000 or so wells already pumping in the Bakken will fall to the place where the 150 or so new wells coming into production each month will not be enough to keep total production growing? While not making a forecast as to when production will peak in the shale fields, the EIA, however, does make a projection as to what will happen in November 2013--not a particularly bold prediction but at least it is something. According to the EIA report, what it terms the decline in “legacy oil production” (i.e. those wells that have been producing for more than a month) for the Bakken field is now at 60,000. The Texas’s Eagle Ford field’s production is now declining at 80,000 b/d and the no longer growing Permian Field is declining at 34,000 b/d.

Koch Pipeline Spills 400 Barrels Of Crude Oil In Texas - 17,000 gallons of crude oil spilled from an eight-inch pipeline owned by Koch Pipeline Company on Tuesday, the Railroad Commission of Texas reported Wednesday. The spill impacted a rural area and two livestock ponds near Smithville and was discovered on a routine aerial inspection, according to the Austin American-Statesman. Details are scarce regarding the cause of the spill and cleanup measures underway but, as UPI reported, “Koch Pipeline Co. said it notified the appropriate federal and state regulators but had no estimated time for repairs. Neither Koch nor the Texas Railroad Commission had a public statement about the incident.” Koch Industries has also come under fire recently for dumping petroleum coke, a byproduct of tar sands refining, along riverfronts in both Detroit and Chicago. The crude oil spill is the latest in a string of pipeline incidents that have occurred in multiple U.S. states as oil companies ramp up production and find themselves scrambling to ship their product to refineries. Earlier this month, a pipeline that spewed over 20,000 barrels of crude oil into a North Dakota wheat field and went unreported for 11 days until it was discovered by a farmer harvesting his wheat. A subsequent Associated Press investigation found nearly 300 oil spills and 750 “oil field incidents” have gone unreported in the state since January 2012 alone.

Nearly 300 Oil Spills Went Unreported In North Dakota In Less Than Two Years - Nearly 300 oil spills and 750 “oil field incidents” have occurred in North Dakota since January 2012 and none were reported to the public, according to a report released Friday by the Associated Press.  The investigation was spurred by a pipeline that spewed over 20,000 barrels of crude oil into a North Dakota wheat field earlier this month and went unreported for 11 days until it was discovered by a farmer harvesting his wheat.  In the wake of the report, the state’s Health Department announced it is testing a website to disseminate information about oil spills to the public but the AP notes that in the nation’s second-largest oil producing state, that only addresses part of the problem.  North Dakota regulators, like in many other oil-producing states, are not obliged to tell the public about oil spills under state law. But in a state that’s producing a million barrels a day and saw nearly 2,500 miles of new pipelines last year, many believe the risk of spills will increase, posing a bigger threat to farmland and water. Rapidly increasing production from oil and gas fields in Canada and several U.S. states is putting increasing pressure on the industry to expand its network of pipelines that transport the product to refineries. In the wake of this unprecedented expansion, spill detection and reporting are just two of many concerns.

Is Nobody Watching Oil Pipeline Safety in the United States? - North Dakota's governor said he was frustrated with the way in which federal regulators were monitoring pipeline safety. An oil spill in the west of the state went unnoticed until a farmer discovered it in his field last month. Regulators, the governor said, don't monitor rural areas the same way they do elsewhere. On Capitol Hill, meanwhile, supporters of a controversial pipeline bill say more infrastructure is needed and fast in order to keep up with the oil boom under way in the central United States. That measure, however, does little to allay the safety concerns about the spider web of oil and natural gas pipelines already in place across the country. "[The federal] Pipeline and Hazardous Materials Safety Administration requires the use of enhanced pipeline monitoring and control technology in locations considered 'high consequence areas' such as cities and near drinking water supplies," North Dakota Gov. Jack Dalrymple said. "Rural areas don’t necessarily get the same level of oversight from PHMSA and that is concerning."

US #1 in Oil: So Why Isn’t Gasoline $0.80 Per Gallon?  -- The United States has the largest refining capacity in the world and is still by far the largest consumer of oil in the world (though China is beginning to catch up), and its refineries require 15 million barrels of oil a day. That means even though, due to the shale revolution, domestic production has dramatically increased to about 8 million barrels, the US still has to import between 7 and 8 million barrels of expensive foreign oil a day. Let's take a look at who the US buys the imported oil from.  Canada is blue because it is not only friendly with the US, but also has the ability to increase oil production. The other countries are red because they either have decreasing oil production, or the country is not on good terms with the US government, or the production may be at risk for various reasons. The "red countries" all sell oil to the US at higher prices than does Canada.As I said, the US imports about 7 million barrels of oil a day, and our top 5 exporters make up between 5.6 and 6.8 million barrels while the rest is split among other countries.This means that even though the US has significantly increased its oil production in the past five years, a good chunk of oil has to be imported at much higher prices. And higher crude oil prices for refineries means higher prices at the gas pump.

Energy Is A Power Game – 3 (They Cheat And They Lie) – Ilargi - The running mantra says that private industries are better at anything and everything than governments are, and hence, than communities are. What I think is that even if that were true, and from what I see it’s much more of an ideology than a proven fact, even if it were true it wouldn’t make any difference. Because as far as I can see, it’s essential and crucial to the well-being, and indeed the survival of a community, to control production and distribution of its basic needs. It may not be evident at all times, but, like with so many things, when shortages or other problems set in, so does reality. And a community will realize too late that it’s fine to pay a small prize for its independence. And here, after Energy Is A Power Game – 1 and Energy Is A Power Game – 2 (Britain Is Losing), I return one more time to Britain and its energy politics. After Thatcher was done, the British people were left with very little ownership of both their energy sources and the relevant distribution systems. It may have taken 25 years or so, about an entire generation, but today the bills are due for what was decided under her leadership and her alleged free market beliefs. And now the people are stuck. Exactly how stuck they are is what they will find out from here on in, and they’re not going to like it one bit. But there’s little left to do, the die have been cast. There are voices now clamoring for a “full-scale” reform, but they had one of those 25 years ago, and it created, instead of the promised increase in competition and decrease in prices, an – often foreign-owned – energy cartel that now has an iron grip on Britain.

Oil’s $5 Trillion Permian Boom Threatened by $70 Crude -  Bryan Sheffield, a third-generation oil wildcatter in Texas’s Permian Basin, knows what he’ll do if crude drops to $80 a barrel: shut down half his drilling rigs and go on a takeover hunt for weaker rivals. Sheffield is among producers who’ve together invested $150 billion in the Permian since 2010 seeking their piece of an oil trove estimated to be worth as much as $5 trillion. As the money pours in, risks are mounting of a bust as analysts forecast crude is heading down to $70 a barrel next year, a price that would slow drilling in the most expensive U.S. shale formation. While traditional wells have been drilled in the Permian since the 1920s, producers have become giddy over the potential of the region’s vast overlapping layers of oil-soaked shale rock. Pioneer Natural Resources estimated the remaining yield at the equivalent of 50 billion barrels, more than any field on Earth except Saudi Arabia’s Ghawar. The varied geology, though, makes it more costly to explore and develop. “That’s the double-edged sword,”  Multiple oil zones layered one atop another provide ample potential for riches, “but you also have to be a knowledgeable and good operator in order to drill economic wells out there.” If oil drops another 18 percent to $80 a barrel, wells in some parts of the Permian that sprawls beneath Texas and New Mexico will become money-losers

Why Rising Energy Costs are Responsible for Widespread Economic Recession - How does the world reach limits? This is a question that few dare to examine. My analysis suggests that these limits will come in a very different way than most have expected–through financial stress that ultimately relates to rising unit energy costs, plus the need to use increasing amounts of energy for additional purposes:

•    To extract oil and other minerals from locations where extraction is very difficult, such as in shale formations, or very deep under the sea;
•    To mitigate water shortages and pollution issues, using processes such as desalination and long distance transport of food; and
•    To attempt to reduce future fossil fuel use, by building devices such as solar panels and electric cars that increase fossil fuel energy use now in the hope of reducing energy use later. We have long known that the world is likely to eventually reach limits. In 1972, the book The Limits to Growth by Donella Meadows and others modelled the likely impact of growing population, limited resources, and rising pollution in a finite world. The indications of the 1972 analysis were considered nonsense by most. The Limits to Growth analysis modelled the world economy in terms of flows; it did not try to model the financial system. In recent years, I have been looking at the situation and have discovered that as we hit limits in a finite world, the financial system is the most vulnerable part because of the system because it ties everything else together. Debt in particular is vulnerable because the time-shifting aspect of debt “works” much better in a rapidly growing economy than in an economy that is barely growing or shrinking.

Iran Creeps Back: Told You So: Courtesy of Reuters, we hear that Iran is “reaching out to its old oil buyers and is ready to cut prices if Western sanctions against it are eased.” And people are indeed talking to Iran, since the geopolitical turnaround in Syria in which the US, Russia and Iran find itself with shared goals. Indeed, OP Tactical, our global intelligence service, has a network in Iran that attests to the fact that informal talks with states and oil traders are blossoming fast, and the atmosphere is one of high expectation.Iran’s nuclear “program” has always been a bit of a diplomatic red-herring in the sanctions game. This is the murky surface. The sub-waters here are geopolitical and much more informative. Right now, only China, India, Japan, South Korea and Turkey are officially buying Iranian oil. The European Union stopped buying Iranian oil with sanctions, but it’s itching to dig itself out of this hole as its energy security is threatened by Russia. The problem with Iranian oil re-entering the market is OPEC. This is where the Saudis come in—and they are very angry about the turnaround in Syria. If Iran re-enters the market, Saudi Arabia will either have to cut exports or accept a sharp drop in oil prices due to saturation. Traditional US ally and weapons beneficiary Saudi Arabia has recently rejected a much-sought-after two-year seat at the United Nations and is threatening to rethink its relations with the US over Washington’s failure to play missile ball in Syria and its mounting flirtation with Tehran.

China oil giants risk paying high price for energy addiction (Reuters) - China's biggest state-owned oil firms, sitting on ageing fields, are scrambling to ramp up crude oil and natural gas production to meet surging domestic demand through a slew of investments that also risk pushing up their costs. PetroChina, Sinopec Corp and CNOOC Ltd produced more oil and gas in the first nine months of this year, the companies said in the past week. That was partly in response to the government's recent hike of domestic natural gas prices and moves to link pump prices more closely with international crude costs. The increase, however, is far from enough to bridge the gulf between the energy consumption and production of China, which last month overtook the United States to become the world's largest oil importer. As domestic oilfields age, the three companies have in recent years poured billions of dollars - the biggest amount in the world so far - into the acquisition of unconventional and traditional hydrocarbon assets overseas to boost reserves. They have also invested heavily in risky projects such as deepwater drilling at home and abroad. These investments, which mirror a trend in the global oil industry, will increase costs but, so far, not at the expense of profits. PetroChina and Sinopec both reported on Tuesday net profit growth of around 20 percent in the third-quarter.

China Signals ‘Unprecedented’ Policy Changes on Agenda at Plenum - Chinese Politburo member Yu Zhengsheng said reforms to be discussed at a Communist Party meeting next month will be unprecedented, adding to signs that leaders are resolved to spur far-reaching policy changes. Yu’s comments, made in a speech at a forum to promote relations with Taiwan, were reported by the official Xinhua News Agency on Oct. 26. Yu is ranked fourth in the seven-strong Politburo Standing Committee headed by party chief and President Xi Jinping. Premier Li Keqiang has pledged to cut the state’s role in the economy, change the financial and fiscal systems, and overhaul land and household registration rules to sustain growth. Analysts surveyed by Bloomberg News this month said policies flowing from the meeting, called the third plenum, will reduce the odds of a severe slowdown and help China become a high-income country by 2030.

Farmland and currency key in “unprecedented” Chinese reforms – With a game-changing Communist Party of China (CPC) meeting approaching next month, a report detailing the country’s reform plans has garnered wide public attention, especially over its recommendations toward rural land ownership and the opening up of investment. The Development Research Center, a governmental think tank under the Chinese State Council, published a report on Oct. 1 focusing on eight key areas of reform. The report is intended as a reference for the third Plenary Session of the CPC next month. The report has surprised many by its “boldness” in measures and tone, Chinese media have reported. Out of the eight key areas, land reform is seen as among the most significant and expected to “tackle unsolved problems of the past”. According to the report, farmers will be granted the right to transfer and mortgage collectively owned rural land. The measures would mean equal treatment of farmland and state-owned land, improving the leasing, transferring and mortgaging systems in the market. The so-called “land transfer” refers to the movement of land management rights to other farmers or economic organizations by farmers who own the properties.

Chinese Government Think Tank Offers Insight Into Reformist Goals - As China’s leaders prepare to gather in Beijing next month to outline their priorities for the next decade, officials are busily hashing out the agenda in closed-door negotiations. A set of recommendations by an influential government think tank provides one side of the argument. In a 200-page report, the Development Research Center of the State Council, China’s cabinet, advocates far-reaching reform of the financial system, an end to the state’s monopoly on land sales and tougher management of state-owned enterprises. The report, which was reviewed by The Wall Street Journal, is expected to be published this week. The DRC is only one among many groups submitting detailed recommendations to national leaders ahead of next month’s meeting, known as the Third Plenum. Leaders will likely balance the group’s calls for a deepening of market-oriented reforms with submissions from powerful bodies like the National Development and Reform Commission, the top economic planning agency, and the state-owned Assets Supervision and Administration Commission, which manages state-owned enterprises. But the DRC’s proposals, dubbed the 383 Report, offer an insight into the goals of pro-reform elements within the Chinese government. The DRC declined to comment on the response to its report from within the government.

Monetary and Fiscal Operations in the People’s Republic of China: An Alternative View of the Options Available - You’ve no doubt read various analyses predicting the impending collapse of the Chinese financial sector, and arguments that China cannot continue to grow at a rapid pace. While we do think that China faces some challenges, we part company with the gloom and doom crowd. What most of them do not understand is that China is a sovereign country that issues its own currency. Affordability is not an issue. China has the fiscal capacity to resolve any financial crisis, and it can “afford” to grow fast if it chooses to do so. Our paper examines the fiscal and monetary policy options available to the PRC as a sovereign currency-issuing nation operating in a dollar standard world. The paper first summarizes a number of issues facing the PRC, including the possibility of slower growth and a number of domestic imbalances. Then, it analyzes current monetary and fiscal policy formation and examines some policy recommendations that have been advanced to deal with current areas of concern. The paper outlines the sovereign currency approach and uses it to analyze those concerns. Against this background, it is recommended that the central government’s fiscal stance should be gradually relaxed so that local government and corporate budgets can be tightened. By loosening the central government’s budget but tightening local government and corporate budgets at a measured pace, the PRC can avoid depressing growth or sparking excessive inflation. Since the central government faces no financial constraints, shifting more fiscal responsibility to the center will reduce financial fragility.

China’s Growth: Why Less is More -- Less growth in China today will mean higher income in the future. So rather than worry, we should welcome the slowdown in China’s economy. Why? Because by favoring structural reforms over short-term stimulus, China’s leadership is illustrating their commitment to move to a more balanced and sustainable growth model. Borrow and spend, or in China’s case, borrow and invest works great to prop up growth. At least for a while. But eventually, debt rises, investment becomes less productive, and the risks rise. Fortunately, China’s economy still has considerable buffers. The risks to the outlook in the near-term, therefore, is extremely low. But the economy is becoming more vulnerable on several fronts: surging credit, strains on local government finances, and weakening balance sheets in parts of the corporate sector. Credit provides the clearest example. A broad measure of credit (total social financing) had held steady at about 130 percent of GDP for much of the 2000s. However, since 2008, it has shot up to around 200 percent of GDP;an increase of 70 percent of GDP in 4½ years. Not surprising, therefore, that investment is also booming. Investment accounts for nearly half of the economy’s output, which is among the highest in the world. Indeed, it is also high relative to the historical experience of other fast growing economies. As more output goes into investment, less goes into consumption. Reversing this trend requires rebalancing growth away from investment and towards consumption.

Are China’s Banks Next? - Simon Johnson - America’s recent bout of dysfunctional politics and the eurozone’s on-again, off-again crisis should, on the face of it, present a golden opportunity to China. To be sure, the malaise in the United States and Europe is likely to hurt Chinese exports; but, over the long term, China wants to reorient its economy toward domestic consumption. With the Tea Party wing of America’s Republican Party scaring investors out of the dollar, interest in the Chinese renminbi’s potential as an international reserve currency can only increase. This will help China to attract more investors seeking to diversify their portfolios. Chinese government debt will become an important global benchmark asset, which should help its private sector to attract funding on reasonable terms, while the predominance of the US Federal Reserve in determining worldwide monetary conditions would presumably diminish. The decades-old shift to a multipolar world for manufacturing could thus lead to a more multipolar currency world, with the renminbi as an important player. But, despite its unique history and current advantages, China harbors a weakness that is quite similar to what has caused so much trouble in the US and Europe: big banks that have an incentive not to be careful. China’s latest moves suggest that while it may now enjoy some years of greater prominence, its encouragement of its financial institutions to go global is likely to lead to serious trouble. Ironically, the British government, while no doubt just trying to be hospitable to foreign investors by laying out a red carpet, is helping to set a trap for Chinese financial institutions – and the broader Chinese economy. By encouraging China to build global financial institutions with light regulation, the United Kingdom is not just inviting irresponsible behavior; it could help to pull an entire economy toward ultimately unproductive and even self-destructive activities.

BIS sees risk of 1998-style Asian crisis as Chinese dollar debt soars - The world's banking watchdog warns that foreign loans to companies and banks in China has tripled over the last five years and may be large enough to set off financial tremors in the West. Foreign loans to companies and banks in China have tripled over the last five years to almost $900bn and may now be large enough to set off financial tremors in the West, and above all Britain, the world’s banking watchdog has warned. “Dollar and foreign currency loans have been growing very rapidly,” said the Bank for International Settlements in a new report. “They have more than tripled in four years, rising from $270 billion to a conservatively estimated $880 billion in March 2013. Foreign currency credit may give rise to substantial financial stability risks associated with dollar funding,” it said. China’s reserve body SAFE said 81pc of foreign debt under its supervision is in dollars, 6pc in euros, and 6pc in yen.

Yuan cross-border trade settlement hits 8.6 trillion -- China's cross-border trade settlements in its national currency, the yuan or renminbi, totalled 8.6 trillion yuan (1.4 trillion U.S. dollars) by the end of September since the program's launch in July 2009, a central bank official said on Friday. Cross-border yuan transactions have been conducted in 220 countries and regions and China had signed currency swap contracts with 23 countries and regions by the end of September, said Xing Yujing, secretary general of the monetary policy committee of the People's Bank of China (PBOC), the central bank. The southern province of Guangdong is the pioneer of cross-border yuan transactions. Guangdong's cross-border trade settlements in renminbi totalled 3.2 trillion yuan by the end of September, with 22,000 enterprises as well as 2,189 bank outlets conducting the business, said Wang Jingwu, head of the central bank's Guangzhou branch. China first kicked off trials of cross-border trade settlement in yuan in 2009 in Hong Kong, Macao, ASEAN countries and selected other locations. The scheme has now been extended to all parts of China and all countries and regions overseas.

Billionaires: Decline of the West, Rise of the Rest - With the help of Forbes magazine, we and colleagues at the Institute for Policy Studies have been tracking the world’s billionaires and rising inequality the world over for several decades. After our initial gawking at the extravagance of this year’s list of 1,426, we looked closer. This list reveals the major power shift in the world today: the decline of the West and the rise of the rest. Gone are the days when U.S. billionaires accounted for over 40 percent of the list, with Western Europe and Japan making up most of the rest. Today, the Asia-Pacific region hosts 386 billionaires, 20 more than all of Europe and Russia combined. In 2013, of the 9 countries that are home to over 30 billionaires each, only three are traditional “developed” countries: the United States, Germany, and the United Kingdom. Next in line after the United States, with its 442 billionaires today? China, with 122 billionaires (up from zero billionaires in 1995), and third place goes to Russia with 110. China’s billionaires have made money from every possible source.  Russia’s lengthy billionaire list is led by men who reaped billions from the country’s vast oil, gas and mineral wealth with devastating consequences to the environment. Germany is fourth on the list with 58 billionaires, followed by India (55), Brazil (46), Turkey (43), Hong Kong (39), and the United Kingdom (38). Yes, Turkey has more billionaires than any other country in Europe save Germany.

Abenomics One Year On - Exactly a year ago this week, the markets woke up to the fact that Shinzo Abe would become the next Prime Minister of Japan, and would introduce the most far reaching set of economic reforms seen in that country since the similarly audacious Takahashi reforms in the 1930s. A year later, some progress has been made, but crucial issues have been ducked and much greater challenges lie ahead. The new administration under Mr Abe immediately fired the first and easiest of his three “arrows” (see David Pilling), a dramatic expansion in the BoJ balance sheet that will be maintained until inflation reaches 2 per cent. The second arrow, a temporary fiscal support programme, has also been implemented. The third arrow, structural reform, has not even been removed from its quiver. And by far the most difficult task of all, now being termed the fourth arrow, stretches far into the future. That arrow is the tax increase needed to attain long term fiscal sustainability.

Pettis: "Abenomics Likely to Fail in Medium Term, Debt Matters" - Michael Pettis, at China Financial Markets, discusses Abenomics, Japan's shrinking (for now) current account surplus, debt, and interest rates in an interesting email. From Pettis ...  Abenomics in Japan is likely to put upward pressure on the national savings rate in Japan (but not necessarily on the household savings rate). This implicitly requires that over the next two or three years Japan run a higher current account surplus. In a world struggling with excess capacity and insufficient demand, pressure to increase the Japanese current account surplus is likely to result in higher unemployment – either abroad, if Japan’s trade partners do not take steps to protect themselves from the counterbalancing deficits, or at home if they do. It may seem a little quixotic to worry about a surging Japanese current account surplus just now when in fact Japan’s external balance has declined substantially and is surprising analysts on the downside.  As I discuss in the first two chapters of my January book, "The Great Rebalancing", currency depreciation does not affect the trade balance directly by changing relative prices. It does so indirectly by changing the relationship between savings and investment. As production rises relative to consumption, the difference between the two – the national savings rate – must also rise. This means that as the yen depreciates, the consequence is likely to be an increase in the Japanese savings rate.

Abenomics and Japanese Inflation Expectations - Paul Krugman has an "extremely wonky" new post about how to measure inflation expectations in Japan under Abenomics. The measure uses Treasury Inflation Protected Securities (TIPS), the topic of a series I am writing on this blog and the Noahpinion blog. Inflation-protected securities may be used to infer breakeven inflation expectations from the market. Japan's market in inflation-protected securities is considered too thin to provide useful information about expectations, so Krugman, building on the approach of Benjamin Mandel and Geoffrey Barnes, combines US TIPS data and real exchange rate data to measure Japanese inflation expectations: I took the implied 10-year breakeven inflation rate from US TIPS, minus the 10-year interest rate differential, plus the real appreciation Japan would experience if the real exchange rate against the dollar 10 years from now were to return to its level in January 2010. You can adjust this as you like with whatever your estimate of the difference between the 1-2010 rate and the equilibrium rate is; it will just shift the line up or down. The result is inflation expectations just below 0 until the start of 2012. Expectations rise to almost 3% by May 2013, then fall to around 1.5% by July 2013. Krugman writes: I have my doubts about the apparent decline in recent months. It’s being driven not by events in Japan but by the taper scare, which drove up US rates. The main point, however, is that this measure does suggest a substantial rise in expected inflation since Abenomics began, which is good news.

BOJ Beat: Five Takeaways from Prices Outlook - The Bank of Japan Thursday released its latest semiannual outlook on growth and prices, watched closely for clues on the future direction of monetary policy. Here are the initial takeaways from the BOJ’s “Outlook for Economic Activity and Prices.” The BOJ’s price forecast for the fiscal 2015 year remained unchanged, a reflection of its confidence in achieving 2% inflation in two years. The forecast–a median of figures among the bank’s nine policy board members–stood at 1.9%, unchanged from an interim review conducted in July.  Policy board members now see the economy performing slightly better going forward than previously expected. They forecast growth of 1.5% for the year from April 2014, up from 1.3% in the July report. While the BOJ sees a potential slowdown in overseas economies as the biggest risk for Japan, they expect a Y5 trillion yen government stimulus package to give support. Thursday’s forecasts were right in line with what BOJ watchers expected. A  Wall Street Journal poll of 13 economists who keep a close tab on BOJ policy produced a median forecast of a 1.9% rise for consumer prices in fiscal 2015 and a 1.4% economic growth for fiscal 2014. While the numbers matched the BOJ watchers’ predictions of what the BOJ would predict, the BOJ and private economists remain far apart on what they think will actually happen.  In that WSJ poll, the average forecast for private economists is for a mere 0.9% price increase in fiscal 2015, less than half of the BOJ projection and well short of the 2% target.With its forecast being seen as overly optimistic, many economists expect the BOJ will take further easing measures some time after the spring. An increase in the 5% sales tax to 8% in April is likely to be a drag on the economy, and strengthen political pressure on the central bank to act.

BoJ content to ignore Fed tapering and go its own way - FT.com: The contrast was striking. On Wednesday in Washington, the Federal Reserve left open the possibility of a tapering of its monetary easing programme in the next few months. Fewer than 12 hours later in Tokyo, the Bank of Japan’s policy board put out a statement implying that nothing was further from their minds. The BoJ would keep pumping up the monetary base at an annual pace of about Y60tn-Y70tn ($60bn-$70bn), it said. Since Shinzo Abe, prime minister, reappeared on the scene in late 2012 promising unlimited monetary easing to banish the scourge of deflation, the yen has been the world’s worst performing major currency, sliding about one-fifth against the US dollar and by one-quarter against the euro. That has helped to ignite a recovery in the Japanese economy, as companies have recycled foreign exchange windfalls into higher bonuses and as higher stock prices have fed consumption, particularly among older people. But as the Fed tiptoes towards the exit in coming months, the gulf between it and the BoJ could widen. Haruhiko Kuroda, BoJ governor, has consistently said that his plan to double Japan’s monetary base through aggressive bond purchases – announced in April to great fanfare – should be enough to generate the 2 per cent inflation target handed down by the government, within about two years. But in recent months he has been at pains to point out that should growth falter as a result of a long-scheduled national sales tax increase next April, the BoJ will be on hand to help.

Japanese Consumers Spending More As Economy Recovers - Japanese consumers are spending more as the economy improves and people look to buy big-ticket items before the sales tax goes up in April. Household spending increased 3.7% in September from a year earlier, while overall retail sales increased 3.1%, official data showed Tuesday. The spending rise was the highest since March. Among wage-earner households, “propensity to consume” — the amount of disposable income actually being spent — rose 3.5 percentage points to 90.2%. Because of “rush-to-buy demand” before the sales tax goes up, the spending figures will likely strengthen even further in the coming months, said BNP Paribas Securities chief economist Ryutaro Kono. He said some consumers likely started buying higher-priced items such as cars in anticipation of the consumption tax rising to 8% from 5% currently. Retail sales were driven by higher spending on luxury goods, food and cars. However, many economists say the underlying spending trend remains somewhat weak, due in part to wages not rising. Prime Minister Shinzo Abe’s pro-growth policies successfully pushed up share prices earlier this year. Consumers started buying more after holding back since the global financial crisis that began in 2008, and the earthquake and tsunami disasters of March 2011. Household spending rose in the first four months of the year, gaining 5.2% in March. But a lull followed, with spending falling in three of the four months through August.

Japan Salaries Extend Fall as Abe Urges Companies to Raise Wages - Japan’s salaries extended the longest slide since 2010, even as Prime Minister Shinzo Abe urges companies to raise workers’ wages as part of his bid to reflate the world’s third-largest economy. Regular wages excluding overtime and bonuses fell 0.3 percent in September from a year earlier, marking a 16th straight month of decline, according to labor ministry data released today. Total cash earnings rose 0.1 percent. The data underline the difficulties Abe faces in getting companies on board in his drive to end more than a decade of deflation among nascent signs of price gains after the Bank of Japan’s unprecedented easing. Trade unions are demanding higher base pay, and the question now is whether firms will agree in wage negotiations early next year. “The key for the success of Abenomics is whether companies will raise wages,” “Companies still aren’t confident enough that growth will be sustained and will probably hesitate to raise wages, especially base salaries, for the time being.” Wages are falling behind price gains. National consumer prices excluding fresh food rose 0.7 percent last month from a year earlier, a fourth straight increase.

Japan government moves closer to Fukushima takeover - FT.com: Japan’s government has moved a step closer to taking direct control of the clean-up at the Fukushima Daiichi nuclear facility, a move that could entail a partial break-up of its owner, Tokyo Electric Power, after lawmakers from the ruling party agreed the outline of an intervention plan. A committee of the Liberal Democratic party that is responsible for reviewing the terms of a government bailout of Tepco, implemented following the earthquake- and tsunami-induced meltdowns at Fukushima Daiichi in 2011, finalised the proposal to nationalise much of the clean-up on Tuesday, according to people familiar with the deliberations. The plan is potentially controversial because it would involve committing taxpayer funds directly to the clean-up and decommissioning programme, which is expected to take decades and cost tens of billions of dollars to complete. Until now, the government has provided financial support to Tepco under the premise that the money would be repaid by the company out of its future profits. Nationalising the clean-up would amount to an admission that much or all of the cost will never be recovered. Taro Aso, finance minister, indicated support for the plan by suggesting the government was at least partially to blame for the accident, given its roles as the architect of Japan’s nuclear power policy and safety regulator for the industry. “Personally, I don’t feel it’s right to say that all responsibility belongs with Tepco,” he told reporters.

Fukushima Amplifies Japanese Energy Import Dependence - According to the U.S. Energy Information Administration (EIA), Japan falls far short of providing enough energy for its domestic uses, with only 16% domestic energy production. Not surprisingly, Japan needs to import heavily — it is the world largest importer of liquefied natural gas (LNG). Before the disaster at Fukushima and the following reevaluation of nuclear power in Japan, nuclear sources supplied 13% of Japan’s energy consumption. The EIA notes in another report that “Japan’s electric power utilities have been consuming more natural gas and petroleum to make up for the shortfall in nuclear output…” With this shift, fossil fuel use has jumped 21% in 2012 compared to 2011 levels.High energy costs in the near term (the IMF forecasts that the spot price for crude will remain above $100/barrel for 2014) pose a problem for Japan’s trade balance. As Japan imports more fossil fuels, its trade deficit widens (Japan ran a surplus before 2011). This hurts its current account, which has shrunk considerably. While the depreciation of the yen would usually helps by making exports competitive, the IMF’s Article 4 consultation with Japan noted that the weaker yen has yet to improve the current account. The higher energy costs in Japan have not, however, turned consumer opinion back in favor of nuclear power. According to a recent poll, 31% of 1,085 Japanese citizens surveyed said they had not felt any pinch from higher utility bills, and 41% said they felt the effect “a little.” 

Singapore Economy To Benefit From G3 Ties, Central Bank Says  - Singapore has hardly been a pillar of economic resilience in the past two years, lagging while growth elsewhere in Asia soared despite the sharp slowdown in the developed world.Now, when many Asian economies are slowing, Singapore’s export-driven economy may gather steam on its ties to the U.S., Europe and Japan.“Despite a divergence in growth prospects, the present sluggishness in emerging Asia is unlikely to negate the positive effects of a recovery in the developed countries on the Singapore economy,” the city-state’s central bank said in its biannual economic report Tuesday. The gathering pickup in the advanced economies should support Singapore’s electronics industry and trade-related services, according to the report.Production of electronics — which account for nearly one-third of Singapore’s manufacturing output — has picked up recently after months of contraction. Data last week showed electronics production rose 20% on-year in September, up from 5.3% in August. That propelled electronics output into positive territory for the year to date, up 0.4% from the same period in 2012. Singapore’s reliance on demand from its neighborhood –which includes the Association of Southeast Asian Nations, China and India — has risen considerably in the past decade. But the economy remains more closely tied to demand in the advanced economies, according to the report.

Your Humble Blogger and Dean Baker Speak with Bill Moyers About the Trans-Pacific Partnership and Budget Brinkmanship -  Yves Smith  -- I hope you’ll enjoy this chat. Moyers gave Dean Baker and me over a half-hour on his show, so we were able to give a decent treatment of the issues surrounding the mislabeled trade deal known as the Trans-Pacific Partnership as well as the ongoing budget battle

World-Wide Factory Activity, by Country - Much of the world’s factory sector was expanding in October, as manufacturers in the U.S. shrugged off a government shutdown and Asia rebounded.  Purchasing Managers Indexes, in which readings above 50 signal expansion, were higher in the U.S., China and across Asia. The U.K.’s PMI declined slightly, but still remains in expansionary territory. The All Saint’s Day holiday delayed data in many other European countries until Monday.

Onion crisis leaves trail of tears across India –The spike in India's onion prices over the past year is proving to be highly burdensome for many of the country's 1.2 billion people, leading some to alter their traditional eating habits.  The price of onions – a staple of Indian cooking – has risen around 320 percent over the past 12 months, driven by a combination of factors including a supply shortage after excessive rains hit crop output as well as poor infrastructure for the storage and distribution of produce.  "Previously, we used to buy 4 to 5 kilos of onions to last for a month. Now, we're buying half a kilo at a time to last for a week or two. Our consumption has reduced," said Verma, noting that onions currently cost around 75 rupees ($1.22) per kilogram in the city.  To put this into perspective, in India, around one-third of the population lives on less than $1.25 a day, according to data from the World Bank. With onions an essential part of the Indian diet, skyrocketing prices have also become a politically sensitive issue in the country, which is due to hold its general elections within the next seven months.

India expected to raise interest rates, roll back rupee support - India's central bank is expected to raise policy interest rates for the second time in as many months on Tuesday to fight stubbornly high inflation, while rolling back further emergency measures put in place recently to support the slumping rupee. Despite the risks to an already sluggish economy, the Reserve Bank of India (RBI) is forecast to lift its policy repo rate by 25 basis points (bps) to 7.75 percent, according to 29 of 41 economists polled by Reuters. "Given that food price inflation is at a 38-month high, there is a risk that it could spread to generalized inflation expectations," Annual food inflation accelerated to 18.4 percent in September, its highest since mid-2010, pushed up by prices of vegetables including onions and stirring public discontent ahead of national elections which must be held by next May. While the central bank looks set to raise its repo rate, it is likely to cushion the blow to credit markets by further unwinding liquidity tightening measures implemented this summer as it struggled to shore up the tumbling rupee. The rupee slumped to record lows in August, at one point sliding some 20 percent for the year, on concerns about the country's gaping current account and fiscal deficits, and as global investors dumped emerging market assets for fear the U.S. Federal Reserve was set to start tapering its massive stimulus program.

Rajan Needs Help From Delhi in Inflation Fight - While India’s central bank head Raghuram Rajan stuck to his guns in his standoff with inflation, raising interest rates Tuesday, economists said he will need more help from New Delhi to successfully arrest rising prices. On Tuesday the Reserve Bank of India governor raised India’s key overnight lending rate by a quarter percentage point to 7.75%. While the raise was expected, it was the second consecutive rate increase by Mr. Rajan since he took office last month, reversing an earlier easing trend started by his predecessor. The RBI had lowered rates by 1.25 percentage points from April 2012 to May 2013 as inflation at that time seemed in control. A sharp depreciation in the rupee, which makes imports more expensive, has since fanned the flames of inflation and forced the central bank to turn hawkish.“Curbing mounting inflationary pressures and managing inflation expectations will help strengthen the environment for growth by fostering macroeconomic and financial stability,” Mr. Rajan said after announcing the rise in interest rates Tuesday. Wholesale prices—the most closely followed indicator of inflation in India—jumped to a seven-month high of 6.46% in September. It has been stuck above the central bank’s comfort level of 5% for more than four months. Meanwhile India’s consumer price index, less important for the country’s policy makers but an important indicator of how India’s poor are being affected, has recently been hovering near 10%.Mr. Rajan has had to make tough decisions to deal with inflation even as India is caught in a painful slowdown.

Sticky Inflation Means India Central Bank Can’t Rest Yet - India’s central bank chief, Raghuram Rajan, confirmed himself as an inflation-fighter by raising interest rates again this week. Sticky inflation means he’s probably not finished yet. Mr. Rajan raised the Reserve Bank of India’s main lending rate Tuesday by a quarter-percentage point to 7.75%, following a hike of the same magnitude at his first meeting as RBI governor in September.  Inflation at the wholesale level, the main gauge of prices in India, rose 6.46% on-year in September, its fastest pace in seven months. It has been stuck above the RBI’s comfort level of 5% for more than four months.The consumer price index, which reflects prices people pay in stores, rose more than 9% in September, driven by higher food prices.Mr. Rajan and the RBI indicated Tuesday they’re still unhappy with the way prices have been moving. Wholesale inflation “is expected to remain higher than current levels through most of the remaining part of the year,” the RBI said in a policy statement accompanying the rate decision. Economists say the RBI likely will have to raise rates again at its next meeting on Dec. 18, even though that could exacerbate India’s economic slowdown. Gross domestic product has grown less than 5% for much of this year, a 10-year low. The government expects GDP growth of 5.0%-5.5% this fiscal year but most analysts place it lower, at 4.5%-5.0%.

Asia’s Rising Debt Brings Back Memories of 2007 - With debt levels rising across Asia in an era of easy money, many observers have asked if the region is facing a repeat of the 1997 Asian financial crisis. Perhaps a more relevant question is whether it’s 2007 all over again. A report this week by Standard & Poor’s Ratings Services notes similarities between Asia’s rising household debt – fueled by waves of cash unleashed by quantitative easing in the developed world — and the excessive private-sector borrowing that helped trigger the U.S. subprime mortgage crisis and a global recession. Banks in Malaysia and Thailand are particularly vulnerable to the buildup in household borrowing, S&P said, due to rapid growth in debt, relatively low incomes and banks’ significant exposure to auto, personal and unsecured loans, which tend to have a higher risk of default. The report noted that household debt levels are also high in Singapore and South Korea, and warned that rising property prices in China and Hong Kong could hurt the quality of mortgage credits. “As long as interest rates and unemployment rates remain low, we don’t expect any serious debt problems in Asia,” Ivan Tan, S&P’s director of Asian financial services ratings, said in an interview after the report was released Tuesday. “But as and when they do go up or if economic growth slows, countries like Thailand will be at risk of higher credit losses.” In fact, growth is slowing already. The Bank of Thailand last week cut its economic growth forecast for this year to 3.7% from 4.2%, and lowered its 2014 projection to 4.8% from 5.0%. It also cited uncertainty about the timing of the U.S. Federal Reserve’s eventual monetary tightening as a key downside risk to growth.

Advanced Economies Crawling Back, Emerging Slowing Down - Dallas Fed - Advanced economies are expected to continue to gradually regain ground, while growth in emerging economies is cooling down (Chart 1). Asset prices have risen substantially in many emerging economies since the global financial recession in 2008, and some have begun to experience a reversal, posing a challenge for policymakers as the slowdown continues.  The 2013 International Monetary Fund (IMF) forecast for output growth in emerging economies now stands at the lowest level in the last 10 years, except for 2009. In its October World Economic Outlook, the IMF revised the forecast down from 5 percent to 4.5 percent. Given this slow global growth, inflation is expected to remain subdued. Fiscal and monetary policies are starting to take hold in some advanced economies, though the euro-area recovery remains anemic and uneven. Growth from advanced countries has helped compensate for the slowdown in emerging economies this year.

Venezuelan Treasury gets USD 22 billion from the latest devaluation  - The devaluation adopted back in February has guaranteed Nicolás Maduro's administration additional profits to pay wages and salaries, pensions, social programs commonly known as "missions," and additional expenditure in public offices and institutions. Official statistics show that the Venezuelan Treasury receives some VEB 140 billion (USD 22 billion) out of the forex adjustment. After the increase in the forex rate eight months ago, Planning Minister Jorge Giordani said devaluation is "not a change in forex rate intended to increase fiscal revenue. We have revenues." But he then admitted that "the accounts must be revised." The adjustment in the accounts implied reducing the deficit of FY2012, when public expenditure smashed a record high ahead of the vote to elect both president and governors in December. Since expenses skyrocketed, income was not enough and Venezuela ended the year with a gap of 15.6% of GDP. Under this scenario, authorities had no other choice but to adjust the forex rate from VEB 4.3 to 6.3 per US dollar early in 2013. The move allowed the Treasury to partially ease the fiscal woes, yet expenditure has kept on galloping and additional profits continue to be insufficient to bridge the gap. This situation means that more resources are needed.

Brazil pledges spending cuts after record budget gap (Reuters) - The Brazilian government announced on Thursday plans to cut some unemployment benefit costs, a move analysts said was not enough to calm investors worried that a rapid deterioration of the country's finances could lead to a credit rating downgrade. The country posted a primary budget deficit of 9.048 billion reais ($4.1 billion) in September, its biggest in nearly five years, central bank data showed earlier on Thursday. Analysts had expected a small surplus of 100 million reais for the month. Hours after the data was released, Finance Minister Guido Mantega called a press briefing to announce the government was analyzing cuts to expenditures related to unemployment insurance and mandatory wage bonuses. Mantega said such costs could amount to 47 billion reais this year, but he did not specify how big the cuts might be. "The government is always working to meet our fiscal goals and reduce public expenditures," he said. Still, many analysts say that even a steep reduction in jobless benefits will do little to improve Brazil's finances.

Chart of the day, sovereign precariousness edition - Bond spreads, along with their close cousin credit default swaps, are a beautifully linear measure of sovereign default risk. They go up in a straight and steady line: the higher the number, the riskier the country is perceived to be. And so they’re normally the first and last place that people look when they’re interested in the chances of any given country defaulting.But of course the world isn’t quite as simple as that, and — as we have learned the hard way — it’s the unexpected defaults which are the most damaging. So I asked Ben Walsh to put together this chart for me, showing a different measure of risk. It’s not a better measure, by any means. Still, it’s an interesting measure all the same, and it’s almost entirely uncorrelated with credit spreads.The red bars, in this chart, are the credit spreads we’re all familiar with. Countries like France, the UK, Canada, and Germany are considered effectively risk-free, while Spain and South Africa and Italy are riskier, India’s worse, Greece is very bad, and Argentina is truly dreadful. And then there’s the blue bars, which are related to the concept of a “sudden stop”: when all the windows close, and a country simply can’t borrow money any more. Such things can arrive with astonishing speed: the markets, in general, will only lend if they think that everybody else is willing to lend. So it’s easy for them to shut down very quickly indeed.

No global recovery yet - The world economy is still becalmed. World trade volume fell 0.8pc in August. The next cycle of growth has not yet reached "escape velocity".  We continue to be in a contained global depression, punctuated by bursts of weak growth that peter out. It is not a disaster. It is not healthy either. This from the Dutch CPB world trade monitor (PDF):This from Capital Economics on the faltering expansion in global manufacturing: They say the latest flash drop in global PMIs is a "warning sign". The next month will be crucial.If you have a job and own equities and property you may feel great. Money printing and QE à l'outrance have fuelled a delicious asset boom. You may not even be aware of the problem. (A lot of people were able to close their eyes in the 1930s. Indeed, it was great time for some.)But I have a jaundiced view bordering on contempt for stock markets and the uber-rich – and if that is your interest and perspective, don't read me. I follow the real economy. What I see is a pervasive malaise. Real output is still below its 2007-2008 peak in large parts of the world. Long-term unemployment is endemic in the OECD bloc. The system is firing on two cylinders.The reason for this is the rising global savings rate, now a record 25pc. This drains demand, but creates excess capital that drives up the price of wealth assets. The GINI coefficient measuring inequality is near extreme highs in most of the world. Karl Marx has never been so relevant.

JP Morgan sees ‘most extreme excess’ of global liquidity ever - A new report by JP Morgan says the bank's measure of excess global money supply has reached an all-time high. "The current episode of excess liquidity, which began in May 2012, appears to have been the most extreme ever in terms of its magnitude," said the report, written by Nikolaos Panigirtzoglu and Matthew Lehmann from the bank's global asset allocation team. They said the latest surge is far beyond anything seen in the last three episodes of excess liquidity: 1993-1995, 2001-2006, and during the Lehman emergency response from October 2008 to September 2010, all of which set off a blistering rise in asset prices. This is not a problem right now. The bank says there is enough juice to keep the boom going for several more months, but it stores up bigger problems for later. "It could be a warning if fundamentals are out of whack. Markets could be vulnerable next year if that liquidity starts to disappear," said Mr Panigirtzoglu.

Global Regulation Curbing Growth, World Bank Finds - Many emerging markets have dramatically improved their business climates in the last year, but a tangle of onerous regulations the world over is curbing much-needed growth from the private sector, the World Bank said in a new report published late Monday. That’s particularly important as pessimism on global growth widens amid deteriorating emerging market prospects. “We’re still paying the price associated with the existence with business regulations, procedures and laws that put a heavy burden on the business community,” said Augusto Lopez-Claros, head of the World Bank’s global indicators and analysis division. Those bottlenecks are “a burden on economic growth, a burden on job creation and a burden on productivity and competitiveness,” he said. The bank’s flagship report gauges the ease—and difficulty—of doing business in 189 countries around the world. Specifically, it assesses what it’s like for small-to-medium sized firms to set up businesses, raise capital, pay taxes, enforce contracts, export their goods and a raft of other metrics. Countries are ranked by their overall grade. It’s not without controversy. The bank’s own in-house watchdog criticized the report for what it called a “deregulation bias.” And earlier this year, U.S.-appointed World Bank President Jim Yong Kim successfully fended off an effort by China and other nations to jettison the rankings, if not the report.

Report: “A Brave New Transatlantic Partnership” - When negotiations on the proposed Trans-Atlantic Free Trade Agreement (TAFTA) took a hiatus during the government shutdown, corporate groups urged the Obama administration to push forward with the sweeping deal.  U.S. and EU officials now plan to restart closed-door TAFTA talks in Washington in December.  What will they be talking about?  Given that tariffs between the U.S. and the EU are already low, TAFTA proponents readily acknowledge that the agreement is not really about trade, but rather the rewriting of regulatory policies so as to remove “non-tariff barriers” –- a corporate code name for environmental, health, and consumer safeguards on which we all depend.  What particular safeguards could be dismantled via these corporate-advised "trade" negotiations?  The European organization Seattle to Brussels Network has released a worrisome report that outlines some of the public priorities that corporations on both sides of the Atlantic have asked to be placed on the TAFTA chopping block:

1. Clean air and water:
2. Food safety:
3. Internet freedom:
4. Chemical safeguards:
5. Wall Street reform:

The Perils of a Free Trade Pact With Europe - Simon Johnson - Currently slightly beneath most people’s radar, but coming soon to the fore is a potential free trade agreement with Europe. Negotiations started in October and, after a delay because of the government shutdown, may now pick up speed. Some parts of this potential agreement make sense, but there is also an important trap to be avoided: European requests on financial services. In a recent paper, “Financial Services in the Transatlantic Trade and Investment Partnership,” my Peterson Institute colleague Jeffrey J. Schott and I review the history of finance in free trade agreements and examine the reasonable options for any potential deal between the United States and the European Union.  In this instance, the United States Treasury has the right general idea: don’t let discussions over this free-trade agreement divert attention from completing the Dodd-Frank financial reforms and then figuring out what else is needed to make the American financial system safer. The big banks, naturally, would like American regulators to become enmeshed in constraints set by the negotiations with Europe. This is a trap that must be avoided. The overall rationale for a free trade agreement with the European Union is that while many traditional trade barriers are low — such as tariffs (a form of tax on imports) and quotas — there are still regulatory impediments that limit some forms of trade. Whatever you think of this argument in general, it does not work well for finance – either at this moment or, I would suggest, in general.

Transatlantic Free Trade Agreement: Job Claims Are Pure Baloney - The Senate Finance Committee held hearings this week on the proposed Transatlantic Trade and Investment Partnership (TTIP). The committee chair, Sen. Max Baucus, claimed that the TTIP could boost U.S. exports to the EU by a third, adding “more than one hundred billion dollars annually to U.S. GDP,” and that it “could support hundreds of thousands of new jobs in the United States.” The statement is remarkable for its sheer audacity in the face of massive evidence of the failure of similar deals to deliver promised benefits. U.S. trade with Mexico after the North American Free Trade Agreement (NAFTA) has cost the United States nearly 700,000 jobs through 2010. U.S. trade with China has certainly failed to deliver on the promised benefits of growing exports. Since that country entered the World Trade Organization (WTO) in 2001, the U.S. has lost 2.7 million jobs through 2011 due to growing trade deficits with China. And the Korea-U.S. Free Trade Agreement (KORUS) has also resulted in growing trade deficits with that country and the loss of more than 40,000 U.S. jobs. Most of the trade-related job losses are concentrated in manufacturing, and growing trade deficits are responsible for a large share of the decline in U.S. manufacturing employment over the past fifteen years.Using estimates of changes in two-way trade between the U.S. and the EU under the agreement reveals that TTIP is projected to result in a growing U.S. trade deficit with the EU and the loss of at least 71,000 additional U.S. jobs. Senator Baucus, citing advice from Benjamin Franklin, advises the U.S. to “jump quickly at opportunities.” When it comes to evaluating trade deals, Congress and the public would be better served by the common law principle of ‘Caveat Emptor,’ or, let the buyer beware. Congress has a duty to perform their due diligence in evaluating proposed trade and investment agreements before jumping at the next “great deal.” In particular, members should note that Sen. Baucus’s claims that the TTIP “could support hundreds of thousands of new jobs” are pure baloney.

Optimism about an end to the euro crisis is wrong - FT.com: Adjustment is the key to ending the eurozone crisis. The optimists are saying that this process of regaining competitiveness is now taking place. Look at the success of the Spanish export sector or the fall in Greek wages. And, in any case, the eurozone economy is rebounding, which helps further. This judgment is profoundly wrong. It is true that the crisis countries have brought down their current account deficits. Italy and Spain are now running surpluses. Since Germany and the Netherlands have not brought down their current account surpluses, the eurozone as a whole has moved from an almost balanced current account in 2009 to a surplus this year of 2.3 per cent of gross domestic product, according to the International Monetary Fund’s most recent estimates. The IMF puts the 2014 current account surplus at 2.5 per cent. In other words, the eurozone is adjusting at the expense of the rest of the world. But while the eurozone is a fixed-currency regime internally, it is nothing of the sort externally. The currency does exactly what textbooks say it should: it keeps on rising, thus offsetting the improvements in the current account. Last week the euro rose to more than $1.38 against the dollar. You could put this rise down to the US budget crisis, or the Federal Reserve’s postponement of the tapering of its quantitative easing programme. But if things continue as they are, I would expect the currency to remain strong, possibly even to overshoot. An overshooting euro would take care of the eurozone’s current account surplus by raising the prices of its goods on global markets.

Greece’s New Tax Law Collects More Anger Than Money - The tax inspectors swept into this picturesque village in Crete during the middle of a saint’s day celebration recently, moving from restaurant to restaurant demanding receipts and financial records. Soon, customers annoyed by the holiday disruption confronted them. Pushing, shoving and angry words followed, and eventually the frightened inspectors were forced to flee.  “People are so angry and so poor,” said Nikolis Geniatakis, who has run his restaurant here on the main square for the last 34 years and who watched the confrontation from across the street. “What were the tax inspectors doing here? Why aren’t they going after the big fish?” If Greece is ever going to get its public finances in order and escape grinding budget austerity, it will have to do a better job collecting taxes. For years, economists have pointed to rampant tax evasion as one of the country’s most serious problems, depriving the government of money it badly needs.  But as the confrontation in Archanes shows, the effort to collect taxes has not gone well; having inspectors run out of town is hardly evidence that the rule of law is taking root in the Greek economy. Rather than instilling a sense of fairness, the more aggressive tax collection program in some ways appears to have aggravated the problem. In particular, attempts to cast a broad net have only fueled public anger at the wealthy, who are often seen as the main culprits.

Greece says can't take any more austerity, will not be 'blackmailed' (Reuters) - Greece's president used an annual commemoration of the country's stand against fascism in World War Two on Monday to warn that Athens would not yield to pressure from foreign lenders to impose more austerity. The blunt comments by President Karolos Papoulias - a former World War II resistance fighter who holds a ceremonial but revered post - come as Athens finds itself at odds with its EU/IMF lenders over budget savings to hit targets under its second bailout. At an annual military parade in Thessaloniki, northern Greece, marking the rejection of Italy's ultimatum to Greece to surrender in 1940 - one of the most symbolic events in Greece's political calendar - Papoulias said Greeks today were as firm in the face of crisis as they were then and would not give in to what he called foreign "blackmail".

Expect to Be Paid in Spain? This Year? By the Government? Then Take a Haircut! - Here's an interesting post about service providers in Spain, owed money and interest by the government. Via translation from Cinco Dias, please consider Providers Who Want Payment This Year Have to Accept a Haircut The Delegate Commission for Economic Affairs gave the green light to the last phase of the plan to settle the commercial debt.  €6.5 billion has been allocated to settle unpaid debts to suppliers for outstanding bills prior to December 31, 2011. The last phase corresponds to unpaid accrued invoices between January 1, 2012 and May 31, 2013. Early estimates suggest that the total could exceed €14.0 billion.  The problem is that the government only has additional €1.7 billion in the current year to meet those debts. The remaining money will be paid starting January 1, 2014 and shall come primarily from Treasury reserves and surpluses that have accumulated in the various issues of bonds and notes recent months.

Debtors’ prison -- THE European Central Bank (ECB) announced this week how it will undertake a root-and-branch examination of banking assets before it takes charge of supervision in the euro area late next year (see article). One aim of the exercise is to identify the bad debts that are fouling up euro-zone banks and preventing the flow of new credit. This is important because parts of the single-currency area are crippled not just by public borrowing but by private debt, most of which is sitting on banking books. Throughout the euro crisis, tough austerity programmes have been aimed at tackling sovereign debt. That German-inspired focus is badly misplaced. High private debt is more detrimental to growth than high public debt, according to recent research by the IMF. Indeed the IMF study finds that excessive sovereign debt reduces growth only when household and corporate sectors are heavily indebted too.The malign effect of high private debt becomes apparent in the busts that follow credit-driven booms. Households that have borrowed too much in relation to their income trim their spending, the main component of GDP. Overleveraged firms avoid investing and concentrate on shrinking their balance-sheets by paying off loans. As bad debts erode their capital, banks become more reluctant to lend. These adverse trends reinforce each other, increasing the overall drag on growth.

US Treasury attacks Germany over surplus - FT.com: The US Treasury took an unusual swipe at Germany and blamed its large current account surplus for giving a deflationary bias to the euro area and the whole world economy. Although the Treasury has criticised German policy before, in its new semi-annual currency report it elevated the comments to a “key finding” alongside China’s undervaluation of the renminbi and Japan’s monetary stimulus.The US decision to call out Germany directly in the report highlights deep frustration with the eurozone’s largest economy among international policy makers who find it hard to see how peripheral countries such as Greece can grow if Germany will not create demand for their exports.“Germany has maintained a large current account surplus throughout the euro area financial crisis, and in 2012, Germany’s nominal current account surplus was larger than that of China,” says the Treasury report. “Germany’s anemic pace of domestic demand growth and dependence on exports have hampered rebalancing at a time when many other euro-area countries have been under severe pressure to curb demand and compress imports in order to promote adjustment.” Although eurozone policy makers have pointed to signs of recovery in Spain and elsewhere, US policy makers remain deeply sceptical that the currency area’s problems are solved, and fearful of another crisis that would hurt their own growth. However, Germany has resisted policies to encourage faster wage growth or running a larger budget deficit in order to stimulate demand.

Germany Defends Trade Surplus After Critical US Treasury Report - Spiegel - A day after a US Treasury Department report bluntly denounced Germany's economic model, accusing it of hampering the euro zone recovery and hurting global growth, Germany called the conclusions "incomprehensible" and challenged the US to "analyze its own economic situation."The Treasury's semiannual currency report criticized Germany's overreliance on exports, a high current-account surplus and weak domestic demand. These factors "have hampered rebalancing at a time when many other euro-area countries have been under severe pressure," the report concluded, citing budget tightening in the euro periphery. "The net result has been a deflationary bias for the euro area, as well as for the world economy."  The German Economics Ministry responded in a statement with equally harsh words, saying that Germany's surplus is "a sign of the competitiveness of the German economy and global demand for quality products from Germany." The report -- traditionally a forum for ridiculing alleged Chinese currency manipulation -- noted that Germany's nominal current account surplus for 2012 was greater than that of China. Germany's surplus rose to $238.5 billion in 2012, compared to China's $193.1 billion, according to the World Bank. But some question the emphasis on Germany's role in creating the euro zone's economic imbalances. "The point about the huge current account surplus is accurate. It's nothing new, but they are being a bit more aggressive,"

The Harm Germany Does - Paul Krugman - The Germans are outraged, outraged at the U.S. Treasury department, whose Semiannual Report On International Economic And Exchange Rate Policies says some negative things about how German macroeconomic policy is affecting the world economy. German officials say that the report’s conclusions are “incomprehensible” — which is just bizarre, because they’re absolutely straightforward. Here’s a brief history of the euro zone, told through one number for two countries, Germany and Spain:  The creation of the euro was followed by the emergence of huge imbalances, with vast amounts of capital flowing from the core to the periphery. Then came a “sudden stop” of private capital flows, forcing the peripheral nations to eliminate their current account deficits, albeit with the process slowed by the provision of official loans, mainly through loans among central banks. The really bad news for the periphery is that so far the adjustment has taken place mainly through depressed economies rather than regained competitiveness; so the counterpart of that “improvement” for Spain is 25 percent unemployment. Normally you would and should expect the adjustment to be more or less symmetrical, with surplus countries reducing their surpluses as deficit countries reduced their deficits. But that hasn’t happened. Germany hasn’t adjusted at all; all of the rise in peripheral European current accounts has taken place at the expense of the rest of the world.

Euro Jobless Fault Line Festers as Italy Scars Recovery -  Euro-area jobless numbers this week may lay bare a fault line scarring the region’s recovery as evidence of Germany’s employment muscle contrasts with the political quagmire destroying work in Italy. While the currency bloc’s longest-ever recession has ended, unemployment held at 12 percent in September, according to the median of 36 forecasts in a Bloomberg survey of economists. Within that data lies a rift between two of its largest economies, with Italy’s rate seen by economists to have reached 12.3 percent, the highest since records began in 1977 -- and more than double Germany’s comparable level. Italy will “critically determine the fate of the euro area” and the region won’t prosper if that country can’t restore economic growth, European Central Bank Executive Board member Joerg Asmussen said last week. Italian officials predict joblessness in the euro zone’s third-biggest economy will keep rising, against a backdrop of a fragmented coalition jeopardized by the legal woes of former premier Silvio Berlusconi.

Italy youth unemployment rises to record 40.4% - Italy's unemployment rate rose further in September, indicating businesses are still reluctant to hire as the recession continues in Europe's third-largest economy. The rate increased to 12.5% from an upwardly revised 12.4% in August and 10.9% a year earlier, national statistics institute Istat said Thursday. It said the number of jobless rose on the month by 29,000 to 3.194 million. The youth unemployment rate, referring to people between 15 and 24 years old who are looking for jobs, rose to a new record of 40.4% in September, double the pre-crisis rate. In August it breached the 40% threshold for the first time. That figure represents 10.9% of the age group, many of whose members are in school or not seeking a job.

Jobless Rate in Euro Zone Stays at Record - The economic recovery in the euro zone is feeble. Employment continues to suffer. And the patient is likely to be getting around on crutches for months if not years to come. That was essentially the prognosis from two key economic indicators published Thursday and from economists assessing the latest conditions. The number of people out of work in the countries using the euro currency rose slightly in September, while inflation fell more than expected — both signs of a weak economy. Neither indicator necessarily contradicts other more positive economic news recently, notably an end to the recession in Spain. But the data, which showed euro zone unemployment stuck at a record high of 12.2 percent and inflation at its lowest level in four years, served as a reminder that a long convalescence lies ahead for Europe. “It doesn’t mean we’re back in recession,” Marie Diron, an economist who advises the consulting firm Ernst & Young, said of the jobs number. “It’s consistent with growth, but weak growth.” The unemployment rate is an especially critical economic indicator in Europe. Years of austerity and joblessness have fed radical political parties and strained democracy throughout the euro zone. The longer that record unemployment persists, the harder it will be for political leaders to contain discontent and push through changes in labor regulations and other rules that are needed for the region to grow more strongly

Europe’s deflation problem in one chart - It is often said that one picture is worth a thousand words. This could not be truer of a Wall Street Journal chart copied above that shows relative inflation and unemployment developments across the world’s most advanced country blocs. For that chart can leave little doubt that Europe is now at a very much greater risk than is the United States of a prolonged period of Japanese-style price deflation. Among the more striking features of the chart is Europe’s very poor employment performance in the post-2008 Lehman crisis period. In the United States unemployment did increase from around 5% before the Lehman crisis to 10% at its peak by end-2009. However, since that time it has steadily declined to its present level of 7.2%. By contrast, European unemployment rose from less than 8% in 2008 to a little over 10% by end-2009. It then increased steadily further to 12.2% by October 2013. It did so as Europe experienced a double dip economic recession, which turned out to be its longest post-war economic recession. With unemployment as high as it is in Europe, it should have come as no surprise that over the past year European consumer price inflation would decelerate sharply from 2.6% to 0.7%. It should also have come as no surprise that those countries in the European periphery, where the labor and output market gaps are very much larger than the European average, would be driven to deflation or very close to deflation.

UK economy grows by 0.8% – the fastest pace in three years -- Britain's economy is growing at its fastest rate in more than three years after a 0.8% increase in national output in the quarter to September. The first stab at estimating the state of the economy from the Office for National Statistics found that activity had increased across the board with production, construction, services and agriculture all registering growth. Despite the expansion – the second strong quarterly performance in a row – the level of gross domestic product remains 2.5% lower than it was when Britain's deepest post-war recession began at the start of 2008. The ONS said national output had grown by 1.5% between the third quarter of 2012, when the economy was boosted by the London Olympics and Paralympics, and the third quarter of 2013. Output increased by 1.4% in agriculture, 0.5% in production, 2.5% in construction and 0.7% in services. The data is likely to be revised as more detailed information about the economy becomes available.

In defence of forward guidance - Although this post is prompted by the bad press that the Bank of England’s forward guidance has been getting recently, much of what I have to say also applies to the US, where the policy is very similar.  A good deal of the criticism seems to stem from a potentially ambiguity about what the policy is designed to do. The policy could simply be seen as an attempt to make monetary policy more transparent, and I think that is the best way to think about it in both countries. However the policy could also be seen as a commitment to raise future inflation above target in an attempt to overcome the ZLB constraint as suggested by Michael Woodford in particular [1]. Let’s call this the Woodfordian policy for short. (John Cochrane makes a similar distinction here.)  Ironically the reason why it helps with transparency is also the reason it could be confused with the Woodfordian policy.  In an earlier post written before the Bank of England unveiled its version of forward guidance, I presented evidence that might lead those outside the Bank to think that it was just targeting 2% inflation two years out. We could describe that as the Bank being an inflation forecast nutter, because it gave no weight to the output gap 2 years out. An alternative policy is the conventional textbook one, where the Bank targets both inflation and the output gap in all periods. I suggested that if the Bank published forward guidance, this could clearly establish which policy it was following. It has and it did: we now know it is not just targeting 2% inflation 2 years out, because it says it will not raise rates if forecast inflation is expected to be below 2.5% and unemployment remains above 7%. 2.5% is not hugely different from 2%, but in the world of monetary policy much ‘ink’ is spilt over even smaller things.