week ending Nov 23

FRB: H.4.1 Release-- Factors Affecting Reserve Balances -- Thursday, November 21, 2013: Federal Reserve Statistical Release - Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed Ponders How to Temper Tapering Without Rate Increase -   One of Janet Yellen’s first challenges as Federal Reserve chairman will be figuring out how to cushion against a lurch in interest rates when she pares the pace of the central bank’s bond buying.After sending 10-year Treasury yields more than a percentage point higher by fueling taper expectations in May and June, policy makers now are grappling with their options when they do reduce debt purchases that have swelled their balance sheet to a record $3.91 trillion. The Fed’s failure so far to convince investors that tapering on its own doesn’t constitute a tightening of policy creates the risk of more market volatility as the central bank communicates about tools it’s never used. “Now, this is challenging: We’re in unprecedented circumstances, we’re using policies that have never really been tried before -- and multiple policies -- and we’re trying to explain to the public how we intend to conduct these policies,” Yellen, the nominee to replace Ben S. Bernanke, told the Senate Banking Committee Nov. 14 at her confirmation hearing in Washington. “So, it is a work in progress, and sometimes miscommunication is possible.”

Fed’s Plosser Objects to Open Ended Asset Purchases -Federal Reserve Bank of Philadelphia President Charles Plosser on Monday said the central bank should set a fixed amount for its bond-buying program, rather than trying to fine tune asset purchases based on month-to-month variations in the economy. “By specifying a fixed amount, we would help the public understand that reducing the pace of asset purchases does not signal a change in our policy rate,” Mr. Plosser said in remarks to the Risk Management Association. “Indeed, even an end to purchases only stops the efforts to increase accommodation.” Fed officials in September surprised markets when they decided to continue their $85 billion-a-month bond-buying program at that pace amid slow growth and political uncertainty emanating from Washington. The stimulus effort is meant to hold down long-term interest rates and spur hiring, investment and spending. Mr. Plosser, who favors ending the program, said the September decision undermined the Fed’s credibility and clouded the message the central bank was sending about economic prospects. “We cannot continue to play this bond-buying game by ear and risk the Fed’s credibility while creating lingering uncertainty about the course of monetary policy,” Mr. Plosser said.

Fed Minutes Takeaways: On Track to End QE, but Stick to Low Rates - Federal Reserve officials had a wide-ranging discussion about the outlook for monetary policy at their Oct. 29-30 policy meeting. The bottom line was that they stuck to the view that they might begin winding down their $85 billion-per-month bond-buying program in the “coming months” but are looking for ways to reinforce their plans to keep short-term interest rates low for a long-time after the program ends.   They struggled to build a consensus on how they would respond to a variety of different scenarios. One example: What to do if the economy didn’t improve as expected and the costs of continuing bond-buying outweighed the benefits? Another example: How to convince the public that even after bond buying ends, short-term interest rates will remain low. Here is a first look at key passages (in italics) and what they suggest about Fed policy:

Fed Watch: Desperate to Taper - The minutes of the October FOMC meeting leave little doubt that the Fed increasingly desires to end the asset purchase program, enough so to contemplate tapering regardless of seeing satisfactory improvement in labor markets. It is that desire - or perhaps desperation - that puts an element of random chance into the policymaking process and keeps the expectation of near-term tapering alive despite efforts of policymakers to reassure market participants that it is all data dependent. Trouble with that story is simple - it is not only data dependent. The Fed has already admitted as much. Policy planning and communication strategy were the hot topic of this FOMC meeting, and the discussion of the specifics of the asset purchase program began with:During this general discussion of policy strategy and tactics, participants reviewed issues specific to the Committee's asset purchase program. They generally expected that the data would prove consistent with the Committee's outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months. The mythical taper - just a few months away. And it will always be just a few months away given the broad weakness in the labor chart. Recall the Yellen Charts:  Unless they narrow their focus to only the unemployment rate, the argument to taper is challenged to say the least. It is even more challenged considering inflation indicators. Knowing that the data continuously refuses to cooperate, the Fed explores plan B:However, participants also considered scenarios under which it might, at some stage, be appropriate to begin to wind down the program before an unambiguous further improvement in the outlook was apparent. It may be premature, but if they are going to go down that road, they had better have an explanation: Nonetheless, some participants noted that, if the Committee were going to contemplate cutting purchases in the future based on criteria other than improvement in the labor market outlook, such as concerns about the efficacy or costs of further asset purchases, it would need to communicate effectively about those other criteria. And there it is - the missing piece. We know the Fed has been looking to pull the plug on asset purchases, they just haven't explained why.

Federal Reserve weighs slowing bond buys soon -— Federal Reserve officials considered going back to a calendar date to end asset purchases or setting a total size to its bond buys, according to minutes from the October meeting released Wednesday that suggested the central bank is looking for ways to exit or at least slow down the controversial program in fairly short order. By a 9-to-1 vote, the Fed on Oct. 30 continued the $85 billion-per-month asset-purchase program, otherwise known as QE3, and made little changes to the language in the statement. But those few changes obscured that behind closed doors, officials were throwing all sorts of ideas up against the wall. Minutes from the Oct. 29-30 meeting showed that officials considered reducing the size of the asset-purchase program even “before an unambiguous further improvement in the [labor-market] outlook was apparent.” And “many members” — by members, the Fed is referring to voters — “stressed the data-dependent nature of the current asset purchase program, and some pointed out that, if economic conditions warranted, the committee could decide to slow the pace of purchases at one of its next few meetings.”

Fed’s Lacker Says Tapering Decision in ‘Coming Months’ Is as Precise as Possible - Federal Reserve Bank of Richmond President Jeffrey Lacker said he expects the central bank could decide to begin winding down its controversial $85-billion-per-month bond-buying program in the coming months. Mr. Lacker’s remarks Thursday echoed the timeframe suggested in the minutes of the Fed’s Oct. 29-30 policy meeting, which were released Wednesday. “The decision to taper is going to depend on the incoming data,” Mr. Lacker said. “And [the phrase] ‘in coming months’ in the minutes I felt was about as precise as you can get at this point.” Mr. Lacker, a consistent critic of the bond-buying program, said central bank officials will consider the program’s benefits and costs in its decision. “I’m not sanguine about efficacy,” Mr. Lacker said to reporters after a luncheon here. “There’s room for honest disagreement about costs as well. The committee’s got to find a workable consensus and make a decision.” In remarks prepared for delivery at the luncheon, he said he expects inflation-adjusted economic growth of 2% in the short term and just under 2% in the longer run.. Mr. Lacker, who noted his growth forecast is slower than that of many economists, said he sees consumers as “somewhat cautious” in their spending, as well as businesses. He also said he sees inflation moving back toward 2% per year–the Fed’s target rate– “over the next year or two,” up from the current rate of about 1%.

Fed eyes options to offset end of QE3 - FT.com: The US Federal Reserve is considering cutting the interest it pays to banks on their reserves in a dramatic move to offset an eventual slowing of its $85bn-a-month asset purchases. The central bank offered no new hints on when it could “taper”, reiterating that it was still expecting such a move “in coming months”, but the discussion of alternatives at the rate-setting Federal Open Market Committee suggests it is keen to slow its buying. Cutting the extra interest on reserves banks hold with the Fed would drive down already low overnight interest rates even further, probably to just a few basis points, hurting bank profits but adding extra stimulus to the economy. According to the minutes of its October meeting, most officials on the FOMC thought such a move “could be worth considering at some stage” as a way to signal continued easy monetary policy after they start to slow asset purchases from $85bn a month. US equities turned negative and bond prices extended their losses while the dollar rallied further after the minutes. Alan Ruskin, strategist at Deutsche Bank said the tone of the minutes was a strong indication that officials “are keen to taper, and will certainly taper if data is OK” and that it “reinforces the message that a December tapering is very much on the table if most recent labour market trends are maintained.” He added: “There is less and less to surprise the market here, with the prevailing view that a December tapering is possible if not likely, if the next employment report is solid.”

Bernanke Signals Fed Target Rate to Stay Low After QE - Federal Reserve Chairman Ben S. Bernanke said the Fed will probably hold down its target interest rate long after ending $85 billion in monthly bond buying, and possibly after unemployment falls below 6.5 percent. “The target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after” the jobless rate breaches the Fed’s 6.5 percent threshold, Bernanke said yesterday in a speech to economists in Washington. A “preponderance of data” will be needed to begin removing accommodation, he said. In deciding when to wind down open-ended purchases of bonds, Fed officials are weighing both the “cumulative progress” since they began the program in September 2012 as well as “the prospect for continued gains,” Bernanke said. The labor market has shown “meaningful improvement” since the start of the program. Policy makers are debating how to slow the pace of asset purchases without causing a surge in interest rates that could jeopardize the more than four-year economic expansion. Central bankers have sought to convince investors that tapering bond purchases wouldn’t signal that an increase in the benchmark interest rate is any closer.

Bernanke: Rates to Stay Low 'Well After' Jobless Rate Hits 6.5% - Federal Reserve Chairman Ben Bernanke said Tuesday that short-term interest rates may stay near zero "well after" the jobless rate falls below 6.5%, the latest effort by the central bank to assure markets that rates will remain low even as it contemplates pulling back on its $85 billion-a-month bond-buying program. Since last year, the Fed has been saying that it won't raise rates until after the unemployment rate—which was 7.3% in October—falls to 6.5% or lower, as long as inflation remains below 2.5%. In a copy of remarks prepared for delivery at the National Economists Club annual dinner in Washington, Mr. Bernanke said that "even after unemployment drops below 6.5%, the [Fed] can be patient in seeking assurance that the labor market is sufficiently strong before considering any increase in its target for the federal funds rate." Assurances of low rates are a central part of the Fed's efforts to boost the economy. Officials hope that the pledge will hold down longer-term interest rates and encourage borrowing, investing and spending in the near term. A research paper by senior Fed staff suggested the Fed might even strengthen that assurance by lowering the 6.5% threshold. Mr. Bernanke didn't broach such a move, but he did try to provide other reassurances rates would stay low. For instance, he said that once the jobless rate crossed the 6.5% threshold, officials would begin to look at a broader set of indicators of labor-market health such as measures of payroll employment, labor-force participation and rates of hiring and separation.

Yellen: Fed policy will stay easy if inflation stays low - U.S. monetary policy will probably remain very easy for a long while even after either the Federal Reserve's interest rate hike threshold on lower unemployment, or inflation, has been crossed, Fed Vice Chair Janet Yellen said in a letter to a U.S. lawmaker. Yellen also said the jobless rate threshold was not a trigger for action. She was responding to a written question for the record from Massachusetts Democratic Senator Elizabeth Warren following her hearing last week before the Senate Banking Committee to become the next Fed chair. (Read more: Buffett's take on stocks as they hit new highs) "Monetary policy is likely to remain highly accommodative long after one of the economic thresholds for the federal funds rate has been crossed," she said in her written answer. Warren asked in her letter if it would be helpful to lower the Fed's unemployment rate target.

Fed’s Bullard Favors Central Bank Putting Floor Under Inflation - Federal Reserve Bank of St. Louis President James Bullard said Thursday that the central bank should enhance its guidance on the future of interest-rate increases by clarifying how weak inflation affects its policy choices. The official told reporters that he would like the Fed to tell markets and other observers it will not raise rates if inflation goes below 1.5%. He said that offering this guidance “fits well” with the Fed’s current system that says it will not raise rates until the current 7.3% unemployment rate falls below 6.5%, so long as expected inflation does not rise about 2.5%. This tweak in inflation would add more information about what the Fed will do with short-term rates, which it currently pegs effectively at zero percent. Putting a floor on price pressures would convey that “if we are in a low inflation environment, especially one that’s threatening to stay low, then we would not raise rates in that environment regardless of what’s going on,” Mr. Bullard told reporters after a speech. The central banker, who is a voting member of the monetary policy-setting Federal Open Market Committee, has been one of the most prominent worriers about current levels of inflation. Over the summer, his concerns about price pressures dramatically undershooting the Fed’s official 2% target led the FOMC to adopt a stronger commitment to defend its price goal from both the high and low side. Mr. Bullard’s comments come as central bankers are considering ways to strengthen their guidance about the future of monetary policy, as they contemplate the start of a winding down in their bond-buying stimulus. Central bankers believe that strong guidance about the future stance on short-term rates can pay economic dividends today.

As Fed Searches for Solutions, Its Power Wanes - Throughout the three decades of solid growth that became known as the Great Moderation, central bankers looked like masters of the universe. They killed inflation and ushered in prosperity, and with their periodic adjustments of benchmark interest rates, they figured they finally found the perfect single tool for keeping things that way. Reading the minutes of the October 29-30 Federal Open Market Committee meeting offers a painful reminder that those easy years are long gone. Central bankers are scrambling for new tricks, anything that might restore sustainable growth to a stubbornly sluggish economy.Here are some ideas that FOMC members put on the table during the  meeting: lowering the unemployment rate threshold below which the Fed says it expects to hike interest rates; imposing a lower-bound threshold for tolerable inflation; cutting the interest rate that the Fed pays on excess reserves; tweaking the “forward guidance” language to show that the Fed is extremely committed to maintaining highly accommodative policy long into the future. One can imagine the discussion, with one FOMC member after another saying, “Well, we could try [X],” only to find his or her colleagues looking under-enthused across the table.There’s nothing profound in that observation. But what’s new is that the Fed seems to be searching for alternatives more fervently than ever.

What now for monetary policy? - Key points in this Outlook:

• The role of the Fed has evolved over the past 100 years from its original task of providing liquidity in times of financial crisis to include ensuring a low and stable rate of inflation since World War II and encouraging full employment after the passage of the Full Employment Act of 1978.
• In the aftermath of the 2007–08 financial crisis, the Fed has emphasized the goal of full employment and has, since 2012, committed to a zero interest rate target until unemployment falls at least to 6.5 percent.
• These targets are not all achievable given the Fed’s available policy instruments, and the result is rising disillusionment over the Fed’s capability.
• The next Fed chair needs to remind markets that the Fed’s primary responsibility going forward is ensuring low and stable inflation while reducing the uncertainty that plagues the economy.

Fed Holds 92% of Bank Cash, Pushes Bank Reserves to 25% of Deposits - We expect the Fed to continue borrowing $85 billion per month from the private sector in order to fund its bond purchases.  This will push the Fed’s liabilities to roughly $4 trillion at year-end, up from $800 billion pre-crisis.  There’s no indication the balance sheet expansion has helped the economy – the Fed is causing banks to reduce their short-term lending (e.g. to small businesses) in order to make ever-increasing loans to the Fed.

• Banks have increased their cash (including loans to the Fed and interbank loans) to $2.7 trillion or 19.4% of total assets (used to run 7%).
• At roughly $2.5 trillion, the Fed now holds 92% of the cash of the banking system as bank reserves. And bank reserves have reached fully 25% of bank deposits, a higher reserve ratio than China’s.
• The high level of bank reserves held at the Fed is consistent with the slow velocity of money, the weak expansion in private sector credit and the dismal economic performance during the Fed’s “stimulus” efforts

Evans Says Bond Buying May Total More Than $1.5 Trillion -- Federal Reserve Bank of Chicago President Charles Evans, a voter on policy this year, said the Fed may buy a total of $1.5 trillion in bonds in a program that started in January 2013 to ensure steady employment gains. “Given the current conditions, I won’t be surprised if it is $1.5 trillion,” Evans, a consistent supporter of record stimulus, said in a speech today in Chicago. “It could be a little more than that.” The Federal Open Market Committee pledged last month to press on with $85 billion in monthly bond buying until seeing substantial improvement in the outlook for the labor market. While U.S. employers in October added 204,000 workers, the Fed probably won’t taper its purchases until a March 18-19 policy meeting, according to the median of 32 economist estimates in a Bloomberg News survey Nov. 8. “Now it looks like we are going on longer at the full $85 billion pace,” Evans said to reporters. “I had said it was likely to be about $1.25 trillion several months ago.” The Fed should be careful not to prematurely reduce bond purchases because it’s not certain labor market improvements are sustainable, Evans said. “I am not in a hurry myself to reduce the flow of purchases,” he said. “I’d rather wait just a little bit longer and have more confidence.”

Bernanke: Communication and Monetary Policy -- From Fed Chairman Ben Bernanke: Communication and Monetary Policy. An excellent speech worth reading. Excerpts on current situation:  As reflected in the latest Summary of Economic Projections and the October FOMC statement, the FOMC still expects that labor market conditions will continue to improve and that inflation will move toward the 2 percent objective over the medium term. If these views are supported by incoming information, the FOMC will likely begin to moderate the pace of purchases. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook. As before, the Committee will also continue to take into account its assessment of the likely efficacy and costs of the program. When, ultimately, asset purchases do slow, it will likely be because the economy has progressed sufficiently for the Committee to rely more heavily on its rate policies, the associated forward guidance, and its substantial continued holdings of securities to maintain progress toward maximum employment and to achieve price stability. In particular, the target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after the unemployment threshold is crossed and at least until the preponderance of the data supports the beginning of the removal of policy accommodation.

Fed Watch: About That Unemployment Threshold.... Federal Reserve Chairman Ben Bernanke delivered an excellent speech tonight; it is well worth the read. There will be excellent coverage of the speech from the usual sources. So rather than a play-by-play review, I will focus on one topic, the unemployment threshold. There has been a great deal of speculation that the Fed will reduce the unemployment threshold to 5.5%. I have thought they will need to change the threshold because, at a minimum, the 6.5% number has already lost any operational meaning. But reading Bernanke's speech makes me think that they are very hesitant to change the threshold, and will instead continue to reinforce their existing forward guidance by emphasizing the likelihood that rates will remain low long after the threshold is breached. Bernanke very clearly did not take this opportunity to hint that a change in the threshold was imminent. Instead, twice he reinforced the existing threshold. First: after the unemployment threshold is crossed, many other indicators become relevant to a comprehensive judgment of the health of the labor market, including such measures as payroll employment, labor force participation, and the rates of hiring and separation. In particular, even after unemployment drops below 6-1/2 percent, and so long as inflation remains well behaved, the Committee can be patient in seeking assurance that the labor market is sufficiently strong before considering any increase in its target for the federal funds rate. And then later: the target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after the unemployment threshold is crossed and at least until the preponderance of the data supports the beginning of the removal of policy accommodation.

The Shadow Knows (the Fed Funds Rate) Atlanta Fed's macroblog - The fed funds rate has been at the zero lower bound (ZLB) since the end of 2008. To provide a further boost to the economy, the Federal Open Market Committee (FOMC) has embarked on unconventional forms of monetary policy (a mix of forward guidance and large-scale asset purchases). This situation has created a bit of an issue for economic forecasters, who use models that attempt to summarize historical patterns and relationships. The fed funds rate, which usually varies with economic conditions, has now been stuck at near zero for 20 quarters, damping its historical correlation with economic variables like real gross domestic product (GDP), the unemployment rate, and inflation. As a result, forecasts that stem from these models may not be useful or meaningful even after policy has normalized.  A related issue for forecasters of the ZLB period is how to characterize unconventional monetary policy in a meaningful way inside their models. Attempts to summarize current policy have led some forecasters to create a "virtual" fed funds rate, as originally proposed by Chung et al. and incorporated by us in this macroblog post. However, it admits no role for forward guidance, which is one of the primary tools the FOMC is currently using.So what's a forecaster to do? Thankfully, Jim Hamilton over at Econbrowser has pointed to a potential patch. However, this solution carries with it a nefarious-sounding moniker—the shadow rate—which calls to mind a treacherous journey deep within the hinterlands of financial economics, fraught with pitfalls and danger.

Bernanke: Lower Remittances to Treasury a Mere Footnote to Bond Program - Federal Reserve Chairman Ben Bernanke tried to allay concerns that the central bank will stop remitting its profits to the Treasury once interest rates start to rise, a development that could cause a political backlash.The Congressional Budget Office and others have forecast that the Fed remittances will halt when rising rates make its bond portfolio, now nearly $4 trillion,  unprofitable. “Such a situation, though unlikely, could have reputational costs and possibly increase risks to the Federal Reserve’s independence,” Mr. Bernanke said in a footnote to a speech Tuesday. “Although these costs must be taken into account, careful analysis suggests that, in fact, [the Fed’s asset purchases] almost certainly will result in improved government finances.”The Fed turns over profits to the Treasury each year—a sum that has exceeded $350 billion since 2009, right after its bond-buying programs commenced in full force. By comparison, the budget deficit was around $680 billion during the 2013 fiscal year.

True Confessions of a Quantitative Easing Kind - There is an amazing, astounding op-ed in the Wall Street Journal.  A Federal Reserve employee involved with the $1.25 trillion in mortgage backed securities purchased back in 2009 has confessed.  He spills the beans on how quantitative easing has made the super rich even richer while doing almost nothing for main street.  Here's an excerpt: I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank's bond purchases had been an absolute coup for Wall Street. The banks hadn't just benefited from the lower cost of making loans. And the impact? Even by the Fed's sunniest calculations, aggressive QE over five years has generated only a few percentage points of U.S. growth. By contrast, experts outside the Fed, such as Mohammed El Erian at the Pimco investment firm, suggest that the Fed may have created and spent over $4 trillion for a total return of as little as 0.25% of GDP (i.e., a mere $40 billion bump in U.S. economic output). Both of those estimates indicate that QE isn't really working. This op-ed will wake you up.  Unfortunately buying toxic mortgages has gone on so long, we're all used to it and stopped challenging the results, or lack thereof.  Hopefully this op-ed wakes the Fed up from the quantitative easing hypnotic dream.

5 years of QE and the distributional effects - As we approach the fifth anniversary of the start of the first quantitative easing program, some are asking the thorny question about the so-called "distributional effects" of these unprecedented programs. Who really benefited since the first QE was launched? There is a great deal of debate on the topic, but here are a couple of facts. Financial asset valuations, particularly in the corporate sector have seen sharp increases. For example the S&P500 index total return (including dividends) has delivered 144% over the 5-year period. Those who had the resources to stay with stock investments were rewarded handsomely.But what about those who didn't have such an opportunity? For example savers, particularly retirees who had to stay in cash? They were hurt severely by record low interest rates (negative real rates - see post). And those who had neither the savings nor significant stock investments, relied on house price appreciation or growth in wages. The housing recovery has certainly been helpful (for those who kept their homes), but according to the S&P Case-Shiller Home Price Index, US housing is up less than 5% over the past five years. Not much of a "wealth effect" for those without stock portfolios. And when it comes to wage growth, the situation isn't much better. The chart below shows hourly earnings growth of private sector employees. It therefore shouldn't be a surprise that the three rounds of quantitative easing over the past five years rewarded those who had the wherewithal to hold substantial equity investments. Everyone else on the other hand - which is the majority - was not as fortunate. Perhaps the best illustration of these distributional effects is in the chart below. It shows the relative performance of luxury goods shares with wealthier clients vs. retail outfits that target the middle class. The benefits of QE are clearly not felt equally by the two groups.

Bernanke Pushes Back on Idea QE Hurts Main Street - Some critics charge that the Federal Reserve’s signature $85 billion-per-month bond-buying program has been great for Wall Street but hasn’t done much for Main Street.Fed chief Ben Bernanke doesn’t agree with such assessments. “I hate to shock you but I don’t agree with that,” Mr. Bernanke said – to some laughter — in response to just such a statement during an appearance Tuesday night. “It’s simply not true.” The objective driving the Fed’s bond-buying program, known to some as quantitative easing or QE, is its dual mandate–maximum unemployment and price stability, Mr. Bernanke said, speaking before the National Economists Club. Jobs and low inflation are goals that aimed squarely at Main Street, he said. Then he ticked through what the Fed has achieved with the help of QE, which seeks to boost economic activity by lowering long-term borrowing costs. About 8 million jobs have been created since the trough of the recession, he noted. While that isn’t as many as he’d like, the Fed has played an important role in maintaining momentum in job creation, he said. To extent that that the Fed’s efforts impact asset prices, more than 60% of Americans own their own home, he noted. The number of people underwater–or owning more on their mortgages than their homes are worth–has decreased “considerably” as house prices have risen, increasing household wealth, he said. Low interest rates have also helped people buy durable goods such as cars, he said. “The U.S. auto industry is humming at pre-recession levels at this point.” The financial effects of Fed policies, including low interest rates, have also “helped American households improve their balance sheets and get themselves in a much better financial condition,” he continued.

QE, The People And The Damage Done - Ilargi - A report issued by McKinsey Global Institute last week in my opinion warrants more scrutiny than I’ve seen it get so far. It addresses the effect of (ultra-) low interest rates on different segments of economies over the past five years, and it leads to a number of interesting questions. There is widespread consensus that the conventional and unconventional monetary policies that world’s major central banks implemented in response to the global financial crisis prevented a deeper recession and higher unemployment than there otherwise would have been. These measures, along with a lack of demand for credit as a result of the recession, contributed to a decline in real and nominal interest rates to ultra-low levels that have been sustained over the past five years.The new report from the McKinsey Global Institute examines the distributional effects of these ultra-low rates. [..] From 2007 to 2012, governments in the eurozone, the United Kingdom, and the United States collectively benefited by $1.6 trillion both through reduced debt-service costs and increased profits remitted from central banks.Nonfinancial corporations benefited by $710 billion as the interest rates on debt fell. Although ultra-low interest rates boosted corporate profits in the United Kingdom and the United States by 5% in 2012, this has not translated into higher investment, possibly as a result of uncertainty about the strength of the economic recovery, as well as tighter lending standards. Meanwhile, households in these countries together lost $630 billion in net interest income, although the impact varies across groups. Younger households that are net borrowers have benefited, while older households with significant interest-bearing assets have lost income. 

Fed Effort to Boost Growth ‘Dangerous’ But Necessary -- The Federal Reserve is in “dangerous territory” in its effort to boost growth, said a former economic adviser to President George W. Bush, but it’s hard to fault the central bank for the effort. Without the Fed’s rapid response during the financial crisis the U.S. “could well have had a depression,” said Glenn Hubbard, chairman of the Council of Economic Advisers under Mr. Bush. But Mr. Hubbard is unsure if the current bond-buying program is having much positive effect on the economy, saying it does create the risk of asset bubbles. He lays blame on the government rather than Fed policy makers. “The problem is not the Federal Reserve, the problem has been the government,” Rather than buying $85 billion a month in securities, the more appropriate policy response would have been a big government investment in infrastructure and other needs, he said. Congress, which would need to approve that type of investment, has instead moved to curtail government spending in the past year. Stanley Fischer, former governor of the Bank of Israel, agrees that the Fed’s early action helped avoid an even deeper crisis. He added that the Fed can successfully unwind its stimulus programs. “Everyone knows now about asset prices and presumably they’ll take that into account and moderate policy accordingly,” he said. The Fed’s actions were “dangerous, but necessary.”

Bond Buying Likely to Be Pared 'in Coming Months,' but Conveying Thinking on Low Rates Proves Vexing - Federal Reserve officials still expect to start pulling back on the central bank's $85 billion-a-month bond-buying program "in coming months," but they are looking for ways to stress that they will keep short-term interest rates low for a long time after it ends...Officials discussed the possibility of linking any changes to the forward guidance to cuts to the bond-buying program. The changes in the guidance could be made "either to improve clarity or to add to policy accommodation, perhaps in conjunction with a reduction in the pace of asset purchases as part of a rebalancing of the Committee's tools," the minutes said.. Fed officials also contemplated reassuring market participants that short-term interest rates are likely to stay near zero long after the 6.5% threshold is crossed, a message Fed Chairman Ben Bernanke delivered in a speech Tuesday night. They also discussed adding language to their policy statement indicating that even after the first increase in their benchmark short-term rate, they "anticipated keeping the rate below its longer-run equilibrium value for some time, as economic headwinds were likely to diminish only slowly."

Limiting the Fed - Simon Johnson - In a provocative speech this week, Charles I. Plosser, the president of the Federal Reserve Bank of Philadelphia, proposed a new approach for the Federal Reserve System. The Fed, he said, should focus only on controlling inflation, strictly limit the assets it buys, follow a more rules-based approach to setting interest rates and place binding constraints on its emergency lending activities.  Of course, this is not so much a new set of ideas as an attempt to return to a much more traditional perspective on how the Fed should operate – not back to the pre-1930s gold standard, but perhaps back to the early days of Fed independence in the 1950s. Mr. Plosser is concerned about the recent expansion of the central banking mandate and activities. He is right to want to shift norms around what the Fed does, but unfortunately his proposals in this speech underplay the Fed’s responsibility for the nation’s recent economic crisis, as well as what has happened to the financial system in recent decades.  Getting the Fed off the hook for regulating the system could make sense, but only if there was much more structural change in and around banking than Congress has mandated or that the Fed seems willing to push for.

Republican Senators Describe Fed Easing: A “Morphine Drip,” a “Sugar High,” “Asset Bubbles”; And They’re Right - During the recent Senate Banking confirmation hearing of Yellen, three Republican Senators were particularly outspoken about the dangers lurking in the Fed’s policy of pumping $85 billion a month, a whopping $1.02 trillion a year, into Wall Street coffers via bond purchases from the Street. The policy is known in Wall Street jargon as QE3, shorthand for Quantitative Easing, round 3. By preventing a surplus of bonds on the Street, the Fed is keeping interest rates artificially low in hopes of stimulating economic recovery. The flip side of that effort, however, is to flood Wall Street with the funds to engage in higher risk investing.Senator Pat Toomey, a Republican from Pennsylvania, told Yellen: “We are punishing middle class savers for years now. People who spent an entire working life time choosing to forego consumption because they decided they would save, and they would have a little sum, a little bit of income in their retirement; and now they have no income because they earn nothing on their savings. But they do watch as it gradually gets eroded even by a low level of inflation when they have no income from it. We have exacerbated the problems of underfunded pension plans, and we’ve got distortions in financial markets.” Toomey added that while these were obvious worries, what worried him even more was what would happen when the Fed cuts back on its QE3. Toomey characterized his concern as “what happens when this morphine drip starts to end”?

Question Fed Policy? Sure. Audit It? No. - Paul Krugman - Mike Konczal has a very good piece on why Rand Paul’s proposal that the Fed be “audited” is a bad idea. You should read it; I’d just like to offer a complementary take.  Here’s the thing: we know what it means to audit a private bank; it means checking to be sure that it isn’t wasting or taking undue risks with depositors’ money. But the Fed isn’t in the business of investing, except for tactical purposes; it’s there to manage money, not make it. So what, exactly, is being audited? Suppose the Fed is buying somewhat risky assets, like mortgage-backed securities. Is that a good thing or a bad thing? The answer has almost nothing to do with the question of whether there’s a chance that some of those securities will go bad. It’s all about the effects on the economy. And you know who the likes of Rand Paul would be turning to to make that assessment — if not outright gold bugs, it would be these people.  As Konczal says, the whole audit-the-Fed thing is just an excuse to impose hard-money policies, based in turn on fantasies about currency debasement. Remember, the top Republican economic official right now bases his views on monetary policy on a speech in Atlas Shrugged.

Why Should Banks be the Only Ones with Accounts at the Fed? - This is an idea that’s long overdue. Allowing individuals to hold accounts at the Fed would result in a payments system that is insulated from banking crises. It would make deposit insurance completely unnecessary, thus removing a key subsidy that makes debt financing of asset positions so appealing to banks. There would be no need to impose higher capital requirements, since a fragile capital structure would result in a deposit drain. And there would be no need to require banks to offer cash mutual funds, since the accounts at the Fed would serve precisely this purpose. But the greatest benefit of such a policy would lie elsewhere, in providing the Fed with a vastly superior monetary transmission mechanism. In a brief comment on Macroeconomic Resilience a few months ago, I proposed that an account be created at the Fed for every individual with a social security number, including minors. Any profits accruing to the Fed as a result of its open market operations could then be used to credit these accounts instead of being transferred to the Treasury. But these credits should not be immediately available for withdrawal: they should be released in increments if and when monetary easing is called for. The main advantage of such an approach is that it directly eases debtor balance sheets when a recession hits. It can provide a buffer to those facing financial distress, allowing payments to be made on mortgages or auto loans in the face of an unexpected loss of income. And as children transition into adulthood, they will find themselves with accumulated deposits that could be used to finance educational expenditures or a down payment on a home.

Fed Suggests It Would Accept Treasurys Even if Government Missed a Payment - Federal Reserve officials suggested they would continue to accept Treasurys as collateral and use them in central bank operations even if a debt-ceiling crisis caused the government to miss a payment on its bonds, according to minutes of an Oct. 16 videoconference call released Wednesday. Uncertainty about how the Fed would treat delinquent debt hung over markets during the debt ceiling fracas last month. Congress waited until mid-October to raise the federal borrowing limit, raising concerns the government could run out of money to pay all its bills, including interest on its debt. Fed and U.S. Treasury officials have for the most part kept secret how they would handle a debt ceiling crisis, including whether the government would prioritize interest payments over other uses of cash. Investors also weren’t sure whether they would be able to use Treasury securities at the Fed’s discount window or other Fed facilities if the Treasury missed a payment on the bonds. Without saying so explicitly, the minutes suggested delinquent Treasury securities would continue to be acceptable collateral at the Fed’s discount window, where banks present a range of securities or loans as collateral for short-term cash. The minutes suggested the Fed also would treat delinquent Treasury debt as so-called money-good in other operations, including its bond-buying program, its securities lending programs (in which it lends out securities in its portfolio to address market shortages) and in market operations with bond dealers.

Key Measures Shows Low Inflation in October - 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 0.1% (1.4% annualized rate) in October. The 16% trimmed-mean Consumer Price Index also increased 0.1% (1.1% 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 fell 0.1% (-0.7% annualized rate) in October. 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 October here.

Monetary Policy Will Never Be the Same - Olivier Blanchard - On the liquidity trap: we have discovered, unfortunately at great cost, that the zero lower bound can indeed be binding, and be binding for a long time—five years at this point.  We have also discovered that, even then, there is still some room for monetary policy.  The bulk of the evidence is that unconventional policy can systematically affect the term premia, and thus bend the yield curve through portfolio effects.  But it remains a fact that compared to conventional policy, the effects of unconventional monetary policy are very limited and uncertain.There is therefore much to be said for avoiding the trap in the first place in the future, and this raises again the question of the inflation rate.  There is wide agreement that in most advanced countries, it would be good if inflation was higher today.  Presumably, if it had been higher pre-crisis, it would be higher today.  To be more concrete, if inflation had been 2 percentage points higher before the crisis, the best guess is that it would be 2 percentage points higher today, the real rate would be 2 percentage points lower, and we would probably be close in the United States to an exit from zero nominal rates today.We should not dismiss the possibility, raised by Larry Summers that we may need negative real rates for a long time.   Countries could in principle achieve negative real rates through low nominal rates and moderate inflation.  Instead, we are still facing today the danger of an adverse feedback loop, in which depressed demand leads to lower inflation, lower inflation leads to higher real rates, and higher real rates lead in turn to even more depressed demand.

A Permanent Slump?, by Paul Krugman - Spend any time around monetary officials and one word you’ll hear a lot is “normalization.” But what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades? You might imagine that speculations along these lines are the province of a radical fringe. And they are indeed radical; but fringe, not so much. A number of economists have been flirting with such thoughts for a while. And now they’ve moved into the mainstream. In fact, the case for “secular stagnation” — a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between — was made forcefully recently at the most ultrarespectable of venues, the I.M.F.’s big annual research conference. And the person making that case was none other than Larry Summers. Yes, that Larry Summers.  And if Mr. Summers is right, everything respectable people have been saying about economic policy is wrong, and will keep being wrong for a long time.

Are real rates of return negative? Is the “natural” real rate of return negative? -- Here is a long and very interesting post by Paul Krugman, also referencing a recent talk by Larry Summers.  There is also this older Krugman post, and here is Gavyn Davies, and also Ryan Avent.  And Scott Sumner.  Do read and listen to these, there is much in there to ponder.  I do very much agree with the claim that lower rates of return make recovery more difficult and for the longer haul as well.  And I am happy to welcome these thinkers, or in the case of Krugman re-welcome, to stagnationist ideas. I cannot, however, agree with the central arguments about negative real interest rates, and the necessity for negative natural rates of interest. As I frame the data, we have had negative real rates on government securities, but positive rates on many other investments in the U.S.  The difference reflects a very high real risk premium, which of course we would like to lower, and the differences also reflect some degree of investment segmentation.   The “average vs. marginal” distinction is an important one, but still I don’t see how it can be used to push us away from seeing relevant real rates of return as positive.   I get nervous when I read about the real rate or the natural rate.  (Interfluidity questions whether the idea of a natural rate makes sense at all.)  I also get nervous when I do not see serious talk about the embedded risk premium in the observed structure of market rates.  I grow more nervous yet when the average vs. marginal question is not spelled out more explicitly.In my view very negative real rates of return would not be a “natural rate” giving rise to full employment through a better equilibration of planned savings and investment.  Given a pretty flat employment to population ratio, very negative real rates of return across the economy as a whole would have to mean negative economic growth and other attendant difficulties.

Krugman, Following Summers, Celebrates Asset Bubbles - Yves Smith - We have now passed the event horizon into a world run by Dr. Pangloss. In a Sunday afternoon post, Paul Krugman enthusiastically endorses an IMF presentation by Larry Summers which depicts asset bubbles as necessary and desirable. And that means they both agree they should not only continue, they should be encouraged.  I am not making this up. Here are the key bits of Krugman’s post. He starts by saying that the economy is in a liquidity trap, and Summers pretty much agrees even though he does not use that turn of phrase. Krugman continues: We now know that the economic expansion of 2003-2007 was driven by a bubble. You can say the same about the latter part of the 90s expansion; and you can in fact say the same about the later years of the Reagan expansion, which was driven at that point by runaway thrift institutions and a large bubble in commercial real estate… So how can you reconcile repeated bubbles with an economy showing no sign of inflationary pressures? Summers’s answer is that we may be an economy that needs bubbles just to achieve something near full employment – that in the absence of bubbles the economy has a negative natural rate of interest…

The Problem is Policy Not a Secular Decline in the Real Interest Rate - Larry Summers’ recent talk on what ails the US economy  at the November 8 IMF conference is getting a lot of attention.  Here are the basic elements of the Summers argument:

• In the years before the crisis and recession, easy money and related regulatory policies should have shown up in demand pressures, rising inflation, and boom-like conditions.  But the economy failed to overheat and there was significant slack.
• In the years since the crisis and recession, the recovery should have been quite strong, once the panic was halted.  But the recovery has been very weak. Employment as percentage of the working age population has not increased and the gap between real GDP and potential GDP has not closed.
• A decade long secular decline in the equilibrium real interest rate explains both the lack of demand pressures before the crisis and the slow growth since the crisis.  This decline in the equilibrium real interest rate offset any positive demand effects of the low interest rate policy before the crisis. And, with the zero interest rate bound, the low equilibrium interest rate leaves the economy weak even with the current monetary policy.

The first point is inconsistent with some important facts.  Inflation was not steady or falling during the easy money period from 2003-2005. It was rising. During the years from 2003 to 2005, when Fed’s interest rate was too low, the inflation rate for the GDP price index doubled from 1.7% to 3.4% per year.  On top of that there was an extraordinary inflation and boom in the housing market as demand for homes skyrocketed and home price inflation took off, exacerbated by the low interest rate and regulatory policy. Finally, the unemployment rate got as low as 4.4% well below the natural rate, not a sign of slack.

Monetary and Fiscal Implications of Secular Stagnation - Paul Krugman - Since I gave Larry Summers’s endorsement of secular stagnation theory a plug, I’ve been getting a lot of commentary in various forms. Some of it is the usual Keynes-hatred and/or incomprehension, and not worth going into. But there are also some questions/complaints that call for some serious further exegesis.First, about monetary policy. Ryan Avent says that the evident implication of the whole analysis is that we need persistent inflation of something like 4 percent, which he calls “The solution that cannot be named”. Actually, I’ve named it repeatedly; so have many others. But it’s true that it’s still outside what central bankers are allowed to say.  The question here for economists is tactical: how hard do you bang on the inflation target right now? My belief — which could be wrong — is that a higher inflation target will not get into the Overton Window until the general idea of secular stagnation gets widely accepted. As long as current conditions are perceived as temporary and abnormal, the urge to normalize around traditional inflation rates will be hard to beat. Remember, I started calling for 4 percent in Japan in 1998; and even now, with Abenomics, they’re only going for 2. Second, about fiscal policy: I’ve had several people apparently believing that what I’ve said about stagnation is somehow an about-face from previous writings: “You said that we’re suffering from a financial crisis, and that austerity was killing us — but now you say that it’s some long-term problem and we’re doomed to permanent depression!”

Krugman v Stiglitz on what’s holding back the recovery - Two of the leading economists in the world disagree over whether inequality hampers the economic recovery. It relates primarily to the US where the top 1% has captured 95% of the income gained since the financial crisis. Since 2009, the top 1% of incomes grew by 31.4% while the bottom 99% saw their incomes rise by only 0.4%, The main cause of the slow recovery is certainly worth knowing. I sat down with two of the most eminent economists in the world, Nobel Laureates Paul Krugman and Joseph Stiglitz, who disagree over the issue. Stiglitz maintains that those sorts of inequality figures are the main impediments to economic growth. The rich pay less tax, so higher inequality depresses tax receipts. Also, most importantly, the poor consume more of their income than the rich. In other words, poorer people have less disposable income, and spend more of it on necessities such as food. Richer people tend to spend proportionately less of their income since they have more money to spend. It implies that raising incomes for the poor would generate proportionately more consumption. But, Krugman says that he hasn't seen evidence that the rich "under-consume". In one sense, of course, the rich spend more absolutely than the poor. Krugman's point is that this comparison is a static one: if you took two people at a point in time with two different levels of income, then that's what they are doing. But, if you were raise the income of, say, the poor person, then it's harder to know how their spending would change. Stiglitz maintains that there is a large body of evidence that supports his position.

Why the future looks sluggish - FT.com: Lawrence Summers has poured gallons of icy water on any remaining optimists. Speaking on a panel at the International Monetary Fund’s annual research conference, the former US Treasury secretary suggested that there could be no easy return to pre-crisis normality in high-income economies. Instead, he sketched out a disturbing future of chronically weak demand and slow economic growth. .. Why might one believe him? It is possible to point to three relevant features of the western economies. First, the recovery from the financial crisis of 2007-08 has been decidedly weak. In the third quarter, the US economy was just 5.5 per cent bigger than at its pre-crisis peak, more than five years earlier. US real gross domestic product has continued to decline, relative to the pre-crisis trend. Moreover, such weakness has endured, despite ultra-expansionary monetary policies. Second, today’s crisis-hit economies experienced rapid rises in leverage, particularly in the financial and household sectors, together with strong jumps in house prices, before the crisis. This was a “bubble economy”. Many governments, notably in the US and UK, also adopted expansionary fiscal policies. Nevertheless, none of the obvious symptoms of excess – particularly above-trend economic growth or inflation – appeared in Britain or America before the crisis hit. Third, long-term real interest rates remained remarkably low in the years before the crisis, despite strong global economic growth. The yield on UK long-term index-linked gilts fell from close to 4 per cent to about 2 per cent after the Asian financial crisis and then to negative levels after the financial crisis. US Treasury inflation-protected securities (TIPS) followed a similar course, albeit later. (See charts.)

Is zero the new normal? - Larry Summers talk on secular stagnation has led to a burst of discussion on whether nominal interest rates may be at their Zero Lower Bound (ZLB) for longer than we might have thought. I would like to use this post to clarify a number of different ideas that may be involved here. Crucial to this discussion is the concept of the natural real interest rate (NRR). I will define this as the real interest rate that keeps inflation constant. Crucial to Summer’s argument is that our problems did not all start with the recession. However it may be worth just noting some arguments that the ZLB may be around for some time that do begin with the recession.

• 1) It takes a long time to adjust balance sheets - One way many economists think about the current recession is that it involves balance sheet adjustment: consumers and firms need to save to reduce their borrowing or increase their wealth. Ideally we would try and offset this by encouraging them to make this adjustment more slowly, or encouraging others to offset this, through negative real interest rates. If adjusting balance sheets takes a decade rather than five years, this may mean that the NRR is negative for much of this period, so we will be stuck at the ZLB for some time to come.
• 2) Fiscal policy - Tightening fiscal policy lowers the NRR. One of the unusual features of this recession relative to earlier downturns is fiscal austerity, and this will reduce the NRR.'

No, Larry Summers, We Don’t Need More Bubbles - Larry Summers stirred a lot of interest with a talk he gave last week at an International Monetary Fund conference. The former Treasury secretary asked an unsettling question: What if the U.S. needs financial bubbles to maintain full employment?  Not for the first time, you might think, life imitates the Onion. The blog Zero Hedge notes that the satirical website got here first. “Recession-Plagued Nation Demands New Bubble to Invest In,” it reported in 2008. It quoted the chief financial officer of a “bubble-based investment firm”: What the U.S. needed was “a concrete way to create more imaginary wealth in the very immediate future. We are in a crisis, and that crisis demands an unviable short-term solution.”  In saying this might actually be true, Summers was indulging his taste for provocation and carrying lines of thought to extremes. This tendency has attracted attention before -- as when Summers seemed to suggest that pollution should be exported to developing countries or that women’s brains aren’t wired to do science. Summers’s thinking on the here and now of economic policy isn’t the least bit radical, in fact. His ideas on the longer term were more arresting; so was hearing them from the man who was President Barack Obama’s first choice for chairman of the Federal Reserve. Would-be Fed chairmen aren’t supposed to ask unsettling questions about bubbles.

Do Negative Rates Call For Permanent Government Expansion? - Everyone has been talking about the recent Larry Summers speech on secular stagnation, written up with force by Paul Krugman here. Gavyn Davies, in his own nice coverage, noted that the Q&A had an interesting exchange about fiscal stimulus between Bernanke and Summers, so I decided to write that up. From the IMF video, starting around 1h 2m 15s:  if you generate inflation, you can have as negative of a real interest rate as you want. It's often assumed, from that, that monetary policy can necessarily solve the problem alone. But that depends on the ability of pure monetary policy to achieve any desired inflation.There's no question… if you drop enough dollar bills from enough helicopters, you can get as much inflation as you want, but in the classic economic lexicon, that's expansionary fiscal policy, because you are making a transfer. And we've done a lot of quantitative easing, and the inflation rate is not conspicuously higher than what it was before it started. I wanted to make sure you saw that Summers has a triple hedge ("it's sort of the point that there may be a case for what, in some ways of thinking") before he says that we may need a permanent, or at least a permanent enough, fiscal expansion. This is a long way away from the "timely, targeted, and temporary" mantra Summer had for fiscal stimulus in 2008. Stimulus should still be very well targeted, but now temporary and perhaps even timely are up for grabs. Of course, if we needed to expand government for our new era, we have a lot of projects, like fighting global warming and rationalizing our safety net with some kind of basic income, with which we could start. So we aren't lacking for genuine investment opportunities. But would a serious and sustained expansion of the size of government be a necessary or sufficient condition for combating the issue of secular stagnation? I'm curious what everyone thinks and why.

Update: Recovery Measures - Here is an update to four key indicators used by the NBER for business cycle dating: GDP, Employment, Industrial production and real personal income less transfer payments.  Note: The following graphs are all constructed as a percent of the peak in each indicator. This shows when the indicator has bottomed - and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%. Two of the indicators are above pre-recession levels (GDP and Personal Income less Transfer Payments), and two indicators are still slightly below the pre-recession peaks (employment and industrial production). The first graph is for real GDP through Q3 2013. Real GDP returned to the pre-recession peak in Q2 2011, and has hit new post-recession highs for ten consecutive quarters. At the worst point - in Q2 2009 - real GDP was off 4.3% from the 2007 peak. The second graph shows real personal income less transfer payments as a percent of the previous peak through the September report. This indicator was off 8.2% at the worst point. Real personal income less transfer payments are now back above the pre-recession peak. The third graph is for industrial production through October 2013. Industrial production was off 16.9% at the trough in June 2009, and was initially one of the stronger performing sectors during the recovery. However industrial production is still 0.8% below the pre-recession peak. This indicator might return to the pre-recession peak in early 2014. The final graph is for employment and is through October 2013. This is similar to the graph I post every month comparing percent payroll jobs lost in several recessionsin several recessions.

ECRI Recession Watch: Weekly Update - The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) is at 132.2, up from last week's 131.0 (revised from 131.1). The WLI annualized growth indicator (WLIg) to one decimal place, rose to 2.4, up from 2.2 last week.Last year ECRI switched focus to their version of the Big Four Economic Indicators that I routinely track. But when those failed last summer to "roll over" collectively (as ECRI claimed was happening), the company published a new set of indicators to support their recession call in a commentary entitled The U.S. Business Cycle in the Context of the Yo-Yo Years (PDF format). Subsequently the company took a new approach to its recession call in a publicly available commentary on the ECRI website: What Wealth Effect?. That commentary includes a brief discussion of the Personal Consumption Expenditure (PCE) deflator, which I've discussed in more detail here. It also includes an illustration of the shrinkage in US imports since the post-recession peak nearly three years ago. On November 4th, about three months of hibernation, ECRI co-founder spokesman Lakshman Achuthan appeared on Bloomberg TV, reaffirming his company's recession call:

U.S. Growth Still Seen Below 3% Next Year - The Organization for Economic Co-operation and Development predicted rising economic growth for the next two years but laced its largely upbeat global forecast with caveats about weakness in emerging markets as well as risks from fiscal policy. In its Economic Outlook issued Tuesday, the Paris-based organization called for real gross domestic product growth of 2.3% in 2014 and 2.7% in 2015 for its member nations — an improvement over this year’s predicted 1.2% pace. The group forecast the U.S. economy would grow at an annualized pace of 2.9% next year and 3.4% in 2015. The OECD sees the euro zone growing 1% and 1.6% in 2014 and 2015, while China expands at an 8.2% and 7.5% pace. (See all of the OECD’s forecasts by country.)The moderate pace of growth for OECD countries is expected to continue “provided none of the marked downside risks materialize,” the group said. Potential land mines that could derail the slow-paced recovery include the euro zone’s fragile — and often-undercapitalized — banking sector, as well as fiscal risks in Japan and the U.S. High unemployment and a halting recovery mean that “2013 will actually be a low-growth year,” OECD Secretary-General Angel Gurría said Tuesday in Paris. Emerging markets, which helped propel global growth in years past, no longer can be counted on as a reliable engine, the OECD warned, noting that the consequences of that slowing could lead to “broader negative spillover effects” on the world economy.

What Economy? - Ok, enough, the Dow just skirted 16K and I’m here to tell you that virtually the entire run-up of the stock market is based on one thing, and one thing only, the Fed pumping money into the markets.  That is it, that is all.  Since the market bottom the market has more than doubled, but jobs aren’t even close to recovering as a percentage of the population, Europe is still in crisis, and oil prices are still ludicrously high.There has been a recovery in a technical sense, in a business cycle sense, and that is very very bad, because this has been the recovery? I said that we wouldn’t see jobs recover as a percentage of the population in a generation the day I saw Obama’s stimulus plan (after seeing that he was going to bail out banks and not put people in jail) and I was right.  I will continue to be right.  The problems the economy has cannot be fixed by giving more money to banks and rich people and attempting to turn the housing market into a cash cow again.  The economy requires targeted spending, to get off oil, to break up the big banks and other oligopolies, to open up the economy to actual competition, and to increase the pricing power of labor and reduce the pricing power of employers while making sure there we do not run up against supply bottlenecks.  It does not require giving money to people who will simply use that money for more leveraged financial plays or to bury bad assets on balance sheets at mark to model (aka. mark to fantasy.)

Gross Domestic Freebie - Twitter’s recent I.P.O. bonanza gave us all some striking numbers to consider. There’s the company’s valuation: an astounding twenty-four billion dollars. And its revenue: just five hundred and thirty-five million. It has more than two hundred and thirty million active users, and a hundred million of them use the service daily. They collectively send roughly half a billion tweets every day. And then there’s the starkest number of all: zero. That’s the price that Twitter charges people to use its technology. Since the company was founded, ordinary users have sent more than three hundred billion tweets. In exchange, they have paid Twitter no dollars and no cents. Ever since Netscape made the decision to give away its browser, free has been more the rule online than the exception. And even though traditional media companies have been erecting paywalls to guard revenue, a huge chunk of the time we spend online is spent consuming stuff that we don’t pay for. Economically, this makes for an odd situation: digital goods and services are everywhere you look, but their impact is hard to see in economic statistics. Our main yardstick for the health of the economy is G.D.P. growth, a concept devised in the nineteen-thirties. The basic assumption is simple: the more stuff we’re producing for sale, the better off we are. In the industrial age, this was a reasonable assumption, but in the digital economy that picture gets a lot fuzzier, since so much of what’s being produced is available free. You may think that Wikipedia, Twitter, Snapchat, Google Maps, and so on are valuable. But, as far as G.D.P. is concerned, they barely exist.

Pete Peterson's 'Fix The Debt' Caught Astroturfing - I've written about my hatred for the Fix the Debt group and their paid shills many times on this blog. The Nation exposed them, as well, in their article: Pete Peterson's Puppet Populists, but after reading today's news report that they were using astroturfing methods to place their own op-eds in newspapers, my hatred has exponentially increased by the power of pi. Digby writes: Oh, my goodness. Can it be that Fix the Debt is using patented right wing astroturf tactics? Say it ain't so! Our friend Jon Romano, press secretary for the inside-the-beltway PR campaign “Fix the Debt” and its pet youth group, The Can Kicks Back, have been caught writing op-eds for college students and placing the identical op-eds in papers across the country. This is the latest slip-up in Fix the Debt’s efforts to portray itself as representing America’s youth. Previously, they were caught paying dancers to participate in a pro-austerity flash mob and paying Change.org to gather online petition signers for them. The newspapers involved in the scam were not amused.

Summers: Washington Should Be ‘Obsessed’ With Stagnation - Lawrence Summers, former senior adviser to Clinton and Obama White Houses, said Washington policy makers should be “obsessed” about the risk of long-term economic stagnation. “That is a much more urgent threat to every American interest than anything about Social Security benefits in 2035, that is a much greater risk to American interests than anything about the emergence of hyperinflation coming from monetary policy,” Mr. Summers, now a Harvard University professor, said at the Wall Street Journal’s CEO Council annual meeting. “That is where concern ought to be.” Instead, Washington policy makers have become too absorbed worrying about budget deficits and rising national debt–issues that would be helped with faster economic growth, Mr. Summers said. The U.S. economy has grown only slowly since the recession ended in June 2009, expanding at roughly 2% a year while unemployment remains high and job creation moves ahead in fits and starts. “The truth is that if we get past out current, perhaps protracted bout of secular stagnation and get the growth rate up, the debt problem will stay under control,” Mr. Summers said. The former Treasury secretary cited education improvements, a tax overhaul and immigration reform as areas that would help boost the economy and opportunity for more Americans.

Jackie Calmes’ “Dirty Secret” About the Opponents of Austerity is That They are Correct - Bill Black -Ms. Calmes is the New York Times’ White House correspondent.  Readers who follow finance and fraud may recall her as the object of an epic dismantling in Naked Capitalism.  The subject there was Calmes’ dismissive review of Neill Barofsky’s (SIGTARP) book’s criticism of Timothy Geithner. Calmes is back and writing about economics in an article entitled:  “A Dirty Secret Lurks in the Struggle Over a Fiscal ‘Grand Bargain.’” Calmes thesis is: But the dirty secret — a phrase used independently, and privately, by people in both parties — is that neither side wants to take the actions it demands of the other to achieve a breakthrough. That is, many Republicans are no more interested in voting to reduce Medicare and Social Security benefits than Democrats are, lest they threaten their party’s big advantage among the older voters who dominate the electorate in midterm contests like those in 2014. And Democrats are no more eager than Republicans, with control of both houses of Congress up for grabs, to vote for the large revenue increases that a grand bargain would entail. When we pull away the camouflage that Calmes deploys to obscure matters, the “dirty secret” that emerges is that key members of both parties realize that the purported “Grand Bargain” actually represents a self-destructive Grand Betrayal that should be opposed by both parties.  Her “dirty” secret is actually a “clean” non-secret.  Calmes’ quoted passage discusses two of the key planks of the proposal – cut the safety net and increase tax revenues (but not marginal tax rates on the wealthy, which Bowles Simpson propose to reduce).  The third plank is to cut (mostly) social program spending.

U.S.'s Lew says big budget deal unlikely without revenues (Reuters) - The Obama administration said on Tuesday that budget negotiators in Congress would probably fail to strike a far-reaching deal unless Republicans agree to raise revenues and overhaul the tax code. A 29-member congressional committee is trying to set spending levels for the fiscal year that began last month, and many lawmakers want to scrap large spending cuts that started in March. The discussions, however, are hung up on differences regarding America's programs for elderly health care and its Social Security pension system, which many economists warn cannot be funded over the long term under current tax policies. While President Barack Obama, a Democrat, is not officially a part of this process, his treasury secretary said the administration feels an overhaul of America's welfare state should not happen without rewriting tax laws and raising federal revenues. Republicans generally oppose any tax hikes. "I don't want to get ahead of the budget conferees," Treasury Secretary Jack Lew told a business panel, saying the lawmakers could produce something "small, medium or large." But if Republicans don't embrace tax reform and higher revenues, he said, "then something large is not likely."

Budget Talks Inch Along - With time running short, budget negotiators report they are continuing efforts to reach a small-scale fiscal agreement that could replace some of the across-the-board spending cuts. But big hurdles remain and it is unclear whether a package can secure bipartisan support by a mid-January deadline. “They are still in a massaging period of trying to figure out if anything can be done,” Sen. Richard Burr (R., N.C.) said after meeting with one of the top negotiators, Rep. Paul Ryan (R., Wis.). “I wouldn’t say they are any closer than the day they started.” Mr. Ryan and Sen. Patty Murray (D., Wash.), who are leading the talks, have been in frequent contact but have little to show for it. The two are working to find ways to replace some of the across-the-board cuts in spending and discretionary programs that began in March and will continue for eight years. Lawmakers and congressional aides have said they are seeking a deal that might replace some – but not all – of the cuts for the next two years. Their goal is to provide a topline budget figure to House and Senate appropriators so that those lawmakers can begin writing spending bills before a current government funding law expires on Jan. 15, 2014. “I want a number sooner rather than later,” said Rep. Tom Cole (R., Okla.), a member of the budget negotiating committee. He said he was optimistic a deal could be reached by early December, but others have said they are less sure something can be done.

Nuclear Option Increases Chances Of Another Shutdown, Sequestration - By changing it's rules yesterday to prevent filibusters on executive branch and judicial nominees (other than the Supreme Court) -- the so-called nuclear option -- the Senate further complicated a federal budget debate that was already overly complicated and had little chance of success. Although it's still less likely than likely, the prospects for a government shutdown in January increased significantly. And the likelihood for sequestration to occur as scheduled in mid-January also jumped significantly. Here's why.

• 1. In general terms, the federal budget debate in recent years has always been more emotional than rational and far more political than substantive. The emotions and politics were significantly ramped up yesterday.
• 2. Although the rules change was not about either the budget or the House, both almost immediately were affected by what was done in the Senate. The first big legislation-related deadline following the adoption of the nuclear option will be December 13, the date by which the budget conferees are supposed to develop an agreement. The second big date will be January 15, when the current continuing resolution will expire. The third will be January 18, when the sequester is scheduled to occur unless Congress and the White House agree to an alternative. In other words, the most immediate legislative impact of the nuclear option, and the first chance for retribution by the GOP, will be on the budget.

Sequester Watch, #30 & 31 - We’re combining two weeks of SW, and an important theme as we head into next year is what does 2014 hold in store for agencies and their programs in terms of sequestration cuts?   Among those who think about such things, there’s sometimes an assumption that there will be “no new negative fiscal impulse.”  Suzy Khimm notes an interesting point re this, one I’ve heard other folks with some inside knowledge corroborate:Government agencies will also have a harder time managing the spending restrictions that have already taken effect in 2013 if sequestration continues. From the Justice Department and the Pentagon to local housing authorities, officials have used temporary, one-time measures to mitigate the pain of sequestration this year. If sequestration continues, however, they won’t have the same creative budgeting and accounting tricks at their disposal. And that means the cuts will deal a harsh blow to more American families and businesses across the country.

So excuse me if I’m not anxious to just settle into a new normal that assumes we can happily live with another year of sequestration.

Sequestration reduces home heating aid for R.I.
Sequestration Could Cut Housing Assistance For 185,000 People Next Year
The sequester, round two: Students may see a dip in financial aid next fall as the sequester cuts continue.
Merit Systems Protection Board swamped by volume of furlough appeals
Military Families Fear Housing Allowance Is at Risk
Sequestration’s second year worse than its first, military chiefs warn
UCLA Chancellor On Sequestration Science Cuts: ‘People Will End Up On The Street’
New Survey Finds U.S. Sequester Has Meant Less Academic Research
US Honors Veterans with Stirring Speeches and Painful Austerity
Sequestration continues to squeeze local manufacturers: Defense, aerospace sectors still coping with year-end cuts, shrinking military
Turner: Sequestration could cost Dayton 13,000 jobs
Analysis: Sequester’s automatic spending cuts would bite deeper in 2014
Sequestration still hurting our seniors
‘Frankly, I am nervous’
Federal cuts slash hundreds of programs
Survey: 81 Percent of Universities Say Sequester Has Directly Affected Research Activities
U.S. Budget Deficit Falls 24 Percent in October Due to Shutdown, Sequester
Sequester Risks 6,000 Jobs at Wright-Patterson
Sequester hit low-income housing program in Mankato
Sequester looms over Philippines disaster relief
Universities say sequester hurting research
Cutbacks & Sequestration Threaten Senior Citizen Program
Harsher cuts are on their way
Preliminary USDA data: Sequestration takes a bite out of conservation program
Special Education Budget Cuts, Sequestration, Hurt America’s Most Vulnerable Students
Career Training For The Unemployed Is Getting Suffocated By Sequestration
U.S. Military Eyes Cut to Pay, Benefits
Pentagon Faces $52 Billion in Sequester Budget Cuts in January
Moody’s: Sequester May Hurt Research Universities’ Credit Ratings

Military Faces Massive Budget Cuts Due To Sequester - The U.S. military’s budget is about to take a huge hit unless Congress takes action to lift the ongoing sequester. The automatic cuts, set to take effect in January, will slash $52 billion from the military, which is 10-percent of the pentagon budget. Top commanders say they will start reducing benefits for active military, including curbing pay and allowances for housing, education, and health. The U.S. military's budget has been slashed by $41 billion so far this year because of the sequester. And it looks like another $52 billion of cuts are on the way when the next round of sequester kicks in in January. But this time, The Wall Street Journal reports, soldier pay and benefits could take a hit.

Special Report: The Pentagon's doctored ledgers conceal epic waste (Reuters) - Linda Woodford spent the last 15 years of her career inserting phony numbers in the U.S. Department of Defense's accounts.Every month until she retired in 2011, she says, the day came when the Navy would start dumping numbers on the Cleveland, Ohio, office of the Defense Finance and Accounting Service, the Pentagon's main accounting agency. Using the data they received, Woodford and her fellow DFAS accountants there set about preparing monthly reports to square the Navy's books with the U.S. Treasury's - a balancing-the-checkbook maneuver required of all the military services and other Pentagon agencies.And every month, they encountered the same problem. Numbers were missing. Numbers were clearly wrong. Numbers came with no explanation of how the money had been spent or which congressional appropriation it came from. "A lot of times there were issues of numbers being inaccurate," Woodford says. "We didn't have the detail … for a lot of it."  The data flooded in just two days before deadline. As the clock ticked down, Woodford says, staff were able to resolve a lot of the false entries through hurried calls and emails to Navy personnel, but many mystery numbers remained. For those, Woodford and her colleagues were told by superiors to take "unsubstantiated change actions" - in other words, enter false numbers, commonly called "plugs," to make the Navy's totals match the Treasury's.

Pentagon Plugs: New Study Finds Pentagon Has Hidden Trillions In Missing Money And Equipment - I previously wrote a column about how government officials waste billions or plow whole programs in the ground without nary a reprimand. If that column bothered you, you might want to sit down. A new report has detailed how the military has cooked the books to hide trillions, that’s right trillions, in missing money and equipment. The military calls them “plugs,” a curious term for fraud. These are knowingly fake figures used to hide the fact that there is no accurate record of the money. In one finding, a single office in Columbus, Ohio, made at least $1.59 trillion in errors with $538 billion in plugs. The study reveals that government accounting records are fraudulent but that congressional oversight has been equally illusory. Required to complete an audit, the staff simply faked the numbers. When taxpayers and citizens do that, they go to jail. Yet, government officials can knowingly falsify reports and figures for billions without fear of discipline or even reprimand. To the contrary, the plugs were approved by their supervisors. The Army actually lost track of $5.8 billion of supplies between 2003 and 2011 — leaving some units without essential equipment. Of course, we continue to spend massive amount of our budget on new equipment and military programs — backed up by a massive lobby and industry that thrives on the defense budget. Lost equipment will just have to be replaced and more contracts awarded.

Medicare Part D: Republican Budget-Busting - Ten years ago this week, Republicans enacted the largest expansion of the welfare state since 1965 by adding a huge unfunded program providing coverage for prescription drugs to the Medicare program. By 2003, strong bipartisan support existed for expanding Medicare to include prescription drugs. Republicans were keen to make sure that the legislation enacted was theirs, because the Democrats were certain to include cost containment for drugs in their legislation. It was widely believed that if the federal government used its buying power to pressure drug companies to cut drug prices, the cost of providing drugs to Medicare recipients would be substantially reduced. But forcing down drug prices would diminish the drug companies’ profits and Republicans were adamantly opposed to that. Consequently, despite their oft-repeated opposition to new entitlement programs, they got behind the new drug benefit, now known as Medicare Part D, and made sure there was no cost-containment provision.From the beginning, Republicans decided to forgo dedicated financing for Part D. Except for trivial premiums paid by recipients, the entire cost would fall on taxpayers. Moreover, Republicans refused to raise the Medicare tax or cut spending to cover Part D. Hence, the deficit increased by virtually the entire cost of the program. Through 2012, Medicare Part D added $318 billion to the national debt (see “General Revenue” on Page 111 in the 2013 Medicare trustees report). That same report projects that Medicare Part D will add $852 billion to the debt over the next 10 years.

Bitcoin hits $785 with a little help from Bernanke - FT.com: A US Senate hearing on the “risks, threats and promises” of virtual currencies sparked a new leg up in the price of Bitcoin, the experimental currency which has risen by more than 5,000 per cent in value this year. An intervention by Ben Bernanke, chairman of the Federal Reserve, enabled Bitcoin’s enthusiasts to put the spotlight where they believe its potential value lies: as a cheaper alternative to the current system for transferring money around the world. Mr Bernanke, in a letter to the Homeland Security committee, pointed out the Fed’s longstanding view that while virtual currencies pose money laundering and other risks, “there are also areas where they may hold long-term promise”. Participants at the hearing, who included representatives of the US Treasury and Department of Justice, also emphasised that clamping down on illegal activity paid for by Bitcoin was not meant to curb financial innovation. The price of a single Bitcoin, which was $13.50 at the end of 2012, surged more than $200 on Monday on the Mt.Gox exchange, setting a record high trade of $785. Law enforcement officials and regulators moved to stop the use of Bitcoin as a currency for dealing drugs by shutting the underground website Silk Road and have warned Bitcoin entrepreneurs that they must introduce anti-money laundering procedures to also avoid being shut down. Many Bitcoin businesses are finding it hard to persuade traditional banks to deal with them in the US, but enthusiasts believe that a balanced discussion of “risks” and “promises” in Congress will help thaw the climate.

Wolf Richter: Use Bitcoin As A Currency, Get Wiped Out (The Government Likes It That Way) - Four years after its creation, folks are still arguing over what bitcoin is: “investment opportunity of the millennium,” “part of a societal revolution,” a security, a currency, a casino token? Whatever. But US regulators now have strategy of killing it as a currency. The Senate is trying to wrap its brains around bitcoin. A sight to behold. Four years after its creation, folks are still arguing over what it is. For some, bitcoins aren’t even casino tokens (no fancy tokens). These non-physical entities traded on electronic exchanges “would likely be securities,” SEC Chairman Mary Jo White clarified in her letter to the Senate Committee on Homeland Security and Governmental Affairs that is now investigating the matter. And as securities, they would be “subject to our regulation.” So a security, not a currency. Fed Chairman Ben Bernanke attempted to dodge the issue, but didn’t quite make it when he wrote to the committee that the Fed “generally monitors developments in virtual currencies” – so it’s a currency, not a security? Some sort of “private money” is what the German Ministry of Finance called it in August. Under German law, it could be used to settle multilateral transactions. Creating bitcoins (“mining”) was therefore “private money creation.” This emerged as an answer to MP Frank Schäffler’s query. Any gains from selling bitcoins after one year would be treated as capital gains for tax purposes. So it’s a security, in addition to private money? German banking supervisor Bafin also struggled with it, and finally considered it the equivalent to a foreign currency.A miffed commenter on a Bloomberg article called it “the investment opportunity of the millennium” and “part of a societal revolution.” That would be the other end of the spectrum.

Pressure Builds to Finish Volcker Rule on Wall St. Oversight - The Obama administration, currently stumbling through the health care overhaul, has reached a critical stage in its other signature effort: reining in Wall Street. The push to reshape financial oversight hinges on negotiations in the coming weeks over the so-called Volcker Rule, a regulation that strikes at the heart of Wall Street risk-taking. The rule, which bans banks from trading for their own gain, has become synonymous with the Dodd-Frank overhaul law that Congress adopted after the financial crisis. Treasury Secretary Jacob J. Lew has strongly urged federal agencies to finish writing the Volcker Rule by the end of the year — more than a year after they had been expected to do so — and President Obama recently stressed the importance of the deadline. While regulators are optimistic they will complete the rule soon, even after facing a lobbying onslaught from Wall Street, they have little time to overcome the internal wrangling that has stymied them for years. The tension among regulators — five agencies are writing the rule — has centered on just how stringent to make it. 

Federal Reserve considering a delay to Volcker rule - FT.com: The Federal Reserve is considering a delay in the compliance date for the highly anticipated Volcker regulation, giving banks additional time to conform with its provisions, according to people familiar with the matter. Banks are currently required to comply with the rule – which bans proprietary trading that puts a bank’s own capital at risk – by July 2014. But regulators are still putting the final touches on the long-delayed proposal, and the final rule will probably not be released until December – giving banks less than a year to make changes to comply with the proposal. The Fed has the option of delaying the compliance date in one-year increments. It is considering pushing out the timing to July 2015 to allow for a phased-in period of implementation, people familiar with the matter said. If the Fed decides to delay the date, the move will probably be announced next month. The delay would likely include certain conditions, so banks will not get a free pass on the regulation, one of the most far reaching and feared rules to come out of the Dodd-Frank financial reform legislation. Treasury secretary Jack Lew has pressured regulators to implement the rule by the end of this year. If the Fed does decide to delay the compliance date, financial companies would still have to eliminate pure proprietary trading desks by July 2014. Other terms may include requiring banks to collect data, make disclosures and implement other measures to build their compliance systems. The conditions are meant to show that banks are making a good-faith effort to comply with the Volcker rule.

Fed’s Rosengren Calls for Larger Capital Cushions -- Very large banks that count broker-dealer operations as an important part of their business need to hold higher levels of capital to reduce the risk these firms pose to the broader financial system, Federal Reserve Bank of Boston President Eric Rosengren said Monday. “Given the risks that broker-dealer funding models pose, and the failure of many of the large broker-dealers during the crisis, it would seem appropriate that these organizations should be holding more capital,” the official said. “Certainly one way to achieve this would be to impose capital charges for bank holding companies highly reliant on wholesale funding,” Mr. Rosengren said. “Larger capital positions for firms with a business model reliant on wholesale funding will help to further reduce the likelihood of a liability run.” The official’s comments came from the text of a speech he delivered in Abu Dhabi, before a gathering of the Financial Stability Institute of the Bank for International Settlements. He didn’t make any comments about the U.S. monetary policy and economic outlook. Mr. Rosengren has been a frequent advocate for additional reforms to the financial regulatory environment in the wake of the financial crisis. He has focused on the unfinished business of the landmark Dodd-Frank Act, and has targeted money-market funds, among others, for serving as potential source of new financial instability.

Dodd-Frank: Too Convoluted to Succeed - After the February 2009 stimulus law and the March 2010 “Obamacare” health-insurance overhaul, the Dodd-Frank financial-reform act of July 2010—meant to sharpen the vision of that “watchful eye”—became Obama’s third signature legislative victory. “The American people will never again be asked to foot the bill for Wall Street’s mistakes,” Obama said as he signed the bill into law. “There will be no more tax-funded bailouts—period.” To applause, he added that “there will be new rules to make clear that no firm is somehow protected because it is ‘too big to fail.’ ”  But three years later, “too big to fail” lives on. “There’s a growing bipartisan consensus that the Dodd-Frank Act regrettably did not end the ‘too-big-to-fail’ phenomenon or its consequent bailouts,” Texas congressman Jeb Hensarling, head of the House financial-services committee, said just before Dodd-Frank’s third anniversary this summer. Republicans aren’t the only ones saying so. Elizabeth Warren, the new Democratic senator from Massachusetts, recently introduced her own “end too big to fail” bill, implicitly suggesting that Dodd-Frank did not fix the problem. At one congressional hearing after another, independent expert witnesses, as well as top officials from the Obama administration, have admitted that there is still no structure in place that would allow large financial institutions to go under without risking an economic meltdown. What went wrong with Dodd-Frank, and how can the problems be fixed?

JPMorgan Chase: $13B Settlement With Government - After years of investigations and lawsuits regarding its sales in subprime, mortgage-backed securities, JPMorgan Chase reached a $13 billion deal with the Department of Justice on Tuesday to settle all outstanding issues.It’s the largest settlement ever to be reached between a corporation and the government, CBS reports. JPMorgan agreed Friday to pay $4.5 million to investors who lost money in the housing collapse.

JPMorgan agrees to shoulder WaMu bill - JPMorgan Chase has conceded it will take responsibility for the past misdeeds of Washington Mutual, according to people familiar with the matter, paving the way for the Department of Justice to announce the biggest ever settlement with a single company. People close to the sometimes fractious talks over the U.S. government's investigation into mortgage securities misselling say that the Department of Justice is poised to announce a $13 billion settlement with JPMorgan this week after the bank accepted it would not try to claim back part of the costs from the government-managed receivership of WaMu. The settlement will resolve all civil government investigations into JPMorgan along with state attorneys-general in New York and California, and a lawsuit brought by the National Credit Union Administration, these people say. All parties are still finalizing the precise terms but the biggest hurdle has been cleared, the people say. JPMorgan has agreed to a $4.5 billion settlement on mortgage bonds. The settlement does not cover any mortgage backed securities issued by Washington Mutual.  JPMorgan and the Department of Justice declined to comment. JPMorgan bought WaMu during the financial crisis as it came close to collapse. The bank's executives and lawyers argued that JPMorgan should not be held liable for behavior that occurred before the acquisition.

DOJ Announces $13 Billion "Largest Ever" Settlement With JP Morgan - To the DOJ, a $13 billion receipt is the "largest ever settlement with a single entity." To #AskJPM, a $13 billion outlay is a 100%+ IRR. And perhaps more relevant, let's recall that JPM holds $550 billion in Fed excess reserves, on which it is paid 0.25% interest, or $1.4 billion annually. In other words, out of the Fed's pocket, through JPM, and back into the government. Luckily, this is not considered outright government financing. From the DOJ:The Justice Department, along with federal and state partners, today announced a $13 billion settlement with JPMorgan - the largest settlement with a single entity in American history - to resolve federal and state civil claims arising out of the packaging, marketing, sale and issuance of residential mortgage-backed securities (RMBS) by JPMorgan, Bear Stearns and Washington Mutual prior to Jan. 1, 2009.  As part of the settlement, JPMorgan acknowledged it made serious misrepresentations to the public - including the investing public - about numerous RMBS transactions.  The resolution also requires JPMorgan to provide much needed relief to underwater homeowners and potential homebuyers, including those in distressed areas of the country.  The settlement does not absolve JPMorgan or its employees from facing any possible criminal charges.

JPMorgan Chase Settled for $13 Billion Amid Twitter Fiasco - JPMorgan Chase has settled with the DOJ for bundling up and selling toxic mortgages as derivatives to unsuspecting investors.  The settlement is $13 billion.  The news prompted another round of #AskJPM twitter mega sarcasm. The Justice Department, along with federal and state partners, today announced a $13 billion settlement with JPMorgan - the largest settlement with a single entity in American history - to resolve federal and state civil claims arising out of the packaging, marketing, sale and issuance of residential mortgage-backed securities (RMBS) by JPMorgan, Bear Stearns and Washington Mutual prior to Jan. 1, 2009.Of course those who lost their homes in foreclosure during all of this are fundamentally left out in the cold.  They won't see a dime.  Below is the breakdown of where the settlement money is going and most of it is to investors who purchased bundled up bad mortgages derivatives. Of the record-breaking $13 billion resolution, $9 billion will be paid to settle federal and state civil claims by various entities related to RMBS. Of that $9 billion, JPMorgan will pay $2 billion as a civil penalty to settle the Justice Department claims under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), $1.4 billion to settle federal and state securities claims by the National Credit Union Administration (NCUA), $515.4 million to settle federal and state securities claims by the Federal Deposit Insurance Corporation (FDIC), $4 billion to settle federal and state claims by the Federal Housing Finance Agency (FHFA), $298.9 million to settle claims by the State of California, $19.7 million to settle claims by the State of Delaware, $100 million to settle claims by the State of Illinois, $34.4 million to settle claims by the Commonwealth of Massachusetts, and $613.8 million to settle claims by the State of New York.

JPMorgan Agrees To Pay Billions For Causing Financial Crisis - Yesterday the Justice Department announced a $13 billion settlement with JPMorgan over the megabank’s fraud in the mortgage backed security market that helped trigger a financial meltdown in 2008. The deal was completed after JPMorgan CEO Jamie Dimon summoned Attorney General Holder to a private meeting to avoid a press conference, the terms discussed at that meeting would later be finalized into the current settlement agreement.The settlement includes a statement of facts, in which JPMorgan acknowledges that it regularly represented to RMBS investors that the mortgage loans in various securities complied with underwriting guidelines.  Contrary to those representations, as the statement of facts explains, on a number of different occasions, JPMorgan employees knew that the loans in question did not comply with those guidelines and were not otherwise appropriate for securitization, but they allowed the loans to be securitized – and those securities to be sold – without disclosing this information to investors. This conduct, along with similar conduct by other banks that bundled toxic loans into securities and misled investors who purchased those securities, contributed to the financial crisis.  In short, JPMorgan committed fraud and it led to a financial panic when people realized they had been had.

JPMorgan's $13 Billion "No Admission of Wrongdoing" Settlement (and a $7 Billion Tax Deduction) - JPMorgan agreed to pay a record $13 billion following a probe of its mortgage operation, Washington Mutual bad loans, and mass waivers on misrepresented products. Specifically, JPMorgan knowingly bundled toxic loans into packages sold to unsuspecting investors.But all's well that ends well.  JPMorgan was assessed a $13 billion fine but apparently did nothing wrong. As an added bonus, $7 billion of that $13 billion settlement is tax deductible.  Please consider JPMorgan $13 Billion Mortgage Deal Seen as Lawsuit Shield JPMorgan Chase & Co. (JPM)’s record $13 billion deal to end probes into mortgage-bond sales may save the bank billions more because of what the agreement lacked: an explicit admission of wrongdoing.  Employees of JPMorgan and two firms it acquired knew some of the loans included in bonds didn’t meet underwriting standards, a fact not shared with buyers of those securities, the U.S. Justice Department said yesterday in a statement. “We didn’t say that we acknowledge serious misrepresentation of the facts,” Lake said yesterday in a conference call with analysts. “We would characterize potentially the statement of facts differently than others might.” JPMorgan acknowledged the statement of facts -- the settlement’s official narrative of events leading up to the infractions -- without admitting violations of law, Lake said. The bank also denied any violations in an accompanying slide show.

More than half of the JPMorgan settlement amount will be tax-deductible: In an agreement settling many U.S. claims over its sale of troubled mortgages, JPMorgan Chase will pay a record $13 billion, in a deal announced by the Tuesday. The plan includes a $4 billion payment for consumer relief, along with a payment to investors of more than $6 billion and a large fine. -- "The settlement does not absolve JPMorgan or its employees from facing any possible criminal charges," the Justice Department says. -- More than half of the record settlement amount will be tax-deductible, the banking giant said in a conference call Tuesday. "It's our understanding that the $2 billion penalty will not be tax-deductible," JPMorgan Chief Financial Officer Marianne Lake said, "but that the remaining $7 billion of compensatory payments will be deductible for tax purposes." -- "JPMorgan and the banks it bought securitized billions of dollars of defective mortgages. Investors, including Fannie Mae and Freddie Mac, suffered enormous losses by purchasing [residential mortgage-backed securities] from JPMorgan, Washington Mutual and Bear Stearns not knowing about those defects.

Federal Judge Orders MF Global to Pay $1.2 Billion to Customers - MF Global, the bankrupt brokerage firm led by former New Jersey Gov. Jon Corzine, has been ordered by regulators to pay $1.2 billion in restitution to its customers. In a consent order entered on Nov. 8 by a federal judge in New York, MF Global, which collapsed in 2011, was also ordered to pay a $100 million fine.The Commodities Futures Trading Commission announced the order in a statement Monday. According to the order, the fine will be paid after MF Global covers the losses of its former clients and repays certain creditors that received priority in MF Global's bankruptcy proceedings. The restitution order and fine stem from civil charges filed by the CFTC in June in which MF Global was accused of improperly using customer funds to pay off its rapidly escalating debts. The CFTC charged former CEO Corzine and former assistant treasurer Edith O'Brien with illegally using segregated customer funds in an effort to cover losses incurred on bets tied to the European debt crisis. The regulator's civil cases against Corzine and O'Brien have yet to be resolved, despite the larger consent order.

Why No Bankers Go to Jail -- In my previous post, I summarized Judge Jed Rakoff's objections to all the reasons federal prosecutors have given for failing to charge top financial executives with criminal wrongdoing. So, what explains the hesitance to bring to justice those who contributed to the worst economic crisis since the Great Depression? In . Notably, Rakoff doesn't suspect the infamous "revolving door" -- the idea that bureaucrats are simply positioning themselves to move to cushy private-sector jobs. Prosecutors, he said, want to make a name for themselves. Here, rather, is where Rakoff believes the real culprits lie:
Theory 1: U.S. attorneys and the Federal Bureau of Investigation have other priorities, whether it's antiterror cases after the Sept. 11 attacks, or Ponzi rip-offs after Bernard Madoff's huge scam. Financial frauds are particularly tough to crack, and many of the prosecutors with the requisite knowledge have been moved to other areas.
Theory 2: Law enforcement agencies have had to compete for a shrinking pot of money from Congress, and the best way to do that is by beefing up their statistics with smaller, easier cases and avoiding the years-long financial fraud probes that may turn up nothing.
Theory 3: The federal government's involvement in the mid-2000s bubble -- encouraging more people to buy homes, deregulating the financial industry, keeping interest rates low and giving Fannie Mae and Freddie Mac way too much leeway -- may also have given prosecutors pause.
Theory 4: The U.S. has shifted over the last 30 years from prosecuting high-level individuals to using delayed-prosecution agreements to settle cases against entire companies. That shift “has led to some lax and dubious behavior on the part of prosecutors," Rakoff said

Corporate credit markets back to frothy levels - This summer's growing fears of the Fed's impending policy change hit a number of fixed income sectors quite hard. While corporate credit was the best performer on a relative basis, it too was hit by some sell-off and a decline in liquidity. In September however an event in the bond markets brought investors back. Verizon's massive bond sale went so well, the whole investment grade universe perked up.FT: - Verizon sold $49bn worth of bonds in a combination of fixed and floating-rate debt spread across six maturities that ranged from three to 30 years. The bonds jumped in secondary markets, rewarding investors who bought the securities at discount prices. The gains generated up to $2bn in profit for investors on the bonds in 24 hours, analysts estimated.Verizon’s successful sale helped end the summer sell-off and paved the way for an upswing in the market for US corporate bonds. The Fed’s decision later in September to keep its bond-buying programme in place added a new enticement to corporate borrowers as well as investors in fixed income assets.“There were talks earlier this year about a ‘great rotation’ out of fixed-income and into other asset classes,” says Alex Gennis, a credit strategist at Barclays. “Indications point to a very strong and healthy appetite for paper in the corporate bond market. The ‘great rotation’ has yet to happen.”  As the equity markets resumed their rally, corporate spreads - including high yield - began to tighten again. All of a sudden we find ourselves back in the frothy corporate credit environment that existed before the Fed struck a more hawkish tone in May (see discussion).

Bond Dealer Retreat Seen in Trades Shrinking 39%: Credit Markets - Corporate-bond trades have shrunk to the smallest in a year, exchanging hands in chunks that have contracted 39 percent from before the credit crisis in another sign of a dealer pullback that threatens to drive up borrowing costs.  The average investment-grade bond transaction declined 9.4 percent to $501,635 in the three months ended Sept. 30 from $553,410 in the first quarter, according to Financial Industry Regulatory Authority data. Trade sizes have contracted from $815,828 in 2007, even as the total amount of corporate-debt outstanding swelled 92 percent during the same period.  The smaller transactions illustrate conditions that money managers including BlackRock Inc.’s Laurence D. Fink say have driven up costs for clients and made it more difficult to buy and sell debt. That may accelerate a surge in borrowing costs and exacerbate investor losses if a Federal Reserve pullback from unprecedented stimulus efforts triggers a cash exodus. “When the market turns, if there are no counterparties to step in, the lack of liquidity could push prices down pretty quickly,” Brian Rehling, chief fixed-income strategist at Wells Fargo Advisors in St. Louis, said in a telephone interview. “Back in May and June, when interest rates increased, you definitely saw some of the illiquidity push prices down.”

Military Lending Act Has Loopholes Says NY Times Dealbook - Just as I was getting ready to roll out an article agreeing with Creola Johnson and explaining why Congress should implement a 36% cap, like the Military Lending Act, for all of us, the Dealbook rolled out this story.  As it turns out, the Military Lending Act is not stopping payday-style lending to the military after all. Alarmed that payday lenders were preying on military members, Congress in 2006 passed the law, which was intended to shield servicemen and women from the loans tied to a borrower’s next paycheck.  The law, the authorities say, has not kept pace with high-interest lenders that focus on servicemen and women, both online and near bases.The short-term loans not covered under the law’s interest rate cap of 36 percent include loans for more than $2,000, loans that last for more than 91 days and auto-title loans with terms longer than 181 days. Lenders who specialize in ripping off military personnel have official sounding names like Military Financial, Just Military Loans, and Patriot Loans. They like lending to the military because they get paid from the military allotment, which virtually assures payment.  Moreover, soldiers have to stay in good financial shape in order to maintain their security clearance, which means lenders have maximum leverage over their borrowers.  One lenders web site claims “We know the military because we are former military,” Lenders also lure customers by offering $25 Starbucks gift cards for referrals and throw parties with free food.

Banks piling into auto loans as demand picks up - After less that two years of modest but positive growth, real estate loans in the US banking system have recently gone into the red again. Lower demand and banks' unease with real estate keep this sector from growing.On the other hand, banks are making a big push into auto loans. Auto loan portfolios are up 6.4% from a year ago as car sales remain brisk. Note that non-bank (shadow) lenders including ABS buyers (see post) are also a major part of this market.  Crain's Cleveland Business: - Columbus-based Huntington Bank enjoyed a record quarter in originations in indirect auto lending, the industry's term for when borrowers secure financing from a lender through a dealership. The bank's originations totaled $1.2 billion in the third quarter of 2013, up 10% from the year-ago period and nearly 19% from the third quarter of 2011...Auto loan growth also has accelerated in 2013 at Firefighters Community Credit Union in Cleveland. Its auto loan balance in this year's third quarter was 13.6% higher than the year-ago quarter. That's a greatly improved performance over the 3.3% increase Firefighters recorded in the third quarter of 2012 over the like quarter in 2011, and the 7.5% decrease it saw in the third quarter of 2011 versus the third quarter of 2010. Given the relatively low default rates in auto loans, banks' credit departments have loosened lending requirements. And as the average age of light vehicles in the US continues to rise (above 11 years), auto sales pick up (with US baby boomers now dominating sales - see story).

Unofficial Problem Bank list declines to 655 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for November 15, 2013.  Changes and comments from surferdude808:  The OCC released its enforcement action activity through mid-September 2013. A few actions were modified and they terminated six orders. The changes reduce the Unofficial Problem Bank list to 655 institutions with assets of $223.2 billion. This week, assets figures were updated through third quarter. As a result, updated figures were responsible for $3.2 billion of the $5.7 billion decline in assets this week. A year ago, the list held 857 institutions with assets of $329.2 billion. Next week, the FDIC may release industry results for the third quarter, which will include an update on the aggregate count of institutions on the Official Problem bank List. Prior to the third quarter of 2010, the Official List count was higher than the Unofficial List, with a peak of 157 at fourth quarter 2009. In subsequent quarters it has reversed to be lower than the Unofficial List count with the difference reaching a high of 185 at first quarter of 2012. The difference has trended down to 148. There is a chance the difference could narrow to around 120 when the third quarter figures are released.

CoStar: Commercial Real Estate prices mostly unchanged in September, Up 8.4% Year-over-year - From CoStar: CRE Prices Gain Traction Across All Property Types During Third Quarter 2013 Despite Uncertainty Over Economic Policy: After posting modest gains throughout the third quarter of 2013, price growth for commercial property was mixed in September, reflecting the uncertainty that existed over economic policy and an uptick in interest rates. The two broadest measures of aggregate pricing for commercial properties within the CCRSI—the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index—saw little movement for the month. The value-weighted index, which is influenced by larger transactions, expanded by 0.3% in September while the equal-weighted index, which reflects more numerous smaller transactions, dipped by 0.6% in September. However, both indices posted modest gains in the third quarter of 2013, and advanced 8.4% on an annual basis. : The percentage of commercial property selling at distressed prices dropped to 11.6% in September 2013 from more than 24% one year earlier, enabling banks and other lenders to focus on growth opportunities. The multifamily sector recorded the lowest level of distress in the third quarter of 2013 at 9.5%, which is a cumulative 77% decline from peak levels reached in 2010. The share of distress deals in the other property types ranges from 12.1% in the industrial sector to 15.8% in the office sector. On a regional basis, distress levels have largely worked through the system in the Northeast, with just 7.1% of deals selling at distressed prices, while the Midwest has the furthest to recover with over 23% of property still selling at distressed levels.This graph from CoStar shows the Value-Weighted and Equal-Weighted indexes.  CoStar reported that the Value-Weighted index is up 48.8% from the bottom (showing the earlier and stronger demand for higher end properties) and up 8.4% year-over-year. However the Equal-Weighted index is only up 15.5% from the bottom, and also up 8.4% year-over-year.

Securitization, Foreclosure, and the Uncertainty of Mortgage Title - I've got a new article out in the Duke Law Journal entitled The Paper Chase:  Securitization, Foreclosure, and the Uncertainty of Mortgage Title.  The article is about the confusion securitization has caused in foreclosure cases because of the shift in legal methods for mortgage transfer and title that accompanied securitization.  The Paper Chase is not exactly a short article, but if you're the type that's into reading about UCC Article 3 vs. Article 9 transfer methods for notes and MERS, then this piece is for you. There's a lot of technical stuff in the article, but there's also a discussion of the political economy of mortgage title and transfer law, and some thoughts on how to fix the legal mess we currently have.  Abstract is below the break: The mortgage foreclosure crisis raises legal questions as important as its economic impact. Questions that were straightforward and uncontroversial a generation ago today threaten the stability of a $13 trillion mortgage market: Who has standing to foreclose? If a foreclosure was done improperly, what is the effect? And what is the proper legal method for transferring mortgages? These questions implicate the clarity of title for property nationwide and pose a too- big-to-fail problem for the courts. The legal confusion stems from the existence of competing systems for establishing title to mortgages and transferring those rights. Historically, mortgage title was established and transferred through the “public demonstration” regimes of UCC Article 3 and land recordation systems. This arrangement worked satisfactorily when mortgages were rarely transferred. Mortgage finance, however, shifted to securitization, which involves repeated bulk transfers of mortgages.

IRS Confirms that $12 Billion in “Mortgage Relief” in National Mortgage Settlement Completely Worthless - David Dayen - The IRS settles something I noticed a while ago and has now been finally confirmed. In short: big banks who robbed homes from Americans got a penalty that entailed, quite literally, giving homeowners worthless allowances. The issue concerns the Mortgage Forgiveness Debt Relief Act, which expires at the end of the year. After December 31, all mortgage relief that involves debt forgiveness of any kind will be taxable to the borrower.  Sen. Barbara Boxer wrote the IRS asking for a clarification about short sales in non-recourse states, like her home state of California. If a state is non-recourse, the bank cannot go after a foreclosed borrower post-foreclosure sale for a “deficiency judgment,” seeking money from that borrower if the sale price comes in lower than the price of the mortgage. This also has application for a short sale; technically speaking, in a non-recourse state the short sale is just a waiver of a deficiency judgment. So Boxer wanted to know whether Californians, in a non-recourse state, could still do short sales and not be subject to a tax on the debt relief, even if the Mortgage Forgiveness Debt Relief Act expires. Because, the theory goes, it’s not really a debt relief at all, since the bank cannot go after a California resident for the balance anyway. The IRS replied to Boxer by affirming her theory: Homeowners who live in states where mortgages are non-recourse—that is, where they aren’t personally liable for the unpaid balance—may avoid the potential tax hit even if Congress doesn’t act, according to a letter sent by the IRS. In the letter to Sen. Boxer, the IRS clarified that certain non-recourse debt forgiven by lenders wouldn’t typically be considered taxable income by the IRS. This means that for most California borrowers, the expiration of the tax provision may not have a meaningful effect [...] In the letter, the IRS wrote that “if a property owner cannot be held personally liable for the difference between the loan balance and the sales price, we would consider the obligation a non-recourse obligation.” As a result, the owner would not have to count that forgiven debt as income.

Winding down Fannie and Freddie - FT.com: It has been five years since Lehman Brothers collapsed and longer since the US subprime bubble burst. Yet plans to reform Fannie Mae and Freddie Mac – the government-sponsored behemoths that underwrite the US housing market – are little nearer to completion. Both Republicans and the Obama administration agree on the need to wind these entities down. Just not quite yet. Now a group of activist investors are agitating Washington to privatise their key mortgage insurance functions. Last week they raised their equity stakes in the two enterprises. Their business plans no doubt add up nicely – Fannie and Freddie have returned to solid profitability in the past two years. But a sell-off would make little sense from the taxpayer’s point of view. The US has already privatised too many gains and socialised too many losses. It is past time for Washington to start the liquidation of Fannie and Freddie. The temptation will clearly be to let things drift on for a while longer. Having pumped $187bn into Fannie and Freddie in 2008, the US government has now been more than repaid in dividends and profits. This year alone, dividends from the two GSEs has reduced the US fiscal deficit by almost $100bn. Fannie and Freddie have also helped to underpin the US housing recovery by underwriting roughly two-thirds of new mortgages. Again, the temptation will be to let the apple cart roll on. Yet the bigger the US government’s exposure to the housing market the more difficult it will be to wind down Fannie and Freddie. Reforming, rather than abolishing, them would be a mistake. Among the plans in circulation is a bill that would replace the GSEs with a smaller agency that would guarantee mortgage lenders against “catastrophic loss” defined as 10 per cent of principal. The Obama administration also wants to continue with the 30-year mortgage loan – a unique feature of the US housing market. Finally, it wants to maintain support for mortgages to low-income borrowers.

Sperling: Why Fannie Shouldn’t Be Sold Back to Investors - A top economic adviser said Wednesday that Fannie Mae and Freddie Mac aren’t for sale in a bid to squash hopes that the Obama administration would allow the firms to be recapitalized. Gene Sperling, the director of the White House’s National Economic Council, said the administration would not support plans to recapitalize Fannie Mae and Freddie Mac in their current or modified forms because of the difficulty to solve core concerns over having two large entities dominate the nation’s $10 trillion mortgage market. Mr. Sperling’s remarks follow major moves last week by hedge funds and large investors to up the ante in their campaign to have the U.S. government restore value to the shares of Fannie and Freddie, the mortgage-finance giants that the government bailed out in 2008. Mr. Sperling became the latest Obama administration official to raise concerns about access to credit for new households: Nobody wants to go back to the recklessness that led to this crisis but we should recognize the pendulum has swung too far. The credit box is too tight. The FICO score is overly demanding. And that means too many families are locked out of getting mortgages. He stressed the importance of preserving a key mortgage-bond market known as the “TBA” or To-Be-Announced market, which allows homeowners to lock in rates on 30-year, fixed-rate mortgages well in advance of closing on those loans: . The presence of some form of remote, transparent and explicit backstop is critical to the functioning of the TBA market because it will continue to attract investors who are willing to take on interest rate risk but not credit risk. This is something you would want to preserve.

Fannie-Freddie plan stirs contention -- Bob Corker, the Republican senator co-sponsoring a bill to wind down Fannie Mae and Freddie Mac, has become the first senior politician to express openness to a hedge fund proposal to take over core operations of the US mortgage finance giants. Mr Corker did not say he supported the plan, but said it provided hope that there was private capital willing to invest in the agencies. He found the plan interesting, he added, saying that it validated his legislation because it would work only in a reformed housing finance system. He also said he would be open to meeting with the hedge funds to discuss the proposal. “It works hand in glove with my plan,” Mr Corker said in an interview. “It only works in a reformed world.” Mr Corker’s comments could provide an opportunity for the hedge funds to influence the debate in Washington over what to do with Fannie and Freddie, which had to be bailed out by the government during the financial crisis and are now in conservatorship. Other government officials have rejected the plan, led by Bruce Berkowitz’s Fairholme Funds, to recapitalise a bulk of the mortgage finance firms. Gene Sperling, White House national economic council director, said earlier this week that it risked creating two new “too big to fail” institutions. He added that the Obama administration wanted to avoid a return to the duopoly that existed before the financial crisis. Other Fannie and Freddie investors are starting to become more vocal. Consumer advocate Ralph Nader, a shareholder in Fannie and Freddie, held a conference call on Friday urging shareholders to group together and lobby Washington, saying they were being “ripped off” and ignored by politicians.

LPS: Mortgage Delinquency Rate declined in October, In-Foreclosure Rate lowest since 2008 - According to the First Look report for October to be released today by Lender Processing Services (LPS), the percent of loans delinquent decreased in October compared to September, and declined about 11% year-over-year. Also the percent of loans in the foreclosure process declined further in October and were down 30% over the last year. LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.28% from 6.46% in September. The normal rate for delinquencies is around 4.5% to 5%. The percent of loans in the foreclosure process declined to 2.54% in October from 2.63% in September.   The is the lowest level since late 2008. The number of delinquent properties, but not in foreclosure, is down 348,000 properties year-over-year, and the number of properties in the foreclosure process is down 524,000 properties year-over-year. LPS will release the complete mortgage monitor for October in early December.

Zillow: Negative Equity declines sharply in Q3  -- From Zillow: U.S. Negative Equity Rate Falls at Fastest Pace Ever in Q3 According to the third quarter Zillow Negative Equity Report, the national negative equity rate fell at its fastest pace in the third quarter, dropping to 21% of all homeowners with a mortgage underwater from 31.4% at its peak in the first quarter of 2012. In the third quarter of 2013, more than 1.4 million American homeowners were freed from negative equity, and 4.9 million mortgaged homeowners have been freed since the beginning of 2012. However, roughly 10.8 million homeowners with a mortgage still remain underwater. Moreover, the effective negative equity rate nationally — where the loan-to-value ratio is more than 80%, making it difficult for a homeowner to afford the down payment on another home — is 39.2% of homeowners with a mortgage. While not all of these homeowners are underwater, they have relatively little equity in their homes, and therefore selling and buying a new home while covering all of the associated costs (real estate agent fees, closing costs and a new down payment) would be difficult. Of all homeowners – roughly one-third of homeowners do not have a mortgage and own their homes free and clear – 14.7% are underwater.The following graph from Zillow shows negative equity by Loan-to-Value (LTV) in Q3 2013 compared to Q3 2012.

Lawler: Updated Table of Distressed Sales and Cash buyers for Selected Cities in October (including Florida) - Economist Tom Lawler sent me an updated table below of short sales, foreclosures and cash buyers for several selected cities in October. Lawler writes: "Note the low share of short sales relative to foreclosure sales in Florida last month, which reflects the “very aged” nature of the “distressed” property inventory."  Also note that foreclosures have declined significantly in most areas - but not in Florida. This is probably because of the large backlog of foreclosures in the judicial system. The All Cash Share (last two columns) is mostly declining year-over-year.   However in certain areas of Florida there is still a significant amount of cash buying (frequently investors, but in Florida this might be foreigners - and maybe some drug related buying).

Key trends in US mortgage markets - The recent increase in long-term rates is causing major changes in the mortgage markets. Here are some key trends:
1. Refinancing activity continued to decline through Q3. The proportion of mortgage applications for purchase vs. refi has doubled this year (and that's not because of higher demand for homes).
2. A number of lenders who focused on mortgage refinancing such as US Bank, Provident Funding, and Flagstar are struggling (although the largest banks such as Chase and Wells seem to be less affected). This may result in an increase in the number of riskier mortgages.
3. While a larger number of buyers now prefer ARMs, the dynamic within the fixed rate universe is a greater demand for 30-year mortgages vs. 20 or 15. That's because the monthly payments on 30-year mortgages are lower (slower principal repayment) and buyers are looking for the cheapest solution.DB: - As interest rates have risen and volume has dropped, the product mix has shifted sharply ...  30-year mortgages are much more popular with homebuyers—more than 50% of 30-year mortgages are used for purchase transactions but less than 20% of shorter-term mortgages. As a consequence, the share of 15-year mortgages fell from 20% in September to 17% in October as the share of 30-year lending rose to 63% from 59%. Meanwhile, the ARM share has doubled to more than 5% since June as HARP’s share of lending has fallen to 3% from a high of 7% this spring.
4. As a result, MBS bond markets are taking a hit in the form of lower volumes. The sharp decline in refinancing activity has reduced the need to issue new agency mortgage bonds. New issuance is the lowest in years.

MBA: Mortgage Refinance Applications decrease, Purchase Applications Increase - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey: Mortgage applications decreased 2.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 15, 2013. This week’s results include an adjustment to account for the Veteran’s Day holiday. ... The Refinance Index decreased 7 percent from the previous week. The seasonally adjusted Purchase Index increased 6 percent from one week earlier. .....The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.46 percent from 4.44 percent, with points decreasing to 0.38 from 0.44 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. The refinance index declined 7% last week. The refinance index is down 62% 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 3% from a year ago..

Average U.S. Rate on 30-Year Mortgage at 4.22 Percent - Average U.S. rates on fixed mortgages declined this week after two weeks of increases, keeping home-buying affordable. Mortgage buyer Freddie Mac said Thursday that the average rate on the 30-year loan fell to 4.22 percent from to 4.35 percent last week. The average on the 15-year fixed mortgage dipped to 3.27 percent from 3.35 percent. Rates had spiked over the summer and reached a two-year high in July on speculation that the Federal Reserve would slow its bond purchases later this year. But the Fed held off in September and now appears poised to wait at least a few more months to see how the economy performs. The bond purchases are intended to keep long-term interest rates low. Mortgage rates tend to follow the yield on the 10-year Treasury note. They have stabilized since September and remain low by historical standards. Still, mortgage rates are nearly a full percentage point higher than in the spring. The uptick has contributed to a slowdown in home sales. The National Association of Realtors said sales of existing homes fell 3.2 percent in October, the second straight monthly decline.

Weekly Update: Housing Tracker Existing Home Inventory up slightly year-over-year on Nov 18th - Here is another weekly update on housing inventory ... for the fifth consecutive week, housing inventory is up year-over-year.  This suggests inventory bottomed early this year. There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer. The Realtor (NAR) data is monthly and released with a lag (the most recent data was for September, October data will be released this Wednesday).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years. This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012 and 2013. In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year. Inventory in 2013 is now above the same week in 2012 (red is 2013, blue is 2012).

U.S. Existing Home Sales Fall 3.2 Percent in October  — Fewer Americans bought existing homes in October, as higher mortgage rates, the 16-day partial government shutdown and a limited supply of homes reduced sales. The National Association of Realtors says home re-sales fell 3.2 percent last month from September to a seasonally adjusted annual pace of 5.12 million. That’s down from a 5.29 million pace in August and the slowest since June. Sales of existing single family homes declined 4.1 percent, while condominium sales rose 3.3 percent. The median sales price of an existing home was $199,500 in October, up 12.8 percent from a year earlier and the 11th straight month of double-digit annual increases. First-time home buyers accounted for just 28 percent of sales, down from 40 percent in healthier housing markets.

Existing Home Sales in October: 5.12 million SAAR, Inventory up 0.9% Year-over-year - The NAR reports: October Existing-Home Sales Cool but Low Inventory Drives Prices Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 3.2 percent to a seasonally adjusted annual rate of 5.12 million in October from 5.29 million in September, but are 6.0 percent higher than the 4.83 million-unit level in October 2012. Total housing inventory at the end of October declined 1.8 percent to 2.13 million existing homes available for sale, which represents a 5.0-month supply at the current sales pace; the relative supply was 4.9 months in September. Unsold inventory is 0.9 percent above a year ago, when there was a 5.2-month supply. This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in October 2013 (5.12 million SAAR) were 3.2% lower than last month, and were 6.0% above the October 2012 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory was declined to 2.13 million in October from 2.17 million in September. Inventory is not seasonally adjusted, and inventory usually increases from the seasonal lows in December and January, and peaks in mid-to-late summer. The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Inventory increased 0.9% year-over-year in October compared to October 2012. The year-over-year change for September was revised down to unchanged, so this is the year-over-year increase in inventory since early 2011 and indicates inventory bottomed earlier this year. Months of supply was at 5.0 months in October. This was close to expectations of sales of 5.13 million. For existing home sales, the key number is inventory - and inventory is still low, but up year-over-year.

Home Sales Plunge At Fastest Rate In 16 Months - It seems, despite the Fed's efforts to unscamble the treasury complex's eggs, that the rate shock of a taper/no-taper decision has become sticky in the housing market. With the fast money exiting, existing home sales missed expectations for the 4th month in a row - dropping to the lowest annualized number since June (very much against the trend in recent years). This is the biggest month-over-month drop in existing home sales since June 2012 but, of course, NAR has an excuse... "low inventory is holding back sales." So, in other words, they could sell loads more houses if only there were more available for sale (or prices were lower...)... This is not a "seasonal" thing... and in fact is very much against the seasonals of the last few years...

More Seniors Living With Their Children, but Don’t Blame Recession - More seniors are living with their children these days, but don’t blame the slow U.S. economy. Blame demographics. Since the mid-1990s, the share of people 65 years old and over living with their children or other relatives has risen from around 6.6% to 7.3% in 2013, according to an analysis of data from the Census Bureau’s Current Population Survey by Jed Kolko, chief economist at Trulia, a real-estate listings site. According to the American Community Survey — a bigger Census study with a sample size large enough to analyze specific demographic groups — 9% of seniors lived in a household headed by their children, children-in-law or other relatives besides their spouses in 2012. Another 2% lived with people they weren’t related to, while 3% lived in places like nursing homes. The rest, about 85%, lived in their own homes. The recession and weak recovery forced a growing number of young Americans to shack up with their parents, creating more “intergenerational” households. Seniors, meanwhile, are playing a critical role by offering financial lifelines and other types of support to adult children who are struggling to get by—or who are having difficultu achieving milestones like buying a house. But what’s driving the trend of more seniors living with their children isn’t low income-growth or high joblessness — it’s mainly the fact that the share of seniors born in another country is rising — indeed, it’s already gone from 8% in 1994 to 13% in 2013. That is important because foreign-born seniors are four times more likely to live with their children. Around 25% of foreign-born seniors in the U.S. live with relatives, compared with just 6% for U.S.-born seniors.

Who’s Putting a Roof Over Parents’ Heads - A new study by Jed Kolko, the chief economist at Trulia, the real estate Web site, finds that the chances of your children’s having live-in grandparents are greater if those grandparents are from India, Vietnam or Haiti. In fact, foreign-born adults are four times more likely than natives to live with relatives, Mr. Kolko found.Over all, about 9 percent of older Americans live with relatives, according to Census data. But close to half of those born in India (47 percent) and Vietnam (44 percent) live with family members, while those born in Germany (6 percent) and Canada (5 percent) are slightly less likely than American-born seniors to live with relatives. (Trulia has published a full list of countries.) Among the American-born, those of Hispanic or Asian descent are the most likely to live with relatives when they grow old. Women, the unmarried, and the “old old” — 85 and older — are also more likely to move in with their children. In recent years, the share of older adults living with their children or other relatives has increased, to 7.3 percent in 2013 from an average of 6.6 percent from 1994 to 1998. But unlike those basement-dwelling millennials who are still living with their parents, older Americans who do so have not been motivated by financial reasons, Mr. Kolko says. The trend has been long-term, in keeping with immigration patterns rather than driven by the recession. And local housing prices were not a determining factor.

Vital Signs: How Long to Build An Apartment Building? -- On its blog “Eye on Housing,” the National Association of Home Builders uses Census data to calculate the time it takes to build multiunit residential projects from when the permit is authorized to completion.In 2012, the average time for all multiunit properties was 12.5 months, says the NAHB. Smaller building with 2-4 units took 11.2 months. Large developments with 20 or more units took 13.4 months. Buildings with 5-9 units clocked in the longest time, 14.5 months. The average time for a single-family house is about 7 months. No surprise, times vary by regions. It can take almost two years for projects to be move-in ready in the Northeast, while the Midwest had the shortest recorded construction time, says the NAHB.

NAHB: Builder Confidence at 54 in November - The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 54 in November, the same as in October (revised down from 55). Any number above 50 indicates that more builders view sales conditions as good than poor. From the NAHB: Builder Confidence Holds Steady in November Builder confidence in the market for newly built, single-family homes was unchanged in November from a downwardly revised level of 54 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. This means that for the sixth consecutive month, more builders have viewed market conditions as good than poor. The HMI index gauging current sales conditions in November held steady at 58. The component measuring expectations for future sales fell one point to 60 and the component gauging traffic of prospective buyers dropped one point to 42.The HMI three-month moving average was mixed in the four regions. No movement was recorded in the South or West, which held unchanged at 56 and 60, respectively. The Northeast recorded a one-point gain to 39 and the Midwest fell three points to 60. This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the November release for the HMI and the August data for starts (September and October housing starts will be released in early December). This was below the consensus estimate of a reading of 55.This chart shows that confidence and single family starts generally move in the same direction, but it doesn't tell us anything about the expected level of single family starts.

Weak October Sales Have Home Builders Fretting About Spring - Weak sales tallies in October mean home builders face a winter full of worry. A monthly survey of builders across the U.S. by John Burns Real Estate Consulting, a housing research and advisory firm, has found that respondents’ sales of new homes declined by 8% in October from the September level and by 6% from a year earlier. Last month’s result marked the second consecutive month in which the survey yielded a year-over-year decline in sales volumes, the first dips since early 2011. In addition, the percentage of builders disclosing that they raised prices continued to decline, registering 28% in October in comparison to 32% in September and 64% in July. Of respondents, 12% lowered prices in October, in comparison to 12% in September and none in July. “October was basically a crummy month for a lot of builders,” said “Their frustration is about the government shutdown and how it probably trumped any seasonal (sales) lift that builders were hoping to see. Most did not have very good sales.”Burns received 248 responses to its latest survey spanning 273 U.S. markets. The survey provides an early glimpse each month of sales of new homes in advance of the U.S. Census Bureau releasing its data weeks later. Due to the federal government shutdown in October over budget and debt negotiations, Census isn’t scheduled to release data on new-home sales in September and October until Dec. 4.  Even after rates receded a bit since September, buyers have remained reluctant to purchase and public builders have reported disappointing increases in orders.

AIA: "Architecture Billings Index Slows Down" in October - Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From AIA: Architecture Billings Index Slows Down Following three months of accelerating demand for design services, the Architecture Billings Index (ABI) reflected a somewhat slower pace of growth in October. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the October ABI score was 51.6, down from a mark of 54.3 in September. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 61.5, up from the reading of 58.6 the previous month.  “There continues to be a lot of uncertainty surrounding the overall U.S. economic outlook and therefore in the demand for nonresidential facilities, which often translates into slower progress on new building projects,” “That is particularly true when you factor in the federal government shutdown that delayed many projects that were in the planning or design phases.” This graph shows the Architecture Billings Index since 1996. The index was at 51.6 in October, down from 54.3 in September. Anything above 50 indicates expansion in demand for architects' services.  This index has indicated expansion in 13 of the last 14 months.  This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

Millennials Wary of Borrowing, Struggling With Debt Management - Young people are becoming warier of borrowing — but they’re also getting worse at paying bills. Despite aggressive courting by credit-card companies, young adults ages 19 to 29 — the so-called Millennial generation — have around 1.5 credit cards on average, fewer than the 2 cards of Generation-X borrowers (ages 30 to 46) and 2.7 cards of Baby Boomers (ages 47 to 65), according to an analysis of data provided by Experian, a credit-reporting firm. Millennials carry a credit-card balance of $2,700 on average, below the national average of $4,500 and the roughly $5,300 level for people ages 30 to 65, though this is partly due to lower limits, says Experian, which sampled its consumer credit database. Total debt among young adults actually dropped in the last decade to the lowest level in 15 years, separate government data show, with fewer young adults carrying credit-card balances and one in five not having any debt at all. And yet, Millennials appear to be running into more trouble when paying their bills — whether on credit cards, auto loans, or student loans. Millennial borrowers are late on debt payments roughly as much as older Gen-X borrowers, Experian’s data show. Millennials also use a high share of their potential borrowing capacity on cards, just like Gen-Xers, meaning they’re as likely to max out on cards. Since Millennials tend to have fewer assets than Gen-Xers and other generations, as well as shorter credit histories, they end up with the worst average credit score — 628 — of any demographic group. Millennials have “the worst credit habits,” and are “struggling the most with debt management,” Experian said in a report.

Number of the Week: Where Do Millennials Struggle With Credit? - 25: The gap between the average credit score of Millennials in the South and the rest of the nation. There’s a wide variance in the credit scores of younger Americans, but those in the South tend to have the lowest ratings. (See the interactive map below.)As we reported earlier this week, young adults ages 19 to 29 — the so-called Millennial generation — have the worst average credit score of any other age group, mostly thanks to shorter credit histories and few assets compared to their elders. But among that generation there’s a large range from state to state — from an average of 590 in Mississippi to 650 in Minnesota.The South, in general, has lower credit scores than the rest of the country for all age groups, with the smallest gap for the so-called Greatest Generation who lived through World War II. Millennials in the South have credit scores, on average, about 25 points below their peers in the rest of the nation. Some of the states with the lowest credit scores for young people also have the largest debts among Millennials. West Virginia, Louisiana, Arkansas and Texas are all in the bottom 10 for young people’s credit scores, but in the top 10 for highest overall debt. On the opposite end of the spectrum, Utah Millennials have one of the highest average credit scores but the lowest overall debt.

Retail Sales increased 0.4% in October - On a monthly basis, retail sales increased 0.4% from September to October (seasonally adjusted), and sales were up 3.9% from October 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 October, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $428.1 billion, an increase of 0.4 percent from the previous month, and 3.9 percent above October 2012. ...The August to September 2013 percent change was revised from -0.1 percent to virtually unchanged. 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 29.1% from the bottom, and now 13.2% above the pre-recession peak (not inflation adjusted) Retail sales ex-autos increased 0.2%. Excluding gasoline, retail sales are up 26.5% from the bottom, and now 13.8% above the pre-recession peak (not inflation adjusted). The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail sales ex-gasoline increased by 5.4% on a YoY basis (3.9% for all retail sales). This was above the consensus forecast of no change for retail sales.

October Advance Retail Sales Beat Expectations - The Advance Retail Sales Report released this morning shows that sales in October came in at 0.4% month-over-month, an increase from September's 0.0%. Today's headline number came above the Investing.com forecast of a 0.1% gain. Core Retail Sales (which excludes Autos) were up 0.2%. That was a decline from last month's 0.3% but better than the Investing.com forecast of 0.1%. 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.

Retail Sales Revived In October - Just when it looked like the trend in retail sales was set to flash a danger sign for the business cycle, consumers rallied with a sharply higher rate of spending. Headline retail sales increased 0.4% in October, reversing September’s flat performance and rising the most since June. The gain surprised most analysts, based on the consensus forecast, although the pop was only a touch stronger than The Capital Spectator’s average econometric forecast. More importantly, the year-over-year change in retail spending finally turned up after three straight months of decline. That’s a clue for thinking that the recent weakness in consumer spending isn’t a sign of deeper troubles for the business cycle. Looking at the main retail categories, spending was higher in all but a handful of corners. The main exceptions: a retreat for sales at building material/garden equipment merchants and gasoline stations. In fact, if we strip out gasoline sales, retail spending looks even stronger for October, posting a 0.5% rise. In other words, there seems to be an urge to bump up discretionary purchases. So much for the theory that last month's government shutdown would take a toll on Joe Sixpack's penchant for consumption.

Vital Signs: In Retailing, the Robots Are Winning - Despite sagging sentiment, weak pay growth and the government shutdown, shoppers spent more than expected in October. Retail sales rose 0.4%, better than the 0.1% gain expected. Details of the sales report show a growing split in shopping patterns. Consumers continue to shift more of their spending to on-line website. As a result, sales at nonstore retailers are growing far faster than total retail sales of goods purchases (which excludes sales of bars and restaurants). For the year ended in October nonstore sales are up 8.2% versus a 3.4% sales gain at brick-and-mortar merchants. Although nonstore sales are still a small share of total retail activity, they are providing an oversized lift to total receipts. That dominance will likely continue through the upcoming holiday gift-buying season.

October CPI Drops 0.1% on Gas, Lowest Annual Inflation Rate Since Great Recession - The monthly October Consumer Price Index declined by -0.1% on gas prices.  CPI measures inflation, or price increases and for the year has increased 1.0%.  This is the lowest annual inflation since the height of the Great Recession, October 2009.  The shutdown also impacted data collection and October's sample size for prices is 25% less than normal as a result. CPI has only increased 0.9% from a year ago as shown in the below graph.  This is a very low annual rate of inflation and believe this or not, deflation can really harm an economy.  Core inflation, or CPI with all food and energy items removed from the index, increased 0.1%.  Core inflation has risen 1.7% for the last year and since June 2011 has ranged from 1.6% to 2.3%.  Core CPI is one of the Federal Reserve inflation watch numbers and 2.0% per year is their boundary figure.   Graphed below is the core inflation change from a year ago.  Core CPI's monthly percentage change is graphed below. Energy overall declined -1.7% and energy costs are now down -4.8% for the entire year.  The BLS separates out all energy costs and puts them together into one index.  This index includes gasoline which plunged -2.9% for the month and has declined -10.1% for the year.  .   Natural gas is now up 4.4% from a year ago after a monthly decline of -1.0%.  The fuel index also declined by -0.6% for the month and has declined by -4.6% for the year.  Natural Gas and Fuel both increased in September so it appears some sort of price yo-yo happened to plunge energy prices overall so much in October. Energy costs are also mixed in with other indexes, such as heating oil for the housing index and gas for the transportation index.  Below is the overall CPI energy index, or all things energy.

Headline Inflation Slips to 0.96% Year-over-Year, Core Inflation Unchanged - The Bureau of Labor Statistics released the latest CPI data this morning. Year-over-year unadjusted Headline CPI came in at 0.96%, which the BLS rounds to 1.0%, down from 1.18% last month (rounded to 1.2%). Year-over-year Core CPI (ex Food and Energy) came in at 1.68% (rounded to 1.7%), down from last month's 1.73% (rounded to 1.7%). Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data:The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in October on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.0 percent before seasonal adjustment. The gasoline index fell 2.9 percent in October and led to the seasonally adjusted decline in the all items index. Other energy indexes were mixed, with the electricity index rising, but the indexes for fuel oil and for natural gas declining. The food index rose slightly, with major grocery store food group indexes evenly split between advances and declines.  The index for all items less food and energy rose 0.1 percent in October. The shelter index rose, but posted its smallest increase since December 2012. The indexes for airline fares, for recreation, and for used cars and trucks also increased. The medical care index was unchanged, while the indexes for apparel, for household furnishings and operations, and for new vehicles all declined..  More... The Investing.com consensus forecast was for a 0.1% MoM for both headline and Core CPI. Their YoY forecast for Core CPI was spot on at 1.7%. likewise spot on for Headline at 1.0%.The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000.

Core Retail Sales Just Beat Expectations While Annual Inflation Drops To Lowest Since 2009  - Following several months of disappointing retail sales, and two months of missed expectations, October finally saw the best beat in headline expectations since April, with retail sales rising 0.4% vs 0.1% expected. However, as has been the case in all of 2013, the bulk of this beat was driven by car sales, which rose by 1.3%, leaving sales ex autos beating by the tiniest of fractions at 0.2% vs 0.1% expected, and ex autos and gas +0.3%, vs 0.2% expected.  Looking at the components, following month after month of clothing store sales misses, this category finally posted a modest 1.4% rebound, together with an increase in Electronic and Sporting goods sales, amounting to 1.4% and 1.6%, respecitvely. This was offset by the traditionally strong Building materials sales which declined by 1.9% in October.Weekly Gasoline Update: Up Two Cents - It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular and Premium are both up by three cents. However, Regular and Premium are down 57 cents and 51 cents, respectively, from their interim highs in late February.  According to GasBuddy.com, No state is averaging above $4.00 per gallon, and only Hawaii is averaging over $3.90. Seven states (Oklahoma, Missouri, Kansas, Arkansas, Texas, New Mexico and Louisiana) are averaging under $3.00.  How far are we from the interim high prices of 2011 and the all-time highs of 2008? Here's a visual answer.

The Big Four Economic Indicators: Real Retail Sales - Today's Retail Sales for October came in at 0.41% month-over-month (traditionally rounded to 0.4%), and when adjusted for inflation, it rose an even larger 0.47% (rounded to 0.5%). The underlying sales data were stronger than expected, and the disinflationary October headline CPI boosted the number higher. in light of the general pessimism over the government shutdown and congressional face-off on debt ceiling, the October numbers are indeed surprising. It will be interesting to see the extent to which the October Real Personal Incomes less Transfer Payments (to be released on December 6th) support the trend in consumption. The chart and table below illustrate the performance of the Big Four and simple average of the four since the end of the Great Recession. The data points show the percent cumulative percent change from a zero starting point for June 2009. The latest data points are for the 51st month. In addition to the four indicators, I've included an average of the four, which, as we can see, was influenced by the anomaly in the Personal Income tax management strategy at the end of last year with a ripple effect in the opening months of this year.

Real Retail Sales Per Capita: Another Perspective on the Economy -- The Advance Retail Sales Report earlier released today shows that sales in October came in at 0.4% month-over-month and 3.9% year-over-year.  Now let's dig a bit deeper into the "real" data, adjusted for inflation and against the backdrop of our growing population. The first chart shows the complete series from 1992, when the U.S. Census Bureau began tracking the data in its current format. I've highlighted recessions and the approximate range of two major economic episodes. Here is the same chart with two trendlines added. These are linear regressions computed with the Excel Growth function. The green trendline is a regression through the entire data series. The latest sales figure is 4.8% below the green line end point. The blue line is a regression through the end of 2007 and extrapolated to the present. Thus, the blue line excludes the impact of the Financial Crisis. The latest sales figure is 18.2% below the blue line end point. We normally evaluate monthly data in nominal terms on a month-over-month or year-over-year basis. On the other hand, a snapshot of the larger historical context illustrates the devastating impact of the Financial Crisis on the U.S. economy. The next chart gives us a perspective on the extent to which this indicator is skewed by inflation and population growth. The nominal sales number shows a cumulative growth of 160.9% since the beginning of this series. Adjust for population growth and the cumulative number drops to 110.0%. And when we adjust for both population growth and inflation, retail sales are up only 24.2% over the past two decades.

Falling Gasoline Prices bring US Inflation to Four-Year Low - A big drop in gasoline prices brought the US inflation rate for October, as measured by year-on-year change in the consumer price index, to just 0.95 percent, its lowest level in four years. The y-o-y inflation rate for the core CPI, which excludes food and energy, was 1.69 percent. As the following chart shows, trends for both the all-items and core CPI have turned downward over the past two years. Year-on-year data give a good picture of medium-term trends, but it is also worth looking at monthly data, which tell us what is happening right now. The latest monthly data reveal not just a slowing of inflation, but an actual fall in the price level for October. As the next chart shows, the seasonally adjusted CPI decreased at a .71 percent annual rate in October. Without seasonal adjustment, the CPI fell even more sharply—an annual rate of decrease of 3.05 percent. The unusually large difference between the SA and NSA numbers was largely due to the price of gasoline, which alone has a weight of about 5 percent in the CPI. The price of gasoline usually decreases by about 2 percent in October, but this year the change was -4.9 percent. That was enough to pull the whole unadjusted index down sharply. Any way you look at it, there is not much inflation in the U.S. economy at present, nor is much expected. The Cleveland Fed’s estimates of inflation expectations, based on the prices of Treasury Inflation-Protected Securities (TIPS), stands at just 1.6 percent for a 5-year time horizon and 1.7 percent for a 10-year horizon. Both measures have fallen slightly over the past two months.

The Bad News About $3 Gas - Gas prices had been on the decline so steadily through the fall that it appeared like drivers would be enjoying a Christmas miracle in the form of $3 gasoline by year’s end. Lately, however, it’s looking like this miracle has no shot of becoming reality.  The autumn fall in gas prices around the nation has been both dramatic and steady. Average prices at the pump dropped 10 weeks in a row, and in the period between Labor Day and November 10, the national average for a gallon of regular fell by 41¢. Drivers in 16 states were paying an average of $3.10 or lower, as the national average inched down to $3.17, the lowest it’s been in nearly three years.  According to the Labor Department, gasoline prices fell 2.9% in October, and the decrease translated to weak inflation and slow increases in consumer prices for everything from food to furniture. The lower gas price trend also boded well for retailers during the all-important end-of-year winter shopping period, because shoppers who are paying less at the pump tend to spend more at the mall. Unfortunately for drivers—and the economy in general—this trend recently shifted into reverse. According to the most recent AAA Fuel Gauge Report, the national average for a gallon of regular has risen seven days in a row, creeping over $3.20 as of Wednesday. That’s still much better than one year ago at this time ($3.41), but in a particularly desperate season for retailers, the trajectory of prices at the pump may be as important as what consumers are paying out of pocket.

DOT: Vehicle Miles Driven increased 1.5% in September - The Department of Transportation (DOT) reported:

◦ Travel on all roads and streets changed by 1.5% (3.7 billion vehicle miles) for September 2013 as compared with September 2012.
◦ Travel for the month is estimated to be 241.7 billion vehicle miles.
◦ Cumulative Travel for 2013 changed by 0.4% (9.8 billion vehicle miles).

The following graph shows the rolling 12 month total vehicle miles driven. The rolling 12 month total is still mostly moving sideways but has started to increase a little recently.Currently miles driven has been below the previous peak for 70 months - almost 6 years - and still counting.  Currently miles driven (rolling 12 months) are about 2.5% below the previous peak.The second graph shows the year-over-year change from the same month in the previous year.Gasoline prices were down in September compared to September 2012. In September 2013, gasoline averaged of $3.60 per gallon according to the EIA. In 2012, prices in September averaged $3.91 per gallon.  (In 2012 there were refinery issues in September).Gasoline prices were down sharply year-over-year in October, so I expect miles driven to be up in October too. As we've discussed, gasoline prices are just part of the story.  The lack of growth in miles driven over the last 6 years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), the aging of the overall population (over 55 drivers drive fewer miles) and changing driving habits of young drivers.

ATA Trucking Index declines in October, Up 8% Year-over-year --Here is a minor indicator that I follow, from ATA: ATA Truck Tonnage Index Decreased 2.8% in OctoberThe American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index fell 2.8% in October, the first decrease since July. ... In October, the index equaled 124 (2000=100) versus 127.5 in September. October’s level was the lowest since April. Compared with October 2012, the SA index surged 8%, which is the largest year-over-year gain since December 2011. “From May through September, the index surged 3.5%, including only one monthly decrease over that period,” said ATA Chief Economist Bob Costello. “It isn’t surprising for volumes to fall back some after such a good run.”  “Despite October’s month-to-month decrease, we saw a very robust year-over-year increase and I’m seeing some good signs out of the trucking industry that suggests the economy may be a little stronger than we think,” he said. “Specifically, the heavy freight sectors, like tank truck, have been helping tonnage this year. But in the third quarter, generic dry van truckload freight saw the best quarterly gains since 2010..” Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

LA area Port Traffic in October - Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for October since LA area ports handle about 40% of the nation's container port traffic.The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).  To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average. On a rolling 12 month basis, inbound traffic was unchanged in October compared to the rolling 12 months ending in September.   Outbound traffic decreased slightly compared to September. In general, inbound traffic has been increasing  and outbound traffic had been declining slightly.  The 2nd graph is the monthly data (with a strong seasonal pattern for imports). This suggests an increase in the trade deficit with Asia for October - and possibly a fairly strong retailer buying for the holiday season. 

For The First Time In Four Years Caterpillar Posts Negative Retail Sales Across The Board - All "recovery watchers" are urged to look somewhere else than the just released monthly Caterpillar dealer retail sales. Because while in September there was some hope that North American industrial demand may finally be picking up when retail sales on the continent posted the first two month sequential increase since 2012 even as the rest of the world was stuck deep in negative territory, that hope too was just been dashed with October North American retail sales posting the first decline of -2% since July. And unfortunately while North American sales just rejected any glimmer of a localized recovery, the rest of the world just keeps getting worse and worse, with negative sales prints across the board for every region - the first time this has happened since February 2010. The only difference is that then the trend was higher. Now, well, it isn't.

Producer Price Index: Headline Inflation Falls, Core Rises - Today's release of the October Producer Price Index (PPI) for finished goods shows a 0.2% month-over-month decline, seasonally adjusted, in Headline inflation. Today's data point matched the Investing.com forecast. Core PPI rose 0.2% from last month, which was above the Investing.com forecast of a 0.1% rise.  Year-over-year Headline PPI is up only 0.30%, unchanged from last month. The YoY 1.36% Core PPI is a bit higher than last month's 1.20%. Here is the essence of the news release on Finished Goods:In October, the 0.2-percent decrease in the finished goods index is attributable to prices for finished energy goods, which fell 1.5 percent. By contrast, the indexes for finished consumer foods and for finished goods less foods and energy moved up 0.8 percent and 0.2 percent, respectively. Finished energy: Prices for finished energy goods moved down 1.5 percent in October, the first decline since a 2.5-percent drop in April 2013. Nearly all of the October decrease can be traced to the index for gasoline, which fell 3.8 percent. Lower prices for diesel fuel and residential natural gas also contributed to the decline in the index for finished energy goods. (See table 2.)  Finished foods: In October, prices for finished consumer foods advanced 0.8 percent, the largest rise since a 0.9-percent jump in March 2013. Nearly sixty percent of the October increase can be traced to the index for beef and veal, which climbed 7.5 percent. Higher prices for fresh and dry vegetables also contributed to the advance in the finished consumer foods index.  Finished core: The index for finished goods less foods and energy rose 0.2 percent in October subsequent to a 0.1-percent increase in September. Leading the October advance, prices for passenger cars climbed 1.7 percent. By contrast, the index for light motor trucks edged down 0.1 percent. (In accordance with usual practice, most new-model-year passenger cars and light motor trucks were introduced into the PPI in October 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.

U.S. Business Stockpiles Up 0.6 Percent in September — U.S. businesses increased their stockpiles in September by the largest amount in eight months while sales posted a modest gain. The Commerce Department says business inventories rose 0.6 percent in September compared with August. Sales rose 0.2 percent. A big jump in restocking helped drive faster economic growth from July through September. But there is concern that a pullback in inventory rebuilding will dampen growth in the current quarter. Rising stockpiles boost growth because they mean more factory production. The September rise in inventories was the largest since a 1 percent increase in January. It pushed total inventories to $1.68 trillion, up 3.1 percent from a year ago.

Philly Fed Business Outlook: The Pace Slows - The Philly Fed's Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. The latest gauge of General Activity came in at 6.5, down from the previous month's 19.8. The 3-month moving average came in at 16.2, down from 17.1 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. Today's six-month outlook at 45.8 is a marked decline from last month's 60.8. Here are the introduction and summary sections from the Business Outlook Survey released today: Manufacturing growth in the region continued in November but did not match the pace of growth in the preceding month,. The survey's broadest indicators for general activity, new orders, shipments, and employment were positive, signifying growth, but readings for each fell from October. The survey's indicators of future activity also moderated but continue to suggest general optimism about growth over the next six months. . Firms' employment forecasts for the next six months remained optimistic, with more than one-third expecting to add workers. (Full PDF Report)  Today's 6.5 came in below the 15.0 forecast at Investing.com. The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the two 21st century recessions. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average, which is more useful as an indicator of coincident economic activity. We can see periods of contraction in 2011 and 2012. At this point the contraction in 2013 was shallower and the trend has been rising since late spring.

Philly Fed Manufacturing Survey indicates Slower Expansion in November -- From the Philly Fed: November Manufacturing Survey Manufacturing growth in the region continued in November but did not match the pace of growth in the preceding month, according to firms responding to this month’s Business Outlook Survey. The survey’s broadest indicators for general activity, new orders, shipments, and employment were positive, signifying growth, but readings for each fell from October. The survey's indicators of future activity also moderated but continue to suggest general optimism about growth over the next six months. The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, declined from 19.8 in October to 6.5 this month. The index has now been positive for six consecutive months. Labor market indicators showed little improvement this month. The current employment index fell 14 points from its reading in October (which was at a two-year high), to 1.1. This was below the consensus forecast of a reading of 15.5 for November. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. Also Market released their Flash PMI for November this morning that suggests faster manufacturing expansion: At 54.3, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™)1, which is based on approximately 85% of usual monthly survey replies, rose to an eight-month high in November. This was up from a one-year low of 51.8 in October.

Philly Fed Tumbles, Number Of Employees, Employee Workweek Both Plunge; Stocks Surge -With the market not sure what bad news would send it soaring higher today, here comes the Philly Fed to save the day by tumbling from October's 19.8 to a paltry 6.5, slamming through expectations of 15.0 - the biggest miss since February - and assuring that ahead of today's POMO there is enough ammunition for a stock ramp to end the three days of declines.  But while the leading indicators of New Orders, Shipments and Unfilled Orders all plunged (from 27.5 to 11.9; from 20.4 to 5.6 and from 9.1 to -4.2, respectively), it was the jobs number that showed just how bad things really are with the Number of Employees and Average Employee Workweek both sliding from 15.4 to 1.1, and from 8.5 to -8.6.  This is what the report said: "Labor market indicators showed little improvement this month. The current employment index fell 14 points from its reading in October (which was at a two?year high), to 1.1. Nearly 13 percent of the firms reported increases in employment, which is lower than the 23 percent that reported increased employment last month. Firms, on balance, reported lower work hours, with the average workweek index falling from 8.5 to -8.6 this month."

Kansas City Fed: Manufacturing Survey shows Activity Growing at "Moderate Rate" - From the Kansas City Fed: Tenth District Manufacturing Survey Continued to Grow - The Federal Reserve Bank of Kansas City released the November Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity continued to grow, and producers’ expectations for future activity improved moderately. “Factory activity in our region continues to hum along at a moderate rate of growth” said Wilkerson. “The marked improvement in hiring plans was a nice development"The month-over-month composite index was 7 in November, up from 6 in October and 2 in September ... The new orders index jumped from 3 to 15 ... In aggregate the regional surveys have suggested slower growth in November. The last of the regional Fed manufacturing surveys for November will be released early next week (Richmond and Dallas Fed).

Boeing's Massive 777X Order Book: Is It Partly a Shell Game? - Boeing's 225 orders from three state-owned airlines for its new 777X aircraft are being widely applauded in some quarters, but the orders raise questions about the viability of the customers' strategies and the impact on U.S. and European airlines. At the Dubai Air Show, Boeing announced 259 orders and commitments for the 777X, its latest technological miracle, with deliveries expected to begin in 2020. The customers include Emirates, 150 aircraft; Qatar Airways, 50 aircraft; and Etihad Airways, 25 aircraft. A fourth 777 customer, Lufthansa, previously ordered 34 aircraft. The three Middle Eastern carriers have hubs within a few hundred miles of one another, all doing the same thing, which is to connect passengers in hubs that have almost no local traffic. It is a model that failed in the U.S. airline industry, which gave up on redundant hubs to instead operate a small handful of profitable hubs.  Moreover, experts said, Boeing's orders represent a zero sum game because many of the passengers who fly on the new aircraft will come from European airlines who are current Boeing customers. Those carriers, theoretically, will now order fewer new planes.

Wages Stagnate as U.S. Manufacturers Reap Record Profits - Boeing’s quest for concessions and employees’ opposition exposed a fault line in U.S. industry’s post-recession comeback: Even with hiring and output robust enough to be dubbed a manufacturing renaissance by President Barack Obama, workers are falling behind. Factory pay hasn’t kept pace with inflation and has fallen 3 percent on that basis since May 2009, while average pay for all wage earners slid only about 1 percent. “We need to focus on how many jobs there are that give an adult a chance to earn a decent living,” said Gordon Lafer, an associate professor at the University of Oregon’s Labor Education and Research Center in Eugene. “Too much of the discussion has been about the number of jobs, and that’s obviously important, but there’s also a crisis in the quality of jobs.”  Boeing said it needed labor givebacks to keep the Seattle area as the home of the 777X jet, a new model with more than $95 billion in orders since September. Union workers said Boeing needed to share more of the wealth they help create. “This is really a symbol of what’s going on in this whole country,” said Machinist Thomas Campbell, 40. “We’re losing middle-class jobs.”

The Unemployment Rate at Full Employment: How Low Can You Go? - A lot of people are talking about full employment these days.  Our own recent work documents the widespread benefits of full employment (and the costs of not being there) and prescribes a policy road map to get there.All of which raises two questions.  What is the unemployment rate consistent with full employment? And second, why does this matter now when the jobless rate is still highly elevated and only slowly coming down? What follows is all about the first question, but let us briefly note why this matters so much, even — we’d say especially — now. To policy makers at the Federal Reserve and the many economists who watch and critique their every move, the unemployment rate associated with full employment is a key parameter.  A linchpin of our argument is that for much of recent history, this rate has been pegged too high, and the costs to working families have been steep. For economists, the question we’re asking is this: What is the lowest unemployment rate consistent with stable inflation, otherwise known as the nonaccelerating inflation rate of unemployment, or Nairu?Most economists place the rate in the range of 5 to 5.5 percent, though some estimates go as high as 6 percent. The Congressional Budget Office‘s latest projections have it at 5.5 percent.We think we can do better. Our work suggests that 4 percent — the average unemployment rate for 2000, the last time we were at full employment — is a reasonable target, one worth shooting for.

U.S. Job Openings, Overall Hiring Reach 5-Year Highs — U.S. job openings and overall hiring both rose to five-year highs in September, signaling improvement in the job market. The Labor Department says job postings rose 69,000 to a seasonally adjusted 3.9 million. That’s the most since March 2008, just a few months after the Great Recession began. Total hiring rose 26,000 to 4.6 million, the highest level since August 2008. The increase suggests employers are not only posting more jobs but are also taking greater steps to fill them. September’s total hiring is still below the roughly 5 million people who are typically hired each month in healthier job markets. The competition for jobs is also easing. There were 2.88 unemployed people, on average, for each available job in September. That’s also the lowest since August 2008.

BLS: Job Openings "little changed" in September -- From the BLS: Job Openings and Labor Turnover Summary There were 3.9 million job openings on the last business day of September, little changed from August, the U.S. Bureau of Labor Statistics reported today. The hires rate (3.4 percent) and separations rate (3.2 percent) were little changed in September. ... ...Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. Layoffs and discharges are involuntary separations initiated by the employer. ... The number of quits (not seasonally adjusted) increased over the 12 months ending in September for total nonfarm and total private, and was little changed for government. The number of quits rose in several industries. Over the year, quits increased in the Midwest, South, and West regions.The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.  This series started in December 2000.Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for September, the most recent employment report was for October.  Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs. Jobs openings increased in September to 3.913 million from 3.844 million in August.  The number of job openings (yellow) is up 8.6% year-over-year compared to September 2012 and openings are at the highest level since early 2008. Quits were mostly unchanged in September and are up about 18% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

Which Is It? According To The BLS, The Average Monthly Job Gain In 2013 Is Either 184K Or 20% Lower - Back in September in "This Is What Happens When The Bureau Of Labor Statistics Is Caught In A Lie" (a topic that has gained substantial prominence recently), we concluded our series exposing BLS data "massaging", when as we predicted the monthly JOLTS survey, which had been trending at an implied monthly job gain of 140K and diverging massively from the NFP average of 198K, as can be seen on the chart below.... finally caught up with reality, resulting in the single biggest monthly outlier in the data stream in the history of the survey. To be sure, we explicitly warned ahead of time that a massive data revision was imminent as never before had two congruent series diverged so spectacularly. Specifically we said "This means that either the JOLTS survey is substantially under-representing the net turnover of workers, or that once the part-time frenzy in the NFP data normalizes, the monthly job gains will plunge to just over 100K per month to "normalize" for what has been a very peculiar upward "drift" in the NFP "data.". 

Vital Signs: More Workers Are Calling It Quits — and That’s a Good Thing -- If you recently left a job, the chances are growing you did so voluntarily and not because of a layoff. The Labor Department’s delayed Job Opening and Labor Turnover report, released Friday, shows little movement under the surface in labor markets in September. The rates for job openings, hiring and separations remain in the same tight bands of the past two years. One trend pointing to improving labor markets, however, is the mix of job separations: more workers are quitting their old jobs. Fewer are being let go involuntarily. (Another separation category includes retirements, disabilities and death.) A high level of quits suggests more workers are confident that they will have little problem finding a new job. During the last recession, the rate of layoffs and other discharges far outpaced that for quits. But in normal job markets, the quit rate hovers high above the discharge rate, a gap that is starting to reassert itself–if only slowly–in the U.S.

U.S. Unemployment Benefit Applications Drop to 323,000 - The number of people applying for U.S. unemployment benefits fell 21,000 to a seasonally adjusted 323,000 last week, the lowest since late September and further evidence of an improving job market. The Labor Department says the less volatile four-week average fell for the third straight week to 338,500. Both figures are near pre-recession levels.Applications are a proxy for layoffs. They had spiked in early October because of the partial government shutdown and processing backlogs in California. But first-time applications have now fallen in five of the past six weeks. The decline indicates that employers are laying off fewer workers. Hiring is also picking up. Employers added an average of 202,000 jobs per month from August through October. That’s up sharply from an average of 146,000 in May through July.

Weekly Initial Unemployment Claims decline to 323,000 - The DOL reports: In the week ending November 16, the advance figure for seasonally adjusted initial claims was 323,000, a decrease of 21,000 from the previous week's revised figure of 344,000. The 4-week moving average was 338,500, a decrease of 6,750 from the previous week's revised average of 345,250. The previous week was up from 339,000. The following graph shows the 4-week moving average of weekly claims since January 2000. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 338,500. Some of the recent volatility in weekly claims was due to processing problems in California (now resolved).

Are Low Claims a Warning? - There’s significant volatility in this number, with a usual range of zero to -20%. In the second and third quarters, claims as a percentage of the total employed were at levels last seen at the end of the housing bubble, just before the market and economy collapsed. They remain at a level comparable to 2007. In fact, this week’s reading is the lowest for the same week since 1999, which was at the peak of the internet and technology bubble. Think about that for a moment. Initial unemployment claims as a percentage of total employed is at levels last seen at the end of the housing bubble, and the end of the internet/tech bubble. That’s ominous.The current weekly change in the NSA initial claims number is a decrease of 37,000 (rounded and adjusted for the usual undercount) from the previous week. That compares with a decrease of 75,000 in the post Superstorm Sandy comparable week last year. The big surge in post storm claims was in the prior two weeks last year. They then began to moderate. The current weekly change compares with the 10 year average for this week of -7,000. The third November reading was down in 7 of the prior 10 years, but the 3 years that increased saw huge increases, skewing the average. The current weekly change is consistent with the change for this week in the 7 years which showed declines. In short, it is a strong but unremarkable number, consistent with the trend.

Bullshit Jobs - The "service economy" has always been weirdly circular.  Ian Welsh put it this way last Thursday: It's crazy....(R)adical is saying why do we distribute surplus through jobs? All right, why do you need a job in order to survive, right? I mean the fact of the matter is 80% of the population could stop doing what they do tomorrow and all the food would still get produced, and all of the goods would still get produced. About 60% of the population does nothing but shuffle numbers at this point. What they're doing is keeping track of who owns what, right? The actual productive labor in the economy is remarkably little. Trouble maker David Graeber puts it differently:  In other words, productive jobs have, just as predicted, been largely automated away.    But rather than allowing a massive reduction of working hours to free the world’s population to pursue their own projects, pleasures, visions, and ideas, we have seen the ballooning not even so much of the “service” sector as of the administrative sector, up to and including the creation of whole new industries like financial services or telemarketing, or the unprecedented expansion of sectors like corporate law, academic and health administration, human resources, and public relations. As far as I'm concerned there are plenty of productive things to do, like fixing bridges, pulling fiber to post offices and libraries, building high school science labs, even, yes, repairing water mains and making Supertrains.  But that's not what we do.

Census ‘faked’ 2012 election jobs report - In the home stretch of the 2012 presidential campaign, from August to September, the unemployment rate fell sharply — raising eyebrows from Wall Street to Washington. The decline — from 8.1 percent in August to 7.8 percent in September — might not have been all it seemed. The numbers, according to a reliable source, were manipulated. And the Census Bureau, which does the unemployment survey, knew it. Just two years before the presidential election, the Census Bureau had caught an employee fabricating data that went into the unemployment report, which is one of the most closely watched measures of the economy. And a knowledgeable source says the deception went beyond that one employee — that it escalated at the time President Obama was seeking reelection in 2012 and continues today. “He’s not the only one,” said the source, who asked to remain anonymous for now but is willing to talk with the Labor Department and Congress if asked. The Census employee caught faking the results is Julius Buckmon, according to confidential Census documents obtained by The Post. Buckmon told me in an interview this past weekend that he was told to make up information by higher-ups at Census.

New York Post Claims Census Falsifies Unemployment Figures  - The New York Post is reporting an absolute bombshell story if true.  They claim the September 2012 unemployment report was manipulated and survey data was faked, just in time for the election.  The story quotes anonymous sources, insiders from the Census Bureau who claim to have falsified survey data for the unemployment report. The decline — from 8.1 percent in August to 7.8 percent in September — might not have been all it seemed. The numbers, according to a reliable source, were manipulated. And the Census Bureau, which does the unemployment survey, knew it.Not only is the Post claiming the September 2012 unemployment surveys were manipulated but this is still going on today.  The Census actually caught one employee fabricating the unemployment statistics by falsifying survey results which should be answered by respondents. And a knowledgeable source says the deception went beyond that one employee — that it escalated at the time President Obama was seeking reelection in 2012 and continues today. The story might very well be true.  The unemployment rate comes from surveys, sent out to 60,000 households spread out over 2,025 geographical areas of the country..  The Bureau of Labor Statistics gives great detail into the methodology used for these surveys.  The fraud reported by the New York Post comes from the 2200 Census employees who conduct the phone interviews each month for the Household survey.  Instead of doing their job and recording the answers from the interview questions of these households, a few individuals are falsifying the survey results.  If employees were falsifying interviews and this fudging of surveys is done with enough households, such fraud could skew the unemployment rate.

Political Questions About the Jobs Report - Was manipulation responsible for lowering the unemployment rate to 7.8 percent in September 2012 from 8.1 percent in August, a big deal when the numbers came out in October 2012, just weeks before the election? That’s the contention of an article Tuesday in The New York Post by John Crudele headlined “Census ‘faked’ 2012 election jobs report.” And it seems to confirm the suspicions of Jack Welch, the former G.E. chief executive who said on Twitter at the time, “these Chicago guys will do anything … can’t debate so change numbers.”  Mr. Crudele’s article begins with an employee of the Census Bureau, which collects the data for the unemployment rate report, who says he was told by higher-ups to “fabricate” results of the surveys he was supposed to be doing.The Labor Department had targets for how many households the Census Bureau needed to poll each month, and when it fell short in the New York and Philadelphia regions, “Philadelphia filled the gap with fake interviews,” the Post article states. To make matters worse, “a knowledgeable source says the deception went beyond that one employee — that it escalated at the time President Obama was seeking re-election in 2012 and continues today.” Those are the allegations reported by Mr. Crudele — the only problem is that a lot of them don’t add up.

Readers React to Unemployment’s Revolving Door - When you lose your job, suddenly nothing feels secure. That was one of the most common themes among more than 700 comments on Annie Lowrey’s article “Caught in a Revolving Door of Unemployment” last weekend. Jenner Barrington-Ward, the subject of the article, found herself homeless after decades of employment. Two readers shared their own stories of homelessness.  “My whole life is in storage, and I fear letting go of all of it will strip me of a good part of my identity,” Debbie in New York wrote.  “After 35 years-plus of management/corporate positions, I find myself in retail working with 20-somethings,” she said, adding that she earns ” 65 to 75 percent less than what I formerly earned.” After moving four times in two years and declaring bankruptcy, “I don’t know who I am anymore,” she added. “All my friends are married and settled, and this feels like a nightmare from which I cannot wake up.” Sarah in Connecticut replied: “I see nothing changing. Wearing concrete shoes. … Yup, my life is in storage, too.”  “Someone needs to step up and offer her security for at least six months” David S. wrote. “I have been paying for a friend’s phone just so he could have a stable telephone while he looks for a job. I have bought monthly MetroCards for him so he did not have to walk to job interviews. It’s not just me doing for him — it’s a group of us.”  A few evangelized about entrepreneurship, but others warned it’s not always a cure-all: Jen D. in New Jersey said her brother “was laid off early on in the Great Recession and thought his I.T. skills would be valued by employers,” adding: “All employers saw was an older guy who had been out of work a while. When he died, he had an old car to his name and over $30,000 in debt that he had no way to pay.”

Long-term unemployment may accelerate aging in men - Men who are unemployed for more than two years show signs of faster ageing in their DNA, a new study has found. Researchers at Imperial College London and the University of Oulu, Finland studied DNA samples from 5,620 men and women born in Finland in 1966. They measured structures called telomeres, which lie at the ends of chromosomes and protect the genetic code from being degraded. Telomeres become shorter over a person's lifetime, and their length is considered a marker for biological ageing. Short telomeres are linked to higher risk of age-related diseases such as type 2 diabetes and heart disease. The researchers looked at telomere length in blood cells from samples collected in 1997, when the participants were all 31 years old. The study, funded by the Wellcome Trust, found that men who had been unemployed for more than two of the preceding three years were more than twice as likely to have short telomeres compared to men who were continuously employed,. The analysis accounted for other social, biological and behavioural factors that could have affected the result, helping to rule out the possibility that short telomeres were linked to medical conditions that prevented participants from working.

Over 50 and out of work: Program seeks to help long-term unemployed - As of September 2013, 4 million people had been unemployed for six months or more. The economy has been slow to regain the 8.7 million jobs lost during the Great Recession, making prospects grim for many of the long-term unemployed. Older workers like Lane make up a larger percentage of the persistently jobless than ever before. Nearly 40 percent of unemployed workers are over the age of 45 — a 30 percent rise from the 1980s. And for this group, the job hunt can be particularly long and frustrating. Unemployed people aged 45-54 were jobless for 45 weeks on average, and those 55 to 64 were jobless for 57 weeks, according to an October 2013 Associated Press-NORC Center for Public Affairs Research poll. An innovative program based in Bridgeport, Conn., is helping to get those who are over 50 and unemployed for long periods back into the market.  Platform to Employment started in 2011 when a Connecticut job center called the WorkPlace was overwhelmed by calls from “99ers”—people who had been unemployed for 99 weeks, exhausting their unemployment benefits—many of whom were older workers.

Employers’ Costs for Workers Remain Muted - A moderate pickup in employers’ labor costs in the third quarter underscored a slow-moving economy that has kept inflation subdued. The employment-cost index, a measure of labor expenses that includes pay and benefits, rose 0.4% from July through September compared to the prior three months, the Labor Department said Tuesday. Third-quarter costs were 1.9% higher from a year ago. Economists surveyed by Dow Jones had expected third-quarter costs to rise 0.5% from the second quarter. The report showed the pace of cost increases largely held steady during the summer as the labor market plodded ahead with slow gains in hiring. Costs are rising year-over-year at roughly the same pace as they have been throughout the four-year recovery, but the pace remains far slower than before the recession, when annual cost increases typically exceeded 3%.  Benefit costs rose more rapidly than wages during the summer, a development some economists predicted due to higher health-care expenses. Benefits rose 0.7% in the third quarter after rising 0.4% in the second quarter. Wages and salaries, which account for about 70% of overall compensation costs, climbed 0.3% in the summer after rising 0.4% in the spring.

Military Eyes Cut to Pay, Benefits - The U.S. military's top commanders, groping for ways to cope with a shrinking Pentagon budget, have agreed to a plan that would curb the growth of pay and benefits for housing, education and health—prized features of military life that for years have been spared from cuts. Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, said in a weekend interview that without such changes, the cost of military personnel would soon rise to 60% from about half of the defense budget. "What we have asked these young men and women to do over the last 10 years, we can't pay them enough," Gen. Dempsey said during a conference at the Ronald Reagan Presidential Library. "Having said that, we also have an institution to manage." Military officials haven't revealed details of the plan, which still must be approved by the Defense Secretary Chuck Hagel and President Barack Obama before it is sent to Congress for approval. 

Extension of Benefits for Jobless Is Set to End - Unless Congress acts, during the last week of December an estimated 1.3 million people will lose access to an emergency program providing them with additional weeks of jobless benefits. A further 850,000 will be denied benefits in the first quarter of 2014.  Congressional Democrats and the White House, pointing to the sluggish recovery and the still-high jobless rate, are pushing once again to extend the period covered by the unemployment insurance program. But with Congress still far from a budget deal and still struggling to find alternatives to the $1 trillion in long-term cuts known as sequestration, lawmakers say the chances of an extension before Congress adjourns in two weeks are slim.  As a result, one of the largest stimulus measures passed during the recession is likely to come to an end, and jobless workers in many states are likely to receive considerably fewer weeks of benefits.  In all, as many as 4.8 million people could be affected by expiring unemployment benefits through 2014, estimated Gene Sperling, President Obama’s top economic adviser. “Historically, there has not been a time where the unemployment rate has been this high where you have not extended it,” Mr. Sperling said in an interview. “Why would you not extend now, when you’re dealing with the nearly unprecedented levels of long-term unemployment coming off such a historic recession?

Democrats Push For Extending A Lifeline For The Long-Term Unemployed - Democratic lawmakers in both the House and Senate are saying that they will push for an extension of unemployment benefits for those who have been out of work for 27 weeks or longer, and the White House threw its support behind an extension on Friday.Without Congressional action before the end of the year, 1.3 million long-term unemployed workers will lose the unemployment insurance they currently receive from the federal Emergency Unemployment Compensation (EUC) program. The typical cut off for benefits at the state level is 26 weeks, so the federal program extends them past that threshold, but it will disappear if isn’t reauthorized. The program has been reauthorized 11 times since it was first enacted in June 2008 to deal with skyrocketing unemployment during the recession.House Democrats have indicated that during the budget conference that was begun as part of the deal to re-open the government in October, they will not just push for an end to sequestration, but also for investment in infrastructure and a reauthorization of the EUC program. “We’re going to be focused on stepping up our investment in infrastructure, on replacing the job killing sequester, and on extending unemployment,” Rep. Chris Van Hollen (D-MD) told the Washington Post’s Greg Sargent. “If we don’t address that issue, more than a million Americans who are still looking for work will have no means of supporting their families.”

Good Benefits Don’t Make Unemployed People Happy About Being Unemployed -- There’s a persistent idea, which comes up often in debates over social services, that a too-generous social assistance program could make life so cushy that people would be happy to be unemployed. (This is despite the well-known psychological, health, and economic hazards of un- or under-employement, although not all of these issues stem specifically from financial shortfalls). Now, a new study by Jan Eichhorn took that idea head on, looking at rates of life satisfaction from unemployed people across the European Union. And Eichhorn found that there is no connection between how happy people are and the quality of their country’s unemployment assistance.  There is notable variation, from country to country, on how much being unemployed hurts people’s life satisfaction. And large-scale economic disparities between the countries—in GDP or the amount of income inequality—make a difference. But one factor that didn’t matter was how robust unemployment assistance programs are. Not only does the strength of an unemployment program not affect people’s happiness, it also doesn’t affect how hard people look for new jobs when they are unemployed.

Labor Secretary: Raising minimum wage is 'job one' -- Raising the federal minimum wage is a top priority for the White House, Labor Secretary Thomas Perez said Friday. “Unfinished business starts with increasing the minimum wage, and that’s something which is job one for this administration,” he said during a speech commemmorating the 75th birthday of the Fair Labor Standards Act. Rumblings of a renewed push to increase the federal minimum wage began last week when a White House official official reportedly told the New York Times that the president supports legislation which would set the wage at $10.10 per hour and tie future hikes to increases in the Consumer Price Index. The current federal minimum wage is $7.25.The administration has avoided going on the record in support of the proposed law, and Perez did not mention it in his speech. However, after the speech, a Department of Labor spokesperson confirmed to msnbc that the Labor Secretary supports the bill. President Obama’s previous wage hike proposal would have set the minimum wage at $9 per hour. Perez singled out Gov. Jerry Brown of California for particular praise, noting that Brown signed a law in September that will eventually bring the state’s minimum wage to $10 per hour, up from $8. Perez also celebrated a New Jersey referendum, passed earlier this month, which raised that state’s minimum wage from the national minimum up to $8.25.

McDonalds Advice To Employees: "Quit Complaining" And "Sing A Song" --Back in July, we highlighted a ridiculous and insulting campaign that McDonalds ran with Visa in which the company tried to help its impoverished employees plan a budget. The only thing the campaign did was embarrass the company by proving that you can’t survive working there. Well the company is right back at it in time for the holidays, with several pieces of advice for its legions of serf employees through its ”McResource” website. Three of the more insulting pieces of wisdom include:

• “Sing away stress: Singing along to your favorite songs can lower your blood pressure.”
• “Break it up: Breaking food into pieces often results in eating less and still feeling full.”
• “Quit complaining: Stress hormone levels rise by 15% after ten minutes of complaining.”

Are you “lovin’ it” yet? Video below:

McDonald's Advice To Underpaid Employees: Break Food Into Pieces To Keep You Full | Alternet: The latest friendly advice from McDonald’s to their low-wage workers includes tips on how to better handle stress--as well as how to fill yourself up better with dinner. The fast-food corporation instructs workers that breaking food “into pieces” will keep you full. The advice was published on the “McResource” website, meant to give tips to fast-food workers. While you need to be a McDonald’s worker to log-in to the website, details of the advice have been publicized by the group Low Pay Is Not OK, a union-backed group seeking to organize low-wage workers at McDonald’s.  The effort is part of the larger campaign to push for living wages, benefits and the right to organize among low-wage workers across a variety of industries.  A video published by Low Pay Is Not OK shows the website’s advice to workers. One piece of advice given is for workers to take two vacations a year--an impossible task given that many employees work two low-wage jobs. It tells workers to “sing away stress” because it “can lower your blood pressure.” And it tells McDonald’s employees to break “food into pieces,” which “results in eating less and still feeling full.” McDonald’s had previously come under fire for telling workers to apply for food stamps while being employed by a fast-food corporation raking in billions annually. Many McDonald’s workers make $7.25 an hour.

McDonald’s Advice To Underpaid Employees: Sell Your Christmas Presents For Cash - McDonald’s McResource Line, a dedicated website run by the world’s largest fast-food chain to provide its 1.8 million employees with financial and health-related tips, offers a full page of advice for “Digging Out From Holiday Debt.” Among their helpful holiday tips: “Selling some of your unwanted possessions on eBay or Craigslist could bring in some quick cash.” Elsewhere on the site, McDonald’s encourages its employees to break apart food when they eat meals, as “breaking food into pieces often results in eating less and still feeling full.” And if they are struggling to stock their shelves with food in the first place, the company offers assistance for workers applying for food stamps. McDonald’s corporate officers have a history of offering questionable advice to their low-wage workers. Four months ago, the company partnered with Visa to distribute a sample “budget.” In it, the chain suggested that workers needn’t pay for such frivolous expenses like their heating bills, and factored in a monthly rent of $600. To workers living in New York City (home of 350+ stores) and other expensive metropolises, that number is almost comical. McDonald’s employees are some of the most underpaid workers in the country. The company’s cashiers and “team members” earn, on average, $7.75 an hour, just 50 cents higher than the federal minimum wage. In Europe, where the minimum wage for employees is $12, customers pay just pennies more than their American counterparts for the same menu items, while the stores themselves typically bring in higher profit margins than ones in the United States. 

McDonald’s Tells Underpaid Employees To Sell Christmas Presents For Cash -- Move over Walmart, you may be in jeopardy of losing the title of most heartless mega-corporation for this holiday season. McDonald’s has advised their employees that one way to survive on their substandard McDonald’s paycheck is to sell their Christmas presents (along with everything else).McDonald’s McResource Line, a dedicated website run by the world’s largest fast-food chain to provide its 1.8 million employees with financial and health-related tips, offers a full page of advice for “Digging Out From Holiday Debt.” Among their helpful holiday tips: “Selling some of your unwanted possessions on eBay or Craigslist could bring in some quick cash.” And the horrifying irony would not be complete if there wasn’t an angle where McDonald’s found a way to rob the public – they did. Elsewhere on the site, McDonald’s encourages its employees to break apart food when they eat meals, as “breaking food into pieces often results in eating less and still feeling full.” And if they are struggling to stock their shelves with food in the first place, the company offers assistance for workers applying for food stamps. Thank you for your hard work, no we won’t pay you enough to live on, but we will show you how to get money from the taxpayers.

McDonald's Tells Employees To Make Rent Go Without Heat -- Wow, employers are really out there trying to help their employees!  Just yesterday Walmart was busy asking for charity to feed their employees.  Now McDonalds is telling workers to live in unheated homes in order to pay their bills. Gets worse than that folks. McDonalds also told employees to return their Christmas gifts for extra cash.  Sell your gifts on eBay! The website low pay is not ok has been tracking the absurdities and made the below video.  Of course raising wages is not on the McDonald's radar.  Just last July McDonalds was sued for paying workers on prepaid Visa cards.  Due to all of the fees associated with prepaid cards, the lawsuit contends workers are being paid below the minimum wage.  Last we checked paying workers below minimum wages is still illegal, although more and more employers are obviously skirting around that law as well, often by claiming workers are independent contractors.

What Walmart Could Learn from Henry Ford - Robert Reich - Walmart just reported shrinking sales for a third straight quarter. What’s going on? Explained William S. Simon, the CEO of Walmart, referring to the company’s customers, “their income is going down while food costs are not. Gas and energy prices, while they’re abating, I think they’re still eating up a big piece of the customer’s budget.”Walmart’s CEO gets it. Most of Walmart’s customers are still in the Great Recession, grappling with stagnant or declining pay. So, naturally, Walmart’s sales are dropping. But what Walmart’s CEO doesn’t get is that a large portion of Walmart’s customers are lower-wage workers who are working at places like … Walmart. And Walmart, not incidentally, refuses to raise its median wage (including its army of part-timers) of $8.80 an hour. Walmart isn’t your average mom-and-pop operation. It’s the largest employer in America. As such, it’s the trendsetter for millions of other employers of low-wage workers. As long as Walmart keeps its wages at or near the bottom, other low-wage employers keep wages there, too. All they need do is offer $8.85 an hour to have their pick. On the other hand, if Walmart were to boost its wages, other employers of low-wage workers would have to follow suit in order to attract the employees they need. Get it? Walmart is so huge that a wage boost at Walmart would ripple through the entire economy, putting more money in the pockets of low-wage workers. This would help boost the entire economy — including Walmart’s own sales.

Is Walmart's request of associates to help provide Thanksgiving dinner for co-workers proof of low wages? | cleveland.com: -- The storage containers are attractively displayed at the Walmart on Atlantic Boulevard in Canton. The bins are lined up in alternating colors of purple and orange. Some sit on tables covered with golden yellow tablecloths. Others peer out from under the tables. This isn't a merchandise display. It's a food drive - not for the community, but for needy workers. "Please Donate Food Items Here, so Associates in Need Can Enjoy Thanksgiving Dinner," read signs affixed to the tablecloths.The food drive tables are tucked away in an employees-only area. They are another element in the backdrop of the public debate about salaries for cashiers, stock clerks and other low-wage positions at Walmart, as workers in Cincinnati and Dayton are scheduled to go on strike Monday. Norma Mills of Canton, who lives near the store, saw the photo circulating showing the food drive bins, and felt both "outrage" and "anger." "Then I went through the emotion of compassion for the employees, working for the largest food chain in America, making low wages, and who can't afford to provide their families with a good Thanksgiving holiday," said Mills, an organizer with Stand Up for Ohio, which is active in foreclosure issues in Canton. "That Walmart would have the audacity to ask low-wage workers to donate food to other low-wage workers -- to me, it is a moral outrage."

Wal-Mart asks employees to donate canned goods to workers who don’t have enough to eat - Employees at an Ohio Wal-Mart store are being asked to donate canned goods to help out co-workers who don’t have enough to eat at the holidays. “Please Donate Food Items Here, so Associates in Need Can Enjoy Thanksgiving Dinner,” reads a sign near bins tucked away in an employees-only area at the Canton store. Wal-Mart employees in Cincinnati and Dayton were scheduled to strike Monday to demand higher wages for cashiers, stock clerks and other positions at the retailing giant, which was the target of a blistering congressional report that found many employees were paid so little that they were pushed onto public assistance A Wal-Mart spokesman said the food drive, which was photographed and shared on social media, was proof that employees care about each other.

Welfare Queen Walmart Has Thanksgiving Food Drive for its Own Needy Employees -  Yves Smith - Prima facie evidence of the need to boycott Walmart (as if more were necessary). From ThinkProgress:  A Walmart in northeast Ohio is holding a holiday canned food drive — for its own underpaid employees. “Please Donate Food Items Here, so Associates in Need Can Enjoy Thanksgiving Dinner,” a sign reads in the employee lounge of a Canton-area Walmart… The company has long been plagued by charges that it doesn’t pay its employees a real living wage. In fact, Walmart’s President and CEO, Bill Simon, recently estimated that the majority of its one million associates make less than $25,000 per year, just above the federal poverty line of $23,550 for a family of four… Walmart’s low wages come at a public cost. Because low-income workers still need housing and health care, taxpayers end up doling out millions in benefits to bridge the gap faced by many of the store’s retail workers.  So what’s next, a soup kitchen for Walmart staffers? That would be wonderfully efficient too. Get them in for some homeless-shelter quality Thanksgiving fare at 4:00 PM and they’ll be ready to open at 6:00 PM on Thanksgiving when Black Friday sales start.

Wal-Mart asks workers to donate food to its needy employees - A Cleveland Wal-Mart store is holding a food drive — for its own employees. “Please donate food items so associates in need can enjoy Thanksgiving dinner,” reads a sign accompanied by several plastic bins. The Cleveland Plain Dealer first reported on the food drive, which has sparked outrage in the area. “That Wal-Mart would have the audacity to ask low-wage workers to donate food to other low-wage workers — to me, it is a moral outrage,” Norma Mills, a customer at the store, told the Plain Dealer. A company spokesman defended the food drive, telling the Plain Dealer that it is evidence that employees care about each other. “This store has been doing this for several years and is for associates that have faced an extreme hardship recently,”

Walmart Asks Customers for Charity to Feed Their Employees -- This is priceless.  Walmart is holding a food drive for their own employees.  Worse, Walmart doesn't see a problem with this, asking customers to feed their employees.  Is it like Walmart hasn't heard of something called wages and benefits, including help for emergency situations. Below is the image at the store asking customers to feed Walmart employees.  Think Progress has more   Let's see, Walmart has supercenters throughout the United States, is a major grocer and they cannot even give their employees who while working, are so poor they need charity, a free bag of groceries.  Oh yeah, Walmart moved up Black Friday so their employees will have to work on Thanksgiving.

BREAKING: Wal-Mart faces warehouse horror allegations and federal Labor Board complaint -  OUR Walmart, the non-union labor group closely tied to the United Food & Commercial Workers union, announced on an afternoon conference call that the National Labor Relations Board, the federal agency charged with enforcing and interpreting private sector labor law, is ready to issue a complaint against the retail giant. According to OUR Walmart, the complaint – similar to an indictment – would address “threats by managers and the company’s national spokesperson for discouraging workers from striking and for taking illegal disciplinary actions against workers who were on legally protected strikes.” As I’ve reported, a top Wal-Mart spokesperson stated publicly prior to last year’s “Black Friday” strike that “depending on the circumstances, there could be consequences” if workers did not show up to work that day; in the weeks following a longer, smaller June strike, at least 20 participants were fired.

Wal-Mart could pay every U.S. employee $14.89 just by not buying its own stock - Wal-Mart could afford to hike every U.S. employee’s hourly wage to at least $14.89 an hour just by not repurchasing its own stock, according to a new report from the progressive think tank Demos. “We find that if Walmart redirected the $7.6 billion it spends annually on repurchases of its own company stock, these funds could be used to give Walmart’s low-paid workers a raise of $5.83 an hour, more than enough to ensure that all Walmart workers are paid a wage equivalent to at least $25,000 a year for full-time work,” authors Catherine Ruetschlin and Amy Traub write in the Demos paper, “A Higher Wage Is Possible: How Walmart Can Invest in Its Workforce Without Costing Customers a Dime.” Demos, whose funders include unions, is releasing the paper Tuesday morning.  Wal-Mart, the world’s largest private employer, did not immediately respond to a request for comment.

The 'Exploitative' Internship Economy - When it comes to the debate over unpaid internships, law professor and intern labor rights advocate David Yamada has been ahead of the curve. In 2002, Yamada analyzed intern employment and found issues of pay and protection from harassment to be "chief among the legal issues implicated by the intern economy." More than a decade later, Yamada sees an intern rights movement growing in response to many of those unresolved issues. Project Intern recently sat down with Yamada at his Suffolk Law School office to talk about the issue, how it's evolved over the years and how his perspective on internships has changed. We followed up again to get his thoughts on Condé Nast's decision to end its internship program amid an ongoing lawsuit from former interns. Here's what he had to say.

This is your brain on poverty: Sanders and Warren probe insidious consequences of being poor -While most Americans think of poverty in material terms, said the senate’s lone independent, its effects were more insidious and long-lasting. The U.S. Senate subcommittee on primary health and aging met Wednesday morning to discuss the effects of poverty and stress on children, communities and health in America. “Stress and poverty, wondering how I’m going to feed my family tomorrow, pay my bills get the income I need to survive, takes a toll on human life,” said Sen. Bernie Sanders (I-VT).Recent studies have shown that stress caused by poverty can influence brain development in children and lay the groundwork for physical health problems that show up later in life. “Lack of choice and the increased stress that low-income people experience increases their level of cortisol (the primary stress hormone), and we know that higher levels of cortisol are correlated with cardiovascular disorders and other chronic illnesses, including diabetes,” said Michael Reisch, a professor of social justice at the University of Maryland.

U.S. Inequality in Six Charts - I’ll start with an updated chart from Emmanuel Saez, of Berkeley, which shows the share of pre-tax income enjoyed by the top one per cent of earners over the period from 1913 to 2012. The data, which comes from the Internal Revenue Service, is for market income: it includes realized capital gains but excludes government transfers. The U shape of the chart should by now be familiar. After rising in the Roaring Twenties, the income share of the one per cent fell sharply in the postwar period. Since the late nineteen-seventies, it has been climbing again, albeit in a somewhat zig-zag fashion. The top earners’ share of overall pre-tax income peaked at about twenty-four per cent in 2007, fell back during the Great Recession, and then recovered strongly. In 2012, it was about twenty-three per cent.  How have the folks outside the one per cent been faring? A second chart from Saez tells us the answer. Going back a century, the light line shows the path of inflation-adjusted pre-tax incomes for families in the bottom ninety-nine per cent. The dark line shows how families in the top one per cent have been doing. The third chart shows a measure of pre-tax inequality and inequality after taxes and transfers for twenty-two advanced countries. The measure used is a Gini coefficient, which captures inequality on a scale of zero to one, where zero is perfect equality (everybody receives the same income) and one is perfect inequality (the richest person gets all the income). The light lines on the bar chart show pre-tax inequality. The dark lines show inequality after taxes and transfers.

The Single Best Argument Against Inequality - This argument follows a simple causal chain: unequal growth concentrates wealth in the hands of a tiny slice of consumers who can only spend so much money. In turn, the vast majority of earners are left with little extra cash for goods and services. Resulting weak demand undermines growth. Low growth makes everyone poorer than they otherwise might be, including those who own the means of production. Inequality produces other bad economic outcomes, too, such as the underutilization of the nation's human capital, inadequate public investment in both human and physical capital, and social ills that are costly to address, diverting away resources from investment.  It all makes sense. What's more, this critique of inequality doesn't just appeal to those who are hurting or care about fairness. It appeals to anyone who wants more customers for their goods and services. Or anyone who wants America to compete well against China and Germany in coming decades.

Inequality's Roots: Beyond Technology - Ask a policy maker or most economists what’s driving the long rise in wage inequality in the United States, and they’ll almost certainly mention technology (along with globalization).  This leads them directly to more education as a solution, as higher-skilled workers are “complementary” to the technology trends that lie at the heart of their story. Economists talk about these dynamics under the rubric of SBTC, or skill-biased technological change.  This theory maintains that as technology increasingly pervades the workplace, skills that are complementary to the new technology are in greater demand by employers.  Those who bring such skills to the job market command a wage premium over those who don’t.  Ergo, the solution to rising inequality is more education.Yet as Eduardo Porter pointed out in an Economic Scene column, the evidence for SBTC’s role in increasing inequality is hard to find in recent data:

• While both you and society will be better off if you get more education, it is not driving wage inequality.  An important aspect of the column is that a couple of top economists often associated with the SBTC explanation stress this point.
• The tech story generally implies a rising college wage premium, yet that metric hasn’t gone up much in recent years.
• The tech story also implies a shift in shares of employment to more highly skilled occupations; you see that in the 1990s, though not in the 2000s.¹

So the obvious question is: if it’s not unmet demand for technology-based skills, what is driving inequality?

SNAP Spending Has Started Falling - Our new report has important news for House and Senate negotiators considering SNAP (food stamp) cuts as part of the Farm Bill:  recent government data show that SNAP spending, which doubled as a share of the economy (gross domestic product or GDP) in the wake of the Great Recession, fell as a share of GDP in fiscal year 2013, which ended September 30.  Moreover, CBPP projects that, in fiscal year 2014, SNAP spending will not only continue to decline as a share of GDP but will fall 5 percent in nominal (non-inflation-adjusted) terms, largely because of the expiration this month of the 2009 Recovery Act’s benefit increase. And, as the economic recovery continues and fewer low-income people qualify for SNAP, the Congressional Budget Office (CBO) expects SNAP spending to fall further in future years, returning to its 1995 levels by 2019 (see graph).  Because SNAP isn’t projected to grow faster than the economy, it isn’t contributing to the nation’s long-term budget imbalance.

Parents Serving as Emergency Support for Adult Kids - Older Americans can be a burden on the economy — but for cash-strapped families, they’re a lifeline. Roughly one in four adults 25 years old and over got $100 or more from parents in 2011, according to Judith Seltzer, a sociology professor at UCLA who analyzed Census data and the June 2012 Survey of Consumers. The average gift was $6,500. Better-educated parents were more likely to give: Nearly 37% of adults with college-educated parents received assistance. Grandparents also provide child care. About 28% of grandparents provided at least 50 hours of care per year for grandchildren they didn’t live with, and nearly one-third of grandmothers who live with a grandchild have primary responsibility for them. More affluent grandparents, meanwhile, tend to help adult children with mortgage costs, house down-payments and education, greasing the wheels of economic mobility for their grandchildren, research shows. The upshot: Older people are quietly serving as an emergency-support system for adult children struggling with a weak economy and high joblessness — and indeed, with years of slow wage growth and declining economic mobility.

America, here’s your Drug War: Thousands of Americans locked up for life in cages for nonviolent drug offenses - An excerpt from the NY Times editorial “Sentenced to a Slow Death“:  If this were happening in any other country, Americans would be aghast. A sentence of life in prison, without the possibility of parole, for trying to sell $10 of marijuana to an undercover officer? For sharing LSD at a Grateful Dead concert? For siphoning gas from a truck? The punishment is so extreme, so irrational, so wildly disproportionate to the crime that it defies explanation. And yet this is happening every day in federal and state courts across the United States. Judges, bound by mandatory sentencing laws that they openly denounce, are sending people away for the rest of their lives for committing nonviolent drug and property crimes. In nearly 20 percent of cases, it was the person’s first offense.As of 2012, there were 3,278 prisoners serving sentences of life without parole for such crimes, according to an extensive and astonishing report issued last Wednesday by the American Civil Liberties Union. The report relies on data from the federal prison system and nine states. Four out of five prisoners were sentenced for drug crimes like possessing a crack pipe or acting as a go-between in a street drug sale. Most of the rest were sentenced for property crimes like trying to cash a stolen check or shoplifting. In more than 83 percent of the cases, the judge had no choice: federal or state law mandated a sentence of life without parole, usually under a mandatory-minimum or habitual offender statute.

Unemployment Falls in Most U.S. States in October - Unemployment fell in 28 U.S. states last month, and employers added jobs in 34 states. The gains suggest recent improvements in the job market have occurred in most regions of the country.The Labor Department said Friday that unemployment rates rose in 11 states and were flat in 11. Employers cut jobs in 15 states. The biggest job gains occurred in Florida, California and North Carolina. Kentucky, Washington state, and New Jersey lost the most jobs. Job growth was unchanged in Pennsylvania. Florida gained 44,600 jobs. The biggest gains were in both better-paying and lower-paying fields. Most of the gains were in construction; hotels, restaurants and entertainment; and in the professional services category, which includes accountants, engineers, and temporary workers. California added 39,800 positions, also in a mix of fields. The biggest gains were in government, education and health, and in retail, transportation and utilities. Nevada continued to have the highest unemployment rate in the nation, at 9.3 percent. That is down from 9.4 percent in September. The states with the next highest rates were Rhode Island, at 9.2 percent; Michigan, 9 percent; Illinois, 8.9 percent; and California, 8.7 percent.

Most States See Jobless Rate Fall, Even Amid Big Jump in DC - The labor market improved in October across much of the country, but not in the nation’s capital. The unemployment rate fell last month in 28 states despite the national figure increasing for the first time since May, the Labor Department said Friday. Missouri and South Carolina registered the largest monthly decline in rates, each down 0.4 percentage point. One spot where the unemployment rate didn’t improve last month was the District of Columbia, home to the partially shuttered federal government. The district was the only state or territory to register a statistically significant increase in its unemployment rate, the Labor Department said. The jobless rate rose to 8.9% in October from 8.6% in September. The gain likely reflects the concentration of federal employees in Washington. Many government workers who were furloughed for 16 days in October were counted as unemployed. The district alone didn’t drive the up the national unemployment rate to 7.3%, from 7.2% the prior month. The jobless rate in 11 states, including New York and Ohio, registered a gain of 0.1 percentage point. Those small changes are not statistically significant at the state level, according to the Labor Department, but collectively they still influenced the national rate. Nationally, furloughed federal workers pushed up the unemployment rate.

BLS: State unemployment rates were "little changed" in October --From the BLS: Regional and state unemployment rates were little changed in October Regional and state unemployment rates were little changed in October. Twenty-eight states had unemployment rate decreases from September, 11 states and the District of Columbia had increases, and 11 states had no change, the U.S. Bureau of Labor Statistics reported today. .. Nevada had the highest unemployment rate among the states in October, 9.3 percent. The next highest rates were in Rhode Island, 9.2 percent, and Michigan, 9.0 percent. North Dakota continued to have the lowest jobless rate, 2.7 percent. This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are below the maximum unemployment rate for the recession. The size of the blue bar indicates the amount of improvement - Michigan, Nevada and Florida have seen the largest declines and many other states have seen significant declines. The states are ranked by the highest current unemployment rate. No state has double digit unemployment and the unemployment rate is at or above 9% in three states: Nevada, Rhode Island and Michigan. The second graph shows the number of states with unemployment rates above certain levels since January 2006. At the worst of the employment recession, there were 9 states with an unemployment rate above 11% (red). Currently three states have an unemployment rate at or above 9% (purple), thirteen states at or above 8% (light blue), and 23 states at or above 7% (blue).

State Payrolls and Unemployment Primarily Static for October 2013 - The October state employment statistics show yet again little change when breaking down unemployment and employment by states.  In spite of the national unemployment rate decline, 11 states plus D.C. showed their unemployment rates increased.  Twenty-eight states had monthly unemployment rate declines and 11 of the states had no change at all.  Below is the BLS map of state's unemployment rates for the month. Nationally, the unemployment rate was 7.3% for October.  There are now three states with unemployment rates above 9%.  Congratulations Nevada, you're #1 with a 9.3% unemployment rate.  Rhode Island, comes in at 9.2% and Michigan, 9.0%.  Illinois is not far behind with a 8.9% unemployment rate as well as D.C.  California has a 8.7% unemployment rate.  Tennessee, New Jersey, and Kentucky all are at 8.4%.  Everybody must have a job in North Dakota, their unemployment rate is 2.7%. The unemployment change from a year ago nationally has declined by -0.6 percentage points.  The biggest improvement has been in Florida, with a -1.5 percentage point change from October 2012.  California and North Carolina's unemployment rate declined by -1.4 percentage points over the past year.  South Carolina's unemployment rate declined by -1.3 percentage points.  All in all, 38 states showed an unemployment rate decline, 10 states plus D.C. increased and two had no change. The decrease in unemployment rates isn't that news by itself since the rates are declining due to lower labor participation rates, not because many more have found jobs  Some of the most populous states having unemployment rates above 8%, five years, ten months since the great recession started.State monthly payrolls for October look primarily static, or little change.  Payrolls increased in 34 states, decreased in 15, and had no change in Pennsylvania and D.C..  By percentages of total payrolls, Wyoming showed a 1.0% increase in jobs, with three states, Delaware, Florida, and Nevada, all increasing monthly employment by 0.7%.  Nevada, is still one of the worst places in the country for jobs, as shown above.  Yet Kentucky's payrolls dropped by -0.7% in a month and South Dakota by -0.6%.  

Narrow Tax Hikes Win Support in Several States -- Last Tuesday, voters in several states approved modest tax hikes. Increasingly, states are using ballot measures to determine whether to support new taxes. Some of these referenda are binding, others just advisory. But in 2013, voters in several states seem to be hungering for more revenue—though sometimes from unusual sources and decidedly not by raising income taxes—at least in one state. Here is a rundown of the results:

• Colorado: Voters approved a 25 percent state-wide tax on marijuana, on top of some additional county dope taxes. But they soundly rejected adding a new top rate to their income tax. While some of the new state marijuana tax revenue is designated for school construction, the public education system missed out on $1 billion in new aid when voters rejected the income tax hike.
• New York: Let the games begin. New York State voters expanded gaming to allow seven new casinos including three in New York City after seven years.. The recession stopped the growth nationally in state gaming revenue, but several states have expanded their gaming venues to try and keep some of this money at home.
• Texas: Lone Star State voters decided to tap the state’s rainy day fund for…water.  This measure authorizes the transfer of $2 billion from the Economic Stabilization Fund, which has a balance of about $8 billion, to two funds that will be used for water infrastructure projects. 
• Washington State: Voters barely endorsed an increase in the estate tax and a switch from a personal property tax on commuter airlines to an airplane excise tax–both of which have also been enacted already. All these votes were purely advisory, however, and the legislature is not bound by the results.

U.S. Cities Squeezed by Washington’s Squabbling -- Economic gains in America’s cities slowed this year as political maneuvering in Washington waylaid businesses and consumers, according to a new report by the nation’s mayors.Growth is forecast to pick up in 2014, though many city officials are tempering expectations. “As a whole I think we are still… not overly optimistic,” said Scott Smith, president of the U.S. Conference of Mayors, which represents top elected officials from 1,398 U.S. cities. “We don’t have a lot of confidence in Washington’s ability to fully comprehend and understand just how badly they are screwing things up.” The report, prepared for the Conference of Mayors by the consulting firm IHS Global Insight, forecasts gross metropolitan product, the broadest measure of metro area economic output, will grow a little less than 1.6% this year, down from 2.5% in 2012. That’s a little slower than the overall U.S. economy, which IHS expects to grow 1.7% this year. The nation’s 363 metropolitan areas–often a city and its suburbs– host about 84% of the U.S. population and the bulk of its job creation. But higher federal taxes at the start of the year, mandatory government-spending cuts known as the sequester and last month’s 16-day partial government shutdown all have weighed on local economies, The spending cuts and shutdown were especially pernicious, Mr. Smith said. Big companies with government contracts planned for the disruptions by squeezing second- and third-tier suppliers, effects that are difficult to track or measure.

Detroit could pay higher loan rate, unsealed letter shows (Reuters) - Detroit could end up paying almost twice as much in interest as previously disclosed on a $350 million loan arranged by Barclays Capital, according to a fee letter made public on Monday after a judge ordered it unsealed last week. U.S. Judge Steven Rhodes on Thursday thwarted efforts to keep the cost of a debtor-in-possession (DIP) financing under wraps, noting the so-called fee letter was subject to Michigan's Freedom of Information Act. The letter disclosed that Barclays would collect 1.25 percent of the loan, but not less than $750,000, for committing to a controversial financing deal with Detroit. The city and Barclays Capital had requested the fees be kept a secret because the details are commercially sensitive and might raise the price of the loan. Barclays declined to comment and the spokesman for the city state-appointed emergency manager did not immediately respond to a request for comment.

Special Education Budget Cuts, Sequestration, Hurt America’s Most Vulnerable Students - For American students with disabilities, class sizes are increasing, services are waning and providers are disappearing. More than half of parents who have children with disabilities and responded to a survey say their schools have altered special education services because of declining funding since last year -- in some cases, because of federal budget cuts known as sequestration, according to survey results released Thursday.  Of the 52.7 percent of parents who indicated services for their children had changed, 29.5 percent said services decreased, 32.2 percent said class sizes grew, 27.4 percent reported service providers dropped, and 13.1 percent said budget cuts had led to a change in a student's placement. The survey results were compiled from answers provided by 1,065 respondents, including 1,007 parents, by the National Center for Learning Disabilities, a Washington-based advocacy group.  As Congress attempts to reach a federal budget deal by its self-imposed Dec. 13 deadline, education advocates have been pressing to end the $1 trillion in across-the-board sequestration spending cuts. Sequestration cleaved $579 million from federal special education funding under the Individuals with Disabilities Education Act this year -- a figure that may worsen, depending on Congress.  The Individuals with Disabilities Education Act specifies that Congress would pay up to 40 percent of the average that states were spending on each student with disabilities. The closest Congress got to this funding level was in in 2005, when it hit 18.5 percent, and in 2009, when the one-time economic stimulus boosted payments. Since sequestration, Congress has been paying just 14 percent, the lowest in more than a decade, according to the National Center for Learning Disabilities.

Summers: Kids Without Role Models Are Another Recession Casualty - One of the greatest casualties of the prolonged U.S. economic downturn could wind up being a generation of children who aren’t even old enough to work yet.The hangover from the so-called Great Recession means a generation of young workers will find it tougher to move up the career ladder and more middle-aged workers will abandon the workforce and never return. But even young children could suffer the effects, said Harvard University economist Lawrence Summers.“We may be losing yet another generation of kids who don’t have the kind of role models in their parents that they should because of the difficulties their parents are having economically,” Mr. Summers said in an interview Tuesday at the WSJ’s CEO Council in Washington, D.C.When children see their parents working hard, “junior works harder in school, does better in school and is more likely to succeed,” Mr. Summers said. The problem is the reverse scenario. With the unemployment rate at 7.3% in October, down from a peak of 10% during the downturn, plenty of children have witnessed a parent that’s not working. And in turn their work ethic could suffer, Mr. Summers said.

Duncan: ‘White suburban moms’ upset that tests show kids aren’t ‘as brilliant’ - U.S. Education Secretary Arne Duncan told a group of state schools superintendents Friday that he found it “fascinating” that some of the opposition to the Common Core State Standards has come from “white suburban moms who — all of a sudden — their child isn’t as brilliant as they thought they were, and their school isn’t quite as good as they thought they were.”Yes, he really said that. But he has said similar things before. What, exactly, is he talking about?In his cheerleading for the controversial Common Core State Standards — which were approved by 45 states and the District of Columbia and are now being implemented across the country (though some states are reconsidering) — Duncan has repeatedly noted that the standards and the standardized testing that goes along with them are more difficult than students in most states have confronted.The Common Core was designed to elevate teaching and learning. Supporters say it does that; critics say it doesn’t and that some of the standards, especially for young children, are not developmentally appropriate. Whichever side you fall on regarding the Core’s academic value, there is no question that their implementation in many areas has been miserable — so miserable that American Federation of Teachers President Randi Weingarten, a Core supporter, recently compared it to another particularly troubled rollout:You think the Obamacare implementation is bad? The implementation of the Common Core is far worse.

Arne Duncan Doubles Down On “White Suburban Moms” Comment, Promotes Economic Ignorance -- Secretary of Education Arne Duncan has decided to double down on his “white suburban moms” comment concerning the Common Core Standards. Duncan at first said opposition to the Common Core State Standards was interesting because “white suburban moms who — all of a sudden — their child isn’t as brilliant as they thought they were, and their school isn’t quite as good as they thought they were.” It is the kind of condescending attitude one expects from education privatizers. But when confronted with such an amazingly arrogant statement Secretary Duncan only apologized for the “clumsy” phrasing not the sentiment then went on a long diatribe about economics and education that made it clear Duncan had not been properly educated on the subject. [American children] are competing for jobs in India, China, Singapore, South Korea – that’s the competition we all need to come together and help our students be successful there. And the best way to do that is to grade teachers. Fail. Actually two failures. First, that’s not how economics works. Second, there is no evidence “grading teachers” leads to higher standards

Why Are Colleges Seeing Anemic Tuition Growth? - Anemic net tuition growth is plaguing nearly half of the nation’s colleges, according to a Moody’s Investors Service survey released today. The report spells more hard times ahead for a growing segment of the nation’s schools, which are enduring the first significant and prolonged drop in the number of high school graduates in decades. Another drag on college enrollment: a jobs paradox. The uptick in the market for part-time lower wage jobs is weakening enrollment at some schools while poor prospects for college graduates relative to the cost of a degree is softening demand at other schools.The pain isn’t being equally felt. Among Moody’s findings:

–Private schools that Moody’s rated as Aaa in FY 2013 saw a 0.5% uptick in enrollment.
–Schools with Baa were down 0.3%
–Public schools with Aaa bond ratings saw enrollment jump 2.5%,
–Public schools rated Baa: dropped by 0.6%.
All of this means it’s more expensive for schools to retain students. The tuition discount — (the amount a school reduces its sticker price through scholarships and aid) has climbed to a projected 35.2% in 2014 from 30.3% in 2004.

Go Elsewhere, Young Scientist -- It’s hard to measure the economic consequences of sequestration, but surely this is not a good thing:  James E. Rothman, the chairman of the cell biology department at Yale, said Tuesday that he now tells students they should pursue scientific careers in other countries because of inconsistent and declining federal funding for research. “I advise my students not to stay in the United States,” Professor Rothman, who will share the 2013 Nobel Prize in Medicine, said Tuesday during a panel discussion with other American laureates at the Swedish Embassy in Washington. Other members of the panel, which included all nine of the Americans who will receive Nobels this year, echoed his concern that sequestration and the October federal government shutdown were disrupting basic science. “We are systematically disinvesting in scholarship and we are seeing people return to their countries because of the funding problems here,” said Randy Schekman, a cell biologist at the University of California, Berkeley, who will share the Nobel Prize in Medicine with Professor Rothman. “It’s not just in prospect, it’s actual damage that is occurring right now.” Professor Rothman said basic science requires steady and predictable funding. His own prize-winning work, he said, developed over 15 years and was almost entirely financed by the federal government. Professor Rothman said that if he were beginning his career in the United States today, “I might have had the ambition to do what I did, but I would not have the means to see it through.”

Federal Student Loan Profits Help Duncan Cut Education Spending To Lowest Level Since 2001 - In the fiscal year ending Sept. 30, the U.S. Department of Education department reaped more than $42.5 billion in profit from federal student loans, according to federal budget documents. That total was roughly a third higher than in 2012 and the agency’s second-highest ever profit haul after a $47.9 billion gain in 2011, according to a Huffington Post analysis. The Education Department confirmed the 2013 profit figure.  In a sign of just how important student loan profits have become for the Education Department’s bottom line, its reported gains off lending to students and their families over the last year comprised nearly half of the agency’s total outlays, the biggest share since at least 1997. By effectively subsidizing half of the department's total operations -- spending that encompasses programs ranging from early childhood learning to aid for colleges -- the profits have enabled Duncan to reduce his agency’s total cost to U.S. taxpayers to the smallest amount since 2001. Student loan profits, the difference between what the U.S. government pays to borrow and what it charges students and their families, last year exceeded the amount of money provided to low-income college students in the form of federal Pell Grants, budget documents show.

80 is the new 60 when it comes to retirement -- Call it the new American nightmare: Running out of money in retirement is scaring the hell out of record numbers of older workers, forcing them to stay in the workforce. Now 80 is the new 60 when it comes to retirement. Many older workers who finally clock out have sharply underestimated their financial needs in retirement, raising the specter of personal financial disaster. By putting off retirement the Baby Boomers are a large reason for the high levels of unemployment for those looking to enter the workforce. According to the latest Bureau of Labor Statistics the rate of joblessness in people 20- to 25-years old is 12.5 percent, twice the rate of people 25 and older. These Boomers have plenty of company. The American Dream of retirement at 65 is looking more like a pipe dream to many. Nearly half of older workers are on the job longer than they had planned to be — on average, by three more years than they estimated at age 40, according to a recent survey of Americans 50 and over by the Associated Press-NORC Center for Public Affairs Research.

The Washington Post Wants to Kick Seniors Yet Again - The Washington Post thinks its always a good time to beat up seniors. It continually complains that overly generous Social Security and Medicare benefits are the countries greatest problem. It never lets facts stand in the way.It's latest attack tells readers that money going to seniors somehow comes at the expense of money for our kids. This is a loony tune invention of the Fox on 15th Street gang. In the real world, countries that spend a larger share of their GDP on seniors also spend a larger share on their kids. Then the piece tells us:"the poverty rate among the elderly is 9.1 percent, lower than the national rate of 15 percent — and much lower than the 21.8 percent rate among children."  That's nice, but the Census Bureau's supplemental poverty measure, which is a more comprehensive assessment of poverty, shows a far smaller gap with a poverty rate for seniors of 14.8 percent compared with a poverty rate of 18.0 percent for children.However the greatest absurdity of the Post's crusade is that its obsession with austerity and budget deficits is denying income to both the young and old, depriving the country of close to $1 trillion a year (@$3,000 per person) in lost output, according to the Congressional Budget Office.

The Geezers Are Not Alright - Krugman - The Washington Post editorial board wants to cut Medicare and Social Security. what it advocates, always, are cuts in benefits, not costs — that is, while it may give lip service to efforts to control health-care costs (which seem to be going surprisingly well, in one of the untold success stories of Obamacare), what it has pushed repeatedly are things like a rise in the Medicare age. And as you might imagine, the Post has gone wild over recent suggestions that Social Security should be expanded, not cut.. We now know that raising the Medicare age is a truly terrible idea, which would create a lot of hardship while making next to no dent in the budget deficit. And the central premise of the latest editorial — that the elderly are doing fine — just isn’t true.The Post writes:The bill’s authors warn of a looming “retirement crisis” because of low savings rates and disappearing private-sector pensions. In fact, the poverty rate among the elderly is 9.1 percent, lower than the national rate of 15 percent — and much lower than the 21.8 percent rate among children.This suggests that Social Security is doing a good job of fighting poverty as is and that those gains could be preserved in any attempt to trim the program.  It’s well-known that the official poverty measure is quite flawed, for a variety of reasons — and it’s especially flawed when it comes to the elderly, who — even with Medicare — tend to have a lot of medical expenses and in other ways aren’t as well off as the official numbers suggest. The Census Supplemental Poverty Measure puts senior poverty at 14.8 percent, only slightly lower than the rate for younger adults.

Social Security: the Shape of Solvency - The above figure is II.D6 from the 2011 Social Security Report. The reasons why I didn’t use the 2013 version will become clear later, short version is it doesn’t show ‘The Shape of Solvency’ while the longer version is, well, long. This figure shows the projections of three different economic and demographic models for Social Security expressed in terms of Trust Fund Ratio where 100 = next year’s projected cost. Now Trust Fund Ratio is in some ways an odd beast because it is to some extent after the fact yet also prospective. This is because it reports Trust Fund balances AFTER the calculation of current revenue minus current cost and does so in terms of NEXT year’s cost. And we can discuss the arithmetic of this in comments, for now let me just assert that there is a good reason to measure Solvency in terms of Trust Fund ratios even in a system that operates on a Pay-Go basis. The Trustees measure ‘solvency’ in terms of ‘actuarial balance’ over periods of time including ‘short term’ (10 years), ‘long term’ (75 years) and ‘infinite future’. Figure II.D6 shows a combination of a prospective ‘long term’ 75 years and twenty retrospective years for 95 years total. This 95 year period also happens to cover the entire lifespan of nearly everyone in the workforce today. The three graphed lines going forward represent three different economic and demographic models where I represents the projection of ‘Low Cost’, III the projection of ‘High Cost’, and II the projection of ‘Intermediate Cost’.

Pernicious Ingnorance About Social Security  - Bruce Krasting, in comments to Bruce’s post on Social Security, made a number of claims that deserve a fuller answer than I was able to give in comments.  Below in quotes are Krasting’s claims followed by my replies.  I hope I am reasonably clear. (Krasting said) “I could list numbers showing how things have deteriorated at SS… every measure of solvency has gone downhill.” No.  “Solvency” is not an issue with Social Security.  SS is not a business, much less a business that borrows money or has bills to pay.   The “numbers” you are thinking of are “projections,”  that is, guesses.  And, again, they have nothing to do with SS “solvency.” “Actuarial solvency” is merely a projection that if taxes remain as they are and the benefit schedule is unchanged the Trust Fund will fall to a reserve  below 100% of one year’s benefits.  This is a “warning” that taxes may need to be raised or benefits may need to be cut.  This is a largely meaningless statement unless someone knows “by how much.” We have used the same projections as the Social Security Trustees and found that a tax raise of about eighty cents per week per year for each worker, matched by his employer, would avoid any need for benefit cuts, and avoid any future “actuarial insolvency.”  The Trustees avoid referring to this number; instead they choose to report their “actuarial insolvency” in misleading, alarming terms:  “8.6 Trillion Dollars (present value) over 75 years.”  Well, that’s where the eighty cents per week (also present value) comes from.  It’s “just arithmetic.” 

The Social Security Trust Fund surplus was never going to be locked untouched in a vault - My post Monday was picked up by Doug Short and posted at his investment site, where it got a very different readership from here.  One of the readers contacted me, and repeated the claim that the Social Security Trust Fund is fictional.  My reply included a point I've never heard anybody else make, but needs to be understood:  of course the SS Trust Fund surplus was spent, and should have been spent.  The only question was who decided how it was spent, and so who had to cash in the investments when the Boomer generation retired.  Does anybody seriously believe that the excess paid into SS since 1983 should have been locked away in a vault or an underground cave, unused?  Can you imagine just how badly the economy would have performed in the last 30 years if, literally, trillions of dollars had been withdrawn from it (not to mention the multiplier effect of that withdrawal)? Of course the SS surplus should have been invested back into the economy.  The only two questions were, first, who was to act the fiduciary of those funds?  Anybody think, in retrospect, Wall Street would have been a good choice?   What actually happened is that, instead of banks or private enterprises investing the funds, government invested the funds in the general economy, and promised to pay the money back - exactly what would have happened had private firms invested the money.  They would have had to promise to pay the money back.

Social Security and Secular Stagnation - Paul Krugman - A brief thought inspired by the suddenly prominent debate over secular stagnation. If we accept the secstag hypothesis — and it’s really amazing how fast the debate is moving here — one answer is to accept the need for a persistently negative real interest rate. And this means a higher inflation target. As Brad says, the chief economist of the IMF has come pretty close to making that case, although he has said similar things before.  Another option, however (or a complementary option) would be to follow up on another surprising notion that is suddenly gaining traction: expanding, not cutting, Social Security. If you have been around long enough, you know that one of the things that originally made Martin Feldstein’s reputation was his claim that Social Security, even if solvent, had a strongly negative effect on saving. This was based on a life-cycle argument: if you believe that much saving is undertaken by working-age people preparing for their senior years, giving them a guaranteed retirement income should displace much of this saving. The empirical evidence Feldstein presented in support didn’t hold up very well — in fact, the results were driven in large part by, er, a programming error. Still, suppose his logic was right?  Well, in 1974, when Feldstein published his alleged results, depressing saving looked like a bad thing. In 2013, in an economy mired in the paradox of thrift and quite possibly set to remain stuck there for a long tiime, it could be just what we need.

Elizabeth Warren and Social Security - Senator Elizabeth Warren says it well:  Transcript is found at Floor Speech by Senator Elizabeth Warren The Retirement Crisis November 18, 2013 As Prepared for Delivery.

Expanding Social Security, by Paul Krugman - For many years there has been one overwhelming rule for people who wanted to be considered serious inside the Beltway. It was this: You must declare your willingness to cut Social Security in the name of “entitlement reform.” But a funny thing has happened in the past year or so. Suddenly, we’re hearing open discussion of the idea that Social Security should be expanded, not cut. Talk of Social Security expansion has even reached the Senate, with Tom Harkin introducing legislation that would increase benefits. A few days ago Senator Elizabeth Warren gave a stirring floor speech making the case for expanded benefits. Where is this coming from? One answer is that the fiscal scolds driving the cut-Social-Security orthodoxy have, deservedly, lost a lot of credibility over the past few years. Beyond that, America’s overall retirement system is in big trouble. ... Many workers used to have defined-benefit retirement plans, plans in which their employers guaranteed a steady income after retirement. Today, however, workers who have any retirement plan at all generally have defined-contribution plans — basically, 401(k)’s. The trouble is that at this point it’s clear that the shift to 401(k)’s was a gigantic failure. Employers took advantage of the switch to surreptitiously cut benefits; investment returns have been far lower than workers were told to expect; and, to be fair, many people haven’t managed their money wisely.

Kevin Drum and the Retirement Crisis: Eye on the Ball? - Kevin Drum poses a reasonable question about the existence of a retirement crisis in a recent blogpost. He notes that retirement income projections from the Social Security Administration's MINT model show income for older households rising from 1971 to the present, while incomes for those in the age 35 to 44 were nearly stagnant.  Kevin's conclusion is that we are wrong to spend a lot of time worrying about retirees, and would be wrong to consider increasing Social Security taxes on the working population to maintain scheduled benefits for Social Security recipients. While the story of rising income for retirees is correct, there are several points to keep in mind. First, the main reason that income for the over 65 group has risen is that the real value of Social Security benefits has risen. Social Security benefits are tied to average wages, not median wages. . Since the average wage includes these high end earners, benefits will rise through time, pushing up retiree incomes. For the median household over age 65 Social Security benefits are more than 70 percent of their income, so the story of rising income is largely a story of rising Social Security benefits. However even with this increase in Social Security benefits, replacement rates at age 67 are projected to fall relative to lifetime wages (on a wage-adjusted basis) from 98 percent for the World War II babies to 89 percent for early baby boomers, 86 percent for later baby boomers and 84 percent for GenXers.  It is also important that the over age 65 population on average has a considerably longer life expectancy today and in the future than was the case in 1971. In 1971 someone turning age 65 could expect to live roughly 16 years, today their life expectancy would be over 20 years.

How is your retirement nest egg progressing?? 14.5 million? Fix the Debt and Business Rountable - CEOs at the forefront of the drive to slash Social Security possess personal retirement funds worth an average of $14.5 million, and three have nest eggs worth more than $100 million. That’s according to a new report by two Washington-based research groups – the Institute for Policy Studies and the Center for Effective Government. Fix the Debt is a PR and lobby machine launched in 2012 and led by more than 135 CEOs of major corporations. Seeking broad public support, this campaign has publicly couched their calls for reduced spending in vague euphemisms like “protecting and strengthening Social Security.” The Business Roundtable, a 40-year-old association made up of about 200 CEOs of America’s largest corporations, has not attempted to sugarcoat their draconian agenda. They are calling for an increase in the Social Security retirement age to 70 and a change in inflation calculations that would further reduce benefits. Meanwhile, Business Roundtable and Fix the Debt CEOs are sitting on massive nest eggs of their own. This report focuses on the retirement funds of Business Roundtable members, but the two groups have considerable overlap. More than half of the Roundtable’s Executive Committee members and a quarter of their total members are affiliated with Fix the Debt.

CEOs Seeking to Slash Social Security Stumble Over Their Own Hypocrisy - Billionaire Pete Peterson once thought it would be a good idea to make rich CEOs the public face of his long-standing campaign to slash Social Security. Guys like Lloyd Blankfein of Goldman Sachs and GE’s Jeffrey Immelt have indeed won many a battle in Washington. And so it was perhaps understandable for Peterson to assume these corporate chieftains could deliver victory on austerity. But as Congress heads toward yet another budget showdown, America’s most powerful CEOs are finding that their enormous wealth can also be a double-edged sword.Last year Peterson put up the initial $5 million to create the Fix the Debt campaign, a PR and lobby machine led by more than 135 CEOs of major corporations. Honeywell CEO David Cote says he organized fellow corporate leaders to chip in the rest of the organization’s $45 million initial budget. With that kind of dough, you can hire a lot of hot shot Mad Men. But even Don Draper would have a hard time glossing over the flaws in the Fix the Debt model. Its central theme:  “Shared sacrifice” is needed to save America from fiscal Armageddon. But how do you pull off broadcasting that message when your CEO spokespeople have retirement fortunes larger than the operating budgets of most mid-size American cities?

Real Entitlement Reform - Paul Krugman - Remember all the pundits who stroked their chins, pretended to deliberate, then — completely predictably — came out against health care reform because, they said, it wouldn’t control health care costs? Remember all the demands that Obama do something real, like raising the Medicare age (which turns out not to make any significant difference to the deficit)? Now, from the CEA, we have this: The CEA is careful not to claim too much — there’s pretty good evidence that the ACA has played an important role in the cost slowdown, but they don’t assign any particular number. Still, it looks as if the biggest complaint against Obamacare was completely wrong: cost control is one of the things that is really, really working, with huge positive fiscal implications. If they get the enrollment process working — it’s getting better, but we still don’t know if it’s moving fast enough — this is still going to go down in the long run as a policy triumph.

Social Security and Elderly Poverty -- I very much appreciate Paul K, Sens Harkin and Warren, and others who are putting an expansion of Social Security on the table.  Relative to fighting about cuts to the stalwart retirement program, that’s called “playing offense,” and given that Social Security is the most solid leg of the three-legged retirement stool (Soc Sec, pensions, savings), strengthening the program makes a lot of sense. But I wanted to elaborate one point from Paul’s oped this AM.  He points out that one argument against expanding benefits is that the elderly poverty rate in already relative low, at about 9%.  But his argument here is that measured correctly, the elderly poverty rate is actually about 15%, and as pensions continue to deteriorate, it will go higher. But IMHO, the best argument here is in the figure below.  Social Security itself is the reason the official elderly poverty rate is 9%; absent those benefits, the rate would be 44%! So, whether we’re talking about expanding the program for those who need it the most, or preserving it against those who would whack at it through benefit cuts or privatization, keep this figure in mind.  In an era when people are questioning whether the government can run large, effective, efficient social insurance programs, Social Security stands out as an extremely strong affirmative answer.

Florida in secret talks to accept funding for Medicaid from Affordable Care Act - Some health professionals believe the amount of money on offer and the fact that the Republican party benefits from campaign contributions by the health insurance industry means that Florida is likely to find a way take the funding provided by the Affordable Care Act. It would join a number of states with Republican-dominated legislatures, including Arkansas, Iowa and Wisconsin, to exploit a provision in the ACA that allows them to take the additional cash by providing an alternative to the public Medicaid program. Donna Shalala, secretary for health and human services under Bill Clinton and now president of the University of Miami, told journalists at a meeting convened by the Kaiser Family Foundation in Miami this week that Republicans in the state would find a way to get over their political opposition to the ACA, also known as Obamacare. “When people say to me, is Florida ever going to come around, my answer is yes, because a billion dollars is on the table and the stakeholders are big contributors to the Republicans – to the party. They understand that it will be a major economic investment in the state and they are just trying to figure out a way around the ideology in the conversations that are going on,”

New York Won’t Make Obamacare ‘Fix’ - Governor Andrew Cuomo revealed that New York will not implement President Obama’s proposed “fix” to allow insurance companies to renew previously canceled plans. Because his state’s launch has been working better than the national one, he doesn’t “see any reason to change it now.” Since the president announced the new plan last week in light of weeks of criticism for his misleading promise that people could keep their insurance policies, states have been split on accepting his proposed solution. Several have rejected the “fix,” such as Massachusetts and Washington, saying that because state regulators and insurance commissioners have already implemented the necessary changes to comply with the law it’s too late to go back and offer the plans again.

California latest state to rule on Obama insurance plan  -- With California's refusal Thursday, two of the nation's most populous states are bucking President Obama's plan to permit Americans to keep current low-benefit individual health insurance policies for another year, if they want them. The Covered California Board, which oversees the state's health insurance exchange under the Affordable Care Act, voted unanimously Thursday not to allow renewal for 2014 of about one million health insurance policies cancelled because their coverage does not meet federal standards under the new law. The 5-0 decision reflected its view that "extending the deadline offers no benefit to the consumer and may create confusion about accessing affordable health care coverage,'' the board said in a statement. "There's no way to make the federal law work without this transition to ACA-compliant plans," "Delaying the transition isn't going to help anyone; it just delays the problems. I actually think that it's going to make a bad situation worse if we complicate it further." So far, only 12 states have agreed with Obama's recent proposal to allow those with canceled policies extend them for another year. Others, including California and New York, have declined, saying the old policies don't meet the law's requirements and allow insurance companies to offer coverage only to the healthy.

Health reform’s problems run deeper than a glitchy website -- Serious problems with the websites created by the Affordable Care Act continue, and probably will for a long time. Although frantic efforts at incrementally improving them are being made by the Obama administration, and some sites are working better than others, they are a long way from working well. As I’ve written before, the causes of the website’s problems are far more serious than poor software design. They are baked into the law by its extreme complexity. There is growing frustration and anger at the administration in Congress from both Democrats and Republicans. Much of it is being expressed by the same people whose hypocrisy and obstructionism is responsible for a failure to do the right thing in the first place. Calls from members of Congress to delay the ACA’s implementation or to repeal it entirely will intensify. Instead of expanding our existing Medicare program, which has been working well for almost 50 years and is our country’s most efficient and least intrusive health care financing program, the ACA creates complex new law that perpetuates and reinforces the chaos and confusion of our hodgepodge of public and private insurance programs. Coverage and financial assistance continue to depend on an individual’s employment status, income, place of residence, age, conjectures about future health status, and many other factors, some of them subject to change with little or no warning and many impossible to predict.

Right wing cyber attacks on Healthcare.gov website confirmed - Yesterday, the House Homeland Security Committee published a video on their Youtube page highlighting a portion of the committee questioning Roberta Stempfley, acting assistant secretary of the Department of Homeland Security’s Office of Cyber-security and Communications, who confirmed at least 16 attacks on the Affordable Care Act’s portal Healthcare.gov website in 2013. Roberta Stempfley highlighted one successful attack that is designed to deny access to the website called a Distributed Denial of Service (DDoS) attack. A DDoS attack is designed to make a network unavailable to intended users, generally through a concerted effort to disrupt service such as repeatedly accessing the servers, saturating them with more traffic than the website is designed to handle. Right wingers have been distributing the link to the necessary tools to perform the attacks on the Healthcare.gov website through social networking, as pointed out by Information Week, and other websites . "Destroy Obama Care!", that's the advertised name given to the attack tool by "right wing patriots" who are distributing the DDoS tool through downloads on social networks, which promises to overwhelm the Healthcare.gov website. "This program continually displays alternate page of the ObamaCare website. It has no virus, Trojans, worms, or cookies. The purpose is to overload the ObamaCare website, to deny service to users and perhaps overload and crash the system," reads the program's grammar- and spelling-challenged "about" screen. "You can open as many copies of this program as you want. Each copy opens multiple links to the site."

The Not So Bad PPACA Numbers - Greg Sargent as reported on Crooks and Liars – How the Obamacare numbers actually look pretty good picks up on what the numbers to date mean for the PPACA. So what is the big deal??? “Republicans are gleefully pointing to the numbers as proof Obamacare needs to be scrapped entirely. That confirms two things we’ve long known to be true: the website is a disaster, and short term enrollment figures are a serious political problem for the White House and Democrats. But to Larry Levitt, a vice president at the nonpartisan Kaiser Family Foundation, another very telling number is this one: over 975,000 have been determined eligible for a marketplace but haven’t yet chosen a plan. ‘That’s one of the most telling numbers — a million people have been determined eligible,’ Levitt tells me. ‘That means if the website had been working well, and a million people had gotten to the end of the process, we’d be looking at a very different trajectory now. We heard about the surge in traffic when HealthCare.gov went live. This suggests there is in fact a lot of interest.’”We can establish the PPACA website which was more or less designed as a backup to expected state run exchanges and did not function as expected. We can also safely say > half of the states who were supposed to have systems in place declined to implement state exchanges much less pass the PPACA. . Even so, the federal exchange was never meant to handle the traffic which showed up at its doorstep due to obstinate political and moneyed interests (such as in Michigan) who are more interested in seeing a President in failure than helping their constituents. 20 years since Hillarycare and little has happened to help the uninsured or stem the rising cost of healthcare (sans insurance).

What the Obamacare Rollout Means for the Healthcare Business -  Which health and medical businesses stand to gain and lose from the faulty roll out of Obamacare? I discussed the topic this week on WNYC’s Money Talking, with the New York Times columnist Joe Nocera. Our contrarian consensus—the biggest short-term loser will be the insurance companies. They rarely garner anyone’s sympathy, but they’ve already set their premium pricing for 2014—so if the flawed rollout results in fewer people, and sicker people signing up, there’s a good chance they’ll loose money. That would likely mean higher premiums the following year—and fewer and sicker people signing up. It’s a cycle called the death spiral—and it’s what everyone involved in the rollout has been dreading. To hear more about this, and the other business implications of the Affordable Healthcare Act, check out this week’s episode of Money talking, here:

HealthCare.gov goal is for 80% of users to be able to enroll for insurance - The Obama administration will consider the new federal insurance marketplace a success if 80 percent of users can buy health-care plans online, according to government and industry officials familiar with the project. The goal for how many people should be able to make it through the insurance exchange is an internal target that administration officials have not made public. It acknowledges that as many as one in five Americans who try to use the Web site to buy insurance will be unable to do so. Whether the government meets the benchmark — and whether the public regards it as adequate — will be a central factor in President Obama’s efforts to increase support for the controversial health-care law and lure customers to the federal insurance marketplace.  The goal is that 80 percent of people going to HealthCare.gov should manage to enroll electronically — but that means that many others, perhaps tens of thousands, will not succeed. It puts more pressure on the administration to fix technical problems that have made it difficult for people to sign up for coverage by other routes, including federally sponsored call centers and the insurers themselves.

This Slide Shows Why HealthCare.gov Wouldn’t Work At Launch - NPR

Tension and Flaws Before Health Website Crash - Interviews with current and former Obama administration officials and specialists involved in the project, as well as a review of hundreds of pages of government and contractor documents, offer new details into how tensions between the government and its contractors, questionable decisions and weak leadership within the Medicare agency turned the rollout of the president’s signature program into a major humiliation. The online exchange was crippled, people involved with building it said in recent interviews, because of a huge gap between the administration’s grand hopes and the practicalities of building a website that could function on opening day. Vital components were never secured, including sufficient access to a data center to prevent the website from crashing. A backup system that could go live if it did crash was not created, a weakness the administration has never disclosed. And the architecture of the system that interacts with the data center where information is stored is so poorly configured that it must be redesigned, a process that experts said typically takes months. An initial assessment identified more than 600 hardware and software defects — “the longest list anybody had ever seen,” one person involved with the project said. When the realization of impending disaster finally hit government officials at the Aug. 27 meeting — just 34 days before the site went live — they threw out nearly 30 requirements, including the Spanish-language version of the site and a payment system for insurers to receive government subsidies for the policies they sold.

In States Where the Website Works, Obamacare Works Too - From the LA Times: A number of states that use their own systems, including California, are on track to hit enrollment targets for 2014 because of a sharp increase in November, according to state officials. "What we are seeing is incredible momentum," said Peter Lee, director of Covered California, the nation's largest state insurance marketplace, which accounted for a third of all enrollments nationally in October. California — which enrolled about 31,000 people in health plans last month — nearly doubled that in the first two weeks of this month. Several other states, including Connecticut and Kentucky, are outpacing their enrollment estimates, even as states that depend on the federal website lag far behind. In Minnesota, enrollment in the second half of October ran at triple the rate of the first half, officials said. Washington state is also on track to easily exceed its October enrollment figure, officials said. It really is all about the website. In places where it's working, people are signing up and are pretty happy with what they're getting. Rate shock is an issue for a few of them, but not for a lot. The bottom line is the Republican Party's worst nightmare: Once Obamacare has been up and running for a while, it's going to be pretty popular.

Tech chief: 40% Obamacare work left -  A key player in the Obamacare website’s creation acknowledged Tuesday that up to 40 percent of IT systems supporting the exchange still need to be built. The revelation from Deputy Chief Information Officer Henry Chao of the Centers for Medicare & Medicaid Services occurs as the administration works at its Nov. 30 deadline to shore up the website. “It’s not that it’s not working,” Chao told lawmakers at an Energy and Commerce Oversight and Investigations subcommittee hearing. “It’s still being developed and tested.” Financial management tools remain unfinished, he said, particularly the process that will deliver payments to insurers. A Health and Human Services source said the health plans can receive the payments consumers make when they enroll. The system isn’t yet ready to deliver federal subsidies to insurers. The update hits hardest at Democrats, who hoped the system would function smoothly by the end of the month. It also concerned insurers, who expressed worries Tuesday with Chao’s disclosure. Many of the back-end systems were meant to come online in December, so the agency hasn’t missed those deadlines yet. But the extent of the problems with HealthCare.gov are fueling doubts that the systems will be ready when they’re needed.

Obamacare bombshell: IT official says HealthCare.gov needs payment feature - Another day, another big, bad black eye for HealthCare.gov. A crucial system for making payments to insurers from people who enroll in that federal Obamacare marketplace has yet to be built, a senior government IT official admitted Tuesday.  "We still need to build the payments system to make the payments [to insurance companies] in January," testified Chao, deputy chief information officer of the Centers for Medicare and Medicaid Services, the federal agency that operates HealthCare.gov. That so-called financial management tool was originally supposed to be part of HealthCare.gov when it launched Oct. 1, but officials later suspended its launch as part of their effort to get the consumer interface part of the site ready. The tool will, when it works, transmit the subsidies that the government is kicking in for many enrollees to offset the costs of their monthly premiums. Chao on Tuesday said other areas that need to be built include "the back-office systems, the accounting systems." He testified that the consumer interface part of that website, which enrolls people in Obamacare insurance plans, is totally built. The revelation that the insurers' payment tool wasn't yet built startled some observers. "That's like setting up an online bank without setting up a way to make deposits," an industry source told CNBC.

Obamacare website developers rush to fix bug suggesting hacking methods - A flaw in the website of President Obama's flagship Affordable Care programme has left the site and its users vulnerable to hacking, the Guardian has discovered. Healthcare.gov has been unknowingly recording hack attempts through its search box and re-presenting the code as automatically completed options. The bug could invite hackers to plant malicious code, which could then infect users' computers, but while site managers have removed the most obvious mistakes, several serious flaws remain and attacks continue to be suggested to users. Although most of them are harmless, some saved options present the possibility of further attacks using a flaw known as "cross site scripting", or XSS. If visitors to Healthcare.gov type a semicolon (;), apostrophe (') or less-than sign (<) into the search box, they are presented with a list of the most popular searches beginning with those characters. That includes a variety of terms used in hacking techniques such as XSS and SQL injection attacks; both types of attacks involve forming a search term in such a way that the target interprets it as a command.

Here's Why Insurers Probably Won't Go Along With Obama's Obamacare Fix - Last week, President Barack Obama announced a fix for the millions of Americans who have received health insurance cancellation notices. Insurers will now have another year to offer plans that don't comply with the Affordable Care Act. Seven major health insurers—including United Health Group, Humana, and Kaiser Permanente—tell Mother Jones they're not sure what they'll do yet, and are waiting for direction from state insurance commissioners, many of whom have yet to decide whether they'll back Obama's idea. But health care experts say it's likely that many insurance companies will not adopt Obama's fix, because doing so would be an administrative hassle and create uncertainty, costing insurers money. "Insurers want certainty, set rules, and the ability to…set prices…and make a profit," Obama's fix, which will have to be implemented before the end of the year, messes with all that. Because nothing like the Obamacare fix has happened before, it will be difficult for insurers to anticipate which of their customers might want to keep their old plans.  Without being able to predict the age and health of the people who will decide to keep their plans, insurers will have a difficult time setting premium rates.

The Obamacare time bomb - There is an Obamacare time bomb set to go off just before the 2014 midterm elections — and President Obama’s purported “fix” for the millions of Americans losing their health insurance doesn’t defuse it. If anything, it could make the blast worse. In truth, Democrats are damned if Obama’s fix works and damned if it doesn’t.  For three years, at Obama’s direction, insurers and state regulators have been planning to cancel millions of individual market plans and move those people into the Obamacare exchanges at the end of this year. That process cannot be easily reversed six weeks before the transfer was to take place. Insurers did not negotiate prices with doctors and hospitals, or put plans through the state regulatory process. There is no magic wand the president can wave to suddenly reinstate canceled plans. If Obama’s fix fails, a humanitarian disaster will ensue. Come Jan. 1, millions of Americans could find themselves without the health coverage Obama promised they could keep. Suddenly, the horror stories we are hearing today of people getting cancellation letters will be replaced by horror stories of cancer patients having their treatment disrupted and sick children being cut off from their doctors and hospitals. The outrage Americans are expressing today will pale by comparison to the outrage that will ensue when people who had insurance before Obamacare can’t get medical care they are accustomed to because they lost their plans.

Obamacare Pits the 50% Against the 49% - Michael Olenick - Buried on CNN’s website is a story about an early Obamacare success, Jessica Sanford, a court reporter in Washington State. Jessica was so elated to receive an initial quote for $198 for a gold plan that covered her and her son she wrote to Obama, who quoted her.  Later, it turned out that thanks to software mistakes she actually faced a much higher premium for a worthless bronze plan. Now, Jessica says convincingly, she will have to remain uninsured. That’s because the state website provided estimates showing that she would receive a subsidy but she has since gotten a letter that says the opposite. So she has said she will pay a tax penalty that she believes will be $95.  I hate to be the bearer of even worse news but she’s the penalty is actually 1% of her income, which means she must make at least a frothy $62,040 a year (400% above poverty for a family of two). Clearly this woman is rolling in dough – a regular Donald Trump sans the bankruptcies – and deserves to pay jacked up prices for lousy insurance to subsidize those less well off than she is.  This is the sorry state of the Affordable Care Act, the ultimate betrayal of the self-employed middle class who are supposed to magically produce income to single-handedly support those who are uninsurable. As I demonstrated in prior articles this promise, when objectively judged, borders on sadistic. Politicians must have looked towards the student loan system for inspiration and forgotten to tell the public this was their goal. In that system students from families of about the same “rich” income bracket – in Jessica’s case a high-flying $62,000 a year for a family of two – are forced to take out loans so those slightly poorer can go to school for free, or to skip school altogether.

Just how many Americans will really have their health insurance affected by Obamacare? -- Jonathan Gruber, an Obamacare architect, claims that 80% of the population – mostly those with employer-sponsored health insurance coverage—will be “unaffected by Obamacare.” AEI economist Stan Veuger disagrees: “The only people who are certainly completely unaffected are those whose plans will be ‘grandfathered’ into Obamacare. By the administration’s own estimates, only half of those with employer plans fall into this category even now. Many non-grandfathered plans, especially in the small-group market, will be affected significantly” AEI’s Scott Gottlieb, a former senior adviser to the Centers on Medicare and Medicaid Services, says “Starting in October 2014, many employees of small businesses will start getting the same notices that are now being mailed to individuals, informing [them] that their existing health plans are also being cancelled.” Small business owners will be faced with two options: “Find another policy that’s compliant with Obamacare, but [with up to 50% higher premiums]. Or put their employees into the Obamacare exchange.” So what do the numbers look like? Based on the administration’s own estimates from 2010, Veuger projects that tens of millions of people with employer-based insurance policies will be ‘affected’ by Obamacare, their plans either modified or cancelled. A far cry from Professor’s Gruber’s claim that only 9 million Americans, “three per cent of the population, will have to buy a new product that complies with the A.C.A.’s more stringent requirements for individual plans.”

Older staffers see ObamaCare costs eat paychecks -- Older congressional staff say their out-of-pocket healthcare costs will rise three or four times after they enter the ObamaCare insurance exchanges. The economic shock has led Democratic chiefs of staff to call for changing the rules so that their staffers won’t take the economic hit. The chiefs of staff have expressed support for a change that would allow congressional offices to reclassify their workers as nonofficial staff so that they can avoid the higher costs. “Simply unaffordable,” Minh Ta, chief of staff to Rep. Gwen Moore (D-Wis.), wrote in an email to fellow Democratic chiefs of staff on Thursday afternoon. Ta’s email, sent to other House Democratic chiefs of staff, said staffers above the age of 59 felt a “shock to the system” upon seeing plan prices on the District of Columbia's new insurance marketplace. At issue are employees designated as “official office staff.” That designation placed them in D.C.’s ObamaCare marketplace.

Democrats are screwed next year if they can’t figure this out - I’ve noticed that a lot of partisan Democratic blogs have kinda sorta stepped away from the relentless cheerleading of the ACA. Now, the message is, “Well, the GOP plan is nothing so Obamacare *HAS* to work”. I’m guessing that a lot of researchers have been there. You spend months, years on a project and the sucker just refuses to go anywhere. There are no breakthroughs. Generally, it’s the biologists’ fault but what are you going to do? You don’t want to abandon the project so you keep propping it up. Unless you have a really talented project leader who can reassess and has the courage to take a new approach, the project is doomed to being terminated the next time it comes up for review. That would be 2014. Look, guys. I’m talking to YOU, Democrats. I don’t know what your project manager has been telling you but if you don’t get your shit together and offer a radical and effective alternative to the ACA, you’re all going to be laid off in the next round of restructuring. You may get laid off anyway because that’s just the way things go these days. There’s always some political asshole gunning for your job and trying to steal credit. But as long as you are employed, you might as well do your f&*(ing jobs.

Whoops! Obamacare turns out to be great deal personally for Boehner - Thanks to a Republican amendment to the Affordable Care Act, most members of Congress will see their government-provided health insurance lapse at the end of the year, leaving many of them no other choice but to enroll in dreaded Obamacare.As speaker of the House, Boehner is technically exempt from the requirement, but in order to avoid accusations of special treatment he decided to take the plunge, too. And he wants you to know how difficult it was. He even wrote a blog post about it. “Earlier this afternoon, I sat down to try and enroll in the DC exchange under the president’s health care law,” he wrote. “Like many Americans, my experience was pretty frustrating. After putting in my personal information, I received an error message. I was able to work past that, but when I went to actually sign up for coverage, I got this ‘internal server error’ screen”:  It’s a bummer Boehner got that error message. Tyranny almost. But if he’d reached the point at which he was signing up for coverage, it means he’d already had a chance to shop around and pick a plan. His post is oddly quiet about that part of the experience. Which is curious. As a 64-year-old heavy smoker, it’s a marvel Boehner will be able to purchase individual market coverage at all. The cheapest policy for a 64-year-old is a high-deductible, bronze-plated BlueCross BlueShield plan with a $372.14 premium.

Will hospitals buy ACA insurance for their uncovered patients? - US hospitals are exploring ways to buy “Obamacare” insurance plans for their sickest and poorest patients as they strain under the weight of tens of billions of dollars in uncompensated costs from the uninsured. But the move is opposed by the Obama administration and insurers, who fear it could add to the turmoil surrounding the new healthcare marketplace. …Both the White House and insurers are concerned that if hospitals started paying for insurance for certain chronically ill patients, it will skew the insurance risk pool for the new healthcare exchanges, created under the Affordable Care Act. The exchanges need to attract at least 2.7m healthy and young people, out of 7m that were estimated to join the exchanges by March 2014, in order to keep monthly premiums low. Ms Hatton said the prospect of buying health insurance for patients has become especially important in Republican-controlled states that have decided not to expand the federal insurance programme for the poor, known as Medicaid. From the FT, here is more.

Another Lurking Obamacare Problem: Balance Billing - Yves Smith - One of the proofs that Obamacare is really about helping insurers and Big Pharma rather than ordinary Americans is its failure to do much about the seamy practice known as balance billing.  Say you have a scheduled procedure, like getting a stent. Like most Americans who have health insurance, you are in an HMO or a PPO. Your doctor, who is in your network, schedules you for the operation at a hospital in your network. You assume the only thing you need to worry about is a fairly minor co-pay and recovery. But weeks later, you find that the anesthesiologist wasn’t in your network, and you are hit with a $12,000 bill for his services. And this sort of scamming (hospitals knowingly putting people on a surgical team that they can bill at huge premiums to negotiated rates) is routine. And of course, if the ambulance takes you to an emergency room that is not in your network, the outcome can be catastrophic. Some examples of typical bad outcomes, the first from Families USA: A 2010 report by America’s Health Insurance Plans said out-of-network providers often charge exorbitant rates, as high as 70 times the Medicare reimbursement for a similar service. A report issued by New York State in March cited the case of a patient who went to an in-network hospital emergency room after severing his finger in a table saw accident. The finger was reattached by a nonparticipating plastic surgeon, and the bill was $83,000. The insurer estimated the going rate for the procedure was only about $21,000. A story in the New York Times from October shows how vulnerable patients are in emergency situations, even in in-network hospitals: Once the cardiologist figured out why Raquel and Michael D’Andrea’s 9-week-old daughter was so frail and unable to eat, he immediately sent her to the hospital for heart surgery… Ms. D’Andrea knew she had already selected a comprehensive plan a few years earlier. She gave her insurance card to the hospital staff, but her daughter, Sienna, was ultimately treated by several doctors who were not in their plan’s network.The bills were so numerous and complex that the New York Times story didn’t provide a total.

The State of Obamacare - Paul Krugman - I haven’t been writing about the healthcare.gov thing, for the simple reason that I have nothing to say. What’s going on isn’t a policy question: we know from the states with working exchanges (including California) that the underlying structure of the law is workable. Instead, it’s about an implementation botch, which is an incredible mess, and reflects very badly on Obama. But the future of the reform depends not on policy per se but on whether the IT issues can be fixed well enough soon enough, a subject on which I have zero expertise. But at this point there’s enough information coming in to make semi-educated guesses — and it looks to me as if this thing is probably going to stumble through to the finish line. State-run enrollments are mostly going pretty well; Medicaid expansion is going very well (and it’s expanding even in states that have rejected the expansion, because more people are learning they’re eligible.) And healthcare.gov, while still pretty bad, is starting to look as if it will be good enough in a few weeks for large numbers of people to sign up, either through the exchanges or directly with insurers. If all this is right, by the time open enrollment ends in March, millions of previously uninsured Americans will in fact have received coverage under the law, and reform will be irreversible.

This chart is amazing news for our health cost problem - This just might be my favorite chart about health care costs as of late. And it's one that contains billions of dollars' worth of good news! The chart, from the Council of Economic Advisers, shows the Congressional Budget Office constantly revising downward how much it thinks the federal government will need to spend on health care costs over the next decade. That's because health care costs have been growing a lot more slowly over the past few years than they typically do. You can see that below, with a breakdown of health care cost growth by source of coverage.In private insurance, the average spending growth rate per person has slowed a lot over the last few years. In Medicare, there was no spending growth between 2010 and 2013 and, in Medicaid, per person costs actually decreased some.All told, health care costs have been growing more slowly over the last three years than any other time period since 1965. More recently, yearly health cost growth slowed from an average rate of 3.9 percent between 2000 and 2007 to 1.3 percent between 2011 and 2013.

Why Healthcare in America Is So Expensive - America spends 19% of its gross domestic product on healthcare. The rest of the developed world spends around 11% to 12% and countries like Singapore, which have high quality care, spend around just 5%. The question for so many is, why? Why does America spend more and have worse health outcomes? And how are healthcare costs affecting our national competitiveness and economic growth? To find out, watch TIME economic columnist Rana Foroohar discuss the topic with some of the world’s top healthcare experts: Steven Brill, Ezekiel Emanuel, and William Haseltine, at the Council on Foreign Relations’s Renewing America panel on the cost of healthcare.

The State of US Health - It's fairly well-known that life expectancy for Americans are below other high-income countries. But did you know that that the gap is getting worse? And how the underlying causes of death in the U.S., together with proximate factors behind those causes, have been evolving? The Institute for Health Metrics and Evaluation at the University of Washington takes up these issues and more in "The State of US Health: Innovations, Insights, and Recommendations from the Global Burden of Disease Study." Let's start with some international comparisons. Life expectancy in the US is rising--but it is rising more slowly than life expectancy in other OECD countries. Or consider the average of death. In the U.S., the average age of death rose by nine yeas from 1970 to 2010, but it has risen faster most other places. In this figure, the vertical axis shows age at death in 1970, so if you look at countries from top to bottom, you see how they were ranked by life expectancy in 1970. The horizontal axis shows age at death in 2010, so if you look at countries from right to left, you see how they are ranked by life expectancy in 2010. Countries at about the same horizontal level as the US like New Zealand, Canada, Australia, Spain, Italy, and Japan all had similar life expectancy to the U.S. in 1970, but are now out to the right of the US with higher life expectancies in 2010.

Life Expectancy at birth and health spending - Life Expectancy at birth and health care spending per capita, 2001 (or nearest year): (chart) One of these things is not like the others.

Vital Signs: U.S. Lagging in Life Expectancy - The Organization for Economic Cooperation and Development released its latest study on healthcare and life expectancy among its members. The expected average lifespan at birth has increased over the past four decades. The average resident in the OECD is expected to live 80.1 years, 10 years longer than in 1970. What is slightly surprising is that the U.S. has not made as much progress as many other nations. Americans have boosted their lifespans by 8 years to 78.7 years, but that increase lags the 10-year gain averaged across all OECD members. In addition, U.S. life expectancy is now more than one year less than the OECD average, compared with being about one year longer in 1970. (The Swiss live longest, at 82.8 years, while the average resident in South Africa lives almost three decades less.) The U.S. shortfall has occurred despite the fact that the U.S. spends more on health care, $8500 per capita, than other members, averaging $3322. The OECD report, however, notes that other factors besides overall medical spending can influence longevity. The OECD researchers also looked at the impact on lifespans from the recent global recession. The report notes positive and negative effects. Earlier in the crisis, suicide rates rose slightly, and Greece’s infant mortality rate has been increasing. But less economic activity meant fewer cars on the road, leading to fewer traffic fatalities. And lower incomes along with new regulations meant people in a number of OECD nations cut back on alcohol and tobacco products.

Risk Calculator for Cholesterol Appears Flawed - Last week, the nation’s leading heart organizations released a sweeping new set of guidelines for lowering cholesterol, along with an online calculator meant to help doctors assess risks and treatment options. But, in a major embarrassment to the health groups, the calculator appears to greatly overestimate risk, so much so that it could mistakenly suggest that millions more people are candidates for statin drugs.  The apparent problem prompted one leading cardiologist, a past president of the American College of Cardiology, to call on Sunday for a halt to the implementation of the new guidelines. “It’s stunning,” said the cardiologist, Dr. Steven Nissen, chief of cardiovascular medicine at the Cleveland Clinic. “We need a pause to further evaluate this approach before it is implemented on a widespread basis.” The controversy set off turmoil at the annual meeting of the American Heart Association, which started this weekend in Dallas. After an emergency session on Saturday night, the two organizations that published the guidelines — the American Heart Association and the American College of Cardiology — said that while the calculator was not perfect, it was a major step forward, and that the guidelines already say patients and doctors should discuss treatment options rather than blindly follow a calculator.

10 Foods Sold in the U.S. That Are Banned Elsewhere - Americans are slowly realizing that food sold in the US doesn’t just taste different than foods sold in other countries, it’s created differently. Sadly, many U.S. foods are BANNED in Europe — and for good reason. Take a look at the plummeting health of Americans; what role might toxic foods play in our skyrocketing disease rates?  Below are 10 American foods that are banned elsewhere.

Critics say U.S. is going too far to protect drug companies in trade talks - Critics of a plan to expand trade in the Pacific Rim today accused the Obama administration of pushing terms that would benefit U.S. pharmaceutical companies while raising drug prices."The Obama administration's proposals are the worst --- the most damaging for health --- we have seen in a U.S. trade agreement to date," said Peter Maybarduk, director of Public Citizen's global access to medicines program. "The Obama administration has backtracked from even the modest health considerations adopted under the Bush administration." While the trade talks are private, Public Citizen said it had analyzed new documents published by WikiLeaks.The documents include U.S. proposals covering intellectual property rights in the proposed Trans-Pacific Partnership, which could become the largest trade deal in U.S. history. It involves 11 other countries.Negotiators are trying to resolve a dispute over how long to provide protections to drug companies. Drug companies last year urged U.S. negotiators to grant them 12 years of "data exclusivity," the same standard in current U.S. law. They contend that's necessary because it would allow them to sell without competition from generic drug manufacturers while they attempt to recoup their investment.

HPV: Sex, cancer and a virus - Gillison described her discovery of early evidence that human papillomavirus (HPV) — a ubiquitous pathogen that infects nearly every human at some point in their lives — could be causing tens of thousands of cases of throat cancer each year in the United States. The senior doctor stared down at Gillison, not saying a word. “That was the first clue that what I was doing was interesting to others and had potential significance,” recalls Gillison.The medical community is struggling to come to grips with the implications. There is currently no good screening method for HPV-caused cancer in the head and neck, and commercially available HPV vaccines are still prescribed only to people under the age of 26, despite evidence that they could prevent head and neck cancer in all adults. Plus, if HPV can get into the mucous membranes of the mouth and throat, where does it stop? There are hints that HPV is a risk factor for other, even more common, types of cancer, including lung cancer. For now, researchers and doctors need to learn more about how HPV causes cancer, and how best to prevent and treat it, says Gillison. “Our clinics are flooded” with head and neck cancers triggered by HPV, she says, vexation clear in her voice. “But though I talk about it constantly in public settings and the lay press, it amazes me that it's often as if no one has heard of it.”

Pittsburgh’s Unique Air Pollution Makes Its Residents More Susceptible To Cancer, Study Says - People living in Pittsburgh and its encompassing county have twice the risk of developing cancer within their lifetimes than those who live in other areas of Pennsylvania, due to the unique mixture of hazardous pollutants in the air they breathe, according to a study released Thursday. The University of Pittsburgh’s Graduate School of Public Health’s study focused on emission levels of a broad class of air pollutants know as hazardous air pollutants (HAPS) which comprise approximately 200 chemicals or materials suspected by the EPA to cause cancer or other serious health effects. The top cancer-driving HAPs in Allegheny county — which includes Pittsburgh, Clairton, and Dunuesne — are emissions from diesel fuel, formaldehyde, coke oven emissions, carbon tetrachloride, and benzene. The lifetime risk in Allegheny is actually comparable to many other urban populations in the U.S., the study noted, but said that the Pittsburgh area is unique because of the amount of nearby natural gas development, electric power-generating facilities, and coke processing plants, making for a distinctive and harmful mix of pollutants.

New Map Shows How Toxic New York City Is - Superfund sites aren’t the only thing New York residents have to worry about — the city is littered with other toxic areas, according to a new map. The map displays toxic areas around the city created from gasoline and other spills, tank failures, air discharge facilities, hazardous waste storage facilities and other polluting factors. The density of the toxic sites is noteworthy, especially in areas like lower Manhattan. Newton Creek, between Brooklyn and Queens, was named a Superfund site in 2010 and is one of the most polluted industrial sites in the U.S. The map’s results are frightening given New York City’s vulnerability to storm surge. A recent report found the New York region — which includes Northern New Jersey and Long Island — has the greatest number of properties at risk from storm surges. Superstorm Sandy sparked the worry of how the region’s toxic sites would respond to another huge storm — as of last year, 45 of New York and New Jersey’s Superfund sites were within a half-mile of vulnerable coastal areas.  New York City has two Superfund sites — Newtown Creek and the Gowanus Canal, with the plan for cleanup in the canal finalized this September. In 2011, the city was named among the top ten most polluted cities in America, with 4.1 million pounds of on-site toxic releases reported in 2009.

Toxic waste ‘major global threat -- More than 200 million people around the world are at risk of exposure to toxic waste, a report has concluded. The authors say the large number of people at risk places toxic waste in a similar league to public health threats such as malaria and tuberculosis. The study from the Blacksmith Institute and Green Cross calls for greater efforts to be made to control the problem. The study carried out in more than 3,000 sites in over 49 countries. "It's a serious public health issue that hasn't really been quantified," Dr Jack Caravanos, director of research at the Blacksmith Institute and professor of public health at the City University of New York told the BBC's Tamil Service. The study identified the Agbobloshie dumping yard in Ghana's capital Accra as the place which poses the highest toxic threat to human life. The researchers say that the report has not been hidden from governments, and they are all aware of the issue. Agbobloshie has become a global e-waste dumping yard, causing serious environmental and health issues Dr Caravanos explained. The study says that "a range of recovery activities takes place in Agbobloshie, each presenting unique occupational and ecological risks". As the second largest e-waste processing area in West Africa, Ghana annually imports around 215,000 tonnes of second hand consumer electronics from abroad, particularly from Western Europe, and generates another 129,000 tons of e-waste every year.

Kauai's GMO and Pesticide Bill Is Set to Become Law After Veto Override - Honolulu Civil Beat: Pesticide disclosure Bill 2491 is set to become law after the Kauai County Council voted Saturday to override Mayor Bernard Carvalho’s veto of the bill. When it goes into effect in August, Bill 2491 will require heavy users of restricted use pesticides, primarily the biotech companies, to disclose what pesticides they are spraying, where and in what quantities. The law also requires farmers to report to the county any genetically altered crops that they are growing, and it creates buffer zones between fields sprayed with pesticides and schools, parks, medical facilities and private residences. The county will also be required to study whether pesticides are harming the environment or the health of residents. Employees of biotech companies can be fined or jailed for violating pesticide disclosure requirements and buffer zones.

Indian Scientists Against GMOs - A few weeks ago I wrote about the statement issued by the European Network of Scientists for Social and Environmental Responsibility (ENSSER) proving, contrary to the lies of GMO propaganda, that there is no consensus among scientists on the alleged safety of GMOs. The statement gives a brief overview of the massive amount of contrary evidence which has been assembled by independent scientists, usually working against serious institutional barriers, as well as how the industry’s own rigged tests have still found evidence of toxicity. To date the statement has been signed by over 230 scientists. Now there’s a similar statement issuing from India. Over 250 Indian scientists have signed a statement calling upon the government to accept the recommendations of the Technical Expert Committee (TEC) appointed by the Indian supreme court to advise it on GMO-related matters. The five scientists on this committee issued its final report this past summer. They recommended:

• *That no GMO be approved unless a need for it is demonstrated. They were skeptical that there is any such need.
• *A moratorium on new field trials or commercializations on account of the danger of contamination, until much better protocols have been devised.
• *In particular, there must be no approval of GM varieties of crops for which India is a center of biodiversity, such as brinjal (eggplant).
• *That Bt food crops not be approved until thorough safety testing is done.
• *Herbicide tolerant crops are environmentally and socioeconomically inappropriate for India and should never be approved.

Why The EPA Cut Down The Biofuel Standard For The First Time Ever - Right now, the vast majority of biofuel comes in the form of ethanol — an alcohol that’s hard on car engines and the existing fuel infrastructure. It can’t be moved via pipeline, making transport difficult, and only newer and more advanced cars can take an ethanol mix over 10 percent.That limit is what’s become known as the “blend wall.” Lawmakers turned it into a lurking problem when they designed the 2007 mandate in absolute numbers of gallons rather than as a percentage of the fuel supply. But new fuel efficiency standards proved unusually successful in cutting down gasoline use, and the economic crash of 2008 — as well as driving habits — drove down demand further. As a result, gasoline consumption collapsed from 154 billion projected gallons in 2014 to 133 billion. “The original Bush-Cheney renewable fuels standard was designed to reduce imports of foreign oil while boosting farm income [from corn-based ethanol],” . “Little consideration was given to the ‘blend wall’ that limits ethanol to 10 percent of a gallon of gasoline.” The EPA works with auto manufacturers to qualify cars for higher blend levels — E10 for ten percent, E15 for fifteen percent, and so on.  But the warranties of many automakers don’t cover use of E15 fuel, and the industry is split over the wisdom of expanding approval further. Service stations also struggle with the costs and practical challenges of updating their equipment to take E15 blends and higher. Part of the problem is that many owners of “flex-fuel” cars don’t understand what the mixes mean, and what blends their vehicles can take. But oil companies also structure their contracts with service stations to hold down the sale of higher blends and to prevent advertising.

Why We Still Have Biofuel Mandates - Professors Buchanan and Tullock would point out that biofuel subsidies directly cost the millions of Americans who are harmed only about $20 each a year. While the actual costs are certainly higher (from secondary effects of subsidies on prices), the amount lost is not high enough to warrant significant backlash. If someone earns $10 an hour, it would not be rational for them to spend more than a few hours educating themselves about and fighting against the special treatment biofuels receive.  On the other hand, biofuels are a large portion of farm subsidies, which have many wealthy beneficiaries. The federal government paid out $11.3 million in taxpayer-funded farm subsidies to 50 billionaires on the Forbes 400 list of richest Americans between 1995 and 2012.  On a smaller scale, farmers whose livelihoods depend upon high crop prices will lose thousands of dollars annually if biofuel programs are terminated. It makes sense for them to spend more time lobbying legislators to keep subsidies in place. On November 15, Iowa Republican Senator Chuck Grassley wrote an article attacking the “special interest” groups that support ending the ethanol mandate. He seemed to forget that the farm lobby is equally as guilty of pursuing its interests at the country’s expense.

The world in figures: Industries: Food and farming - The Economist - The best cure for high prices is high prices. Bad harvests at the start of the decade made food more expensive, but also prompted farmers to plant more. That will result in comfortable stocks in the 2013-14 crop year and lower prices overall: the Economist Intelligence Unit’s index of food, feedstuffs and beverage prices will fall by 6.6% in 2014. Grain prices will lead the way, dropping by nearly 14%. Demand for wheat is rising in South Asia, the Middle East, Latin America and north Africa in tandem with the popularity of Western-style breads, fast-food restaurants and noodles. But wheat supply will also expand, by 4.5%, lowering prices by 10.5%. Among crops not grown mainly as food for people, maize (up to 60% of which goes for livestock feed) will see a surge in both demand and supply, pushing prices down overall by 19%. Agricultural prices will nonetheless remain strong by historical standards, at twice their 1990 levels. This will encourage planting and give farmers the means to buy fertilisers and pesticides, in turn driving up yields in the 2014-15 season. Even as the world’s appetite grows, so will its ability to feed itself—assuming, that is, that the weather behaves normally, an increasingly rare occurrence

Global Meat Production Trends  -- If you look at this chart, so far the most recent growth in global meat consumption is coming from pork, poultry, eggs, and farm raised fish (aquaculture). These are the meat types which convert feed to protein (pound per pound) the most efficiently. Counter to what is happening in the developing nations, some very interesting changes in trends in the U.S.’s meat consumption have taken place in recent years. For one, overall U.S. meat consumption has recently headed downwards for the first time in a century. The other interesting notable trend is that per person, poultry consumption has surpassed beef and pork shares in recent decades. So we, too, are increasingly eating the smaller meat animals which convert feed to meat most efficiently. Many leading environmental voices such as Jon Foley worry that cattle are the number one threat to sustainable global agricultural production. I disagree. The trends tell us otherwise. We are globally headed towards using aquaculture and smaller meat animals for our protein, rich and poor alike.

Warsaw—Day 7: World ‘Neglects Climate Impact on Food’ —Global leaders are failing to respond to the threat posed by climate change to the growing challenge of feeding the world, a leading agricultural researcher says. They do not treat the problem seriously, and they are ignoring the warnings of science about what is liable to happen. Yet, she says, there is much more evidence available than there was a few years ago, and the future it describes is cause for great concern. The criticism comes from Dr Sonja Vermeulen, who heads the CGIAR research programme on climate change, agriculture and food security (CCAFS). She was speaking to the Climate News Network as the UN climate negotiations – the 19th conference of the parties to the Framework Convention on Climate Change, COP 19 – got under way in the Polish capital, Warsaw. Dr Vermeulen said: “I think the COPs are moving too slowly, and global leaders are not taking the problem of food security under climate change seriously enough. “They’re not sitting up and taking notice of Working Group II of the IPCC. I know that what we’ll get from that this time is a much larger body of evidence than in 2007 on food production – and the picture is not rosy.”

Extreme Weather: Is This California's Driest Year on Record? - First, to the question of whether this is the driest year on record: the answer to that is either no, or we don't know, depending on how and what we measure. Most people think of a year as running from January to the end of December (the "calendar year"). Measured this way, we don't know yet whether 2013 will be the driest on record because we don't know how much it will rain and snow in November and December. But water planners and hydrologists in California and indeed, the U.S. Geological Survey, don't measure precipitation based on the "calendar year." Instead, we use the "water year," which runs from October 1 to September 30th. Thus, while the 2013 calendar year hasn't ended yet, the 2013 water year ended September 30, 2013.The 2013 California water year was extremely dry, but it is not the driest on record. As Figure 1 shows, several water years since 1896 have been drier than 2013, with the driest year on record being 1924, when the entire state suffered severe drought. In fact, the 2012 water year was even slightly drier than 2013.

Globe had very warm October; year is 7th-warmest so far - The globe had its seventh-warmest October on record, according to data released today by the National Climatic Data Center. Records go back to 1880.The global temperature in October was 1.13 degrees F above the average of 57.1 degrees F.It also marked the 344th consecutive month (more than 28 years) that the Earth had an above-average global temperature.Most areas of the world's land surface experienced warmer-than-average monthly temperatures, with the most notable warmth across Alaska, northwestern Canada, northwestern Africa, and parts of north central and southern Asia, the climate center reported.For the year-to-date, the global temperature was the seventh-warmest such period on record, with a combined global land and ocean average surface temperature that was 1.08 degrees F above the average of 57.4 degrees F. All the warmest years on record have occurred since 1998, with the warmest January-October period in 2010. Australia is having its warmest year on record, so far.

Expert assessment: Ocean acidification may increase 170 percent this century: In a major new international report, experts conclude that the acidity of the world's ocean may increase by around 170% by the end of the century bringing significant economic losses. People who rely on the ocean's ecosystem services -- often in developing countries -- are especially vulnerable.A group of experts have agreed on 'levels of confidence' in relation to ocean acidification statements summarising the state of knowledge. The summary was led by the International Geosphere-Biosphere Programme and results from the world's largest gathering of experts on ocean acidification ever convened. The Third Symposium on the Ocean in a High CO2 World was held in Monterey, California (September 2012), and attended by 540 experts from 37 countries. The summary will be launched at the UNFCCC climate negotiations in Warsaw, 18 November, for the benefit of policymakers. Experts conclude that marine ecosystems and biodiversity are likely to change as a result of ocean acidification, with far-reaching consequences for society. Economic losses from declines in shellfish aquaculture and the degradation of tropical coral reefs may be substantial owing to the sensitivity of molluscs and corals to ocean acidification.

Ocean's carbon dioxide uptake can impair digestion in marine animal: — Ocean acidification impairs digestion in marine organisms, according to a new study published in the journal Nature Climate Change. Researchers from Sweden and Germany have studied the larval stage of green sea urchins Strongylocentrotus droebachiensis. The results show that the animals have problems digesting food in acidified water. Exposed to simulated ocean acidification, the larvae work hard to maintain the high stomach pH values. "The energetic demands to maintain the stomach pH increase', says Dr. Marian Hu, co-first author of the study. Using antibody staining techniques, Hu discovered a high concentration of pH regulatory cells that cover the inner surface of the stomach. Such cells typically consume a lot of energy. Culturing experiments and feeding trials revealed that in order to compensate for the decreased efficiency of digestion, the larvae feed more. "While earlier studies mainly focused on understanding calcification under acidified conditions, other vital processes, such as digestion and gastric pH regulation, were neglected," says Meike Stumpp. "We can now demonstrate that they deserve much more attention." "All living processes are run or controlled by enzymes. They are the key in understanding the functions and reactions of organisms, and finally ecosystems, in a changing world,"

Growing Clamor About Inequities of Climate Crisis - Following a devastating typhoon that killed thousands in the Philippines, a routine international climate change conference here turned into an emotional forum, with developing countries demanding compensation from the worst polluting countries for damage they say they are already suffering.  Calling the climate crisis “madness,” the Philippines representative vowed to fast for the duration of the talks. Malia Talakai, a negotiator for the Alliance of Small Island States, a group that includes her tiny South Pacific homeland, Nauru, said that without urgent action to stem rising sea levels, “some of our members won’t be around.”  From the time a scientific consensus emerged that human activity was changing the climate, it has been understood that the nations that contributed least to the problem would be hurt the most. Now, even as the possible consequences of climate change have surged — from the typhoons that have raked the Philippines and India this year to the droughts in Africa, to rising sea levels that threaten to submerge entire island nations — no consensus has emerged over how to rectify what many call “climate injustice.” Growing demands to address the issue have become an emotionally charged flash point at negotiations here at the 19th conference of the United Nations Framework Convention on Climate Change, which continues this week.  Farah Kabir, the director in Bangladesh for the anti-poverty organization ActionAid International, described that country as a relatively small piece of land “with a population of 160 million, trying to cope with this extreme weather, trying to cope with the effect of emissions for which we are not responsible.”

Todd Stern, President Obama's Special Envoy on Climate Change, Says U.S. Can Take Lives and Destroy Property in Developing World With Impunity -- It would have been useful if the NYT had made this point in an article that discussed the impact of global warming on the developing world. After noting the destruction caused by events related to climate change, like the typhoon that hit the Philippines and the droughts afflicted wide areas across Africa and the Middle East the piece tells readers: "The United States and other rich countries have made their opposition to large-scale compensation clear. Todd D. Stern, the State Department’s envoy on climate issues, bluntly told a gathering at Chatham House in London last month that large-scale resources from the world’s richest nations would not be forthcoming."Appeals to rectify the injustice of climate change, he added, will backfire. 'Lectures about compensation, reparations and the like will produce nothing but antipathy among developed country policy makers and their publics.'" The position that the United States finds it inconvenient to compensate poor countries for the damage it has caused them runs directly counter to the United States usual position in international forums where it typically is the strongest proponent of property rights. In this case the United States is effectively arguing that it will not compensate poor countries for the damage it has done to their property (and lives) because they can't force it do so. It would have been helpful if the article had explicitly noted this departure from the normal U.S. position.

Global Carbon Emissions Set To Reach New High In 2013 -- Global emissions of carbon dioxide from burning fossil fuels are set to rise again in 2013, reaching a record high of 36 billion tons. According to a report released Monday by the Global Carbon Project, carbon dioxide emissions from fossil fuel burning and cement production increased by 2.1 percent in 2012, with a total of nearly 10 billion tons of CO2 emitted to the atmosphere, 60 percent above 1990 emissions. Emissions are projected to increase by a further 2.1 percent in 2013.  The projected 2.1 percent rise over 2012 figures “is not a surprise at all,” Roisin Moriarty, a research scientist with the Global Carbon Project at the University of East Anglia’s Tyndall Center for Climate Research, told NBC News. In fact, “it is a little lower than the value we predicted last year — 2.6 percent.” Moriarty attributed the slowdown almost entirely to slower economic growth in China, saying it’s nothing to celebrate.  According to a statement released with the study, most emissions are from coal (43 percent), then oil (33 percent), gas (18 percent), cement (5.3 percent) and gas flaring (0.6 percent). The growth in coal in 2012 accounted for 54 percent of the growth in fossil fuel emissions.  The U.S. reduced emissions by 3.7 percent in 2012, while the E.U. made cuts of 1.3 percent. India and China are leading the way on emissions growth, increasing emissions by 7.7 percent and 5.9 percent respectively.

Carbon Emissions on Tragic Trajectory - Burning of fossil fuels added a record 36 billion tonnes of CO2 to the atmosphere in 2013, locking in even more heating of the planet. Global CO2 emissions are projected to rise 2.1 percent higher than 2012, the previous record high, according to a new report released Tuesday by the Global Carbon Project. This increase is slightly less than the 2000-2013 average of 3.1 percent, said lead author Corinne Le Quéré of the Tyndall Centre for Climate Change Research in the UK.“This is the second year in a row of below average emissions. Perhaps this represents cautious progress,” Le Quéré told IPS.Still, these hard numbers demonstrate that the U.N. climate talks have failed to curb the growth in emissions. And there is little optimism that the latest talks known as COP19 here in Warsaw will change the situation even with the arrival of high-level ministers Wednesday.Global emissions continue to be within the highest scenario of the Intergovernmental Panel on Climate Change (IPCC), she said.“This is a five-degree C trajectory. It’s absolutely tragic for humanity to be on this pathway,”

Study Finds Just 90 Companies Responsible for Current Climate Change Crisis - A new study set to be published in the journal Climate Change, has determined that just 90 companies are responsible for the current climate change crisis, producing nearly two-thirds of all greenhouse gas emissions since the beginning of the industrial age around the middle of the eighteenth century. Richard Heede, a climate researcher and author, said that “there are thousands of oil, gas and coal producers in the world. But the decision makers, the CEOs, or the ministers of coal and oil if you narrow it down to just one person, they could all fit on a Greyhound bus or two.”  The study calculated that the 90 firms produced a combined 914 gigatonnes of CO2 between 1751 and 2010, equating to 63% of all emissions. 83 of the companies were energy companies such as Chevron, ExxonMobil, and BP, working in the production of oil, natural gas, and coal; the other seven companies were all cement manufacturers. Half of the total emissions were produced during the last 25 years, long after the date when governments became aware that greenhouse gas emissions released by burning fossil fuels were causing widespread damage to the environment and leading to potential climate changes.

Just 90 companies caused two-thirds of man-made global warming emissions - The climate crisis of the 21st century has been caused largely by just 90 companies, which between them produced nearly two-thirds of the greenhouse gas emissions generated since the dawning of the industrial age, new research suggests. The companies range from investor-owned firms – household names such as Chevron, Exxon and BP – to state-owned and government-run firms. The analysis, which was welcomed by the former vice-president Al Gore as a "crucial step forward" found that the vast majority of the firms were in the business of producing oil, gas or coal, found the analysis, which has been published in the journal Climatic Change. "There are thousands of oil, gas and coal producers in the world," climate researcher and author Richard Heede at the Climate Accountability Institute in Colorado said. "But the decision makers, the CEOs, or the ministers of coal and oil if you narrow it down to just one person, they could all fit on a Greyhound bus or two." Half of the estimated emissions were produced just in the past 25 years – well past the date when governments and corporations became aware that rising greenhouse gas emissions from the burning of coal and oil were causing dangerous climate change. Many of the same companies are also sitting on substantial reserves of fossil fuel which – if they are burned – puts the world at even greater risk of dangerous climate change.

UN agog at “extreme” Australian climate stance -- It has taken just seven days, but already the reputation of Australia as a constructive force in international climate policy has been completely trashed — both in terms of its domestic actions and in the wrecking ball tactics it has sent to the UN’s annual climate summit in Poland. The two-week summit is just over halfway through, and Australia is now seen as an “anti-climate” nation that is actively working against any consensus. Australia has — many times over the 20-plus years of climate talks held by the UNFCCC — been seen as an outlier, courtesy of its huge reliance on coal, but its actions in Warsaw have come as a shock to negotiators who are dealing with familiar faces who had previously been constructive, if not progressive.The most common refrain being posed to Australian representatives is: “What is going on down there?” Even a Bush-era US negotiator found Australia’s negotiating position extreme. Its opposition to a climate finance position paper prepared by other “climate fiscal conservatives” such as US, New Zealand, Japan, and Canada has dumbfounded participants.

Japan Bails Out on CO2 Emissions Target - Japan announced Friday that it will renege on its carbon emissions pledge, likely ending any hope global warming can be kept to 2.0 degrees C. The shocking announcement comes on the fifth day of the U.N. climate talks in Warsaw known as COP19, where more than 190 nations have agreed to a 2.0 C target and are trying to close the carbon emission gap to get there. Japan will increase that gap three to four percent with its new 2020 reduction target, according to the Climate Action Tracker (CAT). It amounts to a three-percent increase compared to a 1990 baseline. Japan’s 2009 Copenhagen Accord pledge was a 25 percent reduction by 2020. However, even if nations meet their current climate pledges under the Copenhagen Accord, CO2 emissions in 2020 are likely to be eight to 12 billion tonnes higher than what’s needed, according to the U.N. Environment Programme’s Emissions Gap Report 2013. Japan, the fifth largest emitter of CO2, is just the latest to abandon its international commitments. While Australia hasn’t officially torn up its reduction pledge, the newly elected Tony Abbott government has gutted nearly all the emission programmes it needs to fulfill its 2020 promise of reductions between five and 25 percent compared to 2000, said Vieweg. Canada may be the worst offender. It recently said its carbon emissions will be 20 percent higher than its Copenhagen pledge. More importantly, Canada’s emissions in 2020 will be 66 -107 percent greater than what’s actually required to do its share to reach 2.0 C.

The truth!?! You can't handle the truth!!! OK, we are heading for 4 °C temperature rise, and world leaders are doing nothing -- Mark Maslin, professor of climatology at University College in London, was speaking at a conference here at the 19th Conference of the Parties of the UN Framework Convention on Climate Changewhich also heard that some parts of the world were already in danger of becoming too hot for humans to inhabit.Science and health professionals were invited by the Global Climate and Health Alliance to assess this bleak future for the human race at the end of the first week of climate talks, where little progress has been made to slow global warming.Professor Maslin said: “We are already planning for a 4 °C world because that is where we are heading. I do not know of any scientists who do not believe that. We are just not tackling the enormity of the task we face to keep it below the agreed 2 °C danger threshold. “If we had the kind of politicians we really need we could still put in place policies that can save the planet from going over the danger level. But there is no evidence at the moment that we have that quality of politicians, so we all have to be prepared for the most likely scenario, which is a 4 °C rise in temperature. If we do not prepare to adapt we simply won't be able to.” He said all UN bodies were now being advised to prepare for a rise of 4 °C, because there is no evidence to show that the world is prepared to turn away from the present pathway of rising carbon emissions.

132 countries walk out of UN climate talks - With just two days to go, this year’s international climate negotiations are not going well, to say the least. The coal industry attempted to steal the spotlight, Japan announced that it was no longer going to try to meet its emissions goals, and Poland, the country hosting the talks, fired its environment minister halfway through. Meanwhile, the Guardian reports, a bloc consisting of 132 of the world’s poorest countries walked out of talks concerning compensation for extreme climate events like Typhoon Haiyan. he G77 and China group coordinated the walkout after rich nations, including the U.S. the EU and Australia, refused to debate the issue until 2015. Australia, in particular, was accused of not taking the talks seriously: According to a spokeswoman for Climate Action Network, its delegates “wore T-shirts and gorged on snacks throughout the negotiation.” According to Saleemul Huq, the scientist whose work on loss and damage from extreme climate events helped put the issue on the agenda, “the whole debate went to waste.”

Poor countries walk out of UN climate talks as compensation row rumbles on - Representatives of most of the world's poor countries have walked out of increasingly fractious climate negotiations after the EU, Australia, the US and other developed countries insisted that the question of who should pay compensation for extreme climate events be discussed only after 2015.The orchestrated move by the G77 and China bloc of 132 countries came during talks about "loss and damage" – how countries should respond to climate impacts that are difficult or impossible to adapt to, such as typhoon Haiyan.Saleemul Huq, the scientist whose work on loss and damage helped put the issue of recompense on the conference agenda, said: "Discussions were going well in a spirit of co-operation, but at the end of the session on loss and damage Australia put everything agreed into brackets, so the whole debate went to waste." Australia was accused of not taking the negotiations seriously. "They wore T-shirts and gorged on snacks throughout the negotiation. That gives some indication of the manner they are behaving in," said a spokeswoman for Climate Action Network. After a three hour delay in the negotiatons,while countries debated what to do in private, talks resumed. "[The walkout] helped to clear the air. They know we are serious," said one lead negotiator, who denied developing countries were "grandstanding."

Solar Panels: Back to the Dark Ages - The West will be left in the dark begging for the lights to come back on soon as they realize that China has not only become the world leader in yet something else, namely solar-panels, but also that the West has been pointing their own solar panels in the wrong direction now for years. A new study that was carried out in the US has suddenly discovered that the solar panels that have been installed around the world and that all face South are in actual fact facing the wrong direction. According to the study carried out by the Pecan Street Research Institute if the panels face West, they increase electricity production by 49% during peak demand. What is surprising is that nobody has ever carried out a study on the best direction to gain increases in electricity generation. People simply presumed that it was South that would give the best energy-supply levels.  The study showed the panels that faced South only generated a 54%-peak reduction (peak: 3pm to 7pm), while panels that faced Westwards were able to generate a 65%-peak reduction. The CEO of Pecan Street Research Brewster McCracken stated that “there was no other residential demand response tool generating 60% reductions.” Europe and the West will be going back to lighting candles that they will probably end up buying also from the Chinese in the next few years. How is it conceivable to imagine that those that are paid to do research might not have actually carried out tests to see in which direction the solar panels should have been facing?

French Wind Critics Get Turbines Removed, Leaving Country More Reliant On Nuclear - Earlier this month, judges in Montpellier, France ordered French energy company GDF Suez to take down 10 wind turbines near the city of Arras in Northern France. The decision comes after a six-year legal struggle between GDF and a local couple who claimed the 10 turbines, installed back in 2007, destroyed the character of their 17th century chateau. According to the French court, the clean energy generators were guilty of causing the “total disfigurement of a bucolic and rustic landscape.” GDF Suez was given four months to dismantle the turbines or face a fine of €500 per day per turbine. GDF was also ordered to pay the chateau owners €37,500 in damages. The wind turbines had been providing electricity to over half of the 40,000 residents of Arras. The judges emphasized that the ruling was not because of actual demonstrated lost property value, but because of things like the “unsightliness of white and red flashing lights.”  In a statement, the couple’s lawyer, Philippe Bodereau, said: “This decision is very important because it demonstrates to all those who put up with windfarms with a feeling of powerlessness that the battle is not in vain, even against big groups, or authorities who deliver building permits, that legal options are available to everyone, that we have a right to live in peace and that people can do other things than suffer.”

TEPCO risks all at Fukushima - On Monday, by far the most dangerous nuclear operation attempted in human history was set to begin in the crippled Fukushima Daiichi power plant in Japan, the removal of more than 1,300 spent fuel rods and some 200 unused rods from a reservoir on top of Unit 4. While the undertaking is necessary, the worst-case scenario would pale in comparison the triple meltdowns of 2011 and necessitate the evacuation of the capital Tokyo. Experts are unanimous that the engineering challenges are on a scale unseen to date, given that the fuel pool was damaged in a fire caused by a cooling failure and a subsequent explosion during the meltdowns. If the fuel rods, some of which may be damaged, come too close to each other, there is a chance that the nuclear chain reaction would resume, which would be catastrophic in the presence of so much fissile material, as well as extremely difficult to stop. If, on the other hand, a fuel rod breaks or is exposed to air and ignites, this would release into the atmosphere a massive amount of radiation, likely necessitating the evacuation of the plant. The total amount of radiation present in the pool is estimated at 14,000 times that released by the atomic bomb dropped at Hiroshima, or about the same as in the combined cores of the three reactors that melted down. "[F]ull release from the Unit-4 spent fuel pool, without any containment or control, could cause by far the most serious radiological disaster to date," states The World Nuclear Industry Status Report 2013, compiled by two independent nuclear energy consultants. [1]

After Years Of White House Foot-Dragging, Toxic ‘Coal Ash’ May Finally Get Federal Regulations - A waste product from burning coal at power plants, coal ash is often stored in liquified form in large containment ponds. And sometimes, those ponds break loose. Most famously, about 300 million gallons of coal ash slurry spilled out of a pond next to the Tennesee Valley Authority’s Kingston plant in 2008, covering about 400 acres of Roane County, Tennessee. The event sparked enough outcry that Lisa Jackson — the incoming head of the Environmental Protection Agency (EPA) at the time — promised a review of the existing rules for storing coal waste. But first the proposal had to move through an office (OIRA) in the White House’s Office of Management and Budget (OMB). In 2009, OMB released its take on the rules, which gave equal credence to the option of classifying coal ash as nonhazardous — despite studies from Physicians for Social Responsibility, the National Research Council, and the EPA that found coal ash contains significant levels of carcinogens such as arsenic and other heavy metals, and poses “risks to human health and ecosystems.”As National Journal points out, the Obama Administration was still pushing cap-and-trade legislation at the time to cut carbon emissions, and didn’t want to antagonize coal interests anymore than it already was. But despite the changed circumstances since, nothing much happened after OMB released its version of the rules. Then a coalition of environmental organizations, led by Earthjustice, sued the EPA in 2012 to force it to finish the rules. In October of 2013, a federal judge ruled the agency had 60 days to set a deadline for finishing the rules.

Top U.N. Official Warns of Coal Risks -- Most of the world’s coal needs to stay in the ground if greenhouse gas emissions are to be held in check, the United Nations’ top climate change official said Monday in a speech to coal industry executives here in Poland, one of the most coal-dependent nations on Earth. Christiana Figueres, executive secretary of the United National Framework Convention on Climate Change, told industry officials here that they were putting the global climate and their shareholders at risk by failing to support the search for alternative methods of producing energy. “Let me be clear from the outset that my joining you today is neither a tacit approval of coal use, nor is it a call for the immediate disappearance of coal,” Ms. Figueres said at an industry conference timed to coincide with the annual meeting of the United Nations climate body. “But I am here to say that coal must change rapidly and dramatically for everyone’s sake.” Ms. Figures reminded the executives that the 195 members of the United Nations climate treaty agreed in 2010 to hold the rise in global temperatures to below 3.6 degrees Fahrenheit, or 2 degrees Celsius, from preindustrial levels, and she said that continuing along the current path would make reaching that target impossible.

Christiana Figueres tells coal executives they must leave it in the ground (in Warsaw at COP19) -- Full speech by UN climate chief Christiana Figueres to World Climate and Coal summit in Warsaw. exceprt:  There are some who, deeply concerned about the devastating effects of climate change already felt by vulnerable populations around the world, are calling for the immediate shut down of all coal plants. There are others who think that coal does not have to change at all, that we can continue to extract and burn as we have done in the past. The first view does not take into account the immediate needs of nations looking to provide reliable energy to rapidly growing populations in pursuit of economic development and poverty eradication. The second view does not take into account the immediate need for climate stability on this planet, necessary for the wellbeing of present and future generations. Today I want to set out an alternative path that is admittedly not easy, but is undoubtedly necessary. That path must acknowledge the past, consider the present and chart a path towards an acceptable future for all. I join you today to discuss this path for two reasons. First, the energy sector is an intrinsic component of a sustainable future. And second, the coal industry must change and you are decision makers who have the knowledge and power to change the way the world uses coal.

UN Climate Chief Slammed for Pushing Coal as Solution in Poland -Speaking before an assembly of lobbyists and corporate heads at a global coal industry conference in Warsaw, Poland Monday, United Nations Climate Chief Christiana Figueres has spurred the ire of environmentalists as she characterized the leading greenhouse gas emitters as possible leaders in a clean energy future. "The coal industry has the opportunity to be part of the worldwide climate solution," Figueres said in her keynote address before the summit of the World Coal Association. Complimenting the "knowledge and experience" of the gathered coal executives as an asset to be utilized in the effort to keep global warming beneath the two degree Celsius limit agreed to by the international community, Figueres vowed that her position was not "a call for the immediate disappearance of coal." Figueres' address defied the request of green groups who asked that she boycott the summit. As Sophie Yeo of RTCC.org reports, climate campaigners have repeatedly said the presence of the coal groups is a provocation and a distraction from the COP19 UN climate conference that is also being held in Warsaw this week. During the address, Figueres recommended a set of "fundamental parameters" for what she described as "green" transition for coal. Her recommendations included closing all existing "subcritical" plants and implementing "safe" Carbon Capture Use and Storage (CCUS) technology on all new plants, which environmental groups have been long-critical of.

Developed Countries Spent $35 Billion On International Coal Plants From 2007 to 2012 - From 2007 to 2012, the governments of developed countries invested almost $35 billion in coal plants internationally. Throw in coal mines and other related activities, as well as the financing in all three areas in 2013 so far, and the total comes to just over $59 billion, according to figures compiled by the Natural Resources Defense Council (NRDC). The money stream was split between two major sources: international development banks such as the World Bank Group, European Investment Bank, European Bank for Reconstruction and Development, and Asian Development Bank as well as the export-credit agencies in a few advanced countries, such as the United States’ Export-Import Bank. The top three offenders from 2007 to 2012 were the Japanese Bank for International Cooperation (JBIC) at $11.9 billion, followed by the U.S. Export-Import Bank with $7.24 billion, and finally the World Bank Group with $6.54 billion.

Global boom in coal plants begs for carbon capture solution - With world coal use growing at a staggering pace, top climate diplomats have used the global stage to take a much more aggressive stance against the coal industry. They are demanding that companies move quickly to leverage technology to capture and bury their planet-heating emissions or risk putting the world on a dangerous and irreversible path. In a stern address to the World Coal Association on the sidelines of the summit, Christiana Figueres, head of the UN's Climate Change Secretariat, made several demands of industry: leave "most existing reserves in the ground," shut down the dirtiest coal-fired facilities and use carbon capture and storage (CCS) on "new plants, even the most efficient." Her bottom line is that world's "carbon budget is half spent" at a time when the global expansion of coal is wiping out gains from clean energy. "The coal industry faces a business continuation risk that you can no longer afford to ignore," Figueres said. The focus on coal power during the two-week talks is because of the industry's enormous global warming contribution. And it reflects how worried climate advocates are about the future—with nearly 1,200 coal plants on the drawing boards, mainly in developing economies. UN Secretary General Ban Ki-moon declared at a news conference that coal and other fossil fuel industries "will have to make green and sustainable investment decisions that will keep them in business, and us within the bounds of 2 degrees Celsius," the safe target at the heart of climate treaty deliberations. "They seem to be making a transition, but I have been urging them to make it faster," he said.

Even In Coal Country, Most Want Action On Global Warning --Majorities in 46 states believe climate change is manmade and want the government to do more to fight it, according to a new Stanford University poll.  At least 62 percent of residents are in favor of intervention, including regulating greenhouse emissions, even in those states — such as West Virginia, Kentucky and Virginia — with large coal industries.“This new report is crystal clear,” Rep. Henry Waxman (D-CA) said. “It shows that the vast majority of Americans — whether from red states or blue — understand that climate change is a growing danger.”The House of Representatives passed a “Cap and Trade” plan to limit carbon pollution in 2009. It never got a vote in the Senate.“Americans are way ahead of Congress in listening to the scientists,” Waxman said.

Shell Oil Self-Imposes Carbon Pollution Tax High Enough To Crash Coal, Erase Natural Gas’s Value-Add - Royal Dutch Shell includes a high price for carbon dioxide when evaluating new projects. The $40 a metric ton price that Shell uses would — if widely adopted — reshape domestic and international energy consumption and investment trends. Shell discussed this policy in its 2012 Sustainability Report, but it hasn’t received much attention. CDP (aka the Carbon Disclosure Project) is putting out a report next month detailing the efforts of many companies to price carbon internally, which may help spur coverage of this important topic.Shell explains: Without clear measures to promote investment in more efficient and low-carbon technologies, [the world] risks setting itself on a course to potentially catastrophic climate change.At Shell we advocate publicly and to governments that a strong and stable price on CO2 emissions will help drive the right investments in low-carbon technologies. But we are not waiting for government policy to develop. We consider the potential cost of a project’s CO2 emissions, which we set at $40 a tonne, in all our major investment decisions.  That carbon pollution price, if it were a national carbon tax, would add about $0.35 a gallon to the price of gasoline. More importantly, it would add $0.04 a kilowatt hour to the price of coal power, which would have a huge impact. Overall, that price level might cut U.S. CO2 emissions more than 20% below current levels, which are already more than 10% below 2005 levels. The vast majority of that CO2 reduction would come from a drop in coal use.

Environmentalists Decry California’s Fracking Rules -- Amid intense rivalry between the oil industry and the agricultural industry, regulators in the state of California have released long-awaited proposed rules on fracking, inviting acceptance from oil and gas companies and harsh criticism from environmentalists. The draft rules require fracking to undergo strict monitoring and have earned criticism from both sides of the fence in California.  According to the new regulations, state environmental officials will be teamed up with air quality regulators and regional water boards to track potential problems related to fracking operations, and wells undergoing hydraulic fracturing will be monitored both before and after the process. Oil companies will be required to implement groundwater testing and to notify landowners before fracking procedures begin. The regulations also come with disclosure obligations regarding the chemicals used in fracking. Companies would also be required to disclose the chemicals used and acquire permits before they start the fracking. The rules are set to take effect in 2015, with emergency regulations that companies will have to comply with beginning in January 2014.

Fracking Industry Dumping Toxic Wastewater Into California Coastal Waters - In a letter delivered as commissioners meet this week in Newport Beach, CA, the center says hundreds of recently revealed frack jobs in state waters violate the Coastal Act. Some oil platforms are discharging wastewater directly into the Santa Barbara Channel, according to a government document. “The Coastal Commission has the right and the responsibility to step in when oil companies use dangerous chemicals to frack California’s ocean waters,” said Emily Jeffers, a center attorney. “Our beaches, our wildlife and our entire coastal ecosystem are at risk until the state reins in this dangerous practice.” After noting seven risky chemicals used by oil companies fracking in California waters, the letter describes the duties of the Coastal Commission to protect wildlife, marine fisheries and the environment. “Because the risk of many of the harms from fracking cannot be eliminated, a complete prohibition on fracking is the best way to protect human health and the environment,” the letter says. At minimum, the Coastal Commission must take action under the Coastal Act to regulate the practice, including requiring oil and gas operators fracking in state waters to obtain a coastal development permit.

Coast Guard To Approve Barging Hazardous Fracking Waste On Rivers - The Coast Guard is moving forward with a proposal that would allow barges to transport large amounts of hazardous and radioactive wastewater from fracking operations on America’s major rivers. After studying the issue at the request of the fracking industry, the Coast Guard recently released proposed regulations for fracking wastewater barging. A public comment period on the proposal runs through November 29, 2013.  Wastewater from the Marcellus Shale, a heavily fracked formation under much of Pennsylvania, is known to contain elevated levels of radium and other radioactive elements. The fracking industry has been shipping the wastewater from fracking fields in the Marcellus region for disposal in Ohio, Texas and Louisiana by truck and rail. And now the industry wants to barge large quantities of wastewater on major rivers such as the Ohio and Mississippi. Fracking and disposal firms claim that barges have a much better safety record than trucks and other methods of waste transport, but environmentalists fear that a leak or spill on a major waterway could contaminate drinking water supplies for millions of people. Under the proposal, the Coast Guard can require barge owners to test wastewater to identify hazardous chemicals and determine if the waste meets specific radiation limits. Operators must keep records of the analysis for two years and make them available to the Coast Guard upon request. Information from hazardous-material reports would be available to the public under the Freedom of Information Act, but the identities of “proprietary” chemicals would not be available to the public.

Breaking Down The New Proposed Fracking Rules Released In Illinois And California - The states of California and Illinois both released proposed rules for fracking on Friday, which received general criticism from environmental groups and measured acceptance from the oil and gas industry. The California law says that the state must conduct a scientific study of the benefits and the drawbacks of fracking before a ban on the practice could be considered. Neither California nor Illinois had regulations on fracking before this law was enacted, which is true for most states across the United States. North Carolina, Maryland, and New York have issued effective moratoria on fracking in their states — California and Illinois are the first states to allow the practice to continue in their states but regulate it to any serious degree. The rules both largely address water usage and pollution. The Illinois law required the water that comes back up from fracked wells to be held in tanks instead of open pits — except in case of emergencies. But the rules allow enough leeway in how companies can define that emergency that it could function as a “gaping loophole” that makes open pit wastewater storage a regular practice, according to NRDC’s Senior Attorney Ann Alexander. The rules also require companies to test water before, during, and after drilling, while companies will be liable for any contamination that takes place due to drilling. Drillers must disclose chemicals used in the practice both before and after drilling, as well as how the well will be drilled, how much fluid will be used and at what pressure, and how water will be obtained, used, and disposed. The California rules require monitoring of well water before and after companies drill, which would be managed by the Department of Conservation, the Air Resources Board, and regional water boards. The rules also mandate that names and concentrations of the chemicals used in fracking be made public. These chemicals are used to lubricate the process, kill bacteria, and facilitate the grains of sand into the fractures in the shale rock. Fracking chemicals are exempt from federal water disclosure laws following passage of the 2005 Energy law.

House To Vote On Bill That Would Impose $5,000 Fee For Protesting Drilling Projects -- The House is likely to vote on a number of GOP bills this week related to the oil and gas industry, arguably the most sweeping of which is the Federal Lands Jobs and Energy Security Act. The bill, introduced by Rep. Doug Lamborn (R-CO), is broad legislation designed to make it much easier for oil and gas companies to obtain permission to drill on public lands. If signed into law, the legislation would automatically approve onshore drilling permits if the U.S. Department of Interior (DOI) failed to act on them in 60 days.  If an individual does not like a proposed drilling project and wanted to oppose it, he or she would have to pay a $5,000 fee to file an official protest. In addition, Lamborn’s proposed bill would direct the DOI to begin commercial leasing for the development of oil shale, a controversial type of production that has been largely banned by the United States since President Herbert Hoover prohibited the leasing of federal lands for oil shale. Oil shale — which should not be confused with the more common “shale oil” — is a type of rock that needs to be heated to nearly 1,000 degrees Fahrenheit to produce crude oil, which then has to be refined.  The Natural Resources Defense Council calls it “the dirtiest fuel on the planet.” Under Lamborn’s bill, the government would be required to offer 10 leases on federal lands in 2014 for oil shale research and demonstration projects. And before 2016, the government must hold at least 5 commercial lease sales of federal lands for oil shale development, each no less than 25,000 acres.

House Plans To Roadblock Federal Fracking Oversight   - The federal government would have no authority over hydraulic fracturing in states that have their own fracking laws, if legislation set to be heard by the House this week is passed into law.  On Wednesday, lawmakers will consider HR 2728, the Protecting States’ Rights to Promote American Energy Security Act. Proposed by Rep. Bill Flores (R-TX), the bill would made fracking a states-only game. Unless a state has not passed any laws regarding fracking, the U.S. Department of Interior — the agency responsible for conservation of most federal land and natural resources — would have no say in whether companies disclose chemicals in fracking fluid; whether water that comes back up from fracked wells is polluted; or whether people can request public hearings on fracking permit applications.  Top climate scientists recently sent a letter to Governor Jerry Brown (D-CA) to issue a fracking moratorium because of carbon emissions, groundwater contamination, and the massive amount of water required to frack a well. Wenonah Hauter of Food and Water Watch once described the process as “a giant pipe bomb four or five miles underground.” Rep. Flores introduced the bill in July as an attempt to avoid draft regulations from the Obama regulations to regulate the fracking performed by the oil and gas industry. Those rules would require companies to make sure that fluids from the fracking process aren’t contaminating groundwater, and mandates that those companies have management plans for large volumes of wastewater that flows back to the surface throughout the fracking process.

House Passes Bills To Fine Drilling Protesters, Squelch Federal Oversight Of Fracking - The House of Representatives on Wednesday passed two bills that would, among other things, impose a $5,000 filing fee on any individual that wanted to file an official protest of a drilling project, and take authority away from the federal government to regulate hydraulic fracturing in states that already have their own fracking rules. The bills — H.R. 2728 and H.R. 1965 — have little to no chance of passing the Senate, and President Obama has already pledged to veto the bills if they come to his desk.  H.R. 1965, the Federal Lands Jobs and Energy Security Act, provides that onshore drilling permits would be automatically approved if the U.S. Department of Interior (DOI) failed to act on them in 60 days. The bill would also impose a $5,000 fee on anyone who wanted to file an official protest of a proposed drilling project, and would direct the DOI to begin commercial leasing for the development of oil shale, a controversial type of production that has been largely banned by the United States. Oil shale — which should not be confused with the more common “shale oil” — is a type of rock that needs to be heated to nearly 1,000 degrees Fahrenheit to produce crude oil, which then has to be refined. H.R. 2728, the Protecting States’ Rights to Promote American Energy Security Act, would made fracking a states-only game. Unless a state has not passed any laws regarding fracking, the U.S. Department of Interior — the agency responsible for conservation of most federal land and natural resources — would have no say in whether companies disclose chemicals in fracking fluid; whether water that comes back up from fracked wells is polluted; or whether people can request public hearings on fracking permit applications.

Bakken operator releases fracking documentary: ‘Down Deep: Unearthing the Truth About Hydraulic Fracturing’ - From The Bakken Magazine: WSX, a Tulsa-based energy company specializing in the production of natural gas, has launched a website to help clear up controversy and misinformation surrounding hydraulic fracturing and the process of exploring for, drilling and producing oil and natural gas.The site Downdeep serves as a platform for delivering a 30-minute video titled, “Down Deep: Unearthing the Truth About Hydraulic Fracturing” and features conversations with experts, landowners, neighbors and WPX executives.Using genuine facts and interviews with third parties, Down Deep takes on the dishonest politicking and misguided environmentalism that has become entangled with the public’s image of “fracking.” WPX Energy believes U.S. citizens all have the right to be informed of the facts surrounding any vital issue—and the right to be involved in the decisions that shape America’s energy future. You can watch the documentary Down Deep above.

Steingraber: Setting the Record Straight on Fracking - Earlier this month, just days after voters in Colorado and Ohio went to the ballot box to protect their communities against the demonstrably dangerous oil and gas drilling process known as fracking, Interior Secretary Sally Jewell delivered a proclamation that only served to highlight just how much misguided faith the Obama administration has invested in the oil and gas industry, and its quest to keep the American public hooked on fossil fuels. Jewell cited what she called“confusion” in the fracking debate, implored the oil and gas industry to clear up “misinformation,” about the process, and asserted that industry should “make sure the public understands … why it’s safe.” But the only thing confusing about the fracking debate is why this administration continues to embrace the practice in the face of scientific evidence that fracking and associated activities contaminates water, air, communities and the climate. Hardly a month goes by without the release of a new study that highlights one aspect or another of the harmful effects of fracking. Given these headlines, it’s no wonder that despite the untold millions of dollars being spent by the oil and gas industry to promote the process, Americans are increasingly rejecting it. A recent poll released by the Pew Research Group finds that opposition to fracking has grown significantly across most regions and demographic groups. Overall, 49% are opposed to increased fracking, up from 38% six months ago, while only 44% support it. Americans are turning against this practice not because they are confused, but because the evidence of fracking’s harmful effects continues to swell. In just the last few months, a Duke University study linked fracking to elevated levels of methane, ethane and propane in groundwater; a study out of University of Texas, Arlington found high levels of arsenic and other heavy metals in samples from water wells near active natural gas wells; and last month, a study in Environmental Science and Technology found concentrations of radium in the Allegheny River 200 times normal levels, as a result of fracking waste disposal.

Schilling Shilling -- Kunstler - Such is the power of wishful thinking that a set of fool-making memes now pulses through the word-clouds of financial chatter in America spreading the false good cheer that our economic troubles are behind us and pimping for perpetual motion in wealth expansion. A poster boy for this bundle of falsehoods is financial analyst A. Gary Schilling. Just last week, he was talking out of his cloacal vent about US “energy independence” and “the manufacturing renaissance” that will allow this country to magically decouple from the compressive contraction driving the rest of the world. Shilling is among the growing chorus of cheerleaders who believe that the shale oil and gas boom will make it possible for so-called “consumers” (what we foolishly call ourselves) to keep driving to Wal-Mart forever — which is the master wish behind all the current fantasies of endless expansion. That idea is going to leave a lot of people disappointed and put the nation further behind in the necessary reorganization of all the key systems that support everyday civilized life, namely: food production, commerce, transport, and the management of capital. Here’s what’s actually going to happen with shale oil and gas. Best case scenario: shale oil production rises for three more years to about 2.3 million barrels a day and then crashes so quickly that in 10 years the shale oil industry ceases to exist. A less rosy forecast would admit that the exorbitant costs of drilling-and-fracking will not find the necessary capital to even take the industry that far. Rather, dwindling capital will see the shocking decline rates of shale wells (commonly 50 percent the first year and double digits the following) and will run shrieking for other places to hide.  Contrary to Gary Schilling’s blather, America is not practicing “energy conservation.” Rather, an economy engineered strictly to run on cheap oil has gotten crushed by oil that is not cheap. Does Schilling believe, for example, that American suburbia works just as well on $90-a-barrel oil as it did on $11-a-barrel oil, or that it has a future as the basic armature of daily life, or that we are doing anything meaningful to alter the burdens of living this way? My guess is that he has never thought about it.

The Coming Bust Of The Great Bakken Oil Field - There has been a lot of Fanfare on the huge increase of oil production coming from the Bakken Field located in North Dakota.  There are many stories of people moving to the state to take advantage of the new OIL BOOM.  It seems like everyone is going there to start a new life and make it rich in one of the coldest areas in the United States. However, with all BOOMS, comes the inevitable BUST.  The EIA – U.S. Energy Information Agency is now putting out data on the individual shale oil and gas plays in the country.  While the American public and world have been made aware of the huge increase in oil production coming from the Bakken, few are privy to the dark side of the equation.  The Bakken’s daily decline rate from their existing oil wells has reached a staggering 63,000 barrels a day.This means, that every day the Bakken pumps oil, its existing wells are now declining 63,000 (bd) barrels a day.   As you can see from the chart above, the rate really started to decline in a big way after 2011 when the average daily decline was only 20,000 bd.  In less than 3 years, this rate has increased more than 3 times (63,000 bd). This next chart gives us the total as well as net oil production increases month over month:

What Happens after the U.S. Oil Boom Goes Bust? - The Bakken crude oil formation spread out over North Dakota and Montana should give up more than 1 million barrels of oil per day next month. North Dakota is already the second-largest crude oil producer in the country behind Texas. A string of reports out last week said oil production in states like North Dakota is putting a dent in OPEC's market influence. A break from the grips of Middle East oil producers was put on the U.S. table 40 years ago and politicians and pundits alike are heralding recent developments as an energy revolution. What develops after the revolution is over, however, is something policymakers may have to consider in the not too distant future. The U.S. Energy Information Administration said it estimated crude oil production from the Bakken region of North Dakota will top 1 million bpd in December. That region, the heart of the shale revolution in the United States, now accounts for more than 10 percent of total U.S. oil production. Last week, the EIA said oil production from states like North Dakota helped push net aggregate crude oil imports for October to their lowest level in more than 20 years.  Last week, the International Energy Agency said crude oil production from North America is reducing the role of OPEC on the international stage. OPEC acknowledged the influence of North American crude oil production in its own reporting, saying its share of crude oil production in global production declined slightly to 33.1 percent. The IEA said, however, that the Middle East is "the only large source of low-cost oil [and] takes back its role as a key source of oil supply growth from the mid-2020s."

Marcin Korolec, chair of the U.N. climate change talks in Warsaw, fired by Polish government for not speeding up regulations for expanding fracking - Marcin Korolec, chair of the U.N. climate change talks in Warsaw that run through Friday, was sacked from his job as Polish environment minister on Wednesday, reportedly for failing to speed up regulations to expand shale gas exploitation. Expectations of progress were already low for the United Nations climate conference in Poland this week, but few delegates were probably prepared for the latest stumbles.Ten days into Poland's role as host of the two-week U.N. gathering, Prime Minister Donald Tusk on Wednesday fired the conference president, Environment Minister Marcin Korolec, Polskie Radio and other national media reported. Tusk clarified later that Korolec would continue representing Poland in the climate talks through the country's stint in the rotating presidency that runs through the end of 2014. But climate change activists warned that Korolec's loss of government backing undermines his clout in pressing delegates to commit to emissions reductions. "Korolec will have no real political power." Worse, said Greenpeace Poland director Maciej Muskat, Tusk said he was replacing Korolec to speed up development of Poland's shale gas industry.  "This is nuts," Muskat said. "Furthermore, justifying the change of minister by the need to push the exploitation of another fossil fuel in Poland is beyond words."

Botswana Secretly Fracks World’s Second-Largest Wildlife Preserve After Kicking Out The San People - Botswana has been getting fracked for years without the public knowing, even in the Central Kalahari Game Reserve, ancestral home of the San people and second-largest wildlife reserve in the world.  The Open Society Initiative for Southern Africa (OSISA)’s film, The High Cost Of Cheap Gas, contains footage of fracking equipment and energy company employees describing their work as “fracking”. A news release on Kalahari Energy’s website talks about hydraulic fracturing operations in Botswana that began as early as 2009 to extract coal bed methane. And a 2005 post on the site found by the Daily Maverick’s Rebecca Davis talks about the construction of water evaporation ponds “for hydraulic fracturing of the wells.” A government map of oil and gas concessions indicate the coal bed methane concessions exist in the Cental Kalahari Game Reserve, the Kgalagadi Transfrontier Park, and the Chobe National Park, home to the world’s largest herd of elephants. Keikabile Mogodu, a San rights advocate, told The Guardian that nobody had heard anything from companies or the government about fracking on San land. “We are in the dark,” he said. “If fracking is done in the areas where people are consultations should be done.” Botswana President Ian Khama’s government has been fighting in court to keep San people from returning to their land, and it seems this may be why.

Toxic Lakes From Tar-Sand Projects Planned for Alberta - The oil sands industry is in the throes of a major expansion, powered by C$20 billion ($19 billion) a year in investments. Companies including Syncrude Canada Ltd., Royal Dutch Shell Plc and Exxon Mobil Corp. affiliate Imperial Oil Ltd. are running out of room to store the contaminated water that is a byproduct of the process used to turn bitumen -- a highly viscous form of petroleum -- into diesel and other fuels. By 2022 they will be producing so much of the stuff that a month’s output of wastewater could turn an area the size of New York’s Central Park into a toxic reservoir 11 feet (3.4 meters) deep, according to the Pembina Institute, a nonprofit in Calgary that promotes sustainable energy. To tackle the problem, energy companies have drawn up plans that would transform northern Alberta into the largest man-made lake district on Earth. Several firms have obtained permission from provincial authorities to flood abandoned tar sand mines with a mix of tailings and fresh water.  Syncrude began work this summer on Base Mine Lake, which when complete will measure 2,000 acres. It says the reservoir will eventually replicate a natural habitat, complete with fish and waterfowl. As many as 30 so-called end-pit lakes are planned, according to Alberta’s Cumulative Environment Management Association, a private-public partnership.

Opposition to Keystone XL: Global warming as the all-purpose excuse -  The environmental left simply as a matter of general principle opposes oil production from Canadian tar sands, and the proposed Keystone XL pipeline in particular. This opposition fundamentally is ideological (or religious); the environmental facts and the engineering realities and the market dynamics and the utter futility of preventing the exploitation of that enormous wealth are irrelevant. And that futility is blazingly obvious. Railroads currently transport roughly 150,000 barrels per day of tar sands oil to the US; that is likely to increase to about 400,000 b/d in 2014, and to 700,000 b/d or more over the ensuing two or so years. Accordingly, efforts to hamper the development and transport of the Canadian tar sands by blocking Keystone XL are doomed to failure, and so current projections of tar sands output are an increase from 1.8 million b/d in 2012 to 2.3 million b/d in 2015 and 4.5 million b/d in 2025-2030.  So what is the point of the opposition to Keystone XL? Again, we must return to the ideological/theological underpinning of that stance: the eternal effort of the environmental and political left to increase their political power generally and their ability to direct the use of others’ resources in particular. The mother of all tools with which to effect that outcome is global warming/climate change: it is the all-purpose excuse, the great silencer of opposing views, the Kim Il Sung-like idol before which all true believers must bow so as to demonstrate their bona fides. Accordingly, what we will hear endlessly over the next year or two is that tar sands oil production—essentially because of the heat needed to produce and transport it, as it is heavy—results in carbon dioxide emissions about 17% higher than that of the average barrel used in the US. Seventeen percent! Note that this datum essentially is irrelevant because tar sands oil will be a very small part of world oil output—perhaps 4-5%—even by 2030.  And there remains the issue summarized above: the tar sands oil will come to the US, or to the world market one way or another, regardless of whether Keystone XL is constructed.

Will the real International Energy Agency please stand up? - It was as if the International Energy Agency were appearing on the old American television game show To Tell the Truth last week as it offered a third contradictory forecast in the space of a year. Last November in its 2012 World Energy Outlook (WEO), the agency noted rising U.S. oil production and even predicted that the United States would become energy self-sufficient by 2035 (a doubtful call, in my view). It also noted that growing oil demand in the Asia has more than outweighed declines in European and U.S. consumption, keeping upward pressure on prices. It said that growth in Iraq's oil exports was not a sure thing. While the 2012 WEO is really a rather optimistic document on supply, it did not paint an especially rosy picture, indicating that obtaining the supplies of oil necessary to meet projected demand was not a foregone conclusion. Then, only six months later came the agency's so-called Medium-Term Oil Market Report which read like an ad for the North American oil and gas industry. The agency touted a "supply shock" in oil from American tight oil fields unleashed by a new kind of hydraulic fracturing--a shock that would send "ripples throughout the world." Unlike six months earlier, worldwide supply was supposed to take flight on the wings of fracking. This enthusiasm didn't last long. In its latest report, the just-issued 2013 World Energy Outlook, the agency sounded like a group of Gloomy Guses noting that "Brent crude oil has averaged $110 per barrel in real terms since 2011, a sustained period of high oil prices that is without parallel in oil market history."

Number of the Week: U.S. Producing More Oil Than It Imports - 137,000: How many more barrels a day the U.S. produced than it imported in the week ending Nov. 8. For the first time in nearly 20 years, the U.S. is producing more crude oil than it imports. But that doesn’t mean energy independence is right around the corner. U.S. oil output is soaring due to the “fracking” boom in North Dakota, Texas and other areas. U.S. producers pumped 7.7 million barrels of crude per day in October, the Energy Information Administration said this week, up 11% from a year earlier and a whopping 63% over the past five years. The rise followed decades of declining production. At the same time, domestic oil consumption, which had been rising for decades, has been basically flat for the past five years due to a weak economy, competition from biofuels and other factors. The government expects both trends to continue in the near future; the EIA estimates that 2014 crude production will average 8.5 million barrels per day in 2014, which would be the most since the mid-1980s, while demand is expected to be flat. More domestic supply and less demand translates into less reliance on imports. The U.S. imported 7.6 million barrels a day of crude oil in October, the first time production has topped imports since February 1995. Net crude imports are down nearly 25% over the past five years. Still, 7.6 million barrels a day is a lot of oil. Due to higher consumption, the U.S. now is importing over one million more barrels than it was in 1996, the last time the country’s full-year output was higher than the amount coming from overseas. (Production, incidentally, is still more than 20% below its 1970 peak.)

If Peak Oil is Approaching why is Gasoline so Cheap? - First let me disabuse you of the idea that we are seeing more than a temporary blip and that sub-$3 gasoline will become a permanent feature of life in America. The underlying forces that will cause oil production to peak – i.e. oil fields depleting faster than new ones are being found and developed at affordable prices – is still with us as will become apparent one of these days.   When oil prices got high enough five or six years ago, it became profitable to drill and hydraulically fracture tight oil formations in North Dakota and Texas. What made fracking feasible was that oil prices in the last decade rose from $20 a barrel to circa $100, making the drilling of very expensive fracked wells with very short productive lifetimes feasible. While this oil was making its way to refineries in the mid-West, it was not getting to the Gulf or East Coast. To make the story short, when you refine crude, among other products, you end up with roughly two barrels of gasoline for every barrel of distillates (diesel, heating oil, kerosene, etc.) that you produce. Now Europe taxed itself into a lot of more-efficient diesel cars years ago, so European refiners had been ending up with large surpluses of gasoline which they were happy to sell to America, where we really love the stuff. The U.S. of course was set up to refine more oil than we currently are using, but this summer our refineries hummed at record rates cranking out distillates for export. The problem was that for every barrel of diesel that we shipped out of the U.S., there were two barrels of gasoline left behind.So there is the story of our “cheap” gasoline in a nutshell. We are refining some 1.4 million b/d of distillates for export and are ending up with 2.8 million b/d of extra gasoline, as a result of which we can only export 380,000 b/d. Welcome to lower gasoline prices for as long as this imbalance lasts.

Lower gasoline prices - "U.S. gasoline prices have fallen to their lowest level in nearly 33 months amid a boom in domestic oil drilling", the Wall Street Journal declared last week. That's a true statement, but there's more to the story. Americans are indeed facing the lowest gasoline prices in almost three years, but not by much. The price of gasoline last December was almost as low as it is now, as it also had been in December 2011. The fact is, U.S. gasoline prices are usually lower in the fall and winter than they are in the spring and summer due to seasonal variation in gasoline demand and fuel formulations. The long-run determinant of the price of gasoline is the price of crude oil, which does not change much between summer and winter. Because we have adequate facilities to transport refined products, gasoline sold in the U.S. tends to track the world price and follows Brent more closely than it does WTI. Brent is down more modestly from its September high. Here's Here's a self-updating reference to the current Brent price, where you can see the bad news. As of the end of last week, Brent was back above $108, wiping out most of the relief in crude prices since September. So why hasn't the surge in U.S. production of crude oil brought any real decrease in the price of oil and gasoline? The answer is pretty simple. If you leave out the growth in shale oil production from the U.S. and oil sands production from Canada, total field production of crude oil from the rest of the world combined actually decreased between 2005 and 2012. Given the increase from the U.S. and Canada, global production managed to increase by 2 million barrels a day over the period, but that's less than the growth in consumption from the emerging economies and oil-producing countries over those same years. That's why the world price of oil went up, not down, despite the growth in production from the U.S. and Canada.

Oil Prices Unlikely to Climb Much Higher - Nearly everyone believes that oil prices will trend higher and higher, allowing increasing amounts of oil to be extracted. This belief is based on the observation that the cost of extraction is trending higher and higher. If we are to continue to have oil, we will need to pay the ever-higher cost of extraction.  Even though this is conventional reasoning based on experience with many substances, it doesn’t work with oil. Part of the reasoning is right, though. It is indeed true that the cost of extracting oil is trending upward. We extracted the easy to extract oil, and thus “cheap” to extract oil, first and have been forced to move on to extracting oil that is much more expensive to extract. For example, extracting oil using fracking is expensive. So is extracting Brazil’s off-shore oil from under the salt layer.  There are also rising indirect costs of production. Middle Eastern oil exporting nations need high tax revenue in order to keep their populations pacified with programs that provide desalinated water, food, housing and other benefits. This can only be done though high taxes on oil exports. The need for these high taxes acts to increase the sales prices required by these countries–often Even though the cost of extracting oil is increasing, the feedback loops that occur when oil prices actually do rise are such that oil prices tend to quickly fall back, if they actually do rise. We know this intuitively–in oil importing nations, deep recessions have been associated with big oil price spikes, such as occurred in the 1970s and in 2008. Economist James Hamilton has shown that 10 out of 11 US recessions since World War II were associated with oil price spikes (Hamilton 2011). Hamilton also showed that the effects of the oil price spike were sufficient to cause the recession of that began in late 2007 (Hamilton 2009).

Could America’s New Energy Abundance Spark a Trans-Atlantic Environmental Race to the Bottom? - As I detailed in a three-part series earlier this year [1] [2] [3], economists across the political spectrum see appropriately high energy prices as a key to an efficient, environmentally sustainable economy. “Appropriate,” in this case, means prices that include charges for environmental harms—local pollution like smog and mercury emissions, groundwater pollution from fracking, climate change caused by greenhouse gas emissions, everything. Higher prices, in turn, would provide incentives for conservation and clean energy innovation. Naturally, there are disagreements about the size of the appropriate pollution charges, but no serious analyst believes that zero is the correct number. . On the other side of the debate stand representatives of energy producing and energy using industries who argue that the aim of energy pricing policy should not be appropriateness, but rather, affordability. When we combine producer-friendly pricing with the new supplies of oil and gas made possible by the recent fracking boom, it is fair to say that the United States has already won the race to the bottom in energy prices among the economies that border the North Atlantic. That is beginning to make affordable energy advocates in Europe nervous. In a recent op-ed in the Financial Times, Paolo Scaroni, head of Eni, the Italian oil and gas giant, laments that, “cheap energy gives the United States a huge competitive advantage.” Not surprisingly, he would like to see European policies that are friendlier toward oil and gas production, including fracking, but that is not enough. “Other potential components of the solution for Europe,” he writes, “are nuclear power, energy efficiency, better use of conventional hydrocarbons – in short, anything that can make energy cheaper and more readily available.”

 Oilprice Intelligence Report: Iranian Nuclear Negotiations – What’s REALLY Going On: What is important to understand about negotiations with Iran over its nuclear program is that is has less to do with nuclear issues than it does with the back-room diplomatic dance that has Israel, Saudi Arabia and France doing everything in their power to derail Washington’s plans. The overriding sentiment of the P5+1 (US, UK, France, Russia and China, plus Germany) nuclear talks with Iran is that the P5+1 itself isn’t ready to negotiate with Iran until they negotiate amongst themselves. At this point, Iran is barely involved in the talks, while various diplomats shuttle back and forth trying to out-maneuver each other. The French are keen to keep the money flowing from Saudi Arabia and Qatar, whose agendas with respect to Iran are aligned with Israel’s, which has plenty of influence in Paris as well. At this point it is not Iran that is jeopardizing progress for another round of talks in Geneva next week—but France, Israel and Saudi Arabia. The Western mainstream media would have us believe that Washington and Paris are actually staging a very clever game of good-cop, bad-cop to force Tehran into more concessions, but this is far from the reality. The reality is that we have some very influential forces, particularly in France, who have largely sidelined President Hollande in this affair.

Kerry Joins Diplomats in Geneva to Seek Deal With Iran - Top diplomats from the U.S., U.K. and France arrived in Geneva in an attempt to secure a first-step accord ending the decade-long standoff with Iran over the Islamic Republic’s nuclear activities. U.S. Secretary of State John Kerry met Russian Foreign Minister Sergei Lavrov and his French counterpart, Laurent Fabius, this morning, according to a U.S. official who asked not to be identified. German Foreign Minister Guido Westerwelle and U.K. Foreign Secretary William Hague will also attend today’s talks.Kerry traveled to the Swiss city “in light of progress being made” and to join his counterparts “should agreement be reached,” State Department spokeswoman Jen Psaki said yesterday in a Twitter Inc. posting. In an earlier statement, he said only that Kerry was going to Geneva “with the goal of continuing to help narrow the differences and move closer to an agreement.” The show of diplomatic power doesn’t necessarily mean an agreement has been clinched by negotiators, who have been in Geneva haggling over language and details. Kerry and the other foreign ministers assembled there on short notice two weeks ago, only to fall short of reaching an agreement on Iran.

Jim Rogers: Biggest Event of Next 10-20 Years Just Happened in China - The initial reaction from many following this month’s key gathering of communist-party leaders in China was of disappointment as Tuesday’s blueprint left much to be desired. But on Friday came a significantly more in-depth document regarding issues like land reform, easing of the one-child policy and cleaning up pollution. It’s all left famed investor Jim Rogers believing “the most important economic event of the next 10 to 20 years is what happened in Beijing.” And it’s something he says has been largely ignored, notably by Western media.During a visit at the Wall Street Journal, the former George Soros partner–who retired from Wall Street at age 37 to live a second life as world traveler—equates the plenum to those in 1978 and 1993. In the just-concluded gathering, which occurred a year after President Xi Jinping became party chief and was seen as his stage to set forth the agenda for his possible 10-year tenure, reform was hoped to be a big focus.Mr. Rogers, who moved with his family to Singapore seven years ago, senses change is coming. The land reform includes increased rights for farmers. This group has long seen land taken from them but now are in position to amass large tracts for more-efficient production in a country struggling to keep up with a populace that has increasing amounts of money to spend on food.

China Blueprint Sidesteps State-Sector Reform --- China’s ambitious plans to overhaul its economic model, unveiled in a 20-page document on Friday, won praise as a blueprint for building more sustainable foundations for the country’s growth model.A question mark, though, hangs over what the government plans to do with the powerful state-owned sector, economists said Monday as they poured over the implications of the document. The state-run sector, including some of China’s largest companies, has been a main engine of growth, and today accounts for about a quarter of industrial output.  But the sector is inefficient and saddled with massive debt and overcapacity in sectors like steel and cement. China’s reformers want to move away from reliance on the sector and encourage more consumer spending, the main purpose of the economic overhauls. Yet the document handed out Friday is light on detail over what to do with state-owned enterprises, or SOEs.“The message from the ‘Decision’ is that there would be little progress on SOE reforms,” That reality reflects fear among policy makers that moving to smash the old economic model too quickly will lead to a fast deceleration in growth.

New Era of Higher Costs Spurs Record 50-Year Yield: China Credit - China sold 50-year bonds at a record high yield as banks prepare for what they describe as a new era of higher borrowing costs after a government policy overhaul. The finance ministry auctioned 20 billion yuan ($3.3 billion) of debt due November 2063 on Nov. 15 at a yield of 5.31 percent, the highest since sales of the tenor began in 2009. That compares with a 4.24 percent rate offered in the previous sale and the 5.05 percent median estimate in a Bloomberg News survey. The sale drew bids for 1.51 times the amount offered, less than the 2.13 times in May. The People’s Bank of China in July scrapped a floor on lending rates and Deutsche Bank AG in September forecast the cap on saving rates will end by 2015, a move that would spur competition for deposits among the nation’s more than 3,700 banks. Market forces will be “decisive” in allocating resources, according to a communiqué released after a four-day economic planning meeting attended by Chinese leaders. “We should probably adapt to a new era as the old times of cheap money are behind us,”

China Flash PMI Drops Most In 6 Months -- China's HSBC Flash PMI missed expectations rather notably (50.4 vs 50.8 exp) and dropped its most MoM since May as the hope-mongering of a China-led renaissance in global growth is dashed on the shores of liquidity reality. It was a mixed bag - providing just enough for everyone under the covers. New exports orders dropped to 3-month lows and employment flipped into the deteriorating camp but manufacturing output rose to its highest in 8 months (sure, why not - the "if we build it then we'll vendor finance it" model worked before, right?) Market reactions are generally bad-news-is-bad-news with US equity futures down and the Hang Seng extending losses.

PBOC Says No Longer in China’s Interest to Increase Reserves -The People’s Bank of China said the country does not benefit any more from increases in its foreign-currency holdings, adding to signs policy makers will rein in dollar purchases that limit the yuan’s appreciation. “It’s no longer in China’s favor to accumulate foreign-exchange reserves,” Yi Gang, a deputy governor at the central bank, said in a speech organized by China Economists 50 Forum at Tsinghua University yesterday. The monetary authority will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading range, Governor Zhou Xiaochuan wrote in an article in a guidebook explaining reforms outlined last week following a Communist Party meeting. Neither Yi nor Zhou gave a timeframe for any changes. China’s foreign-exchange reserves surged $166 billion in the third quarter to a record $3.66 trillion, more than triple those of any other country and bigger than the gross domestic product of Germany, Europe’s largest economy. The increase suggested money poured into the nation’s assets even as developing nations from Brazil to India saw an exit of capital because of concern the Federal Reserve will taper stimulus.

Hong Kong domestic workers treated as ‘slaves’ — Amnesty - Amnesty International on Thursday condemned the "slavery-like" conditions faced by thousands of Indonesian women who work in Hong Kong as domestic staff, accusing authorities of "inexcusable" inaction. Its report, "Exploited for Profit, Failed by Governments," comes just weeks after a Hong Kong couple were jailed for a shocking string of attacks on their Indonesian housekeeper, including burning her with an iron and beating her with a bike chain. Amnesty found that Indonesians are exploited by recruitment and placement agencies who seize their documents and charge them excessive fees, with false promises of high salaries and good working conditions. The process amounted to trafficking and forced labor, Amnesty said, as the women could not escape once they were in debt and their documents seized. “From the moment the women are tricked into signing up for work in Hong Kong, they are trapped in a cycle of exploitation with cases that amount to modern-day slavery,” She said she feared the problem was widespread in Hong Kong, where some 150,000 Indonesian women work as “domestic helpers.”

China and Japan are heading for a collision - FT.com: - Amid all the noise about the economic reforms launched last week by China, it was easy to overlook another important change. The Chinese government is setting up a National Security Council, co-ordinating its military, intelligence and domestic security structures. The model is said to be America’s NSC. But China’s move also parallels developments in Japan, where Shinzo Abe’s government is also setting up a National Security Council.Under ordinary circumstances, this modernisation of military and security structures would not be cause for concern. But these are not ordinary times. For the past year, China and Japan have been engaged in dangerous military jostling, as they push their rival territorial claims to some uninhabited islands, known as the Senkaku to the Japanese and the Diaoyu to the Chinese. In one recent week, Japan scrambled fighter jets three times in response to Chinese overflights. China, meanwhile, complains that Japanese ships came provocatively close to a recent live-fire exercise carried out by its navy. With tensions high, the revamping of the two countries’ security structures takes on a more ominous tone.  It is hard to believe that either China or Japan actually wants a war. The bigger risk is that military posturing around the islands will lead to an accidental clash – and that the governments of both nations would then be trapped by their own nationalist rhetoric, making it very hard to climb down.

"Abenomics" Is Working So Far: Japan has been in a deflationary rut for the last 15-20 years. This presents an incredibly difficult policy dilemma for the central bank and other economic policy makers as deflationary expectations (the belief that prices will be lower tomorrow) are now firmly ingrained in the Japanese economic psyche. This greatly slows economic activity as consumers will delay purchases to a future date when prices are lower. To exit this damaging cycle, the country needs to create inflation, which is a central tenant to "Abenomics." To further this goal, the bank has pledged to double the monetary base in a short period of time, with the obvious intent of not only increasing inflation but creating inflationary expectations within the economy. Let's take a look at several statistics to see if Abenomics is working as advertised. Above is a chart of Japanese exports on a month to month basis. Notice that at the beginning of the year exports haw a large increase, largely as a result of the yen's sharp devaluation caused by the new policy. However, exports have been at fairly consistent levels after that initial stimulus. This is more the result of slowing international economies. For the last four months, the annual rate of inflation has been increasing. And inflation appears to be slowly seeping into core prices, as we see in the above chart. While we only have positive inflation data for the last four months, the trend is promising.

Japan’s Banks Find It Hard to Lend Easy Money - In this semi-industrial prefecture of 1.9 million midway between Osaka and Hiroshima, the dearth of borrowers illustrates the reality behind Japan's economic-policy experiment: It is easier to increase the money supply than to get people to put the cash to work. The problem is more acute in regions like Okayama, away from the big urban centers and global companies that have driven the country's recovery so far. Normally, monetary easing filters into the economy through banks, which soak up the cheap cash and then lend it out again—stimulating spending, investment and growth. But decades of shrinking demand and falling wages have spooked potential borrowers. As borrowing dwindled, financial firms put more money in the safety of low-yielding government bonds. Currently, Japanese banks hold around 142 trillion yen, or about $1.4 trillion, in government bonds—roughly 14% of the market—versus about 2% in the U.S. When Japanese Prime Minister Shinzo Abe took office last year, he proposed to fix the situation with a monetary jolt like those dealt by the U.S. Federal Reserve—one big enough to shift money out of bonds and back into the economy. "The economy doesn't necessarily get better just because of monetary easing," says Mr. Takeda. "And you don't borrow just because rates are low." 

Fuel Imports Send Japan's Deficit Careening To 3rd Worst On Record --USDJPY and Nikkei futures don't know what to make of tonight's data. Is it bad enough that we buy stocks (sell JPY) on the basis that Abe and Kuroda will have to do more or is it so bad that it 'proves' no matter what they do, the gig is up. It seems, by the reaction the latter as Japan's trade balance collapses to the 3rd worst on record. Exports rose 18.6% (more than expected) but it is the imports that soared higher (26.1% vs 19.0% expectations) on the back of surging fuel costs. So, Abe got his inflation - on the cost push side (crushing margins) and not the animal-spirit-competitive exuberance demand-pull side. Perhaps it is time to rename it Abe-wrong-ics. Of course, we await Goldman's blessing of the number as just wait one more quarter for the J-curve to turn up on this devaluation cycle... we wait patiently...

US TPP is not in our interest | Bangkok Post editorial - It has been a year since US President Barack Obama came to Bangkok to try to talk Prime Minister Yingluck Shinawatra into joining his Pacific trade initiative. The effort came to naught, and this has proved to be a good thing. The few details emerging from secret negotiations show that the misnamed Trans-Pacific Partnership (TPP) is not in Thailand's best interest. Our neighbours, trying to help Mr Obama put together a treaty, should continue to reject many of the US demands. It seems that calling the TPP a "partnership" is a bit of a stretch. Several documents leaked by negotiators during the past couple of years show a heavy-handed United States team insisting on a list of demands that no one else seems to want. Last week, the internet site Wikileaks published a lengthy and disturbing document. It is apparently a summary of recent TPP negotiating positions. Washington comes across as more of an alpha autocrat than fair bargainer.The Wikileaks document _ which appears to be legitimate _ is an eye-opener. For 95 pages, paragraph after paragraph shows the so-called "partners" at odds, almost always all participants against the US. And the document exposes in detail just how much the US is pressing, not for free trade, but heavier and ever-more restrictive regulations in the field of intellectual property (IP). In truth, the US agenda in the IP section of the free-trade act is almost identical in intent and language to the continuous stream of information and propaganda from the book, music, film and trademark industry of that country.

The Trans-Pacific Partnership is the opposite of 'free trade' - The proposed Trans-Pacific Partnership agreement among 12 governments, touted as one of the largest "free trade" agreements in US history, is running into difficulties as the public learns more about it. Last week 151 Democrats and 23 Republicans (pdf) in the House of Representatives signed letters to the US chief negotiators expressing opposition to a "fast track" procedure for voting on the proposed agreement. This procedure would limit the congressional role and debate over an agreement already negotiated and signed by the executive branch, which the Congress would have to vote up or down without amendments. As one of the country's leading trade law experts and probably the foremost authority on Fast Track, Lori Wallach of Public Citizen's Global Trade Watch, put it: [Fast track] authorized executive-branch officials to set US policy on non-tariff, and indeed not-trade, issues in the context of 'trade' negotiations. How ironic that this massive transfer of power to special-interests such as giant pharmaceutical or financial corporations has been sold to the press as a means of holding "special interest" groups – who might oppose tariff reductions that harm them but are good for everyone else – in check.. It is quite amazing that a treaty like the TPP can still be promoted as a "free trade" agreement when its most economically important provisions are the exact opposite of "free trade" – the expansion of protectionism. Exhibit A was released by WikiLeaks last week: the latest draft of the "intellectual property" chapter of the agreement, one of 24 (out of 29) chapters that do not have to do with trade. This chapter has provisions that will make it easier for pharmaceutical companies to get patents, including in developing countries; have these patents for more years; and extend the ability of these companies to limit access to the scientific data that is necessary for other researchers to develop new medicines. And the United States is even pushing for provisions that would allow surgical procedures to be patented – provisions that may be currently against US law.

A Corporate Coup in Disguise - What if our national leaders told us that communities across America had to eliminate such local programs as Buy Local, Buy American, Buy Green, etc. to allow foreign corporations to have the right to make the sale on any products purchased with our tax dollars? This nullification of our people's right to direct expenditures is just one of the horror stories in the Trans-Pacific Partnership (TPP).  Twenty years later, the gang that gave us NAFTA is back with the TPP, a "trade deal" that mostly does not deal with trade. Of the 29 chapters in this document, only five cover traditional trade matters! The other chapters amount to a devilish "partnership" for corporate protectionism:

—Food safety. Any of our government's food safety regulations (on pesticide levels, bacterial contamination, fecal exposure, toxic additives, etc.) and food labeling laws (organic, country-of-origin, animal-welfare approved, GMO-free, etc.) that are stricter than "international standards" could be ruled as "illegal trade barriers."
—Fracking. Our Department of Energy would lose its authority to regulate exports of natural gas to any TPP nation. This would create an explosion of the destructive fracking process across our land, for both foreign and U.S. corporations could export fracked gas from America to member nations without any DOE review of the environmental and economic impacts on local communities -- or on our national interests.
—Jobs. US corporations would get special foreign-investor protections to limit the cost and risk of relocating their factories to low-wage nations that sign onto this agreement. So, an American corporation thinking about moving a factory would know it is guaranteed a sweetheart deal if it moves operations to a TPP nation like Vietnam. This would be an incentive for corporate chieftains to export more of our middle-class jobs.

WTO on verge of global trade pact - FT.com: Negotiators are poised to seal the first global trade deal for more than a decade, in a rare victory for the World Trade Organisation, whose struggle to secure an international pact has increasingly threatened its relevance. The US and powerful developing-nation players, including China and India, have overcome differences in agriculture. This leaves negotiators in Geneva to put the final touches to a deal that will impose binding requirements to reduce red tape and ease the path for goods at borders around the world. It could add about $1tn to annual global trade worth more than $18tn, some analysts have said. Roberto Azevêdo, the recently appointed head of the WTO, is expected to present a finished draft of the agreement to the body’s highest organ, the general council, in a meeting as soon as Sunday or Monday. Barring any unforeseen problems – and negotiators gave warning on Thursday that they could still emerge – the agreement would be signed by trade ministers from the WTO’s 159 member countries in Bali next month. “They have crossed over the threshold,” said a senior trade official in Geneva. Sealed, the deal would be a victory for Mr Azevêdo, who warned that the WTO risked irrelevancy if it did not deliver something substantive in Bali when took over in September. The deal’s three broad pillars – tackling bureaucratic barriers at borders, a series of agriculture issues, and several development-related subjects – were plucked from the wider Doha agenda two years ago as watered-down but “deliverable” elements of a deal. But they have still been the subject of difficult negotiations and officials and observers of the process insist the deal at hand is important in both substance and what it says about the state of the WTO as a forum for trade negotiations.

After 12 Long Years, a WTO Deal in Bali? -  For all intents and purposes, the Doha Development Agenda as it is officially referred to is still on the back burner. But, there was activity stirring a week ago causing its new Brazilian Director-General Roberto Azevedo to remark "We are too close to success to accept failure but it is all or nothing now." Latin brio aside, they have taken some more "salable" items on the negotiating table to hopefully use in demonstrating that WTO negotiations are not yet dead by concluding a smaller multilateral deal during end-of-year gatherings of its members in Bali (3-6 December).   What exactly is inside this "Bali package," then? Supposedly there are three pillars: (1) trade facilitation to reduce red tape among international customs authorities; (2) development in better operationalizing what kinds of special and differential treatment [SDT] are afforded developing countries; and (3) agriculture permitting developing countries more leeway in doing things such as helping feed their destitute members:WTO ambassadors resumed consultations on Section II of a draft agreement on trade facilitation. This section provides the basis for special and differential treatment and for technical assistance and capacity building needed for the implementation of the agreement. In agriculture, members are focusing on proposals about reducing export subsidies and related policies known collectively as “export competition”, reducing the chances that the methods used to share out a particular type of quota among traders become trade barriers in their own right, on how to deal with developing countries’ food stockholding for food security when the purchases could distort trade, on adding a number of environmental and development services to the list of programmes considered not to distort trade and therefore allowed without limit, and on cotton produced by least-developed countries (LDCs).

The intergalactic trade frontier -- International trade is a zero-sum game. Across the globe as a whole, exports = imports. You export something, someone somewhere has to buy it. It is true that export success depends on comparative advantage and international competitiveness, but these are relative terms: international competitiveness is bought at the expense of the competitiveness of others, and comparative advantage implies a near-monopoly position in the provision of some good or service. But exports depend on the willingness of others to import. If one large trading area such as the Eurozone runs a trade surplus, therefore, somewhere else there must be a trade deficit. This is not rocket science. But trade balances have become part of the same economic morality play that has already seen countries with high debt castigated for "profligacy" (even when high debt is a consequence of economic collapse, not over-spending) and countries with large fiscal surpluses praised for "prudence" (even though a large fiscal surplus impedes the private sector's ability to save/deleverage). To trade moralists, running a large trade surplus, especially if it is accompanied by a large fiscal surplus, is "a priori" a good thing. Therefore, countries that are running trade and fiscal surpluses do not need to make structural reforms. Until recently, this was the position of the European Commission regarding Germany. Germany's trade surplus was an indication of strength, not weakness. But following the United States' complaint, the Commission - always quick to jump on the bandwagon - has decided to "investigate" Germany's trade surplus. I am perhaps being unfair: Germany's trade surplus is above 6%, the level at which EU rules say it is too large. But suggesting that Germany might need to make reforms to bring down its trade surplus has provoked German outrage.

Indian Government Bonds Advance as Central Bank to Buy Debt - Indian government bonds due 2027 rose on optimism the central bank’s plan to buy sovereign debt will spur demand. The Reserve Bank of India will buy 80 billion rupees ($1.3 billion) of securities today, Governor Raghuram Rajan said at an unscheduled press conference on Nov. 13 after the yield on benchmark notes due in a decade climbed to a three-month high. Wholesale prices rose 7 percent in October from a year earlier, the fastest pace since February, official data showed Nov. 14. Consumer-price inflation accelerated to 10.09 percent in October from 9.84 percent in the previous month, and industrial production increased 2 percent in September, official reports showed Nov. 12. Rajan said Nov. 13 that he would carefully look at data, including on food prices and exchange-rate depreciation, before deciding whether to raise the benchmark repurchase rate for a third consecutive meeting.

Fitch: India to rely on next fiscal year's budget for oil subsidies - Fitch Ratings says that the Indian government will have to rely on its budget for the financial year ending March 2015 (FY15) to fund a part of the current financial year's oil subsidies bill. The government allocated 650 billion rupees for petroleum subsidies in FY14, of which 450 billion rupees was used to pay oil marketing companies for the subsidy gap incurred in the previous financial year. This leaves the government with 200 billion rupees to meet its share of the shortfall between the subsidised price and the market price, known as under-recovery. This is likely to be insufficient, and it is likely that the state will have to tap around 450 billion rupees from next year's budget. For the first half of the current financial year, the total under-recovery from diesel, public distribution kerosene and household liquefied petroleum gas (LPG) was 609 billion rupees, with diesel accounting for 283 billion rupees. Assuming the under-recovery in the subsequent two quarters is around 400 billion rupees each, the total FY14 under-recovery would be 1,400 billion rupees (FY13: 1,610 billion rupees).

India May Cut Spending by Nearly $10 Billion as Deficit Concerns Mount —India is considering cutting spending by nearly 600 billion rupees, or $9.64 billion, in the current financial year to rein in its ballooning fiscal deficit, two finance ministry officials said. The Indian government has committed to keeping its fiscal deficit at 4.8% of gross domestic product, but the gap in the first six months has reached 76% of its target for the financial year. The higher-than-expected deficit was the result of expenditures outpacing revenues, the officials said. The cuts under consideration amount to less than 4% of India's planned expenditure of 16.65 trillion rupees for the current fiscal year ending on March 31. But reducing spending at this time is tricky for the government because it is trying to woo voters who head to the polls within the first half of next year for the general elections. "We are working out how much the government departments can spend without affecting the work on the ground," one of the officials said. They spoke on the condition their names not be used because it is customary for spending announcements to be made first in Parliament. The government is walking the tightrope of trying to hold off threats of a downgrade in the country's credit rating, which will make borrowing much more expensive in the future, but also seeking favor with voters in the walk up to the general elections. They are expected to be held before May 2014, although a date hasn't yet been set.

Onions Bring Tears to RBI’s Rajan as Prices Surge: India Credit -- Record onion prices and the soaring cost of rice and coriander are frustrating Reserve Bank of India Governor Raghuram Rajan’s battle to curb inflation while supporting growth in Asia’s third-largest economy. The wholesale-price index for onions, a staple food for India’s 1.24 billion people, has climbed 155 percent this year, hitting an all-time high of 820.5 in September, according to the Ministry of Commerce and Industry. The index, set at 100 in 2004, has almost quadrupled in 12 months. A broader measure for food is up 19 percent in 2013, while spot prices for coriander climbed about 29 percent and basmati rice advanced 40 percent. The RBI has said that it faces an “unenviable task” of trying to address the slowest economic expansion in a decade while tackling the fastest price gains among the largest emerging markets. Local newspapers have reported scuffles at vegetable markets in eastern India and food inflation is set to dominate state elections being held through Dec. 4. High onion prices were cited for the Bharatiya Janata Party losing a 1998 vote in New Delhi. “Underlying inflation pressures are rising. The RBI has to maintain a hawkish stance and stand ready to tighten further, if needed.” Food articles, including fruits, vegetables, milk and eggs, accounted for 47 percent of the increase in the benchmark inflation gauge, the wholesale price index. The measure rose 7 percent in October from a year earlier, compared with 6.46 percent the month before and exceeding the 6.95 percent median estimate of 40 economists surveyed by Bloomberg.

Reserve Bank of India Says Rising Sour Debt Is ‘Major Challenge’ -- India’s central bank said rising bad loans held by the nation’s lenders remain “a major challenge” amid a slowdown in Asia’s third-largest economy. Nonperforming loans rose to 986 billion rupees ($15.7 billion) at the end of March from 652 billion rupees a year earlier, the Reserve Bank of India said in a report today on the country’s banking industry. The ratio of sour debt to total lending swelled to 3.6 percent from 3.1 percent. More debtors are finding it harder to pay off loans in a $1.8 trillion economy that is projected to grow in the year ending March at the weakest pace in more than a decade. Rising bad loans contributed to a 35 percent slump in State Bank of India’s net income for the quarter ended September. “Macro stress tests indicate that if the current macroeconomic conditions persist, the credit quality of commercial banks could deteriorate further,” the RBI said in its report. “In the short term, the stress on banks’ asset quality remains a major challenge.” The increase in bad loans underscores the challenge the government faces to expand the banking industry’s reach to encompass the 65 percent of Indian families that don’t have a bank account. The RBI introduced rules on Nov. 6 removing branch restrictions on overseas lenders that form local units. New banking licenses will be granted in January, Finance Minister P. Chidambaram said Nov. 15.

World Bank Issues First Rupee-Linked Bonds - The World Bank Tuesday issued $160 million in Indian rupee-linked bonds, the first under its $1 billion offshore rupee bond program designed to deepen India’s capital markets, and said it’s also developing a substantial domestic bond program. The World Bank’s International Finance Corporation aims to help reduce major economic vulnerabilities, including foreign exchange exposures and capital flow volatility, by cultivating emerging market debt markets. That’s particularly important as the U.S. Federal Reserve begins an eventual exit from its easy money policies, which will force international investor portfolio reassessments and revive destabilizing capital flows between economies. Demand for Tuesday’s issuance was more than double the offering amount, a healthy signal for the rest of the IFC’s $1 billion offshore debt program for India. Although the bond is offered and settled in U.S. dollars, the interest rate payments are tied to the rupee exchange rate. The IFC will then invest the cash raised by the issuance into India’s private sector. “This establishes a significant benchmark-sized transaction,” said Monish Mahurkar, who oversees the IFC’s capital programs across the globe. “It definitely has the potential for creating a vibrant, liquid market across the credit curve,” he said.

India Confronts the Politics of the Toilet - On Tuesday, the United Nations marked its inaugural World Toilet Day, designed to draw attention to the fact that more than one-sixth of humanity still lacks indoor sanitation, and that the world needs new ideas and technologies to deal with one of the most basic human needs. If there is any one country toward which such initiatives must be aimed, then that is India, where a combination of ignorance, apathy, embarrassment, deeply ingrained cultural codes, ineffective policy, huge numbers and very different urban and rural sanitation challenges have meant that more than half of the population still doesn't have access to a proper toilet. This troubling state of affairs has far-reaching consequences, for instance, in the realms of gender rights and freedoms and education -- and the perpetuation of the terrible Indian practice of manual scavenging. But it also creates a challenge that immediately compounds itself several times over: untreated waste usually remains within range of further human contact, and leads to a wide range of health issues from diarrhea to the contamination of water sources, even entire rivers.

Europeans Fault American Safety Effort in Bangladesh - Tensions broke into the open on Monday involving two large groups of retailers — one overwhelmingly American, the other dominated by Europeans — that have formed to improve factory safety in Bangladesh. An official from the European group voiced concern that the American retailers would piggyback at no cost on the efforts of the Europeans — which includes H&M, Carrefour and more than 100 other retailers — in financing safety upgrades at hundreds of factories.  The members of the European-led group, the Accord on Fire and Building Safety in Bangladesh, have made binding commitments to help pay for fire safety measures and building upgrades when shortcomings in safety are found in the more than 1,600 garment factories its members use in Bangladesh. While the American-dominated group, which has 26 members, including Walmart Stores, Target and Gap, has stopped short of making such a binding commitment, it has pledged to provide loans for the improvements.

Venezuela's Congress set to approve decree powers for Maduro - Venezuela's parliament looked set on Tuesday to grant President Nicolas Maduro year-long decree powers he says are needed to regulate the economy and stamp out corruption but adversaries view as a thinly veiled power grab. The National Assembly was expected to give final approval to the controversial Enabling Law at its afternoon session after Maduro garnered the two-thirds, or 99 votes, needed during a preliminary debate last week. Though winning the powers would hand him a political victory in the run-up to December 8 municipal elections, he still faces a severely distorted economy with embarrassing product shortages and inflation surging to nearly 55 percent. "Down with prices, down with speculators, down with conspiracies!" Maduro told cheering supporters in a speech late on Monday, explaining his plans to confound the "bourgeoisie" in the same anti-capitalist rhetoric as his predecessor. Maduro, 50, who is staking his rule on preserving the late Hugo Chavez's socialist legacy, says he has already planned the first two laws he would decree - maybe as soon as Wednesday. One is intended to limit businesses' profit margins to 15-30 percent as part of a state "economic offensive" against price-gouging. Another would create a new state body to oversee dollar sales by Venezuela's currency-control regime.

Vital Signs: The World’s Glass Looks Half Empty - Company executives worldwide are cautious in their outlook—and hiring plans–for the next 12 months. According to a survey of 11,000 companies done by data provider Markit, a net 33% of companies expect their business activity levels will rise in the next 12 months. That’s up from 30% thinking that in June but still far below the levels seen earlier in the recovery. The global results suggest “weak economic growth,” the report said. According to Markit, optimism is improving among developed economies while emerging markets still show low levels of confidence. Subdued expectations about future activity have led to restrained hiring plans. On net, only 14% of companies worldwide expect to add employees. For the U.S. alone, a net 41% of companies expect better activity, but only 19% plan to expand staff in the next year. “Companies continue to fret about further disruptions from unresolved fiscal issues, and are still particularly cautious about committing to hiring in this uncertain environment,” says Chris Williamson, Markit’s chief economist. Markit conducts its global survey every February, June and October. The countries covered are the US, Japan, Germany, the UK, France, Italy, Spain, Ireland, Austria, the Netherlands, Greece, the Czech Republic, Poland, Brazil, Russia, India and China.

OECD revises down global economic growth forecasts - Global growth for 2013 and 2014 has been downgraded "significantly" after weak prospects in emerging markets, says the Organisation for Economic Co-operation and Development. Global GDP this year is now expected to grow by 2.7%, down from 3.1% forecast in May. But it said global economic growth would speed up by 2015. However, the OECD said the UK would grow by 1.4% this year, an upgrade from its forecast in May of 0.8%.UK growth would accelerate to 2.4% in 2014, above economists' expectations of 2.2%, it said. It said signs of improvement were "particularly apparent" in the UK, and monetary policy was likely to remain "appropriate" for some time. The OECD also revised down its global growth forecast for 2014, which it now estimates at 3.6%. In May, it had forecast 4%. In a first estimate for 2015, it predicts growth of 3.9%. Key risks The OECD said "weakness" in the banking system was a "major drag" on growth in the euro area. The "potentially catastrophic crisis" over the debt ceiling in the US and "strong" market reaction to its suggestion of tapering had also unsettled confidence, it said.

OECD Cuts Global Growth Forecasts - Global growth is expected to lag this year and next, but for the first time in a long time, it's not all Europe's fault. That's the view of a leading international economic body, which said Tuesday that a slowdown in emerging economies and the potential for another U.S. budget crisis are the main sources of concern for the global economy. In its half-yearly forecast, the Organization for Economic Cooperation and Development lowered its forecast for global growth this year to 2.7 percent and 3.6 percent for next. In May, it had predicted 3.1 percent and 4 percent growth, respectively. "We can't get (the world economy) out of first gear," said Angel Gurria, the secretary-general of the organization, a think tank for the world's most developed economies. While it has no policymaking power, the OECD's forecasts are closely watched and its recommendations are influential in government circles. Just as the economy of the 17-country eurozone is emerging from its longest-ever recession brought on by a debt crisis, other economies are beginning to slow. Emerging markets, which have helped shore up global growth in recent years, are beginning to lag, partially over fears that a pickup in the U.S. economy will spell the end of cheap credit. "The BRIICS (Brazil, Russia, India, Indonesia, China, South Africa) have been big machines of growth, they were pulling the world, and they are decelerating," said Gurria. Among those economies, Indonesia, for instance, is projected to grow 5.2 percent this year and 5.6 percent next. In May, the OECD was predicting at least 6 percent growth for both years. In India, the growth projection for this year has slid from 5.7 percent to 3.4 percent.

OECD warns of Eurozone deflation risks; suggests ECB consider non-conventional measures - As a follow-up to an earlier discussion on rising deflationary risks in the Eurozone (here), it seems that the OECD is growing concerned about this issue as well. The latest economic report is openly suggesting that the ECB consider non-conventional policy measures (such as LTRO or securities purchases). Below is a good summary of OECD's assessment of the situation in the euro area. OECD: -The ECB should consider further policy measures if deflationary risks become more serious. Current account adjustment is advancing in the periphery but price adjustment alone will not work given the impossibility of reconciling deflation, needed to regain competitiveness, and achieving nominal growth to support debt sustainability. Much less adjustment, if any, is taking place in surplus countries. More durable and symmetric adjustment is needed through reforms to labour and product markets, including liberalisation of services in Germany that would strengthen and rebalance demand. Weakness in the banking system remains a major drag on growth in the euro area. The Asset Quality Review and stress tests in 2014 must be implemented rigorously to restore the transmission of monetary policy, strengthen financial-system stability and get credit moving again to enhance the effectiveness of structural reforms and support growth. Failure to use this opportunity could impair confidence in European banks and sovereigns. OECD's chief economist, Pier Carlo Padoan, said that the Eurozone deflationary risks "may be slowly increasing" and "the ECB must be very careful and be prepared to use even non-conventional measures to beat any risk of deflation becoming permanent."

Why Europe needs to try unconventional policy - FT.com: Last week’s dreadful data for the eurozone tell us that a long period of low economic growth and excessively low inflation lies ahead. France is falling back into recession; the signs of recovery in Italy have disappeared – again; even Germany has lost momentum. What should the European Central Bank do now? It could, and probably should, cut interest rates again. The eurozone needs all the help it can get, but an additional cut will probably not be sufficient. We are in a situation of diminishing marginal returns. A cut in the main interest rate, together with policies to supply unlimited liquidity at those rates, would probably nudge forward rates down further. But if Mario Draghi, the ECB president, wants to make a real difference, he should contemplate quantitative easing. There are three reasons why he should now look beyond the conventional. The first is, of course, the economic outlook, and the associated downside risk on inflation. When German commentators such as Hans-Werner Sinn criticise the ECB’s decision to cut rates they never discuss the decision in connection with the inflation target – which should be the primary benchmark. The current inflation rate of 0.7 per cent is below target, and forecasts tell us that it will remain so for at least two years. The second reason is a lack of further policy tools after the next rate cut. The main ECB interest rate is now 0.25 per cent. The deposit rate – the one levied on commercial bank deposits at the ECB – is zero. The central bank could cut its main rate one more time and impose a small negative deposit rate. At that point, the ECB will have run out of policies. That would be an uncomfortable position. The third set of reasons relates to Mr Draghi’s lender-of-last-resort promise – the outright monetary transactions he launched last year. The OMT has no doubt calmed down markets over the past year, but it is not a monetary policy instrument. It is an insurance policy. Its purpose is to reassure investors by reducing the likelihood of a country’s being forced from the eurozone. But it is still only a backstop. 

France Tax Revenues €5.5 Billion Lower than Expected; Poll Shows 92% Do Not Believe Hollande's Tax Promises -- France did not manage to get as much tax revenue as expected by the government. Total revenues were €5.5 billion less than expected,  Moreover, if you compare it to the initial forecast, it's €11 billion less than expected! And of course expenses have increased €3 billion. Via translation, Budget Minister Admits Revenue Shortfall of €5.5 BillionThe Minister for the Budget Bernard Cazeneuve admitted Sunday that the revenue of the State in 2013 would be lower than expected, the order of € 5.5 billion, due to the poor economy, he said."According to our calculations, there is a shift to VAT of about one billion, and corporate tax of about four billion," . The income tax shortfall was around 500 million euros. Translation from Le Figaro shows 3 billion in additional spending for 2013. In these times of fiscal discontent and protests by Brussels, the expected improvement of public accounts in France in 2014 and 2015, the government had to be reassuring about the traditional collective fiscal year-end synopsis presented on Wednesday.Forecasts deemed "plausible" by the High Council of Public Finance, however warned of "a significant gap" between the structural deficit in 2013 (excluding cyclical effects) to 2.6% of GDP, higher than the 1.6% estimate anticipated at the end of 2012. Overspending give rise to 3.2 billion in new funding, including $ 2.1 billion for the general budget and the balance for the EU budget.

Bundesbank says Italian and Spanish banks still hooked on home state debt - Italian banks have increased their holdings of Italian public debt from €240bn to €415bn since November 2011 (+ 73pc). Spanish banks have raised their holdings of Spanish debt €166bn to €299. (+81pc). Ditto Irish banks, up 60pc; and Portuguese banks, up 51pc. The EU summit pledge made in June 2012 to end this dangerous and incestuous linkage has come to little. As the Buba report said testily, "the mutual dependency of the banks and the state sector has grown most in those countries where the links were already particularly high at the start." It is not a crisis as such. It is a chronic malaise. There is still an acute credit crunch for small business in Italy and Spain. The banks are hunkering down and living off their coupons from the state, even as the rest of the economy screams for credit. Their appetite for sovereign debt – boosted first by the ECB's €1 trillion long-term loans (LTRO), then by Mario Draghi's debt backstop (OMT) — is touted as a sign of recovery, but it is equally a sign of deformed EU policy. Note too that these banks are buying the bonds of sovereign states where the debt trajectory is rocketing upwards, an effect made worse by Euroland's slide towards deflation. Italy's public debt has jumped from 119pc to 133pc of GDP since 2010, and average maturity has been sliding for two years as the treasury relies more heavily on short-term debt backed by the ECB. Spain's debt has risen from 62pc to 94pc. The longer the banks keep betting on this state debt, the greater the risk.

Young and Educated in Europe, but Desperate for Jobs - “We’re in a situation that is beyond our control,” Ms. Méndez said. “But that doesn’t stop the feelings of guilt. On the bad days, it’s really hard to get out of bed. I ask myself, ‘What did I do wrong?' ”  The question is being asked by millions of young Europeans. Five years after the economic crisis struck the Continent, youth unemployment has climbed to staggering levels in many countries: in September, 56 percent in Spain for those 24 and younger, 57 percent in Greece, 40 percent in Italy, 37 percent in Portugal and 28 percent in Ireland. For people 25 to 30, the rates are half to two-thirds as high and rising.  Those are Great Depression-like rates of unemployment, and there is no sign that European economies, still barely emerging from recession, are about to generate the jobs necessary to bring those Europeans into the work force soon, perhaps in their lifetimes.  Dozens of interviews with young people around the Continent reveal a creeping realization that the European dream their parents enjoyed is out of reach. It is not that Europe will never recover, but that the era of recession and austerity has persisted for so long that new growth, when it comes, will be enjoyed by the next generation, leaving this one out.

Youth Unemployment Could Tear Europe Apart Warns World Economic Forum -  Crime rates will soar, economies will stagnate and Europe's social fabric will deteriorate if policymakers do not act to address youth unemployment, World Economic Forum report warns. A lost generation of jobless youth in the eurozone could tear the single currency apart if nothing is done to address chronic levels of unemployment, the World Economic Forum (WEF) has warned. “There is a growing consensus on the fact that unless we address chronic joblessness we will see an escalation in social unrest,” said S. D. Shibulal , chief executive oof Infosys, who contributed to the WEF's Global Agenda Report. “People, particularly the youth, need to be productively employed, or we will witness rising crime rates, stagnating economies and the deterioration of our social fabric,” he added. John Lipsky, who served as acting managing director of the International Monetary Fund during the height of the Greek crisis in 2011, said the problem was likely to get worse before it got better. He told the Telegraph: "Right now it’s hard to see any decisive move back the other way at a time in which everyone feels their circumstances are under threat and are worried about their economic future."

Chronicles of a European Winter: “There is a Difference Between Saying Greeks Should Live With Less and Saying Greeks Should Live With Nothing - from naked capitalism - This is the first segment of an ongoing project, Eurowinter, to record the human toll of austerity policies in Europe. It focuses on the suffering Greece, as told by Greeks themselves. The pace might strike some as languid, but if you stick with it, it makes sense. The filmmakers are acting as witnesses, giving their subjects, who are mainly men still trying to retain a sense of dignity, the space to describe how the devastation has affected them. The result is an elegy in the form of a documentary.

Troika Runs Into Greek Brick Wall -- Tough talks between Greece and its international lenders slugged on as the two sides on Nov. 19 remained far apart on key issues including how to close a looming budget gap – and how big it is – putting a damper on Finance Minister Yannis Stournaras’ always-optimistic predictions they were close to a deal.  Prime Minister Antonis Samaras must submit the 2014 budget to Parliament on Nov. 21 and wants an agreement with the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) before then so that they will release a pending one billion euro ($1.37 billion) installment.  The schism though is critical because unless they can come to terms on closing a budget hope of as much as 2.9 billion euros – Stournaras said it’s only 500 million but a compromise of 1.3 billion is on the table – Samaras likely would have to renege on his promise not to impose any more harsh austerity measures that have worsened a deep recession. Reports were that Greece was digging in its heels with Samaras fearful of more social unrest if he breaks another pledge.

Greece resumes talks with European lenders amid anger over austerity - A sense of déjà vu hung over Greece as the country resumed talks on Monday with mission chiefs from the international bodies that have kept its floundering economy afloat. Almost four years after Athens's debt crisis exploded – forcing EU mandarins to rewrite the book of fiscal rules – mistrust, anger and thinly disguised panic have returned to strain Greece's relations with its lenders at the EU, European Central Bank (ECB) and International Monetary Fund (IMF). "They are pressing us to adopt policies that are crazy," confided a senior government official as the finance minister, Yannis Stournaras, relaunched "intensive negotiations" with creditors over a looming budget black hole. "If we are forced to implement so much as half a measure more there will be a revolution in this country. Are they blind?" In Brussels, another spokesman said: "It's bad. It's as if we are back in 2010 again." Prime minister Antonis Samaras's fragile coalition now faces what insiders are calling its toughest month since assuming power in June 2012. With a wafer-thin majority, and an increasingly hostile anti-austerity opposition, the government must pass an array of highly controversial bills, starting with next year's budget, to be presented to parliament on Thursday. Votes on a new property tax – which will see farmers being faced with a levy on landholdings for the first time – and on lifting a ban on home foreclosures are also lined up. Visiting inspectors say abolishing the repossessions amnesty, which expires on 31 December, is crucial to rejuvenating the cash flow of banks and the moribund Greek property market.

Spain Household Income Drops 10% to 2005 Level - Those touting the "recovery" in Spain need to step back and ponder this headline story translated from Libre Mercado: household income falls 10% and back to 2005 levels.  Interim results from the Living Conditions Survey released Wednesday by the National Statistics Institute (INE) show that the annual average net income per household in Spain stood at 23,123 euros in 2012, a decrease of 3.5% compared the previous year. Meanwhile, the average per capita income reached 9,098 euros, 2.4% lower than in the previous year.The average income of Spanish households has fallen by 9.5% during the crisis, which translates to about 2,400 euros less per year between 2008 and 2012, as shown in the following table. According to the survey, 16.9% of Spanish households had "great difficulty" making ends meet in 2013, the highest percentage recorded throughout the period of crisis. In 2012, households that expressed much difficulty to reach end of the month was 13.5%, ie 3.4 points lower than those found in this situation this year. In 2007, households that arrived at the end month with great difficulty were 10.7%, which rose in 2008 (12.8%) and 2009 (14.8%) and decreased in 2010 (14.2%) and 2011 (10.6%) to return to pick up the record level reached 16.9% this year.

Eurozone Flash PMI Shows Slight Growth, France Back in Contraction - The rosy eurozone growth estimates of a few months ago have bitten the dust already with the possible exception of Germany.  The Markit Flash Eurozone PMI signals slowing growth for second successive month in November, with France leading the way.

• Flash Eurozone PMI Composite Output Index at 51.5 (51.9 in October). Three-month low.
• Flash Eurozone Services PMI Activity Index at 50.9 (51.6 in October). Three-month low.
• Flash Eurozone Manufacturing PMI at 51.5 (51.3 in October). 29-month high.
• Flash Eurozone Manufacturing PMI Output Index at 52.8 (52.9 in October). Two-month low.

At 51.5, down from 51.9 in October, the flash estimate of the Markit Eurozone PMI ® Composite Output Index remained above the 50.0 no-change level for a fifth successive month in November, but signalled a modest easing in the rate of expansion for the second month running. Output growth in manufacturing stabilised at a robust rate and remained stronger than service sector expansion, which eased to the weakest since August. Trends were also varied by country. The composite PMI covering both manufacturing and services in Germany rose to its highest since January, signalling increasingly robust growth and a seventh successive monthly expansion. In contrast, the comparable index for France fell to its lowest since June, signalling a renewed decline after just two months of fractional growth. Elsewhere across the region, output rose for the fourth month in a row, but the rate of increase was the weakest seen over that period.

Hard Hearts, Soft Heads - Paul Krugman - What set me off this morning was an interview by Jens Weidmann, head of the Bundesbank: “We have lowered interest rates and are offering banks unlimited liquidity. But there are no easy and quick ways out of this crisis,” he told German weekly Die Zeit in an interview to be published on Thursday. “The money printer is definitely not the way to solve it. It will still take years until the causes of the crisis are eliminated.” What could possibly justify this remark, other than sheer faith in the redemptive power of (other peoples’) pain for its own sake? Let’s think about the current problems of the euro are in terms of perfectly ordinary, textbook macroeconomics. First, take the aggregate view. The euro area as a whole has record high unemployment and record low inflation. By any normal standards, this says that monetary policy is too tight. Yes, there’s a problem getting traction, because the ECB is close to the zero lower bound — but that’s a problem of implementation. On what possible grounds could you argue that printing money is not at least a partial solution to the crisis? Next, look at the internal adjustment problem. The big capital flows from north to south during europhoria have left Spain etc. overvalued , and in need of “internal devaluation”. But there is now completely overwhelming evidence for downward nominal wage rigidity: it’s much easier to get Spanish wages relative to German wages in line through rising German wages than falling Spanish wages. Germany’s own internal devaluation from 2001 to 2007 was accomplished through inflation abroad, not deflation at home. But a too-low overall euro inflation rate pushes the burden onto deflation in debtor countries. Again, on what possible grounds could you argue that a somewhat higher inflation rate — remember, it’s now running at just 0.8 percent — would do nothing to help solve the crisis? Finally, to the extent that debt levels are a problem, low inflation makes this problem much worse, for all the usual reasons.

Ukraine drops EU plans and looks to Russia - Ukraine abruptly abandoned a historic new alliance with its Western neighbors Thursday, halting plans for an imminent trade pact with the European Union and saying it would instead revive talks with Russia. EU officials, who had been preparing to sign the long-negotiated deal at the end of next week, said President Viktor Yanukovich cited fears of losing massive trade with Russia when he told an EU envoy this week that he could not agree terms. Yanukovich's prime minister issued the dramatic order to suspend the process in the interests of "national security" and renew "active dialogue" with Moscow. Russia, sensing betrayal in the westward pivot of its most populous former Soviet satellite, had threatened retaliation, raising fears it could cut energy supplies in new "gas wars." The Kremlin welcomed the news of Ukraine's change of heart.

Either AEI Has Forgetten Basic Statistics or They Are Advocating For More Collective Bargaining - Admittedly, I don’t read the American Enterprise Institute’s blog very much. Today, however, someone alerted me that they published this post suggesting that minimum wage laws are at least partially to blame for Europe’s employment woes. In it, Dr. Mark Perry presents a table of countries in Western Europe, their country-wide statutory minimum wage, if they have one, and their respective “jobless rates.”¹ He then asserts:“[M]inimum wage proponents… argue that other countries have minimum wage laws apparently without any adverse consequences on employment levels or jobless rates. The empirical evidence from Western Europe seems to suggest otherwise. Labor markets in the group of countries with no minimum wage laws are much healthier and doing much better than the group of countries with minimum wage legislation, measured by the jobless rates in Western Europe.” To paraphrase, “Look: minimum wage, higher joblessness; no minimum wage, lower joblessness… just saying.” Although this argument has something of a timeless quality to it (pdf), it’s wrong, tissue-paper thin, and not something we would expect from any serious researcher.

How To Fine A Fine Blogger And Shoot Yourself In The Foot - Our good friend Mike ‘Mish’ Shedlock was apparently fined €8000 by the Authorité Français de Marchés (AFM, French financial markets authority) for quoting a French blogger on his own blog on August 15 2011; the topic involved was the degree of leverage of big French banks, in particular Société Générale (SocGen). The French blogger, retired finance professor Jean-Pierre Chevallier (who was fined €10,000), had posted numbers a day earlier on claiming that SocGen’s leverage was much higher than the bank’s own numbers showed, while its Tier ratio was much lower (2% vs 9.3%).  AFM states that Mish should have checked those numbers, or rather, he should have published, if anything, SocGen’s own numbers, exclusively. Which I guess is because asking questions about banks’ own statements is not desirable. It can’t very well be because banks’ financial statements are failsafe and foolproof, as became evident around the same time. Belgian-French bank Dexia collapsed in October 2011, after acing the European Banking Authority’s stress tests that summer (12th best among 91 banks). The AFM itself had finished an investigation and threatened to put Dexia under supervision, but never did. If Dexia showed one thing, it was that banks’ financial statements were, to put it mildly, not necessarily reliable. And it’s not as if Chevallier had invented data, he simply took SocGen’s own statement and used a different accounting measure to arrive at his different numbers:

France May Slip Back Into Recession -  Hopes that the euro zone could be emerging from years of torpor suffered another setback on Thursday when an indicator of economic activity in the region slipped unexpectedly and suggested that France could be sliding back into recession.  The indicator, a survey of purchasing managers published by the research firm Markit, fell to 51.5 in November from 51.9 in October, according to preliminary data, as the decline in France offset further improvement in Germany. Economists had expected the composite index for the euro zone, which tracks both manufacturing and service sectors, to rise to 52, according to Barclays.  A reading above 50 is considered a sign that the euro zone economy is growing. But the index for France fell to 48.5 in November from 50.5 in October, the latest sign of shrinkage in the French economy, the second-largest in the euro zone behind Germany’s. It would be difficult for the euro zone to grow with any vigor if France were in recession. Over all, the survey data suggested that, even though the euro zone as a whole pulled out of recession in the second quarter of this year, the recovery lacks momentum and is vulnerable to shocks, such as a sag in demand from China and other emerging markets.

Italy, Spain Warned on Budget - After Italy rebuffed warnings about its budget, euro-area finance ministers late Friday agreed to give the country additional opportunities to show it can make savings and bolster revenue. The tensions over Italy’s budget grew after Enrico Letta, the country’s prime minister, warned on Friday that “ayatollahs” in Europe were seeking to promote austerity even though it was killing Italy’s chances of recovery. The meeting here came a week after Olli Rehn, the European Union’s commissioner for economic and monetary affairs, warned that Italy and Spain faced debt and deficit problems under their current spending plans for 2014. The main topic on the agenda was whether the verdicts by Mr. Rehn, who has gained authority to review national spending plans, should be followed.  On Friday, Mr. Rehn dryly rebutted Mr. Letta’s “ayatollahs” comment, rejecting any suggestion that he was too tough on Italy. “I trust Mr. Letta meant the negotiations on the Iranian nuclear program,” Mr. Rehn told a Finnish broadcaster. “It is very important that all E.U. member states, including Italy, aim at the stability of their public finances.”

Italy's Quick Fix - Instead of solving the underlying problem of an unsustainable growth trajectory, the Italian government continues to be preoccupied with quick-fix measures to chase after some official fiscal target, which have become the be-all and end-all of economic policy. The Italian government yesterday agreed on a privatisation programme, which should net some €10-12bn in 2014 (it would reduce debt-to-GDP from a number of above 130% of GDP by some 0.6pp to a number still above 130%). The sales include a 3% stake in Eni, the energy company, plus stakes in seven companies in total. In two of them, the government would be selling the controlling interest. Politically, the announcement came under immediate attack by Matteo Renzi, the mayor of Florence and the presumptive next leader of the PD. It said the sale comes at the wrong time, when the economy is still weak, and when the government is not in a position to attract good prices for its holdings, as this fire-sale is heavily tilted in favour of the buyers. The benefit this sale would bring in the short term, comes at the expense of the medium-term, he said.Corriere della Sera writes in its front page article that Enrico Letta wanted to conquer Brussels with this manoeuvre after the European Commission raised doubts that Italy may not make sufficient progress on debt reduction in 2014.

The Emerald Isle Remains in Chains - Yanis Varoufakis - Contrary to conventional wisdom, Ireland was never bailed out and, moreover, it is nowhere near escaping the debt prison to which it was confined by its, supposed, ‘bailout’. But now the newspapers and the electronic media are full of the ‘good news’ that this ‘fiscal consolidation’ program has ‘succeeded’. That Ireland has returned to the markets. That we have the first, tangible proof that the bailout worked. Alas, a far as I can see, all that has happened is that, after five years of a continuous comedy of errors, Europe’s leadership has now decided to declare victory, with Ireland as Exhibit A that the combination of bailout loans and severe austerity work. And if this required being economical with the truth, so be it. For those who do not wish to be economical with the truth, let’s look at some numbers:

• Number of people employed: Reduced by 12.8% since January 2008
• Unemployed persons: Up from 107,000 in January 2008 to 296,300 today
• Annualised domestic growth rate: -1.2%
• Net emigration: 33 thousand annually
• Government deficit as a proportion of GDP: 7.3%
• Public Debt: 121% of GDP in 2013, up from 91.1% in 2010 and 105% in 2011
• Household debt: 200% of GDP
• Value of assets underpinning household debt: -56% since the crisis began
• Mortgages in arrears for more than six months: 17% of all mortgages

Bleak outlook for graduates: Wages down 12% and debt up 60% since financial crash - Britain’s ‘lost generation’ of graduates are leaving university with around 60 per cent more debt than their pre-financial crash counterparts, a new study has found. Recent graduates are also earning 12 per cent less than graduates at the same stage in their careers before the global financial meltdown of 2007-08, according to the Financial Times (FT). The bleak outlook of rising debt and lower wages follows the coalition government’s decision to triple tuition fees to a maximum of £9,000 a year and at a time when a degree no longer guarantees graduates a decent job. The analysis of data from the Student Loans Company shows that every cohort of graduates since the crash is ‘earning less than the one before’, according to the FT.

Did An Obscure IMF Document Start A Global Bail-In Revolution? - An obscure International Monetary Fund "Staff Discussion Note" may have already started a "Bail-In" financial revolution that could transform the global investment world. In this quite remarkable document, the staff discusses a world where risks to the global financial system have not gone away – but are worse than ever. As candidly discussed, the "SIFI" (systemically important financial institution) problem has not been improving, but instead has been getting worse than ever – and there doesn't appear to be any solution under existing contract law and bankruptcy law. More risk than ever is concentrated in fewer financial institutions, while there is no way under existing law to unwind a failure of one of these institutions without risking triggering global financial chaos. Moreover, there is a deadly feedback loop between these "too-big-to-fail" institutions and sovereign governments. That is, as the IMF staff discusses, the bailing out of these massive institutions can bankrupt sovereign governments, and sovereign governments going bankrupt can wipe out the "too-big-to-fail" institutions. So the IMF staff has come up with an audacious plan for how the globe can emerge from this seemingly impossible situation. The key word is "insurance". The proposal is to take selected classes of investments, and retroactively decide that these assets aren't really assets at all. Indeed, the owners of these assets have – without realizing they've done it – agreed to provide insurance for the global financial system. So if a major crisis arises, the global financial system merely goes to these unknowing "insurance" providers and helps itself to their assets effectively, and the crisis is dealt with. It's a miracle solution!